UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

TDH PARTNERS LLP, Individually and On §

Behalf of All Others Similarly Situated, §

§

§ 3:04-CV-0073-B

§

Plaintiff, § Consolidated with:

§ 3:04-CV-0397-B

§ 3:05-CV-0231-B

v. § 3:06-CV-0022-B

§

RYLAND GROUP, INC., et al., §

§

Defendants. §

MEMORANDUM ORDER

Before the Court are: 1) Plaintiff Alldian’s Motion for Substitution of Lead Plaintiff, or in the

Alternative, Appointment of Jennifer Alldian as Lead Plaintiff (doc. 40); 2) Plaintiffs’ Motion for

Reconsideration, or in the Alternative, Motion for [sic] Amend or Alter This Court’s September 1,

2005 Order (doc. 41); and 3) the parties’ briefing regarding the viability of Plaintiffs’ claims in the

wake of this Court’s dismissal of the Consolidated Action Complaint on September 1, 2005. Having

considered the parties’ briefing and applicable legal authorities, for the following reasons the Court

finds that Plaintiff Jennifer Alldian should be substituted as lead plaintiff in this matter. Accordingly,

the Court GRANTS Plaintiff Alldian’s Motion for Substitution and GRANTS in part Plaintiffs’

Motion for Reconsideration. 

I. Factual and Procedural Background

This is a consolidated securities class action lawsuit against Ryland Group, Inc. (“Ryland”)

and two of its officers brought on behalf of various purchasers of Ryland stock from October 3, 2003

to January 7, 2004 (the “Class Period”). Plaintiffs allege that Ryland, a nationwide home builder,

 

 Case 3:04-cv-00073-B Document 45 Filed 06/02/06 Page 1 of 19 PageID 396
 To be precise, this case was filed by Susan Cucinotta, Trustee of Robert Cucinotta Irrevocable 1

Reversionary Trust U/T/D 11/30/2001. 

2

misrepresented the level of the company’s new home orders during the Class Period and that these

misrepresentations artificially inflated the price of Ryland stock. (See generally Consolidated Am.

Class Action Compl. [“CAC”]). According to Plaintiffs, the rosy sales picture that Ryland publicly

presented during the Class Period assumed a decidedly darker aspect the day after that period ended

– January 8, 2004 – when Ryland announced a decline in fourth quarter home sales caused by a

pronounced decline in the number of orders emanating from Ryland’s key Texas market. (CAC at

¶¶ 19-23). Plaintiffs allege that these revelations caused the price of Ryland stock to drop from

$83.05 per share on January 7, 2004 to $72.89 per share the following day on January 8. (CAC at

¶ 57).

On January 15, 2004, TDH Partners, LLP (“TDH”) filed the first class action suit against

Ryland and published notice of the suit on PR Newswire that same day. See TDH Partners, LLP v.

Ryland Group, Inc. et al., 3:04-CV-0073-G. Similar class action complaints soon followed: DuBray

v. Ryland Group, Inc. et al., 3:04-CV-0397-G (filed February 24, 2004) and Cucinotta v. Ryland 1

Group, Inc., et al., 3:04-CV-0541-M (filed March 15, 2004). The DuBray and Cucinotta Actions were

transferred to Judge Fish and consolidated with the TDH Action on April 5, 2004. Two individuals

– Lorra Rudman and Susan Cucinotta – filed motions to be appointed lead plaintiff within 60 days

of the publication of notice. Although Rudman and Cucinotta later stipulated to serve as co-lead

plaintiffs and to have their respective counsel serve as co-lead counsel and liaison counsel, by order

entered May 20, 2004, Judge Fish determined that Cucinotta alone was the most adequate plaintiff

under the PSLRA and accordingly appointed her lead plaintiff. (May 20, 2004 Memorandum Order

 

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 Simply stated, “loss causation” is a term of art in securities law that describes the causal 2

connection that a plaintiff must establish between the material misrepresentation(s) made by the

defendant and the loss suffered by the plaintiff. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 342

(2005). In Dura, the Supreme Court held that a plaintiff cannot satisfy the loss causation requirement

simply by alleging in the complaint and later proving that the price of the securities purchased were

inflated on the date of purchase because of the misrepresentation; rather, a plaintiff must “adequately

allege and prove the traditional elements of causation and loss.” Id. at 346. 

