1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 No. 2:23-cv-01816 WBS JDP 13 In re ORIGIN MATERIALS, INC. 14 SECURITIES LITIGATION MEMORANDUM AND ORDER RE: MOTIONS TO APPOINT LEAD 15 PLAINTIFF AND COUNSEL 16
17 ----oo0oo---- 18 Unnamed plaintiffs in these consolidated putative class 19 actions allege that defendant Origin Materials, Inc. and certain 20 of its officers violated the Securities and Exchange Act. Before 21 the court are five motions to appoint a lead plaintiff and 22 approve their selection of class counsel, filed by movants 23 Nicholas Agapis (Docket No. 13), Carter Family Investors (Docket 24 No. 14), FNY Partners Fund LP and Peter Di Murro (“FNY Group”) 25 (Docket No. 17), Todd Frega (Docket No. 20), and Steven Park 26 (Docket No. 21).1 27 1 Agapis and Park subsequently filed statements of non- 28 opposition to the competing motions. (Docket Nos. 24, 31.) The 1 I. Lead Plaintiff 2 The Private Securities Litigation Reform Act of 1995 3 (“PSLRA”) establishes a three-step process for selecting a lead 4 plaintiff. “In step one, notice of the action must be posted so 5 purported class members can move for lead plaintiff appointment.” 6 In re Mersho, 6 F.4th 891, 899 (9th Cir. 2021) (citing 15 U.S.C. 7 § 78u-4(a)(3)(A)(i)(I)–(II)). Upon publication of the notice, 8 members of the putative class have 60 days to move for 9 appointment as lead plaintiff. 15 U.S.C. § 78u- 10 4(a)(3)(A)(i)(II). 11 “In step two, the district court must determine which 12 movant is the ‘most adequate plaintiff,’ which is defined as the 13 plaintiff ‘most capable of adequately representing the interests 14 of class members.’” Id. (quoting 15 U.S.C. § 78u-4(a)(3)(B)(i)). 15 “To do so, the district court must ‘adopt a presumption that the 16 most adequate plaintiff’ is the movant with the largest financial 17 interest who ‘otherwise satisfies the requirements of Rule 23 of 18 the Federal Rules of Civil Procedure.’” Id. (quoting 15 U.S.C. § 19 78u-4(a)(3)(B)(iii)(I)). “This means the district court must 20 identify which movant has the largest alleged losses and then 21 determine whether that movant has made a prima facie showing of 22 adequacy and typicality. Once the district court has determined 23 that the movant with the largest stake has made a prima facie 24 showing of adequacy and typicality, that movant ‘becomes the 25 presumptively most adequate plaintiff.’” Id. (quoting In re 26 Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002)). “If the movant 27
28 court will therefore deny their motions. (Docket Nos. 13, 21.) 1 with the largest losses does not satisfy the Rule 23 2 requirements, the district court must then look to the movant 3 with the next largest losses and repeat the inquiry. At this 4 step, the process is not adversarial, so the Rule 23 5 determination should be based on only the movant’s pleadings and 6 declarations.” Id. 7 “At step three, the process ‘turns adversarial.’” Id. 8 (quoting Cavanaugh, 306 F.3d at 730). “The presumption may be 9 rebutted ‘only upon proof by a member of the purported plaintiff 10 class that the presumptively most adequate plaintiff . . . will 11 not fairly and adequately protect the interests of the class; or 12 [ ] is subject to unique defenses that render such plaintiff 13 incapable of adequately representing the class.” Id. (quoting 15 14 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)–(bb)). 15 A. Step One 16 The required notice was published on August 25, 2023. 17 (See Docket No. 13-2.) The potential lead plaintiffs timely 18 filed motions on August 24, 2023, which is sixty days from the 19 date of publication. (See Docket Nos. 13, 14, 17, 20, 21.) The 20 procedural requirements of step one have therefore been 21 satisfied. 22 B. Step Two 23 It is undisputed that FNY Group has the largest 24 financial stake, with $765,110.88 in reported losses. (See 25 Docket No. 18-3 at 5.) Frega reported $275,912 in losses and 26 Carter Family Investors reported $196,003.07 in losses. (See 27 Docket No. 20-5 at 8; Docket No. 15-5 at 2-11.) Agapis and Park 28 have filed statements of non-opposition to the competing motions, 1 acknowledging that they lack the largest financial interest. 2 (See Docket Nos. 24, 31.) 