Compliance July 19, 2005

NY Judge Taps Individual Investors as Class Action Chief Plaintiff

July 19, 2005 (PLANSPONSOR.com) - A New York federal judge has taken the unusual step of naming a small group of individual investors as lead plaintiff in a securities class action lawsuit, rather than go with the usual move of tapping an institutional investor for the post.
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US District Judge Shira Scheindlin of the US District Court for the Southern District of New York, named the five-member group headed by Shabbir Adib rather than the Greater Pennsylvania Carpenters Pension Fund, the New York Law Journal reported.

Defendant in the case is the financial software company, eSpeed. Plaintiffs accused eSpeed of inflating its stock price by hiding negative information about the company’s prospects.

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The lead plaintiff decision can be a significant one in a class action setting because the head plaintiff and its lawyers decide on much of the legal strategy to be employed and typically garner the richest pot of lawyers’ fees.

Scheindlin acknowledged in her ruling that that the standards established in the 1995 Private Securities Litigation Reform Act were designed to favor pension funds and other institutional investors in choosing a lead plaintiff.

“Appointing a group of unrelated investors lead plaintiff could lead to fragmentation and the problem of determining whose voice reigns when the group cannot agree,” she wrote. “An institutional investor with substantial losses functioning as lead plaintiff is less likely to cause a ‘flurry of otherwise pointless activity’ in the form of disputes within the lead plaintiff group.”

She wrote that the contest for presumptive lead plaintiff hinged on whether the Adib group had larger losses than the pension fund.   Two of the four factors used in determining which plaintiff had the greatest financial interest in the outcome of the litigation – net number of shares purchased during the class period and the total net funds expended – favored the Adib group, Scheindlin wrote.   A third factor – the number of gross shares purchased during the class period – favored the pension fund.

The fourth factor required a measurement of the parties’ financial losses. The judge calculated that Adib group lost either $166,743 or $196,795, while the pension fund lost $121,264.

The case is In Re eSpeed, Inc. Securities Litigation , 05 Civ. 2091.

Compliance July 18, 2005

Protective Orders Not a Qualifying Event Under COBRA

July 18, 2005 (PLANSPONSOR.com) - A protective order against a health plan participant's estranged husband was not the same as a legal separation agreement and therefore was not a qualifying event for continued coverage under COBRA, an appeals court has ruled.
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District Judge Bobby Baldock of the US Court of Appeals for the Tenth Circuit upheld a lower court ruling for Zeda Simpson that a protective order against her estranged husband was not the same as a legal separation agreement and therefore did not trigger the plan administrator’s obligation to notify the covered beneficiary of the right to continued coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Simpson was covered under her husband’s health plan with employer T.D. Williamson Inc (TDW), according to a BNA report.   In July of 2000, she filed for divorce and a court issued protective orders for Simpson’s husband to stay away from her and the marital residence.   Simpson sent a letter to TDW asking them to not disclose medical information about her to her husband.   TDW considered this letter notice of a qualifying event as a result of legal separation and notified Simpson of her right to continued health insurance coverage under COBRA.   Simpson elected coverage, but neither the company nor Simpson paid the premiums for the coverage.  

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In June 2002, the employer notified Simpson that her health coverage was being cancelled due to non-payment of premiums.   In July of that year, Simpson notified T.D. Williamson that a final divorce decree had been issued and she wished to elect COBRA coverage.   The employer told her she could not be reinstated because her rights had expired.   Simpson filed a case with the US District Court for the Northern District of Oklahoma.   The court ruled in favor of Simpson and ordered TDW to provide her health coverage and reimbursement for uninsured medical expenses and attorney’s fees.

TDW appealed the ruling.   Since COBRA does not define “legal separation” and there were no appeals court precedents, Baldock relied on an immigration case in which the legal separation was defined as a judicial alteration of the marriage. In his opinion, cited by BNA, Baldock, said that “a decree of legal separation directs the parties to live apart and defines the parties legal rights and obligations in regard to custody, support, property division and/or maintenance” without dissolving the marriage bond.   He found that no legal separation occurred and agreed with the District Court in favor of Simpson.

The full text of the opinion can be found  here .

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