Court Opinion

ID: 39709
Source: CourtListenerOpinion
Date Created: 2010-04-25 20:33:43+00
Date Added: 2024-06-11T08:50:15.661139
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit

                    REVISED NOVEMBER 10, 2005                F I L E D
                                                             October 24, 2005
              IN THE UNITED STATES COURT OF APPEALS
                                                         Charles R. Fulbruge III
                      FOR THE FIFTH CIRCUIT                      Clerk

                          No. 05-40636

     MICHAEL FEDER, ET AL.,

                                         Plaintiffs,

          versus

     ELECTRONIC DATA SYSTEMS CORPORATION;
     JAMES E. DALEY, Executive Vice President
     and Chief Financial Officer; RICHARD H. BROWN,
     Chairman of the Board and Chief Executive Officer,

                                         Defendants-Appellants,

          versus

     DEPARTMENT OF THE TREASURY OF THE STATE
     OF NEW JERSEY, Division of Investment on
     behalf of Common Pension Fund A.,

                                         Appellee.

          Appeal from the United States District Court
                for the Eastern District of Texas

Before GARWOOD, SMITH and DeMOSS, Circuit Judges.

GARWOOD, Circuit Judge:
      Appellants-defendants, Electronic Data Systems, Inc. (EDS),

James E. Daley, and Richard H. Brown, appeal the certification of

a Rule 23(b)(3) plaintiff class in this securities class action.

A panel of this court granted defendants’ petition for permission

to appeal and we have jurisdiction to hear this interlocutory

appeal under 28 U.S.C. § 1292(e) and Rule 23(f).                       Finding no abuse

of   discretion        by    the    district        court,      we   affirm    the   class

certification.

                            Facts and Proceedings Below1

      EDS     is   a   Fortune      100    company       that    provides     information

technology outsourcing. On October 6, 2000, the United States Navy

awarded a $6.9 billion contract to EDS to create a global intranet,

known as the Navy Marine Corps Intranet (NMCI).                      To account for the

NMCI contract, as well as other long-term contracts, EDS used the

"percentage of completion" (POC) method of accounting, under which

income   is    recognized          as   work   on    a   contract     progresses.      On

September 19, 2002, following a revised-earnings announcement by

EDS made after the close of trading on September 18, EDS’s stock

price dropped from a September 18 close of $36.46 to a September 19

close of $17.20.        This drop in price resulted in a one-day market

loss of $9.7 billion.                   Securities holders thereafter brought

      1
        More information about the facts of this case can be found in the district
court’s Practice and Procedure Order No. 20, granting class certification. See
In re Elec. Data Sys. Corp. Securities Litig., 226 F.R.D. 559 (E.D.Tex.2005).
See also In re Elec. Data Sys. Corp. Securities and “ERISA” Litig., 298 F. Supp.
2nd 544 (E.D. Tx. 2004) (denying defendants’ Rule 12(b)(6) motion).

                                               2
several class actions alleging, among other things, that EDS knew

of serious problems with the NMCI contract and improperly used POC

accounting to hide these problems and inflate the price of EDS

stock.    In addition, the securities class action plaintiffs allege

that EDS made material misrepresentations of its progress on the

NMCI    contract   in   filings   with   the   Securities   and   Exchange

Commission and in its press releases and that appellants Brown and

Daley, EDS’s former CEO and CFO, respectively, were responsible for

the scheme to artificially inflate EDS stock price. In addition to

the suits filed by the securities holders, participants in EDS’s

retirement savings plans brought related suits alleging on a

similar basis violations of the Employee Retirement Income Security

Act (ERISA).   On March 7, 2003, the Multidistrict Litigation Panel

transferred all related actions to the district court below for

consolidated pretrial proceedings.        On May 5, 2003, the district

court consolidated all of the securities actions brought against

EDS and separately consolidated all of the related ERISA actions.

Also on May 5, 2003, the Department of the Treasury of the State of

New Jersey, including its Division of Investment on behalf of

Common Pension Fund A (New Jersey), was appointed Lead Plaintiff

under the Private Securities Litigation Reform Act of 1995 (PSLRA).

This appointment of New Jersey as Lead Plaintiff was made subject

to reconsideration at the class certification stage.

       New Jersey engaged retired New Jersey Superior Court Judge C.

Judson Hamlin (Hamlin) to oversee securities class actions in which

                                     3
New Jersey was involved, including this one.          Hamlin is counsel at

a private law firm, Purcell, Ries, Shannon, Mulcahy & O’Neill.               To

enable Hamlin to oversee and coordinate its class actions, New

Jersey delegated certain responsibilities to Hamlin, and Hamlin

serves as New Jersey’s principal liaison with class counsel.                Even

though New Jersey has engaged Hamlin to fulfill this role, it is

the class counsel for each class action case that is responsible

for paying Hamlin’s fees, not New Jersey.            It is the New Jersey

Attorney General, however, who approves the payment of Hamlin’s

fees, and class counsel is required to pay all fees so approved.

Hamlin’s fees are paid during the course of the case, and his fees

are not contingent — Hamlin is paid the same amount whether or not

New Jersey prevails.

     On February 11, 2005, the district court certified the class

pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil

Procedure     and   named    New   Jersey    as   class    representative.2

Appellants bring this interlocutory appeal, focusing primarily on

New Jersey’s arrangement with Hamlin and claiming error by the

     2
         The February 11 order defines the certified class as follows:

     “All persons and entities who purchased or otherwise acquired the
     securities of Electronic Data Systems Corp. (“EDS”) between February
     7, 2001 through and including September 18, 2002 (the “Class
     Period”), and who were damaged thereby. Excluded from the Class are
     defendants, members of the familiies of each the Individual
     Defendants, any parent, subsidiary, affiliated, partner, officer,
     executive, 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.” Certification Order, 226 F.R.D. at 572.

