In re TransDigm Group, Inc. Securities Litigation, Master File No. 1:17 CV 1677
Memorandum Opinion and Order granting the motion of Hollywood Firefighters to Consolidate and for Appointment as Lead Plaintiff and Motion for Approval of its Selection of Lead Counsel (ECF #17 in Case No. 1:17CV 1677 and ECF #15 in Case No. 1:17 CV 1958). The above-captioned related actions are hereby consolidated as In re TransDigm Group, Inc. Securities Litigation, Master File No. 1:17 CV 1677. The file in Case No. 1:17 CV 1677 shall constitute the master file for every action in the consolidated action. When the document being filed pertains to all actions, the phrase All Actions shall appear immediately after the phrase This Document Relates To:. When a pleading applies to some, but not all, of the actions, the document shall list, immediately after the phrase This Document Relates To:, the docket number for each individual action to which the document applies, along with the last name of the first-listed plaintiff in said action. Hollywood Firefighters is appointed to serve as Lead Plaintiff pursuant to Section21D(a)(3)(B) of the Securities Exchange Act of 1934, 15 U.S.C. 78u-4(a)(3)(B), as amended by the Private Securities Litigation Reform Act of 1995, in the consolidated action. Hollywood Firefighters selection of Lead Counsel is approved, and Saxena White P.A. is appointed as Lead Counsel for the Class, and Climaco Wilcox Peca & Garofoli Co., LPA is appointed as Local Counsel for the Class. Judge Donald C. Nugent on 12/4/2017. (C,KA) Modified text 12/6/2017 (C,KA).
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
CITY OF HOLLYWOOD FIREFIGHTERS’)
PENSION FUND, Individually and on
behalf of all others similarly situated,
TRANSDIGM GROUP, INC., et al.,
CITY OF WARREN POLICE AND FIRE )
RETIREMENT SYSTEM, Individually and )
on behalf of all others similarly situated,
TRANSDIGM GROUP, INC., et al.,
Case No. 1:17 CV 1677
JUDGE DONALD C. NUGENT
Case No. 1: 17 CV 1958
JUDGE DONALD C. NUGENT
MEMORANDUM OPINION AND ORDER
Both pension fund plaintiffs in the above captioned related actions have filed motions to
consolidate the actions and for appointment as Lead Plaintiff and Lead Counsel.
PROCEDURAL AND FACTUAL BACKGROUND
Plaintiff City of Hollywood Firefighters’ Pension Fund filed the first action against
Defendants TransDigm Group, Inc., W. Nicholas Howley and Terrance Paradie (collectively
“TransDigm”) on August 17, 2017, on behalf of all persons who purchased the securities of
TransDigm Group, Inc. between May 10, 2016 and January 19, 2017. (Case No. 17 CV 1677).
The second action was filed on September 18, 2017, by the City of Warren Police and Fire
Retirement System on behalf of all persons who purchased the securities of TransDigm Group,
Inc. between May 10, 2016 and March 21, 2017. Both actions allege that Defendants violated §§
10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§78j(b) and 78t(a), and
Securities and Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. §240.10b-5 during the
The Complaints allege that during the class periods, TransDigm, a global designer,
producer, and supplier of highly engineered components for use on commercial and military
aircraft, issued materially false and misleading statements and/or failed to disclose material
adverse facts regarding the Company’s operations, business, and prospects. Specifically,
Plaintiffs’ allege that TransDigm failed to disclose that it used shell distributors it controlled to
make noncompetitive government bids seem competitive, monopolistic tactics to hike the prices
of its proprietary products, and a variety of tactics to evade government oversight of its cost
structure and avoid government scrutiny. As a consequence, Plaintiffs assert that TransDigm’s
growth and profitability during the class period were artificially inflated and that TransDigm
shares traded at artificially inflated prices during the class period.
