Emerson v. Genocea Biosciences, Inc. et al
Chief Judge Patti B. Saris: MEMORANDUM and ORDER entered. GIGs motion to be appointed lead plaintiff and to approve counsel (Docket No. 22 ) is ALLOWED. Groners parallel motion (Docket No. 16 ) is DENIED. Associated Cases: 1:17-cv-12137-PBS, 1:17-cv-12168-PBS, 1:17-cv-12474-PBS(Geraldino-Karasek, Clarilde)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
GENOCEA BIOSCIENCES, INC., WILLIAM )
D. CLARK, and JONATHAN POOLE,
STEVEN EMERSON, individually
and on behalf of all others
similarly situated; SHELDON
GRONER; BARRY HEANY; and
Civil Action No.
MEMORANDUM AND ORDER
February 12, 2018
In this proposed class action, two competing lead
plaintiffs allege securities fraud by a biopharmaceutical
company. The plaintiffs assert that Genocea Biosciences, Inc.
(“Genocea”) and two officers artificially inflated the company’s
stock price by reporting overly optimistic prospects for a
potential herpes treatment when, in reality, the company’s
finances could not support successful regulatory approval of the
drug. When the company later reported that it was abandoning the
treatment, its share price fell precipitously. This prompted
several plaintiffs to sue under the federal securities laws.
Now before the Court are two competing motions to appoint a
lead plaintiff and class counsel. After hearing and
consideration of the parties’ submissions, the motion to appoint
the Genocea Investor Group as lead plaintiff with Scott+Scott,
Attorneys at Law, LLP, and Levi & Korsinsky, LLP, as co-lead
class counsel and Block & Leviton, LLP, as liaison counsel
(Docket No. 22) is ALLOWED. The competing lead-plaintiff motion
of Sheldon Groner (Docket No. 16) is DENIED.
Genocea is a biopharmaceutical company based in Cambridge,
Massachusetts, that researches and develops vaccines and
immunotherapies. Docket No. 1, ¶¶ 2-3, 18. 1 Between May and
September 2017, Genocea’s lead product candidate was a genital
herpes immunotherapy product called GEN-003. Id. ¶¶ 1, 4, 19.
The complaint alleges that the company and its officers made
materially false or misleading statements, or failed to disclose
information about GEN-003 -- primarily that Genocea’s financial
health was inadequate to support Phase 3 trials of the drug. Id.
This overview derives from the complaint in the lead case, Civil
Action No. 17-12137-PBS. To the extent that the complaints in the two
cases consolidated under the lead action vary, those variations are
not material for present purposes.
¶ 5. As a result, the plaintiffs believe Genocea overstated the
prospects of bringing GEN-003 to market. Id.
For instance, in May 2017, Genocea disclosed that the
company expected GEN-003 to be ready for Phase 3 trials by the
fourth quarter of 2017. Id. ¶ 20. In July and August 2017, the
company made additional disclosures indicating positive results
of Phase 2b trials and reiterating the company’s expectation
that GEN-003 would soon be ready for Phase 3 trials. Id. ¶¶ 2122. However, after the markets closed on September 25, 2017,
Genocea disclosed that it was halting spending on GEN-003,
“exploring strategic alternatives for the drug,” and cutting 40
percent of its workforce. Id. ¶¶ 6, 23. The next day, the
company’s share price fell $4.08, or 75 percent, to close at
$1.25 per share. Id. ¶¶ 6, 24.
The drop in Genocea’s share price prompted three putative
class action lawsuits under §§ 10(b) and 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and under
Rule 10b-5, 17 C.F.R. § 240.10b-5. See id. ¶¶ 1, 26-50. At a
hearing in January 2018, the Court allowed a motion to
consolidate the three cases. The Court took under advisement
competing motions for the appointment of a lead plaintiff and
class counsel. Those motions are now ripe for decision.
General Framework for Appointing a Lead Plaintiff
The Private Securities Litigation Reform Act (“PSLRA”)
requires 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). A
class member may trigger a rebuttable presumption that she is
the “most adequate plaintiff” by satisfying three criteria: (1)
filing the complaint or making a timely motion to be lead
plaintiff; (2) having the largest financial interest in the
relief sought; and (3) otherwise satisfying Rule 23 of the
Federal Rules of Civil Procedure. 15 U.S.C. § 78u4(a)(3)(B)(iii)(I). Another class member may rebut this
presumption “only upon proof” that the presumptive “most
adequate plaintiff” either (1) “will not fairly and adequately
protect the interests of the class,” or (2) “is subject to
unique defenses that render such plaintiff incapable of
adequately representing the class.” 15 U.S.C. § 78u4(a)(3)(B)(iii)(II).