                                      4
district court in its decisions regarding adequacy, typicality, and

superiority under Rule 23.

                             Discussion

     Rule 23(a) provides four prerequisites to a class action: “(1)

numerosity (a ‘class [so large] that joinder of all members is

impracticable’); (2) commonality (‘questions of law or fact common

to the class’); (3) typicality (named parties’ claims or defenses

‘are typical ... of the class’); and (4) adequacy of representation

(representatives ‘will fairly and adequately protect the interests

of the class’).”   Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231,

2245 (1997).   In addition to these prerequisites, a party seeking

class certification under Rule 23(b)(3) must also demonstrate “both

(1) that questions common to the class members predominate over

questions affecting only individual members, and (2) that class

resolution is superior to alternative methods for adjudication of

the controversy.” Bell Atlantic Corp. v. AT&T Corp., 339 F.3d 294,

301 (5th Cir. 2003).   In certifying the class and naming New Jersey

the class representative, the district court found that New Jersey

met all of these requirements. In re Electronic Data Systems Corp.

Securities Litigation, 226 F.R.D. 559 (E.D.Tex. 2005) (hereinafter

“Certification Order”).

I.   Standard of Review

     We review a district court’s class certification decision for

abuse of discretion.    Berger v. Compaq Computer Corp., 257 F.3d
5
475, 478 (5th Cir. 2001) [Berger I].      “‘Whether the district court

applied the correct legal standard in reaching its decision on

class certification, however, is a legal question that we review de

novo.’” Id. at 479 (quoting Allison v. Citgo Petroleum Corp., 151
F.3d 402, 408 (5th Cir. 1998)).       “A district court that premises

its legal analysis on an erroneous understanding of the governing

law has abused its discretion.”       Unger v. Amedisys Inc., 401 F.3d
316, 320 (5th Cir. 2005).

II.   Adequacy

      Appellants’ principal argument on appeal is that New Jersey is

not a proper class representative because it does not meet the

“adequacy” prerequisite of Rule 23(a)(4). Appellants challenge New

Jersey’s adequacy on three independent grounds.      First, Appellants

make a novel two part argument centered around Hamlin’s role in the

litigation and his unusual fee arrangement.        Second, Appellants

assert that New Jersey has a conflict of interest with the class

because the accounting firm KPMG is New Jersey’s auditor and was

also EDS’s auditor at the time of the alleged fraud.           Third,

Appellants assert that New Jersey has a conflict of interest with

certain class members who are also members of a class suing EDS

separately for violations of ERISA.

      We have identified a “generic standard” for the adequacy

requirement, noting that “the class representatives [must] possess

a sufficient level of knowledge and understanding to be capable of

                                  6
‘controlling’ or ‘prosecuting’ the litigation.” Berger I, 257 F.3d

at 482–83.    We have also noted that “the PSLRA raises the standard

adequacy threshold” with its “requirement that securities class

actions be managed by active, able class representatives who are

informed and can demonstrate they are directing the litigation.”

Id. at 483.    Although we noted that the PSLRA raises the adequacy

threshold, we have “not, however, created an additional requirement

under rule 23(a)(4) that . . . the putative class representative

possess[] a certain level of experience, expertise, wealth or

intellect, or a level of knowledge and understanding of the issues,

beyond that required by our long-established standards for rule 23

adequacy of class representatives.”            Berger v. Compaq Computer

Corp., 279 F.3d 313, 313–14 (5th Cir. 2002) [Berger II].                    The

“long-established standard” for the adequacy determination on which

we principally relied in Berger I requires “‘an inquiry into [1]

the zeal and competence of the representative[s’] counsel and . .

. [2] the willingness and ability of the representative[s] to take

an active role in and control the litigation and to protect the

interests of absentees[.]’” Berger I, 257 F.3d at 479 (quoting

Horton v. Goose Creek Independent School Dist., 690 F.2d 470 (5th

Cir. 1982)).         In   addition   to   determining   the    proposed   class

counsel’s     zeal        and   competence    and   the       proposed    class

representative’s willingness and ability, the district court’s

“adequacy inquiry also ‘serves to uncover conflicts of interest

                                          7
between     the    named      plaintiffs       and    the   class     they   seek   to

represent.’”       Id. at 479–80 (quoting Amchem Prods., 521 U.S. at

625, 117 S.Ct. at 2236).

     A.     Hamlin’s effect on New Jersey’s adequacy

     Regarding Hamlin, Appellants argue (1) that the district court

found New Jersey adequate only because of Hamlin’s involvement, and

(2) that New Jersey should not be allowed to rely on Hamlin to

establish its adequacy because Hamlin is not New Jersey’s employee,

but is instead an independent lawyer engaged by New Jersey and,

moreover, because Hamlin’s fees are paid not by New Jersey, but by

class counsel.          As discussed below, both arguments fail.

     1.     The district court’s finding of New Jersey’s adequacy

     The district court found that “New Jersey has proven that it

is ‘willing and able to take an active role in and control the

litigation        and    to   protect      the       interests   of     absentees.’”

Certification Order, 226 F.R.D. at 567 (quoting Berger I, 257 F.3d

at 479).

