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979506_1
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
CITY OF PONTIAC GENERAL EMPLOYEES’ RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated,
Plaintiff,
vs.
WAL-MART STORES, INC., et al.,
Defendants.
) ) ) ) ) ) ) ) ) ) ) )
No. 5:12-cv-05162-SOH
CLASS ACTION
PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’
MOTION TO SEQUENCE CLASS AND MERITS DISCOVERY
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TABLE OF CONTENTS
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I. INTRODUCTION .................................................................................................... 1
II. ARGUMENT ........................................................................................................... 3
A. No Court Has Ever Exercised Its Discretion as Defendants Demand .......... 3
1. There Is Every Reason to Believe that This Case Will Proceed Even if a Class Is Not Certified ............................................ 5
2. As PGERS’ Counsel Has Already Explained to Defense Counsel, Initial Merits Discovery Will Impose No Burden on Defendants Whatsoever...................................................................... 6
3. Defendants’ Proposed Bifurcation Would Delay and Complicate This Litigation Because Defendants Concede the Overlap Between Merits and Class-Certification Issues .................... 7
4. Defendants Cite No Cases that Actually Support Their Position ............................................................................................. 12
B. Defendants’ “Preview” of Their Class Certification Brief Proves Only that Defendants Have No Legitimate Basis to Oppose Class Certification ................................................................................................. 15
C. Defendants’ “Other Ways” of Challenging Reliance Are Based on Unsupportable Speculation ......................................................................... 17
D. Defendants’ Challenges to PGERS’ Adequacy Are Ill-Timed and Ill-Advised ........................................................................................................ 19
1. Far from Disqualifying, PGERS’ Portfolio-Monitoring Agreements Confirms Its Responsibility ......................................... 19
2. Typicality Concerns the Nature of a Proposed Representative’s Claims ................................................................... 20
3. Courts Have Repeatedly Recognized PGERS’ Adequacy as a Class Representative ........................................................................ 21
III. CONCLUSION ...................................................................................................... 22
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TABLE OF AUTHORITIES
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CASES
Alpern v. UtiliCorp United, Inc., 84 F.3d 1525 (8th Cir. 1996) ....................................................................................... 20
Antonson v. Robertson, No. 88-2567-V, 1990 WL 58028 (D. Kan. 1990). ....................................................... 14
Basic Inc. v. Levinson, 485 U.S. 224 (1988) ......................................................................................... 13, 16, 18
Beach v. Healthways, Inc., 264 F.R.D. 360 (M.D. Tenn. 2010) ............................................................................... 5
Biben v. Card, No. 84-0844-cv-W-6, 1986 U.S. Dist. LEXIS 30808 (W.D. Mo. Jan. 6, 1986) .............................................................................................. 18
Blacktop, Inc. v. Edible Arrangements Int’l, Inc., No. 4:14-CV-0005-DGK, 2014 U.S. Dist. LEXIS 59845 (W.D. Mo. Apr. 30, 2014) ............................................................................................. 3
Chateau de Ville Productions, Inc. v. Tams-Witmark Music Library, Inc., 586 F.2d 962 (2d Cir. 1978) ......................................................................................... 10
Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978) ....................................................................................................... 6
Detroit Gen. Ret. Sys. v. MedTronic, Inc., 621 F.3d 800 (8th Cir. 2010) ......................................................................................... 8
Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) ..................................................................................................... 15
Gray v. First Winthrop Corp., 133 F.R.D. 39 (N.D. Cal. 1990) ............................................................................... 5, 11
Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) ............................................................................... 16, 18, 22, 24
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IBEW Local 98 Pension Fund v. Best Buy Co., No. 11-429, 2014 U.S. Dist. LEXIS 108409 (D. Minn. Aug. 6, 2014)............................................................................................... 16
In re Am. Italian Pasta Co. Sec. Litig., 05-0725-CV-WODS, 2007 U.S. Dist. LEXIS 21365 (W.D. Mo. Mar. 26, 2007) ........................................................................................... 19
In re Groupon Secs. Litig., No. 12 C 2450, 2014 U.S. Dist. LEXIS 26212 (N.D. Ill. Feb. 24, 2014) ........................................................................................ passim
In re Hamilton Bancorp. Inc. Sec. Litig., No. 01-CV-156-Gold, 2002 U.S. Dist. LEXIS 29139 (S.D. Fla. Jan. 14, 2002) .......................................................................................... 5, 11
In re Northfield Labs. Inc. Secs. Litig., 264 F.R.D. 407 (N.D. Ill. 2009) ................................................................................... 12
In re Plastics Additives Antitrust Litig., No. 03-2038, 2004 U.S. Dist. LEXIS 23989 (E.D. Pa. Nov. 30, 2004) .............................................................................................. 11
In re Rail Freight Fuel Surcharge Antitrust Litig., 258 F.R.D. 167 (D.D.C. 2009) ..................................................................................... 12
In re Red Hat, Inc. Sec. Litig., No. 5:04-cv-473-BR, 2011 WL 4434053 (E.D. N.C. Sept. 22, 2011) ..................................................................................... 13, 14
In re Salomon Analyst Metromedia Litig., 544 F.3d 474 (2d Cir. 2008) ......................................................................................... 13
In re SemGroup Energy Partners No. 08-MD-1989-GKF, 2010 U.S. Dist. LEXIS 135209 (N.D. Okla. Dec. 21, 2010) ............................................................................. 4, 5, 6, 11
In re Tricord Sys. Inc. Sec. Litig., No. 3-94-746, 1996 U.S. Dist. LEXIS 20943 (D. Minn. Apr. 5, 1996) ............................................................................................... 20
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In re UTStarcom Secs. Litig., No. C 04-04908 JW, 2010 U.S. Dist. LEXIS 48122 (N.D. Cal. May 12, 2010) ............................................................................................ 20
