Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04843/USCOURTS-cand-3_06-cv-04843-5/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question: Securities Violation

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MURRAY ZUCKER,

Plaintiff,

 v.

ZORAN CORPORATION, ET AL,

Defendant. /

No. C 06-04843 WHA

ORDER GRANTING MIDDLESEX

RETIREMENT’S MOTION FOR

APPOINTMENT AS LEAD

COUNSEL

INTRODUCTION

Pursuant to the Private Securities Litigation Reform Act of 1995 (PSLRA), this order

appoints Middlesex Retirement as the lead plaintiff for the above-named action. Accordingly,

this order GRANTS Middlesex Retirement’s motion for appointment as lead plaintiff, and

DENIES Menorah Mivtahim’s motion for appointment as lead plaintiff, DENIES Murray

Zucker’s motion for appointment as lead plaintiff. This order also sets forth the procedure to be

used for the selection and approval of class counsel. 

FACTS

This is a putative class action that arises from allegations of stock-options backdating

and alleges violations of 15 U.S.C. 14(a) and 20(a). Zoran Corporation markets highperformance digital audio and video imaging applications for purchase by original equipment

manufacturers of digital televisions, DVD products, digital cameras, digital printing,

multimedia phones and IP cores (Compl. ¶ 2). Its stock is traded publicly on the NASDAQ.

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 1 of 7
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

Plaintiffs allege that Zoran unlawfully granted backdated stock options to its senior

executives from 1998 to 2001 (id. at ¶ 28). Companies frequently grant stock options to their

employees to align employees’ incentives with those of the company, that is, if the stock price

rises, so does the employee’s compensation. Backdating occurs when stock option dates are

retroactively changed to reflect the lowest price during the period in which the recipient can

exercise the option. The recipient can then exercise the option at the lowest price in a given

period, meaning that the recipient will make more money than they otherwise would. As a

result, plaintiffs allege, Zoran and its officers released false and materially misleading

information in its proxy statements (id. at ¶ 29–30). 

Murray Zucker filed a complaint on August 10, 2006. He later published notice of his

complaint in Business Wire on August 23, 2006 (Bishop Decl. Exh. A). In response, two

groups filed motions to be appointed lead plaintiff for this action. The first was by Murray

Zucker and Gilbert Key, the second was by Middlesex Retirement System and Menorah

Mivtahim Mutual Fund. The Court requested that each lead-plaintiff candidate individually file

a questionnaire about their qualifications, their experience in managing litigation, their

transactions in Zoran stock, and any potential conflicts related to the instant securities case. 

Zucker, Middlesex, and Menorah each submitted the questionnaire. Gilbert Key filed a notice

of withdrawal from the motion to be appointed lead plaintiff on December 5, 2006. 

A hearing on the appointment of lead plaintiff was held on December 7, 2006. Murray

Zucker and a representative from Menorah both appeared in court; Middlesex was represented

by counsel. Candidates were questioned on their qualifications. 

Middlesex is a public pension fund that manages over $700 million in assets for over

15,000 members (Middlesex Quest. 3). Middlesex purchased 27,344 shares of Zoran between

January 2003 and November 2004. It no longer holds a position in Zoran, but alleges that it

suffered a loss of $190,749.20 (Glancy Decl. Exh. C). Middlesex did not provide information

on how it calculated its losses. 

Menorah is a group of mutual funds focused on retirement and pensions based in Tel

Aviv, Israel that manages over $1 billion in assets (Menorah Quest. 3). Together its funds

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 2 of 7
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

purchased 14,900 shares of Zoran stock between September of 2003 and July of 2005. It

alleged losses of $57,609.01 (Glancy Decl. Exh. C). 

Murray Zucker is an individual private investor (Zucker Quest. 4). He currently owns

5916 shares of Zoran that he received pursuant to a merger between Zoran and Nogatech in

October 2001 (Bishop Decl. Exh. C, Zucker Quest. 4). He has not alleged a specific amount in

losses. 

ANALYSIS

The PSLRA aims to prevent “lawyer-driven” securities litigation by placing a real partyin-interest in charge of the litigation. This statutory responsibility now resides in the lead

plaintiff, who acts as a fiduciary for all members of the proposed class. The lead plaintiff must

provide fair and adequate representation and management to obtain the largest recovery for the

proposed class consistent with good faith and meritorious advocacy. Having a single lead

plaintiff has in the past proven advantageous. A single lead plaintiff speaking on behalf of the

class reduces potential conflicts in deciding litigation and settlement strategy. Also, having a

single lead plaintiff means that a single entity has sole responsibility and accountability to the

class. 

