DOROTHY D. BRAGDON, on behalf )
of herself and all others )
similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2876(LBW)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL. )
)
Defendants )
)
)
PARK EAST, INC., on behalf of itself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2880 (DCN)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
JAMES FRANKFORT, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2888 (PRM)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
NATHAN R. STRACHAN, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2890 (KOM)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
MICHAEL G. FINE, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2891 (LBW)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
LEONARD PALUMBO, IRA/FBO DLJSC )
as custodian, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2892 (PAG)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
MARK SILVERMAN and CHRISTINE )
SILVERMAN, individually and on behalf of )
all those similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2893 (DCN)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
LEVITICUS PARTNERS, on behalf of itself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2916(AA)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
ALEXANDER HAFF, on behalf of himself )
himself and all others similarly situated )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2917 (KOM)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
RONALD GOTTESMAN, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2918 (KOM)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
STUART D. WECHSLER, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2929 (DCN)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
GEORGE MOSS, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2930 (LBW)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
ARI LEWITTER, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2943 (PAG)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants. )
)
DAVID FREITAG, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-2944 (SO)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
DAVID KNOWLTON, on behalf of himself )
and all others similarly situated, ) CIVIL ACTION NO.
) 5:98-CV-2962 (PRM)
Plaintiffs ) (Judge O'Malley)
)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
STEPHEN G. ESRATI, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-3002 (JSG)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
ANTHONY M. SCALISI, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:98-CV-3031 (DAP)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
STEPHEN KRAUS, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0009 (PCE)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
GLENN E. STANSBURG, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0031 (DAP)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
JEFFREY L. SPRENGER, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0032 (JSG)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
MARIE BUDROE, on behalf of herself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0046 (DDD)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants. )
)
HOWARD STEVENOR, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0071 (PCE)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
KURT BUETTLER, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0120 (JSG)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
MICHAEL BURKHALTER, on behalf of )
himself and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0192 (PRM)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
LINCOLN HOLDINGS, INC. and )
SHIPPING FINANCIAL SERVICES )
CORPORATION, on behalf of themselves )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0211 (DDD)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants. )
)
JOE SALERNO, on behalf of himself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0231 (PAG)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants )
)
FLORIDA STATE BOARD OF )
ADMINISTRATION, on behalf of itself )
and all others similarly situated, )
) CIVIL ACTION NO.
Plaintiffs ) 5:99-CV-0561 (PCE)
) (Judge O'Malley)
vs. )
)
TELXON CORPORATION, ET AL., )
)
Defendants. )
)
MEMORANDUM OF THE SECURITIES AND
EXCHANGE COMMISSION, AMICUS CURIAE
HARVEY J. GOLDSCHMID
General Counsel
ERIC SUMMERGRAD
Deputy Solicitor
LUIS de la TORRE
Attorney
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0606
(202) 942-0813 (de la Torre)
Dated: April 28, 1999
Table of Contents
TABLE OF AUTHORITIES
INTRODUCTION, STATEMENT OF ISSUES, AND
SUMMARY OF THE COMMISSION'S POSITION
BACKGROUND
ARGUMENT
I. THE COURT SHOULD LIMIT A PROPOSED LEAD PLAINTIFF
"GROUP" TO A SMALL NUMBER THAT IS CAPABLE OF
EFFECTIVELY MANAGING THE LITIGATION AND
EXERCISING CONTROL OVER COUNSEL, AND SHOULD
REJECT ANY PROPOSED GROUP THAT DOES NOT
DEMONSTRATE THAT IT WILL HAVE THIS CAPABILITY
II. THE COURT SHOULD CAREFULLY SCRUTINIZE, AND
IN SOME INSTANCES REJECT OUTRIGHT, ADEQUACY
ARGUMENTS THAT WOULD BAR INSTITUTIONAL
INVESTORS FROM SERVING AS LEAD PLAINTIFF
A. The Court Should Be Guided by the Language
and Purposes of the Reform Act in Evaluating
Adequacy of Representation Arguments
B. Various Arguments That the Florida Board Will
not Fairly and Adequately Protect the Interests
of the class or Is Subject to Unique Defenses
Are Legally Insufficient Under the Reform Act
1. The Claim That Institutions Are Subject
to Unique Defenses
2. The Claim That the Board's Damages
Are "De Minimis"
3. The Claim That the Board Is Subject
to Conflicting Fiduciary Duties
4. The Claim That Costs Will Outweigh
Benefits to the Board
III. THE COURT SHOULD ACTIVELY EXERCISE ITS DISCRETION TO REVIEW THE MULTIPLE LEAD COUNSEL PROPOSAL IN THIS CASE
CONCLUSION
CERTIFICATE OF SERVICE
TABLE OF AUTHORITIES
CASES:
In re Advanced Tissue Sciences Sec. Litig.,
1998 U.S. Dist. LEXIS 16926 (S.D. Cal. Oct. 20, 1998)
In re Baan Co. Sec. Litig.,
1999 WL 223178 (D.D.C. Apr. 12, 1999
Bateman Eichler, Hill Richards, Inc. v. Berner,
472 U.S. 299 (1985
Blackie v. Barrack,
524 F.2d 891 (9th Cir. 1975)
Blaich v. Employee Solutions, Inc.,
1997 WL 842417 (D. Ariz. Nov. 21, 1997)
Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723 (1975)
In re California Micro Devices Sec. Litig.,
168 F.R.D. 257 (N.D. Cal. 1996)
In re California Micro Devices Sec. Litig.,
965 F. Supp. 1327 (N.D. Cal. 1997)
Canale v. Yegen,
782 F. Supp. 963 (D.N.J. 1992)
182 F.R.D. 144 (D.N.J. 1998
In re Cendant Corp. Litig.,
182 F.R.D. 476 (D.N.J. 1998)
Chan v. Orthologic Corp.,
No. CIV 96-1514 PHX RCB (D. Ariz. Dec. 19, 1996)
Chill v. Green Tree Financial Corp.,
181 F.R.D. 398 (D. Minn. 1998)
City Nominees, Ltd. v. Macromedia, Inc.,
No. C97-3521-SC (N.D. Cal. Jan. 23, 1998)
Cohen v. Beneficial Indus. Loan Corp.,
337 U.S. 541 (1949)
In re Donnkenny Inc. Sec. Litig.,
171 F.R.D. 156 (S.D.N.Y. 1997)
Donovan v. Bierwirth,
680 F.2d 263 (2d Cir. 1982)
Fischler v. AmSouth Bancorporation,
1997 WL 118429 (M.D. Fla. Feb. 6, 1997)
Fry v. UAL Corp.,
136 F.R.D. 626 (N.D. Ill. 1991)
Gluck v. Cellstar Corp.,
976 F. Supp. 542 (N.D. Tex. 1997)
In re Graham-Field Health Products Litig.,
No. 98-CV-19:3 (DRH) (E.D.N.Y. Aug. 10, 1998)
Greebel v. FTP Software, Inc.,
939 F. Supp. 57 (D. Mass. 1996
In re Informix Corp. Sec. Litig.,
No. C-97-1289-SBA (N.D. Cal. Oct. 17, 1997
J.I. Case Co. v. Borak,
377 U.S. 426 (1964)
John Hancock Mut. Life Ins. Co. v.
