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In Erickson, while the court decided to grant certification, it did so after carefully scrutinizing arguments by the defendants that the plaintiffs' damages model was inconsistent with their theory of liability and that benefit-of-the-bargain damages are available as an alternative to out-of-pocket-damages.
Summary of this case from Jaroslawicz v. M&T Bank Corp.Opinion
No. 1:20-cv-09575 (JLR) (KHP)
2023-09-14
John R. ERICKSON, individually and on behalf of all others similarly situated, Plaintiff, v. JERNIGAN CAPITAL, INC., et al., Defendants.
Noam Noah Mandel, Christopher Chad Johnson, Desiree Cummings, Jonathan Charles Zweig, Robbins Geller Rudman & Dowd LLP, New York, NY, for Plaintiff. James P. Smith, III, Matthew Lawrence DiRisio, Winston & Strawn LLP, New York, NY, for Defendants.
Noam Noah Mandel, Christopher Chad Johnson, Desiree Cummings, Jonathan Charles Zweig, Robbins Geller Rudman & Dowd LLP, New York, NY, for Plaintiff. James P. Smith, III, Matthew Lawrence DiRisio, Winston & Strawn LLP, New York, NY, for Defendants. OPINION AND ORDER JENNIFER L. ROCHON, United States District Judge:
Plaintiff John Erickson ("Plaintiff") brings this putative class action against Defendants Jernigan Capital, Inc., Mark Decker, James Dondero, Howard Silver, Harry Thie, and Rebecca Owen (together, "Defendants"), alleging various violations of federal securities law. See ECF No. 36 ("Am. Compl."). Now before the Court is the Report and Recommendation of Magistrate Judge Katharine H. Parker (the "Magistrate Judge"), dated June 12, 2023, addressing Plaintiff's motion for class certification. See ECF No. 95 ("R&R"). The Magistrate Judge recommends that Plaintiff's motion for class certification be granted. Id. Defendants have filed objections to the R&R, which Plaintiff opposes. See ECF Nos. 100 ("Def. Obj."), 101 ("Pl. Opp."). The Court has reviewed all of these submissions. For the reasons set forth below, the Court adopts the R&R in full and certifies the class.
BACKGROUND
Jernigan Capital, Inc. ("Jernigan") was a public Real Estate Investment Trust ("REIT") specializing in self-storage real-estate properties that traded on the New York Stock Exchange. R&R at 1. On October 26, 2020, Jernigan's shareholders voted to sell Jernigan to affiliates of NexPoint Advisors, L.P. ("NexPoint") for $900 million, a transaction that took effect on November 6, 2020 (the "Transaction"). Id. The new entity, privately held, is known as NexPoint Storage Partners. Id.
Plaintiff filed his Complaint, later amended on April 6, 2021, on behalf of former shareholders of Jernigan common stock who voted to approve the Transaction and sold their shares for $17.30 per share as part of the Transaction. R&R at 2. Asserting claims under Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), Plaintiff alleges that the proxy materials ("Proxy") on which shareholders relied when they voted in favor of the Transaction failed to disclose material information that, if known, would have caused them to insist on a higher price for their shares. R&R at 2. In particular, according to Plaintiff, the Proxy did not disclose that Extra Space, a competing REIT operating in the self-storage sector, was participating in the Transaction by providing $300 million in exchange for seats on the new entity's board and rights to Jernigan's properties. Id. Plaintiff seeks money damages for this omission, to be calculated as the difference between Jernigan's fair value and the $17.30 per share that shareholders received from the Transaction. Pl. Opp. at 1.
Plaintiff now moves for class certification under Federal Rule of Civil Procedure 23 ("Rule 23"). R&R at 3. The proposed class consists of all shareholders who held Jernigan common stock as of September 11, 2020 - the record date for eligibility to vote on the Transaction - and who ultimately sold their shares for $17.30 each upon close of the Transaction. Id. Excluded from the proposed class are Defendants, namely Jernigan's officers and directors, along with their immediate family members and legal representatives, heirs, successors and assigns, and any entity in which Defendants have or had a controlling interest. Id.
After the class-certification motion was fully briefed and oral argument was held, the Magistrate Judge recommended granting Plaintiff's motion to certify the class. R&R at 21. The Magistrate Judge concluded that the proposed class satisfied each of the elements required for class certification under Rule 23(a) and (b)(3), focusing on Defendants' Rule 23(a) challenge to Plaintiff's adequacy as a class representative and their Rule 23(b)(3) challenge to Plaintiff's proposed methodology for measuring damages. See id. at 5.
First, the Magistrate Judge found that Plaintiff is an adequate class representative, noting that he had demonstrated a commitment to the class through his participation in the litigation and that he possessed enough relevant experience in the industry to supervise the case and class counsel. R&R at 8. That Plaintiff did not negotiate a cap on his counsel's contingency fee, while relevant to the Magistrate Judge's adequacy inquiry, did not disqualify him from serving as lead plaintiff. Id. at 9. Nor did the Magistrate Judge agree with Defendants that Plaintiff had "ceded control" of this litigation to his proposed class counsel, or that an error in his declaration about the amount of stock that he held - later corrected - suggested an overall lack of diligence. Id. at 10. The Magistrate Judge also noted that Plaintiff's proposed class satisfied the rest of the Rule 23(a) factors. Id. at 6-7.
The Magistrate Judge also found that, under Rule 23(b)(3), common issues of liability and damages predominated over individual issues. R&R at 20. As the Magistrate Judge noted, "all of the class members' claims rise and fall on the same Proxy misstatements and omissions and same theory of loss causation and would be measured in a similar way." Id. Plaintiff's proposed methods of calculating damages did not upset this conclusion. Id. The Magistrate Judge found that Plaintiff's proposed models for measuring damages tracked his claim that a materially false and misleading Proxy "support[ed] a sale price that did not reflect the true value of the Company," allowing the buyer to "purchase it for a discount." Id. at 19. Analyzing various Section 14(a) cases, the Magistrate Judge concluded that Plaintiff's proposed theory of damages - and his suggested methodologies to calculate those damages - represented the "typical measure of damages" in such cases. Id. at 14. The Magistrate Judge deemed benefit-of-the-bargain damages similarly consistent with Plaintiff's theory of liability because the theory suggests that Defendants hid Extra Space's involvement in the Transaction to extract a bargain price on the stock. Id. at 17. As for Defendants' argument that Plaintiff's theory of damages rested on overly speculative assumptions, the Magistrate Judge found it more appropriate to address that issue in the context of a motion for summary judgment rather than in a motion under Rule 23. Id. at 18-19.
