Brian Roffe Profit Sharing Plan et al v. Facebook, Inc. et al

Filing 120

OPINION & ORDER re: (39 in 1:12-cv-04215-RWS, 37 in 1:12-cv-04763-RWS) MOTION to Sever filed by Lawrence Corneck, Eugene Stricker. Based upon the conclusions set forth above, the Exchange Act Plaintiffs' motion to sever is denied. (Signed by Judge Robert W. Sweet on 8/10/2013) Filed In Associated Cases: 1:12-md-02389-RWS et al.(cd)

CT COURT
UNITED STATES 01
SOUTHERN DISTRICT OF NEW YORK

----------- ---------------- -------x
IN RE FACEBOOK, INC., IPO SECURITIES AND
DERIVATIVE LITIGATION,

OPINION & ORDER
MOL No. 12 389

-----x
Case Relates to:
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.

12-CV-4081
12-CV-4099
12-CV-4131
12-CV-41S0
12-CV-41S7
12-CV-4184
12-CV-4194
12-CV-42lS
12-CV-42S2
12-CV-4291
12-CV-4312
12-CV-4332
12-CV-4360
12-CV-4362
12-CV-4S51
12-CV-4648

NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.
NO.

12-CV-4763
12-CV-4777
12-CV-SS11
12-CV-7S42
12-CV-7S43
12-CV-7S44
12-CV-7S4S
12 CV-7S46
12-CV-7S47
12-CV-7S48
12-CV-7SS0
12-CV-7S51
12-CV-7552
12-CV-7586
12-CV-7587

... ..
. -------.",.

--''''''''.,"''-.~

,

,-,

,

U"p'"

j,,-~ ...i"l_,

DOCU~V)

ELECTRO!"
DOC #:
DATE

FlLED:-JEB;B=_,

A P PEA RAN C E S:

cker
HARWOOD FEFFER LLP

488 Madison Avenue
New York, NY 10022
By:
Joel C. Feffer, Esq.
Samuel K. Rosen, Esq.
LAW OFFICES OF JAMES V. BASHIAN, P.C.
500 Fi h Avenue
New York, NY 10110
By:
James V. Bashian, Esq.

1

----- ..

,"

...

"'- ­ ~-.

t
for the Underwriter Defendants
DAVIS POLK & WARDELL LLP
450 Lexington Avenue
New York, NY 10017
By:
James P. Rouhandeh, Esq.
Charles S. Duggan, Esq.
Andrew Ditchfie , Esq.

Att
for the Facebook Defendants
KIRKLAND & ELLIS LLP
601 Lexington Avenue
New York, NY 10022
By:
Andrew B. Clubok, Esq.
Brant Warren
shop, Esq.

WILLKIE FARR & GALLAGHER LLP
1875 K Street, N.W.
Washington, DC 20006
Richard D. Bernstein, Esq.
Todd G. Cosenza, Esq.

Att

the Lead Plaintiffs

BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
1285 Avenue of the Americas
New York, NY 10019
By:
Max W. Berger, Esq.
Steven B. Singer, Esq.
John J. Rizio-Hamilton
LABATON SUCHAROW LLP
140 Broadway
New York, NY 10005
By:
Thomas A. Dubbs, Esq.
James W. Johnson, Esq.
Louis Gottlieb, Esq.

2

Sweet, D.J.

aintiffs Lawrence Corneck and Eugene Stricker (
"Exchange Act

aintiffs") have moved to sever their actions,

Civil Actions Nos. 12 Civ. 4215 and 12 Civ. 4663, pursuant to
Federal Rules of Civil Procedure.

Rule 21 of

They also seek

the consolidation of their actions, appointment as
plaintiffs in the newly consoli

lead

ed action, and the appointment

of their section of counsel for

ir class.

Defendants Morgan Stanley & Co. LLC, J.P. Mo
ties LLC and Goldman, Sachs
Underwriters De

&

Co.

(col

ively, the "Lead

s"); defendants

k,

Inc.

("Facebook"), Mark Zuckerberg, David A. Ebersman, David M.
llane, Marc L. Andreessen, Erskine B. Bowles, James W.
Breyer, Donald E. Graham, Reed Hastings

Peter A.

1

(together with the Lead Underwriter Defendants, "Defendants");
and lead plaintiffs the North Carolina Department of State
Treasurer on behalf of the No

Carolina Retirement Systems,

Banyan Capital Master Fund Ltd., Arkansas Tea
System, and the Fresno County Empl

r Retirement

s' Retirement Association

(collectively, the "Lead Plaintiffs") oppose the Exchange Act
aintiffs' motion.

