Huang v. EZCORP, Inc. et al

Filing 120

ORDER GRANTING 113 Motion to Certify Class Signed by Judge Sam Sparks. (td)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

JOHN ROONEY, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,

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.............

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CAUSE NO.:
A-i 5-CA-00608-SS

-vs-

EZCORP, INC. and MARK E.
KUCHENRITHER,
Defendants.
ORDER
BE IT REMEMBERED on this day the Court considered the file in the above-styled
cause, and specifically Plaintiff John Rooney's Amended Motion to Certify Class [#113],

Defendants EZCORP, Inc. (EZCORP) and Mark Kuchenrither (collectively, Defendants)'s
Response [#114] in opposition, Plaintiff's Reply [#115] in support, and Defendants' Surreply
[#116] in opposition. Having reviewed the documents, the governing law, the arguments of

counsel, and the file as a whole, the Court now issues the following opinion and order.

Background
This is a securities fraud class action brought on behalf of all persons who purchased
Class A common stock of

payday loans and pawn

EZCORPa company which provides "instant cash" services like

loansbetween January

28, 2014 and October 20, 2015 (the Class

Period). Plaintiff alleges that during the Class Period, EZCORP CEO Mark Kuchenrither' made

material misrepresentations to shareholders regarding the impact of a subsidiary's loan portfolio

Kuchenrither has served in several executive positions for EZCORP from the time he was hired as Senior
Vice President, Strategic Development in March 2010. Second. Am. Compl. [#47] ¶ 34. In October 2012,
Kuchenrither assumed the role of CFO, and served as EZCORP's CFO until May 26, 2015. Id. ¶j 34, 149.
Kuchenrither also served as EZCORP's CEO from July 18, 2014, to February 1, 2015, and as a director from August
12, 2014, to February 3, 2015. Id. ¶ 34. Moreover, Kuchenrither was appointed as a member of both EZCORP' s and
Grupo Finmart's Board of Directors during the Class Period. Id. ¶ 5.
1

/

upon EZCORP's reported financials and thereby violated

§

10(b) and 20(a)

of the Securities

Exchange Act of 1934 and SEC Rule lOb-5.

I.

Alleged Accounting Failures
Between January 2012 and June 2014, EZCORP acquired a 94 percent ownership interest

in Grupo Finmart. Grupo Finmart is a Mexican company which issues small consumer loans to

Mexican governmental employees. The loans issued by Grupo Finmart are backed by payroll
withholding agreements ("convenios") with Mexican employers, and under these agreements,

interest and principal payments are collected by the employers through payroll deductions and
then remitted to Grupo Finmart. Plaintiff alleges that throughout the Class Period, EZCORP's
lack of internal controls over financial reporting gave rise to two primary accounting errors in

connection with Grupo Finmart's loans.
First, Plaintiff alleges EZCORP failed to properly account for Grupo Finmart's non-

performing payroll loans (Non-Performing Loans). Non-Performing Loans are "loans that were

being carried as active loans but with respect to which Grupo Finmart was not currently
receiving payments." Second Am. Compl. [#47] ¶ 99. Further, there are two types of NonPerforming Loans: in-payroll loans and out-of-payroll loans. Out-of-payroll loans are

outstanding loans from customers who are no longer employed. "Under GrUpo Finmart's historic
accounting policy," "[i]f one payment of an out-of-payroll loan is delinquent, that one payment is

considered in default; if two or more payments are delinquent at any time, the entire loan is
considered in default." Id. Upon default of an out-of-payroll loan, Grupo Finmart ceased
accruing future interest revenue. Id. However, "[d]ue to the likelihood of ultimately receiving

payment if the customer remains employed, [Grupo Finmart] continue[d] to accrue interest on all
in-payroll loans, even though Grupo Finmart may not be currently receiving payments." Id. In its

2

corrective disclosures, EZCORP determined Grupo Finmart's Non-Performing Loans included a

number of out-of-payroll loans that had not been properly classified as such, and some in-payroll
loans that had been in non-performing status for some time. Id. By failing to properly account for

the Non-Performing Loans, Plaintiff argues, EZCORP was able "to artificially maintain its ratio

of bad debt expense to consumer loan fees and interest

a measure of health of the underlying

loan portfolio." Id. ¶ 108.
Second, Plaintiff contends EZCORP failed to properly account for the sale of Grupo

Finmart loans (Loan Sales). Between 2014 and 2015, EZCORP executed five separate sales of
Grupo Finmart loans. Under the terms of the Loan Sales, third-party purchasers retained a right
to return non-performing loans to EZCORP. And because the loan sales were conditional on the

performance of the loans, generally accepted accounting principles (GAAP) prohibited EZCORP
from recognizing any revenue from these loan sales. EZCORP disregarded this prohibition and

recognized tens of millions of dollars in gains on the sales. Plaintiff claims the improper

accounting for the sale of the loans had the effect of artificially boosting EZCORP 's reported
income in the 2014 fiscal year by 45% and its reported income during the first quarter of 2015 by
32%.

