OFI Risk Arbitrages et al v. Cooper Tire & Rubber Company et al

Filing 46

MEMORANDUM OPINION re 8 MOTION to Appoint Counsel And to Approve Proposed Lead Plaintiffs' Choice of Counsel, and 11 MOTION for Appointment as Lead Plaintiff and Approval of Their Selection of Lead Counsel. Signed by Judge Richard G. Andrews on 8/6/2014. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

OFI RISK ARBITRAGES, OFI RISK ARB
ABSOLU and TIMBER HILL LLC,
individually and on behalf of all others
similarly situated,
Plaintiffs,
Civil Action No. 14-00068-RGA

V.

COOPER TIRE & RUBBER COMPANY,
ROY ARMES and BRADLEY HUGHES,
Defendants.

MEMORANDUM OPINION

David J. Margules, Esq., Bouchard Margules & Friedlander, P.A., Wilmington, DE; Albert J.
Carroll, Esq., Bouchard Margules & Friedlander, P.A., Wilmington, DE, Liaison Counsel for
Movants OFI Risk Arbitrages, OFI Risk Arb Absolu and Timber Hill LLC.
Vincent R. Cappucci, Esq., Entwistle & Cappucci LLP, New York, NY; Andrew J. Entwistle, Esq.,
Entwistle & Cappucci LLP, New York, NY; Alexander Broche, Esq., Entwistle & Cappucci LLP,
New York, NY; Gerald H. Silk, Esq., Bernstein Litowitz Berger & Grossman LLP, New York, NY;
Avi Josefson, Esq., Bernstein Litowitz Berger & Grossman LLP, New York, NY; Michael
Blatchley, Esq., Bernstein Litowitz Berger & Grossman LLP, New York, NY, Counsel for
Movants OFI Risk Arbitrages, OFI Risk Arb Absolu and Timber Hill LLC.
James R. Banko, Esq., Faruqi & Faruqi, LLP, Wilmington, DE, Liaison Counsel for Movants Zhi
Sun and Xiaoyan Jia.
Kim E. Miller, Esq., Kahn Swick & Foti, LLC, New York, NY, Counsel for Movants Zhi Sun and
Xiaoyan Jia.

August

P-,

2014

Presently before the Court are two competing motions from two groups of movants seeking
appointment as Lead Plaintiffs for the proposed securities class action and the approval of their
choice of Lead Counsel.
On January 17, 2014, plaintiffs OFI Risk Arbitrages and OFI Risk Arb Absolu, through their
asset manager OFI Asset Management (collectively "OFI"), and Timber Hill LLC (collectively
"OFI & Timber Hill") filed this securities class action against Cooper Tire and Rubber Company,
Roy Armes, and Bradley Hughes (collectively "Defendants"). (D.I. 1). That same day, OFI &
Timber Hill also caused a notice of the pendency of this action to be published in compliance with
the Private Securities Litigation Reform Act (the "PSLRA"). (D.I. 12 at 8; D.I. 13, Ex.Cat 1).
The notice alerted Cooper Tire investors of the action and that the deadline to seek appointment as
lead plaintiff in this action was March 18, 2014. (D.I. 12 at 8; D.I. 13, Ex.Cat 3). On March 18,
2014, OFI & Timber Hill filed their Motion for Appointment as Lead Plaintiffs and Approval of
Lead Counsel. (D.I. 11). On the same day, Zhi Sun and Xiaoyan Jia (collectively the "Sun
Family") filed their competing Motion for Appointment as Lead Plaintiffs and Approval of Lead
Counsel. (D.I. 8).
For the reasons discussed below, the Court will appoint OFI & Timber Hill as Lead Plaintiffs
for this securities action and approve their selection of Lead Counsel.
BACKGROUND
I.

The Proposed Class Action
The complaint seeks monetary damages for securities fraud perpetrated by Cooper Tire. It

proposes a class including all persons who purchased the publicly traded common stock of Cooper
Tire between June 12, 2013 and November 8, 2013 and Cooper Tire stockholders ofrecord as of the

close ofbusiness on August 30, 2013. (D.I. 1at1-2). The complaint alleges violations of§§
lO(b), 20(a), and 14(a) of the Securities Exchange Act of 1934 (the "Securities Exchange Act").
Id. at 41-45. According to the complaint, Cooper Tire is a Delaware corporation and a leading tire

manufacturer. Id. at 2. In June 2013, Cooper Tire announced it had entered into an agreement to
be acquired by Apollo Tyres Ltd., an India-based tire company, for $35 per share, a deal totaling
$2.5 billion. Id. Cooper Tire executives presented the acquisition as a deal "in the best interest of
the shareholders." Id. at 3. The complaint alleges that Cooper Tire executives knowingly failed
to disclose that Cooper Tire's joint venture partner had also sought to acquire Cooper Tire, would
oppose the merger with Apollo, and was capable of thwarting the merger. Id. at 3-4. The
complaint further alleges that Cooper Tire made false and misleading representations material to
the merger about its Chinese subsidiary's operations and Cooper Tire's control over the subsidiary's
operations and financial reporting. (D.I. 1 at 6). The complaint alleges that, as a result of these
misrepresentation and omissions, investors in Cooper Tire were misled about the true risk involved
in the merger deal, which the shareholders had approved. Id. at 9. Following disclosure of its
joint venture partner's opposition to the merger and the shutdown of its subsidiary's facilities in
response to the announced merger, the market realized the merger would not close at the promised
$35 per share and Cooper Tire's stock prices fell, resulting in losses for investors. Id.

II. The Competing Movants
Plaintiffs OFI Risk Arbitrages and OFI Risk Arb Absolu (collectively the "OFI Funds") are
Fonds Commun de Placement ("FCPs") organized underthe laws of France. (D.I. 17, Ex.Bat 3).

According to the General Secretary of OFI Asset Management, under French law, the OFI Funds
have no legal personality, and OFI Asset Management has the exclusive right to manage the OFI

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Funds and engage in litigation in the OFI Funds' names. Id.

