Fifth Circuit Approves New Jersey Fund’s Outside Counsel

No one can say Defendants didn’t try everything they could to stop Judge Leonard E. Davis (E.D. Tex.) from appointing the Department of the Treasury of the State of New Jersey, including its Division of Investment on behalf of Common Pension Fund A (“New Jersey”) as class representative on behalf of investors in the IT Services giant Electronic Data Systems securities class action, including bringing the issue to the Fifth Circuit. They attacked on every imaginable (and unimaginable) front, but lost at every turn. Perhaps most interesting is the fact that “New Jersey engaged retired New Jersey Superior Court Judge C. Judson Hamlin (Hamlin) to oversee securities class actions in which New Jersey was involved, including this one.”

Defendants made lots of arguments, but focused their attack on Hamlin by arguing “(1) that the district court found New Jersey adequate only because of Hamlin's involvement, and (2) that New Jersey should not be allowed to rely on Hamlin to establish its adequacy because Hamlin is not New Jersey's employee, but is instead an independent lawyer engaged by New Jersey and, moreover, because Hamlin's fees are paid not by New Jersey, but by class counsel.” In support, Defendants told the Fifth Circuit that "the District Court found that New Jersey has 'only generalized knowledge of the case.'" Really? The Panel noted that “the district court would be surprised to learn of this 'finding,'" as “actually, the district court wrote: "Defendants argue that John McCormac, the Treasurer of New Jersey, Peter Langerman, the Director of the New Jersey Division of Investment, and other high ranking government officials have only generalized knowledge of the case." Oh yeah, that’s what we meant to say. Must have been a typo. Fire that secretary. Lucky for Jones Day, the Panel tagged them gently, remarking that Defendants’ “characterization of the district court's summary of their argument as a finding that their argument is correct is, at best, wholly lacking in merit.”

As for the attacks on Hamlin, the Panel recognized that he “has great incentive to act objectively in protecting the interests of New Jersey and the class of plaintiffs, and little incentive to take actions adverse to New Jersey's interests," his “pay arrangement does not create a conflict of interest with the class members,” he “is not a puppet of class counsel, and he does not answer to class counsel. On the contrary, Hamlin answers to the New Jersey Attorney General. Hamlin's pay is not contingent on the outcome of the class action, nor is it contingent on any approval thereof by class counsel or on keeping class counsel happy. Hamlin's interests are fully aligned with those of New Jersey, which are fully aligned with those of the absent members of the class.”

Result: Class Certification Affirmed.

You can read Feder v. Electronic Data Sys., issued October 24, 2005, here, or at 2005 U.S. App. LEXIS 23618.

Nugget: “New Jersey was not required to submit a trial plan as a prerequisite for finding that this class action meets the superiority requirement of Rule 23(b)(3).”