Willis et al v. Morgan Keegan & Company, Inc. et al

Filing 179

ORDER APPOINTING LEAD PLAINTIFF AND LEAD COUNSEL AND CONSOLIDATING CASES 151 155 156 162 163 164 165 . Signed by Judge Samuel H. Mays, Jr., on December 15, 2010. (Mays, Samuel)

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION IN RE: REGIONS MORGAN KEEGAN CLOSED-END FUND LITIGATION ELIZABETH P. WILLIS, et al., Plaintiffs, v. MORGAN KEEGAN & CO., INC., et al., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case Nos. 07-02830 MDL 2009

ORDER APPOINTING LEAD PLAINTIFF AND LEAD COUNSEL AND CONSOLIDATING CASES

Before the Court are the July 2, 2010 Motions of the Jones Group,1 Joseph W. Gilmore, the RMK Investor Group, and James N. Maddox to appoint lead plaintiff and lead counsel in In re

Regions Morgan Keegan Closed-End Fund Litigation, No. 07-2830. (ECF Nos. 162-65.) opposition Plaintiff.
1

On July 16, 2010, the Movants responded in competing Motions for Appointment as Lead

to

the

(See ECF Nos. 168-70.)

They filed Reply Briefs on

The Jones Group has filed four separate Motions for Appointment as Lead Plaintiff. (See ECF Nos. 151, 155-56, 162.) The initial Motion seeks the Jones Group's appointment, followed by two amending Motions made necessary by the group's shifting membership. (See ECF Nos. 151, 155, 162.) The remaining Motion seeks to have the Jones Group appointed "temporary lead plaintiff." (See ECF No. 156.) Because the Court appoints the RMK Investor Group as lead plaintiff, the Jones Group's Motion for Appointment as Lead Plaintiff is DENIED (ECF No. 162), and the remaining Motions are DENIED AS MOOT. (ECF Nos. 151, 155-56.)

July 30, 2010.

(See ECF Nos. 173-75.)

Evaluating these Motions

under the factors mandated by the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(a),2 the Court finds that the RMK Investor Group, as modified, is the presumptive most adequate plaintiff and that the remaining Movants have failed to rebut that presumption. The Court, therefore, APPOINTS the RMK

Investor Group as Lead Plaintiff and approves its selection of Labaton Sucharow LLP as Lead Counsel and Branstetter Stranch & Jennings ("BSJ") as Liaison Counsel. The remaining Motions for The RMK Investor

Appointment as Lead Plaintiff are DENIED. Group's Motion to Consolidate is GRANTED. I. PROCEDURAL HISTORY

Plaintiffs in these consolidated actions have filed suit against Defendants Inc.; Morgan Regions Keegan & Co., Inc.; Morgan MK Asset

Management,

Financial

Corporation;

Holding,

Inc.; PricewaterhouseCoopers LLP; and the officers and directors of four closed-end funds (the "Funds") offered by Defendant

Morgan Keegan and its affiliated entities.

The Funds traded (Compl. ¶ 1,

under the stock symbols RMA, RSF, RMH, and RHY. ECF No. 1.) A closed-end by the fund is one of two

categories of 1940.

of

funds See 15

established
2

Investment

Company

Act

The PSLRA amended two separate sections of the federal securities laws with almost identical language. See 15 U.S.C. §§ 77z-1, 78u-4. For ease of citation, the Court will cite the language in § 78u-4, which is identical in all material respects to § 77z-1.

2

U.S.C. § 80a-5(a). limited markets number like of

In a closed-end fund, the issuer releases a shares that are traded on the secondary Hazen,

standard

shares

of

stock.

Thomas

Lee

Treatise on the Law of Securities Regulation § 20.5 n.1 (4th ed. 2002). Plaintiffs generally allege that the Defendants

misrepresented the types of assets in which the Funds invested. (Compl. ¶¶ 7-8.) Plaintiffs assert that, although the

Defendants advertised the Funds as conservative investments, the Funds actually invested a substantial portion of their assets in collateralized mortgages. debt obligations ("CDOs") backed by subprime

(Id. ¶ 5.)

There was a limited market for those (Id. ¶ 9.) This exposed the

CDOs, rendering them illiquid.

Funds to substantial risks because, should the Funds need to sell the investments, they might not be able to do so except at a steep loss because of the limited number of available

purchasers. in 2007,

(Id.)

When the subprime mortgage market collapsed came to fruition and the four Funds

these

risks

suffered large losses.

(See, e.g., id. ¶ 13 (noting that the

RHY fund lost 63% of its value).) After the collapse in the Funds' value, numerous parties filed actions against Defendants in federal courts across the nation. these The Joint Panel on Multidistrict Litigation transferred and all future, In re: related actions to this Court for

adjudication.

Regions Morgan Keegan Secs., Derivative, 3

and ERISA Litig., 598 F. Supp. 2d 1379, 1382 (J.P.M.L. 2009). This Court then consolidated all related pending actions Willis v. Part and

addressing the closed-end funds into one proceeding. Morgan Keegan Co., No. 07-2830, Order Granting in

Denying in Part Mots. for Partial Consolidation, Appointment of Lead Pl., and Approval of Counsel, at 18-19, ECF No. 94 (W.D. Tenn. Sept. 23, 2008). appointment of lead The Court denied all pending motions for plaintiff and lead counsel because of The

defects in the required, published notice.

(Id. at 35-38.)

Court ordered the parties to the Closed-End Fund Litigation to publish a new notice within twenty days of the Court's Order. (Id. at 40.) Counsel complied with the Court's Order and published a new notice by Business Wire on October 6, 2008, giving all

interested parties sixty days to file motions for appointment as lead plaintiff. (See Coughlin Stoia Geller Rudman & Robbins LLP

Files Class Action Suit Concerning Certain Mutual Funds Offered by Regions Morgan Keegan Trust, ECF No. 148-2.) Despite that

notice, no parties filed motions seeking appointment as lead plaintiff. In 2010, the parties and the Court took independent On April 28, 2010, the Law Offices

action to revive the case.

of Napoli Bern & Ripka, LLP and Sonn & Erez, PLC, counsel to the Jones Group, published a notice in Investor's Business Daily. (See ECF No. 162-2, Ex. A.) Napoli Bern & Ripka and Sonn & Erez 4

took that action without the Court's knowledge.

