SOUTHERN DISTRICT OF FLORIDA SECURITIES … · LANCER RECEIVERSHIP CASE NO. 03-80612-MARRA/JOHNSON...
Transcript of SOUTHERN DISTRICT OF FLORIDA SECURITIES … · LANCER RECEIVERSHIP CASE NO. 03-80612-MARRA/JOHNSON...
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
CASE NO: 03-80612-CIV-Marra/Johnson
SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v.
MICHAEL LAUER, LANCER MANAGEMENT GROUP, LLC, and LANCER MANAGEMENT GROUP II, LLC, Defendants. and LANCER OFFSHORE, INC., LANCER PARTNERS, LP, OMNIFUND, LTD., LSPV, INC., and LSPV, LLC, Relief Defendants. __________________________________________/
RESPONSE OF THE CITCO GROUP LIMITED, CITCO FUND SERVICES
(CURACAO), N.V., CITCO FUND SERVICES (USA) INC., KIERAN CONROY, DECLAN QUILLIGAN, ANTHONY J. STOCKS, JOHN M.S.VERHOOREN
AND INTERCARIBBEAN SERVICES LTD. IN OPPOSITION TO THE RECEIVER’S MOTION TO APPROVE STIPULATION AND AGREEMENT OF SETTLEMENT
The Citco Group Limited, Citco Fund Services (Curacao), N.V., Citco Fund Services
(USA), Inc., Kieran Conroy, Declan Quilligan, Anthony J. Stocks, John M.S. Verhooren and
InterCaribbean Services Ltd. (collectively, the “Citco Defendants”), through undersigned
counsel, respectfully file this Response in Opposition to the Receiver’s Motion to Approve
Stipulation and Agreement of Settlement, and in support thereof state as follows:
Case 9:03-cv-80612-KAM Document 1939 Entered on FLSD Docket 08/20/2007 Page 1 of 10
1. The Citco Defendants are Defendants in certain ancillary and related proceedings
pending before this Court (Bruhl et al. v. PricewaterhouseCoopers International Limited II, et
al., Case No. 03-23044-CIV-MARRA) (the “Class action”) and before the Honorable Judge
Shira Scheindlin in the United States District Court for the Southern District of New York (The
Pension Committee of the University of Montreal Pension Plan et al. v. Banc of America
Securities, LLC et al., No. 1:05-CV-09016 (SAS) (FM)) (the “Montreal action”).1
2. The proposed Stipulation and Agreement of Settlement (the “Settlement
Stipulation”) for which the Receiver seeks the approval of this Court, purports to settle claims
against Defendants PricewaterhouseCoopers International Limited (“PwC-IL”) and
PricewaterhouseCoopers (Netherlands Antilles) (“PwC-NA”) in the Class action, the Montreal
action, and the separate action filed against these Defendants by the Receiver (the “PwC
proposed settlement”).
3. In the Class action case pending before this Court, the putative class Plaintiffs
filed a Motion for Preliminary Approval of Stipulation and Agreement of Settlement, seeking
approval of the same Settlement Stipulation that the Receiver is seeking approval for in this
receivership action.
4. The Citco Defendants oppose the Settlement Stipulation in that it is highly
prejudicial to the interests of the non-settling Defendants, including the Citco Defendants, in the
Class action and the Montreal action, for many reasons.
1 The Receiver also sued certain of the Citco Defendants in an action styled Court Appointed Receiver of Lancer Offshore, Inc. and The OmniFund Ltd. v. The Citco Group Ltd., et al., Case No. 05-60080-CIV-MARRA, and separately sued PricewaterhouseCoopers (Netherlands Antilles), PricewaterhouseCoopers International Limited, and three individuals, in an action styled Court Appointed Receiver of Lancer Offshore, Inc. and The OmniFund, Ltd. v. Pricewaterhouse Coopers (Netherlands Antilles) et al., Case No. 04-23023-CIV-MARRA.
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5. For instance, the PwC proposed settlement purports to require significant judicial
labor on the part of this Court, notwithstanding that the settlement primarily benefits the
Plaintiffs in the Montreal action. Of the total $22.5 million settlement funds, the Montreal
Plaintiffs are to receive $16.25 million, while the putative class action Plaintiffs are to receive
only $6.25 million. The Montreal Plaintiffs comprise over 73% of the net invested capital of the
Lancer Funds, yet the PwC proposed settlement requires significant judicial labor on the part of
this Court, requiring this Court to hold hearings and briefings on the issue of certification of the
putative class in the Class action, to oversee the notice aspects of the settlement, and to
potentially resolve disputes relating to the distribution of the settlement funds. This Court is also
being asked to review and implement a bar order in the Class action case which is patently
overbroad and unfair to the non-settling Defendants. These efforts will significantly prejudice
the Citco Defendants, who will be required to litigate the class certification issue prematurely
and risk being bound by the certification of a settlement class at this early stage in the litigation,
and who will be bound by any bar order implemented as a part of the settlement.
6. Additionally, the PwC proposed settlement also purports to require significant
oversight by the Receiver, at the expense to the Receivership estate, with respect to a settlement
that will primarily benefit the Plaintiffs in the Montreal action. Specifically, the Settlement
Stipulation requires the Receiver to administer the settlement subject to the jurisdiction of this
Court. It further requires the Receiver to supervise the claims process, determine the propriety of
individual claims, and calculate the appropriate distributions of the settlement funds, for which
the Receiver and his attorneys will charge significant fees. Thus, the Receivership estate will
bear the brunt of the expenses of the administration of the settlement, even though the Montreal
Plaintiffs are the primary beneficiaries of the PwC proposed settlement.
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7. The terms of the settlement also purport to require this Court to enter a bar order
which precludes the Citco Defendants from bringing claims against persons who are not parties
to this action, which precludes the Citco Defendants from bringing claims that they are legally
entitled to pursue, and which does not contain an appropriate judgment credit as required by law.
The settlement would unjustifiably permit PwC-NA, the auditor of the Lancer Funds that issued
unqualified audit opinions on the Funds’ financial statements upon which the Plaintiffs’
allegedly relied, and its parent company, PwC-IL, to extricate their U.S. affiliate and potential
deep pocket from any liability to any party, including the Citco Defendants, notwithstanding
clear evidence of that U.S. affiliate’s involvement with the work performed on behalf of the
Lancer Funds.
8. Finally, the settlement would require this Court to prematurely determine the
issue of certification of a class in the Class action, even though discovery has not been taken on
this issue and it is apparent even at this stage in the litigation that the prerequisites to class
certification can never be met, in that the Plaintiffs fail to meet the numerosity and adequacy
requirements of a class action.
9. The Citco Defendants have filed a Memorandum of Law in Opposition to
Plaintiffs’ Motion for Preliminary Approval of Stipulation and Agreement of Settlement in the
Class action, stating forth with specificity their reasons why the PwC proposed settlement should
not be approved by this Court. The Citco Defendants expressly adopt the arguments contained in
that Memorandum of Law, a copy of which is attached to this Response for the Court’s
convenience as Exhibit “A” hereto.
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10. Because the PwC proposed settlement is highly prejudicial to the non-settling
Defendants, including the Citco Defendants, this Court should decline to give approval to the
Settlement Stipulation as requested by the Receiver in this action.
CERTIFICATE OF SERVICE
I hereby certify that on August 20, 2007, I electronically filed the foregoing document
with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being
served this date on all counsel of record or pro se parties identified on the attached Service List
in the manner specified, either via transmission or Notices of Electronic Filing generated by
CM/ECF or in some other authorized manner for those counsel or parties who are not authorized
to receive electronically Notices of Electronic Filing.
