Bricklayers of Western Pennsylvania Pension Plan v. Hecla Mining Company et al

Filing 70

ORDER denying (25) Motion to Consolidate Cases; denying (12) Motion to Consolidate Cases; granting (18) Motion ; denying (21) Motion to Consolidate Cases; denying (21) Motion to Appoint Counsel ; denying (24) Motion to Consolidate Cases in case 2:1 2-cv-00042-BLW; denying (22) Motion to Appoint Counsel ; denying (15) Motion to Consolidate Cases; denying (16) Motion to Consolidate Cases; granting (18) Motion ; denying (21) Motion to Consolidate Cases; denying (22) Motion to Consolidate Cases i n case 2:12-cv-00067-BLW. Institutional Investors shall be the lead plaintiffs, and their counsel shall be appointed lead counsel.Signed by Judge B. Lynn Winmill. Associated Cases: 2:12-cv-00042-BLW, 2:12-cv-00067-BLW(caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

BRICKLAYERS OF WESTERN
PENNSYLVANIA PENSION PLAN,
Individually and on Behalf of All Others
Similarly Situated,

Case No. 2:12-cv-00042-BLW
Case No. 2:12-cv-00067-BLW

Plaintiff,
ORDER
v.
HECLA MINING COMPANY, et al.,
Defendants.

JOSEPH S. VITA 2001 REVOCABLE
TRUST and JOSEPH S. VITA IRA,
Individually and on Behalf of All Others
Similarly Situated,
Plaintiff,
v.
HECLA MINING COMPANY, et al.,
Defendants.

INTRODUCTION
The Court has before it competing Motions to Appoint Lead Plaintiffs and
Appoint Counsel. For the reasons stated below the Court GRANTS the motion of the

MEMORANDUM DECISION AND ORDER - 1

Institutional Investors and DENIES all other motions. The Court names the Institutional
Investors the presumptive lead plaintiffs in this action.
BACKGROUND
This case is a securities class action suit against Hecla Mining Company, et al.
(“Hecla”). The plaintiffs allege that during the class period, Hecla issued materially false
and misleading statements regarding the company’s business, and that those false
statements caused artificially inflated prices for Hecla’s securities. On January 11, 2012,
Hecla announced that one of their major mines would close for a year, significantly
reducing the company’s silver production for 2012. Once Hecla’s allegedly misleading
statements came to light with this announcement, its stock prices dropped $1.23 per
share. This was a one-day decline of 21%.
A number of parties filed motions to consolidate the two largely identical cases
against Hecla and to claim lead plaintiff status in the class action. The Court granted the
motions to consolidate on April 17, 2012. At this time only five motions to appoint lead
plaintiff remain pending:
1. Jeffrey A. Farkas and David G. Ray (collectively, the “Hecla Investor Group”)
claim a loss of $696,138 (FIFO) or $376,250 (LIFO); they propose the Faruqi
Firm as counsel;
2. LRI Invest S.A. and City of Atlanta General Employees’ Pension Fund
(collectively, “Institutional Investors”) claim $1,303,554 (FIFO) or $1,195,643
(LIFO); they propose Motley Rice as lead counsel, Gordon Law Offices as liaison;

MEMORANDUM DECISION AND ORDER - 2

3. Carpenters Pension Fund of West Virginia (“West Virginia”) claims a $17,143
loss; it proposes Robbins Geller as lead counsel, Gordon Law Offices as liaison;
4. Cambria County Employees’ Retirement System, Peter M. Quist, and David W.
Quist (here referred to collectively as “Cambria and Quist”) claim a loss of
$1,710,428; they propose Kessler Topaz Meltzer & Check as lead counsel,
Banducci Woodard Schwartzman as liaison; and
5. James R. Holton and Michael Schneider (“Holton and Schneider”) claim losses of
$914,479; they propose the Pomerantz firm as lead counsel, Cosho firm as
liaison.1
LEGAL STANDARD
The modern standard for selecting the lead plaintiff in securities class actions
comes from the Private Securities Litigation Reform Act of 1995 (“PSLRA”), which is
found in 15 U.S.C. § 78u-4(a). According to the statute, the plaintiff who filed the action
have 20 days to publish notice of the action, advising members of the purported plaintiff
class 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.” 15 U.S.C. § 78u-4(a)(3)(A)(i).
Upon hearing responses to the notice, the Court appoints as lead plaintiff “the
member or members of the purported plaintiff class that the court determines to be most

