In re Cloudera, Inc. Securities Litigation

Background

This putative securities class action concerns purchasers of Cloudera common stock between April 28, 2017, and June 5, 2019. The plaintiffs allege that Cloudera, its former Chief Executive Officer Thomas J. Reilly, its Chief Financial Officer Jim Frankola, and its former Chief Strategy Officer Michael A. Olson failed to disclose increasing difficulty finding large-enterprise customers, rising sales and marketing costs despite diminishing revenue opportunities, reduced sales prospects, and the inability to generate positive annual cash flow. The plaintiffs allege that Cloudera’s stock price later declined, causing shareholder losses.

The court had before it seven remaining motions seeking appointment as lead plaintiff and approval of lead counsel. Three other movants had withdrawn their motions, and four movants had filed notices of non-opposition. The court had also consolidated this action with two other Cloudera cases before deciding the lead-plaintiff motions. The defendants took no position on the appointment of lead plaintiff and lead counsel.

Legal standard

The Private Securities Litigation Reform Act governs the appointment of a lead plaintiff in a private securities class action. The court must generally select the applicant with the largest financial interest who satisfies the “typicality” and “adequacy” requirements of Federal Rule of Civil Procedure 23. Typicality concerns whether the proposed lead plaintiff’s claims arise from the same conduct and injuries as the other class members’ claims. Adequacy concerns whether the plaintiff and counsel have conflicts with the class and will vigorously prosecute the case.

A lead-plaintiff group must also show that it can work cohesively, monitor counsel, and make important litigation decisions together. The lead plaintiff may select class counsel, subject to court approval.

Analysis

The court found that the Boston Group had the largest financial interest under both approximate economic-loss and potential-recovery calculations. Under the court’s calculation, the Boston Group had approximate losses of $1,630,533.84, compared with $1,009,563.13 for Klin and $799,471.41 for Dixon. Under Klin’s proposed potential-recovery calculation, the Boston Group’s potential recovery was $1,007,838, compared with $861,897.40 for Klin and $628,395.88 for Dixon.

The court nevertheless found that the Boston Group did not satisfy Rule 23’s adequacy requirement. The group consisted of Boston Retirement System and the Retail Wholesale Department Store Union Local 338 Retirement Fund. Although the funds described a prior joint case and one conference call about this litigation, they did not explain how they would jointly manage the case or resolve disagreements. The court held that the group had failed to show that it could adequately represent the class and therefore disqualified it from appointment as lead plaintiff. Because of that conclusion, the court did not decide whether the Boston Group satisfied typicality.

The court then considered Klin, consisting of Marius J. Klin and the Marius J. Klin MD PA 401K Profit Sharing Plan, for which Klin was the only trustee. The court found that Klin had the next-largest financial interest and satisfied both adequacy and typicality. The court noted Klin’s representation that he had no conflicts with other class members and found that his alleged losses motivated him to pursue the class’s interests. It also found his claims typical because he purchased Cloudera securities during the class period at allegedly inflated prices and suffered damages from the alleged fraud.

No other movant rebutted the presumption that Klin was the most adequate lead plaintiff. The court therefore appointed Klin as lead plaintiff. It approved Klin’s selection of Levi & Korsinsky, LLP as lead counsel after reviewing the firm’s résumé and finding the choice reasonable.

Disposition

The court GRANTED Klin’s motion, ECF No. 34. It DENIED the remaining motions: ECF No. 17 filed by Dixon; ECF No. 26 filed by the Miami Fire Fighters’ and Police Officers’ Retirement Trust and Peoria Police Pension Fund; ECF No. 36 filed by Abramowitz and Muniz; ECF No. 43 filed by Gumm; ECF No. 48 filed by the Boston Group; and ECF No. 54 filed by Mahendra.

The court also ordered that no law firm other than Levi & Korsinsky work on the action for the putative class without prior court approval. Requests to approve additional plaintiffs’ counsel must identify the counsel, explain the proposed work, and explain why Levi & Korsinsky cannot perform it. Anyone seeking fees must keep contemporaneous billing records, meaning records made no later than seven days after the work, and Adam C. McCall must review and approve attorneys’ fees and costs each month and remove duplicative or unreasonable amounts.