II.

Alleged False and Misleading Misstatements
The statements Plaintiff identifies as misleading are taken from EZCORP 's press

releases, conference calls, and SEC forms disclosing EZCORP's financial results during the
Class Period. These statements deal with EZCORP's financial results during the fourth quarter of
2013 (4Q13), the 2014 fiscal year (FY2014), and the first quarter of 2015 (1Q15). In general, the

statements fall into two categories (1) statements relating to the overstatement of EZCORP '5
financial results, as a result of EZCORP 'S failure to properly account for the Loan Sales and

3

Non-Performing Loans, and (2) statements relating to the nature of the Loan Sales. According to
Plaintiff, Kuchenrither knew all of the statements described above were materially false and

misleading at the time they were made.
Between April 2015 and November 2015, Defendants issued a series of corrective
disclosures concerning Grupo Finmart's loan portfolio and its effect upon EZCORP's reported

financials. For example, on April 30, 2015, EZCORP announced the release of its 2Q15 financial
results would be delayed "due to an ongoing review of certain elements of its Grupo Finmart

loan portfolio, which is not yet completed." Id. ¶ 96. In that same press release, EZCORP further
stated it "did not undertake any asset sales in Grupo Finmart this quarter" and "noted some

differences in the performance of parts of our Grupo Finmart loan portfolio that prompted a more
thorough review and analysis of our loan reserves[.]"Id. ¶ 96. Following this announcement,

EZCORP's stock fell $0.79 per share to close at $8.41 per share on May 1, 2015. Id. ¶ 97.
Further corrective disclosures also coincided with declines in the value of EZCORP ' s stock.
On November 9, 2015, EZCORP filed its restated financials from 2Q12 through 1Q15.
The Restatement revealed, among other things, EZCORP's operating income was overstated by
$90.7 million, or 27.3%, during the restated periods, and its earnings per share were overstated

by $0.78, or 36.8%, during the restated periods. Following the filing of its restated financial
results, EZCORP's stock declined $0.29 per share to close at $6.51 per share on November 9,
2015.

III.

Procedural Posture
Plaintiff filed this lawsuit on July 20, 2015, alleging that Defendants' false and

misleading statements caused EZCORP 's stock to trade at artificially inflated prices and that

Plaintiff suffered financial losses following the release of EZCORP's restated financial reports.

See

Compi. [#1]. Plaintiff now moves for class certification under Federal Rule of Civil

Procedure 23(b)(3). Mot. Certify [#113]. Plaintiff specifically seeks (1) certification of a class
consisting of "all persons and entities that purchased or otherwise acquired EZCORP, Inc. Class
A conmion stock between January 28, 2014 and October 20, 2015, inclusive, and were damaged

thereby"; and (2) the appointment of Plaintiff as representative and the appointment of Block &
Leviton LLP and Glancy Prongay & Murray LLP as Class Counsel and Kendall Law Group,
PLLC as Liaison Counsel. Mot. Certify [#113-1] at 7. This pending motion is ripe for review.

Analysis
Plaintiffs seeking to certify a class under Rule 23 bear the burden of establishing the

prerequisites to certification have been met. Amgen Inc.

v.

Conn. Ret. Plans & Tr. Funds, 133 S.

Ct. 1184, 1192 (2013). Rule 23(a) sets forth four such prerequisites: numerosity, commonality,

typicality, and adequacy.

FED.

R.

Civ. P.

23(a)(1)(4). In addition to these baseline prerequisites,

plaintiffs seeking to certify a class action under Rule 23(b)(3) must also establish that questions
common to the class predominate over those questions affecting individual class members (the
"predominance" requirement) and that class adjudication is superior to other available methods

of fairly and efficiently adjudicating the controversy (the "superiority" requirement).
Civ. P.

R.

23(b)(3). The Court proceeds by examining each of these requirements in turn.

I.

FED.

Numerosity
To meet the numerosity requirement, the plaintiff must establish "the class is so

numerous that joinder of all members is impracticable."