     The district court also noted that “New Jersey, through its

representative, Judge Hamlin, is taking an active role in the

litigation, affirming its adequacy in protecting the absent class

members.”    Id. The district court’s choice of the verb “affirming”

indicates that it believes that New Jersey had already established

that it would fairly and adequately protect the interests of the

plaintiff class.           The district court also noted that “Hamlin’s

                                           8
presence helps New Jersey prove it has adequate involvement in the

litigation   and    gives   New    Jersey     the    legal   muscle    a    class

representative should possess to actively and willingly control the

litigation, which is exactly what the Private Securities Litigation

Reform Act envisions.”      Id. at 568 (citing Berger I, 257 F.3d at

483).   On this issue, the district court concludes, “In short, the

arrangement with Judge Hamlin enhances New Jersey’s ability to

control the litigation.”         Id.   Here again, the district court’s

choice of the words “helps” and “enhances” demonstrates that it did

not, as appellants claim, find that New Jersey is adequate “solely”

due to Hamlin's involvement.

     In   support   of   their    argument,     appellants     point       to   the

following statement by the district court: “Hamlin allows New

Jersey to fill the ‘unoccupied space’ the Fifth Circuit envisions

between the two extremes of expecting non-legal personnel to master

every legal detail and otherwise legally uninformed plaintiffs

deferring every decision to counsel.”               Certification Order, 226
F.R.D. at 568 (citing Berger I, 257 F.3d at 483).                  Appellants

equate this statement to a holding that Hamlin, and Hamlin alone,

“allows” New Jersey to qualify as adequate and “allows” New Jersey

to fulfill its responsibilities.           While this statement is somewhat

helpful to Appellants’ argument, it cannot carry the weight they

place on it, especially as it is immediately followed by the

statement identified earlier that “In short, the arrangement with

                                       9
Judge   Hamlin   enhances      New   Jersey’s   ability      to    control    the

litigation.”     Certification Order, 226 F.R.D. at 568.                 Finally,

appellants claim that “the District Court found that New Jersey has

‘only generalized knowledge of the case.’”              The district court

would be surprised to learn of this “finding.”                    Actually, the

district court wrote: “Defendants argue that John McCormac, the

Treasurer of New Jersey, Peter Langerman, the Director of the New

Jersey Division of Investment, and other high ranking government

officials    have    only     generalized     knowledge      of    the    case.”

Certification       Order, 226 F.R.D.     at    568.          Appellants’

characterization of the district court’s summary of their argument

as a finding that their argument is correct is, at best, wholly

lacking in merit.

     Appellants also argue that the record compels a holding that,

if New Jersey meets the Rule 23(a)(4) adequacy requirements, it is

based solely on Hamlin.          Appellants point to testimony in the

record that they claim demonstrates the inadequacy of the actual

New Jersey employees.        For example, appellants rely on deposition

testimony by Peter Langerman, New Jersey’s Director of the Division

of Investment, that “I do tend to accept at face value what my

lawyers tell me.       If that’s an [infirmity], I guess that’s a

problem.    But I do rely on my lawyers.”            As we noted in Berger,

however, class representatives are entitled to rely to some extent

                                      10
on counsel, although they should “know more than that they were

‘involved in a bad business deal.’”          Berger I, 257 F.3d at 483.

       New Jersey, on the other hand, points to deposition testimony

showing that Langerman understood the fraud-on-the-market theory of

this case and that the focus of the suit is the improper booking of

revenues, pursuant to the POC accounting system, under the NMCI

Contract.       Unlike     the   unsophisticated     plaintiff    in    Berger,

Langerman is an accountant with significant experience in investing

and accounting, so there is no reason to suspect that his knowledge

was derived solely from counsel (e.g. that he did not know himself

what POC accounting was and why it was improper in this case).

There is no abuse of discretion in making the judgment that, given

his    testimony    and      expertise,     Langerman     probably      had    an

understanding of these issues that was not derived solely from

counsel.      Appellants also point to testimony where they say New

Jersey State Treasurer John “McCormac admitted he does not review

briefs or know any of the issues regarding class certification.”

As    with   Langerman,    however,   New   Jersey   is   able   to    point   to

testimony reflecting McCormac’s proper understanding of the case

(McCormac’s testimony summarizing the complaint: “The allegations

are that the company improperly used a method of accounting known

as percentage of completion, and as a result, financial results

were misrepresented and fraud was perpetrated on the investors of

the securities.”).        Furthermore, there is evidence that New Jersey

                                      11
exercised control over the litigation.         McCormack testified that

the class period and the decisions to add potential defendants were

made by Hamlin and the Attorney General’s office, and that he had

input     into   those   decisions    before   the   suit   was   filed.

Additionally, Hamlin testified that he sends the Attorney General

and two other people in his office every pleading filed in the

case.     Most importantly, the Attorney General’s office would be

involved directly in any settlement.       In sum, there is evidence in

the record to support a determination that New Jersey meets the

adequacy requirements even without Hamlin.

     2.     Can New Jersey rely on Hamlin to establish its adequacy?

     We turn now to appellants’ argument that New Jersey’s reliance

on Hamlin violates the Rule 23(a)(4) guidance we provided in Berger

I. Appellants claim that this “class certification ruling patently

conflicts with Berger.”     We disagree.

     a.     Hamlin’s status as an outside lawyer

     Appellants note that Hamlin is an “outside lawyer” for New

Jersey, and they claim that his involvement violates Berger I.       In

discussing the adequacy standards of Rule 23 in Berger I, however,

we addressed the relationship between the class representative and

the class counsel.       We did not address the present situation in

which another attorney, not affiliated with class counsel, is

engaged by the class representative to assist it in its monitoring

                                     12
of class counsel.3       The guidelines in Berger I do not prevent a

proposed class representative from hiring an outside attorney (not

affiliated with class counsel) to help the class representative in

carrying out its role as such and in overseeing proposed class

counsel, as long as that outside attorney has no conflicts with the

class.4

      While appellants correctly point out that class counsel cannot

also serve as the class representative, the cases they cite do not

reach the present situation.         In Zylstra v. Safeway Stores, Inc.,

578 F.2d 102 (5th Cir. 1978), cited by appellants, we emphasized

the potential conflicts between the class counsel and the class

itself, explaining:

      “We reach that conclusion because of the conflict of
      interest which is inherent in such a situation.        An
      attorney whose fees will depend upon the outcome of the
      case and who is also a class member or closely related to
      a class member cannot serve the interests of the class
      with the same unswerving devotion as an attorney who has
      no interest other than representing the class members.”
      Id. at 104.

