Ali v. Franklin Wireless Corp.

• Court: District Court, S.D. California
• Decided: January 3, 2023
• Docket: 3:21-cv-00687
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MOHAMMED USMAN ALI, Case No.: 3:21-cv-00687-AJB-MSB individually and on behalf of all others 12 similarly situated, 13 ORDER GRANTING MOTION FOR Plaintiff, CLASS CERTIFICATION 14

15 v. (Doc. No. 41)

16 FRANKLIN WIRELESS CORP., OC 17 KIM, and DAVID BROWN,

18 Defendants. 19 20 Before the Court is Lead Plaintiff Gergely Csaba’s (“Lead Plaintiff”) Motion for 21 Class Certification. (Doc. No. 41.) Defendants Franklin Wireless Corporation (“Franklin” 22 or the “Company”), O.C. Kim, and David Brown (collectively “Defendants”) filed an 23 opposition, to which Lead Plaintiff replied. (Doc. Nos. 47, 48.) For the reasons set forth 24 below, the Court GRANTS Lead Plaintiff’s motion. 25 I. BACKGROUND 26 On April 16, 2021, Mohammed Usman Ali filed a Class Action Complaint against 27 Defendants for violations of the Securities Exchange Act of 1934 (the “Exchange Act”). 28 On September 15, 2021, the Court appointed Gergely Csaba as Lead Plaintiff and 1 Pomerantz LLP (“Pomerantz”) as Lead Counsel pursuant to section 21D(a)(3)(B) of the 2 Exchange Act. 3 The operative pleading in this case is the Amended Complaint (“FAC”). (Doc. No. 4 26.) The FAC details that Franklin is a provider of wireless solutions, including mobile 5 hotspots, routers and modems, and markets and sells its products directly to wireless 6 operators, as well as indirectly through partners and distributors. (Id. at 5.) According to 7 the FAC, Defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 8 10b-5 promulgated thereunder by misleading the market to believe that the Company had 9 no knowledge that its mobile hotspot devices were manufactured with defective lithium-ion 10 batteries. (Id.) The FAC alleges that during the class period, Franklin knew, but did not 11 disclose that the hotspot devices were manufactured with defective lithium-ion batteries 12 that posed a serious safety hazard because the batteries could overheat and cause severe 13 burns and, in some cases, catch fire. (Id. at 5, 11–18.) Defendants filed an Answer, and 14 Lead Plaintiff now seeks class certification. (Doc. Nos. 27, 41). 15 II. LEGAL STANDARD 16 A plaintiff seeking to represent a class must satisfy the threshold requirements of 17 Rule 23(a) as well as the requirements for certification under one of the subsections of Rule 18 23(b). Rule 23(a) provides that a case is appropriate for certification as a class action if: 19 “(1) the class is so numerous that joinder of all members is impracticable; (2) there are 20 questions of law or fact common to the class; (3) the claims or defenses of the 21 representative parties are typical of the claims or defenses of the class; and (4) the 22 representative parties will fairly and adequately protect the interests of the class.” Fed. R. 23 Civ. P. 23(a). “In addition to meeting the conditions imposed by Rule 23(a), the party 24 seeking class certification must also show that the action is appropriate under Rule 25 23(b)(1), (2) or (3).” Astiana v. Kashi Co., 291 F.R.D. 493, 503 (S.D. Cal. 2013) (citing 26 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614 (1997)). 27 The plaintiff bears the burden of demonstrating that each element of Rule 23 is 28 satisfied, and a district court may certify a class only if it determines the plaintiff has carried 1 his or her burden. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 158–61 2 (1982); Doninger v. Pac. Nw. Bell, Inc., 564 F.2d 1304, 1308 (9th Cir. 1977).1 The court 3 must conduct a “rigorous analysis,” which may require it “to probe behind the pleadings 4 before coming to rest on the certification question.” Wal-Mart Stores, Inc. v. Dukes, 564 5 U.S. 338, 350 (2011). Ultimately, the class certification determination is committed to the 6 court’s discretion. See Loc. Joint Exec. Bd. of Culinary/Bartender Tr. Fund v. Las Vegas 7 Sands, Inc., 244 F.3d 1152, 1161 (9th Cir. 2001). 8 III. DISCUSSION 9 Lead Plaintiff seeks to certify the following class: 10 All persons and entities other than defendants who purchased or otherwise 11 acquired Franklin Wireless Corporation (“Franklin” or the “Company”) 12 common stock between September 17, 2020 and April 8, 2021 (the “Class Period”), inclusive. Excluded from the Class are any parties who are or have 13 been Defendants in this litigation, the present and former officers and 14 directors of Franklin and any subsidiary thereof, members of their immediate families and their legal representatives, heirs, successors or assigns and any 15 entity in which any current or former Defendant has or had a controlling 16 interest. 