Doshi v. General Cable Corporation et al

Filing 56

ORDER: 1) PREPA's motion to Appoint Counsel 19 is DENIED; 2) Satish Doshi's motion for appointment as lead counsel 20 is DENIED AS MOOT; 3) The Long Trust's motion for appointment as lead counsel 22 is GRANTED< /b>. Kessler Topaz Meltzer & Check, LLP is hereby APPOINTED as Lead Counsel for the Class, and Mehr, Fairbanks & Peterson Trial Lawyers, PLLC is hereby APPOINTED as Liaison Counsel for the Class. 4) PREPAs motion for leave to file a su rreply 51 is DENIED AS MOOT; and 5) On or before November 20, 2017, the parties shall confer to consider the nature and basis of their claims and defenses and the possibilities for a prompt settlement or resolution of the case, to make or arrange for the disclosures required by Rule 26(a)(1), and to develop a proposed discovery plan. Such proposed plan shall be filed no later than December 4, 2017.. Signed by Judge William O. Bertelsman on 11/7/2017.(ECO)cc: COR

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION AT COVINGTON

CIVIL ACTION NO. 2:17-025 (WOB-CJS)
SATISH DOSHI, Individually
And on behalf of all other
Persons similarly situated
VS.

PLAINTIFFS

MEMORANDUM OPINION AND ORDER

GENERAL CABLE, ET AL

DEFENDANTS

This is a securities class action brought on behalf of all
persons who purchased General Cable securities between February
23, 2012 and February 10, 2016.
This matter is currently before the Court on competing motions
for appointment as lead plaintiff.

One is by The Employees

Retirement System of the Puerto Rico Electric Power Authority
(“PREPA”) (Doc. 19), and the other is by William Edward Long, as
Trustee of the UA 09-21-2001 William Edward Long & Bonnie Diane
Long Living Trust (“the Long Trust”) (Doc. 22). 1
The Court has reviewed this matter and concludes that oral
argument is not necessary. 2

1

A third motion by plaintiffs Erick Grimm and Satish Doshi (Doc.
20) is moot, as they have conceded that they do not assert the
largest financial interest in the relief being sought by the Class.
(Doc. 41).
2

The PSLRA does not require courts to hold hearings on lead
plaintiff motions. Norfolk Cnty. Ret. Sys. v. Comty. Health

Factual and Procedural Background
General Cable is manufacturer and distributor of fiber optic
wire

and

cable

products

for

use

in

the

energy,

industrial,

construction, specialty and communications markets.

(Compl. ¶

21).
Plaintiffs allege that, beginning on February 23, 2012, the
Company made false or misleading statements in its public filings,
or failed to disclose information, regarding the fact that the
Company was violating the Foreign Corrupt Practices Act of 1992
(“FCPA”)

by

paying

millions

of

dollars

in

officials in countries where it did business.

bribes

to

foreign

(Compl. § 47).

When

the Company disclosed information about its potential liability
under

the

FCPA,

shareholders.

its

stock

price

dropped,

causing

harm

to

(Compl. ¶¶ 48, 49, 63, 64).

Specifically, the Complaint alleges two such “corrective”
disclosures:
•

“On September 22, 2014, General Cable disclosed that the
Company was reviewing ‘payment practices,’ ‘the use of
agents,’ and ‘the manner in which the payments were
reflected on our cooks and records’ in connection with
General Cable’s operations in Portugal, Angola, Thailand,
and India. General Cable advised investors that these
issues ‘may have implications under’ the [FCPA].”
(Compl. ¶ 5). On this news, the company’s stock price
dropped 4.68%. (Compl. ¶ 6).