      3
       Although our opinion in Berger I refers to "counsel," "lead counsel,"
"their counsel," "representatives’ counsel," "plaintiffs’ counsel," and
"lawyers," all of these terms are used as synonyms for "class counsel." One
modifier for counsel that we did not employ in the Berger I opinion is "outside."
While Hamlin is admittedly an "outside lawyer," he is not class counsel.
      4
       As the district court here observed, additional outside counsel with no
potential conflicts with the class (i.e. counsel whose fees are not contingent
upon the outcome of the litigation or on approval of class counsel) can help the
class representative. In Berger I we noted that “class representatives need not
be legal scholars and are entitled to rely on [class] counsel.” 257 F.3d at 483.
However, as we noted in Berger I, there are limits to this position because too
much reliance by the class representative on class counsel shifts the balance of
power and brings to the fore the potential conflicts of interest between class
counsel and the class. As the class representative becomes more competent in
legal matters, it becomes less reliant on class counsel.

                                       13
Similarly, in Matassarin v. Lynch, 174 F.3d 549 (5th Cir. 1999),

also cited by appellants, we rejected an attorney’s attempt to

serve as both class counsel and class representative, noting that

“her duty to represent class interests would impermissibly conflict

with her chance to gain financially from an award of attorneys’

fees.” 174 F.3d at 559.   The principal concern underlying the

adequacy guidelines in Berger I is the protection of the due

process rights of the absent members of the class. 257 F.3d at

480. In Berger I, as in Zylstra and Matassarin, we sought to avoid

any conflict with the interests of the absent class members.     Id.

(citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625 (1997)).

With Hamlin and New Jersey, the district court properly found no

potential conflicts with the interests of the absent class members.

Certification Order, 226 F.R.D. at 567.

     b.    The fact that Hamlin’s fees are borne by class counsel

     The district court did “recognize[] that it would be troubling

if Judge Hamlin, like outside counsel, was only paid if New Jersey

prevailed, but this is not the case.”     Id. at 568.   The district

court reviewed the relevant features of Hamlin’s compensation:

     “Judge Hamlin was retained by the Attorney General of New
     Jersey, and it is the Attorney General, not outside
     counsel, who can terminate his services.              His
     compensation is determined by the Attorney General, not
     outside counsel.     The Attorney General reviews and
     approves each bill Judge Hamlin submits, and only after
     the Attorney General reviews and approves the bill does
     outside counsel transfer payment to Judge Hamlin. . . .

                                14
      Judge Hamlin's compensation is assured for as long as he
      performs in a manner deemed satisfactory by the Attorney
      General of New Jersey. Judge Hamlin has great incentive
      to act objectively in protecting the interests of New
      Jersey and the class of plaintiffs, and little incentive
      to take actions adverse to New Jersey's interests.” Id.
      at 567–68.

The evidence supports these findings and appellants do not serously

argue otherwise.       We agree with the district court’s finding that

Hamlin’s pay arrangement does not create a conflict of interest

with the class members.         Hamlin is not a puppet of class counsel,

and he does not answer to class counsel.           On the contrary, Hamlin

answers to the New Jersey Attorney General.             Hamlin’s pay is not

contingent on the outcome of the class action, nor is it contingent

on any approval thereof by class counsel or on keeping class

counsel happy.     Hamlin’s interests are fully aligned with those of

New Jersey, which are fully aligned with those of the absent

members of the class.5

      As part of their argument regarding Hamlin’s pay, appellants

claim that New Jersey, by requiring class counsel to pay Hamlin’s

fees, has established a “pay to play” arrangement in violation of

the PSLRA and, therefore, should be deemed an inadequate class

representative.        For     support,    appellants   point    to    the   PSLRA

requirement     that     the     class     representative       file    a    sworn

      5
        Even if these payments reduce New Jersey’s litigation costs, they do not
affect New Jersey’s interest in a high settlement.        New Jersey has every
incentive to recover every penny of its more than $40 million in losses, which
translates into a proportionally high recovery for the class. Thus, New Jersey’s
interests are aligned with those of the class.

                                          15
certification that “states that the plaintiff will not accept any

payment for serving as a representative party on behalf of a class

beyond the plaintiff’s pro rata share of any recovery, except as

ordered or approved by the court in accordance with paragraph (4).”

15 U.S.C. § 78u-4(a)(2)(A)(vi).6

     Although appellants attempt to characterize this arrangement

as some sort of bribe to the state by describing it as, in effect,

“giving New Jersey thousands of dollars for the right to represent

the State,” we find nothing improper about the actual arrangement.

In this case, thousands of dollars are not being given to New

Jersey, nor are thousands of dollars being given to a state

official to influence his or her decision to hire class counsel.

