Sax v. New Oriental Education & Technology Group, Inc. et al
OPINION AND ORDER re: 31 MOTION RELIEF FROM THE COURTS LEAD PLAINTIFF ORDER PURSUANT TO FED. R. CIV. P. 60(b)(6) re: 22 Stipulation and Order. filed by Julio Tardio. The Court has considered all of the arguments of the parties. To the extent not specifically addressed above, the remaining arguments are either moot or without merit. For the foregoing reasons, the motion for relief is granted in part. Tardios action shall be severed from the consolidated action. The Clerk of Court is directed to close docket nos. 7, 11, 14, 17, and 31. The Clerk of Court is further directed to close docket no. 11 in 12 Civ. 5963 and docket no. 5 in 12 Civ. 6619. (Signed by Judge John G. Koeltl on 5/6/2013) (djc)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE NEW ORIENTAL EDUCATION &
TECHNOLOGY GROUP SECURITIES
12 Civ. 5724 (JGK)
OPINION AND ORDER
JOHN G. KOELTL, District Judge:
The plaintiff, Julio Tardio, has moved pursuant to Rule
60(b) of the Federal Rules of Civil Procedure for relief from
this Court’s Order of October 25, 2012, that appointed
Mineworkers’ Pension Scheme (“MPS”) as lead plaintiff and Grant
& Eisenhofer, P.A. (“G&E”) as lead counsel in this consolidated
securities class action against New Oriental Education &
Technology Group, Inc., Michael Minhong Yu, and Louis T. Hsieh
Tardio seeks to be appointed as co-lead
plaintiff, to have Faruqi & Faruqi, LLP, appointed as co-lead
counsel, and to amend the Consolidated Amended Complaint
In the alternative, Tardio asks the Court to sever his
action and allow it to proceed separately because lead counsel
in this consolidated action has determined not to pursue claims
of purchasers or sellers of options such as Mr. Tardio.
This consolidated securities class action began with three
separate class action complaints against EDU.
In July and
August 2012, two different plaintiffs, Jennifer Sax and Matthew
Gabel, filed separate class action complaints based on the same
alleged facts asserting federal securities claims against EDU on
behalf of all purchasers of EDU’s American Depositary Shares
See Compl. ¶ 1, Gabel v. EDU, (12 Civ. 5963)
(S.D.N.Y. Aug. 3, 2012); Compl. ¶ 1, Sax v. EDU, (12 Civ. 5724)
(S.D.N.Y. July 25, 2012).
On August 29, 2012, Tardio filed a
similar class action complaint alleging federal securities
claims against EDU on behalf of all purchasers and sellers of
EDU option contracts and/or purchasers of EDU ADSs.
¶ 1, Tardio v. EDU, (12 Civ. 6619) (S.D.N.Y. Aug. 29, 2012).
On September 21, 2012, Tardio, MPS, and several other
parties, moved for appointment as lead plaintiff pursuant to the
Private Securities Litigation Reform Act of 1995 (the “PSLRA”).
The motions for appointment revealed that MPS had the largest
financial stake in the litigation—making it the likely lead
plaintiff—and thereafter the parties worked together toward
formulating an order stipulating that MPS would be the lead
plaintiff, G&E would be lead counsel, and the three actions
would be consolidated (the “Stipulation”).
¶¶ 3-6; see Gonnello Decl. Ex. B.)
On October 2, 2012, counsel for MPS emailed a draft of the
Stipulation to Tardio’s counsel.
(Gonnello Decl. Ex. A.)
draft Stipulation provided that the three class actions were on
behalf of “purchasers” of EDU securities.
A, Draft Stip. at 2.)
(Gonnello Decl. Ex.
Tardio alleges that his counsel requested
that the draft Stipulation be revised to cover both purchasers
and sellers of EDU securities because Tardio had been a seller
(Gonnello Decl. ¶ 5.)
On October 4, 2012, counsel
for MPS emailed a revised draft Stipulation to Tardio’s counsel
and explained that the Stipulation had been revised “to cover
both purchasers and sellers in the class . . . .”
Decl. Ex. B, at 1.)
The revised draft Stipulation provided that
the three actions were “on behalf of purchasers and sellers of
(Gonnello Decl. Ex. B, Draft Stip. at 2.)
On October 25, 2012, this Court entered the Stipulation Order,
which consolidated the three actions, appointed MPS as lead
plaintiff, and appointed G&E as lead counsel. 1
On December 10, 2012, MPS filed the CAC.
The CAC only
asserts claims on behalf of purchasers of EDU ADSs.
(CAC ¶ 1.)
The motions to consolidate the initial actions and to appoint
lead plaintiff have never been closed on the docket sheets of
the initial actions. These motions were made moot by the
Stipulation Order. Therefore the motions are denied without
prejudice as moot.
