UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
April 24, 2000
LABORERS LOCAL 1298 PENSION FUND, ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF
CAMPBELL SOUP COMPANY, DALE F. MORRISON AND BASIL L. ANDERSON, DEFENDANTS
The opinion of the court was delivered by: Irenas, District Judge
HONORABLE JOSEPH E. IRENAS
ORDER APPOINTING LEAD PLAINTIFF
It appearing that:
1. Ten class action complaints have been filed against Campbell Soup Company and two of its executives on claims arising under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j and t, et seq., and Rule 10b- 5 promulgated thereunder. The facts alleged in each complaint are identical. *fn1 By a series of orders issued by this Court, all the complaints have been consolidated into a single action.
2. Pursuant to the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C § 78u-4 et seq., the first plaintiff to file, Laborers Local 1298 Pension Fund ("Laborers Local"), published a notice on PR Newswire on January 11, 2000, advising the public of the pendency and nature of the suit and of the right of any eligible shareholder to serve as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A)(i). Three motions were made pursuant to 15 U.S.C. § 78u-4(a)(3)(B) for the appointment of lead plaintiff and the approval of the counsel representing each moving party. 15 U.S.C. § 78u- 4(a)(3)(B)(v). The moving parties were Laborers Local, represented by Schoengold & Sporn, who had filed the initial complaint; Donald DeValle and Daryle Green, represented by Berger & Montague; and the Treasurer of the State of Connecticut, represented by Schatz & Nobel, P.C.. *fn2
3. A lead plaintiff must be a member of the purported class, but need not be a named plaintiff. The PSLRA creates a "presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that . . . has the largest financial interest in the relief sought by the class . . . and . . . otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). The Act does not define whether the concept of "largest financial interest" should be viewed in terms of absolute dollars or as a percentage of a plaintiff's net worth.
4. Laborers Local asserts that it purchased 6,300 shares during the class period (November 18, 1997 to January 8, 1999), all of which were subsequently sold for a total loss of $100,494.00. *fn3 The State of Connecticut, through its pension funds, purchased 168,300 shares during the class period and asserts that its losses exceed $1,000,000. As of April 6, 2000, Connecticut still holds 77,800 shares of Campbell Soup. Donald DeValle and Daryle Green jointly seek to serve as lead plaintiff. DeValle purchased 5,302.2 shares during the class period which represents all the assets in his 401(k) Plan. Green purchased 5,742 shares which amounts to approximately 56% of the balance in his 401(k). Both men still retain all the shares purchased during the class period. Combined they assert a loss of about $131,000.
5. In absolute terms the State of Connecticut has, by far, the largest claim, while the combined claim of Green and DeValle *fn4 is a distant second. However, Connecticut's loss is a drop in the bucket compared to the billions of dollars in pension funds managed by the State Treasurer. For Green and DeValle their shares represent a substantial portion of their retirement funds. *fn5
6. The PSLRA requires that the person or group of persons selected as lead plaintiff "otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(cc) Although the level of scrutiny at this stage of the proceeding is less intensive than undertaken on a motion to certify the class, the Court is satisfied that "(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties [all of the moving plaintiffs] are typical of the claims or defenses of the class, and (4) the representative parties [all of the moving plaintiffs] will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a). In addition, it seems clear that the questions of law or fact common to members of the class predominate over issues applying to individual class members, and a class action is superior to other methods of fairly and efficiently adjudicating the suit. Fed. R. Civ. P. 23(b).
7. The presumption in favor of the person or group of persons with the largest financial interest can be rebutted by proof that such plaintiff (i) will not adequately protect the interest of the class or (ii) is subject to unique defenses which would render such plaintiff incapable of adequately representing the class. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa) and (bb). One party suggested that the indictment of Connecticut's previous State Treasurer for malfeasance in office might create some unique defense against the current occupant of that office. However, there is nothing in the record to suggest that Connecticut's purchase of Campbell stock was involved in the wrongdoing which led to the indictment, or that the indictment would interfere with the current Treasurer's ability to conduct the current litigation. It was also suggested that DeValle and Green, as former Campbell employees who purchased their shares for IRAs, might face some defenses not applicable to other plaintiffs. Nothing in the record suggests that these employees were in the upper echelon of management or otherwise had specialized knowledge which might have put them on notice of the practices alleged in the Complaint.
8. The PSLRA delegates to the party selected as lead plaintiff the task of selecting counsel, subject to the approval of the court. 15 U.S.C. § 78u-4(a)(3)(B)(v). At the present moment, not surprisingly, each party vying for appointment as lead plaintiff wants its own counsel to handle the case. All three firms, Schatz & Nobel, P.C., Schoengold & Sporn, P.C. and Berger & Montague, P.C., are experienced class action lawyers with extensive experience in the field. There is some question as to whether the Schatz firm and the Schoengold firm are large enough to handle this litigation solely with their own personnel. *fn6 At the oral argument all three law firms indicated an intention to parcel out the work in some undetermined fashion to the other two law firms. The Court has serious reservations about this approach. If a truly private litigant was interviewing potential counsel for possible retention in an important case, the client would not generally expect that the lawyer ultimately appointed would turn around and dole out the work to the other firms who had competed for the case. Not only would such action suggest the possibility of collusion among counsel, but it would likely be inefficient and would undercut the client's desire to select the best lawyers for the job. Thus, this practice is inconsistent with the expressed intent of the PSLRA to make the attorney-client relationship in class actions similar to that in ordinary litigation.
