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1 SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK : CIVIL TERM : PT. 48
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MARK CONVERY, Individually and on Behalf of
3 All Others Similarly Situated,
Index: 656021/2019
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Plaintiff.
5 -against-
6 JUMIA TECHNOLOGIES AG, JEREMY HODARA, SACHA
POIGNONNEC, ANTOINE MAILLET-MEZERAY, MORGAN
7 STANLEY & CO., LLC, CITIGROUP GLOBAL MARKETS
INC., BERENBERG CAPITAL MARKETS, LLC, RBC
8 CAPITAL MARKETS, LLC, STIFEL, NICOLAUS &
COMPANY, INCORPORATED, RAYMOND JAMES &
9 ASSOCIATES , INC., and WILLIAM BLAIR &
COMPANY, LLC.,
10
Defendants.
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February 13, 2020
12 60 Centre Street
New York, New York 10007
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B E F O R E:
14
HONORABLE ANDREA MASLEY
15 Justice of the Supreme Court
16 A P P E A R A N C E S:
17 KAPLAN FOX & KILSHEIMER, LLP.
Attorneys for the Plaintiff
18 850 Third Avenue
New York, NY 10022
19 BY: JEFFREY P. CAMPISI, ESQ.
20 SULLIVAN & CROMWELL, LLP.
Attorneys for the Defendants
21 Jumia Technologies AG, Jeremy Hodara,
Sacha Poignonnec, Antoine Maillet- Mezeray
22 125 Broad Street
New York, NY 10004
23 BY: JULIA A. MALKINA, ESQ.
DAVID M.J. REIN, ESQ.
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O' MELVENY & MYERS, LLP.
2 Attorneys for the Underwriter Defendants
Times Square Tower
3 7 Times Square
New York, NY 10036
4 BY: JONATHAN ROSENBERG, ESQ.
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24 Monica A. Martinez
Senior Court Reporter
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1 (Time noted 11:25 a.m.)
2 THE COURT: So in the matter of Mark Convery
3 against Jumia Technologies. Am I saying that correctly?
4 MR . REIN: Yes, you are.
5 THE COURT: Who is here for plaintiff?
6 MR . CAMPISI: Good morning, your Honor. Jeff
7 Campisi, Kaplan Fox for the plaintiff and proposed
8 class.
9 THE COURT: Okay. Thank you.
10 And why don't we take the first appearance.
11 Yes?
12 MR . REIN: Sure.
13 THE COURT: You are?
14 MR . REIN: David Rein.
15 THE COURT: And to your right?
16 MR . REIN: To my right?
17 THE COURT: Going down the line.
18 Your appearance, please.
19 MS . MALKINA: Good morning, your Honor. I'm
20 Julia Malkina, Sullivan & Cromwell, LLP, on behalf of
21 Jumia, Jeremy Hodara, Sacha Poignonnec, and Antoine
22 Maillet-Mezeray.
23 THE COURT: Thank you. With you?
24 MR . REIN: David Rein.
25 THE COURT: Thank you.
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1 MR . REIN: Colleagues for the same defendants.
2 THE COURT: Thank you. And?
3 MR . ROSENBERG: Good morning, your Honor.
4 Jonathan Rosenberg, O' Melveny Myers for the underwriter
5 defendants, Morgan Stanley, Citigroup, Berenberg, RBC,
6 Stifel, Nicolause & Company, Raymond James and William
7 Blair.
8 THE COURT: Okay. Thank you very much. Okay.
9 So we have a motion for a stay. Seems that I'm
10 the last commercial judge to deal with this.
11 So why don't you get started. Who is arguing,
12 Mr . Rein?
13 MR . REIN: Your Honor, I plan to do so,
14 although the underwriter defendants may --
15 THE COURT: Jump in.
16 MR . REIN: Add something if there is something
17 they feel should be added here.
18 THE COURT: Okay.
19 MR . REIN: First of all, thank you for
20 hearing us this morning. You're right, there is a lot
21 of commercial division judges have weighed in on
22 questions relating to a stay ever since the Supreme
23 Court in Cyan a couple of years ago ruled this court and
24 other state courts had jurisdiction over securities act
25 claims. In our brief --
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1 THE COURT: Interestingly, you left out Judge
2 Scarpulla's decision.
3 MR . REIN: I don't think we did. There were
4 two decisions she decided, denying the stays. I think
5 if that is what you mean. I think there were eight
6 decision in total that we referenced in our brief, at
7 least that we are aware of during this time period.
