Federal Court Grants Motion to Consolidate PSLRA Class Actions, and Pursuant to PSLRA Appoints Plaintiff With Largest Financial Investment as Lead Plaintiff and Confirms Lead Plaintiff’s Choice of Lead Counsel
Six securities fraud class action lawsuits were filed against a corporation and three of its officers and directors alleging that defendants violated §§ 10(b) and 20(a) of the federal Securities Exchange Act of 1934 and Rule 10b-5 by making false and misleading statements concerning the corporations earnings and enrollment growth. A separate derivative action also was filed. Plaintiffs’ attorneys in five of the class actions sought consolidation of the lawsuits and appointment of Lead Plaintiff and Lead Counsel. Glauser v. EVCI Career Colleges Holding Corp., 236 F.R.D 184, 186 (S.D.N.Y. 2006). The defense apparently took no position on the motions, each of which were granted by the district court.
With respect to the consolidation motion, the federal court held that “consolidation is particularly appropriate in the context of securities class actions if the complaints are ‘based on the same “public statements and reports.”’” Glauser, at 186 (citation omitted). Because the class actions involved “common issues of law and fact” the Court consolidated those lawsuits “for all purposes,” including trial; the derivative action was consolidated for all pretrial purposes, and the Court reserved a decision on whether to consolidate it for trial as well. Id.
With respect to appointment of Lead Plaintiff, the district court turned to 15 U.S.C. § 78u-4(a)(1) and (a)(3)(B)(I) of the federal Private Securities Litigation Reform Act (PSLRA). The Court explained the test as follows:
In making this determination, the Court is to presume that the “most adequate plaintiff” is the person or group of persons that:
(aa) has either filed the complaint or made a motion in response to a notice [published by a complainant];
(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)(B)(iii). This presumption may only be rebutted upon proof by a member of the purported class that the presumptive lead plaintiff:
(aa) will not fairly and adequately protect the interests of the class; or
(bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.
Glauser, at 187. Based upon its PSLRA analysis, id., at 187-89, the federal court agreed that Arkansas Teacher Retirement System was the most adequate plaintiff to serve as Lead Plaintiff on the class action cases because it has the largest interest, id., at 187. The district court denied a motion to appoint co-lead plaintiff because the request “contravenes the very purpose of the PSLRA – to place securities class actions in the hands of the investor (ideally a sophisticated institutional investor) with the largest amount at stake in the outcome of the case.” Id., at 189.
With respect to appointment of Lead Counsel, the PSLRA provides that “The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.” Glauser, at 190 (quoting 15 U.S.C. § 78u-4(a)(3)(B)(v)). The district court therefore granted Lead Plaintiff’s request that the court appoint its counsel of choice to serve as Lead Counsel, noting that it “is a highly competent and respected law firm” with considerable experience in securities class action cases. Id.