Makhlouf v. Tailored Brands, Inc. et al
ORDER DENYING 41 MOTION to Strike 40 Supplement or, in the Alternative, for Leave to Respond, GRANTING 41 Motion for leave to respond to the sur-reply, DENYING 7 MOTION for Appointment of Lead Plaintiffs and Approval of Counsel, GRANTING 10 MOTION for Appointment of Lead Plaintiff and Approval of Lead Plaintiff's Selection of Counsel (Signed by Judge Melinda Harmon) Parties notified.(jdav, 4)
United States District Court
Southern District of Texas
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
PETER MAKHLOUF, Individually and§
on Behalf of all others
TAILORED BRANDS, INC. and
DOUGLAS S. EWERT,
March 23, 2017
David J. Bradley, Clerk
CIVIL ACTION NO. H-16-0838
OPINION AND ORDER
Pending before the Court in the above referenced Federal Rule
of Civil Procedure 23(a) and (b)(3) securities class action on
behalf of all persons who purchased or otherwise acquired Tailored
December 9, 2015 (the “Class Period”), alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act (“Exchange
1934 against TLRD and its CEO, Douglas S. Ewert, are the
(1) motion of Jacksonville Police and Fire
Pension Fund (“Jacksonville”) and Oklahoma Police Pension and
Retirement System’s (“OPPRS’,” collectively, the “Funds’”) motion
for appointment of the Funds to serve as Lead Plaintiffs and for
On January 29, 2016, Men’s Warehouse, Inc. announced
publicly that on February 1, 2016 it would convert to a holdcompany structure to be called Tailored Brands, Inc. In this
restructuring, Men’s Warehouse shareholders exchanged their
shares one-for-one for shares of the new company, which trades on
the New York Stock Exchange under the symbol, “TLRD.” Although
during the Class Period the Company was known as Men’s Warehouse,
for clarity, to avoid confusion, the Court refers to the entity
throughout this opinion as “TLRD.”
approval of Bernstein Liebhard, LLP as Lead Counsel, and of The
Bilek Law Firm, LLP to serve as Liaison [local] Counsel, pursuant
Litigation Reform Act of 1995 (the “PSLRA”) (instrument #7); (2)
appointment of the Pension Fund as Lead Plaintiff and approval of
the Pension Fund’s selection of Robbins Geller Rudman & Dowd, LLP
as Lead Counsel and Edison McDowell & Hetherington LLP as Local
Counsel (#10); and (3) The Pension Fund’s motion to strike the surreply
alternative, for leave to respond to the sur-reply (#41).
This federal securities suit arises out of the contentious
acquisition by TLRD of one-time rival Joseph A. Bank Clothiers,
Inc. (“JOS”) and optimistic, but allegedly misleading, statements
subsequently determined to be a deeply troubled company, at an
excessive price, with the integration not proceeding as materially
misrepresented to TLRD shareholders and with adverse facts not
disclosed to them during the Class Period.
TLRD’s stock became
inflated prices, and they suffered economic loss when revelations
of its actual financial situation reached the market.
Applicable Law: the PSLRA
Pursuant to 15 U.S.C. § 78u-4(a)(3)(B)(I) of the PSLRA, which
amended the Exchange Act by adding Section 21D, 15 U.S.C. § 78u-4,
in class actions under the federal securities laws “the court shall
determining the adequacy of a proposed lead plaintiff or proposed
small, cohesive group of lead plaintiffs to oversee the class
action. In re Waste Management, Inc. Securities Litigation, 128 F.
presumption that the plaintiff or cohesive group of plaintiffs with
the largest financial interest in the outcome of the litigation is
4(a)(3)(B)(iii). Id. That presumption may be rebutted if a member
individual or entity will not fairly and adequately protect the
interests of the class or that the proposed Lead Plaintiff is
subject to unique defenses that make him, her, it or them incapable
of adequately representing the class. Id., citing 15 U.S.C. § 78u4(a)(3)(B)(iii)(II).
Moreover, the Lead Plaintiff or Plaintiffs must not only have
the largest financial interest in the outcome of the suit, but must
also meet the four requirements of Federal Rule of Civil Procedure
(1) the class is so numerous that joinder of all members
is impracticable; (2) there are questions of law or fact
common to the class; (3) the claims or defenses of the
representative parties are typical of the claims or
defenses of the class; and (4) the representative parties
will fairly and adequately protect the interests of the
Id. at 411.
