Malhotra v. Sonim Technologies, Inc.

Background

Ajay Malhotra brought this proposed class action alleging claims under Sections 11 and 15 of the Securities Act of 1933. The court considered competing motions to appoint a lead plaintiff from David Sterrett and Lyndon Maither. Ajay Malhotra and Andre Ling Bin Zulkifli also sought appointment, but later filed a statement saying they did not oppose the other motions.

Under the Private Securities Litigation Reform Act, the court must appoint the proposed class member who is most capable of adequately representing the class. The court explained that this is generally the person with the greatest financial stake who also meets the requirements of Rule 23, including typicality and adequacy. Typicality means the person's claim is representative of the class's claims; adequacy means the person can fairly represent the class.

Court’s Analysis

The court had previously found that Sterrett incurred the greatest loss and that his claim was typical of the proposed class. It also found that evidence submitted with Sterrett’s reply, considered together with his original motion, appeared sufficient to show that he was an adequate representative. Because some of that evidence was submitted with the reply, the court allowed Maither to file a further response.

Maither made three arguments against Sterrett’s appointment. First, Maither argued that Sterrett’s reply evidence was submitted too late. The court rejected that argument because Maither had been given an opportunity to respond to the evidence and had done so. Second, Maither argued that Sterrett’s failure to submit the evidence with his initial motion made the motion defective and suggested he might not adequately represent the class. The court rejected that argument, noting that none of the competing movants had submitted similar work-history or biographical evidence with their original motions.

Third, Maither argued that he would be a more adequate lead plaintiff. The court explained that, after identifying the plaintiff with the largest financial stake, it should determine whether that plaintiff is adequate rather than conduct a broad comparison of the competing plaintiffs. The court found Maither’s arguments unpersuasive.

Ruling

Judge Maxine M. Chesney granted Sterrett’s motion and denied Maither’s motion and the Malhotra/Zulkifli motion. The court appointed Sterrett as lead plaintiff under Section 27 of the Securities Act and approved Faruqi & Faruqi, LLP to serve as lead counsel for Sterrett and the proposed class.

The order gave lead counsel overall responsibility for conducting the litigation for the proposed class. It granted the firm sole authority to present the lead plaintiff’s and class members’ positions on pretrial matters, enter necessary stipulations, coordinate discovery, hire experts and consultants, advance reasonable litigation costs, conduct settlement negotiations, and perform related duties or duties authorized by a later court order.

The opinion addressed the selection of the lead plaintiff and lead counsel. It did not decide whether the alleged Securities Act claims were valid or whether the proposed class would ultimately be certified.