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UNITED STATES DISTRICT COURT DISTRICT OF MARYLAND ------------------------------------------------------------x Civil No.: 1:03-MD-01539 IN RE ROYAL AHOLD N.V. SECURITIES & ERISA LITIGATION
ALL SECURITIES ACTIONS
------------------------------------------------------------x
LEAD PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR CLASS CERTIFICATION, APPOINTMENT OF CLASS REPRESENTATIVES AND APPOINTMENT OF CLASS COUNSEL
Andrew J. Entwistle, Esq. (AE-6513) Johnston de F. Whitman, Jr., Esq. (JW-5781) Stephen D. Oestreich, Esq. (SO-8933)(Of Counsel) Richard W. Gonnello, Esq. (RG-7098) Helen Chung, Esq. (HC-3552) Michael D. Keenan, Esq. (MK-1857) ENTWISTLE & CAPPUCCI LLP 299 Park Avenue, 14th Floor New York, NY 10171 (212) 894-7200 Lead Counsel for Lead Plaintiffs, the Public Employees’ Retirement Association of Colorado and Generic Trading of Philadelphia, LLC ADELBERG, RUDOW, DORF & HENDLER, LLC 600 Mercantile Bank & Trust Building 2 Hopkins Plaza Baltimore, MD 21201 (410) 539-5195 Liaison Counsel for Lead Plaintiffs, the Public Employees’ Retirement Association of Colorado and Generic Trading of Philadelphia, LLC
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TABLE OF CONTENTS PRELIMINARY STATEMENT .....................................................................................................1 SUMMARY OF THE MOTION .....................................................................................................1 STATEMENT OF FACTS ..............................................................................................................3 A.
Summary of the Action...............................................................................................3
B.
Nature and Stage of the Proceedings ..........................................................................6
C.
1.
The Court Appoints COPERA and Generic Trading As Lead Plaintiffs...........6
2.
The Court Determines That It Has Subject Matter Jurisdiction Over the Claims of Foreign Class Members Who Purchased Ahold Common Stock on Foreign Exchanges..............................................................................7
3.
The Court’s Decision on Lead Plaintiffs’ Motion for Leave to Amend the Complaint’s Claims Under Section 12(a)(2) and Section 15 of the Securities Act of 1933........................................................................................7
The Proposed Class Representatives ..........................................................................8 1.
Lead Plaintiff, the Public Employees’ Retirement Association of Colorado.............................................................................................................8
2.
Lead Plaintiff, Generic Trading of Philadelphia, LLC ......................................9
3.
Itzehoer Aktien Club GbR ...............................................................................10
4.
Union Asset Management Holding AG...........................................................10
5.
Deka Investment GmbH ..................................................................................11
STANDARD OF REVIEW ...........................................................................................................12 ARGUMENT.................................................................................................................................12 I.
II.
THE REQUIREMENTS OF RULE 23(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE ARE SATISFIED......................................................................................13 A.
The Members of the Class Are So Numerous That Joinder of All Members Is Impracticable.........................................................................................................14
B.
There Are Questions of Law or Fact Common to the Members of the Class...........16
C.
The Claims of Lead Plaintiffs and the Other Proposed Class Representatives are Typical of the Claims of the Members of the Class............................................17
D.
Lead Plaintiffs and the Other Proposed Class Representatives Will Fairly and Adequately Protect the Interests of the Members of the Class ..........................20
THE REQUIREMENTS OF RULE 23(b)(3) OF THE FEDERAL RULES OF CIVIL PROCEDURE ARE SATISFIED ..........................................................................23 A.
Common Questions of Law or Fact Predominate Over Individual Questions .........23
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B.
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1.
Common Questions Predominate Notwithstanding Potential Individual Questions of Damages .....................................................................................26
2.
The Class Is Entitled to a Presumption of Reliance Upon Ahold’s Materially False and Misleading Statements ...................................................26
A Class Action Is Superior to Other Available Methods for the Fair and Efficient Adjudication of this Controversy...............................................................30 1.
Class Members Have a Minimal Interest in Individually Controlling this Action........................................................................................................31
2.
This Action is the Only Case Of Which Lead Plaintiffs Are Aware That Seeks Monetary Damages for Members of the Class..............................34
3.
It Is Appropriate and Efficient to Continue Litigating the Class’s Claims in This Forum ......................................................................................34
4.
No Substantial Difficulties Are Likely to Be Encountered in Managing This Class Action.............................................................................................35 a.
Global Classes are Routinely Certified In Securities Actions ................35
b.
The Mere Possibility That a Foreign Court Might Not Recognize a Judgment of this Court is Insufficient to Defeat Class Certification ............................................................................................36
c.
Effective Notice Can Be Provided to the Class Members ......................40
d.
The Class Action Device is the Superior Method of Adjudicating this Dispute .............................................................................................42
III. LEAD PLAINTIFFS’ SELECTION OF CLASS COUNSEL SHOULD BE APPROVED PURSUANT TO RULE 23(g) OF THE FEDERAL RULES OF CIVIL PROCEDURE ........................................................................................................45 CONCLUSION..............................................................................................................................47
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TABLE OF AUTHORITIES Cases Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972)...................................................................................................................27 Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997).......................................................................................................12, 24, 31 Auslander v. Helfand, 988 F. Supp. 576 (D. Md. 1997)................................................................................................39 Barnett v. W.T. Grant Co., 518 F.2d 543 (4th Cir. 1975) .....................................................................................................20 Basic Inc. v. Levinson, 485 U.S. 224 (1988).................................................................................................26, 27, 28, 30 Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975) ...............................................................................................17, 24 Bullock v. Bd. of Ed. of Montgomery Cty., 210 F.R.D. 556 (D. Md. 2002)...................................................................................................15 Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989) ...............................................................................................29 Central Wesleyan Coll. v. W.R. Grace & Co., 143 F.R.D. 628 (D.S.C. 1992), aff’d, 6 F.3d 177 (4th Cir. 1993)........................................16, 20 Cromer Finance Ltd. v. Berger, 205 F.R.D. 113 (S.D.N.Y. 2001) .........................................................................................33, 41 Daewoo Motor America, Inc. v. General Motors Corp., 315 B.R. 148 (Bankr. M.D. Fla. 2004) ......................................................................................39 Deutschman v. Beneficial Corp., 132 F.R.D. 359 (D. Del. 1990) ..................................................................................................17 Dura-Bilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87 (S.D.N.Y. 1981) ...................................................................................................24 Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974)...................................................................................................................23 Eisenberg v. Gagnon, 766 F.2d 770 (3d Cir. 1985) ......................................................................................................15 Fisher v. Virginia Elec. & Power Co., 217 F.R.D. 201 (E.D. Va. 2003) ..........................................................................................41, 42 Fitzgerald v. Schweiker, 538 F. Supp. 992 (D. Md. 1982)................................................................................................15 Freeman v. Laventhol & Horwath, 915 F.2d 193 (6th Cir. 1990) .....................................................................................................30
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Friedland v. Coastal Healthcare Group, Inc., No. 1:95CV306, 1996 U.S. Dist. LEXIS 16088 (M.D.N.C. Sept. 12, 1996) ................23, 25, 27 Frietsch v. Refco, Inc., No. 92 C 6844, 1994 U.S. Dist. LEXIS 312 (N.D. Ill. Jan. 12, 1994) ................................35, 36 Gariety v. Grant Thornton, LLP, 368 F.3d 356 (4th Cir. 2004) ............................................................................................. passim General Tel. Co. of the Southwest v. Falcon, 457 U.S. 147 (1982)...................................................................................................................12 Gunnells v. Healthplan Services, Inc., 348 F.3d 417 (4th Cir. 2003), cert. denied, 159 L. Ed. 2d 287 (2004)................................12, 14 Holsey v. Armour & Co., 743 F.2d 199 (4th Cir. 1984) ...............................................................................................15, 16 In re A.H. Robins Co., Inc., 880 F.2d 709 (4th Cir. 1989) ...............................................................................................12, 31 In re Cable & Wireless, PLC, Sec. Litig., 321 F. Supp. 2d 749 (E.D. Va. June 16, 2004) ....................................................................37, 40 In re Cendant Corp. Litig., 243 F. Supp. 2d 166 (D.N.J. 2003) ............................................................................................32 In re Domestic Air Transport Antitrust Litig., 141 F.R.D. 534 (N.D. Ga. 1992)................................................................................................41 In re Gaming Lottery Sec. Litig., 58 F. Supp. 2d 62 (S.D.N.Y. 1999) .....................................................................................29, 35 In re Holocaust Victim Assets Litig., 105 F. Supp. 2d 139 (E.D.N.Y. 2000) .................................................................................40, 42 In re Independent Gasoline Antitrust Litig., 79 F.R.D. 552 (D. Md. 1978).....................................................................................................14 In re Initial Public Offering Sec. Litig., 227 F.R.D. 65 (S.D.N.Y. 2004) ...............................................................................13, 30, 31, 45 In re Int’l Nesmont Sec. Litig., No. 94-4202 (WGB) (D.N.J. Dec. 2, 1996), slip op. ...........................................................35, 43 In re Kirschner Med. Corp. Sec. Litig., 139 F.R.D. 74 (D. Md. 1991)............................................................................................. passim In re Lloyd’s Am. Trust Fund Litig., No. 96 Civ. 1262 (RWS), 1998 U.S. Dist. LEXIS 1199 (S.D.N.Y. Feb. 6, 1998) ....................................................................................................................36, 39, 40, 41 In re Napster, Inc. Copyright Litig., No. C MDL-00-1369 MHP, 2005 U.S. Dist. LEXIS 11498 (N.D. Ca. May 31, 2005) ............23 In re Nortel Networks Corp. Sec. Litig., No. 01 Civ. 1855 (RMB), 2003 U.S. Dist. LEXIS 15702 (S.D.N.Y. Sept. 8, 2003) ....32, 34, 35 iv
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In re Pizza Time Theatre Sec. Litig., 112 F.R.D. 15 (N.D. Cal. 1986).................................................................................................35 In re Polymedica Corp. Sec. Litig., 224 F.R.D. 27 (D. Mass. 2004)..................................................................................................28 In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283 (3d Cir. 1998) ......................................................................................................24 In re Royal Ahold N.V. Sec. & ERISA Litig., 219 F.R.D. 343 (D. Md. 2003)........................................................................................... passim In re Royal Ahold N.V. Sec. & ERISA Litig., 319 F. Supp. 2d 634 (D. Md. 2004).............................................................................................3 In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334 (D. Md. 2004)................................................................................... passim In re Royal Ahold N.V. Sec. & ERISA Litig., Case No. 1:03-MD-01539, 2005 U.S. Dist LEXIS 18081 (D. Md. Aug. 25, 2005) ......... passim In re Royal Ahold N.V. Sec. & ERISA Litig., No. 1:03-MDL-01539, 2005 U.S. Dist. LEXIS 19489 (D. Md. Sept. 8. 2005)...........................3 In re Royal Ahold Sec. & ERISA Litig., 269 F. Supp.2d 1362 (J.P.M.D.L. 2003)....................................................................................35 In re Royal Dutch Shell/Transport Sec. Litig., 380 F. Supp. 2d 509 (D.N.J. 2005) ............................................................................................37 In re Southeast Hotel Properties Ltd. P’ship Investor Litig., 151 F.R.D. 597 (W.D.N.C. 1993)...................................................................................... passim In re Sunbeam Sec. Litig., No. 98-8258-CIV-MIDDLEBROOKS, 2001 U.S. Dist. LEXIS 25703 (S.D. Fla. July 3, 2001) ..........................................................................................................................................30 In re Turkcell Iletisim Hizmetler, A.S. Sec. Litig., 209 F.R.D. 353 (S.D.N.Y. 2002) ....................................................................................... passim In re U.S. Financial Sec. Litig., 69 F.R.D. 24 (S.D. Cal. 1975) ........................................................................................... passim In re WorldCom Inc. Sec. Litig., 219 F.R.D. 267 (S.D.N.Y. 2003) ....................................................................................... passim Jeffreys v. Communications Workers of America, 212 F.R.D. 320 (E.D. Va. 2003) ..............................................................................16, 23, 26, 31 Johns Hopkins Univ. v. Hutton, 422 F.2d 1124 (4th Cir. 1970) ...................................................................................................26 Jones v. Ford Motor Credit Co., No. 00-Civ.-8330 (KNF), 2005 U.S. Dist. LEXIS 5381 (S.D.N.Y. Mar. 31, 2005) .................46 Jordan v. Global Natural Resources, Inc., 104 F.R.D. 447 (S.D. Ohio 1984)..............................................................................................36 v
