- Adequacy and Commitment - Buettgen v. Harless
- September 9, 2010
- Law Firm: Mayer Brown LLP - Chicago Office
Adequacy can be a difficult concept to get one's head around. And, as a result, courts and parties have found a number of different ways to frame the question of whether a named plaintiff is an adequate class representative. They can look at whether the named plaintiff knows enough about the case to oversee her counsel (although some courts are sometimes reluctant to disqualify a plaintiff on these grounds). Courts can also ask whether the plaintiff has enough independence from counsel to oversee them when their interests may diverge from the class's. And sometimes courts can just look at the personal character of the named plaintiff.
Another way of framing the issue is to look at whether the named plaintiff is committed to protecting the interests of the class. What do I mean by "committed"? Take the case of Buettgen v. Harless, 263 F.R.D. 378 (N.D. Tex. 2009). Buettgen was a securities case, involving allegations that the defendants had, through various misrepresentations, artificially inflated the stock price of phone directory company Idearc, Inc. A number of different plaintiffs filed class actions against Idearc and its officers, including a group of individual investors calling themselves the "Buettgen Group," another group of individual investors calling themselves the "Lyman Group," and two institutional funds, one Swiss and one American.
Each of these four plaintiffs filed a motion to be considered as lead plaintiff for the consolidated class actions, a position that carries with it control of the litigation, and a larger share of fees for plaintiffs' counsel. The court, in deciding the motions, pointed out that the Private Securities Litigation Reform Act (PSLRA):
"requires a court to presume that the most adequate plaintiff is the person or group of persons that:
(1) filed the complaint or a motion in response to a notice;
(2) has the largest financial interest in the relief sought by the class; and
(3) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.
Id. § 78u-4(a)(3)(B)(iii)(I).
This presumption can be rebutted only by proof offered by a class member that the presumptively most adequate plaintiff:
(aa) will not fairly and adequately protect the interests of the class; or
(bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.
Id. § 78u-4(a)(3)(B)(iii)(II)."
In this case, all four plaintiffs had filed the appropriate motions. The court ranked the plaintiffs by the size of their losses (the Buettgen Group had sustained the largest loss, followed by the Swiss fund, the Lyman Group, and the American fund). But when the court looked at each plaintiff's adequacy, the analysis got more difficult. The Swiss fund was vulnerable to unique defenses, and therefore not adequate. But the Court also expressed reservations about the two investor groups, because neither was cohesive enough to represent the class. (Why would cohesiveness matter? Because if a group is not cohesive, then it is likely that it was put together by plaintiffs' counsel to meet the "largest financial interest" prong of the PSLRA, implying that the counsel controlled the plaintiffs.) As the court observed:
"[T]he Buettgen Group fails to present evidence that the members of the group have ever communicated in a meaningful way. For example, instead of explaining how they are prepared to work together to manage this litigation on behalf of the proposed class, the Buettgen Group submitted essentially boilerplate certifications discussing their stock purchases and alleged losses. ... Additionally, the Buettgen Group's motion is undermined by the group's invitation to the Court to hand-pick one of its constituents to serve as lead plaintiff if the Court deems the Buettgen Group inappropriate. Buettgen Group Such a willingness to abandon the group only suggests how loosely it was put together. ...
Likewise, the Lyman Group suffers from the same grouping issues that apply to the Buettgen Group. The Lyman Group consists of two individuals that provided similar boilerplate certifications as the Buettgen Group. Also, the Lyman Group states, "if the Court is inclined to appoint only one Lead Plaintiff, each of the Movants moves in the alternative for appointment individually as Lead Plaintiff." As stated above, when a group shows willingness to abandon the group the Court is lead to believe the group was only loosely put together. "
(Internal quotations and citations omitted, emphasis added.)
What does this ruling mean for defendants? It provides another way of looking at adequacy of named plaintiffs. If the named plaintiffs are not sufficiently committed to the litigation to talk to each other, then it is unlikely that they can oversee their counsel independently. And that is a good reason to find them to be inadequate class representatives.