Aggregating Plaintiffs to Form Largest Financial Interest
When analyzing who has the “largest financial interest in
the relief sought,” courts are divided on whether and when to
allow groups of class members to aggregate their losses. See 7B
Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 1806 (3d ed. 2017) (discussing various approaches
and noting that “many courts have emphasized that the decision .
. . must be made on a case-by-case basis”). See also Elizabeth
Chamblee Burch, Optimal Lead Plaintiffs, 64 Vand. L. Rev. 1109,
1137–39 (2011) (describing various approaches). On one end of
the spectrum, some courts have flatly refused to appoint groups
of unrelated persons as lead plaintiffs. See, e.g., In re
Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157–58 (S.D.N.Y.
1997) (ruling that “aggregation of unrelated plaintiffs to serve
as lead plaintiffs defeats the purpose of choosing a lead
plaintiff” and undermines PSLRA purpose of “prevent[ing] lawyerdriven litigation”). Others permit aggregation, taking note of
the PSLRA’s direction to consider the “person or group of
persons” with the largest financial interest in the case. See,
e.g., In re Advanced Tissue Scis. Sec. Litig., 184 F.R.D. 346,
350 (S.D. Cal. 1998) (quoting 15 U.S.C. § 78u–
4(a)(3)(B)(iii)(I)). Still others fall somewhere in between. See
Burch, supra, at 1138 (discussing courts that have appointed
groups where no bad faith exists, where the group has
demonstrated cohesiveness, or where close-knit group members had
In what appears to be the only Court of Appeals decision on
point, the Third Circuit has adopted a “rule of reason”
approach. See In re Cendant Corp. Litig., 264 F.3d 201, 266–67
(3d Cir. 2001). Noting that the PSLRA expressly permits a “group
of persons” to serve as lead plaintiff, the Third Circuit
“disagree[d] with those courts that have held that the statute
invariably precludes a group of ‘unrelated individuals’ from
serving as a lead plaintiff.” Id. at 266 (citing 15 U.S.C. §§
78u–4(a)(3)(B)(iii)(I) and 78u–4(a)(3)(B)(i)). Instead, the
Third Circuit held that the nature and extent of the group
members’ prior relationship, if any, as well as the size of the
group, should be taken into account as factors in an overall
determination of whether the group can “fairly and adequately
protect the interests of the class.” Id. at 266-67.
The courts in this district have generally permitted
aggregation of unrelated plaintiffs after examining various
relevant factors to determine whether the group can fairly and
adequately protect the interests of the class. See, e.g.,
Arkansas Teacher Ret. Sys. v. Insulet Corp., 177 F. Supp. 3d
618, 623 (D. Mass. 2016) (discussing how court should consider
“any relevant factors” in group-lead-plaintiff analysis); In re
Lernout & Hauspie Sec. Litig., 138 F. Supp. 2d 39, 44 (D. Mass.
2001) (“[A] Court should not blindly aggregate the losses of
unrelated plaintiffs to confer lead plaintiff status on a group
without considering whether the grouping is sufficiently
coherent to control the litigation.”); Howard Gunty Profit
Sharing Plan v. CareMatrix Corp., 354 F. Supp. 2d 18, 24 (D.
Mass. 2000) (“It is not necessary that proposed lead plaintiffs
have a pre-litigation relationship, but rather that they be able
to operate in concert and manage the litigation and the lawyers,
which is accomplished most successfully by a single plaintiff or
small group of plaintiffs.”). Relevant factors in this body of
case law have included: (1) pre-existing relationships between
the members, (2) the involvement of group members in litigation
thus far, (3) a demonstration of how group members will
cooperate and function collectively, (4) the establishment of
communication mechanisms between members and proposed lead
counsel, (5) the sophistication of group members, (6) whether
members chose outside counsel and not vice versa, and (7) any
other relevant factors. See Arkansas Teacher Ret. Sys., 177 F.
Supp. at 623; Varghese v. China Shenghuo Pharm. Holdings, Inc.,
589 F. Supp. 2d 388, 392 (S.D.N.Y. 2008); In re Lernout &
Hauspie Sec. Litig., 138 F. Supp. 2d at 44; In re MicroStrategy
Inc. Sec. Litig., 110 F. Supp. 2d 427, 435 (E.D. Va. 2000).
The two competing lead plaintiffs in this case are an
individual named Sheldon Groner and a group of five unrelated
investors referred to as the Genocea Investor Group (“GIG”).
