United States District Court, E.D. Virginia, Richmond Division
ALEXANDER RICE, Individually And on behalf of all others Similarly situated,, Plaintiffs,
GENWORTH FINANCIAL INCORPORATED, Defendants.
E. Payne Senior United States District Judge
consolidated securities fraud action is before the Court on
two motions seeking appointment as lead plaintiffs and lead
counsel under 15 U.S.C. § 78u-4, the Private Securities
Litigation Reform Act ("PLSRA") . All of the
Plaintiffs in this consolidated action agree that Plaintiffs
Alexander Rice and Brian James ought to be appointed as lead
plaintiffs and that their counsel should be appointed as lead
counsel. The International Union of Operating
Engineers Local 478 Pension Fund ("IUOE" or
"Union"), which is not a party in this action, and
its counsel, seek designation in those capacities,
respectively. Having considered both motions, the supporting
and opposing memoranda,  and exhibits, the Plaintiffs'
motion will be granted and the Union's motion will be
AND PROCEDURAL BACKGROUND
underlying facts are taken from the COMPLAINT (ECF No. 1)
filed by Alexander Rice. The facts, as alleged, are recited
as they have been pled, and, for now, they are taken as true.
The procedural history is reflected as it developed.
Financial Incorporated ("the Company" or
"Genworth") provides consumers with mortgage
insurance products that allow people to purchase homes. The
Company also offers services ranging from homeownership
education and assistance programs to individual and group
long-term care insurance products." (Compl. ¶ 36)
(ECF No. 1). For several years, the Company's financial
circumstances were dire.
or around May 2015, the Company received a written proposal
to acquire the Company's stock in an all cash transaction
at $12.50 per share, a proposal that was later reduced to
between $10-11 per share." Id. at ¶ 50.
"Other entities also made proposals, including companies
A, C and D." Id.
October 21, 2016, a Merger Agreement was executed between
Genworth and China Oceanwide. Id. at ¶ 44. On
October 23, 2016, Genworth and China Oceanwide issued a press
release announcing that the companies had reached an
Agreement and Plan of Merger, whereby Genworth would be
acquired by China Oceanwide. Id. at ¶ 3. The
merger provided that "each issued and outstanding share
of Genworth common stock [would] be cancelled and
automatically converted into the right to receive $5.43 in
December 21, 2016, the Company filed a Schedule 14A
Preliminary Proxy Statement ("Proxy Statement")
with the Securities and Exchange Commission
("SEC"). Id. at ¶ 4. The Proxy
statement provided that Genworth stockholders should exchange
their shares pursuant to the terms of the Merger Agreement,
based, among other things, on the opinion rendered by
Genworth's financial advisors, Goldman, Sachs & Co.
and Lazard Freres & Cp. LLC. Ixi. The Proxy statement
explained that Genworth began to look to sell the Company
because, among other things, it "[s]ens[ed] that cash
flow may be impacted, which would negatively impact lucrative
equity compensation entitlements . . . ." Id.
at ¶ 48. The proposals made by companies A, C and D,
described above, were not included in the Proxy Statement.
January 23, 2017, Alexander Rice ("Rice") filed a
Class Action Complaint (the "Complaint"), in which
he raised claims under Sections 14(a) and 20(a) of the
Securities Exchange Act of 1934. The Complaint alleges that
"[t]he Merger Consideration and the process by which
Defendants agreed to consummate the Proposed Transaction are
fundamentally unfair to Genworth's public stockholders as
the Merger Consideration represents only a 4.2% premium to
the Company's closing price of $5.21 on October 21, 2016,
the last trading day before the Proposed Transaction was
announced." (Compl. ¶ 5). "Despite
Genworth's prospects for future profitability and growth
and Defendants' ability to command a higher transaction
value, Defendants chose to enter into the Merger Agreement
with China Oceanwide and agreed to onerous deal provisions
and other agreements to ensure and protect a sale only to
China Oceanwide." Id. at ¶ 75. The Merger
Agreement contains a no shop provision as well as a $105
million termination fee agreement. Id. at 79.
