Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-02245/USCOURTS-casd-3_07-cv-02245-1/pdf.json

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

---

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

1 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

HCL PARTNERS LIMITED

PARTNERSHIP, on behalf of itself and

all others similarly situated,

Plaintiff,

CASE NO. 07cv2245 BTM(NLS)

ORDER GRANTING MOTIONS TO

CONSOLIDATE, APPOINTING NEW

JERSEY CARPENTERS PENSION

AND BENEFIT FUND AS LEAD

PLAINTIFF, AND APPROVING

LEAD COUNSEL SELECTION

 v.

LEAP WIRELESS INTERNATIONAL,

INC., S. DOUGLAS HUTCHESON,

DEAN M. LUVISA, AMIN I. KHALIFA and

PRICE WATERHOUSECOOPERS, LLP,

Defendants.

KENT CARMICHAEL, Individually and on

behalf of all others similarly situated,

Plaintiff, 

 v.

LEAP WIRELESS INTERNATIONAL,

INC., S. DOUGLAS HUTCHESON,

MARK H. RACHESKY, AMIN I. KHALIFA

and DEAN M. LUVISA, 

Defendants.

CASE NO. 08cv0128 BTM(NLS)

Westchester Capital Management, Inc. (“Westchester”) and Green & Smith

Investment Management LLC (“G&S”) have filed a motion to consolidate the abovecaptioned actions, to be appointed as lead plaintiff, and to approve their selected counsel as

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 1 of 9
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

1

 Motions for appointment as lead plaintiff and for approval of lead counsel were also

filed by Louisiana Municipal Police Employees’ Retirement System and by Alaska Electrical

Pension Fund jointly with Genesee County Employees’ Retirement System. These motions

were subsequently withdrawn. The related action Charek v. Leap Wireless, et. al., Case No.

07cv2256, was voluntarily dismissed on January 30, 2008. Campbell v. Leap Wireless, et

al. was also voluntarily dismissed on May 7, 2008.

2

 The class period in HCL Partners Limited Partnership v.Leap Wireless, Case No.

07cv2245 BTM(NLS), is from May 16, 2004 to November 9, 2007, and is the longest class

period of the three actions.

2 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

lead counsel. The New Jersey Carpenters Pension and Benefit Funds (“Carpenter Funds”)

have also filed a motion to consolidate the actions, to be appointed as lead plaintiff, and to

approve their selected counsel as lead counsel.1

 For the reasons discussed below, the

motions to consolidate are GRANTED. Westchester and G&S’s motion for appointment as

lead plaintiff and for approval of their attorneys as lead counsel is DENIED. The Carpenter

Funds’ motion for appointment as lead plaintiff and for approval of their attorneys as lead

counsel is GRANTED.

I. BACKGROUND

These class actions are brought on behalf of persons who purchased or otherwise

acquired securities of Leap Wireless International, Inc. (“Leap” or “Company”), during the

time period between May 16, 2004 and November 9, 2007.2

 All of the actions allege that

Leap and individual officers of the Company made material misrepresentations and

omissions of fact regarding the Company’s revenues beginning in fiscal year 2004 and

continuing through the second quarter of fiscal year 2007. (The HCL Partners case also

names as a defendant PricewaterhouseCoopers, LLP, which allegedly represented that

Leap’s financial statements were in conformity with accounting principles generally accepted

in the United States of America.) 

On November 9, 2007, Leap announced that it was restating its financial results going

back to fiscal year 2004 to correct for errors in previously reported service revenues,

equipment revenues, and operating expenses. According to Leap’s press release, the most

significant adjustment related to the Company’s prior accounting for a group of customers

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 2 of 9
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 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

who voluntarily disconnected service. After the November 9, 2007 announcement, the price

of the Company’s publicly traded stock plummeted to close at $36.72 per share, declining

37% from the previous trading day’s close of $58.10. 

The actions allege that Defendants’ material misrepresentations and omissions

caused the Company’s securities to be overvalued and artificially inflated, causing damages

to Plaintiffs and other members of the class. The actions assert claims for violation of section

10(b) of the Exchange Act and Rule 10b-5 and violation of section 20(a) of the Exchange Act.

 

II. DISCUSSION

A. Consolidation

Consolidation may be appropriate when actions before the court involve a “common

question of law or fact .” Fed. R. Civ. P. 42(a). All of these actions cover approximately the

same time period, arise out of the same facts, and allege violations of the securities laws.

Defendants agree that the cases should be consolidated. Therefore, the Court grants the

motions for consolidation.

B. Lead Plaintiff & Lead Counsel

Competing motions to be appointed lead plaintiff and to approve selected counsel as

lead counsel have been filed by (1) Westchester and G&S, and (2) Carpenter Funds. As

discussed below, the Court finds that Carpenter Funds is most capable of adequately

representing the interests of class members.

1. Governing Law

Under the Private Securities Litigation Reform Act (“PSLRA”), no later than 20 days

after filing a class action securities complaint, a private plaintiff or plaintiffs must publish a

notice advising members of the purported plaintiff class of the pendency of the action, the

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 3 of 9
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 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

claims asserted, and that any member of the purported class may move the court to serve

as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A)(i). Not later than 60 days after the date on which

the notice is published, any member of the purported class may move the court to serve as

lead plaintiff of the purported class. Id. 

