City of Taylor Police and Fire Retirement System v. Western Union Company, The et al
Filing
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OPINION AND ORDER granting SEB's motion for appointment as Lead Plaintiff 31 , denying the remaining parties' motions ( 25 , 27 , 35 ), and denying as moot SEB's Motion for Oral Argument 56 . By Chief Judge Marcia S. Krieger on 9/26/14.(dkals, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Marcia S. Krieger
Civil Action No. 13-cv-03325-MSK-MJW
CITY OF TAYLOR POLICE AND FIRE RETIREMENT SYSTEM, Individually and on
behalf of all others similarly situated,
Plaintiff,
v.
THE WESTERN UNION COMPANY;
HIKMET ERSEK;
SCOTT T. SCHEIRMAN,
Defendants.
______________________________________________________________________________
OPINION AND ORDER GRANTING MOTION TO APPOINT LEAD PLAINTIFF
______________________________________________________________________________
THIS MATTER comes before the Court pursuant to motions by several Interested
Parties seeking consolidation of this action with another case (since voluntarily dismissed and
thus mooting that portion of the motions) and appointment as Lead Plaintiff: motions by Local
38, International Brotherhood of Electrical Workers Pension Fund (“IBEW”) (# 25), by
Universal Gesellschaft m.b.H. (“Universal”) (# 27), by SEB Asset Management S.A. and SEB
Investment Management AB (“SEB”) (# 31), and by Locals 302 and 612, International Union of
Operating Engineers – Employers Construction Industry Retirement Trust and UA Local 13
Pension Fund & Employers Group Insurance Funds (“IUOE Funds”) (# 35).1 IBEW and
Universal subsequently filed notices of non-opposition (# 40, 48) to other parties’ motions,
essentially withdrawing their requests (albeit conditionally). SEB (# 46) and IUOE (# 47) filed
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SEB subsequently moved for oral argument (# 56) on its motion. The Court does not
deem oral argument necessary and thus denies the motion.
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responsive briefs in opposition to each others’ motions, and further filed reply briefs (# 51, 53) to
each others’ oppositions. Plaintiff City of Taylor Police and Fire Retirement System has not
filed any opposition to the Interested Parties’ motions, and thus, the Court understands the issue
before it to be whether SEB or IUOE should be designated Lead Plaintiff to further pursue this
action.
FACTS
The facts pertinent to the issues before the Court in the instant matter have relatively little
to do with the lawsuit, itself. It is sufficient to observe that Plaintiff City of Taylor Police and
Fire Retirement System, as well as all of the interested parties, are shareholders of The Western
Union Company (“Western”).
In 2010, Western resolved ongoing litigation with several states over the use of its money
transfer services to launder criminal proceeds. Western agreed to engage in certain compliance
and monitoring programs. Between February and October 2012, Western repeatedly informed
shareholders that it estimated that the costs of such compliance programs would be “up to $ 23
million.”
The Plaintiffs contend that, in actuality, Western knew that its compliance costs would be
almost double that amount, and also anticipated a disruption in the revenue from that business
sector that it failed to disclose. The Complaint, brought on behalf of a putative class of all
Western shareholders during the relevant period, alleges two claims: securities fraud, in violation
of § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), 17 C.F.R.
§ 240.10b-5, against Western itself, and control person liability under § 20(a) of the Securities
Exchange Act, 15 U.S.C. § 78t(a), against Western’s officers.
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Pursuant to the Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4,
any member of the putative class may seek appointment as “Lead Plaintiff” for the remainder of
the litigation. That request must be made within a 60-day period that begins on the date that the
original plaintiff publishes notice of the suit. 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). The Court is
required to select as Lead Plaintiff “the member or members of the purported plaintiff class that
the court determines to be most capable of adequately representing the interests of class
members” (i.e. the “most adequate plaintiff”). 15 U.S.C. § 78u-4(a)(3)(B)(i). As noted in the
initial paragraph of this Order, multiple parties sought such designation, but based on subsequent
events, the number of contenders for that title is now down to two: SAB and IUOE.
