Opinion
CV-23-02131-PHX-DJH (DMF)
02-29-2024
John Tenneson, et al., Plaintiffs, v. Nikola Corporation, et al., Defendants.
TO THE HONORABLE DIANE J. HUMETEWA, UNITED STATES DISTRICT JUDGE:
REPORT AND RECOMMENDATION
Honorable Deborah M. Fine, United States Magistrate Judge.
Pursuant to Rules 72.1 and 72.2 of the Local Rules of Civil Procedure (“LRCiv”), this matter is on referral to the undersigned for further proceedings and a report and recommendation on the pending Motions to Appoint Lead Plaintiff and Counsel. (Docs. 6, 7, 8; Doc. 20 at 2)
On October 13, 2023, plaintiff John Tenneson filed a class action Complaint under the Securities Exchange Act of 1934 (“Exchange Act”), naming as Defendants Nikola Corporation and five of its executive officers. (Doc. 1) On December 12, 2023, three prospective lead plaintiffs (collectively, “Movants”) filed Motions to Appoint Lead Plaintiff and Counsel in this action: Randolph C. Reyes (Doc. 6), Federico Aucejo & Pat Mutzel (Doc. 7), and Caleb Peterson & Matthew Cool (Docs. 8, 9). Movants have each filed a response (Docs. 10, 11, 12) and a reply (Docs. 13, 14, 15).
In compliance with LRCiv 7.2(f), Randolph C. Reyes requested oral argument in his motion to be appointed lead plaintiff. (Doc. 6 at 1) Upon review, oral argument is not necessary for the resolution of the competing Motions to Appoint Lead Plaintiff.
For the reasons set forth below, it is recommended that the Motion of Randolph C. Reyes for Appointment as Lead Plaintiff and Approval of Selection of Counsel (Doc. 6) be granted, that Randolph C. Reyes be appointed lead plaintiff in this matter, and that Randolph C. Reyes' selection of lead and local liaison counsel be approved. It is further recommended that the Motion of Federico Aucejo and Pat Mutzel for Appointment as Lead Plaintiff and Approval of Counsel (Doc. 7) and the Motion of Caleb Peterson and Matthew Cool for Appointment as Co-Lead Plaintiffs and Approval of Counsel (Doc. 8) be denied.
I. BACKGROUND
This is a securities fraud class action brought under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and 17 C.F.R. § 240.10b-5 against Nikola Corporation (“Nikola”) and five of its executive officers (collectively, “Defendants”) on behalf of all persons and entities that purchased or acquired Nikola securities between February 24, 2022, and September 7, 2023 (“the class period”). (Doc. 1) Nikola operates as an “integrated zero-emissions transportation systems provider that designs and manufactures battery-electric and hydrogen electric vehicles,” including the Nikola Tre Class 8 Truck. (Id. at 2-3, ¶ 2) The Nikola Tre truck is battery-electric, “integrates [the Company's] electrified propulsion, technology, controls and infotainment” and “is expected to be one of the first zero emission Class 8 trucks to market.” (Id.)
On June 23, 2023, a Nikola Tre truck caught fire, with the fire spreading to four additional trucks. (Id. at 3, ¶ 4) In response to the fire, Nikola opened an investigation and posted a tweet asserting that “[f]oul play is suspected as a vehicle was seen in the area of the affected trucks just prior to the incident and an investigation is underway.” (Id.) Nikola's stock price subsequently fell $0.09 per share, or 6.52%, and closed at $1.29 per share on June 23, 2023. (Id., ¶ 5)
On August 11, 2023, Nikola recalled “all 209 battery-electric trucks that it had delivered or built to date after the investigation found that a coolant leak inside a battery pack had caused the fire.” (Id., ¶ 6) Nikola's stock price subsequently fell $0.13 per share, or 6.67%, and closed at $1.82 per share on August 14, 2023. (Id. at 4, ¶ 7)
On September 4, 2023, and September 8, 2023, two additional Nikola trucks caught fire. (Id., ¶¶ 8-9) Nikola made an online statement that “there was a thermal incident with one engineering validation battery-electric truck near Nikola's Phoenix headquarters. No one was injured. This pre-production truck was outside and undergoing battery fire investigation and testing.” (Id., ¶ 9) Following Nikola's statement, Nikola's stock price fell $0.16 per share, or 15.38%, and closed at $0.88 per share on September 8, 2023. (Id., ¶ 10)
The October 13, 2023, Complaint in this matter alleges that Defendants' wrongful acts and admissions, resulting in “the precipitous decline in the market value of the Company's securities,” caused Plaintiffs and other class members to suffer significant losses and damages. (Id., ¶ 11) Specifically, Plaintiffs allege that Defendants made materially false and misleading statements or failed to disclose that “(i) the Company maintained deficient safety and structural controls related to its manufacturing of battery components; (ii) the foregoing deficiencies rendered Nikola's vehicles unsafe to operate and thus unusable, thereby raising the likelihood of a product recall; and (iii) as a result, the Company's public statements were materially false and misleading at all relevant times.” (Id. at 3, ¶ 3)
II. APPOINTMENT OF LEAD PLAINTIFF
A. Legal Standard
The Private Securities Litigation Reform Act (“PSLRA”) sets forth the procedure and requirements to select a lead plaintiff in a class action brought under the Exchange Act. 15 U.S.C. § 78u-4(a)(3). The Ninth Circuit has set forth a three-step process to determine the appropriate lead plaintiff. In re Cavanaugh, 306 F.3d 726, 729-31 (9th Cir. 2002).
