United States District Court, E.D. Wisconsin
ARLENE D. GUMM, ET AL, Plaintiffs,
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
PEPPER, United States District Judge
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.
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 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”). 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.
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.
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.
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
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.
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.
Both Motions Were Timely Filed.
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. Dkt. Nos. 18, 21.
The Group Has the Largest Financial Interest.
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. 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.”).
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.
Clark and ...