On January 20, 2017, Citron Research, a well known short seller, issued a report accusing
TransDigm of being the “Valeant of the aerospace industry.” The report disclosed TransDigm’s
allegedly illicit business practices. As a result of this news, the price of Transdigm shares
dropped 10 percent overnight to close at $226.90 per share on January 20, 2017.
Then on March 21, 2017, the office of U.S. Congressman Ro Khanna announced it had
sent a letter to the Inspector for the Department of Defense requesting that it conduct an
investigation into TransDigm’s business practices, raising concerns that the company was acting
as a hidden monopolist by engaging in a series of unreasonable price increases for products for
which the company was the only supplier and disguising its cost structure to evade Pentagon
oversight. As a result of this news, the price of TransDigm shares dropped nearly 10 percent over
two trading days to closing at $214.85 per share on March 22, 2017.
Under Fed. R. Civ. P. 42(a), a court may consolidate actions which involve common
questions of law or fact. The Plaintiffs in both actions agree that the actions present similar
factual and legal issues in that each alleges claims under Sections 10(b) and 20(a) of the
Exchange Act, against the same Defendants that arise out of substantially similar misstatements
regarding the Company’s business, operations, and practices. Courts agree that “consolidation is
particularly appropriate in securities class action litigation.” French v. CBL & Assoc. Props, Inc.,
No. 1:16 CV 165, 2016 WL 7668501, at *1 (E.D. Tenn. Sept. 26, 2016). The parties agree that
the fact that one complaint asserts a slightly longer class period does not make consolidation
inappropriate. Because these actions involve common questions of law and fact, the Parties’
motions to consolidate will be granted.
B. Lead Plaintiff and Lead Counsel
Hollywood Firefighters Pension Fund (“Hollywood Firefighters”), plaintiff in Case No.
17 CV 1677, moves pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C.
§78u-4 (“PSLRA”) for appointment as Lead Plaintiff and approval of its counsel, Saxena White
P.A., as Lead Counsel and Climaco Wilcox Peca & Garofoli Co., LPA to serve as Local Counsel
for the class. (ECF #17, #15). Similarly, District No. 9, I.A. of M. & A.W. Pension Trust
(“Pension Trust”), plaintiff in Case No. 17 CV 1958, moves for appointment as Lead Plaintiff,
and approval of its counsel, Robbins Geller Rudman & Dowd LLP, as Lead Counsel and
Landskroner Grieco Merriman, LLC as Local Counsel. (ECF #18, #16).
Under the PSLRA, a court should appoint as lead plaintiff the “member or members of
the purported plaintiff class that the court determines to be the most capable of adequately
representing the interests of the class members,” in other words–the most adequate plaintiff. 15
U.S.C. §78u-4(a)(3)(B)(I). The movant that timely demonstrates it has “the largest financial
interest in the relief sought by the class” and “otherwise satisfies the requirements of Rule 23" is
entitled to a presumption that it is the most adequate plaintiff. The PSLRA does not specify
which test should be used to determine which plaintiff has the “largest financial interest in the
relief sought by the class.” Some courts simply determine which potential lead plaintiff has
suffered the greatest total losses, while other courts apply the Lax four factor test which
examines (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 (4) the approximate losses suffered during the class period. See Takara Trust v.
Molex, Inc., 229 F.R.D. 577, 579 (N.D. Ill 2005)(looking solely at greatest losses); In re the
Goodyear Tire & Rubber Co. Se. Litig., No. 5:03 CV 2166, 2004 WL 3314943 at *3 (N.D. Ohio
May 12, 2004)(applying Lax factors and collecting cases); Lax v. First Merch. Acceptance
Corp., No. 97 Civ 2715, 1997 WL 461036 at *5 (N.D. Ill. Aug. 11, 1997). As the approximate
losses suffered is an element of the Lax test, this Court will weigh all four factors to select the
lead plaintiff in this case. All four factors will be given equal weight. See Pio v. General Motors
Co., No. Civ. 14-11191, 2014 WL 5421230 *4 (E.D. Mich. Oct. 24, 2014)(refusing request to
disregard first three factors in favor of the fourth noting “the first three factors provide the most
objective measurement of a movant’s stake in the litigation because the fourth factor is heavily
dependent on the method applied and numbers chosen to calculate losses.”)
