Finocchiaro et al v. NQ Mobile, Inc. et al
Filing
57
MEMORANDUM AND ORDER denying 47 Motion to Appoint Daniel Finocchiaro to serve as lead plaintiff(s). For the foregoing reasons, Finocchiaro's motion to be appointed lead plaintiff is denied, and his motion to appoint co-lead counsel is also d enied. These denials are without prejudice to the application by other named plaintiffs for appointment as lead plaintiff and to seek appointment of lead counsel. Any other named plaintiffs who wish to move to be appointed lead plaintiff must do so within 30 days of this Order. (Signed by Judge Naomi Reice Buchwald on 12/1/2016) (cla)
thereunder.1
Defendants oppose both of Finocchiaro’s motions.
Although no other plaintiffs filed motions to be appointed lead
plaintiff or objected to Finocchiaro’s motions, the reply brief
filed in support of Finocchiaro’s motions states that at least
five of the other named plaintiffs are available as alternative
lead plaintiffs if Finocchiaro is deemed unfit to serve as lead
plaintiff.
For
the
following
reasons,
Finocchiaro’s
motion
to
be
appointed lead plaintiff is denied, as is his motion to appoint
co-lead counsel.
prejudice
to
an
As explained below, these denials are without
application
by
proposed
alternative
lead
plaintiffs to be appointed lead plaintiff and to have lead counsel
appointed.
DISCUSSION
1. Motion for Appointment of Lead Plaintiff
The
Private
Securities
Litigation
Reform
Act
of
1995
(“PSLRA”) requires the appointment of a lead plaintiff and lead
plaintiff’s counsel in any “private action arising under this
chapter that is brought as a plaintiff class action pursuant to
the Federal Rules of Civil Procedure.”
15 U.S.C. § 78u-4(a)(1),
Other securities class actions were brought in this district against NQ Mobile,
its executives, and others that Plaintiffs claim are “entirely separate and
apart from” the allegations in this lawsuit. Third Am. Compl. ¶ 4; see also In
re NQ Mobile, Inc. Sec. Litig., No. 13-CV-7608-WHP (S.D.N.Y. filed Oct. 28,
2013).
1
2
(3).
The PSLRA contains the following notice requirement relating
to the appointment of lead plaintiff:
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.
15 U.S.C. § 78u-4(a)(3)(A)(i).
Following the publication of such
notice and the close of the period for motions to be appointed
lead plaintiff, the court “shall appoint as lead plaintiff the
member . . . of
the
purported
plaintiff
class
that
the
court
determines to be the most capable of adequately representing the
interests
of
plaintiff.”
class
members,”
known
as
the
“most
adequate
15 U.S.C. § 78u-4(a)(3)(B)(i).
A plaintiff is entitled to a presumption that it is the most
adequate plaintiff if it (i) has brought the motion for lead
counsel in response to the publication of notice; (ii) has the
“largest financial interest in the relief sought by the class”;
and (iii) otherwise satisfies the requirements of Rule 23 of the
Federal
Rules
of
4(a)(3)(B)(iii)(I).
Civil
Procedure.
15
U.S.C.
§
78u-
An investor who seeks to be appointed lead
3
plaintiff
only
needs
to
make
a
preliminary
showing
satisfies the requirements of Fed. R. Civ. P. 23.
199 F.R.D. 129, 133 (S.D.N.Y. 2001).
that
it
Weltz v. Lee,
See also In re Cendant Corp.
Litig., 264 F.3d 201, 263 (3d Cir. 2001) (noting that “[t]he
initial inquiry . . . should be confined to determining whether
the movant has made a prima facie showing of typicality and
adequacy.”).
The presumption of adequacy may be rebutted if it is
shown that the presumptive lead plaintiff “will not fairly and
adequately protect the interests of the class” or “is subject to
“unique
defenses
adequately
that
representing
render
such
the
plaintiff
class.”
15
incapable
U.S.C.
§
of
78u-
4(a)(3)(B)(iii)(II).
Defendants attack Finocchiaro’s motions on numerous grounds.
Although not raised by Finocchiaro, the threshold issue is whether
defendants have standing to challenge the designation of lead
plaintiff.
The PSLRA provides that, in appointing a lead plaintiff, “the
court shall consider any motion made by a purported class member
in response to the notice,” 15 U.S.C. § 78u-4(a)(3)(B)(i), and
that
the
presumption
that
a
plaintiff
is
the
most
adequate
plaintiff “may be rebutted only upon proof by a member of the
purported plaintiff class,”
15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).