On July 5, 2023, Defendants objected to portions of the R&R. Def. Obj. On July 19, 2023, Plaintiff filed his opposition to Defendants' objections. Pl. Opp.
STANDARD OF REVIEW
With respect to dispositive motions, a district court may "accept, reject or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C); see Fed. R. Civ. P. 72(b)(3). A district court must "determine de novo any part of the magistrate judge's disposition that has been properly objected to." Fed. R. Civ. P. 72(b)(3). "To the extent, however, that the party makes only conclusory or general objections, or simply reiterates the original arguments, the Court will review the [R&R] strictly for clear error." Harris v. TD Ameritrade Inc., 338 F. Supp. 3d 170, 174 (S.D.N.Y. 2018). "Objections of this sort are frivolous, general and conclusory and would reduce the magistrate's work to something akin to a meaningless dress rehearsal." N.Y.C. Dist. Council of Carpenters Pension Fund v. Forde, 341 F. Supp. 3d 334, 336 (S.D.N.Y. 2018) (internal quotation marks and citations omitted). Moreover, parties may not raise new arguments for the first time in objections to a report and recommendation. See Piligian v. Icahn Sch. of Med. at Mount Sinai, 490 F. Supp. 3d 707, 716 (S.D.N.Y. 2020); United States v. Gladden, 394 F. Supp. 3d 465, 480 (S.D.N.Y. 2019) (rejecting argument raised for the first time as objection to report and recommendation).
DISCUSSION
Rule 23 governs class certification. In addition to satisfying the prerequisites of Rule 23(a), a proposed class must fall into one of three categories described in Rule 23(b) before it can be certified. Fed. R. Civ. P. 23(b); see Waggoner v. Barclays PLC, 875 F.3d 79, 93 (2d Cir. 2017). Because Plaintiff seeks to certify this class under Rule 23(b)(3), certification requires an additional showing that "common" issues of law or fact "predominate over any questions affecting only individual members," and that a class action is "superior" to other methods of adjudication. Fed. R. Civ. P. 23(b)(3). "Predominance is satisfied if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof." Waggoner, 875 F.3d at 93 (quoting Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015)).
"[C]ertification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied." Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350-51, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011) (internal citation and quotation marks omitted). "The same analytical principles govern Rule 23(b)." Comcast Corp. v. Behrend, 569 U.S. 27, 34, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013). A district court has the "duty to take a 'close look' at whether common questions predominate over individual ones," including whether damages are capable of measurement on a classwide basis. Id. (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 615, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997)). "[C]ourts should examine the proposed damages methodology at the certification stage to ensure that it is consistent with the classwide theory of liability and capable of measurement on a classwide basis." In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 123 n.8 (2d Cir. 2013) (citing Comcast, 569 U.S. at 34-35, 133 S.Ct. 1426).
Here, Defendants raise two objections to the R&R, arguing that the Magistrate Judge erred in (1) finding Plaintiff's proposed damages methodology consistent with his theory of liability, and (2) concluding that benefit-of-the-bargain damages are available. Def. Obj. at 8-18. The Court will address each of Defendants' objections in turn.
A. First Objection
Defendants first argue that the Magistrate Judge erred in concluding that Plaintiff's damages model is consistent with his theory of liability. Def. Obj. at 1-2. On de novo review, the Court agrees with the Magistrate Judge's conclusions, and rejects Defendants' first objection.
When relied upon to certify a class under Rule 23(b)(3), "any model supporting a plaintiff's damages case must be consistent with its liability case." Comcast, 569 U.S. at 35, 133 S.Ct. 1426 (internal quotation marks omitted). In other words, "a model for determining classwide damages . . . must actually measure damages that result from the class's asserted theory of injury." Roach, 778 F.3d at 407 (citing Comcast, 569 U.S. at 35, 133 S.Ct. 1426). Otherwise, such a model "cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)." Comcast, 569 U.S. at 35, 133 S.Ct. 1426. However, damages calculations need not be exact at the class-certification stage. Id.; see Waggoner, 875 F.3d at 105.
According to Defendants, Plaintiff's theories of damages and liability are "irreconcilable." Def. Obj. at 2. To them, Plaintiff's theory of liability assumes that the Jernigan shareholders - had they known of Extra Space's role in the Transaction - would have voted against it. Id. at 11-13. Defendants characterize Plaintiff's damage methodology, by contrast, as one that "assumes that the Transaction closed." Id. at 12. Comcast, according to Defendants, forecloses such "fundamentally mismatched" theories of damages and liability. Id. at 13.
The Court agrees with the Magistrate Judge and Plaintiff that Defendants mischaracterize Plaintiff's theory of liability. See R&R at 19; Pl. Opp. at 11-15. As the Magistrate Judge noted, Plaintiff's liability theory is not that, but for Defendants' actions, Jernigan's shareholders would have rejected the Transaction. R&R at 19. Rather, Plaintiff argues that a materially false and misleading Proxy "support[ed] a sale price that did not reflect the true value of the Company." Id. Plaintiff has maintained this position throughout this case, clarifying more recently at oral argument that "had stockholders . . . known the true facts of this transaction and Extra Space's role in it, they would have insisted on higher consideration" and "on a modification of this deal." Def. Obj. at 11 (quoting Def. Obj., Ex. A at 4 (May 20, 2022 Tr.)); see Am. Compl. ¶¶ 2, 5, 6. The Court declines to narrowly read Plaintiff's statement that Jernigan's shareholders "would not have voted in favor of this deal," which does not by itself suggest that they would have rejected any version of the Transaction wholesale. Def. Obj. at 11-12. The context of Plaintiff's immediately preceding statements - and, indeed, the entire thrust of his pleadings - confirms Plaintiff's liability theory.
