Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-05642/USCOURTS-cand-5_03-cv-05642-3/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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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

ROBERT W. BAKER, JR., individually and on

behalf of all others similarly situated, 

 Plaintiff,

 v.

JOEL M. ARNOLD, et al.,

 Defendants.

Case Number C 03-05642 JF

ORDER CONSOLIDATING

RELATED ACTIONS,

APPOINTING LEAD PLAINTIFF,

AND DENYING OTHER MOTIONS

HEARD ON APRIL 12, 2004

[Docket Nos. 18, 29, 33, 37, 39, 45, 49,

55, 57, 60, 61, 68 & 88]

On April 12, 2004, the Court heard argument regarding motions for consolidation of

related securities class actions, for appointment of lead plaintiff and approval of lead plaintiff’s

counsel, for leave to take limited discovery, to strike a late-filed opposition, and for an order for

preservation of documents and certification of preservation. The Court has read and considered

the briefing submitted by the parties. For the reasons set forth below, the Court will consolidate

the related actions, appoint Connecticut Retirement Plans and Trust Funds as lead plaintiff and

deny all other motions. 

//

Case 5:03-cv-05642-JF Document 220 Filed 08/10/05 Page 1 of 11
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1

 The eleven related actions are: Baker v. Arnold, et al., C 03-05642 JF; Stremple v.

Arnold, et al., C 03-5799 JF; Deutsch v. Arnold, et al., C 03-05870 JF; Panzer v. Cronan, et al.,

C 04-00085 JF; Grimes v. Cronan, et al., C 04-00190 JF; Chermak v. Arnold, et al.,

C 04-00251 JF; Gillis v. Arnold, et al., C 04-00280 JF; Hansen v. Cronan, et al., C 04-00359 JF;

Hwang v. Arnold, et al., C 04-00568 JF; Lederman v. Cronan, et al., C 04 00586 JF; and Smajlaj

v. Arnold, et al., C 04-00607 JF.

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

I. BACKGROUND

Before the Court are eleven related class action lawsuits asserting claims for securities

fraud pursuant to sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b5 promulgated thereunder. All of these cases have been transferred to this Court pursuant to its

Related Case Order, dated March 3, 2004.1 The plaintiffs in each of these lawsuits allege that

officers and directors of Redback Networks, Inc. (“Redback”) made false and misleading

statements to the investing public concerning Redback’s financial condition and its relationship

with Qwest Communications International, Inc. Plaintiffs further allege that the statements

caused members of the class to purchase Redback’s securities at artificially inflated prices.

Several parties have moved for consolidation of the eleven actions. Ten plaintiffs or

groups of plaintiffs have filed competing motions for appointment as lead plaintiff and approval

of lead plaintiff’s counsel. Additionally, there is (1) a request for leave to take limited discovery;

(2) a request to strike a late-filed opposition to a motion for appointment as lead plaintiff; and (3)

a motion for an order for preservation of documents relating to this litigation and certification

that relevant documents or other information have not been knowingly destroyed, altered, or

concealed.

II. LEGAL STANDARD

Appointment of lead plaintiff in private securities class actions is governed by the Private

Securities Litigation Reform Act of 1995 (“PSLRA”), Pub. L. No. 104-67, 109 Stat. 737

(codified at 15 U.S.C. §§ 77z-1, 77z-2, 78j-1, 78u-4, 78u-5). The PSLRA provides that the

Court shall resolve any motions to consolidate prior to considering the issue of appointing a lead

plaintiff. See 15 U.S.C. § 78u-4(a)(3)(B)(ii). As soon as is practicable thereafter, the Court shall

Case 5:03-cv-05642-JF Document 220 Filed 08/10/05 Page 2 of 11
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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

appoint “the most adequate plaintiff” to act as lead plaintiff for the litigation. Id. § 78u4(a)(3)(B)(ii). The Court shall adopt a presumption that the most adequate plaintiff is the

plaintiff or group of plaintiffs that: (1) has either filed the complaint or made a motion in

response to a notice advising potential class members of the action; (2) has the largest financial

interest in the relief sought by the class; and (3) otherwise satisfies the adequacy and typicality

requirements of Federal Rule of Civil Procedure 23. See 15 U.S.C. § 78u-4(a)(3)(B)(iii). A

prima facie showing of adequacy and typicality is determined on the basis of the movant’s

complaint, sworn certification, and other relevant submissions, without considering the

objections of other movants. See In re Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002). The

typicality requirement is satisfied when the movant has suffered the same injuries as the class as

a result of the same course of conduct, and has claims based on the same legal issues. See Hanon

v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992). The adequacy requirement is satisfied

when the movants’ interests coincide with those of the class, and when the movant has the ability

to prosecute the action vigorously through the services of competent counsel. See Armour v.

