In re Waste Management Securities Litigation

Background

The Seafarers Funds, the lead plaintiffs, hold certain notes issued by Waste Management, Inc. (WM). They sue WM and individual defendants who were WM officers on behalf of themselves and a proposed class. The plaintiffs allege that Defendants made misleading statements or omissions about whether WM would complete its proposed acquisition of Advanced Disposal Services, Inc. before July 14, 2020. Four series of notes contained a special mandatory-redemption provision requiring WM to redeem them at 101% of face value if the acquisition was not completed by that date.

The alleged class period ran from February 13 through June 23, 2020. On June 24, WM disclosed that it would not meet the deadline and would redeem the notes at 101% of face value, which was below their market price at the time. WM redeemed the notes on July 20, 2020. The plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5, as well as Section 20(a) control-person claims.

The plaintiffs moved to certify a class under Federal Rule of Civil Procedure 23(b)(3) and to appoint class counsel under Rule 23(g). Defendants opposed class certification and moved to exclude the opinions of the plaintiffs’ expert, Steven P. Feinstein, under Federal Rule of Evidence 702. Defendants also submitted an expert report from Lucy P. Allen.

Expert-exclusion motion

The court denied Defendants’ motion to exclude Feinstein’s opinions. The court explained that objections to Feinstein’s analysis principally concerned the weight of his opinions rather than their admissibility. The court considered his analysis and opinions to the extent they were helpful on market efficiency, price impact, and damages.

Class-certification ruling

The court granted the plaintiffs’ motion to certify a class in part, with a clarification. The court found that the requirements of Rule 23(a)—numerosity, commonality, typicality, and adequacy—were satisfied. It also found that the proposed class was ascertainable and that a class action was superior to other available methods. Defendants did not dispute those points.

The disputed issue was predominance: whether common questions were more important than individual questions. Defendants argued that individual issues involving reliance, damages, and whether each investor made a qualifying domestic transaction would predominate. The court rejected those arguments.

Reliance and market efficiency

For the plaintiffs to invoke the fraud-on-the-market presumption of reliance, they had to show that the alleged misrepresentations were public, that the notes traded in an efficient market, and that class members traded during the period between the alleged misrepresentations and the disclosure of the truth. Defendants did not dispute the public nature of the statements or the timing of class members’ trades. The court found that the plaintiffs showed by a preponderance of the evidence that the notes traded in an efficient market.

The court considered factors commonly used to evaluate market efficiency, adapted for debt securities. Trading volume, trading frequency, the notes’ total par value, and their public float strongly supported efficiency. Analyst coverage also supported efficiency. Eligibility to use Securities and Exchange Commission Form S-3 weighed slightly in favor. The bid-ask spread and market-maker evidence were inconclusive or neutral, and the direct event-study evidence was inconclusive.

The court nevertheless found that the indirect evidence showed that the market for the notes was both liquid and informed. It therefore allowed the plaintiffs to invoke the presumption that class members relied on public information reflected in the notes’ prices.

Defendants had the burden of proving that the alleged misstatements did not affect the notes’ prices. The court found that Defendants failed to meet that burden. Feinstein’s analysis showed a statistically significant price decline for the notes after WM’s June 24 disclosure. The court rejected Defendants’ argument that an earlier March 18 statement was the relevant corrective disclosure because that statement contained a mixed message: it disclosed a delay but still anticipated completion before the redemption deadline. The court also rejected Defendants’ argument concerning the 4.00% notes, finding that the evidence involving volume-weighted average prices supported a price decline and that the closing prices relied on by Defendants came from only small trades.

Damages

The court found that damages could be calculated on a class-wide basis using the plaintiffs’ proposed out-of-pocket methodology. That method measures the difference between the inflation in the price paid for a note and the remaining inflation when the note was sold or, if it was not sold, at the end of the class period. The court held that the methodology matched the plaintiffs’ theory that the notes would have sold for less absent the alleged misleading statements. Differences in the amount of inflation over time did not defeat class certification because a common methodology could calculate the amount for each note and each day.

Domestic transactions

The court recognized that a purchaser must have acquired the securities in a qualifying domestic transaction to pursue the federal securities claims. It held that this issue did not predominate over the common questions in the case. The court noted that the record did not suggest that foreign transactions made up a large portion of the class and that 296 of 361 institutional investors that held the notes during the class period were headquartered in the United States. The court clarified the class definition to include only noteholders who acquired the notes in domestic transactions.

Class representatives and counsel

The court appointed the plaintiffs as class representatives. It appointed Robbins Geller as class counsel, noting that the firm had served as lead counsel for more than two years and had substantial experience with securities-fraud class actions. Defendants did not oppose the appointment.

Disposition

The class-certification motion was granted in part. The certified class consists of persons who purchased or otherwise acquired, in one or more domestic transactions, specified Waste Management redeemable senior notes between February 13 and June 23, 2020, inclusive, and were damaged thereby. The specified notes are the 2.95% Senior Notes due 2024, 3.20% Senior Notes due 2026, 3.45% Senior Notes due 2029, and 4.00% Senior Notes due 2039. Robbins Geller was appointed class counsel, and Defendants’ motion to exclude Feinstein’s expert testimony was denied.