In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604 (8th Cir. 2011) ................................................................................. 6, 7, 8
Lawrence E. Jaffe Pension Plan v. Household Int’l, Inc., No. 02 C 5893, 2004 U.S. Dist. LEXIS 18993, 2004 WL 2108410 (N.D. Ill. Sept. 21, 2004).............................................................................................. 12
Local 703, I.B. of T. Grocery and Food Employees Welfare Fund v. Regions Fin. Corp., No. 12-14168, 2014 U.S. App. LEXIS 15106 (11th Cir. Aug. 6, 2014) ............................................................................................... 16
Local 703, I.B. v. Regions Fin. Corp., No. CV 10-J-2847-S, 282 F.R.D. 607 (N.D. Ala. 2012) ............................................. 20
McIntire v. China MediaExpress Holdings, Inc., No. 11-CV-0804(VM), 2014 U.S. Dist. LEXIS 113446 (S.D.N.Y. Aug. 15, 2014) ............................................................................................ 16
Minneapolis Firefighters’ Relief Ass’n v. Medtronic, Inc. 0:08-cv-6324-PAM-AJB (D. Minn. Apr. 8, 2010) ....................................................... 5
Nken v. Holder, 556 U.S. 418, 129 S. Ct. 1749, 173 L. Ed. 2d 550 (2009) ............................................................................................... 3
PGERS v. Lockheed Martin Corp., 844 F. Supp. 2d 498 (S.D.N.Y. 2012) .................................................................... 21, 27
Plumbers & Pipefitters Nat’l Pension Fund v. Burns, 292 F.R.D. 515 (N.D. Ohio 2013) ............................................................................... 20
Public Pension Fund Group v. KV Pharm., 679 F.3d 972 (8th Cir. 2012) ......................................................................................... 8
Rhines v. Weber, 544 U.S. 269, 125 S. Ct. 1528, 161 L. Ed. 2d 440 (2005) ............................................. 3
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Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010) ....................................................................................... 15
Smith v. Dominion Bridge Corp., No. 96-7580, 2007 U.S. Dist. LEXIS 26903, 2007 WL 1101272 (E.D. Penn. Apr. 11, 2007) .......................................................................................... 12
STATUTES, RULES AND REGULATIONS
Federal Rules of Civil Procedure Rule 1 ............................................................................................................................. 3 Rule 23 ................................................................................................................. 5, 7, 10 Rule 23(a) ....................................................................................................................... 2 Rule 23(b) ...................................................................................................................... 2 Rule 23(b)(3) .................................................................................................... 10, 15, 18 Rule 26(f)(1) ................................................................................................................ 22
SECONDARY AUTHORITIES
1 McLaughlin on Class Actions (10th ed. 2013) §3:10 ......................................................................................................................... 5, 12
1 Herbert B. Newberg & Alba Conte, Newberg on Class Actions (5th ed. 2013) §10:7 ............................................................................................................................... 9
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I. INTRODUCTION
Defendants are asking the Court to do something no Court has ever done: enter a
discretionary order to postpone merits discovery after the sufficiency of a complaint has
been confirmed and a plaintiff has waited over 29 months to commence merits discovery.
This unprecedented request confirms that Defendants will stop at nothing to avoid having to
answer for their conduct. An honest man or company accused of defrauding others would
rush to shine as bright a light as possible on their exemplary behavior. But Defendants want
nothing more than to keep the details of their deception shrouded in darkness. Defendants’
latest shade comes in the form of a $15-per-minute expert they hired to say nothing more
than what PGERS alleges in its complaint and what both Judge Setser and this Court have
already observed: when bad news about a stock is hidden, its price impact cannot be seen
until the truth is revealed.
Defendants know their motion is not well taken – as was the case with their failed
motion to strike PGERS’ complaint, their failed motions to strike documents from the docket
here and in the Middle District of Tennessee, and their failed motion to dismiss PGERS’
complaint. But Defendants are not fools. Their purpose is not to win these motions. Rather,
Defendants’ purpose is to use these motions to delay these proceedings. Defendants are
filing losing motions because doing so wins them more darkness. They know this Court’s
docket is busy. They know it took nearly a year for them to lose their motions to strike and
18 months to lose their motion to dismiss. Throughout these delays, PGERS has been denied
access to the extensive evidence of Defendants’ fraud. And so, Defendants seek yet another
delay – under the guise of a motion to “sequence” discovery.
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There are myriad reasons why Defendants’ present motion is not well taken, but one
allows the Court to deny it summarily, without any further delay to PGERS’ pursuit of
justice: PGERS will pursue this case whether or not it is certified as a class action. This
Court has determined the sufficiency and legitimacy of PGERS’ allegations and PGERS
means to prove them. Period. Add to PGERS, hundreds of other institutional investors and
the billions of dollars of losses Defendants caused, and it is apparent that there is nothing to
be gained, just more money and time to be lost, by delaying merits discovery until after the
Court’s class-certification determination because the parties will be taking the same merits
discovery no matter how the Court rules on a motion that has not even been filed.
In addition, much of the merits discovery in this case will overlap with class-
certification issues. Defendants’ motion expressly acknowledges, but refuses to concede, the
class-certification issues of “numerosity, commonality, typicality, predominance, or
superiority that Plaintiff must prove under Rule 23(a) and (b).” See Dkt. 151 at 6. In fact,
Defendants state that “the merits of Plaintiff’s claim have no or little bearing on the[se] class
certification-specific issues . . . .” Id.1 While PGERS believes there is a larger overlap,
Defendants concede that the merits of PGERS’ claims may have at least some bearing on
class-certification issues. This concession ends any debate about bifurcating discovery
because it would be objectively unfair to force PGERS to litigate class-certification issues
while it is being denied access to the merits discovery that has at least some bearing on those
class-certification issues.
