Case Name: LR Trust, et al. v. Page, et al.
Case No.: 19-CV-341522

Case Name: Martin v. Page, et al.
Case No.: 19-CV-343672

Case Name: Northern California Pipe Trades Pension Plan, et al. v. Hennessey, et al.
Case No.: 19-CV-343670

Case Name: Sjunde Ap-Fonden, v. Bock, et al.
Case No.: 19-CV-344792

Case Name: The New York City Employees’ Retirement System, et al. v. Page, et al.
Case No.: 19-CV-346737

These related shareholder derivative actions arise from allegations that officers and directors of Alphabet, Inc., the parent company of Google LLC, breached their fiduciary duties and committed other misconduct in connection with multi-million-dollar severance awards to male executives accused of assaulting female employees, amid a broader culture of discrimination against women at the company.

Before the Court are three competing motions to consolidate the actions and appoint lead plaintiffs and lead counsel. The moving plaintiffs are (1) Sjunde AP-Fonden (“AP7”); (2) Northern California Pipe Trades Pension Plan, Teamsters Local 272 Labor Management Pension Fund, and James Martin (the “Northern California Plaintiffs’ Group”); and (3) LR Trust, Jonathan Reiss, and Allen Wiesenfeld (the “LR Trust Plaintiffs”).

On May 6, 2019, the Court granted the application of a fourth group of plaintiffs—New York City Employees’ Retirement System, the Teachers’ Retirement System of the City of New York, the New York City Fire Department Pension Fund, Subchapter 2, and the New York City Board of Education Retirement System (the “NYC Funds”)—to file a response to the three pending motions. The NYC Funds urge the Court to appoint them as lead plaintiffs and their attorneys as lead counsel.

I. Consolidation

“California procedural law is infused with a solicitude, if not an altogether outright preference, for the economies of scale achieved by consolidating related cases into a single, centrally managed proceeding.” (Petersen v. Bank of America Corp. (2014) 232 Cal.App.4th 238, 248.) Consolidation is governed by Code of Civil Procedure section 1048, which states: “When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” “Consolidation under Code of Civil Procedure section 1048 is permissive, and it is for the trial court to determine whether the consolidation is for all purposes or for trial only.” (Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1149.)

Here, all parties generally agree that consolidation of these actions is appropriate. However, AP7 urges the Court not to order the consolidation of its complaint with those of the other plaintiffs at this juncture, given that AP7 has made a demand on Alphabet’s board to bring claims against defendants Lawrence Page and Sundar Pichai only. The other plaintiffs, by contrast, allege that demand on Alphabet’s board is futile. While the plaintiffs dispute the merits of their respective positions, they agree that demand refusal and demand futility are alternative, inconsistent theories to which different legal standards will apply at the demurrer stage.

The Court agrees with AP7 that it should be permitted to pursue its own theory of liability through the demurrer stage. While the Northern California Plaintiffs’ Group correctly urges that inconsistent legal theories may be pleaded in the alternative within a single complaint under California law, the Court anticipates that it would be challenging for plaintiffs to do so here and that a lengthy and confusing pleading would result from this approach. Further, plaintiffs’ briefing on this issue reveals their strong and fundamental disagreement over the right approach to this case. The Court would prefer to receive briefing on demurrer from plaintiffs who fully believe in the theory they will be called to defend. Here, that will not be possible if AP7, on the one hand, or the demand futility plaintiffs, on the other, are handed the task of pursuing an approach to the case antithetical to their own.

The Court will accordingly permit AP7 to maintain and defend its own complaint through the pleading stage. However, it will consolidate the actions for all other purposes, considering the many common questions of law and fact they raise. Given the general consistency among their pleadings, the demand futility plaintiffs will be directed to file a single, consolidated complaint addressed to that theory.