GILBRIDE, HELLER & BROWN, P.A. By: __/s/_Lewis N. Brown____
Lewis N. Brown Fla. Bar No. 270008 [email protected] E. Feinberg Fla. Bar No. 371548 [email protected] M. Mullen Fla. Bar No. 0191957 [email protected] Biscayne Tower, Suite 1570 2 South Biscayne Blvd. Miami, Florida 33131 Phone: (305) 358-3580 Fax: (305) 374-1756
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LANCER RECEIVERSHIP CASE NO. 03-80612-MARRA/JOHNSON
MASTER SERVICE LIST
Christopher Martin Senior Trial Counsel U.S. Securities & Exchange Commission 801 Brickell Avenue - Suite 1800 Miami, Fl 33131
Michael Lauer, pro se Heidi Carens 7 Dwight Lane Greenwich, CT 06831
Heidi Carens 7 Dwight Lane Greenwich, CT 06831
Patricia Beary Office of the U.S. Trustee One Century Tower, Suite 1103 265 Church Street New Haven, CT 06510
James Sowka Office of the Assistant United States Trustee 51 SW 1st Avenue - Suite 1204 Miami, FL 33130
Ms. Nina Fiskaaen Controller, Nordea Liv Norge AS Folke Bernadottes vei 38 5147 Fyllingsdalen 1201 Bergen - NORWAY
Gregory L. McClelland McClelland & Anderson LLP 1305 S. Washington Avenue Suite 102 Lansing, MI 48910
Paul Gentilozzi Rocketsports, Inc. 3400 West Road East Lansing, MI 48823
David Blaylock, Esq. Glankler Brown, PLLC 1700 One Commerce Square Memphis, Tennessee 38103 Counsel for George R. Pidgeon, Sr.
Trisha D. Sindler Special Counsel U.S. Securities & Exchange Commission 801 Brickell Avenue - Suite 1800 Miami, Fl 33131
Jimmy Tsakni c/o Shari A. Brandt, Esq. Richard Spears Kibbe & Orbe, LLP One World Financial Center New York, NY 10281
David Newman c/o Timothy E. Hoeffner 1500 Market street 38th Floor Philadelphia, PA 19102-2186
Frank Paul Terzo Katz Barron Squitero Faust 2699 S. Bayshore Drive Eight Floor Miami, FL 33133
Robert B. Lovett Seyfarth Shaw, LLP World Trade Center East Two Seaport Lane Boston, MA 02210 Counsel for Dean M. Willard
Noah J. Schafler, Esq. The Law Offices of David W. Rubin 600 Summer Street, Suite 201 Stamford, CT 06901
Kenneth B. Robinson, Esq. Rice, Pugatch, Robinson & Schiller, P.A. 101 NE Third Avenue, Suite 1800 Fort Lauderdale, FL 33301
Robert M. Dombroff, Esq. Jonathan Alter, Esq. Bingham McCutchen LLP One State Street Hartford, CT 06103
Michael Lobsinger Bay No. 4, 12110 40th Street SE Calgary, Alberta, Canada T2Z 4K6
Ronald B. Ravikoff, Esq. Matthew T. Davidson, Esq. Zuckerman Spaeder LLP 201 South Biscayne Boulevard Suite 900 Miami, Florida 33131-4326
Jane Serene Raskin Raskin & Raskin 2601 South Bayshore Drive Suite 600 Miami, FL 33133 Counsel for Dean M. Willard
Joshua W. Cohen Cummings & Lockwood 1 Audubon St., Suite 601 New Haven, CT 06511
Zi Corporation Attn: President Suite 2100, 840 - 7 Avenue SW Calgary, Alberta Canada T2P 3G2
Thomas D. Goldberg Day, Berry & Howard LLP One Canterbury Green Stamford, CT 06901
Barbara H.Katz Law Office of Barbara H. Katz 57 Trumbull Street New Haven, CT 06510
Michael R. Magasin Law Offices of Michael R. Magasin 3415 south Sepulveda Boulevard Penthouse Suite 1200 Los Angeles, CA 90034-6072
Joseph P. Moodhe Debevoise and Plimpton 919 Third Avenue New York, NY 10022
James M. Nugent, Esq. KFO Investors Partnership James M. Nugent Harlow, Adams & Friedman, P.C. 300 Bic Drive Millford, CT 06460
Case 9:03-cv-80612-KAM Document 1939 Entered on FLSD Docket 08/20/2007 Page 6 of 10
Clayton Cunningham P.O. Box 1796 El Segundo, CA 90245
Thaddeus E. Delonis, CPA 290 Towne Center Drive Troy, MI 48084 -1774
Timothy W. Walsh Piper Rudnick LLP 1251 Avenue of the Americas New York, NY 10020-1104
Garry M. Graber c/o Joseph Galda, Esq. Corsair Advisors, Inc. 497 Delaware Avenue Buffalo, NY 14202
Leonard H. Hecht 1270 Avenue of the Americas Suite 214 New York, NY 10020
W. Todd Boyd, Esq. Boyd Mustelier Smith & Parker, P.L. 100 S.E. Second Street. 36th Floor Miami, Florida 33131
Kenneth Marcus 255 East 49 Street Apartment 8B New York, NY 10017
Kenneth G. M. Mather, Esq. Hinshaw & Culbertson 100 S. Ashley Drive Suite 830 Tampa, Florida 33602-5348
Robert Wayne Pearce, Esq. Robert Wayne Pearce, P.A. 1499 W. Palmetto Park Road, #300 Boca Raton, FL 33486
Mr. Morton Sherman 560 Landsdowne Avenue Westmount (Quebec) H3Y 2V6
Lawrence S. Block, Esq. Kenmar Group Inc. 900 King Street, Suite 100 Rye Brook, NY 10573 Counsel for Kenmar Advisory Corp., and Kenmar Management Ltd.
