CHRISTIAN v. BT GROUP PLC et al
OPINION. Signed by Judge Kevin McNulty on 8/28/17. (DD, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
JAMES CHRISTIAN, Individually and on
behalf of all others similarly situated,
Civ. No. 2: 17-cv-00497-KM-JBC
BT GROUP PLC, GAVIN PETERSON, IAN
LIVINGSTON, and TONY CHANMUGAM,
MCNULTY, District Judge
Before the Court in this putative federal securities class action are
competing motions of
(1) a group of individual plaintiffs consisting of Gary Classen, Alice
Korenblat, Robert Korenblat, and Pierre-S. Lefebvre (collectively, the
“Classen Plaintiffs”) (ECF No. 11); and
(2) plaintiff PAMCAH-UA Local 675 Pension Fund (the “Pension Fund”)
(ECF No. 10).
Each seeks appointment as lead plaintiff and appointment of its counsel as
The underlying securities class action is brought on behalf of purchasers
of the securities of defendant BT Group PLC (“ST Group”) between May 24,
2012 and January 23, 2017 (the “Class Period”). The plaintiffs allege violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C.
78j(b) and 78t(a), as amended by the Private Securities Litigation Reform Act of
Plaintiff James Christian also filed a motion to be appointed lead plaintiff (ECF
No. 9). Recognizing that he does not appear to have the largest financial interest in
this litigation, he has since withdrawn that motion (see ECF No. 19).
1995 (the “PSLRA”), 15 U.S.C.
§ 78u-4, etseq., and of the Securities and
Exchange commission (the “SEC”) Rule lOb-5 promulgated thereunder, 17
ST Group is a communications services company whose securities are
publicly traded on the New York Stock Exchange (“NYSE”). Named plaintiff
James Christian, on behalf of a putative class, alleges that from 2012 through
2016 BT Group issued annual reports that summarized balance sheets of
company operations. Those annual reports stated that the company
maintained adequate internal controls over its financial reporting. Those
reports also contained Sarbanes-Oxley Act (“SOX”) certifications “attesting to
the accuracy of the financial statements, the disclosure of any material
changes to the Company’s internal controls over financial reporting and the
disclosure of all fraud.” (Compl. ¶1J 16—30)
The plaintiffs allege that statements made in ST Group’s 2012—16 annual
reports were materially false or misleading because they failed to disclose
adverse facts known to or recklessly disregarded by ST Group and its officers
at the time. More specifically, the plaintiffs allege that BT Group’s 2012—16
annual reports misstated earnings, failed to disclose improper accounting
practices, sales, and transactions in ST Group’s Italian operations, and failed
to disclose that BT Group’s internal controls were ineffective. (Compl.
The plaintiffs say these truths first emerged through two press releases
published in late 2016.
A. ET Group’s First Corrective Disclosure
First, the plaintiffs cite an October 27, 2016 press release which
announced ST Group’s results for the second quarter and half year to
September 30, 2016. That press release revealed a write-down of the value of
items on its balance sheet by £145 million. The press release stated, in part:
Specific items resulted in a net charge after tax of
£151m (Q2 2015/16: £52m
charge). See Note 4 for a breakdown.
BT Italia investigation
Following allegations of inappropriate
management behaviour in our BT Italla
operations, we have conducted an initial internal
investigation. This included a review of
accounting practices during which we have
identified certain historical accounting errors
and reassessed certain areas of management
We have written down the value of items on the
balance sheet by £145m. This is our current best
estimate of the financial impact based on our internal
investigation. The write down relates to balances that
have built up over a number of years and our
assessment is that the errors have not materially
impacted the group’s reported earnings over the
previous two years. The amount has been charged as
a specific item in our results for the quarter. As a
non-cash item in the period it does not impact
normalised free cash flow.
A full investigation of these matters is ongoing and we
have appointed external advisers to assist with this.
Appropriate action will be taken as the investigation
Our outlook is not affected.
32 (emphasis in Complaint)).
Following this press release, shares of BT Group fell $0.57 per share,
representing a 2.39% drop from its previous closing price of $23.25 on October
27, 2016. (Id.