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Krangel v. Golden Rule Resources, Inc., 194 F.R.D. 501 (E.D. Pa. 2000).................................................................................................35 Lewis v. Capital Mortgage Inv., 78 F.R.D. 295 (D. Md. 1977)...................................................................................17, 23, 25, 26 Lienhart v. Dryvit Systems, Inc., 255 F.3d 138 (4th Cir. 2001) ...............................................................................................14, 17 Lowery v. Circuit City Stores, Inc., 158 F.3d 742 (4th Cir. 1988), vac. on other grounds, 527 U.S. 1031 (1999) ...........................12 Meredith v. Mid-Atlantic Coca Cola Bottling Co., 129 F.R.D. 130 (E.D. Va. 1989) ..........................................................................................31, 34 Miller v. Baltimore Gas & Elect. Co., 202 F.R.D. 195 (D. Md. 2001)...................................................................................................12 Peoples v. Wendover Funding, Inc., 179 F.R.D. 492 (D. Md. 1998).................................................................................23, 31, 34, 41 Rodger v. Elec. Data Sys. Corp., 160 F.R.D. 532 (E.D.N.C. 1995) ...............................................................................................32 Sandberg v. Virginia Bancshares, Inc., 891 F.2d 1112 (4th Cir. 1989) ...................................................................................................24 Serfaty v. Int'l Automated Sys., Inc., 180 F.R.D. 418 (D. Utah 1998) .................................................................................................30 Simpson v. Specialty Retail Concepts, Inc., 149 F.R.D. 94 (M.D.N.C. 1993) ..........................................................................................13, 20 Takeda v. Turbodyne Technologies, Inc., 67 F. Supp. 2d 1129 (C.D. Cal. 1999) .......................................................................................36 The South Carolina Nat’l Bank v. Stone, 139 F.R.D. 325 (D.S.C. 1991) ........................................................................................... passim Twyman v. Rockville Hous. Auth., 99 F.R.D. 314 (D. Md. 1983).....................................................................................................18 United States v. Kingshead Corp., 11 C.I.T. 2 (Ct. Int’l Trade 1987) ..............................................................................................39 Vagenas v. Cont’l Gin Co., 988 F.2d 104 (11th Cir. 1993) .............................................................................................38, 39 Vancouver Women’s Health Collective Soc’y v. A.H. Robins Co., Inc., 820 F.2d, 1361 (4th Cir. 1987) ..................................................................................................40 Whitcomb v. The Nat’l Exch. Bank of Baltimore, 91 A. 689 (Md. 1914) ................................................................................................................39 Woodward v. Online Info. Servs., 191 F.R.D. 502 (E.D.N.C. 2000) .........................................................................................16, 20
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Statutes Securities Act of 1933, § 12(a)(2).......................................................................................... passim Securities Act of 1933, § 15...........................................................................................................22 Securities Exchange Act of 1934, § 10(b) ...............................................................................17, 27 Other Authorities Brian P. Murray and Maurice Pesso, “The Accident of Efficiency: Foreign Exchanges, American Depository Receipts, and Space Arbitrage,” 51 Buffalo L. Rev. 383 (Spring 2003) ..........................................................................................................................................29 Geoffrey C. Hazard, Jr., “Discovery and the Role of the Judge in Civil Law Jurisdictions,” 73 Notre Dame L. Rev. 1017 (1998) .................................................................33 Herman J. Walker, Jr., “Modern Treaties of Friendship, Commerce and Navigation”, 42 Minn. L. Rev. 805 (1958) ..........................................................................................................38 Herman J. Walker, Jr., “Provisions on Companies in United States Commercial Treaties”, 50 Am. J. Int’l L. 373 (1956).....................................................................................................38 Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (1995)..................................................................................46 Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-first Century (2005).........................................................................................................................................29 Wright & Miller, Federal Practice & Procedure § 1777 (3d ed. 2005) .......................................31 Rules Fed. R. Civ. P. Rule 23 .......................................................................................................... passim Fed. R. Civ. P. Rule 23(a)..............................................................................................1, 13, 14, 23 Fed. R. Civ. P. Rule 23(a)(1) ...................................................................................................14, 15 Fed. R. Civ. P. Rule 23(a)(2) .......................................................................................14, 16, 17, 25 Fed. R. Civ. P. Rule 23(a)(3) ...................................................................................................14, 17 Fed. R. Civ. P. Rule 23(a)(4) .............................................................................................14, 23, 46 Fed. R. Civ. P. Rule 23(b)(3) ................................................................................................. passim Fed. R. Civ. P. Rule 23(c)..............................................................................................................40 Fed. R. Civ. P. Rule 23(c)(2) .........................................................................................................41 Fed. R. Civ. P. Rule 23(g)....................................................................................................3, 45, 46 Fed. R. Civ. P. Rule 42 ..................................................................................................................16
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Lead Plaintiffs, the Public Employees’ Retirement Association of Colorado (“COPERA”), and Generic Trading of Philadelphia, LLC (“Generic Trading”), respectfully submit this Memorandum of Law in support of their Motion for Class Certification, Appointment of Class Representatives and Appointment of Class Counsel (the “Motion”). PRELIMINARY STATEMENT Certification of the Class proposed by Lead Plaintiffs in this case is judicially efficient, consistent in all respects with the purposes and provisions of revised Rule 23, and avoids the manifest injustice that would obtain if thousands of investors from around the world were each forced to bear the cost and burden of litigating individual actions in this Court or in the courts of their home countries. The defendants cannot seriously contend that such a result would be just or judicially efficient especially where, as here, the Court has already found that it has subject matter jurisdiction over the claims of all Class members and where the requirements of Rule 23(a) (see Point I below) and Rule 23(b)(3) (see Point II below) are plainly satisfied in all respects. Where investors resided or purchased shares is simply not relevant to the question of whether they are proper members of the Class -- particularly where the alternative would be a massive joinder action. For these reasons and for the reasons set forth below, this Court should certify the Class and appoint the proposed class representatives and proposed class counsel all as more fully set forth herein. SUMMARY OF THE MOTION Lead Plaintiffs seek an order certifying this action as a class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of themselves and all persons and entities who purchased Royal Ahold N.V. (“Ahold” or the “Company”) common stock and/or American Depository Receipts (“ADRs”) during the period from July 30, 1999 through February 24, 2003 (the “Class Period”), and who were injured thereby, including all
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persons and entities that purchased Ahold common stock and/or ADRs in the global offering of 80,500,000 shares of Ahold common stock and ADRs on or about September 6, 2001 (the “September 2001 Global Offering”) (the “Class”). Excluded from the Class are the defendants,1 any entity in which the defendants have a controlling interest or that is a parent or subsidiary of or is controlled by the defendants, and any of the defendants’ officers, directors, employees, affiliates, legal representatives, heirs, predecessors, successors and/or assigns. Lead Plaintiffs also seek appointment of: (i) Lead Plaintiff COPERA as a class representative for all members of the Class who purchased Ahold common stock or ADRs at any time during the Class Period, including all Class members who purchased Ahold common stock or ADRs in the September 2001 Global Offering; (ii) Lead Plaintiff Generic Trading as an additional class representative on behalf of Class members who purchased Ahold ADRs during the Class Period; (iii) Itzehoer Aktien Club GbR (“IAC”) as an additional class representative on behalf of non-United States domiciled Class members who purchased Ahold commons stock shares during the Class Period; (iv) Union Asset Management Holding AG (“Union”) as a class representative on behalf of Class members who purchased Ahold common stock or ADRs from Merrill Lynch in the September 2001 Global Offering; and (v) Deka Investment GmbH (“Deka”) as a class representative on behalf of Class members who purchased Ahold common stock or ADRs from Goldman Sachs in the September 2001 Global Offering. Lastly, Lead 1
The defendants are: (i) Ahold and U.S. Foodservice (“USF”) (together, the “Ahold Defendants”); (ii) Cees Van der Hoeven (“Van der Hoeven”), Michiel Meurs (“Meurs”), Jan Andreae (“Andreae”), Robert Tobin (“Tobin”), James Miller (“Miller”), William Grize (“Grize”), Mark Kaiser (“Kaiser”), Michael Resnick (“Resnick”), and Timothy Lee (“Lee”) (collectively, the “Individual Defendants”); and (iii) ABN AMRO Rothschild (“ABN AMRO”), Merrill Lynch International (“Merrill Lynch”), and Goldman Sachs International (“Goldman Sachs”) (collectively, the “Underwriter Defendants”). The status of Merrill Lynch and Goldman Sachs as defendants depends upon the Court’s decision on Lead Plaintiffs’ pending Motion for Reconsideration of the Court’s August 25, 2005 Memorandum and Order (Docket No. 581). Based upon the timing of this Motion for Class Certification, as required under Revised Case Management Order No. 3 (Docket No. 508), Lead Plaintiffs herein treat Merrill Lynch and Goldman Sachs as defendants to avoid potentially burdensome supplemental briefing on class certification. Service of all papers in this regard is being made upon counsel for Merrill Lynch and Goldman Sachs, who, as the Court is aware, also represents defendant ABN AMRO.
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Plaintiffs seek an order appointing Entwistle & Cappucci LLP (“Entwistle & Cappucci”) as class counsel pursuant to Rule 23(g) of the Federal Rules of Civil Procedure. STATEMENT OF FACTS A.
Summary of the Action2
This consolidated securities class action arises from defendants’ fraudulent and improper conduct which resulted in Ahold’s issuance of materially false and misleading financial statements during the Class Period involving -- among other things -- a massive overstatement of income at USF caused by inappropriate accounting for vendor rebates / promotional allowances and improper consolidation of the financial results of certain of Ahold’s joint ventures. (¶¶ 1, 25, 182-202);3 In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334, 344 (D. Md. 2004). On February 24, 2003, Ahold announced an anticipated massive income overstatement of more than $500 million (and later $1.1 billion) (“February 24, 2003 Announcement”).4 Ahold’s Supervisory Board Chairman at the time, Henny de Ruiter, admitted that the restatement was “due primarily to overstatements of income related to promotional allowance programs at U.S. Foodservice.” (¶ 245.) In this regard, approximately $885 million of the eventual $1.1 billion in overstated earnings was attributable to the improper recognition of promotional allowances in 2
Lead Plaintiffs are aware that the Court is familiar with many of the factual and legal issues pertaining to Lead Plaintiffs’ Motion, many of which are set forth in the Court’s prior opinions. See In re Royal Ahold N.V. Sec. & ERISA Litig., No. 1:03-MDL-01539, 2005 U.S. Dist. LEXIS 19489 (D. Md. Sept. 8. 2005); In re Royal Ahold N.V. Sec. & ERISA Litig., No. 1:03-MDL-01539, 2005 U.S. Dist. LEXIS 18081 (D. Md. Aug. 25, 2005); In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F. Supp. 2d 334 (D. Md. 2004); In re Royal Ahold N.V. Sec. & ERISA Litig., 319 F. Supp. 2d 634 (D. Md. 2004); In re Royal Ahold N.V. Sec. & ERISA Litig., 220 F.R.D. 246 (D. Md. 2004); In re Royal Ahold N.V. Sec. & ERISA Litig., 219 F.R.D. 343 (D. Md. 2003). As a result, Lead Plaintiffs summarize herein only additional facts that Lead Plaintiffs believe may have particular relevance to the Court’s evaluation of this Motion. 3
References to the Consolidated Amended Securities Class Action Complaint (the “Complaint”) are designated as (¶ ___). By referring to certain paragraphs within the Complaint to support statements made herein, Lead Plaintiffs do not represent that the selected paragraphs are the only paragraphs within the Complaint that support the statement for which the selected paragraphs are referenced. 4
As this Court has correctly observed, Ahold later revealed that the income restatement was actually approximately $1.1 billion. Id. at 357.
3
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Ahold’s United States operations.5 Id. at 357. The February 24, 2003 Announcement also informed investors that Ahold would restate its previously announced revenues after deconsolidating the financial results of its JMR, Bompreco, Paiz Ahold, DAIH, and ICA joint ventures (collectively, the “Joint Ventures”). During the Class Period, Ahold had improperly consolidated the financial results of the Joint Ventures during time periods in which Ahold did not have the control required to permit full consolidation. (¶¶ 25, 37, 182-84, 188.) Ahold’s restatement of the Joint Venture financial results ultimately reduced previously reported revenues by approximately $24.8 billion. (¶ 30.) During the Class Period, Ahold’s common stock traded on the Euronext exchanges of Paris, Brussels, and Amsterdam and the Company’s ADRs traded on the New York Stock Exchange (“NYSE”). Id. at 348. Royal Ahold also had a secondary listing on the Swiss Exchange in Zurich. Id. Defendant’s wrongful conduct, including the fraudulent accounting practices disclosed in the February 24, 2003 Announcement, damaged investors all over the world. Following the Announcement, the price of Ahold common stock trading on the Euronext, and the price of Ahold ADRs trading on the NYSE, plummeted by more than 60% to close at €3.59 and $4.16 per share, respectively. Id. at 345. Ahold’s and defendant Van der Hoeven’s zeal to become “the best and most successful food provider in the world” resulted in Ahold expending more than $19 billion on acquisitions between 1996 and 2003. (¶ 126.) To finance USF’s acquisition of Alliant Foodservice, Inc. and Ahold’s acquisition of Bruno’s Supermarkets -- all in the United States -- Ahold and the Underwriter Defendants solicited purchasers and sold shares of Ahold common stock and ADRs in the September 2001 Global Offering. (¶ 841.) In this Offering: (i) COPERA purchased
5
The $885 million income restatement attributable to Ahold’s United States operations accounts for 80.5% of the Company’s total $1.1 billion income restatement. (¶ 32.) See In re Royal Ahold, 351 F. Supp. 2d at 357.
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21,925 shares of Ahold common stock from defendant ABN AMRO; (ii) Union purchased 40,000 shares of Ahold common stock from Merrill Lynch, and (iii) Deka purchased 155,000 shares of Ahold common stock from Goldman Sachs. See In re Royal Ahold N.V. Sec. & ERISA Litig., Case No. 1:03-MD-01539, 2005 U.S. Dist LEXIS 18081, at *11 (D. Md. Aug. 25, 2005);6 see also Exhibits C and E to the Affidavit of Andrew J. Entwistle In Support of Lead Plaintiffs’ Motion for Reconsideration (Docket No. 582). The Prospectus Supplement, pursuant to which all shares of Ahold common stock and ADRs were sold in the September 2001 Global Offering, as well as defendants’ other public statements about the Company, contained untrue statements of material fact concerning, among other things, Ahold’s net income and net sales. See In re Royal Ahold, 351 F. Supp. 2d at 407 n.58. Ahold and USF have now admitted that: (i) fraud; (ii) woefully inadequate and/or nonexistent internal controls; (iii) intentional and unintentional misapplication of Dutch GAAP and U.S. GAAP; and (iv) other improper accounting resulted in, among other things: •
An $885 million overstatement of income attributable to false vendor rebate /promotional allowance income at USF, Tops Markets (“Tops”) and Giant-Carlisle (“Giant”) (¶¶ 33-35, 46, 250-51, 295-97); and
•
A $24.8 billion overstatement of sales attributable to Ahold’s full consolidation of the financial results of the Company’s ICA, Bompreco, Paiz Ahold, DAIH, and JMR Joint Ventures during time periods when Ahold did not have control over the Joint Ventures (¶¶ 1, 4, 23, 30, 33-34, 37, 248, 255, 286)
See In re Royal Ahold, 351 F. Supp. 2d at 345. During the Class Period, the defendants’ materially false and misleading statements and omissions of material fact concerning, among other things, Ahold’s income and revenues, artificially inflated the price of Ahold’s common stock and ADRs, including those that Ahold, ABN AMRO, Merrill Lynch, and Goldman Sachs, among others, sold to and/or solicited Class members to purchase in the September 2001 Global 6
Unreported decisions are attached in alphabetical order as Exhibit 12 through Exhibit 21 to the Entwistle Affidavit.