1 All citations and footnotes are omitted and emphasis is added unless otherwise noted.
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Far from being more efficient, Defendants’ request for bifurcation would
unnecessarily create another issue for the parties to litigate and for the Court to be forced to
decide: whether any particular question or discovery request pertains to “class certification,”
“merits,” or both. For example, PGERS intends to help satisfy the commonality,
predominance, and superiority factors by showing the Court the common evidence
(documents and testimony) that will provide common answers to the common questions this
case raises. In order to do so, however, PGERS plainly would need access to the documents
and witnesses related to the elements of PGERS’ claims. PGERS has cleared the high, and
solitary, hurdle Congress created for this type of litigation, and in doing so, PGERS has
earned the right to proceed as the Federal Rules of Civil Procedure mandate: “to secure the
just, speedy, and inexpensive determination of every action and proceeding.” Fed. R. Civ. P.
1. Accordingly, PGERS respectfully requests that the Court deny Defendants’ motion.
II. ARGUMENT
A. No Court Has Ever Exercised Its Discretion as Defendants Demand
PGERS’ embraces the considerable discretion that the Court enjoys over the timing of
this and all other proceedings before it, but “[a] stay [of discovery] should be entered only
where it is a proper exercise of the court’s discretion, Rhines v. Weber, 544 U.S. 269, 276,
125 S. Ct. 1528, 161 L. Ed. 2d 440 (2005), and the proponent of the stay bears the burden of
establishing the need for a stay. Nken v. Holder, 556 U.S. 418, 433-34, 129 S. Ct. 1749, 173
L. Ed. 2d 550 (2009).” Blacktop, Inc. v. Edible Arrangements Int’l, Inc., No. 4:14-CV-0005-
DGK, 2014 U.S. Dist. LEXIS 59845, at *2-*3 (W.D. Mo. Apr. 30, 2014). No Court has ever
found this burden to be satisfied under the circumstances presented here: after the
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sufficiency of a complaint has been confirmed and a plaintiff has already waited over 29
months to commence merits discovery due to the automatic stay under the PSLRA. In fact,
Courts have found just the opposite: that it is inappropriate to impose an additional stay of
discovery once a plaintiff has satisfied the PSLRA’s prerequisite to merits discovery by
defeating a defendant’s motion to dismiss. In In re SemGroup Energy Partners, the Court
denied a defendant’s motion to bifurcate discovery, explaining that, “this case has been
pending for more than two years, and discovery has already been stayed for most of that
period under the PSLRA. Bifurcation will almost certainly lead to further delay in the
resolution of plaintiffs’ claims.” No. 08-MD-1989-GKF, 2010 U.S. Dist. LEXIS 135209, at
*13 (N.D. Okla. Dec. 21, 2010).
Earlier this year, the District Court for the Northern District of Illinois employed
similar reasoning when it rejected a request to bifurcate discovery:
[U]nder the Private Securities Litigation Reform Act (PSLRA), Plaintiff was precluded from conducting discovery prior to the [pendency of the] motions to dismiss. Since that time, Defendants have objected to the production of any merits discovery. By the time the class certification motion is fully briefed, over two years will have passed since the case was filed. Defendants assert that this fact is irrelevant. The Court acknowledges that this factor is not dispositive. However, securities litigation is unique in this regard and the [c]ourt, in its discretion, is free to consider this fact when weighing the expediency (or lack thereof) of bifurcation.
In re Groupon Secs. Litig., No. 12 C 2450, 2014 U.S. Dist. LEXIS 26212, at *10-*11 (N.D.
Ill. Feb. 24, 2014). This is not a generic situation where Congress could have enacted
legislation regarding stays of discovery for private securities litigation, but simply did not.
Rather, Congress did enact legislation regarding stays of discovery for private securities
litigation, and Congress expressly decided that discovery stays under the PSLRA last only
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until a motion to dismiss has been decided. This explains why so many courts throughout
the country, including in the Eighth Circuit, have denied stays of merits discovery in
securities fraud class actions. See, e.g., Minneapolis Firefighters’ Relief Ass’n v. Medtronic,
Inc., 0:08-cv-6324-PAM-AJB, slip op. at 1 (D. Minn. Apr. 8, 2010); In re Hamilton
Bancorp. Inc. Sec. Litig., No. 01-CV-156-Gold, 2002 U.S. Dist. LEXIS 29139, at *5 (S.D.
Fla. Jan. 14, 2002); Beach v. Healthways, Inc., 264 F.R.D. 360, 363 (M.D. Tenn. 2010);
Gray v. First Winthrop Corp., 133 F.R.D. 39, 41 (N.D. Cal. 1990).2
1. There Is Every Reason to Believe that This Case Will Proceed Even if a Class Is Not Certified
Defendants’ entire motion is based on the following premise: that the “questions to
be resolved at the class certification stage that could be case-dispositive . . . .” Dkt. 151 at 1.
This is a false premise and for that reason, the Court should summarily deny Defendants’
motion. As other Courts have recognized, “because of the number of investors and the
enormity of losses they allege to have incurred, this case is likely to continue even if Lead
Plaintiff is not found to be an adequate class representative or class certification is otherwise
denied.” SemGroup Energy Partners, 2010 U.S. Dist. LEXIS 135209, at *13; See also 1
McLaughlin on Class Actions §3:10, at 453 (10th ed. 2013) (“Courts are more likely to
decline requests to stay pure merits discovery when the nature of the putative
representative’s claims suggests that it would continue to prosecute individual claims if
2 Defendants’ claim that courts that have rejected “formal” bifurcation have “frequently ‘prioritized’ class discovery and directed that the parties defer purely merits-related discovery until after certification.” Dkt. 151 at 9 n.4. The two opinions Defendants cite mention nothing about this being a common approach. Nor do they speak to deferring merits discovery until after certification. Also, it is unclear what “prioritizing” would entail here and how the Court could define “purely merits-related discovery,” where Defendants have not conceded any of the Rule 23 factors.
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certification is denied, or a substantial delay has preceded the class certification motion.”).