The CAC does not assert claims on behalf of purchasers or
sellers of EDU option contracts or sellers of EDU ADSs.
Gonnello Decl. ¶ 8.)
On January 25, 2013, the defendants filed
a motion to dismiss the CAC.
On February 1, 2013, counsel for MPS indicated that it
would “not amend the [CAC] at this time” and would instead
oppose the motion to dismiss.
(Gonnello Decl. Ex. C.)
February 6, 2013, counsel for Tardio wrote a letter to MPS
asserting that Tardio had agreed to the Stipulation because he
believed that options contract sellers would be included in the
class definition, and requested an explanation for the decision
not to amend the Consolidated Complaint.
(Gonnello Decl. Ex.
Tardio alleges that during subsequent telephonic
conversations with MPS, counsel for MPS explained that the
decision to exclude purchasers and sellers of option contracts
from the class definition was intentional.
On March 8, 2013, Tardio filed this motion currently
before the Court.
At oral argument on this motion, the defendant requested
the opportunity to file a supplemental memorandum in support of
its position that the PSLRA prohibited severance of Tardio’s
claims from the consolidated action.
Leave was granted to all
parties to file supplemental memoranda in support of their
positions, to address any new issues that were first raised
during oral argument, and to respond to each other’s
The supplemental memoranda have been
received and reviewed.
Tardio seeks relief from the Stipulation Order pursuant to
Rule 60(b)(6) of the Federal Rules of Civil Procedure.
60(b)(6) provides that a court “may relieve a party or its legal
representative from . . . [an] order . . . for . . . any other
reason that justifies relief.”
Fed. R. Civ. P. 60(b).
“confers broad discretion on the trial court to grant relief
when appropriate to accomplish justice and it constitutes a
grand reservoir of equitable power to do justice in a particular
Marrero Pichardo v. Ashcroft, 374 F.3d 46, 55 (2d Cir.
2004) (citation omitted).
“Relief [under Rule 60(b)(6)] is
warranted where there are extraordinary circumstances, or where
the judgment may work an extreme and undue hardship, and should
be liberally construed when substantial justice will thus be
United Airlines, Inc. v. Brien, 588 F.3d 158, 176 (2d
Cir. 2009) (internal quotation marks and citation omitted).
Tardio has not provided persuasive reasons to merit relief
from the portion of the Stipulation Order appointing MPS lead
plaintiff and Tardio will not be appointed as co-lead plaintiff
for the consolidated class action.
Where a lead plaintiff has
omitted certain claims from the class definition, a party may
not assert those claims and seek to become co-lead plaintiff on
See In re Bank of Am. Corp. Sec. Derivative & Emp.
Ret. Income Sec. Act (ERISA) Litig. (“BoA I”), No. 09 MDL 2058,
2010 WL 1438980, at *1-2 (S.D.N.Y. Apr. 9, 2010).
In BoA I,
several securities actions were consolidated and lead plaintiffs
and lead counsel were appointed.
2010 WL 1438980, at *1.
lead plaintiffs brought claims on behalf of common stockholders
and preferred securities holders, but not purchasers of options
or debt securities.
Subsequently, several additional
plaintiffs brought separate class actions arising out of the
same events on behalf of options holders.
plaintiffs moved to consolidate their actions together, but not
with the existing consolidated action, and each moved for
appointment as lead plaintiff.
Id. at *2.
consolidated the cases with the existing consolidated action and
declined to appoint any of the options plaintiffs as co-lead
plaintiff because the “lead plaintiff is empowered to control
the management of the litigation,” and “[p]ermitting other
plaintiffs to bring additional class actions now, with
additional lead plaintiffs and additional lead counsel, would
interfere with Lead Plaintiffs’ ability and authority to manage
the Consolidated Securities Actions.”
Id. (citing Hevesi v.
Citigroup Inc., 366 F.3d 70, 82 n.13 (2d Cir. 2004) (“[A]ny
requirement that a different lead plaintiff be appointed to
bring every single available 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 the litigation as a whole.”)).
Tardio will not be appointed co-lead plaintiff.
appointed lead plaintiff and Tardio has not raised any issues
regarding MPS’s adequacy to represent the class in the
consolidated securities action.
MPS is not required to have
standing to represent all possible claims in order to be
appointed lead plaintiff, and Tardio does not have a right to
become co-lead plaintiff simply by asserting claims not asserted
by the lead plaintiff.
See Hevesi, 366 F.3d at 82.
Tardio relies on a case that appointed a co-lead plaintiff under
circumstances similar to this case, that authority is from the
Fifth Circuit, and the court in that case relied on a real
conflict between classes of securities holders, as well as on
Fifth Circuit law on standing that is different from the law in
the Second Circuit.
