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Copia Claims, LLC v. California Infrastructure and Economic Development Bank

September 15, 2009

COPIA CLAIMS, LLC, PLAINTIFF,
v.
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK, THE BANK OF NEW YORK MELLON, ORRICK, HERRINGTON & SUTCLIFFE, LLP, ACA FINANCIAL GUARANTY CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge

ORDER

William George filed a motion on August 5, 2009, in which he seeks to be appointed the lead plaintiff in this putative securities class action and approval of his selection of McGrane Greenfield, LLP ("McGrane Greenfield") and Kershaw, Cutter & Ratinoff, LLP ("Kershaw, Cutter & Ratinoff") as lead counsel. Defendants ACA Financial Guaranty Corporation and The Bank of New York Mellon ("Defendants") oppose the motion, arguing that George's selection of McGrane Greenfield as lead counsel calls into question his fitness to serve as lead plaintiff under the Private Securities Litigation Reform Act of 1995 ("PSLRA") and Rule 23(a) of the Federal Rules of Civil Procedure.

I. ANALYSIS

Appointment of Lead Plaintiff The PSLRA governs this putative class action and dictates the requirements for the appointment of a lead plaintiff. See 15 U.S.C. § 78u-4(a)(3). A three-step process is used for identifying the plaintiff "most capable of adequately representing the interests of class members." In re Cavanaugh, 306 F.3d 726, 729-30 (9th Cir. 2002).

"Step one" requires that no later than twenty days after the filing of a complaint falling under the PSLRA, the plaintiff must provide notice in a "widely circulated national business-oriented publication or wire service," publicizing the pendency of the action, the claims alleged and the purported class period. 15 U.S.C. § 78u-4(a)(3)(A); In re Cavanaugh, 306 F.3d at 729. The notice must invite all members of the purported class to move the court to serve as the lead plaintiff in the action. 15 U.S.C. § 78u-4(a)(3)(A)(i)(II); In re Cavanaugh, 306 F.3d at 729.

The "second step" requires that the district court engage in two sequential inquiries. First, the court must identify the plaintiff with the largest financial interest in the relief sought by the class. In re Cavanaugh, 306 F.3d at 729-30. Second, the court must ensure that the plaintiff with the largest financial interest otherwise satisfies the requirements of Rule 23(a) of the Federal Rules of Civil Procedure, specifically, the requirements of "typicality" and "adequacy." Id. at 730. If the plaintiff with the largest financial stake satisfies Rule 23(a)'s requirements, a presumption attaches that such plaintiff is the "most adequate plaintiff" and he becomes the "presumptive lead plaintiff." In re Cavanaugh, 306 F.3d at 729-30. At this second stage, the district court may rely only on the potential lead plaintiff's complaint and sworn certification. Id. at 730.

The "third step" requires the district court provide an opportunity to other plaintiffs to rebut the presumptive lead plaintiff's showing that he satisfies Rule 23(a)'s typicality and adequacy requirements. Id. at 730. At this stage, "the process turns adversarial and other plaintiffs may present evidence that disputes the lead plaintiff's prima facie showing of typicality and adequacy." Id. at 731.

George has satisfied the requirements of steps one and three. The named plaintiff, Copia Claims, LLC ("Copia Claims"), complied with the PSLRA's notification requirements by publishing the requisite notice in PRNewswire on June 30, 2009 (Sullivan Decl., Ex. A.) Since no other plaintiffs have come forward to challenge George's motion to be appointed the lead plaintiff, the requirements of step three are satisfied. Thus, the remaining issue is whether George has satisfied the requirements for "step two."

Generally, step two requires the district court compare the financial interests of the class members vying to be the lead plaintiff. However, since George is the only class member seeking to become the lead plaintiff, George prevails on this factor. Therefore, the analysis turns to the typicality and adequacy inquiry.

Rule 23(a)'s typicality requirement ensures that the lead plaintiff's interests and incentives align with those of absent class members. See Ferrari v. Gisch, 225 F.R.D. 599 (C.D. Cal. 2004).

There is no evidence suggesting that George's claim is atypical or unrepresentative. Therefore, George has met the typicality requirement.

Rule 23(a)'s adequacy requirement ensures that the class representative will be able to "fairly and adequately protect the interests" of the class members. Fed. R. Civ. Pro. 23(a)(4). Generally, the adequacy of a lead plaintiff turns on the "qualifications of counsel for the representatives, an absence of antagonism, a sharing of interests between representatives and absentees, and the unlikelihood that the suit is collusive." In re Northern Dist. of Cal, Dalkon Shield IUD Products Liability Litigation, 693 F.2d 847 (9th Cir. 1982).

The potential lead plaintiff's selection of class counsel may be considered when assessing the potential lead plaintiff's "adequacy" under Rule 23. In re Cavanaugh, 306 F.3d at 732-33. Specifically, the In re Cavanaugh Court stated:

The presumptive lead plaintiff's choice of counsel... may be relevant in ensuring that the plaintiff is not receiving preferential treatment through some back-door financial arrangement with counsel, or proposing to employ a lawyer with a conflict of interest.... [S]uch information is relevant only to determine whether the presumptive lead plaintiff's choice of counsel is so irrational, or so tainted by self-dealing or conflict of interest, as to cast genuine and serious doubt on that plaintiff's willingness or ability to perform the functions of lead plaintiff.... However, the court must keep firmly in mind that ...


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