Within 90 days after publication of the notice, the Court shall consider any motion

made by a class member to serve as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(B)(i). The Court

shall appoint as lead plaintiff “the member or members of the purported plaintiff class that the

court determines to be most capable of adequately representing the interests of class

members.” Id.

The presumptively most adequate plaintiff is the one who “has the largest financial

interest in the relief sought by the class” and “otherwise satisfies the requirements of Rule

23 of the Federal Rules of Civil Procedure.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). “In other

words, the district court must compare the financial stakes of the various plaintiffs and

determine which one has the most to gain from the lawsuit. It must then focus its attention

on that plaintiff and determine, based on the information he has provided in his pleadings and

declarations, whether he satisfies the requirements of Rule 23(a), in particular those of

‘typicality’ and ‘adequacy.’” In re Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002). 

The presumption of adequacy may be rebutted only upon proof by a member of the

purported plaintiff class that the presumptively most adequate plaintiff will not fairly and

adequately protect the interests of the class or is subject to unique defenses that render such

plaintiff incapable of adequately representing the class. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

If the district court determines that the presumptive lead plaintiff does not meet the typicality

or adequacy requirement, the Court must then proceed to determine whether the plaintiff with

the next lower stake in the litigation has made a prima facie showing of typicality and

adequacy. Cavanaugh, 306 F.3d at 731. If so, that plaintiff becomes the presumptive lead

plaintiff and other plaintiffs must be given the opportunity to rebut that showing. Id. 

A straightforward application of the statutory scheme “provides no occasion for

comparing plaintiffs with each other on any basis other than their financial stake in the case.”

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 4 of 9
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

 The Court need not reach Carpenter Funds’ argument that Westchester and G&S

cannot supplement their initial filing with a revised chart recalculating their financial loss.

Whether the Court calculates Westchester and G&S’s financial losses based on their moving

papers or their supplemental filings, the result of this motion is the same.

5 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

Cavanaugh, 306 F.3d at 732. Once the Court identifies the plaintiff with the largest stake in

the litigation, “further inquiry must focus on that plaintiff alone and be limited to determining

whether he satisfies the other statutory requirements.” Id. 

2. Lead Plaintiff Analysis

a. Notice and Publication

On November 27, 2007, a notice regarding the HCL Partners lawsuit was published

on Market Wire. Both sets of movants filed their motions within 60 days. Therefore, the

motions are timely.3

b. Financial Interest

Westchester is the investment advisor to The Merger Fund and The Merger Fund VL.

(Cert. of Lead Plaintiff (Ex. B to Kaboolian Decl.) ¶ 1.) G&S is the investment advisor to the

GS Master Trust, MSS Merger Arbitrage 2, and Institutional Benchmark Series (Master

Feeder) Limited. (Id.) Westchester and G&S are somehow “related,” and Roy Behren is the

Chief Compliance Officer for both entities. (Cert. of Lead Plaintiff ¶ 2.) In claiming that they

have suffered the greatest financial loss, Westchester and G&S seek to consolidate the

losses suffered by the separate funds. 

Carpenter Funds argues, among other things, that Westchester and G&S have not

established that they have authority to sue on behalf of the funds and therefore are not

qualified as lead plaintiff. The Court agrees with Carpenter Funds.

The courts are not in agreement when or if investment advisors may serve as Lead

Plaintiff based on the financial losses of their clients. Of the courts that permit investment

advisors to serve as lead plaintiff, many require that the investment advisor establish that it

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 5 of 9
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 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

has specifically been authorized to bring suit on behalf of its clients. In Weisz v. Calpine

Corp., 2002 WL 32818827 (N.D. Cal. Aug. 19, 2002), the court explained that although it

appeared that the investment manager had discretionary authority with respect to its clients’

accounts, there was no evidence that the investment manager had been authorized by its

clients to bring securities law claims on their behalf. Accordingly, the Court found that the

investment manager had not demonstrated itself to be an adequate plaintiff within the

meaning of the PSLRA. See also In re Peregrine Systems, Inc. Sec. Litig., 2002 WL

3276939 (S.D. Cal. Oct. 11, 2002) (pointing out that although the investment company stated

that it had complete investment authority and was the attorney-in-fact with full power and

authority to act in connection with its investments, the investment company did not state that

it had authority to institute suit and litigate on behalf of its clients); Smith v. Suprema

Specialties, Inc., 206 F. Supp. 2d 627, 635 (D.N.J. 2002) (“The clients’ mere grant of

authority to an investment manager to invest on its behalf does not confer authority to initiate

suit on its behalf. StoneRidge Investment has not provided the Court [with] any indication

that its members have given it authority to file lawsuits on its behalf.”); In re eSpeed, Inc. Sec.

Litig., 232 F.R.D. 95 (S.D.N.Y. 2005) (explaining that in order for an investment advisor to

attain standing on behalf of the investors the advisor must be granted both unrestricted

decision-making authority and the specific right to recover on behalf of his clients).

