NEWYORK 5234801 (2K) IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND NORTHERN DIVISION ____________________________________ ) IN RE ROYAL AHOLD SECURITIES ) 03-MD-1539-CCB AND “ERISA” LITIGATION ) RELATED TO ALL ____________________________________) SECURITIES ACTIONS DECLARATION OF GLENN M. KURTZ I, GLENN M. KURTZ, hereby declare, under penalty of perjury, as follows: 1. I am an attorney duly admitted to practice law before the courts of the State of New York and the United States District Court for the Southern District of New York, where some of the consolidated cases were originally filed. I am a member of the firm of White & Case LLP, counsel for Defendants Royal Ahold N.V. (“Ahold”) and U.S. Foodservice, Inc. (“U.S. Foodservice”). I submit this declaration in opposition to Lead Plaintiffs’ Motion for Class Certification, Appointment of Class Representatives and Appointment of Class Counsel, dated September 30, 2005. 2. Annexed hereto as Exhibit A is a true and correct copy of the Memorandum of Law of the Public Employees’ Retirement Association of Colorado and Generic Trading of Philadelphia, LLC in Further Support of their Motion for Appointment as Lead Plaintiffs, for Selection of Lead Counsel and in Opposition to Other Lead Plaintiff Applications, dated July 16, 2003. 3. Annexed hereto as Exhibit B are true and correct copies of the following Canadian statutes: -- Class Proceedings Act, 2003, S.A. c. C-16.5, s. 17 (Can. (Alb.)) -- Class Proceedings Act, 1996, R.S.B.C. c. 50, s. 16 (Can. (B.C.)) Case 1:03-md-01539-CCB Document 654 Filed 11/05/2005 Page 1 of 3
Transcript
NEWYORK 5234801 (2K)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND
NORTHERN DIVISION
____________________________________ ) IN RE ROYAL AHOLD SECURITIES ) 03-MD-1539-CCB AND “ERISA” LITIGATION ) RELATED TO ALL ____________________________________) SECURITIES ACTIONS
DECLARATION OF GLENN M. KURTZ
I, GLENN M. KURTZ, hereby declare, under penalty of perjury, as follows:
1. I am an attorney duly admitted to practice law before the courts of the
State of New York and the United States District Court for the Southern District of New York,
where some of the consolidated cases were originally filed. I am a member of the firm of White
& Case LLP, counsel for Defendants Royal Ahold N.V. (“Ahold”) and U.S. Foodservice, Inc.
(“U.S. Foodservice”). I submit this declaration in opposition to Lead Plaintiffs’ Motion for Class
Certification, Appointment of Class Representatives and Appointment of Class Counsel, dated
September 30, 2005.
2. Annexed hereto as Exhibit A is a true and correct copy of the
Memorandum of Law of the Public Employees’ Retirement Association of Colorado and Generic
Trading of Philadelphia, LLC in Further Support of their Motion for Appointment as Lead
Plaintiffs, for Selection of Lead Counsel and in Opposition to Other Lead Plaintiff Applications,
dated July 16, 2003.
3. Annexed hereto as Exhibit B are true and correct copies of the following
Canadian statutes:
-- Class Proceedings Act, 2003, S.A. c. C-16.5, s. 17 (Can. (Alb.)) -- Class Proceedings Act, 1996, R.S.B.C. c. 50, s. 16 (Can. (B.C.))
Case 1:03-md-01539-CCB Document 654 Filed 11/05/2005 Page 1 of 3
NEWYORK 5234801 (2K)
2
-- Class Proceedings Act, 2002, C.C.S.M. c. C130, s. 16 (Can. (Man.))
-- Class Actions Act, 2001, S.N.L. c. C-18.1, s. 17 (Can. (Nfld.)) -- Code of Civil Procedure, R.S.Q. c. C-25, Art. 1007 (Can. (Que.)) -- Class Actions Act, 2001, S.S. c. C-12.01, s. 18 (Can. (Sask.))
4. Annexed hereto are true and correct copies of the following:
Exhibit C -- The Wikipedia.com entry for NRC Handelsblad, www.wikipedia.com, as of November 3, 2005
Exhibit D -- The CIA World Factbook entry for the Netherlands, www.cia.gov, as of November 1, 2005
Exhibit E -- Selected pages from the Memorandum of Law of Royal Ahold N.V., U.S. Foodservice, Inc., Ahold U.S.A., Inc. and Ahold U.S.A. Holdings, Inc. in Support of Their Motion to Dismiss Certain Defendants and Counts and to Strike Certain Allegations of the Complaint, dated May 14, 2004
Exhibit F -- Selected pages from the Reply Memorandum of Law of Royal Ahold N.V., U.S. Foodservice, Inc., Ahold U.S.A., Inc. and Ahold U.S.A. Holdings, Inc. in Further Support of Their Motion to Dismiss Certain Defendants and Counts and to Strike Certain Allegations of the Complaint, dated August 27, 2004
Exhibit G -- Selected excerpts from the transcript of the deposition of Joachin
von Cornberg, taken on October 31, 2005
Exhibit H -- Selected excerpts from the transcript of the deposition of Joachin Schallmayer, taken on October 28, 2005
Exhibit I -- Selected excerpts from the transcript of the deposition of James
Liptak, taken on October 19, 2005
Case 1:03-md-01539-CCB Document 654 Filed 11/05/2005 Page 2 of 3
NEWYORK 5234801 (2K)
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Exhibit J -- Selected excerpts from the transcript of the deposition of Daniel Edward Anderson, taken on November 2, 2005
Dated: New York, New York November 4, 2005
/s/ Glenn M. Kurtz_____________ Glenn M. Kurtz
Case 1:03-md-01539-CCB Document 654 Filed 11/05/2005 Page 3 of 3
EXHIBIT A
UNITED STATES DISTRICT COURTFOR THE DISTRICT OF MARYLAND
NORTHERN DIVISION
IN RE ROYAL AHOLD N.V. SECURITIES& "ERISA" LITIGATION
1 :03-MD-01539
ALL SECURITIES ACTIONS .:.
MEMORANDUM OF LAW OF THE PUBLIC EMPLOYEES' RETIREMENTASSOCIATION OF COLORADO AND GENERIC TRADING OF PHILADELPHIA,
LLC IN FURTHER SUPPORT OF THEIR MOTION FOR APPOINTMENT AS LEA DPLAINTIFFS, FOR SELECTION OF LEAD COUNSEL AND IN OPPOSITION TO
III . THE FOREIGN FUNDS SUFFER FROM ADDITIONALUNIQUE DEFENSES THAT ARE FATAL TO THEIR APPLICATIONS . . . . . . . . . . . . . . . . . . . 33
A. Union AG Suffers From Further Infirmi tiesAnd Conflicts Of Interest That Prevent ItFrom Serving As A Lead Plaintiff. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . ... . . .. . . . . . .. . . . . . . . . . . . .. . 33
1 . Union AG' s Certi fication Is Fatally Defective , DemonstratingThat Union AG Is Inadequate To Serve As A Lead Plaintiff . .. . . . . . .. . . . . . . . . . .. . . . . .. . . . . . . . 34
B. Undeniable Conflicts of Interest with Members of the Puta tiveClass Preclude Union AG's Appointment As A Lead Plaintiff . . .. . . . . . . . . . .. . . . . . . .. . . . .. . . . . . 38
C. The Central States/SBA Group Does Not Have The LargestFinancial Interest In The Outcome Of This Litigation And ItsArguments For Bifurcation Constitute An Admission ThatCentral States/SBA Cannot Adequately Represent TheInterests Of The Entire Class . . . . . . . . . . . . . . . . . .. . . . . . . .. . . . .. . . . . . . .. . . . . . .. . . . . . . . . . . .. . . . . .
.
. .. . . . . . . . . . .. . . . . . . . . 44
The Central States/SBA Group Does Not Have the LargestFinancial Interest In the Outcome of This Litigation . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . .. . 45
The Public Employees' Retirement Association of Colorado ("COPERA") and Generic
Trading of Philadelphia, LLC ("Generic Trading") (sometimes referred to herein collectively as
the "Domestic Institutions"), respectfully submit this Memorandum of Law in further support of
their motion pursuant to Section 21D(aX3XB) of the Private Securities Litigation Reform Act of
1995 (15 U.S.C. § 78u-4) (the "PSLRA"), for appointment as lead plaintiffs, for app roval of their
selection of Entwistle & Cappucci LLP ("Entwistle & Cappucci") to serve as lead counsel, for
approval of their selection of Adelberg, Rudow, Dorf & Hendler , LLC to act as local / liaison
counsel, and in opposition to the competing motions for lead plaintiff in the securi ties fraud
litigation against the Dutch supermarket group, Royal Ahold, N.V. ("Ahold" or the "Company")
and related defendants .
The competing lead plaintiff motions in this consolidated action serve only to underscore
the fact that COPERA and Generic Trading are the most adequate plaintiffs to represent the
interests of each of the three categories of persons who purchased Ahold securities from March 10,
1998 through February 24, 2003 (the "Class Period"): (1) domestic purchasers of Ahold common
stock on foreign exchanges ("Domestic Purchasers") -- of which COPERA unequivocally has the
greatest financial interest ; (2) purchasers of Ahold American Depositary Receipts ("ADRs") on
domestic exchanges ("ADR Purchasers") -- of which Generic Trading unequivocally has the
greatest financial interest; and (3) foreign purchasers of Ahold common stock on foreign
exchanges ("Foreign Purchasers"). Ahold common stock was not traded on United States
securities exchanges .
COPERA and Generic Trading believe that this case must be led by domestic institutions
that are capable of both prosecuting class claims against Ahold, its officers, directors,
professionals, bankers and others and litigating defendants' inevitable jurisdictional and Rule 23
related challenges without having the concern unique to the Foreign Purchasers that. if either such
challenge were to be successful, the Foreign Purchasers would effectively be "out of court ."' In
this context, it simply does not matter that Union AG may argue that it has a greater financial
interest. As a Foreign Purchaser on a foreign exchange -- particularly one residing in a jurisdiction
that does not recognize Rule 23 opt out class actions -- Union AG lacks standing to make an
application to be a lead plaintiff, because it must be a member of a Rule 23 certifiable class to be a
candidate for lead plaintiff. See 15 U.S.C. § 78u-4 (a)(3)(B)(i) . German purchasers of foreign
stock on foreign exchanges are likely to be excluded from the class here, as they have been in other
cases, because Germany does not recognize Rule 23 opt out class actions. Accordingly, German
purchasers cannot serve as lead plaintiffs and neither can any applicant from a jurisdiction that
does not recognize the preclusive effect of a judgment or settlement approved by this Court under
Rule 23. This Rule 23 "standing" issue is wholly apart from the jurisdictional impediments to
claims brought in the United States by Foreign Purchasers on foreign exchanges where, as here, all
financial and reporting decisions were made abroad, and the Company's financial statements were
authored and issued from a foreign jurisdiction . In such a circumstance, the fact that a portion of
the underlying conduct occurred in the U .S. is noteworthy, but unavailing to the Foreign
Purchasers seeking to establish subject matter jurisdiction.
The Foreign Purchasers' recent submissions to the Court have argued for "bifurcation"
and/or that the Court should follow Judge Lee's decision in In re Cable and Wireless Securities
Litigation and choose a representative lead plaintiff from each category of purchasers? COPER A
' See Declaration of Gregory Smith at 18, attached as Ex . i to the Declaration of Andrew J . Entwistle in Support of theMemorandum of the Public Employees ' Retirement Association of Colorado and Generic Trading of Philadelphia,LLC In Further Support of their Motion For Appointment as Co-Lead Plainti ffs, For Selection of Lead Counsel and inOpposition to Other Lead Plaintiff Applications ("Entwistle Declaration"), submitted concurrently herewith .
2 See In re Cable & Wireless, PLC Sec. Litig., Civ . A. No . 02-1860, slip op. (E .D. Va . April 21, 2003) ("1n re Cable &Wireless"), a copy of which is attached as Ex. 2 to the Entwistle Declara tion.
2
and Generic Trading believe that "bifurcation" and the Cable and Wireless approaches are really
"two sides of the same coin;" neither of which is warranted here . The Domestic Institutions
recognize that separating the lead plaintiff applicants into th ree separate categories, as they have
done above, may be misconstrued as seeking a simil ar result . This , however, is not the case.
Rather, separating the lead plaintiff applicants into the categories of ADR Purchasers, Domestic
Purchasers and Foreign Purchasers is a useful device for recognizing that the third category --
Foreign Purchasers of Ahold common stock on foreign exchanges -- suffers from potentially fatal
jurisdictional and class certification in firmities that do not infect either the ADR Purchasers or the
Domestic Purchasers of Ahold common stock on foreign exchanges . Simply stated, the
prosecution of this very serious securities fraud case should not be burdened and distracted by the
Foreign Funds ' jurisdictional issues, Rule 23 "standing" issues, and o ther related "baggage ."
STATEMENT OF FACTS
On July 5, 2003, Dutch authorities raided Royal Ahold's Netherlands headquarters and
three separate Netherlands offices of Ahold 's accountants , Deloitte & Touche ("Deloitte") . The
subject of these most recent raids was the Company's overstatement of some $24.8 billion in
revenues from multinational joint ventures with companies in Scandinavia, Brazil , Guatemala, and
Argentina . These raids followed ongoing criminal inves tigations by Dutch authorities and the
successful prosecution of an Dutch Ahold director for insider trading. Prosecutors removed a
"substantial" number of documents from bo th locations and confirmed that significant fraudulent
activity occurred in the Netherlands .3 In this regard , the Dutch prosecutorial agency posted a
statement on its website indicating that its pursuit of evidence "is not at this time an investigation
into the inflation of sales figures at U.S . Foodservice." 4 Moreover, recent press releases issued
3 See Gregory Crouch, Dutch Investigators Raid Headquarters of Royal Ahold, N . Y. Times, July 8, 2003 , attached tothe Entwistle Declaration as Ex . 10 .
4 See Ex. 11 to the Entwistle Declaration.
3
from the Company's Netherlands headquarters :
• provide additional evidence of Ahold's $24 .8 billion fraud related to themultinational joint ventures going back to at least March 10, 1998;
• raise the Company 's restatement of earnings related to the now notoriousfraudulent conduct at its U .S. Foodservice unit to more than $1 .1 billion, withrestatements to go back to the early 2000 acquisition of U.S . Foodservice byAhold;
• indicate that investigations in Argentina, Latin America, and Scandinavia areongoing;
• indicate that further restatements are expected ; and
• demonstrate that any successful prosecution of Royal Ahold in this case willnecessarily involve proof of an enormous global fraud as opposed to underlyingmisconduct at Ahold's U .S. Foodservice operations .
Moreover, COPERA and Generic Trading's ongoing investigation reveals that :
• Ahold's accountants at Deloitte were involved in virtually identical circumstancesin an earlier unrelated case, further evidencing Deloitte's complicity in the fraud ;
• the Class Period for this consolidated action should be from March 10, 1998through February 24, 2003 . 5
It is against this background that the pending motions for appointment of lead plaintiff and lead
counsel must be decided .
A. Background
Defendant Ahold is an international foodservice corporation that provides food through
retail outlets located worldwide . The Company is incorporated in the Netherlands, with it s
corporate headquarters located in Zaandam . Ahold's global operations are predominant in the
Netherlands, Europe, Scandinavia, Latin America, Asia, and the United States . Defendant U .S .
5 On May 16, 2003, the Domestic Institutions filed a Joint Amended Complaint in the Southern District of New Yorksetting forth allegations based upon a class period from April 1, 2000 through February 24, 2003. The Joint AmendedComplaint also includes relevant claims against Deloitte and various U .S. Foodservice defendants . A copy of the JointAmended Complaint is attached as Ex . 3 to the Entwistle Declaration. However, as noted above and described morefully elsewhere herein, developing information concerning the fraudulent recording of some $24 .8 billion in revenuesfrom Ahold's foreign joint ventures beginning in 1998 more than supports beginning the Class Period at that time andexpanding the claims against Ahold's accountants. The Domestic Institutions are also investigating the potentialcomplicity of Ahold's bankers who, much like in other recent fraud cases, acted as lenders, corporate finance andmerger and acquisition advisors, and underwriters of various offerings (including private placements of corporate debt)-- all while maintaining ongoing positive analyst coverage .
4
Foodservice, Inc . ("U.S. Foodservice") is a wholly-owned subsidiary of Ahold, and is based in
Maryland with its principal offices located within this District . Ahold's global operations and
accounting practices, including those at its U .S. Foodservice unit, are the focal point of the
underlying misconduct that precipitated this consolidated action .
On February 24, 2003, before the market opened for trading, Ahold announced that its U .S .
Foodservice division, which supplies food to restaurants and hotels, drastically overstated income
by approximately $500 million . The Domestic Institutions' continuing investigation reveals that
U.S . Foodservice vastly overstated its revenues during the Class Period due, in part, to fraudulently
inflating and accounting for vendor rebates . The collective overstatements of income first
announced on February 24, 2003 will require Ahold to restate its financial results for fiscal year
2001 and for the first three quarters of fiscal year 2002 . Following the Company's February 24,
2003 announcement, Ahold ADRs plummeted 61%, to close at $4.16 per share, on volume of more
than 16 million shares traded, or nearly thirty times its average daily trading volume, while Ahold
common stock fell over 63% to close at £3 .59 per share . Also on February 24, 2003, Ahold's
Supervisory Board announced that Ahold's Chief Executive Officer, Cees van der Hoeven (`van
der Hoeven"), and it's President and Chief Financial Officer, Michiel Meurs ("Meurs"), would
resign .
Ongoing developments have revealed that the scope of the Company's fraudulent practices
included much of Ahold's global operations . For example, information surfaced indicating that
Disco supermarkets, the Company's Argentinean chain, was also involved in illegal transactions .
Furthermore, in connection with Ahold's accounting practices and the Company's South American
businesses, a Judge in Uruguay subpoenaed van der Hoeven and Meurs to be questioned as part of
civil and criminal cases pending in that country concerning accounting problems in the Company's
South American operations .6 The Company then failed to meet a March 31, 2003 deadline to fi le
its annual report with Chilean securities regulators , resulting in the halt of trading in shares of the
Company's Santa Isabel SA subsidiary in Chile .
Based upon the February 24, 2003 announcement , Euronext Amsterdam NV, operator of
the Dutch stock exchange, commenced an inquiry into whether Ahold had satisfied rules that
require timely disclosure of information that is likely to affect a company's share price. Moreover,
on February 26, 2003, the Company confirmed that the United States Securities and Exchange
Commission and the United States Attorney's Office in Manhattan were investigating Ahold's
accounting practices .
On May 8, 2003, the Company reported that its anticipated negative restatement wa s
increasing from the $500 million amount announced on February 24, 2003 to $ 880 million. The
$880 million negative restatement covers the time period from April 2000 through December
2002, and consists of the following negative revisions : $110 million for 2000; $260 million for
2001 ; and $510 million for 2002 On May 8, 2003, The Wall Street Journal reported that Ahold
claimed that the top managers at U.S. Foodservice were not responsible for the Company's
accounting irregularities. This article not only stated "Ahold' s troubles are not limited to the U.S .
They extend to Scandinavia and Latin America," but also indicated that "internal investigators are
also looking into further accounting irregularities in its Scandinavian supermarket chain ICA
Ahold."8 During a May 13, 2003 meeting before shareholders at The Hague , Henny de Ruiter ("de
Ruiter"), the Company's Chairman of the Board, was asked how the Company failed to detect
'SeeJonathan Karp, Ahold Faces Inquiry in Uruguay - Scandal With Former Partner Adds to Woes in U.S., The WallStreet Journal, March 10, 2003, at A16, attached as Exhibit 4 to the Entwistle Declaration.
'See Deborah Ball, Ahold Says Net Was Inflated by $880 million Over Three Years," The Wall Street Journal, May 9,2003, a copy of which is attached as Ex . 5 to the Entwistle Declaration .
s See Deborah Ball, Ahold's Probe Faults Unit's Officials, The Wall Street Journal, May 8, 2003, at A3, a copy ofwhich is attached as Ex. 6 to the Entwistle Declaration .
6
$880 mil lion in earnings overstatements over a three-year period . In response to the foregoing
question, de Ruiter stated : "The explanation lies in the word `fraud ."' "No control system can
prevent fraud."
On May 16, 2003, Ahold announced that it was reducing its revenue figures for the last tw o
years by 22 billion euros (U.S. $24.8 billion) as part of a purported "change" in accounting
methods.9 The revision reportedly involves joint ventures in Scandinavia, Portugal and South
America for which Ahold booked all of the revenue from such companies even though the
Company owned just part of them. The Company stated that it would revise its accounting for
these joint ventures to comply with accounting standards in the United States, booking only its
share of the revenue from these foreign joint ventures.
On May 26, 2003, the Company announced an additional $29 million restatement i n
connection with its discovery of "intentional accounting irregularities" resulting in earnings
overstatements at Tops Markets in the United States, increasing the amount of its earnings
restatement to $909 million over the last three years .1° The Company also announced that its
investigations into its global accounting practices were continuing and that it would release its
restated consolidated financial results for 2002 on August 15, 2003 .
On July 1, 2003, Ahold announced that it had completed its internal forensic accounting
investigation of the Company and its subsidiaries, which revealed an additional $84.5 million in
"intentional accounting irregularities" related to improper purchase accounting. The foregoing
amount is separate from the Company's previously announced restatement of approximately $909
million in earnings (which the Company reduced to a total of $885 million) attributable to its
United States operations, and, together with restated financial results attributable to the Disco Unit
9 See Ex. 7 to the Entwistle Declaration .
10 See Ex. 8 to the Entwistle Declaration .
7
in Argentina, brought the total earnings restatement to $1 .12 billion (which does not include the
$24.8 billion revenue restatements attributable to Ahold's foreign joint ventures). The
investigation also reportedly uncovered serious internal control infirmities at the Dutch corporate
parent. In response to the foregoing announcement, The Washington Post reported :
[t]he troubled Dutch company's announcement also makes clear thatits financial woes extend well beyond the inflated promotionalrevenue at its U .S. Foodservice subsidiary that initially sparked theprobe in February ."
B. The Domestic Institutions - COPERA And Generic Trading
As set forth in their opening brief and accompanying materials, and in Point I below,
COPERA and Generic Trading possess the financial sophistication, expertise, and dedication to
ensure that this litigation proceeds in the best interests of the Class . COPERA and Generic
Trading are precisely the type of institutional investors that Congress intended to assume control
over private securities litigation when it enacted the PSLRA . In this regard, COPERA's service as
co-lead plaintiff in the In re Oxford Health Plans, Inc. Sec. Litig., MDL 1222 (CLB) (S.D.N.Y.)
securities litigation recently resulted in a $300 million recovery for the class, including a $75
million recovery against the accountants, KPMG LLP . This exemplary service as a fiduciary for a
class of investors further demonstrates that COPERA has the experience and dedication required to
lead the complex multinational fraud litigation currently before this Court .
No movant questions COPERA's adequacy, sophistication, ability and determination t o
maximize the recovery for all Ahold securities purchasers . As demonstrated below, COPERA has
the largest financial interest in the outcome of this litigation of any lead plaintiff applicant that
satisfies the requirements of the PSLRA and Rule 23, and thus is the most adequate lead plaintiff .
See 15 U.S.C. §78u-4(a)(3)(B)(iii) . Similarly, no movant disputes that Generic Trading has the
" See Brooke A . Masters, Ahold Raises Error Total to $1 .1 Billion, The Washington Post , July 2, 2003, at E1,attached as Ex . 9 to the Entwistle Declaration.
