Opinion
MASTER FILE NO. C16-1275JLR
03-06-2017
IN RE OUTERWALL INC., ET AL. STOCKHOLDER LITIGATION
ORDER ON MOTIONS TO APPOINT LEAD PLAINTIFF AND LEAD COUNSEL
I. INTRODUCTION
Before the court are Movant Mark Rudd's motion to appoint lead plaintiff and counsel (Rudd Mot. (Dkt. # 9)) and Plaintiff Syed Abbas's motion to appoint lead plaintiff and counsel (Abbas Mot. (Dkt. # 13)). The court has considered the motions, the submissions in opposition to and in support of the motions, the relevant portions of the // // // record, and the applicable law. Being fully advised, the court GRANTS Mr. Rudd's motion and DENIES Mr. Abbas's motion for the reasons set forth below.
Unless otherwise stated, all record citations in this order are to the docket in Case No. C16-1275JLR.
Mr. Rudd and Mr. Abbas requested oral argument on their motions. (See Rudd Mot. at 1; Abbas Mot. at 1.) However, the court determines that oral argument would not be helpful to its disposition of the motions. Local Rules W.D. Wash. LCR 7(b)(4).
II. BACKGROUND
A. The Complaints
This putative class action arises from the planned acquisition and merger of Defendant Outerwall, Inc. by affiliates of Apollo Global Management, LLC ("Apollo"). (Abbas Compl. (Dkt. # 1) ¶ 1.) Outerwall "delivers retail product and services to consumers via self-service interactive kiosks." (Id. ¶ 12.) Apollo is a "global alternative investment manager." (Id. ¶ 21.)
The court cites Mr. Abbas's complaint because it is the first-filed complaint in this consolidated action and contains allegations that do not materially differ from those in the four later-filed cases. Compare Abbas Compl., with Baumgartner v. Outerwall Inc., et al., No. C16-1281JLR, Dkt. # 1; Hunter v. Outerwall, Inc., et al., No. C16-1285JLR, Dkt. # 1; Mallinger v. Outerwall, Inc., et al., No. C16-1316JLR, Dkt. # 1; Filippov v. Outerwall, Inc., et al., No. C16-1329JLR, Dkt. # 1.
On July 25, 2016, Outerwall and Apollo issued a joint press release announcing their Agreement and Plan of Merger ("the Merger Agreement"). (Id. ¶ 2.) The Merger Agreement specified a tender offer to "purchase all of the outstanding shares of Outerwall common stock for $52.00 in cash for each share of Outerwall stock [that a stockholder] own[s]." (Id. ¶ 2.) The offer commenced on August 5, 2016, and ended on September 1, 2016. (Id.) // //
Shortly after Outerwall and Apollo announced the Merger Agreement, Plaintiffs filed five putative class actions in this District. (See Abbas Compl.); Baumgartner, No. C16-1281JLR, Dkt. # 1; Hunter, No. C16-1285JLR, Dkt. # 1; Mallinger, No. C16-1316JLR, Dkt. # 1; Filippov, No. C16-1329JLR, Dkt. # 1. The initial case—which Mr. Abbas filed—was assigned to the undersigned judge, and the four later-filed cases were transferred to the undersigned judge and subsequently consolidated. (See 9/28/16 Order (Dkt. # 7).)
Plaintiffs allege that the transaction was the product of "an unfair process stemming not from the Board's concern for the best interests of stockholders, but rather from the Board's desire to avoid a proxy contest with an activist investor and potential ouster from their positions." (Abbas Compl. ¶ 3.) Plaintiffs further allege that Outerwall and Apollo announced the transaction "just as [Outerwall] began to enjoy the results of initiatives to improve its financial results." (Id. ¶ 4.) Specifically, they assert that "as recently as July 19, 2016, an analyst with B. Riley & Co. set a $58.00 per share price target for the Company—a $6.00 premium to the Offer Price" of $52.00. (Id.)
In addition, Plaintiffs allege that "the Board agreed to lock up the deal with [five] coercive deal protective devices in the Merger Agreement," including (1) a "no-solicitation clause" that prevented Outerwall from soliciting and providing non-public information to alternate bidders; (2) an "information rights" provision that required Outerwall to notify Apollo of any competing bidder and all material terms of any competing bid; (3) "matching rights" that gave Apollo three business days to match any better offer Outerwall received as well as two business days after a material amendment is made to the terms and conditions of a competing offer or a newly submitted offer; (4) a "non-waiver" provision that restricted Outerwall from modifying or terminating any material provision of a confidentiality agreement to which Outerwall or its subsidiaries are a party; and (5) a provision that required Outerwall to pay Apollo $26.9 million if Outerwall pursued a competing bid. (Id. ¶ 5.) Finally, Plaintiffs allege that the Schedule 14D-9 that Outerwall filed with the Securities and Exchange Commission ("the SEC") on August 5, 2016, omitted material information or contained material misrepresentations. (Id. ¶ 6.)
