Case 0:06-cv-01216-JMR-FLN Document 64-1 Filed 05/25 ...

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA

JAN BRANDIN, in the right of and for the benefit of UnitedHealth Group, Inc.,

))))

Case No. 06-CV-1216-JMR-FLN

Plaintiff, ) v.

))

WILLIAM C. MCGUIRE, STEPHEN J. HEMSLEY, WILLIAM C. BALLARD, JR., RICHARD T. BURKE, JAMES A. JOHNSON, THOMAS H. KEAN, DOUGLAS W. LEATHERDALE, MARY O. MUNDINGER, ROBERT L. RYAN, WILLIAM G. SPEARS, GAIL R. WILENSKY, TRAVERS H. WILLS, DAVID P. KOPPE, THOMAS P. MCDONOUGH, JAMES G. CARLSON, JEANNINE M. RIVET, R. CHANNING WHEELER, DAVID J. LUBBEN, ARNOLD H. KAPLAN, and ROBERT J. SHEEHY,

)))))))))))))

Defendants,

))

and

))

UNITEDHEALTH GROUP, INC., ))

Nominal Defendant.

))

(Captions continued on subsequent pages)

AMENDED MEMORANDUM OF LAW IN SUPPORT OF THE PENSION FUND GROUP’S MOTION FOR APPOINTMENT AS LEAD PLAINTIFFS, APPROVAL OF THEIR SELECTION OF LEAD COUNSEL, AND CONSOLIDATION OF RELATED

ACTIONS

Case 0:06-cv-01216-JMR-FLN Document 64-1 Filed 05/25/2006 of 30

RAYMOND CLARK, RETIREMENT BOARD OF ALLEGHENY COUNTY, and SEIU PENSION PLANS MASTER TRUST, Derivatively on Behalf of Nominal Defendant UNITEDHEALTH GROUP, INC.,

)))))))

Case No. 06-1532-JMR-FLN

Plaintiffs, ))

vs. ))

WILLIAM C. BALLARD, JR., RICHARD T. BURKE, JAMES G. CARLSON, STEPHEN J. HEMSLEY, JAMES A. JOHNSON, THOMAS H. KEAN, DAVID P. KOPPE, DOUGLAS W. LEATHERDALE, DAVID J. LUBBEN, WILLIAM W. MCGUIRE, MARY O. MUNDINGER, JEANNINE M. RIVET, ROBERT L. RYAN, DONNA E. SHALALA, ROBERT J. SHEEHY, WILLIAM G. SPEARS, R. CHANNING WHEELER, DAVID S. WICHMANN, TRAVERS H. WILLS, AND GAIL R. WILENSKY,

)))))))))))))

Defendants. ))

-and- ))

UNITEDHEALTH GROUP, INC., ))

Nominal Defendant.

))



ANGELA TARANGO, Derivatively on Behalf of UNITEDHEALTH GROUP INC.,

)))))

Case No. 06-CV-1639-PJS-JJG

Plaintiff, ))

vs. ))

WILLIAM W. MAGUIRE, STEPHEN J. HEMSLEY, WILLIAM C. BALLARD, JR., RICHARD T. BURKE, JAMES A. JOHNSON, THOMAS H. KEAN, DOUGLAS W. LEATHERDALE, MARY O. MUNDINGER, ROBERT L. RYAN, WILLIAM G. SPEARS, and GAIL R. WILENSKY,

)))))))))

Defendants, ))

-and- ))

UNITEDHEALTH GROUP INC., a Minnesota corporation.

)))

Nominal Defendant. ))



PIRELLI ARMSTRONG TIRE CORPORATION RETIREE MEDICAL BENEFITS TRUST, Derivatively on Behalf of UNITEDHEALTH GROUP INC.,

))))))

Case No. 06-CV-1666-PJS-JJG

Plaintiff, ))

vs. ))

WILLIAM W. MCGUIRE, STEPHEN J. HEMSLEY, WILLIAM C. BALLARD, JR., RICHARD T. BURKE, JAMES A. JOHNSON, THOMAS H. KEAN, DOUGLAS W. LEATHERDALE, MARY O. MUNDINGER, ROBERT L. RYAN, WILLIAM G. SPEARS, and GAIL R. WILENSKY,

)))))))))

Defendants, ))

-and- ))

UNITEDHEALTH GROUP, INC., a Minnesota corporation.

)))

Nominal Defendant.

))

(Captions continued on subsequent page)


ST. PAUL TEACHERS’ RETIREMENT FUND ASSOCATION, PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF MISSISSIPPI, JACKSONVILLE POLICE & FIRE PENSION FUND, LOUISIANA MUNICIPAL POLICE EMPLOYEES’ RETIREMENT SYSTEM and LOUISIANA SHERIFFS’ PENSION & RELIEF FUND, Derivatively on Behalf of Nominal Defendant UNITEDHEALTH GROUP, INC., Plaintiffs, vs. WILLIAM W. MCGUIRE, STEPHEN J. HEMSLEY, DAVID J. LUBBEN, R. CHANNING WHEELER, JEANNINE M. RIVET, DAVID P. KOPPE, JAMES G. CARLSON, ROBERT J. SHEEHY, WILLIAM C. BALLARD, JR., RICHARD T. BURKE, JAMES A. JOHNSON, THOMAS H. KEAN, DOUGLAS W. LEATHERDALE, MARY O. MUNDINGER, ROBERT L. RYAN, WILLIAM G. SPEARS and GAIL R. WILENSKY, Defendants, - and - UNITEDHEALTH GROUP INC., a Minnesota Corporation, Nominal Defendant.