Meghan M. Hart Seyfarth Shaw, LLP World Trade Center Eqast Two Seaport Lane Boston, MA 02210 Counsel for Dean M. Willard
Barry E. Steiner Capitalink, L.C. 4400 Biscayne Blvd. 14th Floor Miami, FL 33137 [email protected]
Zi Corporation c/o Milos Djokovic Zi Corporation of Canada, Inc. Suite 2100, 840 - 7 Avenue SW Calgary, Alberta, T2P 3G2 Canada
Burnett, Duckworth & Palmer LLP c/o Doug A. McGillivray Suite 1400, 350-7 Avenue SW Calgary, Alberta, Canada T2P 3N9
Case 9:03-cv-80612-KAM Document 1939 Entered on FLSD Docket 08/20/2007 Page 7 of 10
Michael Lauer, pro se 7 Dwight Lane Greenwich, CT 06831 [email protected]
Scott M. Berman, Esq. Anne E. Beaumont, Esq. Friedman, Kaplan,Siiler & Adelman LLP 1633 Broadway , 46th Floor New York, NY 10019-6708 [email protected]/[email protected]
Paul Wallace 9701 S. Bexley Drive Littleton, CO 80126 [email protected]
Christopher Martin Senior Trial Counsel U.S. Securities & Exchange Commission 801 Brickell Avenue - Suite 1800 Miami, Fl 33131 [email protected]
David Cimo Esq. Genovese Joblove & Battista, P.A. Bank of Tower, 36th Floor 100 S.E. 2nd Street Miami, FL 33131 [email protected]
Travis Corder Brown Rudnick Berlack Israels One Financial Center Boston, MA 02111 [email protected]
Bill McCowen Metamora Multi Managers L.L.C. [email protected]
Mr. Helge Syrstad Vesta Forsikring AS P.O. Box 7070 5020 Bergen - NORWAY [email protected]
David P. Milian, Esq. Harley S. Tropin, Esq. Kozyak Tropin & Throckmorton, P.A. 2525 Ponce de Leon Coral Gables 33134 [email protected]/[email protected]
Eric A. Henzy, Esq. Reid and Riege, P.C. One Financial Plaza Hartford, CT 06103 [email protected]
Aaron Podhurst, Esq. Podhurst, Orseck, Josefsburg, Eaton, Meadow, Olin & Perwin, P.A. 25 West Flagler Street - Suite 800 Miami, Florida 33130 [email protected]
Joel H. Bernstein, Esq. Lynda Grant Labaton Sucharow & Rudoff LLP 100 Park Avenue New York, New York 10017 [email protected]/ [email protected]
Roberto Martinez, Esq. Colson Hicks Eidson P.A. 255 Aragon Avenue, 2nd Floor Coral Gables, FL 33134 [email protected]
Joseph Matthews, Esq. Colson Hicks Eidson P.A. 255 Aragon Avenue, 2nd Floor Coral Gables, FL 33134 [email protected]
Carol Felicetta Reid and Riege, P.C. 195 Church Street, 15th Floor New Haven, CT 06510 Counsel for Equity Committee [email protected]
David L. Snyder, Esq. Neuberger, Quinn, Gielen, Rubin & Gibber One South Street, 27th Floor Baltimore, MA 21202-3282 [email protected]/[email protected]
Rudolph F. Aragon, Esq. White & Case Wachovia Financial Center, Suite 4900 200 South Biscayne Boulevard Miami, Florida 33131-2352 [email protected]
Salvatore A. Barbatano, Esq. Foley & Lardner One Detroit Center 150 W. Jefferson, Suite 1000 Detroit, MI 48226-2616 [email protected]
Lewis N. Brown Dyanne E. Feinberg, Esq. Gilbride, Heller & Brown, PA. One Biscayne Tower, Suite 1570 Two South Biscayne Blvd. Miami, Florida 33131 [email protected]
Andrew L. Jiranek McKennon Shelton & Henn LLP 401 East Pratt St., Suite 2315 Baltimore, Md. 21202 [email protected]
Richard E. Johnston Fasken Martineau DuMoulin LLP Patent & Trade Mark Agents P.O. Box 20, Toronto Dominion Centre 66 Wellington St. W, 37th Floor Toronto, Ontario M5K 1N6 Canada [email protected]
Mr. Dylan Wolff Managing Director Norges Investor Value P.O. Box 1863 Vika 0124 Oslo - NORWAY [email protected]
Seth M. Schwartz, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 [email protected].
John Hochman, Esq. Schindler Cohen & Hochman LLP 100 Wall Street, 15th Floor New York, New York 10005 [email protected]
Robert Pershes, Esq. Buckingham, Doolittle & Bouroughs, LLP 5355 Town Center Road, Suite 900 Boca Raton, FL 33486 [email protected]
Paul Steven Singerman Berger Singerman 200 S. Biscayne Blvd., Suite 1000 Miami, Florida 33131 [email protected]
Robert T. Wright, Esq. Coffey & Wright, LLP Grand Bay Plaza Penthouse 2B 2665 S. Bayshore Drive Miami, FL 33133 [email protected]
William R. Maguire, Esq. Jeffrey Greilsheimer, Esq. Hughes Hubbard & Reed, LLP One Battery Park Plaza New York, NY 10004 [email protected] [email protected]
Jacqueline Wilson British Virgin Islands Financial Services Commission Pasea Estate, Road Town Tortola, British Virgin Islands [email protected]
Kevin E. Gunther 27 Reid Street, 1st Floor P.O. Box HM 3051 Hamilton HM NX Bermuda [email protected]
Case 9:03-cv-80612-KAM Document 1939 Entered on FLSD Docket 08/20/2007 Page 8 of 10
William S. Fish, Esq. William H. Champlin, Esq. Tyler Cooper & Alcorn, LLP 185 Asylum St., CityPlace 35th Floor Hartford, CT 06103 [email protected]/[email protected]
Robert E. Grossman/Scott S. Balber Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112 [email protected]/ [email protected] Counsel for Amatra and Ajial
Michael Budwick Esq. Meland, Russin & Budwick, P.A. 3000 First Union Financial Center 200 South Biscayne Boulevard Miami, Florida 33131 [email protected]
Kristina M. Bakardjiev, Esquire Goldstein, Tanen & Trench, P.A. One Biscayne Tower, Suite 3700 2 South Biscayne Boulevard Miami, FL 33131 [email protected]
J. Bruce MaffeoMeyer, Suozzi, English & Klein, P.C. 1350 Broadway, Suite 501 New York, NY 10018 Counsel for Martin Garvey [email protected]
Jonathan M. Borg Piteny Hardin Kipp & Szuch LLP 7 Times Square New York, NY 10036-7311
Peter Vigeland WilmerHale 399 Park Avenue New York, NY 10022 [email protected]
Mark A. Salzberg Foley & Lardner Washington Harbour, Suite 500 3000 K Street N.W. Washington, D.C. 20007-5109 [email protected]
William J. Barrett Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP 333 W. Wacker Drive, Suite 2700 Chicago, IL 60606 [email protected]
Drew M. Dillworth, Esq. Stearns Weaver Miller Weissler Alhadeff Sitterson 150 West Flagler Street, Ste 2200 Miami, FL 33130 [email protected]
David Barrack, Esq. Hal M. Hirsch, Esq. Greenberg Traurig, LLP Met Life Building 200 Park Avenue New York, NY 10166
Carl F. Schoeppl, Esq. Schoeppl & Burke, P.A. 4651 North Federal Highway Boca Raton, Florida 33431-5133 [email protected]
Michael A. Hanzman, Esq. Hanzman & Criden, P.A. Commerce Bank Building 220 Alhambra Circle - Suite 400 Coral Gables, Florida 33134 E-mail : [email protected]
Michael J. Dell, Esq. Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 E-mail: [email protected]
Donald Workman, Esq. Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. E-mail: [email protected]
Timothy P. Harkness, Esq. Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 E-mail: [email protected]
Daniel A. Casey, Esq. Kirkpatrick & Lockhart Miami Center - 20th Floor 201 S. Biscayne Blvd. Miami, FL 33131 E-mail: [email protected]
Gregory L. McClelland McClelland & Anderson LLP 1305 S. Washington Avenue Suite 102 Lansing, MI 48910 E-mail: [email protected]
Greg T. Arnold Brown Rudnick Berlack Israels One Financial Center Boston, MA 02111
E-mail: [email protected]
Susan V. Demers, Esq. Price Findlay & Co. Tropic Isle Building, BVI P.O. Box 3331 Road Town, Tortola British Virgin Islands e-mail: [email protected]
Jeffrey Greilsheimer, Esq. Hughes Hubbard and Reed, LLP One Battery Park Plaza New York, New York 10004 E-mail: [email protected]
Brian C. Courtney, Esq. Rome, McGuigan, Sabanosh, PC One State Street Hartford, CT 06103-3402
Dr. Dieter Zetsche DaimlerChrysler AG 70546 Stuttgart (Möhringen) Germany
Gerry LaBush, Esq. 711 Third Avenue Suite 1505 New York, New York 10017 Removed upon Request
Howard L. Siegel Brown Rudnick Berlack Israels LLP Cityplace I, 38th Floor 185 Asylum Avenue Hartford, CT 060103
Garry M. Graber Hodgson Russ LLP One M&T Plaza, Suite 2000 Buffalo, New York 14203
Gary S. Klein Sandak Hennessey & Greco 970 Summer Street Stamford, CT 06905
Anthony & Patricia O’Callagahan/ Christopher B. O’Callaghan/ Diane J. Nelson/John P. Heffernan Attn: Timothy T. Brock Satterlee Stephens Burke & Burke LLP 230 Park Avenue
Mercedes G. Hale Piper Rudnick LLP 101 E. Kennedy Boulevard, Suite 2000 Tampa, FL 33602
::ODMA\PCDOCS\MIAMI\236715\5
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Mark S. Gregory Delphine W. Knight Brown Kelley Drye & Warren LLP Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901
64036.000002 MIAMI 236715v5
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Case 9:03-cv-80612-KAM Document 1939-2 Entered on FLSD Docket 08/20/2007 Page 1 of 62
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
CASE NO.: 03-23044-CIV-MARRA
JOHN BRUHL, KEITH ROTMAN and SCOTT MALTZ, individually and on behalf of all others similarly situated,
Plaintiffs, vs. PRICEWATERHOUSECOOPERS INTERNATIONAL LIMITED II, PRICEWATERHOUSECOOPERS (NETHERLANDS ANTILLES), THE CITCO GROUP LIMITED, CITCO FUND SERVICES (CURACAO), N.V., KIERAN CONROY, DECLAN QUILLIGAN, ANTHONY J. STOCKS, JOHN M.S. VERHOOREN, JOHN W. BENDALL, JR., RICHARD GEIST, INTERNATIONAL FUND SERVICES (IRELAND) LIMITED, GOLDSTEIN GOLUB KESSLER LLP, and AMERICAN EXPRESS TAX AND BUSINESS SERVICES, Defendants. ________________________________________/
DEFENDANTS THE CITCO GROUP LIMITED, CITCO FUND
SERVICES (CURACAO), N.V., KIERAN CONROY, DECLAN QUILLIGAN, ANTHONY J. STOCKS AND JOHN M.S.VERHOOREN’S
MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFFS’ MOTION FOR PRELIMINARY APPROVAL OF STIPULATION AND AGREEMENT OF SETTLEMENT
Defendants, The Citco Group Limited, Citco Fund Services (Curacao), N.V., Kieran
Conroy, Declan Quilligan, Anthony J. Stocks and John M.S. Verhooren (collectively, the “Citco
Defendants”), through their undersigned counsel, respectfully file this Memorandum of Law in
Opposition to Plaintiffs’ Motion for Preliminary Approval of Stipulation and Agreement of
Settlement.
