Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-05421/USCOURTS-cand-5_03-cv-05421-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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28 ORDER GRANTING MOTION FOR ADMINISTRATIVE RELIEF WHETHER CASES SHOULD BERELATED PURSUANT TO

CIVIL LOCAL RULES 3-12 AND 7-11 AND ORDERING PLAINTIFFS TO PUBLISH NOTICE OF THEIR AMENDED

COMPLAINT UNDER THE PSLRA—C-04-05421 RMW

DOH

E-FILED on 7/5/05

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re LEAPFROG ENTERPRISES, INC.

SECURITIES LITIGATION

No. C-03-05421 RMW

ORDER GRANTING MOTION FOR

ADMINISTRATIVE RELIEF WHETHER

CASES SHOULD BE RELATED PURSUANT

TO CIVIL LOCAL RULES 3-12 AND 7-11

AND ORDERING PLAINTIFFS TO PUBLISH

NOTICE OF THEIR AMENDED

COMPLAINT UNDER THE PSLRA

[Re Docket No. 111]

This Document Relates To:

 

 ALL ACTIONS.

William Sullivan and Alice Cupples ("the Cupples Movants") are lead plaintiffs in In re LeapFrog

Enterprises Securities, Inc. Litigation ("LeapFrog"), pending before the court. The Parnassus Fund and

the Parnassus Equity Fund ("Parnassus") are lead plaintiffs in a securities class action against LeapFrog

Enterprises pending in the San Francisco Division of the Northern District of California ("Parnassus"). The

Cupples Movants seek an order relating the two cases. Parnassus opposes the motion. The parties also

dispute whether, if the court relates the cases, it must re-visit the selection of a lead plaintiff under the

Case 5:03-cv-05421-RMW Document 133 Filed 07/05/05 Page 1 of 7
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28 ORDER GRANTING MOTION FOR ADMINISTRATIVE RELIEF WHETHER CASES SHOULD BERELATED PURSUANT TO

CIVIL LOCAL RULES 3-12 AND 7-11 AND ORDERING PLAINTIFFS TO PUBLISH NOTICE OF THEIR AMENDED

COMPLAINT UNDER THE PSLRA—C-04-05421 RMW

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Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C.A. § 78u-4(a). For the reasons set forth

below, the court relates the cases and requires the Cupples Movants to republish notice for a new lead

plaintiff selection process. 

I. BACKGROUND

The court heard oral argument on lead plaintiff selection in four related and consolidated class

actions in LeapFrog on March 19, 2004. The complaints alleged that LeapFrog made misleading

statements about sales and market share. Collectively, the cases alleged a class period between July 24,

2003 and February 10, 2004. While the lead plaintiff motions were under submission, LeapFrog allegedly

made more false claims, causing its stock price to drop in March and October 2004. On April 6, 2005 the

court named the Cupples Movants lead plaintiffs. 

On April 25, 2005 Parnassus filed an action in the San Francisco Division against LeapFrog on

behalf of purchasers of LeapFrog securities between February 11, 2004 and October 18, 2004. The

Parnassus complaint alleges that LeapFrog falsely claimed to have remedied deficiencies with its supply

chain and IT system. On June 17, 2005 the Cupples Movants filed an amended complaint that alleges a

class period between July 24, 2003 and October 18, 2004. The amended complaint includes new

allegations about LeapFrog's supply chain and IT system. 

II. ANALYSIS

A. Whether the Court Should Relate the Cases

Local Rule 3-12 allows courts to relate matters where they (1) "concern substantially the same

parties, property, transaction or event" and (2) "[i]t appears likely that there will be an unduly burdensome

duplication of labor and expense or conflicting results if the cases are conducted before different judges." 

Here, the amended LeapFrog complaint completely overlaps with Parnassus complaint. Both name the

same defendants, make similar factual allegations, and seek redress for violation of the same sections of the

Securities and Exchange Act. In addition, the LeapFrog amended complaint's class period encompasses

the Parnassus complaint's class period: the latter is February 11, 2004 through October 18, 2004, the

former is July 24, 2003 through October 18, 2004. It would be unfair to LeapFrog to require it to defend

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CIVIL LOCAL RULES 3-12 AND 7-11 AND ORDERING PLAINTIFFS TO PUBLISH NOTICE OF THEIR AMENDED

COMPLAINT UNDER THE PSLRA—C-04-05421 RMW

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similar lawsuits in two Divisions of the same court at the same time. Thus, the court orders the cases

related. 

