Marcus v. J.C. Penney Company, Inc. et al
ORDER ADOPTING REPORT AND RECOMMENDATIONS for 143 Report and Recommendations and granting 116 Sealed Motion for Class Certification filed by National Shopmen Pension Fund. Signed by Judge Robert W. Schroeder, III on 3/8/17. (mjc, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
ALAN B. MARCUS, individually and on
behalf of all others similarly situated
J.C. PENNEY COMPANY, INC., et al.
CASE NO. 6:13-CV-736
ORDER ADOPTING REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
The Report and Recommendation of the Magistrate Judge (“the Report”), which contains
her findings, conclusions, and recommendation for the disposition of this matter, has been
presented for consideration (Docket No. 145). The Report recommends that Lead Plaintiff’s
Motion for Class Certification (Docket No. 116) be granted. Defendants filed written objections
(Docket No. 145) and Lead Plaintiff filed a response to the written objections (Docket No. 146).
This Court reviews the Magistrate Judge’s findings and conclusions that were properly objected
to de novo. FED R. CIV. P. 72(b)(3).
The Report concludes that Plaintiff (“the Fund”) satisfied the prerequisites of Federal Rule
of Civil Procedure 23(a) and showed that the action is maintainable under Rule 23(b)(3). In their
written objections, Defendants argue that the Magistrate Judge erred in finding that the action is
maintainable under Rule 23(b)(3). Rule 23(b)(3) requires (1) that common questions of law or
fact predominate over individual questions (predominance) and (2) that a class action is the
superior method to adjudicate the dispute (superiority).
Defendants’ objections focus on the Report’s predominance analysis.
Defendants argue that the Report: (1) failed to resolve whether alleged corrective disclosures were,
in fact, corrective; (2) erred in finding that Defendants failed to meet their burden of production to
show that the opinions in the Goldman Sachs Report were previously disclosed to the market; and
(3) erroneously concluded that numerous markets for different J.C. Penney stock options are
efficient without analyzing them separately and without considering evidence of market
Defendants’ Objection that the Report Failed to Resolve Whether Alleged
Corrective Disclosures Were Corrective
First, Defendants argue that the Report fails to resolve whether the alleged corrective
disclosures were, in fact, corrective.
Defendants argue that the two alleged corrective
disclosures—the September 24, 2013 Goldman Sachs Report (“GS Report”) and the September
26, 2013 announcement of an offering of J.C. Penney common stock—were not corrective because
the information had been reported earlier. Defendants assert, therefore, that these disclosures
cannot be a revelation of the fraud.1 Further, Defendants argue that they produced evidence
showing that the alleged corrective disclosures were not new information.
In this case, the Fund asserts a violation of § 10(b) of the Exchange Act of 1934 and Rule
10b-5. “[S]ecurities fraud plaintiffs can in certain circumstances satisfy the reliance element of a
Rule 10b-5 action by invoking a rebuttable presumption of reliance, rather than proving direct
reliance on a misrepresentation.” Halliburton II, 134 S.Ct. at 2408. The Report concludes that
the Fund met its burden of establishing the elements necessary to invoke the presumption of
reliance for purchasers of J.C. Penney common stock. Docket No. 145 at 15. The burden then
shifted to Defendants to rebut that presumption. The written objections do not challenge the
findings that the presumption of reliance was invoked or that Defendants bear the burden of
production to rebut the presumption of reliance.
“Price impact can be shown either by an increase in price following a fraudulent public statement or a decrease in
price following a revelation of the fraud.” Erica P. John Fund, Inc. v. Halliburton Co., 718 F.3d 423, 434 (5th Cir.
2013), vacated and remanded on other grounds by 134 S.Ct. 2398 (2014) (“Halliburton II”).