Harris Trust & Sav. Bank,
510 U.S. 86 (1993)
Kalodner v. Michael Stores, Inc.,
172 F.R.D. 200 (N.D. Tex. 1997)
King v. CBT Group PLC,
No. C-98-21014 RMW (N.D. Cal. Jan. 28, 1999
Landry v. Price Waterhouse Chartered Accountants,
123 F.R.D. 474 (S.D.N.Y. 1989)
Lax v. First Merchants Acceptance Corp.,
1997 WL 461036 (N.D. Ill. Aug. 11, 1997)
Lubitsch v. Dataworks Corp.,
No. 98-2012-IEG (JAH) (S.D. Cal. Feb. 9, 1999)
Martin v. Feilen,
965 F.2d 660 (8th Cir. 1992)
Metropolitan Edison Co. v. People Against Nuclear Energy,
460 U.S. 766 (1983)
In re Milestone Scientific Sec Litig.,
183 F.R.D. 404 (D.N.J. 1998)
In re Milestone Scientific Sec Litig.,
No. 98-3404 (AJL) (D.N.J. Mar. 25, 1999)
In re Oxford Health Plans, Inc. Sec. Litig.,
182 F.R.D. 42 (S.D.N.Y. 1998)
Parnes v. Digital Lightwave, Inc.,
No. 98-152-CIV-T-24(C) (M.D. Fla. Mar. 12, 1999)
Ravens v. Iftikar,
174 F.R.D. 651 (N.D. Cal. 1997)
Reiger v. Altris Software, Inc.,
1998 U.S. Dist. LEXIS 14705
(S.D. Cal. Sept. 14, 1998)
In re Reliance Acceptance Group, Inc. Sec. Litig.,
1998 WL 388260 (W.D. Tex. June 29, 1998)
In re Revco Sec. Litig.,
142 F.R.D. 659 (N.D. Ohio 1992)
Sherleigh Assocs. v. Windmere-Durable Holdings, Inc.,
1999 U.S. Dist. LEXIS 2905 (S.D. Fla. Mar. 9, 1999), aff'd,
1999 U.S. Dist. LEXIS 3744 (S.D. Fla. Mar. 18, 1999)
Sommers Drug Stores Co. Employee Profit Sharing Trust
v. Corrigan Enters., Inc., 793 F.2d 1456 (5th Cir. 1986)
Steiner v. Frankino,
1998 U.S. Dist. LEXIS 21804 (N.D. Ohio July 16, 1998)
Stoller v. Baldwin-United Corp.,
1985 WL 5809 (S.D. Ohio June 4, 1985)
Trenton v. Scott Paper Co.,
832 F.2d 806 (3d Cir. 1987)
Tumolo v. Cymer, Inc.,
No. 98-CV-1599 TW (POR) (S.D. Cal. Jan. 22, 1999)
United States v. Taylor,
487 U.S. 326 (1988)
Welling v. Alexy,
155 F.R.D. 654 (N.D. Cal. 1994
In re Wells Fargo Sec. Litig.,
156 F.R.D. 223 (N.D. Cal. 1994)
In re Wells Fargo Sec. Litig.,
157 F.R.D. 467 (N.D. Cal. 1995)
Zaltzman v. Manugistics Group, Inc.,
No. S-98-1881 (D. Md. Oct. 8, 1998)
STATUTES AND RULES:
Securities Exchange Act of 1934, 15 U.S.C. 78a et seq.
Section 21D, 15 U.S.C. 78u-4
Section 21D(a)(3)(B)(iii), 15 U.S.C. 78u-4(a)(3)(B)(iii)
Section 21D(a)(3)(B)(iii)(I), 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)
Section 21D(a)(3)(B)(iii)(II), 15 U.S.C. 78u-4(a)(3)(B)(iii)(II)
Section 21D(a)(3)(B)(iii)(III), 15 U.S.C. 78u-4(a)(3)(B)(iii)(III)
Section 21D, 15 U.S.C. 78u-4(a)(3)(B)(iv)
Section 21D(a)(3)(B)(v), 15 U.S.C. 78u-4(a)(3)(B)(v)
Section 21D(a)(3)(B)(vi), 15 U.S.C. 78u-4(a)(3)(B)(vi)
Section 21D(a)(4), 15 U.S.C. 78u-4(a)(4)
29 U.S.C. 1104(a)(1)(A)
Federal Rules of Civil Procedure
Fed. R. Civ. P. 23
Fed. R. Civ. P. 23(a)
LEGISLATIVE HISTORY:
141 Cong. Rec. H14038 (Dec. 6, 1995)
141 Cong. Rec. H14039 (Dec. 6, 1995)
141 Cong. Rec. H14048 (Dec. 6, 1995)
141 Cong. Rec. H14050 (Dec. 6, 1995)
141 Cong. Rec. H15214-15 (Dec. 20, 1995)
141 Cong. Rec. S8895 (June 22, 1995)
141 Cong. Rec. S8897 (June 22, 1995)
141 Cong. Rec. S9055 (June 26, 1995)
141 Cong. Rec. S9065 (June 26, 1995)
141 Cong. Rec. S9075-77 (June 26, 1995)
141 Cong. Rec. S9172-73 (June 27, 1995)
141 Cong. Rec. S9212 (June 28, 1995)
141 Cong. Rec. S9321 (June 28, 1995)
141 Cong. Rec. S17934 (Dec. 5, 1995)
141 Cong. Rec. S17956 (Dec. 5, 1995)
141 Cong. Rec. S17967 (Dec. 5, 1995)
141 Cong. Rec. S17969 (Dec. 5, 1995)
141 Cong. Rec. S17980 (Dec. 5, 1995)
141 Cong. Rec. S17982-84 (Dec. 5, 1995)
141 Cong. Rec. S19054 (Dec. 21, 1995)
141 Cong. Rec. S19084 (Dec. 21, 1995)
141 Cong. Rec. S19180 (Dec. 22, 1995)
Report on the Private Securities Litigation Reform Act of 1995, S. Rep. No. 104-98 (1995)
Report on the Common Sense Legal Reform Act of 1995, H.R. Rep. No. 104-50 (1995)
Joint Explanatory Statement of the Committee of Conference, Conference Report on Securities Litigation Reform, H.R. Rep. No. 104-369 (1995) ,
MISCELLANEOUS:
Office of the General Counsel, Securities and Exchange Commission, Report to the President and the Congress on the First Year of Practice Under the Private Securities Litigation Reform Act of 1995 (Apr. 1997)
Elliott J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale L.J. 2053 (1995)
MEMORANDUM OF THE SECURITIES AND
EXCHANGE COMMISSION, AMICUS CURIAE
INTRODUCTION, STATEMENT OF ISSUES,
AND SUMMARY OF THE COMMISSION'S POSITION
The Securities and Exchange Commission respectfully submits this memorandum, as amicus curiae, to address issues raised by the pending motions for appointment of lead plaintiff and lead counsel under the Private Securities Litigation Reform Act of 1995 ("Reform Act" or "Act"), codified at Section 21D of the Securities Exchange Act of 1934, 15 U.S.C. 78u-4. Specifically, the Commission will address standards for evaluating: (1) a proposal for appointment of a "group of persons" as lead plaintiff; (2) an adequacy of representation challenge to a presumptive lead plaintiff and a related discovery request; and (3) a proposal for the appointment of multiple lead counsel in a securities class action.
The Commission, the agency principally responsible for the administration and enforcement of the federal securities laws, has long expressed the view that legitimate private actions under these laws serve an important role. Such actions work to compensate investors who have been harmed by securities law violations and, as the Supreme Court has repeatedly recognized, they "provide `a most effective weapon in the enforcement' of the securities laws and are `a necessary supplement to Commission action.'" Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 310 (1985), quoting J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964); see Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730 (1975).
In adopting the Reform Act, Congress affirmed that "[p]rivate securities litigation is an indispensable tool with which defrauded investors can recover their losses." It further stated that private lawsuits "promote public and global confidence in our capital markets andhelp to deter wrongdoing and to guarantee that corporate officers, auditors, directors, lawyers and others properly perform their jobs." Joint Explanatory Statement of the Committee of Conference, Conference Report on Securities Litigation Reform, H.R. Rep. No. 104-369, at 31 (1995) ("Conf. Rep.").
Congress sought through the Act's lead plaintiff provisions to ensure more effective representation of investors' interests in private securities class actions by transferring control of the actions from lawyers to investors. Conf. Rep. 32-35. The Act establishes specific procedures and criteria for the appointment of lead plaintiff; it further provides that the lead 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)(iii)(I)-(III) & (v).
With regard to the pending lead plaintiff motions, the Commission believes that the Court should carefully scrutinize any proposed lead plaintiff "group." The Court generally should limit the group to a small number of persons and should reject any group that does not demonstrate to the Court's satisfaction that it is constituted in such a way that it can effectively manage the litigation and supervise counsel.
Once the Court determines which person or properly constituted group is the presumptive lead plaintiff under the Reform Act, the presumption can only be rebutted by "proof" that such movant "will not" adequately represent the class or "is" subject to unique defenses. Under the Act, in order to seek discovery of the presumptive lead plaintiff, a plaintiff must "demonstrate[] a reasonable basis for a finding" of inadequacy. The "Elkman Group" and "Telxon Group" raise a number of arguments that do not meet these standards.
With regard to the pending lead counsel motions, the Commission believes that the Reform Act gives the lead plaintiff a large role in the choice of counsel and ensures that only in very unusual circumstances will it have to accept counsel that it did not choose for itself. However, the Act otherwise preserves the Court's traditional discretion to evaluate the likely effectiveness of counsel for the protection of the class, and the Commission believes the Court should actively exercise that discretion. In the Commission's view, members of the plaintiff class have raised valid concerns about the multiple counsel arrangement proposed by the "Telxon Group," which has not adequately responded to those concerns.1
BACKGROUND
A. LegislativeHistory Of The Lead Plaintiff Provisions
The Reform Act was enacted in December 1995. The President had vetoed the bill, but did not object to its lead plaintiff provisions. See 141 Cong. Rec. H15214-15 (1995). His staff described them as "appropriate class action reform provisions." Id. at S19054.
