United States District Court, D. Massachusetts
MEMORANDUM AND ORDER
these consolidated class actions, it is alleged that Tokai
Pharmaceuticals, Inc. and several of its officers, directors,
and underwriters committed securities fraud in connection
with the development of galeterone, an experimental drug. On
September 30, 2016, Steven Maxon and Sanjiv Purohit timely
filed competing motions, pursuant to the Private Securities
Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C.
§ 78u-4(a)(3), seeking consolidation, appointment as
lead plaintiff for the class, and approval of their
respective selections of lead counsel. Maxon is a contractor
for the United States Department of Defense who is working in
Djibouti. Purohit subsequently withdrew his motion because
Maxon has a larger financial stake in the litigation.
However, Purohit stated that he intended the withdrawal to
have "no impact on...his ability to serve as a
representative party should the need arise." C.A. No.
16-11992, Docket No. 51.
explained in this Memorandum, a purpose of the PSLRA is to
assure that securities class actions will be directed by lead
plaintiffs who are willing and able to select and supervise
class counsel. It was intended to end the perceived practice
of counsel choosing plaintiffs, operating without
supervision, and often profiting greatly from settlements
that provided little benefit to class members.
September 28 and October 10, 2017, the court held hearings
concerning Maxon's motion, which raised questions
regarding his suitability to serve as a lead plaintiff and
the suitability of Pomerantz LLP ("Pomerantz") to
serve as lead counsel. Among other things, although Maxon had
previously certified under oath that he had read the
complaint, he informed the court that he did not know what a
complaint was and had not read anything except a notice on a
website before seeking to become lead plaintiff. In addition,
although he said he may have spoken to another law firm,
Maxon did not know that Pomerantz had filed the motion
seeking his appointment as lead plaintiff and selection of it
as class counsel until the court expressed its intention to
question him. He did not hear from or speak to anyone at
Pomerantz until just before the September 28, 2017 hearing in
which Maxon attempted to participate by telephone from the
United Arab Emirates.
October 10, 2017, the court ordered that Maxon and the law
firms seeking to represent him provide additional
information. On October 17, 2017, Maxon filed a notice that
he was withdrawing his motion. Pomerantz proposes that the
court reopen the period for class members to apply to be
appointed lead plaintiff.
reasons explained below, the court is denying Pomerantz*s
request to reopen the period for class members to seek to
become lead plaintiff. Although other courts have reopened
the period after the withdrawal of a lead plaintiff, it is
not clear that the PSLRA grants the authority to do so. In
any event, the plaintiffs who filed these cases and Purohit
are now eligible to be considered for appointment. Because of
the filing of multiple cases, other class members had 103
days-much longer than the 60 days ordinarily provided by the
PSLRA-to seek appointment. No institutional investor
expressed interest. Nor has any institutional or individual
investor expressed interest in becoming lead plaintiff in the
five months since Maxon withdrew his motion. Reopening the
notice period would further delay the progress of the case,
which defendants have a legitimate interest in having
resolved as promptly as possible. In these circumstances,
assuming that the court has the authority, it is not
necessary or appropriate to reopen the period for additional
class members to move for appointment as lead plaintiff.
appropriate to provide Purohit an opportunity to renew his
request. In addition, the plaintiffs in each case are also
eligible to be considered for appointment as lead plaintiff.
Therefore, Purohit and each plaintiff are being ordered to
file, by April 20, 2018, a motion for appointment in the form
required by the PSLRA or a statement that he does not seek to
serve as lead plaintiff.
provide guidance to potential lead plaintiffs in this case
and their counsel, the court is explaining why it would have
found Maxon and Pomerantz to be inadequate as lead plaintiff
and class counsel respectively.
the enactment of the PSLRA, "[c]ourts traditionally
appoint[ed] lead plaintiff and lead counsel in class action
lawsuits on a first come first serve basis." S. Rep. No.
104-98 (1995)(reprinted in U.S.C.C.A.N. 679)(the "Senate
Report"). "This encouraged a 'race to the
courthouse1 among parties seeking lead-plaintiff
status." In re Cendant Corp. Litiq., 182 F.R.D.
144, 145 (D.N.J. 1998).
previous system also "spawned a cottage-industry of
specialized securities litigation firms that 'researched
potential targets for these suits, enlisted plaintiffs,
controlled the litigation, and often negotiated settlements
that resulted in huge profits for the law firms with only
marginal recovery for the shareholders.'"
