Menghini Group's Consolidated Reply to Plaintiff John Houx's: (1 Opposition to Motion to Consolidate; and (2 Opposition to Motion to Appoint Lead Plaintiffs Source: Milberg Weiss Date: 09/12/01 Time: 4:10 PM MILBERG WEISS BERSHAD HYNES & LERACH LLP PATRICK J. COUGHLIN (111070 JOHN K. GRANT (169813 SHIRLEY H. HUANG (206854 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax - and - WILLIAM S. LERACH (68581 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax Attorneys for Plaintiff [Additional counsel appear on signature page.] DAVID MILLER, On Behalf of Himself and All Others Similarly Situated, vs. Plaintiff, VENTRO CORPORATION, et al., Defendants. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION No. C-01-1287-SBA CLASS ACTION MENGHINI GROUP'S CONSOLIDATED REPLY TO PLAINTIFF JOHN HOUX'S: (1 OPPOSITION TO MOTION TO CONSOLIDATE; AND (2 OPPOSITION TO MOTION TO APPOINT LEAD PLAINTIFFS DATE: September 25, 2001 TIME: 1:00 p.m. COURTROOM: Honorable Saundra Brown Armstrong 1 of 6 8/20/02 7:44 PM
TABLE OF CONTENTS I. The Overwhelming Weight of Authority Supports Single Consolidation in Securities Cases II. No Basis Exists to Reject Consolidation III. The Court Can Easily Resolve Any Real Conflicts If and When They Arise The Menghini Group (1 files this joint reply to John Houx's ("Houx": (1 Opposition to Motion to Consolidate All Related Actions Against Ventro Corporation; and (2 Opposition to Motion to Appoint Laura Porcelli Menghini, Marco Carnevale, Anthony Ross, Brad Brewer, William Murphy and Glenn Aber as Lead Plaintiff and to Approve Lead Plaintiff's Choice of Counsel ("Appointment Opp.". Because Houx's oppositions rely on the same law and argument, the Menghini Group believes that a joint reply is appropriate and will benefit the Court. MENGHINI GROUP'S REPLY I. The Overwhelming Weight of Authority Supports Single Consolidation in Securities Cases In his separate motion and oppositions, Houx asks this Court to bifurcate the prosecution of this litigation, which would result in substantial additional expense and effort. As demonstrated by the Menghini Plaintiffs' Opposition to Motion to Appoint John Houx as Lead Plaintiff in Bond Actions, the vast majority of courts have rejected such attempts to Balkanize securities class actions into unnecessary subclasses. Even Houx's own authorities fail to support his opposition. Houx cites In re Cendant Corp. Litig., 182 F.R.D. 144 (D.N.J. 1998, throughout his papers. In fact, that case amply demonstrates that consolidation is appropriate here in order to avoid wasteful duplication. In Cendant, different claims were asserted for four separate types of investors. Id. at 146. As Houx does here, numerous plaintiffs argued that conflicts of interest required the appointment of separate lead plaintiffs, and that the largest movant might "tilt" the litigation as a result of his portfolio. Id. at 147-48. There, as here, some plaintiffs had 10(b claims and some had 11 claims. Id. at 146. Indeed, different plaintiffs, as here, had purchased different securities. Id. The court rejected the argument that the existence of different securities and types of claims required separate representations. Id. at 148. The court correctly recognized, for example, that investor portfolios will always differ, but that fact does not justify the appointment of different lead plaintiffs. Id. "[E]very warrior in this battle cannot be a general." Id. Indeed, the court noted that "representation by a disparate group of plaintiffs, each seeking only the protection of its own interests, could well hamper the force and focus of the litigation." Id. The court in Cendant did appoint a separate lead plaintiff to represent investors who had purchased "Feline Prides," a separate derivative security. The justification for that separate appointment, however, was simply that the lead plaintiff suffered from a conflict due to a substantial financial relationship, worth hundreds of millions of dollars, with Merrill Lynch, which had been named as a defendant with respect to the claims asserted on behalf of investors who purchased Feline Prides. Id. at 149. No such conflict exists 2 of 6 8/20/02 7:44 PM
in this action, and the Cendant decision strongly rejects the position Houx argues here. Houx also cites two United States Supreme Court decisions, neither of which suggests that the consolidation and appointment of a single class would not be appropriate here. Both of the decisions deal with class certification, not the appointment of lead plaintiff. In Amchem Prods. v. Windsor, 521 U.S. 591, 597 (1997, a mass accident asbestos exposure case, the district court had certified a class for settlement purposes only. The settlement was intended to cover both claims resulting from existing injury and claims that would result from injuries in the future. Id. After an exhaustive discussion of the specific facts of that case, including that some class members had no manifesting physical injury, while others were gravely ill from lung cancer, asbestosis or mesothelioma; some had a history of smoking, while others did not; the fact that different class members were exposed