The plaintiff seeking appointment as Lead Counsel or
certification as class representative bears the burden of
affirmatively proving that it satisfies the requirements of Rule
Berger v. Compaq Computer, 257 F.3d 475, 481 (5th Cir. 2001).
prerequisites for which or whom are set out in the PSLRA, and a
Rule 23-qualified class representative, is clarified by the Second
Nothing in the PSLRA indicates that district courts must
choose a lead plaintiff with standing to sue on every
available cause of action. Rather, because the PSLRA
mandates that courts must choose a party who has, among
other things, the largest financial stake in the outcome
of the case, it is inevitable that, in some cases, the
lead plaintiff will not have standing to sue on every
claim. See In re Initial Pub. Offering Sec. Litig., 214
F.R.D. 117, 123 (S.D.N.Y. 2002)(“[T]he fact that the lead
plaintiff is to be selected in accordance with objective
criteria that have nothing to do with the nature of the
claims . . . strongly suggests the need for named
plaintiffs in addition to any lead plaintiff.”)
Havesi v. Citigroup, Inc., 366 F.3d 70, 82 (2d Cir. 2003); see also
standing . . ., the class may pursue any claim that at least one
named plaintiff has standing to pursue.”); Greater Pennsylvania
Carpenters Pension Fund v. Whitehall Jewellers, Inc., No. 04 C
1107, 2005 WL 61480, *7 (N.D. Ill. Jan. 10, 2005)(quoting Havesi).
The Second Circuit further noted,
Also, considering that the role of the lead plaintiff is
“to empower investors so that they--not their lawyers-exercise primary control over private securities
litigation.” S. Rep. No. 104-98, at 4 (1995), reprinted
in 1995 U.S.C.A.A.N. 679, 683, any 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. See In
re Initial Pub. Offering Sec. Litig., 214 F.R.D. at 123
(“The only other possibility--that the court should
cobble together a lead plaintiff group that has standing
to sue on all possible causes of action--has been
rejected repeatedly by courts in the Circuit and
undermines the purpose of the PSLRA”). . . .
Id. at 82 n.13.
The Second Circuit further observed, “[T]he PSLRA
does not in any way prohibit the addition of named plaintiffs to
aid the lead plaintiff in representing a class.”
Id. at 83.
(S.D.N.Y. 2003)(“The PSLRA does not prohibit the addition of named
plaintiffs to aid Lead Plaintiff in representing the class. . . .
The PSLRA lead plaintiff provisions ensure that the securities
litigation is driven by investors; it is not . . . a substitute for
the class certification process.”), appeal granted in part on other
grounds, Havesi, 366 F.3d 70.
Thus, “[w]hile . . . lead plaintiffs appointed pursuant to the
PSLRA need not satisfy all elements of standing with respect to the
entire lawsuit, the selection of lead plaintiffs does not remove
the basic requirement that at least one named plaintiff must have
standing to pursue each claim alleged.”
In re Salomon Analyst
Level 3 Litig., 350 F. Supp. 2d 477, 496 (S.D.N.Y. 2004)(citing the
following cases: In re Global Crossing Sec. Litig., 313 F. Supp. 2d
189, 205 (S.D.N.Y. 2003)(“Lead Plaintiffs have a responsibility to
represent the various potential subclasses who may be determined .
. . to have distinct interests or claims”); In re WorldCom Sec.
Litig., 294 F. Supp. 2d at 422; In re IPO Sec. Litig., 214 F.R.D.
117, 122-23 (S.D.N.Y.); Lewis v. Casey, 518 U.S. 343, 358 n.6
challenge a different, though perhaps related, injury because
“standing is not dispensed in gross”); Griffin v. Dugger, 823 F.2d
1476, 1483 (11th Cir. 1987)(“a claim cannot be asserted on behalf
of a class unless at least one named plaintiff has suffered the
injury that gives rise to that claim.”).
While defendants at this stage of the litigation lack standing
to challenge the plaintiffs’ motions to appoint Lead Plaintiff,
they may subsequently in a class certification hearing object to
the adequacy of any proposed person or group of persons as Lead
Waste Management, 128
F. Supp. 2d at 409-10.
the PSLRA the Court has supervisory power and may sua sponte
consider the adequacy of any proposed Lead Plaintiff, and it has an
independent duty to evaluate the appointment of lead counsel.
plaintiff shall, subject to the approval of the court, select and
retain counsel to represent the class.”), the Lead Plaintiff
selects and retains Lead Counsel to represent the class, subject to
court approval, but the Court should not alter the Lead Plaintiff’s
choice of Lead Counsel unless it is necessary to “protect the
interests of the [plaintiff] class.”