Groner and GIG join issue over two of the three “most adequate
plaintiff” criteria: the timeliness of GIG’s motion to become
lead plaintiff, and who has the largest financial interest in
Timeliness of GIG’s Motion
Groner first argues that GIG’s motion to be lead plaintiff
was untimely. According to Groner, because the motion was filed
at 6:04 p.m. on January 2, 2018, it was four minutes late under
the local filing deadline of 6 p.m. and must be deemed filed the
next day. See L.R., D. Mass. 5.4(d). Because January 2, 2018,
happened to be the final day in the PSLRA’s 60-day window for
filing lead-plaintiff motions, Groner argues that GIG’s motion
was untimely. See 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). GIG
acknowledges its filing was a wee bit tardy, but argues that
such a trivial delinquency should not disqualify its motion.
Groner is correct that the PSLRA requires lead-plaintiff
motions to be filed within 60 days of the publication of notice
of the complaint. See 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). He is
also correct that the local rules require documents to be filed
“prior to 6:00 p.m. to be considered timely filed that day.”
L.R., D. Mass. 5.4(d).
That said, the Court denies the request to disqualify GIG’s
motion over a de minimis infraction of four minutes. Groner
cites no case law to support his contention that the PSLRA’s 60day window is jurisdictional in nature. Although courts
typically “adhere strictly” to the PSLRA’s 60-day filing window,
Reitan v. China Mobile Games & Entm't Grp., Ltd., 68 F. Supp. 3d
390, 397 (S.D.N.Y. 2014), the 6 p.m. deadline under the local
rules is not sacrosanct. See Air Line Pilots Ass'n v. Precision
Valley Aviation, Inc., 26 F.3d 220, 224 (1st Cir. 1994)
(“District courts enjoy broad latitude in administering local
rules.”). Because GIG’s motion was filed on the sixtieth day of
the PSLRA’s 60-day window, the motion did not turn into a
pumpkin at the stroke of 6 p.m. Thus, notwithstanding the fourminute lag under the local rule, the Court will consider the
Aggregation of Plaintiffs’ Losses
The parties agree that the appropriate metric for
calculating each side’s financial interest comprises four
figures: (1) the number of shares purchased during the class
period; (2) the number of net shares purchased during the class
period; (3) the total net funds expended during the class
period; and, most importantly, (4) the approximate losses
suffered during the class period. See Arkansas Teacher Ret.
Sys., 177 F. Supp. 3d at 622 (citing In re Olsten Corp. Sec.
Litig., 3 F. Supp. 2d 286, 295 (E.D.N.Y. 1998)).
The parties also agree, although they quibble about the
exact figures, that if the GIG members are permitted to
aggregate their claims, they have the largest financial interest
in the case, exceeding Groner’s totals in each of the four
categories just described. See Docket Nos. 32 at 9; 33 at 9-16;
34 at 4-5. The parties similarly do not dispute that if
aggregation is not permitted, Groner sweeps all four categories
and therefore has the largest individual loss under the same
metric. See Docket Nos. 32 at 9; 34 at 4-5.
Thus, the critical question is whether aggregation is
appropriate in this case -- in other words, whether GIG is up to
the task of representing the interests of all plaintiffs. 2 Groner
suggests not, arguing that GIG is a “hodgepodge of five
unrelated investors . . . assembled at the eleventh hour by at
least three different law firms.” Because such a group lacks
cohesion and is not bound by any pre-existing relationships,
Groner argues, it will inevitably end up controlled by lawyers
and therefore undermine an important purpose of the PSLRA. He
pointedly adds that GIG’s late-filed motion is symptomatic of
the group’s inability to work together. GIG counters that there
is no requirement that a lead-plaintiff group have a preexisting relationship, and that GIG’s five members have agreed
Groner also assails the accuracy and adequacy of GIG’s proffered
evidence of its financial interest in the case and, as an alternative
argument, seeks further discovery related to GIG’s composition. These
arguments are unavailing because Groner misinterprets the relatively
low burden of proof borne by a party seeking appointment as “most
adequate plaintiff.” See In re Cendant Corp. Litig., 264 F.3d 201, 263
(3d Cir. 2001) (confining “initial inquiry” regarding financial
interest and satisfaction of Rule 23 to “a prima facie showing of
typicality and adequacy”); Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y.
2001) (noting that investor seeking appointment as lead plaintiff need
only make “preliminary showing” that it satisfies Rule 23’s typicality
and adequacy requirements).
to communication and decision-making protocols that will allow
the group to effectively control the litigation.