At step one, a court must determine whether notice under the PSLRA has been satisfied. Id. at 729. Within 20 days of filing the Complaint, the plaintiff responsible for filing the Complaint must file a notice that advises purported class members of the suit, the asserted claims, the purported class period, and that within 60 days of the notice's publication, any purported class member may move to serve as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A)(i).
At step two, a court must determine which movant seeking to be appointed lead plaintiff has the largest financial interest and satisfies the requirements of Federal Rule of Civil Procedure (“Fed. R. Civ. P.”) 23(a). In re Cavanaugh, 306 F.3d at 730. The PSLRA provides a rebuttable presumption:
that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that--
(aa) has either filed the complaint or made a motion in response to a notice under subparagraph (A)(i);
(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.15 U.S.C. § 78u-4(a)(3)(B)(iii)(I).
Fed. R. Civ. P. 23(a) provides that:
One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
(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.
Only subsections (3) and (4) of Fed.R.Civ.P. 23(a), typicality and adequacy, are relevant to the selection of the lead plaintiff. In re Cavanaugh, 306 F.3d at 730. “If the plaintiff with the largest financial stake in the controversy provides information that satisfies these requirements, he becomes the presumptively most adequate plaintiff.” Id. A plaintiff seeking to be appointed lead plaintiff must only make a prima facie showing that the plaintiff satisfies the adequacy and typicality requirements of Fed.R.Civ.P. 23(a)(3) and (4). See Smilovits v. First Solar, Inc., No. CV-12-00555-PHX-DGC, 2012 WL 3002513, at *3 (D. Ariz. July 23, 2012) (citing In re Cavanaugh, 306 F.3d at 731, n.6).
At step three, other movants seeking to be appointed lead plaintiff have the opportunity to rebut the presumption that the presumptive plaintiff with the largest financial stake is the most adequate plaintiff. In re Cavanaugh, 306 F.3d at 730. This presumption is rebuttable:
only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff--
(aa) will not fairly and adequately protect the interests of the class; or (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).
If the moving plaintiff with the largest financial stake cannot satisfy the criteria of Fed.R.Civ.P. 23(a), a court must consider “the plaintiff with the next-largest financial stake, until it finds a plaintiff who is both willing to serve and satisfies the requirements of Rule 23.” In re Cavanaugh, 306 F.3d at 730.
Because the Court concludes that Reyes, an individual Movant, is the presumptive lead plaintiff, the Court need not evaluate whether Aucejo & Mutzel or Peterson & Cool satisfy the requirements of Fed.R.Civ.P. 23(a). As such, the Court does not reach Reyes' argument that Aucejo & Mutzel and Peterson & Cool are improper investor groups and consequently inadequate. (See Doc. 10 at 12-16; Doc. 13 at 14-16)
B. Movants' Arguments
All Movants agree that the notice requirement of the PSLRA has been satisfied. Notice of this action was published in Accesswire on October 13, 2023, by Pomerantz LLP. (Doc. 6 at 10; Doc. 6-4 at 2; Doc. 7 at 5; Doc. 7-1 at 2; Doc. 8 at 9; Doc. 9-2 at 2) On December 12, 2023, in response to the Notice and within the 60-day period prescribed by the PSLRA, three Movants filed motions to be selected as lead plaintiff or co-lead plaintiffs (collectively, “competing Motions to Appoint Lead Plaintiff'): Randolph C. Reyes (“Reyes”) (Doc. 6); Federico Aucejo & Pat Mutzel (“Aucejo & Mutzel”) (Doc. 7); and Caleb Peterson & Matthew Cool (“Peterson & Cool”) (Docs. 8, 9).
In their competing Motions to Appoint Lead Plaintiff, each Movant asserted that it maintains the largest financial interest in this matter: Reyes claimed that he suffered a financial loss of $345,910.94 (Doc. 6 at 11); Aucejo & Mutzel claimed a combined financial loss of $265,756.53 (Doc. 7 at 6); and Peterson & Cool claimed a combined financial loss of $197,629. (Doc. 8 at 10-11) Each Movant further asserted that it satisfied the typicality and adequacy requirements of Fed.R.Civ.P. 23(a). (Doc. 6 at 11-14; Doc. 7 at 6-8; Doc. 8 at 11-15)
On December 26, 2023, Movants each filed a response to the competing Motions to Appoint Lead Plaintiff. (Docs. 10, 11, 12) In his response, Reyes reasserted that he has the largest financial interest and asserted that the other Movants cannot rebut the presumption that he is the most adequate plaintiff. (Doc. 10) Reyes also argued that Peterson & Cool and Aucejo & Mutzel are inadequate lead plaintiffs because neither Movant group has shown cohesiveness or a pre-litigation relationship. (Id. at 12-16) In their response, Peterson & Cool acknowledged that Reyes as well as Aucejo & Mutzel claimed larger financial losses than Peterson & Cool, but argued that Reyes as well as Aucejo & Mutzel are inadequate lead plaintiffs for failure to make a prima facie showing of adequacy under Fed.R.Civ.P. 23(a). (Doc. 11) Aucejo & Mutzel asserted in their response that together they have the largest financial interest in this controversy and that neither Reyes nor Peterson & Cool rebutted the presumption that Aucejo & Mutzel are the most adequate lead plaintiff. (Doc. 12) Further, Aucejo & Mutzel suggest that Reyes and Peterson & Cool may be subject to a unique defense, namely that Reyes and Peterson & Cool did not hold Nikola shares over Nikola's first corrective disclosure in June 2023 and subsequently increased their Nikola holdings. (Id. at 6, footnote 2)