OFI Asset Management is a

subsidiary of a French asset manager that "manages a variety of mutual funds" with assets totaling
$75 billion. Id. OFI claims that the OFI Funds purchased 51,000 shares during the class period
and suffered losses of$247,893.94. (D.I. 13, Ex.Bat 2; D.I. 16 at 6). OFI's co-plaintiff, Timber
Hill, is a registered securities broker dealer in the United States and a subsidiary of Interactive
Broker Group, Inc., a global electronic broker dealer with $29 billion in assets. (D.I. 17, Ex.Cat
2). Timber Hill trades a variety of securities-listed products on its proprietary account and creates
liquidity from "tight bid/offer spreads." Id.

Timber Hill claims it suffered $265,296.74 in losses

as a result of its investment in Cooper Tire shares. (D.I. 16 at 6). Thus, OFI & Timber Hill claim
combined losses of $513,190.68. Id.
Sun and Jia are a married couple residing in San Jose, California. (D.I. 20, Ex. A at 3). The
Sun Family claims Sun purchased 5,100 Cooper Tire shares and suffered losses of$18,309. (D.I.
10, Ex.Bat 2). The Sun Family also claims Jia purchased 14,000 shares and suffered losses of
$74,780. Id. Therefore, the Sun Family claims combined losses of $93,089. Id.
Both OFI & Timber and the Sun Family assert that they are the most adequate plaintiffs to
represent the class in this securities action and should be appointed lead plaintiffs. (D.I. 16 at 8;
D.I. 18 at 8).

DISCUSSION
I.

Legal Standard
The selection oflead plaintiff and the approval oflead counsel are "committed to the court's

discretion." Vandevelde v. China Natural Gas, Inc., 277 F.R.D. 126, 131 (D. Del. 2011) (internal
citation omitted). The PSLRA sets out a two-step process the court must follow in order to

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determine the "most adequate plaintiff." Id.

First, the court must identify the presumptive lead

plaintiff. Id. Second, the court must determine whether the presumption has been rebutted. Id.
Under the PSLRA, the presumptive lead plaintiff is the person or group that (A) "filed the
complaint or made a motion" to serve as lead plaintiff; (B) "has the largest financial interest in the
relief sought;" and (C) "otherwise satisfies" Federal Rule of Civil Procedure 23. 15 U.S.C. §
78u-4( a)(3)(B)(iii)(I)( aa)-( cc).
The presumption may be rebutted by opposing parties "only upon proof' that the presumptive
lead plaintiff "will not fairly and adequately protect the interests of the class," or that the
presumptive lead plaintiff is "subject to unique defenses that render such plaintiff incapable of
adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)-(bb).
Once the most adequate plaintiff is determined by the court, the lead plaintiff "shall, subject to
the approval of the court, select and retain counsel to represent the class." 15 U.S.C. §
78u-4(a)(3 )(B )(v ).

II. Presumptive Lead Plaintiffs
The Court finds that OFI & Timber Hill are the most adequate plaintiffs to represent the class
and are entitled to the presumption. The threshold determination of the presumptive lead
plaintiffs "should be a product of the court's independent judgment." In re Cendant Corp. Litig.,
264 F.3d 201, 263 (3d Cir. 2001). Arguments whyparticularmovants are not entitled to the
presumption "should be considered only in the context of assessing whether the presumption has
been rebutted." Id. at 263-64 (emphasis in original). In their briefing and at oral argument, both
the Sun Family and OFI & Timber Hill assert that they are entitled to the presumption. (D.I. 16 at
8; D.I. 18 at 8; D.I. 45 ("Transcript" and hereafter "Tr.") at 6-7). Because the Court finds that OFI

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& Timber Hill have the presumption, the Sun Family's arguments why OFI & Timber Hill should

not be considered the presumptive lead plaintiffs will be addressed as rebuttals to the presumption.

A. Motion for Appointment
First, the PSLRA requires that the presumptive lead plaintiff must have filed the complaint or
made a motion for appointment within sixty days of the publication of notice regarding the action.
15 U.S.C. § 78u-4(a)(3)(A)(i)(II), (B)(iii)(Il)(aa). Both OFI & Timber Hill and the Sun Family
have complied with the procedural requirements of the PSLRA. (D.I. 11; D.I. 8).

B. Largest Financial Interest
Second, to identify the movants with the largest financial interest, the court "should consider,
among other things: (1) the number of shares that the movant purchased during the putative class
period; (2) the total net funds expended by the plaintiffs during the class period; and (3) the
approximate losses suffered by the plaintiffs." Cendant, 264 F.3d at 262.
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The Court finds that OFI & Timber Hill have the largest losses. OFI & Timber Hill claim
OFI's losses are $247,893.94 and Timber Hill's losses are $265,296.74, for combined losses of
$513,190.68. 2 (D.I. 16 at 6; Tr. at 15-16). The Sun Family asserts that, because Timber Hill

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The Court will only discuss the movants' losses calculated under the "Last-In-First-Out" ("LIFO") method. The
method by which losses are calculated varies between courts. Richman v. Goldman Sachs Grp., Inc., 274 F.R.D. 473,
476 (S.D.N.Y. 2011). Some courts have opted for the "First-In-First-Out" ("FIFO") method, while other courts have
applied the LIFO method. Id. However, the Southern District of New York has noted that "the overwhelming trend
... nationwide has been to use LIFO to calculate such losses." Bo Young Cha v. Kinross Gold Corp., 2012 WL
2025850, at *3 (S.D.N.Y. May 31, 2012). At oral argument, both OFI & Timber Hill and the Sun Family agreed that
LIFO was an appropriate method for measuring losses at this stage in the litigation. (Tr. at 30-31 ). Therefore, for
simplicity, the Court will only consider each movants' LIFO losses.
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At oral argument, OFI & Timber Hill claimed their combined losses were only $489,000. (Tr. at 15). However,
the individual losses for OFI and Timber Hill given at oral argument actually add up to combined losses of
$513,190.68. (Tr. at 15-16). OFI & Timber Hill first claimed combined losses of$489,000 in their initial brief.
(D.I. 12 at 9). In their reply brief, OFI & Timber Hill claimed Timber Hill suffered additional losses inadvertently
omitted from its initial loss chart and calculations, increasing their combined losses to $513,190.68. (D.I. 16 at 5 n.l,
6). Contrary to OFI & Timber Hill's assertion, they have not provided an updated loss chart for Timber Hill including
these additional losses. (D.1. 16 at 5 n.1). Instead, OFI & Timber Hill provided another copy of the initial erroneous

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bought and sold many of its shares through "in-and-out" trades prior to the October 4, 2013
disclosure, any losses incurred from sales prior to the disclosure must be excluded under the
holding in Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005). (D.I. 18 at 16). In Dura, the
Supreme Court held that when a purchaser of shares of stock at an inflated price sells the shares
before the relevant misrepresentation is disclosed, any losses suffered are not caused by the
misrepresentation. Id. at 342. According to the Sun Family, under Dura, Timber Hill's actual
losses are no more than $22,715.