Trustee ad

Litem C. Fred Daniels, a plaintiff in the consolidated closedend fund actions, moved the Court to unconsolidate his suits or appoint him lead plaintiff so that the case could proceed. ECF No. 139.) (See

The Court responded by issuing an Order on June

2, 2010, denying Daniels' Motion to Unconsolidate but asking the parties to file new motions for appointment as lead plaintiff. Willis v. Morgan Keegan & Co., No. 07-2830, 2010 U.S. Dist. LEXIS 54391, at *4-5 (W.D. Tenn. June 2, 2010). The Order Id.

established a July 2, 2010 deadline to file those motions. at *5.

Labaton Sucharow LLP, counsel to the RMK Investor Group,

published notice of this new deadline by Globe Newswire on June 3, 2010. filed a (See ECF No. 164-2, Ex. D.) motion for appointment as Any party who had already lead plaintiff was not

required to refile its Motion. 54391, at *5.

Willis, 2010 U.S. Dist. LEXIS

Five parties moved for appointment as lead plaintiff by the July 2, 2010 deadline. were: individual In addition to Daniels, the Movants James N. Maddox and Joseph W.

investors

Gilmore, the Jones Group, and the RMK Investor Group.

The Jones

Group, in its final formulation, consists of Charles Jones; Edge Partners, Ltd., a closely-held corporation in which Jones owns 90% of the stock; Taylor Henry; Floyd Kopf; and Greg and Joy Pohl, a married couple. (Jones Group's Reply Br. in Supp. of 5

Its Mot. for Appointment as Lead Pl., at 3, 6, ECF No. 173.) ("Jones Group Reply") The RMK Investor Group consists of The

Lion Fund LP, a hedge fund; Dr. J. Samir Sulieman; Jimmie L. Moon; and Larry Lattimore. (RMK Investor Group Mot. for

Appointment as Lead Pl., at 4 n.3, ECF No. 164-1.) ("RMK Mem.") Movants Gilmore and Daniels filed notices with the Court on July 16, 2010, that they would conditionally withdraw their Motions and support the appointment of the RMK Investor Group as lead plaintiff. (See ECF Nos. 166-67.) The Court, therefore, will the

select the lead plaintiff from among the remaining Movants: RMK Investor Group, the Jones Group, and James N. Maddox. II. ANALYSIS

The PSLRA requires the Court to make a decision about the appointment following of the lead on plaintiff "as soon 15 as practicable" § 78u-

its

decision

consolidation.

U.S.C.

4(a)(3)(B)(ii).

Each plaintiff who seeks appointment as lead

plaintiff must file a statement with the Court that: (i) states that the plaintiff has complaint and authorized its filing; reviewed the

(ii) states that the plaintiff did not purchase the security that is the subject of the complaint at the direction of plaintiff's counsel or in order to participate in any private action arising under this chapter [15 USCS §§ 78a et seq.]; (iii) states that the plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary; 6

(iv) sets forth all of the transactions of the plaintiff in the security that is the subject of the complaint during the class period specified in the complaint; (v) identifies any other action under this chapter [15 USCS §§ 78a et seq.], filed during the 3-year period preceding the date on which the certification is signed by the plaintiff, in which the plaintiff has sought to serve as a representative party on behalf of a class; and (vi) states that the plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff's pro rata share of any recovery, except as ordered or approved by the court in accordance with paragraph (4). Id. § 78u-4(a)(2)(A). The putative lead plaintiff must file its

certification within the same sixty days it is given to move for appointment as lead plaintiff. In re Able Labs. Sec. Litig., Each of the three

425 F. Supp. 2d 562, 565-66 (D.N.J. 2006).

remaining applicants for lead plaintiff has filed the required certification in the proper form within the deadline established by the Court. (See Exs. B-F, ECF No. 162-2; Ex. A, ECF No. 164-

2; Ex. C., ECF No. 165-5.) The PSLRA next creates a rebuttable presumption that the "most adequate plaintiff" to serve as lead plaintiff is the one who 1) has either filed the initial complaint or made a motion for appointment in response to the sixty-day notice; 2) in the Court's judgment "has the largest financial interest in the

relief sought by the class"; and 3) "otherwise satisfies the

7

requirements Procedure."

of

Rule

23

of

the

Federal

Rules

of

Civil

15 U.S.C. § 78u-4(a)(3)(B)(iii)(I).

A member of

the class may rebut the statutory presumption that the Court should appoint the most adequate plaintiff as lead plaintiff by showing that the most adequate plaintiff "will not fairly and adequately protect the interests of the class" or that it "is subject to unique defenses that render such plaintiff incapable of representing the class." Id. § 78u-4(a)(3)(B)(iii)(II).

A. Largest Financial Interest The sequential process required by the PSLRA to appoint a lead plaintiff mandates that the Court first identify the

applicant with the largest financial interest in the litigation. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I); Herrogott v. U.S. Dist.

Court for the N. Dist. of Cal. (In re Cavanaugh), 306 F.3d 726, 729-30 (9th Cir. 2002). Once the Court has identified the party

with the largest financial interest, the Court analyzes that party alone to see if it complies with the requirements of Rule 23. Id. at 730. If it does, it becomes the presumptive lead

plaintiff ­ a status subject to rebuttal by the other movants. Id.; In re Cendant Corp. Litig., 264 F.3d 201, 262-63 (3d Cir. 2001). Courts generally consider four factors when determining

which movant has the largest financial interest:

1) the number

of shares purchased; 2) the number of net shares purchased; 3) 8

the

total

net

funds

expended;

and

4)

the

approximate

loss

suffered.

In re Cardinal Health, Inc. Sec. Litig., 226 F.R.D.

298, 303 (S.D. Ohio 2005) (citations omitted); In re Concord EFS, Inc. Sec. Litig., No. 02-2697, slip op. at 5 (W.D. Tenn. Dec. 2, 2002) (applying same four-factor test). Each of these

factors considers only transactions that took place within the defined class period. In re Cardinal Health, 226 F.R.D. at 303.

