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Hansen v. Ferrellgas Partners, L.P.

United States District Court, S.D. New York

January 19, 2017

JONATHAN HANSEN, individually and on behalf of all others similarly situated, Plaintiff,
v.
FERRELLGAS PARTNERS, L.P., et al., Defendants. JAMES A. MASSIE, individually and on behalf of all others similarly situated, Plaintiff,
v.
FERRELLGAS PARTNERS, L.P., et al., Defendants. THOMAS BABCOCK, individually and on behalf of all others similarly situated, Plaintiff,
v.
FERRELLGAS PARTNERS, L.P., et al., Defendants.

          OPINION AND ORDER

          RICHARD J. SULLIVAN UNITED STATES DISTRICT JUDGE

         Before the Court are three putative class action suits brought on behalf of investors who claim to have suffered damages as a result of Defendants' alleged misconduct in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Now before the Court are six motions pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”) filed by persons or groups of persons seeking consolidation of the three actions, appointment as lead plaintiff, and appointment of their counsel as lead counsel for the putative class. Those motions were fully briefed by December 23, 2016. For the reasons set forth below, the Court consolidates the cases, appoints movants Susan Batai, Joel Brenner (individually and as trustee for the Joel Brenner MPP Plan & Trust), Kevin Gaberlavage, and Lazy Dogs Partnership LLLP (the “Batai Group”) as co-lead plaintiffs, and appoints Kessler Topaz Meltzer & Check, LLP (“Kessler Topaz”) as lead counsel.

         I. Background

         On November 14, 2016, the Court so-ordered a stipulation between Defendants and the first-filing plaintiff in case number 16-cv-7840 (Jonathan Hansen), which indicated that, under the PSLRA, 15 U.S.C. § 78u-4(a)(3)(A)(i), lead plaintiff motions were due by December 5, 2016. (16-cv-7840, Doc. No. 11.)[1] As noted above, on December 5, 2016, six persons or groups of persons filed lead plaintiff motions. (Doc. Nos. 12, 15, 16, 21, 22, 25.) The movants and their choice of counsel include: (1) Frank Gracar, represented by Hagens Berman Sobol Shapiro LLP, (2) James R. Baxter, represented by Kahn Swick & Foti, LLC, (3) Kevin Sheetz, represented by Faruqi & Faruqi, LLP, (4) Thomas Babcock, Michael Conforti, Hal Scofield, and Mary Thornton (collectively, the “Babcock Group”), represented by The Rosen Law Firm, P.A. and Bronstein, Gewirtz & Grossman, LLC, (5) Alan Carlsen, Ernest Davis, Timothy Lopatofsky, and L. Lee Williams, Jr. (collectively, the “Carlsen Group”), represented by Kirby McInerney LLP and Glancy Prongay & Murray LLP, and (6) the Batai Group, represented by Kessler Topaz.[2] Named plaintiffs Jonathan Hansen and James A. Massie, who filed the complaints in case numbers 16-cv-7840 and 16-cv-8850, respectively, have not filed lead plaintiff motions.

         On December 6, 2016, the Court issued an order directing the movants to respond to each other's motions by December 16, 2016 and to submit replies by December 23, 2016. (Doc. No. 29.) In response to that order, several movants filed notices of “non-opposition, ” indicating that they do not oppose one or more competing lead plaintiff motions. Sheetz filed a notice of non-opposition to all competing motions, generally acknowledging that he does not possess the largest financial interest. (Doc. No. 32.) The Babcock Group filed a notice of non-opposition to the Batai Group's motion, on account of the Batai Group's larger financial interest, but the notice states that Babcock alone should be appointed lead plaintiff if the Court is disinclined to appoint a group. (Doc. No. 33.) The Carlsen Group filed a notice of non-opposition to the Batai Group's motion on the same ground, but did not alternatively request an individual appointment. (Doc. No. 36.) The remaining movants filed briefs opposing one or more of the competing motions. Gracar filed an opposition arguing that he should be named lead plaintiff because the group movants have improperly aggregated their financial interests and that he has the largest financial interest of any individual movant. (Doc. No. 34.) Baxter filed an opposition similarly arguing that the Court should disqualify the group movants and conceding that Gracar has the largest individual financial interest, but also asserting that, if the Court declines to appoint Gracar, Baxter is the next most adequate candidate. (Doc. No. 37.) And finally, the Batai Group filed an opposition arguing that it should be named lead plaintiff because it has the largest collective financial interest. (Doc. No. 38.) On December 23, 2016, Baxter (Doc. Nos. 40, 41), Gracar (Doc. Nos. 42, 43), and the Batai Group (Doc. Nos. 44, 45) each filed reply papers.