II. Appointment of Lead Plaintiffs and Counsel

With regard to the appointment of lead plaintiffs and counsel, the three groups of moving plaintiffs propose three different leadership structures. The Northern California Plaintiffs’ Group proposes that they be appointed lead plaintiffs and their counsel Cohen Milstein Sellers & Toll PLLC and Bottini & Bottini, Inc. be appointed co-lead counsel, with local California firms Berman Tabacco and the Renne Public Law Group also participating as members of an executive committee. The LR Trust Plaintiffs propose that one plaintiff and one counsel from each of the competing groups of demand futility plaintiffs should collectively represent those plaintiffs. AP7 requests that it be appointed lead plaintiff and its counsel Kessler Topaz Meltzer & Check, LLP be appointed lead counsel, in association with its local Delaware counsel Prickett Jones & Elliott, P.A. Finally, the NYC Funds request that they be appointed lead plaintiffs, with their counsel Grant & Eisenhofer serving as lead counsel and other plaintiffs’ counsel possibly participating on an executive committee.

A. Legal Standard

Trial courts have inherent authority to control the proceedings before them and ensure the orderly administration of justice, including by adopting suitable methods of practice in the exercise of this authority. (Asbestos Claims Facility v. Berry & Berry (1990) 219 Cal.App.3d 9, 19, disapproved on another ground in Kowis v. Howard (1992) 3 Cal.4th 888, 896.) Indeed, the Legislature has recognized and codified these powers. (Asbestos Claims Facility, supra, 219 Cal.App.3d at p. 19, citing Code Civ. Proc., §§ 128, 187.) A trial court’s inherent authority empowers it to appoint lead counsel in a complex action. (Asbestos Claims Facility, supra, 219 Cal.App.3d at pp. 19-20; see also Cal. Rules of Court, rule 3.750(b)(7) [appointment of lead counsel should be considered in complex cases].)

In the absence of California authority governing the appointment of leadership in a shareholder derivative action, the Court looks to federal authority, which is persuasive. (See Hefczyc v. Rady Children’s Hospital–San Diego (2017) 17 Cal.App.5th 518, 531 [discussing federal law, including rule 23 of the Federal Rules of Civil Procedure, as persuasive authority].) “Courts in [the Ninth Circuit] that have appointed lead plaintiffs have consulted the eight factors set out in Larson v. Dumke, 900 F.2d 1363, 1367 (9th Cir.1990), which was not a case about competing lead plaintiffs but about whether a putative derivative plaintiff satisfied the criteria set out in Federal Rule of Civil Procedure 23 .1 for who may maintain a derivative action.” (Nicolow v. Hewlett Packard Co. (N.D. Cal., Mar. 4, 2013, No. 12-05980 CRB) 2013 WL 792642, at *7.) “Other courts that select a lead plaintiff have looked to factors similar to those found in the [Private Securities Litigation Reform Act (“PSLRA”)] and the factors for selection of counsel set out in the Manual for Complex Litigation, such as the quality of the plaintiff’s pleadings, the vigorousness of the plaintiff’s efforts, the size of the plaintiff’s financial interest, and a general preference for institutional investors.” (Ibid.) “In cases where all proposed plaintiffs are adequate under Rule 23.1 courts have selected the lead plaintiff among them using [these] marginal factors,” with “financial interest, quality of the pleadings, and vigorousness of prosecution appear[ing] to carry the most weight in determining the plaintiff who will best serve the interests of the shareholders in a derivative suit.” (Berg v. Guthart (N.D. Cal., July 30, 2014, No. 5:14-CV-00515-EJD) 2014 WL 3749780, at *4.)
B. Analysis

Although they vigorously dispute who among them is best qualified for the job, all plaintiffs and their counsel implicitly agree that this matter would benefit from the appointment of lead plaintiffs and counsel. While it is not required to appoint leadership, the Court also concludes that it would benefit Alphabet shareholders here given the complexity of the matter, the interest of members of the public and Alphabet employees in its progress, and the number of plaintiffs who seek to control the litigation. The Court anticipates that establishing a leadership structure will save time and money and will move the action forward more expeditiously compared to a scenario in which plaintiffs and their counsel must devote their energies to negotiating internal disputes without any decision-making structure to guide them.