Under the PSLRA, the Court “shall appoint as lead plaintiff the member or members of

the purported plaintiff class that the court determines to be the most capable of adequately

representing the interests of the class members in accordance with this subparagraph.” 15

U.S.C. 78u-4(a)(3)(B)(i). The PSLRA creates a rebuttable presumption that the most adequate

plaintiff should be the plaintiff who: (1) has brought the motion for appointment of lead

counsel in response to the publication of notice; (2) has the “largest financial interest” in the

relief sought by the class; and (3) otherwise satisfies the requirements of FRCP 23. 15 U.S.C.

78u-4(a)(3)(b)(I)(aa)–(cc). The above presumption may be rebutted only upon proof that the

presumptive lead plaintiff (1) will not fairly and adequately protect the interests of the class or

(2) is subject to “unique defenses” the render such plaintiff incapable of adequately representing

the class. 15 U.S.C. 78u-4(a)(3)(B)(iii)(II)(aa)–(bb). 

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 3 of 7
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

The PSLRA sets up a three-step inquiry for appointing a lead plaintiff. First, a plaintiff

files the action and posts notice, allowing other lead-plaintiff candidates to file motions. Next,

the district court considers which of those plaintiffs has the largest financial interest in the

action, and whether that plaintiff meets FRCP 23’s requirements. Finally, other candidates have

the opportunity to rebut the presumption that the putative lead plaintiff can adequately represent

the class. In re Cavanaugh, 306 F.3d 726, 729–730 (9th Cir. 2002). 

1. LARGEST FINANCIAL INTEREST.

In the Ninth Circuit, the test for which plaintiff has the largest financial interest is

strictly applied. Id. at 729. The PSLRA does not indicate a specific method for calculating

which plaintiff has the “largest financial interest.” See 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(bb). In

this district, two judges have equated “largest financial interest” with the largest amount of

potential recovery. See In Re Critical Path, Inc. Sec. Litig., 76 F. Supp.2d 1017, 1030 (N.D.

Cal. 1999); Weisz v. Calpine Corp., 2002 WL 32818827, (N.D. Cal. 2002). 

This case is somewhat unique under the PSLRA as it alleges only violations of 15

U.S.C. 14(a) and 20(a). At oral argument, candidates were asked how they would calculate

damages in this action. All admitted that the “fraud premium” calculations under Dura

Pharmaceuticals, Inc. v. Brudo, 544 U.S. 336 (2005), do not apply to claims under 15 U.S.C.

14(a). Counsel for Zucker argued that the most applicable measure of damages would be the

difference between the inflated value of the stock because of the backdating and the stock’s

actual value. Counsel for Middlesex argued that a more appropriate measure would be loss-ofbargain damages as applied in merger proxy cases plus compensation for any adverse

consequences of keeping on the board those insiders who were involved in the alleged back

dating. These are admittedly very different damages measures. Under either of them, however,

the potential recovery increases with the number of shares a plaintiff bought. Thus, the

candidate with the largest potential recovery would be the candidate who had bought the largest

number of Zoran shares. Here, that is candidate is Middlesex who is presumptively the lead

plaintiff. 

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 4 of 7
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

2. REQUIREMENTS OF TYPICALITY AND ADEQUACY UNDER FRCP 23.

The district court must then inquire whether the putative lead plaintiff satisfies the

requirements of FRCP 23(a). In re Cavanaugh, 306 F.3d at 730. The inquiry focuses on the

“typicality” and “adequacy” requirements, as the other requirements in FRCP 23 of numerosity

and commonality would preclude class certification by themselves. Id. at n5. “Once [the court]

determines which plaintiff has the biggest stake, the court must appoint that plaintiff as lead,

unless it finds that he does not satisfy the typicality or adequacy requirements. . .” Id. at 732. 

The “typicality” requirement is satisfied when the named plaintiffs have (1) suffered the

same injuries as class members; (2) as a result of the same course of conduct; and (3) their

claims are based on the same legal issues. Armour v. Network Assoc., Inc., 171 F. Supp.2d

1044, 1050 (N.D. Cal. 2001). As a stockholder, Middlesex suffered the same injuries as the

class members, namely buying Zoran stock an inflated price that did not truly reflect the

company’s compensation costs. Its injuries arose from the same course of conduct, the alleged

backdating by the Zoran board and insiders. Finally, the claims are based on the same legal

issues. Both Middlesex and the Zucker complaint allege violations under Section 14(a) and

Section 20(a). 