The relevant question, then, is whether Plaintiff's theory would "actually measure damages" caused by the conduct that it claims should not have occurred. Roach, 778 F.3d at 407. Plaintiff's theory of damages - namely, that they amount to the difference between Jernigan's fair value and the Transaction's $17.30 per share consideration - is consistent with Plaintiff's argument that the Proxy thwarted a sale price reflecting that higher value. According to Plaintiff, the Proxy harmed the proposed class by enabling Defendants to extract a lower purchase price for the Transaction. R&R at 18. Plaintiff's proposed damages "is consistent with [that] liability case." Comcast, 569 U.S. at 35, 133 S.Ct. 1426. That Plaintiff offers different methods of quantifying Jernigan's fair value, does not foreclose a predominance finding at this juncture. To conclude otherwise would require something close to an exact calculation of damages that is premature at the certification stage. See Comcast, 569 U.S. at 35, 133 S.Ct. 1426. Damages "will be proved, if proved, by common evidence." R&R at 19 (citing Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 310 F.R.D. 69, 99-100 (S.D.N.Y. 2015)).
The Court similarly rejects Defendants' footnoted assertion that the Magistrate Judge failed to consider in her predominance analysis the "range of stockholder-specific factors that would have to be accounted for in a hypothetical, post-rejection world." Def. Obj. at 16 n.12. Such a world is of Defendants' own making. As discussed above, Plaintiff does not argue that the class first had to vote down the Transaction before negotiating for a higher stock price. In any case, none of Defendants' scenarios explain why class members would find themselves in different positions as to the calculation of damages.
B. Second Objection
Defendants also argue that the Magistrate Judge erred in finding that benefit-of-the-bargain damages are available. Def. Obj. at 17-18. The Court agrees, after de novo review, with the Magistrate Judge that Plaintiff could seek to recover such damages as an alternative to out-of-pocket damages. See R&R at 16-17.
Benefit-of-the-bargain damages are available only if they can be established with "reasonable certainty." Osofsky v. Zipf, 645 F.2d 107, 114 (2d Cir. 1981). Under Section 14(a), "plaintiffs are entitled to recover damages equivalent to the benefit of the bargain they would have obtained had full disclosure been made." Wilson v. Great Am. Indus., Inc., 855 F.2d 987, 996 (2d Cir. 1988). Plaintiff can receive benefit-of-the-bargain damages if he can show, as he alleges, that the class members did not receive the true value of their shares at the time of the Transaction. As the Magistrate Judge explained, Plaintiff argues in part that the Proxy failed to disclose that Jernigan's directors themselves valued the company at a higher price per share than was listed. R&R at 17. Such claims, if proved, may establish the "reasonable certainty" required for benefit-of-the-bargain damages. Osofsky, 645 F.2d at 114.
Defendants' attempts to distinguish Wilson are unpersuasive. See Def. Obj. at 17-18. Although Wilson involved proof of fraud, which Plaintiff does not assert in this case, more complete discovery may yet find that Defendants' conduct extended beyond negligence to fraud. See 855 F.2d at 996. As the Magistrate Judge noted, Plaintiff's benefit-of-the-bargain argument is "premised in part on proof that Extra Space's involvement was known prior to the vote on the acquisition and not disclosed." R&R at 17. Nor is Wilson inconsistent with Second Circuit precedent. See Def. Obj. at 17 (citing Osofsky, 645 F.2d at 114). Osofsky ordered benefit-of-the-bargain damages in a case involving misrepresentation in the proxy materials "as to the consideration to be forthcoming upon an intended merger," but did not limit such damages only to that situation. 645 F.2d at 114.
Finally, the Court disagrees with Defendants' assertion that Plaintiff has failed to advance a methodology for calculating such damages on a classwide basis. Def. Obj. at 18. Determining benefit-of-the-bargain damages has "include[d] a valuation of [the company's] future earning power, viewed prospectively from the date of the merger." Wilson, 855 F.2d at 996. It is plain, then, that measuring these damages would "appl[y] equally to all shareholders regardless of the number of shares they held." R&R at 20. The Court is satisfied that benefit-of-the-bargain damages can be measured on a classwide basis in this case and satisfy Rule 23(b)(3) predominance.
CONCLUSION
For the foregoing reasons and, having concluded that there is no clear error in the parts of the R&R to which the parties did not object, the Court adopts the R&R in full and grants the motion to certify the class.
REPORT & RECOMMENDATION MOTION TO CERTIFY CLASS
KATHARINE H. PARKER, United States Magistrate Judge
TO: THE HONORABLE JENNIFER L. ROCHON, United States District Judge
FROM: KATHARINE H. PARKER, United States Magistrate Judge
This case is brought pursuant to Section 14(a) of the Securities and Exchange Act of 1934. Presently before the Court for a Report and Recommendation is Plaintiff's motion for class certification pursuant to Federal Rule of Civil Procedure 23 ("Rule 23"). The Court has carefully reviewed the written submissions of the parties, as well as points discussed during oral argument. For the reasons discussed below, I respectfully recommend that the motion be granted.
BACKGROUND
Jernigan Capital, Inc. ("JCAP") was a public Real Estate Investment Trust ("REIT") specializing in self-storage real estate properties that traded on the New York Stock Exchange. (Erickson Decl. ¶ 3.) On October 26, 2020, JCAP's shareholders voted in favor of a sale to affiliates of NexPoint Advisors, L.P. ("Nexpoint") for $900 million in cash that became effective on November 6, 2020 (the "Transaction"). (Pl.'s Br. 4.) The new entity is known as NexPoint Storage Partners and is privately held. (Id.)
Plaintiff John R. Erickson brings this action on behalf of former shareholders of JCAP common stock who voted to approve the Transaction and sold their shares for $17.30 per share as part of the November 6, 2020 Transaction. (Id. at 1.)