Page 2 of 7
Instead, Defendants argue that the Report failed to make a specific finding that GS Report
and offering announcement were in fact “corrective.” Defendants’ objections place a burden on
the Fund to show a price decrease following a corrective disclosure. Docket No. 145 at 2. The
burden, however, is on Defendants to rebut the presumption of reliance. Here, Defendants did not
meet their burden to produce sufficient evidence to show that the disclosures on September 24 and
September 26 did not affect the market price and cause J.C. Penney’s stock price to drop on
September 25 and September 27, respectively. In addition, as set forth in the in the Report, the
determination of whether those disclosures were in fact corrective is an issue that is common to all
members of the class and does not defeat predominance. Amgen, Inc. v. Connecticut Retirement
Plans and Trust Funds, 133 S.Ct. 1184, 1203 (2013).
Defendants assert in their written objections that the issue of whether a specific finding
must be made at the class certification stage concerning whether a disclosure is in fact corrective
is currently pending before the Court of Appeals for the Fifth Circuit and a decision here should
not be made pending resolution of the Fifth Circuit appeal. See Erica P. John Fund, Inc. v.
Halliburton Co., No. 15-11096 (5th Cir.). In the decision being appealed, the Court concluded that
the class certification stage is not the proper procedural stage for a court to determine as a matter
of law whether the relevant disclosures were actually corrective. Erica P. John Fund, Inc. v.
Halliburton Co., 309 F.R.D. 251, 261–62 (N.D. Tex. July 25, 2015). That Court’s finding is
consistent with Amgen and Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011)
(“Halliburton I”). Defendants have not shown good cause to withhold a decision in this case
pending the Fifth Circuit’s decision in the pending Halliburton appeal.2
It is unclear when and whether the Fifth Circuit will issue an opinion in the pending Halliburton appeal. On December
28, 2016, the Fifth Circuit stayed the Halliburton case pending the district court’s approval of a settlement between
the parties. Docket No. 151-2; Erica P. John Fund Inc. v. Halliburton, Case No. 15-11096 (5th Cir. Dec. 28, 2016).
Page 3 of 7
Defendants’ Objection that the Report Erred in Finding that Defendants
Failed to Meet Their Burden of Production to Show that the Opinions in the
GS Report Had Been Previously Disclosed to the Market.
Defendants further object that the Magistrate Judge erred in finding that Defendants failed
to meet their burden of production to show that the opinions in the GS Report had been previously
disclosed to the market. Defendants argue that the Magistrate Judge gave no weight to Defendants’
“compelling evidence demonstrating that the opinions in the GS Report were not new—including
evidence showing that the GS Report mirrored similar press and analyst reports that were
published previously.” Docket No. 145 at 5. Defendants argue that the Report “dismissed these
prior similar statements on the ground they were tempered with language discussing the possibility
or potential need for financing.” Id. (internal quotation marks omitted). Defendants contend they
have met their minimal burden of production, which only requires that Defendants come forward
with evidence that the GS Report’s statements were not new.
This Court agrees with the Magistrate Judge’s finding that the Defendants did not meet
their burden of production to establish that the opinions in the GS Report had been previously
disclosed to the market. The Report correctly noted that the alleged previous disclosures included
tempering language discussing the “possibility” or the “potential” need for financing that did not
amount to a disclosure of a liquidity crisis or an impending $800 billion equity offering. Further,
as noted in the Report, an analyst reported on September 23, 2013 that J.C. Penney “maintained
that they believe they ha[d] adequate liquidity and these news reports may be speculative.” Docket
No. 131-15 at 22. Defendants did not meet their burden to show that the causal link between the
disclosures and the stock price decrease on September 25 and 27 was severed.
Defendants further argue that the Report failed to give weight to their evidence, but the
previously disclosed analyst reports Defendant relies upon do not disclose the same information
contained in the alleged corrective disclosures and do not amount to a disclosure of information
Page 4 of 7
that would sever the causal link. Therefore, Defendants do not meet their burden of production to
bring forth sufficient evidence to rebut the Fund’s showing that the disclosures of September 24
and September 26 caused the stock price drop on September 25 and September 27.
