Owens v. FirstEnergy Corp.

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

DIANE OWENS, :

: Case No. 2:20-cv-03785

Plaintiff, :

: CHIEF JUDGE ALGENON L. MARBLEY

v. :

: Magistrate Judge Jolson

FIRSTENERGY CORP., et al., :

:

Defendants. :

_______________________________________

CHANA FRAND, :

: Case No. 2:20-cv-04287

Plaintiff, :

:

v. :

:

FIRSTENERGY CORP., et al., :

:

Defendants. :

OPINION AND ORDER

I. INTRODUCTION

On July 21, 2020, the U.S. Attorney for the Southern District of Ohio brought criminal

charges against Speaker of the Ohio House of Representatives, Larry Householder

(“Householder”), and four other individuals for their involvement in orchestrating a $60 million

bribery and racketeering scheme with FirstEnergy Corp. (“FirstEnergy” or the “Company”).

Following these charges, two FirstEnergy shareholders, Diane Owens and Chana Frand, each

brought securities class actions against the Company and certain Company executives, asserting

they improperly engaged in a corrupt campaign with Ohio politicians to secure legislation that

provided the Company with a $1.3 billion ratepayer-funded bailout to keep the Company’s failing

nuclear facilities in operation.

Currently before the Court are six motions to consolidate the related class actions.

Specifically, the following parties have moved the Court to consolidate: (1) James J. Durrett, Jr.;

(2) California Public Employees’ Retirement System (“CalPERS”); (3) Ironworkers Locals 40,

361 & 417 Union Security Funds (“Ironworkers Locals”); (4) State Teachers Retirement System

of Ohio (“Ohio STRS”); (5) Los Angeles County Employees Retirement Association

(“LACERA”); and (6) The City of Philadelphia Board of Pensions and Retirement (“Philadelphia

Pensions”). The cases subject to these motions include Owens v. FirstEnergy Corp., No. 2:20-cv-

03785 (S.D. Ohio) and Frand v. FirstEnergy Corp., No. 2:20-cv-04287 (S.D. Ohio).

The same six plaintiffs submitted motions to appoint lead plaintiff and approve selection

of lead counsel, but only three of these motions are currently active1: CalPERS, Ohio STRS, and

LACERA. Each of the active parties have responded to the competing motions.

Finally, Ohio STRS requested the Court to appoint it Co-Lead Plaintiff in its Response and

Reply to the Competing Lead Plaintiff Motions. (ECF Nos. 44, 58).

II. BACKGROUND

A. Facts

Taking the facts as stated by the movants, the security class actions have been brought

against FirstEnergy and certain Company executives for their roles in a large bribery and money-

laundering scandal that implicated Ohio politicians. FirstEnergy is an Ohio-based utility company

that generates and transmits electricity to approximately 6 million customers in seven states. (2:20-

1 Three of the parties later withdrew: James J. Durrett, Jr., Philadelphia Pensions, and Ironworkers Locals.

(No. 2:20-cv-03785, ECF Nos. 43, 61, 64).

cv-03785, Pl.’s Compl. ¶ 2, ECF No. 1). The fraud involved legislative and regulatory “solutions”

that FirstEnergy sought to procure from Ohio regulators to offset significant losses the Company

incurred from two aging, financially unsustainable Ohio nuclear power plants. (Id. at ¶ 3). Rather

than secure these solutions legitimately, the Company allegedly engaged in an illicit multi-year

campaign to funnel secretly tens of millions of dollars in bribes to Ohio legislators in exchange for

passing House Bill 6 (“HB6”), a $1.3 billion bailout funded by Ohio ratepayers. (Id.).

The campaign began in late 2016, when FirstEnergy faced significant financial strain due

to the two obsolete plants, and the Company announced it was pursuing “legislative efforts” to

resolve the problem. (Id. at ¶ 30). FirstEnergy met with Larry Householder (“Householder”) in

January 2017, shortly after he won back his seat in the Ohio House of Representatives, during a

flight on a private FirstEnergy jet. (Id. at ¶ 20). The Company promised to give millions of dollars

to Householder to support his bid for Speakership in exchange for his securing the passage of HB6.

(Id.). Within two months of this agreement, Householder established to a 501(c)(4) entity called

“Generation Now,” and FirstEnergy and its subsidiaries began making clandestine quarterly

payments of $250,000 to it. (Id. at ¶ 21). As lobbyist and co-conspirator, Neil Clark, stated in a

secretly recorded conversations, “Nobody knows the money goes into the [Householder’s]

account . . . it’s not recorded.” (Id.).

Householder’s bid for Speaker was successful, and he introduced HB6 in the Ohio state

legislature soon thereafter, in January 2019. (Id. at ¶ 23). This bill effectively prevented the

shutdown of FirstEnergy’s two money-losing Ohio nuclear plants by granting a ratepayer-funded

subsidy to “clean” energy generation. (Id.). FirstEnergy’s nuclear subsidiaries were the primary

beneficiaries of the bill; they were projected to collect approximately 94% of the payments, or

roughly $160 million annually. (Id.). Householder communicated frequently with FirstEnergy, its

affiliates, and Company executives throughout the period that encompassed HB6’s passage—for

example, throughout this six-month span, Householder called former FirstEnergy CEO Defendant

Jones at least 30 times. (Id. at ¶ 25). The Company achieved its aim in July 2019, when HB6 was

passed and signed into law. (Id. at ¶ 26).

Almost immediately, House Bill 6’s enactment was met with strong public outcry, and

citizens groups introduced a statewide ballot referendum seeking to repeal the bill. (Id.). In

response, FirstEnergy wired an additional $38 million through Generation Now and other covert

organizations. (Id.). Those additional funds paid for a media blitz attacking the initiative and for

efforts to thwart the collection of signatures in support of the referendum. (Id.).

Numerous indicators dating back to at least 2016 suggest that FirstEnergy and certain

Company executives concealed this scheme from the public, in part by making materially false

and misleading statements during the Class Period. For example, Company executives filed annual

and quarterly reports with the U.S. Securities and Exchange Commission (“SEC”) in 2016, 2017,

2018, 2019, and 2020—incorrectly claiming that FirstEnergy’s nuclear power business complied

with federal regulations. (Id. at ¶¶ 30−41). At the same time, the Company continued to highlight

the efforts of its management to secure a legislative fix for the problems posed by the unprofitable

nuclear facilities in Ohio to the SEC, analysts, and its investors. (Id.).

The U.S. Attorney’s Office for the Southern District of Ohio charged Householder and four

other Ohioans, including a former Chairperson of the Ohio Republican Party and a former budget

director for the Ohio Republican Caucus, on July 21, 2020. (Id. at ¶¶ 19, 43−46). Reports of

FirstEnergy’s involvement surfaced almost immediately. (Id. at ¶¶ 45−46). The next day, on July

22, 2020, FirstEnergy stock price fell 45%, from $41.26 per share to $22.85 per share. (Id. at ¶

47). FirstEnergy shareholders claim massive losses as a result of the declines precipitated by the

Company’s misconduct.

B. Procedural History

On July 28, 2020, Diane Owens filed a securities class action against FirstEnergy on behalf

all persons and entities that purchased or acquired FirstEnergy common stock between February

21, 2017 and July 21, 2020 (the “Class Period”). (No. 2:20-cv-03785, ECF No. 1). On August 21,

2020, Chana Frand filed an additional class action against FirstEnergy on behalf of persons and

entities that purchased or acquired securities of any type during the Class Period. (No. 2:20-cv-

04287, ECF No. 1). The actions assert that FirstEnergy and certain current and former executives

(collectively, “Defendants”) defrauded FirstEnergy investors in violation of § 10(b) and § 20(a) of

the Securities Exchange Act of 1934 (“Exchange Act”), 14 U.S.C. §§ 78j(b) and 78t(a), and SEC

Rule 10b-5, promulgated thereunder. (17 C.F.R. § 240.10b-5). The Court determined that the two

actions are related (the “Related Actions”) on October 8, 2020. (No. 2:20-cv-04287, ECF No. 24).