33; IM Opp. 5)
B. BT Group’s Second Corrective Disclosure
Second, on January 24, 2017, BT Group issued a press release
announcing an update on its investigation into its Italian operations. This
press release stated, in part:
Update on investigation into BT’s Italian business
and on BT Group outlook
Update on investigation into BT’s Italian business
BT previously announced on 27 October 2016 that an
initial internal investigation of accounting practices in
its Italian business had identified certain historical
accounting errors and areas of management
judgement requiring reassessment. At that time, we
announced the write down of items on the balance
sheet by £145m, being the then best estimate of the
financial impact of these issues.
Since then we have progressed the investigation,
which has included an independent review by KPMG
LLP of the accounting practices in our Italian
operations and our own comprehensive balance sheet
review. These investigations have revealed that the
extent and complexity of inappropriate behaviour
in the Italian business were far greater than
previously identified and have revealed improper
accounting practices and a complex set of
improper sales, purchase, factoring and leasing
transactions. These activities have resulted in the
overstatement of earnings in our Italian business
over a number of years.
The investigation into the financial position of our
Italian business is now substantially complete.
The adjustments identified have increased from
the £145m announced in our ha If year update to a
total of around £530m. We are still evaluating what
proportion of the total adjustments should be treated
as prior year errors, and what proportion should be
treated as the reassessment in the current year of
management estimates. Work is also ongoing to
establish how these adjustments should be reflected in
BT Group’s financial statements for the current and
previous periods in light of applicable accounting
In addition, we would expect the matters described
above to result in a reduction in our Q3 adjusted
revenue and adjusted EBITDA of around £120m, and
in a reduction in Q3 normalised free cash flow of
around £lOOm. For 2016/17 as a whole, relative to
our prior outlook, we would expect a decrease in
adjusted revenue of around £200m, in adjusted
EBITDA of around £175m, and of up to £500m of
normalised free cash flow due to the EBITDA impact
and the one-off unwind of the effects of inappropriate
working capital transactions. For 20 17/18, we would
expect a similar annual impact to adjusted revenue
and adjusted EBITDA as in 2016/17, with the EBITDA
impact flowing through to normalized free cash flow.
An updated outlook for the Group reflecting the above
and other matters is set out below.
The EBITDA contribution of the Italian business
included in the Group’s reported EBITDA for the
financial year ended 31 March 2016 was around 1%.
The improper behaviour in our Italian business is an
extremely serious matter, and we have taken
immediate steps to strengthen the financial processes
and controls in that business. We suspended a
number of BT Ttaly’s senior management team who
have now left the business. We have also appointed a
new Chief Executive of BT Italy who will take charge
on 1 February 2017. He will review the Italian
management team and will work with BT Group Ethics
and Compliance to improve the governance,
compliance and financial safeguards in our Italian
Further, we are conducting a broader review of
financial processes, systems and controls across the
Group. The BT Group Remuneration Committee will
consider the wider implications of the BT Italy
Additionally, on January 24, 2017, Gavin Patterson, Chief Executive BT
We are deeply disappointed with the improper
practices which we have found in our Italian business.
We have undertaken extensive investigations into that
business and are committed to ensuring the highest
standards across the whole of ST for the benefit of our
customers, shareholders, employees and all other
Following this second press release, BT Qroup’s stock price fell by $5.05
per share, or over 20%, from its previous closing price of $19.38 per share on
January 24, 2017. (Id.
The plaintiffs claim that they and other class members have suffered
losses as the result of BT Group’s fraudulent acts and omissions and the
decline in the market value of BT Group’s shares that resulted. (Id.
The PSLRA governs the appointment of the lead plaintiff in “each private
action arising under the [Exchange Act] that is brought as a plaintiff class
action pursuant to the Federal Rules of Civil Procedure.” 15 U.S.C.
4(a)(1). The PSLRA directs courts to adopt a rebuttable presumption that “the
most adequate plaintiff is the person or group of persons that has (1) either
filed the complaint or made a motion in response to the notice to the class; (2)
has the largest financial interest in the relief sought by the class; and (3)
othenvise satisfies the requirements of Federal Rule of Civil Procedure 23.”
