Mehedi v. View, Inc. f/k/a CF Finance Acquisition Corp. II

Background

Asif Mehedi filed a proposed securities class action against View, Inc., its CEO Rao Mulpuri, and its CFO Vidul Prakash. The proposed class consists of people and entities that bought or acquired View securities between November 30, 2020, and August 16, 2021, and were allegedly harmed.

The complaint alleges that View failed to disclose problems involving warranty-cost accruals, a material weakness in accounting and financial-reporting controls, and misstated prior financial results. It also alleges that View's positive statements about its business were misleading. After the market closed on August 16, 2021, View announced an independent investigation into the adequacy of its previously disclosed warranty accrual. The opinion states that View's share price then fell by $1.26, or more than 24%, to close at $3.92 on August 17, 2021.

Competing Motions

Stadium Capital LLC and Sweta Sonthalia each moved to be appointed lead plaintiff, with its proposed law firm appointed lead counsel. Three other original movants—Feng Li, FirstFire Global Opportunities Fund, LLC, and Majdi Mojahed—filed statements of non-opposition and provided no further briefing.

The Private Securities Litigation Reform Act requires the court to select the class member most capable of adequately representing the class. The court generally first identifies the movant with the largest financial stake, then examines whether that movant's claims are typical of the class and whether the movant and its counsel are adequate representatives. “Typicality” concerns whether the representative's claims arise from the same legal theory and events as the class's claims. “Adequacy” concerns whether the representative and counsel have conflicts with the class and will prosecute the case vigorously.

Sonthalia bought 60,424 View shares for $700,202.57 and retained them through the class period and the 90-day period after the corrective disclosure. Stadium bought 426,235 shares for $3,642,869 and retained 60,000 shares at the end of the class period. Stadium sold those retained shares on August 17, 2021, for $4.2306 per share.

Loss Calculation

The parties proposed different methods for measuring their financial losses. The Court rejected Sonthalia's LIFO net-loss method because it could include losses caused by ordinary stock-price changes before the corrective disclosure rather than by the alleged fraud. The Court also rejected Sonthalia's Dura-adjusted LIFO method because it could still include losses that occurred before the corrective disclosure and might not be connected to the alleged fraud.

The Court adopted the recoverable-loss approach previously used in another case. That method considers the value of the shares retained immediately before the corrective disclosure and subtracts the proceeds from selling those shares, or, for shares held through the 90-day period, uses the average stock price during that period. Using View's $5.18 closing price on August 16, 2021, the Court calculated a $56,964 recoverable loss for Stadium. It calculated a $3,022 gain, rather than a recoverable loss, for Sonthalia.

Because the Court found that Stadium had the greater recoverable loss, it treated Stadium as the presumptive lead plaintiff. The other financial factors did not clearly overcome that conclusion: Stadium purchased more shares, while Sonthalia had a greater number of net shares and spent more net funds according to the figures considered by the Court.

Rule 23 and Lead Counsel

The Court found that Stadium sufficiently showed that its claims were typical because it alleged that it bought View securities during the class period and was harmed by the same alleged conduct as other proposed class members. The Court also found Stadium adequate because it saw no conflicts with other class members, and Stadium's certification and choice of counsel showed that it would prosecute the action vigorously.

No party objected to Stadium's selection of Kaplan Fox & Kilsheimer LLP. After reviewing the firm's materials, the Court found that Stadium had made a reasonable choice of counsel.

Order

The Court APPOINTED Stadium Capital LLC as lead plaintiff and Kaplan Fox & Kilsheimer LLP as lead counsel. It DENIED all other motions to appoint a lead plaintiff and lead counsel. The opinion did not decide the merits of the alleged securities-law violations or certify the proposed class.