In Re Cavanaugh

306 F.3d 726 (9th Cir. 2002)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

The share price of Copper Mountain Networks fell from $125 to less than $10 in the fourth quarter of 2000. This plunge occurred immediately after management announced that fourth-quarter revenue and earnings per share would, contrary to earlier predictions, decline. Lawsuits followed swiftly. Different plaintiffs filed over twenty separate class action complaints in the Northern District of California, alleging securities fraud by the same defendants over essentially the same period. The district court announced plans to consolidate the lawsuits and to appoint a lead plaintiff. At the case management hearing, the district court interviewed the candidates about their business experience, their knowledge of the lawsuit, how they came to choose their attorneys and particularly about their fee agreements with counsel. The Cavanaugh group which has over $3 million in exposure hired Milberg Weiss Bershad Hynes & Lerach ('Milberg Weiss'), a well-known plaintiffs' securities litigation firm, pursuant to a fee agreement under which Milberg Weiss would take a percentage of the total recovery. The percentage increased with the size of recovery, topping out at a marginal rate of 30 percent. Barton had hired Beatie and Osborn LLP, a small New York law firm, under a fee agreement that allowed for between 10 percent and 15 percent of recovery, with an $8 million cap. The third candidate, Chenoweth, had not hired an attorney, explaining that 'he will undertake such negotiations [with counsel] after he is appointed lead plaintiff. Chenoweth said that he believes that he would have more leverage in these negotiations after being designated lead plaintiff than before.' The district court found that the Cavanaugh group was the presumptively 'most adequate plaintiff' because it had the largest stake in the controversy, but concluded that Barton had rebutted that presumption by showing 'significant differences in potential attorney fees' that 'cannot be rationally explained by intangible factors such as the well-recognized brand name in securities litigation of [the Cavanaugh group's] counsel.' The district court disqualified Chenoweth from consideration because he had not selected a lawyer, and appointed Barton (D) as lead plaintiff. The Cavanaugh group petitioned for a writ of mandamus, arguing that it should have been appointed lead plaintiff.