Class Action Panel (November 2007) - Take the lead

Robert Roseman, partner, Spector, Roseman & Kodroff
Roseman is one of the founding partners of Spector Roseman & Kodroff which is based in Philadelphia. He concentrates his practice on investor protection issues, including the enforcement of the federal securities laws and state laws involving fiduciary duties of directors. Roseman is chairman of the firm’s domestic and international securities practice.

Steven Toll, partner and head of international practice, Cohen Milstein Hausfeld & Toll
Toll joined the firm in 1979 and has been lead or principal counsel in some of the most highly-publicised stock fraud cases over the past 28 years. He is a member of the securities fraud/investor protection practice group. Some of Toll’s more notable cases include those against Lucent Technologies, which was settled in 2001 for approximately $575m (£291m) – at the time, the second-largest securities class action settlement ever achieved.

Tony Gelderman, counsel, Bernstein Litowitz Berger & Grossmann
Gelderman heads the firm’s Louisiana office and counsels the firm’s institutional investor clients with regard to US securities claims. Prior to joining the firm, he served as chief of staff and general counsel to the treasurer of the state of Louisiana. In 1995, Gelderman was profiled by the American Bar Association in Barrister magazine as one of the 25 young lawyers in America making a difference in the legal profession.


North Yorkshire and Avon pension funds are both vying to lead a US class-action lawsuit against GlaxoSmithKline (at time of writing). UK funds rarely lead cases, so how do you account for the rare occasions when they do?
Roseman: Although it may seem rare for UK pension funds to lead US class action lawsuits, UK funds are increasingly beginning to recognise the potential value in participating in this type of litigation. Fund trustees have already realised that, at a minimum, submitting claims forms in class action lawsuits can help them to satisfy fiduciary duties owed to their fund’s beneficiaries.
UK pension funds are also getting involved in monitoring their portfolios in order to identify newly filed and settled shareholder actions and calculate any losses their funds have suffered from the alleged fraud. Therefore, deciding to lead a US class-action lawsuit under the right circumstances is a logical next step in UK funds’ participation in these cases.

Toll: Although historically UK funds have infrequently sought to lead US class actions, there is an increasing trend by UK funds to take an active role in such cases.
As UK funds diversify their portfolios to include companies based outside of the UK, and as globalisation causes companies to increasingly list their shares in markets around the world, the opportunities for UK funds to play an active role in these cases similarly increase.
Many UK funds are realising that leadership of such actions is an excellent way to both maximise the recovery to the class of damaged investors and to implement corporate governance changes in the defendant companies so as to minimise the likelihood of repeated corporate misconduct.

Gelderman: In this particular instance, Glaxo is a prominent UK company so it is not surprising that a number of major UK institutions hold large positions in the stock.
Large UK pension funds like North Yorkshire and Avon have a long-term interest in corporate governance issues at companies like Glaxo which have long and distinguished British pedigrees.
In general, there is a growing awareness among British institutional investors of the potential utility of the US class action device as a tool to recover portfolio assets after a fraud, as well as to express shareholder dismay with management and achieve corporate governance reforms.


Because the said case is such a high-profile one, do you expect it to set some sort of precedent? Do you expect more UK pension funds to follow suit or will this depend on the outcome of this particular case?

Roseman: In my opinion, this case will likely not be seen so much as a precedent, but as an example that under the right circumstances it may make sense for UK pension funds to take a lead position in US class-action lawsuits.
Depending on the outcome of this particular case, it may raise awareness in the UK that it is possible for UK-based pension funds to successfully lead a US class-action. However, as previously mentioned, there is currently a trend among UK funds to become more active participants in these types of actions.

Toll: Although the profile of the GlaxoSmithKline case is high, it is by no means the first instance of UK funds seeking to play an active role in class actions.
Moreover, with the now-proposed pan-European settlement in the Dutch courts of investors’ claims against Royal Dutch Shell, we have seen UK funds step forward to play an active role outside of the US. We do expect this trend to continue, particularly as the options available to UK funds both inside and outside the US continue to increase.

Gelderman: The Glaxo case itself is part of an observable trend of UK funds taking increased action in the wake of malfeasance by their portfolio companies. Especially now that the Avon fund has been appointed as the lead plaintiff in the action, I expect the outcome will be closely watched by the UK pension community but I also expect, regardless of the outcome, involvement in these cases by UK funds will continue to grow.


Both pension funds are up against two other shareholder groups – one German, one US. Should UK pension funds always do everything in their powers to secure a lead plaintiff role they seek, or are there circumstances where it makes sense to allow another shareholder group to take the role?

Roseman: As a general principle, funds should take a conservative approach in deciding whether to take an active role as a lead plaintiff in a particular action.
In determining whether to take a lead position, it is important for pension funds to consider various criteria including the strength of the action, the size of its loss, the possibility of implementing corporate governance measures as a partial remedy for the wrongdoing, and the time investment required to play an active role versus any burden on the fund’s time and resources. I recommend pension funds should only seek to lead an action where the allegations are strong and meritorious and where they have greater than a limited financial interest in the case.

Toll: UK pension funds should carefully consider their options when seeking to become a lead plaintiff.
The benefits of taking such a role include the ability to control the course of litigation (e.g. settlement negotiations and attorneys’ fees) and to ensure non-US investors are included within the definition of the class of injured investors.
Taking such a role does, however, require the lead plaintiff to act as a fiduciary to the other class members regarding the prosecution of the action and can require some amount of time by the lead plaintiff to monitor and assist with the litigation.
If a UK fund believes a class action will be adequately led by other investors, then it may not be appropriate for a specific UK fund to vie for the leadership of such action.
However, as in all US class actions like the action against GlaxoSmithKline, the identity of the other investors seeking appointment as lead plaintiff is usually not known until the deadline by which to request such appointment. This means that unless a UK pension fund seeks appointment as a lead plaintiff, it may not know what types of other investors are seeking to lead the class action until it is too late for the UK pension fund to also seek such appointment.

Gelderman: There is always an interest in making certain that every case is properly prosecuted. If a fund feels there are other funds with an interest in leading a particular case that have sufficient incentive to lead the class and no conflicts of interest, it may make sense to remain a passive class member and allow another fund to take the lead role, rather than expending resources on the litigation.