BRS v. Volkswagen AG et al

Filing 18

ORDER APPOINTING PUERTO RICO GOVERNMENT EMPLOYEES AND JUDICIARY RETIREMENT SYSTEMS ADMINISTRATION AS LEAD PLAINTIFF, ALSO APPOINTS ABRAHAM, FRUCHTER & TWESKY,LLP AS LEAD COUNSEL by Judge Charles R. Breyer - denying (1755) Motion to Appoint Lead Plaintiff and Lead Counsel ; granting (1759) Motion to Appoint Lead Plaintiff and Lead Counsel in case 3:15-md-02672-CRB; granting (8) Motion to Appoint Lead Plaintiff and Lead Counsel in case 3:16-cv-03435-CRB. (beS, COURT STAFF) (Filed on 10/11/2016)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6
7
8
9
10

United States District Court
Northern District of California

11
12

IN RE: VOLKSWAGEN “CLEAN DIESEL”
MARKETING, SALES PRACTICES, AND
PRODUCTS LIABILITY LITIGATION
_____________________________________/
This Order Relates To:
BRS v. Volkswagen AG, et al., Case No. 16-cv3435
______________________________________/

MDL No. 2672 CRB (JSC)

ORDER APPOINTING PUERTO RICO
GOVERNMENT EMPLOYEES AND
JUDICIARY RETIREMENT SYSTEMS
ADMINISTRATION AS LEAD
PLAINTIFF

13

This is a putative securities class action arising out of an alleged scheme to mislead

14

investors by failing to disclose the use a “defeat device” in certain diesel engine vehicles. Pending

15

before the Court are two competing Motions for Appointment as Lead Plaintiff and Lead Counsel

16

by (1) Boston Retirement System (“BRS”) and (2) Puerto Rico Government Employees and

17

Judiciary Retirement Systems Administration (“PRGERS”). (Dkt. Nos. 1755, 1759.) Pursuant to

18

Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7-1(b), the Court VACATES the

19

October 14, 2016 hearing. For the reasons set forth below, the Court GRANTS PRGERS’ Motion

20

for Appointment of Lead Plaintiff and its Selection of Lead Counsel and DENIES BRS’ Motion

21

requesting the same.

22

BACKGROUND

23

Defendant Volkswagen AG is one of the world’s leading automobile manufacturers. (Dkt.

24

No. 1 ¶ 15, BRS Action.) 1 Defendant Volkswagen Group of America, Inc. (“VWGoA”) is a

25

wholly-owned United States subsidiary of Volkswagen AG and does business in all 50 states. (Id.

26

¶ 16.) Defendant Volkswagen Group of America Finance, LLC (“VWGAF”) is VWGoA’s

27
1

28

Unless otherwise noted, citations refer to documents filed in the MDL master case file, 15-md2672 (CRB). Citations to the “BRS Action” refer to documents filed in 16-cv-3435 (CRB).

1

wholly-owned subsidiary. (Id. ¶ 17.) Defendant Martin Winterkorn (“Winterkorn”) served as

2

Volkswagen AG’s Chief Executive Officer (“CEO”) and Chairman of the Board of Management

3

from his appointment in 2007 to his resignation in 2015. (Id. ¶ 18.) Between January 2014 and

4

March 9, 2016, Defendant Michael Horn (“Horn”) was the President and CEO of VWGoA. (Id.

5

¶ 19.)

6

On June 20, 2016, BRS filed the instant securities class action against Volkswagen AG,

7

VWGoA, VWGAF, Winterkorn, and Horn (collectively, “Defendants”) for claims arising under

8

§§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and

9

Rule 10b-5, 17 C.F.R. § 240.10b-5. (See Dkt. No. 1 ¶¶ 60-67, BRS Action.) BRS brings its
lawsuit on behalf of a putative class consisting of “all those who purchased or otherwise acquired

11
United States District Court
Northern District of California

10

Volkswagen Bonds exempt from registration with the U.S. Securities and Exchange Commission

12

under Rule 144A between May 23, 2014 and September 22, 2015, inclusive, and who were

13

damaged thereby.” (Id. ¶ 52.) The Court related the BRS Action to the Volkswagen MDL. (Dkt.

14

No. 1617.)

15

On June 21, 2016, counsel for BRS published a notice in Globe Newswire, Inc. informing

16

investors of the pendency of this action as required by the PSLRA, 15 U.S.C. § 78u-4(a)(3)(A)(i).