Supp. 2d at 411.
Waste Management, 128 F.
Plaintiff bears the burden of demonstrating his
and his attorneys’ adequacy.
Berger, 257 F.3d at 480-81.
After the filing of a complaint under § 21D of the Exchange
appointment as Lead Plaintiff
shall cause to be published in a widely-circulated
national business-oriented publication or wire service,
a notice advising members of the purported class–
(I) of the pendency of the action, the claims asserted
therein, and the purported class period;
(II) that, not later than 60 days after the date on which
the notice is published, any member of the purported
class may move the Court to serve as lead plaintiff of
the purported class.
Thus a plaintiff need not be the first to file a complaint to be
appointed Lead Plaintiff.
If more than one suit is filed with
nearly the same claims, only the plaintiff in the first-filed
The complaint in this action was filed on March 29, 2016,
establishing the deadline for applying to be Lead Plaintiff as May
The first two motions for appointment of Lead Plaintiff
and Approval of Selection of Lead Counsel were timely filed on May
31, 2016 (#4 and 5) by The Employees’ Retirement System of the
Puerto Rico Electric Power Authority and by Peter Makhlouf, Oakland
County Volunteer Benefit Association, and Oakland County Employees’
Retirement System, respectively.
Both motions were subsequently
#20 and 21.
The two still pending motions from the
Funds and from the Pension Fund were also timely filed on May 31,
After the 60-day period expires, the district court
shall appoint as lead plaintiff the member or members of
the purported plaintiff class that the court determines
to be most capable of adequately representing the
interests of class members (hereafter in this paragraph
referred to as the “most adequate plaintiff”) in
accordance with this subparagraph.
Section 21D(a)(3)(B) of the amended Exchange Act requires the
Court to adopt a rebuttable presumption that
the most adequate plaintiff in any private action arising
under this chapter is the person or group of persons that
(aa) has either filed the complaint or made a motion in
response to a notice . . .;
(bb) in the determination of the court, has the largest
financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of
the Federal Rules of Civil Procedure.
15 U.S.C. § 78u-4(a)(3)(iii)(I).
The PSLRA does not set out a procedure for determining the
“largest financial interest” among the proposed class members.
This Court, inter alia, has applied a four-factor inquiry first
established in Lax v. Merchants Acceptance Corp., No. 97 C 2715, et
al., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997):
number of shares purchased; (2) the number of net shares purchased;
(3) the total net funds expended by the plaintiffs during the class
period; and (4) the approximate losses suffered by the plaintiffs.”
In re Waste Management, 128 F. Supp. 2d 401, 409 n.4 (S.D. Tex. May
8, 2000); In re Enron Corp. Sec. Litig., 206 F.R.D. 427, 440 (S.D.
Where the motion for appointment seeks to appoint more than
one Lead Plaintiff, “that group must be restricted to a few
demonstrating that the group not only has the largest interest in
relationship based on more than the losing investments at issue in
the securities fraud class action.” Enron, 206 F.R.D. at 442 ([T]o
satisfy the terms and effectuate the underlying policy of the PSLRA
to guarantee effective control of the litigation and supervision of
permitted. Instead, where a movant seeks appointment of a group of
Lead Plaintiffs, that group must be restricted to a few cohesive
parties and the movant must bear the burden of demonstrating that
the group not only has the largest financial interest in the
outcome of the litigation, but also a pre-litigation relationship
based on more than the losing investments at issue in a securities
fraud action.”), citing In Re Waste Management, 128 F. Supp. 2d at
412-13, and Berger, 257 F.3d at 478 n.2.
See also In re Texlon
Corp. Sec. Litig., 67 F. Supp. 2d 803, 813 (N.D. Ohio 1999)(“[T]he
context and structure of the PSLRA evince the intent that a ‘group’
consist of more than a mere assemblage of unrelated persons who
share nothing in common other than the twin fortuities that (1)
they suffered losses and (2) they entered into retainer agreement
with the same attorney or attorneys.”).
Motion to Strike Sur-Reply
The Pension Fund moves to strike the Funds’ improper surreply, entitled “Supplemental Submission to address Strathclyde’s
Pension Fund’s New Evidence” (#40), filed without leave of Court,
or alternatively moves for leave of Court to respond to it.
The Funds contend that in the Pension Fund’s reply brief the
Pension Fund relied on a newly submitted investment brochure
(“Investing Responsibly” (#36-1, 36-2, 36-3), and a Declaration of
Richard Keery (#36-4) to support its motion.