3 Having concluded that FNY Group has the largest 4 financial stake, the court next determines whether FNY Group has 5 made a prima facie showing of typicality and adequacy. 6 Typicality requires that named plaintiffs have claims 7 “reasonably coextensive with those of absent class members,” but 8 their claims do not have to be “substantially identical.” Hanlon 9 v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998)), 10 overruled on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 11 U.S. 338 (2011). The test for typicality “is whether other 12 members have the same or similar injury, whether the action is 13 based on conduct which is not unique to the named plaintiffs, and 14 whether other class members have been injured by the same course 15 of conduct.” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th 16 Cir. 1992) (internal citation omitted). 17 To resolve the question of adequacy, the court must 18 consider two factors: (1) whether the named plaintiff and her 19 counsel have any conflicts of interest with other class members, 20 and (2) whether the named plaintiff and her counsel will 21 vigorously prosecute the action on behalf of the class. In re 22 Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539, 566 (9th Cir. 23 2019). 24 While the PSLRA “expressly allows a ‘group of persons’ 25 to move for appointment,” Mersho, 6 F.4th at 899 (quoting 14 26 U.S.C. § 78u-4(a)(3)(B)(iii)(I)), a court may scrutinize a 27 plaintiff group’s “cohesion” as part of the adequacy analysis at 28 step two, see id. at 901. “Many district courts have considered 1 the lack of a pre-litigation relationship as part of their 2 adequacy analysis at step two because it may indicate that 3 members may not work together well to vigorously prosecute the 4 litigation or they might not be able to control counsel.” Id. 5 “District courts often consider a pre-litigation relationship 6 along with other factors such as the size of the group, how the 7 members found their counsel, and the prosecution procedures set 8 out in their filings.” Id. 9 The court concludes that FNY Group has failed to 10 establish that its members will operate cohesively in prosecuting 11 the case. There is nothing in the record explaining how FNY 12 Partners Fund, an investment fund based in New York, and Di 13 Murro, an individual investor based in Ontario, Canada, became 14 acquainted or what their relationship is. They do not even share 15 the same counsel, instead proposing that two law firms serve as 16 lead counsel. Their joint declaration provides bare assertions 17 that they will “provide comprehensive, responsible, and vigorous 18 representation of the class” and “work jointly to monitor and 19 direct the efforts and activities of our proposed lead counsel.” 20 (Docket No.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 No. 2:23-cv-01816 WBS JDP 13 In re ORIGIN MATERIALS, INC. 14 SECURITIES LITIGATION MEMORANDUM AND ORDER RE: MOTIONS TO APPOINT LEAD 15 PLAINTIFF AND COUNSEL 16
17 ----oo0oo---- 18 Unnamed plaintiffs in these consolidated putative class 19 actions allege that defendant Origin Materials, Inc. and certain 20 of its officers violated the Securities and Exchange Act. Before 21 the court are five motions to appoint a lead plaintiff and 22 approve their selection of class counsel, filed by movants 23 Nicholas Agapis (Docket No. 13), Carter Family Investors (Docket 24 No. 14), FNY Partners Fund LP and Peter Di Murro (“FNY Group”) 25 (Docket No. 17), Todd Frega (Docket No. 20), and Steven Park 26 (Docket No. 21).1 27 1 Agapis and Park subsequently filed statements of non- 28 opposition to the competing motions. (Docket Nos. 24, 31.) The 1 I. Lead Plaintiff 2 The Private Securities Litigation Reform Act of 1995 3 (“PSLRA”) establishes a three-step process for selecting a lead 4 plaintiff. “In step one, notice of the action must be posted so 5 purported class members can move for lead plaintiff appointment.” 6 In re Mersho, 6 F.4th 891, 899 (9th Cir. 2021) (citing 15 U.S.C. 7 § 78u-4(a)(3)(A)(i)(I)–(II)). Upon publication of the notice, 8 members of the putative class have 60 days to move for 9 appointment as lead plaintiff. 15 U.S.C. § 78u- 10 4(a)(3)(A)(i)(II). 11 “In step two, the district court must determine which 12 movant is the ‘most adequate plaintiff,’ which is defined as the 13 plaintiff ‘most capable of adequately representing the interests 14 of class members.’” Id. (quoting 15 U.S.C. § 78u-4(a)(3)(B)(i)). 