8
largest financial interest in this litigation of any purchaser of Ahold ADRs . Generic Trading's
losses are based on purchases and sales of ADRs by Generic Trading's proprietary traders using
Generic Trading's own capital. See Affidavit of Ronald Shear, attached as Exhibit 12 to the
Entwistle Declaration . Generic Trading's investment of its own capital requires its traders to
follow the information in the market very closely, a fact that makes Generic Trading more, rathe r
than less typical of the other members of the Class .
The Domestic Ins titutions possess the largest financial interest in the relief sought by
qualified purchasers of Ahold common stock and by all purchasers of Ahold ADRs, and otherwise
satisfy the pertinent requirements of Rule 23 of the Federal Rules of Civil Procedure . The PSLRA ,
therefore, instructs that the Domestic Institutions are the most adequate plaintiffs to lead thi s
litigation . See 15 U.S.C. §78u-4(a)(3)(B)(iii) .
1. Public Institutional Investors Supporting the DomesticInstitutions ' Application
a. Institutional Investor Movants Supporting the DomesticInstitutions
The motion made by COPERA and Generic Trading is also supported by movant, the
District of Columbia Retirement Board (a domestic institutional purchaser of Ahold Common
Stock with losses of $6 .27 million) and by movant, the City of Philadelphia Board of Pensions and
Retirement (a domestic institutional purchaser of Ahold common stock with losses of
$2,172,350) . The District of Columbia Retirement Board and The City of Philadelphia and their
counsel have reviewed the papers and proceedings in this ma tter and in related proceedings in
Virginia and New York, are familiar with COPERA' s success in the Oxford litigation , and are
familiar with Philadelphia based Generic Trading . Upon these facts, the District of Columbia
Retirement Board and the City ofPhiladelphia have both moved in support of the appointment of
COPERA and Generic Trading. See Declaration of Anthony K. Johnson , Chief Investment
9
Officer, City ofPhiladelphia Board of Pensions and Retirement ; 12 see also Memorandum of the
District of Columbia Retirement Board Submitted In Connection With Lead Plaintiff Motions and
In Support of Motion of COPERA and Generic Trading of Philadelphia , LLC To Be Appointed
Lead Plaintiff, and Declaration of Bruce Gamble , General Counsel of the District of Columbia
Retirement Board , filed with this Court today.
b. Institutional Investor Non-Movants Supporting the DomesticInstitutions
The Domestic Institutions' motion is also supported by non-movants the State Retirement
and Pension System of Maryland ("Maryland") and the State Universities Retirement System of
Illinois ("SURS"), which also have substantial financial interests in Ahold common stock.
Thomas K . Lee, Secretary to the Board of Trustees of the State Retirement and Pension System of
Maryland has submitted a declaration in support of COPERA and Generic Trading in this matter .
The Maryland Attorney General's office and the Pension System of Maryland have independently
investigated and reviewed this matter and the papers submitted by the Domestic Institutions and
concluded that the Domestic Institutions are the most adequate lead plaintiffs in this case . The
State Retirement and Pension System of Maryland has submitted an affidavit of support even
though it was not a original movant before this court .1 3
Similarly, SURS investigated this matter, retained outside counsel, and was preparing t o
proceed with a lead plaintiff application when it learned of COPERA's application . SURS has
since filed a Declaration in Support of COPERA and Generic Trading's lead plaintiff application . 14
Dan Slack, General Counsel to SURS, Greg Smith, General Counsel to COPERA, Maryland
Assistant Attorney General, Robert Feinstein, and District of Columbia Retirement Board Genera l
12 The declaration of Anthony K . Johnson is attached as Ex . 13 to the Entwistle Declaration.
13 See Declaration of Thomas K . Lee, attached as Ex. 14 to the Entwistle Declaration.
" See Declaration of Dan Slack, attached as Ex . 15 to the Entwistle Declaration .
10
Counsel, Bruce Gamble, are known to each other through, among other things, their experience
together as members of the National Association of Public Pension Attorneys ("NAPPA"), and
those General Counsels and the funds' respective Executive Directors have also worked together in
the context of the Council of Institutional Investors ("CII"). In fact, both COPERA's Executive
Director and the District of Columbia Retirement Board's Executive Director serve together as
Board members of the Washington D .C. based CII .
C. Other Lead Plaintiff Applicants
In addition to the Domestic Institutions' motion to serve as lead plaintiff, seven other
applicants originally sought appointment as lead plaintiff in this litigation, and it appears that only
four such applicants remain -- the Union AG Group (consisting of Union AG, a German holding
company with mutual fund portfolios in several foreign countries, and the General Retirement
System of the City of Detroit) ; the Central States/SBA Group (consisting of a .Dutch mutual fund
SBA Artsenpensmenfondsen ("SBA") and Central States, a union pension fund) ; the BWK Group
(consisting of BWK, a German mutual fund and Linda Tsai, an ADR purchaser) ; and Itzehoer
Aktien Club Gbr ("Itzehoer") (a German based investment club) .
1. The Foreign Funds
The claims of Union AG, SBA, BWK and Itzehoer (collectively, the "Foreign Funds")
present substantial adverse subject matter jurisdiction and Class certification issues that render
each and every Foreign Fund incapable of adequately representing the interests of the Class . See
15 U.S.C. §78u-4(a)(3)(B)(iiiXU)(I)(bb) .
It is respectfully submitted that, as discussed in Point II (A) below, substantial questions
exist regarding this Court's ability to exercise subject matter jurisdiction over the claims of the
Foreign Funds. This Court will presumably evaluate whether it has subject matter jurisdiction over
the Foreign Funds' claims under the "effects test" and the "conduct test." In its complaint filed in
II
this action , Union AG effectively acknowledges that this Court does not have subject ma tter
jurisdiction over its claims pursuant to the "effects test," a jurisdictional infirmity that also afflicts
each of the other Foreign Purchasers .
Similarly, substantial questions also exist as to whether this Court may exercise jurisdiction
over the Foreign Funds' individual claims under the "conduct test," which, as described in Point II
(A)(2) below, requires that the activity conducted in the United States "directly caused" plaintiffs'
injuries. In this regard, it presently appears that all of the alleged misstatements set forth in the
Foreign Funds' respective complaints originated from the Netherlands . The Foreign Funds may,
therefore, be unable to satisfy the criteria that this Court will likely apply to determine whether it
has subject matter jurisdiction over the claims of foreign plaintiffs who purchased shares of a
foreign company on a foreign exchange. These jurisdictional questions, which . will likely persist
throughout the course of this litigation, constitute a defense unique to the Foreign Funds .
Judge Farnan's recent decision in In re DaimlerChrysler AG Securities Litigation, No. 00-
993 (D. Del . June 11 , 2003) excluded "foreign investors" from the class, demonstrates that the
Foreign Funds may not even be members of the Class for which they are seeking to serve as lead
plaintiff. 1,5 Doubts concerning the extraterritorial application of Rule 23(bX3) of the Federal Rules
of Civil Procedure in jurisdictions that do not recognize "opt out" class actions constitute an
additional unique defense that argues against appointing any of the Forei gn Funds as lead plaintiff
in this litigation . 16 See 15 U.S.C. §78u-4(a)(3)(BXiiiXIl)(I)(bb).
15 A copy of Judge Farnan ' s decision is attached as Ex. 16 to the Entwistle Declaration and a copy of theaccompanying Order is attached as Ex. 17 to the Entwistle Declaration. The decision and Order are discussed morefully in Section ll (B) of this Memorandum.
16 See, e.g., In re Northern Telecom Ltd. Sec. Litig., 116 F . Supp. 2d 446, 450 (S.D.N.Y. 2000) ; CL-Alexanders Laing& Cruickshank v. Goldfield, 127 F.R.D. 454, 460 (S .D .N.Y. 1989) ("CL-Alexanders") .
12
a . Union AG Grouu '7
Union AG proposes what may be the most significant departure from the spirit an d
substance of the PSLRA and the settled authorities thereunder since the PSLR.A's enactment i n
1995. Union AG asks the Court to ignore :
• The incestuous web of conflicting interests infecting Union AG, including the factthat Rabobank, one of Union AG's owners until February 4, 2003 :
o Acted as an underwriter or co-manager for Class Period offerings ofAhold securities, including common stock and debt instrumentsapparently purchased by Union AG during the Class Period;
o Rendered research reports on Ahold throughout the Class Period ;
o Acted as a syndicate member of a group of banks that loaned money toAhold during and after the Class Period ;
o Retained the same law firm as Ahold ; and
o Had unique access to non-public information during the Class Period ;
• That Union AG owner WGZ Bank was apparently engaged in some of the sameactivity as Rabobank , at least according to an analyst report by WGZ Bank onRoyal Ahold analyzing the February 2003 disclosures by Ahold of th erestatement ;18 and
• That it filed a false certification , and otherwise failed to comply with therequirements of the PSLRA .
The above conflicts and other unique defenses are fatal to Union AG's application . All of
these facts, which are discussed in detail in Section III (A)-(B) below, render Union AG's interest s
atypical and antagonistic of those of the rest of the Class and require that the Union AG Group' s
application be denied .1 9
" The Union AG Group also includes the City of Detroit, a domestic purchaser of foreign securities that lostapproximately $1 .16 million in connection with its Class Period purchases of Ahold Securities, which is less than 1/10of COPERA's losses .
18 A copy of the referenced WGZ Bank Analyst Report along with a certified translation of the report and the Affidavitof Thomas B . Mann, II is attached as Ex . 18 to the Entwistle Declaration .
19 Diagrams evidencing Union AG's web of conflicting interests and interrelationships are attached to the EntwistleDeclaration as Exhibits "19" through "28 ."
13
b . Central States/SBA Group
The Central States/SBA Group engages in an analysis of the applicable law and facts here
that :
*Ignores the fact that COPERA, standing alone, has larger losses during therelevant Class Period than SBA or Central States;
•Ignores the fact that neither SBA nor Central States purchased ADRs ;
•Effectively admits that the Central States/SBA Group is neither adequate norqualified to prosecute the claims of Foreign Purchasers of common stock byseeking what purports to be a "bifurcation" of the claims of domestic andForeign Purchasers of Ahold securities ;
•Effectively admits that the Central States/SBA Group is neither adequate norqualified to prosecute the claims of any foreign ADR purchasers by ignoring thefact that foreign ADR purchasers are not susceptible to the jurisdictionaldefenses that infect the Foreign Funds like SBA ;
•Employs different methods of computing Central States' losses in its movingpapers and opposition papers filed in other courts that conflict with the First-In-First-Out ("FIFO") methodology that Central States employed in other cases aswell as the FIFO analysis employed by SBA to calculate its losses in this case ;20and
.Ignores the fact that the SBA certification reveals it to be a "net seller" ofsecurities.
All of these facts, which are discussed more fully in Section III (C) below, render th e
Central States/SBA Group' s interests atypical and make them otherwise inadequate to represent
the Class .
c. BWK Group
As discussed in Section III (D) below, BWK withdrew its application to serve as lea d
plaintiff during proceedings before Judge Lee, instead proffering only Ms . Tsai as lead plaintiff for
purchasers of Ahold ADRs . Ms. Tsai lost only $114,061 in connection with her Class Perio d
purchases of Ahold ADRs, which is just 10% of the losses that Generic Trading suffered .
20 The Central States/SBA Group' s use of the In re Cable & Wireless , net seller" test as a method for determiningPSLRA losses is improper; reveals SBA itself to be a "net seller" (which likely explains why they argue forapplication of a different test (FIFO) for SBA) ; is inconsistent with the method advanced by Central States in itsmoving papers in this case ; and is, in any event, inapplicable to COPERA and Generic Trading . Even under theCentral States/SBA Group's tortured methodology, COPERA and Generic Trading still have a greater financialinterest. See III (CXI) below .
14
ARGUMENT2 t
COPERA has the largest financial interest of any Domestic Purchaser and Generic Tradin g
has the largest financial interest of any ADR Purchaser. The following tables summarize the
putative financial interests of the remaining Lead Plaintiff applicants :
Domestic Purchasers
Applicant Claimed Loss
COPERA $16.2 million
Supported by :District of Columbia Retirement Board $6 .27 million
City of Philadelphia Board of $2.17 millionPensions and Retirement
Central States, Southeast & Southwest $7 .89 millionAreas Pension Fund
General Retirement System of $1 .16 millionThe City of Detroit
The District of Columbia Retirement Board and the City of Philadelphia Board of Pension s
and Retirement are supporting COPERA's lead plaintiff application. While these domestic
institutions are not moving as a group, as a practical matter the respective financial interests at this
stage in the proceedings may certainly be collectively viewed as :
Domestic Purchasers
Applicant Claimed Loss
COPERA $25 .04 million(as supported by the D . C. Retirement Boardand the City of Philadelphia)
Central States, Southeast & Southwest Areas $7.89 million
2' As the Court is aware, COPERA and Generic Trading submitted a Memorandum of Law and accompanyingmaterials in this District on May 9, 2003 opposing other Lead Plaintiff applicants . This Memorandum of Law andaccompanying materials are intended to replace COPERA and Generic Trading's May 9, 2003 Submission, asanticipated in our June 26, 2003 letter to Your Honor .
15
Pension Fund
General Retirement System of $ 1 .16 millionThe City of Detroit
ADR Purchasers
Applicant Claimed Loss
Generic Trading of Philadelphia , LLC22 $1,148,281
Linda Tsai $114,061
Foreien Purchasers
Applicant Claimed Loss
Union Asset Management Holding AG $44.82 million
SBA Artsenpensmenfondsen $8.50 million
Itzehoer Aktien Club Gbr $1 .93 million
1 . COPERA AND GENERIC TRADING ARE THE MOSTADEQUATE PLAINTIFFS TO LEAD THIS LITIGATION
COPERA's loss of more than $16 .2 million resulting from its Class Period purchases o f
Ahold common stock is unquestionably the largest financial interest claimed by any Domestic
Purchaser of such securities . The losses represented by COPERA' s application exceed $25 million
if one considers the losses of supporting movants, the District of Columbia Retirement Board and
City ofPhiladelphia Board of Pensions and Retirement , and supporting non-movants, the Pension
System of Maryland and Illinois SURS. Generic Trading's loss of more than $1,148,281 in
22 Generic Trading seeks to represent Class Period purchasers of ADRs as part of a &gle Class consisting of allpurchasers of Ahold common stock and ADRs . See In re Cable & Wireless, PLC Sec. Litig., slip op . at 7 (appointingUnited States ADR purchaser as lead plaintiff and noting "he would represent the interests of any class member who isa United States citizen that likewise purchased ADRs") (a copy of this decision is attached as Ex . 2 to the EntwistleDeclaration. Nevertheless, Ms . Tsai argues for appointment of an ADR subclass . Appointing a separate subclass ofADR purchasers, however, is premature and unwarranted at this stage of the litigation. See In re Sumitomo CopperLitig., 262 F.3d 134, 139 (2d Cir . 2001) . If any conflict should arise in the course of this litigation indicating that theinterests of Ahold's ADR purchasers would best be served under a separate class, Generic Trading will exercise itsfiduciary duty as lead plaintiff to move this Court for such treatment .
16
connection with its Class Period purchases of Ahold ADRs clearly constitutes the largest financial
interest claimed by any of the lead plaintiff applicants that purchased Ahold ADRs . The Domestic
Institutions have the largest financial interest in the relief sought by the Class of any applicant that
otherwise satisfies the typicality and adequacy requirements of Fed. R. Civ. P. 23 - which the
Foreign Funds do not . See 15 U.S.C. § 78u-4(aX3)(BXiiiXI); see also In re E.spire Communs.,
Inc. Sec. Litig., 2000 U.S. Dist. LEXIS 19517, at *9 (D. Md. Aug. 15, 2000 ) ; Zaltzman v.
Manugistics Group, Inc., 1998 U.S. Dist . LEXIS 22867 , at *11 (D. Md. Oct. 8, 1998).23
A. COPERA's Claims Are Typical of the Claims of the Class
Typicality "is satisfied when each class member's claim arises from the same course of
events, and each class member makes similar legal arguments to prove the defendant 's liability."
951(2002); see also Robidoux v. Celani, 987 F.2d 931, 936-37 (2d Cir. 1993). COPERA's and
Generic Trading's claims arise out of the same conduct and are based upon the same legal theories
as the claims of all other investors in Ahold securities.24 The claims of COPERA and Generic
Trading, therefore, satisfy the typicality requirement of Rule 23 (a) . See 15 U.S.C §78u-
4(a)(3XBXv) ; see also Zaltzman , 1998 U . S. Dist . LEXIS 22867, at *20 (citing Smith v.
Montgomery County, 573 F . Supp . 604, 612 (D. Md. 1983)).
Unlike the Foreign Funds, there is no ques tion that this Court has subject matter
jurisdiction over the claims of COPERA and Generic Trading under the "effects test," pursuant to
which courts examine whether the alleged wrongful conduct of a foreign party had a subst antial
effect wi thin the United States or upon United States investors . See S.E.C. v. Berger, 322 F .3d
23 Copies of these decisions are attached as Ex . 29 and Ex. 30 to the Entwistle Declaration , respectively.
24 Namely, all investors allege that defendants violated the Securities Exchange Act of 1934 ( the "Exchange Act") bypublicly disseminating a series of false and/or misleading statements concerning Ahold' s business and financial resultsthroughout the Class Period.
17
187, 192 (2d Cir. 2003) . Because COPERA is a domestic purchaser of Ahold common stock and
because Generic Trading is a domestic purchaser of Ahold ADRs trading on the New York Stock
Exchange, the claims of the Domestic Institutions clearly satisfy the "effects test," which "only
extends jurisdiction as to those American plaintiffs who are affected ." In re Baan Co. Sec. Litig.,
103 F. Supp. 2d 1, 11 (D.D.C. 2000) (citing Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 988-89
(2d Cir. 1975)). This Court's unquestionable ability to exercise subject ma tter jurisdiction over the
claims of COPERA and Generic Trading underscores the Domestic Institutions ' adequacy to serve
as fiduciaries for purchasers of Ahold securities .
Further, COPERA and Generic Trading are best suited to advance the interests of the
Foreign Purchasers of foreign securities on foreign exchanges because, regardless of whether
COPERA and Generic Trading prevail on the Foreign Purchasers' claims, COPERA and Generic
Trading will still have standing to prosecute the claims of all domestic purchasers of Ahold
securities and they will not have to litigate the conflicts of interest and other infirmities unique to
the Foreign Funds . See In re DaimlerChrysler slip op. at 21, (where Judge Farnan appointed
exclusively domestic institutions as lead plaintiffs to prosecute claims of both domestic and foreign
purchasers, but later granted defendants' motion to exclude "foreign investors" from the Class)25
See Exhibits 16 and 17 to the Entwistle Declaration.
The Domestic Institutions' signed certifications (now amended to reflect the 1998-2003
Class Period), are submitted herewith and demonstrate their dedication to pursuing this action on
behalf of the Class and attest to their willingness to assume the responsibilities of both a lead
2' COPERA and Generic Trading's proposed lead counsel, Entwistle & Cappucci, represents the Florida State Boardof Administration (a $100 billion domestic pension fund) as co- lead counsel in the pending DaimlerChrysler li ti gation .Counsel for the District of Columbia (which supports COPERA's application) and counsel for Union AG (whichopposes COPERA' s application) are also co-lead counsel in the DaimlerChrysler case .
18
plaintiff and a class representative 26 Moreover, the Declaration of COPERA's General Counsel,
Gregory Smith, substantiates the considerable effort that COPERA and Generic Trading have been
dedicating to this consolidated action . It cannot be disputed that the Domestic Institutions have
distinguished themselves as active, able class representatives in an earlier major securities class
action and have established themselves as responsible leaders in this litigation by retaining highly
qualified class counsel at a fee and with retainer terms that confer a unique advantage to the
Class?' COPERA and Generic Trading have "the largest financial . interest in the relief sought" of
any entity qualified to be a lead plaintiff and satisfy the typicality and adequacy requirements of
Fed. R. Civ. P. 23 . Thus, they enjoy the statutory presumption of being the "most adequate
plaintiff." 15 U.S .C. §78u-4(a)(3)(B)(iii)(I) . Under the PSLRA, the competing lead plaintiff
applicants may rebut the presumption only with "proof' that COPERA and Generic Trading are
neither typical nor adequate, or are subject to unique defenses that render them incapable of
adequately representing the Class. See 78u-4(a)(3)(B)(iiiXII)(a) ; see also In re USEC Secs. Litig.,
168 F. Supp. 2d 560, 565 (D . Md. 2001). COPERA and Generic Trading respectfully submit that
no competing movant is able to rebut the PSLRA's presumption favoring the Domestic
Institutions' appointment as co-lead plaintiffs .
B. Generic Trading's Claims Are Typical of the Claims of the Class
Generic Trading clearly has the largest financial interest in this litigation among al l
purchasers of Ahold ADRs . Nevertheless, because Generic Trading is an active and sophisticated
securities trader, Union AG and Tsai have previously argued that Generic Trading should not be
appointed lead plaintiff. Instead, these competing movants have argued that Generic Trading's
pattern of transactions in Ahold ADRs renders Generic Trading "subject to unique defenses," and
26 See Exs. I and 12 to the Entwistle Declara tion .
27 The Domestic Institutions are pleased to submit a copy of their fee agreement for the Court' s in camera review.
19
that it is an "atypical investor" that "is not entitled to the fraud on the market presumption ."
(Union AG Virginia Opp. at p . 10 and Tsai Virginia Opp . at p. 5, respectively) . 28 The competing
movants' arguments are specious and unsupported by even the thin authority upon which these
movants attempt to rely.
Courts have repeatedly rejected the very argument that the competing movants now strai n
to articulate . Indeed, such courts consistently hold that the fraud on the market theory is available
to sophisticated investors, even those who engage in short selling and other hedging activity, and
that such proposed lead plaintiffs were not rendered atypical or otherwise ineligible fo r
appointment because of their particular trading strategies . In re Oxford Health Plans, Inc. Sec.
Litig., 199 F.R.D. 119, 123 (S .D.N.Y. 2001) ("a difference in the amount of damages, date, size, or
manner of purchase will not render the claim atypical") ; Saddle Rock Partners Ltd v. Hiatt, No. 96
Civ. 9474 (SHS), 2000 U.S. Dist. LEXIS 11931, at * 10-11 (S.D.N.Y. Aug. 21, 2000)29 (court
rejected defendants' argument that trading strategies, including being a "day trader," rendered
class representative candidate atypical).30
In rejecting the very argument that Union and Tsai have advanced, the court in Oxford
stated that :
As this Court has previously explained, "where the public market of a quotedsecurity is polluted by false information, or where price, supply and demand are
22 The "fraud on the market theory" of reliance permits a plaintiff to pursue a § 10(b) claim without showing directreliance on the subject misstatement or omissions ; direct reliance may be presumed . See Basic, Inc. v. Levinson, 485U.S. 224, 241-42 ( 1988).
29 A copy of this decision is attached as Ex . 31 to the Entwistle Declaration .
30 The cases previously cited by both Union AG and Tsai are distinguishable as the courts in such cases did not reject aproposed lead plaintiff based upon its sophistication or its trading strategies . For example, in In re Bank OneS'holders Class Actions, 96 F . Supp. 2d 780 (N .D. 111 . 2000), a hedge fund was rejected because it did not have thegreatest claimed losses and because it had not traded for its own account . Id. , 96 F . Supp. 2d at 783-84 . As notedbelow, all of Generic Trading's losses derive from the investment of its own capital traded for its own account .Further, in In re Conseco, Inc. Sec. Litig., 120 F. Supp. 2d 729 (S.D. Ind. 2000), only four months later, a differentcourt rejected the same hedge fund because it "purchased securities for other investors" and because it had abandoneda previous securities litigation after being appointed as lead plaintiff. Id. , 120 F . Supp. 2d at 733 . Thus, the two casesthat Union AG and Tsai have cited in attempt to discredit Generic Trading were not decided upon the basis that suchmovants argue and, consequently, do not support the competing tnovants' position .