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at 14). Cucinotta’s chosen counsel, Brodsky & Smith, L.L.C., was tabbed as lead counsel. (Id. at

14-15). On July 6, 2004, Plaintiffs filed the CAC to which only Cucinotta and Rudman joined as

Plaintiffs. (CAC at ¶ 6). The consolidated TDH Action was transferred to this Court on July 19,

2004. 

Defendants filed a motion to dismiss the CAC on September 24, 2004, grounded in part on

the argument that Plaintiffs failed to allege “loss causation” because both Cucinotta and Rudman

purchased and sold their Ryland stock prior to the corrective disclosure that occurred on January 8,

2004. After Defendants’ motion to dismiss was filed, on March 2, 2005, Jennifer Alldian filed 2

another class action complaint against Defendants asserting substantially the same facts that were

alleged in the consolidated actions. (Alldian v. Ryland Group, Inc. et al., 3:05-CV-0231-B (filed Feb.

2, 2005). Upon Plaintiffs’ motion, the Court consolidated the Alldian Action with the TDH Action

on March 7, 2005. 

The Court held a hearing on Defendants’ motion to dismiss on August 31, 2005, at which

the Court concluded, following Dura, that the Plaintiffs’ CAC failed to adequately allege loss

causation. Accordingly, the Court entered an order on September 1, 2005 dismissing the CAC;

however, the Court afforded the parties an opportunity to submit briefs on the issue of whether

Plaintiffs should be able to resuscitate their case by allowing Plaintiff Alldian to replace Cucinotta

as lead plaintiff. Since that briefing was submitted, another action has been filed against Ryland.

 

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(See Pipefitters Local No. 636 Defined Benefit Plan v. Ryland Group et al., 3:06-CV-0022-P (filed Jan.

5, 2006). The Pipefitters Action has been transferred to this Court and consolidated with the TDH

Action. 

II. Analysis

A. The Appointment of a Lead Plaintiff Under the PSLRA

Congress enacted the PSLRA to curb perceived abuses in securities fraud lawsuits. See 7B

CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 1806 (3d ed. 2005). Of

concern was the reality that lawyers, not investors, were in many cases driving such litigation,

resulting in the filing of strike suits brought on behalf of only nominally interested plaintiffs. Greebel

v. FTP Software, Inc., 194 F.3d 185, 191 (1 Cir. 1999). As part of the effort to ensure that the reins

st

of litigation remain in the hands of investors rather than lawyers, the PSLRA established a statutory

mechanism for the appointment of a “lead plaintiff” and “lead counsel”. In re Tyco Int’l, Ltd., 2000

WL 1513772, at *1 (D.N.H. Aug. 17, 2000). 

The first part of the appointment processrequires a securities fraud plaintiff to provide notice

of the suit to potential class members. Within 20 days of filing the complaint, a plaintiff must publish

“in a widely circulated national business-oriented publication or wire service” a notice that: 1)

advises purported class members that an action has been filed; 2) describes the claims being asserted;

3) defines the class period; and 4) advises purported class members that they may file a motion to be

appointed “lead plaintiff” so long as the motion is filed within 60 days after the publication of notice

(the “60 day period”). 78 U.S.C. § 78u-4(a)(3)(A)(I). If multiple class actions are filed asserting

substantially the same claims, only the plaintiff in the first-filed action need publish notice. 78

U.S.C. § 78u-4(a)(3)(A)(ii). Any potential class member, not only those that are named as plaintiffs

 

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in a complaint, can move to be appointed lead plaintiff. 78 U.S.C. § 78u-4(a)(3)(B)(I). 

The court must ordinarily consider motions for appointment within 90 days after the

publication of notice. 78 U.S.C. § 78u-4(a)(3)(B)(I). If a motion to consolidate multiple,

substantially similar actions has been filed, however, the court must defer appointing a lead plaintiff

until ruling on the consolidation issue. 78 U.S.C. § 78u-4(a)(3)(B)(ii); See MANUAL FOR COMPLEX

LITIGATION § 31.31 (4 ed. 2005) (noting that the PSLRA’s time constraints are modified when a

th

motion to consolidate multiple actions has been filed). After a decision on consolidation is made,

the court must appoint a lead plaintiff “as soon as practicable.” Id. The statute instructs the court

to appoint as lead plaintiff the member of the putative class that is “most capable of adequately

representing the interests of class members.” 78 U.S.C. § 78u-4(a)(3)(B)(I). The PSLRA creates a

presumption that this is the person or group of persons that: 1) has either “filed the complaint” or

moved to be appointed lead plaintiff in response to the publication of notice; 2) has the largest

financial interest; and 3) meets the requirements of Rule 23 of the Federal Rules of Civil Procedure.