Sys., Inc., Nos. 3:11-cv-0433, 3:11-cv-0451, 3:11-cv-0601, 2011
WL 6202585, at *2 (M.D. Tenn. Nov. 28, 2011) (citation omitted).
2

•

On February 10, 2016, post-market, General Cable reported
that the Company had increased a previously disclosed
disgorgement of profits related to bribe-tainted sales in
Angola from $24 to $33 million, after identifying
“certain other transactions that may raise concern.”
(Compl. ¶ 8). On this news, the company’s stock price
dropped 31.61%. (Compl. ¶ 9).

Plaintiffs filed this class action on January 5, 2017, in the
United States District Court for the Southern District of New York.
(Doc. 1).

It was transferred to this Court on February 27, 2017.

(Doc. 9).

The Complaint alleges a claim against General Cable for

violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b)
and Rule 10(b)(5) promulgated thereunder, as well as a claim
against defendants Kenny and Robinson for violation of Section
20(a) of the Exchange Act (“control person” liability).

(Doc. 1).

Analysis
The Private Securities Litigation Reform Act (“PSLRA”), 15
U.S.C. § 78u-4, governs the selection of a lead plaintiff in
private securities class actions. 3
“The PSLRA provides a rebuttable presumption with regard to
the

most

adequate

plaintiff.”

Farrah

v.

Provectus

Biopharmaceuticals, Inc., 68 F. Supp.3d 800, 804 (E.D. Tenn. 2014).
This presumption is triggered where a potential lead plaintiff
has: (1) either filed the complaint or made a motion in response

3

Certain timing and notice requirements of the PSLRA have been
satisfied and thus are not discussed herein.
3

to a notice; (2) in the determination of the Court, has the largest
financial interest in the relief sought by the class; and (3)
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).

However, this presumption can be overcome by a showing that
the presumptive lead plaintiff will be subject to unique defenses
or is otherwise inadequate.

15 U.S.C. § 78u-4(a)(3)(iii)(II).

A. Largest Financial Interest
The

PSLRA

does

not

define

the

term

“largest

financial

interest,” and it does not appear that the Sixth Circuit has had
occasion to discuss the lead counsel issue.
“Typically, courts have considered (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
by the [movant] during the class period; and (4) the amount of
loss suffered by the movant.”

Burgraff v. Green Bankshares, Inc.,

Nos. 2:10-CV-00253, 2:11-CV-00014, 2011 WL 613281, at *2 (E.D.
Tenn. Feb. 11, 2011) (internal quotations and citations omitted).
“Most courts emphasize the fourth factor — the approximate
loss suffered.”

Ansfield v. Omnicare, Inc., Civil Action No. 11-

173-DLB-CJS, 2012 WL 12924531, at *4 (E.D. Ky. Mar. 12, 2012)
(citation omitted).

4

Here, it is not disputed that PREPA arguably suffered the
largest financial loss during the Class Period: $114,271.86, as
compared to the Long Trust’s loss of $18,884.81. 4
B. Typicality, Adequacy, and Unique Defenses
Having
interest,

determined

the

Court

that

must

PREPA

has

determine

if

the

largest

PREPA

also

financial
meets

the

typicality and adequacy requirements of Fed. R. Civ. P. 23(a).
See 15 U.S.C. § 78u-4(a)(3)(B)(iii)(cc).
“The typicality requirement of Rule 23(a)(3) is fulfilled if
the prospective lead plaintiff’s claims arise out of the same
course of conduct or series of events and are based on the same
legal

theory

as

the

other

members

of

the

proposed

class.”

Ansfield, 2012 WL 12924531, at *4 (citation omitted).
Here, PREPA’s claims are typical of the class because it
alleges

losses

resulting

misrepresentations

and

from

failure

General

to

Cable’s

disclose

alleged

activities

that

violated the FCPA.
Nonetheless, PREPA cannot establish that it satisfies the
adequacy requirement of Rule 23.
adequacy

prong

by

demonstrating

A “plaintiff can establish the
that

its

interests

are

not

antagonistic to those of the class and it is not subject to unique

4

These figures are calculated using the “last in, first out”
(“LIFO”) method.
For purposes of these motions, it is not
necessary to discuss alternate ways of calculating losses, because
under any method, PREPA appears to have the largest loss.
5

defenses that render it incapable of adequately representing the
class.”