In the Southern District of New York, however, several courts have
held that defendants do have standing to be heard during the
4
appointment process.
See City of Pontiac Gen. Empls.’ Ret. Sys.
v. Lockheed Martin Corp., 844 F. Supp. 2d 498, 501 (S.D.N.Y. 2012);
Pirelli
Armstrong
Tire
Corp.
Retiree
Med.
Benefits
Trust
v.
LaBranche & Co., 229 F.R.D. 395 (S.D.N.Y. 2004); King v. Livent,
Inc., 36 F. Supp. 2d 187, 190 (S.D.N.Y. 1999).
In King, Judge
Sweet observed that “permitting defendants to make a limited facial
challenge to a plaintiff’s motion for appointment of lead plaintiff
does not disrupt the statutory framework Congress set forth,” and
that “a therapeutic appointment process such as is envisaged by
the PSLRA will work better with more information than less.”
36
F. Supp. 2d at 190, 191 (internal quotation marks omitted).
Moreover,
“[w]hen . . .
there
are
no
other
potential
lead
plaintiffs to challenge a moving party,” reliance on defendants to
ensure that the requirements of the PSLRA are satisfied may be
particularly justified.
Id. at 190.
We agree with the reasoning of Judge Sweet and find that, in
the absence of a challenge by any plaintiff, defendants certainly
have standing: whether such standing is viewed as formal or not,
this Court welcomes submissions that inform its decision.
Turning
first
to
dispute
defendants’
the
substantive
sufficiency
of
the
arguments,
notice
defendants
published
by
plaintiffs’ counsel, arguing that the notice (1) provided the wrong
deadline by which motions to serve as lead plaintiff were due and
(2) did not appear to have been designed to apprise potential class
5
members of the action since the notice “was published in a single
issue of the Wall Street Journal’s print edition, in a small text
box at the bottom corner of a page in the Money & Investing section,
in extremely small font.”
Opp. at 10-11.
The notice was published by plaintiff’s counsel on March 23,
2016 and stated that the deadline for moving to be appointed lead
plaintiff was May 21, 2016 – a Saturday, 59 days after March 23.
As plaintiffs’ counsel points out, by operation of law, the actual
deadline was Monday, May 23, 2016 (the first weekday after Sunday,
May 22, 2016).
therefore
The error as to the date of the deadline was
harmless
and
immaterial.
As
to
defendants’
other
argument, the PSLRA requires that the notice “be published . . .
in a widely circulated national business-oriented publication or
wire service.”
Journal
is
“a
15 U.S.C. § 78u-4(a)(3)(A)(i).
widely
circulated
national
The Wall Street
business-oriented
publication,” and courts have found that a single notice published
in Investor’s Business Daily suffices under the statute, see, e.g.,
Marsden v. Select Med. Corp., No. Civ.A.04-4020, 2005 WL 113128,
at *5 (E.D. Pa. Jan. 18, 2005); Seamans v. Aid Auto Stores, Inc.,
No. 98-CV-7395(DRH), 2000 WL 33769023, at *4 (E.D.N.Y. Feb. 15,
2000).
Although notice via an electronic service such as Business
Wire may have been a preferable alternative or addition, we find,
with some reluctance, that the publication in the Wall Street
Journal is sufficient under the statute. While small, it contained
6
the information required by statute and appeared in the “Legal
Notices” section.
Defendants
next
argue
that
Finocchiaro’s
appointment as lead plaintiff was untimely.
motion
for
Finocchiaro’s motion
was filed on May 24, 2016, one day after the 60-day deadline, and
his counsel faxed a notice to the Court in the early hours of May
24 stating that counsel had repeatedly tried to file the brief on
May 23 but had experienced technical problems. While Finocchiaro’s
May 24 filing was rejected on May 26, the rejection was for a minor
technical error, and Finocchiaro’s counsel re-filed the motion on
May 27.
Unlike in In re NYSE Specialists Securities Litigation,
where the motions were filed “years” after the deadline, 240 F.R.D.
128, 143 (S.D.N.Y. 2007), Finocchiaro substantially complied with
the deadline, and we deem his motion timely.2
Defendants
adequately
are correct, however,
represent
the
class.3
that Finocchiaro cannot
Defendants
have
submitted
evidence – the authenticity of which Finocchiaro does not dispute –
that Finocchiaro sent highly profane, aggressive emails to NQ
As discussed below, the Court believes Finocchiaro cannot adequately represent
the class, and therefore will not appoint him lead plaintiff.
