Sayce v. Forescout Technologies, Inc.

Background

This securities class action alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. The amended complaint alleged that Forescout Technologies, Inc., Michael DeCesare, and Christopher Harms made materially false or misleading statements, or failed to disclose material information, concerning Forescout’s sales pipeline, revenue expectations, and the proposed acquisition by affiliates of Advent International.

The court had previously consolidated this case with another securities action and ordered a new process for selecting a lead plaintiff. Three groups sought appointment: the Glazer Funds, the Arbitrage Plaintiffs, and Meitav. Donald R. Levin also filed a motion but later filed a notice of non-opposition.

Legal standard

The Private Securities Litigation Reform Act requires the court to appoint the class member or members most capable of adequately representing the class. The court first considers the applicants’ financial losses and then evaluates whether the presumptive lead plaintiff satisfies Rule 23 of the Federal Rules of Civil Procedure, particularly typicality and adequacy. Typicality concerns whether the proposed lead plaintiff’s claims and defenses are aligned with those of the class. Adequacy concerns whether the plaintiff and counsel have conflicts and will prosecute the case vigorously.

A lead plaintiff selects class counsel, subject to the court’s approval.

Court’s analysis

The parties agreed that the Glazer Funds had the largest claimed loss, approximately $5.3 million. The Arbitrage Plaintiffs claimed approximately $3.4 million, and Meitav claimed approximately $200,000.

The Arbitrage Plaintiffs argued that the Glazer Funds were not typical because they purchased many shares after a Spruce Point report allegedly disclosed some of the misinformation at issue. The court declined to decide at this stage whether the report was a corrective disclosure. It held that purchases after a negative announcement do not automatically defeat typicality and found that the report did not contain previously unavailable information that clearly distinguished the Glazer Funds from other potential class members.

Meitav argued that the Glazer Funds lacked standing for events after the merger announcement because the Glazer Funds did not purchase shares during the earlier part of the proposed class period. The court rejected that argument as a reason to deny typicality. It also rejected Meitav’s argument that the Glazer Funds’ event-driven investment strategy made its claims atypical. The court found that the Glazer Funds met the typicality and adequacy requirements at this stage.

Even though the court did not find the Glazer Funds atypical, it determined that the class would be better represented by appointing Meitav as a co-lead plaintiff. The Glazer Funds purchased stock after the merger announcement, while Meitav purchased stock both before and after that announcement. The court found that this difference would help protect the class if issues later arose concerning the earlier portion of the proposed class period.

The court did not appoint the Arbitrage Plaintiffs as co-lead plaintiffs. It cited their lack of purchases before the merger announcement and the fact that one member had previously been found by another court to have breached a fiduciary duty. The court also did not appoint Donald Levin.

Counsel and disposition

The Glazer Funds selected Abraham, Fruchter & Twersky, LLP, and Meitav selected Pomerantz LLP. The court approved both firms’ selection and appointed them as co-lead counsel.

The court granted the motions for appointment of lead plaintiff filed by the Glazer Funds and Meitav. It appointed the Glazer Funds and Meitav as co-lead plaintiffs, approved their selection of co-lead counsel, and denied the competing motions by the Arbitrage Plaintiffs and Donald Levin. The court ordered the newly appointed co-lead plaintiffs to file an amended consolidated complaint by December 18, 2020. This order addressed lead-plaintiff and counsel selection rather than deciding whether the defendants violated the securities laws.