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Offering. (¶¶ 33, 39, 625.) The fraudulent accounting practices disclosed in the Company’s February 24, 2003 Announcement caused Class members in the United States and abroad investing in Ahold common stock and/or ADRs to suffer billions of dollars in damages. (¶¶ 183, 290.) B.
Nature and Stage of the Proceedings 1.
The Court Appoints COPERA and Generic Trading As Lead Plaintiffs
Following the Company’s February 24, 2003 Announcement, aggrieved investors -- both United States and non-United States domiciliaries -- filed numerous putative class actions alleging securities fraud claims against Ahold, USF, and other defendants in four different judicial districts in the United States.7 On June 18, 2003, the Judicial Panel on Multidistrict Litigation transferred the pending securities and ERISA class actions to this Court. See In re Royal Ahold N.V. Sec. & ERISA Litig., 219 F.R.D. 343, 348 (D. Md. 2003). After completion of extensive briefing and oral argument conducted on September 26, 2003, the Court issued its November 4, 2003 Memorandum and Order appointing: (i) COPERA and Generic Trading as Lead Plaintiffs; (ii) Entwistle & Cappucci as Lead Counsel; and (iii) Adelberg, Rudow, Dorf & Hendler LLC as Liaison Counsel pursuant to the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Id. at 355.
7
To date we are not aware of any putative class or individual actions having been filed outside the United States in connection with Ahold’s massive securities fraud. As the Court is aware, there have been several foreign investigations, including those conducted by the Euronext and the Dutch Public Prosecutor, both of which found wrongdoing at Ahold. The Dutch Public Prosecutor is continuing to pursue criminal charges against Van der Hoeven, Meurs, Andreae and Roland Fahlin. Moreover, the Dutch Enterprise Chamber has ordered an ongoing investigation into mismanagement at Ahold.
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The Court Determines That It Has Subject Matter Jurisdiction Over the Claims of Foreign Class Members Who Purchased Ahold Common Stock on Foreign Exchanges
Pursuant to Case Management Order No. 2, Lead Plaintiffs filed the Complaint on February 17, 2004 (Docket No. 122) alleging claims under the Securities Exchange Act of 1934 (the “Exchange Act”) and the Securities Act of 1933 (the “Securities Act”). On December 21, 2004, the Court issued its Memorandum and Order deciding defendants’ motions to dismiss. Among other things, the Court determined that it had subject matter jurisdiction over the claims of all Class members, regardless of where they lived or where they purchased Ahold securities. See In re Royal Ahold, 351 F. Supp. 2d at 362. In this regard, the Court noted: When Royal Ahold made its first restatement of $500 million because of the U.S. based vendor allowance accounting fraud on February 24, 2003, the Royal Ahold share price trading on foreign exchanges lost 63% of its value, directly causing a financial injury to foreign plaintiffs. Id. In reaching this decision, the Court recognized its interest in adjudicating the claims of all investors who purchased Ahold common stock on foreign exchanges -- regardless of where they reside. Id. at 357 (“this court has a significant interest in the claims of foreign purchasers, given the plaintiffs’ substantial allegations concerning Royal Ahold’s allegedly fraudulent conduct in the U.S.”). 3.
The Court’s Decision on Lead Plaintiffs’ Motion for Leave to Amend the Complaint’s Claims Under Section 12(a)(2) and Section 15 of the Securities Act of 1933
The Court’s Order issued in connection with defendants’ motions to dismiss the Complaint provided Lead Plaintiffs with a period of 60 days within which to seek leave to file an amendment to the Complaint’s claims under Section 12(a)(2) and Section 15 of the Securities Act. Id. at 411. On August 25, 2005, the Court granted the Motion for Leave to amend as against Ahold, ABN AMRO, and certain individual defendants. See In re Royal Ahold, 2005 7
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U.S. Dist. LEXIS 18081, at *10-11. Lead Plaintiffs timely filed a Motion for Reconsideration of that portion of the Court’s August 25, 2005 Order denying leave to amend the Complaint’s Section 12(a)(2) claims against Merrill Lynch and Goldman Sachs. On the same day, Lead Plaintiffs timely filed their Designation of Additional Class Representatives, proffering Union and Deka as additional proposed class representatives in connection with the amended Section 12(a)(2) claims (Docket No. 580).8 (See Revised Case Management Order No. 3 at ¶ 6(a) (Docket No. 508).) C.
The Proposed Class Representatives 1.
Lead Plaintiff, the Public Employees’ Retirement Association of Colorado
Lead Plaintiff COPERA was established in 1931, operates by authority of the Colorado General Assembly, and is administered under Title 24, Article 51 of the Colorado Revised Statutes. COPERA’s Board of Trustees has the authority to adopt and revise rules in accordance with state statutes. COPERA provides retirement and other benefits to the employees of more than 390 government agencies and public entities in the State of Colorado. COPERA’s investment strategy uses actuarially established investment objectives with long-term goals and policies. COPERA is governed by a sixteen-member Board of Trustees. Twelve members are elected by the active members, and two are elected by retirees. In addition, the Colorado State Treasurer and the State Auditor serve as ex-officio trustees. COPERA’s trustees are fiduciaries and are held to a high standard of prudence in investing the trust funds. As of the end of 2004, COPERA had 176,840 contributing members and 67,900 benefit recipients. COPERA’s membership includes employees of the Colorado state government, most teachers in the State of 8
Lead Plaintiffs had previously filed their Initial Designation of COPERA, Generic Trading, and IAC as proposed class representatives on June 15, 2005 (Docket No. 516).
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Colorado, many university employees, judges, many employees of Colorado cities and towns, Colorado State Troopers, and the employees of a number of other public entities within the State of Colorado. With over $33 billion in assets available for benefit payments as of the end of 2004, COPERA is the 23rd largest public pension plan in the United States and the 48th largest public pension plan in the world. Lead Plaintiff COPERA purchased Ahold common stock at artificially inflated prices on foreign exchanges during the Class Period. COPERA also purchased Ahold common stock from defendant ABN AMRO in the September 2001 Global Offering. In connection with these purchases, COPERA suffered damages as a direct result of defendants’ wrongful conduct. Prior to and since the Court appointed COPERA as a Lead Plaintiff in November 2003, COPERA has vigorously prosecuted this action on behalf of all members of the Class. As set forth in the accompanying Declaration of Gregory W. Smith (the “Smith Declaration”), (Entwistle Affidavit Ex. 1),9 COPERA is dedicated to continuing its role as a fiduciary for all Class members. Accordingly, COPERA seeks appointment as a class representative on behalf of all members of the Class -- purchasers of common stock and/or ADRs -- regardless of where such investors lived or purchased shares. 2.
Lead Plaintiff, Generic Trading of Philadelphia, LLC
Founded in 1997, Lead Plaintiff Generic Trading is one of the largest institutional trading firms in the United States, with over 20 branch offices. Generic Trading, a licensed brokerdealer managed by seasoned professionals with over 60 years of collective experience in the securities industry, is registered with the Philadelphia Stock Exchange (“PHLX”), and its
9
References designated as (“Entwistle Affidavit Ex. ___.”) are cites to the Affidavit of Andrew J. Entwistle In Support of Lead Plaintiffs’ Motion for Class Certification, Appointment of Class Representatives and Appointment of Class Counsel (the “Entwistle Affidavit”).
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principals are registered with the National Association of Securities Dealers (“NASD”). Lead Plaintiff Generic Trading purchased Ahold ADRs at artificially inflated prices on the NYSE during the Class Period and suffered damages as a direct result of defendants’ wrongful conduct. Prior to and since the Court appointed Generic Trading as a Lead Plaintiff in November 2003, Generic Trading has vigorously prosecuted this action on behalf of all members of the Class. As set forth in the accompanying Declaration of Daniel G. Viola (the “Viola Declaration”) (Entwistle Affidavit Ex. 2), Generic Trading is dedicated to continuing its role as a fiduciary for Class members. Accordingly, Lead Plaintiffs seek appointment of Generic Trading as an additional class representative on behalf of Class members who purchased Ahold ADRs. 3.
Itzehoer Aktien Club GbR
IAC is a partnership organized under the Civil Law of Germany. IAC operates similarly to a limited partnership. IAC has approximately 7,800 partners and holds approximately $75 million in assets. IAC purchased shares of Ahold common stock at artificially inflated prices during the Class Period, and suffered damages as a direct result of defendants’ wrongful conduct. IAC has followed the developments in this litigation since making an initial application to serve as a lead plaintiff at the outset of the case. IAC remains committed to serving as a class representative. (Declaration of Martin Paulsen (the “Paulsen Declaration”)), (Entwistle Affidavit Ex. 3), Lead Plaintiffs proffer IAC as an additional class representative on behalf of non-United States domiciled Class members. 4.
Union Asset Management Holding AG
Union is an institutional investor located in Frankfurt, Germany. Union offers a family of funds (much like Fidelity Investments in the United States) that invest in various security instruments. The Union-managed funds contain assets totaling approximately $150 billion. Union purchased 40,000 shares of Ahold common stock at artificially inflated prices from 10
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Merrill Lynch in the September 2001 Global Offering and was damaged as a direct result of defendants’ wrongful conduct. (See Docket No. 582 at Exhibit C.) Union was among the original parties that sought to serve as a lead plaintiff in this litigation. Union has been fulfilling its obligations under Case Management Order No. 2 (Docket No. 415.) Union has followed the developments in this litigation and is committed to serving as a class representative. (See Declaration of Clemens Gaebel (the “Gaebel Declaration”) (Entwistle Affidavit Ex. 4).10 Subject to the Court’s determination of Lead Plaintiffs’ pending Motion for Reconsideration (Docket No. 581), Lead Plaintiffs proffer Union as a class representative on behalf of Class Members who purchased Ahold common stock or ADRs from Merrill Lynch in the September 2001 Global Offering. 5.
Deka Investment GmbH
Deka, which was established in 1956, is a subsidiary of DekaBank Group. Deka manages assets of more than €50 billion in approximately 64 onshore equity, bond and money market funds. Deka, as attorney-in-fact, controls the mutual funds. Deka has full and complete authority and discretion to purchase and sell securities for each of the funds, and to institute legal action on their behalf, including serving as a class representative in this action. Deka purchased 155,000 shares of Ahold common stock at artificially inflated prices from Goldman Sachs in the September 2001 Global Offering. Deka suffered losses on these and other Ahold holdings as a direct result of defendants’ wrongful conduct. Deka is familiar with the facts and procedural developments in this litigation and is committed to serving as a class representative. (See Declaration of Franz-Josef Obermann (the “Obermann Declaration”)
10
The Gaebel Declaration was first submitted in support of Lead Plaintiffs’ September 8, 2005 Motion to Reconsider (Docket No. 581).
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(Entwistle Affidavit Ex. 5).)11 Subject to the Court’s determination of Lead Plaintiffs’ pending Motion for Reconsideration (Docket No. 581), Lead Plaintiffs proffer Deka as a class representative on behalf of Class Members who purchased Ahold common stock or ADRs from Goldman Sachs in the September 2001 Global Offering. STANDARD OF REVIEW Lead Plaintiffs bear the burden of establishing that class certification is appropriate. Gariety v. Grant Thornton, LLP, 368 F.3d 356, 359 (4th Cir. 2004). In determining whether to certify a proposed class, courts must take a “close look” and conduct a “rigorous analysis” to ensure that the requirements of Rule 23 are satisfied. Id. Accordingly, a court may look beyond the pleadings in determining whether a motion for class certification should be granted. See General Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160 (1982). The court has broad discretion in deciding whether to certify a class. Miller v. Baltimore Gas & Elect. Co., 202 F.R.D. 195, 199 (D. Md. 2001) (Blake, J.) (citing Lowery v. Circuit City Stores, Inc., 158 F.3d 742, 757-58 (4th Cir. 1988), vac. on other grounds, 527 U.S. 1031 (1999)). The policy in the Fourth Circuit is “to give Rule 23 a liberal rather than a restrictive construction, adopting a standard of flexibility in application [that] will in the particular case best serve the ends of justice for affected parties and promote judicial efficiency.” Gunnells v. Healthplan Services, Inc., 348 F.3d 417, 424 (4th Cir. 2003), cert. denied, 159 L. Ed. 2d 287 (2004) (quoting In re A.H. Robins Co., Inc., 880 F.2d 709, 740 (4th Cir. 1989)). ARGUMENT It is well settled that class actions are a “particularly appropriate means for resolving securities fraud actions.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625 (1997); see also
11
The Obermann Declaration was first submitted in support of Lead Plaintiffs’ September 8, 2005 Motion to Reconsider (Docket No. 581).