Plaintiffs bring this putative class action on behalf of Outerwall's public stockholders for violations of Sections 14(e), 14(d)(4), and 20(a) of the Securities Exchange Act of 1934 ("the Act"), for breach of fiduciary duty, to enjoin a vote on the planned transaction, to rescind the transaction, and to recover damages and/or fees and costs. (See Abbas Compl. ¶ 1); see also Filippov, No. C16-1329JLR, Dkt. # 1 ¶ 70 (asserting a violation of Section 14(d)(4)); Hunter, No. C16-1285JLR, Dkt. # 1 ¶ 74 (alleging breach of fiduciary duty); Mallinger, No. C16-1316JLR, Dkt. # 1 ¶ 84 (same). Plaintiffs bring suit "on behalf of all persons and entities that own Outerwall common stock" (Abbas Compl. ¶ 26) for the period of the tender offer (id. ¶ 2).
B. The Motions
On October 25, 2016, Mr. Rudd filed a motion for appointment as lead plaintiff and for approval of his selection of counsel pursuant to the Private Securities Litigation // // Reform Act ("the PSLRA"). (Rudd Mot.) Mr. Rudd also moves the court to amend its September 28, 2016, order to reflect his choice of counsel if he is selected as lead plaintiff. (Id. at 2-3; see also 9/28/16 Order ¶¶ 6-7.) Mr. Rudd contends that he should be appointed lead plaintiff because he timely filed his motion, has the largest financial interest—6,000 shares of Outerwall common stock—in the relief sought by the class, and otherwise satisfies the requirements of Federal Rule of Civil Procedure 23. (Id. at 9-10.) If selected as lead plaintiff, Mr. Rudd seeks the court's approval of Robbins Geller Rudman & Dowd LLP ("Robbins Geller") as lead counsel. (Id. at 11.)
The PSLRA permits "a class member who is not individually named as a plaintiff in the complaint or complaints" to move for appointment as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(B)(i).
Six days later, on October 31, 2016, Mr. Abbas moved for appointment as lead plaintiff and for approval of his selection of counsel pursuant to the PSLRA. (Abbas Mot.) Mr. Abbas contends that he should be appointed lead plaintiff because on September 16, 2016, Mr. Abbas entered into a Memorandum of Understanding ("the MOU") with Defendants that allowed Mr. Abbas access to "material information" and "provides the framework for a potential settlement of the [consolidated] Actions." (Id. at 7-8.) Mr. Abbas argues that "he is the only movant who already has, and will continue to, fairly and adequately protect the interests of the Class." (Id. at 9.) Even though Mr. Abbas owns only 1,690 shares (Abbas Cert. (Dkt. # 2) ¶ 4), Mr. Abbas contends that "the presumption that the movant with the largest financial interest is the most adequate plaintiff is rebuttable" (id. at 10 (emphasis omitted)). Mr. Abbas asks the court to approve his choice of WeissLaw LLP ("WeissLaw") as lead counsel and Breskin Johnson & Townsend PLLC ("Breskin Johnson") as liaison counsel, if the court appoints Mr. Abbas lead plaintiff. (Id. at 17.)
Despite owning significantly fewer shares than Mr. Rudd, Mr. Abbas states that he "believes that he has the largest financial interest in the litigation of any adequate plaintiff under Rule 23, and no other movant has a significantly larger financial interest." (Abbas Mot. at 11.)
III. ANALYSIS
A. Appointment of Lead Plaintiff Under the PSLRA
The PSLRA "instructs district courts to select as lead plaintiff the one 'most capable of adequately representing the interests of class members.'" In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002) (quoting 15 U.S.C. § 78u-4(a)(3)(B)(i)). The presumptively most adequate plaintiff is the plaintiff who has the greatest financial stake in the outcome of the case and meets the requirements of Federal Rule of Civil Procedure 23. See id. The Ninth Circuit holds that the PSLRA provides a three-step process for identifying the lead plaintiff. Id. "The first step consists of publicizing the pendency of the action, the claims made[,] and the purported class." Id.
"In step two, the district court must consider the losses allegedly suffered by the various plaintiffs before selecting as the 'presumptively most adequate plaintiff'—and hence the presumptive lead plaintiff—the one who 'has the largest financial interest in the relief sought by the class' and 'otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.'" Cavanaugh, 306 F.3d at 729-30. In engaging in these inquiries, "the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit." Id. at 730. The court "then focus[es] its attention on that plaintiff" and determines "based on the information he has provided in his pleadings and declarations, whether he satisfies the requirements of Rule 23(a), in particular those of 'typicality' and 'adequacy.'" Id.
At the third step, the court gives "other plaintiffs an opportunity to rebut the presumptive lead plaintiff's showing that it satisfies Rule 23's typicality and adequacy requirements." Id.
1. Mr. Rudd's Motion for Appointment as Lead Plaintiff
a. Timely Notice and Motion for Appointment
The plaintiff who filed the first lawsuit must publish notice of the complaint in a widely circulated business publication within 20 days of filing the complaint. 15 U.S.C. § 78u-4(a)(3)(A)(1). In addition, all proposed lead plaintiffs must submit a sworn certification setting forth certain facts to demonstrate to the court that the plaintiff has suffered more than a nominal loss, is not a professional litigant, and is otherwise interested and capable of serving as a class representative. 15 U.S.C. § 78u-4(a)(2)(A).
