United States District Court, E.D. Pennsylvania
ALEXANDRE PELLETIER, Individually and on Behalf of All Others Similarly Situated
ENDO INTERNATIONAL PLC, RAJIV KANISHKA LIYANAARCHIE DE SILVA, SUKETU P. UPADHYAY and PAUL V. CAMPANELLI
private securities fraud action, we must appoint lead
plaintiffs and lead counsel under 15 U.S.C.A. § 78u-4.
In doing so, we are confronted with two competing principles
for determining the lead plaintiffs -- the presumptive lead
plaintiff rule and the preference for appointing
institutional investors. We must also choose the appropriate
method for calculating who has the larger financial interest.
we use the measure proposed by the two individuals seeking
appointment, their aggregate financial interest is only
minimally greater than the institutional investor. Under
these circumstances, we conclude the institutional investor
preference outweighs the presumptive lead plaintiff rule.
November 14, 2017, Alexandre Pelletier filed a class action
complaint asserting that the defendants, Endo International
plc, its former and present CEOs, and its CFO violated
Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C.
§§ 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R.
§ 240.10b-5. The complaint alleges that Par
Pharmaceutical Holdings, Inc. (“Par”), a
wholly-owned subsidiary of Endo, conspired with several other
pharmaceutical companies to fix generic drug prices in
violation of the federal antitrust laws. It alleges that Endo
and its officers made false or misleading public statements
and failed to disclose or actively concealed material adverse
facts about Endo's business, operations, prospects and
revenue, artificially inflating Endo's share prices. The
complaint asserts a fraud-on-the-market theory of loss
causation, alleging that each of three corrective disclosures
made on November 3, 2016,  March 1, 2017,  and October 31,
caused the market value of Endo's securities to drop.
with filing his complaint, Pelletier caused notice of the
pending class action to be published on PR Newswire. On
January 16, 2018, two motions for appointment of lead
plaintiffs and lead counsel were filed. Wayne A. Wingard and
Nathan Joseph Dole moved for appointment as lead plaintiffs,
and the appointment of Pomerantz LLP as lead counsel, and
Pribanic and Pribanic LLC as liaison counsel. Park
Employees' Annuity and Benefit Fund of Chicago (the
“Fund”) moved for appointment as lead plaintiff
and the appointment of Bleichmar Fonti & Auld LLP as lead
must appoint a lead plaintiff whom it “determines to be
most capable of adequately representing the interests of
class members.” 15 U.S.C.A. § 78u-4(a)(3)(B)(i).
Determining “the most adequate plaintiff”
requires a two-step process. First, the court must identify
the presumptive lead plaintiff, the person or group having
the largest financial interest. Second, it then determines
whether the presumption has been rebutted by any member of
the putative class. In re Cendant Corp. Litig., 264
F.3d 201, 262 (3d Cir. 2001) (citing 15 U.S.C. §
78u-4(a)(3)(B)(iii)(I) & (II)).
are three criteria for identifying the presumptive lead
plaintiff. First, the person or group selected must either
have filed the complaint or made a timely motion in response
to the published notice of the pending class action. 15
U.S.C. § 78u-4(a)(3)(A)(i)(I) & (II), §
78u-4(a)(3)(B)(iii)(I) & (II)). Second, the court must
identify the movant having the “largest financial
interest in the relief sought by the class.” 15 U.S.C.
§ 78u-4(a)(3)(B)(iii)(I)(bb). Third, the party with the
largest financial interest must satisfy the adequacy and the
typicality requirements of Rule 23.
is no dispute that the movants satisfy the first and third
criteria. The disputed issue is who has the larger financial
interest. The movants calculate their respective financial
three relevant factors in the financial interest analysis
are: (1) the number of shares purchased during the class
period; (2) the total net funds expended by the plaintiffs
during the class period; and (3) the approximate losses
suffered by the plaintiffs. Cendant, 264 F.3d at 262
(citing Lax v. First Merch. Acceptance Corp., Nos.