Id. "Investors in the class usually ha[d] great
difficulty exercising any meaningful direction over the case
brought on their behalf" and " [t]he lawyers
c[ould] decide when to sue and when to settle, based largely
on their own financial interests, not the interests of their
purported clients." Senate Report at 6.
"[P]laintiffs' counsel in many instances litigate[d]
with a view toward ensuring payment for their services
without sufficient regard to whether their clients [were]
receiving adequate compensation in light of evidence of
101(b) of the PSLRA, codified at 15 U.S.C. §74u-4, now
governs the appointment of lead plaintiffs in securities
class actions. As Judge Patti Saris succinctly explained,
that section recognizes that "the selection of the lead
plaintiff and lead counsel should rest on considerations
other than how quickly a plaintiff has filed its
complaint." In re Lernout & Hauspie Sec.
Litig., 138 F.Supp.2d 39, 43 (D. Mass. 2001) (Saris,
D.J.). The PSLRA aims:
"to increase the likelihood that institutional investors
will serve as lead plaintiffs by requiring courts to presume
that the member of the purported class with the largest
financial stake in the relief sought is the most adequate
plaintiff." [H.R. Conf. Rep. No. 104-369 ("House
Conference Report") at] 33-34 . This is predicated
upon the conclusion that " [institutional investors and
other class members with large amounts at stake will
represent the interests of the plaintiff class more
effectively than class members with small amounts at
stake." Id. at 34. Expressing a jaundiced view
of "unsupervised" plaintiffs' attorneys, the
[House] Conference Committee was most hopeful that "the
plaintiff will choose counsel rather than, as is true today,
counsel choosing the plaintiff." Id. at 35.
Id.; see also Arkansas Teacher Retirement System
v. Insulet Corp., 177 F.Supp.3d 618, 621 (D. Mass.
2016)(Wolf, D.J.). In essence, the PSLRA aims "to
empower investors so that they-not their lawyers-exercise
primary control over private securities litigation."
Senate Report at 4.
achieve those goals, §101(b) establishes a process to
"locate a person or entity, whose sophistication and
interest in the litigation are sufficient to permit that
person or entity to function as an active agent for the
class" and "actively supervise the conduct of the
litigation" of class actions alleging securities fraud.
In re Cendant Corp. Litig., 264 F.3d 201, 266-67 (3d
Cir. 2001)(Becker, J.). It requires that "not later than
20 days after the date on which the complaint is filed, the
plaintiff or plaintiffs shall cause to be published, in a
widely circulated national business-oriented publication or
wire service, a notice advising members of the purported
(I) of the pendency of the action, the claims asserted
therein, and the purported class period; and
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
15 U.S.C. §77u-4(a)(3)(A)(i).
plaintiff seeking to serve as a representative party on
behalf of a class [must] provide a sworn certification,
" "which [must] be personally signed by such
plaintiff and filed with the complaint, that:
(i) states that the plaintiff has reviewed the complaint and
authorized its filing;
(ii) states that the plaintiff did not purchase the security
that is the subject of the complaint at the direction of
plaintiff's counsel or in order to participate in any
private action arising under this chapter;
(iii) states that the plaintiff is willing to serve as a
representative party on behalf of a class, including
providing testimony at deposition and trial, if necessary;
(iv) sets forth all of the transactions of the plaintiff in
the security that is the subject of the complaint during the
class period specified in the complaint;
(v) identifies any other action under [the Securities Act],
filed during the 3-year period preceding the date on which
the certification is signed by the plaintiff, in which the
plaintiff has sought to serve as a representative party on
behalf of a class; and
(vi) 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..."
15 U.S.C. §78u-4(a)(2)(A).
(a) (3) (B) (i) & (ii) require that "no later than
90 days" after the notice is published, or as soon as
practicable after the court renders a decision on a motion to
consolidate related class actions:
the court shall consider any motion made by a purported class
member in response to the notice, including any motion by a
class member who is not individually named as a plaintiff in
the complaint or complaints, and shall appoint as lead
plaintiff the member or members of the purported plaintiff
class that the court determines to be most capable of
adequately representing the interests of class members
(hereafter in this paragraph referred to as the "most
adequate plaintiff") in accordance with this
(emphasis added). "The most adequate plaintiff shall,
subject to the approval of the court, select and retain
counsel to represent the class." Id. at
purposes of §77u-4 (a) (3) (B) (i), "the court
shall adopt a presumption that the most adequate plaintiff in
any private action arising under this ...