Mr. Abbas was the first plaintiff to file suit, and he published notice in PR Newswire on September 1, 2016, within 20 days of filing suit. (See Townsend Decl. ISO Abbas Mot. (Dkt. # 14) ¶ 2, Ex. A ("Abbas Notice").) Mr. Rudd filed his motion on October 25, 2016, within 60 days of Mr. Abbas's notice. In addition, Mr. Rudd filed the required certification. (See Moore Decl. (Dkt. # 10), Ex. 3 ("Rudd Cert.") ¶ 4.) Accordingly, the timing of Mr. Abba's notice and of Mr. Rudd's motion and certification satisfy this step of the lead plaintiff appointment inquiry. See Cavanaugh, 306 F.3d at 729.
Plaintiff Jesse Mallinger filed a notice in Business Wire on August 26, 2016. (See Moore Decl. (Dkt. # 10) ¶ 2, Ex. 1.) However, Mr. Mallinger was not the first plaintiff to file suit. Compare Abbas, No. C16-1275JLR, Dkt. # 1 (showing that Mr. Abbas filed his lawsuit on August 12, 2016), with Mallinger, No. C16-1316JLR, Dkt. # 1 (showing that Mr. Mallinger filed his lawsuit on August 19, 2016).
b. Presumptively Most Adequate Plaintiff
i. Largest Financial Interest
In step two of the analysis, the court determines which movant has the largest financial interest in the litigation. See Cavanaugh, 306 F.3d at 730. In making this determination, "the court may select accounting methods that are both rational and consistently applied." Id. at 730 n.4. Courts usually consider four factors: (1) total shares purchased, (2) net shares purchased, (3) net funds expended, and (4) approximate loss suffered. See Frias v. Dendreon Corp., 835 F. Supp. 2d 1067, 1075 (W.D. Wash. 2011); see also In re Solar City Corp. Sec. Litig., No. 16-CV-04686-LHK, 2017 WL 363274, at *4 (N.D. Cal. Jan. 25, 2017) (In some instances, courts "equate financial interest with actual economic losses suffered."). In cases involving Section 14(a) and 20(a) claims, "the candidate with the largest potential recovery [is] the candidate who ha[s] bought the largest number of . . . shares." Zucker v. Zoran Corp., No. C 06-04843 WHA, 2006 WL 3591156, at *3 (N.D. Cal. Dec. 11, 2006). Notably, the PSLRA "provides no occasion for comparing plaintiffs with each other on any basis other than their financial stake in the case." Cavanaugh, 306 F.3d at 732. Once the court identifies the plaintiff with the largest financial interest in the litigation, the court's inquiry "must // focus on that plaintiff alone" and is "limited to determining whether he satisfies the other statutory requirements." Id.
Mr. Rudd contends that he has the largest financial interest because he held 6,000 shares of Outerwall common stock at the time of the tender offer. (See Rudd Cert. ¶ 4.) Mr. Rudd contends that those shares were valued at approximately $312,000.00 based upon the tender offer. (Rudd Mot. at 9.) Mr. Abbas does not dispute that Mr. Rudd has the largest financial interest—Mr. Abbas owned only 1,200 shares of common stock at the time of tender offer (Abbas Cert. ¶ 4)—and instead focuses on whether Mr. Rudd meets the Rule 23 requirements (see Abbas Resp. at 12-16). Accordingly, the court concludes that Mr. Rudd has the largest financial interest. See Cavanaugh, 306 F.3d at 730. The court now analyzes whether Mr. Rudd meets Rule 23's requirements, focusing particularly on the typicality and adequacy factors. See id.
Mr. Abbas concedes that Mr. Rudd "holds nominally more shares than [Mr.] Abbas," but nevertheless contends that Mr. Rudd is otherwise inadequate to serve as lead plaintiff. (Abbas Resp. at 12.) The court disagrees with Mr. Abbas's characterization that Mr. Rudd "holds nominally more shares." Mr. Rudd certifies that at the time of the tender offer, he held 6,000 shares (Rudd Cert. ¶ 4), while Mr. Abbas certifies that he held 1,200 shares (Abbas Cert. ¶ 4). In addition, even if Mr. Rudd's shares were only nominally greater in number than Mr. Abbas's, Cavanaugh nevertheless directs the court to conclude that Mr. Rudd holds the largest financial interest in this litigation. See Cavanaugh, 306 F.3d at 729-30.
ii. Federal Rule of Civil Procedure 23 Requirements
Rule 23 requires numerosity, commonality, typicality, and adequacy as prerequisites to bringing a class action. See Fed. R. Civ. P. 23(a)(1)-(4). On a motion to appoint a lead plaintiff, the court focuses solely on the typicality and adequacy requirements. Frias, 835 F. Supp. 2d at 1075 (citing Cavanaugh, 306 F.3d at 730 n.5). The court's "Rule 23 inquiry is not as searching as it would be on a motion for class certification." Schriver v. Impac Mortg. Holdings, Inc., No. SACV 06-31 CJC (RNBx), 2006 WL 6886020, at *5 (C.D. Cal. May 2, 2006). "[T]he prospective lead plaintiff need only make a prima facie showing that it meets the typicality and adequacy factors." Id.