8 Four of them grant a stay. Four of them deny a stay.
9 I think there is one very clear distinction though
10 between them. All four that granted a stay, the state
11 court, the state court action was filed after the
12 federal action.
13 THE COURT: Does the fact that the, nothing
14 really has happened other than that in the federal
15 action an amended complaint was filed in December, two
16 months after the action was filed here, and you have a
17 conference on a motion to dismiss I believe in a week or
18 maybe it is tomorrow.
19 MR . REIN: We have a filing on the motion to
20 dismiss tomorrow in the federal action. Premotion
21 letter.
22 THE COURT: Right. So effectively nothing has
23 happened in the federal action.
24 MR . REIN: Actually, I think more has happened
25 there than here because there --
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1 THE COURT: Well, nothing has happened here.
2 MR . REIN: Right.
3 THE COURT: Okay.
4 MR . REIN: Well, we have shown up here, but.
5 THE COURT: Not that that is nothing, but in
6 terms of paperwork.
7 MR . REIN: Yes, exactly.
8 In the federal court there was a contested lead
9 plaintiff and lead counsel motion, six different lead
10 plaintiffs or groups of lead plaintiffs filed motions.
11 In the end, Judge Costello resolved that.
12 There was a conference to do so after the contested
13 motions. Appointed two of the plaintiffs essentially as
14 lead plaintiff. They are the ones who then went ahead
15 and filed the amended complaint, and that is the
16 complaint as to which we will be filing a premotion
17 letter tomorrow. He has a practice as to some of the
18 other federal judges where prior to filing a motion you
19 would put in a premotion letter setting out the grounds
20 for the motion. The plaintiff will respond.
21 THE COURT: I'm familiar with the letter system
22 that I don't participate in.
23 MR . REIN: Right. They may or may not amend
24 further after. That we don't know.
25 THE COURT: Effectively, what you are telling
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1 me is that the complaint was filed with Counsel A and
2 then there was an adversarial proceeding with Counsel B.
3 Who won, A or B.
4 MR . REIN: I think that the counsel who won, we
5 may have to remind, I'm not sure if they filed the
6 original complaints. At least one did not, I believe.
7 As it often the case in federal court where there are
8 these notices and whoever has the largest loss can
9 choose to file. Now, of course, the plaintiff here did
10 not seek to file a lead plaintiff motion in the federal
11 court, but rather proceeded there. One of the winning
12 law firms that ended up being appointed lead plaintiff
13 had filed one of the original complaints in federal
14 court.
15 THE COURT: I want to thank you for passing the
16 notes.
17 MR . REIN: Appreciate Ms. Malkina is reminding
18 me of that.
19 THE COURT: Uh-huh.
20 MR . REIN: So ultimately, when you look at what
21 the cases have been here, it seems that they've really
22 turned on this question of which case was filed first.
23 I think here there is no dispute that the federal case
24 was filed five months before this case was filed. The
25 -- I think the main argument that the plaintiff is
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1 presenting against that is to say, well, hold on. We
2 filed a securities act claim first, and that wasn't in
3 the original federal case and, therefore, we should be
4 treated as if we are the first filed case.
5 THE COURT: So that is really where I'm going
6 with the question about A Counsel, and B Counsel. It
7 is almost as if a whole new action was filed in
8 December.
9 MR . REIN: No, I would not say that at all.
10 It is under the same docket number. It is not a new
11 action. For all purposes such as statute of limitations
12 and so on, it is the same action. The judge
13 consolidated the two cases that were filed, and it is in
14 that consolidated case that the amended complaint was
15 filed. I believe that some of the cases in the
16 commercial division where a stay has been granted, the
17 federal proceedings were less well developed than here.
18 And the lead plaintiff procedures which have times set
19 under the federal statute were still ongoing. You know,
20 in this case we're actually a little more advanced than
21 that. Certainly, we're more advanced than we are in
22 this case. But I would not regard it as a new case at
23 all.
