In re Nutanix, Inc. Securities Litigation

Background

This putative class action alleges violations of federal securities law against Nutanix, Inc., Chief Executive Officer Dheeraj Pandey, and Chief Financial Officer Duston M. William. The court had appointed Shimon Hedvat as lead plaintiff in July 2019 after finding that he had the largest financial interest among the original applicants and was the most adequate representative under the Private Securities Litigation Reform Act (PSLRA). The court had also appointed Hedvat’s selected counsel as lead counsel.

Hedvat asked to withdraw because of personal circumstances related to the COVID-19 pandemic. Jose Flores and the City of Miami Fire Fighters’ and Police Officers’ Retirement Trust asked to replace him as co-lead plaintiffs. Nutanix and another original lead-plaintiff applicant, Frank May, opposed appointing Flores and asked the court to reopen the application process.

Withdrawal and Nutanix’s Requests

The court held that withdrawal was appropriate because an unwilling lead plaintiff could not adequately represent the class’s interests. It therefore granted Hedvat’s request to withdraw as lead plaintiff.

Nutanix asked the court to require Hedvat to produce communications and other documents for in camera review, meaning private review by the court, concerning the reasons and timing of his withdrawal. Nutanix also asked the court to require Hedvat to personally appear at the hearing. The court found those requirements would impose an unnecessary burden because all parties agreed that an unwilling plaintiff should not continue serving as lead plaintiff. It therefore denied Nutanix’s request for document production and personal appearance.

Replacement Lead Plaintiff

The PSLRA requires the court to appoint the class member most capable of adequately representing the class. It creates a rebuttable presumption favoring the applicant with the largest financial interest who also satisfies the requirements of Federal Rule of Civil Procedure 23. Courts commonly evaluate financial interest using four factors: shares purchased, net shares purchased, net funds spent, and approximate losses.

The court concluded that the lead-plaintiff application process should be reopened because the relevant class period had been extended from February 28, 2019, to May 30, 2019. That change could alter which class member had the largest financial interest. For example, Flores’s original application relied on purchases and losses calculated through the earlier class-period end date, but the extended period affected those calculations.

The court therefore denied without prejudice the request to appoint Flores and the Trust as co-lead plaintiffs. It allowed any interested putative class member to submit a lead-plaintiff application within 21 days of the order. The court also vacated the hearing scheduled for March 3, 2021. Judge William H. Orrick signed the order.