In addressing the typicality requirement, the court analyzes "whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct." Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992). Typicality is generally shown "when each class member's claim arises from the same course of events, and each class member makes similar legal arguments to prove the defendants' liability." Rodriguez v. Hayes, 591 F.3d 1105, 1122 (9th Cir. 2010).
Here, Mr. Rudd asserts that the proposed merger resulted from an unfair process, specifically identifying five "coercive deal protection devices in the Merger Agreement." (Rudd Mot. at 4-5.) Mr. Rudd also contends that Outerwall violated Sections 14 and 20(a) of the Act when on August 5, 2016, Outerwall filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 that omitted or misrepresented certain material information. (Id. at 5-6.) Mr. Rudd therefore alleges injuries similar to those of the other putative class members. See Hanon, 976 F.2d at 508. Mr. Rudd's claims also arise from the same events and conduct—the events leading up to the proposed merger, the announcement of the merger, and the tender offer—as the other putative class members' claims. (Compare Rudd Mot. at 4-7, with Abbas Compl. ¶¶ 2-7, 33-96); Rodriguez, 591 F.3d at 1122. In addition, it appears to the court that Mr. Rudd bases his claims on the same legal theories that the other putative class members base their claims. (Compare Rudd Mot. at 4-7, 10, with Abbas Compl. ¶¶ 33-106); Rodriguez, 591 F.3d at 1122. For these reasons, Mr. Rudd makes a prima facie showing that he satisfies the typicality requirement.
A lead plaintiff is adequate if the plaintiff does not have any conflicts of interest with other putative class members and the plaintiff and his counsel will vigorously litigate on the class's behalf. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998); Staton v. Boeing Co., 327 F.3d 938, 957 (9th Cir. 2003). The adequacy requirement is also met "when counsel for the class is qualified and competent, the representative's interests are not antagonistic to the interests of absent class members, and it is unlikely that the action is collusive." Tanne v. Autobytel, Inc., 226 F.R.D. 659, 667 (C.D. Cal. 2005) (citing In re N. Dist. of Cal., Dalkon Shield IUD Prods. Liab. Litig., 693 F.2d 847, 855 (9th Cir. 1982)).
Mr. Rudd also meets the adequacy requirement. First, he does not appear to have any conflicts of interest with other putative class members. (See, e.g., Rudd Cert. ¶ 6 (stating that Mr. Rudd "will not accept any payment for serving as a representative party beyond Proposed Lead Plaintiff's pro-rata share of any recovery, except reasonable costs and expenses").) Mr. Rudd and his proposed counsel will also vigorously conduct the litigation, which Mr. Rudd demonstrates by certifying that he "is willing to serve as a representative party on behalf of the class, including testifying at deposition or trial." (Rudd Cert. ¶ 3.) Because Mr. Rudd alleges the greatest financial loss from the merger, the court concludes that he will be a vigorous advocate on the putative class's behalf. See Tanne, 226 F.R.D. at 668 (stating that the movant was "an 'adequate' plaintiff because he has suffered the greatest financial loss, ensuring vigorous advocacy"). In addition, there is no evidence before the court that Mr. Rudd has engaged in collusion, and Mr. Rudd has retained experienced and qualified counsel. (See, e.g., Moore Decl. ¶ 2, Ex. 4 ("Robbins Geller Resume") (describing the qualifications of Mr. Rudd's proposed counsel, Robbins Geller.) For these reasons, Mr. Rudd makes a prima facie showing that he satisfies Rule 23's adequacy requirement.
Because Mr. Rudd has the largest financial interest in this litigation and makes a prima facie showing of the Rule 23 requirements, the court concludes that he is the presumptively most adequate plaintiff.
2. Rebutting Mr. Rudd's Status as the Most Adequate Plaintiff
Mr. Abbas seeks to rebut the presumption that Mr. Rudd is the most adequate plaintiff. (See Abbas Resp.) A purported class member may rebut the presumption of adequacy only upon proof that the presumptively most adequate plaintiff will not fairly and adequately protect the interests of the class or is subject to unique defenses that make the plaintiff incapable of adequately representing the class. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)-(bb). "At this stage, the process turns adversarial, and other plaintiffs may present proof that disputes the presumptively most adequate plaintiff's prima facie showing of typicality and adequacy." Niederklein v. PCS EdventuresA.com, Inc., No. 1:10-cv-00479-EJL-CWD, 2011 WL 759553, at *9 (D. Idaho Feb. 24, 2011) (citing Cavanaugh, 306 F.3d at 730.) //
i. Appointment Prior to Expiration of 60-Day Period
Mr. Abbas's first set of arguments attempting to rebut the presumption that Mr. Rudd is the most adequate lead plaintiff is less than clear. (See Resp. at 10-11.) Mr. Abbas appears to argue that (1) the court appointed him lead plaintiff at the time it consolidated the actions, and (2) nothing prevented Mr. Abbas from "entering into the MOU regarding the claims asserted" before he moved for appointment as lead plaintiff. (See Abbas Mot. at 9-10.) The court addresses each of these preliminary arguments in turn.
