Ramnath v. Qudian Inc.

District Court, S.D. New York·Decided November 23, 2020·No. 1:17-cv-09741·Unknown

Opinion

Phone: (212N)e 3w8 5Y-1o9rk0,0 N FYax 1: 0(020172 ) 385-1911 Email: jack@zwickfirm.com November 20, 2020 VIA ECF The Honorable Jesse M. Furman, U.S.D.J. U.S. District Court for the Southern District of New York Thurgood Marshall U.S. Courthouse 40 Foley Square, Courtroom 1105 New York, NY 10007 Re: In re Qudian Inc. Sec. Litig., Master File No. 1:17-CV-09741-JMF (S.D.N.Y.) Dear Judge Furman: Lead plaintiffs Alan B. Hertz and the Alan Hertz Family 2012 Trust (collectively, “Hertz Parties”) and additional named plaintiff Darwin Sutanto (together with the Hertz Entities, the “Plaintiffs”) respectfully submit this letter in opposition to the request by Panther Partners Inc. and The Morrow Property Trust (“State Plaintiffs”), plaintiffs in a consolidated action entitled In re Qudian Securities Litigation, pending in New York County Supreme Court under Index No. 651804/2018 (“State Actions”), to vacate and deny preliminary approval of the settlement reached by the parties to the instant action (the “Federal Action”). I. RELEVANT HISTORY OF THE FEDERAL ACTION A. The Initial Complaints And Contested Lead Plaintiff Appointment Process Beginning on December 12, 2017, four class action complaints were filed in this Court (the “Court”). On February 12, 2018, the Hertz Parties, having suffered collective losses of approximately sixteen million dollars on their purchases of Qudian ADS, moved to be appointed lead plaintiff pursuant to the PSLRA. ECF Nos. 61, 63-64. Other movants included Joel Fu, who lost approximately seventy-nine thousand dollars. ECF Nos. 59-60, 62. Mr. Fu was represented by State Plaintiffs’ counsel, Robbins Geller Rudman & Dowd LLP (“Robbins Geller”). Rather than withdraw his application to serve as lead plaintiff—even though the Hertz Parties had suffered losses approximately 202 times greater than his own—Mr. Fu filed a reply brief falsely accusing Mr. Hertz of breaching his fiduciary duty to co-lead Plaintiff the Alan Hertz Family 2012 Trust. ECF No. 75. That false accusation failed. Following a hearing before the Honorable Ronnie Abrams, the Court, by order dated March 16, 2018, consolidated the cases under lead case In re Qudian Securities Litigation; appointed the Hertz Parties as Lead Plaintiffs for the consolidated action; and approved Lead Plaintiffs’ selection of Jack I. Zwick and Glancy Prongay & Murray LLP as Co-Lead Counsel. ECF No. 80. Among the four cases consolidated into this Action was Foat v. Qudian Inc., et al., Case 1:17-cv-09875-JMF (filed Dec. 18, 2017), which alleged, among other things, that the registration statement failed to disclose “that the Company’s largest sales platform and strategic partner, Alipay and Ant Financial, could unilaterally cap the APR for loans provided by Qudian.” Ex. 1 hereto at ¶ 35. Thus, the so-called “Ant Financial Claim” was alleged very Page 2 early in this Action, and Co-Lead Counsel were well aware of it at the time they filed the amended complaints. Notably, Robbins Geller was one of the counsel for plaintiff Foat. B. The Amended Complaints Following an extensive investigation that included retention of a private investigation firm that conducted an investigation in the People’s Republic of China, on May 18, 2018, Plaintiffs filed and served their 45-page Consolidated Amended Class Action Complaint (the “CAC”) asserting claims against various Defendants under Sections 11, 12 and 15 of the Securities Act of 1933 (the “Securities Act”). ECF No. 109. Specifically, the CAC alleged that Defendants made false and misleading statements and omissions in the Registration Statement concerning Qudian’s micro-lending business relating to illegal loans to students, illegal debt collection practices, illegal interest rates, and an undisclosed data breach. On July 27, 2018, after Plaintiffs negotiated the stipulation for leave to file an amended complaint (ECF No. 133), Plaintiffs filed and served the 52-page Second Amended Consolidated