Various class members moved this Court to consolidate the Related Actions, appoint a lead

plaintiff, and approve the lead plaintiff’s selection of counsel. Those class members include James

J. Durrett, Jr.2, CalPERS3, Ironworkers Locals4, Ohio STRS5, LACERA6, and Philadelphia

2 Owens v. FirstEnergy, Corp., No. 2:20-cv-03785 (S.D. Ohio), ECF No. 27; Frand v. FirstEnergy,

Corp., No. 2:20-cv-04287 (S.D. Ohio), ECF No. 18.

3 Owens v. FirstEnergy, Corp., No. 2:20-cv-03785 (S.D. Ohio), ECF No. 28; Frand v. FirstEnergy,

Corp., No. 2:20-cv-04287 (S.D. Ohio), ECF No. 19.

4 Owens v. FirstEnergy, Corp., No. 2:20-cv-03785 (S.D. Ohio), ECF No. 30; Frand v. FirstEnergy,

Corp., No. 2:20-cv-04287 (S.D. Ohio), ECF No. 20.

5 Owens v. FirstEnergy, Corp., No. 2:20-cv-03785 (S.D. Ohio), ECF No. 32.

6 Owens v. FirstEnergy, Corp., No. 2:20-cv-03785 (S.D. Ohio), ECF No. 33.

Pensions7. Later, Plaintiffs James J. Durrett, Jr. and Philadelphia Pensions each filed noticed of

non-opposition to the competing motions to appoint lead plaintiff and lead counsel, and each

subsequently formally withdrew its motion for appointment. (No. 2:20-cv-03785, ECF Nos. 37,

42, 46, 61). Ironworkers Locals also withdrew. (Id., ECF No. 64).

On October 19, 2020, CalPERS, Ohio STRS, and LACERA responded to the above-listed

motions, opposing the competing motions for lead plaintiff and lead counsel. (ECF Nos. 43, 44,

and 45). On November 2, 2020, CalPERS and LACERA filed replies to the oppositional responses

to advance arguments as to why the other lead plaintiff candidates are less qualified for the

designation. (Id., ECF Nos. 56, 57, and 58). No class member has submitted a response opposing

consolidation. Ohio STRS also filed a response and a reply; in those filings, Ohio STRS requested

the Court to appoint it Co-Lead Plaintiff. (Id., ECF Nos. 44, 58).

Additionally, Ohio STRS filed a Motion for Leave to Submit a Sur-Reply to Competing

Lead Plaintiff Motions on November 11, 2020. (Id., ECF No. 60). In the Sur-Reply, Ohio STRS

raised a new argument about how the candidates’ financial interest in the case should be calculated.

Finally, the parties have jointly requested the Court to extend the time for Defendants’

response to the Complaint until after the Court appoints lead plaintiff and lead counsel (No. 2:20-

cv-03785, ECF No. 13; No. 2:20-cv-04287, ECF No. 28), which the Court granted. (No. 2:20-cv-

03785, ECF No. 15; No. 2:20-cv-04287, ECF No. 33). They anticipate that the Lead Plaintiff(s)

will file a consolidated or amended complaint after appointment and that Defendants will move to

dismiss such a complaint. (Id.).

7 Owens v. FirstEnergy, Corp., No. 2:20-cv-03785 (S.D. Ohio), ECF No. 31; Frand v. FirstEnergy,

Corp., No. 2:20-cv-04287 (S.D. Ohio), ECF No. 21.

III. LAW AND ANALYSIS

A. Consolidation

The Private Securities Litigation Reform Act (“PSLRA” or “Reform Act”) stipulates that,

when more than one securities class action asserting “substantially the same claim or claims arising

under this [chapter or subchapter] has been filed,” the Court must wait to determine the most

adequate plaintiff until “after the decision on the motion to consolidate is rendered.” 15 U.S.C. §

78u-4(a)(3)(B)(ii). The PSLRA encourages courts to appoint a lead plaintiff for the consolidated

action “[a]s soon as practicable after [the consolidation] decision is rendered.” Id.

Consolidation is appropriate when the actions before the court involve common questions

of law or fact. See Fed. R. Civ. P. 42(a). The underlying purpose of Rule 42 is to “administer the

court’s business with expedition and economy while providing justice to the parties.” Rice v.

Javitch Block & Rathbone, LLP, No. 2:04-cv-00951, 2012 WL 506833, at *3 (S.D. Ohio Feb. 15,

2012) (citing Advey v. Celotex, Corp., 962 F.2d 1177, 1181 (6th Cir. 1992)). Consolidation under

Rule 42 falls within the discretion of the Court. Cantrell v. GAF Corp., 999 F.2d 1007, 1011 (6th

Cir. 1993). To determine whether consolidation is appropriate, courts must consider a number of

factors, including the risks of prejudice to the parties and jury confusion, the burden on the parties

and available judicial resources, and the time and expense of litigating a single suit as compared

to multiple suits. Guild Assocs., Inc. v. Bio-Energy (Washington), LLC, 309 F.D.R. 436 (S.D. Ohio

2015). Courts find that “consolidation is particularly appropriate in securities class action

litigation.” French v. CBL Assocs. Props., Inc., No. 1:16-CV-165-TWP-CHS, 2016 WL 7668501,

at *1 (E.D. Tenn. Sept. 26, 2016).

Here, six class members have requested the Court to consolidate the Related Actions, and

no class member has opposed consolidation. Furthermore, the Related Actions involve the same

operative questions of fact and law. Both actions contend that Defendants issued materially false

and misleading statements and omissions regarding the Company’s legislative efforts, which

artificially inflated the price of FirstEnergy’s securities and subsequently damaged the putative

class when the price of those securities fell after the criminal charges were filed. Accordingly, the

Related Actions each assert claims under the Exchange Act on behalf of investors who were

allegedly defrauded by FirstEnergy and certain Company directors and officers. Given these

commonalities, the Court finds that consolidation will promote judicial economy and conserve the

parties’ resources by preventing the duplicative motions, discovery, and trials that would result

from litigating each action separately. The Court also finds that consolidation is unlikely to

prejudice the rights of any party. The Court therefore GRANTS the motions to consolidate the

Related Actions.

B. Legal Framework of the PSLRA

The PSLRA sets forth procedures for appointing the lead plaintiff in class actions brought

under the Exchange Act. The Reform Act directs courts to appoint a lead plaintiff during the initial

stage of litigation and “as soon as practicable” after consolidation. 15 U.S.C. § 78u-4(a0(3)(B)(ii).

The PSLRA further requires the chosen lead plaintiff to be able to represent adequately the

interests of all class members. 15 U.S.C. § 78u-4(a0(3)(B)(i) (“[T]he court . . . shall appoint as

lead plaintiff the member or members of the purported plaintiff class the court determines to be

most capable of adequately representing the interests of class members. . .”).

Candidates for lead plaintiff must file a certification that states the following:

(i) . . . the plaintiff has reviewed the complaint and authorized its filing;

(ii) . . . the plaintiff did not purchase the security that is the subject of the complaint at the

direction of plaintiff’s counsel in order to participate in any private action arising under

this chapter;

(iii) . . . the plaintiff is willing to serve as a representative party on behalf of a class,

including providing testimony at deposition and trial, if necessary.

