Oklahoma Firefighters Pension and Retirement System v. Xerox Corporation et al
OPINION & ORDER re: 20 MOTION to Appoint IWA Forest Industry Pension Plan to serve as lead plaintiff(s) . MOTION to Appoint Counsel Kaplan Fox & Kilsheimer LLP as lead counsel filed by IWA Forest Industry Pension Plan, 26 MOTION to Appoint Counsel . MOTION to Appoint City of Melbourne Police Officers' Retirement System to serve as lead plaintiff(s) filed by City of Melbourne Police Officers' Retirement System, 23 MOTION to Appoin t Jim Welton to serve as lead plaintiff(s) filed by Jim Welton, 29 MOTION to Appoint Arkansas Public Employees Retirement System to serve as lead plaintiff(s) and for approval of its selection of cousel filed by Arkansas Publ ic Employees Retirement System. The Court grants APERS's motion to serve as lead plaintiff and denies all other motions to serve as lead plaintiff. The court appoints Kessler Topaz Meltzer & Check, LLP as lead counsel and appoints Labaton Su charow LLP as liaison counsel. In accordance with the stipulation and order governing the next steps in this case, Dkt. 32, APERS is either to file and serve an amended complaint or designate the Complaint as the operative complaint in this case wit hin 60 days of this order-i.e. May 1, 2017. Defendants may then respond to the then-operative complaint under the schedule set forth in Dkt. 32-either 60 days after the filing of an amended complaint, or, if no amended complaint is filed, by June 30, 2017. The Clerk of Court is respectfully directed to terminate all pending motions. SO ORDERED. (Signed by Judge Paul A. Engelmayer on 2/28/2017) (anc)
Before the Court are motions from two competing movants, each seeking appointment as
lead plaintiff and appointment of their respective attorneys as lead counsel. These are (1) the
Arkansas Public Employees Retirement System (“APERS”), an institutional investor, and (2)
IWA Forest Industry Pension Plan (“IWA Forest”), a pension plan.
For the following reasons, the Court appoints APERS as lead plaintiff, appoints APERS’s
attorney, Kessler Topaz Meltzer & Check, LLP, as lead counsel, and Labaton Sucharow LLP as
class liaison counsel.
Xerox is a global provider of printing machines and document processing services. It is
listed on the New York Stock Exchange with the ticker symbol “XRX.” The five individual
defendants were Xerox officers within the class period. Complaint ¶¶ 18–23.2 These officers,
plaintiffs allege, had the authority to control the contents of Xerox’s submissions to the SEC,
press releases, and presentations to market participants such as securities analysts, money
portfolio managers, and institutional investors. Id. ¶ 24.
Xerox has two primary business divisions for reporting purposes: Services, which
accounted for about 55 percent of Xerox’s total revenue in 2015; and Document Technology,
The Court draws its summary of the facts from the Complaint. Dkt. 1 (“Complaint”). The
Court treats these facts as true solely for the purpose of resolving this motion. See In re Braskem
S.A. Securities Litig., No. 15 Civ. 5132 (PAE), 2015 WL 5244735, at *1 n.1 (S.D.N.Y. Sept. 8,
Ursula M. Burns is Xerox’s chief executive officer and the chair of its board of directors; Luca
Maestri was Xerox’s chief financial officer from the start of the Class Period until his resignation
in February 2013; Kathryn A. Mikells was Xerox’s chief financial officer from May 2013 until
her resignation in October 2015; Lynn R. Blodgett was president of the Xerox Services division
and vice president of Xerox from the start of the Class Period until his resignation in March
2014; and Robert K. Zapfel has been Xerox’s president of Xerox Services and an executive vice
president since April 2015. Complaint ¶¶ 19–23.
which includes the sale and support of printing and copying machines, and which accounted for
about 40 percent of Xerox’s total revenue in 2015. Id. ¶ 2. Xerox’s Services division offers a
“Health Enterprise” service, a software management product designed to help state agencies
administer Medicaid programs in accordance with federal regulations. Id. ¶ 3. Before and
during the Class Period, Xerox sold this product to states. Id.
During the Class Period, Xerox promoted its Health Enterprise business as a valuable
growth area, with low costs and high profit margins. Plaintiff alleges, however, that defendants’
statements about the profitability and growth potential of the Health Enterprise business were
materially false and misleading. Specifically, plaintiff alleges, defendants did not disclose that
(1) Xerox’s then-existing Health Enterprise projects were experiencing significant delays and
cost overruns; and (2) Xerox would be unable to deliver Health Enterprise products at
sustainable profits. These omissions made defendants’ optimistic statements about Xerox’s
Health Services business, operations, and potential inaccurate and unreasonable. Id. ¶ 4.
Plaintiff identifies four announcements within the Class Period revealing problems
associated with its Health Enterprise product that allegedly caused Xerox’s stock price to drop.