The Court has discretion in deciding the calculation method to employ when computing these amounts, Plumbers & Pipefitters

Local 562 Pension Fund v. MGIC Inv. Corp., 256 F.R.D. 620, 62324 (E.D. Wis. 2009), but any method it may choose must be "both rational and consistently applied." at 730 n.4. method. The In re Cavanaugh, 306 F.3d

The PSLRA does not specify a preferred accounting

Plumbers & Pipefitters Local 562, 256 F.R.D. at 623. RMK Investor Group, the Jones Group, and Maddox

disagree about the calculation method and the class period the Court should adopt for the lead plaintiff analysis. Jones Group Reply at 1 (recommending a class (Compare from

period

December 6, 2004 until February 6, 2008), with RMK Mem., at 4 n.3 (proposing a longer class period from December 6, 2004 until July 14, 2009).) The Jones Group did not always have such a (See Mem. of Law

constrained view of the proper class period.

in Support of Jones Group's Second Am. Mot. for Appointment as

9

Lead Pl., Ex. F, ECF No. 162-2 (listing transactions that took place after February 6, 2008).) Under either class period, the RMK Investor Group has the largest financial interest in the litigation. at 7 ($4.6 million financial interest (Compare RMK Mem. longer class

under

period), and Jones Group Mem. of Law in Opp. to RMK Investor Group Mot., at 12, ECF No. 168 (calculating that RMK Investor Group has $3,402,827 financial interest under the Jones Group's proposed shorter class period) ("Jones Group Opp."),3 with Jones Group Reply at 1 & n.1 (stating that the Jones Group has a financial interest of $2,613,622 under the shorter class period or $4,332,162 under the longer class period).) Maddox does not

dispute that he, as an individual investor, has the smallest financial interest of the three lead plaintiff candidates. (See

Mem. of Law in Support of James N. Maddox's Mot. for Appointment as Lead Pl., at 5, ECF No. 165-1 (stating his financial interest is $948,000).) The Court finds that the RMK Investor Group has

suffered the largest loss and has the largest financial interest in the case regardless Cf. of the class period and calculation

method employed.

Plumbers & Pipefitters Local 562, 256

F.R.D. at 624 (declining to decide which calculation methodology

3

The RMK Investor Group declined to calculate its financial interest under the Jones Group's proposed shorter class period. The Court adopts the Jones Group's calculation of the RMK Investor Group's interest for the shorter class period arguendo to demonstrate that, even under the most favorable scenario, the RMK Investor Group has suffered the largest loss.

10

is best where all calculations lead to the same conclusion about who has the greatest financial interest). B. Initial Assessment under Rule 23 As the Movant having the largest financial interest, the RMK Investor Group is subject to an initial assessment under Federal Rule of Civil Procedure 23. 15 U.S.C. § 78u-

4(a)(3)(B)(iii)(I)(cc); In re Cavanaugh, 306 F.3d at 730 (noting that only the movant with the largest financial interest is assessed under Rule 23); In re Cendant, 264 F.3d at 262 (same). Rule 23 establishes two requirements for appointing a lead

plaintiff:

1) "the claims or defenses of the representative

parties are typical of the claims or defenses of the class," and 2) "the representative parties will fairly and adequately

protect the interests of the class."

Fed. R. Civ. P. 23(a)(3)-

(4); In re Cendant, 264 F.3d at 263 (noting that these are the only two provisions of Rule 23 that apply at the lead plaintiff stage). These two requirements are commonly known as

"typicality" and "adequacy."

In re Cendant, 264 F.3d at 263.

If the RMK Investor Group satisfies the typicality and adequacy requirements, it is the presumptive lead plaintiff. 78u-4(a)(3)(B)(iii)(I). Other movants may then challenge the presumptive lead 15 U.S.C. §

plaintiff's typicality and adequacy to rebut the presumption. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). 11 It would seem difficult

for a party to rebut a presumption based on two factors that have already been satisfied. inconsistency in the Courts have rectified this seeming language by holding that the

statutory

initial inquiry into typicality and adequacy required to trigger the presumption is only a prima facie one. F.3d at 264. When making this initial In re Cendant, 264 inquiry, courts may

consider all pleadings filed by the parties as well as any other information they have required the parties to submit. Typicality requires the Court to consider Id. whether the

claims of the potential lead plaintiff are similar to those of the class as a whole. Fed. R. Civ. P. 23(a)(3); In re Cendant,

264 F.3d at 265; In re Cardinal Health, 226 F.R.D. at 304. Here, the RMK Investor Group brings claims under the Securities Act of 1933 and the Securities and Exchange Act of 1934 alleging that the Defendants issued false and materially misleading (RMK

statements about the quality of the Funds' investments. Mem. at 1.)

The members of the RMK Investor Group purchased (See Exs. A-B, ECF

shares in all four of the affected Funds. No. 164-2.)

Therefore, the RMK Investor Group has made a prima

facie showing of typicality. To demonstrate adequacy, a potential lead plaintiff must demonstrate that it has both the ability and the incentive to represent the class's claims aggressively. 23(a)(4); In re Cendant, 264 F.3d at 265. 12 Fed. R. Civ. P. The RMK Investor

Group is composed of five investors who cumulatively have losses of up to $4.6 million. Sucharow LLP as its (RMK Mem. at 7.) counsel, an It has hired Labaton securities

experienced

litigation firm.

(Id. at 9.)

Labaton Sucharow LLP, among other

successful efforts, gained a $624 million settlement for the class in In re Countrywide Financial Securities Litigation, No. 07-cv-5295 securities. (C.D. Cal.), a case also involving subprime

(RMK Mem. at 9.)

That the RMK Investor Group has

hired such accomplished counsel supports a finding that it has the intention of aggressively prosecuting the class's claims. Cf. In re Cendant, 264 F.3d at 265 (noting that, "[b]ecause one of a lead plaintiff's most important functions is to select and retain lead counsel," it is permissible to consider its choice of counsel when making the initial adequacy determination

(internal quotation marks and citation omitted)). The Lion Fund, one of the members of the RMK Investor

Group, is a hedge fund.

(RMK Reply Br. at 14.)

