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In re Fleetboston Financial Corporation Securities Litigation

October 2, 2008

IN RE FLEETBOSTON FINANCIAL CORPORATION SECURITIES LITIGATION


The opinion of the court was delivered by: Brown, Chief Judge

FOR ELECTRONIC PUBLICATION

OPINION

I. Introduction .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II. Factual Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III. Procedural History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A. Pre-Certification History .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

B. Certification of the Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

C. Post-Certification History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

D. Events That Gave Rise to the Instant Motions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

IV. Motion Contesting Re-Appointment of Class Representative . . . . . . . . . . . . . . . . . . . . . 16

A. Considerations the Parties Left Unaddressed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

B. Considerations Addressed by the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

C. Candidacy Meeting Class Representative Requirements . . . . . . . . . . . . . . . . . . . 27

V. Motion Requesting Class Decertification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

A. The Court's Power of Review and Applicable Test . . . . . . . . . . . . . . . . . . . . . . . 44

B. Decertification Is Unwarranted at the Instant Juncture .. . . . . . . . . . . . . . . . . . . . 50 VI. Rule 56 Motion and the Future Course of this Litigation .. . . . . . . . . . . . . . . . . . . . . . . . 72

VII. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

I. INTRODUCTION

This matter comes before the Court upon: (a) the class' counsel's motion for substitution of class representative, see Docket Entry No. 113; (b) Defendants' motion for decertification of Plaintiffs' class, see Docket Entry No. 119; and (c) the parties' (apparently joint) motion to postpone their motion(s) for summary judgment until after the Court's final determination as to certification of the class is made. For the reasons set forth below, these motions will be DENIED.

II. FACTUAL BACKGROUND

The underlying factual events began to unfold on October 1, 1999, when Fleet Financial Group merged with BankBoston Corporation ("BankBoston"), a then-holder of 139 Argentine bank branches and the top fund manager in Argentina. See Docket Entry No. 28, at 2-3. The merger produced FleetBoston Financial Corporation ("FBF"). See id. at 3. As the merger and acquisition trend in the U.S. banking industry continued, FBF merged with Summit Bancorp ("Summit") in October 2000 ("FBF-Summit Merger"). See id. Under the terms of the FBF-Summit Merger agreement, Summit shareholders received 1.02 shares of FBF for each share of Summit they owned in a fixed-stock exchange. See id.

In connection with that [second] merger, FBF and Summit jointly filed a Merger Proxy/Prospectus with the Securities and Exchange Commission ("SEC"), and FBF filed a Merger Registration Statement and Prospectus ("Merger Registration Statement") on January 25, 2001, which was later amended and supplemented on March 1, 2001, the actual closing date of the merger. FBF's Merger Registration Statement incorporated by reference a number of FBF's SEC filings [executed] prior to the date of the merger, such as its 1999 Form 10-K and its Form 10-Q reports for the first, second, and third quarters of 2000.

Id. at 3-4. The mergers took place during the financial crises that spread through emergent markets of the late 20th Century and reached Argentina by the third quarter of 1998. The Argentine government sought to protect the domestic economy by devaluating the national currency, the Peso, which had been pegged to the United States Dollar since 1992 in order to establish a stable exchange rate, control the inflation rate and ensure Argentine economic growth. See id. at 4. By the time of the FBF-Summit Merger, it was clear that Argentina was in deepening recession, FBF's Argentine assets were publically qualified as investments offering poor financial security, and the financial situation continued to worsen after the FBF-Summit Merger. See id. at 5-6.

Fourteen months after the FBF-Summit Merger, Argentina underwent a period of economic and social turbulence, during which the Argentine Peso was un-pegged from the U.S. dollar and devaluated dramatically, causing substantial losses to all holders of Argentine investments, including FBF. See id. at 6-7. Although FBF had loan loss reserves, these reserves proved to be insufficient to offset the total loss suffered by FBF as a result of Argentine recession and devaluation of the Peso.*fn1 Eventually, the language used in the Merger Registration Statement (read in light of the insufficiency of FBF's loan loss reserves) gave rise to the instant litigation on behalf of former Summit shareholders who received shares of FBF in exchange for his/their Summit shares.*fn2

III. PROCEDURAL HISTORY

While the factual backdrop of this action, colored by international monetary policies, is already somewhat complex, the procedural background of this matter appears to be even more complicated. This Court, therefore, finds it useful to outline the pertinent procedural history of this matter in significant detail.