17

(See Dkt. No. 1755-4.) The notice informed putative class members of the pendency of the action

18

and the class period, provided an overview of the allegations and claims, and stated that putative

19

class members could seek appointment as Lead Plaintiff no later than August 22, 2016. (Id. at 1-

20

2.) Both BRS and PRGERS timely filed their Motions. 2

21

LEGAL STANDARD
The PSLRA creates a presumption that the most adequate plaintiff is

22

the person or group of persons that
(aa) has either filed the complaint or made a motion in response to a
notice under subparagraph (A)(i);
(bb) in the determination of the court, has the largest financial
interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal
Rules of Civil Procedure.

23
24
25
26
27
2

28

PRGERS filed its Motion in both the MDL and the individual case dockets. (See Dkt. No. 1759;
Dkt. No. 8, BRS Action.) Citations in this Order refer to the MDL filing.
2

1

15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). This presumption “may be rebutted only upon proof by a

2

member of the purported plaintiff class that the presumptively most adequate plaintiff

3

(aa) will not fairly and adequately protect the interests of the class; or (bb) is subject to unique

4

defenses that render such plaintiff incapable of adequately representing the class.” Id. § 78u-

5

4(a)(3)(B)(iii)(II).

6

The PSLRA sets forth a three-step process to select the lead plaintiff. In re Cavanaugh,

7

306 F.3d 726, 729 (9th Cir. 2002). In the first step, the plaintiff who filed the first PSLRA action

8

must “publiciz[e] the pendency of the action, the claims made and the purported class period.” In

9

re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002); see 15 U.S.C. § 78u-4(a)(3)(A)(i).

10

The second step requires the court to identify the presumptive lead plaintiff. In re

United States District Court
Northern District of California

11

Cavanaugh, 306 F.3d at 729-30; 15 U.S.C. § 78u-4(a)(3)(B)(i). This requires the court to compare

12

the potential lead plaintiffs’ financial stakes by calculating each one’s financial interest in the

13

litigation using “accounting methods that are both rational and consistently applied.” In re

14

Cavanaugh, 306 F.3d at 730 n.4. The court then focuses solely on the plaintiff with “the most to

15

gain from the lawsuit” and “determine, based on the information he has provided in his pleadings

16

and declarations, whether he satisfies the requirements of Rule 23(a), in particular those of

17

‘typicality’ and ‘adequacy.’” (Id.) If that plaintiff meets the Rule 23(a) requirements, he becomes

18

the most adequate plaintiff.

19

At the third step, other plaintiffs have “an opportunity to rebut the presumptive lead

20

plaintiff’s showing that it satisfies Rule 23’s typicality and adequacy requirements.” (Id. (citing

21

15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)).) The PSLRA limits rebuttal evidence to that which shows the

22

presumptively lead plaintiff “[1] will not fairly and adequately protect the interests of the class; or

23

[2] is subject to unique defenses that render such plaintiff incapable of adequately representing the

24

class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)-(bb). The statute allows other plaintiffs to conduct

25

limited discovery for purposes of rebutting the presumption, provided “the plaintiff first

26

demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is

27

incapable of adequately representing the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iv).

28

The PSLRA gives the appointed lead plaintiff the right to “select and retain counsel to
3

1

represent the class.” 15 U.S.C. § 78u-4(a)(3)(B)(v). “Although this power is subject to court

2

approval and is therefore not absolute, it plainly belongs to the lead plaintiff.” Cohen v. U.S. Dist.

3

Court for N. Dist. of Cal., 586 F.3d 703, 709 (9th Cir. 2009). “[T]he district court has no authority

4

to select for the class what it considers to be the best possible lawyer[.]” In re Cavanaugh, 306

5

F.3d at 732.
DISCUSSION

6
7

A.

The PLRA requires that within 20 days of filing the complaint, the plaintiff shall publish

8
9

in a widely circulated national business-oriented publication or wire
service, a notice advising members of the purported plaintiff class—
(I) of the pendency of the action, the claims asserted therein, and the
purported class period; and
(II) that, not later than 60 days after the date on which the notice is
published, any member of the purported class may move the court to
serve as lead plaintiff of the purported class.

10

United States District Court
Northern District of California

11
12
13

Publication of Pending Action

15 U.S.C. § 78u-4(a)(3)(A)(i).
BRS’ counsel satisfied this requirement by publishing a notice of this action in Globe

14
15

Newswire in accordance with the statute. (See Dkt. No. 1755 at 6; Dkt. No. 1755-4.) The Court

16

thus proceeds to the second step of the analysis and compares the “the losses allegedly suffered by

17

the various plaintiffs” to determine which plaintiff both “‘has the largest financial interest in the

18

relief sought by the class’” and satisfies Rule 23’s requirements. In re Cavanaugh, 306 F.3d at

19

729–30 (quoting 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)).

