A district court has appointed an institutional plaintiff as lead plaintiff in a securities fraud class action, despite its being a "professional plaintiff." The court concluded that the presumption that a group consisting of two retirement associations was the most adequate lead plaintiff was not overcome. While another movant argued one of the group members was a "professional plaintiff" barred under the PSLRA, the court exercised its discretion to find that the group was not lawyer-driven and would be able to actively participate in the litigation (Oklahoma Law Enforcement Retirement System v. Adeptus Health Inc., August 31, 2017, Mazzant, A.).
This action was filed in late October 2016 on behalf of purchasers of certain common shares of Adeptus Health, Inc. The action was later consolidated with three others, all alleging that the company had failed to disclose material weaknesses in its internal control over financial reporting. While the claims have been stayed after Adeptus filed for bankruptcy, the parties urged the court to decide the instant motions for appointment as lead plaintiff in order to represent the class in the bankruptcy proceedings.
Professional plaintiff okayed. Of the three movants, the court appointed the Alameda County Employees’ Retirement Association and Arkansas Teacher Retirement System (collectively, the "Retirement Group") as lead plaintiff and approved the selection of counsel. One of the three movants was eliminated at the outset because it had filed its motion too late. The court then found that the Retirement Group was the presumptive lead plaintiff because it had the largest financial interest.
The other movant, however, maintained that the Retirement Group would not fairly and adequately represent the class because it was an improper group under the PSLRA. The Retirement Group, however, was able to persuade the court that it would be able to function cohesively and efficiently manage the litigation together. Moreover, the Retirement Group had participated in the bankruptcy proceeding by filing objections and hiring attorneys who have made appearances. There was little concern, the court said, that the Retirement Group was a lawyer-driven group that the plaintiffs would be unable to control.
Next, the movant argued that the Arkansas Teacher Retirement System was a professional lead plaintiff and thus barred under the PSLRA from serving as lead. Here, the court noted a split among the courts as to whether the PSLRA's restriction on professional plaintiffs applies to institutional investors like Arkansas Teacher. There is no blanket exception for institutional investors in the statute, the court said, and that status is merely a factor to consider when the court is using its discretion to apply the bar.
Exercising its discretion, the court declined to bar Arkansas Teacher from serving as lead plaintiff. The court again pointed to the PSLRA's aim to prevent lawyer-driven litigation, but did not find that to be the case here. The court explained that there was sufficient evidence to show that the Retirement Group as a whole would be able to actively participate in the litigation and control its attorneys. The court accordingly appointed the Retirement Group as lead plaintiff and approved its choice of Bernstein Litowitz and Kessler Topaz as co-lead counsel.
The case is No. 4:17-CV-00449.