)))))))))))))))))))))))))))))))))))))

Case No. 06-CV-1959-DWF-AJB

(Captions continued on subsequent page)


PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF OHIO, and STATE TEACHERS’ RETIREMENT SYSTEM OF OHIO on behalf of themselves and all others similarly situated, and derivatively on behalf of UNITEDHEALTH GROUP, INC.,

::::::::

Case No. 06-CV-2094-PAM-JSM

Plaintiffs, : v.

::

WILLIAM W. MCGUIRE, STEPHEN J. HEMSLEY, WILLIAM C. BALLARD, JR., RICHARD T. BURKE, JAMES A. JOHNSON, THOMAS H. KEAN, DOUGLAS W. LEATHERDALE, WALTER F. MONDALE, MARY O. MUNDINGER, ROBERT L. RYAN, WILLIAM G. SPEARS, GAIL R. WILENSKY, and DONNA E. SHALALA,

:::::::::

Defendants,

::

v.

::

UNITEDHEALTH GROUP, INC., ::

Nominal Defendant.

::


i

TABLE OF CONTENTS

TABLE OF AUTHORITIES .............................................................................................. ii INTRODUCTION .............................................................................................................. 1 STATEMENT OF FACTS ................................................................................................. 5 ARGUMENT.................................................................................................................... 10

A. The Pension Fund Group Is Best Qualified to Serve as Lead Plaintiff ................ 10

B. The Related Derivative Actions Should All Be Consolidated.............................. 19 CONCLUSION................................................................................................................. 19


ii

TABLE OF AUTHORITIES

FEDERAL CASES In re BankAmerica Corp. Securities Litigation, 263 F.3d 795 (8th Cir. 2001) .............................16 In re Cendant Corp. Securities Litigation, 404 F.3d 173 (3d Cir. 2005)...................................9, 16 In re Conseco, Inc. Securities Litigation, 120 F. Supp. 2d 729 (S.D. Ind. 2000)......................9, 11 Dollens v. Zionts, No. 01 C 5931, 2001 WL 1543524 (N.D. Ill. Dec. 4, 2001) ........................9, 17 In re Doral Finance Corp. Securities Litigation,

No. 05 MDL 1706 RO, 2006 WL 1120491 (S.D.N.Y. Apr. 27, 2006) .....................................8 In re Enron Corp. Securities Litigation, 206 F.R.D. 427 (S.D. Tex. 2002) ....................................9 MacAlister v. Guterma, 263 F.2d 65 (2d Cir. 1958)........................................................................8 In re OCA, Inc. Securities & Derivative Litigation,

No. 05-2165, slip op. (E.D. La. Nov. 18, 2005) ................................................................ 10-12 In re Xcel Energy, Inc. Securities, Derivative & “ERISA” Litigation,

222 F.R.D. 603 (D. Minn. 2004)................................................................................................9

STATE CASES Hirt v. U.S. Timberlands Service Co., LLC,

No. Civ. A. 19575, 2002 WL 1558342 (Del. Ch. July 9, 2002) ............................ 10, 11-12, 15 Lansky v. NWA, Inc., 471 N.W.2d 713 (Minn. Ct. App. 199) .......................................................10 PJ Acquisition Corp. v. Skoglund, 453 N.W.2d 1 (Minn. 1990) .....................................................9 Rich v. Reisini, 266 N.Y.S.2d 492 (N.Y. App. Div. 1966) ............................................................15 TCW Technology Limited Partnership v. Intermedia Communications, Inc.,

No. 18336, 2000 WL 1654504 (Del. Ch. Oct. 17, 2000)...................................................10, 15

DOCKETED CASES In re 3Com Corp. Securities Litigation, No. 97-CV-21083 (N.D. Cal. 1997) ................................7 Angeloni v. SmartForce, PLC, d/b/a SkillSoft PLC,

No. 02-CV-544 (D.N.H. 2002) ..................................................................................................6


iii

Brandin v. McGuire, et al., No. 0:06-cv-01216-JMR-FLN (D. Minn. 2006)......................5 n.2, 17 In re Cendant Corp. Litigation, No. 98-CV-1664 (WHW) (D.N.J. 1998) ....................................15 Clark v. Ballard, et al., No. 0:06-cv-01532-JMR-FLN (D. Minn. 2006)............................5 n.3, 17 Louisiana School Employees' Retirement System v. Warner-Lambert Co.,

No. 17557 (Del. Ch. 1999).........................................................................................................7 In re Lucent Technologies, Inc. Securities Litigation,

No. 00-CV-621 (JAP) (D.N.J. 2001) .......................................................................................15 McCall v. Scott (Columbia/HCA Derivative Litigation),

No. 99-6387 (M.D. Tenn. 1999) ..............................................................................................12 In re Nextcard, Inc. Securities Litigation, No. 5:01-CV-21029 (N.D. Cal. 2001) ..........................7 Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. McGuire, et al.,

No. 0:06-cv-01666-PJS-JJG (D. Minn. 2006) ...............................................................5 n.5, 17 Rosman v. Lodewijk J.R. DeVink, Warner-Lambert Co.,

No. 17519 (Del. Ch. 1999).........................................................................................................7 Sands Point Partners, L.P. v. Pediatrix Medical Group, Inc.,

No. 99-CV-6181 (S.D. Fla. 1999)..............................................................................................7 In re Symbol Technologies, Inc. Securities Litigation,

No. 02-CV-1383 (E.D.N.Y. 2002).............................................................................................6 Tarango v. McGuire, et al., No. 0:06-cv-01639-PJS-JJG (D. Minn. 2006) ........................5 n.4, 17 In re WorldCom, Inc. Securities Litigation,