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Simpson v. Specialty Retail Concepts, Inc., 149 F.R.D. 94, 98 (M.D.N.C. 1993) (“alleged violations of federal securities laws are particularly well suited for class action proceedings and that Rule 23 is to be construed liberally to effectuate that end”); In re Kirschner Med. Corp. Sec. Litig., 139 F.R.D. 74, 77 (D. Md. 1991) (“It is well-recognized that class actions are particularly appropriate to resolve ... claims alleging violations of the federal securities laws and that Rule 23 is to be construed liberally to effectuate that end”); Fed. R. Civ. P. 23(b)(3) Advisory Committee Note (“a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action”). For this reason, courts have recognized that doubts concerning the propriety of certifying a class in a securities case should be resolved in favor of plaintiffs. See In re Initial Public Offering Sec. Litig., 227 F.R.D. 65, 90 (S.D.N.Y. 2004) (“in securities cases, ‘when a court is in doubt as to whether or not to certify a class action, the court should err in favor of allowing the class to go forward.’”). The propriety of class certification is heightened in securities cases like this one involving geographically dispersed purchasers of Ahold common stock and ADRs over a period of almost four years who have sustained damages as a result of a common set of material misrepresentations and omissions concerning, among other things, billions of dollars of Ahold’s net income and net sales. See, e.g., In re WorldCom Inc. Sec. Litig., 219 F.R.D. 267, 304 (S.D.N.Y. 2003). I.
THE REQUIREMENTS OF RULE 23(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE ARE SATISFIED
To qualify as a class action under Rule 23 of the Federal Rules of Civil Procedure, a plaintiff must initially satisfy the four requirements of Rule 23(a): (1) the class must be so numerous that joinder of all members is impracticable (“numerosity”); (2) questions of law or fact common to the class must exist (“commonality”); (3) the claims or defenses of the representative parties must be typical of the claims or defenses of the class (“typicality”); and (4)
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the representative parties must fairly and adequately protect the interests of the class (“adequacy of representation”). Fed. R. Civ. P. 23(a). See also Gunnells, 348 F.3d at 459. The Fourth Circuit has recognized that the factors set forth in Rule 23(a)(2), (3) and (4) “tend to merge, with commonality and typicality ‘serving as guideposts for determining whether … the named plaintiff’s claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence.” Lienhart v. Dryvit Systems, Inc., 255 F.3d 138, 147 (4th Cir. 2001) (citations omitted). As set forth below, this action satisfies all of the foregoing prerequisites to class certification. A.
The Members of the Class Are So Numerous That Joinder of All Members Is Impracticable
Satisfying the numerosity requirement of Rule 23(a)(1) requires a showing that “the class is so numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a); see also Gunnells, 348 F.3d at 423. Courts within this Circuit and beyond recognize that plaintiffs can satisfy the numerosity requirement based upon reasonable inferences from the facts, rather than by providing a precise number of class members. See, e.g., In re Independent Gasoline Antitrust Litig., 79 F.R.D. 552, 556 (D. Md. 1978) (plaintiffs’ estimate of “hundreds, if not thousands” is sufficient to satisfy numerosity, and “plaintiffs’ present inability to specify the number and identities of potential class members with great precision is not a bar to class certification”). At the time of Ahold’s February 24, 2003 Announcement, there were more than 931 million shares of Ahold common stock outstanding and trading on the Euronext and more than 30 million ADRs outstanding and trading on the NYSE.12 Based upon the documents that the Ahold Defendants have produced to date in response to Lead Plaintiffs’ March 30, 2005
12
The number of outstanding shares includes the 80.5 million shares of Ahold common stock and ADRs that were sold to members of the Class in the September 2001 Global Offering. See In re Royal Ahold, 351 F. Supp. 2d at 407 n.58; In re Royal Ahold, 2005 U.S. Dist. LEXIS 18081, at *22.
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document requests, Lead Plaintiffs have identified at least 897 financial institutions that held Ahold common stock as of February 2003, and at least 3,345 holders of Ahold ADRs as of March 2003.13 The 897 financial institutions held Ahold common stock on behalf of themselves and as nominees for numerous other institutions and individuals. On the day of Ahold’s February 24, 2003 Announcement alone, more than 84 million shares of Ahold common stock were traded. Under the facts presented here, joinder of the thousands of geographically disperse Class members would be impracticable and the Class satisfies the numerosity requirement of Rule 23(a)(1). See, e.g., Bullock v. Bd. of Ed. of Montgomery Cty., 210 F.R.D. 556, 558 (D. Md. 2002) (in determining numerosity, “the court looks at the ‘nature of the claim . . . asserted by the plaintiffs and the number of persons who could have been injured by [the alleged wrongs]’”) (quoting and adding emphasis to Holsey v. Armour & Co., 743 F.2d 199, 217 (4th Cir. 1984)); In re Kirschner Med., 139 F.R.D. at 78 (“plaintiffs need not demonstrate with precision the number of persons in the purported class to satisfy the requirements that joinder is impracticable where such a conclusion is clear from reasonable estimates”) (citing Fitzgerald v. Schweiker, 538 F. Supp. 992, 1000 (D. Md. 1982)); The South Carolina Nat’l Bank v. Stone, 139 F.R.D. 325, 32829 (D.S.C. 1991) (1,765 bondholders “clearly satisfies the requirement of ‘numerosity’”); Eisenberg v. Gagnon, 766 F.2d 770 (3d Cir. 1985) (a 90 member class is sufficient); In re U.S. Financial Sec. Litig., 69 F.R.D. 24 (S.D. Cal. 1975) (numerosity requirement was met because joinder was impracticable where hundreds of debenture holders were foreign citizens or residents dispersed throughout Europe).
13
The Ahold Defendants’ document production is continuing. The exact number of Class members cannot be determined before relevant discovery is completed. However, this is the best information that Lead Plaintiffs have been able to determine based upon Ahold investor relations materials produced to date. Ahold’s own documents show that of the 931 million shares outstanding in February 2003, Ahold can account for the owners of approximately 82% (765 million). Of the shares that Ahold can account for, it appears that 67% were owned or held by institutions for their own accounts or as nominees.
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There Are Questions of Law or Fact Common to the Members of the Class
The commonality requirement of Rule 23(a)(2) mandates that that there be at least one question of law or fact common to the members of the Class. See Central Wesleyan Coll. v. W.R. Grace & Co., 143 F.R.D. 628, 636 (D.S.C. 1992), aff’d, 6 F.3d 177 (4th Cir. 1993) (commonality under Rule 23(a)(2) “does not require that all, or even most issues be common, nor that common issues predominate, but only that common issues exist”); see also Jeffreys v. Communications Workers of America, 212 F.R.D. 320, 322 (E.D. Va. 2003) (presence of some factual variances in individual grievances, such as in the extent of injuries and damages, will not defeat class certification). Commonality exists even when the class shares only a single legal or factual question. See Woodward v. Online Info. Servs., 191 F.R.D. 502, 505 (E.D.N.C. 2000) (citing Holsey, 743 F.2d at 216-17). In connection with appointing Lead Plaintiffs, this Court determined that consolidation of the numerous putative securities class actions pending against defendants was appropriate under Fed. R. Civ. P. 42 because “all plaintiffs base their losses on the same overstatements and inflation of profits alleged to have been made by Royal Ahold.” See In re Royal Ahold, 219 F.R.D. at 348. The Court made a similar observation in deciding defendants’ motions to dismiss: Royal Ahold and the individual defendants misled [Class members] by repeatedly overstating earnings and claiming that Royal Ahold was successfully integrating its numerous acquisitions, when in reality several of the individual defendants knew there were problems with USF’s internal controls and the company later admitted that it failed to manage adequately the integration of its many acquisitions. In re Royal Ahold, 351 F. Supp. 2d at 346. Additional common questions include whether the trading prices of Ahold’s common stock and ADRs during the Class Period were artificially inflated by, among other things: “(1) inflated reporting of income from vendor rebates or
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promotional allowances; and (2) improper attribution of revenue (or ‘consolidation’ of revenue) by Royal Ahold from joint ventures in which Royal Ahold did not have a controlling stake.” Id. at 345.14 The questions of law and fact common to all Class members referenced above, and in Section II(A) below, easily satisfy the commonality requirement of Rule 23(a)(2). See, e.g., In re Kirschner Med., 139 F.R.D. at 78 (“a course of repeated misrepresentations will satisfy the commonality requirement”); Lewis v. Capital Mortgage Inv., 78 F.R.D. 295, 304 (D. Md. 1977) (common question requirement is satisfied when the claim is whether defendants overstated earnings and whether overstating the earnings inflated the market price); Simpson, 149 F.R.D. at 98 (commonality exists where allegations included material omissions and misrepresentations in company releases and filings) (citing Blackie v. Barrack, 524 F.2d 891, 902 (9th Cir. 1975)). C.
The Claims of Lead Plaintiffs and the Other Proposed Class Representatives are Typical of the Claims of the Members of the Class
Rule 23(a)(3)’s typicality requirement is satisfied if the class representatives’ claims are typical of the claims of the other members of the Class. See Lienhart, 255 F.3d at 146 (representative must be part of class, possess same interest, and suffer same injury as other class members). Evaluating whether the typicality requirement is satisfied focuses on the defendants’ conduct. See In re WorldCom, 219 F.R.D. at 280 (typicality satisfied when “each class member’s claim arises from the same course of events, and each class member makes similar 14
All Class members also share the common question of whether the Ahold Defendants’ materially false and misleading statements violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. This question pertains to all shares of common stock and ADRs traded during the Class Period. In connection with the Section 10(b) and Rule 10b-5 claims, “[q]uestions of misrepresentation, materiality, and scienter are “the paradigmatic common question[s] of law or fact in a securities fraud class action.” Deutschman v. Beneficial Corp., 132 F.R.D. 359, 372 (D. Del. 1990) (citation omitted). Purchasers of shares in the September 2001 Global Offering also share additional common questions of fact and legal theories with each other concerning their Section 12(a)(2) claims -- which claims do not involve questions of reliance or scienter. See In re Royal Ahold, 2005 U.S. Dist. LEXIS 18081, at *22 (noting that false and misleading statements in the Prospectus Supplement “resulted from the improper consolidation of joint venture revenue and the accounting irregularities and promotional allowance fraud at USF.”).
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legal arguments to prove defendant’s liability”) (citation omitted). Generally, a class representative must show that his claims ‘“arise from the same event or practice or course of conduct that gives rise to the claims of other class members, and that the claims are based upon the same legal theory.’” In re Kirschner Med., 139 F.R.D. at 79 (quoting Twyman v. Rockville Hous. Auth., 99 F.R.D. 314, 321 (D. Md. 1983)). Typicality does not require that all plaintiffs’ claims are identical. See In re Kirschner Med., 139 F.R.D. at 79 (“requirement is satisfied even though varying fact patterns support the claims or defenses of individual class members”). Moreover, the typicality analysis is based upon the plaintiffs’ claims arising from defendants’ conduct, rather than the individual characteristics of the class representatives. See, e.g., In re Southeast Hotel Properties Ltd. P’ship Investor Litig., 151 F.R.D. 597, 605 (W.D.N.C. 1993) (for typicality analysis “the crucial issue is whether the claims of the class representatives are typical of the claims of the class members, not whether there is a similarity in personal backgrounds or knowledge between individuals”). “Typicality is rarely lacking in securities class actions,” and it is certainly present here. The South Carolina National Bank, 139 F.R.D. at 329. In appointing COPERA and Generic Trading as Lead Plaintiffs, this Court recognized that “COPERA/Generic’s claims are typical of the claims of the Class, as they are based on the same facts and legal theories.” In re Royal Ahold, 219 F.R.D. at 354. The claims of proposed additional class representatives IAC, Union, and Deka are similarly typical of the claims of the Class. Lead Plaintiffs propose COPERA as a class representative on behalf of all class members. During the Class Period, COPERA purchased shares of Ahold common stock on the Euronext. See In re Royal Ahold, 351 F. Supp. 2d at 347. Through its duly authorized agent,
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COPERA also purchased shares of Ahold common stock in the September 2001 Global Offering. See In re Royal Ahold, 2005 U.S. Dist. LEXIS 18081, at *11. Like the claims of all other members of the Class, COPERA’s claims arise from purchasing Ahold common stock15 at prices that were artificially inflated based upon, among other things, defendants’ fraudulent manipulation of Ahold’s publicly reported net income and net sales through: (i) improper accounting for vendor rebates and promotional allowances at USF; and (ii) improper consolidation of the financial results of the Joint Ventures at times when Ahold did not control such Joint Ventures. See In re Royal Ahold, 351 F. Supp. 2d at 345. The foregoing course of conduct gave rise to repeated materially false and misleading statements and/or omissions of material fact, including those set forth in the Prospectus disseminated in the September 2001 Global Offering. Id. at 407 n.58. Claims like COPERA’s which allege that the plaintiffs’ securities purchases arose out of the defendants’ common course of conduct satisfy the typicality requirement. The South Carolina National Bank, 139 F.R.D. at 329; see also In re WorldCom, 219 F.R.D. at 280 (class representatives’ claims based upon losses in connection with “pervasive accounting fraud” were typical of the claims of the class). Although the claims of all Class members are typical because they arise from defendants’ course of materially misrepresenting and omitting facts concerning Ahold’s financial results and business performance, Lead Plaintiffs have elected to propose additional class representatives who are united in their desire to represent the best interests of the Class. Specifically, Lead Plaintiffs propose: (i) Generic Trading as an additional class representative on behalf of Class 15
Whether a Class member purchased Ahold common stock or ADRs does not impact the typicality analysis. Ahold ADRs are merely certificates representing ownership of Ahold common stock. One Ahold ADR represents one share of Ahold common stock. Defendants’ common course of conduct artificially inflated the prices at which class members purchased Ahold common stock and ADRs. Where the purchaser resides or where it purchased shares is similarly irrelevant to the issue of typicality, because the geographical diversity of the investors of this global company does not change the fact that all investors were similarly damaged by defendants’ materially false and misleading statements and omissions of material fact.
