Hayes v. Enphase Energy, Inc.

Background

This putative shareholder class action alleges securities fraud by Enphase Energy, Inc. and its officers. Six shareholders initially sought appointment as lead plaintiff. By the time of the order, three remained: Daniel C. Smith, Lon D. Praytor, and Andrey Ponomarchuk. Each also asked the court to approve the proposed selection of lead counsel.

The Private Securities Litigation Reform Act (PSLRA) establishes a process for selecting a lead plaintiff. First, notice of the action and the opportunity to seek appointment must be published. The parties agreed that this step was completed. The court then considers the potential lead plaintiffs in order of financial interest, beginning with the person who has the largest financial stake. That person receives a presumption of being the most adequate plaintiff if the person also satisfies the relevant requirements of Federal Rule of Civil Procedure 23, including typicality and adequacy.

Lead Plaintiff

The court compared the three remaining movants’ claimed losses using the last-in-first-out, or LIFO, method. Smith initially claimed a LIFO loss of $326,297.97 but later corrected it to $144,972.85. Praytor claimed a loss of $340,462.86. Ponomarchuk claimed a loss of $282,176.13.

The court declined to consider Smith’s later methodology because it differed from the method presented in his original motion. The court also rejected Ponomarchuk’s later request to use losses adjusted under Dura Pharmaceuticals v. Broudo, explaining that he raised the argument only in opposition and did not adequately apply that approach to his own calculations. The court found that the LIFO comparison made Praytor the shareholder with the greatest loss and the most to gain from the lawsuit.

The court also found that Praytor made an initial showing that he met Rule 23(a)’s typicality and adequacy requirements. Smith and Ponomarchuk argued that Praytor was unsuitable because he engaged in day trading and short selling. The court concluded that neither presented controlling law requiring disqualification on that basis or evidence showing that Praytor was inadequate or atypical at this stage. The court noted that his qualifications could be reconsidered if later facts showed highly unusual trading practices, such as using algorithms.

The court therefore appointed Lon D. Praytor as lead plaintiff under the PSLRA.

Lead Counsel

The PSLRA permits the most adequate plaintiff to select and retain counsel, subject to court approval. Praytor selected attorney Charles H. Linehan of Glancy Prongay & Murray LLP. The court saw no reason to reject that selection and appointed Linehan lead counsel for the putative class.

Schedule and Required Allegations

The court directed the parties to meet and confer about a schedule for Praytor’s possible amended complaint and the defendants’ response. A joint proposed schedule was due April 16, 2025.

The court also required the securities-fraud allegations to be presented in a numbered, statement-by-statement chart identifying the speaker or speakers, dates and medium; the allegedly false or misleading statements; why the statements were false or misleading when made; and the facts supporting a strong inference that the defendants acted with the required wrongful intent. The chart could be attached to or included in an amended complaint. If Praytor chose to rely on the original complaint, the chart could instead be filed separately.

Disposition

The order decided leadership and scheduling issues in the proposed securities-fraud class action. It did not decide whether the securities-fraud allegations were true or legally sufficient.