(D.I. 18 at 19). OFI & Timber Hill assert that the exclusion of

"Dura losses" is not required at this preliminary stage in the litigation, but concede that, if
"in-and-out" trades prior to October 4, 2013 are excluded, Timber Hill's losses are "about
$15,000" and OFI & Timber Hill's combined losses are $262,926. (D.I. 21at11-12; Tr. at 30).
Regardless, OFI & Timber Hill assert that OFI purchased 51,000 shares during the class period and
suffered losses of $247,893.94. (D.I. 13, Ex.Bat 2; D.I. 16 at 6). Setting aside their standing
argument discussed infra, the Sun Family does not dispute that calculation. (Tr. at 25). Further,
there is no dispute that the Sun Family purchased 19, 100 shares during the class period and
suffered losses of$93,089. (D.I. 10, Ex.Bat 2; D.I. 18 at 9). Therefore, the Court need not
decide the appropriate calculation of Timber Hill's losses at this stage in the litigation as OFI's
losses alone exceed the Sun Family's losses. Therefore, OFI & Timber Hill have the largest

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financial interest in this case.
C. Rule 23 Requirements

Third, to determine whether the movants with the largest financial interest satisfy the
requirements of Rule 23, a court's inquiry "need not be extensive." Cendant, 264 F.3d at 264.
loss chart. (D.I. 17, Ex. A). However, because OFI's individual losses have not changed and are not disputed,
setting aside the Sun Family's standing challenge discussed infra, the Court need not decide at this preliminary stage
which combined losses calculation is to be credited.

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At this threshold stage, the court only needs to find that "movants have stated a prima facie case of
typicality and adequacy." Id. Nevertheless, the court "should apply traditional Rule 23
principles." Id. at 264-65. For typicality, the court will consider whether the factual claims or
legal theories advanced by the movants "are markedly different" from the claims of the class. Id.
at 265 (internal citation omitted). For adequacy, the court will consider whether movants have
"the ability and incentive" to represent the class "vigorously," whether there are any conflicts
between the movants and the class, and whether the movants have "obtained adequate counsel,"
including whether selected counsel is competent and the retainer agreement is reasonable. Id.
(internal citations omitted).
Regarding typicality, the circumstances and legal theories advanced by OFI & Timber Hill are
not "markedly different" from the circumstances and theories of the proposed class. OFI &
Timber Hill assert claims for violations §§ 1O(b), 20(a), and 14(a) of the Securities Exchange Act.
(D.I. 1 at 41-45). Like members of the proposed class, OFI & Timber Hill assert that they
purchased shares of Cooper Tire stock on the open market, that they purchased the shares at an
inflated price as result of Defendants concealment of material information regarding the merger,
and that they suffered losses as a result. (D.I. 1 at 13-14, 41-45). Therefore, OFI & Timber Hill's
claims are facially typical of the claims of the proposed class.
Regarding adequacy, OFI & Timber Hill have the incentives and resources to vigorously
prosecute their claims on behalf of the class. Foremost, OFI & Timber Hill have substantial
financial interests in the resolution of this litigation. (D.I. 12 at 12). OFI & Timber Hill have
also expressed their interest in protecting the integrity of the marketplace and their concern about
the alleged misrepresentations' effect on the market as motivation for bringing this suit. (D.I. 17,

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Ex.Bat 4, Ex.Cat 4; Tr. at 62). Indeed, the fact that OFI & Timber Hill are the only investors
who have filed an action against Cooper Tire evidences their interest in vigorously representing the
class. There is no evidence that the interest of OFI & Timber Hill will conflict with the interests
of the proposed class.
Further, as sophisticated institutional investors, both OFI and Timber Hill have the resources
to adequately manage and direct this litigation, including dedicated staffs of in-house attorneys to
manage outside counsel. (D.I. 17, Ex.Bat 3-4, Ex.Cat 3-4). OFI & Timber Hill's adequacy is
further demonstrated by their selection of proposed Lead Counsel, who are experienced in
complex securities litigation, and their negotiation of a reasonable fee agreement with proposed
Lead Counsel. (D.I. 13, Ex. E & Ex. F; D.I. 42). Therefore, OFI & Timber Hill have sufficiently
stated a prima facie case of typicality and adequacy under Rule 23.
Thus, because OFI & Timber Hill have the largest financial interest and otherwise satisfy the
requirements of Rule 23, OFI & Timber Hill are the presumptive lead plaintiffs in this action. The
Court will address the rebuttals offered by the Sun Family.

III. Rebuttals
The Sun Family has failed to provide adequate proof to rebut the presumption in favor ofOFI
& Timber Hill as the most adequate plaintiffs. The Third Circuit has stressed that the PSRLA

requires more than mere assertions in order to rebut the presumptive lead plaintiffs' status.
Cendant, 264 F.3d at 270. Rather, the PSLRA requires "actual proof' that the presumptive lead

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plaintiffs are inadequate representatives of the class or subject to unique defenses. Id. at 269.
The Sun Family has raised three rebuttals: (A) that OFI Asset Management lacks Article III
standing to bring suit on behalf of the OFI Funds; (B) that OFI is susceptible to a unique res

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judicata defense; and (C) that Timber Hill is both a "market maker" and a "day trader," which
render it inadequate to serve as a lead plaintiff.