3

Upon the facts and conclusions set for the below, the
motion is

I. Prior Proceedings and Facts

cts and prior
are set out in

underlying

s action

------------------------------------------------~

, 12

MDL No. 2389, 288 F.R.D. 26 (S.D.N.Y. 2012), familiarity with
which is assumed.
action

Accordingly, only facts relevant to t

s

11 be provided below.

On December 6, 2012, this Court consol

thirty­

shareholder class actions asserting s

one

at

cIa

arising from Facebook's initial public of

(the "IPO"), including actions asserting claims
Securit
by

r the

"Securities Act") and actions filed

s Act of 1933
Exchange Act Pl

ties law

if

asserting claims

the

s Exchange Act of 1934 (the "Exchange Act").
~~~~k,

See In re

288 F.R.D. at 36.

Twenty-nine

these putative class actions asserted

claims under Sections 11, 12 (a) (2) and 15 of t

Securities Act

st Facebook, certain of its senior executives and directors
the underwriters

the IPO.
4

The rema

two actions

Lead Unde

ng claims aga

asserted inside
Defendants under

ction 20A of the

er

ities Exchange Act.

At

that time, the Exchange Act Plaintiffs argued that the two
Exchange Act

should not be consolidated and that

should be

to bring their claims in a separate class

action.

See Dkt. Nos. 7 and 24 fi

y

in No. 12 Civ. 4215).

er considering the

ies' arguments,

ordered the consolidation of all

Court

class actions asserting

federal securities law claims, including the Securities Act and
Exchange Act cases, and appo

the Lead Plaintiffs to direct

the prosecution of the single consolidated class proceeding, In
accordance
(" PSLRA")

th the Private S
"Consolidated Se

Facebook, 288 F.R.D. at 36, 41.
reasoned
actions

ties Litigation Re
ties Action") .
Specifically, t
"involve putat

both sets of cIa
seek relief on

Sf

Court
class

arising out of the same

series of events, and assert claims under
Id. at 35.

In re

If of similar classes, asserted

against some of the same

laws."

Act

ral securities

Thus, the Court held that there was no

reason to allow two separate class action to

under

different leadership structures, explaining t

"[t]o reject

consoli

ion would unnecessarily create two

parallel securities lit

ion cases with dif
5

stinct and
plaintiffs

and different leadership."

Id. at 35-36.

On February 28, 2013, the

ad Plaintiffs filed a
"Consol

consolidated class action compla
Complaint") .

(Dkt. No. 71).

claims under the Securit

The Cons

Act Plaintiffs filed

the instant motion seeking to sever
s Action.

also seek to assert the
action for which they

II.

ir actions from the
Exchange Act Plaintiffs

Act claims in a separate class
appointed lead plaintiffs.

d

motion was heard and mar

Complaint asserts

s Act only.

On April 16, 2013,

Consolidated Securit

ted

The

lly submitted on May 29, 2013.

The Applicable Standard

Federal Rules of Civil Procedure

Rule 21 of t

permits a court to "sever any claim against a party."
Civ. P. 21.
to

"

Fed. R.

sion whether to grant a several motion is
sound discretion of the trial court."

State of

N.Y. v.

ckson Bros.

1988) i

Wausau Bus. Inc. Co. v. Turner Constr. Co., 204

Inc.

840 F.2d 1065, 1082 (2d Cir.

F.R.D. 248, 250 (S.D.N.Y. 2001). "Courts may order a
severance when it will serve the ends of justice
6

e 21
fu

r

prompt and efficient disposition of litigation."

T.8.1. 27,

inc. v. Berman Enters. Inc., 115 F.R.D. 252, 254

(S.D.N.Y.

1987); see also In re Methyl Tertiary Butyl
--~

,247 F.R.D. 420, 427

r Prods.

(S.D.N.Y. 2007)

("Seve

ng the

claims of the non State plaintiffs is warranted due to
iples of judicial efficiency and fundamental fairness; it
facilitates the settlement of the claims by non-State
plaintiffs, serves judicial economy, and avo
fendants who properly removed the
pIa

s prejudic

aims of t

the

non-State

iffs.").

III. Discussion

Exchange Act Plaintif

contend that the

Plaintiffs' decision to assert only Securities Act claims in t
Consolidated Securities Action
language of

iled to comply with "

s Court's order that they were to be included."

(Pl. Memo. at 1).
failure to include

They also maintain

the Lead

aintiffs'

Exchange Act claims effectively severs

common issues of law nexus
Complaint and

plain

the Consolidated

Exchange Act Plaintiffs' compla

s.

Defendants and Lead Plaintiffs, on the other hand,