Complaint filed by Rice alleges several material
misrepresentations and omissions in the Proxy Statement
provided to Genworth shareholders. In the Complaint, Rice
sought injunctive relief, certification of a class, and the
enjoining of the proposed transaction, "unless and until
Defendants disclose the material information identified above
which has been omitted from the Proxy Statement." In the
alternative, the Complaint requested recissory damages.
(Compl. ¶ C).
January 25, 2017, the Company filed a Schedule 14A Definitive
Proxy Statement with the SEC. This Proxy Statement
recommended that shareholders vote in favor of the Proposed
Transaction and announced that the special shareholder
meeting to vote on the Proposed Transaction would occur on
March 7, 2017.
January 25, 2017, Brian James ("James") filed a
Class Action Complaint for Violations of Sections 14(a) and
20(a) of the Securities Exchange Act of 1934, in which he
raised essentially the same substantive claims as those
raised by Rice. Rice and James agreed to work together to
coordinate their actions. Also on January 25, 2017, the
Rosenfeld Family Trust filed a Class Action Complaint in the
United States District Court for the District of Delaware, in
which it raised substantively similar claims to those raised
by Plaintiffs Rice and James. On February 2, 2017, Rice,
supported by James, filed PLAINTIFF'S MOTION FOR A
PRELIMINARY INJUNCTION (ECF No. 2), which sought to enjoin
the shareholder vote on the Proposed Transaction until
certain supplemental disclosures were made to Genworth's
February 6, 2017, Esther Chopp ("Chopp") filed a
Class Action Complaint in the United States District Court
for the District of Delaware. Chopp raised essentially the
same substantive claims as raised by Rice and James. See
Chopp v. Genworth Financial, Inc., , No.
3:17-cv-00157-REP (D. Del.) .
February 10, 2017, David Ratliff filed in the United States
District Court for the Eastern District of Virginia a
complaint in which he raised substantively identical claims
to those already raised by Rice, James, and the Rosenfeld
Family Trust. The Ratliff case was filed and identified as a
case related to the Rice case.
February 17, 2017, an Emergency Motion to Consolidate Cases
and for Appointment of Interim Lead Counsel was filed, in
which Rice and James sought the entry of an order
consolidating the actions pending before this Court, and
appointing Faruqi & Faruqi, LLP, Monteverde &
Associates, PC, and Kahn Swick & Foti, LLC
("KSF") as Interim Class Counsel and MeyerGoergen
PC as Interim Lead Liaison Counsel. (ECF No. 22) . The Court
determined that "all three actions [Rice, James &
Ratliff] shall be consolidated and the caption of the
consolidated case shall be Rice v. Genworth Financial
Incorporated, , Civil Action No. 3:17cv59." (ECF
No. 30). On February 23, 2017, the Court consolidated
Rosenfeld Family Trust v. Genworth Financial, Inc.,
No. 3:17cvl56, and Chopp v. Genworth Financial,
Inc.,, No. 3:17cvl57 with the consolidated cases, all of
which thereafter proceeded under the style Rice, v
Genworth Financial, Inc., , No. 3:17cv59.
Plaintiffs subsequently reached an agreement with the
Defendants, pursuant to which the Motion for a Preliminary
Injunction was withdrawn. Also, the parties in this
consolidated action advised "that it is their intent
that following [Defendant's] disclosures called for in
Court Exhibit 1, these consolidated actions will be settled
in their entirety and, to that end, counsel intend to prepare
a Memorandum of Understanding reflecting the settlement
(including releases); and, to that end, counsel shall prepare
a schedule of further proceedings respecting class
certification and appointment of counsel all of which shall
comply with the timing requirements of the Private Securities
Litigation Reform Act." (ECF No. 30).