15 U.S.C. § 78u-4(a)(2)(A)(i)−(iii). The certification must also detail the plaintiff’s transactions in

the company’s stock, disclose any action in which the plaintiff has served as lead plaintiff in the

past three years, and include a pledge that the plaintiff will not accept payment for serving as a

representative party in excess of the plaintiff’s pro rata share. 15 U.S.C. § 78u-4(a)(2)(A)(iv)–(vi).

To determine which candidate should be designated lead plaintiff, courts engage in a two-

step inquiry, first “calculating which candidate has the largest financial interest, and then

determining whether that candidate meets the typicality and adequacy requirements of Rule 23(a).”

In re Cardinal Health, Inc. Sec. Litig. (“Cardinal Health I”), 226 F.R.D 298, 302 (S.D. Ohio 2005)

(citing In re Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002)). The Reform Act presumes that the

most adequate plaintiff is the candidate with the largest financial interest, so long as that candidate

satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure:

[T]he court shall adopt a presumption that the most adequate plaintiff in any private action

arising under this chapter is the person or group of persons that⸺

(aa) has either filed the complaint or made a motion in response to a notice . . . ;

(bb) in the determination of the Court, has the largest financial interest in the relief

sought by the class; and

(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil

Procedure.

15 U.S.C. § 78u-4(a)(3)(B)(iii). This presumption can be overcome by showing that the candidate

with the largest financial interest will be subject to unique defenses or is otherwise inadequate. 15

U.S.C. § 78u-4(a)(3)(iii)(II). Below, the Court analyzes the extent to which each lead plaintiff

candidate meets the criteria established by the PSLRA.

C. Largest Financial Interest

The PSLRA does not provide a definitive method for determining the largest financial

interest in securities class actions, but most courts employ a four-factor inquiry called the Olsen-

Lax test. See 7 Newberg on Class Actions § 22:42 (5th ed.); see also Cardinal Health I, 226 F.R.D.

at 302−03; Cardinal II, 2020 WL 339660, at *5. Under this test, courts consider: “(1) the number

of shares purchased during the class period; (2) the number of net shares purchased during the

class period; (3) the total net funds expended during the class period; and (4) the approximate

losses suffered.” La. Sheriffs’ Pension & Relief Fund v. Cardinal Health, Inc. (“Cardinal Health

II”), No. 2:19-cv-3347, 2020 WL 3396660, at * 5 (S.D. Ohio June 19, 2020). The Olsen-Lax test

has been widely accepted because it provides courts with helpful additional information for

measuring financial stake beyond the ultimate question of damages. Cardinal Health I, 226 F.R.D.

at 303 (citing Manual for Complex Litigation § 31.31 (4th ed. 2004)). The objective indicators

included in Olsen-Lax “reveal[] whether plaintiffs actually profited during the Class Period from

the inflated stock prices.” Id. Nevertheless, the trial retains full discretion over the specific methods

used to calculate loss “and the factors considered in determining each [candidate’s] financial

interest.” Blitz v. AgFeed Indus., Inc., No. 3:11-0992, 2012 WL 1192814, at *7 (M.D. Tenn. Apr.

10, 2012) (quoting Garden City Emps.’ Ret. Sys. v. Psychiatric Sols., Inc., No. 3:09-01211, 2010

WL 1790763, at *3 (M.D. Tenn. Apr. 30, 2010)).

In their motions to appoint lead plaintiff and lead counsel, the parties declared their

financial interests, providing information on their FirstEnergy common stock transactions during

the Class Period, including total shares purchased, net shares purchased, net expenditures, and

losses calculated via two different methodologies.

Candidate 1. Total 2. Net Shares 3. Net 4(a). LIFO 4(b). FIFO

Purchases Purchased Expenditures Losses Losses

3,566,272 1,364,653 ($50,382,601) | ($10,961,187) | ($17,591,256)

1,522,037 654,495 ($30,715,523) ($11,701,584) ($11,701,584)

369,877 172,529 ($6,298,105) ($1,262,281) ($1,695,778)

33,722 14,796 ($715,628) ($288,208) ($288,208)

While the candidates generally agree on the above figures, CalPERS® and LACERA? have each

contested how the other incorporates its FirstEnergy bond transactions into its disclosures. The

same two class members also dispute how the largest financial interest should be determined."

8 CalPERS argues that LACERA included losses from two bonds in its financial disclosures that are

unrelated to the claims in the Related Actions because it sold those bonds at least three months before the

July 21, 2020 corrective disclosure that revealed FirstEnergy’s fraudulent scheme. (ECF No. 43 at 8 &

n.9.). Because these two bonds account for 98% of its bond-related losses, CalPERS submits that LACERA

presents an inaccurate calculation that distorts its actual LIFO losses. Id.

4, LIFO Losses

. 1. Total 2. Net 3. Net Excluding Bonds

Candidate Purchases Purchases | Expenditures 4. LIFO Losses Sold Before

07/21/2020

7,000,000 7,000,000 ($6,989,500) ($27,440) ($27,440)

2,783,000 454,000 ($602,922) ($152,168) ($2,565)

CalPERS admits, though, that this change in bonds calculation only impacts LACERA’s overall LIFO

losses (which includes both bonds and common stocks) by 1.28%. (ECF No. 43 at 8).

° LACERA contends that CalPERS’ true gains from its transactions in FirstEnergy bonds are obscured

because CalPERS omitted its $534,000 gain on its Class Period purchase of FirstEnergy 2.65% bonds in its

calculation. (ECF No. 45 at 2 n.2, 9 & n.12). Additionally, LACERA asserts that CalPERS omitted millions

of dollars’ worth of FirstEnergy subsidiary bonds that it purchased during the Class Period and that, if

incorporated, would decrease CalPERS’ financial interest in this case. (/d.).

Tronworkers Locals has withdrawn its motion for appointment as lead plaintiff. (ECF No. 64). STRS Ohio

concedes that it does not have the largest financial loss of the candidates for lead plaintiff.

11

They disagree about which method should be used to calculate loss under the fourth Olsen-Lax

factor, whether bond gains should be aggregated with the loss, and the extent to which the other

three Olsen-Lax factors should be considered. The Court considers these arguments in turn.

1. Loss Calculation Methodology

CalPERS implores the Court to use the First-In First-Out (“FIFO”) method to calculate

losses, while LACERA urges the Court to use the Last-In First-Out (“LIFO”) method.

Additionally, Ohio STRS argues that LIFO losses should be calculated according to the Dura

damages analysis.

a. FIFO vs. LIFO

The FIFO method calculates loss according to the following process:

[T]he first shares sold are matched against the first shares purchased. If the ‘first shares

purchased’ are pre-class period purchases, then the first shares sold are matched against

these pre-class purchases and the resulting gain or loss is excluded from the loss

calculation. Thereafter, class period sales are matched against class period purchases to

calculate losses. For any shares retained at the end of the class period, those shares are

assigned a value, often a 60-day or 90-day post-fraud disclosure average.

Under this approach, a lead plaintiff candidate can “zero[] out” class period sales by matching

them to pre-class period purchases, which can “grossly inflate[]” damages to institutional

investors. Cardinal Health I, 226 F.R.D. at 303; In re Goodyear Tire & Rubber Co. Sec. Litig.,

No. 5:03 CV 2166, 2004 WL 3314943, at *4 (N.D. Ohio May 12, 2004).

By contrast, under the LIFO approach, a plaintiff’s gains during the class period are offset

from its ultimate losses. This is because the “plaintiff’s sales of the defendant’s stock during the

class period are matched against the last shares purchased.” Cardinal Health I, 226 F.R.D. at 304.