Plaintiff alleges that the Proxy on which shareholders relied when they voted in favor of the Transaction failed to disclose material information that would have caused them to demand and receive a higher price for their shares. Specifically, the Proxy did not disclose that Extra Space, a leading REIT operating in the self-storage sector, was providing $300 million toward the $900 million cash deal in exchange for receiving seats on the post-Transaction board and rights in 37 self-storage properties. (Am. Compl. ("Compl.") ¶ 3.) That fact only came to light on November 9, 2020 - three days after the close of the Transaction. (Id. at ¶ 27.) Plaintiff identifies several misleading statements and omissions in the Proxy. First, the Proxy stated that one reason to approve the Transaction was "the limited interest other REITs operating in the self-storage sector would likely have in acquiring the Company's portfolio" when in fact, according to Plaintiff, Extra Space was highly interested, as evidenced by its undisclosed participation in the Transaction. (Id. at ¶ 7.) Second, the Proxy indicated that there was risk in JCAP remaining an independent public company because it did not have an internal property management platform, when in fact, according to Plaintiff, Extra Space was intending to acquire the rights to manage the company's properties and had a robust third-party management platform. (Id. at ¶ 37.) Third, Plaintiff asserts the Proxy provided financial projections that failed to take into account the presence of Extra Space and internal evaluations of the Company's value. As to the latter information omitted from the Proxy, Plaintiff points to at least one internal JCAP document from May 2020 estimating a net asset value of $18.56 per share - a figure higher than the sale price. (Pl.'s Reply Br. 6; Pl.'s Reply Br Ex. D.) According to Plaintiff, Extra Space's interest in JCAP indicated its confidence in the company, reflecting that JCAP had a higher value than the price ultimately paid to shareholders. (Compl. ¶ 39.) As the Honorable Mary Kay Vyskocil described the claim in her decision denying Defendants' motion to dismiss, "[t]he issue [here] is whether NexPoint acquired the surviving, private entity for a discount by hiding the interest of a leading self-storage REIT in the assets." (Op. & Order Den. Mot. to Dismiss 7, ECF No. 62.)
Plaintiff now moves for class certification pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3). To support the motion, Plaintiff offers an opinion by Dr. Zachary Nye, a financial economist and Vice President at Stanford Consulting Group, Inc., that damages are calculable on a classwide basis. The proposed class consists of all holders of JCAP common stock as of September 11, 2020, the record date for eligibility to vote on the acquisition of JCAP's outstanding common stock by affiliates of NexPoint for $17.30 per share, who ultimately sold their shares for that amount upon the close of the Transaction. (Pl.'s Br. 3.) Plaintiff excludes from the class the Defendants, officers and directors of JCAP, members of their immediate families and their legal representatives, heirs, successors and assigns and any entity in which Defendants have or had a controlling interest. (Id. at 3-4.)
LEGAL STANDARD
Rule 23 provides that a class may be certified when: "(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a).
In addition to the Rule 23(a) requirements set forth above, a class must meet one of the 23(b) criteria. Here, Plaintiff seeks to certify a damages class under Rule 23(b)(3), which requires a demonstration that "common" issues of law or fact "predominate over any questions affecting only individual members," and that a class action is "superior" to other methods of adjudication. Fed. R. Civ. P. 23(b)(3).
Finally, the proposed class must be "ascertainable." See, e.g., In re Petrobras Sec., 862 F.3d 250, 264 (2d Cir. 2017). If the court finds that the requirements of Rule 23 have been met, it may, in its discretion, certify the class. See In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 41 (2d Cir. 2006).
A motion for class certification should not become a minitrial of the merits; the question before the Court is whether the plaintiff meets Rule 23's requirements, not whether the plaintiff will prevail on the merits. In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 135 (2d Cir. 2001); see also Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). At the same time, the Court's analysis under Rule 23 must be "rigorous," Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), which may require it to "probe behind the pleadings" and consider issues that "overlap with the merits of the plaintiff's underlying claim." Comcast Corp. v. Behrend, 569 U.S. 27, 33-34, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013) (internal quotation marks and citations omitted).
Plaintiff bears the burden of showing that Rule 23's requirements are satisfied by at least a preponderance of the evidence. In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 117 (2d Cir. 2013). In determining the appropriateness of class certification, the court may consider the parties' pleadings, declarations and appended supporting materials. See Heredia v. Americare, Inc., 2018 WL 2332068, at *2 (S.D.N.Y. May 23, 2018) ("[A] court may consider material outside the pleadings in determining the appropriateness of class certification").
DISCUSSION
Defendants oppose certification for three reasons. First, they argue that Plaintiff fails to show a viable way to measure damages on a class-wide basis consistent with the theory of liability as required under Rule 23(b)(3) and Comcast Corp. v. Behrend, 569 U.S. 27, 35, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013). Second, they argue that the proposed class definition includes shareholders who lack standing because they sold their shares prior to the November 6, 2020 acquisition. Third, they argue that the lead Plaintiff is not an adequate class representative because he did not negotiate a cap on his counsel's contingency fee and is subject to unique defenses.
1. Class Definition/Standing
Defendants' argument about standing can be disposed of easily as Defendants have misconstrued Plaintiff's proposed class definition. Plaintiff clarifies in the reply brief that the proposed class includes only those shareholders harmed by the Transaction (i.e., those who sold their shares for $17.30 as part of the acquisition) and does not include any shareholders who sold shares prior to the acquisition date (i.e., November 6, 2020). Thus, the class definition, as clarified, is ascertainable and includes only those allegedly harmed by the acquisition.
2. Rule 23(a) Factors
Defendants contest only the last of the four Rule 23(a) factors. Thus, the Court need not tarry on the undisputed 23(a) factors and only addresses them for completeness of the analysis. First, the numerosity requirement is satisfied because the class consists of owners of over 22 million shares of JCAP common stock that was traded on the New York Stock Exchange. In re Signet Jewelers Ltd. Sec. Litig., 2019 WL 3001084, at *8 (S.D.N.Y. July 10, 2019) (recognizing that numerosity is satisfied by a showing that a large number of shares were outstanding and traded during the relevant period).
Second, the commonality requirement of Rule 23(a)(2) is satisfied. Commonality "is generally considered a low hurdle easily surmounted." In re Marsh & McLennan Cos., Inc. Sec. Litig., 2009 WL 5178546, at *9 (S.D.N.Y. Dec. 23, 2009). A single common question of fact or law suffices to satisfy this element. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 359, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011). The common questions of law and fact in this case concern whether the Proxy contained material misrepresentations about JCAP's prospects or omissions about the interest and role of Extra Space in the Transaction. All of the proposed class members' claims turn on the same statements and omissions in the Proxy. This satisfies commonality for purposes of Rule 23(a)(2). Pellman v. Cinerama, Inc., 89 F.R.D. 386, 389 (S.D.N.Y. 1981); Maywalt v. Parker & Parsley Petroleum Co., 147 F.R.D. 51 (S.D.N.Y. 1993); see also In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 122 (2d Cir. 2013) (where misrepresentation was an issue, certification was appropriate where class members were alleged to rely on common statements and facts).
