Sokolow v. LJM Funds Management, Ltd. et al
Filing
111
MEMORANDUM Opinion and Order. Signed by the Honorable Robert M. Dow, Jr on 6/26/2018. Mailed notice (jk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
LEONARD SOKOLOW,
)
)
)
Plaintiff,
)
)
v.
)
)
LJM FUNDS MANAGEMENT, LTD.,
)
Defendants.
)
______________________________________)
)
STANLEY BENNET,
)
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Plaintiff,
)
)
v.
)
)
LJM FUNDS MANAGEMENT, LTD.,
)
)
Defendants.
______________________________________)
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JAMES NOSEWICZ,
)
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Plaintiff,
)
)
v.
)
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LJM FUNDS MANAGEMENT, LTD.,
)
)
Defendants.
______________________________________)
Case No. 18-cv-01039
Judge Robert M. Dow, Jr.
Case No. 18-cv-01312
Judge Robert M. Dow, Jr.
Case No. 18-cv-01589
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
This is a securities class action against LJM Funds Management, Ltd.; Two Roads Shared
Trust; Northern Lights Distributors, LLC; Andrew Rogers; Mark Gertsen; Mark Garbin; Neil
Kaufman; Anita Krug; James Colantino; Anish Parvataneni; and Anthony Caine. Seven movants
requested that the Court consolidate the above-captioned cases and sought appointment as lead
plaintiff in this matter: (1) Paragon National, LP [47], (2) Lynda Godkin [52], (3) High Country
1
Capital Management [57], (4) Tradition Capital Management LLC, and SRS Capital Advisors,
Inc. (together, the “Investment Advisor Group”) [61], (5) Donn Glander, Charles Irvine, Gustav
Swanson and Pell Limited Liability Company (together, the “Glander Group”) [67], (6) Justin
and Jenny Kaufman, Joseph N. Wilson and Dr. Larry and Marilyn Cohen (collectively, the
“Kaufman Group”) [71], (7) MWH Investments, LLC, Personal CFO Solutions, LLC, John W.
Kapouch, and James Frugé (collectively, the “MWH Group”) [75]. Subsequently, the Investment
Advisor Group and the Kaufman Group (together, the “Combined Group”) asked that they be
appointed lead plaintiff together. [97.] All other movants except the MWH Group and Lynda
Godkin either support or do not oppose appointing the Combined Group as lead plaintiff in this
action.
To the extent that the motions [47; 52; 57; 61; 67; 71; 75] request consolidation of the
above-captioned cases, they [47; 52; 57; 61; 67; 71; 75] are denied as moot because the Court
already has consolidated the above-captioned cases. [See 78.] For the reasons set forth below,
the Court grants in part the motions of the Investment Advisor Group [61] and the Kaufman
Group [71] and approves the selection of Robbins Geller Rudman & Dowd and Labaton
Sucharow LLP as co-lead counsel. The Court denies the remaining motions [47; 52; 57; 67; 75]
in full. The case is set for further status on July 17, 2018 at 10:15 a.m.
I.
Background
The above-captioned actions arise from alleged violations of the Securities Act of 1933
(the “Securities Act”) by LJM Funds Management, Ltd. (“LJM”), Two Roads Shared Trust,
Northern Lights Distributors, LLC, and several individual defendants (collectively, the
“Defendants”). LJM Preservation & Growth Fund (the “Fund”) is a mutual fund traded under
the symbol (“LJMIX”). Plaintiffs allege that Defendants caused the Fund’s publically traded
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share price to be artificially inflated by making false and/or misleading statements related to the
Fund and/or failing to disclose that (i) the Fund was not focused on capital preservation, (ii) did
not take appropriate steps to preserve capital in down markets, and (iii) left investors exposed to
an unacceptably high risk of catastrophic losses. Plaintiffs further allege that when the fraud was
revealed to the investing public, the market value of the Fund’s shares declined precipitously,
damaging class members. Seven movants originally sought to be appointed lead plaintiff. Only
the Combined Group, the MWH Group, and Lynda Godkin continue to seek appointment as lead
plaintiff. Currently pending before the court are the motions for appointment as lead plaintiff
filed by the remaining three movants.
II.
Legal Standard
The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides guidelines for
the appointment of a lead plaintiff in a securities class action case. The PSLRA requires that the
Court “appoint as a 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 the class
members[.]” 15 U.S.C. § 78u–4(a)(3)(B)(i). The PSLRA establishes a rebuttable presumption
that the “most adequate plaintiff” is the “person or group of persons” who “has either filed the
complaint or made a motion in response to a notice,” “has the largest financial interest in the
relief sought by the class,” and “otherwise satisfies the requirements of Rule 23 of the Federal
Rules of Civil Procedure.”
