Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_02-cv-01486/USCOURTS-cand-4_02-cv-01486-11/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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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE JDS UNIPHASE CORPORATION

SECURITIES LITIGATION

 /

No. C 02-1486 CW

ORDER GRANTING

LEAD PLAINTIFF'S

MOTION FOR CLASS

CERTIFICATION

Lead Plaintiff Connecticut Retirement Plans and Trust Funds

moves pursuant to Federal Rule of Civil Procedure 23 for

certification of a plaintiff class as well as three subclasses. 

Defendants JDS Uniphase Corporation (JDS), Jozef Straus, Anthony R.

Muller and Charles Abbe (JDS Defendants) oppose the motion. 

Defendant Kevin Kalkhoven joins JDS Defendants' opposition. The

matter was heard on November 18, 2005. Having considered all of

the papers filed by the parties and oral argument on the motion,

the Court grants the motion for class certification.

BACKGROUND

Lead Plaintiff alleges that Defendants engaged in a scheme to

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inflate artificially the price of JDS stock by fraudulently

recognizing revenue, falsely representing that demand for JDS

products was strong, and overstating the value of its inventory by

failing to write off excess inventory. Lead Plaintiff further

alleges that Defendants benefitted from this scheme by selling

stock at inflated prices and by using the value of JDS stock to

purchase other companies for less than their worth.

Lead Plaintiff now seeks certification to represent a class

defined as "persons and entities, other than Defendants and their

affiliates, who purchased or otherwise acquired the publicly traded

securities of [JDS] between October 28, 1999 and July 26, 2001,

inclusive ('the class period')." Excluded from the proposed class

are Defendants, members of the families of each of the individual

Defendants, any parent, subsidiary, affiliate partner, officer,

executive or director of any Defendant, any entity in which any

such excluded person has a controlling interest, and the legal

representatives, heirs, successors and assigns of any such excluded

person or entity. 

Plaintiff-Intervenor Oklahoma Firefighters Pension and

Retirement System (Oklahoma), Plaintiff Dennis McCool and Plaintiff

Houston Municipal Exployees Pension System (Houston) seek to

represent the subclasses of persons and entities who exchanged the

common stock of Optical Coating Laboratory, Inc. (OCLI), E-TEK

Dynamics, Inc. (E-TEK) and SDL, Inc. (SDL), respectively, for JDS

common stock, in connection with JDS's acquisition of those

companies. Lead Plaintiff's counsel Labaton Sucharow & Rudoff, LLP

(Labaton Sucharow) seeks appointment as class counsel; Berman

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DeValerio Pease Tabacco Burt & Pucillo represents Oklahoma and

seeks appointment as counsel for the OCLI subclass; Glancy Binkow &

Goldberg, LLP seeks appointment as counsel for the E-TEK subclass;

and Cohen, Milstein, Hausfeld & Toll, PLLC, seeks appointment as

counsel for the SDL subclass. 

Defendants oppose the motion for class certification on the

grounds that (1) Oklahoma and McCool are inadequate subclass

representatives because they are subject to unique defenses;

(2) the proposed class and subclasses are too broad because they

include investors who have no claims; and (3) Lead Plaintiff is an

inadequate class representative. 

DISCUSSION

A plaintiff seeking to represent a class must satisfy the

threshold requirements of Federal Rule of Civil Procedure 23(a) as

well as the requirements for certification under one of the

subsections of Federal Rule of Civil Procedure 23(b).

I. Rule 23(a)

Rule 23(a) permits district courts to certify class action

lawsuits if: (1) the class is so numerous that joinder of all class

members is impracticable ; (2) there are questions of law or fact

common to the class; (3) the claims or defenses of the

representative parties are typical of the claims or defenses of the

class; and (4) the representative parties will fairly and

adequately protect the interests of the class. Fed. R. Civ. P.

23(a).