As an initial matter, it appears that all of the plaintiffs, with the possible exception of Jonathan Reiss, would satisfy the standing requirements to maintain a derivative action. Similarly, all four proposed leadership teams would include well-regarded firms experienced in litigating shareholder derivative actions. The Court will accordingly focus its analysis on the other “marginal” factors emphasized by both the federal and Delaware courts. It is, however, disinclined to appoint AP7 and its counsel given their choice to proceed through a demand on Alphabet’s board. While the Court expresses no opinion on the ultimate wisdom of this approach, it is at odds with the views of all of the other plaintiffs, who understandably object to being led by a plaintiff with a fundamentally different outlook and narrower focus than theirs.

Turning to the factors to which the courts give the most weight, the quality of the pleadings and vigorousness of prosecution favor appointing the Northern California Plaintiffs’ Group and their counsel. As described in their briefing, plaintiff Martin propounded the first shareholder inspection demand and negotiated with Alphabet regarding the scope of its responsive document production and the terms of a protective order. Since then, the Northern California Plaintiffs’ Group has continued to negotiate the production of additional documents by Alphabet and has interviewed potential expert witnesses on corporate governance issues. On March 11, 2019, Martin publicly filed a detailed Amended Shareholder Derivative Complaint in this Court after negotiating with Alphabet to avoid a sealing dispute. Counsel for the Northern California Plaintiffs’ Group agreed among themselves to a leadership structure and offered counsel for other plaintiffs seats on the executive committee they propose. Furthermore, their proposed team includes counsel with expertise in the legal issues surrounding sexual harassment and employment litigation, and counsel who have defeated a motion to dismiss demand futility claims in a derivative suit arising from underlying allegations of sexual harassment.

Based on these efforts, the Court concludes that the Northern California Plaintiffs’ Group has most vigorously progressed the action so far, although it credits counsel for the other plaintiffs for their efforts as well. Most notably, the NYC Funds have also filed a detailed complaint after successfully negotiating the production of additional documents by Alphabet and interviewing two confidential witnesses from within the company. Counsel for the NYC Funds also has experience successfully litigating a shareholder derivative action involving sexual misconduct by a senior corporate executive. Still, on balance, the Court finds that the Northern California Plaintiffs’ Group has done more to move the litigation forward to this point, and has confidence that it will continue to do so. These plaintiffs have retained California counsel who are readily available to make appearances and to meet and confer in person, and the Court is familiar with the good work of Bottini & Bottini, Inc. in other cases. Considering all these circumstances, the Court is inclined to appoint the Northern California Plaintiffs’ Group. (See Nicolow v. Hewlett Packard Co. (N.D. Cal., Mar. 4, 2013, No. 12-05980 CRB) 2013 WL 792642, at *8 [with other factors being equal, “[t]he Court’s choice of leadership … turns on its judgment of which movant has demonstrated a superior ability to move this litigation forward effectively and efficiently, and to otherwise best serve the interests of the plaintiffs”; appointing plaintiffs and counsel based on their “inclusive approach to working with other plaintiffs and co-counsel in this case” and early “results in this litigation in the form of the final stipulation consolidating the seven derivative actions”]; In re Wells Fargo & Company Shareholder Derivative Litigation (N.D. Cal., Jan. 12, 2017, No. 16-CV-05541-JST) 2017 WL 130282, at *3 [emphasizing the proven ability to move the action forward and appointing lead plaintiffs and counsel who “played a key role in the effort to consolidate these cases pursuant to stipulation” and expressed a willingness to coordinate and work with other plaintiffs’ counsel].)