15 U.S.C. 78u–4(a)(3)(B)(iii)(I)(aa); (bb); and (cc).
This
presumption may be rebutted, however, if a member of the purported class establishes that the
“presumptively most adequate plaintiff will not fairly and adequately protect the interests of the
class” or “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 PSRLA further provides that
3
the “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).
III.
Analysis
A.
Timing of Motions
By statute, any motions for lead plaintiff of a class action brought under the PSLRA must
be made within 60 days of the Early Notice. See 15 U.S.C. §77z-1(a)(3)(A)(i)(II). The
Investment Advisor Group and the Kaufman Group modified their initial proposals and
submitted a joint response brief asking that they be appointed lead plaintiff together, with their
respective attorneys serving as co-lead counsel. [See 97.] Although the Combined Group filed
its joint amended proposal after the 60-day deadline in the PSLRA, courts have permitted
amended motions by groups that were combined after the 60-day deadline as long as each
member of the amended group previously filed a timely motion for appointment as lead plaintiff.
See City of Sterling Heights Gen. Employees’ Ret. Sys. v. Hospira, Inc., 2012 WL 1339678, at *3
(N.D. Ill. Apr. 18, 2012) (citing Peters v. Jinkosolar Holding Co., Ltd., 2012 WL 946875, at *10
(S.D.N.Y. March 19, 2012)). Because the Investment Advisor Group and the Kaufman Group
each filed timely motions, the Court concludes that the amended proposal also is timely. Thus,
all of the remaining movants have satisfied 15 U.S.C. § 78u–4(a)(3)(B)(iii)(I)(aa).
B.
Financial Interest
The PSLRA presumes that the most adequate plaintiff is the plaintiff who—in addition to
satisfying other requirements—has the largest financial interest in the relief sought by the class.
“The largest financial interest provision seeks to increase the likelihood that institutional
investors will serve as lead plaintiffs by requiring courts to presume that the member of the
purported class with the largest financial stake in the relief sought is the ‘most adequate
4
plaintiff.’
The PSLRA, however, does not specify how courts should measure the largest
financial interest in the relief sought by the class.” Hospira, Inc., 2012 WL 1339678, at *3
(internal citations and quotations omitted).
Most courts consider: “(1) the total number of shares purchased during the class period;
(2) the net shares purchased during the class period (in other words, the difference between the
number of shares purchased and the number of shares sold during the class period); (3) the net
funds expended during the class period (in other words, the difference between the amount spent
to purchase shares and the amount received for the sale of shares during the class period); and
(4) the approximate losses suffered.” Hospira, Inc., 2012 WL 1339678, at *4 (citing Lax v. First
Merch. Acceptance Corp., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997)); see also In re
Cendant Corp. Litig., 264 F.3d 201, 263 (3d Cir. 2001) (“[W]e agree with the many district
courts that have held that courts 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.”
(citations omitted)). While courts differ on the precise weight to apply to each factor, most
courts agree that fourth factor—the approximate losses suffered—is the most salient factor in
assessing the lead plaintiff. See In re CMED Sec. Litig., 2012 WL 1118302, at *3 (S.D.N.Y.
April 2, 2012) (“In giving weight to the four factors, courts in this District, as others, place the
most emphasis on the last of the four factors: the approximate losses suffered by the movant
above any weight accorded to net shares purchased and net expenditures.” (citations and
quotations omitted)); In re Diamond Foods, Inc. Sec. Litig., 281 F.R.D. 405, 408 (N.D. Cal. Mar.
20, 2012) (concluding that the “fourth factor, ‘approximate loss,’ is generally considered the
most important factor”); Canson v. WebMD Health Corp., 2011 WL 5331712, at *2 (S.D.N.Y.
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Nov. 7, 2011) (concluding that “[t]he fourth factor, loss suffered, weighs most heavily in the
court’s analysis” (citation omitted)).
The movants still being considered for appointment as lead plaintiff claim the following
losses:
Movant
Claimed Financial Interest1
Combined Group
$8,623,635
MWH Group
$8,270,160
Lynda Godkin
$188,000
Although the Combined Group claims the largest sum of financial losses, the other movants
argue that the Court should not allow all of the members of the Combined Group to aggregate
their losses to establish the largest financial interest in the relief sought by the class.