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A. Class Definition

Defendants claim that the class as defined is too broad in

that it includes investors who have no claims because they sold

their JDS stock prior to the first alleged revelations of

misconduct. Plaintiffs argue that class certification is not the

appropriate time to exclude certain potential class members'

damages claims, and that exclusion is inappropriate because all

class members have alternative § 10(b) claims which may be proved. 

"[I]n order to maintain a class action, the class sought to be

represented must be adequately defined and clearly ascertainable." 

DeBremaeker v. Short, 433 F.2d 733, 734 (5th Cir. 1970) (citing

Weisman v. MCA Inc., 45 F.R.D. 258 (D. Del. 1968)). However, Rule

23 does not give "a court any authority to conduct a preliminary

inquiry into the merits of a suit in order to determine whether it

may be maintained as a class action." Eisen v. Carlisle &

Jacquelin, 417 U.S. 156, 177 (1974). The question is not "whether

plaintiffs have stated a cause of action, but rather whether the

requirements of Rule 23 have been met." Id. at 178. 

Where a clearly ascertainable segment of a proposed class

cannot recover for the alleged wrong, courts have redefined the

class to exclude that segment. See, e.g., In re Bank One Sec.

Litig., 2002 WL 989454, *8 (N.D. Ill. May 14, 2002) (excluding from

certified class with claims under Sections 11 and 12 those

investors who profited on their stock purchase by selling prior to

a specified date). Other courts have postponed similar

determinations until a later stage and declined to exclude

particular segments. See Wade v. Indus. Funding Corp., 1993 WL

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1The Court notes that, to the extent that Lead Plaintiff

relies on the Court's July 21, 2005 order for the proposition that

any investors who profited by selling prior to a corrective

disclose can recover damages in a § 10(b) action, Lead Plaintiff

misconstrues that order. The Court found that Lead Plaintiff

adequately alleged economic harm when it claimed that Defendants

artificially boosted the price of JDS stock, which then fell due to

subsequent disclosures regarding Defendants' misrepresentations and

JDS' true financial state. See In re Daou Sys., Inc., 411 F.3d

1006, 1027 (9th Cir. 2005) (holding in the context of a motion to

dismiss that plaintiffs' economic loss adequately alleged due to

decline in stock value resulting from defendant's

misrepresentations) (citing Dura Pharms., Inc., v. Broudo, 125 S.

Ct. 1627, 1631-32 (2005)). To the extent that class members

purchased JDS stock at an allegedly inflated price and then sold it

for a profit before any public awareness of fraud or

misrepresentation, they will not demonstrate economic loss as

described In re Daou Sys. 

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594019, *10 (N.D. Cal. 1993) (declining to limit class to those who

sold securities after the alleged fraudulent disclosure was

subsequently cured); Tucker v. Arthur Andersen Co., 67 F.R.D. 482

(S.D. N.Y. 1975) (noting that defendants' request to exclude class

members who sold securities prior to alleged public awareness of

defect "has merit," but deciding class certification not

appropriate time to exclude class members or define calculation of

damages); In re Boesky Litig., 120 F.R.D. 626, 628 (S.D. N.Y. 1988)

(declining to decide issue of loss causation for "in-and-out

traders" on motion for class certification). Excluding certain

class members would require the Court to determine a cut-off date

prior to which class members who sold JDS stock could not recover

damages. The Court declines to exclude such class members at this

time, on the grounds that doing so would involve factual

determinations related to damages that are not appropriately dealt

with in the context of this class certification.1 

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B. Numerosity

“The prerequisite of numerosity is discharged if ‘the class is

so large that joinder of all members is impracticable.’” Hanlon v.

Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. 1998) (quoting Fed.

R. Civ. P. 23(a)(1)). During the class period, JDS had more then

1.3 billion shares of common stock outstanding and traded on the

NASDAQ stock market. Defendants do not deny the numerosity of

either the class or any subclass. This requirement is satisfied.