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members who purchased Ahold ADRs; (ii) IAC as an additional class representative on behalf of non-United States domiciled Class members; (iii) Union as an additional class representative on behalf of Class members who purchased Ahold common stock or ADRs from Merrill Lynch in the September 2001 Global Offering; and (iv) Deka as an additional class representative on behalf of Class members who purchased Ahold common stock or ADRs from Goldman Sachs in the September 2001 Global Offering. Whether proffered as a representative for the Class as a whole or for certain purchasers in Ahold’s September 2001 Global Offering, the claims of all of the proposed class representatives are typical of the claims of the Class. See Simpson, 149 F.R.D. at 99 (typicality requirement is satisfied if plaintiff’s claim “arises from the same event or course of conduct that gives rise to the claims of other class members and is based on the same legal theory”); see also In re WorldCom, 219 F.R.D. at 280 (“The factual background of each named plaintiff’s claim need not be identical to that of all of the class members as long as ‘the disputed issue of law or fact occupies essentially the same degree of centrality to the named plaintiff’s claim as to that of other members of the proposed class.’”) (citations omitted). D.
Lead Plaintiffs and the Other Proposed Class Representatives Will Fairly and Adequately Protect the Interests of the Members of the Class
Pursuant to Rule 23(a)(4), the class representatives must be fair and adequate representatives of the class. See, e.g., Woodward, 191 F.R.D. at 506. This rule has been interpreted to include two separate requirements. First, the class representatives should not have any interests antagonistic to the class. See Barnett v. W.T. Grant Co., 518 F.2d 543, 546 (4th Cir. 1975). Second, the class representatives must be represented by adequate counsel. See Central Wesleyan College, 6 F.3d at 183. Each of the proposed class representatives has
20
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affirmed its dedication to prosecuting this litigation in the best interests of the Class, and none possesses any interest antagonistic to the Class.16 In appointing COPERA and Generic Trading as Lead Plaintiffs, the Court noted that “the two together have demonstrated in their submissions thus far that they have the ability and desire to vigorously pursue this litigation.” In re Royal Ahold, 219 F.R.D. at 354. Since the Court appointed them as Lead Plaintiffs in November 2003, COPERA and Generic Trading, together with Lead Counsel, have vigorously prosecuted this action as fiduciaries acting in the best interests of all members of the Class. Lead Plaintiffs’ efforts to date are well known to this Court and include, but are not limited to: •
Filing Lead Plaintiffs’ Motion For An Order Partially Lifting The Private Securities Litigation Reform Act Discovery Stay (Docket No. 85) (Resolved at Docket No. 154);
•
Filing Lead Plaintiffs’ Motion For An Order Requiring Domestic And Foreign Parties And Related Entities To Preserve Documents Pursuant To The Private Securities Litigation Reform Act Of 1995 And The Sarbanes-Oxley Act Of 2002 (Docket No. 86) (Resolved at Docket No. 231);
•
Coordinating and Circulating Agendas for All Monthly Telephone Conferences;
•
Filing the Consolidated Amended Securities Class Action Complaint (Docket No. 122);
•
Serving Document Preservation Subpoenas on Various Non-Parties (See, e.g., Docket Nos. 128-134);
•
Filing Lead Plaintiffs’ Motion For An Order Partially Lifting The Private Securities Litigation Reform Act Discovery Stay To Permit Limited Discovery From Certain Non-Parties (Docket No. 172) (Resolved at Docket No. 229);
•
Defeating Defendants’ Motions to Dismiss the Claims of Non-United States Domiciled Investors Who Purchased Ahold Common Stock on Foreign Exchanges (Docket No. 390);
16
In fact, the interests of Lead Plaintiffs, the additional proposed class representatives, and the other members of the Class are directly aligned. Lead Plaintiffs, IAC, Union, and Deka all purchased artificially inflated Ahold equity securities during the Class Period and all suffered financial losses as a result of Defendants’ misconduct. See In re WorldCom, 219 F.R.D. at 282 (finding adequacy requirement satisfied based upon alignment of interests among proposed representatives and class).
21
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•
Opposing the Government’s Application for a Continued Stay Of Discovery With Respect To Certain Reports Of The Internal Investigations Into Royal Ahold N.V. And U.S. Foodservice And In Support Of Lead Plaintiffs’ Request For Immediate Production Of Such Reports (Docket No. 336) (Resolved at Docket No. 365);
•
Opposing Ahold’s Request for Certification of an Interlocutory Appeal of the Court’s Determination That It Has Subject Matter Jurisdiction Over the Claims of Non-United States Domiciled Investors Who Purchased Ahold Common Stock on Foreign Exchanges (Docket No. 403) (Resolved at Docket No. 431);
•
Filing Motions For An Order Granting Leave To File An Amendment To The Consolidated Amended Securities Class Action Complaint’s Claims Under Section 12(a)(2) And Section 15 Of The Securities Act Of 1933 (Docket Nos. 420 & 424) (Resolved at Docket No. 572);
•
Opposing the Government’s Application For A Stay Of Discovery With Respect To Witness Statements And Depositions Regarding U.S. Foodservice (Docket No. 475) (Unresolved);
•
Filing a Motion to Compel Royal Ahold N.V. And U.S. Foodservice, Inc. To Comply With The Court’s March 12, 2004 Order And To Produce Witness Statements, Memoranda, Interview Notes And Related Materials (Docket No. 511) (Resolved at Docket No. 579);
•
Filing a Motion to Reconsider The Dismissals Of Goldman Sachs International, Merrill Lynch International, And William Grize, Or, In The Alternative, To Intervene Union Asset Management Holding AG And Deka Investment GmbH As Named Plaintiffs On The Section 12 Claims (Docket No. 581) (Unresolved);
•
Serving 100 subpoenas on non-parties seeking the production of documents;
•
Reviewing the more than 14 million pages of documents produced to date; and
•
Various other discovery related activities including numerous conferences, “meet and confers” and related activities.17
Lead Plaintiffs and Lead Counsel have vigorously prosecuted this litigation precisely as the Court envisioned they would almost two years ago. See In re Royal Ahold, 219 F.R.D. at 355. Under the circumstances presented here, it is certain that Lead Plaintiffs, the additional proposed class representatives, and Lead Counsel will continue to “fairly and adequately protect 17
As described in greater detail in the accompanying Smith Declaration (Entwistle Affidavit Ex. 1), Lead Plaintiffs’ litigation efforts have also extended to conducting global investigations and actively participating in court proceedings overseas.
22
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the interests of the class.” Fed. R. Civ. P. 23(a)(4); see also Lewis, 78 F.R.D. at 303; In re Napster, Inc. Copyright Litig., No. C MDL-00-1369 MHP, 2005 U.S. Dist. LEXIS 11498, at *20 (N.D. Ca. May 31, 2005) (prior efforts of plaintiffs and counsel demonstrate adequacy to continue litigating on behalf of class). Accordingly, the adequacy requirement of Rule 23(a)(4) is satisfied in all respects. See Lewis, 78 F.R.D. at 303. II.
THE REQUIREMENTS OF RULE 23(b)(3) OF THE FEDERAL RULES OF CIVIL PROCEDURE ARE SATISFIED
In addition to meeting the four prerequisites of Rule 23(a), the proposed class action must also be “maintainable” under one of the three categories found in Rule 23(b)(1)-(3). See Peoples v. Wendover Funding, Inc., 179 F.R.D. 492, 496 (D. Md. 1998); In re Kirschner Med., 139 F.R.D. at 80; Friedland v. Coastal Healthcare Group, Inc., No. 1:95CV306, 1996 U.S. Dist. LEXIS 16088, at *6-7 (M.D.N.C. Sept. 12, 1996) (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 163 (1974)). Lead Plaintiffs seek to certify the proposed Class under Rule 23(b)(3). A Rule 23(b)(3) class action may be certified if the court finds: (1) that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members; and (2) that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. See In re Kirschner Med., 139 F.R.D. at 80; Jeffreys, 212 F.R.D. at 323; In re Southeast Hotel, 151 F.R.D. at 601. The class action device is far and away the best method to adjudicate the multitude of questions common to the Class in this case. Accordingly, the Court should grant Lead Plaintiffs’ Motion in all respects. A.
Common Questions of Law or Fact Predominate Over Individual Questions
Predominance, in the Rule 23 context, simply means that those issues claimed on behalf of the Class ought to be superior to, and unencumbered by, any individual claims or issues that may affect the lawsuit. In re Southeast Hotel, 151 F.R.D. at 603. In determining whether the 23
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predominance standard is met, courts focus on the issue of liability, and if the liability issue is common to the class, common questions are held to predominate over individual questions. In re Kirschner Med., 139 F.R.D. at 74 (citations omitted); Dura-Bilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87, 93 (S.D.N.Y. 1981) (common questions predominate “if the liability issue is common to the Class”). Here, the questions of law and fact common to determining whether the members of the Class are entitled to relief overwhelm any questions that pertain only to individual Class members. See Amchem, 521 U.S. at 625 (“Predominance is a test readily met in… cases alleging … securities fraud…”); In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 314 (3d Cir. 1998) (“The predominance test is readily met in most securities fraud actions.”); Sandberg v. Virginia Bancshares, Inc., 891 F.2d 1112, 1119 (4th Cir. 1989), rev’d on other grounds, 501 U.S. 1083 (1991) (common questions of law and fact predominated over individual questions in shareholder class action involving misstatements and omissions in proxy statement); Blackie, 524 F.2d at 902 (“Confronted with a class of purchasers allegedly defrauded over a period of time by similar misrepresentations, courts have taken the common sense approach that the class is united by a common interest in determining whether a defendant’s course of conduct is in its broad outlines actionable, which is not defeated by slight differences in class members’ positions, and that the issue may profitably be tried in one suit.”). The predominance requirement of Rule 23(b)(3) does not demand that every single issue in the case be common to all the Class members, but only that there are substantial common issues that predominate over the individual issues. In re Southeast Hotel, 151 F.R.D. at 603 (citing The South Carolina National Bank, 139 F.R.D. at 325.).
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Findings of this Court discussed in Section IB above in connection with the Rule 23(a)(2) “commonality” analysis are, in and of themselves, more than sufficient to satisfy the requirements of Rule 23(b)(3) predominance in this case. Id. Additional common questions include: •
that the defendants issued materially false and misleading statements during the Class Period;
•
that the defendants’ statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading;
•
that defendants implemented the manipulative devices or engaged in the wrongful scheme alleged herein;
•
that defendants knew or recklessly disregarded that the statements that they made were materially false and misleading and/or omitted to disclose material facts;
•
that the federal securities laws were violated by defendants’ acts as alleged herein;
•
that the market prices of Ahold’s securities during the Class Period were artificially inflated because of the defendants’ conduct complained of herein; and
•
the extent of the damages sustained by the Class members and the appropriate measure of such damages.
See also In re Royal Ahold, 351 F. Supp. 2d at 345-46 (discussing Ahold’s overstatement of income and revenues attributable to inflated income at USF and inflated revenues in connection with Ahold’s accounting for joint ventures). Common questions such as these predominate over any individual questions. See Friedland, 1996 U.S. Dist. LEXIS 16088, at *12-13 (court found that common issues including whether any statements were false and the materiality of any omissions or false statements predominated); In re Southeast Hotel, 151 F.R.D. at 605; In re Kirschner Med., 139 F.R.D. at 80; Lewis, 78 F.R.D. at 304.
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Common Questions Predominate Notwithstanding Potential Individual Questions of Damages
The fact that questions of individual damages exist does not change the overall nature of the claims asserted on behalf of the Class. See Jeffreys, 212 F.R.D. at 323 (“The fact that damages will differ from class member to class member does not defeat the finding of predominance because liability is common to the class.”) (citation omitted); The South Carolina National Bank, 139 F.R.D. at 331 (“courts uniformly hold that class actions may be appropriate even though there are differences in the amount of damages suffered by the individual class members”); Lewis, 78 F.R.D. at 306 (“The courts consistently have rejected the argument that individual damages questions prevent class action certification”) (citations omitted); Wright & Miller, Federal Practice & Procedure § 1778 (3d ed. 2005) (“In [securities fraud] actions the courts generally hold that if defendants’ activities present a ‘common course of conduct’ so that the issue of statutory liability is common to the class, the fact that damages or, in some securities cases, reliance may vary for each party does not require that the class action be terminated as being beyond the scope of Rule 23(b)(3)”). 2.
The Class Is Entitled to a Presumption of Reliance Upon Ahold’s Materially False and Misleading Statements
There are no issues of individual reliance that would otherwise preclude class certification because the Class is entitled to the fraud-on-the-market presumption of reliance approved by the United States Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224, 241-47 (1988).18 (See, e.g., Complaint at ¶¶ 786-87, 798, 811, 819.) Under the fraud-on-the-market doctrine, the Class is entitled to a presumption of reliance on alleged material misrepresentations
18
Although the fraud-on-the-market doctrine applies to the Class’s Exchange Act claims, proof of reliance is not required to show a violation of Section 12(a)(2) of the Securities Act. See In re Royal Ahold, 2005 U.S. Dist. LEXIS 18081, *16 n.2 (citing Johns Hopkins Univ. v. Hutton, 422 F.2d 1124, 1129 (4th Cir. 1970)).
26
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and omissions in securities filings so long as the Court’s “rigorous analysis” enables it to conclude that the market for the security at issue is efficient. See Gariety, 368 F.3d at 363. See also Friedland, 1996 U.S. Dist. LEXIS 16088, at *12; Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972) (holding that in cases involving primarily a failure to disclose, as opposed to misleading statements, all that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in making the investment decision). Before a putative class is entitled to rely upon the fraud-on-the-market presumption of reliance set forth in Basic, the plaintiffs must demonstrate: (1)
that the defendant made public misrepresentations;
(2)
that the misrepresentations were material;
(3)
that the plaintiff purchased the shares after the misrepresentations but before the truth was revealed; and
(4)
that the shares were traded on an efficient market.
