Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 1 of 7 Present: The GARY ALLEN FEESS Honorable Renee Fisher None N/A Deputy Clerk Court Reporter / Recorder Tape No. Attorneys Present for Plaintiffs: Attorneys Present for Defendants: None None Proceedings: (In Chambers) ORDER CONSOLIDATING CASES AND APPOINTING LEAD PLAINTIFF AND LEAD COUNSEL I. INTRODUCTION Before the Court are three related putative class-action lawsuits brought by and on behalf of all persons who purchased the common stock of Defendant MRV Communications, Inc. ( MRV ) between March 31, 2003 and June 5, 2008: Anits et al. v. MRV Communications, Inc. et al., 08-04472 GAF (RCx); Ramsey et al. v. MRV Communications, Inc. et al., 08-04561 GAF (RCx); and Leopold et al. v. MRV Communications, Inc. et al., 08-05005 GAF (FMOx). The plaintiffs in these related cases ( Plaintiffs ) allege that, between 2002 and 2004, MRV s directors intentionally backdated stock-options for personal gain, and that they made materially false and misleading statements regarding MRV s financial statements to artificially inflate the value of MRV stock. Plaintiffs further aver that, in CV-90 (06/04) Page 1 of 7
Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 2 of 7 early-june 2008, MRV announced that it was investigating the alleged stock-option backdating, and declared that it would be restating its financial statements for the years 2002 to 2008. Upon dissemination of the June 2008 announcement, MRV s share price allegedly dropped by approximately 24%. Initially, five sets of plaintiffs moved for consolidation and requested appointment as lead plaintiff and approval of their respective choices for lead counsel. For the reasons discussed below, the motions to consolidate and Kwok Wong s motion for appointment as lead plaintiff are GRANTED. Wong is APPOINTED lead plaintiff, Labaton Sucharow LLP ( Labaton Sucharow ) is APPOINTED lead counsel, and Glancy Binkow & Goldberg LLP ( Glancy Binkow ) is APPOINTED local liaison counsel. II. CONSOLIDATION OF RELATED CASES The Court is presented with motions to consolidate Anits, Ramsey, and Leopold. The Private Securities Litigation Reform Act of 1995 ( PSLRA ) governs securities class actions and requires the Court to hear motions to consolidate prior to appointing a lead plaintiff. 15 U.S.C. 78u-4(a)(3)(B)(ii). Under the Federal Rules of Civil Procedure, courts may consolidate related actions when a common question of law and fact exists among such actions. Fed. R. Civ. P. 42(a)(2). Moreover, district courts have broad discretion to consolidate cases, and may do so sua sponte. In re Adams Apple, Inc., 829 F.2d 1484, 1487 (9th Cir. 1987). The Anits, Ramsey, and Leopold actions all concern the alleged backdating of stock options by MRV directors between 2002 and 2004. (See Anits Compl. 4, 24 25; Ramsey Compl. 5, 30; Leopold Compl. 6, 32.) All three complaints indicate that on or about June 6, 2008, MRV disclosed that it was investigating the alleged backdating, and that its financial statements for the years 2002 to 2008 are no longer valid. (See Anits Compl. 4; Ramsey Compl. 5; Leopold Compl. 6.) In addition, all three complaints indicate that the disclosure of the alleged backdating resulted in a near-24% CV-90 (06/04) Page 2 of 7
Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 3 of 7 drop in the value of MRV stock on June 6, 2008. (See Anits Compl. 4; Ramsey Compl. 6; Leopold Compl. 7.) Finally, all three complaints assert the same claims for relief: (1) violations of section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ( SEA ) (Anits Compl. 76 87; Ramsey Compl. 86 96; Leopold Compl. 95 105); and (2) violations of section 20(a) of the SEA (Anits Compl. 88 91; Ramsey Compl. 97 100; Leopold Compl. 