In other words, LIFO helps to reveal whether plaintiffs actually profited from class period

transactions due to inflated stock prices. The LIFO method aligns better with the Olsen-Lax test

because both inquiries focus on transactions occurring during the class period. Id. (citing In re

Comdisco Sec. Litig., No. 01 C 2110, 2004 WL 905938, at *3 (N.D. Ill. Apr. 26, 2004); see also

In re Goodyear, 2004 WL 3314943, at *7 (demonstrating how the Olsen-Lax test exposed a

candidate’s attempts to hide its gains using the FIFO method). Finding that the LIFO method more

accurately depicts the financial interests of lead plaintiff candidates in securities class actions, this

Court opts to use the LIFO method.

It is true that courts in the Southern District of Ohio sometimes use FIFO to calculate loss

when determining financial interest in securities class action cases. CalPERS cites two instances

in particular: Cardinal Health II and Cardinal Health I. The reasons for using FIFO in these cases,

however, do not apply here. In Cardinal II, the court applied the FIFO method because one party

first presented its losses using FIFO but then later condemned that method. 2020 WL 3396660, at

*6 (citing Garden City Emps. Ret. Sys., 2010 WL 1790763 (M.D. Tenn. Apr. 30, 2010) (“The

Sixth Circuit has expressed disapproval for vacillating advocacy such as this, especially as it

pertains to calculating losses for appointment as lead plaintiff.”). In Cardinal Health I, this Court

explained that it “resort[ed] to the FIFO methodology for the immediate narrow purpose” of

evaluating the lead plaintiff candidates because they “did not provide the Court with a breakdown

of losses under LIFO” but had provided FIFO losses, which constituted “enough information to

conclude that the designated Lead Plaintiff is the same under either methodology.” 226 F.R.D. at

304 (internal quotations omitted) (quoting Thompson v. Shaw Grp., No. Civ.A.04-1685, 2004 WL

2988503, at *5 (E.D. La. Dec. 14, 2004)). The Court explicitly noted that its use of FIFO “in no

way demonstrated a modicum of approval of FIFO.” Id. Neither of these extraneous circumstances

apply to the case before the Court here, which does not warrant using the FIFO method.

b. Dura Damages Analysis

Ohio STRS submits that the greatest financial interest is not as straightforward as the other

candidates have presented because they fail to account for Dura Pharmaceuticals, Inc. v. Broudo,

544 U.S. 336 (2005), which is the “seminal Supreme Court case concerning the plaintiff’s ability

to recover in a PSLRA action.” Galmi v. Teva Pharms. Ltd., 302 F. Supp. 3d 485, 498 (D. Conn.

2017).11 Dura held that plaintiffs in securities fraud actions must prove a causal connection

between their losses and the defendants’ misconduct in order to recover damages. Dura Pharms.,

Inc. v. Broudo, 544 U.S. 336, 342−43 (2005). If a plaintiff sells its shares before the first corrective

disclosure about the company, the causal connection is lacking, and there is no recoverable loss.

Id.

Courts in the Second Circuit read Dura to require courts to consider this causal connection

when evaluating financial interest at the lead plaintiff stage. See, e.g., Sallustro v. CannaVest

Corp., 93 F. Supp. 3d 265, 273 (S.D.N.Y. 2015) (“[W]hen evaluating a plaintiff’s financial interest

for purposes of selecting a lead plaintiff, courts in [the Second] Circuit consider that plaintiff’s

recoverable loss, and do not take into account losses from shares sold prior to corrective

disclosures.”) (collecting cases).

In the case sub judice, only one corrective disclosure occurred: the July 21, 2020 arrest of

Larry Householder and related revelation that FirstEnergy was at the center of the corruption

scheme. Ohio STRS recalculates CalPERS’ and LACERA’s losses, using both LIFO and FIFO

calculations, by excluding the losses and gains they incurred prior to that date.

11 On November 11, 2020, Ohio STRS requested leave to file a sur-reply on the issue of calculating

financial interest, asserting that other candidates for lead plaintiff missed a material issue that informs the

proper calculation method. (No. 2:20-cv-03785, ECF No. 60).

Candidate FIFO Loss Dura FIFO Loss LIFO Loss Dura LIFO Loss

CalPERS ($17,591,256) ($24,333,538) ($10,961,187) ($13,268,715)

LACERA ($11,701,584) ($12,220,756) ($11,701,584) ($9,604,670)

Most courts in the Sixth Circuit do not adopt the Dura analysis to calculate financial

interest at the lead plaintiff stage. See, e.g., Blitz, 2012 WL 1192814, at *4 (rejecting the Dura

damages analysis because it “was not a case involving the appointment of a Lead Plaintiff under

the PSLRA, and Dura does not discuss FIFO or LIFO losses”). This Court agrees with this majority

and declines to use the Dura method to calculate the lead plaintiff candidates’ losses.

2. Bonds

CalPERS and LACERA also disagree about whether FirstEnergy bond and common stock

losses should be offset with gains from different FirstEnergy bonds (i.e., those with different

CUSIP identification numbers), including bonds from FirstEnergy subsidiaries. CalPERS did not

offset gains from transactions in different debt securities, while LACERA did offset. This issue is

largely academic because LACERA demonstrates greater LIFO losses under either approach.

CalPERS argues that LIFO losses (which include losses from bonds and common stocks)

should not be offset with gains from different FirstEnergy bonds. CalPERS highlights that some

courts that have found offsetting stock losses with gains from other profitable transactions to be

inconsistent with the language of the PSLRA. See, e.g., In re Sepracor Inc. Sec. Litig., 233 F.R.D.

52, 54 (D. Mass. 2005) (“I find a transaction-based methodology, which allows claims for

unprofitable transactions without offsetting that recoverable loss with gains from profitable

transactions, to be more consistent with the provisions of the statute and rule.”); Argent Classic

Convertible Arbitrage Fund L.P. v. Rite Aid Corp., 315 F. Supp. 2d 666, 680 (E.D. Pa. 2004) (“The

language of Section 10(b) and Rule 10b-5 is more consistent with a transaction-based methodology

than a cumulative one.”). CalPERS also points to settlement plans of allocation in securities class

actions, which it says typically employ formulas that do not offset gains on different securities and

instead set the recognized loss to zero for securities with a gain.12

LACERA argues that stock losses should be offset by bond gains and that doing so is not

inconsistent with the PSLRA. In support, it highlights that the Exchange Act expressly forbids

individuals from recovering “a total amount in excess of the actual damages to that person on

account of the act complained of.” 15 U.S.C. § 78bb(a)(1). LACERA argues that the Court should

not allow CalPERS to “calculate its financial interest with respect to one security that is the subject

of the complaint while ignoring the Class Period gains it experienced on another” because doing

so enables the hiding of gains. (ECF No. 57 at 12 n.12). Accordingly, LACERA advocates for the

following loss calculation:

FirstEnergy Bonds Combined

FirstEnergy Common Stock

with Offsetting Gains Losses

1. Total 2. Net 3. Net 1. Total 2. Net 3. Net 4. LIFO

Candidate

Purchases Purchases Expenditures Purchases Purchases Expenditures Losses

CalPERS 3,566,272 1,364,653 ($50,382,601) 27,000,000 27,000,000 ($26,975,300) ($10,447,827)

LACERA 1,522,037 654,495 ($30,715,523) 14,162,000 4,951,000 ($5,113,030) ($11,497,045)

Both parties acknowledge that LACERA has the largest LIFO losses, regardless of whether

the Court looks solely to common stock transactions or to both stock and bond transactions. Under

the combined approach, the disparity between CalPERS’ and LACERA’s losses grows from

approximately $740,000 to over $1 million.

12 For example, in the In re Enron Corp. Securities Litig. Plan of Allocation, the parties agreed: “In the

case of Enron common stock and options on that stock, gains and losses on both the stock and options

will be combined and thereafter netted against each other. In all other cases, gains and losses will not be

netted or aggregated across different Eligible Securities.” (ECF No. 43-1, Ex. 7, at 4).

