In re Cloudera, Inc. Securities Litigation

Background

Lead Plaintiff Mariusz J. Klin and the Mariusz J. Klin MD PA 401K Profit Sharing Plan, along with Named Plaintiffs Robert Boguslawski and Arthur P. Hoffman, brought a putative securities class action against Cloudera, Inc., Hortonworks, Inc., Intel Corporation, and certain current and former officers and directors of Cloudera and Hortonworks. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5, and Sections 11, 12, and 15 of the Securities Act of 1933.

The court had appointed Klin and the plan as lead plaintiff and later approved Kahn Swick & Foti, LLC as lead counsel. Larry Lenick and Cade Jones were putative class members. They moved to intervene for themselves and absent class members so they could file a complaint asserting Section 11 claims concerning allegedly false or misleading statements in Cloudera’s registration statement and prospectuses about “Unleveraged Free Cash Flow and operating cash flow margin.”

The consolidated amended complaint asserted Section 11 claims, but it focused on allegedly false or misleading statements about Cloudera’s technological capabilities and the reason for its merger with Hortonworks rather than the cash-flow statements identified by Lenick and Jones.

Intervention as a Matter of Right

Federal Rule of Civil Procedure 24(a) allows intervention as a matter of right when the applicant meets the rule’s requirements, including showing a significant protectable interest, inadequate representation by the existing parties, potential impairment of that interest, and a timely motion. Failure to satisfy any one of these requirements is enough to deny intervention.

The court held that Lenick and Jones had not shown inadequate representation. The existing lead plaintiff and the proposed intervenors shared the same ultimate goal: obtaining the largest possible recovery for the putative class. The court therefore applied a presumption that the lead plaintiff adequately represented their interests. Lenick and Jones did not provide evidence of collusion, failure to act, conflicting interests, incompetence, or lack of financial resources to overcome that presumption.

The court explained that adequate representation does not require the existing plaintiff to litigate the case using exactly the strategy the proposed intervenors prefer. The court also noted that it had previously found Klin to be an adequate representative with the largest financial interest in the relief sought. The court therefore denied the motion to intervene as a matter of right under Rule 24(a).

Permissive Intervention

Rule 24(b) permits intervention when a proposed intervenor has a claim or defense sharing a common question of law or fact with the main action. The court must also consider whether intervention would cause undue delay or prejudice to the existing parties and may consider whether the proposed intervenors’ interests are already adequately represented.

The court denied permissive intervention under Rule 24(b). It again found that Lenick’s and Jones’s interests were adequately represented, even though they wanted to pursue a different Section 11 theory. The court also found that intervention would likely delay the case. Defendants had already filed motions to dismiss, discovery was stayed under the Private Securities Litigation Reform Act, and allowing intervention would further delay the motions and discovery, prejudicing the putative class and Defendants.

Disposition

The court denied Movants’ motion to intervene under Rule 24(a) and denied Movants’ motion to intervene under Rule 24(b). The conclusion states that the motion to intervene was denied. The opinion is signed by Lucy Koh, United States District Judge.