RUBENSTAHL v. PHILIP MORRIS INTERNATIONAL INC. et al

Filing 26

OPINION. Signed by Judge Esther Salas on 2/13/2019. (ld, )

Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

WILLIAM RUBENSTAHL,
individually and on behalf of all
others similarly situated,

Plaintiff,
v.
PHILIP MORRIS
INTERNATIONAL INC., et. al.,
Defendants.

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Civil Action No. 17-13504 (ES) (MAH)
MEMORANDUM OPINION

SALAS, DISTRICT JUDGE
Before the Court is Plaintiff Union Asset Management Holding AG’s (“Union”)
uncontested motion to be appointed lead plaintiff and have its lead counsel and liaison counsel
approved under the Private Securities Litigation Reform Act (“PSLRA”). (D.E. No. 7). The
Court has reviewed the relevant submissions and decides this matter without oral argument. See
Fed. R. Civ. P. 78. For the reasons below, Union’s motion is GRANTED.
Background. As the court writes primarily for the parties, only a brief procedural history
is provided. Plaintiff William Rubenstahl filed this action on December 21, 2017, alleging that
Defendants Philip Morris International Inc. (“Philip Morris”), Andre Calantzopoulis, and Jacek
Olczak (together “Defendants”) violated sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 (the “Exchange Act”), injuring Plaintiff and others similarly situated. (See generally
D.E. No. 1).

More specifically, the Complaint alleges that (i) Defendants made false or

misleading statements regarding Philip Morris’ clinical testing of its reduced-risk products; (ii)

these false or misleading statements caused artificially inflated prices of Philip Morris securities;
and (iii) putative class members, who purchased Philip Morris securities at the artificially
inflated prices, were damaged upon revelation of the false or misleading statements. (Id. at ¶¶ 6,
15, 22 & 28).
On February 20, 2018, Union submitted the instant motion. (D.E. No. 7). Plaintiffs
William Rubenstahl and Guodong Chen also filed motions to be appointed lead plaintiff (D.E.
Nos. 5 & 6), but they withdrew those motions (D.E. Nos. 9 & 10) after Union filed its motion.
On July 3, 2018, this Court directed Union to submit a supplemental brief to address deficiencies
in its motion. (D.E. No. 20). Union submitted that supplemental brief (D.E. No. 21), as well as a
copy of the retainer agreement for in camera inspection.
Legal Standard.

In a non-class action context, individual parties may select their

counsel, negotiate retainer agreements, monitor counsel performance, and communicate with
counsel on any concerns. In re Cendant, 264 F.3d 201, 254 (3d Cir. 2001). These liberties
confer upon individual parties the power to (i) “choose lawyers with whom they are comfortable
and in whose ability and integrity they have confidence;” (ii) “craft fee agreements . . . that work
to align their lawyers’ economic interests with their own;” and (iii) “police their lawyers’
conduct [to] prevent shirking.” Id. In a class action context, however, this power dwindles as
counsel-class communications become unwieldy and the economic interests of the class and its
counsel diverge. See id. at 254-55. Thus, there is “reason to fear that class counsel will be
highly imperfect agents for the class.” Id. at 255.
The PSLRA addresses this concern through two interrelated mechanisms. See 15 U.S.C.
§ 78u-4(a)(3); Cendant, 264 F.3d at 261-62. First, the PSLRA provides a process for choosing a
single, most adequate “lead plaintiff” who will represent class interests, select qualified lead
counsel for the class, and monitor lead counsel’s performance. See 15 U.S.C. § 78u-4(a)(3);
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Cendant, 264 F.3d at 261-62. Second, the PSLRA conditions the appointment of lead counsel on
district court approval as a safeguard to ensure that lead counsel is qualified and that lead
plaintiff discharged its duty of negotiating a reasonable retainer agreement. See 15 U.S.C. § 78u4(a)(3); Cendant, 264 F.3d at 261-62. Regarding lead plaintiff selection, the PSLRA assumes
that the “plaintiff or group [who] will most adequately represent class members’ interests” is the
one with “the largest financial stake in the outcome of an action,” as that plaintiff or group
possesses “the greatest economic incentive to monitor class counsel’s performance effectively.”
See 15 U.S.C. § 78u-4(a)(3)(B)(iii); Cendant, 264 F.3d at 261-62. Ideally, this assumption
results in selecting an institutional investor as lead plaintiff. See Cendant, 264 F.3d at 261-62.
Such investors are “experienced and sophisticated consumers of legal services,” and district
courts can afford them some deference when reviewing their choices of counsel and
corresponding retainer agreements. See id. at 261-62, 274.
“District courts have an obligation to review applications for the appointment of lead
plaintiff and to appoint as lead plaintiff the member or members of the purported plaintiff class
who are ‘most capable of adequately representing the interests of the class members,’” even
where the application is unopposed. Lewis v. Lipocine Inc., No. 16-4009, 2016 WL 7042075, at
*3 (D.N.J. Dec. 2, 2016) (cleaned up). A district court considering a motion to appoint lead
plaintiff first identifies “the movant with ‘the largest financial interest in the relief sought by the
class.’” Cendant, 264 F.3d at 262 (citing 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb)). There is no
fixed method of identifying this movant. See id. But the Third Circuit has implicitly endorsed
the analysis in Lax v. First Merchants Acceptance Corp., No. 97 C 2715, 1997 WL 461036, at *5
(N.D. Ill. Aug. 11, 1997), which considers, among other things, (i) the number of shares
purchased by movant during the putative class period; (ii) the total net funds expended by the

