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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`_________________________________________x
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`5/5/2022
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`In re: Facebook, Inc., IPO Securities
`and Derivative Litigation
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`No. 12-md-2389 (CM) (GWG)
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`_________________________________________x
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`MEMORANDUM AND OPINION DENYING THE MOTION FOR DECLARATORY
`JUDGMENT AND ORDER TO SHOW CAUSE
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`McMahon, J.:
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`Currently before the court is James J. Hayes’s motion for a declaration that the Lead
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`Plaintiffs and their counsel in the above-captioned action were required to assert certain fraud
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`claims arising under the Securities Exchange Act of 1934 (the “Exchange Act”) against Morgan
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`Stanley & Co., on behalf of the Hayes and the other class members in connection with the class
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`action that brought against Facebook., Inc., ten years ago, and that was settled in 2018 (See Dkt.
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`No. 625) (Motion for Declaratory Judgment filed January 4, 2022) (the “Motion” or “Mot.”).
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`This court inherited this case from the Honorable Robert W. Sweet, who died during the
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`pendency of an appeal from his order approving the settlement in this case. The United States
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`Court of Appeals for the Second Circuit affirmed Judge Sweet’s order approving the settlement in
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`on September 23, 2020, and the Judicial Panel on Multi-District Litigation reassigned the matter
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`to me for the purpose of completing the administrative matters attendant to the carrying out of the
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`settlement. On June 1, 2021, this court disposed any remaining objections and approved the Lead
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`Plaintiff’s distribution plan of the settlement fund. (Dkt. Nos. 621, 622).
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`I will briefly recount the background relevant to disposing of the pending motion.
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`Hayes’s motion arises from the settlement of a securities class action brought based on
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`alleged misrepresentations and omissions made in the registration statement for Facebook’s May
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`1
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`Case 1:12-md-02389-CM-GWG Document 627 Filed 05/05/22 Page 2 of 6
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`2012 initial public offering (the “IPO”). After six years of hard-fought litigation, the action was
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`settled in 2018 for $35 million (the “Settlement”).
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`Hayes objected to approval of the Settlement before Judge Sweet. His objection was based
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`principally on the argument that Lead Plaintiffs and their counsel had purportedly abused their
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`authority under the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), as well as
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`Federal Rule of Civil Procedure 23, by failing to pursue Exchange Act claims against Morgan
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`Stanley & Co., one of the underwriters of Facebook’s IPO. (See Dkt. No. 591).
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`Judge Sweet rejected Hayes’s objection in a well-reasoned decision, holding:
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`Hayes’s primary objection to the Proposed Settlement centers on the strategic decision by
`Lead Plaintiffs to forego causes of action under the Securities Exchange Act of 1934
`(‘’34 Act’) in favor of 1933 Act claims. . . . Assuming a ’34 Act claim or claims would
`have had merit in this case—and Hayes has not made such a showing—the Class has not
`been prejudiced by the absence of such claims.
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`(See Dkt. No. 601 at 30-31).
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`Hayes raised the same issue on appeal of Judge Sweet’s approval order (approving the
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`Settlement), arguing that “Lead Counsels did not adequately represent their named plaintiff client
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`when they declined to amend the Consolidated Complaint to include Exchange Act claims against
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`Morgan Stanley.” (Appeal Dkt. No. 108 at 24)1; (see also id. at 26) (“Conflicted Lead Counsels
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`Abused Their Authority By Declining To Amend the Consolidated Complaint To Include
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`Exchange Act Claims Against Morgan Stanley”).
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`In a September 23, 2020 summary order, the Second Circuit affirmed Judge Sweet’s
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`settlement approval order, and explicitly rejected Hayes’s arguments for the same reasons that
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`Judge Sweet did. The Second Circuit noted that Hayes’s appeal “primarily reiterates his argument
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`1 “Appeal Dkt. No. __” refers documents filed in the appellate case, No. 18-3845 (2d Cir.), whereas “Dkt.
`No. __” refers to documents filed in the case before the district court, No. 12-md-02389 (S.D.N.Y.).
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`2
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`Case 1:12-md-02389-CM-GWG Document 627 Filed 05/05/22 Page 3 of 6
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`that the Lead Plaintiffs and Class Counsel should have raised fraud claims against Morgan Stanley
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`pursuant to the Exchange Act,” and rejected that argument for the reasons expressed by the District
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`Court: because “Lead Plaintiffs and Class Counsel acted well within their discretion in choosing
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`not to raise such claims,” and because “Hayes knew since at least October 2015 that Lead Plaintiffs
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`were not raising Exchange Act claims, and he could have brought an individual action raising such
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`a claim if he so wished.” (Appeal Dkt. No. 209-1 at 4) (the “Summary Order”).
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`Hayes sought neither panel nor en banc reconsideration of the Summary Order by October
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`7, 2020, the last date for doing so. (See Fed. R. App. P. 35(c), 40(a)(1)). The Second Circuit’s
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`mandate issued on October 15, 2020. (See Dkt. No. 607). Hayes similarly failed to file a petition
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`for certiorari to the U.S. Supreme Court by February 22, 2021, as required by 28 U.S.C. § 2101(c).
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`On February 17, 2021, Hayes filed a “Motion for Declaratory Judgment Against Plaintiffs’
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`Counsel” in the Second Circuit appeal. (Appeal Dkt. No. 217). On February 19, 2021, the Second
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`Circuit Clerk of the Court rejected Hayes’s motion as untimely because it was filed after the
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`mandate was issued; she advised Hayes to refile the motion in conjunction with a motion to recall
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`the mandate should he wished to make his motion. (See Appeal Dkt. No. 218).
