Category Archives: Lead Plaintiff/Lead Counsel

Professor Michael Perino, author of the leading treatise on the PSLRA, has published an empirical study of attorneys’ fees in securities class actions. The paper is entitled “Markets and Monitors: The Impact of Competition and Experience on Attorneys’ Fees in Securities Class Actions.” Perino finds that the participation of a public pension fund as a lead plaintiff is correlated with lower attorneys’ fees requests and awards. By contrast, there is no statistically significant correlation associated with the participation of a union pension fund, the other type of institutional investor examined by the study. Court auctions of the lead counsel role result in significantly lower attorneys’ fees. In addition, the participation of repeat players (either courts that are more experienced handling securities class actions or institutional objectors) are correlated with lower attorneys’ fees.

Quote of note: “These findings suggest four basic policy responses. First, because the fee arrangements that public pension funds negotiate appear to be the product of at least some competitive bargaining, courts should look to those arrangements as guidelines for awarding fees in cases without institutional investors. Second, to obtain the benefits of judicial experience in fee awards, courts with comparatively little experience in handling securities class actions should look to the fees that more experienced courts award, a process that will be facilitated by making award decisions (which are predominantly unreported) more widely available. Third, policy should continue to encourage institutions, most particularly public pension funds, to serve as lead plaintiffs and to encourage institutions to monitor fee requests and object to those that are excessive. Finally, courts should continue to experiment with auctioning the role of lead counsel in those cases in which the available lead plaintiffs do not appear to have used competition or otherwise to have engaged in arm’s length bargaining to select class counsel.”

The Denver Post has an article on the (in)famous Footnote 4 from the Molson Coors lead plaintiff decision.

Under the PSLRA, the lead plaintiff in a securities class action is presumptively the party with the largest financial interest in the relief sought by the class (i.e., the movant who alleges the most potential damages). Although the statute expressly refers to the selection of a “person or group of persons” to fill the lead plaintiff role, some courts have expressed hostility to proposed lead plaintiff groups that are merely aggregations of unrelated investors.

In an unusual decision in In re Pfizer Inc. Sec. Litig., 2005 WL 2759850 (S.D.N.Y. Oct. 21, 2005), the court took this a step further. First, the court rejected the various proposed groups of investors, finding that they had been “artificially grouped by [their] attorneys.” Second, the court declined to appoint the investor with the largest claimed losses because “inaccuracies in its damages calculations” called into question its reliability. Finally, the court selected as lead plaintiff an investor whose counsel had withdrawn its motion for appointment as lead plaintiff (at least conditionally) in favor of another movant.

Quote of note: “Several of the putative plaintiffs are aggregated into artificial ‘groups.’ Nothing before the Court indicates that this aggregation is anything other than an attempt to create the highest possible ‘financial interest’ figure under the PSLRA and I reject it.”

As any law student quickly learns, a lot of interesting points can be found in the footnotes of judicial opinions. “Footnote 4” in the Molson Coors Brewing Company lead plaintiff decision, authored by Judge Kent Jordan (D. Del.), is already lighting up the blogosphere and citations are sure to follow.

In his decision – In re Molson Coors Brewing Co. Sec. Litig., 2005 WL 3271488 (D.Del. December 2, 2005) – Judge Jordan describes his task as deciding “which of the plaintiffs’ law firms will win the money race.” The judge’s accompanying footnote states that he means “no disrespect” to the plaintiffs’ firms competing to be named lead counsel, but that the “‘pick me’ urgency seems far more likely to come from the lawyers than the parties because, in the real world, people are not so eager to undertake work that someone else will do for them.” He goes on to state that the proposed lead plaintiffs’ natural inclination to let someone else “shoulder the burden of supervising the litigation” gets “overridden because securities lawyers are involved, lawyers who are vying for the chance to take the laboring oar in litigation and the monetary rewards that go with it.” The judge concludes that PSLRA’s lead plaintiff provisions may be ineffective because “lawyers are still very much in the driver’s seat.”