17 (Doc. Nos. 26 at 4, 41 at 10.) Apart from focusing solely on the numerosity requirement 18 under Rule 23(a)(1), Defendants do not meaningfully dispute that Lead Plaintiff’s proposed 19 class meets the Rule 23 standards. (Doc. No. 47 at 6–8.) The Court, however, will 20 nevertheless independently evaluate whether Lead Plaintiff has met each prerequisite to 21 certification. See Gen. Tel., 457 U.S. at 161 (class actions “may only be certified if the trial 22 court is satisfied, after a rigorous analysis, that the prerequisites” have been satisfied). 23 A. Rule 23(a) Requirements 24 Rule 23(a) sets forth four requirements for class certification: (1) numerosity; (2) 25 commonality; (3) typicality; and (4) adequacy of representation. Fed. R. Civ. P. 23(a). The 26 Court considers each in turn. 27

28 1 1. Numerosity 2 Rule 23(a)(1) requires the proposed class to be “so numerous that joinder of all 3 members is impracticable[.]” Fed. R. Civ. P. 23(a)(1). “‘[I]mpracticability’ does not mean 4 ‘impossibility’”; rather, the inquiry focuses on the “difficulty or inconvenience of joining 5 all members of the class.” Harris v. Palm Springs Alpine Ests., Inc., 329 F.2d 909, 913–14 6 (9th Cir. 1964). “As a general matter, courts have found that numerosity is satisfied when 7 class size exceeds 40 members, but not satisfied when membership dips below 21.” Slaven 8 v. BP Am., Inc., 190 F.R.D. 649, 654 (C.D. Cal. 2000). In determining whether numerosity 9 is satisfied, the court may draw reasonable inferences from the facts before it. See Gay v. 10 Waiters’ & Dairy Lunchmen’s Union, 549 F.2d 1330, 1332 n.5 (9th Cir. 1977); Astiana, 11 291 F.R.D. at 501. 12 According to Lead Plaintiff, “a total of 2,172,392 million shares of Franklin Wireless 13 Common Stock was traded by investors” on the NASDAQ during the class period. (Doc. 14 No. 41-2 at 10.) Because Franklin has millions of shares trading on a national exchange, 15 Lead Plaintiff argues, the Court may infer that numerosity is met. Lead Plaintiff further 16 asserts there are thousands of geographically dispersed members of the proposed class, 17 whose identities can be readily ascertained from securities brokerage and nominee firms’ 18 books and records. 19 Defendants contend that numerosity is not met because “Franklin knows of fewer 20 than 1000 beneficial shareholders in the public market” and that such number “is a far cry” 21 from the thousands of class members Lead Plaintiff believes exist. (Doc. No. 47 at 6.) 22 Defendants also argue that Lead Plaintiff has not shown that joinder would be 23 impracticable. These arguments are unavailing. 24 As Defendants concede in their brief, numerosity is generally presumed to be met in 25 classes of at least 40 members, and in securities cases where millions of shares are traded 26 during the proposed class period. Defendants make no argument that the proposed class 27 number fewer than 40. (See id. at 6 (arguing only that there are likely less than 1,000 28 members).) Indeed, Defendants’ briefing indicates there are at least 478 members—more 1 than enough to meet the numerosity requirement. Slaven, 190 F.R.D. at 654 (“numerosity 2 is satisfied when class size exceeds 40 members”). 3 Defendants have also not rebutted Lead Plaintiff’s showing that Franklin had over 2 4 million shares trading on the NASDAQ during the class period. Consequently, the 5 presumption of numerosity based on the numbers of nationally traded shares also apply in 6 this case. See In re Twitter Inc. Sec. Litig., 326 F.R.D. 619, 626 (N.D. Cal. 2018) (“The 7 Court certainly may infer that, when a corporation has millions of shares trading on a 8 national exchange, the numerosity requirement is met.”). 9 In support of their arguments against a finding of numerosity, Defendants cite 10 Anderson v. Weinert Enters., 986 F.3d 773 (7th Cir. 2021). (Doc. No. 47 at 6–7.) Anderson, 11 however, is not binding on this Court, and in any event, readily distinguishable from this 12 case. In Anderson, the Seventh Circuit Court of Appeals affirmed a district court’s finding 13 that numerosity was not satisfied where the proposed class “include[d] no more than 37 14 members” and “joinder of those 37 members was not impracticable.” 986 F.3d at 775. 