Id. (emphasis added).

During the Class Period, PREPA purchased 13,490 shares of
General Cable stock at a cost of $422,542.86, but it sold 25,056
shares for $509,527.36, resulting in net sales of 11,560 shares
and net gains of $86,984.50.

(Doc. 19-5).

PREPA was able to sell

more shares than it bought during the Class Period because it held
shares that were purchased before the Class Period.

PREPA was

thus a “net seller” and “net gainer” during the Class Period.
Courts regularly hold that plaintiffs who are net sellers
and/or net gainers may be subject to unique defenses because they
may have benefitted by selling pre-Class Period shares at allegedly
inflated

prices

during

the

Class

Period.

See

Perlmutter

v.

Intuitive Surgical, Inc., No. 10-CV-03451, 2011 WL 566814, at *9
(N.D. Cal. Feb. 15, 2011); In re Cardinal Health, Inc. Sec. Litig.,
226 F.R.D. 298, 308 (S.D. Ohio 2005) (noting that “courts usually
reject these so-called net gainers as lead plaintiffs, opting
instead for net losers that will have less trouble proving damages,
and that “proving damages and typicality will be the bête noir” of
such plaintiffs); In re Comdisco Sec. Litig., 150 F. Supp.2d 943,
(N.D. Ill. 2001) (rejecting application for lead plaintiff by
investor whose “sales at inflated prices caused it to derive
unwitting benefits rather than true losses from alleged securities
fraud”).
6

The Court in Perlmutter explained this concept:
Because Marcus sold more shares of Intuitive stock
during the Class Period than he purchased, Marcus must
have purchased some of the shares that he sold during
the Class Period prior to the start of the Class Period.
. . .
The purposed of isolating the calculation of net sales
and net gains to the Class Period is to determine whether
a party potentially benefitted from the fraud. . . .
Thus, when Marcus purchased Intuitive stock prior to the
Class Period, he purchased it a fair market value. When
he sold it during the Class Period, however, he sold it
at fraudulently inflated prices. As a result, instead
of being injured by the fraud on these sales, Marcus
actually benefitted from the fraud. . . . Therefore,
Marcus’ status as net seller and a net gainer during the
Class Period weighs against Marcus’ appointment as the
lead
plaintiff.
Besides
demonstrating
that
he
potentially benefitted from Defendants’ fraud, Marcus’
status as a net seller and a net gainer also weighs
against him because it may subject him to unique defenses
if he were to be the class representative.
Perlmutter, 2011 WL 566814, at *9 (emphasis added).
Here, nearly half of the 25,056 shares that PREPA sold during
the Class Period — 11,566 — were purchased at fair market value
prior to the Class Period.

PREPA’s sale of those shares during

the Class Period at allegedly fraudulently inflated prices makes
PREPA exactly the type of net gainer held by the above authorities
to be an inadequate lead plaintiff.
Secondly, PREPA also sold all of its General Cable stock by
October 28, 2014, roughly sixteen months before the end of the
Class Period and before the second alleged corrective disclosure.
PREPA argues that this does not render it an atypical or inadequate
7

plaintiff because some of its sales occurred after the first of
the two alleged partial corrective disclosures.
Courts, however, have rejected such an argument because a
party like PREPA cannot show it was injured by disclosures that
occurred after it divested itself of all of defendant’s stock:
It is undisputed that after the June 2010 Disclosure, and
before the July 2012 Disclosure, Retirement Funds sold all of
its Navistar stock. Thus, Retirement Finds has no interest
in devoting resources to pursuing claims based upon the July
2012 Disclosure or the August 2012 Disclosure.
Retirement
Funds’ primary interest will be to show that the June 2010
Disclosure was the main culprit in the corrective price drop
in the market. Plaintiffs other than Retirement Funds will
not have any great need to prove that the June 2010 Disclosure
impacted the market and led to damages, and can focus on the
more admissions alleged in the later disclosures. Retirement
Funds has no incentive to fairly and adequately protect the
interests of the class as to the later disclosures.
Constr. Workers Pension Trust Fund v. Navistar Int’l Corp., No. 13
C 2111, 2013 WL 3934243, at *5 (N.D. Ill. July 30, 2013) (emphasis
added).