FED.

R. Civ. P. 23(a)(1). Here, Plaintiff

seeks to certify a class consisting of all purchasers of EZCORP's publicly traded securities

during the proposed class period. Mot. Certify [#1 13-1] at 7. Although the exact number of class
members is unknown, EZCORP had more than 50 million shares of Class A common stock

5

outstanding during the class period, and the average weekly trading volume on the NASDAQ
Stock Market during the class period was roughly 2.7 million shares. Mot. Certify [#113-4]
Ex. A (Coffman Report) at 13. Absent any argument to the contrary, the Court concludes this

evidence is sufficient to establish the proposed class is so numerous as to render joinder
impracticable.2

II.

Commonality
To meet the commonality requirement, the plaintiff must establish "there are questions of

law or fact common to the class."

FED.

R.

CIV. P.

23(a)(2). In this case, Plaintiff alleges

Defendants made uniform representations and omissions to the class concerning the accuracy of

EZCORP's publicly reported financial results during the class period. Mot. Certify [#1 13-1] at
11. These allegations implicate multiple questions common to the class, including whether

Defendants' statements or omissions violated federal securities law, whether Defendants' acted
with scienter, and the extent to which the market price of EZCORP' s Class A shares was
affected by various public statements and disclosures made by Defendants. Accordingly, the
Court concludes that Plaintiff has shown there are common questions of law and fact sufficient
to establish commonality.

III.

Typicality
To meet the typicality requirement, the plaintiff must establish that "the claims or

defenses of the representative part[y] are typical of the claims or defenses of the class."

FED. R.

Civ. P. 23(a)(3). Here, Plaintiffs claims and defenses are typical of those of the class. All

putative class members, including Plaintiff, allegedly purchased EZCORP stock during the class
period at prices inflated by Defendants' misstatements and omissions. Mot. Certify [#1 13-1] at 7,

2

v. .J Ray McDermott & Co., 651 F.2d 1030, 1039 (5th Cir. 1981) ("The [numerosity]
is generally assumed to have been met in class action suits involving nationally traded securities.")

Cf Zeidman

prerequisite.

. .

11. Further, Plaintiff has presented a classwide legal theory and does not appear to be subject to

any unique defense inapplicable to the class as a whole. See, e.g., In re Schering Plough Corp.
ERISA Litigation, 589 F.3d 585, 597-99 (3d Cir. 2009) ("[The typicality inquiry] properly

focuses on the similarity of the legal theory and legal claims; the similarity of the individual

circumstances on which those theories and claims are based; and the extent to which the

proposed representative may face significant unique or atypical defenses to her claims."). In sum,
the interests and incentives of Plaintiff and the members of the proposed class appear to be
aligned, and absent any argument to contrary from Defendants, the Court concludes that Plaintiff

has established his claims are typical of those of the class.

IV.

Adequacy
To meet the adequacy requirement, the plaintiff must establish that he will "fairly and

adequately protect the interests of the class" in his capacity as class representative: FED.
P. 23(a)(4). The purpose

R. Civ.

of this requirement is to "uncover conflicts of interest between named

parties and the class they seek to represent." Amchem Prods., Inc.
(1997). Moreover, in the Fifth

Circuit,3

v.

Windsor, 521 U.S. 591, 625

the plaintiff must show that he is willing and able to

"vigorously prosecute the interests of the class through qualified counsel." Berger

v.

Compaq

Computer Corp., 257 F.3d 475, 482-84 (5th Cir. 2001) (quoting Gonzales v. Cassidy, 474 F.2d

Compare Horton v. Goose Creek Indep. Sch. Dist., 620 F.2d 470, 484-85 (5th Cir. 1982) ("The adequacy
requirement mandates an inquiry into the zeal and competence of the representative's counsel and into the
willingness and ability of the representative to take an active role in and control the litigation and to protect the
interests of absentees." (relying on Jaurigui v. Ariz. Bd. ofRegents, 82 F.R.D. 64 (D. Ariz. 1979); Klein v. Miller, 82
F.R.D. 6, 8 (N.D. Tex. 1978))), with In re Literary Works in Elec. Databases Copyright Litig., 654 F3d 242, 249
(2d Cir. 2011) ("Adequacy is twofold: the proposed class representative must have an interest in vigorously pursuing
the claims of the class, and must have no interests antagonistic to the interests of other class members."), In re Gen.
Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 800 (3d Cir. 1995) ("The adequacy of
representation inquiry . . . considers whether the named plaintiffs' interests are sufficiently aligned with the
absentees', and it tests the qualifications of counsel to represent the class."), and Ellis v. Costco Wholesale Co., 657
F.3d 970, 985 (9th Cir. 2011) ("To determine whether plaintiffs will adequately represent a class, . . . [courts must
ask whether] named plaintiffs and their counsel have any conflicts of interests with other class members and .
[whether] the named plaintiffs and their counsel [will] prosecute the action vigorously on behalf of the class[.]"
(internal quotation marks and citation omitted)).

