United States District Court, S.D. New York
OPINION & ORDER
NETBURN, United States Magistrate Judge
August 14, 2017, plaintiff Rustem Nurlybaev commenced a
securities class action against ZTO Express (Cayman) Inc.
(“ZTO”), various underwriters, and certain
individuals alleging violations of Sections 11, 12(a)(2), and
15 of the Securities Act of 1933. This action seeks damages
on behalf of all persons who purchased or otherwise acquired
securities traceable to ZTO's registration statement
(filed in conjunction with its October 27, 2017 Initial
Public Offering), and were damaged thereby.
Complaint, Dkt. No. 1, at 10.
the litigation can proceed, the Private Securities Litigation
Reform Act (the “PSLRA”) requires the Court to
appoint the lead plaintiff and counsel for the putative
class. 15 U.S.C. § 77z-1(a)(3)(B). On October 16, 2017,
three parties filed motions to be appointed class
representative: Nurlybaev, ZTO Investor Group, and the Wong
Family Trusts. After these motions were filed, and upon
review of the motion brought by the Wong Family Trusts, ZTO
Investor Group and Nurlybaev filed Notices of Non-Opposition,
conceding that they did “not appear to have the largest
financial interest” in the relief sought by the class.
the Wong Family Trusts' motion is unopposed, the Court
must still ensure that it is the most adequate plaintiff
under the PSLRA. Springer v. Code Rebel Corp., No.
16-CV-3492 (AJN), 2017 WL 838197, at *1 (S.D.N.Y. Mar. 2,
2017). Under the PSLRA, the court must select the lead
plaintiff “most capable of adequately representing the
interests of class members.” 15 U.S.C. §
PSLRA establishes “a two-step competitive
process” to determine which plaintiff is most adequate.
In re eSpeed, Inc. Sec. Litig., 232 F.R.D. 95, 97
(S.D.N.Y. 2005). First, the PSLRA sets forth a rebuttable
presumption that “the most adequate plaintiff” is
“the person or group of persons” who or that (a)
has either filed the complaint or made a motion for
appointment as lead plaintiff, (b) has “the largest
financial interest in the relief sought by the class, ”
and (c) “otherwise satisfies the requirements of Rule
23 of the Federal Rules of Civil Procedure.” §
77z-1(a)(3)(B)(iii)(I). In deciding which proposed lead
plaintiff has “the largest financial interest in the
relief sought by the class, ” courts consider four
factors: (i) the gross number of shares purchased; (ii) the
net number of shares purchased; (iii) the net funds spent;
and (iv) the net loss suffered. Pirelli Armstrong Tire
Corp. v. LaBranche & Co., Inc., 229 F.R.D. 395,
404-05 (S.D.N.Y. 2004) (quoting Lax v. First Merch.
Acceptance Corp., No. 97 Civ. 2715, 1997 WL 461036, at
*5 (N.D. Ill. Aug. 11, 1997)) (the “Lax
factors”). Courts generally find the fourth factor to
be the most compelling. Khunt v. Alibaba Grp. Holding
Ltd., 102 F.Supp.3d 523, 530 (S.D.N.Y. 2015).
the requirements of Rule 23, at this stage a proposed lead
plaintiff need only make a “preliminary showing”
that it will satisfy the typicality and adequacy requirements
of Rule 23. Kaplan v. Gelfond, 240 F.R.D. 88, 94
(S.D.N.Y. 2007); In re Initial Pub. Offering Sec.
Litig., 214 F.R.D. 117, 121 (S.D.N.Y. 2002).
“Typicality is established where 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.'”
Janbay v. Canadian Solar, Inc., 272 F.R.D. 112, 120
(S.D.N.Y. 2010) (quoting In re Drexel Burnham Lambert
Group, Inc., 960 F.2d 285, 291 (2d Cir. 1992)). At this
early stage, “[t]he adequacy requirement is satisfied
where: (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.” Foley v. Transocean Ltd.,
272 F.R.D. 126, 131 (S.D.N.Y. 2011).
once the court has identified the presumptive “most
adequate plaintiff, ” other members of the purported
class may try to rebut the statutory presumption by showing
that the presumptive lead plaintiff will not fairly and
adequately protect the interests of the class or is incapable
of adequately representing the class because of “unique
defenses.” 15 U.S.C. § 77z- 1(a)(3)(B)(iii)(II).
But the Court does not need to determine whether other
plaintiffs may be more typical or adequate than the
presumptively adequate plaintiff. “So long as the
plaintiff with the largest losses satisfies the typicality
and adequacy requirements, he is entitled to lead plaintiff
status, even if the district court is convinced that some
other plaintiff would do a better job.” Khunt,
102 F.Supp.3d at 536 (quoting In re Cavanaugh, 306
F.3d 726, 732 (9th Cir. 2002)).
PSLRA further requires the Court to approve the lead
plaintiff's selection of counsel. 15 U.S.C. §
77z-1(a)(3)(B)(v). “The PSLRA evidences a strong
presumption in favor of approving a properly-selected lead
plaintiff's decisions as to counsel selection and counsel
retention.” Kaplan v. S.A.C. Capital Advisors,
L.P, 311 F.R.D. 373, 383 (S.D.N.Y. 2015) (quoting
Varghese v. China Shenghuo Pharm. Holdings, Inc.,
589 F.Supp.2d 388, 398 (S.D.N.Y. 2008)). Courts often rely on
counsel's past experience when determining whether the
lead plaintiff's selection is appropriate. See,
e.g., In re Petrobras Sec. Litig., 104
F.Supp.3d 618, 625 (S.D.N.Y. 2015).
Wong Family Trusts timely filed a motion to be appointed lead
plaintiff, satisfying the requirement that it make “a
motion in response to a notice” of the putative class
action. 15 U.S.C. § 77z-1(a)(3)(B)(iii)(I)(aa). Notice
of the class action was published on August 15, 2017, and the
Wong Family Trusts filed its motion on October 16, 2017.
the Wong Family Trusts have the largest financial interest in
the relief sought by the class of the other two movants.
Indeed, both Nurlybaev and the ZTO Investor Group concede
this fact. Dkt Nos. 40 & 41. The Court, moreover, has
reviewed the figures provided by the Wong Family Trusts
sufficient to analyze each movant's financial interest
under the Lax factors. Dkt. No. 42 at 7. Nurlybaev
purchased 5, 128 shares (0 net shares), expended $28, 460.40
in net funds, and suffered approximately $28, 460.40 in
losses. ZTO Investor Group collectively purchased 48, 589
shares (16, 589 net shares), expended $909, 995.50 in net
funds, and lost approximately $286, 289.87. The Wong Family
Trusts purchased 100, 000 shares (100, 000 net shares), spent
$1, 840, 000 in net funds, and suffered approximately $473,
000 in losses. Under all four Lax factors, the Wong
Family Trusts have the largest financial interest.
the Wong Family Trusts meet the typicality and adequacy
requirements of Rule 23 of the Federal Rules of Civil
Procedure. The Wong Family Trusts allege the same facts and
make the same legal arguments as the other members of the
class: centrally, that ZTO made false or misleading
statements in its registration statement in connection with
its initial public offering. Therefore, the Wong Family
Trusts is typical of the class.
Wong Family Trusts is also an adequate representative.
Plaintiff's counsel is Hagens Berman Sobol Shapiro LLP
(“Hagens Berman”), a firm with extensive
experience representing classes in securities actions.
See Dkt. No. 38, at Ex. D. There is no evidence of
conflict between the Wong Family Trusts and other class