One of the main

purposes Congress sought to advance when enacting the PSLRA was to promote the appointment of institutional investors as lead plaintiffs. See, e.g., In re Cendant, 264 F.3d at 243-44

(citing the legislative history); In re Cardinal Health, 226 F.R.D. presence at of 305-06 an (noting that some courts "tipped have the found scales the in

institutional

investor

favor of its appointment as lead plaintiff" (citation omitted)); 13

In re Baan Co. Sec. Litig., 186 F.R.D. 214, 224 (D.D.C. 1999) (amicus brief of the Securities and Exchange Commission ("SEC") stating that if a group is to be appointed lead plaintiff, it should have an ability to manage the litigation "comparable" to an institutional investor). The Lion Fund's presence as part of

the RMK Investor Group and the group's sound choice of counsel lead the Court to find that it has satisfied the initial test for adequacy. The Court, thus, finds that the RMK Investor See 15 U.S.C. § 78u-

Group is the presumptive lead plaintiff. 4(a)(3)(B)(iii). C. Rebutting the Presumption

The competing Movants, or any other concerned class member, may rebut the presumption that the Court should appoint the RMK Investor Group as the lead plaintiff. Id. § 78u-

4(a)(3)(B)(iii)(II); In re Cavanaugh, 306 F.3d at 730 (observing that the true test for typicality and adequacy occurs once the process becomes adversarial). Evidence that the RMK Investor

Group "will not fairly and adequately protect the interest of the class" or will be "subject to unique defenses that render [it] incapable of adequately representing the class" rebuts the presumption. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)-(bb). The

statute's language requires any objector to present "proof" of these deficiencies, emphasizing that speculative defects are not enough to defeat the presumption. 14 Id. ("The presumption

described in subclause (I) . . . may only be rebutted upon proof by a member of the purported plaintiff class . . . ." (emphasis added)); In re Cendant, 264 F.3d at 264 (emphasizing that

objectors bear the burden of proving inadequacy or atypicality). The Jones Group attacks the typicality and adequacy of the individual members of the RMK Investor Group. Opp. at 5-16; Jones Group Reply at 9-18.) (See Jones Group Maddox joins the

arguments of the Jones Group in questioning the adequacy and typicality of certain RMK Investor Group members and raises an additional concern ­ the propriety of allowing a group of

investors with aggregated losses to serve as lead plaintiff. (See Maddox Mem. in Opp. to Competing Mots. for Appointment as Lead Plaintiff at 12-19, ECF No. 170 ("Maddox Opp. Mem.");

Maddox Reply Mem. at 4-8, ECF No. 175.)

The Court will consider

the challenges to the individual members of the RMK Investor Group first. Should it survive as the presumptive lead

plaintiff, the Court will consider the challenge to the RMK Investor Group as a whole. (noting that, if the See In re Cavanaugh, 306 F.3d at 731 is rebutted, a court must

presumption

repeat the examination process with the movant having the second largest financial stake in the litigation). When considering the Jones Group's and Maddox's challenges to individual members of the RMK Investor Group, it will be necessary to refer to the individual members' financial stakes. 15

That determination, in turn, requires a decision about the class period to use in calculating the parties' financial interests. For these purposes alone, the Court will accept arguendo the class period proposed by the Jones Group, which ends on February 6, 2008, as opposed to the class period proposed by the RMK Investor Group, which ends on July 14, 2009. Opp. at 12; Jones Group Reply at 1.) (See Jones Group

But see Plumbers and

Pipefitters Local 562, 256 F.R.D. at 625 (finding that it is generally appropriate to use the longer of the suggested class periods unless "the allegations supporting the longer class

period are . . . obviously frivolous."); Eichenholtz v. Verifone Holdings, Inc., No. C 07-06140 MHP, 2008 U.S. Dist. LEXIS 64633, at *6 (N.D. Cal. Aug. 22, 2008) (questioning why proposed lead plaintiffs would assert that the class period should be shorter when such an "argument is inimical to the interest of the class members those plaintiffs purportedly represent"); Piven v. Sykes Enters., 137 F. Supp. 2d 1295, 1303 (M.D. Fla. 2000) ("Any

limitation of the class period at this stage in the litigation would be improper, as there is no such motion pending before the Court, the issue has not been adequately briefed, and would in effect limiting be tantamount that to may entry be of partial in summary judgment The

damages

sought

this

case.").

Court's acceptance arguendo of the period proposed by the Jones Group does not in any way affect the ability of the ultimate 16

lead plaintiff to select an appropriate class period when filing its consolidated complaint. See, e.g., Plumbers and Pipefitters

Local 562, 256 F.R.D. at 624 (noting that a district court's determination about the class period made during the process of appointing a lead plaintiff is not binding because the class period should only be definitively determined with the

participation of the defendants); Eichenholtz, 2008 U.S. Dist. LEXIS 64633, at *9-10 (observing that the job of the appointed lead plaintiff is "to allege an appropriate class period"). The

sole purpose of the Court is to demonstrate that, even using the numbers least favorable to the RMK Investor Group, the ultimate result is the same. 1. Arguments about Individual Group Members a. Lion Fund The Jones Group and Maddox advance three main arguments against the Lion Fund's inclusion in the RMK Investor Group. The Jones Group questions whether Corbin J. Robertson, III, who signed the Lion Fund's PSLRA certification, had the authority to authorize the Lion Fund to file suit against the Defendants. (Jones Group Opp. at 7-8.) such as the Lion Fund Maddox asserts that 1) hedge funds are lead always atypical and investors 2) and

therefore

inappropriate

plaintiffs,

Robertson's

other business dealings, including some with the Funds, create a

17

conflict of interest that prevents the Lion Fund from serving as lead plaintiff. (Maddox Opp. Mem. at 13-16.)

The Lion Fund is a limited partnership organized under the laws of the State of Texas. (See Certificate of Limited

Partnership, ECF. No. 168-3.)

The general partner of the Lion (Robertson Aff. ¶ 3, ECF

Fund is Robertson Fund Management L.P. No. 174-3.)