The Seventh Circuit has not yet addressed whether and to what extent the claims of class
members can be aggregated for the purposes of determining which movant has the largest
financial interest in the relief sought by the class. Although some courts have held that a group
of investors must have a preexisting relationship to serve together as lead plaintiffs, see, e.g.,
Sakhrani v. Brightpoint, Inc., 78 F. Supp. 2d 845 (S.D. Ind. 1999), “the ‘trend’ has been to allow
small groups of investors to act as lead plaintiff even if they do not have pre-existing
relationships.” See Bang v. Acura Pharm., Inc., 2011 WL 91099, at *2 (N.D. Ill. Jan. 11, 2011)
(citing Sabbagh v. Cell Therapeutics, Inc., 2010 WL 3064427 at *4-5 (W.D. Wash. Aug. 2,
1
The parties in this case have quantified their respective financial interests in terms of their approximate losses
suffered. Although the MWH Group also quantified its losses in terms of the other factors sometimes considered by
courts, the MWH Group recognizes that “most courts simply determine which potential lead plaintiff has suffered
the greatest total losses” to measure each movant’s respective financial interest. [105, at 8 (citing Takara Tr. v.
Molex Inc., 229 F.R.D. 577, 579 (N.D. Ill. 2005); Hospira, 2012 WL1339678, at *4).] Absent reason for focusing
on the other factors considered by courts, the Court uses the approximate losses claimed by each of the remaining
movants as the measure of each movant’s respective financial interest.
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2010)). Furthermore, as the Supreme Court recently recognized, 80 percent “of securities class
actions in post-PSLRA data sample had two or more co-lead counsel firms[.]” China Agritech,
Inc. v. Resh, 2018 WL 2767565, at *7 n.3 (U.S. June 11, 2018) (citing Choi & Thompson,
Securities Litigation and Its Lawyers: Changes During the First Decade After the PSLRA, 106
Colum. L. Rev. 1489, 1507, 1521, 1530 (2006)).
This trend is consistent with the Third Circuit’s decision In re Cendant Corporation
Litigation, which held that small groups of investors can aggregate their losses in computing the
total loss amount and act as lead plaintiff even if they did not have any pre-existing relationship.
264 F.3d 201, 266-67 (3rd Cir. 2001). In reaching this conclusion, the Third Circuit reasoned
that the PSLRA “contains no requirement mandating that the members of a proper group be
‘related’ in some manner[.]” See id. at 266.
Still, “to enjoy the rebuttable presumption that the [PSLRA] statute confers, there must
be some evidence that the members of the group will act collectively and separately from their
lawyers.” In re Tarragon Corp. Sec. Litig., 2007 WL 4302732, at * 2 (S.D.N.Y. Dec. 6, 2007).
In addition, “[a]t some point, a group may become too large for its members to operate
effectively as a unit.” Aguilar v. Vitamin Shoppe, Inc., 2018 WL 1960444, at *11 (D.N.J. Apr.
25, 2018) (citing In re Cendant Corp. Litig., 264 F.3d 201, 267 (3d Cir. 2001)). “Such
unwieldiness would vitiate the PSLRA’s purpose of having active and engaged plaintiffs
supervise the conduct of the litigation * * * [T]he larger [the size of a proposed lead plaintiff
group], the greater the dilution of control that [the members of that group] can maintain over the
conduct of the putative class action.” Id. (internal citations and quotations omitted); see also In
re Telxon Corp. Sec. Litig., 67 F. Supp. 2d 803, 815-16 (N.D. Ohio 1999) (“The greater the
number of persons comprising the group, the more difficult it is for those persons to
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communicate with each other, and to speak with a single, coherent voice when making decisions
about the conduct of the litigation, or, more precisely, the conduct of the attorney or attorneys in
prosecuting the litigation.”).
Courts should consider the extent of the prior relationships between the parties as part of
its analysis of whether the movant will adequately represent the interests of the class, but the
parties’ prior relationships alone should not be dispositive. In re Cendant Corp. Litig., 264 F.3d
at 266-67. Courts also should consider other factors, such as the efforts of lawyers in creating a
movant group to determine whether the resulting group could “be counted on to monitor counsel
in a sufficient manner[,]” id. at 267 (citing In re Razorfish, Inc. Sec. Litig., 143 F. Supp. 2d 304,
307-08 (S.D.N.Y. 2001)), and the size of the movant group to determine whether that group can
fairly and adequately represent the class. Id. at 267; see also Sabbagh, 2010 WL 3064427 at *5
(recognizing a group of investors should be “small and cohesive enough such that it can
adequately control and oversee litigation”) (citing Eichenholtz v. Verifone Holdings, Inc., 2008
WL 3925289, at *8 (N.D. Cal. Aug. 22, 2008)).
