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Fries v. Northern Oil and Gas, Inc.

United States District Court, S.D. New York

May 5, 2017

JEFFREY FRIES, Individually and On Behalf of All others Similarly Situated, Plaintiff,
v.
NORTHERN OIL AND GAS, INC., MICHAEL L. REGER, and THOMAS W. STOELK, Defendants.

          OPINION AND ORDER

          EDGARDO RAMOS, U.S.D.J.

         This case arises out of alleged violations of the Securities Exchange Act of 1934 by Northern Oil and Gas, Inc. (“Northern Oil”), Michael L. Reger (“Reger”), and Thomas W. Stoelk (collectively, the “Defendants”). Plaintiff Jeffrey Fries (“Fries”) brings this class action on behalf of all persons, other than Defendants, who purchased or otherwise acquired Northern Oil securities between March 1, 2013 and August 15, 2016 (the “Class Period”). Plaintiffs Matthew Atkinson (“Atkinson”) and Richard Miller (“Miller”) move for joint appointment as lead plaintiffs of the proposed class (the “Class”), and for approval of Pomerantz Grossman Hufford Dahlstrom & Gross LLP (“Pomerantz”) and Goldberg Law PC (“Goldberg”) as co-lead counsel. Plaintiff Vittorio Franceschi (“Franceschi”) also moves for appointment as lead plaintiff and approval of Hagens Berman Sobol Shapiro LLP as lead counsel.

         For the reasons set forth below, Atkinson and Miller's motion is GRANTED in part and DENIED in part without prejudice. Franceschi's motion is DENIED.

         I. Background

         Defendant Northern Oil is an independent energy company engaged in the acquisition, exploration, development, and production of oil and natural gas properties in the United States. Class Action Compl. (“CAC”) at ¶¶ 2, 17. Throughout the Class Period, Defendants allegedly made materially false and misleading statements regarding Northern Oil's business, operational and compliance policies. Id. at ¶ 4. Specifically, Plaintiff Fries alleges on behalf of the Class that because of its inadequate internal controls concerning Securities and Exchange Commission (“SEC”) regulations and ethics policies, Reger, Northern Oil's Chief Executive Officer (“CEO”), was able to engage in illegal stock manipulation. Id. Consequently, Northern Oil's public statements filed between March 1, 2013 and March 3, 2016 describing, inter alia, its purported commitment to the promotion of ethical conduct by its officers and its internal controls were allegedly materially false and misleading. Id. at ¶¶ 19-35. On August 16, 2016, Northern Oil terminated Reger after Reger revealed that he received a Wells Notice from the SEC and faced federal sanctions related to the SEC's investigation of trading patterns in the securities of Dakota Plains Holdings, Inc., a company that Reger had invested in. Id. at ¶ 37. Plaintiff Fries claims that Class members have suffered significant losses and damages due to Defendants' wrongful acts and omissions, and the subsequent decline in the market value of Northern Oil's securities upon Reger's termination. Id. at ¶¶ 37-39.

         On August 18, 2016, Plaintiff Fries, through his counsel Pomerantz, filed the instant Class Action Complaint (“CAC”) against Defendants. Doc 1. On the same day, Pomerantz announced the filing over Global Newswire as required by the Private Securities Litigation Reform Act (“PSLRA”), and advised investors that the deadline to file a motion for appointment as lead plaintiff is October 17, 2016. Doc 8 Ex. A. On October 17, 2016, Plaintiffs Atkinson and Miller filed the instant motion for joint appointment as lead plaintiffs and approval of Pomerantz and Goldberg as co-lead counsel. Doc. 6. Later that day, Plaintiff Franceschi also moved for appointment as lead plaintiff and approval of Hagens Berman Sobol Shapiro LLP as lead counsel. Doc. 9. On October 27, 2016, Plaintiff Franceschi filed a notice of non-opposition to Plaintiffs Atkinson and Miller's motion, but noted that if the Court determined that Plaintiffs Atkinson and Miller were not suited to serve as lead plaintiffs, he would be ready and able to fill that position. Doc. 12. Defendants take no position on the issue of appointment of lead plaintiff or counsel. Doc. 19.

         II. Discussion

         A. Appointment of Lead Plaintiff

         The PSLRA governs motions for the appointment of lead plaintiffs of putative class actions brought under the federal securities laws. See, e.g., In re Braskem S.A. Sec. Litig., No. 15 CIV. 5132 (PAE), 2015 WL 5244735, at *4 (S.D.N.Y. Sept. 8, 2015). The PSLRA instructs the Court to “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 statute sets forth a rebuttable presumption “that the most adequate plaintiff . . . is the person or group of persons” that (i) “has either filed the complaint or made a motion in response to” public notice of the filing of the class action, (ii) “has the largest financial interest in the relief sought by the class, ” and (iii) “otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.” § 78u-4(a)(3)(B)(iii)(I). This presumption is rebutted “only upon proof by a member of the purported plaintiff class” that the presumptively most-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.” § 78u-4(a)(3)(B)(iii)(II).

         i. Filing Complaint or Motion

         Here, it is undisputed that all movants have satisfied the first requirement by filing timely motions on October 17, 2016 in response to public notice of this suit. Docs. 6, 9.

         ii. Largest Financial Interest

         The next, most critical question is which “person or group of persons” seeking lead-plaintiff status has the largest financial interest in the relief sought by the putative class. The Second Circuit has not yet addressed whether unrelated class members may aggregate their claims in order to establish the “largest financial interest” element. Goldberger v. PXRE Grp., Ltd., No. 06-CV-3410 (KMK), 2007 WL 980417, at *3 (S.D.N.Y. Mar. 30, 2007). Nevertheless, the prevailing view in this District is that unrelated investors can aggregate their financial losses only “if such a grouping would best serve the class.” Int'l Union of Operating Engineers Local No. 478 Pension Fund v. FXCM Inc., No. 15-CV-3599 (KMW), 2015 WL 7018024, at *2 (S.D.N.Y. Nov. 12, 2015) (citing In re CMED Sec. Litig., No. 11-CV-9297 (KBF), 2012 WL 1118302, at *2 (S.D.N.Y. Apr. 2, 2012)). Determination of whether the grouping would best serve the class is made “on a case-by-case basis, ” and hinges on whether the members of the group can “function cohesively and . . . effectively manage the litigation apart from their lawyers.” Varghese v. China Shenghuo Pharm. Holdings, Inc., 589 F.Supp.2d 388, 392 (S.D.N.Y. 2008); see also Khunt v. Alibaba Grp. Holding Ltd., 102 F.Supp.3d 523, 532 (S.D.N.Y. 2015) (“Many courts-including this one-have turned away pastiche plaintiffs whose grouping appears to be solely a product of the litigation, because, ‘To allow an aggregation of unrelated plaintiffs to serve as lead plaintiffs defeats the purpose of choosing a lead plaintiff.'” (quoting In re Veeco Instruments, Inc., 233 F.R.D. 330, 334 (S.D.N.Y. 2005)).

         Courts in this district have considered the following factors in evaluating the ...


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