ANALYSIS
In selecting the “most adequate plaintiff,” the PSLRA instructs the Court to indulge a
rebuttable presumption in favor of the movant who “has the largest financial interest in the relief
sought by the class,” so long as that movant otherwise satisfies the requirements of Fed. R. Civ.
P. 23. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa)-(cc). As relevant here, that presumption may be
rebutted by a showing that the presumptive representative “is subject to unique defenses that
render [it] incapable of adequately representing the class.” 15 U.S.C. § 78u4(a)(3)(B)(iii)(II)(bb).
It appears to be undisputed that SEB initially enjoys the presumptive title of “most
adequate plaintiff” based on the size of its financial interest in the litigation. SEB claims losses
of approximately $ 4.6 million, while IUOE claims losses of approximately $ 800,000.
However, IUOE argues that the presumption that SEB should be the lead plaintiff is rebutted
because SEB is subject to two unique defenses: (i) that SEB, as an asset manager, lacks standing
to bring suit in its own right, as the Western stock in question here was purchased and held by
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several discrete investment funds; and (ii) that as a foreign entity,2 SEB is unique in that there is
some uncertainty as to whether an adverse judgment rendered in this action would be granted
res judicata effect in its countries of origin. IUOE contends that the unique defenses are
sufficient to rebut the presumption based strictly on SEB’s financial interests, and that IUOE
should be appointed Lead Plaintiff. (IUOE also argues that SEB is an inadequate class
representative under Fed. R. Civ. P. 23, but only for the same reasons addressed herein.)
A. Standing
IUOE’s contention that SEB lacks standing to pursue claims derives from W.R. Huff
Asset Management Co. v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008). As described by
the court, the issue in that case was
whether an investment advisor that has (a) discretionary authority
to make investment decisions for its clients, and (b) a power of
attorney from its clients to bring this lawsuit, has constitutional
standing to sue for violations of federal securities laws on behalf of
its clients, who are the beneficial owners of the underlying
securities, and not in its own name.
Id. at 103. Plaintiff Huff was “an investment advisor for institutional investors such as public
employee pension funds.” Id. at 104. It alleged that Adelphia Communications Corporation had
engaged in securities fraud, and that various defendants (including named defendants Deloitte &
Touche) facilitated Adelphia’s fraudulent statements. Notably, Huff did “not allege that it was
an investor in Adelphia; instead, Huff claims that it provided investment advice to its clients and
. . . purchased Adelphia securities on their behalf.” Id. Relying on the fact that Huff possessed
power-of-attorney delegated by the investment funds themselves and the fact that it had
2
SEB consists of SEB Investment Management (“SEB IM”), an investment manager
organized under the laws of Sweden, and SEB Asset Management (“SEB AM”), an entity
organized under the laws of Luxemborg. SEB IM held a much larger position in Western’s stock
during the time period at issue – approximately 1 million shares – while SEB AM held only
about 50,000 shares.
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“unfettered discretion to make investment decisions” for those funds, the trial court denied the
defendants’ motion to dismiss Huff’s complaint for lack of standing.
On appeal, the Second Circuit explained that “the minimum requirement for an injury-infact [sufficient to grant standing to sue] is that the plaintiff has legal title to, or a proprietary
interest in, the claim.” Id. at 108. It held that “a mere power-of-attorney – i.e., an instrument
that authorizes the grantee to act as an agent or an attorney-in-fact for the grantor – does not
confer standing to sue in the holder’s own right because a power-of-attorney does not transfer n
ownership interest in the claim.” Id. Thus, it found that “Huff’s power-of-attorney is not
purported to be a valid assignment and does not confer a legal title to the claims Huff brings.”
Id. at 109.