         II. Consolidation

         A court may consolidate two or more actions pursuant to Rule 42(a) of the Federal Rules of Civil Procedure where the actions involve “a common question of law or fact.” Fed.R.Civ.P. 42(a); see also Devlin v. Transp. Commc'ns Int'l Union, 175 F.3d 121, 130 (2d Cir. 1999); Johnson v. Celotex Corp., 899 F.2d 1281, 1284 (2d Cir. 1990). The trial court has broad discretion to consolidate actions under Rule 42(a). See Johnson, 899 F.2d at 1284.

         Here, the substantial overlap among the three complaints in the above-captioned actions supports consolidation. All three complaints name as defendants Ferrellgas Partners, L.P. (“Ferrellgas”), Ferrellgas, Inc. (Ferrellgas's general partner), Stephen L. Wambold (Ferrellgas's CEO during the relevant period), and Alan C. Heitmann (Ferrellgas's CFO during the relevant period). One complaint also names J. Ryan Vanwinkle (Ferrellgas's CFO for the first month of the nearly two-year class period alleged in that complaint) but does not contain any allegations against Vanwinkle that would render consolidation inappropriate. (See 16-cv-9294, Doc. No. 1, Compl. ¶ 18 (alleging that Vanwinkle Dated:e of Ferrellgas's quarterly reports).) Generally speaking, all three complaints allege that Defendants made false or misleading statements regarding Ferrellgas's declining propane sales, the negative impact of low crude oil prices on Ferrellgas's operations, the need to obtain an amendment to the company's existing financing agreements, and the need to reduce the company's dividend. (See, e.g., Doc. No. 1 Compl. ¶ 4; 16-cv-8850, Doc. No. 1, Compl. ¶ 22; 16-cv-9294, Doc. No. 1, Compl. ¶ 32.) Likewise, although the complaints allege different start dates for the proposed class period, all three complaints allege a class period that ends with disclosures Ferrellgas made on September 28, 2016. (See, e.g., Doc. No. 1 Compl. ¶ 1; 16-cv-8850, Doc. No. 1, Compl. ¶ 1; 16-cv-9294, Doc. No. 1, Compl. ¶ 1.) The complaints also raise claims under the same provisions of the United States securities laws. Accordingly, in light of this substantial overlap, and because all of the movants seek consolidation, the Court will consolidate the above-captioned matters.

         III. Lead Plaintiff

         Under the procedures established by the PSLRA, a district court “shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members.” 15 U.S.C. § 78u-4(a)(3)(B)(i). The PSLRA creates a rebuttable presumption that the most adequate plaintiff is the “person or group of persons” who is a named plaintiff or timely movant, satisfies the requirements of Federal Rule of Civil Procedure 23, and possesses “the largest financial interest in the relief sought by the class.” Id. § 78u-4(a)(3)(B)(iii)(I).[3] Once established, the presumption of most adequate plaintiff may be rebutted “only upon proof by a member of the purported plaintiff class” that the presumptive lead 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.” Id. § 78u-4(a)(3)(B)(iii)(II).

         “For the rebuttable presumption to apply, courts have required only a prima facie showing that the requirements of Rule 23 are met.” Sallustro v. CannaVest Corp., 93 F.Supp.3d 265, 277- 78 (S.D.N.Y. 2015) (citing In re KIT Digital, Inc. Sec. Litig., 293 F.R.D. 441, 445 (S.D.N.Y. 2013)). Rule 23 states that a party may serve as a class representative 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.” Fed.R.Civ.P. 23(a). Of these requirements, only “[t]ypicality” and “adequacy” are “relevant to a determination of lead plaintiff under the PSLRA.” Sallustro, 93 F.Supp.3d at 278 (collecting cases). With respect to typicality, a lead plaintiff's claims must “‘arise[] from the same course of events'” as the class's claims and rely on “‘similar legal arguments to prove the defendant's liability.'” Id. (quoting In re Drexel Burnham Lambert Grp., Inc., 960 F.2d 285, 291 (2d Cir. 1992)). “However, the lead plaintiff's claims need not be identical to the claims of the class to satisfy the preliminary showing of typicality.” Id. (internal quotation marks and brackets omitted). With respect to adequacy, a lead plaintiff satisfies this requirement if “(1) class counsel is qualified, experienced, and generally able to conduct the litigation; (2) there is no conflict between the proposed lead plaintiff and the members of the class; and (3) the proposed lead plaintiff has a sufficient interest in the outcome of the case to ensure vigorous advocacy.” Id.