Lewis v. Lipocine Inc., No. CV 16-4009-BRM-LHG, 2016 WL 7042075, at
(D.N.J. Dec. 2, 2016) (citing Fields v. Biomatrix, Inc., 198 F.R.D. 451, 456
(D.N.J. 2000) and 15 U.S.C.
Rule 23 requires that the party or parties seeking to represent a class (1)
“have claims or defenses that are typical of the claims or defenses of the class,”
(the “typicality requirement”) and (2) “be able to fairly and adequately protect
the interests of the class,” (the “adequacy requirement”). Fed. R. Civ. P. 23(a);
see also In re Cendant Corp. Litig., 264 F.3d 201, 263 (3d Cir. 2001); Lewis,
2016 WL 7042075, at *4
“Once a presumptive lead plaintiff is located, the court should then turn
to the question [ofi whether the presumption has been rebutted.” In re Cendant,
264 F.3d at 268. The presumption “may be 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.
§ 78u-4(a)(3)(B)(iii)(II); see also In
re Cendant, 264 F.3d at 268 (“[T]he question is not whether another movant
might do a better job of protecting the interests of the class than the
presumptive lead plaintiff; instead, the question is whether anyone can prove
that the presumptive lead plaintiff will not do a ‘fair and adequate’job.”
Thus, one way a movant may rebut the presumption is with “proof that
the presumptive lead plaintiff is ‘subject to unique defenses that render such
plaintiff incapable of adequately representing the class.” Grodko v. Cent.
European Distribution Corp., No. CIV.A. 12-5530 JBS, 2012 WL 6595931, at *3
(D.N.J. Dec. 17, 2012) (quoting 15 U.S.C.
§ 78u—4 (a)(3)(B)(iii)(II)(bb)). As the
United States Court of Appeals for the Third Circuit has recognized, “the
challenge presented by a defense unique to a class representative [is that] the
representative’s interests might not be aligned with those of the class, and the
representative might devote time and effort to the defense at the expense of
issues that are common and controlling for the class.” Beck a Maximus, Inc.,
457 F.3d 291, 297 (3d Cir.2006). “A proposed class representative is neither
typical nor adequate if the representative is subject to a unique defense that is
likely to become a major focus of the litigation.” Id. at 301; see also Grodko,
2012 WL 6595931, at *3
Judge Arleo of this District has usefully explained that the proof required
to rebut the presumption at this early stage of litigation “need not definitively
establish” the allegedly unique defense; “Rather, the competing plaintiff must
show simply that there is some degree of probability that the defense might
‘become a major focus’ in the case.” In re Enzymotec Ltd. Sec. Litig., No. CIV.A.
14-5556, 2015 WL 918535, at *2 (D.N.J. Mar. 3, 2015) (quoting Steamfitters
Local 449 Pension Fund v. Cent. European Dist. Corp., Nos. 11—6247, 11—7085,
2012 WL 3638629, at *9 (D.N.J. Aug.22, 2012)); cf Roofers’Pension Fund a
Papa, No. CV 16-2805, 2017 WL 1536222, at *4 (D.N.J. Apr. 27, 2017)
(explaining that movants seeking to rebut the presumption “do not have to
prove the defense, but [t]he[yJ must provide enough evidence to show that it is
not speculative or meritless”).
The moving parties do not dispute that the Pension Fund is the
presumptive lead plaintiff because it has suffered the largest losses—
approximately $78,515—and otherwise satisfies Rule 23 requirements. At issue
is whether the Classen Plaintiffs have submitted sufficient “proof’ that the
Pension Fund is subject to a unique defense likely to become a major focus of
the case as it proceeds. The Classen Plaintiffs say they, not the Pension Fund,
should be appointed lead plaintiff because the Pension Fund sold all of its BT
Group shares before the second of the two corrective disclosures alleged in the
complaint (i.e., after October 27, 2016, but before January 24, 2017), making it
uniquely susceptible to a loss causation defense. (IM Opp. 5)
A. Loss Causation
Some background on loss causation in this context is necessary. To state
a claim for securities fraud under
§ 10(b), a plaintiff must plead: (1) a material
misrepresentation in connection with the purchase or sale of a security; (2)
scienter, i.e., a wrongful state of mind in the party making the representation;
(3) reliance by the plaintiff; (4) economic loss; and (5) “loss causation, i.e., a
causal connection between the material misrepresentation and the loss.” OFI
Asset Mgmt. v. Cooper Tire & Rubber, 834 F.3d 481, 493—94 (3d Cir. 2016)
(quoting Dura Pharm., Inc. tc Broudo, 544 U.S. 336, 341—42, 125 S.Ct. 1627
(2005)). The PSLRA also prescribes that “the plaintiff shall have the burden of
proving that the act or omission of the defendant alleged to violate this chapter
caused the loss for which the plaintiff seeks to recover damages.” 15 U.S.C.