20
distorted as a result of misleading omissions, all types of investors are injured ."Leist v. Tamco Enterprises, Inc., 1982 U.S. Dist. LEXIS 17389, No. 80 Civ. 4439(CLB). Included among those injured are so-called market makers. As the SupremeCourt has stated in quoting this Court, "it is hard to imagine that there ever is abuyer or seller who does not rely on market integrity. Who would knowingly rollthe dice in a crooked crap game?" Basic Incorporated v. Levinson, 485 U.S. 224,245, 99 L.Ed. 2d 194, 108 S.Ct. 978 (Blackmun, J . 1988) (quoting Schlanger v.Four-Phase Systems, Inc., 555 F. Supp. 538 (S.D.N.Y. 1982)) .
Oxford,199 F.R.D. at 124 (emphasis added)(further citations omitted) .3' In connection with
another recent lead plaintiff application, Union AG' s counsel unsuccessfully made similar
arguments as those they will likely raise herein including that the applicant employed "day-
trading" methodologies . See In re CMS Energy Sec. Litig., Civ. No. 02-CV-72004-DT (E.D .
Mich.) . In that case , Judge Steeh rejected the argument that Union AG and Tsai will now urge
upon this Court, finding instead that :
regarding the dispute over whether a trading methodology affects the typicality prongunder Fed R . Civ. P. 23, the court is in agreement with Andover/Steiger that the length oftime the shares are held does not affect the typicality of the claims -i.e. its similarity andability to protect the claim of an individual (or entity) who held the shares for a longerperiod. The court is convinced that the claim of a plaintiff who bought and sold in shortorder will also protect the individual who had a long position in those securities 3 2
See also In re Revco Sec. Litig., 142 F .R.D. 659, 668 (N.D. Ohio 1992) (court held that
sophisticated investors are as susceptible to material misstatements and omissions as any other
class member); Stoller v. Baldwin-United Corp., No. C-1-82-1438, 1985 U.S. Dist. LEXIS 19241
* 1, 54 (S .D. Ohio June 4, 1985) (sophisticated investors are entitled to same protection under
securities laws as other class members) .33
3' The Court rendered this decision in the context of a motion for class certification, when it is well-established thatRule 23's adequacy and typicality requirements are more closely scrutinized than during the Court's consideration ofcompeting lead plaintiff applications . See, e.g. In re E.spire, 2000 U.S . Dist. LEXIS 19517, at *23-24 .
32 See In re CMS Energy, Opinion and Order Granting Andover Brokerage and Herbert Steiger's Motion ForAppointment as Lead Plaintiffs and Approving Lead Plaintiffs' Selection of Lead and Liaison Counsel, at *7-8 (a copyof this decision is attached as Ex . 32 to the Entwistle Declaration).
33 A copy of this decision is attached to the Entwistle Declara tion as Ex. 33 .
21
Generic Trading's losses here derive directly from the investment of its own capital traded
by its own propriety traders who relied closely on market information .34 While Generic Trading
provides services and facilities to persons trading for their personal accounts, such trading is not at
issue here .
Accordingly, Generic Trading is not subject to unique defenses and its status or tradin g
strategies do not render Generic Trading atypical31 See Oxford, 199 F.R.D. at 123 (for typicality
inquiry, "[c]ourt is to assess whether plaintiffs ' claims arise from the same course of conduct
which has given rise to the claims of other class members . . . . "). Because Generic Trading has
the largest financial interest in the outcome of this litigation of any purchaser of Ahold ADRs and
satisfies Rule 23's typicality and adequacy requirements, Generic Trading should be appointed as a
lead plaintiff to represent the interests of the members of the class who purchased Ahold ADRs.
See 15 U.S.C. §78u-4(a)(3)(BXiii)(l) . See In re Cable & Wireless , slip op . at 7 .
II. THE FOREIGN FUNDS POSSESS UNIQUE DEFENSESTHAT RENDER THEM INCAPABLE OF ADEQUATELYREPRESENTING THE CLASS
A. Substantial Questions Exist Regarding Whether This CourtHas Subject Matter Jurisdiction Over The Foreign Funds' Claim s
It is well settled that the Exchange Act and the Rules promulgated thereunder are silent
concerning the Exchange Act's extraterritorial application. See Itoba Ltd v. LEP Group PLC, 54
F.3d 118, 121 (2d Cir. 1995) . For this reason, each of the Foreign Funds' lead plaintiff
See Ex. 12 of the Entwistle Declaration .
35 See also Fields v. Biomatrix, Inc., 198 F.R .D. 451 (D.N.J. 2000) (the fact that the proposed lead plaintiff nay havemade some short sales does not render its claims atypical of the other plaintiffs in the putative class or subject tounique defenses such that is capable of adequately representing the class ); In re Cephalon Sec. Litig., No. 96-0633,1998 U.S. Dist. LEXIS 12321 at • 7 (E.D. Pa . 1998 ) (Ex. 34 to the Entwistle Declaration) (concluding that existenceof questions of reliance do not render atypical claims of lead plaintiffs , one of whom was a short seller); Chan v.Orthologic Corp ., No. 96-1514 PHX RCV, 1996 U .S. LEXIS 22385 (D . Ariz. Dec. 19, 1996) (Ex . 35 to the EntwistleDeclaration) (differences in sophistication, etc ., among purchasers have no bearing in the impersonal market fraudcontext, because dissemination of false information necessarily translates through market mechanisms into priceinflation which harms each purchaser identically) . Thus , sophisticated investors are as entitled to rely on fraud-on-the-market theory as anyone else .
22
applications present this Court with the threshold question of whether it may exercise subject
matter jurisdiction over the claims of foreign purchasers of foreign securities on a foreign
exchange. See Europe & Overseas Commodity Traders, S.A. v. Banque Paribas. London, 147 F .3d
118, 128 (2d Cir. 1998) (recognizing that jurisdiction over the claims of such plaintiffs are
"[p]erhaps the most difficult cases . . .").
There are two tests pursuant to which courts decide whether extraterritorial application of
the Exchange Act is permissible : the "effects test," which is satisfied if American citizens or
securities exchanges are effected by the fraud, and the "conduct test ." See SEC v. Dowdell, No.
3:01CV00116, 2002 U.S. Dist . LEXIS 4522, at *11 n .5 (W.D. Va. Mar. 14, 2002) ;36 see also SEC
v. Berger, 322 F.3d 187, 192 (2d Cir. 2003) ; Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991);
Itoba, 54 F.3d at 121-22 . Under the "conduct test," federal subject matter jurisdiction is
appropriate if. (1) the defendants' activities within the United States are more than "merely
preparatory" to the fraud ; and (2) these activities (or omissions) "directly caused" losses to foreign
investors abroad . See Bersch, 519 F.2d at 992 (declining to exercise jurisdiction over claims of
foreign purchasers on foreign exchanges) ; see also Aljadda, 935 F.2d at 478. A foreign investor's
loss is "directly caused" if the defendant made actionable misstatements or omissions within the
United States and such misstatements or omissions are a "substantial" or "significant contributing
cause" of the decision to purchase stock. See Itoba, 54 F.3d at 122.3 7
36 A copy of this decision is attached as Ex . 36 to the Entwistle Declaration.
" The policy basis for exercising subject matter jurisdiction under the "effects test" is a well-founded recognition that"Congress intended the Exchange Act to have extraterritorial application in order to protect domestic investors whohave purchased foreign securities." Schoenbaum v. Firstbrook, 405 F.2d 200, 206 (2d Cir.) rev d on other grounds,405 F.2d 215 (1968) . In contrast, the general policy basis for extending the reach of the Exchange Act under the"conduct test" is that Congress does not want "the United States to be used as a base for manufacturing fraudulentsecurity devices even when these are peddled only to foreigners ." IIT v. Vencap, Ltd., 519 F.2d 1001, 1017 (2d Cir.1975) .
23
1. The Foreign Funds' Claims Fail the "Effects Test" forSubject Matter Jurisdiction
The Foreign Funds are indisputably unable to satisfy the "effects test" for subject matte r
jurisdiction . See Europe & Overseas Commodity Traders, S.A . v. Banque Paribas London, 147
F.3d 118 , 128 n .12 (2d Cir. 1998) ("Europe & Overseas Commodity") . In fact , Union AG and
SBA all but concede that they cannot pass the "effects test ." The Foreign Funds' failure to even
attempt to satisfy the "effects test " is not surprising as "[t]he effects test only extends jurisdiction
as to those American plaintiffs who are affected ." In re Baan, 103 F . Supp . 2d at 11 (citing
Bersch , 519 F.2d at 988-89) (where court did not have subject matter jurisdiction over claims of
foreign purchasers of foreign securities on a foreign exchange ) ; see also Tri-Star Farms Ltd v.
Marconi, PLC, 225 F. Supp. 2d 567, 573 n.7 (W.D. Pa . 2002) (foreign purchasers of foreign
company's shares on foreign exchange "cannot bootstrap their losses to these independent
American losses to justify jurisdiction under an effects theory") ; In re Northern Telecom Ltd. Sec.
Litig., 116 F . Supp. 2d at 450 (where court excluded from class foreign subjects or citizens who
purchased securities outside the United States) .
2. The Substantial Questions Concerning Whether The Foreign FundsCan Satisfy the "Conduct Test" for Subject Matter Jurisdiction
Present a Unique Defense That Renders Each of the Foreign FundsUnsuitable to be a Lead Plaintiff
Although the Foreign Funds allege that the defendants' actions facially appear to satisfy the
"conduct test," it is almost certain that defendants will challenge this position in their motions to
dismiss the forthcoming Consolidated Amended Class Action Complaint as well as during the
class certification and summary judgment stages of this litigation . Under such circumstances, if
the Court views defendants' underlying misconduct in the United States as preparatory to the fraud
caused by the disclosures emanating from the Netherlands, then there will be no basis for the Court
to exercise subject matter jurisdiction over the Foreign Funds' claims (which would als o
24
necessitate the dismissal of any foreign lead plaintiffs if so appointed by this Court) . See Tri-Star
Farms, 225 F. Supp. 2d at 573 n.7 ; In re Baan, 103 F. Supp. 2d at 10-11 ; see also Landry v. Price
Waterhouse Chartered Accountants, 123 F.R.D. 474, 476 (S .D.N.Y. 1989) ("[W]hether these
defenses will be successful is of no matter . The fact that plaintiffs will be subject to such defenses
renders their claims atypical of other class members .") .
In Bersch, the Second Circuit first examined the extraterritorial reach of the Exchange Ac t
to foreign plaintiffs' claims against foreign issuers . Bersch, 519 F.2d at 974 .38 Drawing an
analogy that bears particular relevance to the facts precipitating Ahold's fraud, the Bersch court
stated "[a]t most the acts in the United States helped to make the gun whence the bullet was fired
from places abroad." Id. at 987. Applying the foregoing analogy, the Bersch court concluded that
it could not exercise jurisdiction over the foreign plaintiffs' claims based upon the United States
conduct in question because such conduct was "merely preparatory" to the overall fraudulent
scheme. Id. at 987. In this regard, the Court held that the federal securities laws do not apply to
losses from the sale of securities to foreign purchasers unless conduct within the United States
"directly caused" such losses . Id. at 992 .
The distinction between the level of United States conduct that is "merely preparatory" to a
fraud and conduct that is material to the completion of the fraud, is "[a]dmittedly . . . a fine one."
IIT v. Vencap, 519 F.2d at 1018. In this regard , the Bersch analogy of the location from which the
gun is fired clarifies the current situation . Royal Ahold's fraud involves underlying misconduct
which took place in the Netherlands, the United States, Scandinavia , Portugal, Argentina,
Denmark, Brazil, Malaysia , Guatemala, and further as yet undisclosed locations ac ross the globe .
While certainly a now notorious portion of the underlying misconduct occurred in the Unite d
38 Bersch involved a Canadian issuer of securities with its main office in Switzerland. The foreign defendantcorporation made three simultaneous stock offerings, none of which were nude to purchasers in the United States. Sixfirms, two of which were Ame rican, underwrote the largest of the three offerings . Bersch, 519 F.2d at 980 .
25
States, such underlying misconduct was nothing more or less than one step in the cooperative
manufacture of the "gun." The misconduct "directly causing" the claims against Ahold -- that is
the actionable misstatements and omissions (i .e., the "firing" of the gun) -- occurred when press
releases and financial statements were issued by Ahold in the Netherlands . In this regard :
• The Company is headquartered in the Netherlands and all corporate directivesissue therefrom;
• All press releases and other materials containing actionable misrepresentationsregarding, among other things, Ahold's operating results were compiled,authored, and disseminated from the Netherlands with the assistance ofaccountants at Deloitte & Touche working in the Netherlands and in the UnitedStates (among other locations);
• Ahold's financial information and annual reports were issued in the Netherlandsand filed with the Swiss and Amsterdam exchanges and with the SEC inconnection with the ADRs which traded on the New York Stock Exchange ;3 9
• The Company's Netherlands management team orchestrated the global fraudand the Company's United States operations were subject to the direction of theNetherlands management team;
• Dutch prosecutors are conducting a criminal investigation of Ahold in theNetherlands relating to Ahold's fraudulent accounting for $24 .8 billion inrevenue derived from joint ventures in which the Company owned interests ;
• The Dutch prosecutors' investigation has uncovered several documents,including Side Letter Agreements relating to how the Company would accountfor the operating results of joint ventures in which it owned an interest ;
• Dutch authorities recently raided both Ahold's corporate offices and threeDeloitte & Touche offices in the Netherlands to search for accounting recordsinvolving the joint ventures in at least Scandinavia, Portugal and SouthAmerica; and
• At least one Dutch Director, Cor Boonstra, has been successfully prosecuted forinsider trading in Ahold securities .
While the above facts and the emerging news indicate that Ahold's underlying misconduct
in the United States helped "to make the gun," it is clear that "the bullet was fired" from th e
" Although these misrepresentations authored in the Netherlands were incorporated into Ahold's Class PeriodSecurities Exchange Commission ("SEC") filings, the Foreign Funds did not base their investment decisions upon theCompany's SEC filings. For example, Union AG invests 90% of its funds outside the United States and did notpurchase domestic ADRs in this case. Moreover, U .S . residents are prohibited from investing in Union AG funds . SeeEx. 43 to the Entwistle Declaration. Even assuming that the Foreign Funds allege some strained concept of relianceupon filings applicable to securities that they did not purchase (and in the case of Union AG, are likely prohibited frompurchasing), SEC filings alone do not constitute domestic conduct sufficient to confer jurisdiction. See Nathan
Gordon Trust v. Northgate Exploration, 148 F .R.D. 105, 108 (S.D .N.Y . 1993) ; see also In re Baan,103 F. Supp. 2d at
10 ; McNamara, 32 F . Supp. 2d at 924-25 .
26
Netherlands. Bersch, 519 F.2d at 980, 987, 942; see also McNamara v. Bre XMinerals, Ltd., 32 F.
Supp. 2d 920, 924-25 (E .D. Tex. 1999) (dismissing Canadian shareholders from class based upon
lack of subject matter jurisdiction because such plaintiffs failed to show how their alleged losses
were directly caused by conduct in the United States) ; Kaufman v. Campeau Corp., 744 F. Supp .
808, 810 (S.D. Ohio 19%) .40
The Domestic Institutions are well aware that due process mandates that the name d
plaintiff represent the interests of absent class members at all times , Phillips Petroleum Co. V.
Shutts, 472 U.S . 797, 812 (1985), and the Domestic Institutions are prepared to so advocate for all
members of the Class. However, if the Court ultimately decides either that it cannot exercise
subject matter jurisdiction over the foreign claims or cannot certify a Rule 23 class of foreign
claimants, then COPERA and Generic Trading could nevertheless continue to advocate as lead
plaintiffs on behalf of the domestic purchasers of Ahold common stock and ADRs. In such a
circumstance , a Foreign Fund would necessarily be dismissed as a lead plaintiff (or as a class
representative) because the Foreign Fund would no longer be a member of the Class .41 See
Lobatto v. Berney, No. 98-1984 , 1999 U .S . Dist. LEXIS 13224, at *8 (S .D.N.Y. Aug. 25, 1999)
40 While the Fourth Circuit has not yet decided a case applying the "conduct test" for subject matter jurisdiction, othercourts have adopted and followed the "conduct test" as ar ticulated in Bersch . See, e.g. . Robinson Y. TCI/U.S. WestCommunis., Inc., 117 F.3d 900, 906 (5th Cir. 1997) (holding that the Second Circuit standard is the better viewbecause of a presumption that legislation is "meant to apply only within the territorial jurisdiction of the UnitedStates") (quoting Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285 (1949)). The Fifth Circuit noted that the federalsecurities laws are intended to protect American investors and markets , and that extending the applica tion of theselaws, in "absence of an express legislative command," was not warranted . Robinson, 117 Fad at 906 . In reaching thisconclusion, the Fi fth circuit relied upon the reasoning set forth in Zoelsch. In Zoelsch , the D . C. Circuit adopted a morestringent articulation of the Second Circuit's "conduct test ." Zoelsch, 824 F.2d at 33 ("jurisdiction is appropriate whenthe fraudulent statements or misrepresenta ti ons originate in the United States, are made with scienter in connectionwith the purchase or sale of securi ties, and `directly cause' the harm to those who claim to be de frauded . . .") (citationomitted) . In articulating the foregoing "conduct test," the D .C . Circuit affirmed that "the test we adopt here doesprovide jurisdiction whenever any individual is de frauded in this country, regardless of whether the offer originatessomewhere else ." Id.
" At the time the lead plaintiffs move for class certification, if the Court feels that it can certify all or part of a class ofForeign Purchasers and requires that class representatives be appointed for this catego ry of purchaser, then ForeignPurchasers in jurisdictions recognizing Rule 23 classes can be proferred as class representatives . It is bothunnecessary and premature to reach that issue now.
27
(quoting Zoelsch v. Arthur Andersen & Co ., 824 F.2d 27,33 n.12 (D.C. Cir. 1987) .42 See also 15
U.S.C. §78u-4(a)(3)(B)(iii)(II).
3. The Foreign Funds Cannot Manufacture Subject MatterJurisdiction for Their Claims by Invoking the Fraud-on-the-MarketDoctrine
The Domestic Institutions are entitled to establish the reliance element of their claims under
§ 10(b) of the Exchange Act, for both jurisdictional and evidentiary purposes, by invoking the
"fraud-on-the-market" doctrine, pursuant to which there is a rebuttable presumption that the
defendants' fraud caused plaintiffs' losses because "in an open and developed securities market,
the price of a company's stock is determined by the available material information regarding the
company and its business ." Basic v. Levinson, 485 U.S. 224, 241 (1988) (citation omitted) .
Significantly, the fraud-on-the-market presumption is unavailable to foreign purchasers of a
foreign company's stock on a foreign exchange for the purpose of establishing subject matter
jurisdiction over their claims. See Tri-Star Farms, 225 F. Supp. 2d at 578-80 ; In re Baan, 103 F .
Supp. 2d at 10 . The Foreign Funds' inability to invoke the fraud-on-the-market doctrine presents
individualized issues as to their actual reliance upon statements originating in the United States --
allegations that were not contained in any complaint filed by Union AG or the other Foreign
Funds.
In Baan, the foreign plaintiffs attempted to invoke the fraud-on-the-market doctrine in
support of their argument that the court had subject matter jurisdiction over their claims . In flatly
rejecting the foregoing proposition, the Baan court stated :
[E]mploying that doctrine to fulfill the requirements of the conducttest would extend the reach of the 1934 Act too far. It would allow aforeign.plaintiffto sue a foreign defendant based on anextraterritorial transaction whenever that foreign defendant had fileda fraudulently misleading document with the SEC .
42 A copy of the Lobatto decision is attached as Ex . 37 to the Entwistle Declaration.
28
Id. at 10. The Baan court then excluded from the class all foreign purchasers of the foreign
issuer's securities on a foreign exchange -- the precise putative class members that the Foreign
Funds seek to represent here -- for lack of subject matter jurisdiction. Id.; see also Tri-Star Farms,
225 F. Supp. 2d at 579 ("Employing the `fraud-on-the-market' doctrine to satisfy the conduct test
in this type of class action lawsuit involving overwhelmingly foreign transactions would extend the
jurisdictional reach of the securities laws too far . . . . We do not believe Congress intended such a
result!). The Foreign Funds cannot "bootstrap" subject matter jurisdiction here unless they
demonstrate actual reliance on statements originating in the United States -- a highly unlikely
result in this case.43
B. The Substantial Obstacles to Certification of A Class Of ForeignPurchasers of Abold Common Stock Create Additional Unique DefensesRendering The Foreign Funds Incapable of Adequately Representing TheClass
In addition to the threshold question of whether this Court has subject matter jurisdiction
over the Foreign Funds' claims, there is significant doubt concerning whether this Court can
certify a class including Foreign Purchasers of foreign securities on a foreign exchange for
settlement or for trial . See In re DaimlerChrysler slip op. at 21 (excluding foreign investors from
the class) ;44 In re Northern Telecom, 116 F. Supp. 2d at 450 (same). The problem is that foreign
courts sitting in jurisdictions that do not recognize Rule 23 type opt out class actions will likely not
43 The Domestic Instituti ons recognize that individualized issues of reliance , standing alone, do not necessarily renderthe Foreign Funds inadequate as lead plaintiffs or class representatives, if they can establish such reliance sufficientlyto satisfy jurisdictional mandates . See Ellison v. American Image Motor Co., Inc., Nos . CIV. A. 97-3608, 98-0692,98-1860 , 2000 U.S . Dist. LEXIS 22311, at *10 (S.D.N .Y . Jan. 31 , 2000) (A copy of this decision is attached as Ex. 38to the Entwistle Declaration .). However, even a cursory review of the Foreign Funds' complaints reveals that each ofthe press releases upon which they rely originated in the Netherlands as did all of the mate rials in Ahold' s annualreports circulated in Europe and in connection with the foreign exchange offerings and sales . Such materials are filedwith the foreign exchanges , upon which Union AG admi ttedly invests 90% of its funds under management. Union AGand the other Foreign Funds did not purchase ADRs . Moreover, according to Union 's website, it did not allowinvestment by United States residents . (See Ex. 43 to the Entwistle Declaration) . Under such circumstances, anadequate demonstration of actual reliance upon statements o riginating in the United States is highly unlikely.
" See Ex . 16 to the Entwistle Declaration .
29
recognize the preclusive effect of a United States settlement or judgment in this action . This
palpable obstacle to certifying a Rule 23 class that includes foreign investors who purchased Ahold
securities on foreign exchanges makes it likely that the Foreign Funds lack standing to serve as a
lead plaintiff because a lead plaintiff must be a"member or members of the purported plaintiff
class ." 15 U.S.C. §78u-4(a)(3)(B )(i) . See also East Tex. Motor Freight Sys., v. Rodriguez, 431
U.S. 395, 403 (1977) ("class representative must be part of the class") (citations omitted) .
Signi ficant doubts exist concerning whether a court in the Netherlands would recognize a
United States sett lement or judgment in this litigation . To confine this proposition, one need look
no further than the Company's shelf registration on Form F -3, filed with the SEC on December 29,
2000 in connection wi th the offering of Ahold ADRs, which states, among other things :
The United States and the Netherlands do not currently have a treatyproviding for reciprocal recognition and enforcement of judgments,other than arbitration awards, in civil and commercial ma tters . As aresult, a civil judgment by a U.S. court would not necessarily beenforceable in the Netherlands .