78 U.S.C. § 78u-4(a)(3)(B)(iii)(I). This presumption may be rebutted, however, when a member

of the proposed class proves that the presumptive “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.” 78 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

As recounted in the procedural history described above, these requirements were originally

complied with here, and Cucinotta was determined to be the most adequate plaintiff. However, in

the wake of this Court’s determination that lead plaintiff Cucinotta’s claims, and the CAC as a

whole, should be dismissed for failure to allege loss causation, the class is presently without a lead

plaintiff and without a consolidated class complaint. As a result, Plaintiffs now seek to substitute

 

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Alldian as lead plaintiff, who purportedly does not suffer from the same loss causation problems that

plagued Cucinotta and Rudman. Defendants challenge this substitution, claiming that the Court’s

dismissal of the CAC terminated this action in its entirety and that, in any event, Alldian is barred

from moving to be appointed lead plaintiff because she did not comply with the PSLRA’s strict time

requirements dealing with lead plaintiff appointments.

Defendants urge the Court to deny Alldian’s motion for substitution because she did not

move to be appointed lead plaintiff within 60 days after TDH first published notice of its class action

suit on January 15, 2004. Defendants posit that the 60 day period is mandatory and should be

strictly enforced. Some cases appear to support this view. In In re Telxon Corp. Securities Litigation,

a large pension fund established for the benefit of Florida government employees and retirees – the

Florida State Board of Administrators (“FSBA”) – originally moved to intervene and for appointment

as lead plaintiff within the 60 day window. 67 F.Supp.2d 803, 817 (N.D. Ohio 1999). In the motion

the FSBA asserted a $428,000 loss. Id. The FSBA later filed a complaint outside the 60 day period

asserting a much larger loss based on an extended class period. Id. at 817-18. In ruling on various

competing motions for appointment as lead plaintiff the court held that the size of the FSBA’s loss

must be measured solely by the loss it originally claimed in its timely filing rather than the much

larger loss it later alleged in the complaint filed outside the 60 day period. Id. at 818. In so holding

the court stated that

[t]he PSLRA is unequivocal and allows for no exceptions. All motions for

lead plaintiff must be filed within sixty (60) days of the published notice for the firstfiled action. The plain language of the statute precludes consideration of a financial

loss asserted for the first time in a complaint, or any other pleading, for that matter,

filed after the sixty (60) day window has closed.

The PSLRA imposes stricttime requirements. It even requires that the Court

 

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 The Telxon Court’s decision to not permit the FSBA to supplement its motion for appointment 3

beyond the 60 day window was also motivated in part by equitable concerns. The court noted that the

information contained in the FSBA’s original motion must control because the other groups competing

for lead plaintiff status did not calculate their losses based on the expanded class period alleged in FSBA’s

supplemental filing, and to allow other parties seeking appointment to file supplemental briefs addressed

to the losses they allegedly suffered during the enlarged class period would only serve to further delay the

appointment process. Id. at 819 n. 28.

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consider any motion for lead plaintiff within ninety (90) days of the date on which

notice is published. The obvious intent of these provisions is to ensure that the lead

plaintiff is appointed at the earliest possible time, and to expedite the lead plaintiff

process.

Id. at 818-19. Notwithstanding its declaration that the PSLRA’s deadlines are “unequivocal”, the

court nevertheless noted that if the putative lead plaintiff’s loss were only nominal, “then the court

might be forced to reopen applications for lead plaintiff to others.” Id. at 824 n.37. Thus, the Telxon

Court implicitly suggested that the PSLRA’s deadlines are not entirely inflexible. See Coopersmith

v. Lehman Bros., Inc., 344 F.Supp.2d 783, 792 (D.Mass. 2004) (noting that Telxon “recognized that

circumstances might necessitate adjustments to the PSLRA’s schedule.”).3

Defendants also cite to In re Enron Corp. Securities Litigation, 206 F.R.D. 427 (S.D. Tex.