“[C]ourts should generally presume that groups with more than five members are too
large to work effectively.” See Cendant, 264 F.3d at 267. However, there is no “hard-and-fastrule” regarding the maximum number of parties that can serve as lead plaintiffs in a securities
class action. Id. Whether a group can serve as lead plaintiff together should be determined on a
case-by-case basis. Id. Groups including more than five members have been appointed lead
plaintiff when the specific facts of the case indicated that the group could act collectively and
separately from their lawyers. See, e.g., Barnet v. Elan Corp., 236 F.R.D. 158, 162 (S.D.N.Y.
2005) (group of six “not too unwieldy a number to effectively manage the litigation”); Weltz v.
Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001) (group of seven “does not present a group so
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cumbersome as to deliver the control of the litigation into the hands of the lawyers”); In re
Advanced Tissue Sciences Sec. Litig., 184 F.R.D. 346, 352-53 (S.D. Cal. 1998) (approving sixmember lead plaintiff group).
Based on all of the available information, the Court concludes that the Combined Group
can adequately represent the interests of the class in this case. Although the Combined Group
has more than five members, each member of the combined group has a significant financial
interest in the relief sought by the class. In fact, out of the remaining movants, the Combined
Group includes both the individual investor and the institutional investor claiming the greatest
losses. Traditional Capital Management LLC (one of the investment advisors in the Combined
Group) claims $5,925,856.45 in losses [63-2, at 28], which is significantly more than the claimed
losses of the each investment advisor in the MWH Group. [94-1, at 44.] Mr. Wilson (one of the
individual investors in the Combined Group) claims over $1.1 million in losses [103, at 6], which
is more than the $908,059.23 claimed by the James Frugé (the individual investor in the MWH
Group) [94-1, at 44] and the $188,000 in losses claimed by Ms. Godkin. Given the significant
losses claimed by each member of the Combined Group, each member of the group can be
counted on to monitor counsel in a sufficient manner. Thus, appointment of the Combined
Group as lead plaintiff in this matter is consistent with the primary purpose of the PSLRA, which
is to curtail the influence of professional, figurehead plaintiffs by transferring “primary control of
private securities litigation from lawyers to investors.” S. REP. 104-98, 6, 1995 U.S.C.C.A.N.
679, 685.
Furthermore, the Combined Group is sufficiently small and cohesive to adequately
control and oversee litigation. Although the Combined Group includes seven members, the
individual investors in the Combined Group had pre-litigation relationships. Justin Kaufman is
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married to Jenny Kaufman, and Dr. Larry Cohen and Marilyn Cohen are his in-laws. [97-1, at
4.] Furthermore, Mr. Kaufman avers that he has known Joseph Wilson for more than three
years. Id. Although these individuals do not have any pre-litigation relationship with the two
investment advisors in the Combined Group,2 the joint declaration submitted by the Combined
Group in support of their motion for appointment as lead plaintiff explains how and why the
Kaufman Group and the Investment Advisor Group made the decision jointly to seek
appointment as lead plaintiff in this matter. Id. at 5-7. Specifically, as part of an effort to resolve
the competing motions for appointment as lead plaintiff, the Kaufman Group and the Investment
Advisor Group concluded that it made sense to combine resources to ensure that the class
achieves the best results. Id. at 6-7. This combination was supported by movants High Country
Capital Management and Paragon National LP and was not opposed by movant Glander Group.
[97, at 8 n.3.]
The combination of institutional and individual investors with a significant financial
interest in this case serves to protect the interests of the class. To begin, the PSLRA was enacted
“to increase the likelihood that institutional investors will serve as lead plaintiffs” because
institutional 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.”
H.R. Conf. Rep. No. 104-369, at 34 (1995) (“The Conference Committee believes that increasing
the role of institutional investors in class actions will ultimately benefit shareholders and assist
courts by improving the quality of representation in securities class actions.”). Thus, the PSLRA
reflects a “presumption that institutional investors be appointed lead plaintiff.” Greebel v. FTP
Softward, Inc., 939 F. Supp. 57, 63 (D. Mass. 1996). In this case, the only institutional investors
2
The two investment advisors in the Investment Advisor Group also had a pre-litigation relationship and submitted
an affidavit indicating that they independently decided to join together to file a motion for appointment as lead
plaintiff. [63-3.]
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seeking appointment as lead plaintiff are investment advisors. Ms. Godkin argues that the
investment advisors may have conflicts of interest with others in the class. As discussed below,
nothing before the Court at this time reveals the contours of any present conflict of interest.