On January 2, 2024, Movants each filed a reply to the competing Motions to Appoint Lead Plaintiff. (Docs. 13, 14, 15) In his reply, Reyes asserted that Aucejo & Mutzel used an improper method to calculate the largest financial interest in this controversy and that Peterson & Cool improperly speculated without proof that Reyes would be an inadequate lead plaintiff. (Doc. 13) Reyes also refutes the suggestion by Aucejo & Mutzel that Reyes not holding shares over Nikola's first corrective disclosure in June 2023 undermines his suitability as lead plaintiff. (Id. at 12, footnote 2) In reply, Peterson & Cool reasserted that neither Reyes nor Aucejo & Mutzel have made aprima facie showing of adequacy. (Doc. 14) Aucejo & Mutzel asserted in their reply that they have provided information to establish their adequacy, and that Reyes is incorrect that Aucejo & Mutzel are inadequate due to a lack of cohesion or a prelitigation relationship. (Doc. 15)
C. Presumptive Lead Plaintiff Determination
1. Step One: Notice and Timely Filing of Motions to Be Appointed Lead Plaintiff
The PSLRA requires that plaintiffs seeking to be appointed as lead plaintiff must move for such selection with 60 days of a notice advising putative class members of the suit. 15 U.S.C. § 78u-4(a)(3)(A)(i). The notice must be published within 20 days of the filing of the Complaint and must “alert[] members of the putative class of the pendency of the action, the claims asserted, and the purported class period[.]” Alich v. Opendoor Technologies Inc., No. CV-22-01717-PHX-MTL, 2023 WL 1472849, at *3 (D. Ariz. Feb. 2, 2023).
Notice of this action was published by Pomerantz LLP in Accesswire on October 13, 2023, the same date on which the Complaint in this matter was filed. (Doc. 1; Doc. 64 at 2; Doc. 7-1 at 2; Doc. 9-2 at 2) The notice in Accesswire alerted putative class members to this action and to the December 12, 2023, deadline to file a motion to be appointed lead plaintiff, informed putative class members of the claims in the Complaint, and stated the class period. (Id.) As correctly reflected in the notice, Motions to Appoint Lead Plaintiff were due on December 12, 2023, 60 days after notice of this action was published. Reyes, Aucejo & Mutzel, and Peterson & Cool each filed timely competing Motions to Appoint Lead Plaintiff on December 12, 2023. (Docs. 6, 7, 8, 9) In doing so, Movants have each satisfied the first requirement of the PSLRA.
2. Step Two: Largest Financial Interest and Fed.R.Civ.P. 23(a) Typicality and Adequacy a. Largest Financial Interest
Because the PSLRA does not prescribe a method to determine which Movant has the largest financial interest, the Court must “compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit” by using “accounting methods that are both rational and consistently applied.” In re Cavanaugh, 306 F.3d at 730, n.4. At this step, the Court “must rely on the presumptive lead plaintiff's complaint and sworn certification; there is no adversary process to test the substance of those claims.” Id. at 730 (citing In re Cendant Corp. Litigation, 264 F.3d 201, 264 (3d Cir. 2001)).
Courts in the Ninth Circuit have commonly applied one of two methods to determine greatest financial interest. The first method approximates economic losses, in which courts typically consider the four Lax-Olsten factors: “(1) total shares purchased, (2) net shares purchased, (3) net funds expended, and (4) approximate losses suffered.” McGee v. American Oriental Bioengineering, Inc., 2012 WL 12895668, at *3 (C.D. Cal. Oct. 16, 2012) (collecting cases); see also In re Olsten Corp. Sec. Litig., 3 F.Supp. 286, 295 (E.D.N.Y. 1998) (citing Lax v. First Merchants Acceptance Corp., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997)). The fourth factor, approximate losses suffered, is often provided the greatest weight. Id. To determine which proposed lead plaintiff has suffered the largest financial loss, district courts most frequently use the “Last-In, First Out” (“LIFO”) method, in which “the last stocks acquired are assumed to be the first sold.” Id.; Ferreira v. Funko, Inc., 2020 WL 3246328, at *5 (C.D. Cal. June 11, 2020). Following the Supreme Court's opinion in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), some courts have also excluded losses from stock trades that occurred prior to a defendant's disclosure of fraud, because such losses do not stem from any misrepresentation. See Peters v. Twist Bioscience Corp., 2023 WL 4849431, at *4 (N.D. Cal. July 28, 2023); Perlmutter v. Intuitive Surgical, Inc., 2011 WL 566814, at *4-5 (N.D. Cal. Feb. 15, 2011).
No Movant asserts that the Court should use a “First In, First Out” (“FIFO”) method, in which the first stocks acquired are assumed to be the first sold.
A second method (the “retained shares method”) determines how many shares were purchased during the class period, how many shares were retained at the end of the class period, and the net loss of only those shares. In re Lyft Securities Litigation, 2020 WL 1043628, at *4 (N.D. Cal. Mar. 4, 2020). Courts in the Ninth Circuit have found that the retained shares method “works best where there is a ‘relatively constant fraud premium through the class period.'” Id. (quoting Mulligan v. Impax Labs, Inc., 2013 WL 3354420, at *6 (N.D. Cal. Jul. 2, 2013)). Where, as here, multiple partial corrective disclosures were made, the retained shares approach does not calculate loss as accurately as the economic loss method. Id.; see also Melucci v. Corcept Therapeutics Inc., 2019 WL 4933611, at *3 (N.D. Cal. Oct. 7, 2019). This is because multiple corrective disclosures, and multiple share price variations due to the corrective disclosures, result in a varying “fraud premium” during the class period. Id. Accordingly, the economic loss method, incorporating the Lax-Olsten factors, is most appropriate here.