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plaintiffs during the period; and (iii) the approximate losses suffered by the plaintiffs. See
Cendant, 264 F.3d at 262.
Next, the district court determines if the movant with the largest interest “otherwise
satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.” See 15 U.S.C. §
78u-4(a)(3)(B)(iii)(I)(cc). The Third Circuit has clarified that the district court’s inquiry at this
step is limited to determining whether the movant has stated a prima facie case of typicality and
adequacy. Cendant, 264 F.3d at 263. Courts are to employ traditional Rule 23 principles. Id. at
264-65.

Therefore, for typicality, the district court considers whether the movant’s

“circumstances . . . ‘are markedly different or the legal theory upon which the claims [of that
movant] are based differ[] from that upon which the claims of other class members will perforce
be based.’” Id. at 265 (quoting Hassine v. Jeffes, 846 F.2d 169, 177 (3d Cir. 1988)) (alterations
in original). And for adequacy, the district court considers whether the movant “has the ability
and incentive to represent the claims of the class vigorously, [whether it] has obtained adequate
counsel, and [whether] there is [a] conflict between [the movant’s claims] and those asserted on
behalf of the class.” Id. (citing Hassine, 846 F.2d at 177) (alterations in original) (internal
quotations removed). In addition, the Third Circuit has promulgated two more factors for
assessing adequacy. See id. First, the district court should consider the movant’s “willingness
and ability to select competent class counsel and to negotiate a reasonable retainer agreement
with that counsel.” Id. at 266. Second, if the movant is a group of persons rather than an
individual or business entity, the district court should consider whether “the way in which [the]
group seeking to become lead plaintiff was formed or the manner in which it is constituted would
preclude it from fulfilling the tasks assigned to a lead plaintiff. . . .” Id.
If the movant with the largest financial interest in the relief does not demonstrate the
requisite typicality and adequacy, then the district court identifies the movant with the next
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largest interest, and repeats the analysis until a presumptive lead plaintiff is identified. Id. at 267.
Once the district court identifies a presumptive lead plaintiff, other class members may rebut the
presumption by proving that the lead plaintiff will not do a “fair and adequate job.” Id. at 268;
see also 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

If a class member successfully rebuts the

presumption, then the district court identifies the movant with the next largest interest, and
repeats the analysis until a lead plaintiff is selected. Cendant, 264 F.3d at 268.
Finally, once the district court appoints a lead plaintiff, the lead plaintiff selects and
retains counsel—subject to the court’s approval—to represent the class. 15 U.S.C. § 78u4(a)(3)(B)(v). The PSLRA creates “a strong presumption in favor of approving a properlyselected lead plaintiff’s decisions as to counsel selection and counsel retention,” but the district
court nevertheless must consider “whether the lead plaintiff’s selection and agreement with
counsel are reasonable on their own terms.” Cendant, 264 F.3d at 276. At the heart of this
inquiry is “whether the lead plaintiff’s choices were the result of a good faith selection and
negotiation process and were arrived at via meaningful arms-length bargaining.” Id.; see also In
re Nice Sys. Sec. Litig., 188 F.R.D. 206, 223 (D.N.J. 1999) (“Not only should the proposed
counsel fees be the result of hard-bargaining, but the initial selection of counsel should be the
result of independent decision-making by the lead plaintiff.”). Among the factors a district court
should consider are
(1) the quantum of legal experience and sophistication possessed
by the lead plaintiff; (2) the manner in which the lead plaintiff
chose what law firms to consider; (3) the process by which the lead
plaintiff selected its final choice; (4) the qualifications and
experience of counsel selected by the lead plaintiff; and (5) the
evidence that the retainer agreement negotiated by the lead
plaintiff was (or was not) the product of serious negotiations
between the lead plaintiff and the prospective lead counsel.

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Cendant, 264 F.3d at 276. A court should interfere with lead plaintiff’s selection of counsel and
their retainer only as necessary to protect the interests of the class. Id. at 274.
Analysis.

The Court concludes that Union is the class member “most capable of

adequately representing the interests of the class members,” and will accordingly appoint Union
lead plaintiff. See Lewis, 2016 WL 7042075, at *3.
First, the Court finds that Union is “the movant with ‘the largest financial interest in the
relief sought by the class.’”