1

Although Holton and Schneider’s motion is technically still pending, they effectively withdrew
their request to be lead plaintiff in their response brief. Accordingly, the Court will deny their
motion below.
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capable of adequately representing the interests of class members.” 15 U.S.C. § 78u4(a)(3)(B)(i). The Court does this by adopting a presumption that the most adequate
plaintiff is the person or group of persons that: (1) has either filed the complaint or made
a motion in response to a proper notice; (2) according to the court has the largest financial
interest in the relief sought by the class; and (3) otherwise satisfies the requirements of
Rule 23. 15 U.S.C. 78u-4(a)(3)(B)(iii)(I).
Once the presumption is established by the Court, it may be rebutted only upon
proof by a member of the purported plaintiff class that the presumptively most adequate
plaintiff either (1) will not fairly and adequately protect the interests of the class; or (2) 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). The most adequate plaintiff selects and retains
counsel to represent the class, subject to approval by the court. 15 U.S.C. 78u4(a)(3)(B)(v).
In In re Cavanaugh, 306 F.3d 726 at 729 (9th Cir. 2002), the Ninth Circuit
explained that the statute creates a three-step process. The first step is to publicize the
pending action, claims, and class period. Id. This step also includes a Court’s decision
regarding consolidation of multiple actions if necessary, since the PSLRA dictates that
this determination precedes selection of a lead plaintiff. 15 U.S.C. 78u-4(a)(3)(B)(ii).
The second step is for the Court to appoint a presumptive lead plaintiff.
Cavanaugh, at 729-30. To do this, “the district court must compare the financial stakes of
the various plaintiffs and determine which one has the most to gain from the lawsuit.” Id.

MEMORANDUM DECISION AND ORDER - 4

at 730. The Ninth Circuit recommends that the district court compare plaintiffs’ financial
stakes by calculating each potential lead plaintiff’s financial interest using rational and
consistent accounting methods. Id., n. 4. Some courts do this by analyzing four “OlstenLax” factors: (1) The number of shares purchased during the class period; (2) The
number of net shares purchased during the class period; (3) The total net funds expended
during the class period; and (4) The approximate losses suffered during the class period.
In re Ribozyme Pharm., Inc. Sec. Litig., 192 F.R.D. 656, 660 (D. Colo. 2000); see also In
re Olsten Corp. Sec. Litig., 3 F.Supp.2d 286, 295 (E.D.N.Y. 1998) (citing Lax, 1997 WL
461036, at *5). But as explained below, that process is not always helpful.
Once the Court identifies the plaintiff with the largest financial stake, “it must then
focus its attention on that plaintiff and determine, based on the information it has
provided in its pleadings and declarations, whether it satisfies the requirements of Rule
23(a), in particular those of ‘typicality’ and ‘adequacy.’” Cavanaugh, at 730 (emphasis in
original). The relevant portion of Rule 23(a) demands “the claims or defenses of the
representative parties are typical of the claims or defenses of the class; and . . . the
representative parties will fairly and adequately protect the interests of the class.” Fed. R.
Civ. P. 23(a).
The final step is to “give other plaintiffs an opportunity to rebut the presumptive
lead plaintiff’s showing that it satisfies Rule 23’s typicality and adequacy requirements.”
Cavanaugh, at 730. For purposes of this rebuttal, if a plaintiff can demonstrate “a
reasonable basis for a finding that the presumptively most adequate plaintiff is incapable

MEMORANDUM DECISION AND ORDER - 5

of adequately representing the class,” then that plaintiff may be allowed to conduct
discovery.15 U.S.C. § 78u-4(a)(3)(B)(iv).
ANALYSIS
We are currently on step two of the Cavanaugh three-step process. After the Court
issues this decision and order, the plaintiffs may have an opportunity to rebut the
presumptive lead plaintiff’s showing of Rule 23 typicality and adequacy. But for now, the
burden to demonstrate compliance with Rule 23 is more relaxed. Thus, while the Court
considers Rule 23 standing, the focus of this opinion is upon which plaintiff has the
“largest financial interest” in the class action or, as the Ninth Circuit has put it, which
plaintiff “has the most to gain from the lawsuit.” Cavanaugh, at 730.
1.