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`On March 11, 2021, Hayes filed a Motion to Recall the Mandate (Appeal Dkt. No. 219)
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`and refiled the same previously filed Motion for Declaratory Judgment (Appeal Dkt. No. 220). On
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`March 24, 2021, the Second Circuit summarily denied Hayes’ motions to recall the mandate and
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`for declaratory judgment, finding that the motions were “frivolous.” The Circuit warned Hayes
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`“that the continued filing of duplicative, vexatious, or clearly meritless motions or other papers in
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`this appeal could result in the imposition of a sanction that would require Appellant to obtain
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`permission from this Court prior to filing any further submissions in this matter (a ‘leave-to-file’
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`sanction).” (Appeal Dkt. No. 227).
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`Not withstanding the Second Circuit’s warning, Hayes filed the instant motion for
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`declaratory judgment before this court, making once again the same argument that has already
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`been rejected by both the District Court and the Second Circuit.
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` Lead Plaintiffs Arkansas Teacher Retirement System and Fresno County Employees’
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`Retirement Association (“Lead Plaintiffs”), together with Jose G. Galvan, Mary Jane Lule Galvan,
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`Sharon Morley, Eric Rand, Paul Melton, and Lynn Melton (collectively, “Plaintiffs”), oppose
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`Hayes’s motion for declaratory relief and ask this court to impose “leave-to-file” sanctions against
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`Hayes.
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`For the following reasons, the motion for declaratory judgment is denied with prejudice,
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`and Hayes is hereby ordered to show cause why a leave-to-file sanction should not be imposed.
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`I. THE MOTION FOR DECLARATORY JUDGMENT IS DENIED WITH PREJUDICE.
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`Hayes’s motion is another frivolous and vexatious attempt to relitigate precisely the same
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`argument that he raised previously with the District Court (Judge Sweet) and with the Second
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`Circuit. Both the District Court and the Second Circuit have found his argument to be entirely
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`without merit. As Hayes’s arguments have already been squarely addressed and soundly rejected
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`on the merits, there is nothing for this court to do except deny Hayes’s renewed motion as a
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`paradigmatic example of a frivolous and vexatious litigation. The motion is denied WITH
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`PREJUDICE. This means the argument WILL NOT BE ENTERTAINED AGAIN.
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`II. HAYES IS ORDERED TO SHOW CAUSE WHY A LEAVE-TO-FILE ORDER
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`SHOULD NOT ISSUE.
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`Hayes is a serial settlement objector who has frequently filed meritless objections to class
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`action settlements and appeals from settlement approval orders. (See Appeal Dkt. No. 130 at 19-
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`20(); (Dkt No. 595 at ¶¶ 8-9).
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`Case 1:12-md-02389-CM-GWG Document 627 Filed 05/05/22 Page 5 of 6
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`The Second Circuit has already sanctioned Hayes under similar circumstances. On appeal
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`from another Second Circuit securities class action, the Circuit similarly first warned Hayes that
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`the “continued filing of duplicative, vexatious, or clearly meritless appeals, motions, or other
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`papers . . . will result in the imposition of sanctions.” Hayes v. Harmony Gold Mining Co., No. 13-
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`635, Motion Order at 2 (2d Cir. July 18, 2013) (ECF No. 107). After Hayes continued to file
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`frivolous papers following the rejection of his appeal, the Second Circuit imposed a “leave-to-file”
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`sanction on Hayes, refusing “to accept for filing any further papers from [Hayes] regarding appeals
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`of class action securities fraud claims in the Harmony Gold litigation unless he first obtains leave
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`of the Court to file such papers.” Harmony Gold, Order at 2 (2d Cir. Dec. 16, 2013) (ECF No.
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`141).
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`The procedure in this Circuit for imposing leave-to-file sanctions involves three stages: (1)
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`the court notifies the litigant that the filing of future frivolous appeals, motions, or other papers
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`might result in sanctions (Sassower v. Sansverie, 885 F.2d 9, 11 (2d Cir. 1989)); (2) if the litigant
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`continues to file frivolous appeals, motions or other papers, the court orders the litigant to show
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`cause why a leave-to-file sanction order should not issue; and (3) if the litigant fails to show why
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`sanctions are not appropriate, the court issues a sanctions order (Gallop v. Cheney, 642 F.3d 364,
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`370 (2d Cir. 2011)).
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`The Second Circuit has already warned Hayes that the continued filing of duplicative,
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`vexatious, and clearly meritless motions will result in the impositions of a sanction which would
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`require Hayes to obtain permission prior to filing any further submissions before the court. That
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`warning does not appear to have been effective, considering that this court was forced to waste yet
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`more time on an application that has twice been rejected on the merits. Accordingly, Hayes is
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`hereby ORDERED to show cause, within 30 days of the entry of this order (i.e., by June 5), why
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`Case 1:12-md-02389-CM-GWG Document 627 Filed 05/05/22 Page 6 of 6
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`the court should not impose on him a requirement that he obtain leave of court prior to filing any
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`further papers or applications in this long-settled class action.
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`CONCLUSION
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`This constitutes the decision and order of the court. It is a written opinion.
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`The Clerk of Court is respectfully directed to terminate the motion at Docket Number
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`625.
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`Dated: May 5, 2022
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`BY ECF TO ALL COUNSEL
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`__________________________________
`U.S.D.J.
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