Despite the four-minute late filing on January 2, after a
long holiday weekend, GIG has satisfied the Court that it will
be able to adequately represent the plaintiffs’ interests in
this case. True, GIG’s members do not assert any pre-litigation
relationship. However, “[i]t is not necessary that proposed lead
plaintiffs have a pre-litigation relationship.” Howard Gunty
Profit Sharing Plan, 354 F. Supp. 2d at 24. Instead, other
factors carry the day for GIG.
The GIG members have submitted a joint declaration
discussing, albeit not in tremendous detail, their plan to
“exercise joint decision-making and work together to actively
monitor the activities of counsel.” Docket No. 23-5, ¶ 13. The
group reports that it has agreed “to regularly review and
discuss case filings with counsel through joint conference
calls, as well as other measures.” Id. GIG also asserts that it
has “implemented communication procedures to enable [its
members] to confer via phone and/or email on short notice to
ensure [the group] is able to make timely decisions.” Id. ¶ 14.
Courts have found communication and decision-making plans like
these to be persuasive evidence of group cohesion. See, e.g.,
Arkansas Teacher Ret. Sys., 177 F. Supp. 3d at 623 (weighing
group members’ “sworn declaration explaining how and why they
intend to work together,” as well as “discuss[ion of] how duties
will be shared among the [group members] and how they will
communicate with each other and with lead counsel”); In re
Lernout & Hauspie Sec. Litig., 138 F. Supp. 2d at 45 (noting
that “relatively detailed litigation strategy” and agreement to
regular conference calls demonstrated ability to work together).
Cf. Varghese, 589 F. Supp. 2d at 393 (rejecting proposed group
that “fail[ed] to provide the Court with any evidence that its
members have had any prior pertinent relationships or
cooperative efforts, or that they will act collectively and
separately from their lawyers”).
The GIG members also appear to be sufficiently
sophisticated to direct this litigation and prevent it from
becoming lawyer-driven. As represented by counsel at the
hearing, the members include two individuals with master’s
degrees, a professor at Temple University, a businessman, and an
individual with a background in accounting and a degree from
Suffolk University. See Khunt v. Alibaba Grp. Holding Ltd., 102
F. Supp. 3d 523, 533 (S.D.N.Y. 2015) (weighing fact that
“plaintiffs do appear to be quite sophisticated,” although
ultimately not approving group).
Additionally, courts have frequently approved lead
plaintiff groups of a size similar to GIG. See, e.g., Barnet v.
Elan Corp., 236 F.R.D. 158, 162 (S.D.N.Y. 2005) (group of six
“not too unwieldy a number to effectively manage the
litigation”); Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001)
(group of seven “does not present a group so cumbersome as to
deliver the control of the litigation into the hands of the
lawyers”); In re Advanced Tissue Sciences Sec. Litig., 184
F.R.D. at 352–53 (approving six-member lead plaintiff group).
See also In re Cendant Corp. Litig., 264 F.3d at 267 (endorsing
position of Securities and Exchange Commission “that courts
should generally presume that groups with more than five members
are too large to work effectively”).
Of course, Groner highlights a number of cases where
aggregation was disallowed for a variety of reasons. See, e.g.,
In re Petrobras Sec. Litig., 104 F. Supp. 3d 618, 622–23
(S.D.N.Y. 2015) (rejecting two proposed lead-plaintiff groups
that were “wholly artificial groupings” where one group “had
little inclination to take a firm hand in their dealings with
counsel” and the other exhibited a “lack of advance planning
regarding how the litigation would be managed” and “failed to
show that it would act with the cohesion necessary to prosecute
the case effectively”); Khunt, 102 F. Supp. 3d at 534 (rejecting
lead-plaintiff group, despite sophistication, because group
appeared to be “cobbled together” by lawyers and likely to
create “case control problems and rival disagreements, resulting
in delay and increased expense”).
Far from being determinative, however, these cases simply
illustrate the principle that the appointment of a leadplaintiff group should be considered on a case-by-case basis.
See In re Cendant Corp. Litig., 264 F.3d at 267 (rejecting
“hard-and-fast rule” in favor of “a kind of ‘rule of reason’”);
Wright & Miller, supra, § 1806 (collecting cases that have
embraced a “case-by-case” approach). Indeed, even the leading
cases offered by Groner apply this type of flexible, multifactor approach. See In re Petrobras Sec. Litig., 104 F. Supp.
3d at 622; Khunt, 102 F. Supp. 3d at 533.