See Harold Roucher Trust U/A DTD 09/21/72
v. Franklin Bank Corp., No. 08 Civ. 1810, 2009 WL 1941864, at
*2-3 (S.D. Tex. July 6, 2009) (appointing a separate lead
plaintiff to represent preferred stockholder class because of a
real conflict between common and preferred stockholders and
because under Fifth Circuit law a court will appoint a co-lead
plaintiff if a lead plaintiff lacks standing to pursue all
Although Tardio will not be appointed co-lead plaintiff in
the consolidated class action, the next issue is whether Tardio
should be granted relief from the Stipulation Order insofar as
the Stipulation Order consolidated his case with the other
In his supplemental memorandum, Tardio argued that if
denied co-lead plaintiff status, he should be permitted to lead
a separate putative class action on behalf of the options class.
MPS similarly argued in its supplemental brief that in lieu of
making Tardio a co-lead plaintiff, Tardio’s action should be
severed from the consolidated action.
EDU counter-argued that
if Tardio is not appointed co-lead plaintiff, Tardio’s action
should not be severed.
In order to protect the claims of the
options class Tardio seeks to represent, Tardio’s action shall
be severed from the consolidated class action.
Contrary to the defendants’ position at oral argument,
consolidation is not mandatory under the PSLRA. 2
See In re Cent.
European Distrib. Corp. Sec. Litig. (“CEDC”), No. 11 Civ. 6247,
Contrary to its position at oral argument, in its supplemental
memoranda to the Court EDU did not argue that the PSLRA mandated
consolidation or prohibited severance.
2012 WL 5465799, at *8 (D.N.J. Nov. 8, 2012); cf. Prefontaine v.
Research in Motion Ltd., No 11 Civ. 4068, 2012 WL 104770, at *1
(S.D.N.Y. Jan. 5, 2012).
In CEDC, a securities class action
(“CEDC I”) was consolidated under the PSLRA with another similar
securities class action in the United States District Court for
the District of New Jersey.
2012 WL 5465799, at *3.
plaintiff and lead counsel were appointed to represent a class
of common stockholders.
Subsequently, two additional
securities class actions (“Grodko” and “Puerto Rico”) against
the same defendant making the same types of legal claims were
transferred into the District of New Jersey from the Southern
District of New York and were consolidated with the CEDC I
Id. at *1.
Unlike the CEDC I action, the classes in
both the Grodko and Puerto Rico actions included not only common
stockholders but purchasers of all the defendant’s securities.
Id. at *4.
The district court de-consolidated the Grodko and
Puerto Rico actions from the original consolidated action,
consolidated them separately, and coordinated the discovery of
both consolidated actions.
Id. at *7-8.
to the Grodko action, the district court held that
“[c]onsolidation is unwarranted when prejudice would result.
[Lead plaintiffs] have indicated that they will not prosecute
the Grodko action claims.
The Court would prejudice [the]
Grodko [plaintiffs] . . . by subjecting them to a lead plaintiff
that would neglect their claims.”
Id. at *9.
In this case,
like CEDC, the lead plaintiff has indicated that it will not
prosecute the claims of the options class.
appropriate remedy at this early stage of the litigation is
Moreover, without severance, the statute of limitations may
run on the claims of members of the options class Tardio seeks
Under American Pipe, “the commencement of a class
action suspends the applicable statute of limitations as to all
asserted members of the class who would have been parties had
the suit been permitted to continue as a class action.”
Pipe Constr. Co. v. Utah, 414 U.S. 538, 554 (1974).
when a consolidated class action complaint redefines a class
more narrowly than the prior individual complaints, and no
longer asserts claims on behalf of a portion of the consolidated
class, the statute of limitations is no longer tolled under
American Pipe for that “abandoned” subclass.
See In re IndyMac
Mortg.-Backed Sec. Litig., 793 F. Supp. 2d 637, 644 (S.D.N.Y.
2011); see, e.g., Ganousis v. E.I. du Pont de Nemours & Co., 803
F. Supp. 149, 155-56 (N.D. Ill. 1992) (tolling ceased when class
was narrowed to exclude plaintiff); Ross v. Warner, 80 F.R.D.
88, 91 (S.D.N.Y. 1978) (“[T]he limitations period will begin to
run again as to those claims when the group is excluded by the
Second Amended Complaint.”).
MPS has indicated that although it
has not brought claims on behalf of options buyers or sellers,
it may amend the complaint to do so in the future.
the interim, the statute of limitations for options holders is
Although the court in BoA I allowed the lead plaintiff
time to consider whether to bring claims on behalf of groups
that the consolidated class action complaint failed to cover in
its class definition, the court did not consider the statute of
limitations repercussions for the members of the temporarily
See 2010 WL 1438980, at *2-3.
EDU argues that the case should not be severed and relies
on a subsequent ruling in the Bank of America litigation;
however that decision is also distinguishable.
