Opinion
CV 19-10701 DDP (Ex)
01-19-2022
ESTEBAN KOFFSMON, Plaintiff, v. GREEN DOT CORPORATION, ET AL., Defendants.
ORDER DENYING MOTION FOR RECONSIDERATION [DKT. 67]
DEAN D. PREGERSON UNITED STATES DISTRICT JUDGE
Presently before the court is a Motion for Reconsideration of this Court's Order Appointing Led Class Plaintiff and Approving Class Counsel (“Order”), filed by the “Green Dot Institutional Investor Group, ” comprised of Plymouth County Retirement Association (“Plymouth County”), Greater Pennsylvania Carpenters Pension Fund (“the Carpenters Fund”), and Iron Workers District Council of New England (“Iron Workers Council”) (collectively, “the IIG”). Having considered the submissions of the IGG and of the New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund (“Pension Fund”), the court denies the motion for reconsideration and adopts the following Order.
I. Discussion
In this securities fraud putative class action against Defendant Green Dot Corporation (“Green Dot”) and others, the IGG and the Pension Fund filed competing motions to be appointed lead class counsel, pursuant to 15 U.S.C. § 78u-4(a)(3). The Pension Fund allegedly suffered losses of $662,539 as a result of Defendants' misrepresentations. The constituent members of the IGG - Plymouth County, the Carpenters Fund, and the Iron Workers Council - alleged losses of $592,917, $301,353, and $130,114, respectively, for a total of $1,071,666.
This Court analyzed the competing motions under the three-step framework set forth by the Private Securities Litigation Reform Act (“PSLRA”). See 15 U.S.C. § 78u-4(a)(3); see also In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). The court recognized that the PSLRA contemplates the possibility that a “group of persons” might be the movant best suited to represent the class, and that the only basis upon which a court may compare competing plaintiffs is the size of the plaintiffs' relative financial stakes in the matter. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I); Cavanaugh, 306 F.3d at 732. The Order also observed, however, that “the Ninth Circuit has not addressed the question ‘whether a group can satisfy the “largest financial interest” requirement by aggregating losses.'” (Order at 4, quoting Cavanaugh, 306 F.3d at 731 n.8.). As the Order explained, the majority of courts in this circuit have “refused to appoint as lead plaintiff groups of unrelated individuals, brought together for the sole purpose of aggregating their claims in an effort to become the presumptive lead plaintiff.” In re Gemstar-TV Guide Int'l, Inc. Sec. Litig., 209 F.R.D. 447, 451 (C.D. Cal. 2002). Consistent with that consensus view, the Court declined to aggregate the losses of the IGG's constituent members. (Order at 6-9.) The Court therefore considered the Pension Fund to be the movant with the largest financial stake at issue and thus, the presumptive lead Plaintiff, before appointing the Pension Fund as lead plaintiff. (Order at 9, 12.)
Shortly before this Court's Order issued, the Ninth Circuit issued its opinion in In Re Mersho, 6 F.4th 891 (2021). IGG argues that, under Mersho, this Court should have aggregated the IGG members' losses, considered the IGG to be the presumptive lead plaintiff, and appointed IGG rather than the Pension Fund as lead plaintiff. The court disagrees.
The district court in Mersho, like this Court, declined to appoint an investor group lead plaintiff where, as here, it appeared that the investors had no prior relationship, and came together solely for the purpose of aggregating their claims in an attempt to be appointed lead plaintiff. Mersho, 6 F.4th at 897. There, as here, the district court had misgivings about the investor group's formation, cohesion, and ability to control litigation, as opposed to counsel directing proceedings. Id. Critically, however, the district court in Mersho determined that the investor group had made a prima facie showing of typicality and adequacy, and was therefore the presumptive lead plaintiff. Id.; see also Cavanaugh, 306 F.3d at 730. Only later, at step three of the analysis, did the district court determine, without reference to any evidence, that the presumption of adequacy had been rebutted. Mersho, 6 F.4th at 897. The Ninth Circuit held that the district court's determination “did not give effect to the presumption, ” and instead improperly placed the burden on the investor group to provide evidence of adequacy, rather than on competing movants to rebut the presumption with evidence of inadequacy. Mersho, 6 F.4th at 901.
