Fries v. Northern Oil and Gas, Inc. et al
OPINION AND ORDER re: 9 MOTION to Appoint Vittorio Franceschi to serve as lead plaintiff(s) and approve the selection of lead counsel. filed by Vittorio Franceschi, 6 MOTION to Appoint Matthew Atkinson and Richard Miller to serve as lead plaintiff(s) . MOTION to Appoint Counsel . filed by Richard Miller, Matthew Atkinson: For the aforementioned reasons, Atkinson and Miller's motion for appointment as lead plaintiffs and approval of lead counsel is GRAN TED in part and DENIED in part without prejudice. Atkinson is individually appointed as lead plaintiff, and Pomerantz and Goldberg are approved as co-lead counsel. Franceschi's motion for appointment as lead plaintiff and approval of lead counsel is DENIED. The Clerk of the Court is respectfully directed to terminate the motions, Docs. 6, 9. (Signed by Judge Edgardo Ramos on 5/5/2017) (jwh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JEFFREY FRIES, Individually and On Behalf of
All others Similarly Situated,
OPINION AND ORDER
- against 16 Civ. 6543 (ER)
NORTHERN OIL AND GAS, INC., MICHAEL L.
REGER, and THOMAS W. STOELK,
This case arises out of alleged violations of the Securities Exchange Act of 1934 by
Northern Oil and Gas, Inc. (“Northern Oil”), Michael L. Reger (“Reger”), and Thomas W. Stoelk
(collectively, the “Defendants”). Plaintiff Jeffrey Fries (“Fries”) brings this class action on
behalf of all persons, other than Defendants, who purchased or otherwise acquired Northern Oil
securities between March 1, 2013 and August 15, 2016 (the “Class Period”). Plaintiffs Matthew
Atkinson (“Atkinson”) and Richard Miller (“Miller”) move for joint appointment as lead
plaintiffs of the proposed class (the “Class”), and for approval of Pomerantz Grossman Hufford
Dahlstrom & Gross LLP (“Pomerantz”) and Goldberg Law PC (“Goldberg”) as co-lead counsel.
Plaintiff Vittorio Franceschi (“Franceschi”) also moves for appointment as lead plaintiff and
approval of Hagens Berman Sobol Shapiro LLP as lead counsel.
For the reasons set forth below, Atkinson and Miller’s motion is GRANTED in part and
DENIED in part without prejudice. Franceschi’s motion is DENIED.
Defendant Northern Oil is an independent energy company engaged in the acquisition,
exploration, development, and production of oil and natural gas properties in the United States.
Class Action Compl. (“CAC”) at ¶¶ 2, 17. Throughout the Class Period, Defendants allegedly
made materially false and misleading statements regarding Northern Oil’s business, operational
and compliance policies. Id. at ¶ 4. Specifically, Plaintiff Fries alleges on behalf of the Class
that because of its inadequate internal controls concerning Securities and Exchange Commission
(“SEC”) regulations and ethics policies, Reger, Northern Oil’s Chief Executive Officer (“CEO”),
was able to engage in illegal stock manipulation. Id. Consequently, Northern Oil’s public
statements filed between March 1, 2013 and March 3, 2016 describing, inter alia, its purported
commitment to the promotion of ethical conduct by its officers and its internal controls were
allegedly materially false and misleading. Id. at ¶¶ 19-35. On August 16, 2016, Northern Oil
terminated Reger after Reger revealed that he received a Wells Notice from the SEC and faced
federal sanctions related to the SEC’s investigation of trading patterns in the securities of Dakota
Plains Holdings, Inc., a company that Reger had invested in. Id. at ¶ 37. Plaintiff Fries claims
that Class members have suffered significant losses and damages due to Defendants’ wrongful
acts and omissions, and the subsequent decline in the market value of Northern Oil’s securities
upon Reger’s termination. Id. at ¶¶ 37-39.
On August 18, 2016, Plaintiff Fries, through his counsel Pomerantz, filed the instant
Class Action Complaint (“CAC”) against Defendants. Doc 1. On the same day, Pomerantz
announced the filing over Global Newswire as required by the Private Securities Litigation
Reform Act (“PSLRA”), and advised investors that the deadline to file a motion for appointment
as lead plaintiff is October 17, 2016. Doc 8 Ex. A. On October 17, 2016, Plaintiffs Atkinson
and Miller filed the instant motion for joint appointment as lead plaintiffs and approval of
Pomerantz and Goldberg as co-lead counsel. Doc. 6. Later that day, Plaintiff Franceschi also
moved for appointment as lead plaintiff and approval of Hagens Berman Sobol Shapiro LLP as
lead counsel. Doc. 9. On October 27, 2016, Plaintiff Franceschi filed a notice of non-opposition
to Plaintiffs Atkinson and Miller’s motion, but noted that if the Court determined that Plaintiffs
Atkinson and Miller were not suited to serve as lead plaintiffs, he would be ready and able to fill
that position. Doc. 12. Defendants take no position on the issue of appointment of lead plaintiff
or counsel. Doc. 19.