C. Commonality

“A class has sufficient commonality ‘if there are questions of

fact and law which are common to the class.’” Id. (quoting Fed. R.

Civ. P. 23(a)(2)). “All questions of fact and law need not be

common to satisfy this rule. The existence of shared legal issues

with divergent factual predicates is sufficient, as is a common

core of salient facts coupled with disparate legal remedies within

the class.” Id. Here, the claims of all class members “stem from

the same source,” id. at 1019-20, namely, Defendants' alleged

scheme to inflate artificially the price of JDS stock; Defendants

do not deny that both the class and subclasses share sufficient

commonality. The Court finds that the allegations against

Defendants are sufficient to satisfy the commonality requirement of

Rule 23(a)(2).

C. Typicality

“The typicality prerequisite of Rule 23(a) is fulfilled if

‘the claims or defenses of the representative parties are typical

of the claims or defenses of the class.’” Id. at 1020 (quoting

Fed. R. Civ. P. 23(a)(3)). The test for typicality is "whether

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other members have the same or similar injury, whether the action

is based on conduct which is not unique to the named plaintiffs,

and whether other class members have been injured by the same

course of conduct." Hanon v. Dataproducts Corp., 976 F.2d 497, 508

(9th Cir. 1992) (quoting Schwartz v. Harp, 108 F.R.D. 279, 282

(C.D. Cal. 1985)). “[R]epresentative claims are ‘typical’ if they

are reasonably co-extensive with those of absent class members;

they need not be substantially identical.” Hanlon, 150 F.3d at

1020. However, "a named plaintiff's motion for class certification

should not be granted if 'there is a danger that absent class

members will suffer if their representative is preoccupied with

defenses unique to it.'" Hanon, 976 F.2d at 508 (quoting Gary

Plastic Packaging Corp. v. Merrill Lynch, 903 F.2d 176, 180 (2nd

Cir. 1990)). 

Defendants do not dispute that Lead Plaintiff is sufficiently

typical of the proposed class, and that Houston is sufficiently

typical of the proposed SDL subclass. In the cases of Lead

Plaintiff and Houston, the typicality requirement is satisfied

because they and the other members of the proposed class and

subclass “all have claims arising from the [same] fraudulent

scheme.” In re: Prudential Ins. Co. of Am. Sales Practices Litig.,

148 F.3d 283, 311 (3rd Cir. 1998) (noting that “cases challenging

the same unlawful conduct which affects both the named plaintiffs

and the putative class usually satisfy the typicality requirement

irrespective of the varying fact patterns underlying the individual

claims”).

The claims of Oklahoma and Mr. McCool also arise out of the

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same fraudulent scheme and challenge the same unlawful conduct. 

Defendants argue that they are subject to unique defenses and

therefore are not sufficiently typical to represent the OCLI and ETEK subclasses. Oklahoma and Mr. McCool may be subject to defenses

regarding some of their Section 11 and 12 claims. However, as Lead

Plaintiff notes, many class members will have sold securities prior

to some or all disclosures of JDS' unlawful conduct; neither

Oklahoma nor Mr. McCool is necessarily atypical. Defendant has not

shown that these defenses will so preoccupy Oklahoma and Mr. McCool

that the interests of absent class members will suffer. If

conflicts do arise within the class or subclasses relating to

damages, the Court may subdivide the class or appoint additional

class representatives, as appropriate. The Court also notes that

the parties have not shown that subclasses are necessary at this

stage. 

D. Adequacy

“The final hurdle interposed by Rule 23(a) is that ‘the

representative parties will fairly and adequately protect the

interests of the class.’” Hanlon, 150 F.3d at 1020 (quoting Fed.

R. Civ. P. 23(a)(4)). “Resolution of two questions determines

legal adequacy: (1) do the named plaintiffs and their counsel have

any conflicts of interest with other class members and (2) will the

named plaintiffs and their counsel prosecute the action vigorously

on behalf of the class?” Id. Here, there is no evidence that

proposed class representatives or their counsel have any conflicts

of interest with other class members. 