Instead, the requirement to pay Hamlin’s compensation was an open

part of the general proposal process for all law firms seeking to

represent    New   Jersey   in   securities   class   actions.      From    the

beginning, this was an understood uniform, specified cost of

undertaking this legal work on a contingency basis.            As New Jersey

points out, “In contingent fee cases, counsel routinely agree to

advance the value of their time and other expenses directly related

     6
         Section 78u-4(a)(4) provides:

     “(4) Recovery by plaintiffs
           The share of any final judgment or of any settlement that is
     awarded to a representative party serving on behalf of a class shall
     be equal, on a per share basis, to the portion of the final judgment
     or settlement awarded to all other members of the class. Nothing in
     this paragraph shall be construed to limit the award of reasonable
     costs and expenses (including lost wages) directly relating to the
     representation of the class to any representative party serving on
     behalf of a class.”

                                         16
to the litigation.”      The payments provided for clearly do not

involve New Jersey receiving more than its portion, on a share

basis, of any final judgment or settlement of the action so as to

violate the first sentence of section 78u-4(a)(4); nor does the

court’s approval of the arrangement violate the second sentence of

that section (see note 6 supra).       The evidence does not establish

that this is a “payment for serving as a representative party” such

that the PSLRA precludes the district court’s approval of the

arrangement and appointment of New Jersey as class representative.

     B.   New Jersey’s alleged conflict with the class due to KPMG

     Appellants claim that New Jersey’s failure to name KPMG as a

defendant in this case, coupled with the fact that KPMG is New

Jersey’s auditor, demonstrates a conflict of interest with the

class that should disqualify New Jersey from serving as class

representative.     KPMG was EDS’s outside auditor during the class

period.   Because plaintiffs allege fraudulent behavior primarily

associated   with   revenue   reporting    under   the   NMCI   contract,

appellants argue that “KPMG is a prime candidate to be a defendant

in this case.”    Appellants claim that “a class representative who

fails to sue a potential defendant with which it has a professional

or personal relationship is presumptively inadequate.”           Id.   We

reject appellants’ contentions in this respect.

     Appellants rely on Paper Systems, Incorporated v. Mitsubishi

Corporation, 193 F.R.D. 601 (E.D. Wis. 2000), to support their

                                  17
claim of presumptive inadequacy.           In Paper Systems, the proposed

class representative, Paper Systems, “caused its largest supplier

to be dismissed as a defendant at the behest of Paper Systems’

president, on the ground that he had ‘a good relationship with

them.’” Id. at 611.          The Paper Systems court began its analysis

with    the    observation    that   “generally,    failure    to    join     all

defendants is a strategy choice, and except for a showing of unique

circumstances, is probably not a ground for finding inadequacy.”

Id. (emphasis added).        The court held that “Paper Systems’ conduct

in dismissing Appleton can in no way be considered a strategic

decision on behalf of the class members it purported to represent.

Paper Systems’ actions appear to betray a conflict of interest

between named parties and the class they seek to represent.”                  Id.

The court found Paper Systems’ conduct to be proof of the unique

circumstances     needed     for   finding   that   Paper    Systems    was   an

inadequate class representative.           Id.

       Appellants’ next authority is Dubin v. Miller, 132 F.R.D. 269

(D. Colo. 1990), where the court found that “Plaintiff's personal

relationship with former director Dale Tower casts a further cloud

upon plaintiff's suitability to fulfill his fiduciary role. Tower

was a director for thirteen months during the class period, yet he

has not been named as a defendant. . . .             The omission to sue a

potential defendant cannot but prejudice the class.”                Id. at 272.

The    Dubin   court   continued,    however,    noting     that    “While    the

                                      18
authorities cited by plaintiff do stand for the proposition that a

class plaintiff need not join every possible defendant, plaintiff

is obligated to supply a persuasive reason for the non-joinder.”

Id. at 273.

       The final authority cited for appellants’ proposition is Kolin

v.   American   Plan   Corporation,    No.    CV-84-3183,       1986 WL 36311

(E.D.N.Y. Apr. 3, 1986), where the court found inadequate a class

representative who, due to family ties with potential defendants,

was “unable to examine certain potential claims of the class.” Id.

at *8.      The Kolin court noted: “The crux of the Rule 23(a)(4)

requirement is that plaintiffs and plaintiffs’ counsel not have any

interests antagonistic to those of the class.”                Id.

       We essentially agree with the statement in Paper Systems that

“generally, failure to join all defendants is a strategy choice,

and except for a showing of unique circumstances, is probably not

a ground for finding inadequacy.” 193 F.R.D. at 611.         Even if

these cases do support a presumption of inadequacy against a class

representative who fails to sue a potential defendant, it is not a

particularly    strong   presumption,       and   it   is   certainly    not   an

irrebuttable one.      In this case, any such presumption was rebutted

by New Jersey.    The district court found that “New Jersey has no

self-interest in protecting KPMG,” and “New Jersey has shown its

zeal   in   pursuing   class   interests,     even     when    those   interests

conflict with KPMG's interests.”           Certification Order, 226 F.R.D.
19
at 570.     Moreover, the district court noted that “New Jersey has

also stated that it is willing to sue all viable defendants, even

KPMG, if the facts lead there; thus far, the facts have not led to

suing KPMG.”    Id.   New Jersey also explains that its “decision not

to sue KPMG was not based on any relationship it had with KPMG.

Rather, New Jersey’s decision was based on the fact that EDS

concealed its fraud from the market and from KPMG.”      There are also

valid strategic reasons for New Jersey to not name KPMG as a

defendant.     We agree with the district court’s conclusion on this

issue: “New Jersey is only a client of KPMG – not vice versa – so

it has no self-interest in appeasing KPMG. . . . New Jersey would

not    necessarily    benefit   financially   by   maintaining   a   good

relationship with KPMG. Thus, the Court does not believe there are

unique circumstances here that threaten adequacy.” 226 F.R.D. at

570.