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INTRODUCTION
The putative class Plaintiffs seek preliminary approval of a settlement with Defendants,
PricewaterhouseCoopers International Limited II (“PwC-IL”) and PricewaterhouseCoopers
(Netherlands Antilles) (“PwC-NA”) that significantly prejudices the interests of the Citco
Defendants. The terms of the settlement purport to require this Court to enter a bar order which
precludes the Citco Defendants from bringing claims against persons who are not parties to this
action, which precludes the Citco Defendants from bringing claims that they are legally entitled
to pursue, and which does not contain an appropriate judgment credit as required by law. The
settlement would unjustifiably permit PwC-NA, the auditor of the Lancer Funds that issued
unqualified audit opinions on the Funds’ financial statements upon which the Plaintiffs’
allegedly relied, and its parent company, PwC-IL, to extricate their U.S. affiliate and potential
deep pocket from any liability to any party, including the Citco Defendants, notwithstanding
clear evidence of that U.S. affiliate’s involvement with the work performed on behalf of the
Lancer Funds. The settlement would also require this Court to prematurely certify a class, even
though discovery has not been taken on this issue and it is apparent even at this stage in the
litigation that the prerequisites to class certification can never be met. This Court should deny
the request for preliminary approval of the settlement for the reasons set forth below.1
1 It is well established that non-settling defendants have standing to object to a partial settlement where they can demonstrate that they will suffer some formal legal prejudice as a result of the partial settlement. Zupnick v. Fogel, 989 F.2d 93, 98 (2d Cir. 1993); In re School Asbestos Litig., 921 F.2d 1330, 1332 (3d Cir. 1990). “There is a consensus that a non-settling defendant has standing to object to a partial settlement which purports to strip it of a legal claim or cause of action, an action for indemnity or contribution for example.” Waller v. Fin. Corp. of Am., 828 F.2d 579, 582-83 (9th Cir. 1987); See also In re Masters Mates & Pilots Pension Plan and IRAP Litig., 957 F.2d 1020, 1031 (2d Cir. 1992) (“third party participation in an evidentiary fairness hearing and court approval of the settlement bar are necessary to protect the due process rights of third parties”).
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THE PREJUDICIAL TERMS OF THE PWC PROPOSED SETTLEMENT
The terms of the proposed settlement with PwC-NA and PwC-IL, as defined in the
Stipulation and Agreement of Settlement (the “Settlement Stipulation”) entered into between the
putative class Plaintiffs in this action, the Receiver of the Lancer Funds, PwC-NA, PwC-IL, and
certain individual PwC Defendants (the “PwC proposed settlement”) are highly prejudicial to the
Citco Defendants in many respects. The many prejudicial aspects of the settlement include the
following:
• The PwC proposed settlement purports to require significant judicial labor on the part of this Court notwithstanding that the settlement primarily benefits the Plaintiffs in the Montreal action
As this Court is aware, 98 individual investors, who purport to represent over 73% of the
net invested capital in the Lancer Funds, brought a separate action which was initially filed in the
Southern District of Florida, but was later transferred to the Southern District of New York at the
request of PwC-NA and with the agreement of counsel for the Plaintiffs in that action. That case
is styled The Pension Committee of the University of Montreal Pension Plan et al. v. Banc of
America Securities, LLC et al., No. 1:05-CV-09016 (SAS) (FM) (the “Montreal action”). The
PwC proposed settlement of $22.25 million will primarily benefit the Plaintiffs in the Montreal
action, who under the terms of the agreement are to receive at least $16.25 million of the
settlement, and may receive more depending upon certain contingencies.2 The putative class
2 Paragraph 13 of the Term Sheet detailing the PwC proposed settlement provides that each Montreal Plaintiff shall be entitled to an additional payment of such amount, if any, as is necessary to equalize that investor’s total pro rata recovery (before attorneys’ fees) from the settlement agreement with the recovery (before attorneys’ fees) of the settlement class members.
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Plaintiffs and the Receiver will receive a maximum of $6.25 million, subject to adjustments that
may reduce that amount.3
Despite the fact that the Plaintiffs in the Montreal action are to receive the lion’s share of
the settlement funds, the PwC proposed settlement requires significant judicial labor on the part
of this Court, requiring this Court to hold hearings and briefings on class certification, to oversee
the notice aspects of the settlement, and to potentially resolve disputes relating to the distribution
of the settlement funds. This Court is also being asked to review and implement a bar order
which is patently overbroad and unfair to the non-settling Defendants. These efforts will
significantly prejudice the Citco Defendants, who will be required to litigate the class
certification issue prematurely and risk being bound by the certification of a settlement class at
this early stage in the litigation, and who will be bound by any bar order implemented as a part of
the settlement.
• The PwC proposed settlement purports to require significant oversight by the Receiver, at expense to the Receivership estate, with respect to a settlement that will primarily benefit the Plaintiffs in the Montreal action
The Settlement Stipulation requires the Receiver to administer the settlement subject to
the jurisdiction of this Court. It further requires the Receiver to supervise the claims process,
determine the propriety of individual claims, and calculate the appropriate distributions of the
settlement funds, for which the Receiver and his attorneys will charge significant fees. Thus, the
Receivership estate will bear the brunt of the expenses of the administration of the settlement,
3 Paragraph 3 of the Term Sheet provides that this sum may be negatively adjusted for amounts paid or incurred and properly charged to the insurance that covers PwC-NA and PwC-IL for Lancer-related claims, as well as the adjustment to the Montreal Plaintiffs in paragraph 13.
4
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even though the Montreal Plaintiffs are the primary beneficiaries of the PwC proposed
settlement.
