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Makhlouf v. Tailored Brands, Inc.

United States District Court, S.D. Texas, Houston Division

March 23, 2017

PETER MAKHLOUF, Individually and on Behalf of all others Similarly situated, Plaintiff,


         Pending before the Court in the above referenced Federal Rule of Civil Procedure 23(a) and (b)(3) securities class action on behalf of all persons who purchased or otherwise acquired Tailored Brands, Inc.[1] (“TLRD”) securities between June 18, 2014 and December 9, 2015 (the “Class Period”), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act (“Exchange Act”) of 1934 against TLRD and its CEO, Douglas S. Ewert, are the following motions: (1) motion of Jacksonville Police and Fire Pension Fund (“Jacksonville”) and Oklahoma Police Pension and Retirement System's (“OPPRS', ” collectively, the “Funds'”) motion for appointment of the Funds to serve as Lead Plaintiffs and for approval of Bernstein Liebhard, LLP as Lead Counsel, and of The Bilek Law Firm, LLP to serve as Liaison [local] Counsel, pursuant to 15 U.S.C. § 78u-4, as amended by the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) (instrument #7); (2) Strathclyde Pension Fund's (the “Pension Fund's”) motion for appointment of the Pension Fund as Lead Plaintiff and approval of the Pension Fund's selection of Robbins Geller Rudman & Dowd, LLP as Lead Counsel and Edison McDowell & Hetherington LLP as Local Counsel (#10); and (3) The Pension Fund's motion to strike the sur-reply [titled “Supplemental Submission, ” #40] or, in the alternative, for leave to respond to the sur-reply (#41).

         This federal securities suit arises out of the contentious acquisition by TLRD of one-time rival Joseph A. Bank Clothiers, Inc. (“JOS”) and optimistic, but allegedly misleading, statements made during it. Ultimately TLRD purchased JOS, which was subsequently determined to be a deeply troubled company, at an excessive price, with the integration not proceeding as materially misrepresented to TLRD shareholders and with adverse facts not disclosed to them during the Class Period. TLRD's stock became artificially inflated, Class members purchased it at highly inflated prices, and they suffered economic loss when revelations of its actual financial situation reached the market.

         Applicable Law: the PSLRA

         Pursuant to 15 U.S.C. § 78u-4(a)(3)(B)(I) of the PSLRA, which amended the Exchange Act by adding Section 21D, 15 U.S.C. § 78u-4, in class actions under the federal securities laws “the court shall consider any motion made by a purported class member” in determining the adequacy of a proposed lead plaintiff or proposed small, cohesive group of lead plaintiffs to oversee the class action. In re Waste Management, Inc. Securities Litigation, 128 F.Supp.2d 401, 409 (S.D. Tex. 2000). Initially there is a presumption that the plaintiff or cohesive group of plaintiffs with the largest financial interest in the outcome of the litigation is the “most adequate” Lead Plaintiff, 15 U.S.C. § 78u-4(a)(3)(B)(iii). Id. That presumption may be rebutted if a member of the purported plaintiff class proves that the proposed individual or entity will not fairly and adequately protect the interests of the class or that the proposed Lead Plaintiff is subject to unique defenses that make him, her, it or them incapable of adequately representing the class. Id., citing 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

         Moreover, the Lead Plaintiff or Plaintiffs must not only have the largest financial interest in the outcome of the suit, but must also meet the four requirements of Federal Rule of Civil Procedure 23(a):

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

Id. at 411. The plaintiff seeking appointment as Lead Counsel or certification as class representative bears the burden of affirmatively proving that it satisfies the requirements of Rule 23. Berger v. Compaq Computer, 257 F.3d 475, 481 (5th Cir. 2001). Nevertheless the distinction between a Lead Plaintiff, the prerequisites for which or whom are set out in the PSLRA, and a Rule 23-qualified class representative, is clarified by the Second Circuit:

Nothing in the PSLRA indicates that district courts must choose a lead plaintiff with standing to sue on every available cause of action. Rather, because the PSLRA mandates that courts must choose a party who has, among other things, the largest financial stake in the outcome of the case, it is inevitable that, in some cases, the lead plaintiff will not have standing to sue on every claim. See In re Initial Pub. Offering Sec. Litig., 214 F.R.D. 117, 123 (S.D.N.Y. 2002)(“[T]he fact that the lead plaintiff is to be selected in accordance with objective criteria that have nothing to do with the nature of the claims . . . strongly suggests the need for named plaintiffs in addition to any lead plaintiff.”)