In DuraPharm., Inc. v. Broudo, 544 U.S. 336, 347, 125 S. Ct. 1627, 1634
(2005), the U.S. Supreme Court held that a plaintiff had not adequately
pleaded loss causation for purposes of a lOb-S claim where the complaint did
not “claim that [the defendant’s] share price fell significantly after the truth
became known”, suggesting “the plaintiffs considered the allegation of
purchase price inflation alone sufficient.” Id. at 347. The Third Circuit has
In a typical “fraud-on-the-market” § 10(b) action, the
plaintiff shareholder alleges that a fraudulent
misrepresentation or omission has artificially inflated
the price of a publicly-traded security, with the
plaintiff investing in reliance on the misrepresentation
or omission; to satisfy the loss causation requirement,
the plaintiff must show that the revelation of that
misrepresentation or omission was a substantial factor
in causing a decline in the security’s price, thus
creating an actual economic loss for the plaintiff.
[Tjhe plaintiff must show that the defendant
misrepresented or omitted the very facts that were a
substantial factor in causing the plaintiffs economic
McCabe v. Ernst & Young, LLP., 494 F.3d 418, 425—26 (3d Cir. 2007) (citations
B. The Classen Plaintiffs’ Arguments
The Classen Plaintiffs argue that BT Group is likely to argue that the
Pension Fund cannot establish loss causation under Dura and its progeny. The
Pension Fund sold all of its shares after the first, October 2016 press release.
That first press release allegedly precipitated only a 2.39% drop in share price.
In contrast, the Classen Plaintiffs held their shares until after the second,
January 2017 press release. The drop in share price following that second
release was far greater—in excess of 20%. (IM Opp. 6) The Classen
the relatively lower trading volume at the time of the
2.39% drop (811,000 shares) with the trading volume
drop (7.8 million shares); this, they
“possibly indicat[es] that the market
the revelation of a fraud on that day [i.e., October 27,
2016].” (IM Opp. 5—6)
Additionally, the Classen Plaintiffs submit that BT Group will argue that
other factors—not the first, partial disclosure—caused the 2.39% drop in
October 2016. For example, they say, the October 2016 corrective disclosure
“coincided with [BT Group’s] disclosure of a 10% decline in earnings per share,
a challenging UK market, and the negative impact on the Company from
weakening British currency.” (IM Opp. 6 (citing In re Merrill Lynch & Co.
Research Reports Sec. Litig., 568 F. Supp. 2d 349, 365 (S.D.N.Y. 2008) (holding
that plaintiffs did not allege loss causation where they failed to allege facts
supporting an inference that the alleged fraud, rather than other market
factors or the materialization of disclosed risks, caused the defendant’s
The Classen Plaintiffs continue that, to the extent the October 2016
disclosure was not a loss causation event, the Pension Fund is an “in-and-out”
trader—i.e., an investor that bought “into and out of the securities at issue
during the class period,” IBEWLocaI 90 Pension Fund v. Deutsche Bank AG, No.
11 CIV. 4209 KBF, 2013 WL 5815472, at *19 (S.D.N.Y. Oct. 29, 2013). To that
extent, they were not damaged by the alleged fraud and thus are not typical of
other class members. (IM Opp. 6) Indeed, they argue, the Pension Fund might
lack standing altogether if BT Group shows the Pension Fund was not damaged
by the alleged fraud.
