The opinion of the court was delivered by: JEFFREY MILLER, District Judge
ORDER GRANTING IN PART DENYING IN PART FMC PENSION
GROUP'S MOTION FOR APPOINTMENT AS LEAD PLAINTIFF;
GRANTING FMC PENSION GROUP'S MOTION FOR APPROVAL OF LEAD
COUNSEL; DENYING COMPETING MOTIONS FOR APPOINTMENT AS LEAD
PLAINTIFF AND APPROVAL OF LEAD COUNSEL
This is a motion to appoint lead plaintiff and approve lead counsel
in a securities class action. Six individuals or groups are moving for
appointment as lead plaintiff: (1) FMC Ltd. Pension Plan &Trust,
Jamerica Financial Inc., Joseph Brogan, and Spear Capital Management Inc.
("FMC Pension Group"), (2) Glen Leason, Mary Ann Richason, Paul Berger,
Gregory Lavdanski, and Olive Branch-Leason ("Leason Group"), (3) Jonathan
David Dobis, (4) Eva Searcy, Manuel Wilkey, Paul and Amelia Strick, and
Richard Shay ("Searcy Group"), (5) Albert Bemi, and (6) Bernhard
Surebeam Corporation ("Surebeam") provides electronic food irradiation
systems and services for the food industry. Allegedly, Surebeam developed
trouble acquiring customers and began to misstate the company's financial
status. Surebeam entered into a joint venture with a Brazilain
corporation Tech Ion Industrial Brazil S.A. ("Tech Ion"). Surebeam
allegedly failed to disclose problems that arose with the Tech Ion
project, forgave much of Tech Ion's debt, and recognized revenue from the Tech Ion deal despite the fact that the company
could not repay the debt. Surebeam allegedly made false and misleading
statements both in its Prospectus for the company's initial public
offering ("IPO") as well as in several subsequent financial statements.
These misrepresentations allegedly caused Surebeam's stock to trade at
Approximately eighteen complaints have been filed in this district
against Surebeam, its officers and directors, its parent company Titan
Corporation, and the underwriters on the IPO. While each complaint
alleges its own specific time period, the class period is generally from
March of 2001 to August of 2003. On October 6, 2003, this court entered
an order consolidating the actions then pending as well as any
subsequently filed related actions.
The Private Securities Litigation Reform Act of 1995 ("PSLRA") dictates
the process for determining lead plaintiff in a securities class action
brought under the Securities and Exchange Act of 1935 ("Exchange Act") as
well as the Securities Act of 1933 ("Securities Act").
15 U.S.C. § 78u-4(a)(3)(B); 15 U.S.C. § 77z-1(a)(3)(B); In re
Cavanaugh. 306 F.3d 726
, 729 (9th Cir. 2002).*fn1
requires prompt publication of notice advising class members of the
existence of the class action and of their right to move within 60 days
of the publication to be appointed lead plaintiff.
15 U.S.C. § 78u-4(a)(3)(A). In this case, on August 27, 2003, the plaintiff in
Weiss v. Surebeam Corp. published a notice on the Business
advising class members of the existence of the lawsuit
and of the time limit for filing a motion to be appointed lead plaintiff.
Twelve individuals or groups have moved within the sixty-day time period
for appointment as lead plaintiff. Only six of those individuals or
groups continue to seek appointment as lead plaintiff.*fn3
The standard for appointment of lead plaintiff is established in the
PSLRA. That statute mandates that the 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," referred to as the "most adequate
plaintiff." 15 U.S.C. § 78u-4(a)(3)(B)(i). There is a rebuttable
presumption that the most adequate plaintiff is "the person or group of
persons" that meet the following three requirements:
1. has either filed the complaint or made a
motion in response to a notice;
2. has, in the determination of the court, the
"largest financial interest" in the relief
sought by the class; and
3. otherwise satisfies the requirements of Rule
23 of the Federal Rules of Civil Procedure.
Id. § 78u-4(a)(3)(B)(iii)(I). The presumption
established above may be rebutted "only upon proof by a member of the
purported plaintiff class that the presumptively most adequate plaintiff'
either 1) "will not fairly and adequately protect the interests of the
class," or 2) "is subject to unique defenses that render such plaintiff
incapable of adequately representing the class." Id. §
The Ninth Circuit in Cavanaugh held that the district court is required
to strictly follow a three-step process in the determination of lead
plaintiff. 306 F.3d at 729. First, the district court must determine if
the procedural requirements are satisfied. Id. The second step
requires the district court to compare the financial stakes of the
parties and determine who has the highest financial interest.
Id. at 729-30. Once the individual or group with the
largest financial interest is identified, the court "must then focus its
attention on that plaintiff' and determine whether they meet the
requirements of Rule 23. Id. at 730 (emphasis in original). The
court may not consider the merits of the other plaintiffs' claims.
