Evellard v. LendingClub Corporation et al

Filing 90

ORDER (1) CONSOLIDATING CASES; (2) APPOINTING LEAD PLAINTIFF; AND (3) INVITING APPLICATIONS FOR LEAD COUNSEL. Signed by Judge Alsup on 8/15/2016. (whalc2, COURT STAFF) (Filed on 8/15/2016)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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STEEVE EVELLARD, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,

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No. C 16-02627 WHA

v.
LENDINGCLUB CORPORATION, RENAUD
LAPLANCHE, and CARRIE L. DOLAN,

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Defendants.

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NICOLE WERTZ, Individually and on Behalf of All
Others Similarly Situated,

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No. C 16-02670 WHA
ORDER (1) CONSOLIDATING
CASES; (2) APPOINTING LEAD
PLAINTIFF; AND (3) INVITING
APPLICATIONS FOR LEAD
COUNSEL

Plaintiff,
v.
LENDINGCLUB CORPORATION, RENAUD
LAPLANCHE, and CARRIE L. DOLAN,
Defendants.
/

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INTRODUCTION
Pursuant to the Private Securities Litigation Reform Act, this order appoints Water and

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Power Employees’ Retirement, Disability and Death Plan of the City of Los Angeles as lead

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plaintiff. All other candidates have either withdrawn or do not oppose WPERP’s motion.

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Accordingly, this order DENIES the motions of other parties for appointment as lead plaintiff.

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This order also GRANTS the motion to consolidate cases and sets forth the procedure to be used

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for the selection and approval of class counsel.

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STATEMENT

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Before the Court are two putative class actions that arise from allegations of false and

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misleading statements in violation of federal securities laws. A previous order related these two

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actions to each other and a third individual action, Wertz v. LaPlanche, No. 16-cv-02670-WHA.

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Plaintiffs in the class actions are individual investors. Defendants are the LendingClub

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Corporation, Renaud LaPlanche, the company’s former Chief Executive Officer, and Carrie L.

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Dolan, the company’s Chief Financial Officer.
LendingClub is a so-called “peer-to-peer” lender. It operates an online marketplace to

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For the Northern District of California

United States District Court

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connect borrowers to investors. The loan products facilitated by LendingClub include

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consumer loans, personal loans, education loans, patient-finance loans, and small business

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loans.

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On December 11, 2014, LendingClub completed its IPO, selling 58 millions shares at

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$15.00 a share. On May 9, 2016, LendingClub disclosed in an SEC filing that defendant

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Renaud Laplanche had resigned as CEO. The SEC filing also disclosed that: (1) Laplanche had

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previously failed to inform the board’s Risk Committee of his personal interest in a third-party

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fund called Cirrix Capital while LendingClub was contemplating investing in the fund; and (2)

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an internal review found that the company had sold $22 million in loans to a loan investor in

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violation of that investor’s “express instructions” (Evellard Compl. ¶¶ 5–8). Soon thereafter,

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news outlets reported that LendingClub itself actually invested in Cirrix and that Cirrix had

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reportedly invested over $175 million in notes sold on LendingClub’s platform (Wertz Compl.

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¶¶ 33–34). The stock price tumbled on the news.

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On May 16, 2016, investor Steeve Evellard was the first to file a lawsuit in this district.

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That same day, his counsel published a notice over the Globe Newswire informing investors that

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a class action lawsuit had been filed against LendingClub Corporation and two individual

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defendants and that investors had until July 15, 2106, to seek appointment as lead plaintiff. The

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notice also described the general allegations against defendants (Dkt. No. 14).
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Several lead plaintiff candidates filed motions for appointment: Water and Power

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Employees’ Retirement System, Disability and Death Plan of the City of Los Angeles

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(“WPERP”); U.S. Equity Fund; the Boston Retirement System; the Northern Ireland Local

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Government Officers’ Superannuation Committee; Lyle Hanson; and Ignacio Canals, Robert

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Stelly, and Jin Chen. All of these candidates except for WPERP either withdrew or did not

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oppose the motion of WPERP. Therefore, WPERP is the only remaining candidate.