First, the court did not appoint Mr. Abbas lead plaintiff when it consolidated the actions nor did any plaintiff seek such relief at the time of consolidation. (See 9/28/16 Order; see generally Dkt.); 15 U.S.C. § 78u-4(a)(3)(B)(ii) (directing courts to "[a]s soon as practicable . . . appoint the most adequate plaintiff as lead plaintiff for the consolidated actions"); see also Gluck v. CellStart Corp., 976 F. Supp. 542, 550 (N.D. Tex. 1997) (noting that the PSLRA "promulgates a timetable" that requires the court to appoint a lead plaintiff "as soon as practicable" after the court consolidates the actions). Neither Mr. Abbas nor any of the other plaintiffs in this matter requested appointment as lead plaintiff at the time they stipulated to consolidation of the actions, and the court has not yet appointed a lead plaintiff. (See generally 9/28/16 Order; Dkt.) //
The court's September 28, 2016, order on the parties' stipulated motion stated that WeissLaw would serve as lead counsel and Breskin Johnson as liaison counsel. (See 9/28/16 Order ¶¶ 6-7.) However, the order did not—explicitly or implicitly—appoint a lead plaintiff. (See generally id.)
As part of this argument, Mr. Abbas urges the court to follow Wojno v. FirstMerit Corporation, No. 16-cv-0461BYP (N.D. Ohio). In that case, Judge Benita Pearson appointed a group of interim co-lead plaintiffs when she consolidated the actions pursuant to a stipulated motion, id., Dkt. # 46, and a putative class member later—but within the PSLRA's 60-day period—moved to vacate that order and for appointment as lead plaintiff, id., Dkt. # 66. Judge Pearson declined to vacate the court's earlier order because she determined that "[i]t would not have been appropriate . . . for the Court to delay appointing a class representative until the expiration of the cutoff for filing a lead plaintiff motion." Id., Dkt. # 73 at 7. The court is unpersuaded, however, that it should apply Judge Pearson's approach in Wojno here. The court has not yet appointed a lead plaintiff, so the court need not consider whether to vacate such an order. (See generally 9/28/16 Order; Dkt.) In addition, Mr. Abbas has not shown that Mr. Rudd moved for appointment as lead plaintiff "at the eleventh hour" as Judge Pearson found the movant in FirstMerit had. FirstMerit, Dkt. # 66, at 7. Both Mr. Rudd and Mr. Abbas filed their motions for appointment as lead plaintiff before the statutory 60-day period ended, and the court concludes that it is appropriate to consider their motions.
Judge Pearson also found that even assuming the movant had been "entitled to the presumption that he is the most adequate lead plaintiff, Plaintiffs have successfully rebutted the presumption." FirstMerit, Dkt. # 73 at 7. The court concludes that Mr. Abbas has not successfully rebutted the presumption that Mr. Rudd is the most adequate lead plaintiff. See infra.
Moreover, although the court has not yet appointed a lead plaintiff, it may under certain circumstances be appropriate for a court to re-open the lead plaintiff appointment process. See, e.g., Reese v. Malone, No. C08-1008MJP, 2015 WL 1526567, at *3 (W.D. Wash. Apr. 3, 2015); In re Stec, Inc. Sec. Litig., SACV 09-01304-JVS (MLGx), 2013 WL 12129391, at *1 (C.D. Cal. May 23, 2013).
Second, Mr. Abbas also argues against Mr. Rudd's appointment based on the MOU into which he entered with Defendants. Mr. Abbas states that the MOU contemplates an eventual settlement if Mr. Abbas and his counsel "determine that the proposed settlement remains fair, adequate[,] and reasonable." (See Resp. at 11; see also 2d Townsend Decl. (Dkt. # 17) ¶ 3, Ex. 2 ("Sched. 14D-9/A") at 6 ("The MOU contemplates that the parties would enter into a stipulation of settlement.").) For this reason, he contends that "other district courts have issued orders permitting settlement proceedings before a lead plaintiff has been appointed." (Resp. at 11; see also id. at 11 n.3.) Although that may be the case, neither Mr. Abbas nor any of the other plaintiffs have sought to stay the proceedings or entered a stipulation of settlement for the court's review. (See generally Dkt.) For these reasons, the fact that the court could permit settlement proceedings before appointing a lead plaintiff is immaterial to the court's consideration of the currently pending motions.
ii. Adequacy
The court now addresses Mr. Abbas's contention that Mr. Rudd will not fairly and adequately represent the class. Mr. Abbas primarily argues that Mr. Rudd did not act as quickly as Mr. Abbas in taking action to benefit the putative class before the tender offer expired. (See Abbas Resp. at 5, 12-14.) Specifically, Mr. Abbas argues that Mr. Rudd "waited a month after the Consolidation Stipulation was entered to file his motion for lead plaintiff appointment." (Id. at 14.) Because the court consolidated the actions and Mr. Rudd should have been aware of the MOU, Mr. Abbas contends that Mr. Rudd's "lack of diligence" makes him inadequate. (Id. at 14, n.5.) Mr. Abbas further argues that he is "uniquely qualified to serve" as lead plaintiff because "he is entitled to conduct discovery to investigate whether there is liability for damages" under the MOU, something that he contends other putative class members will not be able to do until they first defeat a motion to dismiss. (Id. at 8, 14, n.6.)