A. Appointment of Lead Plaintiff
The PSLRA governs motions for the appointment of lead plaintiffs of putative class
actions brought under the federal securities laws. See, e.g., In re Braskem S.A. Sec. Litig., No. 15
CIV. 5132 (PAE), 2015 WL 5244735, at *4 (S.D.N.Y. Sept. 8, 2015). The PSLRA instructs 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). The statute sets forth a rebuttable presumption “that
the most adequate plaintiff . . . is the person or group of persons” that (i) “has either filed the
complaint or made a motion in response to” public notice of the filing of the class action, (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 Civil Procedure.” § 78u-4(a)(3)(B)(iii)(I).
This presumption is rebutted “only upon proof by a member of the purported plaintiff class” that
the presumptively most-adequate plaintiff “will not fairly and adequately protect the interests of
the class” or “is subject to unique defenses that render such plaintiff incapable of adequately
representing the class.” § 78u–4(a)(3)(B)(iii)(II).
Filing Complaint or Motion
Here, it is undisputed that all movants have satisfied the first requirement by filing timely
motions on October 17, 2016 in response to public notice of this suit. Docs. 6, 9.
Largest Financial Interest
The next, most critical question is which “person or group of persons” seeking leadplaintiff status has the largest financial interest in the relief sought by the putative class. The
Second Circuit has not yet addressed whether unrelated class members may aggregate their
claims in order to establish the “largest financial interest” element. Goldberger v. PXRE Grp.,
Ltd., No. 06-CV-3410 (KMK), 2007 WL 980417, at *3 (S.D.N.Y. Mar. 30, 2007). Nevertheless,
the prevailing view in this District is that unrelated investors can 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-CV-3599 (KMW), 2015 WL 7018024, at *2
(S.D.N.Y. Nov. 12, 2015) (citing In re CMED Sec. Litig., No. 11-CV-9297 (KBF), 2012 WL
1118302, at *2 (S.D.N.Y. Apr. 2, 2012)). 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.” Varghese v. China Shenghuo Pharm. Holdings, Inc., 589 F. Supp. 2d 388, 392
(S.D.N.Y. 2008); see also Khunt v. Alibaba Grp. Holding Ltd., 102 F. Supp. 3d 523, 532
(S.D.N.Y. 2015) (“Many courts—including this one—have turned away pastiche plaintiffs
whose grouping appears to be solely a product of the litigation, because, ‘To allow an
aggregation of unrelated plaintiffs to serve as lead plaintiffs defeats the purpose of choosing a
lead plaintiff.’” (quoting In re Veeco Instruments, Inc., 233 F.R.D. 330, 334 (S.D.N.Y. 2005)).
Courts in this district have considered the following factors in evaluating the proposed
group of unrelated investors:
(1) existence of a pre-litigation relationship between group members;
(2) involvement of the group members in the litigation thus far;
(3) plans for cooperation;
(4) the sophistication of its members; and
(5) whether the members chose outside counsel, and not vice versa.
Varghese, 589 F. Supp. 2d at 392.
Atkinson and Miller did not proffer any evidentiary support pertaining to those five
factors. Their motion is entirely devoid of allegations regarding why the two plaintiffs decided
to work together or if they even know each other. Although certain courts in this district have
held that a group of persons with no pre-litigation history “may be acceptable . . . so long as the
group is relatively small and therefore presumptively cohesive,” plaintiffs that have a prelitigation history are more likely to be appointed as lead plaintiffs. Freudenberg v. E*Trade
Financial Corp., Nos. 07 Civ. 8538, 07 Civ. 8808, 07 Civ. 9651, 07 Civ. 10400, 07 Civ. 10540,
2008 WL 2876373, at *4 (S.D.N.Y. July 16, 2008). Moreover, a small group membership is not
dispositive. Beckman v. Ener1, Inc., No. 11 CIV. 5794 (PAC), 2012 WL 512651, at *3
(S.D.N.Y. Feb. 15, 2012) (“[T]he fact that an unrelated group is small does not, in and of itself,
make it a more acceptable lead plaintiff than a competing cohesive group.”). Indeed, if there is
no pre-litigation relationship, plaintiffs must present a more compelling showing as to their
fitness for the position. Elstein v. Net1 UEPS Techs., Inc., No. 13 CIV. 9100 (ER), 2014 WL
3687277, at *4 (S.D.N.Y. July 23, 2014) (citing Local 144 Nursing Home Pension Fund v.