Royal Ahold, N.V. December 29, 2000 Form F-3, at 5 (Relevant pages are attached as Exhibit 39
to the Entwistle Declaration) .
The same result obtains under German , English , Swiss, , Italian and French law. See Bersch,
519 F .2d at 996-97 (in which the Second Circuit recognized that the courts in England, Germany,
Switzerland , Italy, and France would not afford preclusive effect to a United States judgment in
favor of defendants as a bar to an action by their own citizens and thus directed the District court to
"eliminate from the class all purchasers other than persons who we re residents or citizens of the
United States") ; see also lIT v. Yencap, 519 F .2d at 1018 n .31 (regarding class actions , " there is
doubt that a judgment of an American court would protect defendants elsewhere"); Ansari v. New
York Univ., 179 F.R.D. 112 , 116 (S .D.N.Y. 1998) (lack of preclusive effect in foreign count ries of
judgment of United States class action advise against finding that class action is superior to other
30
forms of litigation) ; CL Alexanders,127 F.R.D. at 459 (Judge Mukasey refused to certify class of
British subjects because British law does not bar relitigation of claims if defendants prevail in
United States "opt-out" class action lawsuit).
In connection with their challenge to the lead plaintiffs' inclusion of Foreign Purchasers o f
DaimlerChrysler common stock in the class, the defendants in DaimlerChrysler submitted the
Declaration of Rolf Sttlmer, a Professor of Law at the University of Freiburg, Germany (the
"Stilmer Declaration') .45 Recognizing the "practical dificulties ," set forth in the Stiirner
Declaration, Judge Faman excluded foreign investors from the class . See In re DaimlerChrysler,
at slip op. at 21 .46 The "practical difficulties" involving the extraterrito rial application of Rule 23
that the Court noted in the DaimlerChrysler case are equally applicable here, indicating that
foreign investors will likely be excluded from any class to be certi fied in this consolidated action.
Once again, if any Foreign Fund is appointed lead plaintiff, but the Court does not include foreign
investors in the class, then such foreign lead plaintiff would be forced to wi thdraw as lead plaintiff
(and could not serve as a class representative) as it would not be a member of the class. See 15
U.S.C. § 78u-4(a)(3)(B)( iii)(II). Defendants will unquestionably raise each of the foregoing
impediments to United States class action treatment of claims of foreign persons and en tities that
purchased Ahold securities on a foreign exchange, and thus these circumstances constitute an
additional defense unique to the Foreign Funds indicating that they cannot adequately represent the
interests of the Class. See Landry, 123 F.R.D. at 476 .
45 A copy of the Starner Declaration is attached as Ex . 40 to the Entwistle Declaration . Among other things, theStarner Declaration attests :
It is highly unlikely that a Gennan court would recognize as binding against thoseGerman shareholders any judgment entered in a U. S. class ac tion if those Germanshareholders do not receive no tice and the opportunity to opt-out of the U.S. classaction in a manner that strictly complies with the requirements of the [HagueService Convention] .
Stt rner Declaration ¶1 .
46 See Ex . 16 to the Entwistle Declaration.
31
The Foreign Funds will likely challenge the Domestic Institutions' definition of the three
categories of purchasers of Ahold securities (ADR Purchasers, Domestic Purchasers and Foreign
Purchasers), within the putative Class. The Domestic Institutions' characterization in this regard
is, as noted above, based upon their recognition that there are appreciable and substantial unique
issues to be resolved concerning whether a class consisting of Foreign Purchasers of foreign
securities on a foreign exchange can be certified under Rule 23(b)(3). These issues do not extend
to either ADR Purchasers or to Domestic Purchasers . Indeed, it is for this very reason that the
Central States/SBA Group has argued for bifurcation conceding that "a foreign lead plaintiff is less
adequate for the purpose of representing an undivided class of Domestic Securities Purchasers and
Foreign Securities Purchasers . . . ."4' As discussed above, such doubts are informed by numerous
decisions. See DaimlerChrysler, slip op. at 21 ; Bersch, 519 F.2d at 996-97 ; CL Alexanders, .127
F.R.D. at 459 ; Ansari, 179 F.R.D. at 116. While this Court is not currently in a position to certify
a class in this litigation, that fact cannot alter the reality that the Foreign Funds are infected by
unique defenses from which the Domestic Institutions do not suffer .48 In this regard, the PSLRA
clearly states that the lead plaintiff must be a "member or members of the purported class ." 15
U.S.C. §78u-4(a)(3)(Bxi) . If this Court determines that it cannot certify a class consisting of
persons and entities that purchased Ahold securities on a foreign exchange, then no Foreign Fund
can serve as lead plaintiff. The Domestic Institutions, on the other hand, suffer no such infirmity ,
4 7 See June 25, 2003 letter from Milberg Weiss Bershad Hynes & Leach LLP to Your Honor
4s This litigation presents factors that are substantially different from those presented in In re Merck See. Litig., CaseNo. 3 :02-CV-3185 (D .N.J.). The Merck litigation involves domestic securities. Accordingly, the Merck court hadclear jurisdiction over a somewhat different Union AG entity that was a purchaser of Merck securities in the UnitedStates. The Merck court did not consider the issue presented by the Royal Ahold case concerning foreign purchasers offoreign securities on foreign exchanges in the context of either jurisdiction or the difficulty in certifying a Rule 23Class in jurisdictions that do not recognize opt out class actions . This is also an issue that Judge Lee in In re Cableand Wireless did not have to confront because the law in the Canadian Province of Ontario - at issue in that case --expressly recognizes opt out class actions. Civil Proceedings Act, 1992, R.S .O . S .O. 1992, c.6, S.9 (Can.) (Attachedas Ex. 42 to the Entwistle Declaration) . Thus, the Canadian find appointed in that case can be bound by a Rule 23class (assuming proper notice and that subject matter jurisdiction is satisfied) unlike the Foreign Funds at issue here,which reside in jurisdictions that, as noted above, do not recognize the preclusive effect of opt out classes .
32
and can defend the subject matter jurisdiction and class certification issues that the defendants will
raise without the risk of losing lead plaintiff status and standing to sue .
Plainly stated, the Domestic Institutions do not suffer from any jurisdictional or class
certification infirmities . Therefore, the Domestic Institutions will always be in a superior position
to act on behalf of all groups of claimants in the Class . Accordingly, COPERA and Generic
Trading respectfully request that this Court recognize that the Foreign Funds' unique defenses will
inevitably distract the Foreign Funds from adequately prosecuting this litigation on behalf of the
Class and would offend the goals of the lead plaintiff provisions of the PSLRA . See 15 U.S.C.
§78u-4(a)(3)(B)(iii)(ll)(I)(bb) .
III. THE FOREIGN FUNDS SUFFER FROM ADDITIONAL UNIQUEDEFENSES THAT ARE FATAL TO THEIR APPLICATION S
A. Union AG Suffers From Further InfirmitiesAnd Conflicts Of Interest That Prevent ItFrom Serving As A Lead Plaintiff
Union AG argues that it has the largest financial interest in this litigation and claims that it
is, therefore, presumptively the most adequate lead plaintiff . The PSLRA, however, provides a
presumption of adequacy to the plaintiff with the largest financial interest in the relief sought if,
and only if, such plaintiffotherwise satisfies the applicable requirements of Rule 23 and the
PSLRA. See 15 U.S.C. § 78u-4(a)(B)(iiixl) . See also Switzenbaum v. Orbital Sciences Corp., 187
F.R.D. 246, 250 (E.D. Va. 1999) (denying lead plaintiff application of movant with the largest
financial interest in the outcome of the litigation for failing to satisfy the requirements of Rule 23) .
Simply stated, the size of one's financial interest is irrelevant if the requirements of Rule 23 and
the PSLRA are not satisfied. The calculation of financial interest is only the first step in the
process, not a mandate of adequacy. As demonstrated below, Union AG cannot take even that
"first step" because its certification is fatally defective . Even assuming the certification was valid ,
33
-- which it is not -- the PSLRA presumption is rebutted here because Union AG is subject to a n
abundance of unique defenses arising from myriad conflicts of interest and jurisdictional and clas s
certification-related infirmities that render it incapable of adequately representing the Class . 15
U.S.C. § 178u-4(ax3)(BXiii)(l1) .
1 . Union AG's Certification Is Fatally Defective, DemonstratingThat Union AG Is Inadequate To Serve As A Lead Plaintiff
The PSLRA establishes clear and specific requirements for the sworn certification that each
plaintiff seeking to serve as a lead plaintiff must personally sign and file with its respective
complaint or application to serve as a lead plaintiff. See 15 U.S.C. §78u-4(a)(2)(A). Among other
things, the PSLRA's certification requirements are designed to ensure that the Court has the basic
information necessary to evaluate a prospective lead plaintiff's adequacy to serve as a fiduciary for
a class of investors . See Burke v. Ruttenberg,102 F. Supp. 2d 1280, 1320 (N.D. Ala. 2000). As
set forth below, Union AG's certification fails to satisfy the PSLRA's basic requirements, thus
demonstrating that it is an inadequate plaintiff to prosecute this litigation in the best interests of the
Class . See In re MicroStrategy, Inc. Secs. Litig., 110 F. Supp. 2d 427, 436 (E .D. Va. 2000)
(rejecting lead plaintiff candidate for, among other reasons, submitting of a "conclusory affidavit"
and "indecipherable financial statements") .
a . Union AG Fails to Set Forth All ofIts Transactions in AholdSecurities
Union AG's certification fails to fulfill the PSLRA' s requirement of setting "forth all of the
transactions of the plaintiff in the security that is the subject of the complaint during the Class
Period specified in the complaint . . . " 15 U.S.C. §78u-4(a)(2)(A)(iv) . Specifically, Union AG
fails to disclose all transactions in Ahold securities in funds managed by at least two of the related
Union AG entities. See 15 U.S.C. §78u-4(a)(2)(A)(iv); see also In re MicroStrategy, 110 F. Supp .
2d at 436. This defect in the Union AG certification is fatal to its application .
34
The Domestic Institutions' preliminary investigation into Union AG reveals that it held
Ahold securities in at least two Union - controlled entities - Union Privatfonds (Germany) and
Union Investment Luxembourg S .A ("Union Luxembourg") . While some selected Union
Privatfonds transactions appear to have been disclosed, no Union Luxembourg holdings are
reflected on the Union AG certification -- which they are required to be since Union AG
indisputably controls all Union entities. 9 Union Luxembourg consists of 61 separate funds . The
most recent Bloomberg Financial LP holdings information for Ahold reveals that Union
Luxembourg-managed entities sold more than 3 million shares of Ahold stock in the quarter
ending March 30, 2003 (which includes the last sixty (60) days of the Class Period) . Notably,
none of those transactions are included in Union AG's certification . Moreover, a review of Union
Luxembourg's mutual fund holdings during the Class Period (available through its website)
reveals that many of these funds held Ahold securities -- which include securities underwritten or
co-managed during the Class Period by one of Union's Class Period owners, Rabobank. For
example :
Name of Union Luxembourg Fund• UniEuroKapital• UniEuroRenta Corporates
Security5.875% Ahold bonds (2008)6.375% Ahold bonds (2005)5.875% Ahold Finance USA (2008)5.875% Ahold bonds (2008)6.25% Ahold Finance USA (2009)5.875% Ahold Finance USA (2012)Ahold common sharesAhold common sharesAhold common sharesAhold common sharesAhold common shares
49 Union AG also fails to make any disclosure of transactions in any of the entities that manage funds for itsinstitutional clients. If, after all that is presented here, the Court still believes that Union's motion may be considered,then discovery into the Ahold holdings of each and all of Union's hundreds of managed portfolios will be necessary todetermine Union AG's actual losses. See 15 U.S .C.§78u-4(ax3)(Bxiv).
35
The above-referenced holdings make it clear that Union Luxembourg, a direct subsidiary of
Union Asset Management Holding AG, had substantial equity and debt securities of Ahold in its
inventory of funds during the Class Period that are not disclosed on Union AG's certification, in
direct violation of the PSLRA . See 15 U.S.C.§78u-4(a)(2)(A)(iv) .50
Aside from the incomplete trading information discussed above, Union AG's certification
raises additional substantial questions .51 For example, in his certification on behalf of Union AG,
Clemens Gaebel represents that he is the General Counsel for Union AG, and further represents
that he has the authority to act as the legal representative for all of Union AG, including,
ostensibly, all of the entities that Union AG owns and manages in Germany, Spain, Luxemburg,
Switzerland and Italy (and, one assumes, the hundreds of managed investment portfolios and
mutual funds) .52 However, no actual evidence of such authority is provided S3 Mr. Gaebel, also
fails to describe : (i) how invested funds are obtained and managed ; (ii) the investment criteria for
such funds; (iii) how Union AG's geographically diverse clients own their interests in managed
portfolios; (iv) and how individual and/or institutional clients conveyed their intent to be include d
50 This issue is wholly aside from the obvious conflict of interest created by Union AG's purchases of debt and equitysecurities underwritten and co-managed by then Union AG owner, Rabobank, discussed below . Clearly, Union AGentities had knowledge superior to other investors - particularly those in the United States who had no access to Aholdprivate placements for the WGZ Bank and Rabobank research, which was available to Union AG . The fact that UnionAG may have purchased a large amount of Ahold securities because of the interrelationship between Union AG,Rabobank, WGZ Bank and Royal Ahold only serves to underscore the atypical nature of Union AG's position and theunique defenses that are fatal to its application here.
51 Union AG appears to certify losses in its German investment portfolios, but fails to delineate which of the managedinvestment portfolios, out of the approximately one hundred German based investment portfolios that it manages,purchased and sold Ahold securities. Union AG omits to disclose whether all of the shares purchased and sold inAhold were made in all of its German-based managed funds or whether Union AG, the investment manager, elected toprovide this Court with the Class Period transactions of only certain German-based portfolios that suffered losses andignored managed investment portfolios and mutual fimds that experienced gains .
sZ The investments that Union AG makes are held in Union AG companies' portfolios and are managed throughinterlocking management and supervisory boards, the effective equivalent of a United States board of directors .
s' Clearly, this omitted information is critical to the Court's consideration of Union AG's application to serve as leadplaintiff, and the failure to fyrnish such information is fatal to Union AG's application . See 15 U.S .C. §78u-4(a)(2XA); see also Chill v. Green Tree Fin. Corp ., 181 F.R.D. 398,410 (D. Minn. 1998) (certifications, to beconsistent with Congressional intent in enacting the PSLRA, must attest to each applicant's ability the serve as a lea dplaintiff).
36
in th is litigation. On the record presented, it is simply impossible to ascertain whether some of
Union AG's funds were net sellers of Ahold securities during the asserted Class Period, which
would render them atypical and inadequate. 54
Only 10% of the assets under Union AG's management are permitted to be invested in
securities traded on United States exchanges . Moreover, the website that Union AG shares with its
affiliated entities explicitly states , among other things, "the funds managed by Union Investment
are not for sale in the United States and are not meantfor U.S citizens." SS (emphasis added).
Union AG apparently wants to be protected by U.S . securities laws -- even when it buys securities
abroad -- but does not want to be regulated by or o therwise subject to U.S . law. This philosophy is
hardly suitable for the leadership of a securities fraud class action in the United States.
Moreover, the fact that a sizeable number of the investment portfolios under Union AG's
management are prohibited from purchasing securities of non-European companies and that US.
residents are prohibitedfrom investing in Union AG entities also highlights the difficulty that
Union AG will experience in attempting to prove reliance on United States-based information that
is necessary for Union AG to satisfy subject matter jurisdiction . The pervasiveness of these
prohibitions bears directly upon the typicality of Union AG' s claims and its suitability to lead a
class action in the United States , which includes U.S. based ADR and common stock purchasers .
Thus, aside from the significant issues raised supra as to subject matter jurisdiction and
certifying a class including Forei gn Purchasers of foreign securities on a foreign exchange, these
additional disabling factors raise further substantial issues unique to the Union AG Group. These
unique defenses, which will distract from the central issues of this class action litigation, render
See In re Cable & Wireless, slip op. at 14 (lead plaintiff applicant was inadequate to represent interests of class,based, in part, upon recognition that applicant was "net seller" during the class period ; and noting "[t]he fact that[movant] sold more shares than it purchased during the Class Period 'undermines [movant's ] contention that it has thelargest financial interest in this case.'" (citation omitted) .
ss See Ex. 43 to the Entwistle Declaration.
37
Union AG incapable of adequately representing the Class . See 15 U.S.C. §78u-
4(a)(3)(BXiii)(II)(I)(aa-bb) ; In re Enron Corp. Secs. Litig., 206 F.R.D. 427, 455-56 (S.D. Tex .
2002) .'6
B. Undeniable Conflicts of Interest with Members of the Putative ClassPreclude Union AG's Appointment As A Lead Plaintiff
Rule 23's adequacy inquiry "serves to uncover conflicts of interest between the named
plaintiffs and the class they seek to represent ." Amchem Prods. v. Windsor, 521 U.S. 591, 625
(1997). Union AG suffers from at least five fatal types of conflicts of interest . First, Rabobank --
which owned part of privately held Union AG throughout the vast majority of the Class Period
(allegedly announcing that it had sold its interest in Union AG on February 4, 2003) -- had a
substantial ownership investment in Ahold, served as one of Ahold's principal lenders and
investment bankers, and maintained positive analyst coverage on Ahold during the Class Period . In
fact, Rabobank and four other major banking institutions recently announced they were extending a
$3.4 billion (U.S.) line of credit to Ahold in connection with Ahold's attempts to recover from the
negative impact of investigations into its accounting irregularities . 57 Clearly, it is a disabling conflict
of interest for a lead plaintiff to have been owned, in part, by a banking institution that has a
continuing financial interest in Ahold's ability to defend this litigation successfully and which may,
ultimately itself become a defendant in this case . Such a circumstance is completely contrary to a
lead plaintiff's fiduciary duty of "adequately representing the class ." 15 U.S.C. §78u-
4(b)(a)(3)(BXiii)(II)(bb).
"6 Union AG suggests that any infirmities it suffers can be magically cured by its joint motion with the City of Detroit .The City of Detroit's interest is less than one tenth that of COPERA's and it did not purchase ADRs . In no sense is itsfinancial interest substantial enough to lead this litigation and joining with Union AG only serves to underscore ratherthan cure its inadequacy.
ST See Ex. 44 to the Entwistle Declaration .
38
Second, during the Class Period, Rabobank issued analyst reports and research on Royal
Ahold and underwrote or co-managed various Ahold securities and debt offerings that Union AG
purchased during the Class Period. At the same time, WGZ Bank, which owns 19% of Union AG,
issued analyst reports and other research on Royal Ahold and had various ties to Ahold which are
referenced on WGZ Banks' analyst reports . 8 The Rabobank and WGZ Bank activities are similar
to those of Alliance Capital Management that Judge Harmon criticized in In re Enron Corp. Secs.
Litig., 206 F.R.D. 427,455 (S.D. Tex. 2002) .
In Enron the court rejected the Florida State Board of Administration's lead plaintiff
application -- despite the fact that Florida 's losses were approximately $200 million greater than
the Californ ia Regents losses . The basis for the Court 's decision not to appoint the Florida State
Board Administration was Judge Harmon 's observation that Enron, and one of Florida's
investment advisors, Alliance Capital Management , shared a director in common, Frank Savage,
and that defendants might argue that Flo rida was atypical because it had information that the
market did not possess . See In re Enron Corp., 206 F.R.D. at 455-56 . Given the close ties
between WGZ Bank , Rabobank, Union AG and Royal Ahold, it is easy to see defendants here
raising similar arguments against Union AG in the context of class certification.
Third, Deloitte & Touche, which is Ahold 's auditor and which is a defendant in these
actions, also audits DZ Bank, Union AG's 73 .7% owner . Fourth , PricewaterhouseCoopers
conducted the Ahold forensic accounting investigation of the misconduct underlying these claims ;
also audits DZ Bank; and, most significantly, was the auditor of Union AG, all of Union AG's
subsidiaries, and all of Union AG's investment companies and managed portfolios through 2002 .
Fifth, the law firm of White & Case represents Ahold in this litigation and the firm is conducting
59 A certified translation of one such report is attached to the Entwistle Affidavit as Ex. 18 .
39
an independent investigation of Ahold's misconduct for Ahold's Board of Directors . White &
Case also represents Union AG's former part-owner, Rabobank .
The incestuous web of conflicts ensnaring Union AG is fatal to its application to serve as a
lead plaintiff in this litigation against Ahold, its auditors and, potentially Ahold's bankers, other
professionals, and joint venture participants.59 See 15 U.S.C. §78u-4(bxa)(3)(B)(iv); see also In re
Enron, 206 F.R.D. at 455-56. ("The Court does not wish to delay this litigation even more than the
procedural requirements of the PSLRA require while additional information is derived from the
numerous intertwined investigations to uncover all the facts about the relationships" [between the
FSBA and Alliance Capital Management, one of the FSBA's investment advisors) .
1 . Rabobank. WGZ Bank and Union AG's Other Owners
Union AG's conflicts derive from, among other sources, the fact that it is privately held by a
small group of foreign banks, currently including DZ Bank AG (a major German bank) and WGZ
Bank, which owns approximately 19% of Union AG (and until February 2003, Rabobank which
owned more than 5% of Union AG) .60 These foreign banks control Union AG through both their
direct ownership and through their ability to appoint members of their respective management and
supervisory boards to Union AG's management and supervisory boards, as well as directly to the
boards of the various Union AG subsidiaries, including: Union Investment Institutional GMBH
("Union Investing") (Germany), Union Investment Privatfonds GMBH, ("Union Germany" )
39 The pending securities fraud litigation against In re Healthsouth Corp. 2002 Sec. Litig., No. CV-02-BE-2105-S(N.D. Ala. May 8, 2003) is a perfect example of the chaos that can be caused by conflict issues if they are notidentified before appointment of a lead plaintiff or if they are left to fester until after appointment of a lead plaintiff . InHealthSouth, which is pending before U .S. District Judge Bowdre in the Northern District of Alabama, lead plaintiffFederated Funds withdrew after being appointed lead plaintiff because it had the same auditors, Ernst & Young, LLP,as HealthSouth, derailing prosecution of the case until new lead plaintiffs and counsel could be appointed and evenraising the spectre of the possibility that the case may have to be renoticed for lead plaintiff purposes .
60 As part of Rabobank's "sale" of its interest in Union AG, it apparently transferred much of its German institutionalinvestment business to WGZ Bank and entered into a cooperation agreement with WGZ Bank, which of course :continues to own 19% of Union AG; covers Ahold with its own analysts ; and has an unspecified interrelationship withAhold sufficient to warrant disclosure on WGZ's Ahold related analyst reports . See Union Investment ShareholderList as of 7/15/03, attached as Ex. 45 to the Entwistle Declaration; see also certified translation of WGZ Bank'sFebruary 24, 2003 Credit Rating Research Report, attached as Ex . 18 to the Entwistle Declaration.
40
(Germany), DEFA AG DEFO, GMBH (a German real estate concern), Union Pan Aqora (a
Boston/Frankfurt Joint Venture), Union Switzerland, Union Spain, Union Poland and Union
Luxembourg (Luxembourg). (Union AG's interlocking directorships are illustrated in the diagram
attached as Ex . 27 to the Entwistle Declaration) . The foreign banks also maintain and extend their
control of Union AG through an interlocking investment sales and distribution network consisting
of the owner banks and at least 3 Union entities - Union Privatfonds, Union Investment and Union
Luxembourg."' Union AG owners, DZ Bank and WGZ Bank, also act as the custodian banks for
all Union AG funds and investments .