On October 22, 2014, Xerox issued a press release announcing its third-quarter 2014
results, which revealed disappointing margins in the Health Services segment. Xerox blamed the
low margins on high costs resulting from the prolonged implementation of its existing Health
Enterprise projects. Notwithstanding these “mounting costs,” plaintiffs allege, “Xerox assured
investors that these costs were ‘more contained in the third quarter’ and [Xerox] was making
‘good progress’ within Health Enterprise.” Id. ¶ 5. That day, Xerox’s common stock fell $0.94
per share, a decrease of 7.5 percent, to close at $11.57 per share on October 22, 2014. Id. ¶ 6.
On April 24, 2015, Xerox announced its first quarter 2015 financial results, which again
reflected disappointing margins in the same business, again due to higher costs associated with
the continued implementation of Health Enterprise projects. Nonetheless, plaintiffs allege,
“defendants continued to assure investors that [Xerox’s] Services business segment was
performing well.” Id. ¶ 7. That day, Xerox’s common stock fell $1.10 per share, a decrease of
8.75 percent, and closed at $11.48. Id. ¶ 8.
On October 13, 2015, Xerox issued a press release announcing that it would be taking a
$385 million pre-tax charge with its third quarter 2015 results. This charge related to assets and
unrecoverable costs part of the implementation of Health Enterprise projects. Xerox disclosed,
too, that it would not complete its Health Enterprise projects in California and Montana. Id. ¶ 9.
The following day, Xerox common stock fell by $0.32 per share, a decrease of 3.17 percent,
closing at $9.83 per share on October 14, 2015. Id. ¶ 10.
Finally, on October 26, 2015, Xerox released its financial results for the third quarter of
2015. These results fell short of analysts’ estimates, partly because of revenues lost as a result of
the termination of the projects in California and Montana. Xerox admitted it would experience
lower revenues as a result of the loss of these contracts. It also announced that its directors had
authorized a strategic review of Xerox’s business portfolio. Id. ¶ 11. That day, Xerox’s common
stock fell $0.30 per share, a decrease of 3 percent, closing at $9.73 per share on October 26,
2015. Id. ¶ 12.
Plaintiffs bring two claims. The first, against all defendants, is for a violation of Section
10(b) of the Exchange Act and Rule 10b-5, based on Xerox’s dissemination and/or approval of
false and misleading statements and material omissions concerning Health Enterprise. Id. ¶¶ 71–
75. The second, against only the individual defendants, is for a violation of Section 20(a) of the
Exchange Act, claiming that the individual defendants had the power and ability to control
Xerox’s actions and thus are liable for the Xerox’s actionable statements and omissions. Id.
Procedural History Relevant to the Pending Lead Plaintiff Motions
On October 21, 2016, plaintiffs filed the Complaint. Dkt. 1. On December 23, 2016,
four movants moved to be appointed lead plaintiff: (1) IWA Forest, Dkt. 20; (2) Jim Welton,
Dkt. 23; (3) the City of Melbourne Police Officers’ Retirement System (“MPORS”), Dkt. 26;
and (4) APERS, Dkt. 29. Each motion included a memorandum of law and a declaration in
On December 28, 2016, the Court, pursuant to a stipulation by the parties and pursuant to
the Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4(a)(3), set out by
order a schedule for the filing of pleadings after the Court’s selection of the lead plaintiff. Dkt.
32. The Court (1) ordered that within 60 days of its appointment of the lead plaintiff, the lead
plaintiff is to file an amended complaint or designate the Complaint as the operative complaint;
and that defendants are to respond to the operative complaint either 60 days after the filing of an
amended complaint, or, if no amended complaint is filed, 60 days after the end of the 60-day
period following the Court’s issuance of an order designating the lead plaintiff; and (2) the Court
set a schedule for briefing of any motion to dismiss. Id.
On January 6, 2017, MPORS withdrew its motion to be appointed lead plaintiff, Dkt. 33;
and Welton and APERS filed oppositions to the other movants’ motions, Dkts. 34 and 35,
respectively. On January 13, 2017, APERS filed a reply brief. Dkt. 36. On January 19, 2017,
Welton withdrew his motion to be appointed lead plaintiff, on the ground that, upon review of
the motions, he does not have the “largest financial interest in the relief sought by the class” as
required by the PSLRA, 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb), among the movants. Dkt. 37.
That left APERs and IWA Forest as the only entities vying to serve as lead plaintiff.
Selection of Lead Plaintiff: The PSLRA Requirements
The PSLRA governs motions for appointment of lead plaintiff and approval of lead
counsel in putative class actions brought under the securities laws. See In re Braskem S.A. Sec.
