Turner v. Shengdatech, Inc. et al
Filing
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OPINION re: 11 MOTION to Appoint Counsel the Rosen Law Firm. MOTION to Appoint the Shadas to serve as lead plaintiff(s). MOTION to Consolidate Cases. filed by Shadas, 3 MOTION to Appoint Marlon Fund SICA V PLC to serve as lead plaintiff( s). filed by Marlon Fund SICA V PLC, 5 MOTION to Appoint Counsel Kaplan Fox & Kilsheimer LLP to serve as lead counsel. MOTION to Appoint Thomas H. Loomis to serve as lead plaintiff(s). MOTION to Consolidate Cases 1:11-CV-01918; 1:11-CV-019 96; 1:11-CV-02064; 1:11-CV-03325. MOTION to Appoint Thomas H. Loomis to serve as lead plaintiff(s). filed by Thomas Loomis, 8 MOTION to Appoint Donald D. Yaw and Edward J. Schaul to serve as lead plaintiff(s). filed by Donald D. Yaw, Edward J. Sch aul. For the foregoing reasons, the motions to consolidate are granted. Schaul and Yaw's motion to be appointed lead plaintiffs is granted, and their counsel Robbins, Geller, Rudman, and Dowd, L.L.P. will be lead counsel. The docket in Case No. 11-CV-1918 (TPG) will constitute the Master Docket for this action, and the consolidated action will bear the name In re ShengdaTech, Inc. Securities Litigation. (Signed by Judge Thomas P. Griesa on 12/6/2011) (djc)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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JAMES THOMAS TURNER, Individually
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and on Behalf of All Others Similarly
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Situated
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Plaintiff,
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- against :
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SHENGDATECH, INC., et al.,
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Defendants.
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MARLON FUND SICAV PLC, Individually :
and on Behalf of All Others Similarly
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Situated
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Plaintiff,
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- against :
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SHENGDATECH, INC., et al.,
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Defendants.
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11 Civ. 1918 (TPG)
OPINION
11 Civ. 1996
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ERIK S. MATHES, Individually and on
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Behalf of All Others Similarly Situated
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Plaintiffs,
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- against :
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SHENGDATECH, INC., et al.,
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Defendants.
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DONALD D. YAW and EDWARD J.
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SCHAUL, Individually and on Behalf of
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All Others Similarly Situated
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Plaintiffs,
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- against :
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SHENGDATECH, INC., et al.,
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Defendants.
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11 Civ. 2064
OPINION
11 Civ. 3325
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In these related cases, plaintiffs bring securities class actions on behalf
of all persons who purchased the common stock of ShengdaTech, Inc.
(“ShengdaTech”) during certain periods of time. Plaintiffs allege that
ShengdaTech and three of its senior executives violated Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.
Plaintiffs Marlon Fund SICA V PLC (“Marlon”), Thomas Loomis
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(“Loomis”), Shula Shada and Aliza Peretz (“the Shadas”), and Edward Schaul
and Donald Yaw (“Schaul and Yaw”) now move to consolidate the various
actions. In addition, each set of plaintiffs moves for appointment as lead
plaintiff in the resulting action pursuant to the Private Securities Litigation
Reform Act (“PSLRA”). Lastly, they seek approval of their respective counsel as
lead counsel for the consolidated action.
The court grants the motion to consolidate, appoints plaintiffs Schaul
and Yaw as lead plaintiffs, and approves their selection of Robbins, Geller,
Rudman, and Dowd, L.L.P. (“Robbins Geller”) as lead counsel.
BACKGROUND
Between 2008 and 2011, the common stock of ShengdaTech, a Nevada
corporation based in Shanghai, China, was traded on the NASDAQ Stock
Market. In this time, ShengdaTech filed numerous quarterly and annual
earnings reports with the Securities and Exchange Commission (“SEC”) and
issued many public statements related to its earnings.
On March 15, 2011, ShengdaTech announced the formation of a special
committee of its Board of Directors to investigate financial discrepancies
unearthed by its auditors during their examination of records for the year
ending on December 31, 2010. It also announced the hiring of independent
counsel to initiate the investigation and delayed its required disclosures to the
SEC. As a result, trading in ShengdaTech’s common stock was suspended, and
NASDAQ ultimately delisted the company on April 29, 2011.
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On May 5, 2011, ShengdaTech notified the SEC that its longtime auditor,
KPMG, had resigned due to the failure of ShengdaTech’s board of directors to
take appropriate remedial actions to address the fiscal discrepancies KPMG
had previously identified. In the course of its resignation, KPMG also declared
that ShengdaTech should take action to prevent future reliance on KPMG’s
audit reports for the years 2008 and 2009.