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The Court requested that each lead plaintiff candidate individually file responses to a

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questionnaire about its qualifications, experience in managing litigation, transactions in the

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shares at issue, and any potential conflicts related to the instant securities litigation. The
remaining candidate, WPERP, has submitted answers to the lead plaintiff questionnaire. A

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For the Northern District of California

United States District Court

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hearing on the appointment of lead plaintiff was held. WPERP was questioned on its

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qualifications.

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WPERP is an institutional investor that purchased LendingClub securities during the
alleged class periods. It alleges a loss of $12.9 million.

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ANALYSIS

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1.

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Under Federal Rule of Civil Procedure 42(a), the district court may consolidate actions

CONSOLIDATION.

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where the actions involve a “common question of law or fact.” The “district court has broad

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discretion under this rule to consolidate cases pending in the same district.” Investors Research

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Co. v. U.S. Dist. Court for Cent. Dist. of Cal., 877 F.2d 777, 777 (9th Cir. 1989).

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Here, the complaints involve common questions of fact and law. Both actions allege

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that defendants issued materially inaccurate public statements that artificially inflated the price

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of LendingClub’s common stock. Both class periods start on the same day and end three days

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apart (the Evellard class period ends on May 6, 2016, while the Wertz class period ends on May

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9, 2016). Both complaints allege claims under Section 10, Rule 10(b)(5), and Section 20(a) and

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include allegations concerning the failure to disclose investments in a third-party fund called

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Cirrix Capital. The Evellard complaint also asserts claims under Section 11 and Section 15 and

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includes allegations that LendingClub sold $22 million in loans to an investor in violation of
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that investor’s instructions. Rule 42(a), however, does not require the complaints to be identical

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for purposes of consolidation. Here, because the complaints involve common questions of fact

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and law, the motion to consolidate is GRANTED.

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In the event that a subsequent plaintiff files a complaint against LendingClub and/or its

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officers that involves common questions of fact and law, COUNSEL ON BOTH SIDES SHALL

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IMMEDIATELY NOTIFY THE COURT OF THE RELATED CASE.

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automatically consolidated unless the consolidation is opposed within one week of such notice.

Any such complaint shall be

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2.

APPOINTMENT OF LEAD PLAINTIFF.

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Under the PSLRA, the 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

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For the Northern District of California

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representing the interests of the class members . . . in accordance with this subparagraph.” 15

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U.S.C. 78u-4(a)(3)(B)(i); 15 U.S.C.A. 77z-1(a)(3)(B)(i). The PSLRA creates a rebuttable

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presumption that the most adequate plaintiff should be the plaintiff who: (1) has filed the

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complaint or brought the motion for appointment of lead counsel in response to the publication

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of notice; (2) has the “largest financial interest” in the relief sought by the class; and (3)

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otherwise satisfies the requirements of FRCP 23. 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(aa)–(cc); 15

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U.S.C.A. 77z-1(a)(3)(B)(iii)(I)(aa)–(cc). The above presumption may be rebutted only upon

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proof that the presumptive lead plaintiff: (1) will not fairly and adequately protect the interests

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of the class or (2) is subject to “unique defenses” that render such plaintiff incapable of

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adequately representing the class. 15 U.S.C. 78u-4(a)(3)(B)(iii)(II)(aa)–(bb); 15 U.S.C.A.

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77z-1(a)(3)(B)(iii)(II)(aa)–(bb).

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The PSLRA establishes a three-step inquiry for appointing a lead plaintiff. First, a

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plaintiff files the action and posts notice, allowing other lead plaintiff candidates to file motions.

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Second, the district court considers which of those plaintiffs has the largest financial interest in

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the action, and whether that plaintiff meets the requirements of FRCP 23. Third, other

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candidates have the opportunity to rebut the presumption that the putative lead plaintiff can

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adequately represent the class. In re Cavanaugh, 306 F.3d 726, 729–30 (9th Cir. 2002).

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Largest Financial Interest.

The PSLRA does not indicate a specific method for calculating which plaintiff has the

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“largest financial interest.” See 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(bb). Our court of appeals also

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has not prescribed a particular method for calculating a plaintiff’s financial interest but has

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directed that courts “the court may select accounting methods that are both rational and

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consistently applied.” In re Cavanaugh, 306 F.3d at 730 n.4.

