Party that Sought to Serve as Lead Plaintiff in Securities Class Action but was not Selected and did not File its own Lawsuit or Motion to Intervene Lacked Standing to Appeal District Court Order Denying it Lead Plaintiff Status or Granting Motion to Dismiss Uncertified Class Action Complaints with Prejudice Ninth Circuit Holds
In 2003, plaintiff Anchor Capital filed four putative class action lawsuits against Watson Pharmaceuticals alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; the district court consolidated the class actions and granted the motion of Anchor Capital to be appointed lead plaintiff in accordance with the PSLRA (Private Securities Litigation Reform Act), which governed the class action litigation. Employers-Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Anchor Capital Advisors, 498 F.3d 920, 922 (9th Cir. 2007). Employers-Teamsters Local Nos. 175 & 505 Pension Trust Fund (“Appellants”) did not move to intervene in the class action, and did not file its own individual or class action complaint, id. Appellants did file a motion to serve as lead plaintiff, but the district court selected Anchor Capital instead. But after Anchor Capital moved and obtained court permission to dismiss the class action complaints with prejudice, Appellants filed an appeal to challenge that dismissal and contended that under the PSLRA it was the proper lead plaintiff to control the class action. Id. The Ninth Circuit dismissed the appeal on the ground that Appellant lacked standing.
Anchor Capital filed the securities fraud class action because its investors had lost $3.2 million; the district court granted its motion to serve as lead plaintiff because it had “the largest financial stake in the outcome of the litigation.” Anchor Capital, at 922. Defense attorneys moved to dismiss the class action against Watson Pharmaceuticals on the ground that it failed to plead fraud with the specificity required under the PSLRA; the district court granted the motion. Id. In the face of a district court order granting leave to amend but expressing considerable doubt that an amended class action complaint would survive a Rule 12(b)(6) motion, Anchor Capital told the court that it would not file an amended complaint and asked the court to dismiss with prejudice the uncertified class actions. Id., at 923. The district court granted the motion, id. “Appellants now challenge the lead plaintiff ruling.” Id.
The Ninth Circuit’s analysis was concise: “because the class was never certified, Appellants were not parties to the district court action and lack standing to bring this appeal.” Anchor Capital, at 923. The Circuit Court characterized Appellants as ” merely potential class members in a potential class action suit.” Id. By failing to file their own lawsuit, seek leave to intervene, or object to the requested dismissal, Appellants lacked standing to challenge any district court orders entered in the actions, id. Accordingly, it dismissed the appeal, id., at 925.
NOTE: The Ninth Circuit rejected the argument that a motion for lead plaintiff status “was tantamount to a motion for intervention,” holding that the “plain language” of the PSLRA demonstrated that a motion to serve as lead plaintiff is not the functional equivalent of a motion to intervene. Anchor Capital, at 923-24. The Circuit Court further held that by voluntarily dismissing the class action complaints before the court certified the lawsuits as class actions, the appeal of the order granting Anchor Capital lead plaintiff status was rendered moot. Id., at 924.