to different products, for different amounts of time, in different ways, and over different periods, id. at 624, the Supreme Court concluded that the interests were too diverse for treatment as a class. Id. at 627. Significantly, for purposes of this motion, the Supreme Court also noted that it was applying a heightened level of scrutiny to interclass conflicts because the parties had sought "settlement only" certification of the class: "Such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold." Id. at 620. Here, in contrast, these motions are not for certification, but for the appointment of lead plaintiff and for consolidation. The Court here will always have the power to approve a separate subclass in the event an actual conflict arises and, indeed, will be in a better position to do so as this action develops. Houx's second Supreme Court decision, Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999, parallels the Court's analysis in Amchem. The parties in Amchem sought the certification of a mandatory settlement class of individuals who had been exposed to asbestos. Id. at 821. The proposed settlement was intended to resolve both existing claims, including pending actions, and the future claims of potential plaintiffs, who had not suffered any injury at the time of the settlement. Id. at 824. Here, as in Amchem, the Supreme Court noted that special scrutiny was required because the class had been certified for settlement only. Id. at 847. Indeed, an even stricter standard was applied because the parties had sought certification of a mandatory class without an opportunity to opt out. Id. Once again, after an extensive discussion of mandatory, limited fund cases, the Supreme Court held that certification of a single class was not appropriate. In particular, the Supreme Court was concerned with the direct conflict of interest between class members (and their counsel with pending claims and class members whose claims might not arise until years in the future. Id. at 854. Importantly for the present case, the Supreme Court recognized that the existence of diverging interests does not necessarily require separate counsel. Id. at 857 ("at some point there must be an end to reclassification with separate counsel". Unlike the present case, Ortiz and Amchem both involved settlement-only classes. Indeed, Ortiz was intended to be a mandatory class. The proposed classes sought to include hundreds of thousands of individuals who had suffered from a broad range of physical ailments due to varying degrees of exposure to dozens of different products. The classes also sought to include individuals who, as of yet, had not manifested any injury. Here, in contrast, a much smaller group of plaintiffs, who purchased one of two securities, have suffered a defined injury due to a single common course of conduct. Little or no similarity exists between these cases, and the "elephantine mass of asbestos cases," id. at 821, that the Supreme Court faced in Ortiz and Amchem. 3 of 6 8/20/02 7:44 PM
Houx's remaining authorities, for the most part, also fail to support his position. In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42 (S.D.N.Y. 1998, did not carve out a subgroup for lead plaintiff purposes. (Indeed, none was sought. The court appointed a unified lead plaintiff group to direct a single, consolidated action, notwithstanding the existence of diverse interests. Id. at 49. If anything, this ruling supports the position of the Menghini Group and undercuts Houx's oppositions. In Chill v. Green Tree Fin. Corp., 181 F.R.D. 398, 406 (D. Minn. 1998, the court declined to consolidate the claims of certain options purchasers with the claims of investors who had purchased common stock. The decision, however, was based on the fact that under Third Circuit law, an open question existed regarding the standing of option purchasers to assert any cause of action. Id. Here, however, no such uncertainty exists. Houx's remaining slip opinion authorities are also unpersuasive. In Mark v. Fleming Cos., et al., Case No. CIV-96-506-M, Order (W.D. Okla. Mar. 23, 1997 (Ex. 2 attached to the Declaration of Betsy C. Manifold ("Manifold Decl." in support of Houx's oppositions, it is worth noting that all plaintiffs in the various cases opposed consolidation. Id. at 1. Thus, it is hardly surprising that the Court declined to "force" the other plaintiff group to accept representation of the Mark case claims at trial, when the other plaintiffs did not want to represent those claims. In fact, however, the Court did consolidate the cases for all purposes except for trial. Id. at 4. As a result, the Mark decision carries little or no weight. Clearly, the vast majority of decisions, in the context of actions for securities fraud, have permitted the consolidation of claims brought on behalf of investors who purchased different types of securities or who assert claims under different sections of the federal securities laws. SeeCendant, 182 F.R.D. at 147; In re MicroStrategy, Inc. Sec. Litig., 110 F. Supp. 2d 427, 440 (E.D. Va. 2000; Aronson v. McKesson HBOC, Inc., 79 F. Supp. 2d 1146, 1151 (N.D. Cal. 