Here, there are indisputably hundreds of large institutional investors and PGERS has alleged
“[b]illions of dollars of shareholder value was erased immediately after the Times’ revelation
of the facts defendants had theretofore concealed.” ¶9.3 Not only does PGERS have no
intention of walking away from this case, but as in SemGroup Energy, “because of the
number of investors and the enormity of losses they allege to have incurred, this case is
likely to continue even if Lead Plaintiff is not found to be an adequate class representative or
class certification is otherwise denied.” 2010 U.S. Dist. LEXIS 135209, at *13. Also, far
from dispositive, “[c]lass certification ‘is inherently tentative.”’ In re Zurn Pex Plumbing
Prods. Liab. Litig., 644 F.3d 604, 613 (8th Cir. 2011) (quoting Coopers & Lybrand v.
Livesay, 437 U.S. 463, 469 n.11 (1978)). Merits discovery, therefore, is inevitable and
because putting off the inevitable would simply prolong this case and increase expenses, the
Court should deny Defendants’ motion on this basis alone.
2. As PGERS’ Counsel Has Already Explained to Defense Counsel, Initial Merits Discovery Will Impose No Burden on Defendants Whatsoever
Defendants represent to the Court that, “PGERS made clear in a recent telephone call
with defense counsel (see Declaration of Jonathan C. Dickey ¶5) that it intends to demand
sweeping discovery that would unnecessarily impose substantial expenditures of time and
resources on the parties and the Court, bogging down these proceedings and unduly delaying
the potentially case-dispositive question of whether PGERS can satisfy its burdens under
3 Unless noted otherwise, all “¶__” references are to the Amended Complaint for Violation of Federal Securities Laws (Dkt. 86).
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Federal Rule of Civil Procedure 23.” Dkt. 151 at 3. PGERS’ counsel now knows how Judge
Setser must have felt when reading Defendants’ mischaracterization of her Report and
Recommendation. Far from expressing an intention to “impose substantial expenditures of
time and resources on the parties,” PGERS’ counsel expressly represented just the opposite:
that PGERS’ initial document request would impose on Defendants no expenditure of time,
resources, or money. As PGERS’ counsel explained, and PGERS confirms here, PGERS
initial document request will be limited to the following: all of the documents and
information that Defendants have already gathered and provided to third parties relating to
the corruption that was the subject of the disclosures at issue in this case. See Declaration of
Jason A. Forge ¶2. Such a production will entail no more than simply copying whatever
media were used to transmit such documents and information to the third parties. No
searching. No gathering. No privilege review (because the documents have already been
produced to third parties). Just copy CDs, DVDs, and/or hard drives, and PGERS will need
at least two months to go through these materials before taking depositions. During this
time, PGERS would be happy to satisfy any proper discovery requests from Defendants.
3. Defendants’ Proposed Bifurcation Would Delay and Complicate This Litigation Because Defendants Concede the Overlap Between Merits and Class-Certification Issues
The Eighth Circuit has observed that bifurcating discovery as Defendants urge can
actually complicate the task of deciding class certification. The district court in Zurn
bifurcated “class” and “merits” discovery. In re Zurn, 644 F.3d at 612. This bifurcation,
however, led to evidentiary deficiencies related to the defendants’ challenge of the plaintiffs’
class-certification expert. The Eighth Circuit observed that, “[i]t was after all [defendants]
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which sought bifurcated discovery which resulted in a limited record at the class
certification stage, preventing the kind of full and conclusive Daubert inquiry Zurn later
requested. While there is little doubt that bifurcated discovery may increase efficiency in a
complex case such as this, it also means there may be gaps in the available evidence.” Id.
612-13. Though Defendants’ brief plucks a portion from the second sentence of this quote
from Zurn, it omits the entire first sentence and the balance of the second in which the Eighth
Circuit warned of just one of the downsides of bifurcating discovery: “bifurcated discovery
[] resulted in a limited record at the class certification stage, preventing the kind of full
and conclusive Daubert inquiry Zurn later requested” and “it also means there may be gaps
in the available evidence.” Id.
Defendants’ omission of the Eighth Circuit’s Daubert reference is particularly telling
because they have already introduced experts into the class-certification discussion – before
the discussion has even begun. Dkt. 151 at 7 (“class certification discovery is likely to focus
largely on expert reports and testimony”). Plus, a proper price-impact analysis (unlike the
one Defendants submitted, which did not acknowledge the undisputed dramatic price-impact
from the revelation of Defendants’ omitted information), will be closely related to the
materiality element of PGERS’ claim. See, e.g., Dkt. 146 at 4 (““‘A significant change in
stock price upon disclosure of withheld information is strong evidence that the information
was material.’” Public Pension Fund Group v. KV Pharm., 679 F.3d 972, 983 (8th Cir.
2012) (quoting Detroit Gen. Ret. Sys. v. MedTronic, Inc., 621 F.3d 800, 805 (8th Cir.
2010))”).
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Also, the drivers of the price-impact of Defendants’ omissions (e.g., the massive costs
and significantly higher likelihood of many other devastating repercussions of a vastly
different investigation than the one Defendants described) also directly relate to damages in
this case. The Court should not allow Defendants to force upon everyone three rounds of
interrelated expert discovery. Nor should it allow Defendants to compromise the integrity of
the experts’ analyses in this case by directing that they be done in piecemeal – and before
PGERS has had the opportunity to gather other evidence that bears on these issues (e.g.,
contemporaneous reactions to the revelation by analysts, journalists, market commentators,
and academics).
The Eighth Circuit is far from alone in recognizing the real risk that bifurcation will
complicate a case. District Courts, treatise authors, and the Supreme Court all recognize the
likely overlap between class and merits issues and facts:
Courts increasingly find that class certification and merits issues overlap. See Newberg on Class Actions, §10:7 (5th ed. 2013). In Dukes, the Supreme Court found that class certification analysis “will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped. The class determination generally involves considerations that are en-meshed in the factual and legal issues comprising the plaintiff’s cause of action.” 131 S. Ct. at 2551-52 (citations and footnote omitted).
