In re Vaxart, Inc. Securities Litigation

Background

The plaintiffs moved for class certification in securities litigation involving publicly traded Vaxart common stock and certain Vaxart options. The proposed class covered persons or entities that purchased or otherwise acquired Vaxart common stock, purchased call options, or sold put options between June 25, 2020, and July 24, 2020, inclusive, and were damaged as a result. The proposed subclass covered persons or entities that purchased Vaxart common stock contemporaneously with the June 26 and June 29, 2020, sales by the Armistice defendants and were damaged as a result.

The court stated that the plaintiffs had corrected the problems identified in their first motion for class certification and satisfied the predominance requirement of Federal Rule of Civil Procedure 23(b)(3). The court also stated that the other Rule 23 requirements were satisfied.

Damages Model and Loss Causation

The defendants primarily challenged the plaintiffs’ damages model. They argued that the model failed to separate the effect of true portions of Vaxart press releases from the effect of allegedly fraudulent portions, and that it attributed too much of Vaxart’s stock-price decline to the revelation of alleged fraud.

The court concluded that these disputes did not defeat class certification. The plaintiffs’ expert, Dr. Cain, had considered whether the true portions of the press releases affected the stock price and had considered other possible causes of price declines, including market- and industry-wide trends. Even if the defendants ultimately prevailed on some of these issues, the court said, a jury’s findings could be incorporated into the damages calculation on a class-wide basis.

The court likewise rejected the defendants’ argument concerning Armistice’s stock sales and Form 4 disclosures. Whether those events signaled that Armistice was trading on insider information could be resolved for the class as a whole. The court also held that the plaintiffs did not need to prove loss causation at the class-certification stage, although the court acknowledged that proving loss causation later might present substantial challenges.

The court found that the model’s estimates of changing price inflation on June 26 and June 29 did not make the model inconsistent with the plaintiffs’ theory. If the jury reached different conclusions, those conclusions could be reflected in the damages calculation.

Options and Section 20A Damages

The court held that traders of Vaxart options could be included in the class. It reasoned that an efficient options market may be presumed when the market for the related common stock is efficient, and the defendants did not appear to dispute that Vaxart’s common-stock market was efficient. The court also held that the complaint’s failure to include options in its original class definition did not prevent their inclusion because the defendants had notice that the plaintiffs sought to include them.

The defendants’ challenges to the plaintiffs’ method for calculating damages under Section 20A also did not defeat certification. Because the court rejected the defendants’ attacks on the price-inflation method for calculating Section 10(b) damages, it rejected the related challenge to the Section 20A calculation. The court also found that Dr. Cain had done more than merely summarize the statutory damages provision and noted that the defendants did not appear to contest his calculation of Armistice’s profits, which would cap possible Section 20A damages.

Class Period

The court rejected the defendants’ request for a shorter class period. It found some reason to believe that the truth about Vaxart had not fully come to light before a July 25 New York Times article and related posts by the Department of Health and Human Services. The court stated that if the evidence later showed that price inflation had dissipated earlier, that would affect loss causation or damages for people who purchased after that point. The court treated that issue as one for the merits stages of the case, not class certification.

Disposition

The court granted the motion for class certification. It certified the proposed class and subclass, appointed Wei Huang, Langdon Elliott, and Ani Hovhannisyan as class representatives, and appointed Hagens Berman Sobol Shapiro and Scott+Scott Attorneys at Law as class counsel. The order addressed whether the claims could proceed on a class-wide basis; it did not decide whether the plaintiffs would ultimately prove liability, loss causation, or damages.

Classification Explanation

This is a procedural order because the court decided an ancillary class-certification issue rather than the underlying merits of the securities claims.