C. The Pension Fund’s Argument
The Pension Fund replies that the Classen Plaintiffs do not and cannot
deny that the Pension Fund suffered its losses as the result of the October
2016 disclosure; this is not like the cases the Classen Plaintiffs cite where an
earlier, partial disclosure did not actually reveal the alleged fraud at all. See,
e.g., In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 41 (2d Cir. 2009)
(“Plaintiffs have failed to demonstrate that any of the information that ‘leaked’
into the market prior to [the date of the alleged corrective disclosure], revealed
the truth with respect to the specific misrepresentations alleged.
than providing evidence of corrective disclosures, the industry events cited by
Plaintiffs appear in their complaint in the context of Defendants’ misleading
statements themselves.”); Bensley v. FalconStor Software, Inc., 277 F.R.D. 231,
240 (E.D.N.Y. 2011) (presumptive lead plaintiff held inadequate where it was
an in-and-out trader and had not alleged sufficient facts from which the court
could “confidently infer” that an early disclosure after which it sold its shares
“actually revealed fraud or misconduct sufficient to qualify as a partial
disclosure”; the early disclosure only announced that financial results would be
lower than prior guidance, whereas a later disclosure clearly revealed that
improper payments had been made to a customer—i.e., the alleged fraud).
To the contrary, says the Pension Fund, the October 2016 press release
revealed the truth that had been hidden—the “inappropriate management
behavior” and “historical accounting errors”—and the January 2017 press
release was simply an “[u]pdate on the investigation.” (PF Reply 7—8) Under
facts like these, the Pension Fund argues, “courts routinely appoint investors
as lead plaintiffs when they sell their shares of stock after a partial disclosure
and are not holding any shares at the time of the later disclosure.” (PF Reply 6)
In that respect, the Pension Fund refers primarily to two cases from the
Southern District of New York, a veritable hotbed of PSLRA cases. In Weiss v.
Friedman, Billings, Ramsey Grp., Inc., the court held that the presumptive lead
plaintiff was “not unable to prove loss causation simply because all of its
shares were sold before the end of the Class Period,” noting that the “case
involve[edj partial disclosures.” No. 05-CV-04617(RJH), 2006 WL 197036, at *5
(S.D.N.Y. Jan. 25, 2006). Similarly, in Montoya v. Mamma.com Ina, the court
explained that the presumptive lead plaintiff was adequately qualified, despite
being an in-and-out trader that sold after a partial disclosure. Loss causation,
said Montoya, “does not require full disclosure and can be established by
partial disclosure during the class period which causes the price of shares to
decline.” No. 05 CIV. 2313 (RB), 2005 WL 1278097, at *2 (S.D.N.Y. May 31,
2005). In both cases, the courts also noted that the lead plaintiffs’ in-and-out
status did not render them unique or wholly atypical, because several other
plaintiffs were also in-and-out traders. Weiss, 2006 WL 197036, at *5;
Montoya, 2005 WL 1278097, at *2. The implication was that any lead class
representative would have to represent those plaintiffs’ interests as well.
Weiss and Montoya do not indicate whether the earlier partial disclosures
precipitated significantly smaller losses compared to later disclosures, as is the
case here. Additionally, neither the complaint nor the parties’ briefing in this
case indicate whether any other plaintiffs are in-and-out traders, such that a
loss causation defense asserted against the Pension Fund would not be
particularly unique. Nevertheless, I find the principles underlying Weiss and
Montoya persuasive. See also Juliar v. Sunopta Inc., No. 08 CIV. 1070 (PAC),
2009 WL 1955237, at *2 (S.D.N.Y. Jan. 30, 2009) (explaining, with reference to
Weiss and Montoya, that “[cjourts in this District have found that where a
putative lead plaintiff sold all its shares after a partial disclosure of misconduct
by the defendant but before the final disclosure that led to the lawsuit, that
putative lead plaintiff does not face the unique defense of having to show loss
causation to the extent that it cannot serve as lead plaintiff).
As a court in the Southern District of New York has explained even more
when calculating movants’ financial interests on a lead
plaintiff motion, courts should not include losses
resulting from ‘in-and-out’ transactions, which took
place during the class period, but before the
misconduct identified in the complaint was ever
revealed to the public.” Id. (internal alterations and
quotation marks omitted). However, a plaintiffs theory
of “loss causation may be premised on partial
revelations that do not uncover the complete extent of
the falsity of specific prior statements” where the
partial disclosure “somehow reveals to the market that
a defendant’s prior statements were not entirely true.”