24 Ultimately, the allegations are really the
25 same, right. Because we're talking about the same
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1 material misstatements in the original federal cases,
2 the amended federal case, all of the state cases.
3 Everything would have to be about adjudicating. Was
4 there a material misstatement in those IPO offering
5 materials relating to the same issues, right. Was it to
6 do with this thing called GMV which is a way of metering
7 orders and was that described properly.
8 It is essentially against almost the same
9 defendants, right. I think 19 out of 22 are the same
10 in this court versus the federal court. All of the
11 cases, by the way, in this court where other commercial
12 division judges have granted stays, the defendants were
13 slightly different also between the state court and
14 federal court. I don't think that is a distinction that
15 anyone has found significant. When you think of who the
16 plaintiffs are, yes, they -- the plaintiffs right now,
17 the named plaintiffs are different, but they are really
18 seeking to represent essentially the same class of
19 shareholders, right. So essentially the same class of
20 shareholders, bringing the same kinds of claims, based
21 on the same topics, with moderate -- of course, there
22 are always going to be moderate differences as there
23 were in all the cases where a stay was granted. But
24 that is not a reason not to grant the stay here, because
25 otherwise you would always be able to add a defendant
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1 here, add a claim there, make some factual difference,
2 and potentially eviscerate the first filed rule, because
3 two cases are never going to be precise mirror images of
4 each other.
5 In all of the cases where stays were granted,
6 the cases were not mirror images.
7 In fact, when Justice Borrok granted the stay
8 in the General Electric case, there were only exchange
9 act claims in the federal case and only securities act
10 claims in the state case. But they related to the same
11 body of issues, right. The same alleged material
12 misstatements, same defendants with some minor
13 differences, and he granted a stay.
14 So here we would see exactly the same kinds of
15 issues in play as to why there should be a stay here.
16 If there were not to be a stay, there clearly
17 would be prejudice to the defendants. We would have to
18 be litigating the same issues in two cases. There would
19 be the possibility of inconsistent decisions, because
20 both judges would be asked to decide the same things.
21 We would be -- if the cases ever get there, taking
22 discovery on the same issues. We would be seeking
23 certification of classes, on essentially the same
24 issues. Ultimately, trying cases on the same issues.
25 All of that has the potential for chaos, which is
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1 ultimately why the first filed rule is looked at, I
2 think as the most important of all of the factors,
3 because as a matter of -- typically one judge will defer
4 to the court where the matter has been filed first and
5 litigation is underway. And that is not because, as I
6 think there is some implication that we are suggesting
7 that this court is not able to oversee a securities act
8 case. Of course this court can and Cyan has made that
9 clear. But I think that the, ultimately the first filed
10 rule is really the most important factor here.
11 The other factors also weigh strongly in favor
12 of a stay here, whether it is the issues relating to
13 prejudice that I just described, whether it is also the
14 issue of whether the state case is substantially
15 subsumed in the, within the -- should have brought some
16 water. Within the --
17 THE COURT: We can get you some.
18 MR . REIN: Within the federal case. Because
19 the federal case is going to have to decide issues not
20 presented here.
21 Those exchange act claims have issues of
22 scienter, reliance, that this court will not be
23 adjudicating, because these are not part of a securities
24 act claim. So you are more likely to have a complete
25 resolution there, thus meaning that the stay here will
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1 serve function of avoiding unnecessary work, because
2 the matter may simply be resolved in the federal court.
3 If that, if we turn out to be wrong, right, the
4 plaintiff has raised arguments saying, well, we might
5 make arguments in the federal court don't apply to this
6 case. I'm not sure that is going to be the case. I
7 don't think it is. But let's say that happens, they can
8 always come back here and say we would like to lift the
9 stay. And , you know, our case is different. There are
10 issues that the judge decided in the federal case that
11 don't apply to us. So there is no real prejudice in
12 that either.
13 In the end, their Section 11 claims should be
14 adjudicated in the federal case. They would be part of
15 the class in the federal case. If they are unhappy with
16 how it is being litigated, they could intervene in the
17 federal case or seek to. They could have sought to be
18 lead plaintiff in the federal case if they were not
19 happy.
20 So I think there are lots of potential options
21 here that the plaintiff should have followed.
