In re Cloudera, Inc. Securities Litigation

Background

Shanice Christie filed a securities class action against Cloudera, Inc., Thomas J. Reilly, Jim Frankola, and Michael A. Olson. The original complaint asserted two claims under the Securities Exchange Act of 1934 on behalf of people who purchased Cloudera common stock between April 28, 2017, and June 5, 2019.

Under the Private Securities Litigation Reform Act, potential lead plaintiffs must receive notice of a securities class action. After the original notice, the court received ten motions seeking appointment as lead plaintiff. On December 16, 2019, the court appointed Marius J. Klin and the Marius J. Klin MD PA 401K Profit Sharing Plan as lead plaintiffs and appointed Levi & Korsinsky, LLP as lead counsel.

On February 14, 2020, plaintiffs filed a consolidated class action complaint. It added two named plaintiffs, additional defendants including Intel Corporation, and claims under the Securities Act of 1933. It also expanded the proposed class to include people who purchased or otherwise acquired Cloudera stock pursuant to or traceable to the registration statement for Cloudera’s merger with Hortonworks, Inc., as well as people who purchased Cloudera stock during the earlier class period.

Parties’ Positions

The moving defendants requested additional time to respond to the consolidated complaint so the court could decide whether to reopen the lead-plaintiff selection process. They argued that the amendments fundamentally changed the case. Plaintiffs argued that the class definition had not changed in a way that made the earlier notice inadequate.

Court’s Analysis

The court explained that republication of notice is appropriate when changes to a securities class action complaint make it likely that people who could now seek appointment as lead plaintiff would have ignored the earlier notice. The court distinguished an earlier case in which new claims and defendants were added but no new groups of plaintiffs or classes of securities were included.

Here, the amended class definition added former Hortonworks shareholders who received Cloudera stock in the merger but did not purchase Cloudera stock during the class period. The court found it likely that such shareholders would have ignored the original notice, which described the case as being brought for purchasers of Cloudera common stock. The court also noted that two newly named plaintiffs, Cade Jones and Larry Lenick, were former Hortonworks shareholders who acquired, rather than purchased, their Cloudera stock and had not responded to the earlier notice.

The court stated that the additions of defendants and Securities Act claims, standing alone, would not have required reopening the process because the amended complaint still centered in many respects on the same factual scenario. The expanded class definition, however, made the original notice insufficient and required the process to be reopened.

Ruling

The court VACATED its order appointing Klin as lead plaintiff and Levi & Korsinsky, LLP as lead counsel. It ORDERED plaintiffs to publish notice of the consolidated class action complaint in compliance with the Private Securities Litigation Reform Act by April 3, 2020. Members of the proposed classes seeking appointment as lead plaintiff were given 60 days after that notice to file a motion seeking appointment.

Because the lead-plaintiff process was reopened, the court also VACATED the briefing schedule for defendants’ anticipated motion to dismiss. It DENIED AS MOOT the moving defendants’ administrative motion to alter that briefing schedule. The court said it would set a new schedule after appointing a lead plaintiff and lead counsel.