15 Here, as previously mentioned, Defendants themselves indicate there are at least 16 over 400 members. And as to the impracticability of joinder, there is no indication that an 17 overwhelming majority of the proposed class lives within a 50-mile radius of the presiding 18 court—as was the case in Anderson. See 986 F.3d at 777 (“All but two of the class members 19 lived within a 50-mile radius of the courthouse in the Eastern District of Wisconsin where 20 Anderson filed suit.”) The Court agrees with Lead Plaintiff that considering Franklin’s 21 securities are traded on the NASDAQ to class members residing across the globe, it can 22 reasonably infer that they do not all live within a 50-mile radius of San Diego, California. 23 In further support of the inference, Lead Plaintiff lives in Hungary and movants Jack and 24 Barbara Pape live in Arizona. 25 Accordingly, for the reasons stated and drawing reasonable inferences from Lead 26 Plaintiff’s assertions, the Court finds he has satisfied the requirement of numerosity. See 27 Gay, 549 F.2d at 1332 n.5; Astiana, 291 F.R.D. at 501. 28 1 2. Commonality 2 Rule 23(a)(2) requires there be “questions of law or fact common to the class[.]” 3 Fed. R. Civ. P. 23(a)(2). Commonality is satisfied where claims “depend upon a common 4 contention of such a nature that it is capable of classwide resolution—which means that 5 determination of its truth or falsity will resolve an issue that is central to the validity of 6 each one of the claims in one stroke.” Dukes, 564 U.S. at 350. The plaintiff’s burden for 7 showing commonality is “minimal.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th 8 Cir. 1998), overruled on other grounds by id. at 338. Accordingly, “[t]he existence of 9 shared legal issues with divergent factual predicates is sufficient, as is a common core of 10 salient facts coupled with disparate legal remedies within the class.” Id. at 1019. 11 Here, Lead Plaintiff asserts that there are many common factual and legal questions 12 in this case, including: 13 (i) Whether federal securities laws were violated by Defendants’ conduct as alleged; 14 (ii) Whether Defendants made any untrue statements of material fact or 15 omitted to state any material facts necessary to make statements made, in light of the circumstances under which they were made, not misleading; 16 (iii) Whether Franklin and the Individual Defendants acted with the requisite 17 level of scienter under Section 10(b) of the Exchange Act; (iv) Whether the Individual Defendants were controlling persons of the 18 Company under Section 20(a) of the Exchange Act; 19 (v) Whether and to what extent the prices of Franklin common stock shares were artificially inflated during the Class Period due to the alleged false and 20 misleading statements or omissions; 21 (vi) Whether reliance is presumed under the fraud-on-the-market doctrine; and 22 (vii) Whether Lead Plaintiff and other members of the Class suffered 23 damages, as well as the appropriate measure thereof. 24 (Doc. No. 41 at 16.) Defendants offer no argument to the contrary. 25 It is clear this case meets Rule 23(a)(2)’s minimum requirement that there be “even 26 a single common question.” Dukes, 564 U.S. at 359. As the above listed questions are core 27 factual and legal issues common to the class, the Court finds Lead Plaintiff’s proposed 28 class satisfies the commonality requirement. 1 3. Typicality 2 Rule 23(a)(3)’s typicality requirement provides that “a class representative must be 3 part of the class and possess the same interest and suffer the same injury as the class 4 members.” Gen. Tel., 457 U.S. at 156 (quoting E. Tex. Motor Freight Sys., Inc. v. 5 Rodriguez, 431 U.S. 395, 403 (1977)). The purpose of the requirement is “to assure that 6 the interest of the named representative aligns with the interests of the class.” Hanon v. 7 Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992). “[T]he typicality requirement is 8 ‘permissive’ and requires only that the representative’s claims are ‘reasonably co-extensive 9 with those of absent class members; they need not be substantially identical.’” Rodriguez 10 v. Hayes, 591 F.3d 1105, 1124 (9th Cir. 2010) (quoting Hanlon, 150 F.3d at 1020). 11 However, a court should not certify a class if “there is a danger that absent class members 12 will suffer if their representative is preoccupied with defenses unique to it.” Hanon, 976 13 F.2d at 508. 