Luman v. Anderson et al
ORDER denying defendants' motions related to compliance with the PSLRA 73 , 76 . ORDER denying plaintiffs' 81 motion to compel. Defendants are directed to respond the the Motion to Certify within 30 days of this Order. Plaintiffs shall have 15 days thereafter to file reply suggestions. Signed on 08/24/11 by District Judge Howard F. Sachs. (Duer, Tina)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
PAUL LUMEN, et al.,
PAUL G. ANDERSON, et al.,
Case No. 08-0514-CV-W-HFS
ORDER (1) DENYING MOTION REQUIRING COMPLIANCE WITH PSLRA
PROCEDURES, (2) DENYING MOTION TO STAY, (3) DENYING MOTION TO
COMPEL, AND (4) ESTABLISHING BRIEFING SCHEDULE FOR PLAINTIFFS’
MOTION TO CERTIFY CLASS
Pending are two motions relating to Defendants’ contention that requirements of
the Private Securities Litigation Reform Act (“PSLRA”) have not been satisfied.
Plaintiffs have also filed a motion to compel. These motions (Doc. # 73, Doc. # 76, and
Doc. # 81) are denied, and the Court establishes a new schedule to complete the
briefing of Plaintiffs’ Motion to Certify.
Several cases against Defendants alleging securities fraud were transferred to
the undersigned. On July 20, 2009, I consolidated the cases and – in accordance with
the PSLRA – appointed lead counsel and lead plaintiffs. The lead plaintiffs appointed
were Paul Lumen and Electrical Workers Pension Fund, Local 103, I.B.E.W (“IBEW”).
On September 25, 2009, the Lead Plaintiffs filed a Consolidated Complaint.
On November 16, 2010, I granted in part and denied in part Defendants’ Motion
to Dismiss. The effect of that order was to limit the permissible claims to those alleging
“the Adams bad debt situation was willfully minimized on November 3 and 4, 2008.”
This presented a potential problem, because there was reason to believe Lead Plaintiffs
purchased their securities before November 3, 2008. I addressed this issue in the
Counsel will note that I find very serious problems that may very well avoid
discovery aimed at potential claims of stockholders who bought in before
November, 2008. Whether eligible investors have sued is not before me.
Amendments to the pleadings may be promptly filed.
Plaintiffs apparently did not act promptly enough for Defendants’ taste. On
February 1, 2011, Defendants filed a Motion for Judgment on the Pleadings, alleging
Lead Plaintiffs lacked standing to assert the only claims permitted by my November 16
Order. In response, Plaintiffs sought leave to add two new plaintiffs: Bruce Wells and
Building Trades Pension Fund (“Building Trades”). Defendants did not oppose this
motion; in fact, Defendants filed a Motion to Withdraw their previously filed Motion for
Judgment on the Pleadings because it appeared to them “proposed plaintiff Building
Trades possesses standing to maintain this action on its own.” On March 4, 2011, I
granted both Plaintiffs’ and Defendants’ motions. The Amended Consolidated
Complaint (“ACC”) was filed on March 7, 2011. The caption for the ACC identifies the
plaintiff as “Paul Lumen, Individually and On Behalf of All Others Similarly Situated.”
However, the only plaintiffs identified in the ACC are Wells and Building Trades, ACC ¶¶
15-16; Lumen and IBEW are not mentioned at all.
Meanwhile, Plaintiffs’ Motion to Certify was filed on February 22, 2011. Instead
of responding, Defendants filed the instant motions alleging Lead Counsel have
substituted plaintiffs who have not been approved in accordance with the PSLRA and
have thereby circumvented the PSLRA’s purpose of preventing attorney-driven
When it enacted PSLRA, “Congress sought to create mechanisms to ensure the
protection of class members’ interests in securities litigation that was widely perceived
as being lawyer-instituted and lawyer-driven.” In re BankAmerica Corp. Sec. Litig., 350
F.3d 747, 751 (8th Cir. 2003) (citing In re Cendant Corp. Litig., 264 F.3d 201, 254-68
(3d Cir. 2001)). The PSLRA provides this protection by requiring the District Court to
appoint a lead plaintiff or group of lead plaintiffs in accordance with the statute. The
movant(s) with the largest financial interest is presumptively the lead plaintiff(s). 15
U.S.C. § 78u-4(a)(3)(B)(iii)(I).
There is a certain amount of logic to Defendants’ argument that approval of a
lead plaintiff is only valid to the extent the lead plaintiff has standing to assert the claims
in question. Unfortunately, this rule would significantly interfere with the timely and
orderly processing of securities’ law claims because the decision to appoint lead
counsel is made before any claims are considered and before a full analysis of Rule 23
is conducted. It is therefore not surprising that courts have rejected arguments similar
to Defendants’. The timing for compliance with the PSLRA necessarily creates a
substantial risk that a lead plaintiff will be appointed who does not have standing to
assert all of the claims, so the lead plaintiff is permitted to designate additional plaintiffs
to serve as class representatives. However, the PSLRA does not require that the case
“start over” to vet or analyze additional plaintiffs. E.g., Hevesi v. Citigroup, Inc., 366
F.3d 70, 82 (2d Cir. 2004).
Defendants characterize the new plaintiffs as having “replaced” the ones
designated as Lead Plaintiff; I do not. The Lead Plaintiffs are still Lead Plaintiffs, and
thus are still “in the case” even if they are not asserting the only remaining claim. The
Lead Plaintiffs’ claims have been dismissed, and at the appropriate point in time they
may opt to appeal the decision rendered on November 16, 2010. Consistent with
Hevesi, I permitted (with Defendants’ consent) additional representatives into the case.
While the Lead Plaintiffs are not mentioned in the body of the ACC, this is an
understandable effort to comply with the order dismissing certain claims (although it
would have been equally acceptable to “re-assert” the dismissed claims simply for
continuity’s sake). Under these circumstances, the PSLRA does not require that the
case “start over” at the beginning of the party-approval process.
As noted, Defendants never responded to the Motion to Certify. Plaintiffs have
asked me to grant the motion because it is unopposed, but I am unwilling to do this.
Certification of a class implicates interests beyond those of the parties, so the motion
should not be automatically granted given that Defendants’ failure to respond is not the
result of recalcitrance.
Finally, there is the matter of Plaintiffs’ Motion to Compel. Defendants have not
responded to certain discovery requests – not because they believed the information is
not discoverable, but because they believed the Plaintiffs’ lacked standing to discover it.
Similarly, Defendants declined to finalize approval of a Stipulated Protective Order
because of their belief that Plaintiffs were not authorized to act in this case. Resolution
of Defendants’ PSLRA-related motions should remove these roadblocks without further
Defendants’ motions related to compliance with the PSLRA (Doc. # 73 and Doc.
# 76) are denied. Plaintiffs’ Motion to Compel (Doc. # 81) is denied. Defendants are
directed to respond to the Motion to Certify within thirty days of this Order. Plaintiffs
shall have fifteen days thereafter to file Reply Suggestions.
IT IS SO ORDERED.
/s/ Howard F. Sachs
HOWARD F. SACHS, SENIOR JUDGE
UNITED STATES DISTRICT COURT
August 24 , 2011
Kansas City, MO
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