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Gumm v. Molinaroli

United States District Court, E.D. Wisconsin

November 14, 2016

ARLENE D. GUMM, ET AL, Plaintiffs,
v.
ALEX A. MOLINAROLI, ET AL, Defendants.

          DECISION AND ORDER GRANTING THE MOTION OF THE JCI SHAREHOLDERS' GROUP FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF ITS SELECTION OF LEAD COUNSEL (DKT. NO. 18); DENYING MOTION OF JOHN AND VIVIAN FIFRICK FOR APPOINTMENT AS PLAINTIFF AND APPROVAL OF LEAD COUNSEL (DKT. NO. 21); AND APPOINTING LEAD PLAINTIFF, LEAD COUNSEL AND LIAISON COUNSEL

          PAMELA PEPPER, United States District Judge

         JCI Shareholders Group and John and Vivian Fifrick have filed competing motions seeking appointment as lead plaintiffs and approval of lead counsel. Dkt. Nos. 18 (JCI), 21 (Fifrick). The motions are fully briefed. The court finds that the JCI Shareholders Group is the most adequate lead plaintiff, and approves Lockridge Grindal Nauen, P.L.L.P. as lead counsel and Wagner Law Group, SC as liaison counsel.

         BACKGROUND

         Johnson Controls, Inc. (“JCI”) and Tyco International (“Tyco”) entered into a plan of merger on January 24, 2016. Dkt. No. 1 at ¶1. In its January 25, 2016 announcement, JCI stated that the merger would be tax-free to Tyco shareholders and taxable to JCI shareholders. Id. at ¶6. On August 16, 2016, plaintiffs Arlene Gumm, Paul Pontier, Cynthia Pontier, Danny High, and Michael Holtzhauer filed a complaint on behalf of themselves and all other similarly situated stockholders of JCI against certain senior executive officers, all members of the Board of Directors of JCI, JCI, Jagara Merger Sub LLC and Tyco. Id. at 4. The complaint asserts that the merger[1] specifically was structured to allow JCI to gain tax benefits by reincorporating in Ireland- Tyco's legal domicile (referred to as an “inversion” or “tax inversion”).[2] Id. at ¶¶3, 5. To gain these tax benefits, JCI allegedly diluted the stock to a point that any tax liability for reincorporating in Ireland shifted to the shareholders. Id. at ¶¶11, 12. Accordingly, the plaintiffs alleged that the merger hurts two classes of shareholders: (1) public shareholders and (2) shareholders with potential exposure to capital gain taxation. Id. at ¶1.

         Also on August 16, 2016, in accordance with the statute governing the procedure for private securities class actions (15 U.S.C. §78u-4(a)(3)(A)), the plaintiffs published notice of the action to investors and informed potential plaintiffs of the October 17, 2016 deadline to file lead plaintiff motions. Dkt. No. 20-3. On October 17, 2016, Peter Smykla, Cathreen Clark, Cynthia Pontier, Henry Nisiewicz, and Brian Ellison (collectively “the Group”) and John and Vivian Fifrick filed competing motions now before the court, each seeking appointment as lead plaintiffs and each seeking approval of different lead counsel. Dkt. Nos. 18, 21. The Group is composed of “five knowledgeable, successful business executives, entrepreneurs, and professionals…who, in addition to being substantial investors, will exert their influence in the litigation and will effectively oversee counsel.” Dkt. No. 30 at 4. Collectively, the Group holds 347, 116 shares of JCI stock. Dkt. No. 20-2. John and Vivian Fifrick are a married couple who own 203, 424 shares of JCI stock. Dkt. No. 22-2; Dkt. No. 29 at 5.

         For the reasons explained below, the court finds that the Group is the most adequate lead plaintiff and approves the Group's selection of Lockridge Grindal Nauen, P.L.L.P. as lead counsel and Wagner Law Group, SC as liaison counsel.

