Member Article

Two Class Certification Denials Reinforce Rule 23 Adequacy Principles, While Exposing the Fiction of “Lead Plaintiff Groups” Introduction A decade ago, William S. Lerach, of Milberg Weiss Bershad Hynes & Lerach, infamously declared, “I have the greatest practice of law in the world. . . . I have no clients.” One of the principal purposes of the Private Securities Litigation Reform Act of 1995 (the “PSLRA” or “Reform Act”) was to change that: the requirement that courts appoint a lead plaintiff at the outset of a putative securities class action was part of “Congress’s emphatic command that competent plaintiffs, rather than lawyers, direct such cases.” Congress hoped to curtail the pursuit of unmeritorious, lawyer-driven class actions by requiring trial courts to entertain competing motions by prospective lead plaintiffs. However, the legislative goal that expensive putative class suits be assessed and pursued by the shareholder with the greatest financial stake has frequently failed, as institutional investors have often refrained from seeking lead plaintiff status. In such circumstances, numerous courts have allowed plaintiffs’ firms to cobble together competing “lead plaintiff groups” through the artificial aggregation of the purported losses of disparate individuals. Many courts have also held that defendants have no voice whatsoever in challenging this process. Judicial measures to oversee the fiduciary efforts of these artificial “groups” vary widely from court to court. Meanwhile, the number of federal securities class actions filed annually has increased to reach numbers exceeding pre-Reform Act levels.