Wednesday, December 03, 2008

Union Pension Fund to Head Freddie Mac Class Suit

Judge John Keenan named the Teamsters' Central States, Southeast and Southwest Areas Pension Fund as lead plaintiff in a class action by holders of common stock of the Federal Home Loan Mortgage Company brought in the Southern District of New York. The fund's choice of counsel, Coughlin, Stoia, Geller, Rudman & Robins, LLP, will represent the class. The court named Central States to lead the action even though a rival applicant, the state treasurer of North Carolina, acting as trustee of the North Carolina state retirement funds, was presumptively the most adequate plaintiff.

Initially, the court laid out its methodology for selecting the presumptive plaintiff. The factors involved are 1) the number of shares purchased during the class period, 2) the number of net shares purchased during the class period, 3) the total net funds expended during the class period and 4) the approximate losses suffered during the class period. Of these, Judge Keenan observed that the "fourth factor—amount of losses suffered—is by far the most significant." The court also determined that losses should be computed using a LIFO calculation. "The main advantage of LIFO is that, unlike FIFO, it takes into account gains that might have accrued to plaintiffs during the class period due to the inflation of the stock price," wrote Judge Keenan.

Under these measures, the North Carolina treasurer was presumptively the most adequate plaintiff. The first three factors strongly favored the state funds, and the state had slightly larger LIFO losses. However, Judge Keenan found that the opposing claimants sufficiently rebutted the statutory presumption. The state attorney general objected to the treasurer's appointment on the ground that the treasurer did not have legal authority to seek NCRS’s appointment as lead plaintiff or to retain counsel to represent NCRS in the litigation. The treasurer disputed the attorney general’s interpretation of North Carolina law. According to lawyers for the treasurer, the two officials were involved in a "political shoving match.” The court found that because of the uncertainty surrounding the treasurer’s legal authority, it could not conclude that the treasurer was "willing and able" to serve as lead plaintiff.

The court rejected attempts to rebut the presumption of adequacy with regard to Central States. One challenge was based on the fact that the pension fund had been operating since 1982 under a consent decree with the Department of Labor arising from allegations of corruption and mismanagement in the 1960s and 1970s. The court noted that opposing counsel even conceded "with commendable candor" that "he could not think of any way that the consent decree realistically might affect Central States’ ability to represent the class."

Challenges based on potential conflicts involving the Coughlin Stoia firm also failed. The firm had been proposed to represent a class of preferred shareholders, but the court concluded that the actions involved different claims and a different defendant pool. The actions also would not require the firm to advance conflicting arguments sufficient to disqualify them.

Finally, the court rejected the request to appoint co-lead plaintiffs and counsel. Judge Keenan concluded that there was " no need for two lead plaintiffs and two lead law firms to represent the common shareholders, as this would result in unnecessary disagreement, motion practice, delay, and increased attorney’s fees."

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