The opinion of the court was delivered by: Honorable Candy W. Dale Chief United States Magistrate Judge
MEMORANDUM DECISION AND ORDER
This matter is before the Court on competing motions for the appointment of lead plaintiff and approval of counsel in this class action filed against Defendant PCS Edventures!.com, Inc., Anthony A. Mather*fn1 and Shannon M. Stith. The Court has received two motions: one from Kenneth Padgett and Bill Hickman who collectively seek appointment as the "Padgett Group" (Dkt. 13); and the second from Moustafa Salem
(Dkt. 15). The Padgett Group is represented by The Rosen Law Firm, P.A., and Mr. Salem is represented by Robbins Umeda LLP. Mr. Salem also filed a Motion to Strike (Dkt. 33) portions of the Padgett Group's reply brief under Rule 12(f) of the Federal Rules of Civil Procedure.
The Court conducted a hearing on the motions on January 14, 2011. After considering the parties' oral arguments, memoranda, and materials submitted in support of their motions, for the reasons discussed more fully below, the Court will appoint Mr. Salem as lead plaintiff; and approve Mr. Salem's selection of Robbins Umeda as counsel for lead plaintiff and Gordon Law Offices as liaison counsel. The Court also will deny the motion to strike.
PCS Edventures!.com, Inc. ("PCS"), is engaged in the business of developing and marketing educational learning labs, curricula, and related software and technology.*fn2 See Compl. (Dkt. 1.) PCS is an Idaho corporation headquartered in Boise, Idaho.
Plaintiffs allege that on March 28, 2007, PCS issued a press release which announced a purported sale to its Middle East distributor, Global Techniques a/k/a PCS Middle East ("PCS Middle East"). The press release stated that PCS had entered into a license agreement with PCS Middle East for a fixed license fee of $7.15 million. However, PCS Middle East allegedly did not have the ability to pay the $7.15 million
without first obtaining a contract and receiving funds from the Kingdom of Saudi Arabia ("Saudi Arabia"). PCS Middle East did not, however, have a contract with Saudi Arabia. PCS officers allegedly knew there was no contract with Saudi Arabia and thus, also knew of PCS Middle East's alleged inability to pay the $7.15 million licensing fee.
On March 29, 2007, PCS filed a Form 8-K with the United States Securities and Exchange Commission, announcing the purported $7.15 million license agreement. The Form stated that full payment would be received by PCS no later than May 15, 2007.
Between May and August 2007, PCS issued additional press releases and filed a Form 8-K/A and a Form 10-KSB, all of which contained allegedly materially false and misleading representations or omissions related to the purported license agreement. The false and misleading information caused the price and trading volume of PCS stock to be artificially inflated.
On August 26, 2010, the Securities Exchange Commission ("SEC") instituted a civil action against PCS for the allegedly false and misleading representations concerning the purported license agreement with Saudi Arabia. Plaintiffs here claim that no reasonable investor or class member reasonably could have suspected that Defendants' misstatements about the purported $7.15 million sales contract was made with scienter. Further, Plaintiffs allege that the market for PCS securities was open, well-developed and efficient at all relevant times. As a result of these materially false and misleading statements and failures to disclose, Plaintiffs claim that PCS securities traded at artificially inflated prices during the Class Period. Plaintiffs purchased or otherwise acquired PCS securities relying upon the integrity of the market price of PCS securities and market information relating to PCS, and claim to have been damaged thereby. See Compl. (Dkt. 1.)
On September 17, 2010, The Rosen Law Firm published early notice of pendency of this action in the Business Wire, a national business-oriented wire service. Gordon Decl. Ex. A, Gordon Decl. Ex. 1 (Dkts. 17-1, 18-1.)*fn3 The same day, the Complaint was filed with the Court. (Dkt. 1.) The Complaint is brought on behalf of Leslie Niederklein and all other purchasers of PCS securities similarly situated, and names PCS and certain of its officers and directors as defendants. The Complaint alleges that Defendants' conduct violated Sections 10(b) and Rule 10b-5 thereunder, and 20(a) of the Securities Exchange Act of 1934. 15 U.S.C. § 78a, et. seq. The Complaint also alleges that, between March 28, 2007 and August 15, 2007 (the "Class Period"), purchasers of PCS securities relied upon materially false and misleading statements of Defendants, and were damaged thereby.