A. OF/'s Standing
The Sun Family asserts that OFI Asset Management lacks Article III standing to bring a claim
for actual damages on behalf of the OFI Funds. (D.I. 18 at 10). To have standing, a plaintiff
must "show that he personally has suffered some actual or threatened injury as a result of the
putatively illegal conduct of the defendant."

Valley Forge Christian Coll. v. Ams. United for

Separation of Church & State, Inc., 454 U.S. 464, 472 (1982) (internal citation omitted).
The Sun family cites Hujffrom the Second Circuit, where that Court held that an
investment advisor did not have standing to sue on behalf of its client funds for violations of
securities laws, because the clients still held legal title to the shares.

WR. HuffAsset Mgmt. Co.,

LLC v. Deloitte & Touche LLP, 549 F.3d 100, 111 (2d Cir. 2008). Only a transfer of ownership of
the shares could confer standing to an investment advisor like the plaintiff in Huff. Id. at 109.
The Second Circuit also recognized a "prudential exception" which permits "third-party standing
where the plaintiff can demonstrate (1) a close relationship to the injured party and (2) a barrier to
the injured party's ability to assert its own interests." Id.

In Huff, the investment advisor did not

meet the third-party exception because the relationship was not sufficiently close and the client
funds could file suit on their own behalf. Id. at 110.
The Sun Family also relies on additional cases where courts have held that investment
advisors or foreign asset managers did not have standing or were inadequate to be lead plaintiff.
(D.I. 18 at 11; D.I. 23 at 7-8); see Marcus v. JC. Penney Co., Inc., 6: 13-cv-736 (E.D. Tex. Feb. 28,
2014) (attached as Ex. B to D.I. 19) (holding that an Italian investment manager was not the most

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adequate plaintiff because the investment manager did not produce affirmative evidence it had
standing); Steamfitters Local 449 Pension Fund v. Cent. European Distrib. Corp., 2012 WL
3638629, at *11 (D.N.J. Aug. 22, 2012) (holding that a Russian investment manager did not have
standing to sue when its subsidiary funds were the entities that purchased shares and suffered
losses); In re Herley Indus. Inc. Sec. Litig., 2009 WL 3169888, at *6 (E.D. Pa. Sept. 30, 2009)
(holding that an investment advisor had no standing and the third-party exception did not apply,
because there was no evidence that the funds could not sue on their own behalf); Baydale v. Am.
Exp. Co., 2009 WL 2603140, at *3 (S.D.N.Y. Aug. 14, 2009) (deciding that the court would avoid

any inquiry into the standing of a Swedish mutual fund manager and exercising its discretion to
appoint another movant lead plaintiff).
The Sun Family argues that OFI Asset Management has no standing, because the OFI Asset
Management did not purchase the shares and the OFI Funds did not assign OFI Asset Management
title to the shares. (D.I. 18 at 10-12; D.I. 23 at 6-8). According to the Sun Family, as in the
above-cited cases, this Court should find that OFI Asset Management does not have standing to
bring a suit on behalf of the OFI Funds. The Court disagrees.
The Sun Family must produce more than speculation to rebut the presumption. The PSLRA
is clear that the presumption is rebutted "only upon proof' that the presumptive lead plaintiff is
inadequate and subject to unique defenses. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). Mere
speculation about a unique defense does not meet this standard. See In re Molson Coors Brewing
Co. Sec. Litig., 233 F.R.D. 147, 151 (D. Del. 2005). The burden is on the Sun Family "to come

forward with some proof' that the unique defenses raised are legitimate issues that will likely be
litigated at trial. Id.

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Thus, neither Baydale nor JC. Penney is persuasive. Both cases rely on mere speculation,
not actual proof provided by the opposing movant. In Baydale, the court opted not to engage in
any inquiry regarding a foreign asset manager's standing when raised by the opposing movant.

Baydale, 2009 WL 2603140, at *3. Instead, the court avoided the issue by appointing another
movant lead plaintiff. Id. at *3-5. In JC. Penney, the court did not require the opposing movant
to provide evidence in support of its rebuttal. JC Penney, 6:13-cv-736 (D.I. 19, Ex.Bat 11).
Instead, the court shifted the burden to the presumptive lead plaintiff, an Italian asset manager, to
affirmatively prove its standing to bring suit. Id.

In the Court's opinion, neither Baydale nor JC.

Penney appropriately applied the burden of proof.

At this stage in the litigation, it is the Sun

Family's burden to show that standing will be a legitimate issue in order to rebut the presumption.
The other cases cited by the Sun Family also do not support a finding that OFI lacks standing
or is subject to a unique defense. In both Huff and Herley, the courts found that there was no
assignment of the shares' title to the investment advisors. Huff, 549 F.3d at 111; Herley, 2009 WL
3169888, at *5. Here, OFI & Timber Hill do not claim that there was an assignment. (Tr. at 40).
Therefore, the Sun Family's argument that, because there is no proof of assignment, OFI does not
have standing under Huff is irrelevant. (D.I. 23 at 6).
Further, OFI Asset Management is not an investment advisor. Both Huff and Herley make
clear that investment advisors do not fall within the third-party standing exception, because the
relationship between an advisor and its clients is not sufficiently close, and there is no barrier to the
clients bringing their own claims. Huff, 549 F.3d at 111; Herley, 2009 WL 3169888, at *5.
Though the FCPs are unique to French law, OFI & Timber Hill have described the OFI Funds as
"trusts" and OFI Asset Management as an "asset manager that manages a variety of mutual funds."