       C.   New Jersey’s alleged conflict with certain class members
            due to the ERISA class action

       Appellants claim that New Jersey has a disqualifying conflict

of interest with the interests of certain members of the proposed

class who are also participants in EDS’s 401(k) plan and, as such,

have an ERISA class action pending against the same defendants.

The disqualifying conflict with the 401(k) participants, according

to appellants, is that “the ERISA case is based on a broader theory

of loss causation than the securities case and the two cases

involve different measures of damages.” Certification Order, 226
20
F.R.D. at 568 (footnote omitted).         Because the theory of loss

causation in the ERISA action is broader than the theory of loss

causation in this securities case, appellants claim that the 401(k)

participants will be judicially estopped from asserting their

theory in the ERISA action.         We disagree.      “Judicial estoppel

‘prevents a party from asserting a position in a legal proceeding

that is contrary to a position previously taken in the same or some

earlier proceeding.’        The purpose of the doctrine is to prevent

litigants ‘from “playing fast and loose” with the courts . . . .’”

Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391, 396 (5th Cir.

2003) (quoting Ergo Science, Inc. v. Martin, 73 F.3d 595, 600 (5th

Cir. 1996)).    Before a party can be judicially estopped, however,

“it must be shown that ‘the position of the party to be estopped is

clearly inconsistent with its previous one; and . . . that party

must have convinced the court to accept that previous position.’”

Id. (quoting Ahrens v. Perot Systems Corp., 205 F.3d 831, 833 (5th

Cir. 2000)). Here, the district court hearing both cases explained

how   the   position   of   the   plaintiffs   in   the   ERISA   class   is

complementary with the position taken by the plaintiffs in the

securities class. 226 F.R.D. at 569.      Although the theories in

each action are different, they are not mutually exclusive.           Id.

      For these reasons, we find that the district court applied the

correct legal standard to its Rule 23(a)(4) adequacy determination

and it did not abuse its discretion in finding that New Jersey will

                                     21
fairly and adequately protect the interests of the absent class

members.

III. Typicality

     The Appellants claim error by the district court in finding

that New Jersey met the typicality requirement of Rule 23(a)(3).

According to Appellants, New Jersey’s claims are not typical of the

claims of     the    class      because    there      are   three    unique    defenses

applicable to New Jersey’s claims.

     A.     The effect of an “arguable” unique defense on class
            certification

     According to appellants, “[a] class representative who could

‘arguably’ be subject to unique defenses is both an inadequate and

atypical    class        representative       under     Rule    23.”        Appellants’

authorities, however, do not support this proposition.                       In each of

the cases cited by appellants, the court of appeals upheld the

district court’s denial of class certification based on an arguable

unique defense.            What   does    not   follow      from    these   decisions,

however, is that a court of appeals should usually reverse a

district court’s decision to certify a class after the district

court considered and rejected defendant’s arguable “unique defense”

contention.         On    the     contrary,     these       cases   demonstrate    the

deferential review that courts of appeals give to the district

                                           22
court’s decisions regarding class certification.7 Had the district

court here denied class certification based on the unique defenses

allegedly faced by New Jersey, then appellants’ authorities would

be helpful in showing how such a decision should not be overturned.

But that is not the case, and we reject appellants’ claim that the

presence    of   an   arguable    unique    defense   necessarily     destroys

typicality.

      B.    The arguable “unique defenses” to New Jersey’s claims

      1.    New Jersey’s post-disclosure purchases of EDS stock

      The first “unique defense” raised by Appellants is the fact

that New Jersey purchased shares of EDS stock after the disclosure

      7
       In Warren v. Reserve Fund, Inc., 728 F.2d 741 (5th Cir. 1984), we upheld
the district court’s refusal of class certification, noting that, “While the
availability or ultimate success of this [unique] defense . . . is not certain,
we have held in the past that the presence of this characteristic peculiar to the
named plaintiff does present a sufficient question of typicality to justify a
district court's decision to deny class certification.” Id. at 747 (footnote
omitted). We also noted that “[t]he rationale behind this hesitance is a concern
that representation of the class will suffer if the named plaintiff is
preoccupied with a defense which is applicable only to himself.”              Id.
Significantly, for the purposes of appellants’ argument here, we then repeated
our standard of review on class certification: “‘The decision to grant or deny
certification is initially committed to the sound discretion of the district
judge and will not be overturned except for abuse of discretion.’” Id. (quoting
Redditt v. Mississippi Extended Care Centers, Inc., 718 F.2d 1381, 1387 (5th Cir.
1983)). Finding no abuse, we affirmed the district court. Id. Appellants’
other authorities provide the same result. See J. H. Cohn & Co. v. American
Appraisal Associates, Inc., 628 F.2d 994, 999 (7th Cir. 1980) (“Under the
circumstances, we cannot say that [the district court] arbitrarily refused to
certify the class.”); Baffa v. Donaldson, Lufkin & Jenrette Securities Corp., 222
F.3d 52, 59 (2d Cir. 2000) (“We conclude that the district court did not abuse
its discretion when it denied Dorflinger's motion to intervene as class
representative.”).

                                       23
of   EDS’s    alleged    fraud.8         The    district    court   addressed    this

argument, noting that “New Jersey was not alone in purchasing EDS

securities after the September 18th [2002] announcement.                        Other

institutional investors, including several that may be members of

this class, made similar purchases. Like New Jersey, they felt EDS

stock had hit a bottom and was thus a good buy at that point in

time.”       Certification Order, 226 F.R.D. at 565.                    Nonetheless,

appellants insist that a plaintiff who purchases a security after

receiving notice of alleged fraud, as New Jersey did, is subject to

a unique defense and is therefore necessarily atypical for purposes

of Rule 23(a)(3).        We reject this argument.