On March 18, 2011, plaintiff James Thomas Turner filed the first class
action in this court against ShengdaTech and its senior executives on behalf of
all purchasers of ShengdaTech common stock from March 15, 2010 to March
1, 2011. The complaint alleges that ShengdaTech and its officers violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§
78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, by materially
misrepresenting the company’s financial position in regulatory filings and
public statements, thus artificially inflating the value of the company’s
common stock and causing losses to purchasers who bought and held the
stock before the revelation of ShengdaTech’s financial irregularities.
On March 18, 2011, plaintiff’s counsel Robbins Geller, pursuant to 15
U.S.C. § 78u-4(a)(3)(A)(i), published notice of the Turner action in Business
Wire. This notice specified that, pursuant to 15 U.S.C. § 78u-4(a)(3)(A)(i)(II),
persons wishing to serve as lead plaintiff were to so move in this action within
sixty days of the published notice.
During the subsequent sixty-day period, three related class actions were
filed in this court: Turner v. ShengdaTech, Inc. (11 Civ. 1918); Marlon Fund
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SICA V PLC v ShengdaTech, Inc. (11 Civ. 1996); Mathes v. ShengdaTech, Inc.
(11 Civ. 2064); and Yaw v. ShengdaTech, Inc. (11 Civ. 3325). The last of these—
the action instituted on May 17, 2011 by plaintiffs Schaul and Yaw through
Robbins Geller—alleges a class period of May 7, 2008 through March 15, 2011.
On that same day, plaintiffs Marlon, Loomis, the Shadas, and Yaw and Schaul
moved for consolidation and for appointment of lead plaintiff. In addition, the
Shadas argue that the court—unless it appoints them lead plaintiff—should
stay the consolidated action on the ground that the expansion of the class
period in the Yaw complaint is so substantial as to require a second round of
notice under the PSLRA followed by another sixty-day waiting period to permit
other potential lead plaintiffs to come forward.
Discussion
Motion to Consolidate
Fed. R. Civ. P. 42(d) provides that the court may consolidate questions
that involve common questions of law and fact. It is clear that the actions
currently before the court should be consolidated, as each employs the same
facts to make substantially similar allegations. While the Schaul and Yaw
complaint reaches a longer class period, it employs the same legal theories that
underlie the suits with a shorter class period.
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Request for New Notice
As already described, the Shadas argue that the Schaul and Yaw
complaint so expands the class period of the first-filed case as to warrant a
stay in this action for a second round of PSLRA notice.
The PSLRA lays out a detailed regime governing the form and timing of
notice for securities class actions:
i) Not later than 20 days after the date on which the complaint is
filed, the plaintiff or plaintiffs shall cause to be published, in a
widely circulated national business-oriented publication or wire
service, a notice advising members of the purported plaintiff
class--I) of the pendency of the action, the claims asserted
therein, and the purported class period; and (II) that, not later
than 60 days after the date on which the notice is published,
any member of the purported class may move the court to serve
as lead plaintiff of the purported class. (ii) Multiple actions. If
more than one action on behalf of a class asserting substantially
the same claim or claims arising under this title is filed, only the
plaintiff or plaintiffs in the first filed action shall be required to
cause notice to be published in accordance with clause (i).
15 U.S.C. § 78u-4(a)(3)(A) (2011).
Courts, however, disfavor republication of notice under PSLRA when
a class period is extended beyond the period contained in the first-filed
securities class action. See Teamsters Local 445 Freight Div. Pension Fund
v. Bombardier Inc., No. 05 Civ. 1898, 2005 WL 1322721 at *2 (S.D.N.Y.
June 1, 2005); Lax v. First Merchs. Acceptance Corp., No. 97 Civ. 271,
1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997). This antagonism derives
from the text of the law, which specifies that where a later action asserts
substantially the same claim as a first-filed action, “only the plaintiff or
plaintiffs in the first filed action shall be required to cause notice to be
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published.” 15 U.S.C. § 78u-4(a)(3)(A)(ii) (2011).