These provisions arose out of Congress' concern, reflected in the House, Senate, and Conference Committee Reports on the bill, that some class action securities litigation had become a "lawyer-driven" enterprise, in which law firms sought to bring cases and then sought out plaintiffs in whose name they could sue.2 Congress sought to "protect[]investors who join class actions against lawyer-driven lawsuits by giving control of the litigation to lead plaintiffs with substantial holdings of the securities of the issuer." Conf. Rep. 32; accord S. Rep. 4 (Congress "intends * * * to empower investors so that they – not their lawyers – exercise primary control over private securities litigation"), 6 ("to transfer primary control of private securities litigation from lawyers to investors"), 10 ("The lead plaintiff should actively represent the class[;] * * * the lead plaintiff – not lawyers – should drive the litigation."). This concern also was expressed repeatedly during the floor debate. 3
Congress viewed this problem as stemming from the fact that the lead counsel in the case commonly had a greater financial stake in the litigation than did the plaintiffs. See, e.g., S. Rep. 6-7. The House Report stated, H. Rep. 17-18:
Throughout the process, it is clear that the plaintiff class has difficulty in exercising any meaningful direction over the case brought on its behalf. * * * Because class counsels' fees and expenses sometimes amount to one-third or more of recovery, class counsel frequently has a significantly greater interest in the litigation than any individual member of the class.
Furthermore, class counsel * * * may have a greater incentive than the members of the class to accept a settlement that provides a significant fee and eliminates any risk of failure to recoup funds already invested in the case.
The lead plaintiff provisions were "intended to encourage the most capable representatives of the plaintiff class to participate in class action litigation and to exercise supervision and control of the lawyers for the class." Conf. Rep. 32. They were "intendedto increase the likelihood that parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders, will participate in the litigation and exercise control over the selection and actions of plaintiff's counsel." Id.
In particular, Congress "intend[ed] that the lead plaintiff provision will encourage institutional investors to take a more active role in securities class action lawsuits." Id. at 34. Congress "believe[d] that increasing the role of institutional investors in class actions will ultimately benefit shareholders and assist courts by improving the quality of representation in securities class actions." Id. Congress expected the result of the lead plaintiff and lead counsel provisions would be "that the plaintiff will choose counsel rather than, as is true today, counsel choosing the plaintiff." Id. at 35. Although the lead counsel provision gives the initial choice of lead counsel to the lead plaintiff, Congress "d[id] not intend to disturb the court's discretion under existing law to approve or disapprove the lead plaintiff's choice of counsel when necessary to protect the interests of the plaintiff class." Id. at 35.
B. Facts
Twenty-seven proposed securities fraud class actions have been filed in this Court against Telxon Corporation, alleging varying class periods. Three motions for appointment of lead plaintiff and lead counsel are pending. The Florida State Board of Administration ("Florida Board") claims losses of from $200,000 to $2.7 million depending on the class period, and seeks appointment as lead plaintiff and appointment of one firm as lead counsel.
The "Elkman Group" consists of 22 individuals and entities. It proposes four of its members as lead plaintiff: Highland Ventures, Inc. and its president, with losses of$937,467; his brother, with losses of $150,500; and another individual, who is not described, with losses of $156,643. The rest of the Group are members of the purported plaintiff class who have submitted certifications in which they claim approximately $2 million in losses and state support for the appointment of the four as lead plaintiff. The Elkman Group seeks appointment of its chosen law firm as lead counsel and a second law firm as liaison counsel.
The "Telxon Group" consists of nearly 200 individuals and entities, identified only by name and damage amounts, who allege combined losses of $4.4 million and individual losses of from $386 to $523,883. The Group states that it "believe[s] that this litigation could be managed more efficiently if only a subgroup of [18 of] these potential representatives were appointed lead plaintiffs." The Group does not state whether the "subgroup" members have any pre-existing relationships or even any contact with one another, although two (the Alsins) appear to be relatives. The subgroup members claim losses of about $3 million; half allege losses under $75,000; one (John Stookey) alleges $110,000 more in losses than any other Group member. The Group has served ten broadly worded document requests on the Board.
The Telxon Group seeks the appointment of: three law firms as lead counsel; an executive committee consisting of these firms, acting as "chair," and four "additional supervisory counsel"; and one of these firms and an eighth firm as liaison counsel. Each of the proposed counsel represent a named plaintiff in one or more separate actions against the defendants. The Group does not describe the intended duties and responsibilities of the eight proposed law firms. Nor does it describe the lines of authority among the firms and themanner in which they would function with members of the proposed lead plaintiff group. Nor does it specify a particularized need for its counsel arrangement in this case. 4
ARGUMENT
I. THE COURT SHOULD LIMIT A PROPOSED LEAD PLAINTIFF "GROUP" TO A SMALL NUMBER THAT IS CAPABLE OF EFFECTIVELY MANAGING THE LITIGATION AND EXERCISING CONTROL OVER COUNSEL, AND SHOULD REJECT ANY PROPOSED GROUP THAT DOES NOT DEMONSTRATE THAT IT WILL HAVE THIS CAPABILITY.
The Commission believes that to effectuate the language and purposes of the Reform Act, the Court should require class members who jointly seek to be appointed lead plaintiff to provide appropriate information about their "group." The Court generally should limit the proposed group to a small number of persons and should reject any group that does not demonstrate to the Court's satisfaction that it is constituted in such a way that it can effectively manage the litigation and supervise counsel.
Although the Reform Act states that lead plaintiff may be a "group of persons," this does not mean the Court must accept as a "group" any number and assortment of persons proposed. Courts should interpret this general statutory language by reference to the Act's language as a whole and to the Act's purposes.5
The Act refers to a "group of persons" in the provision that establishes a presumption that the "most adequate plaintiff" to lead a securities class action is the one with the greatest claimed financial loss. 15 U.S.C. 78u-4(a)(3)(B)(iii)(I). As discussed above, Congress intended by that provision to protect plaintiff investors by making securities litigation less of a "lawyer-driven" enterprise, and by vesting control of the litigation in the lead plaintiff.
The presumption is intended to effect this result by assuring that the lead plaintiff has a substantial stake in the litigation, and thus the ability and incentive to control the lawyers. This will, Congress anticipated, commonly be an institutional investor which has the sophistication and ability to control complex litigation. See, e.g., Gluck v. Cellstar Corp., 976 F. Supp. 542, 548 (N.D. Tex. 1997) ("The legislative history of the Reform Act is replete with statements of Congress' desire to put control of such litigation in the hands of large, institutional investors."); Greebel v. FTP Software, Inc., 939 F. Supp. 57, 63-64 (D. Mass. 1996) (same).6 The Commission has noted in other contexts that institutions haveskills and expertise that are likely to be very valuable to investors, and are likely to devote substantial time and resources to representing investors in litigation.7 This does not suggest that the lead plaintiff must be an institution. But it strongly suggests that if a "group of persons" is to act as lead plaintiff, it should have comparable ability to an institution to manage the litigation and supervise counsel. The mere fact that a proposed group might have the largest combined financial stake, however, does not guarantee that result. Indeed, it is particularly unlikely where the group consists of a large number of previously unaffiliated persons, who have little or no contact with one another, who by and large claim relatively modest individual losses, and who have no demonstrated incentive or ability to work together to control the litigation. The problem is made worse if the persons have been enlisted to become lead plaintiff by counsel. 8 Ordinarily, such an assemblagewill be unable to control the litigation. The net result will be that while the "group" nominally has a large stake in the litigation, the lawyers will dominate decisionmaking.
Construing the term "group of persons" in light of the language and purposes of the Reform Act, a court generally should not approve a group as lead plaintiff unless it is small enough to be capable of effectively managing the litigation and the lawyers. The Commission believes that ordinarily this should be no more than three to five persons, a number that will facilitate joint decisionmaking and also help to assure that each group member has a sufficiently large stake in the litigation. There may, of course, be unusual circumstances that warrant departure from these limits. Such circumstances might include pre-existing relationships among the group members or other factors indicating that they have a special capacity to provide able and unified decisionmaking independent of counsel.
If, for example, the proposed group is so large and uncoordinated that its own counsel deem it necessary to tender a "subgroup" of its members or, as it is sometimes called, a "steering committee," to manage the litigation effectively and efficiently, then this indicates that the larger assemblage is not a "group" within the meaning of the Act. Of course, the subgroup or steering committee may not constitute a "group" under the Act either; simply because counsel have designated it and it is smaller than some other assemblage of class members does not immunize it from scrutiny by the court. In general, except in unusualcircumstances, to ensure adequate monitoring, coordination, and accountability, a "group" should have no more than five members, and the fewer the better.9
Regardless of the size of a proposed group, all of its proposed members should be evaluated separately for their ability to control the litigation and their interest in doing so. The court should consider the marginal benefit of including another member in the group as weighed against the further division of decisionmaking authority and the attendant problems that enlargement of the group entails.