See In re Bank
of Am. Corp. Sec., Derivative, & Emp. Ret. Income Sec. Act
(ERISA) Litigation (“BoA II”), 2011 WL 4538428 (S.D.N.Y. Sept.
In BoA II, after an amended class action complaint
did not assert claims on behalf of certain options traders, a
new plaintiff sought to bring a class action on behalf of those
Id. at *1.
The new plaintiff argued that
because the lead plaintiff lacked standing to bring the claims
on behalf of options traders, the new plaintiff should be
allowed to bring a class action on behalf of the options class.
The court disagreed and held that, although the new
plaintiff could pursue his claims individually, the new
plaintiff could not bring a class action on behalf of options
holders because that would interfere with the authority of the
lead plaintiff to define the class.
Id. at *1-2.
The court in
BoA II, like the court in BoA I, did not consider the statute of
limitations repercussions for the affected plaintiffs, and
unlike this case, the new plaintiff in BoA II had not stipulated
to a lead plaintiff based on representations that the options
class would be included in the action.
The potential repercussions for the abandoned class argue
in favor of severance of Tardio’s action from the consolidated
class action complaint.
Although MPS claims that it may at some
point in the future amend the consolidated class action
complaint, the abandoned options subclass is not protected by
MPS’s ambiguous litigation position.
EDU argues that rather than sever the Tardio action, Tardio
should be made a co-lead plaintiff.
However, as discussed
above, Tardio has not demonstrated that the lead plaintiff
provision of the Stipulation should be vacated or that MPS is an
inadequate lead plaintiff.
Moreover, as the district court in
CEDC explained when it similarly chose to sever the Grodko
action rather than make Grodko a co-lead plaintiff, “if the
Court vacated [the] lead plaintiff appointment, the Court would
prejudice [the current lead plaintiffs] and the entire CEDC I
2012 WL 5465799, at *9.
EDU also argues that allowing severance in this case will
result in an “ecosystem” of additional class actions for all of
the claims that the lead plaintiff excises from the consolidated
class action, frustrating the purpose of the PSLRA to allow the
lead plaintiff to control the litigation.
However, there is no
evidence of any additional plaintiffs waiting in the wings, and
severing the Tardio complaint is no assurance that it will
survive a motion to dismiss or that a class represented by
Tardio will ever be certified.
Moreover, Tardio is in a
different position from subsequent plaintiffs who seek to bring
He was one of the original plaintiffs and his
claims were apparently being represented by the lead plaintiff
at the time of consolidation.
EDU’s argument is mere
speculation that can be addressed if new situations arise in the
course of the litigation.
MPS also argues that it has concluded in good faith that
the options class claims cannot be pursued as a class action
because the claims cannot satisfy certain class certification
However, Tardio represents that the claims have
sufficient merit to be pursued without violating Rule 11 of the
Federal Rules of Civil Procedure.
Denial of severance would
have the effect of peremptorily dismissing the options class
claims without any briefing on whether such a dismissal was
If the claims of the options class are without
merit, they can be disposed of on a motion to dismiss.
Finally, the course of conduct between the parties supports
severance of Tardio’s action.
The evidence indicates that
Tardio agreed to the Stipulation in part because options sellers
were included in the consolidated action.
narrowing of the class definition in the consolidated action
undermined that initial basis for Tardio’s acceptance of the
If the lead plaintiff motions were litigated and
were not the subject of a stipulation, the Court would have
considered how to protect the potential members of an options
Therefore, in order to protect the potential options class,
Tardio’s case is severed and Tardio may pursue his claims on an
individual basis and can seek to have a class certified if he can
satisfy all of the requirements for such a class action.
Tardio’s case may proceed separately on a related, but not
consolidated basis with the consolidated securities action.
See, e.g., CEDC, 2012 WL 5465799, at *10-12; cf. BoA I, 2010 WL
1438980, at *2.
In order to ensure effective coordination and
to ensure that EDU is not prejudiced by duplicative discovery
requests, the Court hereby orders that the MPS and Tardio
actions shall be coordinated for discovery and case management
See CEDC, 2012 WL 5465799, at *12.
If, at the
conclusion of discovery, any party believes that consolidation
for trial is warranted, the Court can revisit the issue at that
The Court has considered all of the arguments of the
To the extent not specifically addressed above, the
remaining arguments are either moot or without merit.
foregoing reasons, the motion for relief is granted in part.
Tardio’s action shall be severed from the consolidated action.
The Clerk of Court is directed to close docket nos. 7, 11, 14,
17, and 31.
The Clerk of Court is further directed to close
docket no. 11 in 12 Civ. 5963 and docket no. 5 in 12 Civ. 6619.
New York, New York
May 6, 2013
John G. Koeltl
United States District Judge
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