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United States District Court for the District of Maryland
March 12, 2004, Decided
Civil No.: 1:03-MD-01539, ALL ACTIONS
The lead securities plaintiffs in this multidistrict securities and ERISA litigation have filed a motion seeking a limited reprieve from the discovery stay that applies by operation of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b)(3), in securities class actions such as this one. (Docket no. 85.) Specifically, they have requested permission to seek discovery of materials produced in connection with various external investigations of the defendants' alleged misconduct, as well as reports generated by the defendants' internal investigations. The United States government has intervened in the case and moved to prevent discovery of the investigative reports. 1 (Docket no. 112.) The plaintiffs' motion has been fully briefed, and the government has filed a sealed memorandum [*248] in support of its motion. 2 In addition, the court heard oral argument on March 5, 2004. 3 Having considered all the arguments, I will now grant the plaintiffs' motion [**8] to the extent necessary to allow discovery of materials previously produced to outside agencies. Pursuant to the government's request, I will postpone discovery of the investigative reports for a reasonable period.
Only a brief summary of the facts is necessary for present purposes. 4 The triggering event for this litigation was a series of negative announcements and financial restatements in early 2003 by Royal Ahold, N.V., a Dutch holding company that controls retail grocery operations in Europe, Asia, and the Americas. (See Compl. PP 57-59. 5 ) While the company's stock is listed on European exchanges, 6 American Depository Receipts ("ADRs") for Royal Ahold shares trade on the New York Stock Exchange, and the company's subsidiaries conduct substantial business in the United States. (Id. P 57.) According to the plaintiffs, Royal Ahold undertook some $ 19 billion in acquisitions between 1996 and 2003, aggressively expanding its operations in the United States and elsewhere. (Id. P 126.) The company's United States assets are held by Ahold USA, Inc., a wholly owned subsidiary of Royal Ahold, N.V., and Ahold USA's affiliate, Ahold USA Holdings, Inc. (See id. P 60.) All three Ahold entities--Royal Ahold, N.V., Ahold USA, Inc., and Ahold USA Holdings, Inc.--are named defendants in this litigation, and will be referred to collectively as "Royal Ahold" throughout [**10] this Memorandum.
One of Royal Ahold's most significant United States subsidiaries is U.S. Foodservice, Inc. ("USF"), a national food supply company based in Columbia, Maryland over which Royal Ahold consolidated 100% control in April 2000. (See id. PP 62-63, 139.) USF is also a named defendant in this case. According to the plaintiffs, accounting irregularities at USF required Royal Ahold to announce on February 24, 2003 that it would be restating its earnings for Fiscal Years 2000 and 2001 by roughly $ 500 million. (Id. P 182.) After a [**11] more thorough investigation, the company announced on May 8, 2003 that the total income restatement attributable to USF would amount to approximately $ 880 million for the period from April 2000 to December 28, 2002. (Id. P 238.) The company's February 24, 2003 announcement also advised investors of "suspicious transactions" discovered at an Argentine affiliate, Disco, S.A.; the investigation confirmed these irregularities, and also exposed some $ 29 million in income overstatements attributable to a United States subsidiary named Tops Markets, bringing Royal Ahold's total earnings restatement to $ 1.12 billion. (Id. PP 250-51, 255.) In addition, on May 16, 2003, Royal Ahold announced that a change in accounting methodology associated with various joint venture investments would require the company to reduce its revenue figures for the preceding two years by some $ 24.8 billion. (Id. P 248.) Royal Ahold eventually detailed its accounting errors in an annual report on Form 20-F filed with the Securities and Exchange Commission ("SEC") on October 17, 2003 and amended on October 31, 2003. (See Royal Ahold Form 20-F, Entwistle Decl. in Supp. of Pl.'s Mot. to Lift Stay Ex. [**12] 1.)
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220 F.R.D. 246 *; 2004 U.S. Dist. LEXIS 4048 **; Fed. Sec. L. Rep. (CCH) P92,703
IN RE ROYAL AHOLD N.V. SECURITIES & ERISA LITIGATION
Subsequent History: Motion granted by, Stay lifted by, in part In re Royal Ahold N.V. Sec. & Erisa Litig., 319 F. Supp. 2d 634, 2004 U.S. Dist. LEXIS 9406 (D. Md., May 24, 2004)
Prior History: In re Royal Ahold N.V. Sec. & ERISA Litig., 219 F.R.D. 343, 2003 U.S. Dist. LEXIS 24064 (D. Md., 2003)
Disposition: [**1] Motion of Public Employees' Retirement Association of Colorado ("COPERA") and Generic Trading of Philadelphia, LLC ("Generic") for an order partially lifting Private Securities Litigation Reform Act discovery stay was granted in part and denied in part; Application of United States government to intervene was granted; Government's motion to partially continue current stay of discovery in securities action, to impose a partial stay of discovery in ERISA action, and to seal its memorandum of law and declaration in support was granted in part; government's memorandum of law and declaration in support of its motion was sealed; defendants' internal investigations were denied as to all plaintiffs.
discovery, documents, plaintiffs', investigations, Memorandum, undue prejudice, particularized, investigative report, parties, agencies, lift, subsidiaries, restatement, settlement, announced, appears, preserve evidence, class action, defendants', entities, Stock
Securities Law, Civil Liability Considerations, Securities Litigation Reform & Standards, General Overview, Stays of Discovery, Civil Procedure, Discovery & Disclosure, Torts, Fraud & Misrepresentation, Actual Fraud, Special Proceedings, Class Actions, Judicial Discretion, Pensions & Benefits Law, ERISA