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(D.I. 1 at 13; D.I. 17, Ex.Bat 3). The Sun Family has provided no evidence that OFI Asset
Management is more appropriately characterized as the type of"advisor" prohibited from bringing
suit under Huff or any other evidence that OFI's standing will be a legitimate issue.
To the contrary, though OFI & Timber Hill have no burden to provide evidence at the rebuttal
stage, they have provided persuasive case law and declarations demonstrating OFI Asset
Management's standing to file suit on behalf of the OFI Funds. OFI & Timber Hill cite Vivendi,
in which the court found, as matter oflaw, that a French asset manager had standing to bring a suit
on behalf ofits FCPs. (D.I. 16 at 15; D.I. 21 at 9); In re Vivendi Universal, S.A. Sec. Litig., 605 F.
Supp. 2d 570, 580 (S.D.N.Y. 2009). In deciding a defendant's motion for summary judgment and
based on expert opinions from both parties, the court noted that, "Legal experts from both sides of
the debate agree that FCPs do not have legal personality and thus cannot act on their own ....
Designated management companies act for the FCPs, with each acting in its own name ...
indicating that it is acting on behalf of the FCP." Id. at 579 (internal quotations omitted).
Further, while analogizing the FCPs to mutual funds, the court also noted that, "FCPs retain
ownership of the funds['] assets and operate similar to trusts." Id. at 580. The Second Circuit in
Huff specifically noted that courts have historically permitted "trustees to bring suits to benefit

their trusts" under the third-party exception. Hu.ff, 549 F.3d at 110-11 (internal citation omitted).
Because Vivendi was decided at the summary judgment stage, and the court found as a matter of
law that the exact same type of French asset manager as in this case had standing to bring suit on
behalf of the FCPs, the Court finds its determination to be persuasive.
OFI & Timber Hill also provided declarations from the general secretary of OFI Asset
Management, Jean-Luc Malafosse, and a purported expert in French law, Dr. Andrea Pinna. (D.I.

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17, Ex. B; D.I. 22, Ex. A). Echoing the opinions of the experts in Vivendi, both Malafosse and Dr.
Pinna declare that the OFI Funds, as FCPs, have "no legal personality and cannot act on their
own," and that OFI Asset Management has an "exclusive right" and "legal mandate" to engage in
litigation on behalf of the OFI Funds. (D.I. 17, Ex.Bat 3; D.I. 22, Ex. A at 3-4).
Furthermore, this District has previously appointed a foreign asset manager as lead plaintiff
under the PSLRA. Molson Coors, 233 F.R.D. at 149 n.1, 151 (appointing a German "investment
advisor/manager" as lead plaintiff after it provided affidavits demonstrating that it had authority to
recover damages on behalf of the investors in its funds). Other district courts have also held that
foreign asset managers of funds had standing to bring suit. See In re Winstar Commc'ns Sec.

Litig., 290 F.R.D. 437, 444 (S.D.N.Y. 2013) (holding that an Italian asset manager had standing to
sue on behalf of its funds under the Huff third-party exception, because its structure was similar to
U.S. mutual funds); Hufaagle v. Rinolnt'l Corp., 2011 WL 710704, at *5 (C.D. Cal. Feb. 14, 2011)
(holding that a Luxembourg asset manager was not investment advisor, but comparable to a
mutual fund, and had standing to bring suit).
Therefore, based on the determination in Vivendi, the declarations of Malafosse and Dr. Pinna,
the fact that others courts have held that foreign asset managers had standing, and that this District
has previously appointed a foreign asset manager as lead plaintiff, the Court is persuaded that,
regardless of whether the OFI Funds are characterized as "mutual funds" or "trusts," OFI Asset
Management has standing to file suit on behalf of the OFI Funds.

B. OFI's Susceptibility to a Res Judicata Defense
Next, the Sun Family argues that, because OFI Asset Management is a French entity, OFI is
subject to a unique res judicata defense. (D.I. 18 at 12). The doctrine of res judicata is an

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affirmative defense, which precludes a plaintiff from bringing a claim when there has already been
a final judgment on the merits in a suit involving the same parties based on the same cause of
action. FED. R. Crv. P. 8(c); United States v. Athlone Indus., Inc., 746 F.2d 977, 983 (3d Cir. 1984)
(internal citation omitted). According to the Sun Family, French courts may not give an opt-out
class action judgment from this Court res judicata effect. (D. I. 18 at 12). Thus, Defendants may
argue that a class action is not the superior method to adjudicate the class's claims because even if
Defendants prevail, OFI could file an identical claim in France. Id.

The Sun Family also argues

OFI would be unable to enforce a favorable judgment against Defendants in France. Id.

In support of their argument, the Sun Family cites an amicus curiae brief submitted to the
Supreme Court by the Republic of France, where France stated that French courts would not
recognize a judgment in an opt-out class action from the United States, because the opt-out method
of binding class members "violates French constitutional principles and public policy." (D.I. 18
at 13); Brief for The Republic of France as Amicus Curiae in Support of Respondents at 26,

Morrison v. Nat'lAustralia Bank Ltd., 561U.S.247 (2010) (attached as Ex. A to D.I. 19 at 38)
(hereafter cited to as "D.I. 19, Ex A"). The Sun Family also cites Alstom and Anwar, where the
district courts did not certify class actions that contained French investors as absent class members,
because France would not recognize the judgment from an opt-out class action. (D.I. 18 at
14-15);Jn re Alstom SA Sec. Litig., 253 F.R.D. 266, 287 (S.D.N.Y. 2008); Anwar i~ Farfield

Greenwich, 289 F.R.D. 105, 118 (S.D.N.Y. 2013), vacated and remanded on other grounds by St.
Stephen's Sch. v. PriceWaterHouseCoopers Accountants N. V, 2014 WL 2766174, at *2 (2d Cir.
June 19, 2014).

14

The Sun Family cites additional cases where courts have eliminated foreign parties from class
actions. (D.1. 18 at 12-13); Birsch v. Drexel Firestone, Inc., 519 F.2d 974, 996 (2d. Cir. 1975)
(eliminating all foreign investors from the class because of concerns that foreign courts would not
recognize the judgment), abrogated on other grounds by Morrison, 561 U.S. at 261; In re

DaimlerChrysler AG Sec. Litig., 216 F.R.D. 291, 301 (D. Del. 2003) (excluding foreign investors
from the class due to both management concerns and concerns that foreign courts would not
recognize the judgment). The Sun Family also cites several cases in which courts have denied
lead plaintiff status to foreign investors because of resjudicata concerns. (D.1. 18 at 12-13); JC.