7

67, 72-73 (5th Cir. 1973)). And although class representatives "need not be legal scholars and

are entitled to rely on counsel," the plaintiff must at least "know more than that they were

involved in a bad business deal." Berger, 257 F.3d at 483.
As an initial matter, Defendants argue that Plaintiff is not an adequate class representative
because, as an individual with a small amount of purported damages, Plaintiff is not the

PSLRA's preferred type of class representative. Resp. [#114] at 17; see also id. at

11

(arguing

the adequacy inquiry must be "particularly searching" in securities class actions implicating the
PSLRA). This argument misses the mark because the PSRLA's provisions governing the

selection of class representatives do not affect the inquiry into whether a proposed class

representative has met Rule 23(a)(4)'s adequacy requirement. See Berger

v.

Compaq Computer

Corp., 279 F.3d 313, 313-14 (5th Cir. 2002) (per curiam) (noting the PSLRA did not "change

the law.

. .

regarding the standard for conducting a rule 23(a)(4) adequacy inquiry"); see also In

re Cavanaugh, 306 F.3d 726, 736 (9th Cir. 2002) ("[T]he [PSLRA] did not change the standard
for adequacy[]

. .

Defendants also suggest Plaintiff is an inadequate class representative because he lives in
Dublin, Ireland. Resp. [#114] at 16-17. Defendants do not, however, clearly explain why or how
living in Dublin might affect Plaintiffs ability to serve as a class representative. See Resp.
[#114] at 16 (stating only that Plaintiff's residence in Dublin is a "relevant factor[]" that

"undermine[s] his ability to protect the interests of absent class members"). And in any event, the
Court concludes Plaintiff's residence in Ireland does not affect his ability to protect the interests

of the class or his ability to prosecute this action through qualified counsel. Plaintiff can easily
correspond with counsel through email, telephone, and video chat to stay abreast of
"But see In re Kosmos Energy Ltd. Sec. Litig., 299 F.R.D. 133, 146 (N.D. Tex. 2014) (interpreting the
original panel decision in Berger to require a "particularly searching" investigation into adequacy of the proposed
class representative").
r]

developments in the case. There is also little reason to believe Plaintiff's residence in Ireland
poses an obstacle to his ability to appear in court as needed. Not only has Plaintiff declared he

will be available to travel to trial in Austin as necessary, but Plaintiff has already flown to Boston

to sit for a deposition on February 9, 2018. Rooney Deci. at 6; Mot. Certify [#113-1] at 13. The
Court therefore concludes that Plaintiffs Irish residency would not render Plaintiff an inadequate

class representative.
Finally, Defendants contend Plaintiff is not an adequate class representative because

Plaintiff has no idea what is going on in this lawsuit. Resp. [#114] at 15. To be sure, Plaintiff
could have a better grasp on the specifics of this lawsuit, see Resp. [#114] at 15 (detailing the
things that Plaintiff did not know at his deposition), and he is not the Platonic ideal of a class
representative. Yet he has also demonstrated that he knows more than that he was involved in a

bad business deal.

Berger,

257 F.3d at 483. Plaintiff testified at his deposition that he bought

shares of EZCORP on the basis of its past performance, that the value of his EZCORP stock
dropped precipitously after he purchased it, and that he attributes this drop in value to

EZCORP's restatements of its financials. Mot. Certify Class [#113-8] Ex. A at 10 ("[I]t wasn't
just, you know,... that they hoped to get a new customer and they just missed out.

. . .

Those

things I understand. But just having to restate accounts, it just seemed, I just felt that I was taken

in and then ended up losing[]

.

. .

."). Plaintiff also testified at his deposition that he believed

EZCORP violated federal securities law by misleadingly classifying some of the company's
loans in order to report a profit instead of a loss. Id. at 11-13. In light of this testimony and

additional declarations made by Plaintiff in conjunction with his motion for class certification,
see

Rooney Deci. at 1-7, the Court concludes Plaintiff has demonstrated sufficient knowledge

regarding the subject matter of this litigation to serve as an adequate class representative.