The retained shares method is sometimes addressed in terms of potential recovery or recoverable losses. See In re Critical Path, Inc. Securities Litigation, 156 F.Supp.2d 1102, 1107-08 (N.D. Cal. 2001); Perlmutter, 2011 WL 566814, at *6-7.
The first Lax-Olsten factor, total shares purchased, favors Peterson & Cool. Peterson & Cool purchased a combined 735,000 shares during the class period (Doc. 9-1 at 2), whereas Reyes purchased 175,247 shares (Doc. 6-3 at 2) and Aucejo & Mutzel purchased a combined 177,288 shares (Doc. 7-3 at 2).
As for the second Lax-Olsten factor, net shares purchased, this factor favors Aucejo & Mutzel. Aucejo & Mutzel retained 177,288 net shares combined (Doc. 7-3 at 2), whereas Reyes retained 158,730 net shares (Doc. 6-3 at 2) and Peterson & Cool retained 80,000 net shares combined (Doc. 9-1 at 2).
The third Lax-Olsten factor, net funds expended, favors Reyes. Reyes expended $488,767.94 in net funds. (Doc. 6-3 at 2) Aucejo & Mutzel expended $470,653.72 in net funds combined (Doc. 7-3 at 2), and Peterson & Cool expended $289,770.17 in net funds combined (Doc. 9-1 at 2-6).
Although Peterson & Cool assert that they expended $1,399,132 (Doc. 8 at 11), Peterson sold all of his shares prior to the end of the class period. (Doc. 9-1 at 2-6), and Cool sold 50,000 shares prior to the end of the class period (Id. at 6). Adjusting Peterson & Cool's total expenditure for shares sold during the class period, Peterson & Cool's net funds expended total $289,770.17. See Kaplan v. Gelfond, 240 F.R.D. 88, 93 (S.D.N.Y. 2007) (net funds expended equals “the difference between the amount spent to purchase shares and the amount received for the sale of shares during the class period”).
As for the fourth Lax-Olsten factor, approximate losses suffered, Movants disagree as to the method of loss calculation and the resulting approximate loss of each Movant. No party includes sales or losses that occurred prior to Defendants' first partial corrective disclosure in June 2023.
Reyes claims the largest financial loss of $345,910.94. (Doc. 6 at 11) Reyes asserts that PSLRA “damages are calculated based on (i) the difference between the purchase price paid for the shares and the average trading price of the shares during the 90 day period beginning on the date the information correcting the misstatement was disseminated, or (ii) the difference between the purchase price paid for the shares and the average trading price of the shares between the date when the misstatement was corrected and the date on which the plaintiff sold their shares, if they sold their shares before the end of the 90 days period. 15 U.S.C. § 78u-4(e).” (Id.)
Peterson & Cool acknowledge that Reyes and Aucejo & Mutzel claim larger financial interests than Peterson & Cool's $197,629 claimed loss. (See Doc. 11 at 3, 7) Instead, Peterson & Cool seek to disqualify Reyes and Aucejo & Mutzel for lack of adequacy under Fed.R.Civ.P. 23(a). (Id. at 3-7)
Although Aucejo & Mutzel initially claimed a combined financial loss of $265,756.53 in their motion to be appointed lead plaintiff (Doc. 7 at 6), in their response to the competing Motions to Appoint Lead Plaintiff, Aucejo & Mutzel use a different method to calculate their and other Movants' losses (Doc. 12 at 3-6). In their response, Aucejo & Mutzel claim that they suffered a combined financial loss of $67,369.44 in contrast to Reyes' loss of $46,031.70 and Peterson & Cool's loss of $50,500.00. (Id.) To arrive at their new estimated loss figures, Aucejo & Mutzel argue that “there has been a nationwide trend towards excluding losses that are not recoverable from movants' loss figures, in line with Dura Pharmaceuticals, Inc., v. Broudo, 544 U.S. 336 (2005).” (Doc. 12 at 4) Aucejo & Mutzel assert that this Court should exclude from the financial interest calculation “losses which occurred prior to [Nikola Corporation's] corrective disclosure, because under Dura, ‘a shareholder can recover only what he lost as a result of disclosure of the false statement.' Canopy, 2023 WL 8276633, at *8 (emphasis in original).” (Id. at 5) As such, Aucejo & Mutzel assert that they have the largest financial interest with the “largest recoverable loss in part because they are the only movants that held shares over the first corrective disclosure on June 23, 2023.” (Doc. 12 at 6) Applying Dura to calculate their approximated loss, Aucejo & Mutzel assert that courts have “calculate[d] recoverable losses by multiplying the number of shares held over a corrective disclosure by the price drop. See Espinoza v. Whiting, No. 12-cv-1711, 2013 WL 171850, at *2 (E.D. Mo. Jan. 16, 2013) (‘The Dura loss is equal to the number of shares times the price drop....'). In re AudioEye, Inc. Sec. Litig, No. 15-cv-163, 2015 WL 13654027, at *5 (D. Ariz. Aug. 3, 2015) (‘[T]he “Dura loss” method calculates the difference between the closing price immediately prior to the corrective disclosure and the closing price immediately thereafter.').” (Doc. 12 at 5)
In reply to the competing Motions to Appoint Lead Plaintiff, Reyes asserts that Aucejo & Mutzel propose “an unsupported and legally incorrect application of Dura. ” (Doc. 13 at 7-12) Reyes argues that Dura is only applied in the lead plaintiff context to prevent a plaintiff from “claiming a ‘financial interest' in the action when his or her losses appear to be entirely unrelated to the alleged fraud[,]” which is not at issue here. (Id. at 89) Reyes argues that in Aucejo & Mutzel's incorrect application of Dura, Aucejo & Mutzel fail to consider purchase price, the existence of multiple corrective disclosures, and a varying “fraud premium” as factors in a loss calculation. (Id. at 9-11) Reyes further asserts that Aucejo & Mutzel improperly changed their loss calculations after viewing the competing Motions to Appoint Lead Plaintiff. (Id. at 11-12) Reyes highlights that Aucejo & Mutzel did not apply or even mention Dura in their initial motion to be appointed lead plaintiff. (Id.) Reyes cites multiple district court cases where such revision to the loss calculation method and figures was disfavored. (Id.)