Third, the typicality requirement of Rule 23(a)(3) is satisfied. This requirement is "not demanding." In re EVCI Career Colleges Holding Corp. Sec. Litig., 2007 WL 2230177, at *13 (S.D.N.Y. July 27, 2007). It is satisfied if "each class member's claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant's liability." In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 35 (2d Cir. 2009). In securities class actions such as this, when all of the class members' claims depend on the same alleged misleading proxy, the nature of the evidence will be the same for all and the theories of liability are identical. This is sufficient to satisfy the typicality element of Rule 23(a)(3). In re Bank of Am. Corp. Sec., 281 F.R.D. 134, 139 (S.D.N.Y. 2012).
The fourth element of Rule 23(a) requires that "the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). When assessing this element, the Court evaluates whether Plaintiff's attorneys are qualified, experienced, and able to conduct the litigation and whether Plaintiff's interests are antagonistic to those of the proposed class. Baffa v. Donaldson, Lafkin & Jenrette Sec. Corp., 222 F.3d 52, 60 (2d Cir. 2000); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625-26, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). "Inherent in any class action is the potential for conflicting interests among the class representatives, class counsel, and absent class members." Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1077 (2d Cir. 1995). Some courts have looked at whether a plaintiff has selected appropriate class counsel and negotiated a reasonable retainer in evaluating adequacy in this regard. See In re Cendant Corp. Litig., 264 F.3d 201, 265-66 (3d Cir. 2001); City of Warren Police and Fire Ret. Sys. v. World Wrestling Ent. Ind., 2020 WL 2614703, at *3 (S.D.N.Y. May 22, 2020). Additionally, when a plaintiff is subject to unique defenses, the plaintiff may not be adequate to represent the class because those defenses also may represent a conflict with the class. Baffa, 222 F.3d at 59. Notably, however, "[a] conflict or potential conflict alone will not . . . necessarily defeat class certification—the conflict must be 'fundamental.' " Denney v. Deutsche Bank AG, 443 F.3d 253, 268 (2d Cir. 2006).
Although not disputed, Robbins Geller Rudman & Dowd LLP ("Robbins Geller") is qualified to serve as class counsel. The firm has substantial experience in securities class actions, including in this District, and has been found adequate in a multitude of cases. Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 310 F.R.D. 69, 100 (S.D.N.Y. 2015) (collecting cases in which Robbins Geller has been approved as class counsel).
Defendants argue that Plaintiff is not an adequate representative of the proposed class because he has "ceded control" of this litigation to Robbins Geller, because his "main complaints" were removed from the amended pleading, because he did not negotiate a cap on Robbins Geller's fees, and because he signed a declaration stating he held 155,000 shares as of September 11, 2020 when he actually held 185,000 shares, which Defendants argue impact his lack of diligence and credibility. These arguments are not persuasive for several reasons. First, Plaintiff has already demonstrated a commitment to the class by engaging competent counsel, agreeing to sit for a full day deposition, agreeing to testify at trial and otherwise participating in the litigation by reviewing the pleadings filed, searching his records in response to discovery requests, and meeting with his counsel as required. He had a large number of shares in JCAP and is interested in maximizing the financial recovery obtained through this suit—an interest shared by the proposed class. He is a former Chief Financial Officer of a large publicly-traded private equity firm as well as three publicly-traded REITs with knowledge about the REIT industry. In other words, he has relevant experience to supervise the litigation and class counsel. These facts render him an adequate representative.
By contrast, courts have found a plaintiff to be inadequate when the plaintiff did not know the name of the plaintiff's expert or the content of the expert report, was not familiar with the motion practice before the court, had not reviewed documents produced in the case, was unsure whether he had reviewed all versions of the pleadings filed with the court, or precisely who he was representing. See, e.g., In re Term Commodities Cotton Futures Litig., 2022 WL 485005, at *7 (S.D.N.Y. Feb. 17, 2022) (proposed lead plaintiff showed "an alarming unfamiliarity with the issues in this action and had all but abdicated his responsibilities in this action") (internal quotations omitted). The facts in this case do not come close to those in cases where a Plaintiff has been found inadequate to represent a class.
Second, Defendants incorrectly posit that negotiation of a cap on fees is required to find adequacy. The cases they cite do not stand for this proposition and, although they support a court's consideration of the fee arrangement negotiated when assessing adequacy, do not support a finding that the fee arrangement in this case should disqualify Erickson from being deemed an adequate lead plaintiff. See In re Cendant Corp. Litig., 264 F.3d 201, 265-66 (3d Cir. 2001) (decision upholding approval of class settlement; finding that lead plaintiff who retained investment in defendant company could adequately represent the class against the company; and finding no evidence that any other person could have negotiated substantially lower fee arrangement); c.f. City of Warren Police & Fire Ret. Sys., 2020 WL 2614703, at *3 (on initial motion to appoint lead plaintiff, competitor for lead plaintiff appointment presented evidence that presumptive lead plaintiff lacked litigation experience and experience bearing on the management of securities litigation; court also noted that competitor had negotiated better fee percentage for class with its proposed counsel than presumptive lead plaintiff had negotiated with his proposed lead counsel, which was on the "high side" for similar cases). Relatedly, that Erickson approved a pleading that excised some of his allegations but survived a motion to dismiss does not indicate ceding control to attorneys; rather, it represents following advice of attorneys who are attempting to best position him and the class to recover on their claim. Likewise, Defendants' characterization of Erickson's deposition testimony as reflecting his view that he thought the price paid was fair is an overstatement and inconsistent with his continued pursuit of the claims in this case.
Third, the admitted error in Erickson's declaration about the amount of stock he held was later corrected. This one error, when compared to Erickson's other activities on behalf of the class, do not suggest an overall lack of diligence. Courts have noted that mistakes such as the one made in this case are not so great that they require a finding of inadequacy. Khunt v. Alibaba Grp. Holding Ltd., 102 F. Supp. 3d 523, 538-39 (S.D.N.Y. 2015) ("[M]inor or inadvertent mistakes made in a sworn certification do not strike at the heart of Rule 23's adequacy requirement."); Lapin v. Goldman Sachs & Co., 254 F.R.D. 168, 177 (S.D.N.Y. 2008) ("minor discrepancy" in deposition testimony of representative not disqualifying). "Courts that have denied class certification based on the inadequate qualifications of plaintiffs have done so only in flagrant cases, where the putative class representatives display an alarming unfamiliarity with the suit . . . display an unwillingness to learn about the facts underlying their claims . . . or are so lacking in credibility that they are likely to harm their case." In re Frontier Ins. Grp., Inc. Sec. Litig., 172 F.R.D. 31, 47 (E.D.N.Y. 1997) (internal quotations omitted). That is not the case here.