Having dispensed with Defendants' objections, the Court concludes Plaintiff has
established that he will fairly and adequately protect the interests of the class. The Court is aware

of no conflicts between Plaintiff and the members of the proposed class, and as best the Court
can tell, Plaintiff's interests are aligned with those of the class as a whole. Amchem, 521 U.S. at
625. Moreover, Plaintiff has demonstrated he is both willing and able to vigorously

prosecute5

the interests of the class through qualified counsel. Gonzales, 474 F.2d at 72-73. In brief, the

Court finds Plaintiff has met the adequacy requirement.
V.

Predominance
To meet the predominance requirement, the plaintiff must establish that "questions of law

or fact common to class members predominate over any questions affecting only individual

members." FED. R.

Civ. P.

23(a)(3). This inquiry tests whether the proposed class is "sufficiently

cohesive to warrant adjudication by representation." Amchem, 521 U.S. at 623.

Defendants suggest two ways in which Plaintiff has failed to establish predominance.
First, Defendants argue that some class members will have to demonstrate, reliance on an

individual basis and that these individual inquiries will predominate over common questions as
to those class members. Resp. [#114] at 19-26. Second, Defendants argue that Plaintiff cannot

demonstrate predominance because Plaintiff has not "articulate[d] how alleged damages could be
calculated on a class-wide basis." Resp. [#114] at 17. The Court evaluates both arguments and

then turns to the ultimate question of whether Plaintiff has met the predominance requirement.
A.

Reliance

In securities law cases, predominance often hinges upon whether or not class members

will need to individually demonstrate they relied upon a misrepresentation or omission made by

Indeed, this lawsuit has been vigorously contested by both sides for the better part of two years.

10

the defendant. See Amgen Inc.

v. Conn. Ret.

Plans & Tr. Funds, 133 S. Ct. 1184,1193-96 (2013)

(noting plaintiffs seeking to recover damages under

§

10(b) must prove they relied on such a

misrepresentation or omission when purchasing or selling a security). If the securities at issue
traded in an efficient market, the class members may sometimes invoke a rebuttable presumption

of reliance. See Halliburton Co.

v.

Erica P. John Fund, Inc. ("Halliburton Ii"), 134 S. Ct. 2398,

2408 (2014) ("[W]henever the investor buys or sells stock at the market price, his 'reliance on

any public material misrepresentations

.

.

.

may be presumed for purposes of a Rule 1 Ob-5

action." (alteration in original) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988))). This
presumption is of particular use in class actions because to the extent the class members are able
to invoke the presumption, reliance becomes a common question capable of resolution on a

classwide basis. Conversely, if the class members cannot establish they are entitled to rely on the
presumption, or if the defendant successfully rebuts it, class members must individually establish

reliance, and in practice, such individual inquiries almost inevitably prevent the plaintiff from

establishing predominance by overwhelming whatever common questions may exist. See Unger
v.

Amedisys Inc., 401 F.3d 316, 322 (5th Cir. 2005) ("Absent an efficient market, individual

reliance by each plaintiff must be proven, and the proposed class will fail the predominance

requirement.").
The Court proceeds by first assessing whether Plaintiff is entitled to rely on the
presumption. It then considers whether Defendant has rebutted the presumption.
1.

The Basic Presumption

To establish the class is entitled to rely on the Basic presumption, the plaintiff must

demonstrate (1) "the alleged misrepresentations were publicly known"; (2) the alleged
misrepresentations were material; (3) "the stock traded in an efficient market"; and (4) putative

11

class members "traded the stock between the time the misrepresentations were made and when

the truth was revealed." Halliburton II, 134 S. Ct. at 2408.
Here, Plaintiff has met all four prerequisites to invoking the presumption at the class

certification

stage.6

First, the alleged misrepresentations were publically known. As detailed in

the Court's previous orders, the alleged misrepresentations and corrective statements made by
Defendants were contained within EZCORP's press releases, SEC forms, and conference calls
with analysts and investors. See Order of July 26, 2018 [#102] at 4. Second, the alleged

misrepresentations are presumed to be material at the class certification stage. See Amgen, 133 S.
Ct. at 1191, 1195-96 ("Proof [of materiality] is not a prerequisite to class certification."). Third,