• The PwC proposed settlement purports to extinguish potential claims by the Citco Defendants against non-parties, purports to extinguish claims that may not properly be subject to a bar order, and fails to include appropriate safeguards to preserve these claims
The PwC proposed settlement purports to preclude the Citco Defendants from bringing
claims against non-parties to the litigation, in violation of the terms of the Private Securities
Litigation Reform Act (the “PSLRA”). The proposed Final Judgment of Dismissal with
Prejudice as to Defendants PwC-IL and PwC-NA (the “proposed Final Judgment”) provides that
non-settling Defendants, including the Citco Defendants, are permanently barred from bringing
any claim relating to the Lancer Funds against any “Released Person.” The PwC proposed
settlement defines “Released Person” to include not only PwC-NA and PwC-IL, but also “all
other firms that participate in the network of firms connected through membership or otherwise
in PwC-IL (the “PwC Member Network or Connected Firms”), and each of their current or
former partners, principals, directors officers, employees, agents, representatives, or others acting
on their behalf . . . .” As set forth in more detail below, one of PwC-IL’s affiliates,
PricewaterhouseCoopers LLP (“PwC-USA”) had significant involvement in work performed by
PwC-NA on behalf of the Lancer Funds, and the Citco Defendants object to releasing this non-
party, where the Citco Defendants are receiving no consideration for this release. In fact, the
release is not even reciprocal, where the proposed Final Judgment only bars PwC-NA and PwC-
IL from bringing claims against the non-settling Defendants.
Further, the proposed Final Judgment purports to bar claims not only for contribution
under the PSLRA, but also purports to bar indemnification claims and claims “under any other
legal theory.” The bar order far exceeds the permissible scope under the PSLRA. The proposed
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Final Judgment also fails to include an appropriate judgment credit, and to set forth the
methodology for this credit, as the PSLRA requires.
• The PwC proposed settlement requires the premature certification of a settlement class, notwithstanding that no discovery has been taken and that there are significant issues militating against certification of a class in this case
An additional problem with the PwC proposed settlement is that the putative class
Plaintiffs seek certification of a settlement class at this time. However, due to the PSLRA
discovery stay, there has been no discovery with respect to any issues in the case, including the
issue of class certification. The Citco Defendants should be entitled to take such discovery to
determine whether to oppose class certification. Further, there are several reasons why class
certification is likely inappropriate. The putative class Plaintiffs cannot satisfy the requirements
of Federal Rule of Civil Procedure 23. Clearly, the Plaintiffs cannot prove the requirement of
numerosity, where the Montreal action pending in New York has 98 individual investors as
Plaintiffs, representing over 73% of the net invested capital in the Lancer Funds. There are also
issues relating to the adequacy of the putative class representatives, where at least one of them is
a “net redeemer,” meaning that he has not suffered any monetary losses from his investment in
the Funds. For these reasons, set forth more fully below, the PwC proposed settlement should
not receive preliminary approval by this Court.4
4 The Settlement Stipulation provides that class action counsel may seek attorneys’ fees of up to 20% of the $6.25 million portion of the settlement. Yet, it is clear that the Montreal Plaintiffs’ counsel took the lead in negotiating the PwC proposed settlement, and in taking the confirmatory discovery contemplated by the settlement. The Settlement Stipulation also provides that class counsel may apply for reimbursement of 20% of the collective litigation expenses. This is another example of how the PwC proposed settlement will provide little benefit to the putative class.
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LEGAL ARGUMENT
A. The PwC Proposed Settlement Improperly Purports to Bar Claims by the Citco Defendants The PSLRA has stringent provisions governing the settlement of claims by only some of
the defendants. In such cases, a settling defendant is entitled to certain protection from future
claims, but is entitled only to the protections specifically afforded by the PSLRA’s provisions.
Paragraph 3(e) of the Settlement Stipulation, and paragraph 10 of the proposed Final Judgment,
contain language that extends far beyond the permissible scope of the PSLRA’s protections, in
that it purports to bar all Lancer-related claims by non-settling Defendants, including the Citco
Defendants, against “Released Persons,” which is defined to include not only PwC-NA and
PwC-IL, but also to include the PwC Member Network or Connected Firms. Specifically, the
proposed bar order is inappropriate because (1) it purports to release entities that are not
“covered persons” under the PSLRA and not parties to this action; (2) it purports to contain
releases that are not reciprocal; (3) it purports to release claims other than claims for
contribution; and (4) it fails to include a provision for a judgment credit under the PSLRA and to
set forth the methodology for the credit.
1. The PwC Proposed Settlement Purports to Release Entities that are not “Covered Persons” and are not Parties to this Action
15 U.S.C.A. § 78u-4(7)(A) provides:
A covered person who settles any private action at any time before final verdict or judgment shall be discharged from all claims for contribution brought by other persons. Upon entry of the settlement by the court, the court shall enter a bar order constituting the final discharge of all obligations to the plaintiff of the settling covered person arising out of the action. The order shall bar all future claims for contribution arising out of the action - -
(i) by any person against the settling covered person; and
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(ii) by the settling covered person against any person,
other than a person whose liability has been extinguished by the settlement of the settling covered person.
(Emphasis added). A “covered person” is defined by 15 U.S.C. § 78u-4(f)(10)(C), which
provides:
the term “covered person” means - -
(i) a defendant in any private action arising under this chapter; or
(ii) a defendant in any private action arising under section 77k
of this title, who is an outside director of the issuer of the securities that are the subject of the action; . . .
The language of the proposed Final Judgment in this case is inconsistent with the
PSLRA. The bar order purports to bar non-settling Defendants, including the Citco Defendants,
from bringing claims against a “Released Person.” The definition of “Released Person” in the
Settlement Stipulation includes not only the Defendants, PwC-NA and PwC-IL, but also includes
the PwC Member Network or Connected Firms. Thus, the bar order purports to require the Citco
Defendants to release non-parties, which are not covered persons under the PSLRA.
This purported release is significant, since one of the “Released Persons” includes PwC-
USA, an entity that was involved in the work performed by PwC-NA on behalf of the Lancer
Funds.5 As part of the confirmatory discovery relating to the PwC proposed settlement, Plaintiffs
in the Montreal action took the deposition of John Reville, a partner in the PwC-USA office in
New York. Mr. Reville confirmed that because of his prominence in the hedge fund industry, he
5 The Term Sheet attached as an exhibit to the Settlement Stipulation recites that “no PwC Member Network or Connected Firm with the exception of PwC-NA and the United States firm, PricewaterhouseCoopers LLP (“PwC USA”), participated in the performance of, or provided any audit evidence for, any Lancer audit engagement.” (Reville Deposition Ex. 19, Term Sheet, ¶ 2(B)).
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became involved with PwC-NA in valuation issues relating to securities in the Lancer Funds’
portfolio, thereby becoming a member of the audit staff on the audit of the 2001 financial
statements of Lancer Offshore.6 Prior to the issuance of an unqualified audit report on these
financial statements, Mr. Reville was directly involved in the exercise of auditor judgment that
led to conclusions reached by PwC-NA relating to the valuation of securities in the Lancer
Offshore portfolio. Mr. Reville provided guidance and reference materials to PwC-NA on the
valuation process, participated in conference calls with the parties, and communicated by e-mail
during the audit process. Additionally, Mr. Reville testified that two of his partners at PwC-USA,
Eddy Zuaiter and Philip Mannino, other hedge fund specialists, were involved in the valuation
process in connection with the 2001 audit and perhaps earlier. Further, Mr. Reville confirmed
that PwC-NA used an internal PwC data gathering group headquartered in New York to obtain
pricing data with regard to the Lancer Funds’ investments. Clearly, Mr. Reville’s deposition
establishes that PwC-USA was substantially and directly involved in the audit process relating to
the valuation of the Lancer Funds’ portfolio, which was a critical audit area. Therefore, assuming
arguendo the truth of the allegations in the putative class action Plaintiffs’ Third Amended
Complaint, PwC-USA significantly contributed to the alleged losses of the Lancer investors.
