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March 19, 2004.

DANIEL TAUBENFELD, individually and on behalf of all others similarly situated, Plaintiff,

The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge


Currently pending in this district are six related securities fraud putative class actions (the "related cases") brought against Career Education Corporation ("CEC"), John M. Larson ("Larson") and Patrick K. Pesch ("Pesch").*fn1 Each action alleges that the defendants violated § 10(b) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78j(b), Rule 10b-5 promulgated under § 78j(b), and § 20(a) of the Act, 15 U.S.C. § 78t(a). The court has been presented with three competing motions for appointment of lead plaintiff in these cases, brought by, respectively, (1) Thomas Schroder; (2) Phil M. Campbell and Laurence Ratnofsky; and (3) Jeffrey Koontz and Nicholas Margaritis. Each potential lead plaintiff seeks an order granting similar relief, including (a) consolidation of the related cases; (b) appointment as lead plaintiff; and (3) approval of lead counsel for the class. For the reasons stated below, Schroder's motion is Page 2 granted in part and ruling is reserved in part while the other potential lead plaintiffs' motions are denied.


  CEC is a Delaware corporation with its principal place of business in Hoffman Estates, Illinois. During the time period relevant to this action, Larson served as CEC's Chief Executive Officer, President and Chairman, and Pesch as its Chief Financial Officer, Treasurer and Secretary. CEC is a provider of private, for-profit postsecondary education with 51 campuses in countries including the United States, Canada, France, the United Kingdom and the United Arab Emirates. In each of the six cases before this court, CEC, Larson and Pesch are alleged to have made materially false and misleading statements during the proposed class period. The defendants are alleged to have falsified student records in order to increase graduation rates and enrollment, concealed problems that could have threatened the accreditation of many of its schools, graduated students who had not completed required courses and billed students for taking courses they never attended.


  A. Consolidation

  All of the potential lead plaintiffs argue that the six related cases should be consolidated because there are similar issues of fact and law involved in each case. Consolidation is appropriate "[w]hen actions involving a common question of law or fact are pending before the court. . . ." Fed.R.Civ.P. 42(a). The court agrees that consolidation is appropriate for the six related cases insofar as each involves class action claims on behalf of purchasers of CEC stock and each asserts similar if not overlapping claims for relief. Moreover, given the similarity of the Page 3 claims, the court believes that consolidation of these cases will result in substantial savings of judicial time and effort. Accordingly, the related cases are hereby consolidated for all purposes pursuant to Rule 42(a) of the Federal Rules of Civil Procedure.

  B. Appointment of Lead Plaintiff

  The Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4 et seq., establishes the procedure for appointment of a lead plaintiff in "each private action arising under [the Act] that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(1). The PSLRA presents a rebuttable presumption that
the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that —
(aa) has either filed the complaint or made a motion in response to a notice [published to potential class members] . . .;
(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.
15 U.S.C. § 78u-4(a)(3)(B)(iii).

  Each of the potential lead plaintiffs abided by requirement (aa) set out above. Under the PSLRA, after notice of the law suit is provided to the potential class members (which occurred in this case on December 10, 2003), within 60 days of this notice any person or group of persons who wishes to proceed as lead plaintiff must present their motion to the court. 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). That 60 day period expired on February 9, 2004. The motions currently pending before the court were all made by this February 9 date.

  As for the potential lead plaintiff with the largest financial interest, the parties focus on who had the most net losses during the proposed class period. Under that benchmark, there is no Page 4 dispute that Schroder had the most losses, measured at $96,512. This is significantly larger than the $10,344,93 Campbell and Ratnofsky claimed to have lost and the $52,300 claimed to have been lost by Koontz and Margaritis. Thus, so long as Schroder otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure, he would be the most adequate plaintiff envisioned under the PSLRA.

  Rule 23(a) states that
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
  In selecting the lead plaintiff under the PSLRA, the court focuses on the typicality and adequacy requirements as the only relevant considerations. See, e.g., Johnson v. Tellabs, Inc., 214 F.R.D. 225, 228 (N.D. Ill. 2002); Lax v. First Merchants Acceptance Corp., 1997 WL 461036, at *6 (N.D. Ill. Aug. 11, 1997) (`"[a] wide-ranging analysis under Rule 23 is not appropriate and should be left for consideration of a motion for class certification. This inquiry, therefore, focuses on . . . typicality and adequacy.'") (brackets in original, citation omitted). The typicality requirement is met so long as "plaintiffs claim . . . arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory." Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992) (quoting Fuente v. Stokley-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983)). Under the adequacy requirement the plaintiff must demonstrate that "(1) his claims are not antagonistic or in conflict with those of the class; (2) he has sufficient interest in the outcome of the case to Page 5 ensure vigorous advocacy; and (3) he is represented by competent, experienced counsel who [is] able to prosecute the litigation vigorously." Johnson, 214 F.R.D. at 228-29.

  Koontz and Margaritis attack Schroder's ability to serve as lead counsel on both typicality and adequacy grounds. Concerning typicality, Koontz and Margaritis claim that Schroder was a day trader, thereby making him atypical from the remaining members of the class and subject to certain unique defenses. As for adequacy of representation, Koontz and Margaritis argue that Schroder's choice of counsel (the law firm of Goodkind Labaton Rudoff & Sucharow LLP ("Goodkind Labaton")) is inadequate because rather than conducting an independent investigation prior to filing its complaint, Goodkind Labaton copied the complaint prepared by counsel for Koontz and Margaritis (the law firm of Milberg Weiss Bershad Hynes & Lerach LLP ("Milberg Weiss")). As provided for in the PSLRA, in challenging the presumptive lead plaintiff's typicality and adequacy, Koontz and Margaritis must come forward with proof that Schroder will not adequately protect the interests of the class or that he is subject to unique defenses making him incapable of adequately representing the class. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

  Starting with the challenge to Schroder's typicality, at first glance it would certainly appear that Schroder meets all of the typicality requirements. He purchased shares of CEC stock during the proposed class period at prices alleged to have been inflated by false and misleading statements, which thereby caused him damage. Koontz and Margaritis nevertheless suggest that Schroder's status as an alleged "day trader" makes him atypical and subject to unique defenses. According to Koontz and Margaritis, Schroder "sold CEC common stock in the same day or, in one instance, sold it the day after purchasing it" and that he "clearly is not an investor in any true Page 6 sense of the word, rather he is a trader looking to capitalize on small price fluctuations in CEC common stock that arguably have little to do with integrity of the Company's Class Period representations." ...

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