EZCORP's stock traded in an efficient market. EZCORP's stock traded in the NASDAQ Stock
Market, one of the largest markets in the world, and perhaps for this reason, Defendants have not

contested that EZCORP stock trades in an efficient market. Hr'g Tr. [#119] at 4. Nevertheless,
the Court has reviewed the expert report submitted by Plaintiff in support, see Coffman Report at

12-34, and applying the Cammer

factors,7

the Court concludes Plaintiff has established

EZCORP 's stock traded in an efficient market. Fourth and finally, Plaintiff and the rest of the

proposed class traded the stock. between the time the misrepresentations were made and when

they were corrected. See Third Am. Compl. [#1061 at 28 (specifying that first alleged
misrepresentation was contained within press release issued by EZCORP on January 28, 2014);
Order of July 26, 2018 [#102] (outlining timing of corrective disclosures); Mot. Certify [#113] at
2 (defining class as "all persons and entities that purchased or otherwise acquired [EZCORP

Indeed, Defendants do not contend that Plaintiff has failed to establish any of the prerequisites to invoking
the Basic presumption. See Resp. [#114] at 17-26 (seeking to rebut presumption but declining to contest Plaintiffs
ability to invoke the presumption in the first place).

Though neither the Supreme Court nor the Fifth Circuit has adopted a formal test for market efficiency,
district courts routinely apply a list of factors derived from Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989). See,
e.g., In re Petrobras Sec. Litig., 3121 F.R.D. 354, 364-65 (S.D.N.Y. 2016).

12

stock] between January 28, 2014 and October 20, 2015). In sum, the Court concludes Plaintiff

has established the class is entitled to a presumption of reliance at the class certification stage.
2.

Rebutting the Basic Presumption

The Basic presumption relies upon indirect evidence of price impact to establish reliance;
direct evidence that the misrepresentation did not affect the price of the stock severs that link.

Halliburton II, 134 S. Ct. at 2414. Thus, in Halliburton II, the Supreme Court held that
defendants can defeat the Basic presumption at the class certification stage "through evidence
that the misrepresentation did not in fact affect the stock price." Id. Here, Defendants argue they

have partially rebutted the presumption by showing there was no statistically significant price

adjustment following two of the corrective disclosure dates identified by Plaintiff. See Resp.
[#114] at 19-26 (asserting there was no statistically significant price adjustment following

disclosures on July 17, 2015 and October 20, 2015). As explained by Defendants,

if there was no

statistically significant price adjustment following the disclosures, any price adjustment that did
occur must be due to "random chance," and thus, the misrepresentation could not have affected

the stock price. Id. at 22. This line of reasoning suffers from several flaws.
As an initial matter, Defendant have failed to rebut the Basic presumption because

Defendants have only pointed to evidence that there was no statistically significant price
adjustment following two of the corrective disclosure dates. Resp. [#114] at 21. By contrast,

Halliburton II allows defendants to defeat the Basic presumption "through evidence that the
misrepresentation did not in fact affect the stock price." 134 S. Ct. at 2414. Defendants argue

they should be able to rebut the presumption by showing the absence of a statistically significant
price adjustment following either the misrepresentation or the corrective disclosure. Resp. [#114]
at 22-23. But the Court concludes Halliburton

13

II only allows defendants to rebut the Basic

presumption by showing a lack of price impact following a misrepresentation, and not following
a corrective disclosure. Compare Halliburton II, 134 S. Ct. at 2414, 2416 (holding defendants

may rebut Basic presumption by showing lack of "price impact"), with Erica P. John Fund, Inc.
v.

Halliburton Co. ("Halliburton 1"), 563 U.S. 804, 814 (2011) (defining "price impact" as "the

effect of a misrepresentation on a stock price" and holding that the question of whether a

misrepresentation "caused a subsequent economic loss" when corrected is a matter of loss
causation that need not be established by plaintiff at the class certification stage).8

Defendants' attempt to rebut the Basic presumption is also flawed from a statistical
perspective. Defendants suggest the lack of a statistically significant price adjustment following
a corrective disclosure shows that whatever price adjustment has occurred must be due to

"random chance" rather than a predicate misrepresentation. Resp. [#114] at 22. But that is not
how hypothesis testing works. A statistically significant price adjustment following a corrective

disclosure is evidence the original misrepresentation did, in fact, affect the stock price. The
converse, however, is not truethe absence of a statistically significant price adjustment does

not show the stock price was unaffected by the misrepresentation.9 Nor does it indicate that what
price adjustment did occur must be attributed to "random chance." Resp. [#114] at 22.