Furthermore on July
5, 2016, in support of a separate motion for appointing itself as
part of a three-member lead plaintiff group in a different case,2
with connections between group members similar to those between
Jacksonville and OPPRS, the Pension Fund submitted briefing and
another Declaration from Richard Keery.
While the Federal Rules of Civil Procedure and this Court’s
Local Rules do not expressly permit the filing of a sur-reply by a
Melbourne Municipal Firefighters’ Pension Trust Fund v.
Express Scripts Holding Co., 1:16-cv-03338-KMW (S.D.N.Y.)
(“Express Scripts”). The Keery Declaration filed in Express
Scripts is attached as Ex. A to #40 (“Joint Declaration in
Support of Motion of the LGPS Investor Group for Appointment As
Lead Plaintiff”), referred to as the “Express Scripts Keery
Decl.” The Memorandum of Law in support of the Strathclyde
Group’s motion in Express Scripts, attached to #40 as Exhibit B,
is referred to as the “Express Scripts Mem.”
appropriate by the non-movant only when the movant raises new legal
theories or attempts to present new evidence at the reply stage.”
Murray v. TXU Corp., No. Civ. A. 3:03CV0888P, 2005 WL 1313412, at
*4 (N.D. Tex. May 27, 2005).
In accord, e.g., Austin v. Kroger
Texas L.P., No. 3:11 CV 1169 B, 2016 WL 1322248, at *1-2 (N.D. Tex.
Apr. 5, 2016); Brackens v. Dallas Indep. Sch. Dist., No. 3:09 CV
0642 D, 2010 WL 5464823, at *4-5 (N.D. Tex. Sept.20, 2010), report
and recommendation adopted, 2010 WL 5485886 (N.D. Tex. Dec. 30,
2010); Elwood v. Cobra Collection Agency, No. CIVA2:06CV91KSJMR,
2006 WL 3694594, at *7 (S.D. Miss. Dec. 14, 2006); Simmons v. TMobile USA, Inc., Civ. A. No. H-06-1820, 2006 WL 3447684, *1 (S.D.
appropriately granted where the proposed surreply does not include
new arguments or evidence or merely restates arguments in the
Lombardi v. Bank of America, Civ. Action No.
3:13-cv-1464-O, 2014 WL 988541, at *3 (N.D. Tex. Mar. 13, 2014).
The Pension Fund claims that the Funds do not even try to, and
cannot, suggest that the Pension Fund’s reply brief raised a new
argument for the first time on reply, but they simply want to have
the last word in opposing the Pension Fund’s motion. See generally
2001)(“Surreplies, and any other filing that serves the purpose or
has the effect of a surreply, are highly disfavored, as they
usually are a strategic effort by the nonmovant to have the last
word on the matter.”).
The Court has carefully reviewed all submissions of the Funds
and of the Pension Fund, which are all institutional investors.3
As a threshold matter, the Court finds that both the Funds and the
Pension Fund, each a proposed Lead Plaintiff, and their proposed
Lead and Liaison Counsel are highly sophisticated, qualified, and
experienced for the positions that they seek here and are able to
adequacy and typicality requirements of Rule 23, having suffered
the same or substantially the same injuries as the class members as
a result of the same course of conduct and misrepresentations by
the named Defendants, and the proposed Lead Plaintiffs’ claims are
based on the same, or substantially the same, legal theories under
Sections 10(b) and 20(a) of the Exchange Act.
plaintiff” and has the “largest financial interest in the relief
sought by the class” for this class action.
Jacksonville, established in 1937 and, as of September 30,
2015, holding over $1.43 billion in assets, provides retirement
allowances and other benefits for current and retired police
A number of courts have found that the legislative history
of the PSLRA reveals a strong preference for institutional
investors to serve as Lead Plaintiffs, based on H.R. Rep. No.
104-369 at 3 (1995)(Conference Report)(“The Conference Committee
seeks to increase the likelihood that institutional investors
will serve as lead plaintiffs . . . .”). See, e.g., In re PB,
PLC Sec. Litig., 758 F. Supp. 2d 428, 439-40 (S.D. Tex.
officers and firefighters for the City of Jacksonville, Florida.
OPPRS, as of September 15, 2014 holding over $2.2 billion in net
assets, is an agency of the government of Oklahoma that manages the
public pension system for municipal police officers in Oklahoma,
providing pension benefits such as normal retirement, disability
retirement, surviving spouse benefits, and a death benefit.