Network Associates, Inc., 171 F.Supp.2d 1044, 1052 (N.D. Cal. 2001). The statutory

presumption in favor of a movant for lead plaintiff may be rebutted only upon proof that the

movant will not fairly and adequately protect the interests of the class, or is subject to unique

defenses which would prevent adequate representation of the class. See 15 U.S.C. § 78u4(a)(3)(B)(iii)(II).

III. DISCUSSION

A. Consolidation

All parties that have briefed the issue of consolidation agree that consolidation is

appropriate in this case. All of the lawsuits are based upon a “fraud on the market” theory arising

out of the same alleged false and misleading statements. Under these circumstances, the Court

concludes that consolidation of all the related actions will promote judicial efficiency. 

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

Accordingly, the Court will consolidate the actions pursuant to Federal Rule of Civil Procedure

42(a). 

The Court has issued an Order Granting Motions to Consolidate Related Actions in

conjunction with this order. 

B. Lead Plaintiff

1. Statutory Presumption

The plaintiffs or groups of plaintiffs that have filed competing motions to be appointed

lead plaintiff are: (1) the Cvitkovic Group; (2) the Connecticut Retirement Plans and Trust

Funds (“Connecticut Trust Funds”); (3) Richard Wimble; (4) David Garden; (5) Jerome Deutsch;

(6) Prena Smajlaj; (7) the Central States, Southeast and Southwest Areas Pension Fund (“Central

States”); (8) Tom Gordon; (9) the Bartnik Group; and (10) Nimish Patel and Stewart Richer (the

“Patel Group”). All movants satisfy the requirement of having filed a complaint or filed a timely

motion for appointment; however, the Bartnik Group has withdrawn its motion. 

Two movants stand out by far as having the largest financial interest in the relief sought

by the class. Central States claims a loss of approximately $3,997,563, while Connecticut Trust

Funds claims a loss of approximately $3,323,994. Both movants suffered the same alleged

injuries as other class members as a result of the same alleged course of conduct by Defendants,

and their claims are based on the same legal issues. Nothing in their submissions indicate that

their interests do not coincide with those of the class. Moreover, both movants are sophisticated

institutional investors, the type of investors Congress anticipated and intended would serve as

lead plaintiffs, with the present ability to prosecute the action vigorously through the services of

competent counsel. See In re Cavanaugh, 306 F.3d at 737. Accordingly, the Court finds that

Central States and Connecticut Trust Funds satisfy the prima facie requirements for typicality and

adequacy. 

The loss reported by Central States is challenged only by Connecticut Trust Funds, which

requests leave to take limited discovery of Central States in order to test the accuracy of Central

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

States’ loss calculations. Connecticut Trust Funds, however, proffers no reasonable basis

particular to the instant case as to why it believes Central States’ claimed loss might be

overstated by as much as twenty percent, or $673,569, the amount by which Central States’ loss

exceeds its own loss. Central States has provided a schedule of its purchases and sales, historical

prices of Redback common stock, and its calculation of loss, yet there is no claim that the stock

prices on Central States’ transaction schedule are inaccurate, or that its method of calculation is

otherwise incorrect or improper. The Court therefore denies Connecticut Trust Funds’ request

for leave to take limited discovery.

The two next highest claimed losses are substantially lower at $1,034,493 by the Patel

Group, and at $520,811 by the Bartnik Group. The Court thus adopts the presumption that

Central States is the most adequate plaintiff to act as lead plaintiff.

2. Rebuttal of Statutory Presumption

Connecticut Trust Funds opposes Central State’s motion for appointment as lead plaintiff. 

Central States notes that Connecticut Trust Funds’ opposition was filed one day late and thus

moves that it be stricken. The Court in its discretion denies the motion and will consider

Connecticut Trust Funds’ opposition, as it is in the best interest of all class members that the

most adequate plaintiff be identified. Central States had sufficient time to file a reply, which the

Court has fully considered. On the merits, the Court concludes that Connecticut Trust Funds

sufficiently rebuts Central States’ prima facie showing of adequacy.

In its opposition, Connecticut Trust Funds points out that Central States has been

operating under a consent decree with the United States Department of Labor since 1982 arising

from allegations of mismanagement and corruption in the 1970s. See generally Chao v. Estate of

Fitzsimmons, No. 78C 342, 78 C 4075, 82 C 7951, 2003 WL 22723424, at *1 (N.D. Ill. Nov. 18,

2003) (discussing the consent decree). Connecticut Trust Funds makes reference to a recent

order from the District Court resolving a deadlock between the trustees appointed by employees

and the trustees appointed by employers relating to benefit reductions necessary to avoid an

annual funding deficiency which is projected to occur as early as this year. See id. at*1-3. Such

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

funding deficiency would violate Section 302 of the Employee Retirement Income Security Act

of 1974 (ERISA), 29 U.S.C. § 1082, as well as the express terms of the consent decree. Id. at

*3. Connecticut Trust Funds argues that the projected funding deficiency will distract Central

States from adequately representing the interests of the class. Central States asserts that some

measures have already been taken to avoid a funding deficiency, citing macroeconomic factors

that adversely affected every pension fund in the United States. Central States has not shown,

however, that its financial circumstances have changed such that a funding deficiency is no

longer imminent. 