97 C 2715, et seq., 1997 WL 461036, at *5 (N.D. Ill.
Aug. 11, 1997); In re Olsten Corp. Sec. Litig., 3
F.Supp.2d 286, 295 (E.D.N.Y. 1998) (citing Lax for
under the Lax-Olsten factors approved by
Cendant and using LIFO and FIFO accounting methods,
Wingard and Dole together claim an aggregate loss of $118,
603, and the Fund's loss at $112, 536. Thus, under this
method, it appears the Wingard-Dole group's aggregated
loss is $6, 000.00 greater than the Fund's.
Fund argues that the loss causation formula used in Dura
Pharm., Inc. v. Broudo, 544 U.S. 336, 346-47 (2005), is
the appropriate calculus. According to this formula, only
those losses that are proximately caused by the
defendant's fraud are recoverable. Consequently, losses
incurred before disclosure of the relevant misrepresentation
are not included in recoverable loss.
agree with the Fund. What the plaintiffs lost is what they
may recover. Including losses that were incurred before any
disclosure could not have been caused by any disclosures and
are not recoverable. Thus, those shares are not included in
the “largest financial interest” calculus.
the Dura analysis, the Fund calculates its loss to
be $187, 000 and the Wingard-Dole group's loss at $132,
000, giving the Fund the larger financial interest. Excluding
from the calculation those shares purchased at inflated
prices and sold at inflated prices before disclosure of the
relevant misrepresentation, the Fund purchased 20, 000 more
shares of Endo stock than the Wingard-Dole group. Hence,
applying a Dura analysis, the Fund's net loss is
greater than that of the Wingard-Dole group.
Lax factors, adopted by the Third Circuit, are the
(1) number of shares purchased during the putative class
period; (2) the total net funds expended by the plaintiffs
during that period; and the approximate losses suffered by
the plaintiffs. Cendant, 264 F.3d at 262 (citing
Lax v. First Merchants Acceptance Corp., 1997 WL
461036 at *5 (N.D. Ill., Aug. 11, 1997).
the Lax-Olsten factors, which do not address whether
losses are proximately caused by the alleged securities
fraud, the Fund's net expenditures are $180, 000.00 more
than the Wingard-Dole group's expenditures. The
Wingard-Dole group purchased 65, 605 shares during the class
period, which is 4, 769 more shares that the Fund purchased
during the class period. However, the 65, 605 shares
purchased by the Wingard-Dole group include 38, 730 shares
that were not affected by the disclosures.
PSLRA does not provide any guidance as to the method for
calculating the largest financial interest. It speaks of the
“largest financial interest in the relief
sought.” It does not reference loss, but references
damages -- “the relief sought.”
calculation of financial interest is impacted by the
statutory limitation imposed on damages. In the PSLRA,
Congress placed a cap on damages recoverable in a private
securities fraud action. Section 21D of the Act, 15 U.S.C.
§ 78u-4 sometimes referred to as the “look
back” or “bounce back” provision, states
in any private action . . . in which the plaintiff seeks to
establish damages by reference to the market price of a
security, the award of damages to the plaintiff shall not
exceed the difference between the purchase or sale price paid
or received, as appropriate, by the plaintiff for the subject
security and the mean trading price of that security during
the 90-day period beginning on the date on which the
information correcting the misstatement or omission that is
the basis for the action is disseminated to the market.
Id. § 78u-4(e)(1). The “mean trading
price” is defined as the “average of the daily
trading price of that security, determined as of the close of
the market each day during the 90- day period”
following the disclosure. Id. § 78u-4(e)(3). If
the plaintiffs sell their securities prior to the close of
the 90-day period, the mean trading price is calculated for
the period beginning immediately after the corrective
disclosure and ending on the date of sale of the security:
[I]f the plaintiff sells or repurchases the subject security
prior to the expiration of the 90-day period . . . the
plaintiff's damages shall not exceed the difference
between the purchase or sale price paid or received, as
appropriate, by the plaintiff for the security and the mean
trading price of the security during the period beginning
immediately after dissemination of information correcting the
misstatement or omission and ending on the date on which the
plaintiff sells or repurchases the security.
Id. § 78u-4(e)(2). See In re Oxford Health
Plans, Inc. Sec. Litig., 244 F.Supp.2d 247, 250
(S.D.N.Y. 2003) (construing this provision to apply to
“a sale or repurchase during the ninety day period, in
which case the Plaintiffs' damages shall not exceed the
difference between the actual price, paid or received, and