Defendants also argue that Plaintiff's knowledge and experience of the REIT industry and past encounters with the founder of JCAP could impact the materiality determination and threaten to become a focus of the litigation and the subject of unique defenses. Although typicality and adequacy are separate components of the analysis, they overlap to the extent that a proposed representative subject to unique defenses may prove an inadequate representative for the class. See Beck v. Maximus, Inc., 457 F.3d 291, 301 (3d Cir. 2006) ("A proposed class representative is neither typical nor adequate if the representative is subject to a unique defense that is likely to become a major focus of the litigation."). Defendants' argument is unpersuasive because this case is brought under Section 14(a) where individual reliance is not relevant and the question of materiality is an objective one that is proven by common evidence. In re Willis Towers Watson PLC Proxy Litig., 2020 WL 5361582, at *10 (E.D. Va. Sept. 4, 2020). If anything, Plaintiff's knowledge of the REIT industry may assist lead counsel in prosecuting the case. Further, that Plaintiff had past interactions with Mr. Jernigan is not relevant to whether the statements in the Proxy were misleading from an objective standpoint. Thus, Plaintiff satisfies the adequacy requirement for being a lead plaintiff.
3. Rule 23(b) Factors
The focus of Defendants' opposition to class certification centers on Plaintiff's damages methodology. Defendants contend that Plaintiff's damages model: 1) is not consistent with Plaintiff's theory of liability; 2) its damages theory is based on lost opportunity damages and too speculative to be a basis for relief; and 3) the general framework for calculating damages proposed is not applicable on a class wide basis. For these reasons, Defendants contend the class issues do not satisfy Rule 23(b)(3)'s predominance requirement.
Defendants' third argument is premised on their mistaken description of the proposed class - that it includes stockholders who sold their shares prior to the going private Transaction. It is without merit for this reason, and I do not address it further.
Defendants' first argument, premised on the Supreme Court's decision in Comcast, is that the proposed methods of calculating damages do not track the theory of liability - that is, they do not flow from the misleading proxy. Their second argument is that the proposed methods of calculating damages are insufficient to certify a class because they rely on speculative assumptions that the merger would not have been approved absent the misleading Proxy and/or that a higher price could have been obtained from NexPoint if information about Extra Space had been disclosed. I discuss these arguments and whether they defeat predominance below.
a. Predominance
" 'Predominance is satisfied if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof.' " Waggoner v. Barclays PLC, 875 F.3d 79, 93 (2d Cir. 2017) (quoting Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015)). This requirement is "far more demanding" than the commonality requirement under Rule 23(a)(2). Amchem Prods., 521 U.S. at 623-24, 117 S.Ct. 2231. Designed to test the proposed class's cohesiveness, the predominance inquiry "asks whether the common, aggregation-enabling issues in the case are more prevalent or important than the non-common, aggregation defeating individual issues." Tyson Foods, Inc. v. Bouaphekeo, 577 U.S. 442, 453, 136 S.Ct. 1036, 194 L.Ed.2d 124 (2016) (internal quotation marks and citations omitted). This is a qualitative, not quantitative, inquiry, where the Court "must account for the nature and significance of the material common and individual issues in the case". In re Petrobras Sec., 862 F.3d at 271. "Considering whether 'questions of law or fact common to class members predominate' begins, of course, with the elements of the underlying cause of action." Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 809-10, 131 S.Ct. 2179, 180 L.Ed.2d 24 (2011) ("Halliburton I").
To succeed on a Section 14(a) claim, a plaintiff must prove that (1) a proxy statement contained a material misrepresentation or omission, which (2) caused plaintiff's injury, and (3) that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction. Bond Opportunity Fund v. Unilab Corp., 87 F. App'x 772, 773 (2d Cir. 2004). A statement is material "if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." Resnik v. Swartz, 303 F.3d 147, 151 (2d Cir. 2002) (internal quotations omitted); Koppel v. 4987 Corp., 167 F.3d 125, 131 (2d Cir. 1999). A material omission is actionable "if either the SEC regulations specifically require disclosure of the omitted information in a proxy statement, or the omission makes other statements in the proxy statement materially false or misleading." Resnik, 303 F.3d at 151. Notably, reliance is not an element of the claim. In other words, no individualized inquiry is needed to determine if the Proxy was misleading. In re Bank of Am. Corp. Sec., 281 F.R.D. 134, 141-42 (S.D.N.Y. 2012). The damages model is central, and a plaintiff must prove both "transaction causation" and "loss causation" to prevail. Koppel, 167 F.3d at 137. Defendants' arguments focus on loss causation and merits issues - that Plaintiff's proposed damages and damages model do not track the theory of liability and is too speculative.
Transaction causation, often called reliance, focuses on the materiality of a misstatement or omission. It is generally easier to establish than loss causation. See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 345-46, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). Where materiality is alleged and proven, proof of reliance on the particular statement or omission is not necessary. Grace v. Rosenstock, 228 F.3d 40, 47 (2d Cir. 2000) ("We have also noted that both loss causation and transaction causation must be proven in the context of a private action under § 14(a) of the 1934 Act and SEC Rule 14a-9 promulgated thereunder."). While a plaintiff must prove that the Proxy was materially misleading to prevail, to obtain certification under Rule 23, proof of materiality is not necessary to ensure that the questions of law or fact common to the class will predominate over any questions affecting only individual members of the class. Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 467, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013). The question of materiality is an objective one—asking what the significance of an omitted or misrepresented fact is. Id. at 467-68, 133 S.Ct. 1184. Thus, in a Section 14(a) claim such as this, materiality can be proven through evidence common to the entire class. Defendant does not argue otherwise.