Penney, 6:13-cv-736 (D.I. 19, Ex.Bat 11-12) (holding that the risk that Italian courts will not
enforce a judgment was sufficient to deny Italian investment manager lead plaintiff status);

Buegetten v. Harless, 263 F.R.D. 378, 382 (N.D. Tex. 2009) (holding Swiss entity was inadequate
to be lead plaintiff because of resjudicata concerns); Borochoffv. Glaxosmithkline PLC, 246
F.R.D. 201, 205 (S.D.N.Y. 2007) (holding that the risk that foreign investors may be excluded from
the class because Germany may not recognize a judgment was sufficient to deny German investors
lead plaintiff status); In re Royal Ahold NV. Securities and ERJSA Litig., 219 F.R.D. 343, 353 (D.
Md. 2003) (holding that the possibility that foreign courts would not recognize judgment was
enough to deny a group of foreign parties lead plaintiff status).
The Sun Family's argument is unpersuasive. France's amicus curiae brief did not address
whether France would enforce a judgment from a United Sates court when a French plaintiff
voluntarily initiated a claim. Morrison addressed whether United States securities law provided
"a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in
connection with securities traded on foreign exchanges." Morrison v. Nat'/ Australia Bank Ltd.,

15

561U.S.247, 250-51 (2010). France's amicus curiae brief opposed the extra-territorial
application of United States securities laws. (D.1. 19, Ex. A at 13-14). One reason for France's
opposition was that "opt-out" class actions allowed named plaintiffs to sue on behalf of absent
class members without their consent based on the principle of constructive notice. Id. at 36.
This feature violates the French constitutional principle that "the choice to initiate and terminate a
legal action is an important individual right." Id. at 39. Thus, French courts would not enforce
opt-out judgments from United States courts binding its citizens "to a legal decision in which
[they] did not voluntarily participate." Id. at 40.
The difference in the present case is that OFI are not absent class members who would be
bound by the judgment even if they did not participate in the class action. OFI, along with Timber
Hill, voluntarily chose to file their complaint. (D.I. 1). Thus, France's concerns about the
binding effect of an opt-out class action on French citizens who have not given informed consent
to the litigation are not at issue with regard to OFI. Therefore, the amicus curiae brief does not
support the Sun Family's argument that OFI are subject to a res judicata defense. If anything, the
amicus curiae brief supports the counter-argument that French courts would enforce a judgment

against OFI. As the amicus curiae brief states, "the choice to initiate and terminate a legal action
is an important individual right" under French constitutional law. (D.I. 19, Ex. A at 39). OFI
have clearly exercised that right by initiating this action.
Similarly, Alstom and Anwar do not support the Sun Family's arguments against OFI. Both
courts concluded only that a class action was not the superior method of adjudication for French
investors when it was unlikely French courts would recognize a judgment against absent French
class members. Alstom, 253 F.R.D. at 287; Anwar, 289 F.R.D. at 118. Neither court addressed

16

whether French courts would recognize a judgment when a French plaintiff, like OFI, voluntarily
initiated the suit.
Further, Alstom and Anwar, as well as Bersch and DaimlerChrysler, are not relevant at this
stage in the proceeding. The question at this stage, under the PSLRA, is whether OFI & Timber
Hill will fairly represent the class or are subject to unique defenses. The cases of Alstom, Anwar,

Bersch, and DaimlerChrysler address whether to certify a class under Rule 23 containing foreign
investors when foreign courts are unlikely to enforce a judgment against absent class members
from their respective countries. Alstom, 253 F.R.D. at 287; Anwar, 289 F.R.D. at 118;

DiamlerChrysler, 216 F.R.D. at 301; Birsch, 519 F.2d at 996. The answer to that question does
not address OFI's adequacy as lead plaintiff, nor is it a question unique to OFI. As discussed in

Molson Coors, "[t]he preclusive effect [in another country] of a judgment here is not a question
unique to [presumptive lead plaintiff] ... To the extent there is any such res judicata question, it
would apply to any and all members of the putative class." Molson Coors, 233 F.R.D. at 153
(italics added). Indeed, OFI & Timber Hill have provided a report listing the institutional
investors who held shares in Cooper Tire, many of which are foreign entities. (D.I. 22, Ex. B).
Thus, whether foreign institutional investors will be precluded :from the class because of res

judicata concerns in their home country is an issue not unique to OFI, but could arise no matter
who the lead plaintiff is.
The Court cannot agree with the Sun Family's assertion that the "mere risk" that res judicata
issues may arise in the litigation is enough to rebut the presumption. (Tr. at 56). The PSLRA and

Molson Coors require the Sun Family provide actual proof. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II);
Molson Coors, 233 F.R.D. at 151. The Sun Family has provided no proof that French courts

17

would not give a judgment against OFI resjudicata effect when OFI is not an absent class member
and voluntarily initiated this suit. Furthermore, the Sun Family has not provided proof that
French courts would have jurisdiction to hear an identical claim brought by OFI for the alleged
securities fraud by a United States defendant, involving shares bought on a United States stock
exchange and conduct that occurred in the United States. See Marsden v. Select Med. Corp., 246
F.R.D. 480, 486 (E.D. Pa. 2007) (holding that defendants failed to prove Austrian courts would
have jurisdiction over securities fraud that occurred in the United States in order to support its
argument that the lead plaintiff was inadequate because Austrian courts would not give a judgment

res judicata effect).
Again, though OFI & Timber Hill have no burden to produce evidence at this stage, they have
provided persuasive case law. OFI & Timber Hill cite Hufaagle, in which the court noted that,
'"While in some contexts courts have identified res judicata concerns in not appointing foreign
investors as lead plaintiffs, this has been explicitly rejected when the foreign lead plaintiff movants
are suing as a result of purchases made on a domestic securities exchange."' Hufaagle, 2011 WL
710704, at *7 (quoting Foley v. Transocean Ltd., 272 F.R.D. 126, 133 (S.D.N.Y. 2011)). OFI &
Timber Hill also cite Takeda, where, after surveying cases from several districts, the court
determined that, "Concerns respecting the res judicata impact of any judgment in favor of
defendants, which have been the focus of decisional discussion of the difficulties inherent in
certifying transnational classes, are not an issue with respect to the selection of Lead Plaintiffs,
since those persons will clearly be bound by the judgment of the court." Takeda v. Turbodyne