Texas law allows a general partner to authorize a

limited partnership to file suit on behalf of the partnership. See Texas Bus. Orgs. Code § 153.401 (noting that a limited

partner may bring suit on behalf of the partnership only if all general partners have refused to bring an action). Robertson is

the Managing Partner of Robertson Fund Management L.P. and has been authorized to allow the Lion Fund to file suit. Aff. ¶ 3.) (Robertson

No party has presented any evidence to cast doubt on

Robertson's sworn declaration that he is the Managing Partner of the Lion Fund's general partner. thus, does not support finding The evidence before the Court, that the Lion Fund would be

subject to a unique defense that its PSLRA certification is invalid. Other courts "routinely appoint hedge funds . . . even foreign hedge funds, as lead plaintiffs." 262 F.R.D. 338, 347 & n.65 (S.D.N.Y. In re Tronox, Inc., (citing cases).

2009)

Hedge funds are institutional investors, exactly the type of sophisticated market participants Congress intended to take on 18

the role of lead plaintiff following the PSLRA's reforms. In re Cendant, 264 F.3d at 243-44 (acknowledging

See

Congress'

preference for "a large institutional investor" to be appointed lead plaintiff). Arguments that hedge funds are per se

inappropriate candidates for appointment as lead plaintiff are unsupported by statute or case law. Maddox makes a targeted attack against the Lion Fund,

asserting that it has a severe conflict of interest that makes it an inappropriate lead plaintiff. Maddox asserts that

Robertson, who effectively controls the Lion Fund, is a director of Quintana Maritime, Ltd. ("Quintana"). 15.) (Maddox Opp. Mem. at

Robertson and the Lion Fund are investors in Quintana, (Id.) The four Funds

"owning hundreds of thousands of shares." were also investors in Quintana. (Id.)

Robertson's father, (Id.)

Corbin J. Robertson, Jr., served as Quintana's chairman.

Maddox argues that these interrelated business interests raise questions about the Lion Fund's ability to act in the class's best interest. (Id. at 15-16.)

Robertson has responded to these allegations by his sworn affidavit. Quintana was a publicly traded company listed on the (Robertson Aff.

NASDAQ stock exchange under the symbol "QMAR." ¶ 6.)

It provided "dry bulk marine transportation services" for like coal, iron ore, and grain. (Id.) As of

commodities

February 25, 2008, Quintana had more than 58 million shares 19

outstanding.

(Id.)

Quintana ceased to exist as an independent

company after its shareholders approved a $2.45 billion merger with Excel Maritime Carriers ("Excel"), another publicly traded, dry bulk maritime carrier. $13 per Quintana share (Id. ¶ 7.) and 0.4084 (Id.) Shareholders received shares of Excel as

consideration for the sale.

Robertson resigned as a (Id. ¶ 6.) The Funds'

director of Quintana after the merger.

only involvement with Quintana was purchasing its shares on the open market. (Id. ¶ 8.) Robertson avers that he was unaware

that the Funds had been Quintana shareholders (id.), and the RMK Investor Group calculates that the Funds collectively held no more than 0.3% of the outstanding shares of Quintana. Investor Group Reply at 15, ECF No. 174.) That Robertson served as a director of a separate, publicly traded corporation in which, by chance, the Funds independently decided to invest through transactions on the open market does not create a conflict of interest. Any person or other legal (RMK

entity may purchase the shares of a publicly traded corporation. Holding a 0.3% stake in a corporation is not a substantial

investment.

Cf. 17 C.F.R. § 240.13d-1 (requiring any person who

acquires "beneficial ownership of any equity security" of more than 5% of the total shares outstanding to file a report with the SEC detailing his holdings); Sup. Ct. R. 29.6 (requiring incorporated parties to notify the Court of any public company 20

that holds a stake of 10% or more in them); Fed. R. App. P. 26.1(a) (same). Maddox and the Jones Group have not proffered

any evidence suggesting that the Funds were in a position to take an active role in managing Quintana or that the Funds

otherwise engaged in business activities with Robertson or the Lion Fund. Cf. Newby v. Enron Corp. (In re Enron Corp. Secs.

Litig.), 206 F.R.D. 427, 455-56 (S.D. Tex. 2002) (disqualifying a movant for lead plaintiff because it employed an investment advisor that was because also that one of the defendant's could largest the

shareholders

relationship

subject

potential lead plaintiff to unique defenses).

The coincidence

that two parties to a litigation once owned stock in the same entity does not create a conflict. Neither Maddox nor the Jones

Group has cast doubt on the typicality of the Lion Fund's claims or the adequacy of its representation. In re Cendant, 264 F.3d

at 264 (holding that more than speculation is necessary to rebut the presumption). b. Lattimore The Jones Group attacks the adequacy of RMK Investor Group member Larry Lattimore. It argues that he would be subject to

the unique defense of failure to demonstrate loss causation. (Jones Group Opp. at 14.) The Jones Group asserts that

Lattimore sold all of his positions in two of the Funds, RSF and RHY, before the end of the class period and did not purchase 21

additional shares until the alleged fraud was at least partially revealed. (Id.) It makes no similar assertions about

Lattimore's trading in the shares of the remaining two Funds, RMA and RMH. (See id.)

The Jones Group alleges that Lattimore is a "day trader," someone who buys and sells stocks or other financial instruments on a hyperfrequent basis and hopes to profit from their intraday market movements. (Id. at 13-14.) Although the other

members of the RMK Investor Group succinctly summarize their trading in the shares of the Funds, the required disclosure of Lattimore's trading activity spans sixteen pages. (Compare

Decl. of J. Gerard Stranch, IV, Ex. A at 11, ECF No. 164-2 (trading activity of Jimmie L. Moon), with id. at 14-29 (trading activity of Lattimore).) This Court has previously decided that

one's status as a day trader alone does not preclude serving as a lead plaintiff. In re Concord EFS, slip op. at 14-15.

Regardless of how frequently he trades, an investor typically relies on the quoted market price of a stock as an accurate representation of the value of the company. Courts, however, will not Id. assume that an

automatically

investor relied on an integrity-based market. Health, 226 F.R.D. at 310.