Although loss causation must be shown to win a Section 14(a) claim, the Supreme Court has held that it need not be proven to obtain certification of a class. Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 807, 131 S.Ct. 2179, 180 L.Ed.2d 24 (2011) (Halliburton I). Of course, the court must take a "close look' " at the connection between a plaintiff's theory of damages and theory of liability to ensure that the damages measured are those resulting from the alleged fraudulent Proxy. See Comcast, 569 U.S. at 34, 133 S.Ct. 1426; Waggoner, 875 F.3d at 105 (explaining that Comcast precludes class certification when a damages model fails to measure the injury flowing from the alleged wrong). But, damages calculations need not be exact at the class certification stage. Id.
The Court does not credit Plaintiff's suggestion that Comcast does not apply to this case because it is based on an out of Circuit case law and inconsistent with other securities cases in this Circuit applying Comcast.
Here, Plaintiff proposes that the damages are the difference in the price received for the shares (i.e., $17.30) and the value the shareholders should have received absent the materially misleading Proxy. This is a typical measure of damages. See Goldkrantz v. Griffin, 1999 WL 191540, at *7 (S.D.N.Y. Apr. 5, 1999) ("The normal measure of recovery is out-of-pocket damages, defined as the difference between the price paid for the security and its true value absent the fraud on the date of the transaction") (citations omitted); see also Brown v. Brewer, 2010 WL 2472182, at *25 (C.D. Cal. June 17, 2010) (under Section 14(a), "[t]he out-of-pocket rule fixes recoverable damages as the difference between the purchase price and the value of the stock at the date of purchase") (internal quotations omitted). In Goldkrantz, cited by Defendants, a similar case where the plaintiff sought "actual damages," the court granted summary judgment to the defendant finding too speculative a claim that the shareholders would have been able to negotiate a better price for their shares had the acquiring company not paid for a license agreement securing rights to use the target company's CEO's name and likeness. 1999 WL 191540, at *8. Notably, however, Goldkrantz was a decision on motion for summary judgment where merits were considered - not a motion under Rule 23. The decision does not support denial of class certification but rather suggests that Plaintiffs may have a difficult time proving damages - something Judge Vyskocil already recognized when denying Defendants' motion to dismiss.
Plaintiff also notes that the class could recover benefit-of-the-bargain damages. Benefit-of-the bargain damages are available in limited circumstances if they can be established with reasonable certainty. Osofsky v. Zipf, 645 F.2d 107, 114 (2d Cir. 1981). Benefit-of-the-bargain damages are typically sought under a contract theory and are based on "the bargain that was actually struck, not on a bargain whose terms must be supplied by hypotheses about what the parties would have done if the circumstances surrounding their transaction had been different." Goldkrantz, 1999 WL 191540, at *7; see also Barrows v. Forest Lab. Inc., 742 F.2d 54, 60 (2d Cir. 1984) (benefit-of-the-bargain damages are too speculative if they are sought "based on the value the stock purportedly would have had if [defendant's] true financial condition had been publicly known at the time of the transaction.").
Although reasonable certainty is required to prove damages at the merits stage of a case, that damages cannot be calculated with absolute precision does not render them unrecoverable. For example, in Wilson v. Great American Industries, Inc., former minority shareholders brought a claim under Section 14(a) claiming the proxy statement for a merger was misleading. 855 F.2d 987 (2d Cir. 1988). Following a bench trial, the court granted judgment in favor of defendants. The Second Circuit reversed and remanded, finding that certain omissions and representations in the proxy were material and that the shareholders were damaged - that the stock was worth more than the value placed upon it in the proxy. Id. at 996-97. The court found that plaintiffs were entitled to benefit-of-the-bargain damages equivalent to what they would have obtained had full disclosure been made to them. It stated that damages "should include a valuation of [the company's] future earning power, viewed prospectively from the date of the merger." Id. at 996. Notably, the court stated that, "[d]espite the somewhat speculative nature of the defendants' profit as viewed from the date of the merger, once it is established that the defendants acquired the company by fraud, 'the profit was the proximate consequence of the fraud;' it is thus 'more appropriate to give the defrauded party the benefit even of windfalls than to let the fraudulent party keep them.' " Id. (quoting Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir. 1965), cert. denied, 382 U.S. 879, 86 S.Ct. 163, 15 L.Ed.2d 120 (1965)). It also stated that "[a] court may award a plaintiff the unrealized appreciation of securities acquired through fraud." Id. Thus, although Plaintiff in this case characterizes the damages sought as "actual" damages, the class alternatively may seek to recover benefit-of-the-bargain damages. Plaintiff's theory of damages is that the class did not receive the true value of their shares at the time of the sale. This theory is premised in part on proof that Extra Space's involvement was known prior to the vote on the acquisition and not disclosed to deceive shareholders into approving the Transaction at a lower cost than the value of the company with Extra Space's involvement. In other words, Extra Space was a secret partner to the deal and Defendants were hiding its involvement to extract a bargain price on the stock. The Proxy's misleading statements and omissions suggested that no competitor (such as Extra Space) was interested in the company when in fact Extra Space was financing a third of the Transaction cost. Alternatively, or additionally, Plaintiff argues that the Proxy failed to disclose that JCAP management actually valued the Company at a higher price per share than listed in the proxy as evidenced by documents such as the May 2020 projections that were not disclosed and go directly to the price that the class should have received rather than the one they approved and received based on an allegedly fraudulent Proxy. Plaintiff proposes to conduct a valuation of the company using accepted economic methodologies for valuing a private company.
Additionally, courts have recognized that damages can be recovered under a disgorgement or consequential damages theory. See Panos v. Island Gem Enterprises, Ltd., N.V., 880 F. Supp. 169, 176 (S.D.N.Y. 1995). Panos involved various contract and fraud claims, including a claim under Section 10(b) of the Securities Exchange Act of 1934. After the case had been pending for twelve years and discovery was largely completed, the defendants filed a motion in limine to restrict the plaintiffs' potential compensatory recovery for the securities fraud to out-of-pocket losses or, alternatively, rescissionary damages and strike their claim for benefit-of-the-bargain damages. The court granted to motion in part, finding that benefit-of-the-bargain damages for the securities claim were too speculative. The court in Panos recognized that "[t]he choice of any one theory over another often depends on how the court characterizes the transaction and the fraud." Id. Since Plaintiffs do not argue that they are seeking disgorgement or consequential damages, I merely note they are available.
