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Jeffrey Grodko v. Central European Distribution Corporation

December 17, 2012

JEFFREY GRODKO, PLAINTIFF,
v.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION, ET AL., DEFENDANTS. PUERTO RICO SYSTEM OF ANNUITIES AND PENSIONS FOR TEACHERS, PLAINTIFF,
v.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION, ET AL., DEFENDANTS.



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

OPINION

I. INTRODUCTION

This consolidated action involves two federal securities class actions brought by Central European Distribution Corporation ("CEDC") shareholders under §§ 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder. It comes before the Court on Harry E. Nelis' motion for appointment as lead plaintiff and approval as lead counsel [Docket Item 20]*fn1 , the Prosperity Subsidiary Group's motion for appointment as lead plaintiff and approval of lead counsel selection [Docket Item 22], and the request of named Plaintiff Puerto Rico System of Annuities and Pensions for Teachers to be considered as lead plaintiff if the Court does not select the Prosperity Subsidiary Group [Docket Item 32]. For the reasons explained herein, the Court will appoint Puerto Rico as lead plaintiff.

II. PROCEDURAL HISTORY

On June 8, 2012, Plaintiff Jeffrey Grodko commenced Civ. No. 12-4512 in the Southern District of New York ("Grodko action") by filing a complaint against the Central European Distribution Corporation ("CEDC"), Christopher Biedermann, and William Carey.*fn2

On August 7, 2012, Plaintiff Puerto Rico System of Annuities and Pensions for Teachers ("Puerto Rico") commenced Civ. No. 12-6046 in the Southern District of New York ("Puerto Rico action") by filing a complaint against Defendants CEDC, Biedermann, and Carey.

On September 5, 2012 the Grodko action was transferred to the District of New Jersey, becoming Civil Action No. 12-5530 in this District. The Puerto Rico action was also transferred into this District, becoming Civ. No. 12-5531. Once the Grodko and Puerto Rico actions arrived in the District of New Jersey, they were automatically consolidated with In re Central European Distribution Corp. Securities Litigation ("CEDC I"), Civ. No. 11-6247, another Securities and Exchange Act case in which CEDC shareholders sued the same Defendants.*fn3 The automatic consolidation occurred pursuant to the Court's August 22, 2012 Order in CEDC I, mandating that each new case that arises out of the subject matter of CEDC I and that is filed in or transferred to this Court shall be consolidated with CEDC I, subject to the right of new parties to move to de-consolidate.

Plaintiff Jeffrey Grodko and lead plaintiff movant Harry Nelis filed a Motion for Relief [Civ. No. 11-6247, Docket Item 72] from the Court's August 22, 2012 Order, arguing that the Grodko action and CEDC I were factually distinct and consolidation was unwarranted. Plaintiff Puerto Rico also filed an Objection to the August 22, 2012 Opinion and Order [Civ. No. 11-6247, Docket Item 77], objecting to the Court's lead plaintiff appointment in CEDC I. On November 8, 2012, the Court issued an opinion and order ("November 8, 2012 Order") [Docket Item 49] granting Grodko and Nelis' request to de-consolidate the Grodko action from CEDC I. In the November 8, 2012 Order, the Court also ordered that the Puerto Rico and Grodko actions should be consolidated with each other because they are substantially identical. The two actions were consolidated onto the first-filed docket, Civ. No. 12-5530, and the Court shall refer to them as "CEDC II." Because the Puerto Rico action was separated from CEDC I, the Court dismissed Puerto Rico's objection to the CEDC I lead plaintiff appointment as moot.

The Court granted the Grodko and Nelis de-consolidation request because CEDC I and CEDC II are factually distinct. CEDC I involves shareholders who purchased CEDC common stock between August 5, 2010 and February 28, 2011 ("CEDC I class period"). The action alleges that Defendants made materially false and misleading statements regarding CEDC's vodka business. (Civ. No. 11-6247, Compl. ¶ 16.) Defendants allegedly failed to disclose double digit declines in CEDC's vodka portfolio, growing loss of vodka market share, adverse effects from a new vodka product launch, and an excise tax issue impacting vodka production in Russia. (Id. ¶¶ 24, 29, 31.) These problems culminated in March of 2011 when CEDC took a $131 million non-cash impairment charge because the value of Polish vodka brand trademarks had deteriorated. (Id. ¶ 32.)

Unlike CEDC I, the present consolidated matter in CEDC II involves shareholders who purchased any CEDC securities, not only CEDC common stock, between March 1, 2010 and June 4, 2012. (Civ. No. 12-5530, Compl. ¶ 1.) CEDC II involves CEDC's failure to account for retroactive trade rebates provided to customers of its main operating subsidiary in Russia, causing a $30-40 million reduction in CEDC's previously-reported consolidated net sales, operating profit, and accounts receivable. (Id. ¶ 3.) Because of these differences, the court de-consolidated CEDC I and CEDC II, but the Court ordered that the two actions would be coordinated for discovery and case management purposes. (November 8, 2012 Order at 2.)

III. LEAD PLAINTIFF APPLICATION HISTORY

The law firm that filed the Grodko Complaint, Pomerantz Haudek Grossman & Gross, issued a notice on June 8, 2012, announcing that it had filed a lawsuit on behalf of CEDC shareholders who purchased CEDC securities between March 1, 2010 and June 4, 2012. The notice announced that the deadline to request appointment as lead plaintiff was August 7, 2012.*fn4

On August 7, 2012, Harry E. Nelis filed a motion for appointment as lead plaintiff [Docket Item 20], as did the Prosperity Subsidiary Group [Docket Item 22]. Puerto Rico filed a response [Docket Item 32] to both motions indicating its interest in being appointed lead plaintiff if the Prosperity Subsidiary Group were not chosen. The Prosperity Subsidiary Group filed opposition [Docket Item 33] to Nelis' motion; and Nelis filed opposition [Docket Item 34] to the Prosperity Subsidiary Group's motion. Nelis filed a reply [Docket Item 46] and so did the Prosperity Subsidiary Group [Docket Item 52]. Essentially, there are three lead plaintiff candidates before the Court: Harry Nelis, the Prosperity Subsidiary Group, and Puerto Rico.

IV. LEAD PLAINTIFF APPOINTMENT PROCESS

The Private Securities Litigation Reform Act ("PSLRA") outlines a process for selecting a lead plaintiff with the goal of finding a lead plaintiff who can vigorously prosecute the class' interests. See e.g. In re Cendant Corp. Sec. Litig., 404 F.3d 173, 192 (3d Cir. 2005) ("[T]he PSLRA strives to ensure that the lead plaintiff will have both the incentive and the capability to supervise its counsel in the best interests of the class"). Appointing a lead plaintiff involves a two-step process: "the court first identifies the presumptive lead plaintiff, and then determines whether any member of the putative class has rebutted the presumption." In re Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001).

The Court must adopt a presumption that the most adequate plaintiff "is the person or group . . . 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. ยง 78u--4(a)(3)(B)(iii). For purposes of identifying the presumptive lead plaintiff, the Court must determine whether the movant with the largest financial interest has made a "prima facie showing of typicality and adequacy." In re Cendant Corp. ...


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