Gariety, 368 F.3d at 364 (citing Basic, 485 U.S. at 248 n.27) (citations omitted). Here, the Court has already conducted the requisite “rigorous analysis” and has made “findings” concerning the first three of the four above-enumerated factors. First, the Court has determined that Lead Plaintiffs have adequately alleged that the defendants made public misrepresentations concerning, among other things, Ahold’s net income and net sales.19 See, e.g., In re Royal Ahold, 351 F. Supp. 2d at 362 (“many of the allegedly false and misleading financial results and misrepresentations issued by Royal Ahold originated in the United States and were filed with the SEC”); Id. at 407 n.58 (“Plaintiffs have adequately alleged 19
In connection with this analysis, it bears noting that the Ahold Defendants did not move to dismiss the Complaint’s claims under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. See In re Royal Ahold, 351 F. Supp. 2d at 348 (“Royal Ahold and USF do not challenge the plaintiffs’ §10(b) and Rule 10b-5 claims”).
27
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that the September 2001 Prospectus Supplement was false and misleading”).20 Second, the Court has recognized that the defendants’ misrepresentations concerned material facts. See, e.g., In re Royal Ahold, 351 F. Supp. 2d at 373 (“the plaintiffs have adequately alleged that many of the defendants’ statements were false or materially misleading”). Third, the Court has also found that Lead Plaintiffs have alleged that they purchased Ahold common stock and/or ADRs during the Class Period before the truth was revealed on February 24, 2003. Id. at 379 n.35 (“the defendants’ misleading statements upon which the plaintiffs relied directly and indirectly, caused the plaintiffs to purchase Royal Ahold stock at artificially inflated prices and suffer damages thereby”). Consequently, in determining that the Class is entitled to invoke the fraud-on-themarket presumption of reliance, the Court must now “look beyond the pleadings and conduct a rigorous analysis” only to determine that plaintiffs have demonstrated that Ahold’s common stock and ADRs traded in efficient markets during the Class Period. Gariety, 368 F.3d at 367. An efficient market is one in which material information about the company is widely available and is ultimately reflected in the value of the security. See Basic, 485 U.S. at 246-47 n.24; see also In re Polymedica Corp. Sec. Litig., 224 F.R.D. 27, 41 (D. Mass. 2004) (“The ‘efficient’ market required for the ‘fraud on the market’ presumption of reliance is simply one in which ‘market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices.”) (citation omitted). In determining whether a particular market is efficient, courts have articulated various factors to be considered. See Gariety, 368 F.3d at 368 (citing Cammer v. Bloom, 711 F. Supp. 1264, 1285-87 (D.N.J.
20
See also id. at 362 (“The documented accounting fraud related to the overstatement of vendor allowances by Royal Ahold’s U.S. based subsidiaries substantially contributed and indeed was material to Royal Ahold’s success in attracting shareholders both in the U.S. and abroad.”).
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1989)). Given Ahold’s size and position in the global marketplace, there is simply no question that the markets for Ahold’s common stock and ADRs were efficient.21 Lead Plaintiffs’ expert, Candace L. Preston confirms, based on an event study analysis and other evidence relating to the factors identified by the courts in Gariety and Cammer, that: (i) the market for Ahold common stock trading on the Euronext during the Class Period was efficient; and (ii) the market for Ahold ADRs trading on the NYSE was efficient. Specifically, Ms. Preston found that the following factors, among others, support her determination that Ahold’s common stock and ADRs traded in efficient markets during the Class Period: •
The weekly trading volume of Ahold’s common stock averaged 3.1% of the number of outstanding shares during the Class Period (See Declaration of Candace Preston (“Preston Declaration”) at ¶ 24);
•
The weekly trading volume of Ahold ADRs averaged 3.2% of the number of ADRs outstanding during the Class Period (See Preston Declaration at ¶ 24);
•
Analysts issued hundreds of reports concerning Ahold during the Class Period (See Preston Declaration at ¶ 30);
•
There was a significant percentage of institutional ownership during the Class Period (see Preston Declaration at ¶¶ 25-26);
•
Ahold filed Registration Statements on Form F-3 (See Preston Declaration at ¶¶ 3335);
•
There was extensive news coverage concerning Ahold during the Class Period (See Preston Declaration at ¶ 29); and
•
The trading prices of Ahold common stock and ADRs reacted quickly to news (See Preston Declaration at ¶¶ 36-40).
21
The ADRs trading on the NYSE and the common shares trading on the Euronext traded in tandem with one another throughout the Class Period (See Preston Declaration at ¶ 14). See generally Brian P. Murray and Maurice Pesso, “The Accident of Efficiency: Foreign Exchanges, American Depository Receipts, and Space Arbitrage,” 51 Buffalo L. Rev. 383, 385 (Spring 2003) (when a stock trades on an efficient domestic exchange, arbitrageurs will force even an inefficient foreign exchange into an accident of efficiency with regard to that stock, even if that foreign exchange is not efficient with regard to its other listed stocks); In re Gaming Lottery Sec. Litig., 58 F. Supp. 2d 62, 75 (S.D.N.Y. 1999) (“Due to the efficiencies of market pricing and the ever-present possibility of arbitrage, the price of GLC stock on the TSE and the NASDAQ unsurprisingly moved in tandem during the class period.”). Given the spread of global communications and the flattening of the global economy most recently observed by Thomas Friedman in his best selling treatment of these and related economic and geopolitical issues in his book The World Is Flat, it is unsurprising that the ADRs trading on the NYSE and the common shares trading on the Euronext traded in tandem with one another. (See Thomas L. Friedman, The World Is Flat: A Brief History of the Twentyfirst Century (2005); see also Preston Declaration at ¶ 14.)
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Ms. Preston’s opinion is consistent with the numerous decisions that have found that securities, such as Ahold’s ADRs, which trade on the New York Stock Exchange, trade on an efficient market. See, e.g., Freeman v. Laventhol & Horwath, 915 F.2d 193, 199 (6th Cir. 1990) (“it appears that securities traded in national secondary markets such as the New York Stock Exchange … are well suited for application of the fraud on the market theory”); In re Initial Public Offering Sec. Litig., 227 F.R.D. 65, 107 n.324 (S.D.N.Y. 2004) (noting that federal courts have repeatedly held that a listing on a national market, such as the NASDAQ, is a good indicator of efficiency) (citations omitted); In re Sunbeam Sec. Litig., No. 98-8258-CIVMIDDLEBROOKS, 2001 U.S. Dist. LEXIS 25703, at *10-11 (S.D. Fla. July 3, 2001); Serfaty v. Int'l Automated Sys., Inc., 180 F.R.D. 418, 421 (D. Utah 1998). Having fully satisfied the requirements of Gariety the Class in this case is entitled to the fraud-on-the-market presumption.22 See Basic, 485 U.S. at 241-47. B.
A Class Action Is Superior to Other Available Methods for the Fair and Efficient Adjudication of this Controversy
Under Rule 23(b)(3), the Court must also determine whether a class action is superior to other available methods for the fair and efficient adjudication of the controversy. In determining whether the “superiority” requirements of Rule 23(b)(3) are satisfied, the Court is to consider the following factors: (i) the interest of members of the class in individually controlling the prosecution of separate actions; (ii) the extent and nature of any litigation concerning the controversy already commenced by members of the class; (iii) the desirability of concentrating the litigation of the claims in the particular forum; and (iv) the difficulties likely to be 22
The circumstances here are easily distinguished from those in Gariety where the shares at issue were either unlisted, or were traded for much of the relevant period on the so called “Pink Sheets” and “Bulletin Boards.” In fact the shares at issue in Gariety were only listed on the NASDAQ OTC. listing for a short time, were otherwise extremely thinly traded (just over 200 trades for the entire class period -- sometimes only one or two trades a day), and the Court was not presented with evidence beyond the pleadings from which the Court could have appropriately concluded that the shares traded in efficient markets. See Gariety, 368 F.3d at 367.
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encountered in the management of a class action.23 See Fed. R. Civ. P. 23(b)(3); see also Jeffreys, 212 F.R.D. at 323; Peoples, 179 F.R.D. at 501; In re Southeast Hotel, 151 F.R.D. at 608; Meredith v. Mid-Atlantic Coca Cola Bottling Co., 129 F.R.D. 130, 134 (E.D. Va. 1989). In view of these criteria, courts routinely hold that violations of the federal securities laws are particularly well-suited for class treatment. See In re Southeast Hotel, 151 F.R.D. at 601 (citations omitted) (“It is widely accepted that class treatment is particularly appropriate for proceedings involving alleged violations of securities laws and that Rule 23 is to be construed liberally to effectuate that end.”); The South Carolina National Bank, 139 F.R.D. at 328 (“Actions based upon securities fraud are among the most usual class actions brought under Rule 23(b)(3) … Due to the importance of the class action device in the context of suits by aggrieved purchasers of securities, the ‘interests of justice require that in a doubtful case … any error, if there should be one, should be committed in favor of allowing the class action.’”) (citations and internal quotations omitted); In re Kirschner Med., 139 F.R.D. at 77 (“It is well recognized that class actions are particularly appropriate to resolve shareholders’ claims alleging violations of the federal securities laws and that Rule 23 is to be construed liberally to effectuate that end.”). 1.
Class Members Have a Minimal Interest in Individually Controlling this Action
In a case such as this, where the losses suffered by individual Class members would not likely justify the time and expense associated with bringing individual actions, a class action is the superior method of securing a remedy. See, e.g., In re Initial Public Offering, 227 F.R.D. at 121 (“the cost of litigating a securities fraud action against multiple well-funded defendants is 23
The Supreme Court has noted that these factors are not exhaustive. See Amchem, 521 U.S. at 615; Wright & Miller, Federal Practice & Procedure § 1777 (3d ed. 2005) (“Suffice it to note here, that [the four factors are] not meant to be exhaustive and the court has discretion to consider whatever other factors it deems relevant to the determination.”). See also In re A.H. Robins Co., 880 F.2d at 709 (holding it proper for the Court to consider whether certification would “foster settlement of the case with advantage to the parties and with great saving in judicial time and services”); Entwistle Affidavit at Ex. 6, (Reuters New Service, Ahold CFO Says US Legal Claims Could Last 10 Years, Forbes, May 7, 2004).
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staggering”) (citing In re Cendant Corp. Litig., 243 F. Supp. 2d 166, 172-74 (D.N.J. 2003) (citation omitted); In re Nortel Networks Corp. Sec. Litig., No. 01 Civ. 1855 (RMB), 2003 U.S. Dist. LEXIS 15702, at *18-19 (S.D.N.Y. Sept. 8, 2003) (court found that class action would be superior to individual actions because multiple lawsuits would be costly and inefficient, and the exclusion of foreign class members who could not afford separate representation would be unfair); The South Carolina National Bank, 139 F.R.D. at 335 (“The plaintiffs’ cost for depositions, photocopying and travel expense alone in all probability will far exceed the amount that the average investor paid for these bonds.”) (citations omitted); Rodger v. Elec. Data Sys. Corp., 160 F.R.D. 532, 540 (E.D.N.C. 1995) (“because of the relatively small individual losses suffered by the potential class members … and due to the prohibitive costs of litigating each claim separately, a class action is the most effective method of fully adjudicating this controversy.”). As explained by leading commentators: Of course, if a comparative evaluation of other procedures reveals no other realistic possibilities, th[e] [superiority] portion of Rule 23(b)(3) has been satisfied…. For example, a group composed of consumers or small investors will be unable to pursue their claims on an individual basis because the cost of doing so exceeds any recovery they might secure. When this is the case it seems appropriate to conclude that the class action “is superior to other available methods for the fair and efficient adjudication of the controversy. Of course, it must be recognized that the effect of making Rule 23(b)(3) available is to enable recourse to the courts in situations in which it otherwise would be unavailable.” Wright & Miller, Federal Practice & Procedure § 1779 (3d ed. 2005). This is particularly true for non-United States domiciliaries, who would have to incur the cost and expense of retaining their own counsel, experts and investigators, together with the cost of attempting to develop an adequate record in discovery -- including the 14 million plus pages of documents, investigative reports and other documents and materials discovered or developed to date in the global efforts engaged in by Lead Plaintiffs before this Court. Moreover, if they 32
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chose to litigate at home rather than in the United States, individual claimants would face several additional difficulties in bringing their individual actions including the following facts: (i) most European nations have adopted the “English Rule,” which requires the losing party to pay the prevailing party’s attorneys fees;24 (ii) most European nations forbid contingency fee arrangements;25 and (iii) most European nations do not allow for the broad discovery that is available to U.S. litigants, making it significantly more difficult for these plaintiffs to prove their case (see generally Geoffrey C. Hazard, Jr., “Discovery and the Role of the Judge in Civil Law Jurisdictions,” 73 Notre Dame L. Rev. 1017 (1998) (noting the far broader scope of U.S. discovery); see also In re U.S. Financial, 69 F.R.D. at 48 (court certified class that included nonUnited States domiciliaries noting that “‘discovery’ as it exists in the United States, is unknown abroad”)); and (iv) most foreign jurisdictions do not have statutes allowing for class actions that seek compensatory relief on behalf of injured shareholders (although a trend favoring class litigation is developing throughout Europe).
24
See Bernard Cairns, Australian Civil Procedure 610-611 (1996) (Austral.); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Aus. 97 (Austria); Code Judicial [C. Judicial] art 1017 (Belg.) (Belgium); CPR 57 (2005) (Ontario, Canada); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Den. 50 (Denmark); Id. at Fin. 83 (Finland); Code Civil [C. Civil] art. 696 (Fr.) (France); § 91[BGB] (F.R.G.) (Germany); Code of Civil Procedure [C.P.C.] art. 90 (Italy); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Japan 43 (Japan); Jeroen Chorus, Introduction to Dutch Law 246 (1999) (Neth.); Code Civil [C.C.] art. 394 (Sp.); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Swed. 76 (Sweden); Introduction to Swiss Law (F. Dessemontet ed. 2004) 296 (Switzerland); and CPR 44.3(2) (1998) (U.K.) (United Kingdom).