Here, in contrast, the court has at no point considered the IGG to be the presumptive lead plaintiff. The Mersho court acknowledged that “[t]here are no cases from the Ninth Circuit guiding district courts on how to consider group cohesion at any stage of the [PSLRA lead plaintiff] process . . . .” Mersho, 6 F.4th at 903 (internal citation omitted). In providing that guidance, the court recognized that “the district court must essentially do [an adequacy] analysis twice. At step two, it will consider whether the movant has made a prima facie showing of adequacy. At step three, it will consider whether competing movants have offered proof that the presumptive lead plaintiff will not adequately represent the class.” Id. at 900. The court explicitly declined, however, “to say that district courts are precluded from considering pre-litigation relationships or cohesion altogether, ” at any step. Id. at 901. Indeed, “[m]any district courts have considered the lack of a pre-litigation relationship as part of their adequacy analysis at step two because it may indicate that members may not work together well to vigorously prosecute the litigation or they might not be able to control counsel. District courts often consider a pre-litigation relationship along with other factors such as the size of the group, how the members found their counsel, and the prosecution procedures set out in their filings.” Id. at 901-02 (internal citation omitted) (emphasis added).
These are precisely the concerns this Court raised in the Order, albeit not explicitly in terms of adequacy. As stated above, and in the Order, many courts have “refused to appoint as lead plaintiff groups of unrelated individuals, brought together for the sole purpose of aggregating their claims in an effort to become the presumptive lead plaintiff.” Gemstar, 209 F.R.D. at 451; see also In re Cloudera, Inc. Sec. Litig., No. 19-CV-03221-LHK, 2019 WL 6842021, at *6-8 (N.D. Cal. Dec. 16, 2019); In re Stitch Fix, Inc. Sec. Litig., 393 F.Supp.3d 833, 835 (N.D. Cal. 2019) (“[T]he clear consensus in our district is that a group of investors who had no pre-existing relationship with one another, and whose relationship and group status were forged only by a lawyer, is not appropriate to be lead plaintiff based on their aggregated losses. . . . To permit aggregation and lead plaintiff status for such a group undercuts the goal of having the plaintiffs and not the lawyers call the shots in securities class actions.”); Crihfield v. CytRx Corp., No. CV1605519SJOSKX, 2016 WL 10587938, at *4 (C.D. Cal. Oct. 26, 2016); Frias v. Dendreon Corp., 835 F.Supp.2d 1067, 1073 (W.D. Wash. 2011) (discussing various rationales for rejecting groups comprised of unrelated individuals); In re Network Assocs., Inc., Sec. Litig., 76 F.Supp.2d 1017, 1026 (N.D. Cal. 1999). The Mersho court's guidance as to the evidentiary requirements applicable to a step three analysis in no way compels the conclusion here that the IGG is the presumptive lead plaintiff at step two. Cf. Xu v. FibroGen, Inc., No. 21-CV-02623-EMC, 2021 WL 3861454, at *9 (N.D. Cal. Aug. 30, 2021) (analyzing, post-Mersho, artificiality of investor group at step two).
As one court has recognized, Mersho did not address the approach employed by this Court and others, which focused on aggregation of claims rather than adequacy. See Xu v. FibroGen, Inc., No. 21-CV-02623-EMC, 2021 WL 3861454, at *8 n. 15 (N.D. Cal. Aug. 30, 2021). Although this Court is of the view that these approaches may be intertwined under circumstances such as those presented here, the result here would not differ under a purely adequacy-focused approach. As suggested above, even if the court were to aggregate the IGG members' claims, the IGG has failed to make a prima facie showing of adequacy, for the reasons discussed in the Order.
IV. Conclusion
For the reasons stated above, the IGG's Motion for Reconsideration is DENIED.
IT IS SO ORDERED.