Defendants protest that Halliburton II "made clear" the Basic presumption could be rebutted "by
evidence that the asserted misrepresentation (or its correction) did not affect the market price of the defendant's
stock." Resp. [#114] at 22-23 (quoting Halliburton II, 134 S. Ct. at 2414) (emphasis added)). This is undoubtedly
trueat the merits stage. But this case is currently at the class certification stage, and because the language from
Halliburton II relied upon by Defendants is quite clearly discussing the means by which Defendants can rebut the
Basic presumption at the merits stage, it has no bearing here. Halliburton II, 134 S. Ct. at 2414 ("There is no dispute
that defendants may introduce such evidence at the merits stage to rebut the Basic presumption[] . . . including
evidence that the asserted misrepresentation (or its correction) did not affect the market price of the defendant's
stock.").
8

'See generally In re Petrobras Sec., 862 F.3d 250, 278-79 & n.30 (2d Cir. 2016) (observing that "the
failure of the price to react so extremely as to be detectable . . . mean[s] only that' the effect size was not large
enough to be detected in the available sample" and that "[w]hile some courts have been sensitive to this distinction
,other courts have remained inattentive to this fact, which has generated inaccurate findings in some securities
cases." (quoting Alon Bray & J.B. Heaton, Event Studies in Securities Litigation: Low Power, Confounding Effects,
and Bias, 93 WASH. U. L. REv. 583, 602 (2015))).
14

Here, Plaintiffs expert, Chad Coffman, submitted an expert report indicating the two
corrective disclosure dates at issue here returned p-values of 0.234 and 0.233, respectively. Resp.
[#114-3] Ex. 2 at 9-11. These p-values suggest there is a 77 percent chance the corrective

disclosures identified by Plaintiff negatively impacted EZCORP's stock price on these dates. See
Id. What they do not suggest is that the misrepresentation "did not affect the stock price."0

In brief, the Court concludes that Defendants have failed to rebut the Basic presumption

because they have not pointed to any evidence that the alleged misrepresentations did not affect
the stock price. As a result, Plaintiff is entitled to rely on the presumption at the class
certification stage. And insofar as the class can rely on the presumption to establish reliance, the

class's ability to demonstrate reliance remains a common question capable of classwide
resolution.
B.

Damages Calculations

In order to establish that the calculation of damages is a common question "susceptible of

measurement" on a classwide basis, plaintiffs must demonstrate that their theory of damages is
consistent with their theory of liability. See Ludlow
2015) (interpreting Comcast Corp.

v.

v.

BP, PLC, 800 F.3d 674, 688-89 (5th Cir.

Behrend, 569 U.S. 27, 35 (2013)), cert denied, 136 5. Ct.

1824 (2016); see also Comcast, 569 U.S. at 35 ("[A] model purporting to serve as evidence

of

damages" suffered by the class "must measure only those damages attributable to that theory [of
liability relied on by the plaintiff].").
10

Defendants suggest that even though there is a 77 percent chance the corrective disclosures negatively
impacted EZCORP'S stock price, they should nevertheless be allowed to rebut the Basic presumption by pointing to
the absence of a statistically significant price impact at a 95-percent confidence interval. Resp. [#114] at 21-22. But
the practical effect of such a maneuver would be to require plaintiffs to show loss causation at the class certification
stage, and Halliburton I held that plaintiffs need only make such a showing after class certification. See Halliburton
I, 563 U.S. at 813 ("Loss causation.. . requires a plaintiff to show that a misrepresentation that affected the integrity
of the market price also caused a subsequent economic loss[] . . . [and] has nothing to do with whether an investor
relied on the misrepresentation in the first place."); cf In re Petrobras Sec., 862 F.3d at 278-279 (suggesting district
courts should not rely solely upon directional event studies at the class certification stage because "methodological
constraints limit their utility in the context of single-firm analyses").
15

Defendants argue that Plaintiffs proposed theory of damages "fails to articulate how
alleged damages could be calculated on a class-wide basis" consistent with the proposed theory

of liability. Resp. [#114] at

17. Specifically, Defendants contend that

Plaintifrs expert, Chad

Coffman, has "failed to articulate a means to": (1) "disaggregate from damages price declines

resulting from non-actionable confounding information"; (2) "isolate the impact of
materialization of known risks from the impact of allegedly concealed risks"; (3) "calculate
damages on a class-wide basis if Plaintiff is able to prevail only on claims relating to certain of

the remaining alleged misstatements"; and (4) "account for how stock-price inflation varied
during the purported class term." Resp. [#114] at 19.
In fact, Coffman's expert report considered all of these things. In his report, Coffman

explains that he conducted an event study and used regression analysis to assess the effect of