The first factor is the number of shares purchased during the class period1. Hollywood
Firefighters purchased a total of 1,610 shares of TransDigm stock during the class period while
Pension Trust purchased a total of 1,155 shares. This factor demonstrates that Hollywood
Firefighters purchased more shares than Pension Trust at allegedly fraudulently inflated prices.
The second factor is the net shares purchased which is the amount of shares purchased
minus the amount of shares sold during the class period. The thought is that a plaintiff who sells
during the class period has benefitted from the fraudulently inflated price of the stock while
shareholders who hold on to their stock throughout the class period are left holding the bag when
the fraud is revealed and the price of the stock drops. In this case Hollywood Firefighters
purchased 1,007 shares on a net basis compared to zero net shares purchased by Pension Trust.
Pension Trust sold out its position of TransDigm during the class period.
The third factor is the net funds expended on the relevant securities during the class
period. The net funds expended is the difference between the total funds the investor spent to
purchase the securities less any funds received from the sales of the securities. The net funds
expended by Hollywood Firefighters during the class period was $289,640 while the net funds
expended by Pension Trust was $76,311.
The fourth factor is the approximate losses suffered during the class period. Hollywood
The Court will use the longest suggested class period for this analysis from May 10, 2016
through March 21, 2017.
Firefighters suffered losses of approximately $40,905 while Pension Trust suffered approximate
losses of $76,311. The difference between the approximate losses of the two potential lead
plaintiffs is $35,406.
Analysis of the first three factors weighs overwhelmingly in favor of Hollywood
Firefighters while the last factor supports Pension Trust. Based upon the facts of this case, the
Court finds that the difference in the approximate losses does not overcome the combined weight
of the first three factors. Accordingly, based upon the Lax factors, Hollywood Firefighters has
the largest financial interest in the relief sought by the class.
The lead plaintiff must also satisfy the requirements of Fed. R. Civ. P. 23. See 15 U.S.C.
§78u-4(3)(B)(iii)(I)(cc). Rule 23 requires that “the claims or defenses of the representative
parties are typical of the claims or defenses of the class; and [that] the representative parties will
fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(3)-(4). “A claim is
typical if ‘it arises from the same event or practice or course of conduct that gives rise to the
claims of the other class members, and if his or her claims are based on the same legal theory.’”
Beattie v. Century Tel, Inc., 511 F.3d 554, 561 (6th Cir. 2007(citation omitted.) “The adequacy
inquiry under Rule 23(a)(4) serves to uncover conflicts of interest between named parties and the
class they seek to represent. . . . ‘[A] class representative must be part of the class and “possess
the same interest and suffer the same injury” as the class members.’” Amchem Prods. v. Windsor,
521 U.S. 591, 625-26 (1997)(citations omitted). Hollywood Firefighters asserts that it satisfies
the typicality requirement of Rule 23 because its claims and the claims of all other class
members arise from the same course of events and their legal arguments to establish Defendant’s
liability are nearly identical.
Hollywood Firefighters also asserts that it has demonstrated its adequacy because its
interests of are perfectly aligned with those of the other class members, and are not antagonistic
in any way. Hollywood Firefighters has suffered the same injury as the class. Hollywood
Firefighters was responsible for initiating this litigation by investigating, drafting and filing the
first complaint in this action. Hollywood Firefighters also issued the PSLRA-mandated notice
advising TransDigm shareholders of the pendency of the action and the lead plaintiff deadline.