Ahold and Union AG are connected directly and indirectly through Rabobank, and its
subsidiary, Rabo Securities and current Union AG owner, WGZ Bank :62
Rabobank subsidiary, Rabo Securities, underwrote and/or managed or co-managedat least the following Class Period Ahold securities offerings (many of which werepurchased by Union entities) and loan syndications:
o August 24, 1998 announcement of a $2 billion common stock andconvertible bond underwriting to finance the purchase of Giant Foods, Inc .A syndicate of banks, including Rabo Securities underwrote the offering .Prospectus dated September 8, 1998.
o April 28, 2000 announcement of a global offering of $3 billion, including$2-2.4 billion in common shares (or American ADRs) and $ .6-.8 billion inconvertible subordinated notes . Rabo Securities was a co-manager of theunderwriting in the Netherlands;
o May 9, 2000 issuance of details regarding £600 million and £800 millionconvertible subordinated notes through 2005 . Rabo Securities was a co-manager of the offering;
o May 12, 2000 announcement that Ahold will sell as much as $2 .4 billion innew shares and as much as $800 million in convertible bonds to refinancerecent takeovers. Rabo Securities co-managed the sale
o February 27, 2001 sale of 10% reverse exchangeable bonds worth $25million ;
61 A diagram that illustrates Union AG's interlocking dis tribution network is attached to the Entwistle Declaration asEx. 24 .
62 A diagram illustrating the interrela tionships between Union AG, Ahold, Rabobank and Rabo Securi ties is attachedto the Entwistle Declaration as Ex . 26. This information , like most of the information above, was obtained byreviewing materials obtainable through web sites maintained by each and all of the companies, investment banks,banks , law fnms, accounting firms (and their subsidiary and related companies). Various other public source andinternet information was also reviewed including SEC and exchange listings in the U .S. and foreign exchanges .
41
o September 4, 2001 announcement of two proposed acquisitions and anequity offering of new Ahold common shares . Rabo Securities co-managed the common stock offering ($2.2 billion);
o July 25, 2002 signing of a $2 billion syndicated facility with banks inEurope and the U.S. Included in this syndication is Rabobank;
• Rabo Securities maintained extensive analyst coverage for Royal Ahold withRabobank's food sector specialization. These analyst reports included "Buy"recommendations through the Class Period until August 30, 2002 when it changedto a "Hold." On November 26, 2001, Rabo Securities wrote to its clients, "Aholdwill be able to continue its strong, double-digit growth path in the coming fiveyears." Reports included the April 9, 2002 "Buy" recommendation based on theopinion that U .S. GAAP issues were effectively resolved, and a "Hold"recommendation on February 25, 2003 even after the CFO resigned and therestatement was announced ;
• WGZ Bank maintained extensive analyst coverage for Royal Ahold during theClass Period, including a Credit Research Report dated February 24, 2003, whichstated among other things, that "WGZ Bank was a member of a s,%ndicate, whichunderwrote securities of this corporation within the last 5 years ;' 3
• Rabobank, in addition to being one of Ahold's primary lenders, also owned agreater than 5% interest in Ahold until at least February 2003 ; and
• WGZ Bank and Rabobank entered into a cooperation agreement after Rabobank"sold" its share of Union AG and transferred its institutional business to a UnionAG Fund with a WGZ director .
Rabobank's exposure to Ahold loan syndications, exceeding $5 .5 billion, its former direct
ownership interest in privately held Union AG and current interest in Ahold, and its ongoing
relationship with Union AG owner, WGZ Bank, underscores the complexity of the
Ahold/Rabobank/WGZ Bank/Union AG interrelationships and creates conflicts of interest between
Union AG and the putative class here that are necessarily fatal to Union AG's application . See In
re Enron, 206 F.R.D. at 455-56. Moreover, Union AG's significant, yet undisclosed, positions in
Ahold bonds purchased by its Luxembourg funds, which were underwritten or co-managed by
Rabobank, (at least some of which were apparently purchased in private placements in which such
securities were not generally available to the public), creates additional conflicts of interest
between Union AG as a large holder of Ahold debt on the one hand, and the ADR and Domestic
b' See Certified Translation of WGZ Bank February 24, 2003 Credit Rating Research Report, attached as Ex . 18 to theEntwistle Declaration .
42
Purchasers on the other hand . See, In re Healthsouth Corp. Sec. Litig., No. CV-03-BE-1 500-S
(N.D. Ala . June 24 , 2003) (Judge Bowdre refused to consolidate the claims of bondholders into the
shareholder case because of their distinct interests).
Furthermore, Ahold and Union AG have various additional connections through Union
AG's ownership group and through professionals that se rvice both Ahold and Union AG,
Rabobank, DZ Bank, or Union's other owners which create con flicts for Union AG similar to the
conflict with its accountants that just caused Federated Funds to withdraw as lead plaintiff in In re
HealthSouth Corp. 2002 Sec. Litig., No. CV-02-BE-2105-S (N.D. Ala. May 8, 2003 ), leading to
the Court's appointment of new lead plain tiffs on June 24, 2003 .
White & Case LLP 64
• White & Case acted as counsel for various Ahold offerings of debt and commonstock underwritten or co-managed by Rabobank ;
• Ahold is a major client of the law fine of White & Case LLP, which, among otherthings, handled various securities offerings including the ADRs ;
• White & Case also represents Rabobank in non-Ahold matters ;• White & Case represented Ahold in connection with the U.S. Foodservice
acquisition which is at the core of this litigation ;
• White & Case is conducting the internal legal investigation at Ahold in connectionwith this matter; and
• White & Case also represents Ahold in this litigation .
PricewaterhouseCoopers 65
• PricewaterhouseCoopers is conducting the forensic accoun ting investigation atAhold in connection with this matter;
• PricewaterhouseCoopers audited Union AG and all ofthe Union AG subsidiariesincluding Union Investments, Union Privatfonds , and Union Luxembourg unti l theend of 2002 . The individual Union investment funds were also audited byPricewaterhouseCoopers ; and
" A diagram illustrating the interrelationships between Union AG, Rabobank, Ahold and the White & Case firm isattached to the Entwistle Declaration as Ex . 25 .
65 A diagram illustrating the interrelationships between Union, Ahold and PricewaterhouseCoopers is attached to theEntwistle Declaration as Ex . 22.
43
• PricewaterhouseCoopers also audits Union AG owner DZ Bank .
Deloitte & Touche66
• Deloitte is Ahold's auditor,
• Deloitte audited the Ahold joint ventures involved in the $24 .8 billionmischaracterization of revenue ;
• Deloitte audits U.S. Foodservice, which is involved in underlying misconductleading to approximately $1 .1 billion in restatements; and
• Deloitte audits Union AG's owner DZ Bank .
All of the circumstances referenced above present fatal unique defenses 67 Enron, 206
F.R.D. 427 at 455-56 ; Koenig v. Benson, 117 F .R.D. 330, 335-36 (E.D.N.Y. 1987) (`'There is a
concern if a named plaintiff is subject to `unique defenses' . . . then attention will be diverted away
from issues common to the class . This would impair its ability to act as a representative for the
class .") See Epstein v. American Reserve Corp., No. 79 C 4767, 1988 U.S. Dist . LEXIS 3382
§78u-4(a)(3)(B)(iii)(ll)(bb). See also Landry, 123 F.R .D. at 476 ("whether these defenses will be
successful is at no matter. The fact that plaintiffs will be subject to such defenses renders their
claims atypical of other class members .") .
C. The Central States/SBA Group Does Not Have The Largest FinancialInterest In The Outcome Of This Litigation And Its Arguments ForBifurcation Constitute An Admission That Central States/SBA CannotAdequately Represent The Interests Of The Entire Class
66 A diagram illustrating the interrelationships between Union, Union owner DZ Bank, Ahold, U.S . Foodservice andDeloitte & Touche is attached to the Entwistle Declara tion as Ex . 23 .
67 A diagram illustrating all of Union AG's con flicts - at least as they have been determined to date - - is attached tothe Entwistle Decl . At Ex . 28.
6B A copy of this decision is attached as Ex . 46 to the Entwistle Declaration.
44
1 . The Central States/SBA Group Does Not Have the Largest FinancialInterest In the Outcome of This Litigation
In the Virginia proceedings prior to the Judicial Panel on Multidistrict Litigation's transfer
of these actions, the Central States/SBA Group submitted calculations of its respective clients'
financial interest during the 1998-2003 Class Period based upon two different methods of
calculating losses -- one for domestic purchasers and one for Foreign Purchasers . Of all
applicants, only Central States departed from the FIFO method of calculating losses that has
received almost universal acceptance throughout the country and which was has been argued by
Central States current counsel in every other case of which we are aware .69 Ironically, even
Central States used the FIFO method in its opening brief in this Court before switching to a
"net/net" methodology for calculating losses in the Virginia submissions, apparently in an effort to
gain an advantage by improperly reducing the losses of other domestic movants . 70 In contrast,
SBA -- represented by the same counsel and part of the same moving group -- used the FIFO
methodology that has been used in lead plaintiff determinations by the courts in virtually every
major securities litigation in the country . See e.g., Albert Fadem Trust v. WorldCom, Inc., No. 02
Civ. 3288 (DLC), 2002 U.S. Dist . LEXIS 15005 (S.D.N.Y. Aug. 15,2002); In re Oxford Health
69 In this regard, Central States' counsel, Milberg Weiss Bershad Hynes & Lerach LLP, even went so far as to publishan article in the Class Action Report, entitled, "Fee-Fi-Fo-Fum: Why the Rejection of FIFO is . . . Not Smart," whichasserts that the correct methodology for calculating the largest financial interest under the PSLRA is undoubtedly theFIFO method. In particular, the article states:
The FIFO method of calculating losses has been the con trolling method used by courts in securitiesclass actions both before and after the PSLRA.
ssss
A few courts have misunderstood how the largest financial interest should be calculated in securitiesclass actions, mistakenly penalizing large investors for having pre-class-period holdings by refusingto apply FIFO. Not only is the application of FIFO methodology requiredfor stock-losscalculation, to not apply it directly conflicts with the very purpose of the PSLAA . Accordingly,there exists "no precedent that wouldsupport the use of any rule other than FIFO accounting. "
Fred B. Burnside, Fee-Fi-Fo-Fum: Why the Rejection of FIFO is . . . Not Smart, Vol . 2, Number 21, BNA ClassAction Litigation Report (November 9, 2001) . This article is attached to the Entwistle Declaration as Ex. 47.
70 While this ma tter was before Judge Lee, Central States/SBA argued that Cable and Wireless mandated a "bet sellertest" (to determine if any applicant is a net seller during the class period) to determine an applicant 's financial interestin the litigation during the lead plaintiff process . This approach is against the weight of the applicable authority .
45
Plans, Inc. Sec. Litig., 182 F.R.D. 42 (S.D.N.Y. 1998); In re Global Crossing, Lis. Sec. Litg., No.
02 Civ. 910 (GEL) (S.D.N.Y.) ; In re DaimlerChrysler AG Sec . Litig., No. 00 Civ-993 (D. Del .) ; In
re BankAmerica Corp. Sec. Litig., MDL No. 1264 (E.D. Mo.)(JFN); In re CMS Energy Securities
Litig., No. 02 Civ . 72004 (GCS)(E.D. MI); In re Dollar General Corp. Sec. Litig., No. 3 .01 Civ .
0388 (M.D. Ten .) ; and In re Duke Energy Corp. Sec. Litig., No. 02 Civ. 3960 (JSR) (S .D.N.Y.).
Applying the FIFO methodology applied by SBA, COPERA (even without considering the
additional losses of the movants and non-movants supporting its application) has losses of
$16,207,923 and Central States has losses of $7,973,308.7 1
2. Central States ' purported losses are inconsistent with the ScheduleA attached to its certification
Central States ' "Schedule A" to its certification avers that Central States sold
approximately 159,311 shares during the Class Period . Central States has not reduced any of its
losses by the proceeds generated by its Class Period sales of those shares and has not provided
information regarding the amount of the proceeds realized on such sales . Either Central States'
original cert ification is flawed or Central States used the first -in-first-out ("FIFO") method of
calculating its losses (or it simply chose to ignore established precedent requi ring that losses be
offset by sales proceeds). Thus either Central States ' certification is fatally defective or Central
States ' losses are substantially less than certified to by its General Counsel.
3. SBA Appears to be a "net seller" during the Class Period and itsCertification appears to be flawed .
SBA reports a loss based upon its purchases of 435,000 shares of Ahold stock during the
Class Period . However, the certification filed by SBA's General Counsel reports purchases of only
185,000 shares. The certification does not report the purchase of the additional 250,000 shares
during the proposed Class Period that SBA includes in its loss calculation . Either the SBA
71 Even under a net/net calculation, COPERA has losses of $10,476,165, which is approximately $2 .5 million greaterthan Central States putative financial interest .
46
certification fails to include all purchases during the Class Period or the missing 250,000 shares
were not purchased during the Class Period . If, as it appears, the certification is defective, SBA is
disqualified as a potential lead plaintiff here . See 15 U.S.C. §78u-4(a)(3)(B)(iii)(I) ; see also In re
Microstrategy,110 F. Supp. 2d at 436 . If the certification is correct, then the `missing" 250,000
shares must be removed from SBA's loss calculations, substantially reducing its losses. Ironically,
if one applies the "net seller" test used by the Court in the In re Cable & Wireless case, then with
or without the "missing" 250,000 shares, SBA is a net seller during the Class Period and, therefore,
is an inadequate lead plaintiff. See In re Cable & Wireless, slip op. at 14
4. The Central States/SBA Group 's "Bifurcation" Argument Is AnAdmission Of Its Inadequacy To Serve As A Lead Plaintiff and Is anInefficient Proposal for Managing Any Practical DifferencesBetween the Claims of Foreign and Domestic Purchasers of AboldSecurities
The Central State/SBA Group' s argument in favor of "bifurcation" is an admission that
Central States is not adequate to prosecute the claims of Foreign Purchasers and that SBA is not
adequate to prosecute the claims of domestic purchasers . See June 25, 2003 letter from Milberg
Weiss Bershad Hynes & Learch to Your Honor at 5-6 . In advancing this argument, the Central
States/SBA Group concedes that SBA is subject to unique defenses regarding, among other things,
the Court's subject matter jurisdiction over the claims of Foreign Purchasers of Ahold securities on
foreign exchanges. Id. Instead of admitting that these unique defenses prevent any of the Foreign
Funds, including SBA, from serving as a lead plaintiff for the Class, the Central States/SBA Group
proposes dividing the case in half and subjecting the defendants and this Court to numerous
inefficiencies including: (i) two Consolidated Amended Complaints; (ii) two sets of motions to
dismiss; (iii) duplicative and/or inconsistent discovery requests and resulting disputes ; and (iv) two
motions for summary judgment . What the Central States/SBA Group really seeks here is the
premature creation of subclasses which is only appropriate in securities cases only when plaintiff s
47
"have a substantial antagonism toward the positions of others in the class that presents a conflict
that is significant and which precludes the lead plaintiff from adequately representing a single,
consolidated class . In re Lucent Techs., Inc. Sec. Litig., 221 F. Supp. 2d 472, 483 (D.N.J. 2001) .
While the Central States/SBA Group is subject to various unique defenses including
adverse issues of subject matter jurisdiction and class certification, these defenses and the conflicts
they create are unique to the Central States/SBA Group and the other Foreign Fund movants. The
appropriate solution is not "bifurcation" or the creation of sub classes. The appropriate solution is
to deny the SBA/Central State's Group's motion in favor COPERA and Generic Trading, neither
of which are subject to the defenses at issue and both of which are well prepared to prosecute the
claims of the entire Class, regardless of whether the claims are on behalf of foreign or domestic
purchasers. If the Court ultimately determines that it can certify a class that includes some Foreign
Purchasers, then such an entity can be proffered as a class representative at that time if the Court so
requests . While there are differences between the ADR's, which traded domestically, and the
common stock, which traded abroad, the Domestic and Foreign Purchasers of :Ahold common
stock bought the same securities in the same market and thus the action may be appropriately led
by a Lead Plaintiff that purchased ADR's and a Domestic Purchaser on behalf of a single class of
securities holders . This approach best serves the interests of the Class and judicial economy ;
interests that are not served by the Central States/SBA Group's "bifurcation" proposal . 72
D. BWK Has Withdrawn And Its Application Is Now Moot,And Ms. Tsai Is Not Qualified To Represent ClassMembers Who Purchased Ahold ADR' s
72 Central States is content to jettison the claims of foreign purchasers of Ahold securities on foreign exchanges and tosubject such plaintiffs to SBA's admitted unique jurisdictional defenses . This position clearly demonstrates thatCentral States, unlike COPERA, is not prepared, and indeed is unwilling, to represent the interests of foreignpurchasers of Ahold securities on foreign exchanges. Moreover, the Central States/SBA Group's "bifurcation" plandenies representation to foreign purchasers of Ahold ADRs which are not subject to the same jurisdictional defenses asforeign purchasers of the common stock . The Central States/SBA Group's flawed "bifurcation" plan demonstratesthat it is unfit to prosecute this litigation in the best interests of the Class .
48
In its Memorandum of Law in Further Support of the Motion of BWK and Linda M. Tsai
to be Appointed Lead Plaintiff and For Approval of Lead Plaintiff's Selection of Lead and Liaison
Counsel and In Opposition To Competing Motions submitted in proceedings in the Eastern District
of Virginia, BWK stated: "BWK which remains interested and willing to serve in a representative
capacity, will aside to allow this Court to consider Ms . Tsai's application to represent ADR
investors ." (Emphasis added). The entirety of the submission following BWK's withdrawal was
then devoted to Ms. Tsai, whose ADR losses are de minimis compared to those suffered by
Generic Trading (in fact, Generic Trading's ADR losses are approximately ten times greater than
Ms. Tsai's) . It thus appears that BWK is no longer a movant here .
Even if BWK reverses its position, the Domestic Institutions respectfully submit that th e
mere fact that BWK withdrew its application evidences a lack of commitment to the enormous
undertaking involved in prosecuting this ac tion . See In re Conseco, 120 F . Supp. 2d at 733 .
Moreover, BWK suffers from the same subject matter jurisdic tion and class certification defects
from which the other Foreign Funds suffer , discussed in Point II (A), supra . Furthermore, like
Union AG, BWK is a privately owned German investment manager that manages a family of
funds.73 BWK is also majority owned by an investment bank which had an analyst issuing
declining ratings on Ahold during the Class Period . These circumstances render BWK, like Union
AG, wholly atypical and unsuitable to serve as a lead plaintiff. See 15 U.S.C. § 78u-
4(a)(3)(B)(iii)(II)(I)(aa-bb) .
73 BWK also does not explain how its invested funds are obtained and managed. Likewise, BWK fails to explainwhether its clients own their interests in such portfolios, which in any event are subject to rights under German lawthat may not satisfy PSLRA standing requirements . Moreover, BWK fails to designate which of its ruanaged fundspurchased and owned Ahold securities and whether or not all of the transactions in Ahold securities in all of its mutualfunds are reported .
49
CONCLUSION
COPERA and Generic Trading have the largest financial interest in the outcome of thi s
litigation of all lead plaintiff applicants that do not possess unique defenses that render them
inadequate to represent the interests of the Class . COPERA and Generic Trading, therefore,
respectfully request that this Court, appoint COPERA and Generic Trading as Co-Lead Plaintiffs ,
and further request that this Court appoint their selected attorneys, Entwistle & Cappucci, as Lead
Counsel (together with Adelberg, Rudow, Dorf & Hendler as local / liaison counsel) to prosecute
this significant litigation on behalf of the Class .
Dated: July 16, 2003
Respectfully submitted,/s/
Andrew Radding, Esq. (Bar No. 00195)Gregory M. Kline, Esq. (Bar No. 14363)ADELBERG, RUDOW, DORF &HENDLER, LLC600 Mercantile Bank & Trust Building2 Hopkins PlazaBaltimore, MD 21201(410) 539-5195
~►. .t .;, , ~ ' Local Counsel for Plaintiffs Public Employees'Retirement Association of Colorado and GenericTrading of Philadelphia, LLC, and ProposedLiaison Counsel
Andrew J . Entwistle, Esq. (AE-6513)Stephen D. Oestreich, Esq . (SO-8933)Asuncion Cummings Hostin , Esq. (AH-1850)Robert N. Cappucci, Esq . (RC-2193)Johnston de F . Whitman, Jr., Esq . (JW-5781)ENTWISTLE & CAPPUCCI LLP299 Park Avenue, 10 FloorNew York, NY 10171(212) 894-7200
Attorneys for Plaintiffs Public Employees'Retirement Association of Colorado and GenericTrading of Philadelphia, LLC, and ProposedLead Counsel
50
EXHIBIT B
VvWdaw.S.A. 2003, c . C-16.5 Page 1
(Publication page references are not available for this document . )
Alberta Statute s
-► Class Proceedings Act
S.A. 2003, c . C-16 .5, as am. S.A. 2003, c . 42, s . 4 .
HER MAJESTY, by and with the advice and consent of the Legislative Assembly of Alberta, enacts as follows :
s 17 . Opting in and opting out
17. Opting in and opting out
17(1 )
For determining, with respect to a class proceeding, whether a person is a class member or remains a class member,the following applies :
(a) a person who is a resident of Alberta and who meets the criteria to be a class member in respect of the classproceeding is a class member in the class proceeding unless that person, in the manner and within the timeprovided for in the certification order made in respect of the class proceeding, opts out of the class proceeding ;
(b) subject to clause (d), a person who is not a resident of Alberta may, in the manner and within the timeprovided for in the certification order made in respect of the class proceeding, opt into the class proceeding ifthat person would have been included under clause (a) as a class member in the class proceeding had thatperson been a resident of Alberta ;
(c) a person referred to in clause (b) who opts into a class proceeding is, effective from the time that the personopts in, a class member in the class proceeding for every purpose of this Act ;
(d) a person who is a prospective subclass member may not opt into a class proceeding under clause (b) unless arepresentative plaintiff who satisfies the requirements of section 7 has been or will have been appointed for thesubclass in which the person is to become a subclass member at the time that the person becomes a class
member ;
(e) a person who is a class member may, if permitted to do so by this Act, the certification order or the Court,opt out of the class proceeding subject to any terms or conditions imposed under the certification order or by theCourt ;
(f) a person referred to in clause (e) who opts out of the class proceeding ceases, effective from the time theperson opts out and subject to any terms or conditions referred to in clause (e), to be a class member in the classproceeding .
17(2)
If a subclass is created as a result of persons opting into a class proceeding under subsection (1)(b), therepresentative plaintiff for that subclass must ensure that the certification order for the class proceeding is amended,if necessary, to comply with section 9(2) .
Copr. 0 West 2005 No Claim to Orig . Govt. Works
S.A. 2003, c . C-16. 5(Publication page references are not available for this document . )
17(3)
Page 2
Notwithstanding anything in this section, where the Court certifies a proceeding pursuant to an application by adefendant, a class member is prohibited from opting out of the class proceeding other than with leave of the Court .
17(4)
If the Court grants leave under subsection (3) for a person to opt out of a class proceeding, that person has, as amatter of right, the right to apply to the Court to be added, on any terms or conditions that the Court considersappropriate, as a named plaintiff for the purposes of allowing that plaintiff to conduct the plaintiffs own case .
17(5)
Notwithstanding anything in this section, the Court may at any time determine whether or not a person is a classmember or subclass member subject to any terms or conditions the Court considers appropriate .