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Court often calculate financial interest based on net losses suffered. Under this test,

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courts consider: “(1) the number of shares purchased during the class period; (2) the number of

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net shares purchased during the class period; (3) the total net funds expended during the class
period; and (4) the approximate losses suffered during the class period.” In re Diamond Foods,

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For the Northern District of California

United States District Court

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Inc., Sec. Litig., 281 F.R.D. 405, 408 (N.D. Cal. 2012) (emphasis added). The fourth factor, the

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net “approximate loss,” is generally considered the most important factor. Ibid. Absent proof

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that the lead plaintiff candidate with the largest financial interest does not satisfy the

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requirements of FRCP 23, said candidate is “entitled to lead plaintiff status.” In re Cavanaugh,

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306 F.3d at 732.

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WPERP’s financial interest is as follows: (1) WPERP purchased 2,790,085 million

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shares during the class period; (2) WPERP purchased 1,930,770 million net shares during the

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class period; (3) WPERP expended $21.7 million net funds; (4) WPERP suffered an estimated

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net loss of $12.9 million dollars.

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U.S. Equity initially opposed the appointment of WPERP as the lead plaintiff. U.S.

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Equity has since withdrawn its motion for lead plaintiff, however, and conceded that WPERP

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has asserted the largest financial interest (Dkt. No. 87). All other candidates have either

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withdrawn or do not oppose WPERP’s motion.

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As there is only one remaining candidate, this order need not make a determination as to

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the adequacy of the calculations of WPERP’s financial losses. This order recognizes that a

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good argument can be made that the proper test for losses for purposes of identifying the

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plaintiff with the largest financial interest is a test based on the Dura decision. But that issue is

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not presented for decision here as all candidates have either withdrawn or conceded that, even

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under Dura, WPERP has the largest financial interest (see Dkt. No. 79).

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This order further recognizes that an important consideration in selecting the lead

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plaintiff is to estimate the class period. Lead plaintiff candidates will typically stretch or shrink

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the class period in order to jockey for position so as to wind up with the largest loss. Once

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again, this important consideration has fallen away in this case because only one applicant is

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left standing.

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Because all other candidates have either withdrawn or do not oppose WPERP’s motion,
WPERP is presumptively the most adequate lead plaintiff.

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For the Northern District of California

United States District Court

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2.

Requirements of Typicality and Adequacy Under FRCP 23.

Once the court determines which plaintiff has the largest financial interest, “the court

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must appoint that plaintiff as lead, unless it finds that [that plaintiff] does not satisfy the

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typicality or adequacy requirements” In re Cavanaugh, 306 F.3d at 732. The district court

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must inquire whether the putative lead plaintiff satisfies the requirements of FRCP 23(a). Id. at

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730. The inquiry focuses on the “typicality” and “adequacy” requirements, as the other

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requirements in FRCP 23 of numerosity and commonality would preclude class certification by

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themselves. Id. at 730 n.5.

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The typicality requirement is satisfied when the putative lead plaintiff has suffered the

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same injuries as absent class members, as a result of the same conduct by the defendants.

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Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992). In the instant action, the

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alleged artificial inflation and consequent market corrections of the price of LendingClub’s

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stock caused by defendants’ allegedly false and misleading disclosures during the class period

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caused WPERP and absent class members, alike, to suffer financial loss, all subject to the Dura

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requirement. As a result, WPERP’s claims are based on the same legal theories as other class

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members.

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The adequacy requirement of Rule 23(a)(4) permits certification only if “the

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representative parties will fairly and adequately protect the interests of the class.” The two key

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inquiries are (1) whether there are conflicts within the class; and (2) whether plaintiff and
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counsel will vigorously fulfill their duties to the class. Ellis v. Costco Wholesale Corp., 657

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F.3d 970, 985 (9th Cir. 2011).

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In its response to the lead plaintiff questionnaire, WPERP identified Jeremy Wolfson,

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WPERPs Chief Investment Officer, as being the individual in charge of managing litigation

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responsibilities. In addition, two attorneys from the Los Angeles City Attorney’s Office will be

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advising Mr. Wolfson. The City Attorney’s Office has assisted in three other class actions in

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which two other retirement plans of the City of Los Angeles have been the lead plaintiff.

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This order concludes that WPERP has made an initial showing of typicality and

Because this order does not appoint plaintiffs’ counsel at this time, the adequacy of counsel will

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For the Northern District of California

adequacy, subject to a final determination of these requirements at the time of a Rule 23 motion.

