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Kanefsky v. Honeywell International Inc.

United States District Court, D. New Jersey

December 16, 2019

DAVID KANEFSKY, Individually and on Behalf of Others Similarly Situated, Plaintiff,
v.
HONEYWELL INTERNATIONAL INC., DARIUS ADAMCZYK, and THOMAS A. SZLOSEK., Defendants.

          OPINION

          WILLIAM J. MARTINI. U.S.D.J.

         This putative securities class action comes before the Court on three motions: (1) Wayne County Employees' Retirement System's ("WCRS") motion to substitute the court-appointed lead plaintiff, Charles Francisco, ECF No. 48; (2) Francisco's motion to approve of new lead counsel, ECF No. 57; and WCRS's motion for sanctions, ECF No. 67. For the reasons set forth below, WCRS's motions are DENIED and Francisco's motion is GRANTED.

         I. BACKGROUND

         This putative securities class action arises out of Defendant Honeywell International Inc.'s purportedly false and misleading statements regarding asbestos-related liabilities. The case was initiated by David Kanefsky, a Honeywell investor. ECF No. 1. Pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA"), the Court entertained competing motions for appointment as lead plaintiff. ECF Nos. 5-6. On February 26, 2019, the Court appointed Plaintiff Charles Francisco as the lead plaintiff and class representative! Op., ECF No. 14. The Court also approved of Francisco's choice of counsel, naming Levi & Korsinsky, LLP ("L&K") as lead counsel. Id. at 3.

         At some point between February and August 2019, Francisco and L&K's relationship broke down. The details are disputed, but the following facts are clear: Francisco and L&K were unable to finalize a fee arrangement. On April 23, 2019, Francisco sent an email to an L&K attorney which included the statement "I don't think there is any reason to continue." Apton Decl. Ex. B, ECF No. 67-4 ("April Email"). On May 13, 2019, L&K sent an email to Francisco noting that the firm had identified another shareholder and would "start the process of... having them appointed as a lead plaintiff." Id. Ex. C ("May Email"). On August 19, L&K sent another email noting its plan to file a "motion to formally substitute you out of the action as the lead plaintiff and asking Francisco to "sign and return the attached declaration stating that you support the request." Id. Ex. D ("August Email"). Francisco did not reply to the May or August emails, and the entirety of the April Email is redacted except the language quoted above.

         The same day L&K sent the August Email, it filed the present motion to substitute WCRS as the lead Plaintiff. ECF No. 48 ("Plaintiff Substitution Motion"). On September 10, the law firm of Kahn Swick & Foti, LLC ("KS&F") filed an opposition on Francisco's behalf. ECF No. 55. With the opposition, KS&F submitted a declaration from Francisco noting that, contrary to L&K's representations, "[a]t no point did [he] agree to withdraw as Lead Plaintiff." ECF No. 55-2 ¶¶ 2-4 ("Francisco Declaration"). Instead, he was seeking new counsel due to his objection to L&K's proposed fee arrangement. Id.

         Also on September 10, Francisco moved to substitute KS&F as lead counsel. ECF No. 57 ("Counsel Substitution Motion"). L&K opposed the motion on behalf of WCRS, ECF No. 64, and filed a motion for sanctions based on purportedly false representations in KS&F's briefs, ECF No. 67 ("Sanctions Motion"). The motions are now ripe for decision.

         II. DISCUSSION

         A. Plaintiff Substitution Motion

         The Court will deny WCRS's motion to replace Francisco as the lead Plaintiff. The PSLRA establishes a procedure to appoint lead plaintiffs, and the Court duly appointed Francesco pursuant to that process. Op., ECF No. 14. WCRS did not file a timely motion for lead plaintiff status and L&K has not provided a sufficient basis for substitution.

         Throughout its brief, L&K argues that "Francisco wishes to be relieved of the role of Lead Plaintiff and he is "unable or unwilling to serve in that capacity." PI. Subst. Mot. at 1, 3. But those assertions are completely belied by Francisco's sworn declaration, efforts to replace L&K, and opposition to the substitution motion. The three emails L&K cites do not justify a contrary result. First, Francisco's statement that "I don't think there is any reason to continue" is presented without any context. Not only does L&K fail to include the email Francisco was responding to, but the entire remainder of the email is redacted. See April, Email. Given the disagreement over attorney's fees, Francisco was likely ending fee negotiations, not his entire involvement in the lawsuit. Further, Francisco's failure to respond to the May and August Emails, after fee negotiations faltered, is not a sufficient expression of his desire to be relieved as lead plaintiff. Indeed, during a conference call on July 29-after the April and May Emails-an L&K attorney told Magistrate Judge Mannion they were "still working through" whether WCRS would take "a more supervisory role or more important role later on in the action." Tr. at 5:15-19, ECF No. 43. Thus, at that point, it was not clear to L&K that Francisco needed to be replaced. As to the August Email, L&K moved to substitute Francisco the very same day it asked for his signature on a declaration endorsing the motion. Rather than being evidence of his intent not to continue litigating, the fact that Francisco never signed and returned the declaration indicates Francisco never wanted to be relieved as lead plaintiff. His signed declaration supports that conclusion. Accordingly, the motion to substitute WCRS as lead plaintiff, ECF No. 48, is DENIED.

         B. Counsel Substitution Motion

         The Court will grant KS&F's motion to replace L&K as lead counsel. The Court's involvement "is appropriately limited to whether the lead plaintiffs selection and agreement with counsel are reasonable on their own terms." In re Cendant Corp. Litig., 264 F.3d 201, 276 (3d Cir. 2001). Courts consider the following non-exhaustive list of factors in deciding whether to approve of plaintiffs' choice of counsel:

(1) the quantum of legal experience and sophistication possessed by the lead plaintiff; (2) the manner in which the lead plaintiff chose what law firms to consider; (3) the process by which the lead plaintiff selected its final choice; (4) the qualifications and experience of counsel selected by the lead plaintiff; and (5) the evidence that the retainer agreement negotiated by the lead plaintiff was (or was ...

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