No. 02-CV-3288 (DLC) (S.D.N.Y. 2003) ...............................................................................14

FEDERAL STATUTES AND RULES 15 U.S.C. § 78u-4(a)(3) ...................................................................................................................8 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I) ....................................................................................................9 Fed. R. Civ. P. 23.............................................................................................................................9 Fed. R. Civ. P. 23.1....................................................................................................................8, 11 Fed. R. Civ. P. 42(a) ......................................................................................................................17


Plaintiffs Public Employees’ Retirement System of Ohio (“OPERS”), State

Teachers’ Retirement System of Ohio (“Ohio STRS,” and collectively with OPERS, the

“Ohio Funds”), St. Paul Teachers’ Retirement Fund Association (“St. Paul Teachers”),

Public Employees’ Retirement System of Mississippi (“Mississippi PERS”), Jacksonville

Police & Fire Pension Fund (“Jacksonville Police & Fire”), Louisiana Municipal Police

Employees’ Retirement System (“Louisiana Municipal Police”), Louisiana Sheriffs’

Pension & Relief Fund (“Louisiana Sheriffs”), and Fire & Police Pension Association of

Colorado (“Colorado FPPA”) (collectively, the “Pension Fund Group”) respectfully

submit this amended memorandum of law in support of their motion for appointment as

Lead Plaintiff, approval of their selection of Co-Lead and Local Counsel, and

consolidation of all related derivative actions. Through this amended motion, the Ohio

Funds and Colorado FPPA join together with the other members of the Pension Fund

Group, and their respective counsel, in a unified effort to enforce the rights of

UnitedHealth Group Inc. (“UnitedHealth” or the “Corporation”) and its shareholders.

INTRODUCTION

The Pension Fund Group respectfully submits that it is the applicant for Lead

Plaintiff that is best able to vindicate the rights of UnitedHealth and its shareholders in

this litigation. The Pension Fund Group consists of eight large, United States-based

public pension funds, including one located in St. Paul, Minnesota, that have a significant

financial stake in UnitedHealth and thereby a strong incentive to ensure that the claims of

the Corporation are vigorously prosecuted. The members of the Pension Fund Group


2

collectively have present holdings of approximately 7.1 million shares of UnitedHealth

common stock with a current market value of approximately $300 million.

On May 18, 2006, Plaintiffs St. Paul Teachers, Mississippi PERS, Jacksonville

Police & Fire, Louisiana Municipal Police, and Louisiana Sheriffs (collectively the “St.

Paul Plaintiffs”) filed a derivative complaint in this district captioned St. Paul Teachers’

Retirement Fund System v. McGuire, Case No. 06-CV-1959. This complaint asserted

derivative claims on behalf of the Corporation, including claims for breach of fiduciary

duty, unjust enrichment, rescission, and for violations of the federal securities laws. The

St. Paul Plaintiffs collectively own over 1.1 million UnitedHealth shares valued in excess

of at $50 million. On the same day, the St. Paul Plaintiffs also filed a motion to

preliminarily enjoin dissipation of the stock options at issue, as well as a motion to be

appointed as Lead Plaintiff, for approval of their selection of Bernstein Litowitz Berger &

Grossmann LLP (“Bernstein Litowitz”) and Rice, Michels & Walther LLP (“Rice,

Michels”) as counsel, and for consolidation of all related derivative actions.

On May 22, 2006, the Ohio Funds filed their own complaint in this District,

captioned Public Employees’ Retirement System of Ohio v. McGuire, Case No. 06-Civ-

2094. The Ohio Funds’ complaint asserted similar claims to those asserted in the earlier

complaint and, in addition, asserted a number of direct claims on behalf of shareholders,

including claims arising from material misrepresentations and omissions in the

Corporation’s annual proxy statements. The Ohio Funds own at least 5.6 million


3

UnitedHealth shares valued at approximately $235,760,000. The law firm of Grant &

Eisenhofer P.A. (“Grant & Eisenhofer”) filed this complaint on behalf of the Ohio Funds.

As a result of these filings, the St. Paul Plaintiffs and the Ohio Funds became

aware of their common interests as UnitedHealth shareholders and their mutual intention

to enforce the rights of the Corporation and its shareholders by means of this litigation.

In light of this concurrence of interests, the Ohio Funds have united with the St. Paul

Plaintiffs in order to prosecute this case as a unified group of sophisticated institutional

investors with a shared interest in correcting the harm inflicted on UnitedHealth and its

shareholders, and the willingness and wherewithal to prosecute this significant lawsuit

with the appropriate level of commitment. By this amended motion, the Pension Fund

Group seeks appointment as Lead Plaintiff, consolidation of all related derivative cases,

and approval of the group’s selection of Bernstein Litowitz and Grant Eisenhofer as Co-

Lead Counsel and Rice, Michels as Local Counsel.

The members of the Pension Fund Group share a vital interest in the management

integrity and corporate governance of the companies in which they invest for the benefit

of the teachers, police officers, firefighters, and other public employees who are their

beneficiaries. St. Paul Teachers is one of the largest pension funds in Minnesota, and it is

closely concerned with the integrity of UnitedHealth, which is one of the larger

businesses headquartered in this state. Further, the Ohio Funds and Mississippi PERS are

both represented by the Attorneys General of their respective states, whose offices will

necessarily bring their law enforcement experience, resources, and prestige to bear on the


4

conduct of this litigation. UnitedHealth is also a major national corporation, and all of

the members of the Pension Fund Group share a vital interest in ensuring that this

litigation is properly prosecuted to achieve the best possible result for UnitedHealth that

will benefit the Corporation’s stockholders and set an example for corporate reform

nationwide.

