Guindani v. Couder et al

Filing 23

ORDER by Judge Edward M. Chen Denying 10 Aguilar's Motion to Consolidate; Granting 9 J&W's Motion for Appointment as Lead Counsel; and Denying L&K's Motion for Appointment as Lead Counsel. (emcsec, COURT STAFF) (Filed on 9/14/2011)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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IN RE OCLARO, INC. DERIVATIVE
LITIGATION.

Lead Case No. C-11-3176 EMC

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ORDER DENYING AGUILAR’S
MOTION TO CONSOLIDATE;
GRANTING J&W’S MOTION FOR
APPOINTMENT AS LEAD COUNSEL;
AND DENYING L&K’S MOTION FOR
APPOINTMENT AS LEAD COUNSEL

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(Docket Nos. 9, 10)

___________________________________/

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For the Northern District of California

United States District Court

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This Court is presiding over a securities fraud class action related to a company by the name

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of Oclaro, Inc. as well as several shareholder derivative actions based on largely the same

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underlying facts. Currently pending before the Court are motions in the shareholder derivation

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actions – more specifically, (1) a motion to consolidate and (2) two competing motions for

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appointment as lead counsel. Having considered the parties’ briefs and accompanying submissions,

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as well as the oral argument of counsel, the Court hereby DENIES the motion to consolidate,

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GRANTS the motion to appoint Johnson & Weaver (“J&W”) lead counsel, and DENIES the

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motion to appoint Levi & Korsinsky (“L&K”) and Finkelstein Thomas (“FT”) lead counsel.

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I.

FACTUAL & PROCEDURAL BACKGROUND

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The Oclaro securities class action was filed on May 19, 2011. See Westley v. Oclaro, Inc.,

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No. C-11-2448 EMC (Docket No. 1) (complaint). Approximately a month later, on June 27, 2011,

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Matteo Guindani, who is represented by J&W, filed the first shareholder derivative action. See

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Guidani v. Couder, No. C-11-3176 EMC (Docket No. 1) (complaint). Subsequently, the following

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shareholder derivative actions were filed: (1) on June 28, 2011, Coney v. Couder, No. C-11-3214

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EMC, in which the plaintiff is represented by the Pacific Coast Law Group; (2) on July 7, 2011,

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Braman v. Couillaud, No. C-11-3322 EMC, in which the plaintiff is represented by L&K; and (3) on

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July 26, 2011, Aguilar v. Couillaud, No. C-11-3668 EMC, in which the plaintiff is represented by

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FT.

addition, three of the four shareholder derivative suits have been consolidated – i.e., the Guindani,

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Coney, and Braman actions. Only the Aguilar case has not been consolidated. Mr. Aguilar now

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seeks to have his case consolidated with the other shareholder derivative actions. In addition, the

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plaintiffs in the shareholder derivative actions have filed competing motions for appointment of lead

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counsel. The competing law firms are (1) J&W and (2) L&K/FT (as co-lead counsel). Pacific Coast

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For the Northern District of California

All of the lawsuits above have been related (including the securities class action). In

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United States District Court

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supports J&W’s motion.

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II.
A.

DISCUSSION

Motion to Consolidate
The Court addresses first Mr. Aguilar’s motion to consolidate. As a preliminary matter, the

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Court notes that, on its face, Mr. Aguilar’s complaint refers not only to a shareholder derivative

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action but also to a “Class Action.” At the hearing, his counsel – FT – clarified that the intent was to

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bring only a shareholder derivative suit, with one of the claims being a federal securities claim (i.e.,

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§§ 10(b) and 21D of the Securities Exchange Act and Rule 10b-5). FT also affirmed that, because of

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the federal securities claim, the basis for subject matter jurisdiction over the complaint was federal

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question jurisdiction. FT disavowed any reliance on diversity jurisdiction (in contrast to the other

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shareholder derivative suits).