15 “To do so, the district court must ‘adopt a presumption that the 16 most adequate plaintiff’ is the movant with the largest financial 17 interest who ‘otherwise satisfies the requirements of Rule 23 of 18 the Federal Rules of Civil Procedure.’” Id. (quoting 15 U.S.C. § 19 78u-4(a)(3)(B)(iii)(I)). “This means the district court must 20 identify which movant has the largest alleged losses and then 21 determine whether that movant has made a prima facie showing of 22 adequacy and typicality. Once the district court has determined 23 that the movant with the largest stake has made a prima facie 24 showing of adequacy and typicality, that movant ‘becomes the 25 presumptively most adequate plaintiff.’” Id. (quoting In re 26 Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002)). “If the movant 27
28 court will therefore deny their motions. (Docket Nos. 13, 21.) 1 with the largest losses does not satisfy the Rule 23 2 requirements, the district court must then look to the movant 3 with the next largest losses and repeat the inquiry. At this 4 step, the process is not adversarial, so the Rule 23 5 determination should be based on only the movant’s pleadings and 6 declarations.” Id. 7 “At step three, the process ‘turns adversarial.’” Id. 8 (quoting Cavanaugh, 306 F.3d at 730). “The presumption may be 9 rebutted ‘only upon proof by a member of the purported plaintiff 10 class that the presumptively most adequate plaintiff . . . will 11 not fairly and adequately protect the interests of the class; or 12 [ ] is subject to unique defenses that render such plaintiff 13 incapable of adequately representing the class.” Id. (quoting 15 14 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa)–(bb)). 15 A. Step One 16 The required notice was published on August 25, 2023. 17 (See Docket No. 13-2.) The potential lead plaintiffs timely 18 filed motions on August 24, 2023, which is sixty days from the 19 date of publication. (See Docket Nos. 13, 14, 17, 20, 21.) The 20 procedural requirements of step one have therefore been 21 satisfied. 22 B. Step Two 23 It is undisputed that FNY Group has the largest 24 financial stake, with $765,110.88 in reported losses. (See 25 Docket No. 18-3 at 5.) Frega reported $275,912 in losses and 26 Carter Family Investors reported $196,003.07 in losses. (See 27 Docket No. 20-5 at 8; Docket No. 15-5 at 2-11.) Agapis and Park 28 have filed statements of non-opposition to the competing motions, 1 acknowledging that they lack the largest financial interest. 2 (See Docket Nos. 24, 31.) 3 Having concluded that FNY Group has the largest 4 financial stake, the court next determines whether FNY Group has 5 made a prima facie showing of typicality and adequacy. 6 Typicality requires that named plaintiffs have claims 7 “reasonably coextensive with those of absent class members,” but 8 their claims do not have to be “substantially identical.” Hanlon 9 v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998)), 10 overruled on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 11 U.S. 338 (2011). The test for typicality “is whether other 12 members have the same or similar injury, whether the action is 13 based on conduct which is not unique to the named plaintiffs, and 14 whether other class members have been injured by the same course 15 of conduct.” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th 16 Cir. 1992) (internal citation omitted). 17 To resolve the question of adequacy, the court must 18 consider two factors: (1) whether the named plaintiff and her 19 counsel have any conflicts of interest with other class members, 20 and (2) whether the named plaintiff and her counsel will 21 vigorously prosecute the action on behalf of the class. In re 22 Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539, 566 (9th Cir. 23 2019). 