B. Whether the Court Should Revisit Lead Plaintiff Selection

The PSLRA establishes a comprehensive scheme for selecting lead plaintiffs in securities class

actions:

(i) In general

Not laterthan20 days afterthe date onwhichthe complaint isfiled, the plaintiff or plaintiffs

shall cause to be published, in a widely circulated national business-oriented publication

or wire service, a notice advising members of the purported plaintiff class—

(I) of the pendency of the action, the claims asserted therein, and the purported class

period; and

(II) that, not laterthan 60 days afterthe date onwhichthe notice is published, anymember

of the purported class may move the court to serve aslead plaintiff ofthe purported class.

(ii) Multiple actions

Ifmore than one action onbehalf of a class asserting substantially the same claimor claims

arising under this chapter is filed, only the plaintiff or plaintiffs in the first filed action shall

be required to cause notice to be published in accordance with clause (i).

(iii) Additional notices may be required under Federal rules Notice required under clause

(i) shall be in addition to any notice required pursuant to the Federal Rules of Civil

Procedure.

 15 U.S.C. § 78u-4(a)(3)(A)

 The Cupples Movants argue that "[c]ourts have routinely rejected the notion that amending a class

action complaint to extend the class period and alleging additional new facts that are closely related to

those alleged for the original class perio[d] . . . provides a justification to revisit the lead plaintiff contest." 

Mot. at 4:3-5 (emphasis in original). The Cupples Movants cite In re Rite Aid Corp. Sec. Litig., 1999

U.S. Dist LEXIS 19753 at *4 (E.D. Pa. 1999), Lax v. First Merchs. Acceptance Corp., 1997 U.S. Dist.

LEXIS 12432 at *15 (N.D. Ill. 1997), Greenberg v. Bear Stearns & Co., 80 F. Supp. 2d 65, 69 (E.D.

N.Y. 2000), In re Krispy Kreme Doughnuts, Inc. Sec. Litig., Case No. 1:04CV00416, slip op. (M.D.

N.C. 2005) and comments from oral argument in Hevesi v. Merck & Co., No. 04-CV-5866 (SRC) (D.

N.J. Mar. 21, 2005) for support. 

However, Rite Aid, Lax, Greenberg, and Krispy Kreme stand only for the sensible proposition

that minor amendments to complaints or differences between complaints in related cases do not warrant

republication or revisiting the lead plaintiff contest. See Rite Aid, 1999 U.S. Dist. LEXIS 19753 at *4

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1 From what the court can divine from the transcript in Hevesi, the issue there was whether

extrinsic events subsequent to lead plaintiff selection—Merck's pulling Vioxx from the

market—necessitated reconsidering who best represented the class. Hevesi Transcript at 14, 46-53. The

party who sought to be belatedly named lead plaintiff apparently did not do so "in a timely manner." Id. at

50. Here, conversely, there was no way for Parnassus to move to be appointed lead plaintiff in LeapFrog

because Parnassus' class period fell completely outside that of LeapFrog. Accordingly, the concerns of

endless rounds of new lead plaintiff selection that caused the court in Hevesi to decline to revisit the lead

plaintiff issue are not present here. 

ORDER GRANTING MOTION FOR ADMINISTRATIVE RELIEF WHETHER CASES SHOULD BERELATED PURSUANT TO

CIVIL LOCAL RULES 3-12 AND 7-11 AND ORDERING PLAINTIFFS TO PUBLISH NOTICE OF THEIR AMENDED

COMPLAINT UNDER THE PSLRA—C-04-05421 RMW

DOH

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("[t]he only material distinction cited by plaintiff . . . between its complaint and the complaint in the [related

cases] is that of the class period); Lax, 1997 U.S. Dist. LEXIS 12432 at *13-*14 ("the complaints were

based on substantially the same the same claims, despite that they alleged different class periods);

Greenberg, 80 F. Supp. 2d at 69 (merely amending a complaint to add additional defendant does not

require new lead plaintiff contest); Krispy Kreme, Case No. 1:04CV00416 at *3-*7 (refusing to sever

consolidated actions or to revisit the lead plaintiff contest when the operative complaint "includes the same

allegations regarding press releases, SEC filings, and insider transactions" as the moving party's complaint).1

Here, conversely, the Cupples Movants' amended complaint vastly expands their original

complaint. Indeed, the Cupples Movants' twenty-one page original complaint alleged that defendants made

rosy statements about LeapFrog's financial outlook when, in fact, retailers were not placing an expected

number of orders and the company stood to lose ground to a competitor's product. Complaint at ¶¶ 39-

44. The consolidated class period spanned about six months. Id. at ¶ 1. The Cupples Movants' one

hundred and thirty-five page amended complaint includes new allegations about LeapFrog's distribution and

supply chain and alleges a class period of fifteen months. Amended Complaint at ¶¶ 1, 44-111. Unlike the

amended complaints in the Cupples Movants' authority, the amended complaint here dramatically alters the

contours of the lawsuit. 