2002). In Enron, the FSBA and NYC Funds, another large pension fund, joined together and moved

to be appointed lead plaintiff after the 60 day deadline. Id. at 435, 440. The court’s analysis with

respect to their motion centered around its concern that the two funds’ effort to be grouped together

was simply a manipulative device aimed to either vault their losses beyond those of any other

applicant or to mitigate the FSBA’s apparent deficiencies as a lone applicant. Id. at 454-55 (stating

that the FSBA and NYC Funds failed to persuade the court “that they are the kind of cohesive group

envisioned by the statute for Lead Plaintiff.”). While, citing Telxon, the Enron Court did mention

in passing that the supplemental joint motion for appointment filed by the FSBA and NYC Funds

 

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 In a subsequent opinion, the IPO Litigation Court made clear that substitutions should also be 4

permitted in appropriate circumstances where the lead plaintiff lacks standing to pursue class claims. See

In re Initial Public Offering Sec. Litig., 2004 WL 3015304, at *1, 3, 7 (S.D.N.Y. Dec. 27, 2004) (granting

8

was untimely, its decision to deny the motion did not appear to rest exclusively on the fact that it was

filed after the 60 day period had expired. Id. at 455. 

Thus, neither Telxon nor Enron stand unreservedly for the proposition that the 60 day period

can never be extended, and neither opinion addressed the precise question currently facing this Court

– whether a court may appoint a substitute lead plaintiff where the claims of the previously appointed

lead plaintiff fail as a matter of law. The court in In re Initial Public Offering Securities Litigation (the

“IPO Litigation”), upon which Plaintiffs chiefly rely, confronted a more similar situation. 214 F.R.D.

117, 119-21 (S.D.N.Y. 2002). There, after the expiration of the 60 day period, the initial lead

plaintiff withdrew and other plaintiffs in consolidated actions sought to pick up the lead plaintiff

baton. Recognizing that the PSLRA constrains a judge’s discretion in appointing a lead plaintiff, the

court nevertheless concluded that the Act does not prevent a court from substituting a lead plaintiff

when the previously appointed one falters or withdraws:

The PSLRA is entirely silent on the proper procedure for substituting a new lead

plaintiff when the previously certified onewithdraws. It only standsto reason that the

appropriate lead plaintiff would be the next “most adequate” plaintiff in accordance

with the [PSLRA] criteria; the proper application of that criteria, however, is

somewhat affected by the fact that these movants seek to replace already certified lead

plaintiffs. 

Id. at 120. Without explicit direction from the PSLRA, the court deemed timely any movant for lead

plaintiff status who 1) filed a complaint in the consolidated actions; 2) moved for appointment as

lead plaintiff in response to the originally published notice; or 3) moved to be appointed lead plaintiff

within 60 days of the previous lead plaintiff’s withdrawal. Id. 

4

 

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plaintiffs’ motion to substitute lead plaintiffs where the original lead plaintiffs lacked standing to sue

because they did not purchase securities during the class period).

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Contrary to the implication suggested by Defendants, the IPO Litigation Court is not alone

in allowing lead plaintiff appointments after the 60 day period. For example, in Coopersmith v.

Lehman Brothers, Inc., the Massachusetts district court held that the PSLRA does not strictly limit

the pool of potential lead plaintiffs to those that filed motions within 60 days of the publication of

notice. 344 F.Supp.2d 783 (D.Mass. 2004). In Coopersmith, an investor, Terry Swack, originally filed

a class action suit against Lehman on May 14, 2003 and published the requisite notice that same day.

 Id. at 787. Swack was the only party to timely move for appointment as lead plaintiff. After the

expiration of the 60 day period, on August 13, 2003, the district court denied Swack’s motion,

finding that she was not the most appropriate party to serve as lead plaintiff because she had obtained

her securities through a private transaction as opposed to purchasing them on the open market. Id.

at 787-88. On November 10, 2003, another investor, Robert Coopersmith, filed a class action

lawsuit against Lehman and filed a motion to be appointed lead plaintiff on January 9, 2004. Id. at

788. That same day Swack moved to consolidate her case with Coopersmith’s. Id.

The obvious question was whether Coopersmith’s motion for appointment as lead plaintiff

could be considered by the court given that it was filed well beyond the 60 day period. Id. at 789.

The court recognized that would-be lead plaintiffs like Coopersmith are often loath to file motions

for appointment where another party asserting a greater loss has already done so. Id. at 790. Given

that decisions on motions for appointment necessarily come only after the expiration of the 60 day

period (to allow for consideration of all motions filed), if the application filed by the party asserting

the greater loss is ultimately denied, then the specter of a class without the possibility of a lead

 

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plaintiff would be raised if no party that failed to file a motion within the 60 day period could ever

be appointed lead plaintiff. 