Cambria and Quist v. Institutional Investors

Although one or two other plaintiffs claim they have the most to gain from the
lawsuit, the real battle is between Institutional Investors and Cambria and Quist. Cambria
and Quist claim the highest losses among all movants at just over $1.7 million. Quist
Opp. at 7, Dkt. 61. However, the Court does not compare competing losses based on the
size of the movants’ claims alone – rather, some valuation analysis is required.
Cavanaugh, at 730, n. 4.
To reach their claim amount, Cambria and Quist place the value of a call option at
the entire price of the option. Institutional Investors challenge this method of valuation.
Investors Memo at 3-5, Dkt. 55. They argue that it is more accurate to employ the BlackScholes Option Pricing Model (“BSOPM”), a model intended for calculation of damages

MEMORANDUM DECISION AND ORDER - 6

for option holders. Id. at 5. Under this model, the Institutional Investors’ expert has
calculated Cambria and Quist’s losses at a mere $646,433 – significantly less than the
calculation of Cambria and Quist’s expert of $1,710,428. Id. at 7.
This lower valuation is based upon the nature of call options, as opposed to shares
of common stock. According to the Institutional Investors’ expert, the worth of call
options depends upon the price of the underlying stock reaching and exceeding a “strike
price.” Butler Decl. at ¶ 14, Dkt. 59. Call options also have expiration dates, after which
if the option has not been redeemed, it expires and is worthless. The basis of Institutional
Investors’ valuation of Cambria and Quist’s options is that it is impossible to say whether
the Quists would have purchased the options had they known about the alleged fraud;
they may have merely purchased the options under different terms. Investors Memo at 3,
Dkt. 55. BSOPM assumes that “plaintiffs would have purchased the ‘same’ call options,
except with the price inflation removed from the stock.” Butler Decl. at ¶ 17, Dkt. 59.
In response, Cambria and Quist note that BSOPM is a method of establishing
damages, and that necessary analysis at this stage of the proceedings is far less
exhaustive than the analysis necessary to establish damages. Quist Reply at 2-3, Dkt. 66.
The determination of damages is quite different from measuring financial interest, or
losses, for purposes of selecting a presumed lead plaintiff. In fact, losses are a
preliminary finding while damages require a good deal of competing evidence, and often
competing expert testimony. See In re Global Crossing Sec. & ERISA Litig., 225 F.R.D.
436, 459 (S.D.N.Y. 2004); see also Ribozyme, at 661-62; Cavanaugh at 730-31.

MEMORANDUM DECISION AND ORDER - 7

Furthermore, the question of whether Cambria and Quist would have purchased the same
amount of stock options on Hecla stock but-for the alleged fraud is essential to the
Institutional Investors’ BSOPM valuation. But this dispositive question relates to loss
causation, and therefore damages.
Adopting either party’s valuation as establishing damages at this point in the
proceedings would be inappropriate. Likewise, establishing damages here as a result of
the Court’s analysis would be inappropriate. Therefore, the Court is left with the difficult
task of comparing the financial interests of these two movant groups. Much like
comparing apples to oranges, the Court must compare stocks to options because both
types of securities are essential to this class action.
Other courts have used the four Olsten-Lax factors listed above when comparing
plaintiffs’ financial stakes. However, although factors such as the number of shares
purchased, net shares purchased, and total funds expended are highly relevant to the
comparison of two movants’ holdings of common stock, the relative price and value of
call options throws the analysis off. In other words, the price and value of a single share
of common stock is very different from the price and value of a single call option. The
options’ valuable lives are limited, their value is conditional, and there is a large disparity
between their price and their potential value. Therefore, the Court finds that the OlstenLax test is not helpful in this case. Ultimately, the Court is faced with two competing
valuations for Cambria and Quist’s losses on call options, neither of which is necessarily
accurate – or at least very easy to determine at this stage.