Zucker alleges that Middlesex’s claims are not typical of the class. Middlesex bought

its shares in January 2003 and sold it in November 2004, so it would only have standing to

bring a Section 14(a) claim and seek remedies such as recission for the proxy statements in that

period. Zucker overlooks the fact that the PSLRA premises selection of the lead plaintiff on the

size of the financial stake, not on the most adequate complaint filed. Even though the lead

plaintiff cannot personally assert every claim brought by the class, the presumption still stands. 

In re WorldCom Sec. Litig., 210 F.R.D. 267, 272 (S.D.N.Y. 2003). Middlesex’s claims are still

typical of the class although it may not have standing to bring every claim alleged by the class. 

The “adequacy” requirement is satisfied when the proposed lead plaintiff does not have

interests antagonistic to the proposed class. In re Emulex Corp. Secur. Litig., 210 F.R.D. 717,

720 (C.D. Cal. 2002). Here, Middlesex has the same interest as the rest of the class. They wish

to recover against Zoran for the alleged damages suffered because of back dated stock options. 

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 5 of 7
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

Middlesex’s appearance at the hearing only through counsel and not through a personal

representative reflects adversely on its bid to be named lead plaintiff. Failure to attend the

hearing, however, is in part excusable because candidates were only given one week’s notice of

the desirability of their appearance at the hearing. Middlesex’s answers to its lead-plaintiff

questionnaire were otherwise satisfactory. It has stated that it will be present at hearings and

depositions, and has agreed to perform due diligence in selecting class counsel. Zucker has not

shown that Middlsex would not adequately represent the class, so the presumption that

Middlesex should be named lead plaintiff still stands. 

3. ATTEMPTS TO REBUT PRESUMPTION.

Other plaintiffs may rebut the presumption that the putative lead plaintiff has satisfied

the requirements of typicality and adequacy. Cavanaugh, 306 F.3d at 730. As mentioned

above, Zucker has argued that he would be a more adequate lead plaintiff as he has standing to

challenge more of the allegedly fraudulent proxy statements. Unfortunately for Zucker, the

inquiry under the PSLRA does not demand that the district court choose the most adequate lead

plaintiff. Cavanaugh, 306 F.3d at 720. The other candidates have not shown that Middlesex is

subject to any conflicts of interest that would prevent it from fulfilling its fiduciary

responsibility to the class. Accordingly, Middlesex Retirement System’s motion to be appointed

lead plaintiff is GRANTED. 

PROCEDURE FOR SELECTING AND APPROVING CLASS COUNSEL

Under the PSLRA, “[t]he most adequate 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). Selection

and approval of class counsel are important responsibilities for the lead plaintiff and the court. 

The selection and approval require an assessment of the strengths, weaknesses and experience

of counsel as well as the financial burden – in terms of fees and costs – on the class. 

Wenderhold v. Cylink Corp., 191 F.R.D. 600, 602–03 (N.D. Cal. 2000). 

Any important decision made by a fiduciary should be preceded by due diligence. A

lead plaintiff is a fiduciary for the investor class. No decision by the lead plaintiff is more

important than the selection of class counsel. Consequently, the lead plaintiff should precede

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 6 of 7
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

his or her choice with due diligence. The extent of such due diligence is a matter of judgment

and reasonableness based on the facts and circumstances. 

The lead plaintiff should immediately proceed to perform their due diligence in the

selection of class counsel, and to interview appropriate candidates, and through counsel, move

for the appointment and approval of their selected counsel no later than JANUARY 4, 2007. The

motion should be accompanied by declarations from the lead plaintiff explaining the due

diligence undertaken by each with respect to the selection of class counsel. The declarations

should also explain why the counsel selected was favored over other potential candidates. The

declarations should be filed under seal and not served on defendants. The motion for approval

of lead plaintiff’s choice of counsel, however, should be served on defense counsel. No hearing

will be held on the motion unless the Court determines that it would be beneficial. Once class

counsel is approved, the first order of business will be to file a consolidated complaint. This

will be done NO LATER THAN 28 DAYS from the date of the order approving class counsel.

This appointment is conditioned on Middlesex certifying in writing, within seven

calendar days that it has read this order, the case management order setting a case schedule, and

that is willing and able to meet the schedule and its fiduciary obligations. 

IT IS SO ORDERED.

Dated: December 11, 2006 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

Case 3:06-cv-04843-WHA Document 45 Filed 12/11/06 Page 7 of 7