The Coopersmith Court refused to countenance such a result, turning for support to the text

of the PSLRA itself and the cases construing it. The court noted that the PSLRA provides that the

most adequate plaintiff is presumed to be either the person (or group of persons) that has “filed the

complaint” or the person (or group of persons) that moved for appointment as lead plaintiff within

the 60 day period. Id. at 790-91. The use of the disjunctive in the statute, the court found, suggests

that the filing of a motion within the 60 day period is just one of the two avenues by which a class

member may become lead plaintiff – the statute also contemplates that the person who has “filed the

complaint” may be appointed. 15 U.S.C. § 78u-4(B)(iii)(I)(aa). Although the statute refers to the

filing of “the” complaint, as opposed to “a” complaint, courts have interpreted this provision to refer

to any of the individual complaints that have been filed. See id. at 791; In re Microstrategy Inc. Sec.

Litig., 110 F.Supp.2d 427, 433 (E.D. Va. 2000) (“Although the plural of ‘complaint’ is not used, it

is nonetheless apparent that in this context the term refers to any of the individual complaints

filed.”); Skwortz v. Crayfish Co., Ltd., 2001 WL 1160745, at *5 (S.D.N.Y. Sept. 28, 2001) (“Where

there is not a timely motion before the court, the PSLRA directs this Court’s attention to the

plaintiffs that have “filed [a] complaint.”). Because Coopersmith had filed a complaint, the court

found that he was not foreclosed from serving as lead plaintiff notwithstanding his failure to file a

motion within the 60 day period. Id. at 792. To hold otherwise, the court noted, would be

inconsistent with the purpose of the PSLRA, which “does not require speed over due consideration

of appropriate candidates.” Id.

The Coopersmith Court further explained that 

 

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the fact that the appointment of lead plaintiff is not to be made until after rulings are

made on motions to consolidate is further evidence that the requirement of filing a

motion for appointment as lead plaintiff within 60 days of the initial notice is not

sacrosanct. The later filed cases do not need to republish any notice. It is obvious

that the consolidation issue may arise after the initial 60 day period has expired, yet

it is equally obvious that the participants in, and facts of, the later filed suits are to

be considered by the court in selecting the lead plaintiff.

Id. at 791. 

This Courtfinds that the greater weight ofthe case authority and the structure of the PSLRA

itself supports the view that the Act does not foreclose from consideration as lead plaintiff those class

members that did not file a motion for appointment within 60 days of the original publication of

notice. Accepting this premise arguendo, Defendants nevertheless argue that the Act requires the

Court to appoint a lead plaintiff within 90 days of the publication of notice. (Defs.’ Resp. in Opp.

to Pls.’ Mots. to Reconsider and to Substitute or Appoint Jennifer Alldian as Lead Plaintiff [“Defs.’

Resp. Brief”] at 3 n.1). Because Alldian did not file her complaint within that time frame,

Defendants contend that she is barred from serving as lead plaintiff. As discussed above, however,

the PSLRA’s timing provisions simply do not address situations where the lead plaintiff, for whatever

reason, withdraws or is otherwise disqualified from serving as lead plaintiff. The Court finds that

allowing lead plaintiff substitutions in appropriate circumstances serves the purposes that the PSLRA

was designed to address and does not run afoul of its express provisions. 

B. Did Alldian Unduly Delay in Moving for Substitution?

Having found that the Court has the power to appoint a lead plaintiff more than 60 or 90 days

after the original publication of notice, the Court must still determine whether Alldian is an

appropriate substitute under the circumstances of this case. Even assuming that lead plaintiffs may

be appointed beyond the 60 day time limitation imposed by the PSLRA, Defendants argue that

 

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Alldian’s motion for substitution should nevertheless be denied because she has failed to provide a

legitimate justification for the delay in filing her motion. For her part Alldian explains that she did

not originally move for appointment as lead plaintiff because 1) at that time Cucinotta was

undisputably the plaintiff with the largest financial loss; and 2) pre-Dura, there was an absence of

Fifth Circuit precedent on the loss causation issue and hence an inadequate basis to challenge

Cucinotta’s status as the court-appointed lead plaintiff. 