Connecticut Trust Funds also contends that the consent decree restricts the ability of

Central State’s trustees to make investment decisions and requires that an independent special

counsel monitor and report on Central States’ activities. Connecticut Trust Funds argues that

because Central States is not even permitted to manage the assets and pension funds of its own

beneficiaries independently, it should not be placed in a position to manage litigation impacting

the entire class. Central States notes that the consent decree provides specifically that its trustees

have responsibility for administering the fund. It also points out that the consent decree does not

affect the right and authority of its trustees to seek lead plaintiff status. Although the consent

decree does not preclude Central States from seeking lead plaintiff status, the Court is mindful of

the fact that Central States remains under federal supervision as to its financial condition and is

not entirely a “free agent” under circumstances in which a funding deficiency or other violations

of the consent decree is imminent. The Court is concerned that the best interests of the class may

not be served adequately by a lead plaintiff operating under such circumstances during settlement

negotiations, which are a normal, if not universal, occurrence in securities class actions.

Finally, Connecticut Trust Funds contends that Central States has created a conflict of

interest by designating the law firm of Milberg Weiss Bershad Hynes & Lerach LLP (“Milberg”)

to serve as lead plaintiff’s counsel. Connecticut Trust Funds argues that the conflict arises from

Milberg serving as lead counsel in the class action involving Redback’s initial public offering, In

re Redback Networks, Inc. Initial Public Offering Sec. Litig., No. 01 Civ. 6090 (S.D. N.Y.) (the

“IPO litigation”), which alleges that conduct by defendant underwriters created artificial demand

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

for Redback securities. The class period of the IPO litigation of May 17, 1999 to December 6,

2000 overlaps with the instant class period of April 12, 2000 to October 1, 2003. According to

Connecticut Trust Funds, plaintiffs in the IPO litigation will seek to establish that the stock was

inflated due to market manipulation by the defendant underwriters, while plaintiffs in the instant

action will seek to establish that the inflation was due to Redback’s false and misleading

statements. 

Central States contends that there would be such a conflict if only Milberg were to

represent separate classes against overlapping defendants such that there would be a common

fund from which the two classes seek recovery. Central States points out that the only common

defendant in the IPO litigation and the instant action is Dennis Barsema, and that because the

claims against Barsema in the IPO litigation have been settled, there is no common fund from

which both classes seek recovery. It is unclear, however, that a conflict of interest arises only

when there is a limited common fund or a common defendant. See 5 J. MOORE, ET AL., MOORE’S

FEDERAL PRACTICE § 23.25[3][e] (2003). The fact remains that Milberg is continuing to pursue

claims against other defendants in the IPO litigation and thus, represents class members whose

allegations conflict with those of the instant class. It is more than a remote or hypothetical

possibility that plaintiffs in the IPO litigation, through Milberg, would seek to prove that the

stock was inflated primarily by the underwriters, while plaintiffs in the instant action would seek

to prove that it was inflated primarily by Redback. While the choice of counsel with a conflict

of interest is only one indicator of a presumptive lead plaintiff’s fitness, see In re Cavanaugh,

306 F.3d at 733, the Court concludes that the combination of the restrictions imposed on Central

States by the consent decree, Central States’ projected funding deficiency and consequent

violation of the consent decree, and the selection of counsel with a non-trivial conflict of interest

rebuts the presumption of Central States’ adequacy.

The inquiry thus turns to Connecticut Trust Funds, the movant with the second-largest

financial stake in the outcome of the lawsuit. As previously noted, Connecticut Trust Funds is a

sophisticated institutional investor with the present ability to prosecute the action vigorously

through the services of competent counsel. Other movants for appointment as lead plaintiff 

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2

 Central States points out that § 802 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.

§ 1519, makes it a crime to knowingly destroy documents relevant to a federal investigation. 

Notwithstanding the fact that the instant case is a private securities action, Central States

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

present no challenge to Connecticut Trust Funds’ prima facie showing of typicality and

adequacy. Accordingly, the Court concludes that Connecticut Trust Funds is the most adequate

plaintiff.