Defendants’ Objection that the Report Wrongly Concluded that Numerous
Markets for Different J.C. Penney Stock Options Were Efficient Without
Analyzing Them Separately or Considering Evidence of Market Inefficiency
Finally, Defendants assert that the Report (1) erred in concluding that all J.C. Penney
options markets are efficient based on general evidence regarding the options markets overall and
(2) erred by not considering evidence of market inefficiency.
First, the Court is not required to focus on the market for each security separately. In re
Enron Corp. Securities, 529 F.Supp.2d 644, 648 (S.D. Tex. Jun. 5, 2006). Here, Plaintiff’s expert,
Bjorn I. Steinholt, detailed the Cammer factors and concluded that four of the five factors point to
a finding of market efficiency. Docket No. 131-15 at 22. An expert’s application of the Cammer
factors to common stock may be sufficient to trigger the presumption of reliance for § 10(b) claims
based on options. In re Enron Corp, 529 F. Supp. 2d at 754.
Second, the opinion of Defendants’ Expert, Dr. Garrett, does not establish market
inefficiency. Dr. Garrett did not make the conclusion that the options market is inefficient and
even stated that he had not given thought to how he would establish whether the J.C. Penney
options markets were efficient during the Class Period. See Docket No. 128-3 at 34-36; Docket
No. 131-3 at 28. Here, the Fund established that the J.C. Penney options traded on an efficient
market during the Class Period and are entitled to the presumption of reliance. Defendants did not
advance sufficient evidence to rebut the presumption.
Page 5 of 7
Having conducted a de novo review of the written objections filed by Defendants in
response to the Report and Recommendation, the Court concludes that the findings and
conclusions of the Magistrate Judge are correct. It is therefore
ORDERED that the Report and Recommendation (Docket No. 143) is ADOPTED and
Lead Plaintiff’s Motion for Class Certification (Docket No. 116) is GRANTED.
IT IS ORDERED:
Pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure, a plaintiff
Class is certified consisting of:
All persons who, between August 20, 2013 and September 26, 2013 (the
“Class Period”), purchased or otherwise acquired J.C. Penney Company,
Inc. securities, and were damaged thereby. Excluded from the Class are
current and former defendants, members of the immediate family of any
current or former defendants, directors, officers, subsidiaries and affiliates
of J.C. Penney Company, Inc., any person, firm, trust, corporation, officer,
director or other individual or entity in which any current or former
defendant has a controlling interest, and the legal representatives, affiliates,
heirs, successors-in-interest or assigns of any such excluded party.
National Shopmen Pension Fund satisfies the requirements of Rule 23(a) and is
appointed Class Representative on behalf of the Class.
Lead Counsel Robbins Geller Rudman & Dowd LLP and Liaison Counsel Ward,
Smith & Hill, PLLC satisfy the requirements of Rule 23(g) and are appointed Class Counsel.
The Class certified herein satisfies the requirements of FED R. CIV. P. 23(a), in that:
(a) the Class is so numerous that joinder of all members thereof is impracticable; (b) there are
questions of law or fact common to the Class; (c) the claims of the class representatives are typical
of the claims of the other members of the Class; and (d) the class representatives will fairly and
adequately represent the interests of the Class.
Page 6 of 7
Plaintiffs demonstrated that J.C. Penney Company, Inc. securities traded in an
efficient market during the Class Period, and are entitled to the presumption of reliance set forth
in Basic Inc. v. Levinson, 485 U.S. 224 (1988). Accordingly, the Class certified herein satisfies
the requirements of FED R. CIV. P. 23(b)(3) that: (a) the questions of law or fact common to the
Class predominate over any questions affecting only individual members of the Class; and (b) a
class action is superior to other available methods for the fair and efficient adjudication of the
SIGNED this 8th day of March, 2017.
ROBERT W. SCHROEDER III
UNITED STATES DISTRICT JUDGE
Page 7 of 7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?