         In this case, the movants do not dispute that the Batai Group is a timely movant, has the largest financial interest, and satisfies Rule 23's typicality requirement. See 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). However, both Gracar and Baxter - the only other movants still pursuing the lead plaintiff role - argue that the Batai Group is an inadequate candidate for lead plaintiff because it is a “lawyer-created” group of investors with no pre-litigation relationship. (See, e.g., Doc. No. 42, Gracar Reply at 4 (“The [Batai] Group has failed to provide any evidence of its members' prior relationships or that the Group is not an amalgamation of persons thrown together by lawyers.”); Doc. No. 40, Baxter Reply at 4 (“Each of the groups has . . . failed to present any evidence demonstrating any type of pre-litigation relationship. The only reasonable conclusion is that each group was artificially created by its' [sic] attorneys to maximize aggregate losses.”).) The Batai Group, for its part, does not dispute that its members were introduced through common counsel and had no preexisting relationships among them.

         To begin with, as the statute makes clear, “[g]roups of plaintiffs are specifically permitted by the PLSRA to be appointed lead plaintiff.” In re Bank of Am. Corp. Sec., Derivative & ERISA Litig., 258 F.R.D. 260, 270 (S.D.N.Y. 2009). Indeed, the PSLRA directs the district court to (1) appoint the putative class “member or members” it deems to be most adequate, 15 U.S.C. § 78u-4(a)(3)(B)(i) (emphasis added), and (2) “adopt a presumption that the most adequate plaintiff . . . is the person or group of persons” that possesses “the largest financial interest” and “otherwise satisfies the requirements of Rule 23, ” id. § 78u-4(a)(3)(B)(iii)(I) (emphasis added). That presumption, in turn, may only be rebutted with “proof” that the group “will not fairly and adequately protect the interests of the class.” Id. § 78u-4(a)(3)(B)(iii)(II). In other words, even a previously unrelated group of individuals is entitled to the presumption provided it possesses the largest financial interest and satisfies Rule 23 - the statute plainly does not require the group to also prove that it is “more” adequate than competing movants with smaller financial interests.[4]See, e.g., Simmons v. Spencer, No. 13-cv-8216 (RWS), 2014 WL 1678987, at *5 (S.D.N.Y. Apr. 25, 2014) (fact that group “consists of unrelated members of the class does not disqualify its appointment as lead plaintiff”; “[a] group consisting of persons that have no pre-litigation relationship may be acceptable as a lead plaintiff candidate so long as the group is relatively small, such as here with only five members, and therefore presumptively cohesive” (citing cases)).

         Nevertheless, courts in this District have in many cases rejected proposed lead plaintiff groups whose members “have no common connection other than their lawyers.” In re Third Ave. Mgmt. LLC Sec. Litig., No. 16-cv-02758 (PKC), 2016 WL 2986235, at *2 (S.D.N.Y. May 13, 2016) (citing In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997), and collecting cases). These decisions typically involve adequacy-related concerns such as the absence of evidence that a group is capable of coordinating and supervising counsel. See, e.g., Int'l Union of Operating Eng'rs Local No. 478 Pension Fund v. FXCM Inc., No. 15-cv-3599 (KMW), 2015 WL 7018024, at *4 (S.D.N.Y. Nov. 12, 2015) (rejecting group that “failed to provide the Court with anything beyond conclusory assurances that appointing a group of unrelated investors will not lead to fragmentation”); Goldstein v. Puda Coal, Inc., 827 F.Supp.2d 348, 357 (S.D.N.Y. 2011) (finding a proper group where the group “submitted evidence that its unrelated members w[ould] be able to function cohesively and to effectively manage the litigation apart from their lawyers” (internal quotation marks omitted)). In assessing a group's adequacy, courts ask whether the proposed group “will be able to function cohesively and to effectively manage the litigation apart from [its] lawyers, ” focusing on five factors: (1) “the existence of a pre-litigation ...


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