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City of Marysville General Employees Retirement System v. Nighthawk Radiology Holdings

May 19, 2010


The opinion of the court was delivered by: Honorable Candy W. Dale Chief United States Magistrate Judge


Currently pending before the Court are motions filed by three different institutional investors to be appointed lead plaintiff in this class action, and for approval of lead plaintiff's selection of counsel. The three potential lead plaintiffs are the Garden City Employees' Retirement System ("Garden City"), Plymouth County Contributory Retirement System ("Plymouth"), and the Miramar Firefighters' Pension Fund ("Miramar"). (See Docket Nos. 17, 20, and 24.)

The Complaint is brought on behalf of a class of purchasers of Nighthawk Radiology Holdings, Inc. ("Nighthawk") securities, and names Nighthawk and certain of its officers and/or directors as defendants. The Complaint alleges that Defendants' conduct violated Sections 10(b) and 20(a) of the Exchange Act of 1934 and SEC Rule 10b-5. The Complaint asserts that purchasers of Nighthawk securities relied upon materially false and misleading statements and/or omissions of Defendants during a specific period (the "Class Period").

The Court conducted a hearing on April 21, 2010. After considering the parties' memoranda, oral arguments, and supporting materials submitted in support of their motions, the Court will appoint Plymouth as Lead Plaintiff and its counsel, Scott Scott LLP, and liaison counsel, Holland & Hart LLP, for the reasons discussed below.

I. Factual and Procedural Background

Nitghthawk Radiology Holdings, Inc. ("Nighthawk") and its subsidiaries provide professional services, business services, and clinical workflow technology to radiology groups and hospitals throughout the United States. Nighthawk was founded in 2001 and is headquartered in Coeur d'Alene, Idaho. As of October 18, 2009, 23,542,807 shares of Nighthawk's common stock traded on the NASDAQ.

On April 10, 2007, Nighthawk announced its acquisition of The Radlinx Group, a Texas-based provider of teleradiology services, which was publically advertised to increase Nighthawk's customer base and expected to add approximately five cents per share to earnings in 2007. Throughout 2007, Nighthawk allegedly continued to promote the success of its acquisition of Radlinx. On October 10, 2007, the price per share of Nighthawk's common stock reached a high of $25.25.

Garden City, Plymouth, and Miramar, all large institutional investors, purchased Nighthawk securities between April 10, 2007 and February 13, 2008 (the "Class Period"). The investors allege that during the Class Period, Nighthawk failed to disclose to analysts and investors that it was experiencing material delays in transitioning the former Radlinx physician contracts to Nighthawk's compensation model, which would impact fiscal year 2007 results, and that demand for Nighthawk's services was weakening.

On January 28, 2008, Nighthawk issued a press release announcing its preliminary 2007 financial results, which showed lower revenues than projected and blamed a delay in transitioning the Radlinx physician contracts to Nighthawk's compensation model. The following day, on January 29, 2008, Nighthawk shares dropped to $16.24. As more information concerning Nighthawk's problems was released, the share price decreased to $12.54 by the end of the Class Period. Overall, from January 29, 2008 to February 14, 2008, the price of Nighthawk common stock declined approximately 34%.

The Complaint alleges that Defendants' Class Period statements were materially false and misleading because, among other concerns, they failed to disclose the difficulties in integrating the Radlinx radiologists and weaknesses in the demand for Nighthawk's services. In addition, the Complaint sets forth alleged insider sales of Nighthawk stock during the Class Period.

On December 17, 2009, Plaintiff City of Marysville General Employees Retirement System published a notice of pendency of this action in Business Wire, a service that disseminates full-text news releases from thousands of companies and organizations worldwide to news media, financial markets, disclosure systems, and other audiences. (Murdock Decl. Ex. A, Docket No. 22-1.) Plymouth, Garden City, and Miramar filed the instant motions seeking to be appointed lead plaintiff on February 16, 2010.

Garden City filed its motion first, at 3:31 p.m. MST, selecting the law firms of Coughlin Stoia Geller Rudman & Robbins, LLP to serve as lead counsel and Gordon Law Offices to serve as liaison counsel. (Docket No. 17.) Next, at 5:18 p.m. MST, Plymouth requested that it be appointed lead plaintiff. (Docket No. 20.) Plymouth selected the law firms of Scott Scott LLP as lead counsel and Holland & Hart LLP as liaison counsel. The final filing for lead plaintiff status was made by Miramar at 8:28 p.m. MST. (Docket No. 24.) Miramar selected the law firms of Shepherd Finkelman Miller & Shah LLP and Lockridge Grindal Nauen PLLP as co-lead counsel and the firm of Augustine & McKenzie PLLC to serve as liaison counsel.

In response to the Motions, Garden City conceded that, with $100,153 in losses, it possessed a smaller financial interest in the litigation than either Plymouth or Miramar. (Docket No. 36.) Garden City therefore conceded that the decision as to who should be appointed lead plaintiff should be between Plymouth or Miramar, but if the Court found those two plaintiffs inadequate or otherwise incapable of serving, it would accept the responsibility. Defendants took no position with respect to the motions, but reserved their right to challenge the lead plaintiff's application to be appointed class representative at the time the Court considers such a motion for class certification under Rule 23. (Docket No. 32.) Therefore, the Court will decide whether Plymouth or Miramar's motion should be granted.

II. Motions to Appoint Lead Plaintiffs and Approve Selection of Counsel

The Private Securities Litigation Reform Act ("PSLRA") sets forth a procedure for the selection of a lead plaintiff to oversee securities class actions brought pursuant to the Federal Rules of Civil Procedure. 15 U.S.C. § 78u-4(a).

First, the plaintiff who files the initial action must publish notice to the class informing class members of their right to file a motion for appointment as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A)(I). Within 60 days after publication of the notice, any member of the proposed 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).

Next, within 90 days after publication of notice, "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 that the court determines to be "most capable of adequately representing the interests of class members . . . ." 15 U.S.C. § 78u-4(a)(3)(B)(i). The PSLRA also provides a rebuttable presumption that the most adequate plaintiff is the person or group of persons that:

(aa) has either filed the complaint or made a motion in response to a notice . . . (bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and (cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.

15 U.S.C. ยง 78u-4(a)(3)(B)(iii)(I). This presumption can be rebutted only upon proof by a member of the purported plaintiff class that the presumptive plaintiff "will not fairly and adequately protect the interests of the class" or "is subject to unique defenses that render such plaintiff incapable ...

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