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Labaton's Newest Bid to Lead Major Securities Fraud Action Rejected
New York Law Journal
July 22, 2008
For the second time in less than a week, class action law firm Labaton Sucharow has been reprimanded for overreaching in its attempts to lead a major securities fraud action.
Southern District of New York Judge John E. Sprizzo on Friday denied the firm's motion to add claims to the massive four-year-old class action In Re American International Group, 04 Civ. 8141, finding that the proposed addition of "new and unrelated" claims would create an uncertifiable class while placing substantial additional burdens on defendant American International Group.
"As is readily apparent here, lead plaintiff's Motion for Leave to Amend to add unrelated claims is a calculated attempt at judge shopping," Sprizzo wrote. "It seems apparent that lead plaintiff is trying to usurp lead plaintiff status over claims which are properly in front of other judges."
The decision came just three days after Southern District of New York Judge Jed S. Rakoff admonished Labaton Sucharow attorneys for perhaps not "fulfill[ing] their professional responsibilities" in their proposal of a co-lead plaintiff in In Re Monster Worldwide Securities Litigation, 07 Civ. 2237.
The present motion touched on multiple lawsuits, including the present action, commonly referred to as AIG I, as well as a series of separate more recent actions, collectively known as AIG II. In its motion, Labaton Sucharow sought to combine the claims of AIG I and AIG II.
The lead plaintiffs in AIG I, three Ohio public-employee retirement funds represented by Labaton Sucharow, claimed New York-based insurance giant AIG engaged in bid-rigging and accounting fraud from Oct. 28, 1999, through April 1, 2005.
Last month, lawyers from Labaton Sucharow filed a motion for leave to amend the AIG I complaint, proposing to add claims based on AIG's alleged writedowns this year "of more than $20 billion stemming from losses in its portfolio of credit default swaps" written by a company subsidiary.
The law firm argued, among other things, that damages from the new claims affect the AIG I class members and that adding the claims would result in significant efficiencies, citing the firm's already existent depository of more than 40 million AIG-related documents.
Numerous other institutional investors, however, had already initiated suits involving similar claims before other federal judges. Those plaintiffs, joined by defendant AIG, staunchly opposed Labaton Sucharow's motion.
"Labaton's motion now asks permission to combine these two very different cases into a single lawsuit under its sole authority -- drastically expanding a years' old case to subsume the independent AIG II actions and tack claims arising from the current credit crisis to the back end of an entirely unrelated lawsuit involving matters irrelevant to AIG II class members," Bernstein, Litowitz, Berger & Grossmann argued on behalf of Jacksonville Police & Fire Pension Fund, an AIG II plaintiff.
"Indeed, the impact of the subprime crisis at the heart of the AIG II action -- as well as Labaton's proposed amendment -- is widely understood to have first been experienced by the investing public in late 2006 and 2007."
Defendant AIG argued that the amendment would create discovery burdens, expand the class period by more than three years and concern both a new set of documents and a new theory of relief.
Sprizzo agreed with the opposition and denied the motion.
"These claims concern ... different time periods, different divisions of the company, different management, different alleged objectives, different disclosures, and different shareholders," the judge wrote. "This Court ... finds the additional burdens placed on defendants would result in undue prejudice."
Sprizzo also rejected Labaton Sucharow's claim that allowing the new claims to proceed would result in "significant efficiencies." Rather, the addition could lead to service and jurisdiction challenges while rendering the class uncertifiable based on the length of the class period or the lack of common questions.
Thomas A. Dubbs of Labaton Sucharow said his clients do not plan to appeal Sprizzo's ruling.
"The lead plaintiff believed that it was most efficient to put all of the claims against AIG in a single case and they also believed that their proposed definition of the proposed class would represent the largest number of investors," Dubbs said in an interview. "However, the district judge in his discretion disagreed. We respect his ruling and will not take further action with respect to this decision."
Daniel J. Kramer of Paul, Weiss, Rifkind, Wharton & Garrison represented AIG. Kramer had no immediate comment.
Gerald R. Silk of Bernstein Litowitz declined to comment.
Sean M. Handler of Schiffrin, Barroway, Topaz & Kessler represented plaintiff-intervenor pension fund Chief James Connolly. Handler could not be reached for comment.