The Court recognizes that some district courts have held that if an investment advisor

has unrestricted decision-making authority in connection with its clients’ accounts, it is a

“purchaser” and has standing to sue in its own right, regardless of whether its clients formally

granted it the authority to sue on their behalf. See In re Rent-Way Sec. Litig., 218 F.R.D. 101

(W.D. Pa. 2003); In re Sonus Networks, Inc. Sec. Litig., 247 F.R.D. 244 (D. Mass. 2007).

Although an investment advisor may have standing to sue on its own behalf in certain

circumstances, the Court agrees with the courts that hold that to the extent an investment

advisor seeks to claim losses suffered by its clients in a bid to qualify as lead plaintiff, the

investment advisor must show that its clients specifically authorized it to bring securities law

claims on their behalf.

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 6 of 9
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 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

Westchester and G&S have not shown that their clients delegated the authority to sue

for losses sustained by the funds. In the Certification of Lead Plaintiff, Behren states:

Westchester Capital is the Adviser to and has full discretion and controls all

investments made by The Merger Fund and The Merger Fund VL. G&S is the

adviser to and has full discretion and controls all investments made by the GS

Master Trust, MSS Merger Arbitrage 2, and Institutional Benchmarks Series

(Master Feeder) Limited. 

(Ex. B to Kaboolian Decl.) Notably, Behren does not state that the funds authorized

Westchester and G&S to sue on their behalf. 

In a subsequently filed declaration, Behren reiterates that Westchester and G&S “have

unrestricted decision-making authority with respect to the funds that they advise and

manage.” (Behren Decl. ¶ 2.) Behren further states: 

It is my understanding that if an investment adviser has full discretion and

control, as the Westchester Movants do on behalf of these funds, and is the

attorney-in-fact authorized to undertake all acts, as the Westchester Movants

are on behalf of these funds, then that investment Adviser has standing to

commence legal action on its own behalf, including seeking to be appointed as

the lead plaintiff in this action.

(Behren Decl. ¶ 4) (emphasis added). It is clear from this statement that there has been no

specific grant of authority to sue on behalf of the funds. 

Although Behren states that he is “authorized to undertake all acts” on the behalf of

Westchester and G&S (Behren Decl. ¶ 3), he does not state that he has been authorized to

undertake all acts on behalf of the funds. 

Accordingly, Westchester and G&S do not qualify as lead plaintiff. The presumptively

most adequate plaintiff is Carpenter Funds, which expended approximately $907,701.16 to

purchase 13,800 shares of Leap during the Class Period.

The Court notes that even if Westchester and G&S had authority to sue on behalf of

the funds, the Court would have concerns regarding their ability to adequately represent the

class. As investment advisors, Westchester & G&S may be subject to unique defenses.

Complicating matters further, the funds are foreign entities based in the Carribean. However,

because Westchester and G&S are not the presumptively most adequate plaintiff, the Court

need not determine whether the presumption of adequacy has been rebutted.

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 7 of 9
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

8 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

c. Typicality and Adequacy

No member of the purported plaintiff class has rebutted the presumption of Carpenter

Funds’ adequacy as lead plaintiff by offering proof that Carpenter Funds will not fairly and

adequately protect the interests of the class, or is subject to unique defenses that render it

incapable of adequately representing the class. Based upon the record before it, the Court

is satisfied that Carpenter Funds’ claims are typical and that Carpenter Funds is capable of

adequately representing the class. Therefore, the Court appoints Carpenter Funds as lead

plaintiff. 

3. Lead Counsel Analysis

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).

Carpenter Funds ask the Court to approve their selection of Schoengold Sporn

Laitman & Lometti, P.C., as lead counsel and Glancy Binkow & Goldberg LLP to serve as

local “liaison counsel.” It appears that these firms have the appropriate expertise to fulfill

their roles as lead counsel and liaison counsel. 

Accordingly, the Court approves Schoengold Sporn Laitman & Lometti, P.C., as lead

counsel and Glancy Binkow & Goldberg LLP as local liaison counsel. 

III. CONCLUSION

 For the reasons discussed above, the motions to consolidate are GRANTED. Case

Nos. 07cv2245 and 08cv128 are hereby CONSOLIDATED for all pretrial proceedings. The

caption page on all future filings shall contain all of the captions. All future docketing will be

done in Case No. 07cv2245, which shall be the main file. 

The Court GRANTS Carpenter Funds’ motion to be appointed lead plaintiff. The

Court also GRANTS Carpenter Funds’ motion for approval of lead counsel. The Court

approves Schoengold Sporn Laitman & Lometti, P.C., as lead counsel and Glancy Binkow

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 8 of 9
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

9 07cv2245 BTM(NLS), 08cv0128 BTM(NLS)

& Goldberg LLP as local liaison counsel. The Court DENIES Westchester and G&S’s motion

for appointment of lead plaintiff and approval of lead counsel.

IT IS SO ORDERED.

DATED: May 22, 2008

Honorable Barry Ted Moskowitz

United States District Judge

Case 3:07-cv-02245-MMA-NLS Document 38 Filed 05/22/08 Page 9 of 9