The Pension Fund Group has demonstrated its ability to effectively protect the

interests of UnitedHealth and its stockholders by making the only motion for an

injunction and imposition of a constructive trust on the UnitedHealth property that was

unlawfully taken by the principal wrongdoers in this case, and by filing two detailed, and

well-thought out complaints herein, both of which contain legal theories not included in

any of the other complaints. Specifically, the Pension Fund Group is the only Plaintiff

that has alleged that the shares of stock underlying the executive stock options at issue in

this case were not duly authorized and, upon exercise of the options, will not be validly

issued, fully paid and nonassessable under the Minnesota Business Corporation Act and

therefore should be cancelled. Similarly, the complaint filed by the Ohio Funds is the

only complaint on file before the Court that asserts direct class claims on behalf of

investors for the material misrepresentations and omissions in UnitedHealth’s proxy

statements.

Almost all of the members of the Pension Fund Group have a record of

successfully leading prior stockholder litigations as lead plaintiffs and achieving excellent

results for the stockholders they represented in those cases. Finally, the Pension Fund


5

Group has retained highly qualified and experienced counsel in this Action. For all these

reasons, the Pension Fund Group is the best qualified plaintiff to serve as Lead Plaintiff.

STATEMENT OF FACTS

This is a landmark derivative case involving the brazen misappropriation of

billions of dollars worth of UnitedHealth’s property by the top executive officers of the

Company, the very men who were charged with the duty to safeguard that property for

the benefit of the shareholders. The Pension Fund Group respectfully refers the Court to

the two verified derivative complaints filed by its members and to the memorandum of

law in support of their application for a preliminary injunction for a more detailed

description of the back-dated executive stock option grants that are at issue in the case.

The members of the Pension Fund Group are large institutional investors with

substantial assets, experience acting as fiduciaries, and large holdings of UnitedHealth

common stock. Specifically:

• OPERS, established in 1935, operates pursuant to Chapter 145 of the Ohio Revised Code and provides for the retirement of state, county, municipal, and other Ohio employees. OPERS has approximately 500,000 members and over 119,000 retirees and surviving beneficiaries. OPERS currently serves more than 3,700 public employees and has assets of approximately $73 billion. OPERS currently owns in excess of 3.5 million shares of UnitedHealth stock. (Para. 13.)1

• Ohio STRS, which operates pursuant to Chapter 3307 of the Ohio Revised Code, serves approximately 400,000 active, inactive, and retired Ohio public educators. Ohio STRS has assets of

1 References in the form “Para. __” are to paragraphs in the Ohio Funds’ verified derivative complaint.


6

approximately $53 billion. Ohio STRS currently owns in excess of 2.1 million shares of UnitedHealth stock. (Para. 14.)

• St. Paul Teachers is a defined-benefit pension fund for public school teachers in St. Paul, Minnesota. (¶ 7.)2 St. Paul Teachers has $935 million in net assets held in trust for pension beneficiaries as of June 30, 2005. See St. Paul Teachers’ 2005 Annual Report, available at www.sptrfa.org/general/news.htm. St. Paul Teachers currently owns 38,760 shares of UnitedHealth stock. (¶ 7.)

• Mississippi PERS is the retirement system for employees of the state, public school districts, municipalities, counties, community colleges, state universities and such other public entities as libraries and water districts in Mississippi. Mississippi PERS has more than $16 billion in net assets held in trust for pension beneficiaries as of June 30, 2005. See Mississippi PERS’ 2005 annual report, available at www.pers.state.ms.us/financials/annualfinancialreport.html. Mississippi PERS currently owns 1,035,530 shares of UnitedHealth stock. (¶ 8.)

• Jacksonville Police & Fire is a defined-benefit pension fund for police officers and firefighters in Jacksonville, Florida. (¶ 9.) Jacksonville Police & Fire had a total market value of $798 million as of September 30, 2003. See Jacksonville Police & Fire’s Annual Report, available at www.coj.net/Departments/Police+and+Fire+Pension/Annual+Report.htm. Jacksonville Police & Fire currently owns 14,100 shares of UnitedHealth stock. (¶ 9.)

• Louisiana Municipal Police is a defined-benefit pension fund for police officers in the State of Louisiana. (¶ 10.) Lousiana Municipal Police has $1.3 billion in net assets held in trust for pension beneficiaries as of June 30, 2005, see Louisiana Municipal Police’s Annual Report, available at www.lampers.org/auditreports.htm, and currently owns 48,248 shares of UnitedHealth stock. (¶ 10.)

• Louisiana Sheriffs is a defined-benefit pension fund for sheriffs in the State of Lousiana with $1.16 billion in net assets as of April 30, 2006. (¶ 11.) Louisiana Sheriffs currently owns 43,850 UnitedHealth shares. (Id.)

2 References in the form “¶ __” are to paragraphs in the Pension Group’s verified derivative complaint.


7

• Colorado FPPA is a defined-benefit pension fund for police officers and firefighters in Colorado. Colorado FPPA has $2.96 billion in net assets held in trust for pension beneficiaries as of March 31, 2006. See Colorado FPPA’s website, available at, www.fppaco.org/toc_frames.html. Colorado FPPA currently owns 319,621 UnitedHealth shares.

Thus, the members of the Pension Fund Group presently own a total of

approximately 7.1 million shares of UnitedHealth common stock with a market value of

approximately $300 million. They collectively owned UnitedHealth common shares at

the time of the transactions challenged in this case and continuously at all other relevant

times. (¶ 55; Para. 15.)