The Court understands that class members in Alldian’s position may be dissuaded from

moving for lead plaintiff status where other plaintiffs with much greater losses have applied. See

Coopersmith, 344 F.Supp.2d at 790. This still does not mean, however, that Alldian did not have a

reasonable basis for challenging Cucinotta’s appointment. Alldian claims that she did not do so

during the original 60 day period because the Fifth Circuit had not yet addressed the issue of whether

a plaintiff could meet the loss causation requirement by simply alleging that she purchased securities

at an inflated price as a result of the defendant’s misrepresentation. She further contends that “there

was a reasonable basis to believe that Plaintiffs’ position [i.e. Cucinotta’s] on loss causation

represented the ‘majority view’ of circuit courts.” (Pls.’ Resp. to Sept. 2, 2005 Order at 14). The

latter statement is belied by the Supreme Court’s notation that the Ninth Circuit’s view of loss

causation articulated in its Dura decision, upon which Plaintiffs’ relied, differed “from those of other

Circuits that have considered this issue[.]” Dura, 544 U.S. at 340 (citing Emergent Capital Investment

Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189, 198 (2d Cir. 2003); Semerenko v. Cendant Corp.,

223 F.3d 165, 185 (3d Cir. 2000); Robbins v. Koger Props., Inc., 116 F.3d 1441, 1447-48 (11 Cir.

th

1997); Bastian v. Petren Res. Corp., 892 F.2d 680, 685 (7 Cir. 1990)). And regardless of whether th

Plaintiffs’ position was in keeping with the majority view, the relevant question is not whether

 

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Defendants’ loss causation defense ultimately would have defeated Cucinotta’s claims, but rather

whether Cucinotta was at least subject to a defense to which other class members were not. 15

U.S.C. § 78u-4(a)(3)(B)(iii)(II)(bb); See In re Enron Corp. Sec. Litig., 206 F.R.D. at 456; In re

Peregrine Sys., Inc. Sec. Litig., 2002 WL 32769239, at *6-7 (S.D. Cal. 2002) (both citing Landry v.

Price Waterhouse Chartered Accountants, 123 F.R.D. 474, 476 (S.D.N.Y. 1989)). There is no question

that Cucinotta was subject to a loss causation defense, and thus susceptible to challenge as the “most

adequate plaintiff.” 

However, the Court is unaware of any authority holding that a class member’s failure to

challenge the presumptive lead plaintiff’s suitability to serve as lead plaintiff forever bars that class

member from subsequently moving to fill in as lead plaintiff where the original lead plaintiff’s claims

have been dismissed. The Eastern District of Pennsylvania’s opinion in In re Cigna Corp. Securities

Litigation suggests that the opposite is true. 2005 WL 3952802 (E.D. Pa. Feb. 23, 2005). In that

case, which had been proceeding for over three years, the lead plaintiff moved the court to allow two

other putative class members to intervene as additional proposed class representatives. Id. at *1.

The motion was motivated by the concern that the current lead plaintiff had not suffered “loss

causation” and was therefor vulnerable to a summary judgment motion expected to be filed by the

defendants. Id. The court concluded that this was a worthy reason to permit the intervention,

“[g]iven the significance that the PSLRA has placed on the status and responsibility of the Lead

Plaintiff in this type of case, and the fact that many putative class members have appropriately

assumed that [the current lead plaintiff] will adequately represent the class[.]” Id. (citations

omitted). In the event the defendants prevailed on their summary judgment motion against the lead

plaintiff, the court held that “such a result should not cause termination of the entire case if other

 

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putative class members are willing, able and ready to step forward as class representatives and also

as Lead Plaintiffs and can prove loss causation and/or economic loss.” Id. at *2; see also Z-Seven

Fund, Inc., v. Motorcar Parts & Accessories, 231 F.3d 1215, 1218 (9 Cir. 2000) (“It is not th

inconceivable that a lead plaintiff appointed originally might turn out to be an inadequate class

representative and that a change might have to be made.”). 

In this case, while Plaintiffs did not formally move to have Alldian intervene as a lead plaintiff

or class representative prior to the Court’s disposition of Defendants’ motion to dismiss, they did

indicate, in a footnote in their response to Defendants’ motion, that Alldian was ready to step in

Cucinotta’s shoes should Cucinotta’s claims fail on loss causation grounds. (Pls.’ Resp. Brief to Defs.’