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The problem for Mr. Aguilar is that the viability of his federal securities claim is, at least at

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this juncture, questionable. Even assuming that a shareholder may bring, e.g., a § 10(b)/Rule 10b-5

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claim as part of a derivative action, see Frankel v. Slotkin, 984 F.2d 1328, 1333 (2d Cir. 1993)

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(noting that stockholders of a company may bring a derivative action for damages to the corporation

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suffered by reason of a violation of § 10(b) and Rule 10b-5); Herpich v. Wallace, 430 F.2d 792, 803

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(5th Cir. 1970) (stating that “[t]he private right of action implied under Rule 10b-5 may be invoked

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on behalf of a corporation in a shareholder’s derivative suit”), an issue yet to be addressed by the

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Ninth Circuit, he has not alleged the purchase or sale of any shares, either by Oclaro or even himself

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during the Class Period. See Aguilar Compl. ¶ 82 (simply alleging that “Class members acquired

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Oclaro securities during the Class Period at artificially high prices and were damaged”).

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Because Mr. Aguilar claims subject matter jurisdiction based on federal question jurisdiction

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alone, and there appear to be insufficient allegations supporting the federal securities claim, then this

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Court would appear to have no subject matter jurisdiction over his case. In this circumstance, the

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propriety of consolidation of his case with the other shareholder derivative lawsuits is questionable.

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J&W argued at the hearing that consolidation would destroy diversity jurisdiction, and L&K/FT did

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not dispute such. Indeed, L&K/FT effectively conceded that it would, stating that they would
substitute a new plaintiff in the place of Mr. Aguilar.

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For the Northern District of California

United States District Court

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In light of L&K/FT’s effective concession, the Court shall, at least at this juncture in the

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proceedings, deny without prejudice Mr. Aguilar’s motion to consolidate his case with the other

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shareholder derivative actions.

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B.

Competing Motions for Appointment as Lead Counsel

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Because the Court is not consolidating the Aguilar case, FT (Mr. Aguilar’s counsel) cannot

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be considered a candidate for the position of lead counsel. Therefore, the Court shall construe the

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motion for appointment of L&K/FT as co-lead counsel to be a motion for appointment of L&K as

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lead counsel alone. Competing against this motion is the motion for appointment of J&W as lead

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counsel.

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With respect to appointment of lead counsel, the Ninth Circuit has held that a court has the

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inherent power to consolidate actions and appoint lead counsel to supervise and coordinate

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prosecution of a case. See Vincent v. Hughes Air West, Inc., 557 F.2d 759, 774 (9th Cir. 1977)

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(agreeing with the Second Circuit that “‘[t]he benefits achieved by consolidation and the

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appointment of general counsel, i.e. elimination of duplication and repetition and in effect the

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creation of a coordinator of diffuse plaintiffs through whom motions and discovery proceedings will

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be channeled, will most certainly redound to the benefit of all parties to the litigation”). In this case,

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as indicated in the hearing herein, the Court is concerned with the accrual of needless and excessive

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attorney fees in the derivative actions which are likely to follow the class action securities suit.

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Factors that courts typically consider in lead counsel determinations include: (1) the quality of the

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pleadings, (2) the vigorousness of the prosecution of the lawsuits, (3) the capabilities of counsel,

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including their experience and prior success record, and whether counsel’s charges are reasonable,

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and (4) whether one complaint is simply a “copycat action” of another. See Pirelli Armstrong Tire

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Corp. Retiree Med. Benefits Trust, No. C 11-2369 SI, 2011 U.S. Dist. LEXIS 86421, at *9-10 (N.D.

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Cal. Aug. 3, 2011); Resnik v. Woertz, Nos. 10-527-GMS, 10-603-GMS, 2011 U.S. Dist. LEXIS

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31868, at *15 (D. Del. Mar. 28, 2011); Sexton ex rel. Jones Soda Co. v. Van Stolk, Nos.

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C07–1782RSL, C08–0018RSL, 2008 WL 1733242, at *1 (W.D. Wash. Apr. 10, 2008).