A. PRE-CERTIFICATION HISTORY

The class' counsel filed their original complaint in this matter ("Initial Complaint") on September 19, 2002, see Docket Entry No. 1, and the matter was assigned to United States District Judge William G. Bassler ("Judge Bassler"). The Initial Complaint named, as Plaintiffs in this action, the Amsterdam family ("the Amsterdams") consisting of: (1) Harry Amsterdam ("Amsterdam-Sr."); (2) Philip S. Amsterdam ("Amsterdam-Jr."); (3) Andrew D. Amsterdam ("Amsterdam-Grandson") and, in addition, an unspecified number of unnamed entities collectively designated as "All Others Situated Similarly [to the Amsterdams]." Id. at 1 (caption). On November 19, 2002, two months after filing their action, the Amsterdams moved to consolidate this matter with two other matters, Civil Action No. 02-4724 (brought by plaintiff Stephen Paul ("Paul")) and Civil Action 02-5427 (brought by plaintiff Jennifer Chana Fink ("Fink")). See Docket Entry No. 3, at 2. In support of their motion to consolidate, the Amsterdams filed a declaration executed by a Benjamin Benson (presumably, an attorney employed by a law firm, which firm referred to itself as a "liaison counsel" for the Amsterdams ("Benson")); the declaration notified Judge Bassler that Benson was "filing a motion for appointment of . . . the following proposed lead plaintiffs: . . . Amsterdam[-Sr.,] Amsterdam[- Jr.], Arthur L. Foster and Walter H. Foster, Jr. [('the Fosters')], Arnold D. Mohel [('Mohel')], John J. Kulik and Judith T. Kulik [('the Kuliks')]." Docket Entry No. 4, at 1. In other words, two months after the initiation of this action, the candidacies of Amsterdam-Grandson, Paul and Fink vanished from the list of potential lead plaintiffs, and putative class members Mohel, the Fosters and the Kuliks took their places.

On January 9, 2003, Judge Bassler issued an order and accompanying opinion granting the motion to consolidate cases, as well as the motion to appoint Amsterdam-Sr., Amsterdam-Jr., Mohel, the Fosters and the Kuliks as lead plaintiffs of the putative class. See Docket Entries Nos. 6, 7.

B. CERTIFICATION OF THE CLASS

A year and a half passed by. Following the class' counsel's filing of an amended complaint ("Amended Complaint"), Defendants' motion to dismiss that complaint, Judge Bassler's partial grant and partial denial of the aforesaid motion, Defendants' filing of their answer, as well as issuances of numerous scheduling orders and entries of multiple stipulations, the class' counsel finally filed their motion for class certification. See Docket Entry No. 40. The motion was filed on September 28, 2004, and sought, inter alia, appointment, as lead plaintiffs, of two parties: (1) "The Estate of . . . Amsterdam[-Sr.], by . . . Amsterdam[-Jr.] as Executor"; and (2) "Allen Nimensky [('Nimensky')] as trustee for Nimensky & Gallinson, a Professional Association Target Benefit Plan." Docket Entry No. 40-1, at 1-2. That language indicated that, sometime between November 19, 2002, and September 28, 2004: (1) Amsterdam-Sr. passed away, apparently testate, and his estate was in the process of liquidation by Amsterdam-Jr., in his capacity as the executor approved by Amsterdam-Sr.'s probate court; but (2) Amsterdam-Jr., Mohel, both Fosters and both Kuliks vanished, meanwhile, from the list of putative lead plaintiffs (just as Paul, Fink and Amsterdam-Grandson did before them), and their positions were taken over solely by one person, Nimensky. See id.

Yet, twenty days later, that is, on October 18, 2004, the class' counsel filed their amended motion for certification of the putative class. See Docket Entry No. 43. The amended motion indicated that Nimensky followed the path already taken by Paul, Fink, Amsterdam-Jr., Amsterdam-Grandson, Mohel, both Fosters and both Kuliks, i.e., his candidacy also vanished from the list of potential class representatives leaving the then-liquidating Estate of Amsterdam-Sr. as the sole named plaintiff who was represented by a team of six attorneys from four law firms, one in New Jersey and three in New York.*fn3 See id. at 27 (the signature page).*fn4 Recognizing that testamentary estates (i.e., juridical entities of temporary existence) neither administer nor liquidate themselves but, rather, act through their probate-court-approved executors or administrators, the class' counsel, in their amended motion, duly addressed the qualifications of Amsterdam-Jr. as a lead plaintiff (in his capacity as the executor of Amsterdam-Sr.'s Estate). See id. at 22-23. Specifically, the class' counsel pointed out that Amsterdam-Jr. suffered of "no disabling conflicts of interest between [himself and the putative class, because the Estate he was liquidating] has been damaged as a result of [D]efendants' false and misleading statements contained in the Merger Registration Statement." Id. at 22.