25
See Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Aus. 97 (Austria); William Horton & Gerhard Wegan, Litigation Issues in the Distribution of Securities 438 (1997) (Australia); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Belg. 79 (Belgium); Id. at Den. 50 (Denmark); Id. at Fin. 83 (Finland); §49b ¶2 BRAO (F.R.G.) (Germany); International Encyclopedia of Laws: Civil Procedure Vol. 2 (John Lemmens ed. 2002) 53 (Italy); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Japan 44 (Japan); Jeroen Chorus, Introduction to Dutch Law 246 (1999) (Netherlands); Transnational Litigation: A Practioner’s Guide (John Fellas ed. 2004) Span 96 (Sp.); Id. at Swed. 92 (Sweden); Introduction to Swiss Law (F. Dessemontet, ed 2004) 296 (Switz.); Solicitor’s Act 7C-159 (U.K.) (United Kingdom). See also Cromer Finance Ltd. v. Berger, 205 F.R.D. 113, 135 n.32 (S.D.N.Y. 2001) (concerning the difficulties caused by “the unavailability of contingency fee representation”).
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This Action is the Only Case Of Which Lead Plaintiffs Are Aware That Seeks Monetary Damages for Members of the Class
As far as Lead Plaintiffs are aware, no other actions exist either in the United States or elsewhere that seek recovery of money damages from the defendants for the claims asserted by the Class.26 This is in stark contrast to the significant time and tens of millions of dollars of financial resources that have already been expended litigating this action in the United States and elsewhere against legions of defense lawyers. See supra Section I(D). Consequently, this factor weighs heavily in favor of certifying the Class. See The South Carolina National Bank, 139 F.R.D. at 335; Meredith, 129 F.R.D. at 134; Peoples, 179 F.R.D. at 502; In re U.S. Financial, 69 F.R.D. at 50 (“[Defendant’s] fear of future lawsuits supercedes the fact that in more than two years since the collapse of [U.S. Financial] and the discovery of the alleged fraud, no actions arising therefrom have been commenced outside the United States against Touche or any other defendant presently involved in this massive litigation.”). Of course, courts have also looked past other litigation -- even other class action lawsuits -- to favor adjudication by class action in the United States. See eg. In re Nortel Networks, 2003 U.S. Dist. LEXIS 15702, at *20 (class including Canadian purchasers certified even though three class action suits were pending in Canada). 3.
It Is Appropriate and Efficient to Continue Litigating the Class’s Claims in This Forum
Given that the most financially significant of the defendants’ wrongdoing relates to activities in the United States (e.g., the fraud at USF) and that most of the relevant witnesses and documents are located and/or have been produced in the United States, it is logical to concentrate
26
As Ahold concedes, the participation of the Dutch shareholder group, VEB, in the Enterprise Chamber proceedings is not an action for monetary damages. (See Entwistle Affidavit at Ex. 7, “Ahold Responds to VEB Petition,” a copy of which is available www.ahold.com/index.asp?id=697).
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the litigation of these claims in the District Court of Maryland, where USF is located. See In re Royal Ahold, 351 F. Supp. 2d at 357 (“Royal Ahold has admitted that the majority of the accounting problem stemmed from the improper recognition of vendor allowances by its U.S. subsidiaries, including Maryland based USF.”) See In re Southeast Hotel, 151 F.R.D. at 609 (“both the number and geographic diversity of potential parties to this action suggest that class certification is the most efficient way to proceed”). This efficiency and desirability was recognized by the Judicial Panel on Multidistrict Litigation, which decided to transfer the various pending cases to this district because the actions involved common questions of fact and such concentration would best “serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation.” See In re Royal Ahold Sec. & ERISA Litig., 269 F. Supp.2d 1362, 1363 (J.P.M.D.L. 2003). As a result, this factor weighs in favor of certifying the Class. See In re Southeast Hotel, 151 F.R.D. at 609; The South Carolina National Bank, 139 F.R.D. at 335. 4.
No Substantial Difficulties Are Likely to Be Encountered in Managing This Class Action a.
Global Classes are Routinely Certified In Securities Actions
Courts in securities actions routinely certify classes that include non-United States domiciled class members. See, e.g., In re Nortel Networks, 2003 U.S. Dist. LEXIS 15702, at *24; In re Turkcell Iletisim Hizmetler, A.S. Sec. Litig., 209 F.R.D. 353, 360-61 (S.D.N.Y. 2002); Cromer, 205 F.R.D. at 113; Krangel v. Golden Rule Resources, Inc., 194 F.R.D. 501, 506 (E.D. Pa. 2000); In re Gaming Lottery, 58 F. Supp. 2d at 77; In re Int’l Nesmont Sec. Litig., No. 944202 (WGB) (D.N.J. Dec. 2, 1996), slip op. at 44; Frietsch v. Refco, Inc., No. 92 C 6844, 1994 U.S. Dist. LEXIS 312, at *32 (N.D. Ill. Jan. 12, 1994); In re Pizza Time Theatre Sec. Litig., 112 F.R.D. 15, 17 (N.D. Cal. 1986); Jordan v. Global Natural Resources, Inc., 104 F.R.D. 447, 448 35
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(S.D. Ohio 1984); In re U.S. Financial, 69 F.R.D. at 50; see also Takeda v. Turbodyne Technologies, Inc., 67 F. Supp. 2d 1129, 1139 (C.D. Cal. 1999) (there is no per se rule against foreign class members); In re Lloyd’s Am. Trust Fund Litig., No. 96 Civ. 1262 (RWS), 1998 U.S. Dist. LEXIS 1199, at *60 (S.D.N.Y. Feb. 6, 1998) (court included foreign investors as part of certified class in an action for alleged breach of fiduciary duties). The domicile of an investor is irrelevant to the issue of class certification -- particularly where, as here, subject matter jurisdiction exists as to the claims of each investor. See In re Royal Ahold, 351 F. Supp. 2d at 362. In fact, Lead Plaintiffs have located 618 examples since 1999 of court-approved settlement notices in securities class actions that make no distinction based on the domicile of the investor, and in effect certify global classes. (Entwistle Affidavit Ex. 8.) For that matter, 132 of these notices specifically contain releases for claims based both on violations of U.S. law and violations of foreign law. (Entwistle Affidavit Ex. 9.) b.
The Mere Possibility That a Foreign Court Might Not Recognize a Judgment of this Court is Insufficient to Defeat Class Certification
Courts routinely reject the notion that a class should not be certified based on the mere possibility that a foreign jurisdiction might not recognize a judgment. See Cromer, 205 F.R.D. at 134-35 (“There is a distinction, however, between those circumstances in which there is a ‘possibility’ that a foreign court may not recognize a judgment, and those in which there is ‘near certainty’ that it will not be recognized.” (emphasis added) (citation omitted); In re Turkcell, 209 F.R.D. at 360-61 (“The case law suggests that, if there is some possibility that a class action judgment would be enforceable -- or at least have some substantial effect -- in the foreign jurisdiction at issue, then class certification is proper.” (citation omitted)); Frietsch v. Refco, Inc., 1994 U.S. Dist. LEXIS 312, at *29 (granted class certification despite affidavit that judgment would “most likely” not be given res judicata effect). See also In re Royal Dutch 36
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Shell/Transport Sec. Litig., 380 F. Supp. 2d 509 (D.N.J. 2005) (rejecting defendants’ argument in the context of a motion to dismiss that the court lacked subject matter jurisdiction due to the “possibility” that foreign courts might not enforce the judgment of U.S. court); In re Cable & Wireless, PLC, Sec. Litig., 321 F. Supp. 2d 749, 766-67 (E.D. Va. 2004). As summed up by one court, there are simply too many contingencies involved concerning potential res judicata concerns for such concerns to prevent class certification: many events would have to occur before Deloitte would be prejudiced by an inability to assert the defense of res judicata successfully. Specifically, (1) the class action would have to be tried to judgment, despite the greater likelihood that the case would instead be settled; (2) the class would have to lose on the merits; (3) an absent class member would have to bring a subsequent lawsuit in an English or Swiss court, despite such practical deterrents as the unavailability of contingent-fee representation or a class action vehicle in those courts; (4) the absent class member would have to succeed in establishing jurisdiction over the defendants in that foreign court; (5) the absent class member would have to convince the foreign court to ignore this Court’s ruling and render judgment in its favor on the merits; and (6) the absent class member would have to then convince a Bermuda court to enforce the foreign judgment and ignore the judgment rendered by this Court. Cromer, 205 F.R.D. at 135. A similar result obtains here as observed by Lead Plaintiffs’ expert Professor Hans Smit, the Stanley H. Fuld Professor of Law at Columbia University School of Law in his Declaration submitted contemporaneously with this Motion: If experience is any guide and this action is concluded by a settlement, it is fair to assume that the European members of the class will enthusiastically seek to be bound by the judgment and to recover their parts of the amount of the settlement. After all, they are most likely to do this rather than pursue their own individual action in their own courts, which do not permit contingency fee agreements and require payment of counsel fees to the prevailing party. If this were to be the case, the question of whether this Court’s judgment would be given res judicata effect would then arise only in regard to the parties who opted out. Their number is likely to be so small as to be of no moment. The question here
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addressed would then become significant only in the unlikely event that a substantial number of European class members would opt out, in which case the Court might reconsider the definition of the class in any event. The sensible solution would therefore appear to be to let the class action proceed in its all-encompassing form until the appropriate opt out notice has been given and the members of the class have had an opportunity to respond. (Smit Declaration at ¶ 20.) Moreover, given the existence of Friendship, Commerce, and Navigation treaties (“FCN Treaties”) between the United States and most if not all of the foreign nations identified to date by Ahold as having resident shareholders, it is impossible for the defendants to claim that it is a “near certainty” that the courts of these nations will not enforce a judgment of this Court.27 FCN Treaties were designed to encourage transnational investment between the United States and the counterparty nations. See Herman J. Walker, Jr., “Provisions on Companies in United States Commercial Treaties,” 50 Am. J. Int’l L. 373 (1956); Herman J. Walker, Jr., “Modern Treaties of Friendship, Commerce and Navigation,” 42 Minn. L. Rev. 805 (1958). To that end, the FCN Treaties provide that citizens of each nation are to have equal access to each other’s judicial system. Thus, citizens of countries such as the Netherlands, Germany, France, Switzerland, Belgium, and Great Britain are to be treated by this Court as if they were U.S. citizens for purposes of Rule 23; and the courts of these nations ought to recognize and give similar access to their judicial systems under the terms of the respective FCN Treaties. See, e.g., Vagenas v. Cont’l Gin Co., 988 F.2d 104, 105 (11th Cir. 1993) (enforced a Greek judgment as if it were a sister-state judgment under the Constitution’s Full Faith and Credit clause due to the existence of an FCN Treaty between U.S. and Greece); Daewoo Motor America, Inc. v. General Motors
27
A chart depicting the FCN Treaties entered into by the United States and other nations is attached as Entwistle Affidavit Ex. 10.
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Corp., 315 B.R. 148 (Bankr. M.D. Fla. 2004) (enforced a Korean judgment due to the existence of an FCN Treaty between U.S. and Korea).28 Courts have further pointed out that foreign jurisdictions may consider a U.S. judgment as persuasive authority even if the jurisdiction may not consider the U.S. judgment as binding per se. See In re Turkcell, 209 F.R.D. at 360 (“Based on the affidavits before us, we cannot conclude that a Turkish court would give no weight to a judgment of this court.”); In re Lloyd’s, 1998 U.S. Dist. LEXIS 1199, at *44 (“[Defendant’s] affidavits regarding foreign law do not compel the conclusion that a judgment in the United States would have no value in a foreign court. This is an action against a trustee for breach of its fiduciary duty under New York State law, where the trust res is situated in New York, and the situs of all the alleged wrongful acts occurred in New York. Accordingly, a foreign court may look to the results achieved here for guidance, thereby contributing to the superiority of the class action procedure”); In re U.S. Financial, 69 F.R.D. at 50. Of course, it is well settled that the issue of res judicata is but one factor to consider in determining the superiority of the United States class action. Royal Ahold, 219 F.R.D. at 352 (“This factor must be considered in determining whether a class action is the superior method of litigating a particular case, although it is not determinative.”); Cromer, 205 F.R.D. at 135 (“Even where all the available evidence indicates that foreign plaintiffs who lose in the United States will be able to sue the defendant for a second time in their own country, a class action may 28
The same result obtains with regard to releases executed by an investor receiving funds in settlement or after a final judgment by submitting a claim form. It is well-settled that a release in this context is a contract. See, e.g., Auslander v. Helfand, 988 F. Supp. 576, 580 (D. Md. 1997) (“A release is the contractual abandonment of a claim or right to the person against whom the claim exists, or against whom the right could be enforced.”) (citing Whitcomb v. The Nat’l Exch. Bank of Baltimore, 91 A. 689 (Md. 1914)); United States v. Kingshead Corp., 11 C.I.T. 2, 3 (Ct. Int’l Trade 1987) (“Both settlements and releases are contracts to which the ordinary rules of contract interpretation apply. A release has been defined as the relinquishment, concession, or giving up of a right, claim or privilege. Releases are contractual in nature…”). Foreign courts have found that contracts entered by Americans and citizens of foreign countries are enforceable. See, e.g., Vagenas, 988 F.2d at 105; Daewoo, 315 B.R. at 150.
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remain the superior means for litigating the dispute, particularly where the court can take action to increase the benefits for the defendant as well as the plaintiffs.”); In re Lloyd’s, 1998 U.S. Dist. LEXIS 1199, at *47; In re U.S. Financial, 69 F.R.D. at 50 (“Assuming arguendo that a judgment of this or any other American court in defendant’s favor technically might not be res judicata against a debenture holder who took no affirmative steps in this action, it would be evidence in every country and it could be utilized by [the defendant] in defense of subsequent foreign lawsuits.”). Thus, this factor also militates in favor of class certification. c.