9. It is the intention of the Court to appoint DeValle, Green and the Treasurer of the State of Connecticut as co-lead plaintiffs pursuant to the PSLRA. Connecticut has the largest financial interest in the suit, and the interest of DeValle and Green, combined, is the second largest. The Court also considers it desirable to have both an institutional investor, like Connecticut, and individual investors, like DeValle and Green, included as lead plaintiffs since each may bring a unique perspective to the litigation. *fn7 Of course, the Court reserves "the right to alter this structure at any time and for any reason, and will do so if it finds that the progress of the litigation is being delayed . . . or if the structure established proves detrimental, in any way, to the best interests of the class." In re Oxford Health Plans, Inc., 182 F.R.D. 42, 51 (S.D.N.Y. 1998).
10. Some courts have commented on the possible conflict of interest between class members who sold all or a portion of their shares before the action was filed ("In/Out Plaintiffs") and those who still own some or all of their stock ("Retention Plaintiffs"). See In re Party City Sec. Litig., 189 F.R.D. 91, 108, 110 (D.N.J. 1999)(discussing nature of conflict and holding that "the appointment of a group of lead plaintiffs consisting of both Retention Plaintiffs and In/Out Plaintiffs runs contrary to the goals of the PSLRA."). DeValle, Green and Connecticut are all Retention Plaintiffs. *fn8 Because the benefit of any verdict or settlement is, in effect, paid pro rata by all the shareholders (leaving aside the possible benefit of any available insurance coverage), while the benefits flow only to those who purchased shares during the class period, even a Retention Plaintiff will most often benefit from the litigation since the per share detriment will surely be less than the per share benefit. It may be that there exist persons who made large scale purchases before or after the class period but only small purchases during the class period who would be disadvantaged by the litigation. However, none of the proposed lead plaintiffs seems to fall into this category. *fn9
11. As noted earlier, it is the responsibility of the lead plaintiffs to select counsel, subject to court approval. The Court assumes from the oral argument that DeValle, Green and Connecticut filed their original motions to be appointed lead plaintiff with the intent that the counsel who filed the motions would also be class counsel should the motion be granted. However, the Court directs those who are appointed as lead plaintiffs to meet to discuss the issue of who should be named class counsel. When lead plaintiffs come to an agreement on this issue, a motion for approval should be served and filed. In deciding whether to approve the choice proffered by lead plaintiffs, the Court will consider the following:
(A) The fee arrangement agreed to by the parties should provide for a cap on fees, but leave to the Court the determination of the actual fee to be awarded; if more than one firm is going to be working on behalf of the plaintiffs, the method of allocating the fee award should be specified;
(B) The fee agreement should clearly specify how the out-of-pocket costs of the litigation will be funded, and what the obligations of the lead plaintiffs will be should the suit be unsuccessful;
(C) The motion should include information on how counsel plans to staff the matter, including the number of lawyers and paralegals to be involved, the breakdown between partners and associates and an estimate of the number of hours to be expended through various stages of the litigation. If lead counsel plans to parcel out the work to other law firms, the need for and extent of such delegation must be detailed in the motion papers. As noted earlier, the Court has serious reservations about this course of action. See ¶ 8, supra.;
(D) If the lead plaintiffs plan to appoint co-counsel to represent them, the moving papers should set forth the reasons for appointing two law firms and the plans for allocating work between them. The Court will want to assure that the appointment of co-counsel does not result in waste and inefficiency in the prosecution of the action. It is very unlikely that the Court will consider the appointment of more than two firms as co-counsel for the lead plaintiffs;
(E) Starr, Gern, Davison & Rubin style themselves as "Liaison Counsel" in papers submitted to this Court in connection with the motions to appoint lead plaintiff. While the Court recognizes that if lead counsel does not maintain a New Jersey office it may be necessary under court rules to appoint local counsel, the role of such counsel should be carefully circumscribed to avoid duplication of services, wasted time and unnecessary expense;
(F) The motion to approve the appointment of lead counsel must be served and filed no later than May 15, 2000. The lead plaintiffs should be prepared to appear in person on the return date of the motion to offer testimony concerning the process used to select counsel and to answer questions from the Court relating to such selection.
Based on the foregoing,
IT IS on this 24th day of April, 2000,
1. Donald DeValle, Daryle Green, and Denise L. Nappier, Treasurer of the State of Connecticut as Trustee for the Connecticut Retirement Plans and Trust Funds are hereby appointed as lead plaintiffs in accordance with 15 U.S.C. § 78u-4(a)(3)(B)(i); and
2. The lead plaintiffs shall select lead counsel, subject to approval of this Court on motion, in accordance with 15 U.S.C. § 78u-4(a)(3)(B)(v), such motion to be served and filed no later than May 15, 2000; the hearing and oral argument on the motion shall be heard by the Court on Friday, May 19, 2000, at 2:00 p.m., in Courtroom 5A at the Mitchell H. Cohen United States Courthouse, One John F. Gerry Plaza, Camden, New Jersey.
JOSEPH E. IRENAS, U.S.D.J.