United States District Court, S.D. New York
DARRYL REITAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
CHINA MOBILE GAMES & ENTERTAINMENT GROUP, LTD., KEN JIAN XIAO, YING SHULING, CREDIT SUISSE SECURITIES (USA) LLC, BARCLAYS CAPITAL, INC., JEFFRIES LLC, BREAN CAPITAL, LLC and NOMURA SECURITIES INTERNATIONAL, INC., Defendants. SOPHIA CHANG, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
CHINA MOBILE GAMES & ENTERTAINMENT GROUP, LTD, KEN JIAN XIAO, YING SHULING, CREDIT SUISSE SECURITIES (USA) LLC, BARCLAYS CAPITAL, INC., JEFFRIES LLC, BREAN CAPITAL, LLC and NOMURA SECURITIES INTERNATIONAL, INC., Defendants.
OPINION & ORDER
KIMBA M. WOOD, District Judge.
Two similar, putative securities fraud class actions against China Mobile Games & Entertainment Group, Ltd. ("CMGE"), certain of its officers and directors, and several investment banks who underwrote CMGE's secondary public offering (collectively "Defendants") are currently before this Court. The two actions are Reitan v. China Mobile Games & Entertainment Group, LTD, 14-CV-4471, and Chang v. China Mobile Games & Entertainment Group, LTD, 14-CV-4745. In both actions, the plaintiffs allege that CMGE materially misled the public by deliberately making false or misleading statements, or by failing to disclose facts to correct such misleading statements. Both actions claim that these statements artificially increased the price of CMGE securities.
Miran Segregated Portfolio Company - Miran Long Short Equity Segregated Portfolio ("Miran") and Johnnie Dormier ("Dormier") have each moved to consolidate the two actions, and to be appointed as lead plaintiff of the consolidated class. Each movant also seeks to have its counsel appointed lead counsel. For the reasons stated below, the Court GRANTS the motions to consolidate the actions; appoints Miran as lead plaintiff and Faruqi & Faruqi as lead counsel for the consolidated class; and DENIES Dormier's lead plaintiff motion.
A. The Complaints
CMGE, a Cayman Islands corporation headquartered in Guangzhou, China, is the largest publisher and developer of mobile games in China. ( Reitan Compl. [ Reitan ECF No. 1] at ¶ 2).
On June 20, 2014, Plaintiff Darryl Reitan filed the Reitan action "on behalf of a class consisting of all persons and entities, other than defendants and their affiliates, who purchased CMGE's American Depository Shares... between September 20, 2012 and June 19, 2014." ( Id. ¶ 1). Reitan alleges that "Defendants made false and/or misleading statements and/or failed to disclose that CMGE was engaged in a bribery scheme within the Company's game publishing business, that CMGE was engaged in undisclosed related party transactions, and that CMGE lacked internal controls." ( Id. ¶ 5). On June 26, 2014, Sophia Chang filed the Chang action on behalf of the same individuals, see ( Chang Compl. [ Chang ECF No. 2] at ¶ 1), and alleged the same claims against CGME, see ( id. ¶ 5).
B. The Lead Plaintiff and Consolidation Motions
On August 19, 2014, five parties filed motions seeking to be appointed as lead plaintiff: (1) a group consisting of ZhenDong Company Limited Sun Bing, Tian Yu Ma, and Huang Shuainan (collectively "China Mobile Investors Group" or "CMIG"); (2) OP Investment Management Limited ("OPI"); (3) Ashok Sagar; (4) Miran; and (5) Dormier. (Notice of Non-Opp'n [ Reitan ECF No. 43] at 1). Based on the losses each movant alleged, CMIG suffered the greatest financial loss, totaling $935, 272. (CMIG Memo. of Law [ Reitan ECF No. 18] at 6). Miran claims to have lost $84, 834, (Miran Memo. of Law [ Reitan ECF No. 16] at 8), while Dormier alleges he lost $40, 667, (Dormier Memo. of Law [ Reitan ECF No. 11] at 6).
On July 27, 2014, both OPI and Miran withdrew their motions to be appointed as lead plaintiff. (OPI Notice of Withdrawal [ Reitan ECF No. 24] at 2); (Miran Notice of Withdrawal [ Reitan ECF No. 25] at 2). On September 4, 2014, Ashok Sagar withdrew his motion as well. (Sagar Notice of Withdrawal [ Reitan ECF No. 41] at 2). When Miran withdrew its lead plaintiff motion, it stated that it was doing so because CMIG's losses "appear to be the largest of any of the other movants." (Miran Notice of Withdrawal 2). However, on September 5, 2014, CMIG also withdrew its lead plaintiff motion, leaving Dormier as the only party seeking appointment as lead plaintiff. (CMIG Notice of Withdrawal [ Reitan ECF No. 42] at 2). Approximately ninety minutes after CMIG filed its withdrawal motion, Dormier filed a notice of non-opposition to his lead plaintiff motion, asserting that all other movants had withdrawn and therefore his motion was unopposed. (Notice of Non-Opp'n 1-2); (Reply to Dormier [ Reitan ECF No. 49] at 2).