Honeywell Int’l, Inc., No. 00–3605(DRD), 2000 WL 33173017, at *5 (D.N.J. Nov. 16, 2000)).
Atkinson and Miller have not made any showing, let alone a compelling one, that they
are fit to serve as joint lead plaintiffs. They have not demonstrated how they would seek to work
together in managing this litigation, or that they are sophisticated plaintiffs that will act
collectively and separately from their lawyers. Thus, there is no evidence upon which this Court
can find that Atkinson and Miller in aggregate would better serve the class than if they were
separate. See Weinberg v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 254 (S.D.N.Y.
2003) (rejecting joint application of an individual investor and an institutional plaintiff because
there is “no need to have them both as Lead Plaintiff”). There is also no basis upon which this
Court can determine whether or not the two plaintiffs have been formed into a group as a mere
construct cobbled together by their attorneys. Accordingly, Atkinson and Miller cannot
aggregate their financial interests to seek joint appointment.
Although the Court denies Atkinson and Miller’s joint motion for appointment as lead
plaintiffs, the Court may consider Atkinson and Miller as if they have moved individually to be
appointed as lead plaintiff. See e.g. Varghese, 589 F.Supp.2d at 394 (denying motion of a group
but evaluating the group’s largest shareholder against two plaintiffs who had individually moved
for appointment); In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 158 (S.D.N.Y. 1997)
(rejecting aggregation of two groups and appointing as lead plaintiff a member of one of the
groups); Weinberg v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 254 (S.D.N.Y. 2003)
(declining to aggregate financial interests of group and appointing as lead plaintiff the group
member with the largest financial interest).
Courts in this Circuit typically examine four factors to determine a lead plaintiff’s
(1) the total number of shares purchased during the class period;
(2) the net shares purchased during the class period (in other words, the
difference between the number of shares purchased and the number of
shares sold during the class period);
(3) the net funds expended during the class period (in other words, the
difference between the amount spent to purchase shares and the amount
received for the sale of shares during the class period); and
(4) the approximate losses suffered.
Irving Firemen’s Relief & Ret. Fund v. Tesco PLC, No. 14 Civ. 10020 (RMB), 2015 WL
1345931, at *2 (S.D.N.Y. Mar. 19, 2015) (quoting Foley v. Transocean Ltd., 272 F.R.D. 126,
127–28 (S.D.N.Y. 2011)). “Of these factors, courts have consistently held that the fourth, the
magnitude of the loss suffered, is most significant.” In re Braskem, 2015 WL 5244735, at *4
Applying these factors, the Court finds that, of the three plaintiffs who have made
applications for lead plaintiff, Atkinson has the greatest financial interest in this case. The first
factor favors Miller, who purchased a total of 11,000 shares during the Class Period. Hood Decl.
Ex. C. In comparison, Atkinson purchased a total of 9,865 shares and Franceschi only purchased
3,460 shares. Hood Decl. Ex. C; Kathrein Decl. Ex. 3. However, since Miller sold 6,000 of his
shares in January and April 2016, while Atkinson retained all of his shares, Atkinson purchased a
greater number of net shares during the Class Period. Hood Decl. Ex. C. Furthermore, Atkinson
expended net funds of $123,030 in purchasing those shares whereas Miller and Frenceschi only
expended $54,592 and $49,686.40, respectively. Hood Decl. Ex. C; Kathrein Decl. Ex. 3. The
last factor, which is the most significant, also weighs in favor of Atkinson. Atkinson has
suffered an approximate loss of $93,775, whereas Miller and Franceschi suffered financial losses
of less than half that amount of approximately $35,517 and $40,506.95, respectively. Id. No
party contests the validity of Atkinson’s figures. Accordingly, in the absence of any other
pending motions for lead plaintiff, Atkinson is presumed to have the greatest financial stake in
Rule 23 Requirements
Atkinson must still “satisf[y] the requirements of Rule 23 of the Federal Rules of Civil
Procedure” in order to be appointed lead plaintiff. § 78u-4(a)(3)(B)(iii)(I)(cc). Federal Rule of
Civil Procedure 23(a) sets forth four requirements for class certification: (1) the class is so
numerous that simple joinder of all members is impracticable; (2) there exist questions of law or
fact common to the whole class; (3) the claims of the lead plaintiff are typical of the claims of
the whole class; and (4) the lead plaintiff will adequately represent the interests of all class
members. See Fed. R. Civ. P. 23(a). “When deciding competing motions to be appointed lead
plaintiff under the PSLRA, however, a court need not conduct a full analysis of whether the
requirements of Rule 23 have been met.” Faig v. Bioscrip, Inc., No. 13 CIV. 06922 (AJN), 2013
WL 6705045, at *3 (S.D.N.Y. Dec. 19, 2013). “Rather, ‘[a]t this stage of the litigation, a
moving plaintiff must only make a preliminary showing that the adequacy and typicality
requirements have been met.’” Id. (quoting Jambay v. Canadian Solar, Inc., 272 F.R.D. 112,
120 (S.D.N.Y. 2010)); see also, e.g., Bo Young Cha v. Kinross Gold Corp., No. 12 Civ. 1203
(PAE), 2012 WL 2025850, at *6 (S.D.N.Y. May 31, 2012).