106 109). The Court also notes that an opposition to the consolidation of the three cases has not been filed. Under this Court s Local Rules, the failure of any party to oppose consolidation may be deemed consent to the granting of a motion to consolidate. See C.D. Cal. L.R. 7-12. Accordingly, because Anits, Ramsey, and Leopold all share common questions of law and fact, the parties motions to consolidate are GRANTED. III. APPOINTMENT OF LEAD PLAINTIFF The PSLRA provides a simple three-step process for identifying the lead plaintiff in a securities fraud case. In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). The first step consists of publicizing the pendency of the action, the claims made and the purported class period. Id. (citing 15 U.S.C. 78u-4(a)(3)(A)(i)). The second step requires the district court to determine which plaintiff has the largest financial interest in the lawsuit, and whether that plaintiff satisfies the requirements of Rule 23(a) of the Federal Rules of Civil Procedure, particularly the requirements of typicality and adequacy. Id. at 729 30; see also 15 U.S.C. 78u-4(a)(3)(B)(iii)(I). The third and final step requires the court to give other plaintiffs an opportunity to rebut the presumptive lead plaintiff s showing that it satisfies Rule 23 s typicality and adequacy requirements. Id. at 730 (citing 15 U.S.C. 78u-4(a)(3)(B)(iii)(II)). So long as the plaintiff with the largest losses satisfies the typicality and adequacy requirements, he is entitled to lead plaintiff status, even if the district court is convinced that some other plaintiff would do a better job. Id. at 732, 739. CV-90 (06/04) Page 3 of 7
Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 4 of 7 Initially, five plaintiffs or groups of plaintiffs sought designation as lead plaintiff in this case: (1) Bruce Bahlmann; (2) Ira Calderon, Sharon Calderon, Kevin Ramsey, Dirk De Vos, Pieter De Vos, and B.A. Goodman; (3) Matthew Quarles; (4) Scott Sachs; and (5) Kwok Wong. All parties but Wong have since withdrawn their motions or filed notices of non-opposition, recognizing that Wong has asserted the largest financial stake in this matter. Accordingly, the Court need determine only whether there has been sufficient publication pursuant to the PSLRA, and whether Wong satisfies the requirements of Rule 23(a). A. PUBLICATION On July 8, 2008, counsel for Wong published adequate notice of the litigation in Prime Newswire (Ellman Decl. 4; Ex. C), a newswire service specializing in corporate financial news. Accordingly, notice was properly provided under 15 U.S.C. 78u-4(a)(3)(A)(i). B. SATISFACTION OF RULE 23(a) Only the typicality and adequacy prongs of Rule 23(a) are relevant to the leadplaintiff inquiry. See Armour v. Network Assocs., Inc., 171 F. Supp. 2d 1044, 1051 52 (N.D. Cal. 2001) (citing Gluck v. CellStar Corp., 976 F. Supp. 542, 546 (N.D. Tex. 1997)); see also In re Cendant Corp. Litig., 264 F.3d 201, 263 (3d Cir. 2001). Thus, [a]t this stage of the proceedings, nothing more than a preliminary showing [of typicality and adequacy] is required. Wenderhold v. Cylink Corp., 188 F.R.D. 577, 587 (N.D. Cal. 1999). 1. TYPICALITY The typicality inquiry is intended to assess whether the action can be efficiently maintained as a class and whether the [Lead Plaintiffs] have incentives that align with CV-90 (06/04) Page 4 of 7
Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 5 of 7 those of absent class members so... that the absentees interest will be fairly represented. Takeda v. Turbodyne Techs., Inc., 67 F. Supp. 2d 1129, 1136 (C.D. Cal. 1999) (alterations in original) (internal quotation marks omitted) (quoting Baby Neal v. Casey, 43 F.3d 48, 57 (3d Cir. 1994)). Under Rule 23 s permissive standards, representative claims are typical if they are reasonably co-extensive with those of absent class members; they need not be substantially identical. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998). Thus, typicality requires a court to determine whether the named plaintiff s individual circumstances are markedly different or... the legal theory upon which the claims are based differs from that upon which the claims of other class members will perforce be based. Takeda, 67 F. Supp. 2d at 1136 37. In other words, [t]he typicality requirement... is satisfied when the named plaintiffs have (1) suffered the same injuries as the absent class members, (2) as a result of the same course of conduct, and (3) their claims are based on the same legal issues. Armour, 171 F. Supp. 2d at 1052 (citing Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992); Haley v. Medtronic, Inc., 169 F.R.D. 643, 649 (C.D. Cal. 1996)). Here, Wong s claims are typical of the proposed class. Namely, Wong purchased MRV stock during the relevant class period in which the value of that stock was allegedly inflated as a result of Defendants alleged misrepresentations. (Ellman Decl., Ex. A [Wong Certification 4]; Ex. B.) Accordingly, Wong satisfies the typicality requirement. 