In Diamond case, judge appoints MissPERS — but not its lawyers

March 21, 2012

The Mississippi Public Employees Retirement System is not a professional securities class action plaintiff, according to U.S. District Judge William Alsup of San Francisco federal court. Late Tuesday, after a bruising fight between MissPERS and the New England Carpenters Guaranteed Annuity and Pension funds, Alsup appointed the Mississippi fund to lead a juicy securities class action against Diamond Foods. Alsup rejected arguments by the New England funds’ lawyers at Robbins Geller Rudman & Dowd that MissPERS had exceeded the statutory limit for lead counsel appointments.

“The [Mississippi] Attorney General’s office has managed numerous securities class actions, and such experience will improve representation of the class,” the judge wrote. “And considering its loss is seven times greater than New England Carpenter’s … the statutory purpose is served by appointing Mississippi PERS as lead plaintiff.”

But for securities lawyers, Alsup’s ruling is probably more interesting for what it doesn’t do. Since the Diamond Foods accounting scandal broke and securities fraud complaints began to be filed last November, MissPERS has been represented by Grant & Eisenhofer and Chitwood Harley Harnes, with Lieff Cabraser Heimann & Bernstein as California counsel. At the March 1 lead plaintiff hearing, James Sabella of G&E argued for the appointment of MissPERS.

Alsup didn’t appoint G&E or Chitwood Harley — or any other firm — as lead counsel, though. Instead, he ordered MissPERS to conduct due diligence on the firms that want to represent the fund in the Diamond litigation, taking into account the experience of the lead counsel candidates, as well as the fees the firms intend to charge. The judge ordered MissPERS to move for approval of its choice by April 30. “The motion should be accompanied by declarations from the lead plaintiff explaining the due diligence undertaken by each with respect to the selection of class counsel,” Alsup wrote. “The declarations should also explain why the counsel selected was favored over other potential candidates.”

The judge had hinted at the March 1 hearing that he might require MissPERS to undertake such an effort. After discussing fees for class counsel, Alsup asked Sabella what he thought of the idea of requiring the Mississippi fund to “get the overall best deal for the class rather than just go with whoever happens to be representing now.”

Sabella, to his credit, had a quick response: “I suspect that’s what Mississippi would do,” he said. “We don’t have any fee arrangement in place with Mississippi.” Sabella told the judge that the Mississippi fund has a panel of 13 plaintiffs’ firms it uses in securities class actions. Alsup replied that there’s no reason for the fund to limit lead counsel candidates to the 13 firms on the list.

Interestingly, the precedent Alsup cited most often in his ruling, In re Cavanaugh, is a 9th Circuit Court of Appeals decision that held then-U.S. District Judge Vaughn Walker erred when he picked a lead securities class action plaintiff based (in part) on its fee arrangement with its counsel. Alsup was careful to separate his selection of a lead plaintiff from that plaintiff’s fee negotiations.

MissPERS counsel (for now) Sabella referred me to the fund, which didn’t respond to a phone message. Darren Robbins of Robbins Geller, who represents the New England funds, was traveling and unavailable for comment.

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