Groupon, 2014 U.S. Dist. LEXIS 26212, at *14-*15. Indeed, even Defendants acknowledge
the possibility of overlap: “the merits of Plaintiff’s claim have no or little bearing on the[se]
class certification-specific issues . . . .” Dkt. 151 at 6. PGERS knows that the overlap will
be more significant inasmuch as it will lay out its approach to proving the elements of its
claims in order to demonstrate with actual documents and actual witness testimony that the
evidence of these elements and the satisfaction of them will be the same on a class-wide
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basis as they would be on an individual basis. In other words, PGERS will use actual
documents and testimony to demonstrate that “questions of law or fact common to class
members predominate over any questions affecting only individual members.” Fed. R. Civ.
P. 23(b)(3). Documents and testimony regarding the details of Defendants’ bribery program,
their knowledge of it, their concealment of it, their internal communications about their fear
of its revelation and about the phrasing of their misleading statements concerning it are just a
few examples of the types of evidence PGERS intends to obtain and present to the Court to
establish a predominance of common questions, evidence, and answers here.
Whether this overlap between “merit” and “class-certification” discovery is as
extensive as PGERS anticipates, as modest as Defendants concede, or somewhere in
between, does not matter. It would be inherently prejudicial to force PGERS to litigate a
class-certification motion with a finger, let alone a hand, tied behind its back. See, e.g.,
Chateau de Ville Productions, Inc. v. Tams-Witmark Music Library, Inc., 586 F.2d 962, 966
(2d Cir. 1978) (“Failure to allow discovery, where there are substantial factual issues
relevant to certification of the class, makes it impossible for the party seeking discovery to
make an adequate presentation either in its memoranda of law or at the hearing on the motion
if one is held.”). While there may be cases where a defendant concedes so many of the Rule
23 factors, that class certification is limited to an issue that is wholly separate from the
merits, this is not such a case – as Defendants have not conceded a single factor.
Because of this overlap, class-certification and merits discovery must proceed
simultaneously to at least some extent, so, again, there is nothing to be saved by bifurcating
the two. Moreover, disputes regarding the overlap will demand far more time, money,
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litigation, and judicial supervision than would proceeding according to the presumptive non-
bifurcated process under the Federal Rules of Civil Procedure. This is one of the reasons
why the Federal Rules do not automatically stay discovery pending class certification:
[T]he Federal Rules could easily have provided for a stay pending class certification, but they do not. It is also important to bear in mind the nature of class action discovery. Discovery relating to class certification is closely enmeshed with merits discovery, and in fact cannot be meaningfully developed without inquiry into basic issues of the litigation. See Manual for Complex Litigation 2d §30.12 (1985). An order staying discovery pending class certification would be unworkable, since plaintiffs must be able to develop facts in support of their class certification motion. An order restricting discovery to class issues would be impracticable because of the closely linked issues, and inefficient because it would be certain to require ongoing supervision of discovery.
Gray, 133 F.R.D. at 40-41.
There are legions of cases recognizing that “[a]n order restricting discovery to class
issues would be impracticable because of the closely linked issues, and inefficient because it
would be certain to require ongoing supervision of discovery.” SemGroup Energy, 2010
U.S. Dist. LEXIS 135209, at *13. See also In re Plastics Additives Antitrust Litig., No. 03-
2038, 2004 U.S. Dist. LEXIS 23989, at *9 (E.D. Pa. Nov. 30, 2004) (“Bifurcation would
also belie principles of judicial economy, as the Court may be forced to spend time and
resources resolving discovery disputes over what is “merit” discovery as compared to “class”
discovery.”); Hamilton Bancorp, 2002 U.S. Dist. LEXIS 29139, at *5 (noting that
“bifurcation of discovery may well-increase litigation expenses by protracting the
completion of discovery, coupled with endless disputes over what is ‘merit’ versus ‘class’
discovery”); Gray, 133 F.R.D. at 41 (“An order restricting discovery to class issues would be
impracticable because of the closely linked issues, and inefficient because it would be certain
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to require ongoing supervision of discovery.”); In re Rail Freight Fuel Surcharge Antitrust
Litig., 258 F.R.D. 167, 174 (D.D.C. 2009) (“[T]he continued need for supervision and the
increased number of disputes would further delay the case proceedings. Such prevention of
the ‘expeditious resolution of the lawsuit’ would prejudice plaintiffs.”); 1 McLaughlin on
Class Actions §3:10, at 454 (“Even if a stay of merits discovery is granted, the frequent
overlap between merits and class certification inquiries may make its enforcement fraught
with difficult line-drawing disputes.”).
4. Defendants Cite No Cases that Actually Support Their Position
Whether criticizing Judge Setser’s Report and Recommendation or citing other
Courts’ opinions, Defendants seem to have little regard for what any given judicial opinion
actually says. Defendants cite six cases in an attempt to create the impression that
bifurcating discovery is routine in “fraud-on-the-market” cases. Dkt. 151 at 6 n.1. Far from
supporting this erroneous contention, the cases Defendants cite do not explain why discovery
was bifurcated (or whether bifurcation was even contested), do not concern bifurcation, or
involved bifurcation after a plaintiff had already been granted substantial merits discovery.
The court in Groupon denied bifurcation and recognized the unhelpfulness of three of the
very cases on which Defendants rely (Dkt. 151 at 6 n.1):
The securities cases cited by the Defendants are wholly unpersuasive since they have no discussion about why discovery was bifurcated. See In re Northfield Labs. Inc. Secs. Litig., 264 F.R.D. 407 (N.D. Ill. 2009) (ruling on motion to compel); Smith v. Dominion Bridge Corp., No. 96-7580, 2007 U.S. Dist. LEXIS 26903, 2007 WL 1101272 (E.D. Penn. Apr. 11, 2007) (approving class action settlement) . . . . Lawrence E. Jaffe Pension Plan v. Household Int’l, Inc., No. 02 C 5893, 2004 U.S. Dist. LEXIS 18993, 2004 WL 2108410 (N.D. Ill. Sept. 21, 2004) (denying motion to compel plaintiff to provide a detailed calculation of damages sought)).
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2014 U.S. Dist. LEXIS 26212, at *9-*10 n.1.