Specifically, their expert proposes that the value of the shares should equal the present value of expected cash flows to the investor; that is, a discounted cash flow model. (Nye Report 8, ECF No. 78-2.) Their expert states this type of model is commonly used by professional REIT investors to determine a stock's value. Id. at 8-9. He goes on to explain that this type of model forecasts a firm's "free cash flow up to some horizon, together with a terminal (continuation) value of the enterprise[,] . . . typically based on the expected long-run growth rate of the firm's revenues." Id. at 9. Plaintiff contends that discovery regarding expected future cash flows with Extra Space's involvement, together with other discovery, could provide a reliable estimate of the "true value" of the stock at the time of the Transaction. Id. Alternatively, Plaintiff's expert opines that the firm's value can be estimated based on the value of other comparable firms using a model that adjusts for differences in scale between firms by expressing their value in terms of a valuation multiple. Id. at 10. He states that this valuation method is based on widely accepted principles and methods of financial economics and is used by most brokerage firms when discussing REIT recommendations. Id. at 11. While discovery may not ultimately support Plaintiff's theory of the case, the proposed damages models are consistent with their theory that Extra Space was hiding in the wings and, together with Defendants, planned to profit from the Transaction by extracting a lower purchase price from the class by suggesting, among other things, that no other REIT in the self-storage space was interested in JCAP and hiding the fact that internal valuations of share price were higher than that listed in the Proxy.
Defendants' expert does not criticize Plaintiff's proposed valuation methods, rather, he attacks the merits of the theory - suggesting it is speculative that a higher price for the stock could have been negotiated or that Extra Space would have been involved at a higher price. But Defendants made this same argument in their motion to dismiss and it was rejected by the Court. Judge Vyskocil recognized that "[m]ultiple courts have also found that where, as here, a plaintiff asserts that shareholders were misled into approving an acquisition that undervalued the company, loss causation is adequately alleged." Baum v. Harman Int'l Indus., Inc., 408 F. Supp. 3d 70, 92 (D. Conn. 2019); (Op. & Order Den. Mot. to Dismiss 8, ECF No. 62.) Defendants' argument is more appropriate to raise again after discovery on a motion for summary judgment - not on a motion under Rule 23 - because the argument does not go to whether common issues predominate. Loss causation (and transaction causation) will be proved, if proved, by common evidence. Carpenters Pension Tr. Fund of St. Louis, 310 F.R.D. at 99-100In other words, common issues clearly predominate here.
During oral argument Defendants also argued that an individualized assessment of damages would be needed, again characterizing Plaintiff's theory to be that but for the fraud they would not have approved the Transaction. But, as discussed above, this is a mischaracterization of the theory. Plaintiff argues that the Proxy's misstatements and omissions were designed to support a sale price that did not reflect the true value of the Company so that Defendants could purchase it for a discount. Defendants' arguments go to merits issues and causation, not whether the damages match the theory of liability or whether common issues predominate. Further, to the extent Defendants suggest that damages must be capable of measurement on a classwide basis to obtain class certification, that is not the law. Roach v. T.L. Cannon Corp., 778 F.3d 401, 408 (2d Cir. 2015); In re JPMorgan Chase & Co. Securities Litigation, 2012 Civ. 03853, 2015 WL 10433433, *7 (Sept. 29, 2015). When evaluating predominance under Rule 23, the Court must determine whether "the common, aggregation-enabling, issues in the case are more prevalent or important than the non-common, aggregation-defeating, individual issues." In re Petrobras Securities, 862 F.3d 250, 271 (quoting Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442, 452, 136 S.Ct. 1036, 194 L.Ed.2d 124 (2016)). "Predominance is satisfied if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issue subject only to individualized proof." Waggoner v. Barclays PLC, 875 F.3d 79, 93 (2017) (quoting Roach, 778 F.3d at 405). In any event, Plaintiff's model would apply in the same way to all class members because it is measuring the true value of the shares on the date of the Transaction versus the price paid - a difference that applies equally to all shareholders regardless of the number of shares they held. Here, all of the class members' claims rise and fall on the same Proxy misstatements and omissions and same theory of loss causation and would be measured in a similar way.
For these reasons, there are common questions on liability and damages that satisfy the predominance requirement of Rule 23(b)(3), and class certification is not defeated merely because the proposed theory of damages will be hard to prove
b. Superiority
Superiority is not challenged by Defendants. Nevertheless, I address it for completeness. When assessing whether a class action is superior to individual actions, the Court considers various factors including:
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.Fed. R. Civ. P. 23(b)(3).
Based on these factors, it is clear that proceeding as a class action in this case is appropriate and superior to individual actions. As a general matter, class actions are generally superior to individual cases in securities cases like this one. See Lapin v. Goldman Sachs & Co., 254 F.R.D. 168, 187 (S.D.N.Y. 2008) ("In general, securities suits . . . easily satisfy the superiority requirement of Rule 23."); see also In re BearingPoint, Inc. Sec. Litig., 232 F.R.D. 534, 542 (E.D. Va. 2006) ("Securities fraud cases are particularly appropriate candidates for [certification] treatment under Rule 23(b) (3) . . . .") (citing Amchem, 521 U.S. at 625, 117 S.Ct. 2231). Here, because the shareholders have common claims and varying damages based on the number of shares they held, there are economies of scale in proceeding as a class, particularly with those holders of only a few shares. There is also a risk of inconsistent judgments if there were multiple actions challenging the same proxy, making it desirable to concentrate the claims in one forum. Proceeding as a class is also efficient given the nature of the proof and there are unlikely to be difficulties managing this case as a class.
CONCLUSION
For the reasons set forth above, I respectfully recommend that the motion for class certification be granted.
NOTICE
The parties shall have fourteen days from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed. R. Civ. P. 6(a) , (d) (adding three additional days only when service is made under Fed. R. Civ. P. 5(b)(2)(C)(mail) , (D) (leaving with the clerk), or (F) (other means consented to by the parties)). A party may respond to another party's objections after being served with a copy. Fed. R. Civ. P.72(b)(2).
Plaintiff shall have fourteen days to serve and file any response. Defendant shall have fourteen days to serve and file any response. Any objections and any responses to such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Jennifer L. Rochon at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and served on the other parties. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a) , 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Rochon. The failure to file timely objections shall result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a) , 6(d), 72(b); Thomas v. Arn , 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985).