In re Take—Two Interactive Sec. Litig., 551 F. Supp. 2d
247, 283 (S.D.N.Y.2008).
[AJs various courts have found, “the announcement of
investigations may qualify as partial disclosures for
purposes of loss causation.” In re Qentiva Sec. Litig.,
932 F.Supp.2d 352, 388 (E.D.N.Y.2013); see also
TakeTwo, 551 F.Supp.2d at 288 (collecting cases
finding the same).
Kux—Kardos v VimpelCom, Ltd., 151 F. Supp. 3d 471, 476—77 (S.D.N.Y. 2016),
reconsideration denied sub nom. In re VimpelCom, Ltd., No. 1-15-CV-8672
(ALC), 2016 WL 5390902 (S.D.N.Y. Sept. 26, 2016); see also In re Gentiva Sec.
Litig., 932 F. Supp. 2d 352, 388 (E.D.N.Y. 2013) (addressing announcement of
investigation followed by 11% decline in stock price and holding that “an
announcement regarding a governmental investigation into the precise subject
matter which forms the basis of the fraudulent practices at issue can qualify as
a partial corrective disclosure for purposes of loss causation”).2
I also find that the cases on which the Classen Plaintiffs rely—like other
cases in which courts have disqualified presumptive lead plaintiffs on loss
causation grounds—are fundamentally distinguishable from the facts of the
case before me. See In re Flag Telecom Holdings, Ltd. Sec. Litig. and Bensley,
supra; see also Grodko v. Cent. European Distribution Corp., No. CIV.A. 12-5530
JBS, 2012 WL 6595931, at *5_6 (D.N.J. Dec. 17, 2012) (disqualifying putative
lead plaintiffs who sold their shares nine months before the earliest disclosure
at issue, rejecting losses following an earlier partial disclosure as sufficient
grounds for loss causation where a related complaint described those losses as
having an unrelated cause).
In determining what is a partial disclosure for loss causation purposes,
the case law instructs courts to hew closely to the allegations of the complaint.
See Grodko, 2012 WL 6595931, at *6 (determining that the losses and related
disclosure the presumptive plaintiff urged as the basis for loss causation stem
The Classen Plaintiffs may intend to argue that the 2.39% price drop following
the October 2016 disclosure in this case is not enough of a decline to support loss
causation. I disagree with that narrow contention. Judge Simandle has previously
interpreted Dura as requiring only allegations of a drop in share price in response to
corrective disclosures—that is, “a significant drop in the price is not required.” Steiner
v. MedQuist Inc., No. CIV. 04-5487 (JBS), 2006 WL 2827740, at *19 & n.22 (D.N.J.
Sept. 29, 2006) (emphasis added). At any rate, $2.39 per share would seem to
surmount the threshold of significance, if that were the test.
from misconduct “at the heart of’ another action rather than the present
action); In re Smart Ted-is., Inc. S’holderLitig., 295 F.R.D. 50, 59—60 (S.D.N.Y.
2013) (excluding from the class all in-and-out plaintiffs that sold prior to the
first disclosure alleged in the complaint, where the complaint “specifically
allege[ed] that the purported ‘truth’ became known for the first time on
November 9, 2010,” and noting that plaintiffs’ argument that the truth leaked
prior to November 9, 2010 “belies plaintiffs theory of this case as articulated in
Here, the complaint alleges that the truth began to emerge with the first,
October 26, 2016, press release, after which share prices fell to the detriment
of investors. (Compl.
33; see also id.
35 (alleging shares fell after the
January 2017 press release, “ftu-ther damaging investors” (emphasis added)).