The court also considered an alternative argument put forward by Huff: that “it qualifies
for a prudential exception to the injury-in-fact requirement because of its authority to make
investment decisions on behalf of its clients.” Id. The court acknowledged that it had
recognized third-party standing in situations where the named plaintiff has “a close relationship
to the injured party” (such as those of trustee-trust, guardian ad litem-ward, receiverreceivership, and executor-estate) and that “a barrier to the injured party’s ability to assert its
own interests” exists. Id. However, it rejected the suggestion that “investment manager
standing” could exist, as “the investment advisor-client relationship is not the type of close
relationship that courts have recognized” and that Huff had not shown a “hinderance” to its
clients pursuing the claims directly. Id. at 110.
IUOE argues that Huff controls in this case. Like Huff, SEB is an investment manager,
rather than a purchaser of Western shares for itself. SEB manages several investment funds, and
its purchases of Western stock were made on behalf of those funds. The funds themselves
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owned and held Western’s stock during the time period at issue, and there is no indication that
SEB ever held Western stock in its own name or for its own benefit. IUOE also points out that,
as in Huff, SEB purports to be acting on behalf of the funds (as if pursuant to a power-ofattorney), but does not purport to hold a proprietary interest in the securities fraud claims of its
own.
In its reply, SEB tendered various declarations or position papers from lawyers in
Sweden and Luxemborg, opining that under those nations’ laws, the funds themselves are not
legal entities capable of possessing causes of action in their own names, and must instead pursue
such claims through SEB, the fund manager. For example, attorney Anders Månsson opines that
under Swedish law, “the Fund is not a legal entity [and] has no legal capacity whatsoever.” He
states that SEB “is authorised to make all decisions on the Fund’s behalf including, for example,
decisions to purchase and sell securities . . . and decisions to initiate legal actions and to pursue
claims relating to investments made on the Fund’s behalf.” He notes that “the Fund does not
have any right to appear before a court of law or any other public authority in any capacity. Any
action relating to a Swedish investment fund must be brought by or against the fund company, in
this case, SEBIM.” He states that under Sweden’s Investment Funds Act, “the powers usually
associated with the ownership of the assets in the investments” are held by SEB, not the funds
themselves. Thus, “Swedish law authorizes SEBIM to bring suit in its own name . . . on the
Fund’s behalf.” SEB tenders a letter from Lyons & Loeff, a law firm in Luxembourg, offering
essentially the same opinion of SEB AM’s status under Luxembourg law. Thus, SEB argues that
it falls within the “prudential exception” contemplated in Huff, as it both occupies a close
relationship with the investment funds themselves – indeed, it is, for all transactional purposes,
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the funds’ alter ego – and that an obstacle – the lack of independent corporate existence by the
funds themselves – prevent the funds from bringing this action in their own name.
Moreover, SEB argues that the Southern District of New York recently (post-Huff) found
SEB to have standing to bring securities fraud claims on behalf of its investment funds in a
recent decision, In re Vivendi Universal, S.A. Securities Litigation, 605 F.Supp.2d 570 (S.D.N.Y.
2009). In Vivendi, SEB was one of several investment managers who brought securities fraud
claims against Vivendi, and Viviendi moved for summary judgment against the investment
manager plaintiffs, alleging their lack of standing. Expressly addressing Huff’s “prudential
exception,” the Vivendi court commented on the “special relationship” requirement. It observed
that in that the examples given in Huff – trustee-trust, or executor-estate – “owing to the special
nature of their relationship to the assets’ beneficial owners, the law grants these plaintiffs the
right – if not imposes upon them the duty – to bring these claims.” Id. at 576. Thus, it construed
the “special relationship” portion of Huff’s “prudential exception” to examine “whether the
special relationship between the plaintiff and the beneficial owner of the claim is such that the
right to bring the claim inures to the plaintiff by operation of law.” Id. This relationship, plus a
barrier to the claims’ owner bringing suit, is thus sufficient to invoke Huff’s “prudential
exception.” Id. at 576-77.