The Navistar Court went on to note that the plaintiff in

question could face a motion to dismiss for lack of standing as to
the later disclosures, and that it would thus not be an appropriate
lead plaintiff.

Id.

This reasoning is especially applicable here.

Although PREPA

sold some of its stock after the September 22, 2014, corrective
disclosure, that disclosure caused only a 4.68% drop in General
Cable’s stock price.

(Compl. ¶ 6).

In contrast, the disclosure

of February 10, 2016 — long after PREPA had sold all its stock —
caused a 31.61% drop in the stock price.
8

(Compl. ¶ 9).

Thus,

plaintiffs who still held stock on the later date — the closing
date of the Class Period — were impacted far more greatly than
those affected only by the first disclosure.
Therefore, because PREPA can show no loss causation as to the
second, more harmful disclosure, it would be subject to a standing
defense and would have no incentive to pursue the claims based on
that subsequent disclosure.

For this reason as well, PREPA is not

an appropriate lead plaintiff.
The Court will thus designate the Long Trust as the lead
plaintiff in this matter. 5
The PSLRA also provides that the lead plaintiff shall, subject
to

the

approval

of

represent the class.

the

Court,

select

and

retain

15 U.S.C. § 78u-4(a)(3)(B)(v).

counsel

to

The Court

must consider whether counsel are qualified, experienced, and
generally able to conduct the litigation.

See Stout v. J.D.

Byrider, 228 F.3d 709, 717 (6th Cir. 2000).
The Long Trust seeks the approval of the firm of Kessler Topaz
Meltzer & Check, LLP as Lead Counsel and Mehr, Fairbanks & Peterson
Trial Lawyers, PLLC as Liaison Counsel for the class, and it has
submitted

proof

supporting

these

firms’

qualifications

and

experience in handling securities and other complex litigation.

5

In addition, given the above facts, PREPA has shown no reasonable
basis for allowing discovery into the lead plaintiff question.
9

(Docs. 22-5, 22-6).

PREPA has not challenged the qualifications

of these firms.
Therefore, the Court will approve the appointment of these
firms as Lead and Liaison Counsel for the Class.

Thus,

having

reviewed

this

matter,

and

the

Court

being

sufficiently advised,
IT IS ORDERED that:
(1)

PREPA’s motion to Appoint Counsel (Doc. 19) be, and is
hereby, DENIED;

(2)

Satish Doshi’s motion for appointment as lead counsel
(Doc. 20) be, and is hereby, DENIED AS MOOT;

(3)

The Long Trust’s motion for appointment as lead counsel
(Doc. 22) be, and is hereby, GRANTED.

Kessler Topaz

Meltzer & Check, LLP is hereby APPOINTED as Lead Counsel
for the Class, and Mehr, Fairbanks & Peterson Trial
Lawyers, PLLC is hereby APPOINTED as Liaison Counsel for
the Class.
(4)

PREPA’s motion for leave to file a surreply (Doc. 51)
be, and is hereby, DENIED AS MOOT; and

(5)

On or before November 20, 2017, the parties shall confer
to consider the nature and basis of their claims and
defenses and the possibilities for a prompt settlement
or resolution of the case, to make or arrange for the
10

disclosures required by Rule 26(a)(1), and to develop a
proposed discovery plan.

Such proposed plan shall be

filed no later than December 4, 2017.

This 7th day of November, 2017.

11