The fraudulent backdating of UnitedHealth executive stock options was first

revealed to the Corporation’s shareholders by a Wall Street Journal article published on

March 18, 2006. (¶ 4.) In a classic “race to the courthouse,” several shareholders with

small stakes in the Corporation rushed to file derivative actions challenging the option

grants. The Brandin complaint was filed on March 29,3 the Clark complaint was filed on

April 21,4 the Tarango complaint was filed on May 1,5 and the Pirelli Armstrong Tire

Corp. Retiree Medical Benefits Trust complaint was filed on May 3, 2006.6

The members of the Pension Fund Group did not join the rush to file copycat

complaints. Rather, each of their officers and/or trustees considered the unfolding 3 Brandin v. McGuire, et al., No. 0:06-cv-01216-JMR-FLN (D. Minn. 2006). 4 Clark v. Ballard, et al., No. 0:06-cv-01532-JMR-FLN (D. Minn. 2006). 5 Tarango v. McGuire, et al., No. 0:06-cv-01639-PJS-JJG (D. Minn. 2006). 6 Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. McGuire, et al., No. 0:06-cv-01666-PJS-JJG (D. Minn. 2006).


8

UnitedHealth scandal, consulted with their counsel, and deliberated about how to proceed

in order best to protect their interests, the interests of their fellow UnitedHealth

shareholders and of UnitedHealth. Upon determining that the magnitude of the alleged

wrongdoing in this case justified pursuing a lead role in the litigation, the initial members

of the Pension Fund Group instructed counsel to file a derivative complaint, an

application for a preliminary injunction imposing a constructive trust on the

misappropriated corporate property held by the two most high-level and culpable

wrongdoers, and a motion for appointment as lead plaintiff. The Ohio Funds, before

joining with the Pension Fund Group, likewise behaved in a manner consistent with the

Lead Plaintiff role sought herein and filed a highly detailed and thoughtful complaint

after lengthy deliberation and consultation with counsel.

The members of the Pension Fund Group have experience as fiduciaries for their

pension beneficiaries and nearly all of them have served as representatives of other

shareholders in class action and/or derivative litigation. Thus, they have experience

monitoring counsel and acting as fiduciaries in stockholder litigation, and they have

achieved superlative results in the prior cases in which they have served as lead plaintiffs.

For example, the Ohio Funds have substantial experience serving as lead plaintiffs

in highly complex securities class action lawsuits of considerable public significance.

The Ohio Funds serve together as lead plaintiffs in both Ohio Public Employees

Retirement System v. Freddie Mac, No. C2-03-0711, and In re Fannie Mae Securities

Litigation, No. 04-CV-1639, both of which arise from the major accounting scandals of


9

recent years at the nation’s most important Federal Home Loan Banks. Bernstein

Litowitz is Co-Lead Counsel in the case against Freddie Mac.

Louisiana Municipal Police and Louisiana Sheriffs are lead plaintiffs in In re

Symbol Technologies, Inc. Securities Litigation, No. 02-CV-1383 (E.D.N.Y. 2002), and

obtained resolutions with Symbol and certain of its former directors and officers for at

least $139 million in stock and cash and with Deloitte & Touche LLP for an additional

$24 million in cash. (Claims against certain defendants in Symbol Technologies are

stayed pending resolution of criminal cases against them.) Louisiana Sheriffs was also

one of the lead plaintiffs in Angeloni v. SmartForce, PLC, d/b/a SkillSoft PLC, No. 02-

CV-544 (D.N.H. 2002), and obtained settlements from SkillSoft and certain of its officers

and directors for $30.5 million and from Ernst & Young LLP for $8 million. Bernstein

Litowitz was Co-Lead Counsel for Louisiana Municipal Police and Louisiana Sheriffs

and the Classes in these two cases.

Jacksonville Police & Fire was a lead plaintiff in Sands Point Partners, L.P. v.

Pediatrix Medical Group, Inc., No. 99-CV-6181 (S.D. Fla. 1999), which settled for $12

million. Jacksonville Police & Fire is a lead plaintiff in In re Nextcard, Inc. Securities

Litigation, No. 5:01-CV-21029 (N.D. Cal. 2001), a case which has been partially

resolved against one defendant, Ernst & Young, for $23.2 million, and is proceeding in

discovery against the remaining defendants.

In addition to Symbol Technologies, Louisiana Municipal Police was a lead

plaintiff in Louisiana School Employees’ Retirement System v. Warner-Lambert Co., No.


10

17557, and Rosman v. Lodewijk J.R. DeVink, Warner-Lambert Co., No. 17519 (Del. Ch.

1999), two cases in which shareholders of Warner-Lambert challenged the fairness of the

terms and price of a proposed acquisition of Warner-Lambert by American Home

Products. In connection with the litigation, Warner-Lambert was ultimately acquired by

Pfizer for $10 billion more than the original proposal. Louisiana Municipal Police was

also lead plaintiff in In re 3Com Corp. Securities Litigation, No. 97-CV-21083 (N.D. Cal.

1997), a securities class action that was resolved for $259 million during the discovery

phase of the litigation. Bernstein Litowitz represented Louisiana Municipal Police and

the classes in both of these cases.

ARGUMENT

A. The Pension Fund Group Is Best Qualified to Serve as Lead Plaintiff

There is no statutory framework for the appointment of lead plaintiff in derivative

lawsuits, but it is well-settled the Court should appoint a lead plaintiff and lead counsel to

ensure the efficient, economical prosecution of the litigation in the best interests of the

corporation and its shareholders. See MacAlister v. Guterma, 263 F.2d 65, 68 (2d Cir.

1958); In re Doral Fin. Corp. Sec. Litig., No. 05 MDL 1706 RO, 2006 WL 1120491, at

*1 (S.D.N.Y. Apr. 27, 2006). Rule 23.1 of the Federal Rules of Civil Procedure requires

that the lead plaintiff in a derivative suit must “fairly and adequately represent the

interests of the shareholders . . . similarly situated in enforcing the right of the

corporation.” Fed. R. Civ. P. 23.1.