In order for the court to analyze a proposed lead plaintiff "group," full information should be provided about the "group." Such information should include detailed descriptions of the "group" members, including any pre-existing relationships among them; the manner in which it was formed; an explanation of how its members would function collectively; and a description of the mechanism that its members and lead counsel have established to communicate with one another about the litigation. If the "group" fails to explain and justify its composition and structure to the court's satisfaction, its motion should be denied.
A recent hearing on a proposed settlement suggests the sort of problems that can arise if a group is not constructed, and does not function, properly. See Parnes v. Digital Lightwave, Inc., No. 98-152-CIV-T-24(C) (M.D. Fla. Mar. 12, 1999) (in Appendix). One member of a ten-person lead plaintiff group complained that the settlement was made by thelawyers and that the group members had not been consulted. The court chastised the group's counsel for a "very poor job" of communicating with the objector, and noted that "clearly the purpose in enacting the law was to get lead plaintiffs in there that had a stake and – and perhaps some knowledge, and – and the ability to actually communicate" (Tr. 143-44). Counsel stated in response that "the language [of the Reform Act] is one thing and the practicalities are another" (Tr. 43), and questioned the "so-called enhanced management role that the individuals are supposed to play" under the Act, suggesting that the group members were "inexperienced" and did not have the knowledge necessary to manage the litigation (Tr. 48). This highlights the importance of careful scrutiny at the outset of the members, structure, and intended functioning of the group, and how it will manage the litigation.
Many courts have limited proposed lead plaintiff groups in accordance with the principles outlined above. For example, in In re Baan Co. Sec. Litig., 1999 WL 223178, at *3 (D.D.C. Apr. 12, 1999), the court noted that a number of courts "have determined that multiple lead plaintiffs will be unable to control the litigation, effectively negotiate retention agreements, and supervise the conduct of counsel." The court stated that its "experience with class actions and multidistrict litigation * * * teaches that a small committee will generally be far more forceful, effective and efficient than a larger aggregation." Id. The court held that "[t]he Lead Plaintiff decision should be made under a rule of reason but in most cases three should be the initial target, with five or six the upper limit," and chose thethree "group" members with the most losses. Id.10 Courts have also rejected groups that did not give sufficient information about, or justification for, their composition. 11
II. THE COURT SHOULD CAREFULLY SCRUTINIZE, AND IN SOME INSTANCES REJECT OUTRIGHT, ADEQUACY ARGUMENTS THAT WOULD BAR INSTITUTIONAL INVESTORS FROM SERVING AS LEAD PLAINTIFF.
A. The Court Should Be Guided by the Language and Purposes of the
Reform Act in Evaluating Adequacy of Representation Arguments.
The Elkman and Telxon Groups argue that even if the Florida Board has the largest financial interest in the litigation, the Court should not appoint the Board lead plaintiff because it will not adequately represent the class. E. Rep. 17; T. Opp. 16-21. In addition, the Telxon Group seeks leave to take discovery on the issue. Disc. Mem. 10-17.
The Reform Act establishes specific standards for challenging adequacy of representation and for conducting related discovery. The Act provides that the presumption in favor of the most adequate plaintiff "may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff * * * will not fairly and adequately protect the interests of the class; or * * * is subject to unique defenses that render such plaintiff incapable of adequately representing the class." 15 U.S.C. 78u-4(a)(3)(B)(iii)(II) (emphasis added). The Act further provides that discovery "may be conducted by a plaintiff only if the plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class." 15 U.S.C. 78u-4(a)(3)(B)(iv) (emphasis added).
These standards demonstrate Congress' determination that neither the class nor the judiciary should lightly be deprived of the benefit of class representation by the presumptive lead plaintiff or subjected to the additional expenditure of time and resources associated withdiscovery.12 They help prevent attempts to use Rule 23 challenges and discovery to discourage competition for lead plaintiff or to force a compromise on a competing movant.
Thus, as one court noted, "speculative assertions are insufficient to rebut the presumption that [a movant] is the most adequate plaintiff. The statute requires the [challenger] to present `proof' of its assertions; or, if it requires discovery to gather such proof, to `demonstrate a reasonable basis' for a finding of inadequacy." Gluck, 976 F. Supp. at 547-48. Similarly, "[t]here is, of course, a marked difference between affirmatively demonstrating that [an institution] is not an adequate representative or is subject to unique defenses and simply claiming that [it] might be subject to such arguments in the future." Id. at 547. Accord In re Cendant Corp. Litig., 182 F.R.D. 476, 479-80 (D.N.J. 1998).
Furthermore, the Reform Act and its legislative history reflect Congress' understanding of current law with regard to challenges to adequacy of representation. The Act's standards for such challenges must be viewed in the context of the lead plaintiff provisions as a whole and of the Act's purposes. See Greebel, 939 F. Supp. at 63-64 (interpreting Reform Act's notice provision in conjunction with largest financial interest requirement because a "statutory provision should be read by reference to the whole act").
The Reform Act specifies that the "most adequate plaintiff" is the plaintiff or movant that "has the largest financial interest in the relief sought by the class" and "otherwisesatisfies the requirements of Rule 23." 15 U.S.C. 78u-4(a)(3)(B)(iii)(I) (emphasis added). The largest financial interest requirement was itself designed to ensure more effective representation of investors in securities fraud class actions.
Congress stated that "the most capable representatives of the plaintiff class" are "parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders." Id. at 32. It concluded:
Institutional investors and other class members with large amounts at stake will represent the interests of the plaintiff class more effectively than class members with small amounts at stake. The claims of both types of class members generally will be typical.
Id. at 34; accord S. Rep. 11 ("`[i]nstitutions with large stakes in class actions have much the same interests as the plaintiff class generally'") (quoting Weiss & Beckerman); In re Cendant Corp. Litig., 182 F.R.D. 144, 146-47 (D.N.J. 1998) ("[b]ecause the Public Pension Fund Investors had invested in each of the four types of securities at issue," they made a preliminary showing of typicality that "the other movants could not rightly challenge"). The Cendant court explained the rationale "underlying the Reform Act's presumption of adequacy" as follows: "plaintiffs with the assets necessary to have made large investments will also be able to negotiate the most advantageous rates to the class" and have "the most to gain from any marginal increase in dollars recovered per share." 182 F.R.D. at 148-49. In sum, Congress sought to encourage large investors, including institutions, to serve as lead plaintiff, and believed that institutions could and would qualify. See, e.g., Gluck, 976 F. Supp. at 548; Greebel, 939 F. Supp. at 64.
The Commission therefore believes that the standards for an adequacy challenge must not be read and applied in such a manner that they would nullify the largest financial interest requirement and defeat the purposes of the lead plaintiff provisions. Courts have recognized that generic arguments that would systematically disqualify large investors and institutions from serving as lead plaintiff should not suffice as "proof" under the statute. See, e.g., Cendant, 182 F.R.D. at 147-48; 182 F.R.D. at 479-80 (same case); Gluck, 976 F. Supp. at 547-48; Chan v. Orthologic Corp., No. CIV 96-1514 PHX RCB, slip op. at 8-12 (D. Ariz. Dec. 19, 1996). Because such arguments are legally insufficient, they also cannot constitute a "reasonable basis for a finding" under the Act. See Gluck, 976 F. Supp. at 548.13
B. Various Arguments That the Florida Board Will not Fairly and Adequately
Protect the Interests of the Class or Is Subject to Unique Defenses Are
Legally Insufficient Under The Reform Act.
Analyzed in this light, the Commission believes that various arguments by the Elkman and Telxon Groups are legally insufficient to constitute either "proof" that the Florida Board will not adequately represent the class or is subject to unique defenses or a "demonstrat[ion] [of] a reasonable basis for a finding" of inadequacy that would entitle them to discovery on the issue. See 15 U.S.C. 78u-4(a)(3)(B)(iii)(II) & (iv). Specifically, the Elkman Groupand/or the Telxon Group (T. Opp. 19-21; Disc. Mem. 12-17; E. Rep. 17) argue that: (1) institutional investors are subject to unique defenses that render them atypical of the class; (2) the Florida Board's claimed losses are "de minimis" compared to its total assets; (3) the Board owes duties to its beneficiaries that conflict with the duties it would owe to the class as lead plaintiff; and (4) the Board has a conflict of interest if the litigation costs may outweigh any recovery the Board's beneficiaries might realize. These arguments are seriously flawed.
1. The Claim That Institutions Are Subject to Unique Defenses
The Telxon Group asserts (Disc. Mem. 14) that the Florida Board's "status [as an institutional investor] renders it an atypical plaintiff under Fed.R.Civ.P. 23(a)." This is because, the Telxon Group contends (Disc. Mem. at 13-14), the Board is "subject to unique defenses" since it retains a "large number of investment managers" who "employ varying philosophies, strategies and techniques when trading securities."