(See Excerpts of deposition of John Reville and exhibits attached hereto as Exhibit “A”).
In AAL High Yield Bond Fund v. Deloitte & Touche LLP, 361 F.3d 1305 (11th Cir.
2004), the district court had entered a bar order which not only barred claims by non-settling
defendants against the settling defendants, but also purported to bar claims against officers and
agents of the bankrupt corporation, who were not parties to the case. The Eleventh Circuit found
6 Initially, Mr. Reville attempted to deny his involvement with the Lancer Funds. He was then confronted with documents to the contrary clearly establishing his and PwC-USA’s role in connection with the Lancer Funds’ valuation issues and audit of Lancer Offshore’s financial statements.
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that the bar order was “exceedingly broad,” and remanded to the district court for the entry of an
order that was “reasonable, fair and equitable.” Id. at 1312. Here, where the bar order purports
to preclude the Citco Defendants from bringing claims against PwC-USA, which is not a party to
this action and is not a “covered person” under the PSLRA, this Court should decline to grant
preliminary approval of the PwC proposed settlement.
2. The PwC Proposed Settlement Purports to Contain Releases that are not Reciprocal Releases
Another significant problem with the PwC proposed settlement is that the releases
contained in the bar order are not reciprocal. Paragraph 10 of the proposed Final Judgment
provides that non-settling defendants are permanently barred from bringing any Lancer-related
claim against a “Released Person,” but the same paragraph then provides that only PwC-NA and
PwC-IL are permanently barred from bringing a claim against any of the non-settling defendants.
Thus, while the bar order purports to preclude the Citco Defendants from bringing claims against
PwC-USA, it does not contain a reciprocal bar to claims that might be brought by PwC-USA
against the Citco Defendants.
In In re Initial Public Offering Sec. Litig., 226 F.R.D. 186 (S.D.N.Y 2005), Judge
Scheindlin (the judge presiding over the Montreal action in New York) declined to approve a
proposed bar order which was not reciprocal. In that case, certain investors sued various
underwriters, securities issuers and the issuers’ directors involved in the initial public offerings
of 310 technology companies alleging a fraudulent scheme to inflate share prices. Investors in
298 of the cases agreed to settle with the issuers and the individual defendants. The settlement
agreement included a bar order, to which the underwriters objected. Concluding that the bar
order lacked mutuality, Judge Scheindlin observed, “were I to issue a bar order worded in this
way, plaintiffs could pursue the Issuers’ assigned claims (such as those for excess compensation)
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against the Underwriters, but the Underwriters could not pursue any claims against the Issuers.”
Id. See also Gerber v. MTC Elec. Techs. Co. Ltd., 329 F.3d 297, 308 (2d Cir. 2003) (vacating a
bar order as non-mutual/non-reciprocal, which precluded non-settling defendants from pursuing
claims of contribution and indemnity but permitted settling defendants to pursue such claims
against non-settling defendants); In re PNC Fin. Serv. Group, Inc., 440 F. Supp. 2d 421 (W.D.
Pa. 2006); Wisconsin Inv. Bd. v. Ruttenberg, 300 F. Supp. 2d 1210 (N.D. Ala. 2004); In re Rite
Aid Corp. Sec. Litig., 146 F. Supp. 2d 706, 730 (E.D. Pa. 2001).
In In re Rite Aid, the Eastern District Court of Pennsylvania concluded that the proposed
bar order was inadequate because it was not reciprocal. The court explained:
Taking the PSLRA’s contribution bar as a model, we find it proper that to the extent the Non-Settling Defendants are barred from bringing related actions against the Released Parties, part of the consideration for this bar must, for reasons of fairness, be a similar bar to claims against the Non-Settling Defendants by the Released Parties.
146 F. Supp. 2d at 730. Here, where the proposed releases barring claims by the Citco
Defendants against non-parties including PwC-USA are not reciprocal, the preliminary
settlement should not be approved by this Court.
3. The PwC Proposed Settlement Purports to Bar Claims Other than Claims for Contribution
15 U.S.C.A. § 78u-4(7)(A) provides that a bar order entered pursuant to the PSLRA
“shall bar all future claims for contribution arising out of the action . . . by any person against
the settling covered person.” The PwC proposed settlement purports to bar the non-settling
Defendants, including the Citco Defendants, from bringing “any claim relating to the Lancer
Entities or Partners for contribution and/or indemnification, or under any other legal theory,
regardless of how denominated, or any other claim arising out of or concerning the Lancer
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Entities or Partners, in this or any other action, against any Released Person.” (Proposed Final
Judgment, ¶ 10). Such an overly broad bar order is impermissible.
In AAL High Yield Bond Fund, the Eleventh Circuit vacated a bar order that it found to be
“exceedingly broad,” which purported to provide for a release of “all related present and future
claims,” beyond the scope of the PSLRA and its mandated release of only contribution claims.
The court found that the district court had expressed no rationale or authority for barring
independent claims. 361 F.3d at 1312. Similarly, in In re Initial Public Offering Sec. Litig.,
Judge Scheindlin refused to accept a proposed bar order that sought to bar claims other than
claims for contribution, stating: “The PSLRA’s settlement discharge provision both mandates a
mutual bar order and limits the scope of that bar order to contribution claims. This Court has
no authority to deviate from the express wording of the statute. Any bar order that the Court
may issue (should the proposed settlement be finally approved) . . . will provide a mutual bar for
claims of contribution; it will not bar the parties from pursuing other claims.” 226 F.R.D. at 201.
Where the proposed bar order improperly seeks to preclude the non-settling Defendants,
including the Citco Defendants, from pursuing claims other than for contribution, it is overly
broad, and the Court should decline preliminary approval of the settlement on this basis.
4. The PwC Proposed Settlement Fails to Include a Provision for a Judgment Credit under the PSLRA
The PSLRA provides a non-settling defendant with the absolute right to receive a
judgment credit intended to offset the non-settling defendants’ loss of the right to bring
contribution claims. The judgment credit is provided for in 15 U.S.C. § 78u-4(f)(7)(B):
If a covered person enters into a settlement with the plaintiff prior to final verdict or judgment, the verdict or judgment shall be reduced by the greater of - -
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(i) an amount that corresponds to the percentage of responsibility of that covered person; or (ii) the amount paid to the plaintiff by that covered person.
The amount described in 15 U.S.C. § 78u-4(f)(7)(B)(ii) is referred to as the pro tanto method of
determining the appropriate set-off while § 78u-4(f)(7)(B)(i) is proportionate.7 Thus, § 78u-
4(f)(7)(B) provides for a reduction of the verdict or judgment in an amount, which is the greater
of subpart (i) or (ii).
Here, the proposed Final Judgment contains no judgment credit as required by the
PSLRA, and on that basis may not be approved by this Court. The proposed Final Judgment
must set forth the judgment credit and the methodology by which the credit is to be determined,
in compliance with the above-cited provisions of the PSLRA. See Denney v. Deutsche Bank AG,
443 F.3d 253 (2d Cir. 2006) (reversing Judge Scheindlin’s approval of settlement agreement on
the ground that it failed to specify the judgment-reduction method and thereby unfairly
jeopardized the rights of non-settling parties).