The three other cases Defendants cite are similarly inapt. Defendants cite In re
Salomon Analyst Metromedia Litig., 544 F.3d 474 (2d Cir. 2008) three times in their brief.
Dkt. 151 at 6 n.1, 12, 16. Despite their repeated citations, Defendants neglect to mention that
there was no issue in In re Salomon regarding discovery bifurcation. Indeed, the opinion
does not even mention the word “bifurcation.” Instead, the only issue on appeal in that case
was whether the defendants should have had “the opportunity to rebut the Basic presumption
prior to class certification.” Id. at 486. There is no indication that merits discovery had been
stayed, and the Second Circuit neither ordered merits discovery stayed nor embraced any of
the defendants’ arguments as to how they would rebut the Basic presumption. In fact, the
only discovery limitation the Court discussed was in regard to the District Court’s discretion
to limit class-certification discovery. Id.
Defendants also cite In re Red Hat, Inc. Sec. Litig., No. 5:04-cv-473-BR, 2011 WL
4434053 (E.D. N.C. Sept. 22, 2011). Dkt. 151 at 6 n.1. But Red Hat was simply an order
granting a motion for certain law firms to share the attorneys’ fees and expenses allowed by
the Court in conjunction with its final approval of a settlement. 2011 WL 4434053, at *1. In
fact, the case is a perfect example of how protracted class-certification issues can be, as well
as how often an initial denial of class certification is not case-dispositive. There, the parties
proceeded with “some merits[] discovery” on September 19, 2006 (pursuant to the parties’
discovery schedule, merits document production proceeded along with class certification).
Id. at *2, *10. On May 11, 2007, the Court denied a motion for class certification. Id. at *3.
On November 13, 2007, the Court appointed a new lead plaintiff and a new lead counsel, and
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the parties proceeded with more merits discovery. Id. On August 29, 2009, the Court
granted a second motion for class certification. Id. at *4. The case settled over a year later.
Id. As this Court’s own review of Red Hat will confirm, the case does not support
Defendants’ motion.
Defendants save the least for last with their citation to Antonson v. Robertson, No. 88-
2567-V, 1990 WL 58028 (D. Kan. 1990). Dkt. 151 at 6 n.1. Defendants reached back a
quarter-century for this case – before the enactment of the PSLRA and its automatic
discovery stay. In fact, in Antonson, there was absolutely no stay of merits discovery
throughout the time during which the plaintiffs had filed an initial class-certification motion
and a renewed class-certification motion. Id. at *3. It was only after the plaintiffs had
already received or were allowed to receive substantial merits discovery, including
interrogatory answers and a Court-ordered production of approximately 40,000 documents,
that the Court ordered a temporary stay of discovery so the defendants could respond to the
plaintiffs’ renewed motion for class certification. Id. As the Court explained, “[a]lthough
we ordinarily might not stay discovery relating to the merits of the action pending class
determination, we find it necessary to relieve the burden on defendants in consideration of
our decision to grant plaintiffs’ motion to compel discovery.” Id. In other words, this is yet
another case that does not support Defendants’ request for a stay of merits discovery
following a stay of over 29 months and PGERS’ defeat of Defendants’ motion to dismiss.
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B. Defendants’ “Preview” of Their Class Certification Brief Proves Only that Defendants Have No Legitimate Basis to Oppose Class Certification
Defendants contend that they will defeat the fraud-on-the-market presumption at class
certification by showing that there was no significant share-price movement following their
December 8, 2011 misleadingly incomplete statement, rather than following the New York
Times’ April 21, 2012 revelation of the facts that Defendants had concealed and distorted.
See Dkt. 151 at 14. They claim that if they successfully make this showing, “PGERS cannot
meet its burden under Rule 23(b)(3), and a class cannot be certified because individualized
issues would predominate.” Id. Defendants’ approach makes about as much sense as would
that of a defendant who uses a photograph from Christmas morning to show that a gymnast
suffered no injuries, despite losing an arm and a leg after being struck by a drunk driver on
New Year’s Eve.
Here, as is true for all securities cases, there is no actual harm until the truth is
revealed. In other words, investors did not lose an arm and a leg until the Times revealed
what Defendants had concealed and distorted. See, e.g., Dura Pharms., Inc. v. Broudo, 544
U.S. 336, 344 (2005) (“a person who ‘misrepresents the financial condition of a corporation
in order to sell its stock’ becomes liable to a relying purchaser ‘for the loss’ the purchaser
sustains ‘when the facts . . . become generally known’ and ‘as a result’ share value
‘depreciate[s]’”); see also Schleicher v. Wendt, 618 F.3d 679, 683-84 (7th Cir. 2010)
(“[Defendants are liable for securities fraud regardless of whether their] false statements
(or . . . material omissions) propel the stock’s price upward . . . [or] were designed to slow
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the rate of fall.”); IBEW Local 98 Pension Fund v. Best Buy Co., No. 11-429 (DWF/FLN),
2014 U.S. Dist. LEXIS 108409, at *18 (D. Minn. Aug. 6, 2014) (same).
Defendants deliberately obfuscate the Supreme Court’s analysis in Halliburton Co. v.
Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”) when they contend that it
supports their argument that they could successfully rebut the fraud-on-the-market
presumption if Wal-Mart’s stock price did not change significantly when Defendants
concealed and distorted the facts and circumstances concerning their corruption. Dkt. 151 at
14. Post-Halliburton II decisions have explicitly rejected this very argument:
The Supreme Court only said that defendants “may seek to defeat the Basic presumption” with evidence that the misrepresentations did not impact the price. Id. at 2417 (emphasis added). Halliburton II by no means holds that in every case in which such evidence is presented, the presumption will always be defeated. Indeed, this Court has recognized the distinct role that confirmatory information may have in this analysis. See FindWhat, 658 F.3d at 1310 (“A corollary of the efficient market hypothesis is that disclosure of confirmatory information – or information already known by the market – will not cause a change in the stock price. This is so because the market has already digested that information and incorporated it into the price.”).
Local 703, I.B. of T. Grocery and Food Employees Welfare Fund v. Regions Fin. Corp., No.