22 THE COURT: Okay. Thank you.
23 MR . REIN: If there is nothing else --
24 THE COURT: You can have a seat.
25 MR . REIN: Thank you.
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1 THE COURT: Yes.
2 MR . CAMPISI: Thank you, your Honor. Jeff
3 Campisi, Kaplan Fox for the plaintiff.
4 Your Honor, the motion is under C.P.L.R. 2201.
5 It is a matter that is within the courts digression.
6 It is a multi-factor test, not one as a matter of right.
7 And the factors are weighted. There is no one factor
8 that is dispositive.
9 What is interesting, I think you heard Mr. Rein
10 talk about all the arguments that he raised, and what he
11 didn't mention, which I think is telling, he didn't talk
12 about the prejudice to the plaintiff.
13 THE COURT: That is your job.
14 MR . CAMPISI: And I think it is important, it
15 is telling that he didn't even address that. And their
16 briefing superficially addresses it, but really ignores
17 the critical issues. I think their motion is, in
18 effect, you know, an attempt to forum shop. They don't
19 want to be in the court. They rather take their chances
20 in federal court because there are some really serious
21 issues they have to deal with in this court that they
22 are not going to deal with in federal court.
23 THE COURT: Like what?
24 MR . CAMPISI: Specifically with respect to
25 damages.
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1 Your Honor, the claims that are brought under
2 the securities act of 1933, um, because the federal case
3 was filed in May, bringing their claims in federal
4 court, it is an important date. It is May 14, 2019.
5 That date is important because the time the federal case
6 was filed, Jumia's share price was $25.66 per share.
7 Jumia's IPO a month before, IPO'd at 14.50 per share.
8 So at the time the federal case was filed,
9 Jumia's share price is above the IPO price. And when
10 the plaintiffs case was filed here, the share price was
11 $6.78 per share below the IPO price.
12 So under the Securities Act of 1933, Section
13 11, Subsection 8, there is a specific measure of damage.
14 And in the case before your Honor, there is without
15 question statutory damages. That is not the case in the
16 federal court because Section 11 looks to the time the
17 action is brought to determine the price. And at that
18 time the price of Jumia, its shares was above the IPO
19 price. So there is real risk and prejudice to the
20 plaintiff that if this case is stayed and they
21 adjudicate the case in federal court, plaintiffs are
22 left with zero in federal court. You don't have to take
23 my word for it. Look at the defendant's opening brief,
24 Page 3 footnote one, it is a stunning admission, they
25 say there are no damages at the time the federal action
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1 is filed. They will exploit that in federal court.
2 They will say today, it is speculative. We don't know
3 what will happen in federal court. You can rest assured
4 defendants will exploit that in federal court. I will
5 note, Justice Scarpulla's decision in PPDA I noted where
6 there were concerns about claims being distinguished in
7 federal court, there was a statute of limitations issue,
8 she found, well, that is a factor weighing against the
9 state, because you get complete relief here. Where as
10 in federal court, there is a real risk that plaintiff's
11 are going to be out of luck and get zero. So that is
12 one aspect of prejudice. But there is more. In the
13 federal court, there is going to be really serious
14 arguments that the federal complaint, the amended
15 complaint that was filed in December sounds in fraud,
16 there is a substantial body of law where it says where
17 you have federal claims under the securities exchange
18 act of 1934, fraud claims, mixed with claims under the
19 Securities Act of 1933, the case sounds in fraud and
20 held to a higher pleading standard. It is 9-B which
21 requires particularity. That is not going to be the
22 case before this court because it is a notice pleading
23 standard and the Mench (sic) case says that. And again,
24 they say it is speculation, don't look at the different
25 pleading standards, don't look here, you don't know what
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1 will happen in the future.
2 As Mr. Rein noted, tomorrow they will file
3 their premotion to dismiss letter brief and probably
4 have it already written, and I guarantee you there will
5 be some mention that the complaint sounds in fraud.
6 They will make this argument in federal court. They
7 can't make that argument here. There is additional
8 prejudice there.
9 Further, third point on prejudice, just the
10 delay in bringing the motion to stay. Defendants have
11 known about the Convery case since October 15, 2019.