See Cendant, 264 F.3d at 262 (citing 15 U.S.C. § 78u-

4(a)(3)(B)(iii)(I)(bb)). Union purchased 1,375,516 Philip Morris shares during the putative class
period, expended $162,356,749 in doing so, and suffered roughly $6,450,000 in losses in
connection with the transactions. (See D.E. No. 7-1 at 5-6). Each of the Lax factors fall squarely
in Union’s favor, as these numbers dwarf those provided by Plaintiffs William Rubenstahl and
Guodong Chen in their withdrawn motions to be appointed lead plaintiff. See Cendant, 264 F.3d
at 262; (Compare D.E. No. 7-1 at 5-6, with D.E. No. 5-2 at 5, and D.E. No. 6-1 at 6).
Next, the Court finds that Union has shown a prima facie case of typicality and adequacy,
and therefore “otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil
Procedure.” See 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(cc); Cendant, 264 F.3d at 263. Regarding
typicality, Union alleges that (i) Defendants violated the Exchange Act by making certain false
or misleading statements or omissions of material facts concerning Philip Morris; (ii) Union
purchased Philip Morris securities at a price artificially inflated by those false or misleading
statements or omissions; and (iii) Union was damaged upon the disclosure of those
misrepresentations. (See D.E. No. 7-1 at 6-7). Union’s circumstances and legal theory upon
which its claims are based appear to be indistinguishable from those of other class members. See
Cendant, 264 F.3d at 265 (citing Hassine, 846 F.2d at 177) (alterations in original). (Compare

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generally D.E. No. 7-1, with D.E. No. 1). Union satisfies the typicality requirement of Federal
Rule of Civil Procedure 23(a)(3).
Union no doubt also satisfies the adequacy requirement of Federal Rule of Civil
Procedure 23(a)(4).

Union is a large, established institutional investor that manages

approximately $400 billion in assets. (D.E. No. 7-1 at 4). As such, it is the paradigm of a
prospective lead plaintiff as envisioned by the PSLRA. See Cendant, 264 F.3d at 261-62. Union
possesses significant experience serving as a class representative in other securities class actions,
and is equipped with an in-house legal team to direct the efforts of its litigation counsel. (D.E.
No. 7-1 at 7-8). As described in more detail below, Union has demonstrated a willingness and
ability to select competent class counsel, and to negotiate a reasonable retainer agreement with
that counsel. Moreover, the seven-figure loss incurred by Union because of the alleged securities
law violations, and the nature of Union’s business as an institutional investor, provides an
incentive for Union to advocate vigorously for the class’s interests and to monitor counsel
appropriately. (See id. at 4-6). Putative class members have not identified any potential conflict
between Union’s interests and theirs, and the Court on its own could not identify any reason why
Union should not represent the class. (See generally D.E. Nos. 5 & 6).
Finally, because no putative class members challenge Union’s motion to be appointed
lead plaintiff, the Court does not perform a proof-of-inadequacy analysis under 15 U.S.C. § 78u4(a)(3)(B)(iii)(II). 1 Union will be the lead plaintiff in this matter.
As noted above, Union in the instant motion simultaneously seeks approval of its choice
of lead counsel and liaison counsel—Pomerantz LLP (“Pomerantz”) and Lite DePalma
Greenberg, LLC (“LDG”), respectively. (D.E. No. 7-1 at 1). The Court finds that each of the

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The Court notes that appointing Union lead plaintiff will not run afoul of PSLRA’s restrictions on
professional plaintiffs. See 15 U.S.C. § 78u-4(a)(3)(B)(iv); (D.E. No. 7-1 at 8).

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Cendant factors falls in Union’s favor. See 264 F.3d at 276. Therefore, the Court will approve
Union’s choice of counsel.
Union possesses the legal experience and sophistication to choose appropriate counsel
and monitor counsel’s performance.

It is a large, established institutional investor that is

experienced in securities class action litigation and that has its own in-house legal team. (D.E.
No. 7-1 at 4-5 & 7-8). Although it did not specify the number of firms considered, Union
described its process of selecting law firms for this type of matter in a level of detail adequate for
this Court to conclude that Union’s choice of counsel resulted from independent decision
making. See In re Nice Sys., 188 F.R.D. at 223. Regarding chosen counsel’s qualifications,
Pomerantz specializes in securities class action litigation and maintains a successful practice in
that area. (See D.E. No. 7, Ex. E at 1-5). Indeed, Pomerantz has served as lead counsel in
numerous securities class actions and is qualified to serve as lead counsel in this matter. (See
id.). Similarly, LDG is experienced in class action litigation, is a frequent litigator in this
District, and is otherwise qualified to serve as liaison counsel. (See generally D.E. No. 7, Ex. F).
Regarding the retainer agreement Union submitted for in camera review, the Court at this
juncture considers the fee arrangement reasonable. The reasonableness of the fee arrangement
evidences that the retainer agreement was the product of serious negotiations by Union.
In sum, the Court concludes that Union’s choice of counsel resulted from a good faith
selection and negotiation process, counsel’s retention arose from meaningful arms-length
bargaining, and court interference is not necessary to protect the putative class’s interests. See
Cendant, 264 F.3d at 274, 276.

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Conclusion. For the reasons above, Union’s motion is GRANTED. An appropriate
Order accompanies this Memorandum Opinion.
s/Esther Salas
Esther Salas, U.S.D.J.

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