Both The PSLRA Nugget and Securities Litigation Watch have posts on the decision and a copy of the memorandum order can be found here.

Under the PSLRA, the presumptive lead plaintiff in a securities class action is the party with the largest financial interest in the relief sought by the class. Courts have struggled, however, with how to apply this presumption when faced with proposed lead plaintiff groups. In In re Flight Safety Technologies, Inc. Sec. Litig., 2005 WL 2663033 (D. Conn. Oct. 19, 2005), two competing plaintiffs’ groups joined forces and sought to have eight investors named as co-lead plaintiffs. The court found that “appointing eight unrelated and unfamiliar plaintiffs as co-lead plaintiffs, when no preexisting relationship is evident, would be counter to both the terms and the spirit of the PSLRA.” Instead, the court appointed one individual investor (who had alleged the most potential damages) and one institutional investor (noting that Congress had expressed a preference for institutional investors).

Quote of note: “In the briefs submitted prior to the date on which the pending joint motion for appointment was filed, the Rogers Group and the Ozkam Group spent considerable time and effort criticizing the ability of the members of the other group to serve as lead plaintiffs in this action. As noted previously, those groups have since abandoned their concerns, however, and combined with those previously deemed inadequate in order to pursue their remedy. This gives new meaning to Lord Palmerston’s quotation: ‘We have no eternal allies and we have no perpetual enemies. Our interests are eternal and perpetual, and these interests it is our duty to follow.'”

The Rocky Mountain News has an article on the $50 million settlement of the shareholder class action related to the merger of Qwest Communications and U.S. West. The Association of U.S. West Retirees challenged the proposed $15 million attorneys’ fees award (30% of the settlement), arguing that the case and settlement stunk “like a three-day-old unrefrigerated dead fish.” The district court judge, however, rejected the challenge. At the hearing, the court noted that there “weren’t any other lawyers in the United States that took the gamble that these people did – not one other law firm anywhere.”

The Wall Street Journal has extensive coverage (subscrip. req’d) this week of an unusual turn of events in the class action pending against KPMG in the D. of Ark. The case was filed by the law firm of Bernstein Litowitz and alleges fraud in connection with the sale of certain tax shelters. In a recent motion, Bernstein Litowitz claims that another plaintiffs’ firm, Milberg Weiss, is “colluding” with KPMG to put together a new suit with a “pre-packaged settlement … presumably on terms less favorable to the class.”

The motion describes the situation as a “reverse auction,” with KPMG attempting to negotiate a weak settlement that will preclude other settlements. Bernstein Litowitz is seeking to halt any settlement negotitations, be designated interim class counsel, and prevent Milberg Weiss from filing its own suit. In today’s follow-up article, the paper reports that Bernstein Litowitz apparently has obtained confirmation that the talks between KPMG and Milberg Weiss are ongoing.

The PSLRA states that securities class action plaintiffs, within 20 days of filing a complaint, “shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class.” After the publication of this notice, it is not uncommon for other plaintiffs’ firms (who have not filed complaints) to publish similar notices in the hopes of attracting a client who can be put forward as a lead plaintiff candidate. The initial plaintiffs’ firms do not usually react to this practice in public, but that may be changing. In a recent case, the firms who filed the first complaint have issued a press release “cautioning investors” about these notices and stating that because they conducted an investigation prior to filing the complaint “they are in a superior position to answer questions about the claims alleged.” A link to the press release can be found here.

The Star-Ledger (N.J.) ran an article this week on the named plaintiff in one of the securities class actions filed against Able Laboratories in the D. of N.J. According to the article, the small, individual investor was unaware of the exact problems at the company until he was cold-called by a plaintiffs’ firm and asked to participate in the suit. Thanks to Securities Litigation Watch for the link.

Quote of note: “‘The law firm called me,’ said Lodish, 31, who bought the shares on the advice of an investment counselor. ‘I know the stock went up and went down. For me to guess is speculative if it was the right thing for it to go up or the right thing for it to go down.'”