From pages 22 to 24:
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C. Taken as a Whole, this Lawsuit Constitutes Abusive Litigation Under the PSLRA
To the extent the Court does not award full fees and costs for the substantial failures to comply with Rule 11(b) when filing each of the complaints, this Court should conclude that, taken as a whole, this lawsuit constitutes “abusive litigation” as that term is used in the PSLRA. The Court should reach this conclusion for at least three reasons.
First, the tenuous nature of any non-frivolous claims in this litigation show that they are not “weighty,” or of “quality sufficient” to rebut the presumption that the litigation, as a whole, is abusive. Gurary, 303 F.3d at 223 (court must assess “whether these claims – whatever their number – are of a quality sufficient to make the suit as a whole nonabusive and the Rule 11 violation not substantial. If no such weighty nonfrivolous claims are attached, the statutory presumption applies.”). Such a conclusion is supported by the Court’s own reasoning that even the “very aggressive” claims in the SAC came very close to violating Rule 11(b). 7/15/2016 Tr. 17:4; accord Gurary, 303 F.3d at 222 (weighing claims that “patently lacked merit and only narrowly avoided being deemed frivolous themselves”). It logically follows that “the complaint as a whole would properly be viewed as prima facie abusive.” Id. at 222-23.
Second, had the Rosen Law Firm refrained from filing the original and amended complaints, or voluntarily dismissed the action after the Rule 11 letter, Defendants never would have had to defend against a SAC. See In re Austl. & N.Z. Banking Group Ltd. Secs. Litig., 712 F.Supp2d at 266 (imposing sanctions under the PSLRA in part because defendants “would never have had to defend against a securities fraud lawsuit at all had the Original Complaint not been filed”). Indeed, this Court should not incentivize securities plaintiffs, and reward the Rosen Law Firm, for coming up with meritless, but not legally frivolous, claims in the SAC. This is particularly so where those claims would never have been the subject of a class action lawsuit filed in the first instance. See Dkt. 46 (Defs’ Reply Br. in support of Motion to Dismiss), at 1-2.
Third, taken as a whole, the conduct of the Rosen Law Firm throughout this litigation, from start to finish, showed no serious effort to comply with Rule 11(b), and has all the hallmarks of abusive litigation, including dubious PSLRA certifications, a lack of reasonable due diligence to investigate, a refusal to withdraw a complaint even after being placed on notice of the potential of Rule 11 violations, and the filing of a SAC in an apparent attempt to try to survive a motion to dismiss and seek to avoid sanctions for its earlier conduct.
Fourth, a finding of “abusive litigation” is consistent with the underlying purpose and goal of the PSLRA. As noted, contrary to the conduct of the Rosen Law Firm here, Congress’s goal was to: (a) shift control of class actions away from law firms; (b) eliminate “professional plaintiffs,” like the one solicited here with nominal holdings; (c) insist upon a thorough due diligence before a securities fraud complaint is filed, in part by eliminating any safe harbor; (d) deter circumstances that would allow coercive settlements by empowering defendants to defend themselves through the presumption of reimbursement of attorneys’ fees and costs; and (e) in the end, promote diligent conduct and deter irresponsible conduct. A finding of abusive litigation in this case would vindicate Congress’s intent, its statutory scheme, and its purpose in enacting the PSLRA in the first place.
Because this lawsuit is abusive, it represents a substantial failure to comply with Rule 11, and the statutory presumption of all costs and attorneys’ fees applies. While the Rosen Law Firm and its clients may try to rebut that presumption, Defendants note that, in addition to substantial legal fees, it has suffered reputational harm and catastrophic losses due to the Rosen Law Firm’s initial announcement soliciting plaintiffs, and the then filing and pendency of this class action lawsuit. Committee PSLRA Statement, at 40 (“little in the way of justice can be achieved by attempting to compensate the prevailing party for lost time and such other measures of damages as injury to reputation; hence it has written into law the presumption that a prevailing party should not have the cost of attorney’s fees added as insult to the underlying injury”). Defendants also note that even if the Rosen Law Firm and its clients meet their burden, while full sanctions may not be warranted, an award of partial sanctions would be expected by the PSLRA.