Although Aucejo & Mutzel assert that the Dura loss calculation method is applied by multiplying the shares held over a corrective disclosure by the drop in price after the corrective disclosure, Dura itself does not prescribe such a calculation method. (Doc. 12 at 5) As Reyes points out, the Supreme Court in Dura did not state that purchase price is irrelevant. See Peters, 2023 WL 4849431, at *3-6; In re Wrap Technologies, Inc. Securities Exchange Act Litigation, 2021 WL 71433, at *2-3 (C.D. Cal. Jan. 7, 2021); Sallustro v. CannaVest Corp., 93 F.Supp.3d 265, 270-77 (S.D.N.Y. 2015) (finding a calculation method that fails to consider purchase price inconsistent with PSLRA and Dura); Fialkov v. Celladon Corp., 2015 WL 11658717, at *5 (S.D. Cal. Dec. 9, 2015) (calculation based on shares times price drop failed to consider purchase price and limited potential recovery of class members). In Dura, the Supreme Court held that an inflated purchase price on its own does not “constitute or proximately cause the relevant economic loss[,]” but an inflated purchase price may “play a role in bringing about a future loss” when a company's misrepresentation causes a decreased share price and resultant economic loss. 544 U.S. at 342-43. Moreover, as the court in Peters recognized, if instead of using the share purchase price, a court calculates loss using the share price immediately before a corrective disclosure, the court “effectively assumes that none of the depreciation between the actual purchase prices and the [] pre-disclosure price could be attributable to fraud.” 2023 WL 4849431, at *5. Such an assumption is improper at the lead plaintiff appointment stage. Id.
Notably, Aucejo & Mutzel's cited case law does not support adoption of their revised calculation methodology in this matter. (Doc. 12 at 5) (citing Espinoza, 2013 WL 171850, at *2, and In re AudioEye, 2015 WL 13654027, at *5.) In Sallustro v. CannaVest Corp., the court expressly rejected the reasoning in Espinoza, finding that Espinoza provided little analysis and had not been cited or relied upon by another court. 93 F.Supp.3d at 276. In doing so, the Sallustro court determined that both the PSLRA and Dura expressly acknowledge the role that purchase price may play in calculating damages and loss. Id. at 276-77. The PSLRA sets a statutory damages cap that “shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security[.]” 15 U.S.C. § 78u-4(e)(1). The Supreme Court in Dura, similarly, stated that although “an inflated purchase price will not itself constitute or proximately cause the relevant economic loss,” purchase price may nevertheless be relevant to loss. 544 U.S. at 342-43.
Even in Turpel v. Canopy Growth Corp., 2023 WL 8276633, at *4-9 (S.D.N.Y. Nov. 30, 2023), which Aucejo & Mutzel quote at length, the court expressly considered the purchase price of the movants' shares to calculate recoverable losses.
As Reyes argues, courts in various districts across the country have disapproved of lead plaintiff movants changing their calculation methodology and loss analysis after all movants have submitted motions to be appointed lead plaintiff. See Peters, 2023 WL 4849431, at *4 (collecting cases). Courts have applied “increased scrutiny” to such revised calculations. Id. Such increased scrutiny is warranted here, where Aucejo & Mutzel revised their claimed loss calculations only in response to the competing Motions to Appoint Lead Plaintiff. Given the statutory language in the PSLRA, which caps damages based partly on purchase price, and the absence of language in Dura stating that purchase price is irrelevant in loss calculation, the Court is not persuaded by Aucejo & Mutzel's revised loss calculation methodology as proposed in Aucejo & Mutzel's response brief (Doc. 12).
Therefore, using the LIFO method to determine approximate economic loss, Movants allege that they have incurred the following losses:
Although Reyes is the only Movant to expressly allege losses as calculated using the LIFO method (Doc. 6-3 at 2), Movants' losses as alleged in the competing Motions to Appoint Lead Plaintiff are consistent with LIFO calculations for approximate economic loss.
• Reyes: $345,910.94 (Doc. 6 at 11; Doc. 6-3 at 2)
• Aucejo & Mutzel: $265,756.53 combined (Doc. 7 at 6; Doc. 7-3 at 2)
• Peterson & Cool: $197,629 combined (Doc. 8 at 11; Doc. 9-1 at 2-6) Given these losses, for the fourth Lax-Olsten factor, Reyes has the largest approximate economic loss in this matter.