contend that no mandate was issued by
7

s Court

recting

Exchange Act
Complaint.

aims to be included in the Consolidated
They aver that the Lead Plaintiffs appropriately

exercised their de
PSLRA, which

sion-making authority as vest

s the court-appointed lead

authority to make strat

by the

aintiffs the sole

c decisions on behalf of the class.

To begin with, while the Exchange Act Plaintiffs
contend that the "plain language" of this Court's consolidation
order states that their cIa
consol

"were to be included" in any

ion complaint, the Court held that the decision to

bring those claims were solely within Lead Plaintiffs'
aut

ty.

ifically,

of which

Court held t

aims to assert in t

t "the determination

consolidated compla

will be

determined by the Court-appointed lead plaintiff, who is charged
with acting in the

st interest of all class members."

In re

Facebook, 288 F.R.D. at 36 (citing to In re Gen. Elec. Sec.
Liti

No. 09 Civ. 1951(DC), 2009 WL 2259502, at *3 (S.D.N.Y.

July 29, 2009)

(noting that t

lead

aintiff could reso

any

difference in an action through the filing of a consolidated
complaint and preserve "the tone and direction of the
lawsuit.").

Thus, there was no mandate by this Court to include

the Exchange Act claims

the Consolidated Complaint.

Consistent with this Court's holdi
8

,courts in

is

Circu

aintiff has the

have consistently held that a lead

to pursue on

sole authority to determine what cla
class.

lf of

The Second Circuit has held that the PSLRA's 1

plaintiff provisions are a mandate by Congress to vest the 1
plaintiff with authority "to exercise control over the
1

igation as a whole."

Hevesi v. Citigroup, Inc., 366 F.3d 70,

83 n.13 (2d Cir. 2004).

Thus, "any requirement that a different

lead plaintiff be appointed to bring every single avai
claim would contravene the main purpose of having a lead
plaintiff - namely to empower one or several investors with a
major stake in the litigation to exercise control over t
lit
Offeri

ion as a whole."
Sec. Liti.

(stating t

Id.

ing to In re Init

214 F.R.D. 117, 123 (S.D.N.Y. 2002)

"[t]he only other possibil

y - that the court

should cobble together a lead plaintiff group that
to sue on all poss

1 Pub.

e causes of action - has

repeatedly by courts in this

s standing

en rejected

rcuit and undermines the purpose

of the PSLRA.").

In addition, the long history of the Bank of Ame
litigation and the decisions by

Hono

ca

e Denny Chin and the

Honorable P. Kevin Castel are particularly instructive to the
instant case.

In In re Bank of Am.

Deriv. &

------------------------~------~------------~~

Litig., No. 09 MD 2058, 2010 WL 1438980, at *1-2

9

(S.D.N.Y. Apr.

9, 2010)

(hereina

aintiffs initially

er "BoA I"), the lead

elected to sue only on behalf of stock ho
cIa

on behalf of options holders

After

lead plaintiffs fil

rs, and not to bring

bondho

rs.

their consolidated complaint,

several individual plaintiffs sought to file

rate class

actions asserting claims on behalf of options hoI
bondholders.

Id.

plaintiffs

See id.

Relying on Hevesi

rs and

Judge Chin held that these

ain separate class actions

d not ma

e:

[I]n a securities class action, a 1
plaintiff is
empowe
to control the management of t
litigation
as a whole, and it is within
lead plaintiff's
authority to decide what claims to assert on behalf of
class.
. Lead
intiffs have the autho ty to
decide what
aims to assert on behalf of securities
holders.
Permitting other plaintiffs to bring
addit
I class actions now, with additional lead
plaintiffs and additional lead counsel, would
interfere with Lead PI
iffs'
lity to authorize
and manage the Consol
Secur ies Actions.

Id. at *2.

After Judge Chin's decision, the lead plaintiffs later
included certain options claims in an amended consoli
compla

,but

grounds.

See In re

claims were largely

smissed on standing

k of Am. Co

Deriv. & ERI

Liti ., No. 09 MD 2058, 2011 WL 3211472, at *14
29, 2011).

Lead plaintif

dec

10

, for st

(S.D.N.Y. July
ic reasons,

not to add a

standing to bring t

plaintiff wi

claims that had been dismissed, thus finally dete
assert those
bring a

ions claims.

Anot

were no longer

should now

r plaintiff then sought to

prosecuted, a

Der

iffs had

See In re Bank of Am. Corp.

. 29, 2011)

inafter "BoA

II~)

Judge Castel, to whom the case had