Funds claim they are a cohesive “group” of two institutional
Nevertheless the Court notes that only when the two are
aggregated together, however, do they have the largest financial
interest in the outcome of the litigation.
Neither Fund alone has
the largest financial interest in the outcome of the litigation;
individually, the Pension Fund has the greatest financial interest
Jacksonville lost $1,943,593 under the LIFO (“last-in-first-out)
and FIFO (first-in-first-out) accounting methods, while OPPRS lost
$1,166,502 under LIFO and $962,023 under FIFO. Together, the Funds
lost $3,110,095 under LIFO and $2,905,617 under FIFO.
and Ex. 4; Seidman Decl. #9-2 and #9-3.
individual estimated loss is $2.1 million.
#8 at p.5
The Pension Plan’s
#22 at p. 8.
While both Jacksonville and OPPRS have acted as co-Lead
Plaintiffs in a number of federal securities class actions, they
have not done so with each other, but only with third parties.
at p. 9 (listing cases where one or the other has recovered
substantial funds from class actions).
The Pension Fund, which was established in 1974 in Glasgow,
Scotland, has over 21,000 members and assets exceeding 15 billion
pounds, thereby one of the top United Kingdom pension funds, states
that it bought over 64,500 shares of TLRD stock at artificially
inflated prices and was holding nearly 50,000 shares at the end of
the Class period.
As noted, it suffered losses of approximately
$2.1 million under both FIFO and LIFO accounting methods as a
result of Defendants’ alleged wrongdoing.
Decl., Exs. B-C.
#10 at p. 6
It claims it is well suited to serve as Lead
Plaintiff because it is a single institution with prior experience
in serving as a Lead Plaintiff with significant financial interest
in the relief sought by the class here, and is represented by a
single competent and resourceful financial firm. Enron, 206 F.R.D.
at 458; id.
counsel, solely in hopes of attaining the largest aggregated
Declaration (#8-11 at ¶6) proclaims that they “believe our joint
leadership will benefit the class through our ability to share
resources and engage in joint decision-making.”
Such a statement,
lacking all specifics, fails to satisfy the Funds’ burden to show
investments at issue in this class action and provides “no clear or
persuasive reason why [these funds] have joined together to apply
for Lead Plaintiff in this litigation other than an effort to
amalgamate their losses to be greater than their competitors’ or to
detract from obstacles that one would face as a single applicant.”
Enron, 206 F.R.D. at 455.
Their Joint Declaration also asserts
that the Funds’ “common interest also arises out of [their] shared
goals as public safety funds.”
#8-1 at ¶7.
The Pension Fund
argues that “the same thing could be said for any of the dozens of
Mississippi, New Mexico or Texas—or any pension fund, for that
#22 at p. 5.
The Joint Declaration also states that the
Pension Funds “each belong to the National Conference on Public
Employee Retirement Systems (‘NCPERS’) and, as representatives of
their respective funds, have attended numerous professional and
education conferences and meetings together . . .
[and] we are
familiar with each other’s organizations.” #8-1 at ¶7. NCPERS “is
the largest trade association for public sector pension funds,
representing more than 550 funds throughout the United States and
See http://www.ncpers.org/media (last visited June 16,
2016). The Pension Fund maintains that it is not believable that
individual participants constitutes a meaningful relationship.
This Court agrees.
In fact this Court rejected similar state
pension fund movants in Enron that identified mutual membership in
the Councils of Institutional Investors and National Association of
Public Pension Attorneys because the Funds “fail to provide any
details about the size of these groups, the specific work they did
together and the nature of their involvement and its relevance to
their relationship in this securities fraud action.
They do not
demonstrate that they have any prior mutual litigation experience.”
206 F.R.D. at 455.
Judge Hoyt denied Jacksonville’s motion in
Local 210 Unity Pension and Welfare Funds v. McDermott, No. H-13CV-2393, where Jacksonville also identified its common membership
in NCPERS with yet another pension fund. #23, Myers Decl. Ex. 1-3.