Combined Stock Losses &

Bond Gains under LIFO Stock Losses under LIFO

Bond Gains under LIFO

CalPERS $513,360 ($10,961,187) ($10,447,827)

LACERA $204,538 ($11,701,584) ($11,497,045)

Difference CalPERS: + $308,822 LACERA: − $740,397 LACERA: − 1,049,218

Because these figures do not affect the Court’s determination of financial interest for

purposes of appointing a lead plaintiff, the Court need wade into the merits of this technical issue

now. Such arguments will be more pertinent to the calculation of damages, if and when an award

of damages occurs. Under the LIFO method, as both CalPERS and LACERA acknowledge,

LACERA is the lead plaintiff candidate with the most significant stock losses. While CalPERS

also demonstrates substantial LIFO losses, the Court finds that the fourth Olsen-Lax factor weighs

in favor of LACERA using this methodology.

3. Weight of the Olsen-Lax Factors

Both parties acknowledge that LACERA has the largest LIFO losses regardless of how the

Court treats bond gains, but they disagree about the extent to which the Court should consider the

non-loss Olsen-Lax factors. CalPERS argues that all four Olsen-Lax factors are important in

determining which lead plaintiff candidate has the largest financial interest. It also contends that

the second factor, the number of net shares purchased during the class period, should be given the

greatest weight. LACERA maintains that the amount of loss alone controls the issue of financial

interest and that the other three factors are unilluminating. Neither the PSLRA nor a unified judicial

approach makes clear “what weight these factors should be given in relation to the amount of loss.”

In re Bally Total Fitness Sec. Litig., No. 04C3530, 2005 WL 627960, at *2 (N.D. Ill. Mar. 15,

2005).

a. Considering All Four Olsen-Lax Factors

CalPERS submits that the Court should consider all four Olsen-Lax factors when

appointing Lead Plaintiff rather than looking solely to loss, citing three decisions from district

courts within the Sixth Circuit: City of Hollywood Firefighters’ Pension Fund v. TransDigm Grp.,

Inc., No 1:17-dv-1677, 2017 WL 6028213 (N.D. Ohio Dec. 5, 2017); Pio v. Gen. Motors Co., No.

14-11191, 2014 WL 5421230 (E.D. Mich. Oct. 24, 2014); and In re Goodyear, 2004 WL 3314943.

Each of these cases, however, present unusual circumstances that render loss an inadequate factor

on its own. In City of Hollywood, one of the candidates “sold out its position [stock] during the

class period,” which negated the candidate’s loss. 2017 WL 6028213, at *2. Moreover, the

difference in the losses between the two lead plaintiff candidates was only approximately $35,000.

Id. at *9.13 In Pio, the lead plaintiff candidates employed varying calculation methods from brief

to brief, making it impossible for the court to compare their losses fairly. 2014 WL 5421230, at

*4; see also In re Network Assocs., Inc. Sec. Litig., 76 F. Supp. 2s 1017, (N.D. Cal. 1999) (relying

on net shares purchased because the parties submitted confusing and erroneous financial figures).

And in Goodyear, one of the candidates engaged in and benefitted from an alleged fraud. 2004

WL 3314943, at *4. None of these circumstances apply here.

CalPERS also highlights several courts that choose to consider all four Olsen-Lax factors

when one candidate’s loss under the fourth factor are only slightly higher than other candidates’

13 CalPERS also highlights that the Sixth Circuit upheld the district court’s consideration of all four Olsen-

Lax factors. In re Dist. 9, Int’l Ass’n of Machinists & Aero. Workers Pension Tr., No. 18-3154, 2018 App.

LEXIS 8715, at *3 (6th Cir. Apr. 5, 2018). The Sixth Circuit found that the objecting candidate did not

show a “clear abuse of discretion by the district court in basing its determination on the four [Olsen-Lax]

factors” because the court did not disregard any specific provision of the PSLRA. Instead, the PSLRA

directs the court to appoint the lead plaintiff that it “determines to be most capable of adequately

representing the interests of the class members[.]” Id. at *2−3 (quoting 15 U.S.C. § 78u-4(a)(3)(B)(i)).

losses. These cases derive from the Southern District of New York, and they typically involve loss

differentials of $20,000 or less. See, e.g., Cortina v. Anavex Life Sci. Corp., No. 15-CV-10162

(JMF), 2016 WL 1337305, at *2 (S.D.N.Y. Apr. 5, 2016) (holding that significantly higher net

shares purchased and net funds expended outweigh a $1,132 loss differential, which “only slightly

favors” the competing candidate); Westchester Putnam Cntys. Heavy & Highway Laborers Local

60 Benefit Funds v. Brixmore Prop. Grp., Inc., No. 16-CV-02400 (AT)(SN), 2016 WL 11648466,

at *2 (S.D.N.Y. Nov. 29, 2016) (appointing a lead plaintiff that the first three factors

“overwhelmingly” favored over a candidate that incurred a $20,884 larger loss); Alkhoury v.

Lululemon Athletica, Inc., No. 13 Civ. 4596 (KBF), 2013 WL 5496171, at *1 (S.D.N.Y. Oct. 1,

2013) (holding that a “slightly higher” loss amount of approximately $2,000 was a “negligible

difference” and was “insufficient to outweigh the substantial financial interest . . . evidenced by

other factors”).

The facts of this case do not align with the cases CalPERS cites from within the Sixth

Circuit or the Southern District of New York. Unlike the relatively small loss differentials in the

New York cases, here there is a significant disparity between the two candidates’ losses. LACERA

has a $740,397 greater financial loss than CalPERS under the LIFO calculation that excludes bond

gains, and a $1,049,218 greater LIFO loss if the calculation includes the offsetting gains. There is

likewise no evidence that LACERA sold out its position during the Class Period, used

impermissible loss calculation methods in the pleadings, or engaged in fraud. Thus, the Court does

not find the line of cases CalPERS cites to be controlling in this case. Instead, this Court follows

the dominant approach in the Southern District of Ohio and in the Sixth Circuit at large, which is

to treat the loss factor as determinative. The Court details this approach and its corresponding case

law in Subsection (c) below.

b. Net Shares Purchased as the Determinative Factor

Additionally, CalPERS proposes that the second Olsen-Lax factor, net shares purchased,

be given the greatest weight because this factor represents “recoverable losses” by focusing on the

shares purchased during and retained at the end of the Class Period. See Pio, 2014 WL 5421230,

at *4 (noting “some courts have found the second factor—retained shares—to be the most

determinative factor in approximating an investor’s potential recovery”). In CalPERS’ view, the

significance of this factor is especially evident when applying the “retained shares” methodology.

See id., at *5 & n.5 (citing Eichenholtz v. Verifone Holdings, Inc., No. C 07-06140-MHP, 2008

WL 3925289, at *4 (N.D. Cal. Aug. 22, 2008)). Under this approach, the court calculates losses

on the retained shares using the following criteria:

[I]f a share was not sold within 90 days subsequent to [the date the fraud was disclosed to

the public], the loss is to be measured using an average of the daily closing price of [the

target company’s] stock during the 90-day period beginning [on the disclosure date]. If a

share was sold within 90 days subsequent to [the disclosure date], the loss is to be measured

using the higher of the actual sale price or an average of the daily closing price from [the

disclosure date] to the date of sale.

Id. (alterations in original). Applying the retained shares methodology, CalPERS calculates that it

has $16,925,109 in recoverable losses while LACERA has $7,990,524 in recoverable losses. (No.

2:20-03785, ECF No. 43 at 6).