On November 16, 2010, the Padgett Group and Mr. Salem filed the instant motions seeking appointment as lead plaintiff. The Padgett Group filed its motion on November 16, 2010, selecting The Rosen Law Firm to serve as lead counsel and Gordon Law Offices to serve as liaison counsel. (Dkt. 13.) Mr. Salem also filed his motion on November 16, 2010, seeking appointment as lead plaintiff, and requesting the approval of
his selection of Robbins Umeda LLP as lead counsel and Gordon Law Offices as liaison counsel. The Padgett Group collectively claims $301,490.85 in losses ($199,732.15 for Mr. Padgett individually, and $101,758.70 for Mr. Hickman individually). Mr. Salem claims $80,689.17 in losses.
On January 5, 2011, Mr. Salem filed a Motion to Strike (Dkt. 33) certain portions of the Padgett Group's Reply (Dkt. 30), and Exhibit A to Philip Gordon's Declaration (Dkt. 31).
On January 14, 2011, the Court heard arguments on the proposed lead plaintiffs' motions. During the hearing, the Padgett Group conceded that its individual members (Kenneth Padgett and Bill Hickman) have no pre-existing relationship. Further, both the Padgett Group and Mr. Salem consented to the approval of Gordon Law Offices as liaison counsel should either movant be appointed lead plaintiff. None of the proposed lead plaintiffs were present at the hearing, however. Counsel for the Defendants were present at the hearing, but took no position with respect to the proposed lead plaintiffs' motions.
1. Appointing Lead Plaintiff Under PSLRA
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. § 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 most adequate plaintiff "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. § 78u-4(a)(3)(B)(iii)(II).
The United States Court of Appeals for the Ninth Circuit has recognized that a district court must follow a three-step process to determine the lead plaintiff in securities actions. In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). First, the court must determine whether the procedural requirements are satisfied. Id. The procedural requirements demand that a motion for appointment as lead plaintiff be filed within 60 days of the published notice of the class action. 15 U.S.C. § 78u-4(a)(3)(A). Each proposed lead plaintiff also must provide a sworn certification that he or she has reviewed and authorized the complaint, did not purchase the security at the direction of counsel or in order to participate in any private action and is willing to serve as a representative party. Id. § 78u-4(a)(2)(A).
Second, the court must identify which proposed lead plaintiff has the largest financial interest by comparing the financial stakes of the parties. In re Cavanaugh, 306
F.3d. at 729-30. Once the individual or group of individuals with the largest financial interest is identified, the court must "focus its attention on that plaintiff" and determine whether that plaintiff has made a prima facie showing that Rule 23 requirements are met. Id. at 730 (emphasis in original). If the individual or group of individuals with the largest financial interest meets the requirements of Rule 23, they become the presumptively most adequate plaintiff. Id. On the other hand, "[i]f the plaintiff with the greatest financial stake does not satisfy the Rule 23(a) criteria, the court must repeat the inquiry, this time considering the plaintiff with the next-largest financial stake, until it finds a plaintiff who is both willing to serve and satisfies the requirements of Rule 23." Id.
Third, other plaintiffs may rebut the presumptive lead plaintiff's prima facie showing that he satisfies the requirements of Rule 23, particularly the typicality and adequacy requirements. Id.
Finally, once the court determines who is the most adequate plaintiff, that plaintiff is required to select counsel to represent the class, subject to the court's approval. 15 U.S.C. § 78u-4(a)(3)(B)(v). "While the appointment of counsel is made subject to the approval of the court, the [PSLRA] clearly leaves the choice of class counsel in the hands of the lead plaintiff." In re Cavanaugh, 306 F.3d. at 734.
A. Procedural Requirements
Both the Padgett Group and Mr. Salem have complied with the procedural requirements, as both motions for appointment as lead plaintiff were filed on November 16, 2010, within 60 days of the published notice. See 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa). And, certifications signed by Mr. Padgett, Mr. Hickman and Mr. Salem, filed along with their respective motions comply ...