14 Here, Lead Plaintiff and the proposed class members all purchased Franklin common 15 stock shares and assert the same Section 10(b) claims, based on the same 16 misstatements/omissions by Defendants, and the same Section 20(a) claim of “control 17 person” liability. Because Lead Plaintiff’s claims arise from the same events that give rise 18 to the other class members’ claims and will utilize the same evidence and legal theories 19 that apply to the class as a whole, they are typical of the class. Defendants have not 20 presented a defense unique to Lead Plaintiff or otherwise shown that typicality is not met. 21 Accordingly, the Court finds that Lead Plaintiff has satisfied typicality. 22 4. Adequacy 23 Rule 23(a)(4) requires the class representative to “fairly and adequately protect the 24 interests of the class.” Fed. R. Civ. P. 23(a)(4). In assessing this requirement, courts within 25 the Ninth Circuit apply a two-part test, asking: (1) does the named plaintiff and her counsel 26 have any conflicts of interest with other class members?; and (2) will the named plaintiff 27 and her counsel prosecute the action vigorously on behalf of the class? See Staton v. Boeing 28 Co., 327 F.3d 938, 957 (9th Cir. 2003) (citing Hanlon, 150 F.3d at 1020). 1 Lead Plaintiff asserts, and the Court agrees, that both prongs are met here. Lead 2 Plaintiff “possess[es] the same interest and suffer[ed] the same injury as the class 3 members,” Amchem, 521 U.S. at 626–27, and there is no indication of any actual or 4 potential conflict. Lead Plaintiff has been actively involved in pursuing this litigation and 5 is willing to serve as a representative party on behalf of the proposed class and understands 6 his fiduciary as a class representative. (Doc. No. 41-4 at 3.) He attests to being “fully 7 committed” to prosecuting this action in the best interest of the class and is prepared to 8 give deposition testimony and to testify at trial. (Id.) Defendants do not dispute Lead 9 Plaintiff’s adequacy. Accordingly, the Court finds Lead Plaintiff will “fairly and 10 adequately protect the interests of the class” and can be appointed as class representative. 11 Fed. R. Civ. P. 23(a)(4). 12 Lead Counsel is also well-qualified to represent the proposed class. The record 13 shows that Pomerantz has and will continue to vigorously prosecute the claims of the class 14 and submitted documentary evidence of its experience in litigating securities-fraud class 15 actions. (Doc. No. 41-3.) There is also no indication that the firm’s interests are adverse to 16 those of the class, and Defendants do not dispute Pomerantz’s adequacy. Accordingly, the 17 Court finds Pomerantz will fairly and adequately represent the interests of the class and 18 can be appointed as class counsel. See Fed. R. Civ. P. 23(g)(2). 19 B. Rule 23(b)(3) Requirements 20 Next, certification under Rule 23(b)(3)—the subsection under which Lead Plaintiff 21 seeks certification—is appropriate only where the plaintiff establishes that (1) issues 22 common to the class predominate over issues affecting individual class members; and (2) 23 the class action device is superior to other methods available for adjudicating the dispute. 24 See Fed. R. Civ. P. 23(b)(3). The Court discusses these requirements in turn. 25 1. Predominance 26 The predominance analysis “focuses on the relationship between the common and 27 individual issues.” Hanlon, 150 F.3d at 1022. “When common questions present a 28 significant aspect of the case and they can be resolved for all members of the class in a 1 single adjudication, there is clear justification for handling the dispute on a representative 2 rather than on an individual basis.” Id. 3 The determination begins with the elements of the underlying cause of action. To 4 recover damages for violation of § 10(b) and Rule 10b–5, a private plaintiff must prove 5 “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a 6 connection between the misrepresentation or omission and the purchase or sale of a 7 security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) 8 loss causation.” Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014). 