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Under these circumstances, the Court notes that the initial calculation of losses in a
PSLRA case is intended to give an approximation of “financial interest in the relief
sought by the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). As the Ninth Circuit clarified, the
Court should look to which movant has “the most to gain from the lawsuit.” Cavanaugh
at 730, n. 4; see also Eichenholtz v. Verifone Holsings, Inc., 2008 WL 3925289, at 4
(N.D.Cal. Aug. 22, 2008). Thus, the loss calculation adopted by the Court should reflect
the relief reasonably recoverable by the movant.
With this understanding, the Court finds that Cambria and Quist’s loss
approximation is too high because it is not realistically related to what the movant is
likely to be able to recover. It is true that this is not the time for calculation of damages or
determining causation, but it seems plain from the analysis performed by Institutional
Investors’ expert that the reasonably recoverable loss suffered by Cambria and Quist, and
thus its financial interest in the class action, is significantly lower than claimed. And the
Court notes that Cambria and Quist do not object to BSOPM as a method of establishing
damages; rather, Cambria and Quist only object to its application at this stage of the
proceedings.
Therefore, although the Court does not specifically adopt Institutional Investors’
BSOPM valuation as Cambria and Quist’s damages, the Court is nevertheless persuaded
that the actual amount of recoverable damages for Cambria and Quist’s call options, and
thus its relevant loss, is probably closer to the $646,000 valuation determined by

MEMORANDUM DECISION AND ORDER - 9

Institutional Investors’ expert than the $1.7 million claimed by Cambria and Quist.2
Therefore, the Court finds that the Institutional Investors, with an uncontested loss of
$1.3 million, has the most to gain from the law suit.3
2.

Rule 23 Standing

Having determined that Institutional Investors have the largest financial stake, the
Court must turn its attention to whether, based on the information it has provided in the
pleadings and declarations, they satisfy the requirements of Rule 23(a), in particular those
of typicality and adequacy. Cavanaugh, at 730. But this need only be a preliminary
showing at this initial stage of the litigation. See Ferrari v. Impath, Inc., 2004 U.S. Dist.
WL 1637053, at *4 (S.D.N.Y. July 20, 2004); see also Niederklein v. PCS
Edventures!.com, Inc., 2011 U.S. Dist. WL 759553, at *9 (D. Idaho Feb. 24, 2011).
The typicality requirement is satisfied when the “claims or defenses of the
representative parties are typical of the claims or defenses of the class.” F. R. Civ. P.
23(a)(3). More specifically, it is satisfied when the lead plaintiff’s alleged injuries arise
from “the same course of conduct complained of by the other plaintiffs and his causes of
actions are founded on similar legal theories.” Schonfield v. Dendreon Corp., 2007 WL
2916533, *4 (W.D. Wash. Oct. 4, 2007). Institutional Investors allegedly suffered
2

The Court also notes that under the Institutional Investors’ BSOPM valuation, the ratio of
Cambria and Quist’s total loss to net expenditure over the class period is much more reasonably
related to the same ratio for other movants who held common stock only. For example,
Institutional Investors’ loss-expenditure ratio (using FIFO) is 0.27 (1,303,555 / 4,834,030), while
Cambria and Quist’s is 0.35 under BSOPM (646,433 / 1,874,477) and 0.91 under its own claim
(1,710,428 / 1,874,477). Under Cambria and Quist’s valuation, it is unreasonably more profitable
to lose money on call options than on common stock.
3
The Court is also generally more comfortable appointing Institutional Investors, given the
tentative amount of Cambria and Quist’s relevant loss.
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damage from purchasing Hecla securities, relying upon allegedly false and misleading
statements released by the defendant company. Pl.’s Memo at 14-15, Dkt. 55. This is
typical of the class.
In order to satisfy the adequacy requirement of Rule 23, the movant must make a
preliminary showing that it “will fairly and adequately protect the interests of the class.”
F. R. Civ. P. 23(a)(4). It is satisfied in this context “if there are no conflicts between the
representative and class interests and the representative’s attorneys are qualified,
experienced, and generally able to conduct the litigation.” Richardson v. TVIA, Inc., 2007
WL 1129344, *4 (N.D.Cal. 2007).
There appear to be no conflicts between the interests of Institutional Investors and
the rest of the class. As typical members of the class, Institutional Investors’ interests
align with those of the class – they seek compensation for alleged damages. As they
indicated in their memo, Institutional Investors have taken steps to demonstrate a
willingness to protect the interests of the class, including retaining experienced counsel.
Pl.’s Memo at 15, Dkt. 55. There is no evidence suggesting a conflict between
Institutional Investors and any member of the class. Institutional Investors are composed
of two institutions with significant resources, in keeping with Congress’s preferences for
institutional lead plaintiffs.4 For the purposes of this analysis, Institutional Investors’