7 In In re Jiffy Lube Sec. Litig., 927 F.2d 155, 160-161 n. 3 (4th Cir. 1991), the Fourth Circuit set out the three most common setoff methods:
(1) Pro tanto, in which the judgment is reduced by the amount paid by the settling defendants; the non-settling defendant pays the remainder. This method exposes the non-settling defendant to liability for any deficiency in the judgment, so a hearing focusing on fairness of the settlement to the non-settling defendant is required for approval. (2) Proportionate fault, in which the jury assesses the relative culpability of both settling and non-settling defendants, and the non-settling defendant pays a commensurate percentage of the judgment. Here, the plaintiffs bear the risk of a “bad” settlement and thus have incentive to obtain a settlement accurately apportioned according to fault. (3) Pro rata, in which the judgment amount is simply divided by the number of defendants, settling and non-settling, that are found liable. Relative culpability is not an issue. Since the settling defendants will already have satisfied their debt to plaintiffs, the non-settling defendant may have to pay a share larger than theirs if the judgment is greater than the settlement amount. Conversely, the non-settling defendant will pay less if the judgment is less than the settlement amount.
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In Denny, the district court’s original order provided that there would be a bar on certain
claims. However, the order did not specify the method for calculating the reduction. Id. at 272.
The appellate court noted that under ordinary circumstances, the potential harshness of a bar
order “is mitigated by a judgment credit provision that protects a non-settling party from paying
damages exceeding its own liability.” The judgment credit provision in Judge Scheindlin’s order,
however, simply provided that the non-settling parties would be “sufficiently” compensated,
without specifying how such compensation would be calculated. The Second Circuit decided that
the non-settling parties were entitled to the same “peace of mind” as the settling parties. Id. at
274. The court stated that Judge Scheindlin’s failure to designate a setoff method “exposes a
non-settling defendant to the risk of receiving inadequate credit for the contribution bar imposed
on it.” Id. at 275. The court concluded that “having achieved certainty with respect to their own
future liability, the [settling defendants] cannot in all equity complain that it is cumbersome to
afford a measure of predictability to the non-settling parties.” Id. at 276.
In this case, the failure to provide a judgment credit is not likely inadvertent, given the
detailed nature of the 40-page Settlement Stipulation and the 19-page proposed Final Judgment.
The parties to the PwC proposed settlement have failed to include a judgment credit for the
protection of the non-settling Defendants, thus providing another reason why this Court should
decline to approve the preliminary settlement.
B. Certification of the Settlement Class is Improper
This Court should further decline to grant preliminary approval of the PwC proposed
settlement where there are also significant issues relating to the putative class Plaintiffs’ request
that this Court certify a settlement class at this time. The Supreme Court of the United States has
made it clear that the rigorous requirements for class certification are not relaxed simply because
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a class is being certified for settlement purposes, rather than for purposes of litigation. See
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997) (other than the issue of
manageability, the “other specifications of [Rule 23] … demand undiluted, even heightened,
attention, in the settlement context”). Before a class can be certified, the putative class Plaintiffs
must establish each of the following requirements:
1. The class must be so numerous that joinder of all members is impracticable (“numerosity”); 2. There must be questions of fact or law common to the class (“commonality”); 3. The claims (or defenses) of the representative parties must be typical of the class (“typicality”); 4. The representative parties must fairly and adequately protect the interests of the class (“adequacy”).
Walco Investments, Inc. v. Thenen, 168 F.R.D. 315, 323 (S.D. Fla. 1996). Failure of the putative
class Plaintiffs to satisfy even one of these requirements is fatal to class certification.8 Even at
this stage in the litigation, it appears that the putative class Plaintiffs will be unable to satisfy all
of these factors.
1. Certification of any Class is Premature Since no Discovery Has Been Taken in this Action
Due to the PSLRA discovery stay, there has been no discovery taken in this action with
respect to the issue of class certification. Thus, certification of any class is premature. See
Washington v. Brown & Williamson Tobacco Corp., 959 F.2d 1566, 1570-71 (11th Cir. 1992)
8 In addition to satisfying the four requirements above, before a class can be certified, the putative class Plaintiffs must also establish that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” Fed. R. Civ. P. 23(b)(3). In this case, in order to prove their securities fraud and common law fraud claims, each Plaintiff must show that it relied on some misstatement or omission allegedly made by the Citco Defendants. Since the issue of reliance is unique to each Plaintiff and must be proven by each Plaintiff, it is clear that this action also does not satisfy the requirements of Rule 23(b)(3). See Camden Asset Mgmt., L.P. v. Sunbeam Corp., No. 99-CV-8275, 2001 WL 34556527, at *15 (S.D. Fla. July 3, 2001) (finding class treatment was inappropriate where individual issues of reliance predominated).
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(court should allow for class certification discovery “to best serve the ends of fairness and
efficiency”); Gross v. Medaphis Corp., 977 F. Supp. 1463, 1475 (N.D. Ga. 1997) (denying
motion for class certification as premature since no class discovery had been taken). Absent
discovery, it is not clear whether class certification is appropriate in this case and, if so, the
precise details of the class that should be certified. For example, the putative class Plaintiffs
propose a class period which runs from September 3, 1998 through July 8, 2003. This proposed
class period may prove to be too broad, since the SEC has alleged that the purported fraud may
not have begun until March 2000. (See Complaint filed in SEC v. Lauer, Case No.: 03-80612-
CIV-Marra). These issues must be fully developed through discovery prior to this Court
certifying a class. Further, as demonstrated below, discovery may reveal that this case is not
appropriate for certification because Plaintiffs are unable to satisfy the requirements of Rule 23.
2. Certification of any Class is Inappropriate Where Plaintiffs Cannot Establish Numerosity
Even at this stage in the litigation, it appears that the putative class Plaintiffs will not be
able to satisfy the four requirements for class certification set forth above. It is unlikely that
Plaintiffs will be able to satisfy the numerosity requirement, where Plaintiffs will not be able to
establish that the class is so numerous that joinder of all members is impracticable. In
determining whether putative class action plaintiffs can satisfy this requirement, courts consider
a number of factors, including:
(1) judicial economy arising from the avoidance of a multiplicity of actions; (2) the geographic dispersion of class members; (3) the financial resources of class members; (4) the ability of claimants to institute individual lawsuits; (5) the amount of each member’s individual claim; (6) knowledge of the names and existence of the potential class members; and (7) whether potential class members have already joined other actions.
Primavera Familienstiftung v. Askin, 178 F.R.D. 405, 410 (S.D.N.Y. 1998)
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Of these factors, courts have held that knowledge of the names and existence of the
potential class members is one of the most important factors, since it renders joinder practicable.
See id. at 410-11. In this case, most, if not all, of the names of the investors in the Lancer Funds
are already known to the parties or can be ascertained with little difficulty. Thus, joinder of all
putative class members is practicable and class certification should be denied. See Moore v.
Trippe, 743 F. Supp. 201, 211 (S.D.N.Y. 1990) (“[T]here appears to be little difficulty in joining
all the members of the [class] in this one action … all the members … are clearly known…”).
Moreover, 98 individual investors have already joined together to prosecute an action
currently pending in the Southern District of New York. Those 98 investor Plaintiffs in the
Montreal action purport to represent over 73% of the net invested capital in the Lancer Funds.
Thus, it is clear that a “multiplicity of actions” can no longer be avoided. It is also clear that
investors representing the majority of the net invested capital in the Lancer Funds have already
indicated their ability to institute individual lawsuits and their disinterest in being a part of the
putative class action. These facts demonstrate that Plaintiffs will be unable to satisfy the
numerosity requirement.9 See Primavera Familienstiftung, 178 F.R.D. at 410-11 (court found
numerosity not met where 61 of the potential class members had already brought five individual
9 These 98 investors specifically determined that they did not want to be part of a class action. As set forth in a pleading filed in a related action in April 2004 by the Montreal Plaintiffs, shortly after the SEC action was commenced against Lauer and the Lancer Funds, several investors formed an Ad Hoc Committee which contacted over 20 lawyers to discuss pursuing their own action. Of the 20 law firms, only the Kozyak Tropin & Throckmorton firm (one of the putative class counsel firms) suggested a class action. The investors determined not to hire that firm or to pursue a class action, instead choosing Scott Berman and his firm Brown Rudnick Berlack Isreaels LLP. The 98 investors expressly rejected the class action vehicle as inappropriate due to the presence of state law claims, and did not agree with a contingency fee arrangement. Accordingly, they chose to file a separate action to pursue their claims. See Notice of Filing Memorandum in Opposition to Joint Motion of Purported Class Plaintiffs for Entry of a Pretrial Scheduling Order filed in Bruhl v. PricewaterhouseCoopers Int’l Ltd. et.al, Case No. 04-802520-CIV-HURLEY [DE 10].