Mot. Dismiss at 14 n.15). Perhaps it would have been to Plaintiffs’ counsel’s greater credit had

Plaintiffs withdrawn their opposition to Defendants’ motion to dismiss well in advance of the August

31, 2005 hearing on that motion and moved instead to substitute Alldian as lead plaintiff at that

earlier time. Such a course would have obviated the needless waste of judicial resources and

expenditure of the Defendants’ time and money. That said, given that Alldian was put forward as

a possible alternative lead plaintiff in Plaintiffs’ responsive briefing, Plaintiffs’ present effort to

substitute Alldian as lead plaintiff cannot come as a surprise to Defendants. Considering all the

circumstances, although Alldian surely should have moved for substitution with greater alacrity than

she did, and arguably should have challenged Cucinotta’s appointment as lead plaintiff on loss

causation grounds, the Court finds that the interests of the potential class members in bringing their

claims outweigh the delay caused by Alldian’s actions or inactions and any resultant prejudice

suffered by the Defendants. 

 

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C. Whether to Require the Republication of Notice

The Court finds it unnecessary under these circumstances to restart the notice process. As

stated by the IPO Litigation Court:

[W]here a new lead plaintiff is willing to step forward, there is no need to start the

[notice] process anew when all putative class members were given notice of the

opportunity to move for appointment as lead plaintiff by means of the statutorily

required published notice[.] If other plaintiffs had filed a lawsuit or originally moved

to be appointed lead plaintiff – i.e., moved for appointment as lead plaintiff in response

to the initial notice of pendency – then those plaintiffs would arguably be entitled to

priority over any other potential lead plaintiffs.

See In re Initial Public Offering Sec. Litig., 214 F.R.D. at 120 n.5. Here, TDH’s initial publication of

notice informed potential class members of the pendency of the suit and that applications for

appointment as lead plaintiff could be filed within 60 days of the publication of that notice. Aside

from Cucinotta, the only other purported class member to move for appointment was Lorra L.

Rudman. Cucinotta and Rudman were also the only plaintiffs to join the CAC, and both of their

claims were dismissed by the Court for failure to plead loss causation. Therefore, in deciding on a

substitute “most adequate” lead plaintiff, the Court will consider only those plaintiffs who have filed

a complaint and who have not been expressly dismissed from the case: TDH, DuBray, Alldian, and

Pipefitters. See In re Microstrategy, 110 F.Supp.2d at 432 n.8 (any party filing one of multiple

complaints may be named lead plaintiff despite reference in the PSLRA to the filing of “the”

complaint).

According to the certifications attached to each of these respective complaints, only DuBray

and Alldian indicate that they sold their Ryland shares after the “truth began to emerge.” TDH’s

certification simply states that TDH purchased 20 shares on November 3, 2003 and Pipefitters’s

 

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certification simply states that Pipefitters purchased 1000 shares on December 2, 2003. Before this

action proceeds further, the Court must be certain that the claims asserted by TDH and Pipefitters

adequately allege loss causation. As this determination is impossible to make based on the

certifications currently on file, the Court will order both TDH and Pipefitters to file, within 10 days

of the date of this order, amended certifications detailing their respective transactions in Ryland

stock, including whether, and if applicable, when, they sold their shares. Despite the lack of full

information just described, the Court nevertheless believes it can appoint a lead plaintiff based on

the certifications on file, and it now turns to that determination. 

D. Largest Financial Interest

The PSLRA does not provide guidance as to how the court is to determine whether a person

has the “largest financial interest”. See Schulman v. Lumenis, Ltd., 2003 WL 21415287, at *5

(S.D.N.Y. June 18, 2003). To fill this void, courts have considered the following four factors: 1) the

number of shares purchased; 2) the number of net shares purchased; 3) the total net funds expended

by the plaintiffs during the class period; and 4) the approximate losses suffered by the plaintiffs. See

e.g., In re Enron Corp. Sec. Litig., 206 F.R.D. at 440. Applying these factors, the Court concludes that

Alldian has the largestfinancial interest of any ofthe remaining plaintiffs that have filed a complaint.

As noted by Judge Fish in his May 20, 2004 Memorandum Order, although it is impossible

to ascertain the amount of TDH’s purported loss from its certification alone, its loss cannot exceed

the $1727.80 purchase price of its shares. (May 20, 2004 Memorandum Order at 11). Similarly,

Pipefitters’s loss cannot be gleaned from the certification it filed, which simply indicates that

Pipefitters acquired 1000 shares at a price of $45.39 per share on December 2, 2003 for a total cost

 

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 Alldian states that her losses exceeded $20,000 (Pl. Alldian’s Mot. Substitution at 5), but she

5

fails to explain how she arrived at that figure.

