Chahal v. Credit Suisse Group AG

          OPINION AND ORDER

          SARAH NETBURN, United States Magistrate Judge

         This litigation arises out of three securities class actions pending before the Court against Credit Suisse Group AG (“Credit Suisse”) on behalf of all investors who purchased or otherwise acquired Credit Suisse VelocityShares Daily Inverse VIX Short Term Exchange Traded Notes (“Inverse VIX Short ETNs”) between January 29, 2018, and February 5, 2018 (the “Class Period”), and were damaged thereby. The actions allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a). The Eisenberg Action additionally alleges claims under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k.

         Before the litigation can proceed, the Private Securities Litigation Reform Act of 1995 (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), 78u-4(a)(3)(B). On May 14, 2018, seven parties filed motions to be appointed class representative: Ekhlas Ahmed and Shaolei Qui; a group called the XIV Investor Group (referred to herein as the “Cannon Group”); Y-GAR Capital; the Kershner Trading Group; a second group called the XIV Investor Group (referred to herein as the “ACM Group”); Andrew MacEntee; and the Princeton Opportunistic Credit Fund. After reviewing the competing motions, Ahmed and Qui and the Kershner Trading Group withdrew their motions for appointment as lead plaintiff, conceding that they did not have the largest financial interest in the relief sought by the class. The Princeton Opportunistic Credit Fund filed a Notice of Non-Opposition. On May 29, 2018, the remaining movants opposed the others' motions for appointment of Lead Plaintiff.

         LEGAL STANDARD

         The 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. 15 U.S.C. §§ 77z-1(a)(3)(B)(iii)(I), 77u-4(a)(3)(B)(iii)(I). 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), 78u-4(a)(3)(B)(iii)(II).

         I. Presumptive “Most Adequate Plaintiff”

         In deciding which proposed lead plaintiff has “the largest financial interest in the relief sought by the class, ” courts in this district tend to consider four criteria, known as the Lax factors: (i) the gross No. of shares purchased; (ii) the net No. 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., 97-CIV-2715, 1997 WL 461036, at *5 (N.D.Ill. Aug. 11, 1997)). 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 prevailing view in this District is that unrelated investors may join together to 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-CIV-3599 (KMW), 2015 WL 7018024, at *2 (S.D.N.Y. Nov. 12, 2015) (internal quotations omitted). “The issue is not whether losses or holdings may be aggregated by members of a group seeking to become the lead plaintiff; indisputably, they may. But to enjoy the rebuttable presumption that the statute confers, there must be some evidence that the members of the group will act collectively and separately from their lawyers.” In re Tarragon Corp. Sec. Litig., No. 07-CIV-7972 (PKC), 2007 WL 4302732, at *2 (S.D.N.Y. Dec. 6, 2007). “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.” Fries v. N. Oil & Gas, Inc., No. 16-CIV-6543 (ER), 2017 WL 1880819, at *2 (S.D.N.Y. May 8, 2017) (internal quotations omitted). “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 and therefore presumptively cohesive.” Janbay v. Canadian Solar, Inc., 272 F.R.D. 112, 119 (S.D.N.Y. 2010).

         As for 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 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, 272 F.R.D. at 120 (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).

         II. Rebuttal of the Presumption

         The Court then proceeds to the second step of the two-step appointment process. 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), 78u-4(a)(3)(B)(iii)(II). “If the presumptive lead plaintiff is disqualified [], the candidate's position is forfeited and the court returns to the first phase to determine a new presumptive lead plaintiff. The process repeats itself until a candidate succeeds in both the first and second phases of inquiry.” eSpeed, 232 F.R.D. at 98. 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)).

         III. Selection of Counsel

         The PSLRA further requires the Court to approve the lead plaintiff's selection of counsel. 15 U.S.C. §§ 77z-1(a)(3)(B)(v), 78u-4(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, 589 F.Supp.2d at 398). 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) (relying on a declaration detailing counsel's extensive experience with complex class action litigations).

         DISCUSSION

         I. ...