Courts applying Rule 23.1’s requirements have been guided by developments in

the related body of law governing securities class actions, where Congress and the courts


11

have acted in recent years to ensure that the representative plaintiff in stockholder

litigation should have a substantial stake in the case so that litigation will be client-

driven, not lawyer-driven. To that end, Congress expressed a strong preference for

institutional plaintiffs with large holdings of the stock at issue when it enacted the Private

Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(a)(3). The

PSLRA creates a presumption that the “most adequate plaintiff” in a securities class

action is the “person or group of persons” that has “the largest financial interest in the

relief sought by the class” and “otherwise satisfies the requirements of Rule 23 of the

Federal Rules of Civil Procedure.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). (Of Rule 23’s

requirements, only two, typicality and adequacy of representation, are relevant in the

selection of a lead plaintiff under the PSLRA. See In re Enron Corp. Sec. Litig., 206

F.R.D. 427, 441 (S.D. Tex. 2002).) The PSLRA creates “a paradigm in which the

plaintiff with the largest stake in the case, usually a large and sophisticated institution, is

accorded the status of lead plaintiff and assigned the right to appoint and duty to monitor

lead counsel for the class.” In re Cendant Corp. Sec. Litig., 404 F.3d 173, 180 (3d Cir.

2005).

Federal courts apply the PSLRA’s criteria as “persuasive” in selecting lead

plaintiffs in derivative cases. In re Conseco, Inc. Sec. Litig., 120 F. Supp. 2d 729, 734

(S.D. Ind. 2000). Thus, there is a presumption in favor of “institutional investors or those

with very large stock holdings.” Id; see also Dollens v. Zionts, No. 01 C 5931, 2001 WL

1543524, at *5 (N.D. Ill. Dec. 4, 2001). The Pension Fund Group is aware of no

Minnesota state law on point, but Minnesota courts interpret the Minnesota Business


12

Corporation Act in light of the case law of Delaware, whose corporate case law is highly

developed. See In re Xcel Energy, Inc. Sec., Derivative & “ERISA” Litig., 222 F.R.D.

603, 606 (D. Minn. 2004) (“Shareholder derivative actions are relatively rare in

Minnesota. Thus, Minnesota courts often look to the decisions of Delaware courts for

guidance in this area.”) (citing, inter alia, PJ Acquisition Corp. v. Skoglund, 453 N.W.2d

1, 7 (Minn. 1990), and Lansky v. NWA, Inc., 471 N.W.2d 713, 714 (Minn. Ct. App.

1991)). Like federal courts, Delaware courts emphasize the size of applicants’ financial

interest in the litigation in selecting derivative lead plaintiffs. See Hirt v. U.S.

Timberlands Serv. Co., LLC, No. Civ. A. 19575, 2002 WL 1558342, at *2 (Del. Ch. July

9, 2002) (“the relative economic stakes of the competing litigants in the outcome of the

lawsuit” are “to be accorded ‘great weight’”) (quoting TCW Tech. Limited P’ship v.

Intermedia Commc’ns, Inc., No. 18336, 2000 WL 1654504, at *4 (Del. Ch. Oct. 17,

2000).

By this criterion, the Pension Fund Group’s holdings of approximately 7.1 million

shares of UnitedHealth are substantially larger than those of the competing movants that

have filed motions seek appointment as lead plaintiff: (i) the group consisting of

Raymond Clark, Retirement Board of Allegheny County, and SEIU Pension Plans Master

Trust, which claims total holdings of approximately 115,000 shares; (ii) Jan Brandin,

who claims holdings of only 4,460 shares; and (iii) the self-styled “Institutional Investor

Group,” which claims total holdings of 1,274,580 UnitedHealth shares. See Raymond

Clark, Retirement Board of Allegheny County, and SEIU Pension Plans Master Trust’s

Memorandum of Law in Support of Their Motion to Consolidate and Coordinate Actions,


13

at 9; Memorandum of Law in Support of Jan Brandin’s Motion to Consolidate Related

Actions, for Appointment as Lead Plaintiff, and for Appointment of Co-Lead Counsel, at

11; Memorandum of Points and Authorities In Support of the Institutional Investor

Group’s Motion to Appoint Lead Derivative Plaintiff and Lead Derivative Counsel, at 1.

As the lead plaintiff applicant with the largest investment in UnitedHealth and the

greatest economic stake in a favorable outcome of this litigation for the Corporation, the

Pension Fund Group should be appointed Lead Plaintiff. See In re OCA, Inc. Sec. &

Derivative Litig., No. 05-2165, slip op. at 37, 44 (E.D. La. Nov. 18, 2005) (holding that

“economic interest . . . should be given substantial weight” in selecting derivative lead

plaintiff and appointing applicant with largest shareholdings) (a copy of In re OCA is

attached hereto as Exh. A); In re Conseco, 120 F. Supp. 2d at 734.

The Pension Fund Group is also the best qualified plaintiff under each of the other

factors that courts have considered in selecting a derivative lead plaintiff. As discussed

in the Statement of Facts, the members of the Pension Fund Group are large institutional

investors that have achieved excellent results as lead plaintiffs in prior stockholder

litigations. Thus, they have proven that they are “most able to represent the interests of

similarly situated shareholders adequately in enforcing the rights of [UnitedHealth]” in

accordance with Rule 23.1. In re OCA, slip op. at 35.

Courts also look to the quality of applicants’ pleadings. See id. at 37; Hirt v. U.S.