12 They knew since December 12, 2019 because we stipulated
13 to a schedule, filing an amend complaint, January 27th
14 but they didn't do anything until January 22nd, five
15 days before the amended complaint. Then they asked the
16 court to shut this down.
17 In the meantime, they knew we were preparing an
18 amended complaint, and we spent time, money, and
19 resources developing our complaint. We hired an
20 accounting consultant to develop the accounting
21 violation claims that we have in our complaint. They
22 are unique to the estate case, alleged violations of
23 international accounting standards, not in the federal
24 case. But we spent time and money on that. We also
25 identified and interviewed confidential informants and
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1 spent a lot of attorney time developing the amended
2 complaint, drafting it and filing it. So there is real
3 prejudice. Defendants in their reply brief say oh,
4 plaintiffs can't point to any prejudice, but that is not
5 true for those reasons.
6 Your Honor, I would like to move on to the
7 first to file issue.
8 The our position is clear. The Convery action,
9 and I don't think defendants dispute this, is the first
10 action in which the security acts claims were asserted.
11 It is undisputed. The cases they cite where they say,
12 look, you have a federal case first. Motions to stay
13 are granted. I think it is important to look at those
14 cases. When you drill down, they are distinguishable.
15 There is the NIO case, the Gridsome (sic) and Cadium
16 (sic). Those cases, it is true the federal case was
17 filed first. It is also true that the courts in those
18 cases granted the motions to stay. What is different
19 here from those cases is that in federal court, both
20 fraud claims under the Securities Exchange Act of 1934
21 and claims under the Securities Act of 1933 were filed
22 in federal court before any state proceedings were
23 initiated. The opposite is true here. Here we have a
24 securities act claims asserted first.
25 So those cases I think are distinguishable.
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1 Also, those cases, there was evidence of
2 gamesmanship where the plaintiff's counsel tried to get
3 control of the federal case, lost, and then moved into
4 state court. Justices there said that is gamesmanship,
5 you are trying to have a second bite at the apple, we'll
6 not count that.
7 There is no evidence here of gamesmanship. My
8 firm was not involved in the federal cases. My client
9 did not seek to be in those cases. So there is no
10 evidence of any gamesmanship. So those cases are
11 distinguishable.
12 GE, which they also mentioned, Judge Borrok
13 said this case is great for them. It is important to
14 look at what happened in that case. Justice Borrok
15 issued an opinion, but there is significant debate about
16 his opinion. The plaintiffs have moved to reargue that
17 decision. Defendants have a motion, have a notice of
18 appeal in that decision. So Justice Borrok's decision
19 is up in the air. It is not binding on this court, and
20 any weight the courts should be reduced because there
21 are significant doubts as to what actually is ultimately
22 will be the outcome there, because there are, you know,
23 pending motions to reargue, and a notice of appeal. I
24 will also note in GE, there wasn't -- the parties
25 essentially agreed, although Justice Borrok's decision
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1 was found for a complete stay, the parties effectively
2 said, we'll stay the case for a short while until the
3 federal case gets going. There were no question the
4 cases were going forward both in federal and state court
5 which was a matter of timing. Judge Borrok's decision
6 deviated from that, and found for a full stay, and that
7 is what is up in the air.
8 So for all those reasons, I don't think GE is a
9 case you can rely on too heavily.
10 Your Honor, I want to address the arguments
11 that the federal case is basically the same thing as
12 before your Honor. It is not true. Couple of important
13 distinctions.
14 The state case has two additional defendants
15 that are not defendants in the federal case. There is
16 Ernst and Young, which is Jumia's auditor and audited
17 financial reports that are in Jumia's IPO prospectus.
18 They are not defendants in the federal case.
19 In addition, there is Douglas Puglisi who is
20 not a defendant in the federal case. He signed the
21 registration statement. He's a statutory defendant,
22 Jumia's U.S. representative in the U.S., Jumia's foreign
23 company. They designated this person to be a U.S.
24 representative, not a defendant in the federal case.
25 Now, those are important because if you look at
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1 Justice Scarpulla's decision in PPDAI, in Dentsply, the
2 court found that the addition of two defendants in PPD AI
3 and six defendants in Dentsply was significant enough to
4 weigh against the finding of the state. Here it is
5 exactly the same situation. Two additional defendants.