20

B.

21

Greatest Financial Stake
At this stage, PRGERS is the class member with the greatest financial stake in the outcome

22

of this litigation, as it represents it has lost at least $66,552 as a result of its purchase of

23

Volkswagen Bonds. (Dkt. No. 1759 at 5; Dkt. No. 1759-4.) In comparison, BRS claims a loss of

24

more than $12,426. (Dkt. No. 1755 at 7; Dkt. No. 1755-3.) PRGERS is therefore the presumptive

25

lead plaintiff. See In re Zynga Inc. Sec. Litig., 2013 WL 257161, at *2 (N.D. Cal. Jan. 23, 2013)

26

(where plaintiff “is the clearly class member with the greatest financial stake in the outcome of the

27

case and [is] therefore the presumptive lead plaintiff.”). The Court focuses its attention on

28

PRGERS and “determine[s], based on the information [it] has provided in his pleadings and
4

1

declarations, whether [it] satisfies the requirements of Rule 23(a), in particular those of ‘typicality’

2

and ‘adequacy.’” In re Cavanaugh, 306 F.3d at 730 (footnote omitted).

3

1.

4

The plaintiff with the greatest losses that also satisfies Rule 23’s typicality and adequacy

5

requirements is entitled to lead plaintiff status. In re Cavanaugh, 306 F.3d at 732. As explained

6

below, PRGERS meets both requirements and it is therefore the presumptive lead plaintiff.
a.

7

Typicality

“The typicality requirement is satisfied when the putative lead plaintiff has suffered the

8
9

PRGERS

same injuries as absent class members, as a result of the same conduct by the defendants.” In re
Diamond Foods, Inc., Sec. Litig., 281 F.R.D. 405, 408 (N.D. Cal. 2012) (citing Hanon v.

11
United States District Court
Northern District of California

10

Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992)). PRGERS purchased 4,210 Volkswagen

12

Bonds during the class period. (See Dkt. No. 1759 at 6; Dkt. No. 1759-4.) Its losses arose from

13

the same events as the putative class, that is, as a result of Volkswagen’s allegedly false and

14

misleading statements or omissions concerning the defeat device. As such, PRGERS meets Rule

15

23(a)’s typicality requirement.

16

b.

Adequacy

“A test for adequacy is whether the class representative and his counsel ‘have any conflicts

17
18

of interest with other class members’ and whether the class representative and its counsel will

19

‘prosecute the action vigorously on behalf of the class.’” In re Diamond Foods, Inc., Sec. Litig.,

20

281 F.R.D. 405, 409 (N.D. Cal. 2012) (quoting Staton v. Boeing Co., 327 F.3d 938, 957 (9th Cir.

21

2003)). PRGERS states its “interests are perfectly aligned with those of the other members of the

22

class are not antagonistic in any way.” (Dkt. No. 1759 at 6.) PRGERS thus makes a prima facie

23

showing that it meets Rule 23(a)’s adequacy requirements.

24

C.

25

Opportunity to Rebut Presumption
The third step gives other plaintiffs “an opportunity to rebut the presumptive lead

26

plaintiff’s showing that it satisfies Rule 23’s typicality and adequacy requirements.” In re

27

Cavanaugh, 306 F.3d at 730 (citing 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)). The presumption of lead

28

plaintiff status may be rebutted only with evidence that “the presumptive lead plaintiff . . . [1] will
5

1

not fairly and adequately protect the interests of the class; or [2] is subject to unique defenses that

2

render such plaintiff incapable of adequately representing the class.” § 78u-4(a)(3)(B)(iii)(II). At

3

this point, “the process turns adversarial and other plaintiffs may present evidence that disputes the

4

lead plaintiff’s prima facie showing of typicality and adequacy. The district court may need to

5

hold an evidentiary hearing, and to make a renewed determination of typicality and adequacy.” In

6

re Cavanaugh, 306 F.3d at 730–31.

7

a.

8

BRS challenges PRGERS’ status as presumptive lead plaintiff on adequacy grounds. BRS

9

Adequacy and Typicality

asserts PRGERS is “embroiled in legislative and legal action arising from Puerto Rico’s debt
crisis” and cannot oversee the litigation because it “is in dire legal and financial straits and almost

11
United States District Court
Northern District of California

10

certainly will not be able to allocate sufficient resources to this litigation.” (Dkt. No. 1813 at 2, 7.)