Timberlands, 2002 WL 1558342, at *2. In this regard, the Pension Fund Group is the

only Plaintiff that has alleged that the shares of UnitedHealth stock underlying the

fraudulently issued executive stock options were not duly authorized and will not be


14

validly issued, fully paid and nonassessable. The Pension Fund Group is also the only

Plaintiff that has filed a complaint seeking to vindicate class claims arising from material

misrepresentations and/or omission in UnitedHealth’s proxy materials. The Pension

Fund Group’s pleadings demonstrate its fitness to represent the interests of the

Corporation and its shareholders.

Vigorous prosecution of the action is another factor that courts consider in

appointing lead plaintiffs. See In re OCA, slip op. at 41; Hirt v. U.S. Timberlands, 2002

WL 1558342, at *2. The Pension Fund Group stands out in this regard, because it is the

only Plaintiff that has sought a preliminary injunction to impose a constructive trust on

the invalidly issued and backdated stock options held by the two worst offenders in this

case, William W. McGuire and Stephen J. Hemsley, thereby preventing dissipation of the

assets that should ultimately satisfy a judgment for the Corporation’s benefit, as well as

preventing the irreparable harm that the Corporation would suffer if the options were

exercised, invalidly issued shares of stock polluted the market for the Corporation’s

securities, and the wrongdoers’ control over the Corporation were entrenched through

their manipulation of the corporate machinery to cause the Corporation to invalidly issue

stock to them.

Finally, courts consider the competence of a lead plaintiff applicant’s chosen

counsel as an indicator of the applicant’s ability to vigorously represent the shareholders’

interests. See In re OCA, slip op. at 41; Hirt v. U.S. Timberlands, 2002 WL 1558342, at

*2. The Pension Fund Group’s choice of Bernstein Litowitz and Grant & Eisenhofer

weighs in favor of its application for lead plaintiff, because Bernstein Litowitz and Grant


15

& Eisenhofer are preeminent among law firms representing stockholders in derivative

and class actions. (Firm resumes for Bernstein Litowitz and Grant Eisenhofer are

attached as Exhibits A and B, respectively.)

Bernstein Litowitz is one of the preeminent firms representing plaintiffs in

securities and shareholder litigation in the United States. Bernstein Litowitz has an

outstanding track record in securities class actions, having obtained, as lead or co-lead

counsel, several of the largest securities fraud recoveries since the 1995 enactment of the

PSLRA. These recoveries include the record-breaking securities litigation recovery

recently obtained in In re WorldCom Securities Litigation—which resulted in a recovery

of over $6 billion from WorldCom’s underwriters, over $100 million from directors and

officers, and an additional $65 million from its auditor, Arthur Andersen, following four

weeks of trial. Others examples include In re Cendant Securities Litigation (global

settlement of $3.2 billion), In re Nortel Networks Securities Litigation (global settlement

of $2.7 billion including cash and stock), In re McKesson HBOC, Inc. Securities

Litigation (partial settlement of $960 million), and In re Lucent Technologies Securities

Litigation ($600 million settlement composed of cash, stocks and warrants). Bernstein

Litowitz also has substantial experience representing institutional investors in litigation

including breaches of fiduciary duties and other examples of failed corporate governance.

For example, Bernstein Litowitz represented ten public pension funds in the

Columbia/HCA Derivative Litigation, filed against the directors and officers of

Columbia/HCA Healthcare Corporation, the subject of the largest healthcare fraud

investigation ever.


16

Grant & Eisenhofer, a boutique litigation firm that focuses almost exclusively on

this type of litigation, is also among the preeminent law firms representing plaintiffs in

securities and shareholder litigation. Grant & Eisenhofer currently serves as corporate

governance counsel for several state and union pension funds, and regularly litigates

complex corporate fiduciary matters before courts across the country. Grant &

Eisenhofer also has the experience necessary to manage large scale litigation. Indeed,

Grant & Eisenhofer has been lead counsel in five of the largest securities class actions in

history including Global Crossing (partial settlements only) for $325 million, Oxford

Health for $300 million, DaimlerChrysler for $300 million, Safety-Kleen for $284

million, and Dollar General for $172 million. Grant & Eisenhofer also has vast

experience litigating cases involving issues of directors’ fiduciary duties and corporate

governance. For example, Grant & Eisenhofer served as lead counsel in a derivative

action alleging that Digex’s directors and majority shareholder breached their fiduciary

duties in connection with a merger, which resulted in a settlement valued at $400 million,

the largest recorded settlement in the history of the Delaware Court of Chancery.

Similarly, Grant & Eisenhofer prosecuted a derivative action challenging the

compensation practices at Siebel Systems, which resulted in the cancellation of nearly 26

million options and numerous corporate governance reforms.

Grant & Eisenhofer also has been instrumental in achieving landmark decisions on

important issues of corporate law. In a case involving Toll Bros., for example, Grant &

Eisenhofer’s efforts led to a decision by the Delaware Court of Chancery that invalidated


17

so-called “dead hand” poison-pills under Delaware law. And in a recent case involving

News Corp., Grant & Eisenhofer successfully challenged a boards’ failure to live up to

certain commitments made to shareholders relating to voting rights on a poison-pill. The

News Corp. decision, in particular, clarified years of Delaware precedent and further

solidified shareholders’ rights under Delaware law.