In sum, Movants' financial interests can be summarized as such:
Movant
Total Shares Purchased
Net Shares Purchased
Net Funds Expended
Approximate Losses
Reyes
175,247
158,730
$488,767.94
$345,910.94
Aucejo & Mutzel
177,288
177,288
$470,653.72
$265,756.53
Aucejo
55,188
55,188
$199,879.69
$136,316.25
Mutzel
122,100
122,100
$270,774.03
$129,440.28
Peterson & Cool
735,000
80,000
$289,770.17
$197,629
Peterson
605,000
0
$118,070.00
$118,070.00
Cool
130,000
80,000
$171,700.00
$79,559.00
Because two of the Lax-Olsten factors favor Reyes, including net funds expended and approximate loss, Reyes is the presumptive lead plaintiff so long as Reyes meets the typicality and adequacy requirements of Fed.R.Civ.P. 23(a).
b. Fed.R.Civ.P. 23(a)(3) Typicality
For the presumptive lead plaintiff to meet the typicality requirement of Fed.R.Civ.P. 23(a)(3), Reyes must make aprimafacie showing that his claims or defenses are typical of the claims or defenses of the putative class. The Court must determine “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).
The Complaint in this matter was filed on behalf of putative class members who purchased or otherwise acquired Nikola securities during the class period and suffered damages due to Defendants' false and misleading statements and artificially inflated share prices. (Doc. 1 at 20-21) Like the putative class members, Reyes asserts that he purchased Nikola securities during the class period and subsequently suffered damages resulting from Defendants' materially false and misleading statements and wrongful conduct. (Doc. 6 at 12-13) This action is not based on conduct unique to Reyes. Because Reyes' claims appear typical to the claims of the putative class members, Reyes therefore has made a prima facie showing that he satisfies the typicality requirement of Fed.R.Civ.P. 23(a)(3).
c. Fed.R.Civ.P. 23(a)(4) Adequacy
Under Fed.R.Civ.P. 23(a)(4), the presumptive lead plaintiff must make a prima facie showing that he “will fairly and adequately protect the interests of the class.” To determine adequacy, the Court considers “whether the class representative and counsel have any conflicts of interest with other class members and whether the class representative and his counsel will prosecute the action vigorously on behalf of the class.” Borteanu v. Nikola Corporation, 562 F.Supp.3d 174, 181 (D. Ariz. 2021) (internal citations omitted).
Reyes asserts that he is a sophisticated investor and “has a significant and compelling interest in prosecuting the Action based on the large financial losses he has suffered as a result of the wrongful conduct alleged in the Action. This motivation, combined with [Reyes'] identical interest with the members of the Class, demonstrates that [Reyes] will vigorously pursue the interests of the Class.” (Doc. 6 at 14) With his motion to be appointed lead plaintiff, Reyes has attached a declaration, in which Reyes states that he resides in Jacksonville, Florida; has a master's degree in business administration; and is currently retired but previously worked as a safety manager for the United States Navy. (Doc. 6-5 at 2-4) Reyes declares that he communicated with his chosen counsel “about the lead plaintiff process, the responsibilities of a lead plaintiff, and how the Action would progress after a lead plaintiff is appointed,” and that Reyes “understand[s] that a lead plaintiff is required to direct the litigation on behalf of the Class, stay apprised of all material developments of the litigation, and act in the best interests of the Class throughout the litigation.” (Id. at 3) In his Certification attached with his motion to be appointed lead plaintiff, Reyes further states that he is willing to serve as a representative of the class, “including providing testimony at deposition and trial, if necessary.” (Doc. 6-2 at 2)
There is no evidence of any conflict of interest between Reyes and other class members, nor does Reyes assert such. (See Doc. 6 at 13-14) Given Reyes' significant financial stake in this matter, Reyes will have a strong incentive to vigorously litigate on behalf of the class. In order to vigorously litigate, Reyes has obtained highly experienced counsel, as discussed further in Section III, infra. Accordingly, based on Reyes' assertions in his motion to be appointed lead plaintiff, his attached declaration, and his attached certification, Reyes has made a prima facie showing that he meets the adequacy requirement of Fed.R.Civ.P. 23(a)(4).
3. Step Three: Rebuttal of the Lead Plaintiff Presumption
Once the presumptive lead plaintiff has shown that it has the largest financial interest and meets the typicality and adequacy requirements of Fed.R.Civ.P. 23(a), other potential lead plaintiff's may rebut the presumption “only by proof that the presumptively adequate plaintiff ‘will not fairly and adequately protect the interests of the class' or ‘is subject to unique defenses that render such plaintiff incapable of adequately representing the class.'” Lomingkit v. Apollo Educ. Grp. Inc., No. CV-16-00689-PHX-DLR, 2016 WL 3345514, at *2 (D. Ariz. June 16, 2016) (quoting 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)). Speculation is “insufficient to rebut the lead plaintiff presumption[.]” Armour v. Network Associates, Inc., 171 F.Supp.2d 1044, 1054 (N.D. Cal. 2001).
a. Peterson & Cool S Rebuttal Argument
In their response to the competing Motions to Appoint Lead Plaintiff, Peterson & Cool argue that Reyes has failed to demonstrate adequacy because Reyes submitted only a one-page declaration with “rote and generalized attestations to his ostensible readiness to serve as Lead Plaintiff, as well as limited biographical information about himself.” (Doc. 11 at 4) Peterson & Cool assert that Reyes failed to provide important biographical details, such as age and investment experience, and detailed attestations that Reyes understands the full role of lead plaintiff. (Id.) Peterson & Cool argue that courts “routinely deny lead plaintiff motions” with the minimal information Reyes has provided. (Id.)