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of $45,390. DuBray purchased 400 shares at a cost of $92.45 per share and 100 shares at $92.41 per

share, brining her total cost to $46,221. DuBray sold her 500 shares on February 6, 2004, after the

alleged “truth” came out on January 8, 2004, for $39,605. She thus suffered a loss of $6,616.00.

Finally, Alldian’s certification indicates that she purchased 500 shares on November 21, 2003 for a

price of $43,473.95 and that she sold those shares on December 2, 2003 for $45,862.90, for a gain

of $2,388.95. She then purchased 1000 shares on December 29, 2003 for a price of $92,075.95 and

sold those shares on January 9, 2004 – after the “truthful” disclosure – for $73,559.60. Alldian thus

suffered a $18,516.35 loss on those shares. 

5

Therefore, of all the remaining plaintiffs who filed complaints, Alldian clearly expended the

most money during the class period and purchased the greatest number of shares. She also suffered

a greater loss than DuBray and TDH, and possibly Pipefitters. Considering all of the “largest

financial interest” factors as a whole, the Court concludes that Alldian has the largest financial

interest among the remaining plaintiffs who have filed complaints.

E. Rule 23 Requirements

The Rule 23 inquiry is considerably relaxed at this stage of the inquiry; stricter scrutiny is

reserved until the class certification stage. In re Enron, 206 F.R.D. at 204. For the same reasons that

Judge Fish found that Cucinotta was an appropriate lead plaintiff, this Court finds that Alldian

appears to meet the adequacy and typicality requirements of Rule 23, as her claims stem from the

same conduct of Ryland from which the other class members’ claims arise, and the extent of her loss

is such to ensure vigorous advocacy. In re Olsten Corp. Sec. Litig., 3 F.Supp.2d 286, 296 (E.D.N.Y.

 

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1998).

In light of the foregoing analysis, the Court finds that Alldian is the next most adequate

plaintiff now that Cucinotta has been disqualified from serving in that capacity, and it hereby

appoints Alldian as lead plaintiff.

F. Appointment of Lead 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). Alldian has chosen

the Brodsky and Smith, L.L.C. law firm as her lead counsel and Newman, Davenport and Epstein,

P.C. as liaison counsel, the same firms formerly selected by Cucinotta. “Giving the lead plaintiff

primary control for the selection of counsel was a critical part of Congress’s effort to transfer control

of securities class actions from lawyers to investors.” Gluck v. Cellstar Corp., 976 F.Supp. 542, 550

(N.D. Tex. 1997). The Court can discern no reason to upset Alldian’s choice here.

G. Plaintiffs’ Motion for Reconsideration

Plaintiffs have also pointed out that this Court’s September 1, 2005 order dismissing the CAC

fails to specify whether that dismissal was with or without prejudice. Plaintiffs seek to have the Court

affirmatively state that the dismissal was without prejudice. The Court now clarifies that the

dismissal of the CAC was without prejudice pending this Court’s consideration of whether Alldian

should be allowed to replace Cucinotta as lead plaintiff. However, the claims asserted by Plaintiffs

Cucinotta and Rudman were intended to be, and are hereby, dismissed with prejudice for failure to

plead loss causation.

 

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III. Conclusion

For the foregoing reasons, the Court GRANTS Plaintiff Alldian’s Motion for Substitution

as Lead Plaintiff (doc. 40). Plaintiff Jennifer Alldian is hereby appointed as Lead Plaintiff. Within

10 days of the date of this order the parties are ORDERED to file a joint report listing each party’s

respective positions on the status of this case going forward. The report shall also state whether any

of the remaining consolidated actions fail to adequately allege loss causation in light of Dura. In the

report Plaintiffs shall further explain why Plaintiffs TDH and DuBray did not join the original CAC.

The Court further ORDERS Plaintiffs TDH and Pipefitters to file, within 10 days of the date of this

order, amended certifications detailing their respective transactions in Ryland stock, including

whether and, if applicable, when, they sold their shares in Ryland stock. 

The Court further GRANTS in part Plaintiffs’ Motion for Reconsideration (doc. 41). The

Court hereby clarifies its September 1, 2005 order dismissing the CAC as follows: The CAC is

dismissed without prejudice; however, the claims of Plaintiffs Cucinotta and Rudman are dismissed

with prejudice.

SO ORDERED.

Signed June 2 , 2006. nd

_________________________________

JANE J. BOYLE

UNITED STATES DISTRICT JUDGE

 

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