The Funds have failed to cite a single case where the two have
worked together as co-Lead Plaintiffs; instead the only preexisting
relationship evidenced in the Joint Declaration is between each
entity and its counsel. Aside from their losing investment in TLRD
and the same counsel, there is no relationship between the two
objections: (1) that The Pension Fund is subject to several unique
defenses that renders it atypical of and inadequate to serve on
behalf of the other class members; and (2) that if the Pension Fund
is appointed Lead Plaintiff, because it is located in Scotland and
executes its investment strategies through numerous foreign, thirdparty investment managers and consultants, international discovery
will be required, unduly increasing costs, causing delays, and
wasting Defendants’ funds available for discovery. The Funds claim
that the Pension Fund’s investment strategy requires it to invest
in companies only if they satisfy certain labor, safety and human
rights protocols. In 2012 the Pension Fund hired Global Engagement
satisfied these protocols in the garment district, an industry
often criticized as the site of human rights violations or safety
concerns, such as in Bangladesh, where some TLRD clothing is
The Funds argue that these goals make the Pension
Fund atypical of other class members in its unique motivations for
investing in TLRD.
The Funds assert that as an example of a pre-litigation
relationship based on more than their losing investments in TLRD,
because both Funds protect pensions of police officers, they have
a common bond as protectors of first responders, in addition to
In reply (#34), the Pension Fund emphasizes that the Funds
fail to cite a single case for their speculative charges that the
Pension Fund’s responsible investment strategy renders it atypical
and that its location in Scotland will increase litigation costs
and require disqualification of it as a presumptive lead plaintiff
for such reasons.4
Instead the Pension Fund points out, courts
The failure to cite case law in support of one’s argument
“is insufficient to rebut the presumption” to which a Lead
Plaintiff is entitled under the PSLRA. Baughman v. Pall Corp.,
250 F.R.D. 121, 128 (E.D.N.Y. 2008). “[C]onclusory assertions of
inadequacy are . . . insufficient to rebut the statutory
presumption under the PSLRA without specific support in evidence
of the existence of an actual or potential conflict of interest
or a defense to which [the potential lead plaintiff] would be
have declined to disqualify the presumptive lead plaintiff based on
conjecture as to increased costs due to foreign location and
rejected baseless speculations as proof of inadequacy.
2011)(rejecting challenge that Danish pension fund would “saddle
the class with unnecessary and additional costs”; “courts in this
District and others have routinely appointed foreign investors as
lead plaintiff”), and Teran v. Subaye, Inc., Nos. 11 Civ. 2614
(NRB) and 3886(NRB), 2011 WL 4357362, at *8 (S.D.N.Y. Septs. 16,
2011)(“[B]aseless conjecture cannot serve as ‘proof’ of [a party’s]
The Pension Fund emphasizes that the Funds do not
argue that the Pension Fund’s claims arise from a different event
or course of conduct than the other class members’, nor that the
Pension Fund and its counsel have a conflict of interest.
motivations in deciding to invest in TLRD, the Funds’ counsel
should have at least checked the Pension Fund’s website for
information about its investment strategy because the brochure
publicly available on it would have shown two key statements:
“Strathclyde Pension Fund does not seek to influence our external
managers’ investment processes, but rather acts as an active owner
international norms.”; and (2) “Strathclyde Pension Fund did not
uniquely subject.” Constance Sczesny Trust v. KPMG LLP, 223
F.R.D. 319, 324-25 (S.D.N.Y. 2004).
environmental, social, or governance issues.”
Ex. A at 2, 21.
Myers Reply Decl.,
The Pension Fund’s Investment Manager, Richard
Keery, has also confirmed that “GES has nothing whatsoever to do
with SPF’s investment decision making process,” that “GES never has
had any role in recommending any investment to SPF,” and that
“[n]either SPF nor to my knowledge, GES has ever engaged with
Id., #36-4, Ex. B at ¶¶5-7.
None of the
articles that the Funds quote extensively in their opposition even
mentions Tailored Brand; instead they discuss responsible investing
generally, another clothier, H&M, and the collapse of a building in
Bangladesh that killed hundreds of garment workers.
#24 at p.9.
The Funds do not explain how the Bangladesh building collapse and
engagement with H&M, publicly disclosed by the Pension Fund,
“somehow creates a unique defense involving J.P. Morgan’s decision
to purchase Tailored Brands stock” for the Pension Fund, “a leap
too far-fetched to qualify as ‘proof.’”
This Court concurs with the Pension Fund that it has the
largest individual loss of any entity in this securities fraud
action and that it satisfies Rule 23's typicality and adequacy
It has demonstrated that it is entitled to the most
adequate plaintiff presumption.
At the same time, for the reasons
argued by the Pension Fund with evidentiary support, the Court is
unpersuaded by the Funds’ efforts to present itself as a cohesive
relationship based on more than their losing investment.
In their Supplemental Submission/Sur-reply (#40) the Funds
object to the Pension Fund’s “newly submitted” brochure (#36-1
through 36-3) and Declaration of Richard Keery (#36-4), as well as
another Keery declaration in support of a separate motion (#40, Ex.