As discussed in Section II(C)(2), supra, Reyes has provided sufficient information to make a prima facie showing that he meets the adequacy requirement of Fed.R.Civ.P. 23(a)(4). Neither the PSLRA nor Fed.R.Civ.P. 23(a) specifically required Reyes to provide additional details such as his age, investment experience, or more thorough understanding of the role of a lead plaintiff. Contrary to Peterson & Cool's assertion, district courts have determined that the information Reyes provided is sufficient to make a prima facie showing of adequacy for lead plaintiff appointment. See Esfandiari v. Edgio Inc., No. CV-23-00691-PHX-DJH, 2023 WL 7282299, at *3 (D. Ariz. Nov. 3, 2023) (finding movant adequate with large financial interest, experienced counsel, absence of antagonism with class members, and shared interests with class); Salomon v. Atlas Lithium Corp., 2023 WL 6786873, at *2 (C.D. Cal. Sept. 13, 2023) (adequacy shown through assertion of domicile, investment experience, educational background, and occupation, plus statement that movant understood requirements of lead plaintiff); Sallustro, 93 F.Supp.3d at 278 (adequacy shown where movant retained experienced counsel and pleaded loss that suggested “strong interest in advocating” for class). The cases which Peterson & Cool cite for support of Reyes' alleged insufficient showing of adequacy do not stand for the proposition that Reyes was required to provide more detail, nor do they appear applicable to an individual, non-corporate plaintiff. See Haideri v. Jumei Int'l Holding Ltd., 2020 WL 5291872, at *4-5 (N.D. Cal. Sept. 4, 2020) (considering whether plaintiff group had shown pre-litigation relationship and more than minimal involvement in the case); Smajlaj v. Brocade Communications Systems Inc., 2006 WL 7348107, at *2-3 (N.D. Cal. Jan. 12, 2006) (finding issues with capital management company's “standing, authority, transparency, and structure that may give rise to unique defenses and are atypical of the class”); Gross v. AT&T Inc., 2019 WL 7759222, at *1-2 (S D.N.Y. June 24, 2019) (finding one movant lacked ownership interest and standing while second movant entity did not provide information about “business, management, structure, or its experience with securities litigation”).
In sum, Peterson & Cool have not sufficiently rebutted the presumption that Reyes is the most adequate lead plaintiff.
b. Aucejo & Mutzel S Rebuttal Argument
Aucejo & Mutzel assert in their response to the competing Motions to Appoint Lead Plaintiff that Reyes may be inadequate and subject to unique defenses because Reyes did not own shares before or during Nikola's June 23, 2023, first corrective disclosure and subsequently increased his shares. (Doc. 12 at 6, n.2) (citing Rocco v. Nam Tai Electronics, Inc., 245 F.R.D. 131, 136 (S.D.N.Y. 2007).) However, as Reyes correctly argues (Doc. 13 at 12, footnote 2), courts in the Ninth Circuit have regularly determined that buying stock after a partial corrective disclosure does not per se bar a plaintiff from satisfying Fed.R.Civ.P. 23(a). In re Connetics Corp. Securities Litigation, 257 F.R.D. 572, 577 (N.D. Cal. 2009) (collecting cases) (“[T]he weight of authority appears to favor the position that the purchase of stock after a partial disclosure is not a per-se bar to satisfying the typicality requirement.”); Ferreira, 2020 WL 3246328, at *6. Because the putative class includes “all persons and entities other than Defendants that purchased or otherwise acquired Nikola securities between February 24, 2022 and September 7, 2023” (Doc. 1 at 2), the putative class does not exclude-and likely will include-class members who purchased shares after the first corrective disclosure in June 2023, as Reyes did. See Schneider v. Champignon Brands Inc., 2021 WL 4935160, at *3-4 (C.D. Cal. June 29, 2021) (appointing lead plaintiff who bought shares after first of multiple corrective disclosures) (citing In re Countrywide Financial Corp. Securities Litigation, 273 F.R.D. 586, 602-03 (C.D. Cal. 2009)). As such, Aucejo & Mutzel's argument that Reyes may be subject to a unique defense does not sufficiently rebut the presumption that Reyes is the most adequate lead plaintiff.
c. Neither Aucejo & Mutzel nor Peterson & Cool Has Rebutted the Lead Plaintiff Presumption
Neither Peterson & Cool nor Aucejo & Mutzel have shown proof to rebut the presumption that Reyes will fairly and adequately represent the interests of the class. Although both Peterson & Cool and Aucejo & Mutzel assert reasons why they would be the most adequate lead plaintiff, the question for the Court is not whether either Movant would do a better job serving as lead plaintiff, but whether the presumptive lead plaintiff, Reyes, would not adequately represent the class. See In re Cavanaugh, 306 F.3d at 732 (citing Cendant, 264 F.3d at 268 (“[O]nce the presumption is triggered, the question is not whether another movant might do a better job of protecting the interests of the class than the presumptive lead plaintiff; instead the question is whether anyone can prove that the presumptive lead plaintiff will not do a ‘fair[] and adequate []' job.”)).
Neither Peterson & Cool nor Aucejo & Mutzel have rebutted the presumption that Reyes is the most adequate lead plaintiff. Reyes is entitled to appointment as lead plaintiff.
III. APPOINTMENT OF LEAD COUNSEL
Under the PSLRA, after the Court has designated a lead plaintiff, that plaintiff “shall, subject to the approval of the court, select and retain counsel to represent the class.” 15 U.S.C. § 78u-4(a)(4)(B)(v). A lead plaintiff's choice of counsel is afforded deference, “unless there is reason to believe that chosen counsel will not adequately protect the interests of the class.” Lomingkit, 2016 WL 3345514, at *2 (citing Cohen v. U.S. Dist. Ct. for N. Dist. of Cal., 586 F.3d 703, 711-12 (9th Cir. 2009)); see also In re Cavanaugh, 306 F.3d at 732 n.11 (“Congress gave the lead plaintiff, and not the court, the power to select a lawyer for the class.”).