March 6, 2016, the Court entered the STIPULATED PSLRA LEAD
PLAINTIFF SCHEDULING ORDER. (ECF No. 35). It provided that:
"[p]ursuant to 15 U.S.C. § 78u-4 (a) (3) (A), on or
before April 17, 2017, any plaintiff in these actions or any
other member of the purported class who wishes to serve as
lead plaintiff in this consolidated purported class action
shall file a motion to serve as lead plaintiff of the
purported class and shall state its selection for lead
counsel to represent the purported class, subject to approval
by the Court."
April 1, 2017, the Union filed its motion seeking to be named
lead plaintiff and seeking approval of the Union's
counsel as lead counsel. (ECF No. 37). Rice and James, with
the consent of the other plaintiffs in the consolidated
cases, also filed the PLAINTIFFS' MOTION FOR APPOINTMENT
OF LEAD PLAINTIFFS AND COUNSEL. (ECF No. 39).
Union also has a shareholder derivative action pending in the
Delaware Court of Chancery, Genworth Financial, Inc.
Consolidated Derivative Litigation, C.A. No. 11901-VCS
(the "Delaware State Case") . In that case, the
defendants have moved for dismissal and the motion has been
heard. However, the Judge in the Delaware State Case
explained that "any ruling on a motion to dismiss in the
pending derivative case would be advisory in light of the
fact that the pending merger was going to extinguish the
rights of Shareholders to pursue a derivative claim and so he
requested that the parties consult with one another as to
whether, in the parties' views, the Court should issue
its motion-to-dismiss decision, and, subsequently, the
parties informed the Court that it was [their] view the Court
should not issue its motion-to-dismiss decision."
Additionally, the Union is pursing inspection requests
pursuant to 8 DEL. C. §220. Salberg v. Genworth
Financial, Inc., C.A. No. 2017-0018-JRS (Del. Ch.).
stockholder vote has taken place and the merger was approved;
however, the merger of Genworth and China Oceanwide has been
pending for several months. Recently, a further delay in the
merger was announced.
to the PSLRA, the Court must appoint the "most adequate
plaintiff" to serve as Lead Plaintiff. 15 U.S.C. §
78u-4 (a) (3) (B) (i) . To that end, explains the Union, the
Court is required to determine which potential lead plaintiff
has the "largest financial interest" in the relief
sought by the Class and whether that plaintiff is a typical
and adequate class representative under Rule 23 of the
Federal Rules of Civil Procedure. The Union argues that, of
the shareholders involved in these motions, it has the
largest financial interest, and that, therefore, there is a
presumption that it should be the lead
plaintiff. And, the Union contends that it satisfies
the requirements of Rule 23.
and James concede that, of the shareholders involved in these
motions, the Union has the largest financial interest in
Genworth. Although Rice and James acknowledge that, under the
PSLRA, the Union is deemed the presumptive lead plaintiff,
they take the view that the Union cannot adequately represent
the class based "on the conflict the [Union] has due to
its simultaneous prosecution of derivative claims for
Genworth and based on its failure to pursue shareholder
direct claims as the Rice Group has." (ECF No. 50). In
particular, Rice and James maintain that the Union's
derivative claim against Genworth in Delaware presents a
conflict of interest and subjects the Union to unique
defenses, thereby rendering the Union an inadequate lead
and James further explain that the conflict will continue
even after the merger is completed (if it is completed).
"There are other scenarios where the derivative case
goes on for years, keeping the IUOE Investor Group in a
conflicted position. For example, the approval of the Merger
could be delayed for over a year, or new evidence could
trigger an exception to the mootness rule and the derivative
claims could go on after approval of the Merger . . . ."
response, the Union argues that there is no conflict because
this action and the derivate action in Delaware are related.