However, appointing a lead plaintiff group including both investment advisors and individual
investors helps ensure that there is a check on the investment advisors while respecting the
PSLRA’s preference for institutional investors. Indeed, other courts have recognized that more
diverse groups can better serve the interests of class members in securities class actions. See
Hospira, 2012 WL 1339678, at *8; see also Laborers Local 1298 Pension Fund v. Campbell
Soup Co., 2000 WL 486956, at *3 (D.N.J. Apr. 24, 2000) (appointing two competing movants as
co-lead plaintiffs in view of the desirability of having both institutional investors and individual
investors as lead plaintiffs “since each may bring a unique perspective to the litigation”); In re
Oxford Health Plans, 182 F.R.D. 42, 45 (S.D.N.Y. 1998) (appointing three competing movants
as co-lead plaintiffs that “all suffered significant losses” on the grounds that such a structure
“provides the proposed class with the substantial benefits of joint decision-making” and is
otherwise consistent with the PSLRA).
The MWH Group asks that—in the event the Kaufman Group and the Investment
Advisor Group are permitted to combine—the Court permit the MWH Group to file an amended
lead plaintiff motion on behalf of itself and the Glander Group. [105, at 16.] However, there is
no evidence that any of the eight members of that proposed group had any pre-litigation
relationship with each other. Moreover, allowing unrelated movants to continuously amend their
lead plaintiff motions for the apparent purpose of adding class members to obtain lead plaintiff
status is both impractical and contrary to the purposes of the PSLRA.3
3
MWH Group attempts to distinguish Hospira and other cases involving post-deadline combinations by arguing that
the lead plaintiff appointed in those cases included the movant with the greatest financial losses, which indicated
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Ms. Godkin also argues that the Combined Group’s losses are overstated because its
claimed losses include—according to Ms. Godkin—losses associated with claims that the
investment advisors in the Combined Group lack standing to bring. Specifically, Ms. Godkin
argues that the investment advisors lack standing to pursue claims on behalf of the investors they
advised, citing W.R. Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, which held that an
investment advisor must submit evidence that its clients transferred ownership of or title to their
claims in order to have Article III standing. 549 F.3d 100, 109 (2d Cir. 2008).
However, the Court in Huff recognized that standing could be established by showing that
the claims asserted were assigned to the investment advisor seeking to bring claims on behalf of
its clients. 549 F.3d at 108 (“[A]n assignment of claims transfers legal title or ownership of
those claims and thus fulfills the constitutional requirement of an ‘injury-in-fact.’”); see also
Lowry v. Baltimore & Ohio R. Co., 707 F.2d 721, 729 (3d Cir. 1983) (“[T]he availability of such
Rule 10b-5 actions should be limited to those investors who themselves have been defrauded, or
who are express assignees of defrauded parties.”). Courts therefore have allowed investment
advisors to serve as lead plaintiffs when their clients assigned legal title to the investment
advisors before the investment advisors filed their motions for appointment as lead plaintiff.
See, e.g., City of Taylor Police & Fire Ret. Sys. v. W. Union Co., 2014 WL 4799659, at *5 (D.
Colo. Sept. 26, 2014); Markette v. XOMA Corp., 2016 WL 2902286, at *4 (N.D. Cal. May 13,
2016) (“As an initial matter, post-complaint assignments of litigation rights have been found
valid in circumstances analogous to those here.” (citing Northstar Fin. Advisors, Inc. v. Schwab
Investments, 779 F.3d 1036, 1044, 1048 (9th Cir. 2015)); cf. In re Bard Assocs., Inc., 2009 WL
that the combination was not solely for the purpose of obtaining lead plaintiff status. As discussed already, out of
the remaining movants, the Combined Group has the individual investor and institutional investor claiming the most
in losses. Furthermore, as discussed above, the Combined Group has explained how and why they now seek
appointment as lead plaintiff together and how such a combination will better serve the interests of the class.
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4350780, at *2 (10th Cir. Dec. 2, 2009) (indicating that assignments must be obtained prior to
the 60-day deadline for filing lead plaintiff motions set forth in the PSLRA); In re SLM Corp.
Sec. Litig., 258 F.R.D. 112, 116 (S.D.N.Y. 2009) (holding investment advisor lacked standing to
bring claims assigned after it was appointed lead plaintiff).4
In fact, Ms. Godkin appears to recognize that the investment advisors would have
standing if their clients assigned their claims to the investment advisors, but argues that “it is
virtually impossible to verify the validity of the hundreds of assignments” obtained by the
investment advisors without more information identifying the beneficial owners of the accounts.