As the Pension Fund points out, the Classen Plaintiffs themselves have filed a
complaint in the Southern District of New York which, like the complaint in
this action, also expressly refers to the October 2016 press release as a
disclosure that caused a decline in BT Group’s share price. See Sarraf v. BT
Group plc, No. 17-cv-00558 (S.D.N.Y.), ECF No. 1 at
October 2016 and January 2017 press releases as corrective disclosures
revealing the truth and causing plaintiffs and class members’ losses); see also
Hollister v. BT Group PLC, et al., No. 17-cv-00777 (S.D.N.Y.), ECF No. 1 at
67 (another related action, describing a 2.4% price drop “on heavy trading
volume” in BT Group shares on October 27, 2016 as a “reaction” to the October
26, 2017 announcement of the Italian investigation).
Focusing as I must on the allegations in the complaint, I find that the
allegations present a fairly straightforward (and not atypical) case of
progressive revelation of a problem that turned out to be more serious than
first believed. That the first, 2.39% drop had other causes is possible, but
speculative at this point. I conclude that the Pension Fund is not likely to be
subject to a unique loss causation defense that will become a major focus of
I note also, as other courts have, that the Pension Fund is the kind of
institutional investor that Congress specifically intended to encourage to serve
as lead plaintiff when it enacted the PSLRA. See, e.g., Grodko u. Cent. European
Distribution Corp., No. CIV.A. 12-5530 JBS, 2012 WL 6595931, at *3 (D.N.J.
Dec. 17, 2012) (“The PSLRA directs courts to identify the applicants with the
greatest financial interest in the relief sought because Congress sought to
encourage courts to choose institutional investors as lead plaintiffs: ‘Both the
Conference Committee Report and the Senate Report state that the purpose of
the legislation was to encourage institutional investors to serve as lead plaintiff,
predicting that their involvement would significantly benefit absent class
members.”’ (quoting In re Cendant Corp. Litig. 264 F.3d at 273)); Juliar, 2009
WL 1955237, at *2 (rejecting individual investors’ rebuttal effort where
presumptive lead plaintiff adequately alleged partial disclosure prior to its sale
of shares and presumptive lead plaintiff was also a PSLRA-preferred
Finally, I take some comfort in the Pension Fund’s offer to “include an
additional class representative who held shares of BT Group through the final
disclosure” in an amended complaint. (PF Reply 9) Cf In re WorldCom, Inc. Sec.
Litig., 219 F.R.D. 267, 286 (S.D.N.Y. 2003) (“The PSLRA does not prohibit the
addition of named plaintiffs to aid the Lead Plaintiff in representing the class.
As discussed above, the PSLRA promotes the selection at an early stage of the
litigation of an institutional investor with the largest financial stake in the
action so that that investor can control the course of the litigation.”). I agree
that this should be done.
Accordingly, the Classen Plaintiffs have not rebutted the presumption
that the Pension Fund, which suffered the greater dollar loss, should be
appointed lead plaintiff. The contingencies, to be sure, are many. To the extent
the representation structure proves inadequate to protect the rights of certain
plaintiffs, I of course possess the authority to modify it. Cf Weiss, 2006 WL
197036, at *5 (“The Court is aware that disagreements may arise throughout
this action, and as such, reserves the right to modify this lead plaintiff
structure in the event that litigation is stalled, expenses become unnecessarily
duplicative or wasteful, or the structure becomes otherwise unmanageable.”);
Khunt v. Alibaba Gip. Holding Ltd., 102 F. Supp. 3d 523, 541 (S.D.N.Y. 2015)
(“If pre-tñal discovery reveals rifts within the class that require subclasses, the
issue will be addressed at that time.”). But focusing as I must on the
allegations of the complaint and the likely course of litigation, as it may be
assessed at this very early stage, I find that the presumption has not been
There being no other dispute as to the Pension Fund’s satisfaction of
Rule 23 or their selection of counsel, see 15 U.S.C.
§ 78u-4(a)(3)(B)(v) (“The
most adequate plaintiff shall, subject to the approval of the court, select and
retain counsel.”), I will grant the Pension Fund’s motion for appointment of
itself as lead plaintiff and appointment of its counsel, Robbins Geller Rudman
& Dowd LLP, as lead counsel. Also on the Pension Fund’s motion, I will appoint
Carella, Byrne, Cecchi, Olstein, Brody & Agnello, P.C. as local counsel for the
Pension Fund. The competing motion of the Classen Plaintiffs is accordingly
DATED: August 28, 2017
United States District Ju
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