Technologies, Inc., 67 F. Supp. 2d 1129, 1139 (C.D. Cal. 1999) (italics added). The Court finds
these cases persuasive. Like those cases, whether French courts would recognize a judgment

18

against OFI from this Court is not at issue in this case, because this case involves securities
purchased on a domestic stock exchange and OFI has submitted to this Court's jurisdiction by
filing the complaint.
OFI & Timber Hill have provided the declaration of Dr. Pinna, who opined that because OFI
is not an absent class member, rather a named party to the litigation, the issue of whether the
opt-out method is compatible with French public policy and constitutional principles is not
relevant. (D.I. 22, Ex. A at 6). Dr. Pinna further stated that, because OFI is a participant in the
litigation, French courts would give a judgment against OFI and its investors res judicata effect.
Id. Therefore, this Court does not find that OFI is subject to a unique res judicata defense.
C. Timber Hill's Adequacy to Serve as a Lead Plaintiff

Lastly, the Sun Family asserts that Timber Hill will not fairly and adequately represent the
class, because it is a "market maker" and a "day trader," which make Timber Hill atypical of the
class. (D.1. 18 at 21, 23).
A "market maker" is a securities dealer who regularly and continuously buys and sells

securities from their own account to other dealers in an inter-dealer market based on published bids
and quotations and profits from the difference between the bid and the asked price. 15 U.S.C. §
78c(a)(38); McNichols v. Loeb Rhoades & Co., Inc., 97 F.R.D. 331, 344 (N.D. Ill. 1982). The
Sun Family argues that, because Timber Hill is a market maker, it is subject to "a number of
unusual requirements" that render it atypical of the class. (D.I. 18 at 21). The Sun Family also
claims that Timber Hill's use of proprietary technology to gain a competitive advantage over the
rest of the market also makes Timber Hill atypical of the class. Id.

19

In none of its briefing or at oral argument does the Sun Family articulate what about Timber

Hill's ''unusual and unique" requirements render it atypical of the class for asserting its securities
fraud claims. Nor does the Sun Family articulate why the use of a proprietary "computerized
market making system" makes Timber Hill atypical. When asked at oral argument whether their
argument was that market makers do not rely on the market price, which subjects Timber Hill to a
unique defense regarding the reliance element of their claims, the Sun Family's counsel did not
answer the question. Tr. at 4 7-48. Rather, counsel stated that a market maker could not be lead
plaintiff because "they have additional information perhaps ahead of other traders and that makes
them atypical." Tr. at 48 (emphasis added). The Sun Family's counsel further emphasized that
the cases cited in their brief hold that market makers are atypical "[b ]ecause they have additional
information, et cetera." Id.
Contrary to the Sun Family's assertion, the cases cited in their briefs do not hold that market
makers were atypical because of additional information or unique reporting requirements.
Rather, the cases cited hold that the market makers in those cases were atypical of the class because
they were subject to unique defenses regarding their reliance on the alleged fraud. Tice v.
Novastar Fin., Inc., 2004 WL 1895180, at *5 (W.D. Mo. Aug. 23, 2004) (holding a market maker

was atypical of a class because they were potentially subject to unique defenses regarding their
reliance); Seamans v. Aid Auto Stores, Inc., 2000 WL 33769023, at *4 (E.D.N.Y. Feb. 15, 2000)
(holding that a market maker could not be lead plaintiff because reliance and materiality are unique
for a market maker); McNichols, 97 F.R.D. at 344 (holding that a market maker is atypical of the
class because "issues of both reliance and materiality would be different for a market maker").

20

However, other cases have held that market makers are not atypical of the class in securities
fraud actions. In holding that a market maker was typical of the proposed class, the court in
Oxford Health Plans noted that:

[W]here the public market of a quoted security is polluted by false information, or
where price, supply and demand are distorted as a result of misleading omissions, all
types of investors are injured.... Included among those injured are so called market
makers .... [I]t is hard to imagine that there ever is a buyer or seller who does not rely
on market integrity.
In re Oxford Health Plans, Inc. Sec. Litig., 199 F.R.D. 119, 124 (S.D.N.Y. 2001) (internal citations

omitted). Furthermore, "[ c]oncems involving market makers and unique defenses are even less
relevant" when a supposed market maker "trades solely for its own account" and does not
engaging in actual market making activity regarding the securities at issue in the case. In re NYSE
Specialists Sec. Litig., 260 F.R.D. 55, 72 (S.D.N.Y. 2009).

Here, the Sun Family has provided copies of an SEC filing from Timber Hill's parent
company, Interactive Broker, which evidence that it engages in market making activity through
Timber Hill. (D.I. 19, Ex.Eat 3). The SEC filing states that, in its market making activity,
Interactive Broker generally does not "take portfolio positions in either the broad market or the
financial instrument of specific issuers in anticipation that prices will rise or fall," and that it "may
take a position counter to the market" in order to fulfill its obligations. Id. at 3, 5. The SEC
filing further states that Interactive Broker's market making activities are conducted through a
"proprietary risk management system" and that its mathematical models "assimilate market data"
to control "exposure to price and volatility."

Id. at 3-4. The SEC filing states that Timber Hill

derives its revenue from the difference between the price paid to acquire shares and the price paid
when the shares are sold. Id. at 6.