[95, at 10 n.2.] As discussed below, the Court has no reason to question the validity of the
assignments or the accuracy of the affidavits provided by the investment advisors in the
Combined Group. Accordingly, the Court sees no reason to exclude losses associated with
claims assigned to the investment advisors in the Combined Group from the Combined Group’s
claimed losses. The Combined Group therefore is the movant with the largest financial interest
in the relief sought by the class and satisfies 15 U.S.C. § 78u–4(a)(3)(B)(iii)(bb).
C.
Rule 23 Requirements
The PSLRA further provides that the lead plaintiff must “otherwise satisfy the
requirements of Rule 23 of the Federal Rules of Civil Procedure.” 15 U.S.C. §
4
Ms. Godkin also argues that the investment advisors are improperly grouping hundreds of clients’ claims. [104, at
9-11.] However, the investment advisors are seeking to recover losses for clients that assigned legal title of their
claims to their respective investment advisors. Because the clients assigned their claims, the investment advisors are
the real parties in interest. Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (holding that
assignees with legal title to claims are real parties in interest authorized to sue on the assigned claims in federal
court). Ms. Godkin argues that the investment advisors are aggregating claims of dozens or even hundreds of
investors for no apparent reason other than to manufacture the largest loss. But the investment advisors have only
been assigned claims of their clients—not claims of entirely unrelated parties. Given that the PSLRA favors
institutional investors, there is nothing improper with an investment advisor pursuing claims it holds title to in order
to recover money for its clients. This is not the kind of lawyer-driven aggregation prohibited in the cases cited by
Ms. Godkin. Cf. In re Bank One Shareholders Class Actions, 96 F. Supp. 2d 780, 783 (N.D. Ill. 2000) (“Indeed, any
choice that was based on the number of shares held by such an assemblage of small holders would really subvert the
purposes of the Reform Act by maximizing the prospect that the lawsuit would truly be run by the lawyers and not
by the client class members (none of whom might have a sufficient amount at stake to justify the necessary
investment of time and effort to exercise meaningful control of the litigation).”).
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78u4(a)(3)(B)(I)(cc). Rule 23(a) provides that a party may serve as a class representative “only
if: (1) the class is so numerous that joinder of all members is impracticable, (2) there are
questions of law or fact common to the class, (3) the claims or defenses of the representative
parties are typical of the claims and defenses of the class, and (4) the representative parties will
fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a). The typicality and
adequacy elements are the relevant factors to the appointment of a lead plaintiff. Hospira, 2012
WL 1339678, at *8. The Combined Group has satisfied its burden by making a preliminary
showing that it satisfies the requirements of Rule 23.
Under Rule 23(a), a plaintiff’s claims are typical if they “arise[ ] from the same event or
practice or course of conduct that gives rise to the claims of other class members and his or her
claims are based on the same legal theory.” Keele v. Wexler, 149 F.3d 589, 595 (7th Cir. 1998).
Here, for purposes of selecting the lead plaintiff, the Combined Group’s claims are based on the
same legal theories and arise from the same events and course of conduct giving rise to the
claims of the other class members in this case. As such, it meets the typicality requirement of
Rule 23(a). See Johnson v. Tellabs, 214 F.R.D. 225, 228 (N.D. Ill. 2002).
The Combined Group also meets the adequacy requirement in Rule 23(a). “A lead
plaintiff meets the adequacy requirement if (1) its claims are not antagonistic or in conflict with
those of the class; (2) it has sufficient interest in the outcome of the case to ensure vigorous
advocacy; and (3) it is represented by competent, experienced counsel who be able to prosecute
the litigation vigorously.” Hospira, Inc., 2012 WL 1339678, at *8 (citing Tellabs, 214 F.R.D. at
228-29). There is no indication that the Combined Group’s claims conflict with those of the
class, as both the lead Plaintiff group and the class include both institutional and individual
14
investors.5 Given the Combined Group’s alleged losses, it has a substantial interest in the
outcome of this case. Finally, the Combined Group is represented by competent, experienced
counsel. Thus, the Combined Group satisfies 15 U.S.C. § 78u–4(a)(3)(B)(iii)(I)(cc) and is
presumed the “most adequate plaintiff” under the PSLRA.
D.
Rebuttable Presumption
The presumption established by the PSLRA “may rebutted only upon proof by a member
of the purported plaintiff class that the presumptively most adequate plaintiff (aa) will not fairly
and adequately protect the interests of the class; or (bb) is subject to unique defenses that render
such plaintiff incapable of adequately representing the class.”