         DISCUSSION

         In an attempt to reform abusive securities class action litigation practices, Congress passed the Private Securities Litigation Reform Act (“PSLRA”) in 1995. In re Oxford Health Plans, Inc., Sec. Litig., 182 F.R.D. 42, 43-44 (S.D.N.Y. 1998). To prevent lawyer-driven litigation, the PSLRA directs courts to determine the most adequate lead plaintiff or plaintiffs. 15 U.S.C. §78u-4(a)(3)(B)(i); Asher v. Baxter Intern. Inc., 505 F.3d 736, 737 (7th Cir. 2007) (“‘Lead plaintiffs are supposed to counteract the dominance of lawyers over class-action suits; the district judge should select a representative with a financial stake large enough to make monitoring of counsel worthwhile, and with the time and skills needed to make monitoring productive.”) Consequently, the filing of a securities class action complaint triggers a cascade of deadlines under the PSLRA: (1) the plaintiffs have twenty days to publish a notice of the action informing class members of the deadline to file a motion to serve as lead plaintiff (§78u-4(a)(3)(A)(i)); (2) potential class members then have sixty days from the date of the notice to file lead plaintiff motions with the court (§78u-4(a)(3)(A)(i)(II)); and finally (3) within ninety days of the date of the notice, the court must consider any motions filed and appoint a lead plaintiff (§78u-4(a)(3)(B)(i)).

         When considering motions to serve as lead plaintiff, the court shall adopt a presumption that the most adequate plaintiff is the “person or group of persons” that (1) made a motion or filed the complaint, (2) has the largest financial interest in the relief sought by the class, and (3) otherwise satisfies the requirements of Fed.R.Civ.P. 23. 15 U.S.C. §78u-4(a)(3)(B)(iii). The presumption is rebuttable, but in order to rebut it, a member of the purported plaintiff class must provide proof that the presumptively most adequate plaintiff either 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.” 15 U.S.C. §78u-4(a)(3)(B)(iii)(II).

         In this case, the presumption arises in favor of the Group for the following reasons: (1) it filed a timely motion; (2) it has the largest financial interest; and (3) it satisfies the requirements of Rule 23. The Fifricks have not submitted the kind of proof required to rebut the presumption.

         A. Both Motions Were Timely Filed.

         The PSLRA requires that “not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.” 15 U.S.C. §78u-4(a)(3)(A)(i)(II). The plaintiffs published the notice on August 16, 2016. Dkt. No. 20-3. Members of the purported class had until October 17, 2016 to file a motion to serve as lead plaintiff. Id. Both the Group and the Fifricks filed their motion by this deadline.[3] Dkt. Nos. 18, 21.

         B. The Group Has the Largest Financial Interest.

         In order for the rebuttable presumption to arise in favor of a person or group of persons, the court must determine which movant has the largest financial interest. 15 U.S.C. §78u-4(a)(3)(B)(iii)(I)(bb). The PSLRA does not provide a formula for determining which plaintiff or plaintiffs has the largest financial interest. Id. Many courts apply a four-factor test. See In re: Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001)(“we agree with the many district courts that have held that courts should consider, among other things: (1) the number of shares that the movant purchased during the putative class period; (2) the total net funds expended by the plaintiffs during the class period; and (3) the approximate losses suffered by the plaintiffs”). In this case, it appears that the parties agree that this is a unique case, and that the number of shares held by each party is a key factor.[4] Dkt. No. 19 at 5; Dkt. No. 29 at 5. Consequently, the court will measure the movants' financial interest by reviewing the respective number of shares. See Plumbers & Pipefitters Local 562 Pension Fund v. MGIC Investment Corp., 256 F.R.D. 620, 623-24 (E.D. Wis. 2009) (“[B]y not specifying a method for determining the largest financial interest and stating instead that the determination is the court's, the PSLRA appears to discourage any [finely-calibrated] inquiry and prefer that the court make the determination based on whatever factors seem most appropriate under the facts of the case before it.”).

         The Group has the largest financial interest in the relief sought. The Group collectively owns 347, 116 shares of JCI stock. Dkt. No. 27 at 1, 4. The Fifricks own 203, 424 shares. Dkt. No. 29 at 5. To counter the appearance that the Group has the largest financial interest, the Fifricks raise objections to the Group's share count; they argue that (1) the court should not include the Clark and Nisiewicz shares because those two individuals submitted certifications with electronic signatures; (2) the court should reduce Cynthia Pontier's share count because it includes shares belonging to family members; and (3) the court should not aggregate all the Group's shares, because the Group was “cobbled together by its counsel” and because there is no evidence of “pre- litigation relationship or cohesion.” Id. at 4. The court does not find these arguments persuasive, and finds that the presumption arises that the Group has the larger financial interest. Dkt. No. 32 at 3, 6.

         1. Clark and ...


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