Litig., No. 15 Civ. 5132 (PAE), 2015 WL 5244735, at *4 (S.D.N.Y. Sept. 8, 2015); In re
Millennial Media, Inc. Sec. Litig., 87 F. Supp. 3d 563, 568–69, (S.D.N.Y. 2015); Bo Young Cha
v. Kinross Gold Corp., No. 12 Civ. 1203 (PAE), 2012 WL 2025850, at *2 (S.D.N.Y. May 31,
2012). The PSLRA directs the court to appoint as lead plaintiff the party or parties “most
capable of adequately representing the interests of class members.” 15 U.S.C. § 78u4(a)(3)(B)(i). Under the PSLRA, there is a rebuttable presumption that the most adequate
plaintiff is the person or group of persons that (1) has either “filed a complaint or made a motion
in response to a notice,” id. § 78u-4(a)(3)(B)(iii)(I)(aa); (2) in the determination of the Court, has
the “largest financial interest in the relief sought by the class,” id. § 78u-4(a)(3)(B)(iii)(I)(bb);
and (3) satisfies all the requirements of Federal Rule of Civil Procedure 23, which governs class
actions, see id. § 78u-4(a)(3)(B)(iii)(I)(cc).
Here, with the other two movants having stepped aside, the Court must appoint either
APERS or IWA Forest as lead plaintiff. (Although not opposing the other motions for
appointment, IWA Forest has not withdrawn its own.) The Court accordingly applies the
PSLRA factors to APERS’s and IWA Forest’s competing bids.
On October 21, 2016, plaintiff filed the Complaint, and, on October 24, 2016, plaintiff
published notice of this action in Globe Newswire, Declaration of Christopher J. Keller (“Keller
Decl.”), Dkt. 31, Ex. C. The deadline to file motions to serve as lead plaintiff was therefore
December 23, 2016. See 15 U.S.C. § 78u-4(a)(3)(A)(i)(II) (any member of the purported class
may move to serve as lead plaintiff not later than 60 days after the publishing of notice of the
action). Both APERS and IWA Forest thus satisfy the first PLSRA requirement, as each filed a
motion for lead plaintiff status by that date. See id. § 78-u4(a)(3)(B)(iii)(I); City of Monroe
Emps. Ret. Sys. v. Hartford Fin. Servs. Grp. Inc., 269 F.R.D. 291, 293 (S.D.N.Y. 2010).
To determine who has the largest financial stake in the litigation, courts have traditionally
applied a four-factor test, first set forth in Lax v. First Merchants Acceptance Corp., No. 97 Civ.
2715 (DHC), 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997). These “Lax” factors include (1)
the total number of shares purchased during the class period; (2) the net shares purchased during
the class period (meaning the difference between the number of shares purchased and the number
of shares sold during the class period); (3) the net funds expended during the class period
(meaning, the difference between the amount spent to purchase shares and the amount received
for the sale of shares during the class period); and (4) the approximate losses suffered. City of
Monroe, 269 F.R.D. at 293; Lax, 1997 WL 461036, at *5.
Courts have consistently held that the fourth factor, the magnitude of the loss suffered, is
most significant. See, e.g., Kaplan v. Gelfond, 240 F.R.D. 88, 93 (S.D.N.Y. 2007) (“Although
courts have differed on how much weight to assign to each of the Lax factors, we, as have other
courts, shall place the most emphasis on the last of the four factors: the approximate loss suffered
by the movant.”), reconsidered on other grounds, In re IMAX Sec. Litig., No. 06 Civ. 6128
(NRB), 2009 WL 1905033 (S.D.N.Y. June 29, 2009); Bo Young Cha, 2012 WL 2025850, at *2;
In re Braskem, 2015 WL 5244735, at *4–5; Bhojwani v. Pistiolis, No. 06 Civ. 13761 (CM)
(KNF), 2007 WL 2197836, at *6–7 (S.D.N.Y. July 31, 2007); see also Foley v. Transocean Ltd.,
272 F.R.D. 126, 128 (S.D.N.Y. 2011) (“[I]n determining the largest financial interest, ‘most
courts simply determine which potential lead plaintiff has suffered the greatest total losses.’”
Here, the lead plaintiff candidates suffered significantly different amounts upon the drops
in Xerox’s stock price during the Class Period. APERS lost either $1,612,283 under the first-infirst-out (“FIFO”) method or $1,486,866 under the last-in-first-out (“LIFO”) method. APERS
Memorandum of Law in Support, Dkt. 30, at 6; see Keller Decl. Ex. B.3 IWA Forest did not
calculate its losses in its motion, instead only providing its transactions list, see Declaration of
Frederic S. Fox (“Fox Decl.”), Dkt. 22, Ex. B. But APERS calculated IWA Forest’s losses using
IWA Forest’s transactions list and determined that it lost $427,384 under the LIFO method,
APERS Memorandum of Law in Opposition, Dkt. 35, at 4 & n.3. That figure appears correct
upon the Court’s review, and IWA Forest has not contested it. APERS’s financial loss, nearly
three times greater than IWA Forest’s financial loss, is therefore by far the larger.