As previously discussed, the Pio case presented the Court with unusual challenges because

the parties submitted a wide array of methodologies and criteria for calculating financial loss. Pio,

2014 WL 5421230, at *4 (“[The movants] have not framed their arguments in [Olsen-Lax] factor

terms, instead presenting a dizzying array of damages calculations in their briefs and

declarations.”) (internal quotations omitted). To avoid “wading through complex [and] fact-

dependent arguments relative to the parties’ calculations,” the Court instead opted to use the

retained shares calculations that one party submitted “for purposes, only, of assessing the final Lax

factor.” Id. at *7. The Pio court’s use of the retained shares methodology has since been recognized

as a “proxy for estimating total loss” that is not necessary when the parties present more

straightforward loss calculations. St. Clair Cnty. Emps.’ Ret. Sys. v. Acadia Healthcare, No. 3:18-

cv-00988, 2019 WL 494129, at *4−*5 (M.D. Tenn. Jan. 9, 2019) (“The Court finds no reason to

depart from its prior practice of looking to the fourth Olsen-Lax factor as the most important.”).

Here, the figures that LACERA and CalPERS have submitted facilitate the Court’s consideration

of the loss factor without presenting the need for relying on the candidates’ retained shares. The

Court therefore declines to resort to this method and does not treat the parties’ net shares purchased

as the most instructive Olsen-Lax factor.

c. Loss as the Determinative Factor

LACERA emphasizes that most courts in the Sixth Circuit14 adopt the fourth factor, loss,

as the most important in determining financial interest. For example, in Cardinal Health II, Judge

Sargus recently observed that “most courts have emphasized that greater consideration ought to be

given to the fourth factor: approximate losses suffered.” 2020 WL 3396660, at *6 (finding the

candidate with the greatest losses to have the most significant financial interest, even though two

of the Olsen-Lax factors favored the other candidate); see also Acadia Healthcare Co., Inc., 2019

WL 494129, at *3 (appointing the candidate with $80,000 greater loss despite the competing

movants’ larger total and net shares purchased and greater net expenditures).

In Cardinal Health I, this Court also relied on the loss factor to appoint lead plaintiff. 226

F.R.D. 298 at 302−05. This Court explained that the other Olsen-Lax factors provide “additional

14 LACERA also notes that the Lax case itself determined that one candidate had the largest financial

interest “owing to the fact that the plaintiffs that make up the group have suffered the largest alleged losses.”

Lax v. First Merchants Acceptance Corp., No. 97 C 2715, 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997).

information” that can reveal whether lead plaintiff candidates “actually profited during the Class

Period from the inflated stock prices.” Id. at 304 (quoting Thompson, 2004 WL 2988503, at *4)

(“[U]nder the LIFO approach, a plaintiff’s sales of the defendant’s stock during the class period

are matched against the last shares purchased, resulting in an offset of class-period gains from a

plaintiff’s ultimate losses.”). Such additional information is helpful in cases where the parties do

not submit LIFO-calculated losses, as the parties did not in Cardinal Health I. Here, however, the

additional factors are less useful because the LIFO method incorporates them into its calculation

methodology. Since the LIFO method performs the same disclosure function by exposing

candidates who experience net gains during the class period, the non-loss Olsen-Lax factors have

less utility when the Court is able to use LIFO to calculate loss.

Two cogent circuit court decisions informed this Court’s approach in using loss as the most

important Olsen-Lax factor in Cardinal Health I: In re Cendant Corp. Litigation, 264 F.3d 201

(3rd Cir. 2001) and In re Cavanaugh, 306 F.3d 726. See id. at 304−05. In Cendant Corp., the Third

Circuit asserted nine times that the candidate with the “largest losses” will be the lead plaintiff if

it satisfies the typicality and adequacy requirements. 264 F.3d at 264−68 (finding that the

“threshold determination” is “whether the [candidate] with the largest financial losses” also

satisfies the Rule 23 adequacy and typicality requirements). Similarly, in Cavanaugh, the Ninth

Circuit found that “district court[s] must consider the losses allegedly suffered by the various

plaintiffs before selecting [] the ‘presumptively most adequate plaintiff’” to serve as lead. 306 F.3d

at 729−30. As it did in Cardinal Health I, this Court continues to follow this line of thinking when

appointing a lead plaintiff in securities actions.

Many district courts within the Sixth Circuit also follow this approach and analyze the

financial interests of lead plaintiff candidates without mentioning the first three Olsen-Lax factors.

See, e.g., Walker v. L Brands, Inc., No. 2:19-cv-3186, 2019 WL 10733381, at *3 (S.D. Ohio Oct.

16, 2019) (noting the candidate’s loss without mentioning any other factor); Boynton Beach

Firefighters’ Pension Fund v. HCP, Inc., No. 3:16-cv-1106, 2017 WL 5759361, at *8 (same); Eshe

Fund v. Fifth Third Bancorp, No. 1:08-CV-421, 2008 WL 11322108, at *5 (S.D. Ohio Dec. 16,

2008) (same); Ohio Pub. Emps. Ret. Sys. v. Fannie Mae, 357 F. Supp. 2d 1027, 1033 (S.D. Ohio

2005) (same); Steiner v. Frankino, No. 1:98-CV-264, 1998 WL 34309018, at *3 (N.D. Ohio July

16, 1998) (same). Still others analyze each of the Olsen-Lax factors but emphasize the loss factor.

See, e.g., Cardinal Health II, 2020 WL 33966600, at *6 (recognizing the candidates’ shares and

expended funds but placing greater weight on the losses suffered); In re Goodyear, 2004 WL

3314943, at *3−*6 (finding that a movant’s loss “is not the greatest loss incurred by the movants”

and that she was therefore “not the best candidate for lead plaintiff”).

In keeping with the courts of this Circuit and its previous decisions, this Court treats the

fourth loss Olsen-Lax factor as the determinative one. LACERA has suffered the largest LIFO

losses regardless of whether bond gains are included in the calculation, and LACERA therefore

has the largest financial interest in this matter.

D. Rule 23 Typicality and Adequacy of Representation

The PSLRA mandates that the presumptive lead plaintiff—i.e., the candidate with the

largest financial interest—must “otherwise satisfy the requirements of Rule 23 of the Federal Rules

of Civil Procedure.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(cc). Under Rule 23(a), a party may serve

as a class representative only if the following four requirements are met:

(1) the class is so numerous that joinder of all members is impracticable, (2) there are

questions of law or fact common to the class, (3) the claims or defenses of the representative

parties are typical of the claims or defenses of the class, and (4) the representative parties

will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a).

Only two of the four prerequisites, typicality and adequacy, directly relate to the personal

characteristics of class representatives. Fannie Mae, 357 F. Supp. 2d at 1034. At this stage in the

proceedings, Plaintiffs meet their burden if they make a prima facie showing that they satisfy the

typicality and adequacy prerequisites of Rule 23. Id. (citing In re Cendant Corp., 264 F.3d at

263−64). Courts therefore generally limit their inquiries to the typicality and adequacy prongs of

Rule 23(a) when considering a motion to serve as lead plaintiff, and they defer the remaining

requirements until the motion for class certification. Id.

1. LACERA’s Typicality and Adequacy

A candidate for lead plaintiff meets the typicality requirement if its claims arise out of the

same conduct or series of events and rely on the same legal theory as the claims of the other class

members. In re Am. Med. Sys., 75 F.3d 1069, 1082 (6th Cir. 1996) (“[A] Plaintiff’s claim is typical

if it arises from the same event or practice or course of conduct that gives rise to the claims of

other class members, and if his or her claims are based on the same legal theory.”) (citations

omitted). Minor factual differences do not defeat typicality. See In re Unumprovident Corp. Sec.

Litig., 2003 U.S. Dist. LEXIS 24633, at *25 (E.D. Tenn. Nov. 6, 2003).