Turning to the particular plaintiffs, Vivendi notes that certain plaintiffs, including SEB
AB, “argue at length . . . that certain of them function as trusts – for some or all of the funds
they represent – under the laws of . . . Sweden.” Id. at 577. In specifically addressing Vivendi’s
argument against SEB, the court found as follows:
Defendants challenge only SEB AB’s right to sue on behalf of a
single fund governed by Swedish law. The Court need look no
further than defendants’ own expert to conclude that SEB AB, the
undisputed management company for the fund, has standing to
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bring its claims. Defendants’ expert concedes that the fund ‘does
not have standing before a curt of law, as it is not a legal person,”
that the management company “shall represent the [investors in the
fund[ in respect to all issues,” and that “the Swedish management
company shall act in its own name stating the fund’s generic
name.” Defendants’ expert further concedes that in writing the law
government the funds, the legislature intended to “import the main
characteristics of the Common law trust.” In light of these
statements, the court concludes that SEB AB has standing to sue
on behalf of the Swedish fund because it qualifies for the Huff
exception.
Id. at 581.
IUOE’s reply, filed simultaneously with SEB’s, does not address Vivendi or directly
attack the declarations and opinion letters attached to SEB’s reply. It anticipated the possibility
that SEB’s reply would “submit evidence of standing for the first time,” and argued that the
Court should disregard such evidence. It cites to In re Bard Associates, 2009 WL 4350780 (10th
Cir. Dec. 2, 2009) (unpublished), in which the 10th Circuit refused to grant Bard’s request a writ
of mandamus vacating the District Court’s appointment of Ord as Lead Plaintiff. Bard and Ord,
both investment managers, had sought certification as Lead Plaintiff when Huff was decided. In
response to Huff, Ord challenged Bard’s standing, noting that Bard had not obtained assignments
of its clients’ claims (whereas Ord, presumably, had). Bard subsequently obtained such
assignments, but the District Court “conclud[ed] that the PSLRA’s strict time limits precluded it
from considering assignments made after the filing of Bard’s lead plaintiff motion.” Id. at *1.
Bard sought a writ of mandamus, arguing that “the district court adopted an unduly strict
interpretation of the PSLRA’s 60-day deadline,” but the 10th Circuit held that the District Court’s
decision that Bard “demonstrated its financial interest too late because it did not produce
assignments of its clients’ claims until after the 60-day deadline . . . was not an abuse of
discretion,” as “the concept announced in Huff is not new.” Based on Bard, IUOE argues that
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SEB’s submission of its declarations and opinion letters, coming after the PSLRA’s 60-day
deadline for applying for Lead Plaintiff status, is thus untimely.
Bard is clearly distinguishable from the instant case. There, Bard did not have standing
at the time it first sought appointment as lead plaintiff, because it had not secured assignment of
its clients’ claims. Although Huff had not yet explicitly expressed that requirement at the time of
Bard’s initial request, the 10th Circuit makes clear that Bard should have nevertheless anticipated
that problem and promptly secured such assignments. It was not until after the 60-day PSLRA
period that Bard secured the assignments, and thus, obtained the standing that it needed. In
short, at the time Bard sought appointment as Lead Plaintiff, it lacked standing to bring the
claims in question. By contrast, here, the factual and legal basis of SEB’s standing is unchanged
between the time it filed its motion for appointment as Lead Plaintiff and its submission of the
declarations and opinion letters. In other words, the facts that give SEB standing have not
changed since its motion, although SEB may arguably be criticized for not initially providing all
of the legal argument and opinion along with that initial motion.
However, the Court will not disregard SEB’s presumptive entitlement to Lead Plaintiff
appointment and award that title to IUOE simply because SEB failed to anticipate that IUOE
would object to its standing. On the one hand, IUOE’s motion is arguably justified under Huff;
on the other hand, SEB might have reasonably believed that a case like Vivendi, decided some
five years ago, put that issue to rest. Because this Court’s interest is in resolving disputes on
their merits, not on procedural technicalities, the Court is not inclined to ignore SEB’s
supplemental submissions, particularly where they would appear to persuasively resolve IUOE’s
objections, simply because they were not tendered earlier. IUOE has not argued that it should be
afforded a sur-reply to contest SEB’s assertions regarding Swedish and Luxembourg law, or
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otherwise argued that it was somehow prejudiced by SEB’s disclosure of the opinion letters for
the first time in reply. Thus, the Court finds it proper to rely on those letters.