Miran stepped back into the picture, however, on September 17, 2014, when it filed a "Notice of Withdrawal of Withdrawal of [Miran's Lead Plaintiff Motion]." (Notice of Withdrawal of Withdrawal [ Reitan ECF No. 45]). Essentially, Miran's new motion sought to reinstate its motion to be appointed lead plaintiff, which it had withdrawn approximately six weeks before by withdrawing that earlier withdrawal motion. Dormier filed a response opposing Miran's "Withdrawal of Withdrawal" motion as procedurally barred and otherwise untimely. (Dormier Resp./Objection [ Reitan ECF No. 46]).
Both Miran and Dormier also seek to consolidate the Reitan and Chang actions. (Miran Memo. of Law 4-5); (Dormier Memo. of Law 3-4).
A. Legal Standard
Federal Rule of Civil Procedure 42(a) provides that a court may consolidate actions that "involve a common question of law or fact." Fed.R.Civ.P. 42(a); see also Johnson v. Celotex Corp., 899 F.2d 1281, 1284 (2d Cir. 1990). Consolidation is "a valuable and important tool of judicial administration" that should be "invoked to expedite trial and eliminate unnecessary repetition and confusion." Devlin v. Transp. Commc'ns Int'l Union, 175 F.3d 121, 130 (2d Cir. 1999) (internal quotation marks omitted).
Under Rule 42 and the Private Securities Litigation Reform Act (the "PSLRA"), actions need not be "identical" to allow for consolidation. Pinkowitz v. Elan Corp., PLC, Nos. 02-CV-865 et al., 2002 WL 1822118, at *3 (S.D.N.Y. July 29, 2002) (Knapp, J.). Courts have "broad discretion to determine whether consolidation is appropriate." Johnson, 899 F.2d at 1284; see also Kaplan v. Gelfond, 240 F.R.D. 88, 91 (S.D.N.Y. 2007) (Buchwald, J.). Courts have looked to the particular facts of cases to determine if the anticipated benefits of consolidated actions, such as considerations of judicial economy and unnecessary costs to the parties, "outweigh potential prejudice to the parties." Kaplan, 240 F.R.D. at 91; see also In re Bank of Am. Corp. Sec., Derivative & ERISA Litig., 258 F.R.D. 260, 268 (S.D.N.Y. 2009) (Chin, J.).
B. Consolidation is Warranted
The Court finds that consolidation is appropriate here because the Reitan and Chang actions involve substantially identical questions of law and fact. As an initial matter, the two actions involve the same plaintiffs and defendants. Both suits are putative securities class actions on behalf of all persons who purchased CMGE's American Depository Shares between September 20, 2012 and June 19, 2014. ( Reitan Compl. ¶ 1); ( Chang Compl. ¶ 1). Both actions also seek remedies against CMGE, several of its senior executives, and the investment banks who underwrote CMGE's secondary public offering. ( Reitan Compl. ¶¶ 14-23); ( Chang Compl. ¶¶ 14-23). Both actions allege the same wrongdoing and seek identical relief. Both complaints plead that Defendants "failed to disclose" or made "false and/or misleading statements" concerning: (1) CMGE's involvement in a bribery scheme within the company's game publishing business, and (2) CMGE's lack of internal controls. ( Reitan Compl. ¶ 29); ( Chang Compl. ¶ 29). Both suits seek damages for that misconduct under Sections 11 and 15 of the Securities Act of 1933 (the "Securities Act"), Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated under the Exchange Act. ( Reitan Compl. ¶¶ 9, 14-23); ( Chang Compl. ¶¶ 9, 14-23).
Not surprisingly, each complaint alleges that the same questions of law and fact are common to the class. Those questions include: (1) whether Defendants' conduct violated the federal securities laws; (2) whether statements made by Defendants to the investing public misrepresented material facts about the business and operations of CMGE; and (3) to what extent the members of the Class have sustained damages. ( Reitan Compl. ¶ 36); ( Chang Compl. ¶ 37). The Chang complaint contains one additional question not explicitly listed in the Reitan complaint: whether the price of CMGE American Depository Shares was artificially inflated. ( Chang Compl. ¶ 37). That question, however, is implicitly part of the Reitan complaint, which seeks relief because "CMGE securities traded at artificially inflated prices during the Class Period." ( Reitan Compl. ¶ 38).
In light of those similarities, the Court finds that Reitan and Chang involve common questions of law and fact, and therefore warrant consolidation.
III. APPOINTMENT OF THE LEAD PLAINTIFF
A. The PSLRA Framework
Appointment of a lead plaintiff in securities class action suits is governed by the PSLRA, 15 U.S.C. § 78u-4. Congress, in enacting the PSLRA, sought to
prevent lawyer-driven litigation, and to ensure that parties with significant holdings in issuers, whose interests are more strongly aligned with the class of shareholders, will participate in the litigation and exercise control over the selection and actions of plaintiffs' counsel.... The theory of these provisions was that if an investor with a large financial stake in the litigation was made lead plaintiff, such a plaintiff... would be motivated to act like a real client, carefully ...