The court concludes that Mr. Abbas has not offered sufficient proof to rebut the presumption on the basis of fairness and adequacy. Mr. Abbas's arguments merely raise the question of "whether another movant"—in this case, Mr. Abbas—"might do a better job of protecting the interests of the class than the presumptive lead plaintiff." Cavanaugh, 306 F.3d at 732, n.10. But the appropriate question is not whether Mr. Abbas was a better putative class representative leading up to Mr. Rudd's and Mr. Abbas's respective motions. See id.; Tanne, 226 F.R.D. at 669 (noting that the question is not whether another movant will do a better job of protecting the class); Solar City, 2017 WL 363274, at *7 (citing Cavanaugh and declining to credit a movant's argument that it would "be a better lead plaintiff" than the presumptively most adequate plaintiff). Rather, Mr. Abbas "must prove" that Mr. Rudd will not be a fair and adequate lead plaintiff going forward. See Cavanaugh, 306 F.3d at 732, n.10 (citing In re Cendant Corp. Litig., 264 F.3d 201, 268 (3d Cir. 2001)). Mr. Abbas has not met his burden of proof here.
Mr. Abbas appears to understand that Ninth Circuit precedent precludes his arguments because he cites almost exclusively out-of-circuit authority, which he suggests should lead the court to conclude that Mr. Abbas is the preferable lead plaintiff. (See Abbas Mot. at 12 (citing Plumbers & Pipefitters Local 562 Pension Fund v. MGIC, 256 F.R.D. 620, 623 (E.D. Wis. 2009)).) For example, Mr. Abbas quotes an Eastern District of Wisconsin case in which the court stated the largest financial interest should be "based on whatever factors seem most appropriate under the facts of the case before it." Plumbers & Pipefitters, 256 F.R.D. at 623. However, that approach to calculating the largest financial interest has no bearing on rebutting the presumptive lead plaintiff's ability to adequately and fairly represent the class, particularly in light of the Ninth Circuit's clear mandate in Cavanaugh. As binding precedent on this court makes clear, it does not matter that Mr. Abbas might be a better lead plaintiff. Rather, Mr. Abbas must affirmatively show that Mr. Rudd will not adequately and fairly protect the class's interests, and Mr. Abbas has not made that showing.
Indeed, courts in the Ninth Circuit have denied lead plaintiff status to plaintiffs who had already done considerable work on behalf of the putative class. For example, in In re Leapfrog Enterprises, Inc. Securities Litigation, a group of plaintiffs had "filed a comprehensive amended complaint," "procured twenty-two document preservation subpoenas," and "developed an intimate knowledge of the case." No. C-03-05421 RNW, 2005 WL 3801587, at *2 (N.D. Cal. Nov. 23, 2005). They contested a plaintiff's appointment because they had "already conferred substantial benefits to the class through their vigorous prosecution of the case." Id. (internal quotation marks omitted). Nevertheless, the court concluded that "Cavanaugh squarely holds that such peripheral issues cannot be the basis for elevating a particular plaintiff to lead status." Id. (citing Cavanaugh, 306 F.3d at 732); see also Smilovits v. First Solar, Inc., No. CV 12-0555 PHX DGC, 2012 WL 3002513, at *5 (D. Ariz. July 23, 2012) (concluding that various factors that made one movant a "superior" lead plaintiff were irrelevant). Because the court concluded that another plaintiff had the largest financial stake in the litigation and met Rule 23's typicality and adequacy requirements, the court appointed that plaintiff lead status. Id. at *4.
For these reasons, the court concludes that Mr. Abbas has not proved that Mr. Rudd will not fairly or adequately represent the class.
iii. Unique Defenses
Mr. Abbas also contends that Mr. Rudd is subject to unique defenses that render him inadequate. Specifically, Mr. Abbas argues that Mr. Rudd will be subject to a laches defense and a defense based on the fact that he may not have tendered his shares in the tender offer. (Abbas Mot. at 14 n.5, 16.) In demonstrating that a presumptive lead plaintiff is subject to a unique defense, the party opposing the presumptive lead plaintiff need "only to show a degree of likelihood that a unique defense might play a significant role at trial." In re CTI Biopharma Corp. Sec. Litig., No. C16-0216RSL, 2016 WL 7805876, at *2 (W.D. Wash. Sept. 2, 2016) (internal quotation marks omitted). A speculative defense "is insufficient to rebut the presumption" that the presumptively most adequate plaintiff "satisfies the adequacy and typicality requirements." Cook v. Atossa Genetics, Inc., No. C13-1836RSM, 2014 WL 585870, at *5 (W.D. Wash. Feb. 14, 2014).
