Burke v. Ruttenberg, CV99-BU-3097-S.

Citation102 F.Supp.2d 1280
Decision Date07 April 2000
Docket NumberNo. CV99-BU-3097-S.,No. CV99-BU-3129-S.,CV99-BU-3097-S.,CV99-BU-3129-S.
PartiesPeter H. BURKE et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. Harold RUTTENBERG, et al., Defendants. George W. Massey, on behalf of himself and all others similarly situated, Plaintiff, v. Harold Ruttenberg, et al., Defendants.
CourtUnited States District Courts. 11th Circuit. United States District Court of Northern District of Alabama

Thomas L Krebs, J Michael Rediker, Patricia Diak, Ritchie & Rediker LLC, Birmingham, AL, Vincent F Kilborn, III, Kilborn & Roebuck, Mobile, AL, John W Haley, Bruce J McKee, Hare Wynn Newell & Newton, Birmingham, AL, David A McDonald, Mobile, AL, for Peter H Burke, Gregory L Horn, Jerome H Fiorella, Jerry B Schilleci, Sound Deals, Inc., plaintiffs.

Thomas L Krebs, J Michael Rediker, Patricia Diak, Ritchie & Rediker LLC, Birmingham, AL, Vincent F Kilborn, III, Kilborn & Roebuck, Mobile, AL, John W

Haley, Bruce J McKee, Hare Wynn Newell & Newton, Birmingham, AL, David A McDonald, Mobile, AL, Stuart M Grant, Grant & Eisenhofer PA, Wilmington, DE, for Wisconsin Investment Board, State of, plaintiff.

Thomas L Krebs, Ritchie & Rediker LLC, Birmingham, AL, M Clay Ragsdale, IV, M Clay Ragsdale PC, Birmingham, AL, Samuel H Rudman, Milberg Weiss Bershad Hynes & Lerach LLP, New York City, Stuart M Grant, Grant & Eisenhofer PA, Wilmington, DE, for Kenneth Bush, Edward Eubank, John Michael, plaintiff.

M Clay Ragsdale, IV, M Clay Ragsdale PC, Birmingham, AL, Samuel H Rudman, Milberg Weiss Bershad Hynes & Lerach LLP, New York City, for Louise Bush, plaintiff.

N Lee Cooper, Luther M Dorr, Jr, Maynard Cooper & Gale, Birmingham, AL, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, for Harold Ruttenberg, Don-Allen Ruttenberg, defendants.

N Lee Cooper, Luther M Dorr, Jr, Maynard Cooper & Gale, Birmingham, AL, David C Newman, Smith Gambrell & Russell, Atlanta, GA, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, for Eric L Tyra, Peter Berman, Cooper Evans, Patrick Lloyd, defendants.

N Lee Cooper, Luther M Dorr, Jr, Maynard Cooper & Gale, Birmingham, AL, James W Gewin, Joseph B Mays, Jr, Dylan C Black, Bradley Arant Rose & White, Birmingham, AL, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, John B Missing, Andrew M Herscowitz, Mandy Jones, Brobeck Phleger and Harrison, Washington, DC, for Michael P Lazarus, Randall L Haines, Bart Starr, Sr, defendants.

N Lee Cooper, Luther M Dorr, Jr, Maynard Cooper & Gale, Birmingham, AL, James W Gewin, Joseph B Mays, Jr, Dylan C Black, Bradley Arant Rose & White, Birmingham, AL, James R Carroll, George J Skelly, Skadden Arps Slate Meagher & Flom LLP, Boston, MA, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, John B Missing, Andrew M Herscowitz, Brobeck Phleger and Harrison, Washington, DC, for David F Bellet, Edward S Croft, III, Warren C Smith, Jr, John A Berg, defendants.

N Lee Cooper, Luther M Dorr, Jr, Maynard Cooper & Gale, Birmingham, AL, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, Paul A Straus, Michael J Malone, Battle Fowler, New York City, for Helen Rockey, defendant.

Michael L Edwards, Lee H Zell, Balch & Bingham LLP, Birmingham, AL, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, Michael R Young, Antonio Jr Yanez, Willkie Farr & Gallagher, New York City, for Deloitte & Touche LLP, defendant.

Michael L Edwards, Lee H Zell, Balch & Bingham LLP, Birmingham, AL, N Lee Cooper, Luther M Dorr, Jr, Maynard Cooper & Gale, Birmingham, AL, Jason M Halper, Dennis J Block, Cadwalader Wickersham & Taft, New York City, Antonio Jr Yanez, Willkie Farr & Gallagher, New York City, for Steven H Barry, Karen Baker, defendant.

David C Newman, M Clay Ragsdale, IV, M Clay Ragsdale PC, Birmingham, AL, Samuel H Rudman, Milberg Weiss Bershad Hynes & Lerach LLP, New York City, William S Lerach, Travis E Downs, III, Amber L Eck, Milberg Weiss Bershad Hynes & Lerach LLP, San Diego, CA, Steven E Cauley, Cauley & Geller, Little Rock, AR, for Just for Feet Plaintiffs Group, movant.