4

Congress formulated the PSLRA “to increase the likelihood that institutional investors will
serve as lead plaintiffs.” In re Cendant Corp. Litig., 264 F.3d 201, 244 (3d Cir. 2001) (quoting S.
Rep. No. 104-98, at 10 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 690 and H.R. Rep. No. 104369, at 34 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 733). It did so because “[i]nstitutional
MEMORANDUM DECISION AND ORDER - 11

counsel seem “qualified, experienced, and generally able” to represent the class.
Richardson, at *4; see Gordon Decl. Ex. D, Ex. E. Still, other movants have raised
several challenges to Institutional Investors’ Rule 23 compliance.
(1)

Cambria and Quist’s Challenges

Cambria and Quist argue that Institutional Investors group member LRI is not a
typical class member because it is an investment advisor, and its reported losses are
presumably the losses of its clients, not of the organization itself. Quist Opp. at 18, Dkt.
61. However, the Institutional Investors have presented substantial argument and
evidence that LRI is an investment management company responsible for an “FCP” fund.
Investors Reply at 7-8, Dkt. 65. According to the Institutional Investors’ legal expert, LRI
is the only interested party legally able to seek damages in the class action – the FCP has
no “legal personality,” and its investors have no power to manage and administer the
fund. Kremer Decl.at ¶¶ 15-16, 18, Dkt. 58. Thus, it would seem that LRI is sufficiently
typical to satisfy Rule 23 as a part of the Institutional Investors.
Cambria and Quist also argue that because Institutional Investors challenge
Cambria and Quist’s valuation of their losses from call options, substituting a lower
valuation, Institutional Investors would “harm the proposed class” by getting a lower
recovery for option holders. Quist Opp. at 8, Dkt. 61. In effect, this is an attack on
Institutional Investors’ “adequacy” as lead plaintiffs. However, as the Institutional
Investors point out, this argument would disqualify any plaintiff from serving as lead
investors and other class members with large amounts at stake will represent the interests of the
plaintiff class more effectively than class members with small amounts at stake.” Id. at 264.
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plaintiff if they find it necessary to argue, in support of their application, that a competing
plaintiff’s group has overstated its potential recovery. Investors Reply at 9, Dkt. 65. This
would remove a “check” from the process and could result in unrealistic, overaggressive
valuation. See Johnson v. Dana Corp., 236 F.R.D. 349, 354 (N.D. Ohio 2006). This
argument fails to undermine Institutional Investors’ adequacy.
Cambria and Quist further question the reliability of the Institutional Investors’
counsel. This is an attack on Institutional Investors’ satisfaction of the requirement of
adequacy. Their counsel must be “qualified, experienced, and generally able to conduct
the litigation.” Richardson, at *4. First, Cambria and Quist argue that since Institutional
Investors and West Virginia both employed Gordon Law Offices as liaison counsel, there
exists a problematic conflict. Quist Memo at 17, Dkt. 61. As Cambria and Quist noted,
Mr. Gordon signed and filed separate motions for both clients on the same day asserting
that each had the largest financial interest in the action. Id. Cambria and Quist also
address the status of LRI’s attorney Deborah M. Sturman, arguing that Institutional
Investors must “describe to the Court what Ms. Sturman’s involvement or pecuniary
interest, if any, is in this case.” Id.
At this stage in the proceedings – selecting a presumed lead plaintiff – only a
preliminary showing of adequacy is necessary. Following the Court’s selection of a
presumed lead plaintiff, other movants will have the opportunity to rebut that
presumption on the basis of Rule 23 compliance. Cavanaugh, at 730. That is the time for
detailed attacks like these. Even after the rebuttal process, the lead plaintiff’s selection of