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Most of these factors are neutral. For example, the quality of J&W’s complaint and L&K’s
complaint are roughly on par with one another. The Court finds that J&W’s complaint is a bit more

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For the Northern District of California

United States District Court

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detailed, but is not markedly superior. For example, J&W has not pointed to any authority

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establishing that a failure to make a jury request in compliance with Civil Local Rules results in a

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waiver, particularly when the party includes a demand for a jury on the caption page. J&W points

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out that its complaint has additional allegations about demand futility that L&K’s complaint does

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not. While this is true, L&K’s complaint contains more than sufficient allegations regarding

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demand futility – indeed, contains the critical allegations regarding demand futility (i.e., the

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individual officers have no incentive to expose their own misconduct). Finally, although J&W’s

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complaint has allegations about the individual officers’ incentive compensation and L&K’s

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complaint does not, it is not clear whether those allegations are material to the lawsuit, at least as

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pled. For example, J&W does not allege that Oclaro’s officers made misleading statements in order

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to bolster Oclaro’s stocks or profits which would affect their incentive compensation.

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As for the capabilities of counsel, this factor is a close call. Both J&W and L&K have

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demonstrated that they are qualified and experienced and are capable of acting as lead counsel.

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Contrary to what J&W asserts, there is evidence indicating that L&K have sufficient experience as

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lead or co-lead counsel in shareholder derivative actions. Furthermore, L&K’s experience in

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securities actions generally translates sufficiently into a shareholder derivative case such as this

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where fraud is involved. However, the Court is favorably impressed by J&W’s presentation and

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knowledge.

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As for the assertion that L&K’s complaint is merely a “copycat,” it too is effectively neutral;
it appears that both J&W and L&K tracked the complaint filed in the Oclaro securities class action.
To the extent L&K argues that firm resources is another factor that should be taken into

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account, again, the Court finds this factor largely neutral. While L&K may be a bigger law firm, the

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Court does not expect that all of the firm’s lawyers would be working on this litigation. L&K

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admitted as much at the hearing. Moreover, having many lawyers working on the matter would run

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counter to the Court’s directive to the plaintiff’s attorneys in the shareholder derivative actions that

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it does not want fees and costs to be run up in the actions (i.e., no fee churning) because the cases

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are essentially “piggyback” actions to the Oclaro securities class action as noted above. L&K points
out that it can help reduce costs because it has access to an in-house expert. While L&K’s having

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For the Northern District of California

United States District Court

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such access would potentially be useful, that fact ultimately does not weigh much in the calculus

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given that (1) the shareholder derivative actions will largely be riding on the coattails of the Oclaro

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securities class action and (2) J&W’s experience litigating shareholder derivative actions gives it a

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certain amount of pre-existing expertise.

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The remaining factor that weighs slightly in favor of one firm over another is the factor of

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vigorousness of prosecution. Here, the evidence of record indicates that J&W has done more than

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L&K. J&W’s complaint was the first-filed derivative action, and J&W appears to have taken the

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lead in relating and consolidating the various derivative suits. The Court acknowledges that these

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cases are at their inception and thus J&W has not done substantially more than L&K. Nevertheless,

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at this point in the proceedings, J&W has done more – even if only marginally more – to move the

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lawsuits forward.

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Taking into account the above factors, the Court finds that appointment of J&W as lead

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counsel is appropriate. The Court notes that it also has considered the possibility of appointing

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J&W and L&K as co-lead counsel. However, this approach is not advisable because it could well

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drive up fees and costs as a result of duplication and thus defeat the purpose of appointing lead

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counsel in the first place. The Court takes this opportunity to reiterate that it expects fees and costs

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in the shareholder derivative suits to be well maintained within reasonable bounds. Furthermore, the

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Court advises J&W that, should a fee motion ultimately be filed, that motion will not be rubber

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stamped but rather will be rigorously scrutinized, both in terms of the number of hours and the

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reasonable hourly rates. Billing judgment in cases such as these, which are tag-alongs to the

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securities class action, must be employed. Further, the Court expects that if reasonably required

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work expands beyond the regular capabilities of J&W, J&W will allocate work to L&K.

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III.

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CONCLUSION

For the foregoing reasons, Mr. Aguilar’s motion to consolidate is denied, J&W’s motion for

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appointment as lead counsel is granted, and L&K’s motion for appointment as lead counsel is

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denied.

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This order disposes of Docket Nos. 9 and 10.

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For the Northern District of California

United States District Court

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IT IS SO ORDERED.

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Dated: September 14, 2011

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EDWARD M. CHEN
United States District Judge

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