The court finds Mr. Abbas's laches argument unpersuasive. A laches defense rests "on the maxim that 'one who seeks the help of a court of equity must not sleep on his rights.'" AirWair Int'l Ltd. v. Schultz, 84 F. Supp. 3d 943, 955 (N.D. Cal. 2015) (quoting Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 (9th Cir. 2002)). "To prevail on a laches defense," a defendant must show that "the claimant unreasonably delayed in filing suit based on when the claimant knew or should have known of the allegedly infringing conduct" and "as a result of the delay, the defendant suffered prejudice." Id. Mr. Abbas has not shown that it is likely that this defense "might play a significant role at trial." CTI Biopharma, 2016 WL 7805876, at *2; (see also Abbas Mot. at 14 n.5). The court cannot conclude based solely on Mr. Abbas's conclusory assertion that Mr. Rudd unreasonably delayed filing suit after the events that gave rise to the putative class claims or that this argument would be unique to Mr. Rudd. (See Abbas Mot. at 14 n.5 (raising the laches issue in a footnote and providing no substantive argument).) In addition, there is no indication in the record at this time that Defendants have suffered prejudice from any delay on Mr. Rudd's part. (See generally Dkt.)
Mr. Abbas also argues that Mr. Rudd will be subject to a unique defense based on the fact that he did not tender his shares. (Abbas Resp. at 16 ("It is unclear whether or not [Mr.] Rudd tendered his shares in the Tender Offer, which would raise a unique defense. . . .").) As an initial matter, Mr. Abbas does not provide any substantive argument in support of his contention or state specifically why Mr. Rudd would be uniquely subject to this defense. (Id. at 16.) In response, Mr. Rudd argues that this fact is irrelevant and would not subject Mr. Rudd to a unique defense. (See Rudd Reply at 5 n.7 (quoting Plaine v. McCabe, 797 F.2d 713, 718 (9th Cir. 1986)).
The Ninth Circuit has held that "even a non-tendering shareholder may bring suit for violation of [S]ection 14(e)" when the plaintiff shareholder otherwise alleges injury "as a result of fraudulent activity in connection with a tender offer." Plaine, 797 F.2d at 718; see also Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1003 (9th Cir. 2002) (stating that outside of the non-insider trading context, "Section 14(e) can be understood as protecting not only those who buy or sell stocks but also shareholders who decide not to trade"). Without any additional context from Mr. Abbas about why Mr. Rudd does not have standing as a non-tendering shareholder, Plaine's holding appears to undermine Mr. Abbas's argument that Mr. Rudd is subject to a unique defense based on his status as a non-tendering shareholder. In addition, nothing in the record indicates that this defense would be unique to Mr. Rudd. There may be a substantial number of putative class members who are also subject to this defense. See In re Netflix, Inc. Sec. Litig., No. 12-0225 SC, 2012 WL 1496171, at *5 (N.D. Cal. Apr. 27, 2012) (citing Hanon, 976 F.2d at 508-09) (stating that "[t]he point of the [unique defense] requirement is . . . to protect the absent class members from the expense of litigating defenses applicable to lead plaintiffs but not to the class as a whole"). Moreover, courts have routinely stated that a plaintiff may properly be a lead plaintiff even when the plaintiff does not have standing for every claim alleged on the class's behalf. See CTI Biopharma, 2016 WL 7805876, at *4 ("Potential standing issues with respect to certain claims do not preclude appointment as lead plaintiff and can be resolved by the appointment of additional class representatives as the litigation proceeds."). For these reasons, Mr. Abbas has also failed to demonstrate that unique defenses disqualify Mr. Rudd as an adequate lead plaintiff. // // //
3. Appointment of Co-Lead Plaintiffs
In the alternative, Mr. Abbas requests that the court appoint Mr. Rudd and Mr. Abbas co-lead plaintiffs. (Abbas Resp. at 16; Abbas Mot. at 16-17.) He urges the court to appoint co-lead plaintiffs because Mr. Rudd "is the only other movant," "is not an institutional investor," and "owns only slightly more shares" of Outerwall stock than Mr. Abbas, and Mr. Abbas "has already demonstrated his commitment to protecting the rights of the Class." (Id. at 16.) Mr. Abbas cites several authorities from outside of the Ninth Circuit to support his contention that appointing co-lead plaintiffs is appropriate under the circumstances of this case. (See id. (citing In re Baan Co., Sec. Litig., 271 F. Supp. 2d 3, 13 (S.D.N.Y. 2002); Dolan v. Axis Capital Holdings Ltd., No. 04CIV. 8564 (RJH), 2005 WL 883008, at *5-6 (S.D.N.Y. Apr. 13, 2005); Piven v. Sykes Enters., 137 F. Supp. 2d 1295, 1303 (M.D. Fla. 2000)).)
District courts in the Ninth Circuit have declined to appoint co-lead plaintiffs when the plaintiff seeking co-lead status has not shown that its appointment is necessary. See Tanne, 226 F.R.D. at 673 (concluding that "the appointment of co-lead plaintiffs" was not "preferable to the appointment of a single lead plaintiff in this case"); Bodri v. Gopro, Inc., No. 16-cv-00232-JST, 2016 WL 1718217, at *6 (N.D. Cal. Apr. 28, 2016) (declining to appoint a co-lead plaintiff where the movant had not shown that it was necessary "to represent the interests of options purchasers"); see also Hodges v. Immersion Corp., No. C-09-4073 MMC, 2009 WL 5125917, at *4 n.5 (N.D. Cal. Dec. 21, 2009) (stating that even though there may be situations where a district court should appoint co-lead plaintiffs who have no preexisting relationship, such a situation was not present); Weisz v. Calpine Corp., No. 4:02-CV-1200, 2002 WL 32818827, at *3 n.3 (N.D. Cal. Aug. 19, 2002) (declining to appoint a co-lead plaintiff and stating that the matter of a subclass could be addressed upon class certification).