Havesi v. Citigroup, Inc., 366 F.3d 70, 82 (2d Cir. 2003); see also Tanne v. Autobytel, Inc., 226 F.R.D. 659, 669 (C.D. Cal. 2005)(quoting Havesi)(“Irrespective of the lead plaintiff's standing . . ., the class may pursue any claim that at least one named plaintiff has standing to pursue.”); Greater Pennsylvania Carpenters Pension Fund v. Whitehall Jewellers, Inc., No. 04 C 1107, 2005 WL 61480, *7 (N.D. Ill. Jan. 10, 2005)(quoting Havesi). The Second Circuit further noted,

Also, considering that the role of the lead plaintiff is “to empower investors so that they--not their lawyers--exercise primary control over private securities litigation.” S. Rep. No. 104-98, at 4 (1995), reprinted in 1995 U.S.C.A.A.N. 679, 683, any requirement that a different lead plaintiff be appointed to bring every single available claim would contravene the main purpose of having a lead-plaintiff--namely to empower one or several investors with a major stake in the litigation to exercise control over the litigation as a whole. See In re Initial Pub. Offering Sec. Litig., 214 F.R.D. at 123 (“The only other possibility--that the court should cobble together a lead plaintiff group that has standing to sue on all possible causes of action--has been rejected repeatedly by courts in the Circuit and undermines the purpose of the PSLRA”). . . .

Id. at 82 n.13. The Second Circuit further observed, “[T]he PSLRA does not in any way prohibit the addition of named plaintiffs to aid the lead plaintiff in representing a class.” Id. at 83. See also In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267, 286 (S.D.N.Y. 2003)(“The PSLRA does not prohibit the addition of named plaintiffs to aid Lead Plaintiff in representing the class. . . . The PSLRA lead plaintiff provisions ensure that the securities litigation is driven by investors; it is not . . . a substitute for the class certification process.”), appeal granted in part on other grounds, Havesi, 366 F.3d 70.

         Thus, “[w]hile . . . lead plaintiffs appointed pursuant to the PSLRA need not satisfy all elements of standing with respect to the entire lawsuit, the selection of lead plaintiffs does not remove the basic requirement that at least one named plaintiff must have standing to pursue each claim alleged.” In re Salomon Analyst Level 3 Litig., 350 F.Supp.2d 477, 496 (S.D.N.Y. 2004)(citing the following cases: In re Global Crossing Sec. Litig., 313 F.Supp.2d 189, 205 (S.D.N.Y. 2003)(“Lead Plaintiffs have a responsibility to identify and include named plaintiffs who have standing to represent the various potential subclasses who may be determined . . . to have distinct interests or claims”); In re WorldCom Sec. Litig., 294 F.Supp.2d at 422; In re IPO Sec. Litig., 214 F.R.D. 117, 122-23 (S.D.N.Y.); Lewis v. Casey, 518 U.S. 343, 358 n.6 (1996)(plaintiffs with one sort of injury lack standing to challenge a different, though perhaps related, injury because “standing is not dispensed in gross”); Griffin v. Dugger, 823 F.2d 1476, 1483 (11th Cir. 1987)(“a claim cannot be asserted on behalf of a class unless at least one named plaintiff has suffered the injury that gives rise to that claim.”).

         While defendants at this stage of the litigation lack standing to challenge the plaintiffs' motions to appoint Lead Plaintiff, they may subsequently in a class certification hearing object to the adequacy of any proposed person or group of persons as Lead Plaintiff. Waste Management, 128 F.Supp.2d at 409-10. Under the PSLRA the Court has supervisory power and may sua sponte consider the adequacy of any proposed Lead Plaintiff, and it has an independent duty to evaluate the appointment of lead counsel. Id. at 410.

         Under 15 U.S.C. § 78u-4(a)(3)(B)(v)(“The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.”), the Lead Plaintiff selects and retains Lead Counsel to represent the class, subject to court approval, but the Court should not alter the Lead Plaintiff's choice of Lead Counsel unless it is necessary to “protect the interests of the [plaintiff] class.” Waste Management, 128 F.Supp.2d at 411. Plaintiff bears the burden of demonstrating his and his attorneys' adequacy. Berger, 257 F.3d at 480-81.

         After the filing of a complaint under § 21D of the Exchange Act, 15 U.S.C. § 78u-4(a)(3)(A)(I), a Plaintiff moving for appointment as Lead Plaintiff

shall cause to be published in a widely-circulated national business-oriented publication or wire service, a notice advising members of the purported class-
(I) of the pendency of the action, the claims asserted therein, and the purported class period;
(II) that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the Court to serve as lead plaintiff of the purported class.

         Thus a plaintiff need not be the first to file a complaint to be appointed Lead Plaintiff. If more than one suit is filed with nearly the same claims, only the plaintiff in the first-filed action is ...

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