A candidate for lead plaintiff demonstrates that it can fairly and adequately represent the

interests of class members under Rule 23(a)(4) when it appears that (1) the candidate’s interests

do not conflict with those of the class and (2) the candidate’s selected counsel is qualified to lead

the litigation. Fannie Mae, 357 F. Supp. 2d at 1034 (citing In re CMS Energy Sec. Litig., No. 02-

CV-72004-DT, slip op. at 5 (E.D. Mich. Nov. 14, 2002). The presumption that a candidate for lead

plaintiff meets the typicality and adequacy requirements can be rebutted by showing that the

candidate is not in fact adequate or will be subject to unique defenses. See, e.g., Cardinal Health

I, 226 F.R.D. at 305; In re Network Assocs., 76 F. Supp. 2d at 1029 (finding that the proposed lead

plaintiff did not meet the adequacy requirement because it faced an unrelated fraud investigation).

In the present action, LACERA asserts claims that seemingly arise out of the same course

of conduct or series of events as alleged by other members of the purported class, and such claims

are based on the same legal theories as the other members of the purported class. Specifically,

LACERA states that it, like all class members, purchased FirstEnergy securities at artificially

inflated prices during the Class Period and suffered a loss as a result of Defendants’ alleged

misrepresentations and omissions. (No. 2:20-cv-03785, ECF No. 45 at 3−4). Moreover, LACERA

and the other putative class members have identical legal claims in that all movants allege

Defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10-b(5) promulgated

thereunder. LACERA’s claims are therefore typical of the class. (Id.).

With respect to the adequacy requirement under Rule 23(a), LACERA contends that it has

no interests antagonistic to those of the class. (Id. at 6). No other movant has raised concerns about

any potential conflict of interest on LACERA’s part, and nothing in the pleadings otherwise

suggests that LACERA cannot fairly and adequately represent the class.

2. Counsel Qualifications

The PSLRA grants the lead plaintiff the authority to select and retain counsel to represent

the putative class so long as the Court approves. 15 U.S.C. 78u-4(a)(3)(B)(v); In re Cavanaugh,

306 F.3d at 733. Generally, courts only disrupt a lead plaintiff’s choice of counsel if doing so is

necessary to protect the interests of the class. Fannie Mae, 357 F. Supp. 2d at 1034; see also In re

Cavanaugh, 306 F.3d at 733 (“[T]he district court must approve the lead plaintiff's choice of

counsel, but Congress gave the lead plaintiff, and not the court, the power to select a lawyer for

the class.”).

LACERA’s choice of counsel, Robbins Geller Rudman & Dowd LLP (“Robbins Geller”),

possesses the requisite expertise and experience necessary to handle a case of this magnitude and

complexity. For example, in the first half of 2020 alone, Robbins Geller cites that it has recovered

more than $2.5 billion on behalf of investors in securities class action cases, including more than

$1 billion in In re Am. Capital Props., Inc. Litig., No. 1:15-mc-00040-AKH (S.D.N.Y.) and

approximately $1.2 billion in In re Valeant Pharm. Int’l, Inc. Sec. Litig., No. 3:15-cv-07658-MAS-

LHG (D.N.J.). Robbins Geller also represents that it achieved the largest securities class action

recovery in the Sixth Circuit and in the Southern District of Ohio, In re Cardinal Health Sec. Litig.,

528 F. Supp. 2d 752, 768 (S.D. Ohio 2007) ($600 million settlement), and that is has successfully

litigated a securities action against FirstEnergy, In re FirstEnergy Sec. Litig., No. 5:03-cv-01684

(N.D. Ohio) ($85 million settlement). In addition to this substantial track record of success, there

are no facts or arguments before the Court that suggest appointing Robbins Geller as Lead Counsel

could disrupt the interests of the class.

This Court is also impressed by Robbins Geller because its proposed leadership team of

five lawyers includes one woman and at least two minority lawyers. The firm’s overall

composition is also diverse: thirteen percent of its partners are minorities, its management

committee is comprised of approximately twenty-five percent minorities, and thirty-five percent

of its attorneys are female. The Court looks favorably upon this composition because, whenever

possible, the Court strives to “appoint a diverse leadership team that is representative of the

diversity of the [p]laintiffs.” In re Zantac (Ranitidine) Prods. Liab. Litig., 2020 U.S. Dist. LEXIS

81742, at *26−27; see also In re FirstEnergy Corp. S’holder Derivative Litig., No. 2:20-cv-04813,

ECF No. 44 (S.D. Ohio). The FirstEnergy shareholders who bring this action—including the

constituents of CalPERS, LACERA, Iron Workers, Ohio STRS, and others—encompass a broad

range of individuals who are diverse in ethnicity, race, and gender. Lead Counsel in this case will

represent a large and heterogeneous group of investors, and the Court finds that the diverse team

put forth by Robbins Geller is well-suited to represent the plaintiffs’ diversity and to act on their

behalf.

LACERA has sufficiently met the typicality and adequacy requirements. Its claims are

typical of the putative class claims, its interests are not antagonistic to the class, and its chosen

counsel is qualified and competent. The Court also notes that LACERA is an institutional investor,

which comports with the PSLRA’s expressed preference for such lead plaintiffs. H.R. Conf. Rep.

No. 104-369, at 34 (1995) (“[I]n many cases the beneficiaries of pension funds . . . ultimately have

the greatest stake in the outcome of the lawsuit.”). Further, the Court determines that LACERA is

a well-grounded and sophisticated institutional investor that can commit substantial resources to

this litigation.

Because LACERA has demonstrated that it has the largest financial interest at stake and

has satisfied the adequacy and typicality requirements of Rule 23, LACERA is entitled to a

presumption that it is the most adequate plaintiff. Additionally, no purported class member has

submitted evidence that LACERA will not fairly or adequately protect class interests, or that it is

subject to unique defenses. LACERA is therefore the most adequate plaintiff to lead the securities

fraud class actions pending before this Court.

E. Ohio STRS’ Motion to Be Appointed Co-Lead Plaintiff

Ohio STRS asks the Court to exercise its discretion to appoint Ohio STRS as Co-Lead

Plaintiff together with CalPERS and/or LACERA, and to appoint its counsel, Bleichmar Fonti &

Auld LLP, as Co-Lead Counsel. It offers three reasons for doing so: (1) its strong interest in

deterring political corruption in its own state; (2) its experience litigating actions like this one15;

and (3) its willingness to cooperate with the other Co-Lead Plaintiff the Court selects.

While the PSLRA requires the Court to appoint the movant with the “largest financial

interest,” Ohio STRS argues there is no statutory restriction on the Court’s appointment of a co-

lead plaintiff once the Court has chosen the movant with the largest financial interest. 15 U.S.C. §

78u-4(a)(3)(B)(iii)(I)(bb). Indeed, Ohio STRS emphasizes that financial interest was incorporated

into the PLSRA as a proxy for preventing lawyer-driven litigation and ensuring that the candidate

selected to serve as Lead Plaintiff is most incentivized to oversee the litigation and achieve

favorable results for the class:

[T]he lead plaintiff provisions of the PSLRA were intended to curtail the vice of “lawyer-

driven” litigation, i.e., lawsuits that, because of the huge potential fees available in

contingent securities fraud class actions, were initiated and controlled by the lawyers and

appeared to be litigated more for their benefit than for the benefit of the shareholders they

ostensibly represented. To help combat this problem, the lead plaintiff provisions of the

PSLRA required that a court appoint as a lead plaintiff the member or members of the

purported plaintiff class that the court determines to be most capable of adequately

representing the interests of class members. Further, the provisions created a “rebuttable

presumption” that the “most adequate” plaintiff is, inter alia, the person or group of persons

that has the largest financial interest in the relief sought by the class. The theory of these

provisions was that if an investor with a large financial stake in the litigation was made

lead plaintiff, such a plaintiff—frequently a large institution or otherwise sophisticated

investor—would be motivated to act like a ‘real’ client, carefully choosing counsel and

monitoring counsel’s performance to make sure that adequate representation was delivered

at a reasonable price.