9 In the typical securities fraud case (like this case), the factual and legal issues related 10 to most of these elements are common to the class, so the requirements for class 11 certification are usually “readily met.” Amchem, 521 U.S. at 625. The Court agrees with 12 Lead Plaintiff that the elements of falsity, materiality, scienter, and loss causation present 13 questions common to the class because they all depend on Defendants’ actions, and not 14 those of any individual class member. (Doc. No. 41 at 20–21.) Moreover, while the 15 damages determination entails individualized inquiries, it does not by itself defeat class 16 treatment under Rule 23(b)(3). See Leyva v. Medline Indus., Inc., 716 F.3d 510, 514 (9th 17 Cir. 2013) (“[T]he presence of individualized damages cannot, by itself, defeat class 18 certification under Rule 23(b)(3).”). Additionally, Lead Plaintiff has shown that “damages 19 could feasibly and efficiently be calculated once the common liability questions are 20 adjudicated.” Id. According to Lead Plaintiff’s expert report, per-share damages can be 21 determined on a class-wide basis by a well-accepted and formulaic out-of-pocket method 22 of calculating damages for all class members. (Doc. No. 41-2 at 26.) 23 Lastly, to avoid the need to prove the reliance of individual investors, plaintiffs in 24 securities fraud class actions ordinarily show reliance by establishing “fraud on the 25 market,” which gives rise to a rebuttable presumption of reliance. Halliburton, 573 U.S. at 26 268. “The fraud-on-the-market premise is that the price of a security traded in an efficient 27 market will reflect all publicly available information about a company; accordingly, a 28 1 buyer of the security may be presumed to have relied on that information in purchasing the 2 security.” Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 458 (2013). 3 To establish the presumption, a plaintiff must show “(1) that the alleged 4 misrepresentations were publicly known, (2) that they were material, (3) that the stock 5 traded in an efficient market, and (4) that the plaintiff traded the stock between the time 6 the misrepresentations were made and when the truth was revealed.” Halliburton, 573 U.S. 7 at 268. To make use of the presumption at the class certification stage, however, “[t]he 8 only elements a plaintiff must prove at the class certification stage are whether the market 9 for the stock was efficient and whether the alleged misrepresentations were public.” 10 Connecticut Ret. Plans & Tr. Funds v. Amgen Inc., 660 F.3d 1170, 1177 (9th Cir. 2011), 11 aff’d, 568 U.S. 455 (2013). A defendant may rebut the presumption, for example, “by 12 appropriate evidence, including evidence that the asserted misrepresentation (or its 13 correction) did not affect the market price of the defendant’s stock.” Halliburton, 573 U.S. 14 at 279–80. 15 In this case, Lead Plaintiff has shown that Defendants’ alleged misrepresentations 16 and omissions were publicized in various releases, statements, and quarterly reports, (Doc. 17 No. 26 at 18–20), and submitted a detailed expert report demonstrating that Franklin 18 common stock shares traded in an efficient market over the course of the class period, (Doc. 19 No. 41-2 at 5). Defendants have not offered any contrary evidence or otherwise suggested 20 that the market was inefficient. The Court is satisfied, based on the unrebutted expert 21 report, that the market was efficient, and thus, Lead Plaintiff has adequately established the 22 prerequisites for invoking the presumption at this stage. Accordingly, the Court finds the 23 predominance requirement satisfied. 24 2. Superiority 25 Superiority requires consideration of the following: (1) the interest of individuals 26 within the class in controlling their own litigation; (2) the extent and nature of any pending 27 litigation commenced by or against the class involving the same issues; (3) the convenience 28 and desirability of concentrating the litigation in the particular forum; and (4) the 1 ||manageability of the class action. See Fed. R. Civ. P. 23(b)(3)(A)1{D); Amchem, 521 U.S. 2 615-16. 3 Here, Lead Plaintiff asserts that “class members are too numerous and too 4 || geographically dispersed, and the typical claim too small, for individual actions against 5 || well-financed adversaries to be feasible.” (Doc. No. 41 at 32.) Considering the identical 6 ||claims shared by at least over 400 members of the class, the relatively small size of the 7 || typical claim, and the geographical dispersion of the class members, the Court finds a class 8 action the superior method to litigating this securities case. See Epstein v. MCA, Inc., 50 9 || F.3d 644, 668 (9th Cir. 1995) (shareholder claims based on identical facts and law fit Rule 10 || 23’s requirements “like a glove’). 11 CONCLUSION 12 Based on the foregoing, the Court GRANTS the motion for class certification and 13 || APPOINTS Gergely Csaba as class representative, and Pomerantz LLP as class counsel. 14 (Doc. No. 41.) 15 IT IS SO ORDERED. 16 ||Dated: January 3, 2023

18 United States District Judge 19 20 21 22 23 24 25 26 27 28 11