24 While the PSLRA “expressly allows a ‘group of persons’ 25 to move for appointment,” Mersho, 6 F.4th at 899 (quoting 14 26 U.S.C. § 78u-4(a)(3)(B)(iii)(I)), a court may scrutinize a 27 plaintiff group’s “cohesion” as part of the adequacy analysis at 28 step two, see id. at 901. “Many district courts have considered 1 the lack of a pre-litigation relationship as part of their 2 adequacy analysis at step two because it may indicate that 3 members may not work together well to vigorously prosecute the 4 litigation or they might not be able to control counsel.” Id. 5 “District courts often consider a pre-litigation relationship 6 along with other factors such as the size of the group, how the 7 members found their counsel, and the prosecution procedures set 8 out in their filings.” Id. 9 The court concludes that FNY Group has failed to 10 establish that its members will operate cohesively in prosecuting 11 the case. There is nothing in the record explaining how FNY 12 Partners Fund, an investment fund based in New York, and Di 13 Murro, an individual investor based in Ontario, Canada, became 14 acquainted or what their relationship is. They do not even share 15 the same counsel, instead proposing that two law firms serve as 16 lead counsel. Their joint declaration provides bare assertions 17 that they will “provide comprehensive, responsible, and vigorous 18 representation of the class” and “work jointly to monitor and 19 direct the efforts and activities of our proposed lead counsel.” 20 (Docket No. 18-4 ¶¶ 5-6). They state that they discussed their 21 “joint leadership, decision-making, and oversight of this 22 litigation.” (Id. ¶ 7.) Yet there is no explanation of how 23 their relationship and the relationship between the two firms 24 will actually operate, particularly in the event of potential 25 disagreements. 26 Given this dearth of information, it appears possible 27 that vigorous prosecution of the action would be disrupted by 28 decision-making conflicts between FNY Partners Fund and Di Murro 1 or between their counsel. For those reasons, the court therefore 2 concludes that FNY Group has not made a prima facie showing of 3 adequacy because “it has not sufficiently justified its 4 composition of unrelated investors with no disclosed decision- 5 making structure.” See In re Cloudera, Inc. Sec. Litig., No. 19- 6 cv-03221 LHK, 2019 WL 6842021, at *6 (N.D. Cal. Dec. 16, 2019) 7 (cited with approval in Mersho, 6 F.4th at 901–02).2 8 The court next turns to Frega, the movant with the 9 second largest financial stake. Frega, an individual investor, 10 purchased Origin securities during the class period and allegedly 11 suffered damages due to defendants’ misrepresentations. (See 12 Docket Nos. 20-4, 20-5.) Frega has therefore made a prima facie 13 showing of typicality because he acted similarly and suffered a 14 similar injury to other putative class members due to the same 15 course of conduct by defendants. See Hanon, 976 F.2d at 508. 16 Further, Frega has the same interests as other putative class 17 members and his substantial financial interest incentivizes him 18 to vigorously pursue the interests of the class. Frega’s 19 selected counsel appear to be experienced in securities 20 litigation. (See Docket Nos. 20-6, 20-7.) Frega’s motion and 21 supporting evidence thus indicate that there are no conflicts of 22 interest with other class members and that he and his counsel 23 will vigorously prosecute the action. See Hyundai & Kia, 926 24 F.3d at 566. Frega has therefore made a prima facie showing of 25 adequacy. Accordingly, the court concludes that Frega is the 26 presumptive lead plaintiff. 27 2 Because FNY Group has failed to make a prima facie 28 showing of adequacy, the court need not consider its typicality. 1 C. Step Three 2 To rebut the presumption that Frega is the most 3 adequate plaintiff, competing movant Carter Family Investors 4 argues that Frega is atypical because he is susceptible to the 5 day trader defense. Investors subject to the day trader defense 6 “are those who ‘purchased stock during the period of 7 misrepresentation but sold it before any disclosure which either 8 partially or completely corrected the misrepresentation.’” Hurst 9 v. Enphase Energy, Inc., No. 20-cv-04036 BLF, 2020 WL 7025085, at 10 *7 (N.D. Cal. Nov. 30, 2020) (quoting Wool v. Tandem Comput., 11 Inc., 818 F.2d 1433, 1437 (9th Cir. 1987), overruled on other 12 grounds by Holligner v. Titan Capital Corp., 914 F.2d 1564, 1575 13 (9th Cir. 1990)). “Courts have long recognized an inherent 14 conflict between the interests of day or in-and-out traders and 15 those of retention traders,” id., because day traders “typically 16 focus on technical price movements . . . and therefore are 17 subject to a defense th[at] they would have purchased the stock 18 at issue regardless of the misstatement/omission,” Applestein v. 19 Medivation Inc., No. 10-cv-00998 MHP, 2010 WL 3749406, at *3 20 (N.D. Cal. Sept. 20, 2010) (internal quotation marks and 21 alteration omitted). 