Reyes requests that the Court approve his selections of Levi & Korsinsky, LLP, as lead counsel to represent the class, and Zwillinger Wulkan PLC as local liaison counsel. (Doc. 6 at 14-15) Neither Peterson & Cool nor Aucejo & Mutzel have objected to Reyes' selection of counsel. Included with Levi & Korsinsky's firm resume, attached to Reyes' motion to be appointed lead plaintiff, are biographies of the firm's attorneys, a description of the firm's practice areas, brief summaries of notable settlements and cases the firm has litigated, and a list of cases in which the firm was appointed lead or co-lead counsel. (Doc. 6-6 at 2-80) Levi & Korsinsky's firm resume represents that the firm is highly experienced in complex securities, class, and consumer actions on behalf of shareholders, has been lead or co-lead counsel in numerous securities class action settlements, and has obtained millions of dollars in recoveries for shareholders. (Id. at 4-15) Numerous district courts across the country have found Levi & Korsinsky to be suitable and qualified lead counsel in securities class actions. See, e.g., In re Cloudera, Inc. Securities Litigation, 2019 WL 6842021, at *9 (N.D. Cal. Dec. 16, 2019); Lowe v. Tandem Diabetes Care Inc., 2023 WL 8458248, at *4 (S.D. Cal. Dec. 5, 2023); Balestra v. ATBCOINLLC, 380 F.Supp.3d 340, 363 (S.D.N.Y. 2019); Walling v. Generac Holdings, Inc., 2024 WL 474816, at *3 (W.D. Wis. Feb. 7, 2024).
To his motion to be appointed lead plaintiff, Reyes has also attached a resume for selected local counsel Scott H. Zwillinger of Zwillinger Wulkan PLC. (Doc. 6-6 at 81-82) Mr. Zwillinger represents that he has experience in litigation and settlements involving “contractual relationships and agreements, corporate governance and ownership/membership disputes, real estate transactions, human resources related claims, matters related to loans and other[] types of financing, collection matters, commercial transactions and business operations.” (Id. at 81) Local liaison counsel is preferred “when securities fraud class actions are filed by out-of-state lawyers,” as selection of local counsel “‘facilitates communication and ensures that out-of-state lawyers are familiarized with local rules and practices.'” Ferrari v. Gisch, 225 F.R.D. 599, 610-11 (C.D. Cal. 2004) (quoting de la Fuente v. DCI Telecomm., Inc., 269 F.Supp.2d 229, 232-33 (S.D.N.Y. 2003)). However, local counsel's role should ordinarily be limited to procedural advice or services relating to litigation in this Court. See Fragala v. 500.com, 2015 WL 12513580, at *12 (C.D. Cal. July 7, 2015). Compensation to local counsel is ordinarily not appropriate for duplicative services performed by both lead and local liaison counsel. Id.
Upon review of the firms' and attorneys' resumes, Levi & Korsinsky, LLP, and Zwillinger Wulkan PLC are qualified and suitable lead and local liaison counsel, respectively. Approval of Reyes' selection of lead and local counsel is appropriate.
IV. CONCLUSION
For the reasons set forth above, it is recommended that the Motion of Randolph C. Reyes for Appointment as Lead Plaintiff and Approval of Selection of Counsel (Doc. 6) be granted, that Randolph C. Reyes be appointed lead plaintiff in this matter, and that Randolph C. Reyes' selection of Levi & Korsinsky, LLP, as lead counsel and of Zwillinger Wulkan PLC as local liaison counsel be approved. It is further recommended that the Motion of Federico Aucejo and Pat Mutzel for Appointment as Lead Plaintiff and Approval of Counsel (Doc. 7) and the Motion of Caleb Peterson and Matthew Cool for Appointment as Co-Lead Plaintiffs and Approval of Counsel (Doc. 8) be denied.
Accordingly, IT IS RECOMMENDED that the Motion of Randolph C. Reyes for Appointment as Lead Plaintiff and Approval of Selection of Counsel (Doc. 6) be granted, that Randolph C. Reyes be appointed lead plaintiff in this matter, and that Randolph C. Reyes' selection of Levi & Korsinsky, LLP, as lead counsel and of Zwillinger Wulkan PLC as local liaison counsel be approved.
IT IS FURTHER RECOMMENDED that the Motion of Federico Aucejo and Pat Mutzel for Appointment as Lead Plaintiff and Approval of Counsel (Doc. 7) be denied.
IT IS FURTHER RECOMMENDED that the Motion of Caleb Peterson and Matthew Cool for Appointment as Co-Lead Plaintiffs and Approval of Counsel (Doc. 8) be denied.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1) of the Federal Rules of Appellate Procedure should not be filed until entry of the District Court's judgment. The parties shall have fourteen days from the date of service of a copy of this recommendation within which to file specific written objections with the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6, 72. The parties shall have fourteen days within which to file responses to any objections. Failure to file timely objections to the Magistrate Judge's Report and Recommendation may result in the acceptance of the Report and Recommendation by the District Court without further review. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to file timely objections to any factual determination of the Magistrate Judge may be considered a waiver of a party's right to appellate review of the findings of fact in an order or judgment entered pursuant to the Magistrate Judge's recommendation. See Fed.R.Civ.P. 72.