R .S .B .C . 1996, c . 50, as am . S .B .C . 1998, c . 9, s . 96 ; 2004, c . 65, s . 1 .
s 16 . Opting out and opting in
16 . Opting out and opting in
16(l )
A member of a class involved in a class proceeding may opt out of the proceeding
in the manner and within the time specified in the certification order .
16(2 )
Subject to subsection (4), a person who is not a resident of British Columbia may,in the manner and within the time specified in the certification order made in
respect of a class proceeding, opt in to that class proceeding if the person wouldbe, but for not being a resident of British Columbia, a member of the class
involved in the class proceeding .
16(3 )
A person referred to in subsection (2) who opts in to a class proceeding is from
that time a member of the class involved in the class proceeding for every purpose
of this Act .
16(4)
A person may not opt in to a class proceeding under subsection (2) unless the
subclass of which the person is to become a member has or will have, at the time
the person becomes a member, a representative plaintiff who satisfies the
requirements of section 6(1)(a), (b) and (c) .
16(5 )
If a subclass is created as a result of persons opting in to a class proceeding
under subsection (2), the representative plaintiff for that subclass must ensure
that the certification order for the class proceeding is amended, if necessary, to
Newfoundland and Labrador StatutesClass Actions Ac t
Part II -- Conduct of Class Actions
Current to Gazette Vol . 80 :37 (September 16, 2005 )
17 . Opting out and opting i n
17 (1)
Page 1
A member of a class involved in a class action may opt out of the action in themanner and within the time specified in the certification order .
17(2 )
A person who is not a resident of the province may opt in to a class action in the
manner and within the time specified in the certification order where that person,if they were resident in the province, would be a member of the class involved inthe action .
17 (3 )
A person who opts in to a class action under subsection (2) is from that time a
member of the class for the purpose of this Act .
17(4 )
A person shall not opt in to a class action under subsection (2) unless thesubclass of which the person is to become a member has or shall have, at the timethe person becomes a member, a representative plaintiff who satisfies therequirements of paragraphs 7(1)(a), (b) and (c) .
17 (5 )
Where a subclass is created as a result of persons opting in to a class action
under subsection (2), the representative plaintiff for that subclass shall ensurethat the certification order for the class action is amended, if necessary, tocomply with subsection 9(2) .
S .S . 2001, c . C-12 .01, s . 18S .S . 2001, c . C-12 .01, s . 18
Saskatchewan StatutesThe Class Actions Act
Part III -- Conduct of Class Actions
Current to Gazette Vol . 101 :39 (Sept . 30, 2005 )
18 . Opting out and opting i n
18(1)
Page 1
A class member involved in a class action may opt out of the action in the mannerand within the time stated in the certification order .
18(2 )
A person who does not reside in Saskatchewan may opt into a class action, in themanner and within the time stated in the certification order, if the person would
otherwise, but for non-resident status, be a member of the class involved in theclass action .
18(3)
A person mentioned in subsection (2) who opts into a class action is from that
time a member of the class involved in the class action for the purposes of thisAct .
18(4 )
A person may not opt into a class action pursuant to subsection (2) unless the
subclass of which the person is to become a member has or will have, at the timethe person becomes a member, a representative plaintiff who satisfies th erequirements of clauses 8(1)(a), (b) and (c) .
18 (5 )
If a subclass is created as a result of persons opting into a class action
pursuant to subsection (2), the representative plaintiff for that subclass shall
ensure that the certification order for the class action is amended, if necessary,to comply with subsection 10(2) .
City of New York, State of New York, County of New Yor k
I, Lauren Chiang, hereby certify that the following is, to the best ofmy knowledge and belief, a true and accurate translation of"Investors are claiming billions from Ahold " from Dutch into
ATLANTA English . This translation went through our three step qualityBOSTON process and was reviewed by the linguist, the Quality M anager, and
BRUSSELS the Project Manager .
CHICAG O
DALLAS
DENVER
FRANKFURT
GENEVA
HONG KONGauren hiang
HOUSTO N
LONDONSworn to before me this
LOS ANGELE S
MIAM I
MINNEAPOLIS 2nd Day of November 2005MUNIC H
NEW YORK
PARIS
PHILADELPHIA
RESEARCH Signature , No ary Pub k cTRIANGLE PAR K
SAN DIEGO HEATHER BOSLE YSAN FRANCISCO
Notar_r Public-Staleof New YorkN"o . 01 g 0611 896
SEATTLE Qualified in NEW YORK Co n tWASHINGTON . DC
MyCommissiot, Exores 0,123"1 12,
Stamp, Notary PublicState of New York
THREE PARK AVENUE , 39TH FLOOR, NEW YORK, NY 10016 T 212 .689.5555 F 212 .689 .1059 WWW.TRANSPERFECT.COM
Brabants DagbladFebruary 13, 2004
Investors are claiming billions from Ahol d
The Vereniging van Effectenbezitters (Dutch Investors' Association : the VEB) is claiming billionsin damages for the shareholders who suffered losses on the market price of their shares last yeardue to the accounting scandal at Ahold . As a first step, the VEB yesterday applied to th eEnterprise Section to have the court rule that mismanagement was involved and to identify thepeople responsible for this .
Claim for billions "It would be a boon to morality in the financial markets if the people involvedhave to pay," said VEB director Peter Paul de Vries yesterday . When Ahold announced themisappropriation of funds last year, the price of the shares plummeted from EUR 9 .71 to EUR3.59. The VEB believes that Ahold, or the people responsible for the problems in the group, mustcompensate the investors for this fall in the market price of the shares . In fact, De Vries goeseven further back in time and believes that Ahold investors will only be really satisfied with acompensation of EUR 25 per share : the difference between the market price of an Ahold share atthe time of the acquisition of the American US Foodservice in March 2000 - later shown to be thesource of the biggest fraud in the group - and the market price of an Ahold share after theannouncement of this fraud on February 24, 2003 . According to this last calculation, the loss inmarket value ranges from EUR 22 to EUR 26 billion . If such an unlikely claim were to be awardedto the investors, this would mean bankruptcy for Ahold . The group has a debt in excess of EUR10 billion . The VEB wants the Enterprise Section to determine on the basis of its owninvestigation which board members, supervisory directors, auditors or other advisers wereresponsible for the 'misappropriation of funds, manipulation of the earnings and accountingshortcomings' announced by the supermarket group on February 24, 2003 . Based on the ruling,the VEB wants to claim damages . The VEB also wants board members to repay Ahold for anybonuses and profits made on options they wrongfully received. This money must simply go to thecompany's coffers . Ahold said that bonuses will be partially repaid . Losses must also berecovered from internal and external people who are responsible according to the court . Throughits spokesman W. Samuels, Ahold declared the action 'morally despicable .' "The VEB representszero point six percent - 0.06% - of all Ahold shareholders . We feel that in that case, you cannotsimply go to court . This is a serious recourse that affects all the shareholders . For this reason, wewant to discuss this at the shareholders' meeting on March 3, 2004 ." Ahold has convened thismeeting specifically to inform the shareholders of Ahold's new policy with regard to proper,transparent corporate governance . Transparency Samuels admits proper corporate governancealso includes full disclosure of the causes of the accounting fraud that put the group on the brinkof ruin for six months . "But numerous investigations are still pending and we have to wait for theiroutcome ." The VEB believes that mismanagement is involved because the earnings of a fewforeign acquisitions were wrongfully added to Ahold's numbers . American operating companies(including US Foodservice) posted sales revenues that were not realized . Earnings and equitywere also overstated in the period 1998-2000 . The VEB believes that the outside world shouldhave been informed earlier about the problems at Ahold . According to Ahold, proceedings beforethe Enterprise Section will cost the group EUR 75 million . The VEB calls this amount grosslyexaggerated .
Brabants DagbladFebruary 13, 2004
Beleggers eisen miljarden van Ahold
De Vereniging van Effectenbezitters (VEB) eist miljarden schadevergoeding voor de aandeelhoudersdie vorig jaar koersverlies leden door het boekhoudschandaal bij Ahold . Als inleidng stapte de VEBgisteren naar de Ondememingskamer om de rechter to laten vaststellen dat er sprake was vanwanbestuur en wie de verantwoordelijken zijn .
Miljardenclaim "Het is voor de moraliteit op de financiele markten goed als de betrokkenen moetenbetalen", zei VEB-directeur Peter Paul de Vries gisteren . Toen Ahold de malversaties vorig jaarbekendmaakte, stortte de koers van het aandeel omlaag van 9,71 naar 3,59 euro . Ahold, of deverantwoordelijken voor het gerommel bij het concern, moeten die koersdaling vergoeden aan debelegger, vindt de VEB . De Vries gaat feitelijk nog verder terug in de tijd en denkt dat beleggers inAhold pas echt tevreden zijn met een schadevergoeding van 25 euro per aandeel : het verschil tussende koers Ahold ten tijde van de overcame van het Amerikaanse US Foodservice in maart 2000 - naarlater bleek de bron van de grootste fraude bij het concern - en de koers Ahold na het bekend wordenvan die fraude op 24 februari 2003 . Volgens die laatste Wakening is het verlies aan beurswaardetussen 22 en 26 miljard euro. Toekenning van een dergelijke onwaarschijnlijke claim aan beleggerszou het faillissement betekenen voor Ahold . Het concern heeft een schuld van ruim 10 miijard euro .De VEB wil dat de Ondememingskamer met eigen onderzoek vaststelt welke bestuursleden,commissarissen, accountants of andere adviseurs verantwoordelijk waren voor de'malversaties,winstbijstellingen en administratieve tekortkomingen' die het supermarktconcem 24 februari vorig jaarbekendmaakte. Aan de hand van de uitspraak wil de VEB schadevergoedingen eisen . De VEB wil ookdat bestuursleden onterecht ontvangen bonussen en optiewinsten terugbetalen aan Ahold . Dat geldmoet gewoon in de bedrijfskas terechtkomen. Ahold heeft gezegd dat bonussen gedeeltelijk wordenterugbetaald . Ook moat schade worden verhaald op inteme en externe personen die volgens derechter verantwoordelijk zijn . Ahold noemt de actie bij monde van woordvoerder W. Samuels'moreelverwerpelijk'. "De VEB vertegenwoordigt nul komma nul zes procent - zes tiende promille - van alleaandeelhouders in Ahold, wij vinden niet dat je dan zomaar near de rechter kunt stappen . Dat is eenzwaar middel dat alle aandeelhouders treft ; wij willen dit dan ook ter discussie stellen op deaandeelhoudersvergadering van 3 maart ." Die vergadering is door Ahold speciaal ingelast om deaandeelhouders to informeren over het nieuwe beleid bij Ahold als het gaat om goed, transparant,ondernemingsbestuur. Openheid Samuels erkent dat bij goad ondernemingsbestuur ook hoort dat orvolledige openheid komt over de oorzaken van de boekhoudfraude waardoor het concern een half jaaraan de rand van de afgrond stond . "Maar er lopen nog steeds talloze onderzoeken, die moeten weafwachten ." De VEB vindt dat sprake is van wanbeleid omdat de resultaten van enkele buitenlandseaankopen ten onrechte bij de cijfers van Ahold zijn opgeteld . Bij Amerikaanse dochterondememingen(onder andere US Foodservice) warden omzetten in de boeken gezet die nog niet waren gerealiseerd .Ook werden resultaten en vermogen in de periode 1998-2000 overschat . De VEB vindt dat debuitenwereld eerder geinformeerd had kunnen worden over de problemen bij Ahold . Volgens Aholdkost een procedure bij de Ondernemingskamer het concern 75 miljoen euro . De VEB noemt datbedrag zwaar overdreven .
EXHIBIT D
CIA - The World Factbook -- Netherlands
Netherlands
Click to enlarg e
Home Reference Maps Appendixes Print-Friendly Pag e
This page was last updated on 1 November, 200 5
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;"Leeuwarden `GroningenDen
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Hearle i ®AM DAMPThe Wage Utrech t
Cotberdam AamkrernEufo
Nijmegen
Tiurg,GERMANY
1 e e Y'a Eindhoven
BELGIUMMaastricht
Page 1 of 1 2
IntroductionGeographyPeopleGovernmentEconomyCommunicationsTransportationMilitaryTransnational Iss u
Legend : Definition 13 Field Listing [IbRank Orde r
CIA - The World Factbook -- Netherlands Page 2 of 1 2
The Kingdom of the Netherlands was formed in 1815 . In 1830 Belgium secede(and formed a separate kingdom. The Netherlands remained neutral in World WI, but suffered invasion and occupation by Germany in World War II . A modenindustrialized nation, the Netherlands is also a large exporter of agriculturalproducts . The country was a founding member of NATO and the EEC (now theEU), and participated in the introduction of the euro in 1999 .
Geography Netherlands Top of Pag e
Location : [ EDWestern Europe, bordering the North Sea, between Belgium and Germany
Geographic Q;) Mcoordinates :
5230N,545 E
Map references : ( ED
Europe
Area: ( ED U&M
total : 41,526 sq kmland: 33,883 sq kmwater : 7,643 sq km
Area - [, Q EDcomparative:
slightly less than twice the size of New Jerse y
Land boundaries : ( EMtotal . 1,027 kmborder countries: Belgium 450 km, Germany 577 km
Coastline : [ a
451 km
Maritime claims : [ 0
territorial sea : 12 nmexclusive fishing zone : 200 nm
Climate: [ EMtemperate; marine ; cool summers and mild winter s
Terrain: ( Q
mostly coastal lowland and reclaimed land (polders) ; some hills in southeast
Elevationextremes:
lowest point : Zuidplaspolder -7 mhighest point : Vaalserberg 322 m
Natural resources : "3 E----__
natural gas, petroleum, peat, limestone, salt, sand and gravel, arable lan d
water pollution in the form of heavy metals, organic compounds, and nutrientssuch as nitrates and phosphates ; air pollution from vehicles and refiningactivities ; acid rain
Environment - Q;J EMinternationalagreements : party to: Air Pollution, Air Pollution-Nitrogen Oxides, Air Pollution-Persisten t
Organic Pollutants, Air Pollution-Sulfur 85, Air Pollution-Sulfur 94, AirPollution-Volatile Organic Compounds, Antarctic-Environmental Protocol,Antarctic-Marine Living Resources, Antarctic Treaty, Biodiversity, ClimateChange, Climate Change-Kyoto Protocol, Desertification, Endangered Species,Environmental Modification, Hazardous Wastes, Kyoto Protocol, Law of theSea, Marine Dumping, Marine Life Conservation, Ozone Layer Protection, ShilPollution, Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling
permanent crops : 0.97%other : 72.32% (2001 )
5,650 sq km (1998 est .)
Page 3 of 1 2
Geography - note: ( EM
People
located at mouths of three major European rivers (Rhine, Maas or Meuse, andSchelde)
Netherlands Top of Pag e
Population: ( r-;~ E---__ D&
16,407,491 (July 2005 est . )
Age structure: [,I
0-14 years : 18.1% (male 1,523,316/female 1,453,232)15-64 years : 67.8% (male 5,627,007/female 5,491,802 )65 years and over: 14.1% (male 974,037/female 1,338,097) (2005 est . )
Median age : ZQ EM
total : 39.04 yearsmale: 38 .22 year sfemale : 39.9 years (2005 est . )
at birth: 1 .05 male(s)/femaleunder 15 years : 1 .05 male(s)/female15-64 years: 1 .03 male(s)/female65 years and over : 0.73 male(s)/femaletotal population : 0.98 male(s)/female (2005 est . )
Infant mortality Q;J --(M (brate :
total: 5 .04 deaths/ 1,000 live birth smale: 5 .62 deaths/ 1,000 live birthsfemale: 4.44 deaths/1,000 live births (2005 est . )
Life expectancy at ( EM 061birth:
total population : 78 .81 yearsmale: 76.25 yearsfemale : 81 .51 years (2005 est . )
Total fertility rate : EM U&
1 .66 children born/woman (2005 est . )
HIV/AIDS - adult (L; EM Uftprevalence rate :
0.2% (2001 est .)
HIV/AIDS - people ( EM (bliving withHIV/AIDS : 19,000 (2001 est . )
conventional long form: Kingdom of the Netherlandsconventional short form: Netherlandslocal long form : Koninkrijk der Nederlandenlocal short form: Nederland
Government type: EM EM
constitutional monarchy
Capital : CLI (M
Amsterdam ; The Hague is the seat of government
Page 5 of 1 2
Top of Pag e
Administrative ( 0divisions:
12 provinces (provincies, singular - provincie) ; Drenthe, Flevoland, Friesland(Fryslan), Gelderland, Groningen, Limburg, Noord-Brabant, Noord-Holland,Overijssel, Utrecht, Zeeland, Zuid-Hollan d
Dependent areas: Q;) r_-0~--__-
Aruba, Netherlands Antille s
Independence: (M
23 January 1579 (the northern provinces of the Low Countries conclude theUnion of Utrecht breaking with Spain ; it was not until 1648 that Spainrecognized their independence )
National holiday: [ Q
Queen's Day (Birthday of Queen-Mother JULIANA in 1909 and accession to trthrone of her oldest daughter BEATRIX in 1980), 30 Apri l
Constitution :pEM
adopted 1815 ; amended many times, last time 200 2
Legal system: Q;) EM
civil law system incorporating French penal theory ; constitution does not permijudicial review of acts of the States General ; accepts compulsory ICJ jurisdictiowith reservations
Suffrage: EM EM
18 years of age ; universal
Executive branch: Q
chief of state : Queen BEATRIX (since 30 April 1980) ; Heir Apparent WILLEIALEXANDER (born 27 April 1967), son of the monarchhead of government: Prime Minister Jan Peter BALKENENDE (since 22 July2002) and Deputy Prime Ministers Gerrit ZALM (since 27 May 2003) andLaurens Jan BRINKHORST (since 31 March 2005 )cabinet : Council of Ministers appointed by the monarch
CIA - The World Factbook -- Netherlands Page 6 of 12
elections : none; the monarchy is hereditary ; following Second Chamberelections, the leader of the majority party or leader of a majority coalition isusually appointed prime minister by the monarch; vice prime ministers appointsby the monarchnote : there is also a Council of State composed of the monarch, heir apparent,and councilors that provides consultations to the cabinet on legislative andadministrative policy
Legislative branch : (;} EM
bicameral States General or Staten Generaal consists of the First Chamber orEerste Kamer (75 seats; members indirectly elected by the count ry 's 12provincial councils for four-year terms ) and the Second Chamber or TweedeKamer (150 seats ; members directly elected by popular vote to se rve four-yearterms)elections : First Chamber - last held 25 May 2003 (next to be held May 2007) ;Second Chamber - last held 22 January 2003 (next to be held May 2007)election results: First Chamber - percent of vote by party - NA% ; seats by partyCDA 23, PvdA 19, VVD 15, Green Party 5, Socialist Party 4, D66 3, other 6 ;Second Chamber - percent of vote by party - CDA 28.6%, PvdA 27 .3%, VVD12 .9%, Socialist Party 6 .3%, List Pim Fortuyn 5.7%, Green Party 5 .1 %, D664.1%; seats by party - CDA 44, PvdA 42, VVD 28, Socialist Party 9, List PimFortuyn 8 , Green Party 8, D66 6, other 5
Judicial branch: [ EM
Supreme Court or Hoge Raad (justices are nominated for life by the monarch )
Political pa rties [ EMand leaders :
Christian Democratic Appeal or CDA [Maxime Jacques Marcel VERHAGEN] ;Christian Union Party [Andre ROUVOET] ; Democrats 66 or D66 [BorisDITTRICH] ; Green Party [Femke HALSEMA] ; Labor Party or PvdA [WouterBOS] ; List Pim Fortuyn [Gerard van AS] ; People's Party for Freedom andDemocracy (Liberal) or VVD [Jozias VAN AARTSEN ] ; Socialist Party [JanMARIJNISSEN ] ; plus a few minor part ie s
Political pressure [groups and
leaders : Netherlands Trade Union Federation (FNV) (consisting of a merger of Socialistand Catholic trade unions) ; Christian Trade Union Federation (CNV) ; TradeUnion Federation of Middle and High Personnel (MHP) ; Federation of Catholicand Protestant Employers Associations ; Interchurch Peace Council or IKV ; lar€multinational firms; the nondenominational Federation of NetherlandsEnterprises
Internationalorganization
participation : AfDB, AsDB , Australia Group , Benelux , BIS, CE, CERN, EAPC, EBRD, EIB ,EMU, ESA, EU, FAO, G-10, IADB, IAEA, IBRD , ICAO, ICC, ICCt, ICFTU,ICRM, IDA, IEA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO , Interpol, IOC,IOM, ISO , ITU, MIGA, NAM (guest), NATO, NEA, NSG, OAS (obse rver),OECD, ONUB, OPCW, OSCE, Paris Club , PCA, UN, UNCTAD, UNESCO,UNHCR, UNIDO, UNITAR, UNTSO, UPU, WCL, WCO, WEU, WHO, WIP(WMO, WToO, WTO, ZC
CIA - The World Factbook -- Netherlands Page 7of1 2
Diplomatic EMrepresentation in
the US : chief ofmission : Ambassador Boudewijn J . VAN EENENNAAMchancery : 4200 Linnean Avenue NW, Washington, DC 20008telephone : [1] (202) 244-5300FAX.- [1] (202) 362-343 0consulate(s) general: Chicago, Houston, Los Angeles, Miami, New Yorkconsulate(s) : Boston
Diplomaticrepresentation
from the US : chief ofmission: Ambassador Clifford M. SOBELembassy : Lange Voorhout 102, 2514 EJ, The Haguemailing address : PSC 71, Box 1000, APO AE 09715telephone : [31] (70) 310-9209FAX: [31] (70) 361-4688consulate(s) general : Amsterdam
Flag description : Q;j r[----__
three equal horizontal bands of red (top), white , and blue ; similar to the flag ofLuxembourg , which uses a lighter blue and is longer ; one of the oldest flags inconstant use, originating with WILLIAM I, Prince of Orange, in the latter half cthe 16th century
Economy Netherlands Top of Page
Economy - LL) EMoverview :
The Netherlands has a prosperous and open economy, which depends heavily oforeign trade. The economy is noted for stable industrial relations, moderat eunemployment and inflation, a sizable current account surplus, and an importa nrole as a European transportation hub. Industrial activity is predominantly in fo lprocessing, chemicals, petroleum refining, and electrical machinery . A highl ymechanized agricultural sector employs no more than 4% of the labor force bu tprovides large surpluses for the food-processing industry and for exports . TheNetherlands, along with 11 of its EU partners, began circulating the eur ocurrency on 1 January 2002 . The country continues to be one of the leadin gEuropean nations for attracting foreign direct investment . Economic growthslowed considerably in 2001-04, as part of the global economic slowdown, bu tfor the four years before that, annual growth averaged nearly 4%, well above thEU average .