Defendants maintain that Lead Plaintiff is an inadequate

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2

Defendants do not dispute the adequacy of Oklahoma, Mr.

McCool or Houston as subclass representatives. 

9

representative of the class because it lacks legal authority under

the Private Securities Litigation Reform Act (PSLRA) and because it

has ceded control of the case to its counsel.2 These arguments are

addressed in turn. 

Defendants note that the purpose of the PSLRA was to address

the perceived problem of "lawyer-driven" securities lawsuits, and

claim that Lead Plaintiff, a retirement fund for Connecticut State

employees, is therefore an inadequate class representative because

it is subject, by statute, to the supervision of the Connecticut

Attorney General. See Conn. Gen. Stat. § 3-125 ("The Attorney

General shall have general supervision over all legal matters in

which the state is an interested party, except those legal matters

over which prosecuting officers have direction.") The purpose of

the PSLRA was to

protect investors who join class-actions against lawyer-driven

lawsuits by increasing the likelihood that parties with

significant holdings in issuers, whose interests are more

strongly aligned with the class of shareholders, will

participate in the litigation and exercise control over the

selection and action of plaintiff's counsel. In particular,

Congress sought to encourage institutional investors to take a

more active role [].

In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002) (internal

quotations and citations omitted). The fact that the Connecticut

Attorney General is responsible for supervising Lead Plaintiff's

litigation does not violate the PSLRA. See In re Gemstar-Tv Guide

Int'l Sec. Litig., 209 F.R.D. 447 (C.D. Cal. 2002) (approving as

lead plaintiff Louisiana pension fund and noting that the PSLRA

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"was not intended to prevent institutional investors from acting

through their representatives, often in-house counsel"); Feder v.

Elec. Data Sys., 429 F.3d 125, 129-134 (5th Cir. 2005) (approving

Department of Treasury of the State of New Jersey as adequate lead

plaintiff despite oversight of New Jersey's litigation interest by

retired judge paid by class counsel). Indeed, a determination that

a State institutional investor such as Lead Plaintiff was

inadequate would be a perverse result, in light of the purpose of

the PSLRA. 

Somewhat inconsistently, Defendants also claim that Lead

Plaintiff has "abdicated responsibility for case management" to its

outside counsel, Labaton Sucharow. In order to be an adequate

representative, Lead Plaintiff "must display some minimal level of

interest in the action, familiarity with the practices challenged,

and ability to assist in decision making as to the conduct of the

litigation." Sullivan v. Chase Investment Serv. of Boston, Inc.,

79 F.R.D. 246, 259 (N.D. Cal. 1978). A proposed class

representative "who is unfamiliar with the case will not serve the

necessary role of 'check[ing] the otherwise unfettered discretion

of counsel in prosecuting the suit.'" Welling v. Alexy, 155 F.R.D.

654, 659 (N.D. Cal. 1994) (quoting Weisman v. Darneille, 78 F.R.D.

669, 671 (S.D. N.Y. 1978)). "Courts have developed a standard of

'striking unfamiliarity' to assess a representative's adequacy in

policing the prosecution of his or her lawsuit." Id. 

Denise Nappier, Treasurer of the State of Connecticut, is the

Trustee for Lead Plaintiff. Her fiduciary duties include recovery

of losses incurred due to corporate malfeasance and safeguarding of

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assets under her care. Harwood Decl., Ex. A, Nappier Dep. 25:10-

25. Her general counsel, Catherine LaMarr, assisted by the

Connecticut Attorney General's office, oversees the work of outside

counsel. Nappier Dep. 49:13-23. Treasurer Nappier relies

"heavily" on the recommendations of Ms. LaMarr, and assumes that

Ms. LaMarr considers the opinion of outside counsel in making

decisions. Id. 44:7-24. The fact that the Treasurer of

Connecticut derives her knowledge of the lawsuit from her in-house

counsel does not mean that Lead Plaintiff is insufficiently

informed to represent the class. The case law cited by Defendants

is inapposite because it reflects concerns regarding plaintiffs

whose knowledge of a case may be entirely derived from outside

counsel. E.g., Berger v. Compaq Computer Corp., 257 F.3d 475, 483

n.18 (5th Cir. 2001). 