In re Cardinal

The fraud-on-the-market presumption 1) the defendants

applies only where five factors are present:

publically made misrepresentations; 2) those misrepresentations 22

were material; 3) the stock traded on an efficient market; 4) the misrepresentations would cause a reasonable investor to

misjudge the stock's value; and 5) the plaintiff traded in the stock between the time of the misrepresentations and the

revelation of the truth.

Id. (citing Freeman v. Laventhol & Here, the Jones

Horwath, 915 F.2d 193, 197-98 (6th Cir. 1990)).

Group questions whether Lattimore can satisfy the fifth factor: that his losses were caused by the alleged fraud because some of his share transactions occurred before the revelation of the fraud. (Jones Opp. at 13-15.)

This argument does not account for what the Jones Group's Complaint alleges. The Complaint states that the Funds' share

price declined because of "multiple disclosures about declining net asset value." Jones v. Morgan Keegan & Co., No. 10-2248, Although the Supreme

Compl. ¶ 71, ECF No. 1 (emphasis added).

Court has recognized that, where "the purchaser sells his shares quickly before the relevant truth begins to leak out," no loss based on a misrepresentation occurs, Dura Pharms., Inc. v.

Broudo, 544 U.S. 336, 342 (2005), that defect does not preclude claims where there are partial disclosures before an investor sells the majority of his shares. See Christiansen v. Immelt

(In re GE Secs. Litig.), No. 09 Civ. 1951 (DC), 2009 U.S. Dist. LEXIS 69133, at *12 (S.D.N.Y. July 29, 2009). Multiple partial

disclosures are what the Jones Group alleges in its Complaint. 23

(See Compl. ¶ 71.)

It cannot escape its own allegations in an The Jones frequent

effort to disqualify the presumptive lead plaintiff. Group has failed to demonstrate that Lattimore's

trading activity will subject him to a unique defense. c. Sulieman Both Maddox and the Jones Group challenge Dr. J. Samir Sulieman's adequacy to serve as a member of the presumptive lead plaintiff RMK Investor Group based on his susceptibility to the unique defense of lacking constitutional standing to bring his claims. (Maddox Opp. at 17-19; Jones Group Reply at 16-18.)

They observe that Sulieman's stated financial interest in the litigation includes not only accounts for his own benefit but also accounts that benefit his wife and children. (See Decl. of

J. Gerard Stranch, IV, Ex. A at 10 (detailing Sulieman's stock transactions).) Citing the Second Circuit's opinion in W. R.

Huff Asset Management Co. v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008), the Jones Group and Maddox argue that Sulieman lacks standing to bring claims on behalf of accounts other than his own. In Huff, the Second Circuit held that, although prior case law interpreting Section 10(b) of the Securities and Exchange Act of 1934 confers statutory standing on any investment advisor who has "unrestricted decision making authority" over the

accounts at issue and is the "attorney-in-fact for its clients," 24

the

satisfaction

of

those the

two

requirements constitutional

does

not

automatically

satisfy

required

standing

inquiry under Article III.

549 F.3d at 106.

A purchaser for

purposes of Section 10(b) must still prove that it satisfies the traditional standing inquiry requiring 1) an injury-in-fact, 2) causation traceable to the defendant's actions, and 3) an injury judicial relief can adequately redress. Id. The Second Circuit

noted that, for a party to suffer an injury, it must have, at a minimum, "legal title to, or a property interest in, the claim." Id. at 108 (citing Sprint Communs. Co. v. APCC Servs., Inc., 554 U.S. 269, 289 (2008)). This does not mean that a third party Where a third

can never assert claims on behalf of another.

party can show 1) "a close relationship to the injured party" and 2) "a barrier to the injured party's ability to assert its own interests," courts make a prudential 549 exception at 109 to the

injury-in-fact

requirement.

Huff,

F.3d

(citing

Kowalski v. Tesmer, 543 U.S. 125, 130 (2004)). principles, federal courts have

Applying these allowed 1)

traditionally

trustees to bring suits on behalf of their trusts; 2) guardians ad litem, on behalf of their wards; 3) receivers, on behalf of their receiverships; estates; 4) and bankruptcy 5) assignees, on on behalf of of the

bankruptcy

executors,

behalf

testator's estate.

Sprint Communs., 554 U.S. at 287-88.

25

Sulieman accounts:

asserts own

claims

on

behalf retirement

of

four

types a

of

his

individual

account,

joint

account he holds with his wife, a trust for one of his children of which he is trustee, and another account for one of his children for which he is custodian under the Uniform Transfers to Minors Act has ("UTMA"), standing to Ark. Code an Ann. §§ 9-26-201 on behalf -- of 227.4 his

Sulieman

bring

action

individual retirement account and his joint account because he has a direct ownership interest in both. See Huff, 549 F.3d at

108 (requiring a legal interest in property to file suit for an injury). Sulieman, as trustee, has a well recognized right to Sprint Communs., 554

sue on behalf of the trust for his child. U.S. at 287.

That leaves the account for which Sulieman is At least one state ability to assert of a UTMA on

custodian for his child under the UTMA. appellate custodian, court under has cast doubt on the

certain

circumstances,

claims

behalf of a minor child.

See Pike v. N. Y. Life Ins. Co., 901 There is also a more basic

N.Y.S. 2d 76, 82 (App. Div. 2010). problem.

Under the UTMA, a custodian has authority on behalf of Once the child

the child only while that child is a minor.

reaches the age of twenty-one, the custodian's authority ends. See, e.g., Ark. Code Ann. §9-26-201(11) (defining a "[m]inor" as

4

Sulieman is a resident of the State of Arkansas. the state in which the UTMA account is held.

There is no indication of

26

any person "who has not attained the age of twenty-one (21) years"); Hovarth v. Craddock, 828 A.2d 1212, 1213-15 (R.I. 2003) (per curiam) (holding that, because the child had attained the age of twenty-one, the custodian lacked standing to sue for an accounting of the child's UTMA account); cf. Chavis v.

Brackenbury, 291 S.W.3d 570, 571-73 (Ark. 2009) (declining to determine whether a UTMA account beneficiary who is eighteen, but not yet twenty-one, is a necessary party in a suit seeking an accounting of funds because the parties did not preserve the issue). Sulieman's certification nowhere states the age of the (See Decl. of J.

child over whose account he claims control. Gerard Stranch, IV, Ex. A at 9-10.)