      In     support    of   their   proposition,          appellants    cite   Rolex

Employees Retirement Trust v. Mentor Graphics Corp., 136 F.R.D. 658

(D.Or. 1991).      In Rolex, the district court found that “Rolex has

not met its burden of satisfying Rule 23(a)(3) because the defenses

Rolex must prepare to meet are not typical of the defenses which

may be raised against the other members of the proposed class.” Id.

at   664.      Specifically,       the    district    court     noted    that   Rolex

continued to trade in Mentor Graphics stock after the alleged

misrepresentations and concluded that “Rolex may ultimately devote

great effort toward the arguable defenses that arise from these

facts.      Therefore, there is a substantial likelihood that if Rolex

      8
        New Jersey purchased some 17,000 shares September 20, 2002, 2,000 shares
September 24, 2002, and some 500,000 shares in March 2004.

                                           24
is named as the representative of the proposed class, defenses

unique to Rolex could become the focus of the litigation to the

detriment of the class.”         Id.    While the holding in Rolex—that

purchases of a company’s stock after the disclosure of alleged

fraud defeats typicality—is helpful to appellants’ argument, it is

not generally accepted.9

      9
        A number of cases on both sides of the argument are identified in Rosen
v. Textron, Inc., 369 F. Supp. 2d 204 (D.R.I. 2005). In Rosen, as in this case,
the defendants claimed that typicality was not met because the proposed class
representative had made post-disclosure purchases of defendants’ stock. Id. at
208.
      “To support this proposition, Defendants cite In re Safeguard
      Scientifics, 216 F.R.D. 577, 582 (E.D.Pa.2003) (concluding lead
      plaintiff was subject to unique defenses in part because he
      ‘increased his holdings in Safeguard stock even after public
      disclosure of the alleged fraud’); Kovaleff v. Piano, 142 F.R.D. 406,
      408 (S.D.N.Y.1992) (finding unique defense where ‘plaintiffs
      increased their holdings of Mizlou common stock after disclosure of
      the alleged fraud’); Rolex, 136 F.R.D. at 664 (concluding plaintiff
      was subject to unique defense where he ‘continued to trade in the
      stock in Mentor Graphics after he learned of the alleged
      misrepresentations of defendants’); and Epstein [v. American Reserve
      Corp], 1988 WL 40500, at *3-4 [N.D.Ill. Apr. 21, 1988] (‘The problem
      in this case, however, is that Herb Jablin is subject to unique lack
      of reliance defenses. First, and most striking, is the fact that
      purchases of ARC securities were made in both the Epstein and Wenger
      accounts after the alleged fraudulent information had become
      known.’).” 369 F. Supp. 2d at 208–09.

The Rosen court then listed the cases that reject this proposition:
      “Plaintiffs, however, counter with several recent cases from many of
      the same jurisdictions, which they describe as constituting the
      majority view. See In re Rent-Way Sec. Litig., 218 F.R.D. 101, 114
      (W.D.Pa.2003) (‘[T]hese purchases, having occurred after the
      putative class period, are irrelevant to the instant litigation.’);
      In re Nortel Networks Corp. Sec. Litig., No. 01 Civ. 1855(RMB), 2003
WL 22077464, at *3 n. 4 (S.D.N.Y. Sept. 8, 2003) (rejecting argument
      that plaintiff’s purchase of defendant's stock ‘well after the
      alleged “fraud” was “exposed”’ makes plaintiff atypical of class);
      In re Frontier Ins. Group, Inc. Sec. Litig., 172 F.R.D. 31, 42
      (E.D.N.Y.1997) (‘The fact that Taub attempted to recoup her losses

                                       25
     We have not yet decided whether the purchase of a company’s

stock after disclosure of alleged fraud necessarily presents a

unique defense against that purchaser such that Rule 23(a)(3)

typicality is categorically precluded. In addition to the district

court in this case, other district courts in this circuit have

rejected this argument.      See, e.g., Lehocky v. Tidel Technologies,

Inc., 220 F.R.D. 491, 501–02 (S.D. Tex. 2004) (finding that “courts

have ruled that purchases of stock by the class representatives

after negative announcements during the class period or even after

the close of the class period do not destroy typicality” and that

“the key typicality inquiry is whether a class representative would

be required to devote considerable time to rebut Defendants'

claims.”); In re FirstPlus Fin. Group, Inc., 2002 WL 31415951, at

*6 (N.D. Tex. Oct. 28, 2002) (“The Court disagrees with Defendants

that this issue will present a sufficient distraction to render

Doremus atypical.”).     We reject the argument that a proposed class

representative in a fraud-on-the-market securities suit is as a

matter of law categorically precluded from meeting the requirements

of Rule 23(a) simply because of a post-disclosure purchase of the

     by continuing to purchase Frontier stock after the disclosure of the
     alleged misrepresentations has no bearing on whether or not she
     relied on the integrity of the market during the class period.’); In
     re Bally Mfg. Sec. Corp. Litig., 141 F.R.D. 262, 269 n. 7
     (N.D.Ill.1992) (‘Bally’s contention that plaintiff Karinsky’s claims
     are atypical because he purchased stock after the proposed class
     period is unavailing.’) (emphasis in original).” 369 F. Supp. 2d at
     209.

