PSLRA — Issuance of Press Releases by Putative Lead Plaintiff’s Counsel Does Not Necessarily Mean the Suit is Lawyer Driven or that the Plaintiff Is Inadequate — District Court Discretion over Selection of Lead Counsel
From Zhu v. UCBH Holdings, Inc., 2010 U.S. Dist. LEXIS 6463 (N.D. Cal. Jan. 27, 2010):
***DeKalb and Operating Engineers argue that Cho's lawsuit is lawyer-driven because his counsel issued two press releases. The first one, sent out the day before his counsel filed the first lawsuit, announced that the Rosen Law Firm was commencing an investigation into allegations that UCBH violated the federal securities laws by issuing false and misleading statements to investors. The Rosen Law Firm stated that it was preparing a class action lawsuit on behalf of investor who purchased UCBH securities during the period from April 24, 2008 through September 4, 2009 and invited purchasers of UCBH securities to contact the Rosen Law Firm for more information. *** Operating Engineers contends that the press release was misleading because "on information and belief" the Rosen Law Firm did not yet represent any purported class members. *** However, there is currently no evidence before the Court to indicate that the press release was false or misleading. The second press release was an investor notice, reminding investors in UCBH of the deadline to seek to be a lead plaintiff in the purported class action. ***
The Court finds that these two press releases are insufficient to demonstrate that Cho's lawsuit is lawyer-driven or, more relevant to this matter, that Cho would be an inadequate class representative. The authority cited by Operating Engineers does not demonstrate that an individual represented by a law firm that sent out press releases informing investors of the potential lawsuit and of the deadline to seek to be lead plaintiff renders the individual to be inadequate. See Ogden v. AmeriCredit Corp., 225 F.R.D. 529 (N.D. Tex. 2005); see also In re Network Associates, Inc. Sec. Litig., 76 F. Supp. 2d 1017 (N.D. Cal. 1999).
In Ogden, the court denied a motion for class certification under the more rigorous standard applicable to such motions. The court determined that Ogden lacked the requisite factual knowledge of her own claims, had relied on her counsel to make many of the decisions involved in pursuing her claims, had done little to no research regarding the suitability of her attorneys' acting as class counsel, and failed to appear at the hearing regarding class certification. In addition, the court found that Ogden's lack of involvement in soliciting and monitoring her attorneys was problematic due to the requirement that a class representative show "an inclination to take an active role in monitoring class counsel's activities." Ogden, 225 F.R.D. at 535-36 (internal quotation marks and citation omitted). In contrast here, Operating Engineers believes, at most, that Cho responded to one of the Rosen Law Firm's notices. Operating Engineers has not submitted any evidence demonstrating that Cho has not and will not monitor his counsel or that Cho lacks knowledge of his claims.
As the court in In re Network Associates notes, merely sending a notice to potential investors is not necessarily problematic. The court quoted the following excerpt from a Securities and Exchange Commission amicus brief: "the effect of mailings could be to encourage additional investors to come forward, negotiate with and retain counsel [of their own] and move to be lead plaintiff, thereby enhancing competition for lead plaintiff and lead counsel." In re Network Assoc., 76 F. Supp. 2d at 1031. However, the court critiqued the particular notices and forms sent out by one firm because the statutory notices "were expanded into puff pieces steering investors toward registering with counsel and steering them away from independently seeking the role of lead plaintiff, as the PSLRA intended" and the forms "looked too much like claim forms and the recipients could easily have thought that they needed to sign up to participate at all." *** The notices sent out by the Rosen Law Firm do not appear to steer investors away from independently seeking the role of the lead plaintiff and do not resemble claim forms.
In another case, the court rejected an argument by the defendants that the proposed lead plaintiff was an inadequate class representative because he became involved in the case only after seeing a notice placed by attorneys on the Internet, he did not read the complaint prior to signing the certification, and he was unaware of any of the underlying facts. In re Resource America Securities Litigation, 202 F.R.D. 177, 187 (E.D. Pa. 2001). The proposed lead plaintiff countered that he had a basic understanding of the allegations made in the case and what law was alleged to have been violated, and that he would be willing to contest an action by his attorneys with which he did not agree. ... The court concluded that the proposed lead plaintiff was an adequate class representative. ***
Therefore, the Court finds that none of the other would-be lead plaintiffs have pointed to anything to rebut effectively Cho's entitlement to lead plaintiff status. ***
III. Lead Counsel
The PSLRA provides that once the most adequate plaintiff is selected, the "most adequate plaintiff shall, subject to approval of the court, select and retain counsel to represent the class." 15 U.S.C. § 784-u(a)(3)(B)(v). The decision to approve counsel selected by the lead plaintiff is a matter within the discretion of the district court. See Wenderhold, 188 F.R.D. at 587 (holding that the court is charged with ensuring that the class receives quality representation at a fair price and cannot, therefore, simply defer to lead plaintiff's choice of counsel); Yousefi v. Lockheed Martin Corp., 70 F. Supp. 2d 1061, 1071-72 (C.D. Cal. 1999) (holding that the legislative history of the PSLRA reveals that Congress vested the district courts with the authority to appoint lead counsel); see also Vincelli v. National Home Health Care Corp., 112 F. Supp. 2d 1309, 1315 (M.D. Fla. 2000) (stating that, in the exercise of its discretion regarding approval of lead counsel, the court must inquire about the "appropriateness of the appointment of more than one law firm").
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