Given the communication and decision-making plans described
in GIG’s joint declaration, and the presentation by counsel
concerning the sophistication of the GIG members, the Court is
satisfied that the five-person GIG will adequately represent the
plaintiffs’ interests and will not cede control of the
litigation to the attorneys. Accordingly, the Court will permit
the members of GIG to aggregate their losses for purposes of the
“most adequate plaintiff” analysis. It bears mentioning that
this decision is without prejudice, and the Court “reserves the
right to modify this lead plaintiff structure in the event that
litigation is stalled, expenses become unnecessarily duplicative
or wasteful, or the structure becomes otherwise unmanageable.”
In re Gentiva Sec. Litig., 281 F.R.D. 108, 117 (E.D.N.Y. 2012).
III. Remaining Issues
Groner does not seriously dispute the remaining components
of the “most adequate plaintiff” formula, and the Court
addresses them only briefly.
To begin, GIG must demonstrate that it otherwise satisfies
the demands of Rule 23 -- in particular the typicality and
adequacy prongs. In re Lernout & Hauspie Sec. Litig., 138 F.
Supp. 2d at 45–46. “The plaintiffs’ burden in proving typicality
requires that the named plaintiffs’ claims arise from the ‘same
events or course of conduct’ and involve the same legal theory
as do the claims of the rest of the class.” Id. at 46 (quoting
In re Bank of Boston Corp. Sec. Litig., 762 F. Supp. 1525, 1532
(D. Mass. 1991)). GIG asserts that its claims are typical of the
other class claims because they all arise from the purchase of
Genocea securities at a point in time when, it is alleged, share
prices were artificially inflated due to material false and
misleading statements by the company and its officers. Groner
does not argue this point. Accordingly, the Court finds GIG’s
claims to be typical of the class.
“To meet the adequacy requirement, plaintiffs must
demonstrate that they have common interests and an absence of
conflict with the class members and that the plaintiffs’
attorneys are qualified, experienced and vigorously able to
conduct the litigation.” Id. GIG asserts that its common
interest arises from the fact that its members suffered harm
from the same alleged violations of the securities laws as the
other class members, and that there is no suggestion of any
conflict with class members or inadequacy of counsel. As above,
Groner does not dispute these points. Thus, the Court finds GIG
has met the adequacy requirement.
Consequently, GIG has triggered the presumption that it is
the “most adequate plaintiff” for this litigation. This
presumption may be rebutted “only upon proof” that GIG either
(1) “will not fairly and adequately protect the interests of the
class,” or (2) “is subject to unique defenses that render [GIG]
incapable of adequately representing the class.” 15 U.S.C. §
Groner does not explicitly attempt to rebut the “most
adequate plaintiff” presumption, although one could interpret
his attacks on GIG’s cohesion to imply that GIG will not fairly
and adequately represent the interests of the class. To the
extent that is the case, the Court has already rejected that
argument for the reasons given above. Accordingly, the Court
appoints GIG as the lead plaintiff.
Finally, “[t]he PSLRA provides that the lead plaintiff
shall select class counsel subject to the court’s approval.”
Arkansas Teacher Ret. Sys., 177 F. Supp. 3d at 626 (citing 15
U.S.C. § 78u–4(a)(3)(B)(v)). “While the Court should not be a
rubber stamp,” the lead plaintiff’s choice is entitled to “some
weight.” In re Lernout & Hauspie Sec. Litig., 138 F. Supp. 2d at
46–47. Here, GIG has selected Scott+Scott and Levi & Korsinsky
as co-lead counsel, with Block & Leviton as liaison counsel. All
three firms have substantial experience in litigating securities
class actions. See Docket Nos. 23-6, 23-7, 23-8.
Although Groner argues that the presence of three law firms
is further evidence that GIG is a lawyer-driven group, he does
not question the firms’ credentials. Groner has a point that GIG
may have too many cooks in the kitchen. However, this is a big
case, and the plethora of attorneys will not increase the net
percentage of attorneys’ fees, which are typically paid under a
common fund theory. See In re Fidelity/Micron Sec. Litig., 167
F.3d 735, 738 & n.3 (1st Cir. 1999) (quoting 15 U.S.C. § 78u4(a)(6)) (noting how class-action attorneys must establish that
fees are “reasonable and necessary to the creation and
maintenance” of common fund and observing that PSLRA “take[s] a
similar tack”). Under such a framework, the Court will have
little difficulty reducing excessive fees and expenses.
Accordingly, the Court approves GIG’s selection of counsel.
GIG’s motion to be appointed lead plaintiff and to approve
counsel (Docket No. 22) is ALLOWED. Groner’s parallel motion
(Docket No. 16) is DENIED.
/s/ PATTI B. SARIS
Patti B. Saris
Chief United States District Judge
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