Here, the Schaul and Yaw action proceeds against the same
defendants as the first-filed Turner action, relies on the same legal theories
as that action, and concerns the same type of securities as that action. All
told, potential lead plaintiffs in this case were adequately notified of the
nature of the claims against ShengdaTech by the notice of the Turner
action published on March 18, 2011 in Business Wire, despite the shorter
purported class period of that action. Consequently, the court holds that
the Schaul and Yaw action is substantially similar to the first-filed Turner
action, such that the March 18, 2011 notice satisfied the requirements of
the PSLRA. Accord Greenberg v. Bear Stearns & Co., Inc., 80 F.Supp.2d 65,
69 (E.D.N.Y. 2000).
Appointment of Lead Plaintiff
The court must “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. § 78u4(a)(3)(B). The PSLRA subsequently refers to this party as “the most
adequate plaintiff.” Id. Under the law, the most adequate plaintiff is
rebuttably presumed to be:
the person or group of persons that (aa) has either filed the
complaint or made a motion in response to notice…; (bb) in the
determination of the court, has the largest financial interest in
the relief sought by the class; and (cc) otherwise satisfies the
requirements of Rule 23 of the Federal Rules of Civil Procedure.
Id.
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Rule 23, of course, provides that a class member may sue to represent a
class when:
(1) the class is so numerous that joinder of all members is
impracticable; (2) there are questions of law or fact common to
the class;(3) the claims or defenses of the representative parties
are typical of the claims or defenses of the class; and (4) the
representative parties will fairly and adequately protect the
interests of the class.
Fed. R. Civ. Proc. 23(a) (2011).
When appointing a lead plaintiff pursuant to the PSLRA, courts focus on
the typicality and adequacy prongs of Rule 23. See In re Fuwei Films, 247
F.R.D. 432, 437 (S.D.N.Y. 2008). A plaintiff’s claim is typical when it arises
from the same events and is pursued under the same legal theories as the
claims of all class members. See Rossini v. Ogilvy & Mather, Inc., 798 F.2d
590, 598 (2d Cir. 1986). Secondly, the “adequacy requirement is satisfied
where the proposed Lead Plaintiff does not have interests that are antagonistic
to the class…and has retained counsel that is capable and qualified to
vigorously represent the interests of the class….” Glauser v. EVCI Center
Colleges Holding Corp., 236 F.R.D. 184, 189 (S.D.N.Y. 2006).
Finally, even if the PSLRA’s requirements are met, the presumptively
most adequate plaintiff can be disqualified upon a showing that it “(aa) will not
fairly and adequately protect the interests of the class; or (bb) is subject to
unique defenses that render such plaintiff incapable of adequately representing
the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II) (2011).
In this case, a single factor—the extent of the possible lead plaintiffs’
financial interest in this litigation—is dispositive. All possible lead plaintiffs
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satisfy the other criteria for most adequate plaintiff. As purchasers of
Shengdatech common stock on the liquid and efficient NASDAQ stock
exchange, all plaintiffs assert substantially identical fraud-on-the-market
claims, all of which satisfy the typicality requirement. Moreover, it appears
that the potential lead plaintiffs have chosen counsel who can vigorously
represent the class and are not conflicted with respect to it. Lastly, no
movant claims that another is incapable of representing the class or is
subject to a unique defense. Hence, the most adequate plaintiff in this case
is that with the largest financial interest in the relief sought by the class.
The PSLRA does not specify how a court is to determine which
plaintiff possesses the largest financial interest in the litigation. Courts
naturally take the position that usually financial interest relates to the total
amount of loss suffered. See In re Espeed, Inc. Sec. Litig., 232 F.R.D. 95,
100 (S.D.N.Y. 2005). Marlon and Loomis concede that, under any
calculation, they lost less than Schaul and Yaw. While the Shadas initially
claimed to have suffered greater losses than Schaul and Yaw, they have
withdrawn this claim in their most recent filings with the court and instead
base their opposition to the appointment of Schaul and Yaw on the notice
argument addressed above. For reasons indicated above, the court will not
base its decision on this factor. Consequently, Schaul and Yaw are
appointed lead plaintiffs.
In addition, the court approves Schaul and Yaw’s choice of Robbins
Geller as lead counsel, since the firm has substantial experience and
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expertise in this sort of litigation.
Conclusion
For the foregoing reasons, the motions to consolidate are granted.
Schaul and Yaw's motion to be appointed lead plaintiffs is granted, and
their counsel Robbins, Geller, Rudman, and Dowd, L.L.P. will be lead
counsel.
The docket in Case No. 11-CV-1918 (TPG) will constitute the Master
Docket for this action, and the consolidated action will bear the name In re
ShengdaTech, Inc. Securities Litigation.
Dated: New York, New York
December 6,2011
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Thomas P. Griesa
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