 Ms. LaMarr states that she herself is in frequent, sometimes

daily contact with Labaton Sucharow, to "develop strategy, approve

decisions, and actively supervise and monitor the case." LaMarr

Decl. ¶ 4. She directed preservation of evidence, reviews and

frequently comments on most pleadings before they are filed,

participates in conference calls and sat for depositions. Id.

¶¶ 5-8. The fact that Ms. LaMarr may have relied on outside

counsel for verification of the truth of some pleadings, such as

statements of confidential witnesses, Patz Decl., Ex. A, LaMarr

Dep. 145:13-148:9, does not mean that she is unfamiliar with the

case or that Lead Plaintiff is an inadequate class representative. 

The Court finds that Lead Plaintiff is sufficiently familiar with

the case to fulfill the adequacy requirement. 

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II. Rule 23(b)(3)

Having met the prerequisites of Federal Rule of Civil

Procedure 23(a) for class certification, Lead Plaintiff and the

other named Plaintiffs are entitled to proceed on a class basis if

they meet the requirements of one of the subsections of Federal

Rule of Civil Procedure 23(b). Here, Lead Plaintiff seeks to

proceed under Federal Rule of Civil Procedure 23(b)(3). “To

qualify for certification under this subsection, a class must

satisfy two conditions in addition to the Rule 23(a) prerequisites:

common questions must ‘predominate over any questions affecting

only individual members,’ and class resolution must be ‘superior to

other available methods for the fair and efficient adjudication of

claims.’” Hanlon, 150 F.3d at 1022 (quoting Fed. R. Civ. P.

23(b)(3)).

A. Predominance

“The Rule 23(b)(3) predominance inquiry tests whether proposed

classes are sufficiently cohesive to warrant adjudication by

representation.” Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 623

(1997). “When common questions present a significant aspect of the

case and they can be resolved for all members of the class in a

single adjudication, there is clear justification for handling the

dispute on a representative rather than an individual basis.” 

Hanlon, 150 F.3d at 1022 (internal quotation marks omitted). Here,

common questions include whether Defendants' acts or omissions

violated applicable portions of the Exchange Act and the Securities

Act, whether the individual Defendants were liable for the acts and

omissions of JDS, and whether statements made by Defendants during

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the class period misrepresented material facts about JDS' business

prospects, performance and financial condition. Common questions

thus predominate over individual questions in this case.

B. Superiority

“Rule 23(b)(3) also requires that class resolution must be

‘superior to other available methods for the fair and efficient

adjudication of the controversy.’” Id. at 1023 (quoting Fed. R.

Civ. P. 23(b)(3)). “The policy at the very core of the class

action mechanism is to overcome the problem that small recoveries

do not provide the incentive for any individual to bring a solo

action prosecuting his or her rights.” Amchem, 521 U.S. at 617. 

In securities cases such as this, the damages of smaller investors

are likely to be too small to justify litigation, but a class

action would offer those with small claims the opportunity for

meaningful redress. A class action is the superior method of

resolving this controversy.

CONCLUSION

For the foregoing reasons, the Court GRANTS Lead Plaintiff's

motion (Docket No. 309) for class certification and appointment of

class representatives and class counsel. Lead Plaintiff shall

submit a proposed class notice plan within one month of the date of

this order. 

IT IS SO ORDERED.

Dated: 12/21/05 

CLAUDIA WILKEN

United States District Judge

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