William T Stephens, Retirement Systems of Alabama, Montgomery, AL, for Retirement Systems of Alabama, movant.

James L North, James L North & Associates, Birmingham, AL, for Florida State Board of Administration, movant.

Thomas L Krebs, J Michael Rediker, Patricia Diak, Ritchie & Rediker LLC, Birmingham, AL, for Public Employees Retirement Systems of Ohio, movant.

Memorandum Opinion

BUTTRAM, District Judge.

The present consolidated actions involve claims of securities fraud in the purchase and sale of common stock of Just for Feet, Inc., ("Just for Feet" or "Feet") proscribed by section 10(b) of the Securities Exchange Act (the "Exchange Act"), 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5; claims of aiding and abetting violation of the Exchange Act in contravention of section 20 of the Exchange Act, 15 U.S.C. § 78t; and claims of insider trading prohibited by section 20A of the Exchange Act, 15 U.S.C. § 78t-1. Claims of fraud and professional negligence arising out of the same purchase and sale of Just for Feet common stock are raised under the law of the State of Alabama. There exists jurisdiction over the federal claims in these actions pursuant to 15 U.S.C. § 78aa and 28 U.S.C. § 1331. Supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367 is asserted.

Pending before the Court are the motions of competing parties, the State of Wisconsin Investment Board ("SWIB") and the self-styled "Just for Feet Plaintiffs Group" ("the Group"), for appointment as lead plaintiff in the instant securities fraud action pursuant to section 21D(a)(3)(B)(i) of the Exchange Act, as amended by the Private Securities Litigation Reform Act of 1995 ("the Reform Act"), 15 U.S.C. § 78u-4.1 The Court's original conclusion, after reviewing the materials initially filed by the contenders for the lead plaintiff position, was that each contender had advantages and disadvantages with regard to issues of typicality, adequacy, cohesiveness and amount of loss and that, as a consequence, the Court should flip a coin to decide who to appoint lead plaintiff. Rather than toss a coin in the privacy of chambers and inform the parties of its decision in a short order, the Court gave the contenders foreknowledge of its intention to have a public toss of the coin, along with the opportunity to negotiate an arrangement among themselves. This, the Court presumed, would be a fairer way of resolving the matter, all things being equal. In accord with its stated intention, the Court scheduled a public coin toss in its courtroom; however, as the appointed day approached, the contenders filed further motions, requesting that the Court reconsider its decision to hold a coin toss, or, at least, put the coin toss on hold for a brief amount of time. Upon receipt of these motions, the Court found more to consider in resolving the issue of lead plaintiff. As such, on the date of the coin toss and in the interest of making no decision in haste, the Court informed the contenders that the toss would be continued, pending resolution of the motions for reconsideration. It is to these motions for reconsideration that the Court now turns.2

BACKGROUND

Allegations Derived from the Complaints.3

The claims stated in the complaints stem from the actions of various individuals in the sale and purchase of Just for Feet common stock. Throughout the alleged class period, Just for Feet, although incorporated in Delaware, was principally an Alabama corporation, headquartered in Pelham, Alabama, and running its operations from there.4 Until trading was halted on November 2, 1999, shares of Feet common stock were publicly traded on the NASDAQ National Market System.

At the opening of the class period, Feet was a paradigmatic operator of large-scale specialty stores—large warehouse stores focusing on the sale of a single type of goods, such as casual clothing, books or housewares—the primary business of which was the sale of athletic and outdoor footwear to end-line customers. It operated fifty-four company-owned and eight franchised superstores in seventeen states and, after acquiring two smaller companies in March of 1997, it ran thirty company-owned and forty-eight franchised specialty stores in eighteen states and Puerto Rico. Allegedly, at this time, the overall market for the sale of athletic footwear was flagging; however, for the most part, Feet had purportedly managed, prior to the opening of the class period, to outperform the poor market and increase its sales and profits. Nonetheless, the complaints allege, the officers and directors of Feet were keenly aware of the continuing pressures of the market upon Feet's business and allegedly decided, in order to remain buoyed atop the shrinking market for the athletic footwear, to expand Feet's share of that market.5 The complaints aver that the officers and directors of Just for Feet decided to mask any losses incurred in the expansion through the use of fraudulent accounting practices, in order that the expansion occur with a minimum of dissent from shareholders.

In essence, the complaints allege that in each Form 10-Q or 10-K filed with the SEC, along with public releases touting Feet's performance, the Defendants made or participated in the making of several fraudulent misrepresentations by overstating the total sales of Feet, its gross and net income, and income per share, from April 1, 1997, until, apparently, the filing on September 15, 1999, of a Form 12B-25 statement of late filing which noted the forthcoming issuance of a statement reporting unfavorable second quarter performance.6 According to the complaints, in order to disguise the falsity of Feet's assertions regarding profitability and...

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