EZCORP's disclosures upon the company's stock. Coffman Report at 22-23. Specifically, for
each trading day analyzed, Coffhian constructed a regression model using data from the prior
120 trading days and leveraged this

"rolling' estimation window" to discern the relationship

between EZCORP's common stock, industry and market factors, and firm-specific price
volatility. Id. at 23-30. Using this methodology, Coffman calculated the abnormal returns
attributable to "new material news and changes in the market price of EZCORP Common
Stock." Id. at 30. Coffman explains in his report that these abnormal returns can be used to
calculate damages on a classwide basis using the "out-of-pocket" method, "which measures
damages as the artificial inflation per share at the time of purchase less the artificial inflation at

the time of sale." Coffrnan Report at 34-35. In this way, damages for individual class members
can "be calculated formulaically based on information collected in the claims process.

16

.. ."

Id.

As far as the Court can discern, this analysis quite clearly articulates the means by which
Coffman intends to go about calculating damages on a classwide basis. And given Defendants'

complete failure to expand on any of their extremely conclusory complaints regarding Coffman's
report, the Court concludes that Plaintiff's theory of damages is consistent with the proposed

theory of liability and that Plaintiff has established the calculation of damages is a common
question susceptible of measurement on a classwide basis.
C.

Conclusion

The Court concludes this lawsuit implicates a host of common questions, including:
whether the class may invoke the Basic presumption at the merits stage to establish reliance; the
calculation of damages; whether Defendants' statements or omissions violated federal securities
law; whether Defendants acted with scienter; and the extent to which the market price of

EZCORP's Class A shares was affected by various public statements and disclosures made by
Defendants. In light of these common questions identified by Plaintiff, the Court finds that

Plaintiff has established common questions predominate over questions affecting only individual
members. Accordingly, Plaintiff has met the predominance requirement.
VI.

Superiority
To establish superiority, the plaintiff must demonstrate that class certification is "superior

to other available methods for fairly and efficiently adjudicating the controversy." FED.
23 (b)(3). Rule 23 sets forth several "matters pertinent" to a finding

R. CIV. P.

of superiority, including: (1)

the class members' interests in individually controlling the prosecution or defense of separate
actions; (2) the extent and nature of any litigation concerning the controversy already begun by

or against class members; (3) the desirability or undesirability of concentrating the litigation of

17

the claims in the particular forum; and (4) the likely difficulties in managing a class action.
R. CIV.

P.

FED.

23(b)(3)(A)(D).

Here, Plaintiff argues that there is no other ongoing litigation concerning this
controversy; that the individual class members have little interest in controlling the prosecution

because the cost of bringing individual suits to seek recovery would in most cases outweigh the

recovery obtained; that this forum is as desirable a forum as any given the geographic dispersal

of investors and EZCORP's headquarters in Austin, Texas; and that this putative class action
presents no likely management difficulties. Mot. Certify [#1 13-11 at 25-26. Defendants have not

put forward any argument in response, and the Court concludes that Plaintiff has established that
class certification is superior to other available methods of adjudication.

Conclusion
The Court concludes that Plaintiff's motion for class certification should be granted

because Plaintiff has met all predicate requirements for bringing a class action under Rule
23(b)(3).
Accordingly,
IT IS ORDERED that Plaintiff's Motion for Class Certification [#113] is

GRANTED.
IT IS FURTHER ORDERED that the Court CERTIFIES a class consisting of "all

persons and entities that purchased or otherwise acquired EZCORP, Inc. Class A
common stock between January 28, 2014 and October 20, 2015, inclusive, and were
damaged thereby. Excluded from the Class are Defendants, the officers and directors of
the Company, at all relevant times, members of their immediate families and their legal

EI1

representatives, heirs, successors or assigns and any entity in which Defendants have or

had a controlling interest."
IT IS FURTHER ORDERED that the Court APPOiNTS Lead Plaintiff John

Rooney as Class Representative.
IT IS FiNALLY ORDERED that the Court APPOiNTS the law firms of Block &

Leviton LLP and Glancy Prongay & Murray LLP as Class Counsel and The Kendall Law
Group, PLLC as Liaison Counsel for the Class.

SIGNED this the

I

9 day of February 2019

SENIOR UNITED STATES DISTRICT JUDGE

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