                                     26
defendant company’s stock. Reliance on the integrity of the market

prior to disclosure of alleged fraud (i.e. during the class period)

is unlikely to be defeated by post-disclosure reliance on the

integrity of the market.          This seems particularly so after the

stock price has been “corrected” by the market’s assimilation of

the new information.      As the district court noted, “both the high

[pre-disclosure] and low [post-disclosure] prices were assumed

accurate since the stocks were traded on an efficient market.”

Certification Order, 226 F.R.D. at 566.

     2.    New Jersey’s questionable performance as a fund manager

     Appellants   claim    that    New    Jersey’s   mismanagement   of   its

investment funds subjects it to a unique defense and thereby

renders it atypical.   The district court, however, flatly rejected

this argument as having “little bearing on New Jersey’s ability to

prosecute the losses specific to this case.”            Id.   We generally

agree with the following statement from Cromer Finance Ltd. v.

Berger, 205 F.R.D. 113, 129 n.19 (S.D.N.Y. 2001): “Even where an

investor seeks a risky investment and losses are foreseeable, he is

still entitled to truthful and accurate information in making

investment decisions. . . .         All persons entering into financial

transactions are entitled to accurate information in assessing

risk.”    Whether or not New Jersey mismanaged its funds, it was

“entitled to accurate information” from the market, and so the

class’s fraud-on-the-market claim will not suffer from any claims

                                     27
of mismanagement. As the district court noted, “While New Jersey’s

pension fund may have made some poor investments, here New Jersey

only     seeks    recovery   for   losses       caused   by    EDS’s   conduct.”

Certification Order, 226 F.R.D. at 566.

       3.   New Jersey’s relationship with KPMG

       Appellants claim that New Jersey is rendered atypical because

of the unique defense that its auditor is KPMG, and KPMG was also

EDS’s auditor during the class period.            Appellants’ theory is that

“Defendants will be able to cross-examine New Jersey about why it

feels    comfortable     relying   on    KPMG    as   its     own   auditor,   and

defendants can be expected to use that testimony to argue that they

reasonably relied on KPMG as well.”              The district court rejected

this argument, noting that “reliance on audits from a ‘Big Four’

accounting firm like KPMG does not alone make one subject to unique

defenses.”       Certification Order, 226 F.R.D. at 565.            As applied in

this context, we agree with the district court.

       We find that the district court did not abuse its discretion

in finding that New Jersey’s claim is typical of the claims of the

class.

IV.    Superiority

       Appellants claim that the superiority requirement of Rule

23(b)(3) is not met because New Jersey has not provided a trial

plan, and that the district court’s certification order in the

absence of trial plan violates our holding in Robinson v. Texas

                                        28
Automobile Dealers Association, 387 F.3d 416 (5th Cir. 2004).            We

did not hold in Robinson, however, that the submission of a trial

plan was a prerequisite for a finding of superiority.         Instead, we

stated that “[a] court must consider ‘how a trial on the alleged

causes of action would be tried.’” 387 F.3d at 425 (quoting Castano

v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996)).            In Robinson,

the district court conditionally certified a plaintiff class and we

held that “[t]he district court abused its discretion by finding

that ‘this class action is the superior method for adjudicating

this controversy’ and by not conducting any kind of analysis or

discussion regarding how it would administer the trial.” 387 F.3d

at 425.   The potential trial complications presented in Robinson,

however, are quite different from those in this case. Robinson was

an anti-trust case involving “[p]otentially, millions of consumers”

and “over a thousand defendants.”            Id. at 420.      Because the

proposed class in Robinson included anybody who had purchased a new

or used car in Texas between 1994 and 2003, the district court

should have considered how it would find jurors who were not

members of the class.    Id. at 426.     In addition, the district court

in Robinson did not certify a defendant class, with the result that

several hundred defendants (or more), each with the “absolute right

to individually defend itself by presenting direct evidence,” would

expect to “offer a witness or two.”          Id.    This securities fraud

class   action   with   three   defendants   does   not   present   similar

                                    29
challenges for the district court.                  In addition, unlike Robinson.

the    district     court      “has     carefully       considered       any     possible

difficulties       in    a    trial    on     the     alleged    cause     of    action.”

Certification Order, 226 F.R.D. at 571.                       Thus, as the district

court found, “Robinson is inapplicable and New Jersey does not need

to submit a trial plan to establish superiority.”                               Id.     The

district court premised its legal analysis of this question on a

correct understanding of the governing law, and it did not abuse

its discretion in finding that New Jersey was not required to

submit a trial plan as a prerequisite for finding that this class

action meets the superiority requirement of Rule 23(b)(3).

V.     The aggregate effects of Appellants’ arguments

       Finally,    appellants         claim    that    “The     rigorous    Rule      23(a)

analysis   requires          courts   to    consider     arguments       against      class

certification in the aggregate. . . .                 The District Court failed to

make    such   a        determination         here,     analyzing    each        argument

individually and certifying the class despite substantial questions

regarding New Jersey’s adequacy and typicality.”                           There is no

indication that the district court believed it could not or should

not consider appellants’ arguments in the aggregate.                       Moreover, it

is not clear why appellants claim that the district court did not

consider the cumulative effect of their arguments, other than the

fact that it rejected all of them.                    It is certainly not unusual

that the district court’s certification order addressed appellants’

                                              30
arguments one by one.        Appellants appear to be arguing that the

district court, after rejecting each of appellants’ arguments, must

then also explicitly state that it considered the failed arguments

in the aggregate and state whether they fail in the aggregate.

This argument is without merit.

                                 Conclusion

     For the foregoing reasons, the certification order of the

district court is

                                 AFFIRMED.10

     10
          Appellee’s motion to supplement the record on appeal is denied.

                                      31