The Police Retirement System of St. Louis v. Granite Construction Incorporated

Background

This securities action concerns allegations that Granite Construction Incorporated and executives James H. Roberts, Jigisha Desai, and Laurel J. Krzeminski made false or misleading public statements from April 2018 through October 2019. The alleged statements concerned accounting for four large infrastructure projects and allegedly concealed or understated cost overruns. The complaint asserts claims under Section 10(b) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5, and Section 20(a) against the individual defendants.

The Police Retirement System of St. Louis was the lead plaintiff. It sought certification of a class consisting of all persons and entities that purchased or otherwise acquired Granite common stock from April 30, 2018, through October 24, 2019, inclusive, and were damaged as a result. The proposed class excluded the defendants and their affiliates or subsidiaries, certain Granite officers, directors, and family members, liability insurers and related entities, entities controlled by a defendant, Granite employee retirement and benefits plans, and the legal representatives, heirs, estates, agents, successors, or assigns of those excluded groups.

The defendants had previously challenged the complaint, and an earlier order dismissed certain Section 20(a) claims against two individual defendants while denying the remainder of the motion to dismiss. For the class-certification motion, the defendants filed a notice of non-opposition. The Police Retirement System also asked to be appointed class representative and asked the court to appoint Bleichmar Fonti & Auld LLP, or BFA, as lead counsel.

Class-certification requirements

The court applied Federal Rule of Civil Procedure 23. Rule 23(a) requires numerosity, commonality, typicality, and adequacy. For a damages class under Rule 23(b)(3), common questions must predominate over individual questions, and the class action must be superior to other available methods of resolving the dispute.

The court found numerosity because the proposed class likely included hundreds or thousands of members, based on the number of Granite shares outstanding and the stock's trading volume. It found commonality because the claims involved the same public statements and alleged misconduct, and because the alleged artificial inflation of Granite's stock price could be considered for the class as a whole.

The court found typicality because the Police Retirement System's claims arose from the same alleged risks, additional project costs, misrepresentations, and later disclosures as the claims of absent class members. It found adequacy because the Police Retirement System purchased Granite stock during the proposed class period, claimed to have suffered damage, understood its responsibilities, had participated in the litigation, and had selected counsel through a due-diligence process. The court found no conflicting interests or circumstances that would undermine its representation of the class.

Predominance and damages

For the securities claims, the court explained that the plaintiff would ultimately have to prove a material misstatement or omission, the defendants' intent or recklessness, a connection to the purchase or sale of a security, reliance, economic loss, and loss causation. The court concluded that the alleged misstatements and the defendants' state of mind presented common questions because they concerned Granite's conduct and its effect on the stock price.

The Police Retirement System relied on the fraud-on-the-market theory, which can create a rebuttable presumption that investors relied on public information reflected in a stock's market price. The court found that Granite stock traded in an efficient market, relying on the expert analysis of Chad Coffman, CFA. The analysis considered trading volume, analyst coverage, market makers, eligibility to file a registration statement on Form S-3, reactions to unexpected information, market capitalization, bid-ask spread, public float, autocorrelation, and options trading. Because the defendants did not oppose the motion, the presumption of reliance stood for purposes of certification.

The court also found that damages could be measured on a class-wide basis. Coffman proposed using the out-of-pocket method, which measures the artificial inflation in the stock price at purchase minus the inflation at sale, with an event study to evaluate price effects. The court held that this proposed method was sufficient at the certification stage; it did not decide whether the plaintiff would ultimately prove liability, loss causation, or damages.

Superiority and counsel

The court found that a class action was superior because individual class members would face difficulty litigating resource-intensive securities claims separately, the record showed no state-law actions by class members, the federal forum was appropriate, and no special manageability problems prevented class treatment.

Under the Private Securities Litigation Reform Act, the lead plaintiff may select and retain class counsel subject to court approval. The court reviewed the Police Retirement System's selection process, including its request for proposals, BFA's comparatively low fee structure, and BFA's experience. The court approved the selection and appointed BFA as lead counsel.

Disposition

The court granted the motion to certify the proposed class. It appointed the Police Retirement System of St. Louis as class representative and Bleichmar Fonti & Auld LLP as lead counsel. The parties were ordered to submit jointly an agreed form of class notice, a proposal for distributing the notice, and a timeline for opting out within fourteen calendar days after entry of the order. The Police Retirement System was required to bear the notice costs, including first-class mailing.