In addition to addressing the issue of adequacy of the proposed class representative, the class' counsel's amended motion for certification asserted, inter alia, that the putative class was "so numerous that joinder of all members [was] impracticable." Docket Entry No. 43-2, at 17-18 (citing case law evaluating the threshold number of class members in the range from 40 to 90 entities). The class' counsel based their conclusion on the following reasoning:

Although plaintiffs have not at this time ascertained the precise number of potential class members, as of the date of record according to the Merger Registration Statement, there were 26,953 shareholders of record of Summit stock, and it is believed that as of January 9, 2001 there were 175,721,433 shares of Summit common stock outstanding and entitled to vote on the Merger. Ultimately FBF issued more than 190 million shares of stock in exchange for all of the outstanding stock of Summit. Thus plaintiffs believe that the proposed class consists of thousands of Summit shareholders who exchanged millions of Summit shares of common stock. . . . Clearly, the proposed class consists of a sufficient number of persons to make joinder impracticable.

Id. at 18 (citations omitted).

Following Defendants' filing of their opposition to the class' counsel's amended motion for certification (in which Defendants asserted that neither the fact of 26,953 shareholders of record of Summit stock nor the fact of 175,721,433 outstanding shares of common stock on a certain day, established the amount of eligible class members, see Docket Entry No. 51, at 11-12), the class' counsel submitted their reply, together with a declaration by R. Allan Miller ("Miller Decl.").*fn5 See Docket Entries No. 56 and 56-3. In pertinent part, the Miller Declaration stated as follows:

At the time of the merger, there were approximately 177 million shares of Summit Bank outstanding which were exchanged into approximately 180.5 million shares of Fleet stock. According to the merger proxy, there were over 23,000 shareholders of record of Summit bank stock at about that time. This is an extremely large number of shareholders of record of that date. That is, there are many, many stocks which do not have anywhere near that number of shareholders of record, due to common practice of shares being held in brokerage firm, depository or nominee name. Lists of institutional shareholders available on Thomson Financial Shareworld show that there were 282 institutional holders of Summit Bank stock as of the last date for which data was available prior to the merger[,] which was after the announcement of the merger. This is meaningful because if an institutional shareholder did not want to own the stock after the merger, it could have sold before that date. With the numerosity threshold at 40 or even 90, suggesting that there were not sufficient [amount of] shareholders is simply ludicrous.

Docket Entry No. 56-3, at 4.*fn6

On December 22, 2005, Judge Bassler granted the amended motion for certification and issued an order appointing Amsterdam-Jr., as executor of Amsterdam-Sr.'s Estate, to act as the class representative. See Docket Entry No. 76. In addition, Judge Bassler found Amsterdam-Jr.'s candidacy (as executor of the then-liquidating Amsterdam-Sr.'s Estate) sufficient to meet the Rule 23 requirements as to appointment of class representative. See id. at 8-9 (noting that the candidacy satisfied the requirements because: (1) Amsterdam-Jr. had "considerable knowledge of the circumstances that gave rise to this action"; (2) "spent substantial amount of time reviewing the issues and becoming aware of the claims against [Defendants]; and (3) "the facts [presented for Judge Bassler's review by the class' counsel and Defendants did not indicate that] there [were] foreseeable conflicts in the interests of the [e]state of [Amsterdam-Sr.] and the class members").

C. POST-CERTIFICATION HISTORY

During the next two and a half years, various motions, including Defendants' motion to dismiss the Amended Complaint, were resolved; numerous scheduling orders were entered; the parties began and completed extensive factual discovery, in this country and abroad; and Defendants geared up to file their motion for summary judgment. See, e.g., Docket Entry No. 81, at 16 (where the class' counsel notified the Court that they were aware of Defendants' plans to make a summary judgment motion in the near future). Meanwhile, after Judge Bassler's retirement from the bench, the case was ultimately reassigned to the undersigned on July 27, 2007. On November 28, 2007, this Court, upon Plaintiffs' motion to expand class definition and Defendants' motion on the pleadings, re-visited the issue of class period and clarified to the parties the scope of this litigation. See Docket Entries Nos. 104 and 105.

