United States District Court, D. Colorado
CITY OF TAYLOR POLICE AND FIRE RETIREMENT SYSTEM, Individually and on behalf of all others similarly situated, Plaintiff,
THE WESTERN UNION COMPANY; HIKMET ERSEK; SCOTT T. SCHEIRMAN, Defendants.
OPINION AND ORDER GRANTING MOTION TO APPOINT LEAD PLAINTIFF
MARCIA S. KRIEGER, Chief District Judge.
THIS MATTER comes before the Court pursuant to motions by several Interested Parties seeking consolidation of this action with another case (since voluntarily dismissed and thus mooting that portion of the motions) and appointment as Lead Plaintiff: motions by Local 38, International Brotherhood of Electrical Workers Pension Fund ("IBEW") (#25), by Universal Gesellschaft m.b.H. ("Universal") (#27), by SEB Asset Management S.A. and SEB Investment Management AB ("SEB") (#31), and by Locals 302 and 612, International Union of Operating Engineers - Employers Construction Industry Retirement Trust and UA Local 13 Pension Fund & Employers Group Insurance Funds ("IUOE Funds") (#35). IBEW and Universal subsequently filed notices of non-opposition (#40, 48) to other parties' motions, essentially withdrawing their requests (albeit conditionally). SEB (#46) and IUOE (#47) filed responsive briefs in opposition to each others' motions, and further filed reply briefs (#51, 53) to each others' oppositions. Plaintiff City of Taylor Police and Fire Retirement System has not filed any opposition to the Interested Parties' motions, and thus, the Court understands the issue before it to be whether SEB or IUOE should be designated Lead Plaintiff to further pursue this action.
The facts pertinent to the issues before the Court in the instant matter have relatively little to do with the lawsuit, itself. It is sufficient to observe that Plaintiff City of Taylor Police and Fire Retirement System, as well as all of the interested parties, are shareholders of The Western Union Company ("Western").
In 2010, Western resolved ongoing litigation with several states over the use of its money transfer services to launder criminal proceeds. Western agreed to engage in certain compliance and monitoring programs. Between February and October 2012, Western repeatedly informed shareholders that it estimated that the costs of such compliance programs would be "up to $23 million."
The Plaintiffs contend that, in actuality, Western knew that its compliance costs would be almost double that amount, and also anticipated a disruption in the revenue from that business sector that it failed to disclose. The Complaint, brought on behalf of a putative class of all Western shareholders during the relevant period, alleges two claims: securities fraud, in violation of § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), 17 C.F.R. § 240.10b-5, against Western itself, and control person liability under § 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a), against Western's officers.
Pursuant to the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4, any member of the putative class may seek appointment as "Lead Plaintiff" for the remainder of the litigation. That request must be made within a 60-day period that begins on the date that the original plaintiff publishes notice of the suit. 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). The Court is required to select as Lead Plaintiff "the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members" ( i.e. the "most adequate plaintiff"). 15 U.S.C. § 78u-4(a)(3)(B)(i). As noted in the initial paragraph of this Order, multiple parties sought such designation, but based on subsequent events, the number of contenders for that title is now down to two: SAB and IUOE.
In selecting the "most adequate plaintiff, " the PSLRA instructs the Court to indulge a rebuttable presumption in favor of the movant who "has the largest financial interest in the relief sought by the class, " so long as that movant otherwise satisfies the requirements of Fed.R.Civ.P. 23. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa)-(cc). As relevant here, that presumption may be rebutted by a showing that the presumptive representative "is subject to unique defenses that render [it] incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(bb).
It appears to be undisputed that SEB initially enjoys the presumptive title of "most adequate plaintiff" based on the size of its financial interest in the litigation. SEB claims losses of approximately $4.6 million, while IUOE claims losses of approximately $800, 000. However, IUOE argues that the presumption that SEB should be the lead plaintiff is rebutted because SEB is subject to two unique defenses: (i) that SEB, as an asset manager, lacks standing to bring suit in its own right, as the Western stock in question here was purchased and held by several discrete investment funds; and (ii) that as a foreign entity,  SEB is unique in that there is some uncertainty as to whether an adverse judgment rendered in this action would be granted res judicata effect in its countries of origin. IUOE contends that the unique defenses are sufficient to rebut the presumption based strictly on SEB's financial interests, and that IUOE should be appointed Lead Plaintiff. (IUOE also argues that SEB is an inadequate class representative under Fed.R.Civ.P. 23, but only for the same reasons addressed herein.)
IUOE's contention that SEB lacks standing to pursue claims derives from W.R. Huff Asset Management Co. v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008). As described by the court, the issue in that case was
whether an investment advisor that has (a) discretionary authority to make investment decisions for its clients, and (b) a power of attorney from its clients to bring this lawsuit, has constitutional standing to sue for violations of federal securities laws on behalf of its clients, who are the beneficial owners of the underlying securities, and not in its own name.
Id. at 103. Plaintiff Huff was "an investment advisor for institutional investors such as public employee pension funds." Id. at 104. It alleged that Adelphia Communications Corporation had engaged in securities fraud, and that various defendants (including named defendants Deloitte & Touche) facilitated Adelphia's fraudulent statements. Notably, Huff did "not allege that it was an investor in Adelphia; instead, Huff claims that it provided investment advice to its clients and... purchased Adelphia securities on their behalf." Id. Relying on the fact that Huff possessed power-of-attorney delegated by the investment funds themselves and the fact that it ...