These actions on behalf of the class demonstrate the adequacy of Hollywood Firefighters as lead
plaintiff. See Pompano Beach Police & Firefighters’ Ret. Sys. v. Comtech Telecommunications
Corp., 2010 WL 3924862, at *6 (E.D.N.Y. Aug. 17, 2010), report and recommendation adopted,
2010 WL 3909331 (E.D.N.Y. Sept. 29, 2010)(appointing as lead plaintiff the institutional
investor that “has demonstrated its ‘willingness to vigorously pursue its claims’ by initiating this
action, moving to consolidate, and submitting the Certification.”) The Court finds that
Hollywood Firefighters has satisfied the requirements of Rule 23.2 Having determined that
Hollywood Firefighters has demonstrated that it has the largest financial interest in the relief
sought by the class and that it otherwise satisfies the requirements of Rule 23, Hollywood
Firefighters will be appointed as lead plaintiff
Finally, Hollywood Firefighters requests that the Court approve its selection of Saxena
White as Lead Counsel. The PSLRA vests authority in the lead plaintiff to select and retain lead
counsel, subject to Court approval. See 15 U.S.C. §78u-4(a)(3)(B)(v). Courts should not disturb
a lead plaintiff’s choice of counsel unless it is necessary to “protect the interests of the class.” 15
Both Hollywood Firefighters and Pension Trust argue that they meet the requirements of
Rule 23. Neither has asserted that the other fails to satisfy the requirements of Rule 23.
U.S.C. §78u-4(a)(3)(B)(iii)(II)(aa). It appears that Saxena White has extensive experience in
prosecuting complex litigation on behalf of shareholders and has acted as lead or co-lead counsel
in a number of major securities class and derivative actions nationwide. There has been no
evidence presented to the Court that would indicate that Saxena White is not capable of
prosecuting this action in the best interests of the putative class. Similarly, there is no evidence
to override Hollywood Firefighters’ selection of Climaco Wilcox Peca & Garofoli, as local
counsel. Climaco Wilcox is a local Cleveland firm specialized in prosecuting complex litigation.
Accordingly, Hollywood Firefighters’ selection of lead counsel and local counsel will be
Accordingly, it is hereby ordered that:
1. The Motion of Hollywood Firefighters’ to Consolidate and for Appointment as Lead
Plaintiff and Motion for Approval of its Selection of Lead Counsel (ECF #17 in Case No. 1:17
CV 1677 and ECF #15 in Case No. 1:17 CV 1958) is GRANTED. The above-captioned related
actions are hereby consolidated as In re TransDigm Group, Inc. Securities Litigation, Master File
No. 1:17 CV 1677.
A. The file in Case No. 1:17 CV 1677 shall constitute the master file for every
action in the consolidated action. When the document being filed pertains to all actions, the
phrase “All Actions” shall appear immediately after the phrase “This Document Relates To:”.
When a pleading applies to some, but not all, of the actions, the document shall list,
immediately after the phrase “This Document Relates To:”, the docket number for each
individual action to which the document applies, along with the last name of the first-listed
plaintiff in said action;
B. All securities class actions against any or all of the defendants subsequently
filed in, or transferred to, this District shall be consolidated into this action. This Order
shall apply to every such action, absent an order of the Court. A party objecting to such
consolidation, or to any other provision of this Order, must file an application for relief
from this Order within ten days after the action is consolidated into this action.
2. Hollywood Firefighters is APPOINTED to serve as Lead Plaintiff pursuant to Section
21D(a)(3)(B) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u-4(a)(3)(B), as amended by the
Private Securities Litigation Reform Act of 1995, in the consolidated action.
3. Hollywood Firefighters’ selection of Lead Counsel is APPROVED, and Saxena White
P.A. is APPOINTED as Lead Counsel for the Class, and Climaco Wilcox Peca & Garofoli Co., LPA
is APPOINTED as Local Counsel for the Class.
IT IS SO ORDERED.
__/s/Donald C. Nugent___
DONALD C. NUGENT
UNITED STATES DISTRICT JUDGE
DATED:__December 4, 2017______
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