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actions which were pending before the court); Block v. First Blood Assocs., 125 F.R.D. 39, 42-43
(S.D.N.Y. 1989) (numerosity not satisfied where all potential class members were identified and
only twenty-four of the fifty-seven potential members of the class had expressed any interest in
the putative class action).
Additionally, the numerosity requirement is not satisfied in this action where the
investors in the Lancer Funds are all sophisticated investors, the majority of whom invested well
over $1 million in the Funds, and some of whom invested tens of millions of dollars. See
Primavera Familienstiftung, 178 F.R.D. at 411 (numerosity also not satisfied where the potential
plaintiffs were “sophisticated investors, with sufficient financial resources to protect their own
interests”).
3. Certification of any Class is Inappropriate Where Plaintiffs Cannot Establish the Adequacy of the Class Representatives
Further, it is unclear whether Plaintiffs will be able to satisfy the adequacy requirement
with respect to John Bruhl being appointed as a class representative. Rule 23(a)(4) requires that
the representative parties must fairly and adequately protect the interests of the case. This
requirement applies both to the class representatives and to class counsel. London v. Wal-Mart
Stores, Inc., 340 F.3d 1246, 1253 (11th Cir. 2003). The requirement that the class be adequately
represented is very important, because “all members of the class are bound by the res judicata
effect of the judgment” of the court. Lyons v. Georgia-Pacific Corp. Salaried Employees Ret.
Plan, 221 F.3d 1235, 1253 (11th Cir. 2000).
There is a significant question in this action as to whether John Bruhl is an adequate class
representative, due to the fact that he may be a “net redeemer” in, at the least, the Lancer
Offshore Fund. Specifically, there is an indication in this action that John Bruhl redeemed, at a
minimum, all of the funds he invested in Lancer Offshore (and potentially also made a profit
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from his investment), and thus may have actually benefited from the alleged fraud in this case.
See Notice of Filing Memorandum in Opposition to Joint Motion of Purported Class Plaintiffs
for Entry of a Pretrial Scheduling Order, filed in Bruhl v. PricewaterhouseCoopers Int’l Ltd.
et.al, Case No. 04-802520-CIV-HURLEY [DE 10]. Thus, it does not appear that John Bruhl
would be an adequate class representative in this action. See Valley Drug Co. v. Geneva
Pharmaceuticals, Inc., 350 F.3d 1181, 1189 (11th Cir. 2003) (finding lack of adequacy where
certain national pharmaceutical wholesalers actually experienced a net gain from the lack of
generic drug in the market as a result of alleged anti-competitive behavior).
CONCLUSION
For the reasons set forth above, this Court should decline to grant preliminary approval to
the PwC settlement.
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CERTIFICATE OF SERVICE
I hereby certify that on August 17, 2007, I electronically filed the foregoing document
with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being
served this date on all counsel of record or pro se parties identified on the attached Service List
in the manner specified, either via transmission or Notices of Electronic Filing generated by
CM/ECF or in some other authorized manner for those counsel or parties who are not authorized
to receive electronically Notices of Electronic Filing.
GILBRIDE, HELLER & BROWN, P.A. By: __/s/_Lewis N. Brown____
Lewis N. Brown Fla. Bar No. 270008 [email protected] E. Feinberg Fla. Bar No. 371548 [email protected] M. Mullen Fla. Bar No. 0191957 [email protected] Biscayne Tower, Suite 1570 2 South Biscayne Blvd. Miami, Florida 33131 Phone: (305) 358-3580 Fax: (305) 374-1756
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SERVICE LIST
Bruhl et al. v. PricewaterhouseCoopers International Limited et al., Case No. 03-23044-CIV-MARRA
Harley S. Tropin, Esq. David P. Milian, Esq. Adam M. Moskowitz, Esq. KOZYAK TROPIN & THROCKMORTON 2525 Ponce de Leon 9th Floor Coral Gables, FL 33134 [email protected]@[email protected] -and- Aaron Podhurst, Esq. PODHURST, ORSECK JOSEFSBERG, et al. 25 W. Flagler Street Suite 800 Miami, FL 33130 [email protected] -and- Joel H. Bernstein, Esq. Lynda J. Grant, Esq. GOODKIND LABATON RUDOFF et al. 100 Park Avenue New York, NY 10017 [email protected]
(Counsel for Plaintiffs)
Andres Rivero, Esq. RIVERO & MESTRE, P.A. Miami Center, Suite 1450 201 South Biscayne Blvd. Miami, FL 33131 [email protected] -and- Jonathan L. Hochman, Esq. SCHINDLER COHEN, ET AL. 100 Wall Street, 15th Floor New York, NBYU 10005 [email protected] Rudolph F. Aragon, Esq. WHITE & CASE LLP Wachovia Financial Center, Suite 4900 200 S. Biscayne Blvd. Miami, FL 33131 [email protected] -and- Lawrence J. Zweifach, Esq. Kevin A. Burke, Esq. Richard Cashman, Esq. HELLER, EHRMAN LLP Times Square Tower 7 Times Square New York NY 10036-6524 [email protected](Counsel for PricewaterhouseCoopers International Limited)
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Robert Pershes, Esq. Craig Rasile, Esq, BUCKINGHAM, DOOLITTLE & BURROUGHS Adnrew Zaron, Esq. 5355 Town Center Road, Ste 900 HUNTON & WILLIAM Boca Raton, FL 33486-1069 1111 Brickell Avenue, Ste 200 [email protected] Miami, FL 33131 [email protected]
[email protected] [email protected]
-and- (Counsel for the Receiver) William C. Rand, Esq. LAW OFFICE OF WILLIAM C. RAND 711 Third Avenue, Suite 1505 Nicolas Swerdloff, Esq. New York, NY 10017 HUGHES HUBBARD & REED LLP [email protected] 201 S. Biscayne Blvd., Ste 2500 Miami, FL 33131 (Counsel for John W. Bendall) [email protected]
-and- Robert T. Wright, Esq. COFFEY & WRIGHT, LLP John M. Greilsheimer, Esq. Grand Bay Plaza HUGHES HUBBARD & REED LLP Penthouse 2B One Battery Park Plaza 2665 S. Bayshore Drive New York, NY 10004-6000 Miami, FL 33133 [email protected] [email protected]
(Counsel for PricewaterhouseCoopers (Netherlands Antilles)
-and- Seth M. Schwartz SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Four Times Square New York, NY 10036 [email protected] (Counsel for International Fund Services (Ireland) Limited)
Case 9:03-cv-80612-KAM Document 1939-2 Entered on FLSD Docket 08/20/2007 Page 23 of 62
W. Todd Boyd, Esq. BOYD MUSTELIER SMITH ET AL Bank of America Tower at at International Place, 36th FL 100 S.E. Second Street Miami, FL 33130 [email protected] -and- Douglas Capuder CAPUDER FAZIO GIACOIA LLP 90 Broad Street New York, NY 10004-2627 [email protected] -and- Alexandra A.E. Shapiro, Esq. Latham & Watkins, LLP 885 Third Avenue Suite 1000 New York, NY 10022-4802 [email protected] (Counsel for Goldstein Golub Kessler LLP)
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