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United States District Court

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be determined at a later time.

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Attempts to Rebut Presumption.

Other plaintiffs may rebut the presumption that the putative lead plaintiff has satisfied
the requirements of typicality and adequacy. In re Cavanaugh, 306 F.3d at 730.

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U.S. Equity has withdrawn its motion for lead plaintiff but it initially opposed the

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appointment of WPERP as the lead plaintiff, arguing that WPERP is inadequate to serve as lead

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plaintiff “because it has selected conflicted counsel that cannot zealously advocate on behalf of

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the Class” (Dkt. No. 79, 87). U.S. Equity asserted that WPERP’s counsel, Robbins Geller

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Rudman & Dowd LLP, is serving as lead counsel in a parallel state court action. WPERP has

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not asked the Court for appointment of lead counsel at this time, however. Moreover, Robbins

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Geller is no longer lead counsel in the state action (Dkt. No. 86).

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WPERP has the largest financial interest in the relief sought by the classes and

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otherwise satisfies the typicality and adequacy requirements of FRCP 23. WPERP is therefore

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the most adequate lead plaintiff.

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INSTRUCTIONS TO WPERP

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WPERP is appointed lead plaintiff. The following sets forth the procedure for selecting

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and approving class counsel. Under the PSLRA, “[t]he most adequate plaintiff shall, subject to

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the approval of the court, select and retain counsel to represent the class.” 15 U.S.C. 78u7

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4(a)(3)(B)(v). Selection and approval require an assessment of the strengths, weaknesses, and

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experience of counsel as well as the financial burden — in terms of fees and costs — on the

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class. Wenderhold v. Cylink Corp., 191 F.R.D. 600, 602–03 (N.D. Cal. February 4, 2000)

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(Judge Vaughn R. Walker).

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Any important decision made by a fiduciary should be preceded by due diligence. A

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lead plaintiff is a fiduciary for the investor class. No decision by the lead plaintiff is more

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important than the selection of class counsel. Consequently, the lead plaintiff should precede its

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choice with due diligence. The extent of such due diligence is a matter of judgment and

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reasonableness based on the facts and circumstances.
The lead plaintiff may consider its current counsel along with all other candidates but it

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may not give them special preference. Considerations should include their fee proposal, their

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track record, the particular lawyers assigned to the case, their ability and willingness to finance

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the case, and their proposals for the prosecution of the case, or the factors set forth in the

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questionnaire.

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The lead plaintiff should immediately proceed to perform its due diligence in the

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selection of class counsel, and to interview appropriate candidates. Counsel wishing to apply to

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be considered for the role of lead counsel should promptly contact Jeremy Wolfson at:

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Water and Power Employees’ Retirement Plan
111 North Hope Street
Los Angeles, CA 90012
213-367-1692

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WPERP shall promptly advertise for applicants and leave open the application period
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for class counsel until SEPTEMBER 2, 2016, and shall make a final decision as to the selection of
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counsel by SEPTEMBER 16, 2016. Through counsel, WPERP shall move for the appointment
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and approval of their selected counsel no later than September 29, 2016. The motion should be
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accompanied by declarations from the lead plaintiff explaining the due diligence undertaken by
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each with respect to the selection of class counsel. The declarations should also explain why
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the counsel selected was favored over other potential candidates. The declarations should be
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filed under seal and not served on defendants. The motion for approval of lead plaintiff’s
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choice of counsel, however, should be served on defense counsel. No hearing will be held on

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the motion unless the Court determines that it would be beneficial.

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Once class counsel is approved, the first order of business will be to file a consolidated

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complaint within 42 CALENDAR DAYS of the order appointing lead counsel. Defendants may

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then file a motion to dismiss (or answer) within 42 CALENDAR DAYS. Any such motion shall be

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noticed on the normal 35-day track.

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This appointment is conditioned on lead plaintiff submitting certification in writing,

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within seven calendar days, that it has read this order and the questionnaire and is willing and

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able to meet the schedule and its fiduciary obligations. This should be signed both by the City
Attorney’s Office and by Jeremy Wolfson, WPERP’s Chief Investment Officer.

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IT IS SO ORDERED.

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Dated: August 15, 2016.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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