Because Sulieman may be

subject to a unique defense on his claims on behalf of the UTMA account, that account must be excluded from the RMK Investor Group's financial interest calculation.5 See In re Bally Total

Fitness Secs. Litig., No. 04 C 3530, 2005 U.S. Dist. LEXIS 6243, at *19 (N.D. Ill. Mar. 15, 2005) (finding that the PSLRA

requires only that a court determine if a defendant would be "subject to" to unique defense, not that the defense would

succeed); cf. In re Cardinal Health, 226 F.R.D. at 308 ("A group vying for lead plaintiff status does not necessarily rise and
5

The UTMA assets represent less than one percent (0.89%) of Sulieman's financial stake in the litigation, a de minimis amount. Because of the inconsequential nature of the problematic claim and Sulieman's otherwise forthcoming disclosures, the Court finds that striking Sulieman from the group would be unwarranted. The better course of action is to consider the UTMA account claim abandoned.

27

fall as a group.

Segmentation is a viable remedy and finds Accepting the the financial an

support in the case law." (citations omitted)). calculations interest of of the the RMK Jones Group, this reduces by

Investor

Group

$6,469,

leaving

interest of $3,396,358.6

(See Jones Group Reply at 17.)

That

amount is larger than the Jones Group's financial interest of $2,613,622. (Id. at 1.) d. Moon The Jones Group and Maddox assert the same lack-of-standing argument against Jimmie L. Moon they asserted against Sulieman. (Maddox Opp. at 17-19; Jones Group Reply at 16-18.) Moon

asserts claims based on his own trust account, his wife's trust account, and an account held by his adult daughter. (RMK

Investor Group Reply at 18; Decl. of J. Gerard Stranch, IV, Ex. A at 12 (detailing Moon's stock transactions).) Unlike its

response to the attacks on Sulieman's standing, the RMK Investor Group does not affirmatively state that Moon is the trustee of his wife's trust or detail what legal power he holds over his daughter's account. (See RMK Investor Group Reply at 18-19.)

There is also no indication about why Moon's wife and daughter face a barrier in bringing their own claims. at 109 (noting that there must be a See Huff, 549 F.3d to a party's

barrier

assertion of his or her own claim for a third-party to have
6

$3,402,827 - $6,469 = $3,396,358 > $2,613,622

28

standing to assert that claim).

The discrepancy between the

level of detail in Sulieman's disclosures and Moon's disclosures is relevant. litigation Cendant, A lead plaintiff must be able to advance the delay at caused 265 by unique defenses. 23's In re

without 264 F.3d

(explaining not

Rule

adequacy his

requirement).

That

Moon

has

adequately

clarified

interest in his wife's and daughter's accounts at this late stage means that litigation about his standing to bring those claims is certain. Moon is an inadequate candidate for

inclusion in the RMK Investor Group and the Court STRIKES him from the group.7 See In re Cardinal Health, 226 F.R.D. at 308;

In re Sunbeam Corp. Secs. Litig., No. 03 CV 1721 JM (POR), 2003 U.S. Dist. LEXIS one 25022, at from *23-25 a (S.D. Cal. Jan. lead 5, 2004)

(striking

plaintiff

group

seeking

plaintiff

status and noting that such segmentation is "routine[]"); Burke v. Ruttenberg, 102 F. Supp. 2d 1280, 1327-30 (N.D. Ala. 2000) (summarizing with approval numerous cases in which courts have considered and accepted groups as lead plaintiffs but have

stricken some members according to a "rule of reason"). The Jones Group calculated Moon's total financial interest as $678,324, including $365,754 for Moon's own account, $278,971 for his wife's account, and $33,599 for his daughter's account.
The financial interest represented by the questioned accounts is not de minimis. Based on the calculations of the Jones Group, it amounts to 46.07% of Moon's claimed financial interest in the litigation. (See Jones Group Opp. at 17.)
7

29

(Jones Group Reply at 17.) $3,396,358 Sulieman's financial questionable

Subtracting that total from the remaining yields a new after total striking financial That is

interest account

interest for the RMK Investor Group of $2,718,034.

$104,412 more than the Jones Group's stated financial interest. (See Jones Reply at 1.) Thus, the modified RMK Investor Group

continues to hold the largest financial stake in the litigation after the removal of atypical and inadequate members from the calculation. 2. Arguments based on status as a group That the modified RMK Investor Group has survived the

challenges to its remaining individual members does not end the inquiry. Maddox challenges the adequacy of the RMK Investor

Group to serve as lead plaintiff because of the complexities introduced by its status as a group. (Maddox Reply at 4-7.) He

argues that there is no reason the members of the RMK Investor Group came together other than to attempt to aggregate their claims to achieve lead plaintiff status. (Id. at 4.) (Id.) members That, Maddox will

Maddox asserts, is impermissible under the PSLRA. also questions how the RMK Investor Group's

function together as a cohesive unit to advance the litigation diligently. (Id. at 5-6.)

Maddox is correct that, shortly after the PSLRA's passage, some courts questioned the appropriateness of appointing a group 30

as lead plaintiff.

See, e.g., In re Telxon Corp. Secs. Litig.,

67 F. Supp. 2d 803, 812-13 (N.D. Ohio 1999) (finding that the constant usage of the singular in the PSLRA means that a group must meet additional hurdles if it seeks appointment as lead plaintiff). However, the text of the PSLRA explicitly permits "[T]he court . .

the appointment of a group as lead plaintiff:

. shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of representing the interests of class members." U.S.C. § 78u-4(a)(3)(B)(i). 15

Because of this explicit statutory

language, most courts now find that groups may serve as lead plaintiff if they demonstrate that they can perform the active supervisory role the PSLRA envisions. See, e.g., In re Cendant,

264 F.3d at 266 (noting that the PSLRA "contains no requirement mandating that the members of a proper group be `related' in some manner" and disapproving of In re Telxon, 67 F. Supp. 2d at 811-16); In re Cardinal Health, 226 F.R.D. at 307 (finding that most courts examine groups on a case-by-case basis). The SEC has provided guidance about how to inquire into the adequacy of groups seeking appointment as lead plaintiff. In re Baan Co., 186 F.R.D. at 223-228. See

A group should have no

more than three to five members; a court should evaluate each member separately for typicality and adequacy; and Congress'

preeminent goal of ensuring that federal securities litigation 31

is client, rather than lawyer, driven should be paramount. at 223-24. large stake

Id.