CIA - The World Factbook -- Netherlands Page 10 of 1 2
machinery and transport equipment, chemicals, fuels ; foodstuffs, clothing
Imports - partners : (;} EM
Germany 17 .9%, Belgium 9 .9%, US 7.9%, China 7 .4%, UK 6.4%, France 4 .8°/(2004)
Reserves of (Mforeign exchange
and gold : $21 .44 billion (2003)
Economic aid - Q;J EMdonor :
ODA, $4 billion (2003 est . )
Currency (code) : [Z) EM
euro (EUR)note: on 1 January 1999, the European Monetary Union introduced the euro as ;common currency to be used by financial institutions of member countries ; on lJanuary 2002, the euro became the sole currency for everyday transactions withthe member countries
Exchange rates : [ EM
euros per US dollar - 0.8054 (2004), 0 .886 (2003), 1 .0626 (2002), 1 .1175 (200 11 .0854 (2000)
Fiscal year: (j Q
calendar year
Communications Netherlands Top of Pag e
Telephones - main Lj~j (M oftlines in use :
10.004 million (2002)
Telephones - („ } Qmobile cellular :
12 .5 million (2003 )
Telephone system : Lg) ~---__~
general assessment: highly developed and well maintaine ddomestic : extensive fixed-line fiber-optic network ; cellular telephone system i sone of the largest in Europe with five major network operators utilizing the thir lgeneration of the Global System for Mobile Communications (GSM )international: country code - 31 ; 9 submarine cables; satellite earth stations - 3Intelsat (1 Indian Ocean and 2 Atlantic Ocean), 1 Eutelsat, and 1 Inmarsa t(Atlantic and Indian Ocean regions) (2004 )
CIA - The World Factbook -- Netherlands Page 12 of 12
Heliports: ( EM
1 (2004 est . )
Military Netherlands Top of Pag e
Milita ry branches: ( EM
Royal Netherlands Army, Royal Netherlands Navy (includes Naval Air Serviceand Marine Corps), Royal Netherlands Air Force (Koninklijke Luchtmacht,KLu), Royal Constabulary, Defense Interservice Command (DICO) (2004)
Military service age Q;J (Mand obligation :
20 years of age for an all-volunteer force (2004)
Manpowe ravailable for
military se rv ice : males age 20-49: 3,557,918 (2005 est .)
Manpower fit for ( EMmilitary se rv ice :
males age 20-49: 2,856,691 (2005 est .)
Manpower LZ) EMreaching military
serv ice age males: 99,934 (2005 est .)annually :
Military ( (a [kbexpenditures -
dollar figure : $9.408 billion (2004)
Military Ulmexpenditures -
percent of GDP: 1 .6% (2004)
Transnational NetherlandsIssues
Disputes -international :
none
Illicit drugs: [J D
Top of Pag e
major European producer of ecstasy, illicit amphetamines, and other syntheticdrugs; important gateway for cocaine, heroin, and hashish entering Europe ; majsource of US-bound ecstasy ; large financial sector vulnerable to mone ylaunderin g
IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF MARYLAND
NORTHERN DIVISION
IN RE ROYAL AHOLD SECURITIES ) 03-MD-1539-CCBAND "ERISA" LITIGATION ) RELATED TO ALL
SECURITIES ACTIONS
MEMORANDUM OF LAW OF ROYAL AHOLD N .V.,U.S. FOODSERVICE, INC., AHOLD U.S.A., INC. AND
AHOLD U.S.A. HOLDINGS, INC. IN SUPPORT OF THEIRMOTION TO DISMISS CERTAIN DEFENDANTS AND COUNTS
AND TO STRIKE CERTAIN ALLEGATIONS OF THE COMPLAIN T
Glenn M . KurtzCyrus Benson IIIDouglas P. BaumsteinJoseph B. SchmitWHITE & CASE LLP1155 Avenue of the AmericasNew York, New York 10036(212) 819-8200(212) 354-8113 (fax)
G. Stewart Webb Jr.Andrew GendronVENABLE LLP1800 Mercantile Bank & Trust Building2 Hopkins PlazaBaltimore , Maryland 21202(410) 244-7400(410) 244-7742 (fax)
Attorneys for Defendants Royal Ahold N .V., U.S . Foodservice, Inc.,Ahold U.S.A., Inc. and Ahold U . S.A. Holdings, Inc .
ARGUMENT
I.
THE COURT DOES NOT HAVE SUBJECT MATTER JURISDICTIONOVER THE CLAIMS OF FOREIGN PLAINTIFFS THA T
PURCHASED AHOLD SECURITIES ON FOREIGN EXCHANGES
Plaintiffs have an affirmative duty to establish subject matter jurisdiction . See.
Cmty. of Cambridge Envtl . Health & Cmty Dev . Group, 115 F . Supp. 2d at 553. With respect to
the claims by foreign purchasers of foreign securities, Plaintiff cannot meet this burden . As
addressed below, Lead Plaintiffs and other Plaintiffs have conceded that this Court's subject
matter jurisdiction does not extend to cover the claims of foreign purchasers of foreign securities,
and this Court has recognized that such purchasers "are subject to a significant jurisdictional
defense." (Memorandum Opinion, 03-MD-1539-CCB, Nov. 4, 2003 at 10)
A. The Exchange Act Does Not Provide for SubjectMatter Jurisdiction With Respect to the Claims ofForeign Purchases of Ahold Securities on Foreign Exchanges
"It is a longstanding principal of American law `that legislation of Congress, unless a
contrary intent appears, is meant to apply only within the territorial jurisdiction of the United
States."' EEOC v . Arabian Am. Oil Co. , 499 U.S. 244,248 (1991) (quoting Foley Bros . . Inc . v .
Filardo, 336 U.S. 281, 285 (1949)). The Supreme Court instructs courts to "assume that
Congress legislates against the backdrop of the presumption against extraterritoriality .
Therefore, unless there is ` the affirmative intention of the Congress clearly expressed. ' we must
presume it `is primarily concerned with domestic conditions ."' EEOC. 499 U.S. at 248 .
(quoting Benz v. Com ania Naviera Hidalgo, S.A., 353 U.S. 138, 147 (1957) and Foley Bros . .
Inc., 336 U.S . at 285 (internal citations omitted, emphasis added)) ; see also Reyes-Gaon v.
That is the inference to be drawn from section 30(b) as well, for itstates that the statute does not apply to persons transactingbusinesses in securities abroad unless the Securities and ExchangeCommission issues rules and regulations making the statuteapplicable to such person because that is `necessary or appropriateto prevent the evasion' of the statute . That rather clearly impliesthat Congress was concerned with extraterritorial transactions only
2 To the contrary, the one portion of the Exchange Act that discusses foreign securitiestransactions, Section 30(b), states that the Exchange Act "shall not apply to any person insofar ashe transacts a business in securities without the jurisdiction of the United States, unless hetransacts such business in contravention of such rules and regulations as the Commission mayprescribe as necessary or appropriate to prevent the evasion of this chapter ." 15 U.S.C. §78dd(b) (emphasis added). The SEC has never adopted any such rules or regulations .
NEWYORK 3439539 (2K) 1 1
if they were part of a plan to harm American investors or markets .The Commission has never issued such rules or regulations andthere is no allegation in this case that [defendant 's] conduct wasengaged in to evade American law.
Zoelsch, 824 F.2d at 31-32 (emphasis added) .3 Likewise, as the Fifth Circuit has stated, "[w]hat
little guidance we can glean from the securities statutes indicates that they are designed to protec t
American investors and markets, as opposed to the victims of any fraud that somehow touche s
the United States ." Robinson v. TCI/U.S. West Communications. Inc . . 117 F.3d 900,906 (5th
Cir. 1997) (but adopting Second Circuit tests for determining if extraterritorial jurisdiction
exists) .
The Fourth Circuit has not ruled on the issue of subject matter jurisdiction over forei gn
parties that purchased securities on forei gn markets and, respectfully , this Court should part
company with those courts that have addressed the issue and extended jurisdiction . Denial of
jurisdiction here would be consistent with the Fourth Circuit's strong reluctance to extend th e
jurisdiction of the district courts absent an appropriate statutory grant of authority . See, g,
Reyes-Gaona, 250 F.3d 861 (refusing to apply the ADEA extraterritorially and upholding
dismissal of claims brought by Mexican national challenging the hiring in Mexico of only
workers under age forty for seasonal jobs in the United States .) ; Chau V. Mobil Oil Corp.,
186 F .3d 502 (4th Cir. 1999) (refusing to apply the ADEA or Title VII extraterritorially and
upholding dismissal of claims for retaliation and termination brought by Canadian nationa l
against American employer for worked performed abroad) . It is for Congress, not the courts, to
extend the reach of the securities laws .
3 Although the Zoelsch court expressed "doubt that an American court should ever assertjurisdiction over domestic conduct that causes loss to foreign investors," it ultimately decided toadopt existing Second Circuit authority allowing for extraterritorial jurisdiction under certaincircumstances . 824 F.2d at 32
NEWYORR 3439539 (2K) 12
B. Even Under the Judicially Created Tests,There Is No Subject-Matter Jurisdiction WithRespect to the Claims of Foreign Purchasersof Ahold Securities on Foreign Exchange
Notwithstanding the absence of explicit statutory authority to extend jurisdiction over the
claims of foreign plaintiffs that purchased securities on foreign exchanges, several courts have ,
candidly , created one. See, eg., Kauthar SDN BHD v . Sternberg . 149 F .3d 659, 664 (7th Cir.
1998) ("some courts have admitted candidly that, in fashioning an approach to the issue o f
extraterritorial application of the securities laws, policy considerations and the courts' best
judgment have been used to determine the reach of the federal securities laws .") ; Cont'l Grain
423 U.S. 1018 (1975) ("Our conclusions rest on . . . our best judgment as to what Congres s
would have wished if these problems occurred to it .") .
The judicially created tests used to determine if a court has subject matter jurisdiction for
predominantly foreign claims are referred to as the "effects test" and the "conduct test ." A
mechanical application of the effects test and conduct test is not always appropriate, and it i s
more important to focus on "the policy considerations that led to the extraterritorial application
of these laws in the first place - protecting or punishing U .S.-parties and markets ." Interbrew
S.A. v. Edperbrascan Corp., 23 F . Supp. 2d 425, 429 (S .D.N.Y. 1998). Application of these test s
NEWYORK 3439339 (2K) 13
and a review of the policy considerations shows that there is no good reason to expand this
Court's jurisdiction to address the claims of foreign purchasers of foreign securities that are the
subject of foreign proceedings .
1. Plaintiffs Do Not Satisfy the Effects Test
Under the effects test, a court must evaluate whether the fraudulent conduct "impacts on
`stock registered and listed on [an American] national securities exchange and [is] detrimental t o
the interests of American investors."' Cromer Finance Ltd . v. Beler , 137 F. Supp. 2d 452, 479-
80 (S.D.N.Y. 2001). The primary focus of the effects test is on investors in the United States,
American investors abroad and securities traded on United States exchanges . Europe and
Overseas Commodity Traders, S .A. v . Banque Paribas London, 147 F.3d 118 , 128 & n.12 (2d
Cir. 1998) ; Lobatto v . Berney, No.98 CIV.1984(SWK), 1999 WL 672994, at *2 (S .D.N.Y. Aug.
26, 1999) . Subject matter jurisdiction exists under the effects test only where illegal activity
abroad causes a "substantial effect" within the United States . Koal Indus . Corp . v. Asland, S .A.,
808 F. Supp . 1143, 1155 (S .D.N.Y. 1992) (citation omitted) .
Here, there has been no effect within the United States resulting from the purchase of
foreign securities by foreign plaintiffs . The claims by foreign plaintiffs purchasing foreign
securities are distinct from any effect on the United States market. Europe and Overseas
Commodity Traders , 147 F.3d at 128 (finding effects indiscernible because of foreign plaintiffs
and foreign securities); IIT v . VencaQ, Ltd ., 519 F.2d 1001, 1017 (2d Cir . 1975) (holding that
effects test is not satisfied where fraud concerns foreign investors in foreign securities) . The
generalized effects of a fraudulent transaction, such as that on the American economy as a
whole, are insufficient. Bersch, 519 F .2d at 989 (subject matter jurisdiction over fraudulent acts,
relating to securities, which are committed abroad exists "only when these result in injury to
purchasers or sellers of those securities in whom the United States has an interest, not where act s
NHWYORK 3439339 (2K) 14
simply have an adverse affect on the American economy or American investors generally") ;
Koal Indus. Corp., 808 F. Supp. at 1155 ("[A]ny detrimental effects must relate to purchasers or
sellers in the United States and involve the same securities that are the subject of the alleged
fraud.").
Indeed, Lead Plaintiffs concede that the effects test cannot be met :
The Foreign Funds' failure to even attempt to satisfy the "effectstest" is not surprising as "[t]he effects test only extends jurisdictionas to those American plaintiffs who are affected ." In re Baan, 103F. Supp. 2d 1, 11 (D .D.C. 2000) (citing Bersch, 519 F.2d at 988-89) (where court did not have subject matter jurisdiction overclaims of foreign purchasers of foreign securities on a foreignexchange); see also Tri-Star Farms Ltd . v. Marconi, PLC, 225 F.Supp. 2d 567, 573 n .7 (W.D. Pa. 2002) (foreign purchasers offoreign company's shares on foreign exchange "cannot bootstraptheir losses to these independent American losses to justifyjurisdiction under an effects theory"); In re Northern Telecom Ltd.Sec. Litig., 116 F. Supp. 2d [446,] 450 [(S .D.N.Y. 2000)] (wherecourt excluded from class foreign subjects or citizens whopurchased securities outside the United States) .
(See Kurtz Decl . Ex. 3 (Memorandum of Law of The Public Employees' Retirement Association
of Colorado and Generic Trading of Philadelphia, LLC in Further Support of Their Motion for
Appointment As Lead Plaintiffs, For Selection of Lead Counsel and in Opposition to Other Lead
Plaintiff Applications, ("Copera/Generic Trading Memo in Further Support"), July 16, 2003, p .
24) Thus, where, as here with the foreign purchasers of Ahold shares, there is no transaction o n
an American exchange and no detrimental effect on domestic investors, the effects test cannot be
satisfied . See Nathan Gordon Trust v. Northgate Exploration. Ltd. . 148 F .R.D. 105, 108
(S.D.N.Y. 1993) (limiting class to those who purchased stock on NYSE, and dismissing those
who purchased on foreign stock exchanges ) ; IIT• 519 F.2d at 1017 ("[W]e cannot believe that
Congress would have intended the anti-fraud provisions of the securities laws to apply i f
NEWYORK 3439539 (2K) 15
[defendant], in London, had defrauded a British investment trust by selling foreign securities to i t
simply because half of one per cent of its assets was held by Americans .") .
2. Plaintiffs Do Not Satisfy the Conduct Test
Under the conduct test, a federal court has subject matter jurisdiction "if (1) the
defendant's activities in the United States were more than `merely preparatory' to a securities
fraud conducted elsewhere, and (2) these activities or culpable failures to act within the Unite d
States `directly caused ' the claimed losses." Itoba, 54 F.3d at 122 (emphasis added) (internal
citations omitted) ; see also Europe and Overseas Commodity Traders, 147 F .3d at 128-129
(same). The focus of the conduct test is to prevent the United States from being "used as a base
for manufacturing fraudulent security devices for export, even when these are peddled only to
foreigners ." Cromer, 137 F. Supp. 2d at 480 (quoting Itoba, 54 F.3d at 122) . Even where the
conduct test appears fully satisfied, "some additional factor tipping the scales in favor of . . .
jurisdiction" may be required where the connection of the alleged fraud to the United States i s
tenuous . Europe and Overseas Commodity Traders, 147 F.3d at 129 , 130-131 (holding that even
though "the most important piece of the alleged fraud - reliance on a misrepresentation - ma y
have taken place" in the United States, exercise of jurisdiction was still unreasonable ove r
essentially foreign securities transaction between foreigners) .
Plaintiffs allege misconduct in connection with a number of jurisdictions, includin g
Argentina, Brazil, Scandinavia, Portugal, Central America, the Netherlands and the Unite d
States . In a federal securities law claim, however, the fraud is the material omission or
misstatement . $ Zoelsch , 824 F .2d at 33-35 ("[J]urisdiction is appropriate when the fraudulent
statements or misrepresentations originate in the United States . . . . [H]ere, the prospectuses for
the securities offerings were distributed exclusively outside the United States ."); Bersch , 519
F.2d at 987 ("The fraud, if there was one, was committed by placing the allegedly false an d
NEWYORK 3439339 (2K) 16
misleading prospectus in the purchasers' hands . Here the final prospectus emanated from a
foreign source ."). Here, the statements at issue - press releases, conference calls and financial
reporting - were all made from the Netherlands . The conduct at issue in the United States and
other jurisdictions did not become actionable under the securities laws until Ahold, from its
Dutch headquarters, made such disclosures . Thus, actions alleged in the United States were
preparatory insofar as applied to foreign purchases and they did not directly cause the foreign
losses a Accordingly, as some Plaintiffs concede, "Plaintiffs have not adequately alleged
jurisdiction under the conduct test." (Kurtz Decl . Ex. 4 (CentralStates/ SBA Memo in Further
Support) at 30 ; see also Kurtz Decl . Ex. 3 (Copera/Generic Trading Memo in Further Support),
at 24-25) (same))
The Second Circuit's decision in Bersch is instructive . There, the court found that "(alt
most the acts in the United States helped to make the gun whence the bullet was fired from
places abroad" and, therefore, it could not exercise jurisdiction over the foreign plaintiffs' claims
based upon the United States conduct in question because such conduct was "merely
preparatory" to the overall fraudulent scheme. Bersch. 519 F.2d at 987. As was true in Bersch .
in the present case the allegedly fraudulent misconduct that occurred in the United States was, in
Lead Plaintiffs' words, "nothing more or less than one step in the cooperative manufacture of the
[alleged] `gun."' (Kurtz Decl ., Ex. 3 (Copera/Generic Trading Memo in Further Support) at 25-
26) Lead Plaintiffs, however, note that it was activity in jurisdictions throughout the world tha t
4 Ahold's filing of reports with the SEC does not confer this Court with jurisdiction over theclaims of foreign purchasers of Ahold common stock . See Nathan Gordon Trust 148 F.R.D. at108 ("The court rules that the relevant `conduct' in the present case occurred in Canada wherethe alleged misleading information was authored . The mere filing of reports with the SEC andthe dissemination of some materials to shareholders in the United States were merely incidentalto the authorship, preparation and dissemination of the allegedly false information, all of whichoccurred in Canada .") .
NEWYORK 3439539 (2K) 17
contributed to the alleged cooperative manufacture of the alleged "gun," but that "[t]h e
misconduct `directly causing ' the claims against Ahold - that is the [allegedly] actionable
misstatements and omissions (i .e ., the `firing' of the gun) - occurred when press releases and
financial statements were issued by Ahold in the Netherlands ." Id .
The decision of the Southern District ofNew York in Froese v . Staff, No.02 CV
5774(RO), 2003 WL 21523979 (S.D.N.Y. July 7, 2003) is on point. In Froese, foreign plaintiffs
asserted securities law claims against Hugo Boss, a German clothing manufacturer, and certain
of the executives at its wholly-owned U.S. subsidiary for misstating their financial statements.
Plaintiffs claimed that Hugo Boss's wholly-owned U .S. subsidiary was "channel stuffing," - " a
practice by which revenues were overstated by including amounts for products that the company
delivered to and endeavored to force their retail network to accept despite no demand, with
perhaps secret assurances that the goods, if unsold, could be returned ." Id. at * 1 . As a result of
the U.S . subsidiary' s conduct, plaintiffs alleged that the parent ' s financial statements and public
announcements, issued from Germany, were materially misleading and that the actions taken by
the U.S . subsidiary were sufficient to satisfy the conduct test . The court disagreed, holding :
The plaintiffs argue that this test has been met because theunderlying accounting problems that lead HBAG to overstate itsearnings occurred in the United States . I find, however, that thefraud itself occurred, if at all, when the allegedly fraudulentstatements were conceived, engineered, and published in Germany .It is these misstatements and not any activity which lead to thealleged misrepresentations which "directly caused" the financiallosses .
Id. at *2 . Likewise, the United States conduct alleged here, involving accounting issues at U .S .
Foodservice , did not "directly cause" Plaintiffs ' claimed injury . Rather, the alleged injury, if
any, resulted from the dissemination of information from the Netherlands . Indeed, some
Plaintiffs characterize Froese as "strikingly similar" and concede that this Court could "find tha t
NEWYORK 3439539 (2K) 18
any fraud that occurred when the allegedly fraudulent statements were conceived, engineered ,
and published at . . . Ahold's corporate headquarters, in the Netherlands, and dismiss the claims
of foreign purchasers for lack of subject-matter jurisdiction notwithstanding the presence of U .S .
Foodservice in the United States." (Kurtz Decl . Ex. 4 (CentralStates/ SBA Memo in Further
Support) at 29 (citing Froese, Tri-Star Farms and Baan as "directly on point," and examples o f
cases where defendants "asserted a lack of subject matter jurisdiction . . . . and prevailed"))
The policy reasons suggested for extending ju risdiction to cover the claims of foreign
purchasers of stock on foreign exchanges - "protecting or punishing U .S. parties and markets"
Interbrew, 23 F . Supp. 2d at 429) and preventing the United States from becoming a "Barbar y
Coast" for securities fraud (Tri-Star Farms. 225 F . Supp . 2d at 575) - are inapplicable to the
foreign purchasers of Ahold securities on the Euronext . The SEC and Department of Justice
have commenced investigations with the purpose of "protecting and punishing U .S. Parties and
Markets," to the extent justified . Additionally, Ahold concedes that this Court has subject matter
jurisdiction over the claims of U .S. purchasers of Ahold common stock and ADRs and foreign
purchasers of ADRs. Thus, Ahold is subject to c riminal , regulatory and civil investigations and
lawsuits in the United States. The purposes of the securities laws are achieved without regard to
whether foreign Plaintiffs that purchased Ahold shares on foreign markets are included in thi s
action .
Additionally, there are serious concerns raised by the extraterritorial application of th e
securities laws . As Judge Friendly noted in Bersch. applying the securities laws to foreign
purchasers of foreign securities raises "delicate questions of foreign relations law . . . as well as
the problem of judgment recognition ." Bersch. 519 F. 2d at 989 n.35. The Dutch Public
Prosecutor, the Dutch Authority for Financial Markets and the Euronext are investigating Ahold .
NEWYORK 3439539 (2K) 19
Also, Ahold is currently litigating a case against the VEB, a Dutch shareholder group, in the
Dutch courts . Thus, as Judge Friendly observed, the "United States may be asserting jurisdiction
in order to apply its laws to activities that more properly are the subject of regulation by othe r
sovereign states, and which currently are the subject of litigation there." Id. Moreover, if a
foreign court chooses not to recognize the preclusive effect of th e litigation here, Ahold coul d
face inconsistent judgments and this Court could expend precious judicial resources only to hav e
its judgment rendered nugatory .
Under these circumstances, and absent a clear statutory grant to the contrary, this Cour t
should not extend jurisdiction to a class of foreign plaintiffs, purchasers on foreign exchanges ,
who are seeking redress in foreign jurisdictions .
H.
PLAINTIFFS' CLAIMS BASED ON EVENTSOCCURRING BEFORE JULY 30, 1999 ARE TIME -BARRED
Prior to the adoption of the Public Company Accounting Reform and Investor Protec tion
Act of 2002 ("Sarbanes-Oxley" or the "Act"), Pub. L. No. 107-204 § 804(a), 116 Stat. 745, 801
(2002), the Exchange Act contained a limitation period of the shorter of three years from the date
of the alleged securities law violation or one year from the discovery of the alleged fraud .
Lampf. Pleva. Lipkin, Prupis & Petigrow v. Gilbertson . 501 U.S. 350 (1991).