22 Frega did exhibit trading behavior involving the 23 purchase and sale of Origin stock within the same day. (See 24 Docket Nos. 20-4, 20-5.) However, it does not appear that Frega 25 was exclusively a day trader in the relevant sense. Frega 26 consistently held tens of thousands of shares throughout the 27 class period, including after Origin’s corrective disclosure. 28 (See id.) After Frega’s initial purchases totaling 40,000 1 shares, he continued to buy and sell shares throughout the class 2 period. (See Docket No. 20-4.) Based on the court’s 3 calculations, his balance of shares following each sale ranged 4 from 42,000 to 77,380. (See id.) As of August 9, 2023, the date 5 of the corrective disclosure, he held more than 70,000 shares. 6 (See id.) Frega only liquidated his position months following 7 the corrective disclosure. (See Docket No. 20-5.) 8 Frega’s trading history indicates that he was a longer- 9 term investor in Origin who would have relied on more than merely 10 daily price fluctuations, and thus would not be subject to the 11 day trader defense. See In re Snap Inc. Sec. Litig., 334 F.R.D. 12 209, 228 (C.D. Cal. 2019) (plaintiffs with history of frequent 13 trading were not atypical because they also maintained shares 14 during class period and liquidated position only after corrective 15 disclosure); Stoopler v. Direxion Shares ETF Tr., No. 09-cv-8011 16 RJH, 2010 WL 3199679, at *4 (S.D.N.Y. Aug. 12, 2010), as 17 corrected (Aug. 16, 2010) (plaintiff who day traded was not 18 atypical because he also “purchased and held a large number of 19 shares over a longer time period, and [therefore] suffered the 20 same types of losses [as other putative class members]”). 21 Competing movants have therefore failed to offer proof that Frega 22 is atypical. See Hanon, 976 F.2d at 509 (“the defense of non- 23 reliance is not a basis for” finding that a plaintiff is atypical 24 unless “a major focus of the litigation will be on a defense 25 unique to him”). 26 Because the court finds that Frega is the most adequate 27 plaintiff, the court appoints Frega as lead plaintiff in this 28 action. nnn enn meee eee nnn nnn nnn ne oes on nnn on nn I NO OE
1 II. Class Counsel 2 “The most adequate plaintiff shall, subject to the 3 approval of the court, select and retain counsel to represent the 4 class.” 15 U.S.C. § 78u-4(a) (3) (B) (v). “Although this power is 5 subject to court approval and is therefore not absolute, it 6 | plainly belongs to the lead plaintiff.” Cohen v. U.S. Dist. 7 Court for the Northern Dist. of Cal., 586 F.3d 703, 709 (9th Cir. 8 2009). 9 The court has reviewed the resumes of Frega’s selected 10 lead counsel, New-York based firm Bernstein Liebhard LLP, and 11 liaison counsel,? San Francisco-based firm Bragar Eagel & Squire, 12 P.C., and is satisfied that the lead plaintiff has made a 13 reasonable choice of counsel. (See Docket Nos. 20-6, 20-7.) 14 | Accordingly, the court will approve the lead plaintiff’s 15 selection of counsel. 16 IT IS THEREFORE ORDERED THAT movant Todd Frega’s motion 17 for appointment of lead plaintiff and counsel (Docket No. 20) be, 18 and the same hereby is, GRANTED. Frega is appointed as lead 19 | plaintiff. Bernstein Liebhard LLP is appointed as lead counsel 20 and Bragar Equal & Squire, P.C., is appointed as liaison counsel. 21 The competing motions for appointment of lead plaintiff 22 and counsel (Docket Nos. 13, 14, 17, 21) are DENIED. 23 | Dated: December 14, 2023 tleom ah. A. be—~ 24 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 29 3 “Liaison counsel” is equivalent to local counsel. See 26 Lamontagne v. Tesla, Inc., No. 23-cv-00869 AMO, 2023 WL 4353146, at *3 (N.D. Cal. July 5, 2023) (quoting Manual for Complex 27 Litigation (Fourth) § 10.221 (2004)) (liaison counsel serves an “administrative role” and “‘will usually have offices in the same 28 | locality as the court’”).