Because APERS suffered the loss of the greatest magnitude, the most significant factor in
the financial interest analysis, the financial interest analysis tilts strongly in APERS’s favor.
Further, APERS is an institutional investor, which Congress prefers for a lead plaintiff. See, e.g.,
H.R. Conf. Rep. No. 104-369, at *34 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 733 (1995)
(“[I]ncreasing the role of institutional investors in class actions will ultimately benefit
Under FIFO, stocks acquired first are assumed to have been sold first in the calculation of
losses, while under LIFO stocks acquired most recently are assumed to have been the first sold.
Bo Young Cha, 2012 WL 2025850, at *3. These methods can yield different results when, as of
the start of the class period, the plaintiff held earlier-purchased shares of the issuer. Id. “The
overwhelming trend both in this district and nationwide has been to use LIFO to calculate . . .
shareholders and assist courts by improving the quality of representation in securities class
actions.”); Glauser v. EVCI Ctr. Colls. Holding Corp., 236 F.R.D. 184, 188 (S.D.N.Y. 2006)
(“[T]he PSLRA was passed . . . to increase the likelihood that institutional investors would serve
as lead plaintiffs in actions such as this one.” (quotation omitted)); In re eSpeed, Inc. Sec. Litig.,
232 F.R.D. 95, 99 (S.D.N.Y. 2005) (“[T]he PSLRA was designed to favor institutional
This is also not a case in which the class’s interests require appointing co-lead plaintiffs.
There is, for example, no claim that the investor that suffered the greatest losses did not hold the
relevant securities during the full class period, whereas a different investor did. See, e.g.,
Millennial Media, Inc. Sec. Litig., 87 F. Supp. 3d at 570. Here, APERS appears to have held
Xerox stock for the entire Class Period. Keller Decl. Ex. B.
The factor of financial interest thus favors APERS.
Rule 23 Requirements
The PSLRA’s final requirement is that the proposed lead plaintiff satisfy Rule 23’s
requirements for class certification: numerosity, commonality, typicality, and adequacy. But, at
this early stage of litigation, “only the last two factors—typicality and adequacy—are pertinent.”
Bo Young Cha, 2012 WL 2025850, at *6 (quoting Constance Sczesny Trust v. KPMG LLP, 223
F.R.D. 319, 324 (S.D.N.Y. 2004)).
As for typicality, a lead plaintiff’s claims are typical when “each class member’s claim
arises from the same course of events, and each class member makes similar legal arguments to
prove the defendant’s liability.” Sgalambo v. McKenzie, 268 F.R.D. 170, 173–74 (S.D.N.Y.
2010) (citations omitted). “The claims of [the plaintiffs] are typical of the class because their
claims and injuries arise from the same conduct from which the other class members’ claims and
injuries arise.” In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42, 49–50 (S.D.N.Y.
1998) (citations omitted). As for adequacy, a lead plaintiff satisfies this requirement when it
“does not have interests that are antagonistic to the class that [it] seeks to represent and has
retained counsel that is capable and qualified to vigorously represent the interests of the class
that [it] seeks to represent.” Glauser, 236 F.R.D. at 189 (citing Dietrich v. Bauer, 192 F.R.D.
119, 124 (S.D.N.Y. 2000)).
APERS satisfies these requirements. Like the other class members, it purchased Xerox
stock during the class period at prices allegedly improperly high because of defendants’
allegedly materially false and misleading statements, and thereby was damaged. Its claims are
therefore typical. It suffered the greatest loss of the lead plaintiff candidates, so its interests are
aligned with the other class members, and it has no conflicting interests. As such, APERS is also
an adequate lead plaintiff. Further, APERS is a sophisticated institutional investor overseeing
more than $7 billion of assets under management for more than 90,000 participants. Notably,
IWA Forest has not contested APERS’s typicality or adequacy, or claimed that APERS is subject
to unique defenses that would render APERS incapable of adequately representing the class. 15
U.S.C. § 78u-(4)(a)(3)(B)(iii)(II).
The Court therefore appoints APERS as lead plaintiff because it has satisfied all of the
PSLRA requirements at this early stage in the case.
Appointing Lead Counsel
The most adequate plaintiff may retain counsel to represent the class, subject to the
Court’s approval. 15 U.S.C § 78u-(4)(a)(3)(B)(v). APERS has selected the law firm of Kessler
Topaz Meltzer & Check, LLP as lead counsel and Labaton Sucharow LLP as liaison counsel for
the class. Having reviewed the firms’ submissions about their pertinent background and
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