2. ADEQUACY A lead plaintiff must be able to fairly and adequately protect the interest of all class members. Fed. R. Civ. P. 23(a)(4). Representation is adequate where (1) counsel for the class is qualified and competent, and (2) the representative s interests do not conflict with the interests of absent class members. Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir. 1978). Adequacy, for purposes of the lead plaintiff determination, is contingent upon both the existence of common interests between the proposed lead plaintiffs and the class, and a willingness on the part of the proposed lead plaintiff to CV-90 (06/04) Page 5 of 7
Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 6 of 7 vigorously prosecute the action. In re Milestone Scientific Sec. Litig., 183 F.R.D. 404, 416 (D.N.J. 1998). Here, Wong has expressed his willing[ness] to serve as lead plaintiff in this matter, including providing testimony at deposition and trial, if necessary. (Ellman Decl., Ex. A [Wong Certification 3].) Furthermore, there is no indication that Wong s interests conflict with those of the class. In fact, Wong has certified that he did not purchase MRV securities at the direction of counsel, and that he will not accept payment for serving as lead plaintiff except for reimbursement of reasonable costs and expenses as directed by the Court. (Id. 2, 6.) Finally, a review of Wong s counsel s firm resume indicates that it is qualified and competent to handle this putative class action. Accordingly, at this stage of the litigation, Wong satisfies the adequacy requirement. C. CONCLUSION RE : APPOINTMENT OF LEAD PLAINTIFF The plaintiffs who had previously moved for appointment as lead plaintiff have withdrawn their motions or filed notices of non-opposition, conceding that Wong has the largest financial stake in the present action. Moreover, as explained above, Wong appears to satisfy the typicality and adequacy requirements of Rule 23(a), and no party has provided evidence to the contrary. Accordingly, Wong s motion is GRANTED, and he is APPOINTED lead plaintiff in this consolidated putative class action. IV. APPOINTMENT OF LEAD COUNSEL Under the PSLRA, once the court has designated a lead plaintiff, that plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class. 15 U.S.C. 78u-4(a)(3)(B)(v). Here, Wong wishes to retain Labaton Sucharow as lead counsel. Based upon its review of Labaton Sucharow s firm resume, the Court concludes that Labaton Sucharow is capable of serving competently in the role of lead counsel because it has substantial experience representing shareholders in a variety of CV-90 (06/04) Page 6 of 7
Case 2:08-cv-04472-GAF-RC Document 57 Filed 12/01/2008 Page 7 of 7 class securities-fraud class-action lawsuits. Similarly, liaison counsel Glancy Binkow has appropriate credentials for this action, and Labaton Sucharow is required to retain local counsel under Local Rule 83-2.3.3. In short, the interests of the class will be protected by appointment of Labaton Sucharow as lead counsel, and Glancy Binkow as liaison counsel. The Court hereby places counsel on notice, however, that the Court does not expect Glancy Binkow to be excessively involved in this action or to duplicate the work of Labaton Sucharow. The Court will deny any attempt to recover costs and attorneys fees in this regard. V. CONCLUSION For the foregoing reasons, the motions to consolidate and Wong s motion are GRANTED. Wong is APPOINTED lead plaintiff, Labaton Sucharow is APPOINTED lead counsel, and Glancy Binkow is APPOINTED local liaison counsel. Wong is ORDERED to file a consolidated class action complaint no later than sixty (60) days from the date of this Order. The consolidated complaint will become the operative complaint upon being filed, and the individual complaints filed in Anits, Ramsey, and Leopold will be deemed dismissed at that time. The consolidated complaint will be treated as if it were the original complaint, and filing deadlines will be determined according to the filing date thereof. Defendants should respond only to the consolidated complaint. The consolidated complaint shall be styled Ramsey et al. v. MRV Communications, Inc. et al. and shall bear case number. IT IS SO ORDERED. CV-90 (06/04) Page 7 of 7