Effective Notice Can Be Provided to the Class Members
Courts certifying global classes have consistently rejected the argument that providing notice to foreign class members presents a case manageability problem. See, e.g., Vancouver Women’s Health Collective Soc’y v. A.H. Robins Co., Inc., 820 F.2d 1359, 1361-63 (4th Cir. 1987) (approving notice program to over 90 countries and involving mass media public service announcements, outreach to medical establishments and governmental agencies, and press releases); In re Cable & Wireless, 321 F. Supp. 2d. at 765 (court noted the protections afforded by Rule 23 and due process, which require notice to members of a certified class informing them of the pendency of the class action); In re Holocaust Victim Assets Litig., 105 F. Supp. 2d 139, 144 (E.D.N.Y. 2000) (court approved settlement with worldwide notice program commenting that “[t]he notice plan … was tailored to unique circumstances of this case; was effective as implemented … in that it provided the best notice practicable under the circumstances in terms of content, format and dissemination; and satisfied due process requirements and Fed. R. Civ. P. 23(c)”); In re Lloyd’s, 1998 U.S. Dist. LEXIS 1199, at *46-47 (rejecting Citibank’s argument that manageability problems would arise if the notices relating to the action needed to be sent in numerous foreign languages); In re U.S. Financial, 69 F.R.D. at 47 (“Individual notice has never been required to be given every member of every class. Rather, in construing the clear 40
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provisions of Rule 23(c)(2), courts have required individual notice to be given to every ‘identifiable’ class member along with some other form of notice to the unidentified members.”).29 Rule 23(c)(2) does not require that class members be notified by every means possible; rather, the “best notice practicable under the circumstances” is all that is required. Peoples, 179 F.R.D. at 502 (“Rule 23(c)(2) requires that in a class action certified under Rule 23(b)(3), the Court must direct the ‘best notice practicable’ to the class members, including individual notice to all members whom the Court can identify with reasonable effort.”); In re U.S. Financial, 69 F.R.D. at 47 (S.D. Cal. 1975) (“In this Court’s view, notice by publication is the best practicable method of informing unknown debenture holders…”); Fisher v. Virginia Elec. & Power Co., 217 F.R.D. 201, 227 (E.D. Va. 2003) (“if the class members cannot be identified and individually notified through reasonable effort, a court may exercise its discretion to provide the best notice practicable under the circumstances”) (citing In re Domestic Air Transport Antitrust Litig., 141 F.R.D. 534, 539 (N.D. Ga. 1992). With this issue in mind, Lead Plaintiffs have retained Todd B. Hilsee and the firm of Hilsoft Notifications (“Hilsoft”), which specializes in designing, developing, analyzing, and implementing large-scale, un-biased, legal notification plans.30 Hilsoft has worked on more than 175 cases, in the course of which Hilsoft has given notice in 53 countries and 36 languages. (See Hilsee Aff. at ¶ 2.) Included among theses cases are: (1) In re Domestic Air Transport Antitrust
29
A number of courts have commented that they could draft the notice so that they could fashion a proof of claim that would maximize the probability that a foreign jurisdiction would enforce the U.S. judgment. See, e.g., In re Lloyd’s, 1998 U.S. Dist. LEXIS 1199, at *44-45 (court could fashion a proof of claim mechanism that would likely bind participating class members and thereby discourage re-litigation); Cromer, 205 F.R.D. at 113 (citation omitted) (same).
30
See the Affidavit of Todd B. Hilsee on Ability to Provide Multi-National Notice to Class Members (hereafter “Hilsee Aff.”), filed contemporaneously herewith.
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Litig. (cited with approval in Fisher, 217 F.R.D. at 227), in which Hilsoft developed the methodology now embraced by many courts to help them determine the adequacy of proposed notice (i.e., calculating the percentage of class members who will be “reached” with notice through audience coverage analyses”); and (2) In re Holocaust Victims Assets Litig. (105 F. Supp. 2d 139 E.D.N.Y.), wherein Hilsoft created and carried out a worldwide notice campaign, which has been called the most complex and comprehensive in litigation history, consisting of 371 appearances in mainstream newspapers and publications and 622 appearances in Jewish publications, placed in 40 countries and 26 languages. (See Hilsee Aff. at ¶ 18(a)(i).) Hilsoft has also worked with the Federal Judicial Center to write and design the “illustrative” class action model notices (including securities, personal liability, and employment discrimination) in plain language. (See Hilsee Aff. at ¶¶ 3, 22.) Hilsoft is familiar with the nature of this action and is confident that it can provide both domestic and foreign investors with sufficient notice as it has done in its numerous other cases. (See Hilsee Aff. at ¶¶ 5-15.) This is particularly true where Ahold’s records identify financial institutions and individuals that acted as owners and/or nominees for the vast majority of outstanding shares at the conclusion of the Class Period. (See Hilsee Aff. at ¶ 11(f).) d.
The Class Action Device is the Superior Method of Adjudicating this Dispute
Not to be lost in this analysis or the examination of any other concern that defendants might raise is a simple but fundamental question -- if a class action is not the superior method for resolving this dispute, what is? See Fisher, 217 F.R.D. at 227 (In rejecting defendants’ proposal of a case-by-case method that required class members to bring thousands of individual actions, the court noted that manageability is but one of the factors under Rule 23(b)(3) and “should be considered only in relation to alternative means of adjudication”). In large part, courts that have
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certified classes including foreign investors have recognized that the class action is the superior method because there is no better alternative to resolve such claims. See, e.g., Krangel, 194 F.R.D. at 506 (“the realistic alternatives to a class action are many scattered suits with possibly contradictory results for some plaintiffs, and, for many more, abandonment of claims.”) (citing cases for the proposition that, in securities fraud cases, a class action is often the superior means of litigating claims because there may be many injured individuals who have not been damaged to a degree that would induce them to bring their own suits); In re Turkcell, 209 F.R.D. at 360-61 (noted that absent class members would have to bring suit in a foreign court despite such practical deterrents as the unavailability of contingent-fee representation or a class action vehicle); In re Int’l Nesmont Sec. Litig., Civ. No. 94-4202 (WGB) (D.N.J. Dec. 2, 1996), slip op. at 44 (found class method superior in part because Canadian law does not recognize the “fraudon-the-market” theory, which would mean that class members who purchased their stock on NASDAQ would be disadvantaged if their only option was to join Canadian litigation). In this dispute, neither the alternatives of (i) a massive joinder action in this court nor (ii) multiple separate actions around the globe offer the advantages, efficiencies and fundamental fairness inherent in certifying the global Class proposed by Lead Plaintiffs. Courts considering this issue have appropriately rejected attempts by corporate wrongdoers to avoid compensating their foreign victims -- particularly where, as here, the foreign corporation has availed itself of United States consumer and capital markets and where subject matter jurisdiction in the United States exists. As explained by one court, the defendants’ putative concerns over the res judicata effect of a U.S. judgment are nothing more than a pretext to funnel foreign purchasers into hostile forums (or no forum) so that defendants could reduce the amount of compensation that they would ultimately pay to those they have harmed:
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In conclusion, [defendant] would have this Court ignore reality and deny class status because of theoretical difficulties having no practical substance. Even if its apprehensions were justified factually, the class action procedure is the only appropriate method by which those fears can be minimized. At the very least, this or any other American court judgment in a class action will be res judicata in any future lawsuit commenced in the United States concerning most, if not all, foreign debenture holders. If, however, class status is denied in this action, all debenture holders will be obliged to institute individual actions in our domestic courts and abroad. This Court submits that [defendant] correctly perceives that, if this lawsuit is not certified as a class action, few debenture holders will find it economically feasible to commence individual actions, thereby allowing [defendant] to escape its alleged liability to those holders. Given the American situs of the alleged fraud perpetrated upon these holders, such a result would be unconscionable. In re U.S. Financial, 69 F.R.D. at 50; In re Turkcell, 209 F.R.D. at 360-61 (“We believe that, having availed itself of the benefits of American capital markets, Turkcell cannot evade the private enforcement mechanism intended to ensure the efficient operation of those markets. Any holding to the contrary would effectively shield many foreign corporations listed in the United States from civil liability.”). In other words, defendants must do more than simply conjure up potential manageability difficulties -- they must offer a viable solution. For example, In re Initial Public Offering involves “thousands or millions of claimants” for 310 related class actions. Notwithstanding the obvious management concerns potentially implicated in a case of such magnitude, the court nonetheless made clear that: Rule 23 is intended to facilitate, not prevent, litigation of a multitude of claims with substantially identical allegations. Defendants make little effort to propose alternative means of adjudication that might be superior to the class action form. The two alternative forms defendants suggest — individual prosecution of claims and NASD arbitration — are both impractical for the reasons just described. Because of the costs arbitration or litigation impose on small-stakes securities fraud plaintiffs, neither could result in any recovery for the vast majority of investors 44
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included in the class definition even if defendants’ liability is ultimately proved. As neither the defendants nor the Court can suggest a means of adjudicating plaintiffs’ claims that would be superior or even comparable to the efficiency and fairness of a class action, plaintiffs have satisfied the superiority requirement of Rule 23(b)(3). In re Initial Public Offering, 227 F.R.D. at 122. In short, certification of this litigation as a class action is superior to any other available method for the fair and efficient adjudication of the controversy. There is no doubt that, absent certification, many of the Class members who were injured by the defendants’ wrongdoing would never receive compensation for any of their losses. (See Smit Declaration at ¶ 20.) Such a result flies in the face of the notions of fundamental fairness and justice that underlie Rule 23, and should be rejected by this Court in favor of certifying the Class. III.
LEAD PLAINTIFFS’ SELECTION OF CLASS COUNSEL SHOULD BE APPROVED PURSUANT TO RULE 23(g) OF THE FEDERAL RULES OF CIVIL PROCEDURE
Rule 23(g) requires a court certifying a class to appoint class counsel. In making this determination, the Court must consider: •
The work counsel has done in identifying or investigating potential claims in the action,
•
Counsel’s experience in handling class actions, other complex litigation, and claims of the type asserted in the action,
•
Counsel’s knowledge of the applicable law, and
•
The resources counsel [has and] will [continue to] commit to representing the class.
Fed. R. Civ. P. 23(g). In addition to the factors enumerated above, the Court may consider other factors that it deems relevant to evaluating counsel’s adequacy. Id.
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It is not yet clear how new Rule 23(g) will apply, if at all, in the context of this or any securities class action otherwise governed by the PSLRA.31 Assuming for these purposes that this Court must make a Rule 23(g) determination as part of the class certification process regardless of the operation of the PSLRA, Lead Plaintiffs submit that Lead Counsel has demonstrated its superiority under the criteria listed above as well as any other factors that the Court may wish to consider pursuant to the Rule 23(g). Lead Plaintiffs respectfully incorporate Section I(D) of this Memorandum into this Section in support of Entwistle & Cappucci’s adequacy to be appointed as Class Counsel under Rule 23(g).32
31
The recently added Fed. R. Civ. P. 23(g) addresses the adequacy of proposed class counsel. There are few decisions evaluating the adequacy of proposed class counsel pursuant to Rule 23(g). Courts, however, have noted that Rule 23(g) “largely incorporates the adequacy standards developed [under Rule 23(a)(4)], which means that class counsel decisions premised on Rule 23(a)(4) remain relevant.” Jones v. Ford Motor Credit Co., No. 00-Civ.8330 (KNF), 2005 U.S. Dist. LEXIS 5381, at *81 (S.D.N.Y. Mar. 31, 2005). In the context of this securities class action, the Court’s appointment of Lead Counsel pursuant to the PSLRA obviates the need to evaluate counsel under Rule 23(g). See Fed. R. Civ. P. 23(g) Advisory Committee Note to the 2003 Amendments, (“Paragraph (1)(A) does not apply if ‘a statute provides otherwise.’ This recognizes that provisions of the Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (1995) (codified in various sections of 15 U.S.C.), contain directives that bear upon the selection of a lead plaintiff and the retention of counsel. This subdivision does not purport to supersede or to affect the interpretation of those provisions, or any similar provisions of other legislation.”) (Emphasis added). 32
A copy of Entwistle & Cappucci’s firm resume is attached as Exhibit 11 to the Entwistle Affidavit.
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CONCLUSION For all of the foregoing reasons, Lead Plaintiffs respectfully request that the Court grant Lead Plaintiffs’ Motion for Class Certification, Appointment of Class Representatives and Appointment of Class Counsel in its entirety by entering the [Proposed] Order submitted concurrently herewith. Dated: September 30, 2005 /s/ Andrew J. Entwistle, Esq. (AE-6513) Johnston de F. Whitman, Jr., Esq. (JW-5781) Stephen D. Oestreich, Esq. (SO-8933)(Of Counsel) Richard W. Gonnello, Esq. (RG-7098) Helen Chung, Esq. (HC-3552) Michael D. Keenan, Esq. (MK-1857) ENTWISTLE & CAPPUCCI LLP 299 Park Avenue, 14th Floor New York, NY 10171 (212) 894-7200 Lead Counsel for Lead Plaintiffs, the Public Employees’ Retirement Association of Colorado and Generic Trading of Philadelphia, LLC Andrew Radding, Esq. (Bar No. 00195) Gregory M. Kline, Esq. (Bar No. 14363) ADELBERG, RUDOW, DORF & HENDLER, LLC 600 Mercantile Bank & Trust Building 2 Hopkins Plaza Baltimore, MD 21201 (410) 539-5195 Liaison Counsel for Plaintiffs Public Employees’ Retirement Association of Colorado and Generic Trading of Philadelphia, LLC
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SHALOV STONE & BONNER LLP Ralph M. Stone, Esq. 485 Seventh Avenue Suite 1000 New York, New York 10018 Tel: 212-239-4340 Counsel for Itzehoer Aktien Club GbR MILBERG WEISS BERSHAD & SCHULMAN LLP Sanford P. Dumain, Esq. Jennifer S. Czeisler, Esq. One Pennsylvania Plaza New York, New York 10119 Tel: 212-594-5300 Counsel for Union Asset Management Holding AG MURRAY, FRANK & SAILER LLP Eric J. Belfi, Esq. 275 Madison Avenue New York, New York 10016 Tel: 212-682-1818 Counsel for Deka Investment GmbH
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