after Judge Chin's appo
the options pIa

class action.

plaintiff.

.

transferred

to the Second Circuit, also
iff's attempt to bring a separate

As the court held, "[s]uch tactical decisions

[about which claims to assert] are the
. Such a

ive of a lead

ision is with

the lead plaintiff's

prerogative 'to exercise control over the I

ation as a

Id. at *1 (quoting Hevesi, 366 F.3d at 82, n.13).

Judge Castel further reasoned that if t
pe

a

. & ERISA Liti ., No. 09 MD 2058, 2011 WL 4538428

(S.D.N.Y.

whole.'~

that he

i

rmitted to do so because lead

decided not to pursue those cIa

reject

ning not to

e class action on behalf of the options holders

whose cIa

Sec.

options

options holders were

tted to bring a separate class action, such a res

not only contravene

t would

PSLRA, but lead to a landscape in which:

. any consolidated securities fraud class action
[would] carry with it a corresponding ecosystem of
separate class actions seeking relief on behalf of
11

s whose claims vary from the lead
securit s ho
ions
a
iff's] approach invites
plaintiffs.
iven litigation that the PSLRA
the type of 1
would likely promote near-endless
seeks to avoid,
skirmishes about securities holders who fall outside a
class definit
Id. at *2.

Following the BoA II
sought leave to file an

inion, the options plaintiff

erlocutory appeal.

See In re Bank of

Am. Corp. Sec., Deriv. & ERISA Litig., No. 09 MD 2058, 2012 WL
1308993 (S.D.N.Y. Apr. 16, 2012).

Castel denied this

request on the ground

law that a litigant may

is settl

not assert a separate class action to

ing claims that the lead

plaintiff has determined not to pursue on a class basis.

Id. at

*2.

Similarly, if the Exchange Act

iffs are allowed

to bring their own separate class action for t
would render the PSLRA's lead plaintiff
See BoA II, 2011 WL 4528428, at *2

(stati

ir claims, it

sions meaningless.
t

such a result
that the

would lead to the "type of lawyer-driven 1
PSLRA see
that

to avoid.").

The Exchange Act

iffs contend

Bank of America decisions "are irre evant to the issue

of severance because the consolidation there invol
cornmon questions of law and

12

ct."

( PI.

actions

y at 5).

is Court has already rul

However,

that "the s

larities

Exchange Act] claims and the Securit

between

warrant consolidation."
These similarities i

s Act claims

In re Facebook, 288 F.R.D. at 35.
ude putative class actions that "seek

relief on behalf of similar classes, asserted against some of
the same defendants, arising out of the same series of events,
r federal securities laws."

and assert claims

Id.

The Exchange Act Plaintiffs also rely on a recent
sion by the Honorable John G. Koeltl in In re New Oriental
--- F.R.D. ---, 2013 WL
1875102 (S.D.N.Y. May 6, 2013).
iffs highli

P

Amer

that Judge Koeltl dist

decisions,

like the court in BoA I, d

1

tations
They cont
the statute

to sever was

not consi

r the statute of

rcussions for the affect
that "[t]he

aintiffs."

judicial ef

limitations is the rna

Id. at

of the running

reason why" t

motion

ed.

In New Oriental,
movants st

ished the Bank of

part, by noting that "[t]he court in BoA

II

*4.

Specifically, the Exchange Act

to

e competi

lead pia

idate their securities act

appoint one movant, MPS, as lead plaintiff. Id. at *1.

iff
and
One of

the movants, an options investor, agreed to the stipulation only
13

on the condition that MPS include options investors in the class
asserted in the consolidated complaint.

Id.

Even though MPS

had explicitly agreed to include options investors, its
consolidated complaint excluded them from the class.
result,

As a

the options investor moved to sever his action and

assert claims on behalf of a separate class of options
investors.

Contrary to the Exchange Act Plaintiffs' assertion,
for several reasons, New Oriental is inapposite.

First, the

Court severed the options claims specifically because MPS
induced the options plaintiff to "stipulate[J to a lead
plaintiff based on representations that the options class would
be included in the action."

Id. at *4.

Here,

in contrast, Lead

Plaintiffs never induced the Exchange Act Plaintiffs to
stipulate to the Lead Plaintiffs' appointment based on a
representation that they would bring Exchange Act claims in the
Consolidated Complaint.