Competing movants may argue that they should be preferred because they filed

their complaints earlier than the Pension Fund Group. However, courts reject the notion

that the first plaintiff to file a straightforward derivative complaint should be favored as

lead plaintiff. See U.S. Timberlands, 2002 WL 1558342, at *2 (“The [Delaware

Chancery] [C]ourt has also recognized that no special weight or status will be accorded to

a lawsuit ‘simply by virtue of having been filed earlier than any other pending action’”)

(quoting TCW Tech., 2000 WL 1654504, at *3); Rich v. Reisini, 266 N.Y.S.2d 492, 494

(N.Y. App. Div. 1966) (rejecting argument that “the dominating factor should be the

institution of the first [derivative] suit, with the consequence that plaintiff’s attorney in

that suit should be the counsel,” and holding instead that “[t]he guiding principle in the

selection of counsel is to find among those eligible the one who will best serve the

interest of the plaintiffs”). Likewise, Congress expressly rejected the “race to the

courthouse” method of selecting representative plaintiffs in stockholder litigation when it

enacted the PSLRA. See In re Cendant Corp. Sec. Litig., 404 F.3d at 192 (PSLRA “is a

sea change from the prior race-to-the-courthouse system”); In re BankAmerica Corp. Sec.

Litig., 263 F.3d 795, 799 (8th Cir. 2001) (“the PSLRA, in response to abuses by


18

professional plaintiffs and their attorneys, vested the control over such litigation in the

plaintiff with the greatest financial stake, thereby eliminating the ‘race to the courthouse’

system”).

Neither the Clark/Allegheny/SEIU group nor Brandin has prosecuted this

litigation in any way apart from filing a complaint and a motion for lead plaintiff. They

have conducted no discovery and have not even filed oppositions to the motions to

dismiss that Defendants have filed. Thus, the Court should give no weight to their speed

in racing to the courthouse door ahead of the Pension Fund Group, whose members

instead undertook serious deliberations, filed a far more carefully considered complaint,

and acted to protect their fellow shareholders’ interests by applying for the preliminary

injunction.

For all of these reasons, the Pension Fund Group should be appointed Lead

Plaintiff, and the Court should approve its selection of Bernstein Litowitz and Grant &

Eisenhofer as Co-Lead Counsel and Rice, Michels as Local Counsel.


19

B. The Related Derivative Actions Should All Be Consolidated

The following related derivative complaints have been filed in this District against

the Defendants:

Abbreviated Case Caption Case No. Judge

Brandin v. McGuire 06-cv-01216-JMR-FLN Rosenbaum Clark v. Ballard 06-cv-01532-JMR-FLN Rosenbaum

Tarango v. McGuire 06-cv-01639-PJS-JJG Schiltz Pirelli Armstrong Tire Corp. Retiree Medical

Benefits Trust v. McGuire 06-cv-01666-PJS-JJG Schiltz St. Paul Teachers’

Retirement Fund System v. McGuire 06-CV-1959-DWF-AJB Frank

Public Employees’ Retirement System of Ohio

v. McGuire 06-CV-2094-PAM-JSM Magnuson All of these derivative actions are based on substantially the same factual and legal

issues, as they all arise out of the same alleged scheme by Defendants. Accordingly,

consolidation pursuant to Fed. R. Civ. P. 42(a) is appropriate here. See Dollens v. Zionts,

2001 WL 1543524, at *2.

CONCLUSION

For the foregoing reasons, the Pension Fund Group respectfully requests that the

Court (i) consolidate the above-captioned actions and any subsequently filed or

transferred related actions; (ii) appoint the Pension Fund Group as Lead Plaintiff; (iii)


20

approve the Pension Fund Group’s selection of Co-Lead and Local Counsel; and (iv)

grant such other and further relief as the Court may deem just and proper.

Dated: May 25, 2006

Respectfully submitted,

RICE, MICHELS & WALTHER LLP By:___/s/ James P. Michels____________ Brian F. Rice (No. 014468X) James P. Michels (No. 168749) Karin E. Peterson (No. 185048) 206 East Bridge – Riverplace 10 Second Street, Northeast Minneapolis, MN 55413 Telephone: (612) 676-2300 Facsimile: (612) 676-2319 Counsel for St. Paul Teachers’ Retirement Fund Association and Proposed Local Counsel for Plaintiffs

GRANT & EISENHOFER P.A. Jay W. Eisenhofer Jonathan Margolis 45 Rockefeller Center, 15th Floor New York, NY 10111 Telephone: (646) 722-8500 Facsimile: (646) 722-8501 Michael J. Barry Cynthia A. Calder Chase Manhattan Centre 1201 N. Market Street, Suite 2100 Wilmington, DE 19801 Telephone: (302) 622-7000 Facsimile: (302) 622-7100 Counsel for Public Employees’ Retirement System of Ohio and State Teachers’ Retirement System of Ohio, and Proposed Co-Lead Counsel for Plaintiffs

BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Douglas M. McKeige Gerald H. Silk Wendy K. Erdly Noam N. Mandel 1285 Avenue of the Americas New York, NY 10019 Telephone: (212) 554-1400 Facsimile: (212) 554-1444 Counsel for Jacksonville Police & Fire Pension Fund, Louisiana Sheriffs’ Pension & Relief Fund, Louisiana Municipal Police Employees’ Retirement System, St. Paul Teachers’ Retirement Fund Association, Public Employees’ Retirement System of Mississippi, and Fire & Police Pension Association of Colorado, and Proposed Co-Lead Counsel for Plaintiffs


21

Other Plaintiffs’ Counsel:

KLAUSNER & KAUFMAN, P.A. Robert D. Klausner 10059 N.W. 1st Court Plantation, FL 33324 Telephone: (954) 916-1202 Facsimile: (954) 916-1232

JAMES R. BEHRENBRINKER (No. 186739) Lakes & Plains Office Building 842 Raymond Avenue Suite 200 St. Paul, MN 55114 Telephone: (651) 647-6250 Facsimile: (651) 251-1183


Case 0:06-cv-01216-JMR-FLN Document 64-1 Filed 05/25 ...

Documents

Transcript of Case 0:06-cv-01216-JMR-FLN Document 64-1 Filed 05/25 ...