21

The SEC filings corroborate the Sun Family's assertion that Timber Hill is a market maker, its
use of proprietary technology, and its reporting obligations, but the Sun Family has provided no
proof that this renders Timber Hill inadequate to be a lead plaintiff. Neither the SEC filing nor the
cases cited evidence why the reporting requirements or the use of proprietary technology makes
Timber Hill inadequate or subject to unique defenses. Instead, cases focus on the reliance issues
unique to market makers, an argument the Sun Family has not made.
Even ifthe Sun Family did argue that Timber Hill's trading volume and frequency subjected it
to unique defenses regarding reliance, there is insufficient evidence to persuade this Court that
reliance would be a legitimate issue at trial. Though the SEC filing does state that Interactive
Broker does not take a position on whether prices with rise and fall and may take a position
contrary to the market, it also explicitly states that Interactive Broker's technology "assimilates
market data," which presumably includes the market price for shares, and that Interactive Broker's
revenue is derived from the price paid for the share when sold over the price paid when the share
was acquired. Therefore, as the court observed in Oxford Health Plans, it is difficult for me to see
how Timber Hill's market making activity was not affected by the alleged misrepresentations
when its models assimilate market data and its revenue is derived from the buying and selling of
stock. From the evidence provided, it appears that Timber Hill's losses would be affected by the
alleged fraud just as the other investors' losses would be.
Further, there is no evidence Timber Hill was actually engaged in money making activity
when it traded in Cooper Tire shares. In its declarations and at oral argument, Timber & OFI
asserted that this case does not involve market making activity and that Timber Hill traded in
Cooper Tire shares "for its own account." (DJ. 17, Ex.Cat 2; Tr. at 48-49). Therefore, as in

22

NYSE Specialists, concerns about Timber Hill's market making activity may be irrelevant because
Timber Hill was not actually engaged in that activity with regard to Cooper Tire.
The Court finds the Sun Family's argument that Timber Hill is inadequate to be a lead plaintiff
because it is a "day trader" to be unconvincing. The Sun Family does not provide a specific
definition of what constitutes a "day trader" or how frequently an investor must trade in a stock to
be a "day trader." The Sun Family merely claims that Timber Hill bought and sold Cooper Tire
shares "on average, almost [thirty] times per trading day," and that the volume and frequency of
Timber Hill's trading activity made it atypical of the class. (D.I. 18 at 23-24).
The Sun family cites Applestein, Safeguard Scientifics, and similar cases where courts held
that high-frequency "day traders" were inadequate to be lead plaintiff because a day trader
"typically focuses on technical price movements rather than price, and therefore are subject to a
defense [that] they would have purchased the stock at issue regardless of the misstatement [or]
omission." (D.I. 18 at 23-24); Applestein v. Medivation Inc., 2010 WL 3749406, at *3 (N.D. Cal.
Sept. 20, 2010); In re Safeguard Scientifics, 216 F.R.D. 577, 583 (E.D. Pa. 2003).
However, other districts have held that day traders "have the same incentives to prove
defendants' liability as all other class members, and their presence in a securities class does not
create intra-class conflicts." Prefontaine v. Research in Motion Ltd., 2012 WL 104770, at *4
(S.D.N.Y. Jan. 5, 2012). Absent actual evidence that plaintiff did not rely on market price, the
characterization of the presumptive lead plaintiff as a "day trader" does not prove that the
presumptive lead plaintiff"is subject to a unique defense to rebut the presumption." Prefontaine,
2012 WL 104770, at *4; see also Schueneman v. Arena Pharm., Inc., 2011WL3475380, at *7
(S.D. Cal. Aug. 8, 2011) (holding that "plaintiffs status as a purported day trader" was not enough

23

to rebut the presumption, "[a]bsent evidence that [the plaintiff] did not rely on the market price of
the shares"). In fact, in Safeguard Scientifics, cited by the Sun Family, the court specifically
noted that the day trader bought shares after public disclosure of the alleged fraud, which raised
legitimate issues regarding whether plaintiff actually relied on the market price. Safeguard
Scientifics, 216 F.R.D. at 582.
In light of PSLRA and Molson, the Court agrees that the fact that an investor may trade at

higher volume or more frequently and could be characterized as a "day trader" is not enough to
rebut the presumption. The opposing movant must provide some additional evidence that a
presumptive lead plaintiff did not rely on market price of the shares. Here, the Sun Family has not
produced any evidence that Timber Hill did not rely on market price when it traded in Cooper Tire
shares. Thus, the Court finds that the Sun Family has not demonstrated that Timber Hill is
inadequate to be lead plaintiff or subject to unique defenses.
For the foregoing reasons, the Court finds that the Sun Family has not provided sufficient
evidence to rebut the presumption that OFI & Timber Hill are the most adequate plaintiffs.
Therefore, OFI & Timber Hill will be appointed Lead Plaintiffs for this securities action.
IV. Approval of Lead Counsel
Under the PSLRA, "[t]he most adequate plaintiff shall, subject to the approval of the court,
select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v). The PSLRA
"evidences a strong presumption in favor of approving a properly-selected lead plaintiffs
decisions as to counsel selection and counsel retention." Cendant Corp. Litig., 264 F.3d at 276.
The court's inquiry is limited to "whether the lead plaintiffs selection and agreement with counsel
are reasonable on their own terms." Id. The court should consider: ( 1) "the legal experience and

24

sophistication of the lead plaintiffs;" (2) how lead plaintiffs chose which law firms to consider; (3)
the lead plaintiffs' process for selecting lead counsel; (4) "the qualifications and experience" of
selected counsel; and (5) any evidence regarding whether the retainer agreement was the product
of serious negotiations between the lead plaintiff and the prospective lead counsel. Id.
Here, OFI & Timber Hill are sophisticated institutional investors with in-house counsel
overseeing this action. (D.1. 17, Ex.Bat 3-4 & Ex.Cat 3-4). Further, selected Lead Counsel,
the firms of Entwhistle & Cappucci and Bernstein Litowitz, have represented both OFI and Timber
Hill in prior securities litigation. (D.1. 42 at 4). There is no evidence that negotiation was not
conducted in an arms-length transaction or that the retainer agreement is unreasonable.
Therefore, the Court will approve OFI & Timber Hill's selection oflead counsel.
CONCLUSION
For the reasons discussed above, the Court will grant OFI & Timber Hill's Motion for
Appointment as Lead Plaintiff and Approval of their Selection of Lead Counsel. (D.1. 11). The
Court will deny the Sun Family's Motion for Appointment as Lead Plaintiff and Approval of their
Selection of Lead Counsel. (D.1. 8). A separate order will be entered.

25