This Court is persuaded, by both the opinion letters tendered by SEB and by the decision
in Vivendi, that IUOE’s concerns about SEB’s standing are unfounded. At least on the record
presently before the Court, it would appear that SEB comfortably fits within Huff’s “prudential
exception,” given that SEB holds trustee-like powers over the funds property and the funds are
prohibited under Swedish and Luxembourg law from bringing the claims herein in their own
right. Accordingly, the Court finds that concerns about SEB’s standing are insufficient to
overcome its presumptive status as “most adequate plaintiff.”
B. Res judicata
IUOE’s second contention is that SEB, as a foreign entity, is subject to a unique defense
from Western under the doctrine of res judicata. It relies on occasional decisions in which
courts have excluded foreign citizens and entities from a putative class because of the possibility
that their own nations “would not recognize a United States judgment in favor of the defendant
as a bar to a [domestic] action” by the very same foreign class members. Citing Bersch v. Drexel
Firestone, Inc., 519 F.2d 974, 996-97 (2d Cir. 1975). Having reviewed the authorities cited by
both IUOE and SEB on this point, e.g. Foley v. Transocean Ltd., 272 F.R.D. 126, 133-34
(S.D.N.Y. 2011) (“Courts in this District and others have routinely appointed foreign investors as
lead plaintiff”), the Court finds IUOE’s contentions unpersuasive.
Concerns about foreign nations failing to give res judicata effect to a judgment by this
Court in favor of a defendant are not unique to this type of action; indeed, any action by a foreign
plaintiff in a U.S. court carries the risk that the unsuccessful plaintiff will attempt to commence a
second suit in his or her home nation in order to obtain a second bite at the apple. Short of
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closing the courthouse doors to all but U.S. citizens, there is little that this Court – or any
domestic court – can do to prevent such mischief. In an age in which securities transactions are
increasingly made without regard to international borders, this Court is not prepared to take so
drastically curtail the availability of judicial remedies based on an entirely speculative3 fear of
rogue plaintiffs. The purchases of Western stock at issue here took place on a U.S. stock
exchange and the alleged fraudulent statements were made by Western in the United States. The
Courts of the United States are thus a logical place for those injured by the alleged false
statements to seek recompense. Absent some more concrete showing that SEB’s foreign status
poses a justified concern that it might seek to evade any res judicata effect that an adverse
judgment against the class might have, the Court finds that IUOE’s concerns are insufficient to
overcome the statutory presumption that SEB is the “most adequate plaintiff.”
CONCLUSION
For the foregoing reasons, SEB’s motion for appointment as Lead Plaintiff (# 31) is
GRANTED, and SEB is designated Lead Plaintiff pursuant to 15 U.S.C. § 78u-4(a)(3)(B)(i).
Under 15 U.S.C. § 78u-4(a)(3)(B)(v), the Court authorizes SEB to retain its current counsel to
pursue this action or, alternatively, SEB may apply to the Court for leave to retain other counsel.
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None of the authorities cited by IUOE identify any specific occasion in which a foreign
litigant, unsuccessful in the U.S., actually successfully persuaded their home nation’s courts to
ignore the U.S. judgment against them and allow them to re-litigate the matter. Indeed, it
appears to this Court that this fear, like most boogeymen, is more fearsome in theory than in
reality.
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SEB shall file any Amended Class Action Complaint within 30 days of this Order. The
remaining parties’ motions (# 25, 27, 35) are DENIED. SEB’s Motion for Oral Argument (# 56)
is DENIED as moot.
Dated this 26th day of September, 2014.
BY THE COURT:
Marcia S. Krieger
Chief United States District Judge
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