Opinion ID: 3014742
Heading Depth: 2
Heading Rank: 1

Heading: May Union retain Milberg Weiss to prosecute

Text: this appeal? Lead plaintiffs in securities class actions must secure court approval of their counsel, but Union retained Milberg Weiss as appellate counsel after the notice of appeal was filed and without any court’s approval. We decide that Milberg Weiss may prosecute this appeal but that future lead plaintiffs must obtain court approval for any new counsel, including appellate counsel. Congress passed the PSLRA in part to reduce abusive class action litigation. S. Rep. No. 104-98, at 10–11 (1995), 9 reprinted in 1995 U.S.C.C.A.N. 679, 689–90. To this end, the PSLRA requires courts to appoint as lead plaintiff the “most adequate plaintiff”—the plaintiff with the most money at stake. 15 U.S.C. § 78u-4(a)(3). The theory behind this requirement is that plaintiffs with the largest financial interests, typically institutional investors, will best represent the plaintiff class’s interests and will choose the best counsel. Elliott J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale. L.J. 2053, 2105 (1995); see also S. Rep. No. 104-98, at 11 nn.32, 34, reprinted in 1995 U.S.C.C.A.N. 679, 690 (citing Weiss & Beckerman, supra). Although Congress was confident that the lead plaintiff would select the best counsel, it relied on the courts’ power to “approve or disapprove the lead plaintiff’s choice of counsel when necessary to protect the interests of the plaintiff class.” S. Rep. No. 104-98, at 12, reprinted in 1995 U.S.C.C.A.N. 679, 691. Thus, the PSLRA provides that the “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) (emphasis added). This is not an empty requirement; courts have the “power and the duty to supervise counsel selection and counsel retention.” In re Cendant Corp. Litig., 264 F.3d 201, 273 (3d Cir. 2001). Union was selected lead plaintiff, and the District Court approved Bernstein Litowitz Berger & Grossman LLP as lead 10 counsel. But as noted, after the notice of appeal was filed, Union retained Milberg Weiss as appellate counsel. Bernstein Litowitz consented to Milberg Weiss’s retention, but Union neither sought nor obtained the District Court’s approval of Milberg Weiss as class counsel. In its brief, Merck challenges Milberg Weiss’s ability to prosecute this appeal without court approval, and Union responds with three arguments. We deal with each in turn. First, Union argues that Merck does not have standing to protest the choice of lead counsel. We find few cases, from our Court or others, that have addressed this issue. It could be that defendants’ ability to challenge lead counsel selection is the same as their ability to challenge lead plaintiff selection. If so, the weight of authority falls against Merck. Compare King v. Livent, Inc., 36 F. Supp. 2d 187, 190–91 (S.D.N.Y. 1999) (granting the defendant standing to challenge a motion to appoint a lead plaintiff and lead counsel), with Cal. Pub. Employees’ Ret. Sys. v. Chubb Corp., 127 F. Supp. 2d 572, 575 n.2 (D.N.J. 2001) (stating that the majority of courts have denied defendants the right to challenge “the adequacy of lead plaintiffs and their chosen counsel” and citing cases), Gluck v. CellStar Corp., 976 F. Supp. 542, 550 (N.D. Tex. 1997) (deciding that defendants could not challenge the appointment of a lead plaintiff), and Greebel v. FTP Software, Inc., 939 F. Supp. 57, 60 (D. Mass. 1996) (same). This makes sense because defendants will rarely have the best interests of the class at 11 heart. See, e.g., 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II) (allowing only “a member of the purported plaintiff class” to rebut the lead plaintiff presumptions); Cendant, 264 F.3d at 268; Weiss & Beckerman, supra, at 2106 n.255. On the other hand, it may be that defendants’ ability to challenge lead counsel is separate from their inability to challenge lead plaintiff’s appointment. At least one court has allowed a defendant to challenge the selection of lead counsel. See In re USEC Sec. Litig., 168 F. Supp. 2d 560, 568 (D. Md. 2001) (“The defendants challenge the [plaintiffs’] selection of two separate law firms as lead counsel.”). When the challenge is not to adequacy but is, as here, to a lead plaintiff’s procedural failure to secure court approval, we hold that defendants do have standing to challenge the retention of lead counsel. Second, Union claimed that the PSLRA does not prevent it from retaining unapproved appellate counsel, which it characterized as somehow different from lead counsel. Merely stating this argument lays out the span of such a stretch. The PSLRA does not distinguish between lead counsel and appellate counsel; it simply requires court approval of class “counsel.” 15 U.S.C. § 78u-4(a)(3)(B)(v). The court has a duty to consider the lead plaintiff’s choice and whether it should be approved. Cendant, 264 F.3d at 275. This inquiry is “limited to whether the lead plaintiff’s selection and agreement with counsel are reasonable on their own terms,” id. at 276, but it is an inquiry that must be made. We hold that all retentions of class counsel 12 by the lead plaintiff—whether lead counsel, trial counsel, or appellate counsel4—require court approval under the PSLRA. Third, Union argues that its retention of Milberg Weiss is valid by virtue of a jurisdictional loophole: the District Court lost jurisdiction after the filing of the notice of appeal, and our Court is not in a position to make the findings required to approve new lead counsel. While it is generally true that district courts are divested of jurisdiction—and lose the power to act—once the notice of appeal is filed, there are “exceptions to this general rule.” Bensalem Twp. v. Int’l Surplus Lines Ins. Co., 38 F.3d 1303, 1314 (3d Cir. 1994). We have identified several, but “limited,” instances in which a district court retains its power to act; a court may, for example, review attorney’s fees applications, order the filing of bonds, modify or grant injunctions, issue orders regarding the record on appeal, and vacate bail bonds and order arrests. Venen v. Sweet, 758 F.2d 117, 120 n.2 (3d Cir. 1985). We limit these exceptions to avoid 4 We note in passing that lead plaintiffs may retain multiple firms as co-lead counsel, cf. Miller v. Ventro Corp., No. 01-CV-1287, 2001 WL 34497752, at  (N.D. Cal. Nov. 28, 2001) (“[I]f [plaintiffs] believe that more than one law firm is necessary, they must demonstrate to the Court’s satisfaction the need for multiple lead counsel.”), but court approval is still required, cf. Martin v. Atchison Casting Corp., 200 F.R.D. 453, 458 (D. Kan. 2001) (requiring information about proposed new lead counsel before the court would approve the plaintiff’s attempt to switch lead counsel). 13 the “confusion and inefficiency” of having two courts dealing with the same issues. Id. at 121. The power to approve lead plaintiffs’ counsel under the PSLRA would not engender this same kind of “confusion and inefficiency”—the approval or disapproval of counsel would lie with the district court, and we typically would not need to second-guess or make this decision ourselves. Therefore, we add this approval power to the short list of actions a district court may take during the pendency of an appeal. That leaves this case, in which for the sake of efficiency we eschew a remand and proceed as if Milberg Weiss were approved as appellate counsel. Moreover, because we affirm the District Court’s opinion, we do not require Union to secure ex post approval for this appeal.