But Congress was well aware when it enacted the Reform Act that institutions have millions or billions of dollars of assets under management. See, e.g., Conf. Rep. 34 (noting that "[i]nstitutional investors are America's largest shareholders, with about $9.5 trillion in assets, accounting for 51% of the equity market" and that "pension funds account[] for $4.5 trillion [] or nearly half of institutional assets"). It is obvious that properly managing such large amounts for many small investors could require the use of a "large number" of investment managers and trading approaches. This should not in and of itself be a sufficient basis for disqualifying institutions from serving as lead plaintiff.
The Group contends (Disc. Mem. at 13-14) that the Board's investment managers and trading approaches give rise to unique defenses if they mean that the Board: (1) lacks "aminimal level of participation in the decision to purchase Telxon securities"; (2) "did not rely on any of the material misrepresentations or omissions in making investment decisions"; or (3) "relied on non-public information that was not available to other investors." But the Group provides no basis for stating that any of these things is true in this case.
Rather, the Group merely asserts that it "believe[s]" they are or "may be" true (Disc. Mem. 12-15). To meet its burden under the Reform Act and the very cases it cites, the Group must submit "proof" or at least "demonstrate[] a reasonable basis for a finding," 15 U.S.C. 78u-4(a)(3)(B)(iii)(II) & (iv), that the Board "abdicated complete authority over [its] relevant financial affairs," Fry v. UAL Corp., 136 F.R.D. 626, 636 (N.D. Ill. 1991); and actually "received" or "relied upon" specific non-public information from specific sources on specific occasions, Landry v. Price Waterhouse Chartered Accountants, 123 F.R.D. 474, 476 (S.D.N.Y. 1989) (citing cases). The Group has failed to meet this burden.
Similarly, the only apparent basis for the Group's belief that the Board did not rely on any alleged deceptions is that the Board is a "sophisticated investor." See Disc. Mem. 14-15. But that will be true of virtually all institutional investors. In Chan, No. CIV 96-1514 PHX RCB, the court correctly characterized this as an "`institutional investor' status" argument and rejected it as insufficient to rebut the Act's presumption. Slip op. at 8-12; see Gluck, 976 F. Supp. at 546 ("an institutional investor['s] * * * experience with investing and financial matters will only benefit the class"). This Court and many others have held that mere sophistication of an investor does not mean that it cannot be deceived by fraudulentmisstatements or omissions. 14 As Chan correctly held, "mere sophistication * * * is not enough to rebut the[] presumption [of] adequate lead plaintiff." Slip op. at 12. 15
2. The Claim That the Board's Damages Are "De Minimis"
The Telxon Group appears to argue that the Florida Board is an inadequate class representative because the Board's losses in this case are "de minimis" in relation to the Board's assets. See, e.g., T. Opp. 21. But the statutory presumption is framed in terms of the "largest financial interest in the relief sought by the class," not in terms of loss as a percentage of net worth. See Cendant, 182 F.R.D. at 147. When Congress enacted theReform Act, it was well aware of the magnitude of institutional investors' assets under management and that these amounts easily could dwarf losses in particular cases. See, e.g., Conf. Rep. 34; Weiss & Beckerman, 104 Yale L.J. at 2089-91 (study of claims reports for 20 settled class actions shows that institutions sometimes had largest claim with losses of $450,000 to $626,374). If the Board has the largest financial interest here, then the Group's argument is not sufficient grounds to disqualify the Board from serving as lead plaintiff.
3. The Claim That the Board Is Subject to Conflicting Fiduciary Duties
The Elkman and Telxon Groups (E. Rep. 17; T. Opp. 19-21; Disc. Mem. 15-17) both make the untenable argument that an institution is an inadequate class representative as a matter of law if it has fiduciary duties under the Employee Retirement Income Security Act ("ERISA").16 The mere fact that a lead plaintiff might have simultaneous fiduciary duties to the class and to someone else is something of which Congress was well aware when it enacted the Reform Act and does not prove inadequacy under the Act. 17
The courts in Gluck and Cendant, for example, appointed pension funds to lead class actions. In doing so, the Gluck court stated that institutional investors' fiduciary duties make them better, not worse, class representatives. See Gluck, 976 F. Supp. at 546 ("an institutional investor * * * is accustomed to acting in the role of a fiduciary, and its experience with investing and financial matters will only benefit the class").18
The premise of the Groups' argument appears to be that anything that benefits the class cannot benefit the institutional lead plaintiff's beneficiaries. See, e.g., Disc. Mem. 15. In fact, benefits can inure to both, and this is no doubt what Congress intended. 19
The Groups' argument also assumes in effect that it would never be in the best interests of a pension fund's beneficiaries for the fund to initiate and lead a securities fraud class action. But in fact, courts and the Department of Labor have taken the position that in certain circumstances ERISA plan fiduciaries not only may, but are obligated to, sue companies in which the plan invests. The Groups give no valid reason why the principles declared in these cases should not apply to securities fraud claims and class actions.20
There are benefits to acting as lead plaintiff, with the ability to exercise control over attorney fees and the conduct and settlement of the litigation, to recover "reasonable costs and expenses (including lost wages)" of representing the class, see 15 U.S.C. 78u-4(a)(4), and typically to obtain a swifter recovery than through an individual action. See Weiss & Beckerman, 104 Yale L.J. at 2121-23. The Groups provide no basis for concluding that it would never be in the interests of fund beneficiaries for the fund to be lead plaintiff. 21
4. The Claim That Costs Will Outweigh Benefits to the Board
The Telxon Group further argues (T. Opp. 21) that a pension fund would be an inadequate class representative where "[i]t is clearly conceivable that costs to [the fund in the litigation] * * * could significantly outweigh the ultimate monetary award it receives." The Group asserts (id. at 16, 21) that this is such a case because it is "complex litigation" with "costly possibilities"; the Florida Board has "limited in-house resources"; this would be "itseleventh federal securities case in less than one year, and its fourteenth action in less than two"; and its "claimed loss of $195,000 [in one alleged class period] represents less than .002% of [its] assets under management." The Telxon Group's argument in this regard is too general and speculative to constitute "a reasonable basis for a finding" that the Florida Board is inadequate, much less "proof" that it is inadequate.
All securities class action litigation can be described as "complex litigation" with "costly possibilities."22 All organizations have finite resources to commit to litigation. Institutions like the Board that manage "in excess of $108 billion" (T. Opp. 22) likely have resources that compare favorably to other class members. They naturally may have holdings in a wider range of companies, more occasions to assert claims for securities fraud, and more claims than other investors. But they are likely to be in a position to be able to manage multiple claims. As discussed above, claims by institutional investors in individual actions can easily seem small in comparison to their total assets.
Reduced to its essence, the Telxon Group's argument appears to be that a pension fund is an inadequate class representative if it participates in a certain arbitrary number of class actions in a given period and asserts a loss that is a certain arbitrary percentage of its total assets. Such generic, overbroad, and speculative arguments are insufficient under the Reform Act and should be rejected. The related attempt by the Elkman and Telxon Groups(E. Opp. 10; T. Opp. 14-16) to ground some limit on institutional investor participation in securities class actions on 15 U.S.C. 78u-4(a)(3)(B)(vi) is based on a misreading of that Reform Act provision. The provision generally restricts a proposed lead plaintiff to five suits in three years, but states that a court may permit a plaintiff to exceed that number, "consistent with the purposes of this section." Id. Congress made that purpose clear, stating that "[i]nstitutional investors seeking to serve as lead plaintiff may need to exceed this limitation and do not represent the type of professional plaintiff this legislation seeks to restrict." Conf. Rep. 35. See Blaich v. Employee Solutions, Inc., 1997 WL 842417, at *2 (D. Ariz. Nov. 21, 1997) ("the general restriction of serving in no more than five cases as a lead plaintiff was not intended to apply to institutional investors").23
III. THE COURT SHOULD ACTIVELY EXERCISE ITS DISCRETION TO REVIEW THE MULTIPLE LEAD COUNSEL PROPOSAL IN THIS CASE.
Although the Reform Act gives the lead plaintiff a large role in the choice of lead counsel, and contemplates that a court would impose additional or different counsel on the lead plaintiff only in very unusual circumstances, the selection of counsel remains "subject to the approval of the court." 15 U.S.C. 78u-4(a)(3)(B)(v). The Telxon Group proposes a counsel structure of eight law firms. There is no question that multiple counsel may at times promote the effective management of class action litigation. Counsel must have sufficient resources, skill, experience, expertise, and flexibility to prosecute the litigation effectivelyfor the class. However, the Commission believes that the Elkman Group and the Florida Board have raised valid concerns about the Telxon Group's proposed multiple counsel arrangement and that the Telxon Group has not adequately responded to those concerns.