15 U.S.C.A. § 78u-4
(a)(3)(B)(iii)(II). Ms. Godkin argues, however, that the Combined Group is subject to unique
defenses that make it an improper lead plaintiff. When a member of the purported plaintiff class
argues that the presumptive most adequate plaintiff is subject to unique defenses that render in
incapable of representing the class, a court does “not have to determine that the defense is likely
to succeed,” but “ask simply whether [movant] is likely to be ‘subject to’ the unique defense” to
find that an otherwise adequate lead plaintiff has been rebutted, because “the time and attention
[a plaintiff] would be required to devote to the * * * issue * * * would distract it from the claims
of the rest of the class.” In re Bally Total Fitness Sec. Litig., 2005 WL 627960, at *6 (N.D. Ill.
Mar. 15, 2005).
Ms. Godkin argues that the Combined Group cannot serve as lead plaintiff because the
investment advisors in the group are subject to debilitating conflicts of interest and unique
defenses stemming from possible liability to their clients.
“In support of this argument,
Ms. Godkin submitted an affidavit asserting that “[b]ased on her years of legal experience, [she
5
The Court assumes that being subject to a unique defense is not part of the initial Rule 23(a) threshold requirement,
but part of the rebuttal analysis contemplated by the PSLRA, as other courts have done. See, e.g., In re Bally Total
Fitness Sec. Litig., 2005 WL 627960, at *5 n.7 (N.D. Ill. Mar. 15, 2005).
15
believes] that clients of investment advisors, who recommended purchasing shares in the LJM
Preservation and Growth Fund during the Class Period * * * potentially have valid legal claims
against their investment advisors related to those purchases.” [96, at ¶ 3.] Ms. Godkin does not,
however, provide much support for that assertion, citing in her brief a single comment from an
analyst opining that the Fund “should never have been marketed to fund shareholders as a tool
for capital preservation.” [95, at 13.] Although Ms. Godkin’s counsel cites a case granting
summary judgment against investment advisors who committed securities fraud, the investment
advisors in that case misrepresented facts and omitted information about a conflict of interest.
Hollerich v. Acri, 259 F. Supp. 3d 806, 812 (N.D. Ill. 2017). Based on the materials before the
Court, there is no indication that the investment advisors in the Combined Group engaged in
such conduct.
Accordingly, it would be improper to disregard the Combined Group’s
presumptive lead plaintiff status on the basis of the information currently before the Court. See,
e.g., Woburn Ret. Sys. v. Salix Pharms., Ltd., 2015 WL 1311073, at *9 (S.D.N.Y. Mar. 23, 2015)
(“[M]ere allegations of wrongdoing, without a finding established on the record, are insufficient
to rebut [the] presumption of adequacy.”).
Ms. Godkin also argues that the Combined Group should not be appointed lead plaintiff
because there are serious questions about the validity and propriety of some of the assignments
obtained by the investment advisors in the Combined Group. [104, at 11-13.] In making this
argument, Ms. Godkin challenges just 5 of over 200 assignments on the grounds that they were
illegibly signed by an anonymous signatory, signed by the same signatory, and/or left a second
signature line blank. Id. But Ms. Godkin does not explain how these perceived deficiencies
make the assignments invalid. Each assignment provided by the investment advisors in the
Combined Group clearly identifies the entity assigning the claims.
16
[97-3.]
Furthermore,
Michael C. Provine (Member and Chief Compliance Officer of Traditional Capital Management
LLC) and Michael P. Riordan (Managing Director of SRS Capital Advisors, Inc.) submitted a
joint affidavit representing that the investment advisors have received assignments from their
clients. [63-3.]
Based on the materials before the Court, the Court has no reason to conclude that the
assignments were forged or signed by unauthorized persons. To the contrary, the Combined
Group has explained in some detail how it secured assignments and recognized its potential
discovery-related obligations in connection with those assignments.
[See 103, at 13-15.].
Accordingly, the Court does not see any basis for denying the Combined Group of its
presumptive lead plaintiff status based on these challenges.6 Roofers’ Pension Fund v. Papa,
2017 WL 1536222, at *5 (D.N.J. Apr. 27, 2017) (“Nor does he provide any substantiated
allegation or reason to believe that the Perrigo Group executives’ sworn declaration attesting to
their ownership is incorrect or false. He has therefore not established a probability that the
Perrigo Group would focus much, if any, time during the litigation establishing standing; or that
such time would be spent at the expense of issues that are common and controlling for the rest of
the class.”). Because no party has raised a challenge to the adequacy of the Combined Group
group beyond mere speculation, the Combined Group’s motion for appointment as lead plaintiff
is granted. All other motions for appointment as lead plaintiff in this matter are denied.