15 Ohio STRS also highlights its proven track record of serving as Lead and Co-Lead Plaintiff in securities

class actions. See e.g., In re Bank of Am. Corp. Litig., No. 1:09-md-02058 (S.D.N.Y.) (securing a $2.4

billion recovery for the class); Ohio Pub. Emps. Ret. Sys. v. Freddie Mac, No. 03-cv-4261 (S.D.N.Y.)

(recovering $410 million for the class); In re Allergan Inc. Proxy Violation Sec. Litig., No 8:14-cv-02004

(C.D. Cal.) (serving as Co-Lead Plaintiff and obtaining $250 million for investors). This history, however,

does not answer the ultimate question of whether Ohio STRS and LACERA could work together well to

litigate this case.

Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing and Securitization, LLC,

616 F. Supp. 2d 461, 464 (S.D.N.Y. 2009) (internal citations and quotations omitted); see also

H.R. Rep. No. 104-369, at *32 (1995), reprinted in 1996 U.S.C.C.A.N. 730, 733 (1995) (“[The

PSLRA was] intended to encourage the most capable representatives of the plaintiff class to

participate in class action litigation and to exercise supervision and control of the lawyers for the

class.”).

Ohio STRS concedes that its $1.3 million LIFO losses do not constitute the largest financial

interest at stake in this case, but argues that it has a particular institutional interest in vigorously

prosecuting it. Specifically, Ohio STRS seeks to assure the teachers whose funds STRS manages

“that it is protecting their financial interests in a matter so close to home.” (ECF No. 58 at 3). It

also believes that it has a compelling interest to serve a merits-focused leadership role in

“extracting the maximum amount possible from all culpable parties to maximize the deterrent

effect on political corruption.” (ECF No. 44 at 1−2). Accordingly, Ohio STRS argues that this

Court should appoint it as Co-Lead Counsel because doing so would best serve the interests of the

class.

Ohio STRS encourages a case-specific evaluation to determine whether aggregating co-

lead plaintiffs is the appropriate here, citing a case previously in front of this Court. See Cardinal

Health I, 226 F.R.D. at 307. In Cardinal Health I, six large investors formed a group and requested

this Court to appoint it as lead plaintiff. Id. This Court permitted the aggregation after taking into

account “the size of the group, the purpose for adding any particular individual or entity to the

group and the likelihood that the group, as constituted effectively, could serve the lead plaintiff

function contemplated by the PSLRA.” Id. (quoting In re Office Max, Inc. Sec. Litig., No. 1:00-

cv-2432, slip op. at 13−14 (N.D. Ohio Mar. 21, 2001)). The Court found that the group had “indeed

established a cohesive relationship” and permitted them to serve as co-lead plaintiff together. Id.

In making such a determination, this Court notes that “the crucial question is the group’s ability to

make decisions, communicate, and represent the class.” Id.

Whether Ohio STRS and LACERA could form a cohesive relationship or work together

effectively to represent the class is speculative at best. Ohio STRS called LACERA to discuss

possible coordination, but the two groups could not reach an agreement. Furthermore, LACERA

opposes Ohio STRS’ proposal, in part because Ohio STRS does not possess the largest financial

interest and therefore does not satisfy the PSLRA presumption. See Cavanaugh, 306 F.3d at 732

(“So long as the plaintiff with the largest losses satisfies the typicality and adequacy requirements,

he is entitled to lead plaintiff status . . . .”); see also In re Enron Corp. Sec. Litig., 206 F.R.D. 427,

451 (S.D. Tex. 2002) (denying lead plaintiff candidates despite the “important concerns” they

raised because they do not have the largest financial interest).

LACERA also argues that appointing Ohio STRS as Co-Lead Plaintiff would contravene

the principle of efficiency. At least two courts in this Circuit have denied candidates’ requests to

be appointed as co-lead plaintiff due to similar concerns. For example, in Goodyear, the court

declined to appoint a co-lead plaintiff because doing so “likely would result in increased costs and

duplication efforts). 2004 WL 3314943, at *3 (also noting that the candidate expended the least

funds, purchased the fewest shares, and incurred the least loss of the moving candidates); see also

In re Telxon Corp. Sec. Litig., 67 F. Supp. 2d 803, 815 (N.D. Ohio 1999) (“While the PSLRA

refers to ‘a person or group of persons’ as capable of serving as the lead plaintiff, the surrounding

statutory language forecloses the appointment of multiple groups or multiple persons not part of a

cohesive group. . . . especially if multiple law firms are to represent their interests.”).

Ohio STRS counters by citing another court that appointed co-lead plaintiffs in securities

class actions despite a lack of agreement among the movants. In re Oxford Health Plans, Inc. Sec.

Litig., 182 F.R.D. 42, 49 (S.D.N.Y. 1998). In Oxford, the court appointed three candidates to serve

as co-lead plaintiffs together and three co-lead counsel, even though one of the candidates objected

to the arrangement. See id. at 51. The three parties the court appointed included a state employees’

pension fund, a private investment management company, and a group of three individual

shareholders. Id. at 44−45. These three candidates, who had the three largest financial interests in

the case, each represented different types of class members. Id. The court found that aggregation

of such “diverse representation” and “joint funding” would help ensure “the interests of all class

members [would] be adequately represented in the prosecution of the action and in the negotiation

and approval of fair settlement.” Id. at 45, 49. This reasoning does not apply to Ohio STRS’

petition for appointment as co-lead plaintiff because LACERA and Ohio STRS both represent the

retirement fund interests of public employees, and Ohio STRS is not the candidate with the second

largest financial interest.

This Court is generally amenable to appointing co-lead plaintiffs to litigate securities

actions when doing so does not pose the potential for confusion, duplicative services, or

unnecessary fees. See Kubiak v. Barbas, No.3:11-cv-141, 2011 WL 2443715, at *2 (S.D. Ohio

June 14, 2011) (“[I]t is essential [for lead counsel] to have one voice.”). For example, this Court

recently appointed two co-lead plaintiffs to lead the shareholder derivative actions against

FirstEnergy that are related to this matter. In re FirstEnergy Corp. S’holder Derivative Litig., No.

2:20-cv-04813, ECF No. 44. There, the co-lead plaintiffs had a track record of litigating derivative

actions together and achieving favorable results as a team. The two plaintiffs also moved the court

for appointment as co-lead plaintiffs together, with each party each fully supporting the joint

appointment. Here, Ohio STRS and LACERA do not have a track record of working together, and

LACERA opposes the aggregation. The Court therefore DENIES Ohio STRS’ requests to be

appointed as co-lead plaintiff and to have its law firm appointed as co-lead counsel.

V. CONCLUSION

In accordance with the above, the Court GRANTS the motions to consolidate.

Additionally, Court GRANTS LACERA’s Motion for Appointment as Lead Plaintiff and

Approval of Selection of Counsel [#33]; DENIES CalPERS’ Motion for Appointment as Lead

Plaintiff and Approval of Selection of Counsel [#28]!°; and DENIES Ohio STRS’ Motion for

Appointment as Lead Plaintiff and Approval of Selection of Counsel [#32]. Finally, the Court

GRANTS Ohio STRS’ Motion for Leave to File Sur-Reply to Competing Lead Plaintiff Motions

[#60].

IT ISSO ORDERED.

CHIEF UNITED STATES DISTRICT JUDGE

DATED: November 23, 2020

This motion also appears as ECF No. 19 in 2:20-cv-03785 (S.D. Ohio).

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