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EZRA CHARITABLE TRUST v. RENT-WAY

March 9, 2001

THE EZRA CHARITABLE TRUST, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF
V.
RENT-WAY, INC., JEFFREY A. CONWAY AND MATTHEW J. MARINI, DEFENDANTS.



The opinion of the court was delivered by: McLAUGHLIN, District Judge.

MEMORANDUM OPINION

This is a class action on behalf of purchasers of Rent-Way securities seeking damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), as amended, 15 U.S.C. § 78t(a) and 78j(b), and Rule 15b-5 promulgated thereunder, 17 C.F.R. § 240.15b-5. Presently pending are five motions for the appointment of lead plaintiff and approval of counsel pursuant to Section 21D(a)(3)(B), as amended, 15 U.S.C. § 78u-4 (a)(3)(B). These motions were filed on behalf of the following plaintiffs: 1) Cramer Rosenthal McGlynn LLC ("Cramer"); 2) Florida State Board of Administration ("FSBA"); 3) Mesirow Asset Management ("Mesirow"); 4) Sherleigh Associates, Inc. ("Sherleigh"); and 5) Harold L. Grogan and William R. Latimer ("Grogan/Latimer"). For the reasons that follow, Cramer's motion [Doe. No. 10] is granted and the other motions [Doc. Nos. 4, 8, 11, and 13] are denied.

I. BACKGROUND

The instant action is a consolidation of numerous securities fraud actions filed against Rent-Way. The facts, as alleged in the Class Action Complaint and purportedly reviewed by each of the proposed lead plaintiffs, are as follows:*fn1

Rent-Way is a Pennsylvania corporation with its principal place of business in Erie, Pennsylvania. The company rents merchandise such as home entertainment equipment, computers, furniture, and appliances from 1,093 stores located in 41 states. Complaint ¶ 10. As of July 26, 2000, Rent-Way had approximately 24.3 million outstanding shares. The company was actively traded on the New York Stock Exchange during the proposed class period, January 18, 2000 through October 27, 2000.

Defendant Jeffrey A. Conway is the President and Chief Operating Officer of Rent-Way; prior to January 18, 2000, he was the Senior Vice President and Chief Financial Officer. Defendant Matthew J Marini was the Controller and Chief Accounting Officer during the class period. These defendants are allegedly responsible for the disclosure of material false and misleading statements regarding Rent-Way's true financial position, as well as the concealment of information accurately reflecting the company's financial position. See Complaint ¶ 17.

During the proposed class period, Rent-Way released its earnings results for three fiscal quarters. Each of these releases reported increases over the previous year's earnings. On January 18, 2000, the first day of the proposed period, Rent-Way announced its results for the first fiscal quarter ending December 31, 1999:

ERIE, Pa., Jan. 18 /PRNewswire/ — Rent-Way, Inc. (NYSE: RWY) today announced record earnings per share of $0.44 (diluted) and an operating margin of 16.0% for the quarter ended December 31. 1999. All historical financial information set forth in this press release has been restated to reflect Rent-Way's merger with Home Choice Holdings, Inc., in December 1998, and the accounting for the merger as a pooling of interests.
For the first quarter ended December 31, 1999, total revenues were $140.9 million, a 13.7% increase over $124.0 million reported in the same quarter last year. Operating income was $22.6 million, a 418.4% increase over the loss of $7.1 million reported in the same quarter last year, net income was $10.1 million, a 200.8% increase over the loss of $10.1 million reported in the same quarter last year.
Same store revenues in core Rent-Way stores increased 5.1%, the fourteenth consecutive quarterly increase between 5% and 8%. Home Choice same store revenue showed sequential improvement, down only 0.9% compared to negative 2.8% in the previous quarter and negative 5.3% in the third quarter of fiscal 199[sic]. "We are excited at the trends we see in customer gain and agreement growth. This, coupled with increased revenue from new merchandise like computers, continue to impact our same store results," said William E. Morganstern, Chairman and CEO.

PR Newswire, January 18, 2000; Complaint ¶ 27. On April 18, 2000, Rent-Way announced its earnings for the fiscal quarter ending March 31, 2000:

ERIE, Pa., April 18 /PRNewswire/ — Rent-Way, Inc. (NYSE: RWY) today reported record revenues and earnings per share for its second quarter, ended March 31, 2000. Total revenues of $148.9 million increased 18.4% over the $125.8 million reported in the same quarter and up 5.7% versus the first quarter. Earnings per share were $0.46 (diluted), an increase of 43.8% over the $0.32 reported in the same quarter last year and up to 4.5% versus the first quarter.
During the first half of fiscal 2000, Rent-Way total revenues were $289.8 million an increase of 16.1% over the $249.7 million reported in the same period last year. First-half earnings per share of $0.90 rose in comparison to the $0.14 loss reported during the first half of 1999. The results for the six months ended March 31, 1999 include $16.8 million of business combination charges related to rent-Way's merger with Home Choice on December 10, 1998. Excluding these charges, earnings per share rose 80.0% over the 0.50 reported during the first half of 1999.

PR Newswire, April 18, 2000; Complaint ¶ 29. This announcement also stated that during this quarter, Jeffrey Conway became the new President and COO, William McDonnell became the new CFO, and the company accelerated its plans for opening new stores from fifty new stores per year to one hundred per year. See id. On July 20, 2000, Rent-Way announced its third-quarter earnings:

ERIE, Pa., July 20 / — Rent-Way, Inc. (N.Y.SE" [sic] RWY) today reported record revenues and earnings per share for its third quarter, ended June 30, 2000. Total revenues of $152.1 million increased 24.7% over the $121.9 million reported in the same quarter last year. Earnings per share were $0.47 (diluted), an increase of 30.6% over the $0.36 reported in the same quarter last year.
During the quarter, Rent-Way opened 28 new stores. Core Rent-Way same store revenue increases were 7.1%. Home Choice same store revenues increased ...

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