C. Preservation of Documents and Certification

Central States moves for an order for preservation of documents relating to this litigation

and for certification that the documents or other information has not been knowingly destroyed,

altered, or concealed. However, the PSLRA already provides that “all discovery and other

proceedings shall be stayed during the pendency of any motion to dismiss . . .” 15 U.S.C. § 78u4(b)(3)(B). This discovery stay has been construed by the Ninth Circuit to apply “not only during

the pendency of a motion to dismiss, but until the Court has sustained the legal sufficiency of the

complaint.” In re JDS Uniphase Corp. Sec. Litig., 238 F.Supp.2d 1127, 1133 (N.D. Cal. 2002). 

Further, the PSLRA requires that during the pendency of the discovery stay, the parties to the

action “shall treat all documents, data compilations (including electronically recorded or stored

data), and tangible objects that are in the custody or control of such person and that are relevant

to the allegations, as if they were the subject of a continuing request for production of documents

from an opposing party under the Federal Rules of Civil Procedure.” 15 U.S.C. § 78u4(b)(3)(C)(i). Thus, although there is presently no motion to dismiss pending, the parties already

are obligated under the PSLRA to preserve documents and other relevant information as the

Court has not sustained the legal sufficiency of a consolidated complaint, which has yet to be

filed. The Court thus concludes that order to preserve documents is unwarranted. 

Central States also seeks certification from defendants that documents and other

information have not been knowingly destroyed, altered, or concealed. However, Central States

proffers no factual basis to indicate that Defendants will not comply with PSLRA’s preservation

provision, nor does it cite persuasive authority for its request.2 The PSLRA provides for other

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contends that its request of certification is supported by the legislative history of § 802, which

indicates a general desire to ensure more effective inquiries into securities fraud.

9

Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

means of ensuring compliance with its document preservation provision. Central States may

move for particularized discovery if such discovery is necessary to preserve evidence or to

prevent undue prejudice. 15 U.S.C. § 78u-4(b)(3)(B). Central States also may apply to the

Court for an order awarding appropriate sanctions upon willful failure of Defendants to comply

with preservation provision. Id. § 78u-4(b)(3)(C)(ii). Accordingly, the Court concludes that

Central States’ request for certification of preservation is unwarranted.

IV. ORDER

 Good cause therefore appearing, IT IS HEREBY ORDERED that:

(1) The related actions are consolidated under Case No. 03-05642 JF for all purposes

including trial pursuant to the Order Granting Motions to Consolidate Related

Actions, issued in conjunction with this order; the docket in Case No. C 03-05642

JF shall constitute the Master Docket for this litigation;

(2) Connecticut Retirement Plans and Trust Funds’ motion for leave to take limited

discovery as to Central States, Southeast and Southwest Areas Pension Fund’s

claimed loss is DENIED;

(3) Central States, Southeast and Southwest Areas Pension Fund’s motion to strike

Connecticut Retirement Plans and Trust Funds’ opposition is DENIED;

(4) Connecticut Retirement Plans and Trust Funds is appointed Lead Plaintiff

pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u4(a)(3)(b); 

(5) Connecticut Retirement Plans and Trust Funds shall submit its selection of Lead

Counsel for the Class to the Court pursuant to 15 U.S.C. § 77z-1(a)(3)(B)(v)

within ten (10) days of this Order; and

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

(6) Central States, Southeast and Southwest Areas Pension Fund’s motion for and

order for preservation of relevant documents and certification that relevant

documents or other information has not been knowingly destroyed, altered, or

concealed is DENIED.

DATED: May 17, 2004

 /s/ electronic signature authorized 

JEREMY FOGEL

United States District Judge 

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Case No. C 03-05642 JF

ORDER CONSOLIDATING RELATED ACTIONS, APPOINTING LEAD PLAINTIFF, AND DENYING OTHER

MOTIONS HEARD ON APRIL 12, 2004

(JFEX2)

Copies of this Order have been served on following persons:

Robert A. Jigarjian

CAND.USCOURTS@CLASSCOUNSEL.COM

Robert S. Green 

CAND.USCOURTS@CLASSCOUNSEL.COM

John P. Stigi, III

jstigi@wsgr.com

Luke O. Brooks

lukeb@mwbhl.com

Marlon Quintanilla Paz

mpaz@gelaw.com

Marc L. Godino

service@secfraud.com

Betsy C. Manifold 

manifold@whafh.com

Rachele R. Rickert 

rickert@whafh.com

Darren J. Robbins

DRobbins@mwbhl.com

Kristin Anne Dillehay

kdillehay@wsgr.com

Michael M. Goldberg 

info@glancylaw.com

Mark C. Gardy 

Abbey Gardy, LLP 

212 East 39th Street 

New York, NY 10016

Stuart M. Grant 

1201 N. Market Street 

Suite 2100 

Wilmington, DE 19801

Charles H. dufresne 

Abbey Gardy, LLP 

212 East 39th Street 

New York, NY 10016

Case 5:03-cv-05642-JF Document 220 Filed 08/10/05 Page 11 of 11