Sneed Jr. v. AcelRx Pharmaceuticals, Inc.

Background

This securities class action concerns allegedly misleading statements about AcelRx Pharmaceuticals, Inc.’s DSUIVA drug. The court considered two competing motions to appoint lead plaintiffs and lead counsel: one by Aaron Sneed and Yaacov Musry, represented by Pomerantz LLP, and one by Paul Dupré, represented by Roche Freedman LLP. The court had also consolidated four related derivative actions, which were stayed pending an anticipated motion to dismiss.

Legal standard

The Private Securities Litigation Reform Act requires the court to appoint the “most adequate plaintiff”—the class member or members best able to represent the class. The court first identifies the applicant with the largest financial interest, then evaluates that applicant’s typicality and adequacy under Federal Rule of Civil Procedure 23. Typicality asks whether the proposed representative’s injury and claims are similar to those of the class. Adequacy asks whether the representative can fairly protect the class’s interests and whether the proposed lawyers are qualified to conduct the case.

The lead plaintiff generally has the right, subject to court approval, to choose class counsel. The court should generally defer to that choice when it is reasonable.

Analysis

Both groups satisfied the statutory notice and filing requirements. Dupré had the largest financial interest: the court’s table listed his approximate loss as $57,183, compared with $31,356 for Sneed and Musry together. The court therefore treated Dupré as the presumptive lead plaintiff.

The court found that Dupré satisfied typicality because he had the same injury as members of the proposed class and did not base his claims on conduct unique to him. But the court found him inadequate. Sneed and Musry showed that Dupré had been indicted in 1994 for embezzling more than $900,000, pleaded guilty to fourteen counts of wire fraud, and served 18 months in prison. The court stated that the age of the offenses alone might not have required disqualification, but it had serious concerns that Dupré had not disclosed them in his motion or to his own attorney until opposing counsel raised the issue. The court concluded that his prior offenses and lack of candor could distract from the case or create unique defenses against him. It therefore found that Sneed and Musry had rebutted Dupré’s presumptive status.

The court then evaluated Sneed and Musry, who had the next-highest combined financial stake. It found that they satisfied typicality and adequacy. The court found no conflict between their interests and the class’s interests, and their declarations showed that they were willing to serve as class representatives. Although Dupré argued that they were unsuitable because they lived in different states and had no relationship before the lawsuit, the court concluded that they formed a small and manageable two-person group permitted by the statute.

No party objected to Sneed and Musry’s selection of Pomerantz LLP. After reviewing the firm’s résumé, the court found their choice reasonable and approved Pomerantz as lead counsel.

Order

The court granted Sneed and Musry’s motion to appoint lead plaintiffs and lead counsel. It appointed Aaron Sneed and Yaacov Musry as lead plaintiffs and Pomerantz LLP as lead counsel. It denied Dupré’s competing motion. The parties were ordered to meet and confer and propose, by January 14, 2022, a schedule for filing an amended complaint and the defendants’ responsive pleading. The order did not decide the merits of the securities claims.