On July 30, 2002, President Bush signed Sarbanes-Oxley into law. The Act extended the
limitations period for commencing claims for fraud under the securities laws to the earlier of two
years after discovery of the alleged fraud or five years after the alleged violation .' The Act
5 Section 804(a) of the Act provides in relevant part :
[A] private right of action that involves a claims of fraud, deceit, manipulation, orcontrivance in contravention of a regulatory requirement concerning the securities
NEWYORK 3439539 (2K) 20
EXHIBIT F
IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF MARYLAND
NORTHERN DIVISION
IN RE ROYAL AHOLD SECURITIES ) 03-MD-1539-CCBAND "ERISA" LITIGATION ) RELATED TO ALL
SECURITIES ACTION S
REPLY MEMORANDUM OF LAW OF ROYAL AHOLD N.Y.,U.S. FOODSERVICE, INC ., AHOLD U.S.A., INC. AND
AHOLD U.S.A. HOLDINGS, INC. IN FURTHER SUPPORT OFTHEIR MOTION TO DISMISS CERTAIN DEFENDANTS AND
COUNTS AND TO STRIKE CERTAIN ALLEGATIONS OF THE COMPLAINT
Glenn M. KurtzCyrus Benson IIIDouglas P. BaumsteinWHITE & CASE LLP1155 Avenue of the AmericasNew York, New York 10036(212) 819-820 0(212) 354-8113 (fax)
G. Stewart Webb Jr.Andrew GendronVENABLE LLP1800 Mercantile Bank & Trust Building2 Hopkins PlazaBaltimore, Maryland 21202(410) 244-7400(410) 244-7742 (fax)
Attorneys for Defendants Royal Ahold N.V., U.S. Foodservice, Inc.,Ahold U.S.A., Inc. and Ahold U.S.A. Holdings, Inc.
must be based on intentional misconduct, and not on the scope of corporate responsibility. See infra pp.
14-16.
Plaintiffs do not contest that they did not adequately plead scienter with respect to Tops and
Giant-Carlisle ; accordingly, those allegations should be stricken . See infra p. 17. The allegations
concerning Disco also should be stricken. Plaintiffs cannot satisfy scienter or materiality with respect t o
Disco. The allegedly fictitious invoices involved an overstatement of only a few hundred thousand
dollars, a mere 0 .00036% of Ahold's net sales from 1999-2002 . See infra pp. 17-18. Likewise,
Plaintiffs' allegations concerning soft statements positively characterizing Ahold's skills are not
actionable under settled Fourth Circuit authority . See infra pp. 18-20 . Eliminating from this case
allegations that are not actionable will help to reduce the enormous complexity, magnitude and cost of
discovery .
Plaintiffs do not allege that they purchased any shares in the September 2001 Global Offering .
Corporate Defendants respectfully submit that this Court should hold that aftermarket purchasers of
stock lack standing to sue under Section 11 of the Exchange Act . See infra pp. 20-22. Plaintiffs also
fail to state a claim under Section 12 of the Securities Act because the September 2001 Global Offering
was a firm commitment underwriting and, consequently, Ahold did not directly sell any securities .
Moreover, Plaintiffs cannot establish that Ahold is a seller; any participation in the drafting of the
prospectus and the making of press releases about the acquisition fall well short of the actual, direct or
targeted solicitation required to convert an issuer to a seller. She infra pp. 22-24 .
ARGUMENT
I.
THERE IS NO SUBJECT MATTER JURISDICTION OVER THE CLAIMSOF FOREIGN PLAINTIFFS THAT PURCHASED AIIOLD SECURITIES
ON FOREIGN EXCHANGES
Plaintiffs' repeated assertion that all investors were harmed so all investors can recover damages
misses the issue entirely. (Opp. at 3,4, 14) As certain of the Plaintiffs have admitted, there is no subject
matter jurisdiction over foreign investors purchasing on foreign markets . (Ahold Br. 15, 18) This Court
2VPWVn,v e1 Irrov ror'.
chose not to select just such an investor as lead plaintiff, notwithstanding that it had the largest claim,
based in large part on the "significant jurisdictional defense" to which it would be subject . In re Royal
Ahold N.V. Sec. and ERISA Litig ., 219 F.R.D. 343, 351 (D .Md. 2003) .
Plaintiffs cannot now disclaim their p rior representations to the Court about the jurisdictional
problem in this case on the basis that "the lead plaintiff selection process is carried out with a different
purpose, different standard and different focus ." (Opp. at 14 n. 10) The law does not change depending
upon whether Plaintiffs are describing it for purposes of appointment (identifying the jurisdictional
defense) or on a motion to dismiss (actually responding to the defense) .
Likewise, Plaintiffs' assertion that the lead plaintiff motions were heard at "a much earlier stage
of the litigation" and before the material facts were disclosed is wrong. (Opp. at 14, n. 10) The lead
plaintiff motion was heard on September 26, 2003, by which time Ahold had disclosed the full extent of
the overstatement and consolidation issues . Thus, Plaintiffs do not identify a single fact subsequently
learned.
A. The Supreme Court 's Decision In F. Hoffman-La Roche v. EmnaaranDemonstrates That There Is No Subject Matter Jurisdiction
Plaintiffs misinterpret Hoffman-La Roche, which raises considerable doubt as to the viability of
the judicially created "conduct test ." In Hoffman-La Roche. the issue was whether the district court had
subject matter jurisdiction under the Foreign Trade Antitrust Improvements Act of 1982 ("FTAIA")
over the claims of foreign entities that alleged antitrust injury as a result of a global price-fixing
conspiracy. Id. at 2366. Similar to this case , the conduct involved acts in the U.S. and the plaintiffs
were domestic and foreign . Id. at 2367 ("some of the anticompetitive price-fixing conduct alleged here
took place in America") (emphasis in original) ; see also Supp. Kurtz Decl ., Ex. 1 (Plaintiffs-
Respondents' Brief at 36 ("Petitioners' activities in the U .S. are thus the direct cause of respondents'
injuries ."). The Supreme Court held that U .S. courts do not have subject matter jurisdiction over the
claims of foreign entities that transacted in foreign markets with respect to an antitrust conspiracy
perpetrated in the U .S. and abroad. Thus, Plaintiff's assertion that Hoffman-La Roche extends the
3NEWYORK 411279$ (2R)
jurisdictional reach of the U.S . courts (Opp . at 13) is both puzzling and incorrect in light of the Court's
refusal to extend jurisdiction to foreign plaintiffs 3
In rejecting an interpretation of the FTAIA that would allow extraterritorial application of the
antitrust laws, the Supreme Court relied on two main rationales : "First, [the] Court ordinarily construes
ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations,"
and "Second, the FTAIA's language and history suggest that Congress designed the FTAIA to clarify,
perhaps to limit, but not to expand in any significant way, the Sherman Act's scope as applied to foreign
commerce." Id. at 2366 and 2369 (emphasis in original) . The Supreme Court has not addressed the
extraterritorial application of the Exchange Act, but the bases for the Court's decision in Hoffman-La
Roche apply equally thereto.
First, the Exchange Act is silent as to its extraterritorial application . As noted in Defendants '
moving brief, several courts have used the ambiguity created by congressional silence as an invitation to
"fill the void" by extending the application of the securities laws to cover injuries sustained by
foreigners with respect to purchases on foreign exchanges . (Ahold Br. 13) Such judicial expansion of
jurisdiction, however, runs contrary to the Court's holding in Hoffman-La Roche that any ambiguity be
interpreted "to avoid unreasonable interference with the sovereign authority of other nations ." Hoffman-
La Roche at 2366. As the Supreme Court reasoned:
This rule of statutory construction cautions courts to assume that legislators take accountof the legitimate sovereign interests of other nations when they write American laws. Itthereby helps the potentially conflicting laws of different nations work together inharmony--a harmony particularly needed in today's highly interdependent commercialworld. Id.
3 Plaintiffs ' further argument that the so-ca lled "detainee" cases, Hamdi v. Rumsfel 124 S. Ct. 2633(2004), Rumsfeld v. Padilla, 124 S.Ct. 2711 (2004) and Rasul v. Bush, 124 S .Ct. 2686 (2004), representa "trend toward extending access to United States courts to persons affected by United States conduct"(Opp. at 12-13) is meritless. Plaintiffs cannot legitimately equate access to the U . S. courts afforded bythe constitution to U.S . and foreign citizens imprisoned by the U.S. government and having no access toany judicial forum to a purported right of foreign civil plaintiffs (who are subject to the laws of theirown countries and have access to courts around the world) to sue under the U.S. securities laws.
47JPWVOPV Al I 17M PoY\
The Court noted that it is reasonable to apply antitrust laws to foreign conduct "insofar as they reflect a
legislative effort to redress domestic antitrust injury that foreign anticompetitive conduct has caused,"
adopting an effects test . Id. (emphasis in original) . As to harm to foreign plaintiffs, however, the Court
posed the rhetorical question : "Why should American law supplant, for example, Canada's or Great
Britain's or Japan's own determination about how best to protect Canadian or British or Japanese
customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese
or other foreign companies?" Id. at 2367. Here too, American securities law should not supplant the
Netherlands' determination of how to protect Dutch and foreign investors with respect to the alleged
securities fraud of a Dutch company listed on a Dutch exchange .
As the Netherlands (the United Kingdom and Ireland) stated in an amicus curiae brief in
Hoffman-La Roche. which appeared strongly to influence the Court (see id . at 2368) :
[We] are opposed to assertions of extraterritorial jurisdiction in private antitrust caseswhere foreign claimants seek to recover from foreign defendants solely for foreigninjuries not incurred in the country in which the private suit is filed. Such litigationcontravenes basic principles of international law and may impede trade and investment aswell as undermine public enforcement by the Governments of their competition laws . Italso would interfere with a sovereign nation's right to regulate conduct within itsterritory .
(Supp. Kurtz Decl., Ex. 2 at 2) Those nations noted that a contrary result would encourage a panoply of
ill effects, including: "widespread forum shopping;" potentially "imped[ing] competition law
enforcement programs [in other nations and the European Union] ;" "undermin[ing] respect for national
sovereignty;" potentially "generating needless friction between foreign and United States legal systems
[which] could lead to less, not more cooperation and coordination of competition laws by all nations ;"
and expanding the extraterritorial reach of the United States antitrust laws beyond the Court's and "to
our knowledge, any foreign court's exercise of jurisdiction ." Id. at 6. Additionally, the governments
of Germany and Belgium noted in an amicus curiae brief that "[o]ne consequence of foreign disapproval
with U.S. encroachments on other nation-states' antitrust efforts will be a refusal to enforce judgments
obtained in U.S. lawsuits." (Supp. Kurtz Decl. Ex. 3 at 26)
5NEWYORK 4112791 l7Kl
The concerns raised by foreign governments apply equally with respect to the extraterritorial
application of the securities laws, a similar statute governing commercial activity . The concerns driving
the Supreme Court's holding are especially applicable here given that the Dutch Authorities have
actively enforced Dutch laws, as demonstrated by the investigations of Ahold by the Dutch Public
Prosecutor, the Dutch Authority for Financial Markets and the Euronext. Additionally, Ahold is
litigating a case against the VEB, a Dutch shareholder group, in the Dutch courts, a proceeding in which
Lead Plaintiff has joined. The fact that other nations may have different laws regulating securities
transactions reflects decisions by foreign nations as to the regulatory schemes that best promote the
interests of their citizens. As the Supreme Court found, Congress would not impose its view of law on
foreign nations "in an act of legal imperialism, through legislative fiat." Hoffman-La Roche , 124 S. Ct .
at 2369.
Moreover, these serious concerns of international comity undermine, indeed eliminate, the
primary policy argument made by plaintiffs for the assertion of jurisdiction over the claims of foreign
purchasers on foreign exchanges. Thus, Plaintiffs repeatedly postulate that:
Declining jurisdiction on the basis that Defendants suggest would enable companies withsubstantial United States operations to commit corporate fraud . . . knowing that theycould eliminate the risk of liability to foreign investors on foreign exchanges simply byeither extending the fraud to include operations outside the United States borders or byrouting the false information through facilities outside the United States .
(Opp. at 13-14) There is no danger of such result whatsoever .
Plaintiffs presuppose that Plaintiffs' counsel and the United States securities laws represent th e
only protection offered to investors worldwide, regardless of where they live or where the securities
transactions at issue occurred . That patronizing view has no basis in reality . The fact is that many
jurisdictions in the world, and certainly those involved here, are highly sophisticated and have develope d
extensive regimes of securities regulations to protect investors and prosecute and punish persons
engaging in wrongful transactions within them . Plaintiffs have offered no compelling (or any)
justification for this Court to interfere with the operations of those regulatory regimes or to expend U .S.
judicial resources on the claims of investors who may seek redress at home . Moreover, the conduct is
also regulated in the United States by the SEC, the DOJ, the NYSE, the NASD and the courts (as t o
6w wvnV V .11110• fq V .
domestic investors and foreign investors that purchased on domestic markets). Likewise, Plaintiffs are
incorrect in asserting that the securities fraud occurred in the United States, and that Ahold seeks to
avoid liability by "extending fraud to operations outside the United States." As addressed below, in a
securities fraud case, the fraud is the false disclosure, not the underlying operations of a corporation .
Absent such dissemination, there could be no claim for securities fraud . Thus, the alleged fraud is not
"extended" at all, but rather it occurs at the time and place of disclosure .
The second reason that the Supreme Court gave in Hoffman-La Roche for denying
extraterritorial application of the antitrust laws - the language and history of the relevant statute -
likewise supports the view that the Exchange Act does not apply to foreign purchasers of Ahold shares
on foreign exchanges . As with the FTAIA, the statutory language of the Exchange Act demonstrates
that jurisdiction is limited to redressing transactions that effect the United States . Section 10(b) of the
Exchange Act prohibits any person from using the means or instrumenta lities "of interstate commerce or
of the mails" to commit fraud . 15 U.S.C. § 78j(b) (emphasis added). "Interstate Commerce," as
defined, does not include transactions between fo reign count ries or entirely within foreign countries .
See 15 U.S.C. § 78c(a)(17) .
In sum, the Supreme Court's decision in Hoffman-La Roche vindicates the D .C. Circuit' s doubts
in Zoelsch v. Arthur Andersen & Co., 824 F .2d 27, 32 (D .C. Cir. 1987), "that an American court should
ever assert jurisdiction over domestic conduct that causes loss to foreign investors," and calls into
question the continued viability of existing contrary authority . Defendants respectfully submit that this
Court should adopt the reasoning of the Supreme Court in Hoffman-La Roche and part company with
the Courts of Appeal which have previously interpreted the Exchange Act to apply extraterritorially to
redress the alleged injuries of foreign purchasers on foreign exchanges in certain circumstances .
B. Plaintiffs Do Not Satisfy the Conduct Tes t
Plaintiffs urge this Court to adopt a version of the conduct test employed in In re Cable &
Wireless. PLC. allowing for extraterritorial jurisdiction if a defendant's "United States based conduct
was (1) significant and (2) substantial or material to the larger scheme ." 321 F . Supp. 2d 749, 763 (E.D.
Va. 2004). Defendants submit that if this Court were inclined to adopt a conduct test, it should rejec t
7NEWYORK 4112795 (2K1
Judge Lee's test in favor of the "direct causation" test adopted by the Second, Fifth and District of
Columbia Circuits . 4 See Bersch v. Drexel Firestone, Inc . , 519 F.2d 974, 993 (2d Cir.), cert . denied, 423
U.S. 1018 (1975) ; Robinson v. TCI/U.S. West Communications. Inc., 117 F.3d 900,906 (5th Cir. 1997) ;
Zoelsch, 824 F.2d at 31 .
First, if Hoffman-La Roche can be interpreted as consistent with extraterritorial application o f
the securities laws to foreign purchasers on foreign exchanges, it must at a minimum mandate that any
such application be limited and carefully circumscribed where, as here, there is no U .S. effect (as to
foreign investors purchasing on foreign markets) . (Opp. at 15, p. 11) Judge Lee's more relaxed test
does not give due deference to the laws of other nations and the ability of other nations to supervise
securities transactions within their jurisdictions .
Second, as noted by the Fifth Circuit in its adoption of the Second Circuit's test, unless a
contrary intent appears, there is a presumption that statutes do not apply extraterritorially . Robinson,
117 F.3d at 906. The presumption against extraterritorial application should inform the Court's choice
between the Second Circuit's test and the test adopted by Judge Lee . Id.
Third, Judge Lee's reason for rejecting the Second Circuit's test - that to do so would "allo w
some United States based fraudulent conduct, which is significant to the larger scheme but is not the
direct cause of the investor loss, to go unchallenged" (Cable & Wireless, 321 F . Supp.2d at 763) - is
faulty and inapplicable here . As noted above, refusing to allow foreign plaintiffs to sue in United States
courts for foreign injuries resulting from foreign purchases and sales of securities will not mean that
United States-based fraudulent conduct will go unchallenged . See supra pp. 5-6. To the contrary, such
alleged conduct can be challenged in the home nations of plaintiffs that have a closer nexus to th e
4 Plaintiffs incorrectly assert that the Second Circuit does not apply the direct causa tion approachconsistently, citing Itoba Ltd. v. Lep Group PLC. 54 F .3d 118 (2d Cir . 1995 ), and Europe and OverseasCommodity Traders. S.A. v. Banque Paribas London , 147 F.3d 118 (2d Cir. 1998). (Opp. at 18, n.15)Contrary to Plaintiff's assertion, the court in Itoba required effects in addition to conduct to find U.S .jurisdiction . Itoba. 54 F.3d at 122 (relying on an "admixture" of the conduct and effects test). InBanque Paribas the Second Circuit affirmed dismissal of conduct that was `predominantly foreign."'147 F .3d at 132 (holding "[tjhe decision of the district court dismissing plaintiff EOC 's complaint forlack of subject matter jurisdiction is affirmed.")
8NEWYORK 4112791(2K1
securities transaction or the injury, as well as by governmental and self-regulatory agencies in the United
States and abroad, al l of which is occurring .
Application of the "direct causation" test requires dismissal of the claims of foreign purchasers
on foreign exchanges . Contrary to Plaintiffs ' contention, there are no genuine issues of material fact
precluding dismissal . For purposes of this motion , Defendants do not challenge Plaintiffs' allegations
concerning the underlying ac tivities at U.S . Foodservice . Under the direct causation test, however, the
conduct evaluated is the al leged misstatements, not the business operations leading to such
misstatements . See Zoelsch. 824 F.2d at 33-35 ("[J]urisdiction is appropriate when the fraudulent
statements or misrepresentations originate in the United States . . . . [H]ere, the prospectuses for the
securities offerings were distributed exclusively outside the United States .") ; Bersch, 519 F.2d at 987
("The fraud, if there was one, was committed by placing the a llegedly false and misleading prospectus in
the purchasers' hands. Here the final prospectus emanated from a foreign source. . . ."); Nathan Gordon
Trust v . Northgate Exploration. Ltd., 148 F.R.D. 105, 108 (S.D .N.Y. 1993) ("The court rules that the
relevant `conduct' in the present case occurred in Canada where the alleged misleading information was
authored. The mere filing of reports with the SEC and the dissemination of some materi als to
shareholders in the United States were merely incidental to the authorship, preparation and
dissemination of the allegedly false information, all of which occurred in Canada .") . It is not the
underlying operations of a corporation that give rise to a securities fraud claim, but rather the making (or
omission) of false statements . Froese v. Staff, No. 02 CV 5774(RO), 2003 WL 21523979, at *2
(S.D.N.Y. July 7, 2003 ) . It is not disputed that the al leged misstatements at issue were authored and
issued from Ahold's headquarters in the Netherlands.
Froese is on point. There, the court squarely held that misstatements , "not any activity which
lead to the alleged misrepresentations," are the direct cause of financial losses . Id. Plaintiffs offer only
the conclusory assertion that the "almost $ 1 bi llion fabrication of revenue and other fraud in connection
with Ahold' s US operations is a far cry from the fraudulent conduct at issue in Froese." (Opp. at 17) To
the contrary, all of the underlying activities that contributed to the alleged accounting misstatements in
Froese occurred at Hugo Boss U.S., the United States subsidiary of Hugo Boss AG. 2003 WL
9NEWYORK 4112798 (2Kl
21523979, at * 1 . The Court concluded, nevertheless, that the conduct that directly caused the claim was
the issuing of allegedly misleading financial statements from Germany . Id. ; accord In re Baan Co. Sec.
Litig., 103 F . Supp. 2d 1, 9-10 (D.D.C. 2000) (finding no jurisdiction over foreign purchasers of foreign
securities notwithstanding Plaintiffs' argument that "much of the fraud took place in the United States,
including the failure to adhere to GAAP, `deceptive disseminations,' and `the channel misbehavior used
by Baan to fraudulently boost reported sales and revenues . "') . 5
Plaintiffs do not otherwise address the "direct causation" test, asserting in a footnote : "As
discussed below, this Court may properly exercise its jurisdiction over the claims of the foreign
investors . . . under either approach to the conduct test ." (Opp. at 16 n. 13) The "direct causation" test,
however, is not "discussed below." Indeed, on the one occasion plaintiffs analyzed the direct causation
test, they cited the same cases as the Corporate Defendants (dismissing the foreign claims) and
emphasized that they are "strikingly similar," "directly on point" and examples of cases where
defendants "asserted a lack of subject matter jurisdiction . . . and prevailed ." (Kurtz Decl. Ex. 4 at 29)
Should the Court adopt the direct causation test , the claims of foreign plaintiffs who purchased securities
on foreign exchanges should be dismissed for lack of subject matter jurisdiction.
'To the extent Plaintiffs seek to establish jurisdiction over foreign plaintiffs located abroad as a result ofconclusory allegations concerning road shows and analyst meetings in the United States (Opp . at 22,Compl. ¶ 5), Plaintiffs' argument is unavailing. Where the "dissemination of some materials toshareholders in the United States [was] merely incidental to the authorship, preparation anddissemination of the allegedly false information," all of which occurred in the Netherlands, there is nojurisdiction over the claims of foreign purchasers on foreign exchanges. See Nathan Gordon Trust. 148F.R.D. at 108 . In any event, a U .S. disclosure to U .S. investors cannot form the basis for extendingjurisdiction to foreign purchasers on foreign exchanges . See Ka an v. Campeau Corp. , 744 F . Supp .808, 810 (S .D. Ohio 1990) ("the Court fails to discern how inclusion of alleged misrepresentations andomissions in materials filed or circulated in the United States could have played a significant role in anylosses sustained by the Canadian investors . In short, the conduct alleged to have occurred within theUnited States has too tenuous a connection with the claims of the Canadian investors to support theexercise of jurisdiction over such claims.")
10NRW VA RK 41 I 7 7QR I
EXHIBIT G
1
1
2 C O N F I D E N T I A L
3 UNITED STATES DISTRICT COUR T
4 DISTRICT OF MARYLAN D
5 ----------------------------------- x
6 IN RE ROYAL AHOLD N .V .
7 SECURITIES & ERISA LITIGATIO N
8 ----------------------------------- x
9 October 31, 200 5
10 10 :10 a .m .
1 1
12 DEPOSITION of JOACHIN von CORNBERG, taken by
13 Defendants, pursuant to Notice, at the offices o f
14 Entwistle & Cappucci, LLP, 280 Park Avenue, Ne w
15 York, New York, before Amy Klein, a Shorthan d
16 Reporter and Notary Public within and for the Stat e
17 of New York .
1 8
1 9
2 0
2 1
2 2
2 3
2 4
25
CONFIDE NTI AL
ELISAI EPOR 1 11 `N CORP.
780 Third Avenue Telephone : 212-557-5558New York, New York 10017 Fax : 212 .557 .005 0
Email :production @courtreportingedre . cam
2
1
2 A P P E A R A N C E S :ENTWISTLE & CAPPUCCI, LL P
3 Attorneys for Plaintiff COPERA
280 Park Avenue4 New York , New York 10017
BY : STEPHEN D . OESTRIECH, ESQ .
5 JOHNSTON de F. WHITMAN , JR ., ESQ .
6 MILBERG WEISS BERSHAD & SHULMAN LLPAttorneys for Union Asset Management
7 Holding AGOne Pennsylvania Plaz a
8 New York, New York 10119BY : JENNIFER S . CZEISLER, ESQ .