Each member of the group should have "a sufficiently in the litigation" to prevent any member from

failing to participate in the management of the case.

Id. at

224; see also In re Cendant, 264 F.3d at 266-67; In re Cardinal Health, 226 F.R.D. at 307. Here, the Court has conducted an individual inquiry into each member of the RMK Investor Group and culled a member who was an inadequate candidate for participation as lead plaintiff. The resulting group has three members, the smallest maximum

number recommended by the SEC. 224.

In re Baan Co., 186 F.R.D. at

Each member has a substantial stake in the litigation, and

one of the members is an institutional investor ­ the type of plaintiff Congress, through the passage of the PSLRA, sought to encourage to serve as lead plaintiff. Id. at 223-24. The

members aver that they have spoken with each other outside the presence of counsel and have established common goals for the litigation and a litigation strategy. Investor Group ¶ 9, ECF No. 174-2.) experienced counsel to prosecute (Joint Decl. of the RMK The members' selection of action confirms their

this

ability to work together to make wise decisions.

Because Maddox

offers only speculation to support his concern about the ability of the RMK Investor Group to function effectively, the Court

32

REJECTS this final challenge.8 264. No party has rebutted

See In re Cendant, 264 F.3d at the presumption that the RMK

Investor Group, as modified by the Court, should serve as Lead Plaintiff. The Court, therefore, APPOINTS the Lion Fund, Dr. J.

Samir Sulieman, and Larry Lattimore, known as the RMK Investor Group, as Lead Plaintiff in In re Regions Morgan Keegan ClosedEnd Fund Litigation. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

D. Appointment of Lead and Liaison Counsel The PSLRA provides that "the most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v). "[T]he

power to `select and retain' lead counsel belongs, at least in the first instance, to the lead plaintiff, and the court's role is confined to deciding whether to `approve' that choice." In

re Cendant Corp., 264 F.3d at 273 (citation omitted); see also In re Cardinal Health, 226 F.R.D. at 312; In re Telxon Corp., 67 F. Supp. 2d at 824. "[O]nly in very unusual circumstances will

[the] lead plaintiff have to accept counsel that it did not itself choose." In re Baan Corp., 186 F.R.D. at 229; see also

In re Cavanaugh, 306 F.3d at 734 (stating that Congress did not mean to alter the prior practice of allowing the lead plaintiff

By comparison, the Jones Group's membership has shifted multiple times. See supra text accompanying note 1. That shifting membership would raise serious questions about its ability to manage the litigation, lending credence to Maddox's concerns about lawyer-created groups hijacking federal securities litigation. See In re Baan Co., 186 F.R.D. at 223-228.

8

33

to select lead counsel, absent extenuating circumstances).

No

party has found reason to object to the Lead Plaintiff's choice of counsel, and the series of substantial settlements in

securities cases memorialized in its submissions to the Court demonstrates Labaton Sucharow LLP's competence to handle complex litigation like the present suit. The Court, therefore, For similar

APPOINTS Labaton Sucharow LLP as Lead Counsel. reasons, the Court APPOINTS BSJ as Liaison Counsel. E. Consolidation

Lead Plaintiff RMK Investor Group has filed a Motion to Consolidate two related actions, Jones v. Morgan Keegan & Co., No. 10-2248 and Palmour v. Morgan Keegan & Co., No. 10-2380, with the consolidated action In Re Regions Morgan Keegan ClosedEnd Fund Litigation, No. 07-2830. 2, ECF No. 164.) (RMK Mot. to Consolidate, at

No party has filed a response in opposition to

the Motion to Consolidate. Federal courts with Rule broad of Civil Procedure to 42(a) provides similar district actions

discretion

consolidate

pending before them. (6th Cir. 1993).

Cantrell v. GAF Corp., 999 F.2d 1007, 1011 District courts may consolidate related

actions sua sponte and despite the objections of the parties. Id. When considering whether to consolidate actions under Rule

42, district courts evaluate a number of factors, including:

34

[W]hether the specific risks of prejudice and possible confusion [are] overborne by the risk of inconsistent adjudications of common factual and legal issues, the burden on parties, witnesses and available judicial resources posed by multiple lawsuits, the length of time required to conclude multiple suits as against a single one, and the relative expense to all concerned of the single-trial, multiple-trial alternatives. Id. (quoting Hendrix v. Raybestos-Manhattan, Inc., 776 F.2d

1492, 1495 (6th Cir. 1985)) (alterations in original). Here, Jones and Palmour raise similar legal and factual issues surrounding the collapse of the four Funds.

Consolidation would conserve judicial resources and allow a more expeditious adjudication of Plaintiffs' claims. prejudice or confusion exist. Because all No issues of factors

relevant

support consolidation of these actions, the Court GRANTS Lead Plaintiff's Motion to Consolidate. Cf. Cannaday v. Sullivan,

Nos. 10-2188, 2190-92, 2010 U.S. Dist. LEXIS 119213, at *5-8 (W.D. Tenn. Nov. 5, 2010). The Clerk is DIRECTED to Consolidate

the Jones and Palmour suits under case number 07-2830. III. CONCLUSION The Plaintiff Court of GRANTS RMK the Motion for AS Appointment MODIFIED. as The Lead RMK

the

Investor

Group

Investor Group shall consist of the Lion Fund; Sulieman, absent his de minimis UTMA claim; and Lattimore. The Court also

APPOINTS Labaton Sucharow LLP as Lead Counsel and BSJ as Liaison

35

Counsel.

The Lead Plaintiff's Motion to Consolidate is GRANTED.

All other Motions for Appointment as Lead Counsel are DENIED. So ordered this 15th day of December, 2010.

s/ Samuel H. Mays, Jr. SAMUEL H. MAYS, JR. UNITED STATES DISTRICT JUDGE

36