12-14168, 2014 U.S. App. LEXIS 15106, at *24 (11th Cir. Aug. 6, 2014). In another post-
Halliburton II opinion, the Court in McIntire v. China MediaExpress Holdings, Inc., No. 11-
CV-0804(VM), 2014 U.S. Dist. LEXIS 113446, at *40 (S.D.N.Y. Aug. 15, 2014) observed
that, “[a] material misstatement can impact a stock’s value either by improperly causing the
value to increase or by improperly maintaining the existing stock price” (emphasis in
original).
Naturally, given the nature of this case, PGERS alleged and this Court observed, that
there was no significant price movement following Defendants’ concealment and distortion
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of material information. ¶31; Dkt. 146 at 4. Indeed, that was Defendants’ entire purpose: to
deceive investors so they would not know they were buying damaged goods. Thus, the only
relevant inquiry is whether the later revelation of this information demonstrated a price
impact. Defendants’ own $15/minute expert does not dispute that the Times’ revelation of
the facts that Defendants had concealed and distorted caused the April 24 and 25, 2012
collapse in Wal-Mart’s share price. This is what PGERS alleges (¶31), what Judge Setser
observed (Dkt. 133 at 4 and 10), what this Court observed (Dkt. 146 at 4), and what the
numbers prove. This is also precisely what every Court expects to see in a case such as this,
as demonstrated above. The fact that Defendants and their expert do not dispute this obvious
demonstration of price-impact confirms that Defendants’ entire promised rebuttal is just a
bluff.
C. Defendants’ “Other Ways” of Challenging Reliance Are Based on Unsupportable Speculation
Defendants’ other basis for challenging reliance, aptly titled “Defendants Are Entitled
To Rebut The Basic Presumption In Other Ways,” is a “kitchen-sink” argument that
substitutes rank speculation for actual facts and evidence.4 Put simply, every defendant in
every case could make the exact same arguments as Defendants make here, so accepting
these arguments would be tantamount to holding that merits discovery in all cases brought
under the PSLRA must be stayed until a class is certified. Once again, what Defendants
demand of this Court is completely contrary to the law.
4 “In order to establish good cause, ‘courts have insisted on a particular and specific demonstration of fact, as distinguished from stereotyped and conclusory statements.’” Groupon, 2014 U.S. Dist. LEXIS 26212, at *5.
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Defendants misleadingly invoke Halliburton II in purported support of the following
“other way”: “More commonly, the defendant may ‘rebut the presumption of reliance with
respect to an individual plaintiff by showing that he did not rely on the integrity of the
market price in trading stock.’” Dkt. 151 at 16 (citing Halliburton II, 134 S. Ct. at 2412).
Defendants’ citation suggests that rebutting the presumption with respect to an individual
investor would somehow defeat predominance. In truth, however, Halliburton II held just the
opposite:
“Basic does afford defendants an opportunity to rebut the presumption of reliance with respect to an individual plaintiff by showing that he did not rely on the integrity of the market price in trading stock. While this has the effect of “leav[ing] individualized questions of reliance in the case,” post, at 12, there is no reason to think that these questions will overwhelm common ones and render class certification inappropriate under Rule 23(b)(3). That the defendant might attempt to pick off the occasional class member here or there through individualized rebuttal does not cause individual questions to predominate.”
Halliburton II, 134 S. Ct. at 2412.5
Defendants then proceed to argue that “Wal-Mart expects class discovery to show that
the issue of reliance is inherently individualized in this case,” but such speculation is
meaningless in light of the Supreme Court’s statements in Halliburton II (above) and in
Basic Inc. v. Levinson, 485 U.S. 224, 246-47 (1988): “It has been noted that ‘it is hard to
imagine that there ever is a buyer or seller who does not rely on market integrity. Who
would knowingly roll the dice in a crooked crap game?’” Defendants’ contention that most
5 Defendants’ citation to Biben v. Card, No. 84-0844-cv-W-6, 1986 U.S. Dist. LEXIS 30808, at *34-*35 (W.D. Mo. Jan. 6, 1986) (Dkt. 151 at 16) raises yet another eyebrow inasmuch as Biben predates the PSLRA, predates Basic, predates Halliburton II, and still did not hold that a defendant could ever defeat a fraud-on-the-market presumption by simply picking off individual class members.
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investors’ purchase decisions would have been unaffected had they known the facts that
Defendants had concealed and distorted is also objectively disproved by the massive drop in
Wal-Mart’s share price after the Times’ revelations – revelations of far more omitted facts
and circumstances than the watered-down description in Defendants’ brief. Dkt. 151 at 17-
18. Accordingly, Defendants’ kitchen-sink arguments belong in the garbage disposal as they
are unsupported, unsupportable, and they conflict with both common sense and case law.
D. Defendants’ Challenges to PGERS’ Adequacy Are Ill-Timed and Ill-Advised
Defendants’ motion concludes with a shift from speculating to mud-slinging.
Defendants’ misguided attacks are never appropriate, but they are even more misplaced here,
where Defendants offered no opposition to PGERS’ appointment as Lead Plaintiff and where
there is no pending motion for class certification. Nevertheless, PGERS will point out just a
few of the many fundamental flaws in Defendants’ erroneous criticism.