12

BRS fails to show this is in fact the case.
The Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), 48

13
14

U.S.C. § 2101 et seq., addresses Puerto Rico’s debt crisis by, among other things, establishing a

15

Financial Oversight and Management Board (“Oversight Board”) “to provide a method for a

16

covered territory to achieve fiscal responsibility and access to the capital markets.” 48 U.S.C. §

17

2121(a). “The Oversight Board operates as an entity within the Puerto Rico Government, [] and is

18

tasked with several responsibilities and endowed with several powers.” Brigade Leveraged

19

Capital Structures Fund Ltd. v. Garcia-Padilla, 2016 WL 4435660, at *2 (D.P.R. Aug. 22, 2016)

20

(citation omitted).
First, BRS questions whether the “Oversight Board has approved, or is even aware of,

21
22

PRGERS’ involvement in this action” (Dkt. No. 1813 at 8), but there is no indication the

23

Oversight Board must approve or be notified of PRGERS’ involvement. Indeed, BRS does not

24

point to any provision of PROMESA that requires such action. 3 (See Dkt. No. 1813 at 8.) In the

25
26
3

27
28

PROMESA does allow the Oversight Board to “intervene in any litigation filed against the
territorial government.” 48 U.S.C. § 2152. However, as Puerto Rico is not a defendant in this
action, the statute does not provide the Oversight Board a basis to intervene here.
6

1

same vein, BRS also relies on Baker v. Arnold, No. 03-cv-5642-JF (N.D. Cal. May 17, 2004), for

2

the proposition that a plaintiff that cannot serve as lead plaintiff if its decision-making abilities are

3

restricted. (Dkt. No. 1813 at 8-9; see Dkt. No. 1813-9.) That reliance is misplaced. Baker

4

concerned a pension fund that for over twenty years had been operating under a consent decree

5

with the United States Department of Labor. Baker, No. 03-cv-5642-JF, slip op. at 5-6. Noting

6

that [the plaintiff] remains under its federal supervision as to its
financial condition and is not entirely a ‘free agent’ under
circumstances in which a funding deficiency or other violations of
the consent decree is imminent[,] [t]he court [was] concerned that
the best interest of the class may not be served adequately by a lead
plaintiff operating under such circumstances during settlement
negotiations, which are a normal, if not universal, occurrence in
securities class actions.

7
8
9
10

(Id. at 6; see Dkt. No. 1813-9 at 6.) The court thus declined to appoint the pension fund as lead
11
United States District Court
Northern District of California

plaintiff. But this litigation presents a different situation. Whereas the proposed lead plaintiff in
12
Baker could not independently manage its affairs on account of the consent decree, PRGERS
13
Administrator Pedro R. Ortiz Cortes states that “PROMESA’s passage has in no way affected or
14
interfered with PREGERS’ function, management or day-to-day operations.” (Dkt. No. 1848 ¶ 6.)
15
Although BRS contests this by declaring that “PRGERS is not even permitted to manage the
16
assets and pension funds of its own beneficiaries independently” (Dkt. No. 1841 at 4), it offers no
17
support for its assertion.
18
Second, BRS also notes that “the press has speculated that substantial restructuring of the
19
pension is almost inevitable.” (Dkt. No. 1813 at 5; see Dkt. No. 1813-2.) But as BRS states, this
20
is speculation; BRS offers no other evidence that restructuring is imminent or will affect the
21
litigation. As such, BRS fails to rebut the presumption that PRGERS can adequately represent the
22
interests of the class.
23
b.

Unique Defenses

24
The PSLRA also allows evidence that the presumptively most adequate plaintiff is subject
25
to unique defenses. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(bb). “There is no requirement at this early
26
stage to prove a defense, only to show a degree of likelihood that a unique defense might play a
27
significant role at trial.” In re Netflix, Inc., Sec. Litig., 2012 WL 1496171, at *5 (N.D. Cal. Apr.
28
7

1

27, 2012) (citing Beck v. Maximus, Inc., 457 F.3d 291, 300 (3d Cir. 2006); Eichenholtz v. Verifone

2

Holdings, Inc., 2008 WL 3925289, at *10–11 (N.D. Cal. Aug. 22, 2008)). This requirement seeks

3

“to protect the absent class members from the expense of litigating defenses applicable to lead

4

plaintiffs but not to the class as a whole.” Id. (citing Hanon v. Dataproducts Corp., 976 F.2d 497,

5

508 (9th Cir. 1992)).

6

BRS argues Puerto Rico’s financial crisis subjects PRGERS to unique defenses such that
PRGERS’ unique legal situation could become the focus of the litigation. (Dkt. No. 1813 at 9.)