As noted, under the Reform Act, the lead plaintiff selects and retains lead counsel, subject to the court's approval. 15 U.S.C. 78u-4(a)(3)(B)(v). The Act seeks to give control of the litigation and the lawyers to the lead plaintiff appointed by the Court under specific statutory criteria, not to the purported "overwhelming majority of plaintiffs and their attorneys participating in these Actions" (T. Opp. 25). This does not mean that lead counsel should not establish some mechanism for communicating with class members other than lead plaintiff; but it does mean that assuring input from disparate class members does not justify appointment of additional class members as lead plaintiff or law firms as lead counsel.
As the Commission argued as amicus curiae in Milestone, minimizing disputes among counsel or making it possible to amass a large lead plaintiff "group" (T. Opp. 25, 26) are not valid reasons for multiple lead counsel. Furthermore, that a "tri-leadership structure" (T. Opp. 25) may have been utilized in other cases does not explain its use or the use of an executive committee or multiple liaison counsel in this case. It is always possible to assert that a securities class action is "large and complex" (T. Rep. 14); or that more rather than fewer firms "will afford the class broader, more effective and more financially capable representation" (T. Opp. 25). But that does not take into account the problems that may also come with a multiple counsel arrangement and that have led some courts to reject committeesof counsel24 or express serious concerns about them.25 The existence of methods of addressing the issues of inefficiency, cost, and delay at the end of the case (T. Opp. 26) does not warrant disregarding these issues at the outset.
Although the Group's brief states that proposed executive committee members "have agreed to act * * * in a manner which avoids duplication and maximizes efficiency" (T. Opp. 25), it does not explain any specific measures they have taken to achieve that goal, such as delineating clear lines of authority and responsibilities. See Milestone, 183 F.R.D. at 419 (reserving decision on motion, later denied, to appoint multiple lead counsel where lead plaintiff had "not delineated any specific responsibilities for" counsel and "not shown how the benefits derived from appointing multiple lead counsel outweigh the complications and increased costs and expenses associated with the `litigation by committee' approach").
CONCLUSION
For the foregoing reasons, the Commission believes that the Court should appoint lead plaintiff and lead counsel based on careful attention to the facts of this case and in accordance with the considerations discussed in this memorandum.
Respectfully submitted,
___________________________________
HARVEY J. GOLDSCHMID
General Counsel
__________________________________
ERIC SUMMERGRAD
Deputy Solicitor
__________________________________
LUIS de la TORRE
Attorney
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0606
(202) 942-0813 (de la Torre)
Dated: April 28, 1999 Footnotes
1 The Commission takes no position on the ultimate questions of who should be appointed lead plaintiff and lead counsel under the circumstances of this case.
2 Congress was especially concerned that in some such cases lawyers engage in abusive practices and "often receive a disproportionate share of settlement awards." Conf. Rep. 36; accord id. at 31-33; Report on the Private Securities Litigation Reform Act of 1995, S. Rep. No. 104-98, 6-12 (1995) ("S. Rep."); Report on the Common Sense Legal Reform Act of 1995, H.R. Rep. No. 104-50, 14-20 (1995) ("H. Rep.").
3 See, e.g., 141 Cong. Rec. S8895 (Sen. D'Amato) ("the legislation empowers investors so that they, not their lawyers, have greater control over their class action cases"), S8897 (Sen. Domenici) ("So what we have and what is wrong with this system is very, very fundamental. Lawyers, not clients, control these cases.") (June 22, 1995); 141 Cong. Rec. S9055 (Sen. Frist) ("the lawyer-driven nature of these lawsuits tends to shortchange investors who have truly been defrauded"), S9065 (Sen. Grams) ("the plaintiff who is bringing the suit [now] * * * this is basically the attorney"), S9075-76, 77 (Sen. Hatch) ("the bill contains a number of reforms of securities litigation class actions that are designed to increase participation of the real shareholder plaintiffs and decrease the control of attorneys"), S9077 (Sen. Murray) ("[investors] have a right to have more of a say in steering the course of litigation") (June 26, 1995); 141 Cong. Rec. S9172 (Sen. Hatfield) ("This legislation is about curtailing the abuses in this country's securities litigation system and empowering defrauded investors with greater control over the class action process."), S9173 (Sen. Mikulski) ("with this bill, the court will be able to pick one person – who has lost a lot of money in a class action suit – to be the leader. This way the system works for investors instead of against them," as when "lawyers seek out clients just so they can have cases to litigate") (June 27, 1995); 141 Cong. Rec. S9212 (Sen. Domenici) (bill "puts investors with real financial interests, not lawyers in charge of the case"), S9321 (Sen. Dodd) ("[bill] empowers investors so that they, not their lawyers, have greater control over their class action cases") (June 28, 1995); 141 Cong. Rec. S17934 (Sen. D'Amato) ("[Bill] will empower real investors, especially pension funds and other institutional investors, to take control of the lawsuit."), S17956 (Sen. Dodd), S17967, S17969 (Sen. Domenici) ("[Bill] contains provisions which place investors, not lawyers, in control of the lawsuit. Unlike the current lawyer-driven system, under this new law the investors with the greatest stake in the outcome of the litigation will control the case."), S17980 (Sen. Murray) ("[bill] will reform our securities law so that investors will have more of a say in the outcome of their suit"),S17982 (Sen. Frist), S17983 (Sen. Dole) (bill "diminishes the likelihood that these cases will be driven by lawyers, instead of real plaintiffs by allowing the most adequate plaintiff to be the party with the greatest financial interest"), S17984 (Sen. Moseley-Braun) ("Many investors also support this bill because it gives them, rather than the lawyers who are supposed to be working for them, control of any class action suits filed. It is the client, rather than the attorney, that is supposed to control a lawsuit, and part of the reason this bill is so necessary is that this simple principle has somehow gotten lost in recent years.") (Dec. 5, 1995); 141 Cong. Rec. H14038 (Rep. Cox) ("What we are seeking to do here is to protect investors so that they are in charge of these kind of lawsuits."), H14039 (Rep. Bliley) ("[bill] puts control of class action lawsuits back in the hands of the real shareholders, where it belongs"), H14048 (Rep. Harman) (bill "ends abusive practices and restores investor control over lawsuits"), H14050 (Rep. Deutsch) (bill "will restore power to real investors in securities lawsuits, changing the rules so that actual investors, not predatory lawyers call the shots") (Dec. 6, 1995); 141 Cong. Rec. S19054 (Sen. Hatch), S19084 (Sen. Reid) ("Defrauded investors are not adequately compensated because attorneys, not investors, control these class actions.") (Dec. 21, 1995).
4 This factual background is based on the Elkman Group's opening, opposition ("E. Opp."), and reply ("E. Rep.") briefs; the Florida Board's opening, opposition, and reply briefs; and the Telxon Group's opening, opposition ("T. Opp."), and reply ("T. Rep.") briefs and its memorandum ("Disc. Mem.") in support of discovery.
5 See Greebel v. FTP Software, Inc., 939 F. Supp. 57, 63-64 (D. Mass. 1996), citing John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 94-95 (1993); see also United States v. Taylor, 487 U.S. 326, 333 (1988); Metropolitan Edison Co. v. People Against Nuclear Energy, 460 U.S. 766, 774 (1983).
6 As explained in a law review article cited in the Act's legislative history as "provid[ing] the basis for the `most adequate plaintiff' provision," S. Rep. 11 n.32, "[i]nstitutions' large stakes give them an incentive to monitor, and institutions have or readily could develop the expertise necessary to assess whether plaintiffs' attorneys are acting as faithful champions for the plaintiff class." Elliott J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale L.J. 2053, 2095 (1995) ("Weiss & Beckerman"). The authors further argue that institutions can obtain more favorable settlements, and should be "in a position to negotiate fee arrangements with plaintiffs' lawyers before class actions are initiated[,] * * * [which] may well * * * differ substantially from the fee structures that courts currently employ." Id. at 2107, 2121; accord City Nominees, Ltd. v. Macromedia, Inc., No. C97-3521-SC, slip op. at 2 (N.D. Cal. Jan. 23, 1998) ("As courts have noted, large institutional investors have proven to be more efficient plaintiffs than unrelated plaintiffs grouped together, producing larger recoveries with smaller attorney's fees than individual plaintiffs."); In re California Micro Devices Sec. Litig., 168 F.R.D. 257, 275 (N.D. Cal. 1996) (non-Reform Act case); 965 F. Supp. 1327, 1330-32 (N.D. Cal. 1997) (same case).
7 For example, the Commission has advised bankruptcy courts that institutional investors, while serving on creditors' committees, should be allowed to engage in trading in the securities of debtors, subject to certain restrictions designed to prevent trading on material nonpublic information. The Commission has noted that entities such as investment advisers, broker-dealers, pension funds, banks, and insurance companies "have skills and expertise that are likely to be extremely valuable to the [creditors'] committee," and that "[b]ecause such entities frequently have a substantial financial interest in the outcome of bankruptcy proceedings and can thus be expected to devote significant time and resources to the official committee's activities," discouraging participation in the committee by such institutions by totally disallowing trading "would be contrary to the best interests of public investors." Memorandum of Securities and Exchange Commission in Support of Motion for an Order Permitting Securities Trading in Certain Circumstances, filed in In re WRT Energy Corp., No. 96-BK-5012 (Bankr. W.D. La. May 6, 1996) at 2, 4.