Teamsters Local 445 Freight Division Pension Fund v. Bombardier, Inc., 2005 WL 1322721

(S.D. N.Y. 2005) is on point. In that case, plaintiffs initially filed a class action defining a class of all

purchasers of defendant's 2000-A Certificates between January 7, 2000 and May 6, 2004. Plaintiffs then

amended their complaint to include purchasers of several other Certificates and enlarged the class period by

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COMPLAINT UNDER THE PSLRA—C-04-05421 RMW

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about seven months. Id. at *1. The court held that the policy considerations undergirding the PSLRA

mandated that plaintiffs re-publish notice and proceed through the lead plaintiff selection process again:

 It is entirely possible that other well-qualified lead plaintiffs would have moved had they

been notified that they were potential class members. [¶] Allowing plaintiffs in this case

to proceed without publishing a new notice reflecting their additional claims would

potentially exclude qualified movants from the lead plaintiff selection process. Although

appointment is certainly easier—and thus more efficient—when there is only one movant,

it is contrary to the spirit of the PSLRA to achieve that efficiency by failing to notify

potential movants of their rights. Where membership of a class is substantially expanded

bythe filingof anamended complaint thataddsnewclaims,fairness dictatesthat those new

class members ought to be informed ofthe existence ofpending claimsthat mayaffect their

rights.

Id. at *2-*3; see also In re Select Comfort Corp. Sec. Litig., 2000 U.S. Dist. LEXIS 22697 at *22 (D.

Minn. 2000) (republication necessary where lead plaintiffs amended complaint to "add new claims and new

allegations"). Just as in Teamsters, where the court required new notice after a substantially amended

complaint to ensure that the best plaintiff for the its new class period and new allegations represented the

class, the new claims and new scope of the Cupples Movants' amended complaint necessitates new notice

and lead plaintiff selection. The fact that Parnassus claims to be an institutional investor with losses of over

$10 million, while the Cupples Movants are individuals with alleged losses of only approximately $36,000

reinforces the conclusion that Parnassus may be better-suited to represent the class under the amended

LeapFrog complaint. Thus, the Cupples Movants must give notice of their amended complaint in

accordance with the PSLRA. 

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COMPLAINT UNDER THE PSLRA—C-04-05421 RMW

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III. ORDER

1. The court orders the LeapFrog and Parnassus cases related.

2. The Cupples Movants must republish notice in accordance with the PSLRA. 

DATED: 7/5/05 /s/ Ronald M. Whyte

RONALD M. WHYTE

United States District Judge

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Notice of this document has been electronically sent to:

Counsel for Plaintiffs:

Patrick J. Coughlin patc@mwbhl.com 

Darren J. Robbins e_file_sd@lerachlaw.com 

Gwendolyn R. Giblin ggiblin@gbcslaw.com 

Marc S. Henzel mhenzel182@aol.com 

William S. Lerach billl@lerachlaw.com 

Kimberly C. Epstein kimcor@lerachlaw.com

Luke O Brooks lukeb@mwbhl.com 

Christopher Paul Seefer chriss@mwbhl.com 

Solomon B. Cera scera@gbcslaw.com 

David Avi Rosenfeld drosenfeld@geller-rudman.com 

Laurence D. King lking@kaplanfox.com 

Counsel for Defendants:

Daniel W. Turbow dturbow@wsgr.com 

 Kassra Powell Nassiri knassiri@wsgr.com 

Counsel for Movants:

Michael M. Goldberg info@glancylaw.com 

Darren J. Check dcheck@sbclasslaw.com 

Linda M. Fong lfong@kaplanfox.com 

Counsel for Third Party Plaintiff:

Christopher Heffelfinger cheffelfinger@bermanesq.com 

Counsel are responsible for distributing copies of this document to co-counsel that have not registered for

e-filing under the court's CM/ECF program.

Dated: 7/5/05 DOH

Chambers of Judge Whyte

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