8

Specifically, BRS asserts that “[g]iven PRGERS’ historical mismanagement and resulting central

9

involvement in debt restructuring efforts, PRGERS is in no position to effectively serve as the

10

fiduciary over the Class in this Action as PRGERS stares down certain litigation should those

11
United States District Court
Northern District of California

7

efforts fail.” (Id. at 9-10.) But BRS fails to identify what, if any, defenses would be specific to

12

PRGERS. It is also unclear how any creditor litigation arising out of PRGERS’ alleged financial

13

mismanagement is related to PRGERS’ purchase of Volkswagen Bonds such that it would affect

14

this action. Indeed, PROMESA creates a stay of litigation by creditors. 48 U.S.C. § 2194(b).

15

c.

Limited Discovery

16

The PSLRA permits “discovery relating to whether . . . the purported plaintiff . . . is the

17

most adequate plaintiff” if another plaintiff “demonstrates a reasonable basis for finding that the

18

presumptively most adequate plaintiff is incapable of adequately representing the class.” 15

19

U.S.C. § 78u-4(a)(3)(B)(iv). “Courts are to take care to prevent the use of discovery to harass

20

presumptive lead plaintiffs, something the Reform Act was meant to guard against.” Zhu v.

21

UCBH Holdings, Inc., 682 F. Supp. 2d 1049, 1055 n.1 (N.D. Cal. 2010) (internal quotation marks

22

omitted).

23

BRS requests that if the Court finds PRGERS is the presumptive lead plaintiff, it should

24

allow BRS to conduct limited discovery to ascertain PRGERS’ ability to serve as lead plaintiff.

25

At this point, BRS has not demonstrated a reasonable basis to permit limited discovery. BRS has

26

made a number of allegations concerning PROMESA’s effect on PRGERS’ ability to serve as lead

27

plaintiff; however, those allegations are speculative, and BRS fails to point to any specific

28

PROMESA provision that indicates the either PROMESA or the Oversight Board curtails
8

1

PRGERS’ managerial capabilities. To the contrary, PRGERS’ Administrator has attested to

2

PRGERS’ control of its decisions and operations. (See Dkt. No. 1848 ¶ 6.) BRS has not shown

3

discovery is appropriate at this time.

4

***

5

BRS fails to rebut the presumption that PRGERS is entitled to be the lead plaintiff.

6

Accordingly, the Court appoints PRGERS as Lead Plaintiff.

7

D.

Appointment of Lead Counsel

8

The PSLRA also grants presumptive lead plaintiff the authority to select counsel to
represent the class. 15 U.S.C. § 78u-4(a)(3)(B)(v). “Consistent with congressional intent in

10

enacting the PSLRA to vest authority for selecting class counsel in the lead plaintiff and our

11
United States District Court
Northern District of California

9

reasoning in Cavanaugh, the district court should not reject a lead plaintiff’s proposed counsel

12

merely because it would have chosen differently.” Cohen v. U.S. Dist. Court for N. Dist. of Cal.,

13

586 F.3d 703, 711 (9th Cir. 2009) (citing Cavanaugh, 306 F.3d at 732, 734 & n. 14). Rather, “if

14

the lead plaintiff has made a reasonable choice of counsel, the district court should generally defer

15

to that choice.” (Id. (citation omitted).)

16

PRGERS has selected the firm of Abraham, Fruchter & Twersky, LLP (“AF&T”) to serve

17

as lead counsel. BRS questions AF&T’s ability “to vigorously litigate against Volkswagen and its

18

counsel” given that AF&T is a firm with fewer attorneys than BRS’ proposed lead counsel. (Dkt.

19

No. 1813 at 2 (noting AF&T has approximately ten attorneys compared to the more than 60

20

attorneys that comprise BRS’ choice of counsel.) But size alone is not indicative of an

21

unreasonable choice, and BRS offers no other reasons to believe AF&T is not capable of serving

22

as lead counsel. Having reviewed the firm’s resume (see Dkt. No. 1759-5), PRGERS has made a

23

reasonable choice. AF&T has experience litigating securities class actions, including serving as

24

co-lead counsel in several cases. While their resources may not be as great as BRS’s proposed

25

counsel, the selection of AF&T is not unreasonable. Accordingly, the Court appoints AF&T as

26

lead counsel.

27

CONCLUSION

28

For the foregoing reasons, the Court GRANTS PRGERS’ Motion and APPOINTS
9

1

PRGERS as Lead Plaintiff. The Court also APPOINTS Abraham, Fruchter & Twersky, LLP as

2

Lead Counsel.

3

This Order disposes of Docket Nos. 1755 and 1759 in Case No. 15-md-2672 and Docket

4

No. 8 in Case No. 16-cv-3435.

5

IT IS SO ORDERED.

6
7

Dated: October 11, 2016

8
9
CHARLES R. BREYER
United States District Judge

10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
10