Class Action Complaint (the “SAC”). ECF No. 134. The SAC, like the CAC, asserted the same claims concerning Qudian’s micro-lending business against various Defendants under Sections 11, 12 and 15 of the Securities Act, but also included allegations of false and misleading statements and omissions concerning Qudian’s Dabai Auto business. In the SAC, Plaintiffs did not assert the Ant Financial Claim as framed in Foat or in the State Actions (i.e.., that the Registration Statement provided insufficient warning of the risk that Ant Financial would unilaterally cap Qudian’s interest rates). Rather, the SAC alleged that Alipay’s imposition of a 24% rate cap was a consequence of Qudian’s charging illegally high interest rates and illegal debt collection practices, as AliPay itself stressed in announcing the rate cap. ECF No. 134 at ¶¶ 7, 106-109. Indeed, as stated in paragraph 109 of the SAC, “[a]ccording to a November 24, 2017 Bloomberg News story, Alipay said in a statement that it was imposing the cap as a result of its recent discovery of abuse by lenders in charging excessive rates and employing inappropriate methods of debt collection, as alleged herein.” (Emphasis added.) C. The Motion to Dismiss On September 27, 2019, the Court decided Defendants’ motion to dismiss. In its ruling, the Court acknowledged the Alipay allegations in the SAC, but nevertheless dismissed the claim concerning illegal interest rates, which Plaintiffs alleged caused Alipay to impose the interest rate cap. In re Qudian Inc. Sec. Litig., 2019 WL 4735376, at *3, *7 (S.D.N.Y. Sept. 27, 2019). The Court did, however, find the Dabai Auto claim sufficiently plead, although it stated that the question of whether Qudian’s omission was actionable was “a close one.” Id. at *9. II. THE SETTLEMENT IS FAIR AND REASONABLE The State Plaintiffs assert that the proposed settlement is unreasonable because Plaintiffs are releasing the ostensibly more valuable Ant Financial Claim in exchange for insufficient consideration. This argument is simply wrong. First, it is axiomatic that Plaintiffs had the sole authority to determine what claims to assert in the Federal Action on behalf of the Class, and their decision not to assert the Ant Financial Claim as a stand-alone claim, in view of the Registration Statement’s risk disclosures concerning the Alipay relationship, was well within their discretion. See In re Facebook, Inc., Page 3 IPO Sec. & Deriv. Litig., 2013 WL 4399215, at *3 (S.D.N.Y. Aug. 13, 2013) (“courts in this Circuit have consistently held that a lead plaintiff has the sole authority to determine what claims to pursue on behalf of the class.”); In re Bank of Am. Corp. Sec., Deriv., & ERISA Litig., 2010 WL 1438980, at *2 (S.D.N.Y. April 9, 2010) (“in a securities class action, a lead plaintiff is empowered to control the management of the litigation as a whole, and it is within the lead plaintiff’s authority to decide what claims to assert on behalf of the class.”). Indeed, a contrary holding “would contravene the main purpose of having a lead plaintiff—namely, to empower one or several investors with a major stake in the litigation to exercise control over the litigation as a whole.” Hevesi v. Citigroup Inc., 366 F.3d 70, 82 n.13 (2d Cir. 2004). Second, the scope of the release—to be given only by Plaintiffs and the other Class Members who choose to remain in the class and participate in the Settlement’s significant financial benefits—is both typical and appropriate. Consistent with Second Circuit case law, the Settlement releases, inter alia, claims that are related to those asserted in the Federal Action, even if such claims had not been explicitly asserted in the Action, as long as those claims relate to the facts forming the basis for the allegations made in the Action. See Stipulation and Agreement of Settlement (“Settlement Agreement”), ECF No. 227-1 at ¶1(ii); Wal-Mart Stores, Inc. v.

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Ramnath v. Qudian Inc., (S.D.N.Y. 2020).

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