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In a significant win for class action plaintiffs’ lawyers, a federal judge has ruled that the required published notice of a shareholders’ lawsuit need not contain a “wastefully extensive” description of the exact dates, content and individualized impact of every alleged misrepresentation and omission, but instead need only provide “a summary of the legal and factual basis of the claims.” In his 21-page opinion in Marsden v. Select Medical Corp., U.S. District Judge J. Curtis Joyner rejected a defense motion alleging that a notice published by Milberg Weiss Bershad & Schulman failed to satisfy the requirements of the Private Securities Litigation Reform Act. Joyner found that the notice published by Milberg Weiss “adequately summarizes the allegations in the complaint, without overwhelming readers with a flood of detail.” The suit was filed in August 2004 on behalf of investors who purchased Select Medical stock between July 29, 2003, and May 11, 2004. It alleges that SMC artificially inflated its stock prices by means of material misstatements and omissions.Specifically, the suit alleges that SMC misled investors by emphasizing its strong financial performance while failing to disclose the imminent possibility of changes to Medicare reimbursement regulations, which would negatively impact the company’s financial success. Under the PSLRA, a plaintiff must, within 20 days of the filing a complaint, publish a notice of the pendency of the suit in a “widely circulated national business-oriented publication or wire service.” The purpose of the publication requirement is to alert other investors who may be interested in seeking to be named lead plaintiff. After Milberg Weiss published a notice of the Marsden case in the Sept. 10, 2004, edition of Investor’s Business Daily, lawyers for SMC filed a motion asking Joyner to declare that the notice was “inadequate.” In the motion, attorneys Stuart T. Steinberg, Michael L. Kichline and Jared Hosid of Dechert argued that the notice omitted critical information about the two named plaintiffs and their holdings, the legal standards governing lead plaintiff motions, the location of the courthouse and the name of the judge to whom the case was assigned, and the specific misstatements and omissions underlying the plaintiffs’ claims. The Dechert team also argued that the notice was an “impermissible advertisement” for Milberg Weiss which undermined the objectives of the PSLRA by focusing on self-promotion rather than empowerment of potential lead plaintiffs. In response, plaintiffs’ attorneys argued that the Dechert motion should be rejected because it ignored “literally thousands” of cases in which courts have refused to read additional requirements into the PSLRA’s notice provisions, and relied on a handful of cases that found fault in a notice. “Defendants’ cited authority constitutes the extreme minority view and should not be adopted here,” plaintiffs’ attorneys Steven G. Schulman, Sanford P. Dumain and Andre V. Rado of Milberg Weiss argued. Now Joyner has sided completely with the plaintiffs’ lawyers, finding that the published notice met all of the requirements of the PSLRA, and that all of the defense complaints were invalid. Surveying the landscape of jurisprudence on the PSLRA published notice requirement, Joyner found that most courts have “taken the minimal requirements … at face value,” and have summarily found that the requirement is satisfied by timely publication that alerts investors to the 60-day period in which they may move for appointment as lead plaintiff. Joyner found that the few courts that have addressed the issue in greater detail “have typically found that the full extent of a noticing plaintiff’s obligations must be informed by the underlying goals of the PSLRA notice provision.” The most persuasive decision so far, Joyner found, was an opinion out of the Northern District of Alabama in Burke v. Ruttenberg, in which U.S. District Judge Karon O. Bowdre outlined three methods of interpreting the reach of the PSLRA notice requirement. If the requirements were construed broadly, Bowdre found they could be read to call for “full disclosure of all of the information relevant to the pendency of the action.” But Bowdre found that such a broad reading would impose significant costs on the noticing plaintiffs and appears to be “more than is required by the language” of the statute. At the other end of the spectrum, Bowdre said the law could be read to require only minimal information — that the suit is pending, that it asserts securities claims and that the class period extends between two dates. Bowdre found such a notice would be inadequate because it does not provide sufficient information from which potential lead plaintiffs could evaluate the action without turning to counsel or “fruitlessly” expending time and money searching out and reviewing the complaint. Instead, Bowdre settled on an intermediate method, requiring that notice provide merely enough information to permit reasonable investors to decide whether they wish to perform further investigation and to direct them to further sources of information. Bowdre found that such an interpretation fulfills the purposes of the notice requirement because “it gives members of the putative class sufficient information from which to make basic decisions about deciding whether to act as lead plaintiff while not requiring the named plaintiff, who may not be chosen lead plaintiff, to expend too many of his resources in publishing a notice that is wastefully extensive.” Joyner said he found the reasoning in Burke “highly persuasive.” Applying the same test, Joyner found that Milberg Weiss’ published notice of the Marsden case satisfied all of the law’s requirements. “A class member reading the Milberg Weiss notice would learn enough about the nature of the claims to determine his eligibility for lead plaintiff status and make a preliminary decision of whether to seek additional information, and would be able to obtain a copy of the complaint from the clerk’s office if he were so inclined,” Joyner wrote. Defense lawyers argued that the notice was of a “stealth character” because it was published “a random 17 days after the case was filed,” and was “bur[ied]” in Investor’s Business Daily rather than disseminated by a national wire service. Joyner flatly disagreed, saying the defense position was “utterly without merit” because Investor’s Business Daily “is a nationally circulated business-oriented publication catering to investors, and, as such, satisfies the publication requirement.” The notice, Joyner found, adequately informed class members of the pendency of the case by identifying the caption, the civil action number and the court. Defense lawyers complained that the notice failed to include the location of the courthouse and the name of the judge to whom the case was assigned, and that investors would therefore be discouraged from participating because they were forced “to figure it out for themselves.” Joyner disagreed, saying “surely an investor who reads the Investor’s Business Daily on a regular basis and is interested in being lead plaintiff in a class action securities suit is competent enough to consult a telephone directory to find the court’s address and phone number.” While it “might be helpful” for a PSLRA notice to include the name of the assigned judge, Joyner found it was not required because “a class member need not provide that information to get a copy of the complaint, and can readily discover the judge’s name by contacting the clerk’s office.” Joyner also rejected the defense argument that the Milberg Weiss notice was deficient because it did not identify the content or dates of the alleged misrepresentations. The suit, Joyner noted, identifies 12 dates on which SMC allegedly misrepresented the strength of its operations while failing to disclose the possibility of a financial downturn if proposed Medicare rate changes were to be adopted. Although the Milberg Weiss notice did not include descriptions of each alleged misrepresentation or omission, Joyner found that it adequately summarized the allegations. “We believe that requiring named plaintiffs, who may not ultimately be chosen as lead plaintiffs, to expend the resources required to publish a ‘wastefully extensive’ notice containing the exact date, content and individualized impact of each of 12 or more misrepresentations and omissions is beyond the contemplation of the PSLRA,” Joyner wrote.

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