"In the Derivative Action, the IUOE Investor Group
alleges that certain Genworth Financial, Inc.  executives
and directors breached their fiduciary duties by allowing
Genworth to engage in securities fraud . . . [and here] the
Rice Group is alleging, inter alia, that defendants
failed to properly value the derivative claims asserted by
the IUOE Investor Group and disclose all material information
regarding those claims." Id. Finally, says the
Union, "[g]iven the Rice Group's apparent intent to
recover only non-monetary relief for the putative class, it
is not in a position to claim that appointment of the IUOE
Investor Group, a group that plans to pursue money damages
against Defendants, will disadvantage the class
response to the Court's inquiry, all parties agree that
the case is not moot, notwithstanding the settlement of the
preliminary injunction aspect of the case and the amended
disclosures made by the Company pursuant to the settlement.
Rice and James argue that the existence of a settlement does
not divest the Court's jurisdiction over the case, but
does have a bearing on the lead plaintiff analysis.
5, 2017, at the hearing on the lead plaintiff/lead counsel
motions, the Company weighed in on that issue by arguing that
there was no merit to the securities claims that the Union
says it would raise if it were appointed lead counsel. The
Court gave the parties an opportunity to brief that argument.
The Union responded that the Company had no right to argue a
position on the lead plaintiff motions. Rice and James
essentially adopted the argument advanced by the Company.
AND APPLICATION OF LAW
neither party has affirmatively argued that the case is moot,
resolution of that question is nonetheless essential because,
if the case is moot, the Court lacks jurisdiction to proceed
further and any opinion would be advisory and thus
improper." North Carolina v. Rice, 404 U.S.
244, 246 (1971). Therefore, "a suit must be definite and
concrete, touching the legal relations of parties having
adverse legal interests . . . However, moot questions require
no answer." RL (internal citations omitted). But, if
"the parties have a concrete interest, however small, in
the outcome of the litigation, the case is not moot."
Chafin v. Chafin, 568 U.S. 165, 133 (2013).
inquiry to be made here is much like the one presented in
Lambert v. Tellabs, Inc., No. 13-cv-07945, 2015 U.S.
Dist. LEXIS 156284, at *6 (N.D. 111. Mar. 5, 2015). In
Lambert, the shareholders alleged that the
company's "disclosures asking shareholders to
approve the merger omitted critical information in violation
of § 14(a) of the Securities Exchange Act."
Id. The shareholders sought "primarily
injunctive relief to prevent the merger, but also sought
damages in the alternative if the merger were
finalized." Id., at 3. The parties negotiated a
Memorandum of Understanding, whereby the company "agreed
to send out supplemental disclosures to shareholder and
thereby cure the alleged defects in their prior
disclosures." Id. The district court found
"the supplemental disclosures d[id] not render the
Plaintiff's disclosure-related claims moot because they
addressed only seven of the eleven omissions Plaintiff
alleged in her complaint." Iji. at 6. Additionally, the
court found that, because the complaint sought "not only
an injunction to prevent the merger, but also damages if the
merger did go through, " if the court were to reject the
settlement agreement, the shareholders could continue with
the litigation on the merits in order to seek damages. The
district court explained that, "[w]hile injunctive
relief is typically the preferred method for remedying
disclosure violations . . . damages are available for such
violations where the merger has already been
consummated." Id. For those reasons, the case
in Lambert was not moot.
as in Lambert, the parties advised that it was their
intent to prepare a Memorandum of Understanding reflecting
the settlement, whereby certain supplemental disclosures were
to be made. The parties here also agreed that the Company
would provide certain discovery that would permit
verification that the disclosures, as supplemented, were
accurate and complete. If the plaintiffs are not satisfied on
that point, they can proceed with the litigation including,
inter alia, the pursuit of the claim for rescissory
damages. And, of course, it is possible that the Court would
not approve the settlement and thereupon the case would
the facts in this record, the Court concludes that the case
is not moot and that the Court retains jurisdiction over the
case. Thus, it is appropriate now to consider the motions