However,
Finocchiaro, through his counsel (who also represent the other named
plaintiffs), has stated in his reply brief that other named plaintiffs are
available to serve as lead plaintiff. The Court will allow these other named
plaintiffs to move to be appointed lead plaintiff, and will deem their motions
to relate back to the filing of Finocchiaro’s motion, making them timely.
3 Defendants also question whether Finocchiaro indeed has, as he claims, the
largest financial interest in the relief sought by the class. Opp. at 13. We
assume for purposes of this opinion that Finocchiaro does have the largest
financial interest.
2
7
Mobile executives, including defendants Khan and Mathison, and
made retaliatory statements and promises such as “I’d pay every
dollar I have left to see your faces when your kids see you behind
the glass [in jail],” “I vow to take all your asses down one way
or another,” and “Call me nasty, call me irrational, I could care
less, but when it comes to my life being ruined by clowns, order
takers, and those who believe they are above the law, I will go to
the end of the earth to ensure you feel the pain you’ve inflicted
on me.”
G.
Decl. of Def. Matthew Mathison in Opposition, Exs. C, E,
Finocchiaro also does not dispute defendants’ claims that he
published false information about NQ Mobile on a website he created
and then sent the information to a Bloomberg reporter; that
Finocchiaro tried to obtain material inside information about NQ
Mobile; and that, after filing the complaint, he used a fake name
and alias email address to communicate with NQ representatives.
While we make no finding about the ultimate veracity of the
claims about NQ Mobile that Finocchiaro published, and while anger
on the part of an investor who believes he has been defrauded is
understandable, this undisputed conduct raises a serious risk that
his animus toward the defendants would prevent him from acting in
the class’s best interests, see Kamerman v. Ockap Corp., 112 F.R.D.
195, 197 (S.D.N.Y. 1986) (plaintiff bringing securities claims
could not adequately represent class where it was “conceivable”
that his grudge against defendants “would override his amenability
8
to
negotiating
with
defendants,
although
beneficial
to
the
class”), as well as doubts about his credibility, see Savino v.
Computer Credit, Inc., 164 F.3d 81, 87 (2d Cir. 1998) (plaintiff
deemed unfit to represent class where his conduct created “serious
concerns as to his credibility at any trial”).
Accordingly,
Finocchiaro is not an adequate class representative.
As noted, the reply brief states that at least five of the
other
named
plaintiffs.
submitted
4(a)(2).
plaintiffs
Earlier
sworn
are
in
available
this
certifications
as
litigation,
pursuant
to
alternative
these
15
lead
plaintiffs
U.S.C.
§ 78u-
If any of these other named plaintiffs wishes to move to
be appointed lead plaintiff, she or he should do so within 30 days
of this order, and the Court will consider the application.
that
regard,
we
note
the
need
for
an
updated
In
certification
referencing the Third Amended Complaint.
2. Motion for Appointment of Co-Lead Counsel
Defendants also argue that Deramus Law and Gentle, Turner
should not be appointed lead counsel because they (1) have made
numerous errors in this litigation that demonstrate an inability
or unwillingness to comply with applicable rules, and (2) lack
securities class action experience.
Because the other named
plaintiffs,
the
one
of
whom
may
become
lead
plaintiff,
are
represented by these same law firms, we will address this argument.
9
While
plaintiffs’
counsel
has
made
several
technical
or
procedural errors in this litigation, the Court does not find them
to be disqualifying. Moreover, the declarations of Messrs. Deramus
and Gentle reveal that they have some securities class action
experience,
extensive
experience
with
class
actions
generally, and other impressive legal credentials.
more
Also relevant
is the fact that no plaintiffs have proposed alternative lead
counsel.
However, the papers in support of Finocchiaro’s motion
do not explain why the appointment of two firms as co-lead counsel
is justified.
Such explanation is necessary since appointing
multiple firms raises real risks of duplication of effort and
unnecessary attorneys’ fees.
That said, we recognize that there
may be reasons, not stated in the motion papers, for why both firms
are needed.
appointed
We therefore afford any plaintiff who moves to be
lead
plaintiff
in
accordance
with
this
Order
an
opportunity to explain why appointing these two firms as co-lead
counsel would be warranted.
be
more
careful
to
We also urge plaintiffs’ counsel to
respect
procedures
and
proofread
its
submissions, which have contained too many typos and confusing
sentences.
CONCLUSION
For
the
foregoing
reasons,
Finocchiaro’s
motion
to
be
appointed lead plaintiff is denied, and his motion to appoint colead counsel is also denied.
These denials are without prejudice
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