The Court notes, however, that the Combined Group has a responsibility under the
PSLRA to continue to monitor whether its members are capable of adequately protecting the
6
Ms. Godkin also argues that Jarr Equities LLC—an entity that assigned its claims to Traditional Capital LLC
(“Traditional”)—cannot serve as lead plaintiff because of numerous unrelated lawsuits involving its principals.
[104, at 12.] However, Jarr Equities LLC has not moved to be appointed lead plaintiff in this matter; Traditional
has. Ms. Godkin has not identified any misconduct on the part of principals of Tradition that undermine its ability to
serve as a fiduciary. Cf. In re Surebeam Corp. Sec. Litig., 2004 WL 5159061, at *7 (S.D. Cal. Jan. 5, 2004) (“On
more than one occasion courts have found that an individual is an inadequate lead plaintiff due to unrelated
misconduct which implicates the individual’s ability to serve as a fiduciary.”).
17
interests of class members. In re NYSE Specialists Sec. Litig., 240 F.R.D. 128, 133 (S.D.N.Y.
2007) (“Courts have interpreted their lead plaintiff responsibilities under the PSLRA to
encompass a continuing ‘duty to monitor whether lead plaintiffs are capable of adequately
protecting the interests of the class members.’” (quoting In re Terayon Commc’ns Sys., Inc. Sec.
Litig., 2004 WL 413277, at *7 (N.D. Cal. Feb. 23, 2004))). Thus, a lead plaintiff has the
“responsibility to propose their own withdrawal and substitution should it be discovered that they
may no longer adequately represent the interests of the purported plaintiff class.” Id. (citing In re
Initial Pub. Offering Sec. Litig., 2004 WL 3015304, at *1 (S.D.N.Y. Dec. 27, 2004)). If any lead
plaintiff fails to do so, “a member of the purported class will be allowed to endeavor to protect
its own interests and the interests of its fellow class members by similarly moving the court to
have a lead plaintiff removed upon good cause shown.” Id. Given the many qualified potential
lead plaintiffs and counsel who have come forward at this initial stage of the case to offer their
services, the Court feels comfortable that lead plaintiffs and counsel will be carefully monitored
going forward, both externally and by the Court itself, to ensure that no unaddressed conflicts
arise. The Court is not, however, persuaded to disregard the presumption established by the
PSLRA based on unsupported conjecture.
E.
Lead Counsel
Counsel representing the parties who moved for lead plaintiff in this case are highly
skilled and have extensive experience in the area of securities litigation. “The PSLRA provides
that the lead plaintiffs shall, subject to Court approval, select and retain counsel to represent the
class they seek to represent.” Hospira, Inc., 2012 WL 1339678, at *9 (citing 15 U.S.C. § 78u–
4(a)(3)(B)(v)).
18
The Combined Group has selected Robbins Geller Rudman & Dowd and Labaton
Sucharow LLP to serve as co-lead counsel. Given the extensive experience both of these firms
have in the area of securities law, the Court approves them as co-lead counsel in this case. The
Court recognizes, of course, its responsibility to carefully scrutinize any fee award sought in this
case by co-lead counsel. See 15 U.S.C. § 78u–4(a)(6) (limiting the total award of attorneys’ fees
and expenses to “a reasonable percentage of the amount of any damages and prejudgment
interest actually paid to the class”); see also Hospira, 2012 WL 1339678, at *9 (“The parties are
on notice, however, that the Court will carefully scrutinize any proposed fee award and will not
hesitate to reject such an award if it proves to be unreasonable, especially given that two counsel
are being appointed as lead counsel.” (citations omitted)); In re Sprint Corp. Sec. Litig., 164 F.
Supp. 2d 1240, 1244 (D. Kan. 2001) (“Co-lead counsel are hereby on notice that the court will
not approve any possible award of fees and expenses that reflects duplication, inefficiency, or the
costs of coordinating the efforts of the two firms.”).
IV.
Conclusion
To the extent the motions [47; 52; 57; 61; 67; 71; 75] request that the Court consolidate
the above-captioned cases, the motions [47; 52; 57; 61; 67; 71; 75] are denied as moot because
the Court has already consolidated the above-captioned cases. [See 78.] For the foregoing
reasons, the Court grants in part the motions of the Investment Advisor Group [61] and the
Kaufman Group [71] and appoints the Combined Group as lead plaintiff. The Court approves
the selection of Robbins Geller Rudman & Dowd and Labaton Sucharow LLP as co-lead
counsel. The Court denies the remaining motions [47; 52; 57; 67; 75] in full. The case is set for
further status on July 17, 2018 at 10:15 a.m.
19
Dated: June 26, 2018
________________________________
Robert M. Dow, Jr.
United States District Judge
20
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