As to the remaining factors, the NYC Funds, AP7, and the LR Trust Plaintiffs contend that they are the most appropriate plaintiffs to supervise counsel in this action. The NYC Funds and AP7 cite their large ($1.1 billion and $744 million, respectively) holdings in Alphabet and prior experience leading such matters, to which the Court does assign weight. However, the Northern California Plaintiffs’ Group also includes institutional investors with significant holdings in Alphabet. Courts have interpreted the financial interest factor in different ways in the derivative context, with some adopting the PSLRA’s focus on the largest amount of absolute shares and others focusing on the relative economic impact on each plaintiff. (Berg v. Guthart, supra, 2014 WL 3749780, at *5.) “[T]he weight given to the size of a plaintiffs’ holding is not used to generate a formalistic ranking, but rather comes into play when a plaintiff owns a sufficient stake to provide an economic incentive to monitor counsel and play a meaningful role in conducting the case.” (In re Revlon, Inc. Shareholders Litigation (Del. Ch. 2010) 990 A.2d 940, 955.) Ultimately, this factor “is not dispositive in the context of a shareholder derivative action.” (In re Wells Fargo & Company Shareholder Derivative Litigation, supra, 2017 WL 130282, at *3 [“Given the significant financial stake of both pairs of proposed co-lead plaintiffs, the Court finds that this factor will translate into a marginal difference, if any, in the vigor of representation.”].) Furthermore, although many express a preference for institutional investors, courts have also appointed individual investors to lead derivative actions that include qualified institutional plaintiffs. (See Nicolow v. Hewlett Packard Co., supra, 2013 WL 792642, at *8 [sophisticated individual investor with relevant experience qualified to serve as lead plaintiff in derivative action].) Some have found a combination of institutional and individual investors best, a view with which this Court agrees. (See Yousefi v. Lockheed Martin Corp. (C.D. Cal. 1999) 70 F.Supp.2d 1061, 1071 [“with the appointment of one lead plaintiff who is an individual private investor and one lead plaintiff that is an institutional investor, the lead plaintiffs will represent a broader range of shareholder interests than if the Court appointed an individual or an institutional investor alone”].) While the Court assigns some weight to the larger holdings of the NYC Funds and AP7, it finds that the plaintiffs comprising the Northern California Plaintiffs’ Group are sufficiently incentivized to monitor counsel and play a meaningful role in the case, and concludes that their demonstrated vigor in moving the action forward makes them the best choice to lead the case.

Finally, the LR Trust Plaintiffs contend that Northern California Pipe Trades Pension Plan and Teamsters Local 272 Labor Management Pension Fund cannot “alone” serve as lead plaintiffs because they are governed by the Employee Retirement Income Security Act (“ERISA”), which prohibits plan administrators from using plan resources except for the benefit of plan beneficiaries. They further urge that these plaintiffs may be required to sell their shares in Alphabet for the benefit of their fiduciaries depending on market conditions and the funds’ investment strategies. As an initial matter, the Northern California Plaintiffs’ Group includes individual plaintiff James Martin in addition to the institutional plaintiffs, and thus does not request that the institutional plaintiffs “alone” be appointed lead plaintiffs. This mirrors the leadership structure approved in In re Oxford Health Plans, Inc. Securities Litigation (S.D.N.Y. 1998) 182 F.R.D. 42, one of the cases relied on by LR Trust. Furthermore, these cases do not establish “any general hostility towards public pension funds as lead plaintiffs,” which is a common practice. (In re KIT Digital, Inc. Securities Litigation (S.D.N.Y. 2013) 293 F.R.D. 441, 448 [rejecting challenge to institutional lead plaintiff that was not based on specific proof or criticisms; distinguishing Oxford and noting the belief of the Committee on Banking, Housing and Urban Affairs that “an institutional investor acting as lead plaintiff can, consistent with its fiduciary obligations, balance the interests of the class with the long-term interests of the company and its public investors”]; see also Berg v. Guthart, supra, 2014 WL 3749780, at *4 [rejecting similar challenge].) Here, there is no indication that Northern California Pipe Trades Pension Plan and Teamsters Local 272 Labor Management Pension Fund cannot fulfill their fiduciary duties to their beneficiaries while serving as lead plaintiffs.

The Court will accordingly appoint the Northern California Plaintiffs’ Group and their counsel to lead this action.

III. Conclusion and Order

The motions to consolidate the actions and appoint lead plaintiffs and lead counsel are GRANTED IN PART AND DENIED IN PART as follows:

The above-entitled actions are consolidated for all purposes, with the exception that AP7 will maintain a separate complaint and will maintain control over that pleading through at least the demurrer stage. The remaining plaintiffs shall meet and confer regarding a process and schedule by which they will file a consolidated complaint. The plaintiffs comprising the Northern California Plaintiffs’ Group are appointed lead plaintiffs, and their counsel Cohen Milstein Sellers & Toll PLLC and Bottini & Bottini, Inc. are appointed co-lead counsel. The other aspects of the leadership structure proposed by the Northern California Plaintiffs’ Group are also approved.

The Court will prepare the order.