Strezsak v. Ardelyx Inc.

Background

Steven Strezsak filed a proposed securities class action on behalf of people who acquired Ardelyx common stock between August 6, 2020, and July 19, 2021, and allegedly suffered losses. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 against Ardelyx, Inc., its President and Chief Executive Officer Mike Raab, and its Chief Financial Officer Justin Renz.

Jeffrey Siegel later filed a nearly identical complaint against the same defendants, alleging the same legal violations for the same period. The complaints alleged that the defendants made materially false or misleading statements about tenapanor and the likelihood that the Food and Drug Administration would approve it. The plaintiffs alleged that the stock price fell 74 percent in one day after deficiencies in the drug’s treatment effect became known. The court did not decide whether those allegations were true.

Six competing motions sought consolidation, appointment as lead plaintiff, and approval of lead counsel. Some movants withdrew their motions, while the Miami Firefighters’ Relief & Pension Fund and Peifa Xu filed notices stating that they did not appear to have the largest financial interest. Jatin Malhotra stated that his motion was unopposed.

Consolidation

Under Federal Rule of Civil Procedure 42(a), courts may consolidate cases that involve a common question of law or fact. The court found that the Strezsak and Siegel cases alleged the same securities-law violations against the same defendants on behalf of the same classes. It also found that discovery in one case would be relevant to the other and did not anticipate significant inconvenience, delay, or added expense from consolidation.

The court therefore granted Jatin Malhotra’s motion to consolidate the cases. Strezsak’s earlier-filed case, No. 21-cv-05868-HSG, was designated as the lead case, and the clerk was directed to administratively close Siegel’s later-filed case, No. 21-cv-06228-HSG. Future filings were to be made only in the lead case under the caption “In re Ardelyx, Inc.”

Lead Plaintiff

The Private Securities Litigation Reform Act requires the court to select the proposed class member most capable of adequately representing the class. The court applied the required three-step process.

First, the court found that the notice requirement was satisfied because notice was published in Business Wire on the same day the complaint was filed. The notice described the action, the claims, the proposed class period, and the deadline for seeking appointment as lead plaintiff.

Second, the court identified the presumptive lead plaintiff by comparing the financial losses reported by the competing movants and considering the requirements of Federal Rule of Civil Procedure 23, including typicality and adequacy. Malhotra reported alleged losses of $877,458, exceeding the losses reported by Peifa Xu, the Miami Firefighters’ Relief & Pension Fund, the Bryant Brothers, the City of Pontiac General Employees’ Retirement System, and Mark Allen. The court found that Malhotra had the largest financial interest, that no conflict or antagonism with other class members had been shown, and that he satisfied the adequacy requirement.

Third, the court gave other proposed class members an opportunity to challenge Malhotra’s presumptive status. Because his motion was unopposed, the court found that his status had not been rebutted and appointed him lead plaintiff for the putative class.

Lead Counsel

Malhotra selected Scott+Scott as lead counsel. The court deferred to that choice because it was not irrational or shown to be affected by self-dealing or a conflict of interest. The court also noted Scott+Scott’s extensive experience in securities class actions and approved the firm as lead counsel.

Disposition

The court granted Malhotra’s motion regarding consolidation, appointment as lead plaintiff, and approval of lead counsel. It denied all pending, unwithdrawn competing motions. The parties were directed to meet and confer within ten days and submit a proposed schedule for filing a consolidated or amended complaint and the defendants’ responses. The order addressed case management and leadership of the proposed class action; it did not resolve the underlying securities-fraud claims.