Id. at 732. If the individual or group with the largest stake
in the controversy does not meet Rule 23's requirements the court must
inquire into the adequacy of the individual or group with the second
largest stake. Id. at 731. If the individual or group with the
highest financial stake in the litigation does meet the requirements of
Rule 23, they must be the presumptive lead plaintiff. Id.
"[T]he only basis on which a court may compare plaintiffs
competing to serve as lead is the size of their financial stake in the
controversy." Id at 732 (emphasis in original). Once the
presumptive lead plaintiff is chosen, step three allows the other
candidates to attempt to rebut the presumption by attacking that
individual or group's qualifications under Rule 23. Id A. The Candidates for Lead Plaintiff
Six individuals or groups have moved to be appointed lead plaintiff:
(1) FMC Pension Group, (2) Leason Group, (3) Dobis, (4) Searcy Group, (5)
Bemi, and (6) Bildstein.
1. Procedural Requirements
In order to be considered for lead plaintiff status, each proposed lead
plaintiff must, within 60 days of published notice of the pendency of the
action, move to be appointed lead plaintiff.
15 U.S.C. § 78u-4(a)(3)(A). Each prospective plaintiff must provide a sworn
certification representing that he or she has read the complaint, did not
purchase the security at the direction of counsel or in order to
participate in any private action, and is willing to serve as a
representative party. Id. § 78u-4(a)(3)(A)(i)-(iii). The
sworn certification must set forth "all of the transactions of the
plaintiff in the security that is the subject of the complaint during the
class period specified in the complaint." Id. §
78u-4(a)(2)(A)(iv). Each of the movants in this case has brought a motion
within the appropriate time limit and has included the requisite
2. Largest Financial Interest
The second step under the PSLRA asks which proposed lead plaintiff "has
the largest financial interest in the relief sought by the class."
Id. § 78u-4(a)(3)(B)(iii)(I). The district court must
compare the losses allegedly suffered by the various plaintiffs to
determine the financial stakes. Cavanaugh, 306 F.3d at 730.
Although the PSLRA does not dictate the process for determining which
party has the largest financial interest, several courts have suggested
considering: (1) the number of shares purchased during the class period;
(2) the number of net shares purchased during the class period; (3) the
total net funds expended during the class period; and (4) the approximate
losses suffered during the class period. Aronson v. McKesson HBOC.
Inc., 79 F. Supp.2d 1146, 1157-58 (N.D. Cal. 1999); In re Olsten
Corp. Sec. Litig., 3 F. Supp.2d 286, 295 (E.D.N.Y. 1998) (citing
Lax v. First Merchs. Acceptance Corp., 1997 U.S.
Dist. LEXIS 11866, at *5 (N.D. Ill. Aug. 11, 1997)); In re Enron
Corp. Sec. Litig., 206 F.R.D. 427, 440 (S.D. Tex. 2002). The financial interest of each proposed lead plaintiff is as follows:
Proposed Lead Plaintiff shares purchased total amount approx. losses
individual members of group, if spent
FMC Pension group 235,500 1,671,400 1,281,628
Spear Capital 77,450 836,728 654,713
Jamerica 84,550 398,561 287,420
Brogan 50,000 291,255 225,530
FMC Pension 23,500 144,856 113,965
Leason group 90,000 204,086
Glen Leason 43,000 94,493
Mary Ann Richason 20,000 49,051
Paul Berger 20,000 25,357
Gregory Lavdanski 2,000 20,517
Olive Branch-Leason 5,000 14,669
Dobis 41,750 189,671 107,823
Searcy Group 51,931 107,235
Manuel Wilkey 31,00 105,220 63,779
Paul/Amelia Strick 12,000 56,640 24,756
Richard Shay 6,931 21,860 12,594
Eva Searcy 2,000 8,776 6,105
Berni 20,500 38,575
Bildstein 200 2,000 1,700
None of the numbers provided to this court have been challenged.
Therefore, FMC Pension Group has the largest financial interest in this
litigation, dwarfing all other claims with their claim of $1.2 million.
Proposed lead plaintiff Dobis objects to FMC Pension Group on the
ground that the group consists of four unrelated entities or individuals
whose claims should not be aggregated for purposes of appointing lead
plaintiff. The PSLRA does not explicitly state whether individuals may
aggregate their losses for consideration as lead plaintiff. Likewise, the
Ninth Circuit has not ruled on the issue of aggregation.
Cayanaugh, 306 F.3d at 732 n.8. However, many district courts
have stated that by using the language "member or members of the
purported plaintiff class" the statute envisions aggregation.
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