6 Whether it is two or six or four, we have significant
7 additional defendants. There are significant claims
8 alleged against. Them they are not cosmetic or
9 manufactured as defendants. These are substantial
10 claims in our complaint, and these defendants are not in
11 the federal case, they are here.
12 THE COURT: I'm not sure about the U.S.
13 representative -- well, how would the U.S.
14 representative being named in this case and not in the
15 federal case, what is the difference?
16 MR . CAMPISI: He's a statutory defendant.
17 Signed the registration statement. You have another
18 defendant in the U.S. Many of the defendants are
19 outside the U.S., there may be issues about
20 collectability. It is important to have as many
21 defendants that are statutory defendants. He signed the
22 registration statement under Section 11. He's a
23 statutory defendant. That is why it is important to
24 have him as a defendant.
25 THE COURT: No, I understand the importance,
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1 but in terms of how it affects the cases going forward.
2 MR . CAMPISI: Some point the statute of
3 limitations --
4 THE COURT: The accounting firm is a different
5 issue.
6 MR . CAMPISI: At some point statute of
7 limitations may expire. If they don't serve in federal
8 court, there is a year notice, statute of notice for the
9 securities act. So at some point he may not become, he
10 maybe -- claims maybe barred against him. It is
11 important to have him in the case. But let me address a
12 couple of other points on the other lap.
13 They say the claims are essentially the same.
14 Statements are essentially the same. That is not true.
15 Ernst and Young is the defendant. We allege in our
16 complaint, not in the federal complaint, that Jumia's
17 audit report, that is signed by Ernst and Young, is
18 materially misleading, in violation of international
19 accounting standards because Jumia misrepresented it's
20 purported revenue. That is a big difference. There
21 are defendant here, federal plaintiffs, either ignored
22 it, didn't think of it. It is not in the federal case,
23 and it is a claim that is unique to the state case. It
24 is an important one.
25 Another big difference is the state action
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1 alleges claims under Section XII(A )(2). It is not in
2 the federal complaint. It says XII(A)(2) is a -- act.
3 That is a claim that provides for unique remedy of
4 decision. It is not in the federal complaint. So there
5 is another difference there.
6 So, your Honor, there are many cases before the
7 commercial division where complaints that were, you
8 know, very similar, the court found that nevertheless
9 the state should be denied. If you look at Justice
10 Ostrager's decision in AT&T, there he found the federal
11 case was more comprehensive, but still denied the motion
12 to stay.
13 In Greenscott (sic), Justice Schecter said the
14 federal and state actions were virtually identical.
15 Stay was denied. And defendants rely heavily on Asher
16 v. Abbott Labs which sets out the substantial identities
17 standard. As Justice Borrok noted in the Uxin, U X I N,
18 decision that the Asher case was really very different.
19 There the federal case, discovery was completed. And
20 the state action just had just begun. That is not the
21 case here. The case here, the case in federal court
22 basically at the same point were both in the cups of
23 arguing briefing motions to dismiss. Arguably , our case
24 is a little more organized. We have a briefing
25 schedule. We have all the defendants served for
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1 agreement for defendant to accept service. I think in
2 the federal case, plaintiffs were still getting
3 organized with service. Arguably, there is -- this case
4 is more advanced. But at a minimum, basically at the
5 same point. Duplication of defendants say, oh, we may
6 have to file, litigate in two courts. Well, that is an
7 argument that has been rejected. Justice Scarpulla
8 rejected it in Dentsply DDPAI.
9 Respectfully, court should reject it here.
10 Finally, your Honor, which court is more
11 familiar. I think the cases haven't advanced that far.
12 Judge Castel isn't more up to speed on this case than
13 you are. If not, you maybe more ahead of Judge Castel
14 because of our meeting today. And more generally --
15 THE COURT: Well, but what about the fight
16 between the plaintiffs counsel --
17 MR . CAMPISI: The lead plaintiffs counsel is
18 just -- those proceedings are basically arguing over who
19 has the largest financial interest. You don't get into
20 the merits of the case, you know, so there is -- if
21 anything Judge Castel, the initial complaint which is
22 very different from ultimately what the plaintiffs filed
23 on December 30th.
24 So bottom line is, Judge Castel has amended
25 complaint befor