On December 28, 2007, Defendants notified the Court that "Defendants are quite confident that they will succeed in disposing of this case on summary judgment [which would be filed] either immediately or after the deposition" of the sole factual witness who remained undeposed and whose deposition was scheduled for early 2008, Docket Entry No. 106, at 3-4, while the class' counsel notified the Court that they were finally ready to proceed with dissemination of class notice. See Docket Entry No. 107, at 4-5 ("Now . . . Plaintiffs must send and publish notice to the class. Plaintiffs intend to submit a proposed order to the Court that . . . will: (i) permit Plaintiffs to retain a notice administrator; (ii) require [D]efendants to cause their transfer agents to provide the notice administrator with the names and addresses of possible [c]lass [m]embers; and (iii) set a schedule for mailing and publication of notice to the class"). On March 7, 2008, in response to the aforesaid information, the Court issued an order directing Defendants' filing of motion for summary judgment and setting up a March 12, 2008, conference with respect to the scheduling of class notice. See Docket Entries Nos. 108 and 109 (the order and corresponding transcript of the conference, during which the Court was advised that the final factual deposition would take place in late April or early May of 2008 and the class' counsel would proceed with dissemination of class notice).

D. EVENTS THAT GAVE RISE TO THE INSTANT MOTIONS

Unfortunately, neither Defendants' motion for summary judgment nor the class' counsel's dissemination of class notice came to fruition. Rather, on April 15, 2008, the class' counsel filed a letter reading, in pertinent part, as follows:

Plaintiffs' counsel recently were advised that [Amsterdam-Jr.] succumbed to cancer and passed away on March 22, 2008. . . . [P]aperwork is [now] being submitted to New Jersey probate court to name [Amsterdam-Grandson, the son of Amsterdam-Jr. and grandson of Amsterdam-Sr.] successor executor for the estate of [Amsterdam-Sr., which is, the sole class representative in this action]. Once that is accomplished, [P]laintiffs[' counsel] intend to make an application to this Court to substitute [Amsterdam-Grandson] as executor of the estate of [Amserdam-Sr.] for [Amsterdam-Jr.] as executor of the estate of [Amserdam-Sr.] Docket Entry No. 110. Learning of this news, Defendants filed a letter stating, inter alia, that,

[g]iven that class notification has not yet occurred due to [Amstrdam-Jr's] death, the parties conferred and all concluded that it would be prudent to postpone the filing of any motions for summary judgment until after the substitution process has been resolved[,] and the distribution of notice to potential members [has been completed.] We believe that there are at least three reasons why the resolution of the class representative and distribution of class notice should precede summary judgment: (i) to ensure that the [candidacy of Amsterdam-Grandson] is approved by the Court; (ii) to ensure that there is a class representative to fulfill any applicable responsibilities in connection with the summary judgment motions; and (iii) to ensure that summary judgment, if granted, will bind all potential class members other than those who received notice and opted out. Accordingly, all parties jointly request that the Court endorse our proposal for summary judgment motions to be filed within ten business days of Plaintiffs' distribution of notice to potential class members following the Court's approval of Plaintiffs' substitution request.

Docket Entry No. 112, at 2.

On June 4, 2008, the class' counsel filed a very short motion for substitution of class representative, which caused Defendants' filing of a very lengthy letter previewing certain key points of Defendants' forthcoming opposition to the substitution of class representative. See Docket Entries Nos. 113, 116.

In light of the foregoing chain of submissions, the Court held another conference with the parties on June 11, 2008, see Docket Entry No. 117, during which Plaintiffs' counsel (despite their previous position that testamentary estates, like all other juridical entities, operate through natural persons) attempted to qualify the Court's re-appointment of the lead plaintiff as a purely ministerial task by pointing out that the name of lead plaintiff would remain the same after the re-appointment, i.e., "the estate of Amsterdam-Sr." See id. Defendants' counsel, despite their previously stated desire "to ensure that the [candidacy of Amsterdam-Grandson] is approved by the Court," notified this Court of their intent to vigorously oppose any re-appointment of the Estate of Amsterdam-Sr., if the Estate were to act through Amsterdam-Grandson, on the basis of Amsterdam-Grandson's unsuitability for the position of class representative. See id. In response, the class' counsel informed the Court that: (1) the counsel have been in contact with certain unspecified and unidentified juridical and/or natural person(s) that might, potentially, qualify and be willing to serve as class representative(s); and (2) the counsel may, potentially, intensify their discussions to that effect with these ...


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