8 In its report on the first year of practice under the Act, the Commission's Office of General Counsel stated that some lawyers, "[t]aking advantage of [the Act's] provision" allowing appointment of a "group of persons" as lead plaintiff, have attempted "to recruit investors as additional clients." Office of the General Counsel, Securities and Exchange Commission, Report to the President and the Congress onthe First Year of Practice Under the Private Securities Litigation Reform Act of 1995 65 (Apr. 1997). Specifically, some lawyers have "phrased [notices to the class under the Act] in a way more likely to attract clients, rather than competition from investors (and other law firms) independently vying to be named lead plaintiff." Id. at 65-66.
9 If the proposed lead plaintiff is a "sub-group" or "steering committee," only the claimed losses of its members – and not the claimed losses of some larger group it purports to represent – should be considered in determining which lead plaintiff applicant has the largest claimed losses. Any other approach would be "playing a shell game with the statute." In re Baan Co. Sec. Litig., 1999 WL 223178, at *4, (D.D.C. Apr. 12, 1999) (citing 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)).
10 See In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42, 46 (S.D.N.Y. 1998) (limiting a proposed 30-member group to three members, "each of whom has suffered from two to three million dollars in losses"); Chill v. Green Tree Financial Corp., 181 F.R.D. 398, 409 (D. Minn. 1998) (appointing a "smaller subset" of a large proposed lead plaintiff group); In re Advanced Tissue Sciences Sec. Litig., 1998 U.S. Dist. LEXIS 16926, *19-23 (S.D. Cal. Oct. 20, 1998) ("courts have repeatedly rejected motions for the appointment of large amalgamations of unrelated persons as lead plaintiffs as being directly contrary to the [Act]"); Lubitsch v. Dataworks Corp., No. 98-2012-IEG (JAH), slip op. at 4 (S.D. Cal. Feb. 9, 1999) (appointing group of three, rather than 25, to "minimiz[e] lawyer-driven litigation" and avoid "making administration of this action needlessly complex and unwieldy") (Appendix); Zaltzman v. Manugistics Group, Inc., No. S-98-1881, slip op. at 11 (D. Md. Oct. 8, 1998) (limiting proposed group consisting of 92 individuals and entities to the two members with the largest claimed losses); City Nominees v. Macromedia, No. C97-3521-SC, slip op. at 2, 7 (limiting proposed group where "counsel has presented no rationale for [its] breadth" and its size "would make the administration of this complex civil action even more complex"); In re Informix Corp. Sec. Litig., No. C-97-1289-SBA, slip op. at 6 (N.D. Cal. Oct. 17, 1997) (rejecting large proposed group, stating that it "would not be able to have the type of meaningful participation in the conduct of the litigation which was one of the guiding purposes of the lead plaintiff provisions"); see also In re Milestone Scientific Sec. Litig., 183 F.R.D. 404, 418 (D.N.J. 1998) ("[t]he composition of the proposed [group] must be scrutinized carefully" because it raises "concerns regarding the division of authority and dilution of control").
11 See Ravens v. Iftikar, 174 F.R.D. 651, 662-63 (N.D. Cal. 1997) (denying without prejudice proposed group's lead plaintiff motion, in part due to its failure to provide sufficient information about its members' "background, experience and capabilities"); In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997) (where six formerly competing, unrelated investors had not justified their "group," appointing one member with significantly more losses than the others); Sherleigh Assocs. v. Windmere-Durable Holdings, Inc., 1999 U.S. Dist. LEXIS 2905, *11-14 & n.1 (S.D. Fla. Mar. 9, 1999) (appointing "one of approximately thirteen" group members); aff'd, 1999 U.S. Dist. LEXIS 3744 (S.D. Fla. Mar. 18, 1999); Tumolo v. Cymer, Inc., No. 98-CV-1599 TW (POR), Order at 2-4 (S.D. Cal. Jan. 22, 1999) (denying motion without prejudice because "[p]laintiffs have failed to present sufficient evidence that this smaller group of seven plaintiffs is any more qualified to serve as lead plaintiff than any of the other 332"); In re Graham-Field Health Products Litig., No. 98-CV-19:3 (DRH), slip op. at 3, 4 (E.D.N.Y. Aug. 10, 1998) (declining to approve 50-person "group" because "it may well * * * defeat the [Act's] purpose").
12 See Conf. Rep. 34 ("increasing the role of institutional investors in class actions will ultimately benefit shareholders and assist courts by improving the quality of representation in securities class actions"); cf. id. at 31, 32 (Act "seeks to protect investors, issuers, and all who are associated with our capital markets from abusive securities litigation," including "abuse of the discovery process to impose costs so burdensome that it is often economical for the victimized party to settle").
13 The Commission believes that courts should strictly adhere to the specific language of the Act's discovery provision. See, e.g., Gluck, 976 F. Supp. at 548; Blaich v. Employee Solutions, Inc., 1997 WL 842417 (D. Ariz. Nov. 21, 1997). In particular, the Court should not adopt the Telxon Group's contention that discovery is appropriate "where there is a lack of clarity about the [proposed lead plaintiff's] holdings and interests" (Disc. Mem. 2). This broad proposition is not grounded in the statutory language or in the facts of the lone case the Group cites in support of it. See Fischler v. AmSouth Bancorporation, 1997 WL 118429 (M.D. Fla. Feb. 6, 1997) (allowing discovery of presumptive lead plaintiff that was member of class in related state action and had indicated intent to stay, divide, or sever portions of the class in the federal action for disposition in state court).
14 See, e.g., In re Revco Sec. Litig., 142 F.R.D. 659, 668 (N.D. Ohio 1992) ("One's `status as a sophisticated investor renders him neither devoid of the protection of the securities law nor immune to injury by misrepresentation.'") (citation omitted); Stoller v. Baldwin-United Corp., 1985 WL 5809, at *18 (S.D. Ohio June 4, 1985) ("The short answer to this contention is that this [sophistication] consideration has been rejected in those cases considering allegations of market fraud"; citing and analyzing cases); see also Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975) ("Differences in sophistication, etc., among purchasers have no bearing in the impersonal market fraud context, because dissemination of false information necessarily translates through market mechanisms into price inflation which harms each purchaser identically."); Kalodner v. Michael Stores, Inc., 172 F.R.D. 200, 206 (N.D. Tex. 1997) (collecting cases); Welling v. Alexy, 155 F.R.D. 654, 660 (N.D. Cal. 1994) (review of cases reveals "that sophistication alone is not sufficient to bar a trader from serving as a class representative"); Weiss & Beckerman, 104 Yale L.J. at 2102.
15 The Telxon Group cites two Fifth Circuit cases and one Seventh Circuit case (Disc. Mem. 14-15), but they do not appear directly to hold otherwise. In one, "the court merely held that a district court's failure to certify a class was not reviewable on a petition for mandamus[;] [i]t did not rule on the merits of the certification decision." Stoller, 1985 WL 5809, at *7. In the other two, the court of appeals "merely upheld the trial court's discretion in class certification matters." Kalodner, 172 F.R.D. at 206 n.7. One case involved an individual's attempt to serve both as class counsel and class representative and another involved a person who "recovered his [$7,827.79] investment and gained an additional $743.21" but, using a damage theory the court declined to address, without "present[ing] any motive" for the alleged fraud, and having "fall[en] far short of establishing scienter," claimed a loss of $50-$200.
16 The Telxon Group argues that, to the extent the Board is subject to 29 U.S.C. 1104(a)(1)(A), the Board is "precluded from acting as a lead plaintiff in class action litigation." T. Opp. 19. The Group does not contend that ERISA is directly applicable here, but states, rather, that the Florida legislature "adopted [� 1104(a)(1)(A)] for application to the activities of the [Board]." T. Opp. 21; Disc. Mem. 15-16; see E. Rep. 17 (asserting that conflicts of interest "would certainly arise" or "may arise" and that ERISA "precludes" appointment of the Board).
17 See 15 U.S.C. 78u-4(a)(3)(B)(vi) (contemplating "fiduciary" as lead plaintiff); Conf. Rep. 34 ("Although the most adequate plaintiff provision does not confer any new fiduciary duty on institutional investors * * * the Conference Committee nevertheless intends that [it] will encourage institutional investors to take a more active role in securities class action lawsuits."); S. Rep. 11 ("an institutional investor acting as lead plaintiff can, consistent with its fiduciary obligations, balance the interests of the class with the long-term interests of the company and its public investors"); Weiss & Beckerman, 104 Yale L.J. at 2112, 2115 ("[m]anagers of most institutional investorsare subject to the stringent fiduciary rules applicable to trusts"; "[t]he standard under [ERISA] is much the same as that established by common law").