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counsel is subject to the approval of the court. 15 U.S.C. 78u-4(a)(3)(B)(v). In the
meantime it is enough for the Court that Mr. Gordon’s dual representation has resulted in
no harm to either of his clients and that the PSLRA seems to require only the Rule 23
adequacy of a presumed lead plaintiff’s appointed counsel for the class. These arguments
do not overcome Institutional Investors’ preliminary showing of typicality and adequacy.
(2)

West Virginia’s Challenges

West Virginia also challenges Institutional Investors’ validity as a proper,
cohesive group. “It is clear that groups may be appointed as lead plaintiff under PSLRA.”
In re Atlas Mining Co. Sec. Litig., 2008 U.S. Dist. WL 821756, at *5 (D. Idaho Mar. 25,
2008). West Virginia freely admits this. WV Memo at 7, Dkt. 60. But West Virginia
argues, citing the Atlas Mining case from this District, that where a group has no preexisting relationship, the group should not be made lead plaintiff. Id., at 8.
This argument is based upon an important principle of the PSLRA. Part of the
Act’s purpose is to discourage lawyer-driven class action litigation and races to the
courthouse. H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730, at
33. The Idaho District Court saw this principle threatened in Atlas Mining, in which two
members of a movant group were members of another group, represented by different
counsel, until just four hours before the filing of the group’s motion. Atlas, at *5. In a
more recent case, this Court recognized the importance of group cohesion, but clarified
the strict standard from Atlas: “To remain consistent with the purposes of the PSLRA’s
lead plaintiff provisions, the Court concludes that a pre-existing relationship or evidence

MEMORANDUM DECISION AND ORDER - 14

of cohesion between or among members of the group seeking appointment as lead
plaintiff is essential.” Niederklein v. PCS Edventures!.com, Inc., 2011 U.S. Dist. WL
759553, at *7 (emphasis added). Thus, it is not a preexisting relationship that is required,
but evidence of cohesion, which a preexisting relationship tends to satisfy.
Institutional Investors have submitted evidence and argument that supports the
conclusion that they are a proper, cohesive group. See Investors Memo at 13, Dkt. 19;
Investors Memo at 7, Dkt. 65. Institutional Investors members have made declarations
regarding their willingness and agreement to act as a cohesive group, their intention to
consult together regularly, and their process for sharing information and making
decisions. Investors Memo at 13, Dkt. 19; see also Niederklein, at *7-8. The Institutional
Investors have taken reasonable efforts to demonstrate their cohesiveness as a group, and
the Court is satisfied that the manner in which the group is constituted would not
preclude it from fulfilling its tasks as lead plaintiff. In re Cendant Corp. Litig., 264 F.3d
201, 264 (3d Cir. 2001).
CONCLUSION
As explained above, Institutional Investors are the movants with the highest
reasonably recoverable loss, and they have made a satisfactory preliminary showing of
Rule 23 eligibility. Therefore, the Institutional Investors are the presumptive lead
plaintiffs, subject to rebuttal by their fellow movants on the basis of Rule 23.
ORDER
IT IS ORDERED THAT:

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1.

Institutional Investors’ Motion for Appointment as Lead Plaintiff
(Dkt. 18) is GRANTED. Institutional Investors shall be the lead
plaintiffs, and their counsel shall be appointed lead counsel.

2.

Hecla Investor Group’s Motion for Appointment as Lead Plaintiff
(Dkt. 12) is DENIED.

3.

James R. Holton and Michael Schneider’s Motion for Appointment
as Lead Plaintiff (Dkt. 21) is DENIED.

4.

Carpenters Pension Fund of West Virginia’s Motion for
Appointment as Lead Plaintiff (Dkt. 24) is DENIED.

5.

Cambria County Employees’ Retirement System, Peter M. Quist,
and David W. Quist’s Motion for Appointment as Lead Plaintiff
(Dkt. 25) is DENIED.

DATED: July 12, 2012

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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