To the contrary, Lead Plaintiffs and

the Exchange Act Plaintiffs each litigated their respective lead
plaintiff motions.

Thus, the kind of prejudice at issue in New

Oriental is absent here.

In addition,

in considering the statute of

limitations, the New Oriental court was concerned "[tJhe
14

ass," because the

rcussions for the abandoned

potent

options investors would not have been
ld.

In any class,

re, all investors asserted to

are al

members of the class aSSe

Compla

Exchange Act claims

Specifically, both

the Consolidated
Act class and the

class asserted in the Consolidated

a

stors who purchased stock in t

IPO.

ass as investors "who

1

,4215

(defining

sed shares of Facebook Inc.

common stock pursuant to a re

stration statement and

issued in connection with the .

prospectus

~

Act Complaint, Corneck v.

Ie to the" lPO) with
No. 12 C

Act

Compare Complaint

sed common stock "in or

ing class as investors who

t

consist of

Accordingly, unlike in New Orient

, I PO, If) •

the Exchange Act Plaintiffs

here are included in the Consolidated Securities Action
claims have been assert

on

Moreover, if a

ir behalf.

leI class action were to

permitted, both actions would therefore seek recovery for the
same absent class members.

A judgment in ei

r class action

would preclude

her litigation of the ot

Act Plaintiffs

the Lead Plaintiffs would thus necessarily be

in destabilizing

r, and the Exchange

ition to race to an early resolution.

_S_e_e_W_a_l_d_m_a_n_v_,_V_l_'1_1_._o_f_K_l_'--L--'---=-_--'---'=----l,
15

207 F.

105, 110

(2d Cir.

2000)

(explaining the "well-established rule that a plaintiff

cannot avoid the effects of res judicata by 'splitting' his
claim into various suits, based on different legal theories
(with different evidence 'necessary' to each suit)"); see also
Cieszkowska v.

Line N.Y.

295 F.3d 204, 205

--------------------~-----------

("Even claims based upon dif
provided they arise from

(2d Cir. 2004)

rent legal theories are barred
same transaction or occurrence.")

(internal quotation marks omitted).

Such conflicts are avoided

by having Lead Plaintiffs control a sing

consolidated action

on behalf of a unitary putative class.

The Exchange Act Plaintiffs assert that

their yet-

to-be filed amended complaint they would seek to represent a
broader class of plaintiffs that would include investors who
purchased Facebook stock on
1-2 n.2).

~private

exchanges."

(Pl. Memo. at

They do not themselves claim to have purchased on

private exchanges, nor does the class defined in the complaints
they have already filed reach purchasers on
But in any event, as this Court has not
finition do not

feat consoli

,variations in class

ion or justify a

proliferation of overlapping classes.

F.R.D. at 35 (consolidation of

ivate exchanges.

See In re Facebook, 288

~putative

class actions that seek

relief on behalf of similar classes" is appropriate
added)).

(emphasis

The Exchange Act Plaintiffs cannot displace Lead
16

Plaintiffs from t

rship role by laying

ir 1

ass. Lead

more inc Ius

representation of a
plaintiffs "necessa

rna

class of shareholders.

Inevitably, any

aim to

[] determinations

limit the

lon

ass

establishes boundaries as to who may recover" as
part of the

ass.

BoA II, 2011 WL 4538428, at *2.

Lastly,

Exchange Act Plaintiffs will not suffer

any prejudice if they are not permitted to bring their own
separate class action.
to pursue their cia

The Exchange Act P

intiffs remain free

through an

1 action, which wou

permit them to obtain a ruling on

me

ts of their claims.

See BoA I, 2010 WL 4138980, at *1-2; BoA II
*2.

While

suffer

2011 WL 4538428, at

Exchange Act Plaintiffs argue that they will
jud

unless they are pe
se "discovery [on

class act
cannot even

ted to bring a separate
ir Exchange Act

gin until the allegations of the Consol

Complaint are finally adjudicated" (Pl. Memo. at 6), filing an
indivi
by Le
same t
potent

1 suit will provide

access to any discove

ntiffs in the Consol
the Lead Plainti

ed Securities Action, at the

s receive it.

There

1 prejudice exists to either the Lead P

Exchange Act Plaintiffs.

17

taken

re, no
if

or the

IV.

Conclusion

Baseci linon t

conc

ions set forth

Exchange Act Plaintiffs' motion to sever is deni

It is so

0

New York, NY
Auqust)- ~
2013

I

ROBERT W. SWEET
U.S.O.J.

18