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C. Taken as a Whole, this Lawsuit Constitutes Abusive Litigation Under the PSLRA
To the extent the Court does not award full fees and costs for the substantial failures to comply with Rule 11(b) when filing each of the complaints, this Court should conclude that, taken as a whole, this lawsuit constitutes “abusive litigation” as that term is used in the PSLRA. The Court should reach this conclusion for at least three reasons.
First, the tenuous nature of any non-frivolous claims in this litigation show that they are not “weighty,” or of “quality sufficient” to rebut the presumption that the litigation, as a whole, is abusive. Gurary, 303 F.3d at 223 (court must assess “whether these claims – whatever their number – are of a quality sufficient to make the suit as a whole nonabusive and the Rule 11 violation not substantial. If no such weighty nonfrivolous claims are attached, the statutory presumption applies.”). Such a conclusion is supported by the Court’s own reasoning that even the “very aggressive” claims in the SAC came very close to violating Rule 11(b). 7/15/2016 Tr. 17:4; accord Gurary, 303 F.3d at 222 (weighing claims that “patently lacked merit and only narrowly avoided being deemed frivolous themselves”). It logically follows that “the complaint as a whole would properly be viewed as prima facie abusive.” Id. at 222-23.
Second, had the Rosen Law Firm refrained from filing the original and amended complaints, or voluntarily dismissed the action after the Rule 11 letter, Defendants never would have had to defend against a SAC. See In re Austl. & N.Z. Banking Group Ltd. Secs. Litig., 712 F.Supp2d at 266 (imposing sanctions under the PSLRA in part because defendants “would never have had to defend against a securities fraud lawsuit at all had the Original Complaint not been filed”). Indeed, this Court should not incentivize securities plaintiffs, and reward the Rosen Law Firm, for coming up with meritless, but not legally frivolous, claims in the SAC. This is particularly so where those claims would never have been the subject of a class action lawsuit filed in the first instance. See Dkt. 46 (Defs’ Reply Br. in support of Motion to Dismiss), at 1-2.
Third, taken as a whole, the conduct of the Rosen Law Firm throughout this litigation, from start to finish, showed no serious effort to comply with Rule 11(b), and has all the hallmarks of abusive litigation, including dubious PSLRA certifications, a lack of reasonable due diligence to investigate, a refusal to withdraw a complaint even after being placed on notice of the potential of Rule 11 violations, and the filing of a SAC in an apparent attempt to try to survive a motion to dismiss and seek to avoid sanctions for its earlier conduct.
Fourth, a finding of “abusive litigation” is consistent with the underlying purpose and goal of the PSLRA. As noted, contrary to the conduct of the Rosen Law Firm here, Congress’s goal was to: (a) shift control of class actions away from law firms; (b) eliminate “professional plaintiffs,” like the one solicited here with nominal holdings; (c) insist upon a thorough due diligence before a securities fraud complaint is filed, in part by eliminating any safe harbor; (d) deter circumstances that would allow coercive settlements by empowering defendants to defend themselves through the presumption of reimbursement of attorneys’ fees and costs; and (e) in the end, promote diligent conduct and deter irresponsible conduct. A finding of abusive litigation in this case would vindicate Congress’s intent, its statutory scheme, and its purpose in enacting the PSLRA in the first place.
Because this lawsuit is abusive, it represents a substantial failure to comply with Rule 11, and the statutory presumption of all costs and attorneys’ fees applies. While the Rosen Law Firm and its clients may try to rebut that presumption, Defendants note that, in addition to substantial legal fees, it has suffered reputational harm and catastrophic losses due to the Rosen Law Firm’s initial announcement soliciting plaintiffs, and the then filing and pendency of this class action lawsuit. Committee PSLRA Statement, at 40 (“little in the way of justice can be achieved by attempting to compensate the prevailing party for lost time and such other measures of damages as injury to reputation; hence it has written into law the presumption that a prevailing party should not have the cost of attorney’s fees added as insult to the underlying injury”). Defendants also note that even if the Rosen Law Firm and its clients meet their burden, while full sanctions may not be warranted, an award of partial sanctions would be expected by the PSLRA.
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