1. Far from Disqualifying, PGERS’ Portfolio-Monitoring Agreements Confirms Its Responsibility
Defendants take issue with the possibility of a “monitoring agreement” between
PGERS and their counsel, which Defendants contend somehow undermines PGERS’
adequacy. Dkt. 151 at 22-23. Courts across the country, including within the Eighth Circuit,
have not only repeatedly rejected such attacks, but have openly wondered whether it would
be breach of duty for a fund not to enter into such monitoring agreements. For example, in
In re Am. Italian Pasta Co. Sec. Litig., 05-0725-CV-WODS, 2007 U.S. Dist. LEXIS 21365,
at *22 (W.D. Mo. Mar. 26, 2007), the Court rejected an adequacy challenge that was based
on a monitoring agreement between the lead plaintiff and class counsel: “The existence of a
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prior relationship between Lead Plaintiff and Class Counsel is not a problem; in fact, given
the extensive investments inherent in the operation of a pension fund, the Court is not
surprised Lead Plaintiff has arranged for a law firm to keep it apprised of events (including
lawsuits) that might be of interest. Arguably, a pension fund’s failure to take steps to be
aware of existing or prospective litigation that affects its investments would be an
abdication of duty.” See also Local 703, I.B. v. Regions Fin. Corp., No. CV 10-J-2847-S,
282 F.R.D. 607, 616 (N.D. Ala. 2012) (“[T]he nature of the ongoing relationship between
lead plaintiffs and [Robbins Geller] carries with it that [Robbins Geller] will pursue the
claims with vigor, as their future relationship with named plaintiffs depends on the same.”);
In re UTStarcom Secs. Litig., No. C 04-04908 JW, 2010 U.S. Dist. LEXIS 48122, at *28
(N.D. Cal. May 12, 2010) (“[T]he Court has previously rejected the contention that a
portfolio monitoring agreement renders a plaintiff inadequate to represent a class.”);
Plumbers & Pipefitters Nat’l Pension Fund v. Burns, 292 F.R.D. 515, 523 (N.D. Ohio 2013)
(“Courts have routinely rejected attacks on the propriety of portfolio monitoring agreements
such as the one between P&P and Robbins Geller.”).
2. Typicality Concerns the Nature of a Proposed Representative’s Claims
Defendants’ unwarranted attacks on PGERS as to typicality (Dkt. 151 at 23) ignore
the larger issue that typicality refers to the nature of a putative class representative’s claims,
rather than the representative’s individual characteristics. See Alpern v. UtiliCorp United,
Inc., 84 F.3d 1525, 1540 (8th Cir. 1996) (“[Typicality] is ‘fairly easily met so long as other
class members have claims similar to the named plaintiff.’”); see also In re Tricord Sys. Inc.
Sec. Litig., No. 3-94-746, 1996 U.S. Dist. LEXIS 20943, at *24 (D. Minn. Apr. 5, 1996)
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(“‘So long as plaintiffs rely upon the same legal theory and their claims arise from the same
course of conduct, the typicality requirement is satisfied.’”). To determine whether the
nature of PGERS’ claims are typical of those of the class, a look at the underlying merits of
the action may be necessary at the class certification stage. See Federal Judicial Center’s
Manual for Complex Litigation (Third) §30.12, at 215-16 (1995) (“Discovery relating to
class issues may overlap substantially with merits discovery. A key question in class
certification may be the similarity or dissimilarity between the claims of the representative
parties and those of the class members – an inquiry that may require discovery on the merits
and development of basic issues.”). At the appropriate time, PGERS will show that its
complaint satisfies the typicality factor. If Defendants persist in contesting this factor,
however, the next step, if any, would entail some exploration of the merits of PGERS’ claim.
Either way, the typicality factor plainly does not support bifurcation.
3. Courts Have Repeatedly Recognized PGERS’ Adequacy as a Class Representative
At bottom, Defendants’ attacks on PGERS are facially self-contradictory inasmuch as
Defendants assert that PGERS has been a “plaintiff in a large number of securities class
actions over the past several years.” Dkt. 151 at 20. Yet, every Court that has considered
PGERS’ adequacy, has confirmed PGERS’ adequacy to serve as a class representative. In
fact, this is true of the very case Defendants cite. Dkt. 151 at 21-22 (citing PGERS v.
Lockheed Martin Corp., 844 F. Supp. 2d 498 (S.D.N.Y. 2012) (confirming PGERS adequacy
as a class representative and the typicality of its claims in reaffirming its appointment as
class representative)). At the appropriate time, the Court will see what other Courts have
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seen: PGERS is a highly responsible fund run by conscientious, capable, and independent
individuals.
III. CONCLUSION
For all the foregoing reasons, PGERS respectfully requests that the Court deny
Defendants’ motion and order Defendants to comply with Federal Rule of Civil Procedure
26(f)(1), which mandates that “the parties must confer as soon as practicable . . . .”
DATED: October 27, 2014 Respectfully submitted, ROBBINS GELLER RUDMAN & DOWD LLP JASON A. FORGE DEBRA J. WYMAN
s/ JASON A. FORGE JASON A. FORGE
655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)
Lead Counsel for Plaintiff
PATTON TIDWELL SCHROEDER & CULBERTSON, LLP NICHOLAS H. PATTON GEOFFREY P. CULBERTSON 2800 Texas Blvd. Texarkana, TX 75503 Telephone: 903/792-7080 903/792-8233 (fax) [email protected] [email protected]
Liaison Counsel
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BARRETT JOHNSTON MARTIN & GARRISON, LLC DOUGLAS S. JOHNSTON, JR. TIMOTHY L. MILES Bank of America Plaza 414 Union Street, Suite 900 Nashville, TN 37219 Telephone: 615/244-2202 615/252-3798 (fax)
Additional Counsel for Plaintiff
Case 5:12-cv-05162-SOH Document 153 Filed 10/27/14 Page 29 of 32 PageID #: 2788
979506_1
CERTIFICATE OF SERVICE
I hereby certify that on October 27, 2014, I authorized the electronic filing of the
foregoing with the Clerk of the Court using the CM/ECF system which will send notification
of such filing to the e-mail addresses denoted on the attached Electronic Mail Notice List,
and I hereby certify that I caused to be mailed the foregoing document or paper via the
United States Postal Service to the non-CM/ECF participants indicated on the attached
Manual Notice List.
I certify under penalty of perjury under the laws of the United States of America that
the foregoing is true and correct. Executed on October 27, 2014.
s/ JASON A. FORGE JASON A. FORGE
ROBBINS GELLER RUDMAN & DOWD LLP 655 West Broadway, Suite 1900 San Diego, CA 92101-8498 Telephone: 619/231-1058 619/231-7423 (fax) E-mail: [email protected]
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