A, with Memorandum of Law, Ex. B)
for appointment of The Pension
Fund as one of a three-member lead plaintiff group in a different
case, Melbourne Municipal Firefighters’ Pension Trust Fund v.
Express Scripts Holding Co., 1:16-cv-03338-KMW (S.D.N.Y.).
Funds argue that the brochure (#36-1 through #36-3) and the
Declaration, as new evidence, further support the Funds’ contention
that the Pension Fund is atypical of the class members.
“Supplemental Submission” is in the nature of a surreply.
the Pension Fund has introduced new evidence in its Reply, because
is fair and useful to the adjudication of the case,
the Court denies the Pension Fund’s motion to strike, grants its
alternative request for retroactive leave to file surreply, and
The Funds highlight that the brochure (#36-1 at p. 2) states,
“In order to implement the [ESG5] Principles . . . GES works with
“ESG” stands for environmental, social and corporate
governance issues, which the Pension Fund believes “can affect
the performance of investment portfolios (to varying degrees
across companies, sectors, regions, asset classes and through
[the Pension Fund] to monitor [its] investment managers’ engagement
activities and monitor how the information from these activities
feeds into [its] managers’ investment processes.”
they state that the Pension Fund “will incorporate ESG issues into
investment analysis and decision-making processes.”
the Keery Declaration (#36-4 at ¶7) states that J.P. Morgan (“JPM”)
“engage[d]” with TLRD on ESG issues and “incorporate[d]” that
information in its decision to buy TLRD for the Pension Fund. #361 at p. 2.
Therefore, insist the Funds, the Pension Fund’s
investigate or rely on TLRD’s ESC record.
The Funds assert that
the Pension Plain failed to demonstrate that GES did not engage
it did not submit a declaration from GES or JPM regarding
the extent to which either engaged TLRD.
states that “to the best of [Keery’s] knowledge[,]” GES did not
engage TLRD (#36-4 at ¶ 7), but, in contrast, the brochure reports
that GES “direct[ly] engage[d] with many of the international
brands involved in Bangladesh,” including at least seven clothing
companies like TLRD.
#36-3 at p. 17.
The Pension Fund responds that the brochure “confirms neither
it nor GES ‘seeks to influence [the] external managers’ investment
processes,” (#34 at p.1), but instead unambiguously states, “We
[the Pension Fund] do not seek to influence . . . [external
#36-1 at p.2.
managers],” and states nothing about GES.
The Funds also claim that in the Express Scripts case, the
Pension Fund’s motion for appointment as one of a group of three
pension funds that are affiliated by their membership in an
approximately 100-member pension scheme existing throughout the
United Kingdom known as LGPS, also demonstrates the Funds are a
proper lead plaintiff “group.” LGPS is “one of the largest defined
benefit schemes in the world” with more that 5.1 million members.
#40, Ex. A (Express Scripts Keery Decl.) at ¶5. The proposed lead
plaintiff group is part of an “organization comprised exclusively
of LGPS Funds . . . [which] seeks to protect the long-term
investment interests of beneficiaries by promoting the highest
standards of corporate governance and corporate responsibility
among investee companies.”
Id. at ¶ 6.
The Funds conclude that
the Pension Fund has changed its view from its earlier argument
that the two pension funds’ membership in a 550-member organization
numerous professional meetings and education conferences together,
Now it argues that view was not credible nor
persuasive. #22 at p.6.
The Funds reiterate that they have a
common bond in representing police officers charged with protecting
the public and they both belong to NCPERS. In Express Scripts, the
Pension Fund did not attest to any interactions with other LGPS
group members before that litigation.
After considering the Pension Fund’s argument in its motion to
strike or for leave to respond to surreply (#41), in the interests
of justice, the Court denies the motion to strike and grants the
leave to respond.
First the Pension Fund points out that, speculating again, the
Funds claim that “it is reasonable to assume that as [the Pension
Fund’s] ‘investment manager,’ JPM ‘engage[d] with TLRD on ESG
issues and ‘incorporate[d]’ such information in its decision to buy
TLRD” for the Pension Fund.
#40 at p. 2(emphasis added).
Pension Fund reiterates that “[b]lind assumptions–contradicted by
the facts--are not ‘proof.’”