1999; In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156 (S.D.N.Y. 1997; In re Waste Mgmt., Inc. Sec. Litig., 128 F. Supp. 2d 401, 432 (S.D. Tex. 2000; In re Cephalon Sec. Litig., No. 96-0633, 1998 U.S. Dist. LEXIS 12321, at *14 (E.D. Pa. Aug. 12, 1998; In re Tel-Save Sec. Litig., No. 98-CV-3145, 2000 U.S. Dist. LEXIS 10134, at **17-18 (E.D. Pa. July 19, 2000. II. No Basis Exists to Reject Consolidation Houx also attempts to identify conflicts that would prevent the consolidation of the bond claims with the balance of the actions. None of Houx's assertions are persuasive. First, there is little or no reason to believe that jury confusion will result from consolidation. Houx argues that a jury may be confused because the elements of a 11 claim differ from the elements of a 10(b claim. Houx also points out that different remedies and evidentiary burdens exist. Hundreds, however, if not thousands, of actions have simultaneously asserted claims under both 10(b and 11. In fact, because of the damages limitation under 11, it is highly unusual for a plaintiff to assert a 11 claim without also asserting a claim for violation of 10(b. Not surprisingly, the complaint in Sunshine Wire and Cable Defined Benefit Pension Plan Trust DTD 01/01/92 v. Ventro Corp., et al., Case No. C-01-1713-BZ (N.D. Cal. (Manifold Decl., Ex. 1, itself asserts both 10(b and 11 claims. Clearly, Houx (i.e., his counsel does not really believe his own argument, since he has asserted the same combination of claims that he now insists would result in "jury confusion." (Here again, this is a conflict that would best be resolved at the time of trial, when the Court can determine if a conflict really exists. Houx also argues that the bond purchasers would be prejudiced because their discovery might not take as long, i.e., that the stock purchasers may want greater discovery, which may take longer. Appointment 4 of 6 8/20/02 7:44 PM
Opp. at 7. This does not appear, however, to be a serious argument as Houx has in fact already agreed to the coordination of discovery in the bond and common stock actions. Appointment Opp. at 2. Unless the defendants are going to appear for multiple depositions, coordination will result in discovery in both cases ending at the same time. III. The Court Can Easily Resolve Any Real Conflicts If and When They Arise In Amchem, the Supreme Court explicitly recognized that a trial court has the power "to adjust the class, informed by the proceedings as they unfold." 521 U.S. at 620. In MicroStrategy, 110 F. Supp. 2d at 431, the court noted that it could certify subclasses at a later time if conflicts subsequently arose. Similarly, Judge Whyte in McKesson, 79 F. Supp. 2d at 1151 n.4, recognized that conflicts that are not necessarily germane to the lead plaintiff appointment can be resolved, if necessary, at a later point. Precisely the same is true here. If a separate subclass, with separate counsel, is appointed at this point, duplication of effort and further complication of these proceedings will be inevitable. On the other hand, this Court retains the power, throughout the litigation, to "adjust" the structure of class representation as this action develops. There is no reason to commit to duplication and wasted effort at this point, when no showing has been made that such extravagance is justified or necessary, particularly where, as here, the Menghini Group includes a representative who purchased notes. DATED: September 12, 2001 Respectfully submitted, MILBERG WEISS BERSHAD HYNES & LERACH LLP PATRICK J. COUGHLIN JOHN K. GRANT SHIRLEY H. HUANG JOHN K. GRANT 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax SAVETT FRUTKIN PODELL & RYAN, P.C. STUART H. SAVETT 325 Chestnut Street, Suite 700 Philadelphia, PA 19106 5 of 6 8/20/02 7:44 PM
I, the undersigned, declare: Philadelphia, PA 19106 Telephone: 215/923-5400 215/923-9353 (fax DYER & SHUMAN, LLP KIP B. SHUMAN 801 East 17th Avenue Denver, CO 80218-1417 Telephone: 303/861-3003 303/830-6920 (fax Attorneys for Plaintiff DECLARATION OF SERVICE BY FACSIMILE AND MAIL PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-2(c(2 1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Francisco, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 100 Pine Street, 26th Floor, San Francisco, California 94111. 2. That on September 12, 2001, declarant served the MENGHINI GROUP'S CONSOLIDATED REPLY TO PLAINTIFF JOHN HOUX'S: (1 OPPOSITION TO MOTION TO CONSOLIDATE; AND (2 OPPOSITION TO MOTION TO APPOINT LEAD PLAINTIFFS by facsimile and by depositing a true copy thereof in a United States mailbox at San Francisco, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at: http://securities.milberg.com 3. That there is a regular communication by facsimile and by mail between the place of mailing and the places so addressed. I declare under penalty of perjury that the foregoing is true and correct. Executed this 12th day of September, 2001, at San Francisco, California. DEBORAH R. DASH 1. Laura Porcelli Menghini, Marco Carnevale, Anthony Ross, Brad Brewer, William Murphy and Glenn Aber, collectively, the "Menghini Group." 6 of 6 8/20/02 7:44 PM