On the other hand, district courts have appointed co-lead plaintiffs where it is necessary to ensure that all plaintiffs are adequately represented. See In re MGM Mirage Sec. Litig., No. 2:09-cv-01558-GMN-LRL, 2010 WL 4316754, at *5 (D. Nev. Oct. 25, 2010) (appointing co-lead counsel to ensure that all plaintiffs—both common stock purchasers and debt securities purchasers—"are adequately represented"). The case law therefore suggests that the decision whether to appoint a co-lead plaintiff often turns on the existence of disparate sub-groups of plaintiffs in the putative class. But where the presumptively most adequate plaintiff acting alone will adequately represent the class, a co-lead plaintiff is unnecessary. See Bodri, 2016 WL 1718217, at *6 (stating that serving as a lead plaintiff is not the same as serving as a class representative and that additional named plaintiffs may later be added to the action to represent specific subclasses of plaintiffs).
In addition, the Ninth Circuit has stated in dicta that the PSLRA "suggest[s] that the district court should appoint only one lead plaintiff" and that appointing more than one lead plaintiff "would . . . tend to run counter to the sequential inquiry" under Cavanaugh. Cohen v. U.S. Dist. Court for the N. Dist. of Cal., 586 F.3d 703, 711 n.4 (9th Cir. 2009); but see In re Oxford Health Plans, Inc. Sec. Litig., 182 F.R.D. 42, 47 (S.D.N.Y. 1998) ("[T]he plain language of the PSLRA expressly contemplates the appointment of more than one lead plaintiff . . . .").
The court concludes that Mr. Abbas has not shown that it is necessary in this case to appoint co-lead plaintiffs. The cases Mr. Abbas cites in his favor on this point // "predate Cavanaugh" or "are from jurisdictions outside the Ninth Circuit." Tanne, 226 F.R.D. at 673. Accordingly, "[t]he rationales [he] offer[s] for the appointment of co-lead plaintiffs . . . appear to be fundamentally at odds with Cavanaugh's interpretation of the PSLRA and its outlining of the process to be used in identifying a lead plaintiff." Id. In addition, as the court discussed in detail above, Mr. Abbas has not shown that Mr. Rudd will not adequately and fairly represent the class's interests. See supra III.A.1.b.ii.
Once again, the court is unpersuaded by the non-binding precedent Mr. Abbas cites. See, e.g., Baan, 271 F. Supp. 2d at 13 (stating that "[c]o-lead plaintiffs are particularly appropriate in a case such as this, in which it appears that there are two or more smaller investors with roughly equal interests [and] no plaintiff with a significantly larger interest than all other plaintiffs" (internal quotation marks omitted)). Even if the court were inclined to follow this case law, the court disagrees that Mr. Rudd and Mr. Abbas have "roughly equal interests" in terms of their financial interest in this litigation.
B. Approval of the Lead Plaintiff's Choice of Counsel
The PSLRA provides that the most adequate plaintiff "shall, subject to the approval of the court, select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v). If the lead plaintiff makes "a reasonable choice of counsel, the district court should generally defer to that choice." Cohen, 586 F.3d at 712. A court may reject the lead plaintiff's choice of counsel, but the court does not have "the authority to select lead counsel of its own choosing." Id. at 709. The court therefore has only "the limited power to accept or reject the lead plaintiff's selection." Id.
Mr. Rudd has selected Robbins Geller as lead counsel and submitted the law firm's resume to the court. (Rudd Mot. at 11; Robbins Geller Resume.) The court concludes that Robbins Geller's resume indicates that the firm is well-qualified to serve // as lead counsel, particularly because the firm has represented clients in dozens of class action securities cases. (See Robbins Geller Resume at 1-5.) Accordingly, the court approves Mr. Rudd's selection of Robbins Geller as lead counsel.
The court's approval of Mr. Rudd's choice of lead counsel therefore necessitates that the court vacate paragraphs 6 and 7 of its September 28, 2016, order on consolidation, which stated that WeissLaw would serve as lead counsel and Breskin Johnson would serve as liaison counsel. (9/28/16 Order ¶¶ 6-7.) The court does not, however, otherwise amend or vacate any other part of the September 28, 2016, order. (See generally id.) --------
IV. CONCLUSION
For the reasons set forth above, the court GRANTS Mr. Rudd's motion for appointment as lead plaintiff (Dkt. # 9), APPROVES his selection of Robbins Geller as lead counsel (Dkt. # 9), and DENIES Mr. Abba's motion for appointment as lead plaintiff and approval of his selection of lead counsel (Dkt. # 13). In addition, the court ORDERS the parties to file a joint status report that proposes a schedule for the filing of a consolidated complaint, any motion to dismiss, and any motion for class certification no later than seven (7) days after the entry of this order.
Dated this 6th day of March, 2017.
/s/_________
JAMES L. ROBART
United States District Judge