On February 13, 2008, United States District Court Judge Saundra Brown Armstrong appointed Gwyn Jones, a U.K. citizen who resides in Cyprus, as the lead plaintiff in a securities class action brought against BigBand Networks, Inc., its directors and officers, and other defendants. Mohanty v. BigBand Networks, Inc., No. 07CV5101 (N.D. Cal. 2008). BigBand Networks is based in California and develops, markets and sells network-based technologies. The court also appointed the American law firms of Hagens Berman Sobol and Shapiro and Kahn Gauthier Swick as lead counsel.
Judge Armstrong ruled that Mr. Jones, who sustained the largest investment losses of any lead plaintiff applicant (approximately $400,000), satisfied the typicality and adequacy requirements of F.R.C.P. Rule 23(a). The court held that Jones met the typicality requirement because he purchased BigBand stock during the class period at allegedly inflated prices and was allegedly damaged thereby. However, to determine whether Jones fulfilled the adequacy requirement, Judge Brown closely examined whether Jones was subject to any “unique defenses” (i.e., whether Jones was vulnerable to certain defenses that would not affect other class members) arising out of his status as a foreign plaintiff.
Specifically, a competing lead plaintiff candidate argued that Cyprus courts do not recognize class actions unless absent class members have affirmatively granted a power of attorney to the representative plaintiff. Thus, any judgment issued by a U.S. court could be enforced in Cyprus only as to Jones; it would not bind the remaining BigBand investors residing in Cyprus. See Borochoff v. Glaxosmithkline, PLC, 246 F.R.D. 201 (S.D.N.Y. 2007) (declining to appoint a German institutional investor as lead plaintiff where there was doubt as to whether a judgment in a U.S. class action would protect a prevailing defendant against relitigation or would be enforceable in Germany). Implicit in the competing lead plaintiff candidate's argument is the risk that the BigBand defendants might later demonstrate that Cyprus does not recognize U.S. class action judgments, thus potentially justifying a dismissal of Jones and leaving the remaining class members without a lead plaintiff. However, Judge Armstrong rejected this argument because she found that there was no conclusive evidence that Cyprus would not recognize a U.S. class action judgment.
Over the past several years, foreign investors have begun to take increasing advantage of the potential remedies afforded by the U.S. legal system. Here, notably, although BigBand is an American company, it was a foreign investor that sustained the largest investment loss of any candidate for lead plaintiff.