“The typicality requirement is satisfied when the class members’ claims ‘arise [ ] from
the same course of events, and each class member makes similar legal arguments to prove the
defendant’s liability.’” Peters v. Jinkosolar Holding Co., No. 11 Civ. 7133 (JPO), 2012 WL
946875, at *11 (S.D.N.Y. Mar. 19, 2012) (quoting In re Drexel Burnham Lambert Grp., Inc.,
960 F.2d 285, 291 (2d Cir. 1992)). The lead plaintiff’s claims, however, “‘need not be identical’
to the claims of the class to satisfy this requirement.” Id. (quoting Skwortz v. Crayfish Co., Ltd.,
No. 00 Civ. 6766 (DAB), 2001 WL 1160745, at * 6 (S.D.N.Y. Sept. 28, 2001)). Atkinson’s
claims here are typical. They arise from purchases of shares at prices that were inflated by the
same alleged misstatements and omissions that the complainant and other movants base their
claims on, and he also seeks the same relief, based on the same legal theories. See Mem. Supp.
Mot. to Appt. Atkinson and Miller to Serve as Lead Pl. & Mot. to Appt. Lead Counsel
(“Atkinson and Miller Br.”), Doc. 7, at 5-7. Furthermore, “[n]o party or movant has contested
[Atkinson’s] typicality.” In re Braskem, 2015 WL 5244735, at *6.
Atkinson has also made a sufficient showing of adequacy under Rule 23(a)(4). “The
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.’” Sallustro v. CannaVest Corp., 93 F.
Supp. 3d 265, 278 (S.D.N.Y. 2015) (quoting Kaplan v. Gelfond, 240 F.R.D. 88, 94 (S.D.N.Y.
2007)). Atkinson has retained competent and experienced counsel with extensive experience in
these types of securities class actions. Atkinson and Miller Br. at 7. He has also demonstrated
losses that suggest he will have a strong interest in advocating on behalf of the Class. Hood
Decl. Ex. C. Moreover, to date, there have not been any reported conflicts between Atkinson
and the other members of the class. Atkinson and Miller Br. at 7.
As a result of its timely filing, its large financial stake, the typicality of its claims, and the
adequacy of its representation, Atkinson is entitled to a presumption that it is the “most adequate
plaintiff.” § 78u-4(a)(3)(B)(iii)(I). That presumption stands unrebutted, because no other class
member has come forth with proof that Atkinson “will not fairly and adequately protect the
interests of the class” or is subject to “unique defenses” that render it incapable of adequately
representing the class. § 78u–4(a)(3)(B)(iii)(II). The Court therefore appoints Atkinson as lead
B. Approval of Lead Counsel
The PSLRA provides that “[t]he most adequate plaintiff shall, subject to the approval of
the court, select and retain counsel to represent the class.” § 78u–4(a)(3)(B)(v). “There is a
‘strong presumption in favor of approving a properly-selected lead plaintiff’s decisions as to
counsel selection.’” Sallustro, 93 F. Supp. 3d at 278 (quoting In re Adelphia Commc’ns Corp.
Sec. & Derivative Litig., No. 03 MDL 1529 (LMM), 2008 WL 4128702, at *2 (S.D.N.Y. Sept. 3,
Atkinson has moved for approval of Pomerantz and Goldberg as co-lead counsel. No
party or movant has objected to the proposed selection. After reviewing Atkinson’s submission
detailing Pomerantz and Goldberg’s experience, the Court, like many others in this Circuit
before it, concludes that the firms are qualified to serve as co-lead counsel of the class. See
Hood Declaration Ex. D, E. Accordingly, the Court approves Pomerantz and Goldberg as colead counsel. “This is done with the understanding that there shall be no duplication of
attorney’s services and that the use of co-lead counsel will not in any way increase attorney’s
fees and expenses.” Peters, 2012 WL 946875, at *12 (citation omitted).
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