18 See also California Micro Devices, 168 F.R.D. at 275 (in non-Reform Act case, appointing public pension fund as class representative, explaining that "institutional investors * * * have fiduciary responsibility to the very investors whom the securities class action is designed primarily to help[;] * * * [a public pension fund], which is responsible for investing the money of state workers, represent[s] precisely this type of interest"), 965 F. Supp. at 1330 (noting one advantage of appointing pension funds as class representatives is that "institutional investors * * * have a fiduciary duty to exercise reasonable diligence in pursing the interests of their investors"); In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156 (S.D.N.Y. 1997) (appointing limited partnership as sole lead plaintiff).
19 See Cendant, 182 F.R.D. at 480 (the lead plaintiff institutions "will litigate [the lead plaintiff challengers'] claims of misrepresentation as part of [the defendant's] common course of conduct. [The challengers] have not shown their claims to be in conflict with those of the consolidated class or that they differ materially."); Conf. Rep. 34-35 ("`Institutions with large stakes in class actions have much the same interests as the plaintiff class generally; thus, courts could be more confident settlements negotiated under the supervision of institutional plaintiffs were `fair and reasonable' than is the case with settlements negotiated by unsupervised plaintiffs' attorneys.'") (quoting Weiss & Beckerman); Weiss & Beckerman, 104 Yale L.J. at 2118 n.316 ("courts have not interpreted ERISA to preclude a plan from taking actions that incidentally benefit third parties"), citing Trenton v. Scott Paper Co., 832 F.2d 806, 809 (3d Cir. 1987); Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982).
20 See Martin v. Feilen, 965 F.2d 660, 667 (8th Cir. 1992) (DOL action against ERISA fiduciaries for failure to assert shareholder derivative claim for breaches of corporate law duties); Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enters., Inc., 793 F.2d 1456, 1468-69 (5th Cir. 1986) (derivative action); Canale v. Yegen, 782 F. Supp. 963, 967 (D.N.J. 1992) (same). Although these cases involved shareholder derivative actions, a derivative action is well-recognized to be a form of class action. See, e.g., Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 549-50 (1949) (a stockholder sues in a derivative action, "not for himself alone, but as representative of a class comprising all who are similarly situated").
21 The only Reform Act case the Groups cite in support of their ERISA argument is Oxford, 182 F.R.D. at 47. That court hypothesized that a pension fund's fiduciary duties to its beneficiaries could pose a problem for the class in a situation in which "the reasonable prospects of recovery do not exceed the costs" and yet "[p]rivate claimants" would "incur deposition costs and other disbursements in pursuit of their own claims and that of the class without limitation." The extent to which private claimants would behave in that manner in that situation is unclear. See, e.g., Parnes v. Digital Lightwave, Inc., No. 98-152-CIV-T-24(C), Tr. at 38-39 (M.D. Fla. Mar.12, 1999) (counsel for 10-person lead plaintiff group explains settlement by stating that "what we did, and what we think was the right thing to do, was * * * not to spend the class's money * * * by litigating claims that could not have any more upside value than what we realistically got at this point"). In any event, the fiduciary duty concern was not sufficient to prevent the Oxford court from holding that the pension fund was an adequate class representative with typical claims and giving it and an investment management company, both of which are subject to fiduciary duties, two out of three votes in the court's "co-lead plaintiff" leadership structure. 182 F.R.D. at 45, 50.
None of the movants here has asked the Court to appoint it "co-lead plaintiff," but the request could arise and should, in the Commission's view, be rejected. As the Commission argued as amicus curiae in LaPerriere v. Vesta Insurance Group, Inc., No. 98-AR-1407-S (N.D. Ala. brief filed Sept. 25, 1998), if the Court determines that one person or properly constituted group meets all of the Act's criteria for appointment as lead plaintiff, it would be contrary to the Act's language and purposes to appoint a competing movant as "co-lead plaintiff." The Act establishes a procedure and criteria for evaluating competing lead plaintiff motions. See 15 U.S.C. 78u-4(a)(3)(B)(iii) (referring to appointment of "the person or group of persons * * * who filed a complaint or a motion" and has "the largest" financial interest) (emphasis added). It speaks in the singular, of the court appointing a "lead plaintiff," not lead plaintiffs. See id. Under the statutory presumption, multiple class "members" or "persons" can be appointed only to the extent they form a single "group." See id. A number of courts, including this one, have refused to appoint competing persons or groups as "co-lead plaintiffs" where one meets all of the statutory standards and seeks to be sole lead plaintiff. See Steiner v. Frankino, 1998 U.S. Dist. LEXIS 21804, at *15 (N.D. Ohio July 16, 1998); Cendant, 182 F.R.D. at 147-48; Gluck, 976 F. Supp. at 549-50; Reiger v. Altris Software, Inc., 1998 U.S. Dist. LEXIS 14705, at *16-18 (S.D. Cal. Sept. 14, 1998); see also Milestone, 183 F.R.D. at 417-18.
22 Class litigation generally is costly, and the costs of litigation commonly exceed the recovery realized by any one plaintiff. The Reform Act helps to assure that the lead plaintiff will be the person with the largest claim, but that claim still may not be commensurate with the costs of litigating. Suits are pursued nonetheless because if the case has merit it is likely that the costs of litigation will be recouped following judgment or settlement of the case. And, to the extent plaintiffs retain lawyers who work on contingency, attorneys fees will be incurred only if there is a recovery.
23 The contention (T. Opp. 14-15) that a person is "required to seek leave of Court prior to making its [lead plaintiff] motion" in a separate "petition[]" under Section 78u-4(a)(3)(B)(vi) is without foundation. That provision simply declares that a person "may be" a lead plaintiff "in no more than 5 securities class actions pursuant to the Federal Rules of Civil Procedure during any 3-year period" without permission from the court. It does not state when the permission must be sought or granted.
24 See, e.g., In re Milestone Scientific Sec. Litig., No. 98-3404 (AJL) (D.N.J. Mar. 25, 1999) (choosing one firm rather than three) (in Appendix); Sherleigh, 1999 U.S. Dist. LEXIS 2905, at *13-14 & n.1 (finding "the proposed representation of a consortium of ten firms not in the best interests of the class members"); In re Wells Fargo Sec. Litig., 156 F.R.D. 223, 227 (N.D. Cal. 1994) (in pre-Act case, appointing one law firm as class counsel and noting that the firm could "farm[] out work on the case to another law firm because of specialized knowledge, geographic proximity to witnesses or evidence or other comparative advantages, or even to spread risk"); 157 F.R.D. 467, 468 (N.D. Cal. 1995) (same case; selecting only one firm because "a well-advised class in this case would seek to avoid unnecessary duplication of effort").
25 See, e.g., Donnkenny, 171 F.R.D. at 158 (allowing lead plaintiff to select two law firms as co-lead counsel "provided that there is no duplication of attorneys' services, and the use of co-lead counsel does not in any way increase attorneys' fees and expenses"); Cendant, 182 F.R.D. at 151 (denying "all motions for appointment of liaison counsel" because "[q]ualified lead counsel will be surely capable of performing these ministerial tasks" and the court "finds no need to involve another law firm in this matter"); Gluck, 976 F. Supp. at 549 (stating that enlarging the number of lead counsel "would unnecessarily increase the time and expense spent on preparing and litigating the case"); Reiger, 1998 U.S. Dist. LEXIS 14705, at *15-16, *18 (same); Oxford, 182 F.R.D. at 50 (appointing co-lead counsel "with the understanding that there shall be no duplication of attorney's services and that the use of [three] co-lead counsel will not in any way increase attorney's fees and expenses"; stating that "[t]he efforts of the Executive Committee [led by the co-lead counsel] are to be conducted economically and without duplication," delay of the progress of the litigation, or unnecessary enlargement of expenses); In re Reliance Acceptance Group, Inc. Sec. Litig., 1998 WL 388260, at *5 (W.D. Tex. June 29, 1998) ("Counsel is warned, however, that there should be no duplication of services, and approval of three law firms should not be considered as a license to artificially inflate attorney's fees."); Lax v. First Merchants Acceptance Corp., 1997 WL 461036, at *7 (N.D. Ill. Aug. 11, 1997) (appointing two law firms as co-lead counsel, "provided that there is no duplication of attorneys' services, and the use of co-lead counsel does not in any way increase attorneys' fees and expenses"); King v. CBT Group PLC, No. C-98-21014 RMW, Order at 1 (N.D. Cal. Jan. 28, 1999) (court "is reluctant to appoint three firms as co-lead counsel" and requests "an explanation of why all three firms" or a smaller number should be appointed).
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