## Facts

- Multiple investors filed related securities class actions alleging that offering materials for Merrill Lynch–sponsored mortgage pass-through certificates tied to subprime loans failed to disclose, or misstated, the risks and loan quality.
- The cases were consolidated in the Southern District of New York before Judge Jed S. Rakoff.
- Two competing movants sought appointment as lead plaintiff under the Private Securities Litigation Reform Act of 1995 (PSLRA): Iron Workers Local No. 25 Pension Fund (Iron Workers) and the Public Employees’ Retirement System of Mississippi (MissPERS).
- Each movant also asked the court to appoint its preferred lawyers as lead counsel. Iron Workers proposed Coughlin Stoia Gelle Rudman & Robbins, LLP (Coughlin Stoia). MissPERS proposed Bernstein Litowitz Berger & Grossmann LLP (Bernstein Litowitz), among other firms.
- The court held an evidentiary hearing that examined, among other things, how each movant selected and supervised counsel and the fee/retention arrangements between the movants and their lawyers.
- Iron Workers had an arrangement under which Coughlin Stoia provided free monitoring of Iron Workers’ investments and, when the firm recommended litigation, Iron Workers would retain Coughlin Stoia on a contingent-fee basis for that litigation.
- MissPERS used internal investment staff and outside advisers to evaluate litigation decisions. MissPERS also used multiple law firms and did not have a contract guaranteeing that any monitoring firm would be retained if litigation was filed.
- The court previously issued a “bottom-line” order appointing MissPERS as lead plaintiff and Bernstein Litowitz as lead counsel, and then issued the written opinion explaining that result and denying Iron Workers’ competing request.

## Issues

1. Under the PSLRA, which movant was entitled to the presumption of appointment as lead plaintiff based on having the largest financial interest and otherwise meeting Rule 23 typicality and adequacy at the appointment stage?
2. Did Iron Workers rebut the PSLRA presumption by showing that MissPERS could not fairly and adequately represent the class (including arguments tied to MissPERS’s transaction history and certificate holdings)?
3. What lead-counsel structure best served the class, and how should the court weigh counsel-selection process, fee proposals, and attorney–client arrangements when appointing lead counsel?

## Decision

- The court appointed MissPERS as lead plaintiff under the PSLRA.
- The court appointed Bernstein Litowitz as sole lead counsel.
- The court denied Iron Workers’ motion to be appointed lead plaintiff and denied its request to have Coughlin Stoia appointed lead counsel.
- The court found that MissPERS had the largest financial interest and satisfied the PSLRA’s initial showing of typicality and adequacy, and that Iron Workers did not present evidence sufficient to displace MissPERS.
- In selecting lead counsel, the court favored MissPERS’s proposed structure and Bernstein Litowitz’s qualifications and fee approach, and it expressed concern that Iron Workers’ monitoring-and-retention arrangement with Coughlin Stoia created incentives inconsistent with the PSLRA’s goal of client-controlled, not lawyer-driven, class litigation.

## Legal Principles

- The PSLRA creates a rebuttable presumption that the “most adequate plaintiff” is the movant with the largest financial interest in the relief sought who otherwise makes a preliminary showing that it satisfies Rule 23 typicality and adequacy.
- The presumption may be rebutted only with proof that the presumptive lead plaintiff will not fairly and adequately protect the class or is subject to unique defenses that render it incapable of representing the class.
- At the lead-plaintiff appointment stage, the Rule 23 inquiry is limited; the court does not decide the merits, but it does evaluate whether the movant’s claims arise from the same alleged misconduct and whether the movant appears able to supervise the litigation.
- The lead plaintiff’s selection of counsel is generally given weight, but the court retains authority to appoint and structure lead counsel in a manner that best serves the class.
- In evaluating adequacy and counsel selection, courts may consider whether attorney–client fee and retention terms create conflicts or incentives that risk steering litigation decisions toward counsel rather than the investor client, which the PSLRA was enacted to reduce.
- Differences in which tranches or certificate classes a lead plaintiff purchased do not automatically defeat appointment where the purchases are tied to the same alleged misstatements; tranche-specific concerns can be handled later through additional class representatives or subclassing if needed.

## Conclusion

In this consolidated subprime MBS securities class action, the court resolved competing PSLRA motions by appointing MissPERS as lead plaintiff and naming Bernstein Litowitz as sole lead counsel, concluding that MissPERS had the greatest financial stake and was an adequate representative, while Iron Workers failed to displace the statutory presumption and presented counsel-retention terms that raised concerns about lawyer-driven decisionmaking.


Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing & Securitization, LLC, 616 F. Supp. 2d 461 (2009)