#34 at p. 2; Strougo v. Brantley
Capital Corp., 243 F.R.D. 100, 105 (S.D.N.Y. 2007)(“Speculation and
conjecture from one interested party is not enough to prove a
nefarious collaboration.”); Constance Sczesny Trust, 223 F.R.D. at
insufficient to rebut the statutory presumption under the PSLRA
without specific support in evidence of the existence of an actual
or potential conflict of interest or a defense to which [the
potential lead plaintiff] would be uniquely subject.”).
Regarding the issue of whether the Pension fund’s advisor,
GES, engaged TLRD, #40 at pp. 2-3, the Pension Fund proclaims “that
information is totally irrelevant to [the] Pension fund’s stock
ownership because ‘GES never has had any role in recommending any
investment to SPF’” and “[n]either SPF nor, to my knowledge, GES
has ever had any role in recommending any investment to SPF.” #36-23-
4 (Keery Decl. sworn under oath).
The only pertinent information
would be if the Pension Plan engaged TLRD, but it did not.
¶7; #36-3 at 21 (brochure--chart showing Pension Fund’s “holdings
engaged on during 2014/15").
Furthermore, even if the Funds’
hypothesis were correct, but it is not, the Funds have failed to
cite any authority that, let alone articulate how, the Pension Fund
environmental, social, and governance-based factors, in addition to
stock price (and the factual information reflected in that price)
to make an investment decision.
The Pension Fund insists it could
not be, citing In re Petrobas Sec. Litig., 312 F.R.D. 354, 360-61
(S.D.N.Y. 2016)(rejecting defendants’ “claim that USS’s trading
“followed a special investment strategy that ‘look[s] at extra
financial factors’ that ‘the market does not accurately reflect’
and finding that “[s]uch general statements do not seriously call
the typicality of USS’s claims into question” as “it is common
practice for money managers to claim they have some special
strategy that will deliver insights--and returns--superior to the
Moreover, the PSLRA does not require the Pension
Fund to submit additional declarations to negate repeated theories
that the factual record shows have been refuted.
The burden of
proof is on the members of the class “to come forward with some
proof that the unique defenses raised are legitimate issues that
will likely be litigated at trial” and it is improper to shift that
burden to the presumptive lead plaintiff.
OFI Risk Arbitrages v.
Cooper Tire & Rubber Co. 63 F. Supp. 3d 394, 403 (D. Del. 2014).
Once the court identifies the presumptive lead plaintiff as (1) the
person or group that filed the complaint or made a motion for
appointment as lead plaintiff, (2) has the largest financial
interest in the relief sought, and (3) satisfies Rule 23 typicality
and adequacy requirements, 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa)(cc), that presumption may be rebutted by opposing parties “only
upon proof” that the presumptive lead plaintiff “will not fairly
and adequately protect the interests of the class,” or that the
presumptive lead plaintiff is “subject to unique defenses that
render such plaintiff incapable of adequately representing the
15 U.S.C. § 78u-4(a)(3)(B)(iii)(()(aa)-(bb).
As for the Pension Fund’s role in a different case (Express
Scripts) in a different court and different circuit involving
different facts and different relationships among different parties
represented by different counsel, the Funds’ suggestion that the
Pension Fund somehow conceded that the Funds’ informal grouping in
the instant case before this Court is misplaced. The Court agrees.
The Court concurs with the Pension Fund that it should be
appointed Lead Plaintiff and its chosen attorneys, Robbins Geller
Rudman & Dowd, LLP be appointed as Lead Counsel and Edison McDowell
individually the Pension Fund has the largest financial interest in
the outcome of the litigation.
Lead Plaintiff has submitted
evidence and case law showing that it is not subject to unique
defenses that make it incapable of representing the class and that
the Funds lack a pre-litigation relationship based on more than the
losing investments at issue here.
Accordingly, for the reasons stated above, the Court
ORDERS the following:
(1) the Pension Fund’s motion to strike (#41) the sur-reply [titled
“Supplemental Submission,” #40] is DENIED but its alternative
motion for leave to respond to the sur-reply (#41) is GRANTED;
(2) the Funds’ motion for the appointment of the Funds to serve as
Lead Plaintiffs and approval of their selected attorneys as Lead
Counsel and Liaison Counsel (#7) is DENIED; and
(3) the Pension Fund’s motion for appointment of the Pension Fund
as Lead Plaintiff and approval of the Pension Fund’s selection of
Robbins Geller Rudman & Dowd, LLP as Lead Counsel and Edison
McDowell & Hetherington LLP as Local Counsel (#10) is GRANTED.
SIGNED at Houston, Texas, this 23nd
day of March, 2017.
UNITED STATES DISTRICT JUDGE
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