Houghton v. Leshner

Background

Amanda Houghton, Charles Douglas, and Susan Franklin moved under the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. § 77z-1(a)(3), for appointment as lead plaintiff in a proposed class action involving people who purchased COMP, a cryptocurrency asset. They also sought approval of Gerstein Harrow LLP and Fairmark Partners LLP as lead counsel. The proposed class generally covered people who purchased or obtained COMP on or after December 8, 2021, subject to stated exclusions for the defendants and related persons and entities.

The plaintiffs satisfied the PSLRA’s notice requirement and were the only plaintiff or plaintiff group to seek appointment. The defendants who had appeared—referred to in the order as the “Partner Defendants”—opposed the motion. They argued, while reserving their position on whether the PSLRA applied to COMP or the case, that the plaintiffs were inadequate because their combined spending to purchase COMP was allegedly only $80. They contended that larger institutional investors would better represent the proposed class.

Court’s Analysis

The PSLRA creates a presumption favoring the plaintiff or plaintiff group that filed the complaint or responded to notice, has the largest financial interest in the relief sought, and otherwise satisfies Rule 23 of the Federal Rules of Civil Procedure. That presumption can be rebutted by proof that the proposed lead plaintiff will not fairly and adequately protect the class or is subject to unique defenses that would prevent adequate representation.

The court rejected the argument that the plaintiffs’ small financial interest alone disqualified them. It noted the plaintiffs’ explanation that the design of the decentralized organization and the alleged majority ownership of the Partner Defendants could make institutional or other investors less likely to represent the class. Although the plaintiffs’ declarations were identical and largely standard-form, the defendants and others had offered no additional argument or evidence showing that the plaintiffs were inadequate. On the record at that stage, the court found the plaintiffs facially adequate under Rule 23’s typicality and adequacy requirements.

The court also reviewed the proposed lead counsel. The firms had described their experience in cryptocurrency and complex class-action litigation. The defendants identified no reason the firms could not competently represent the lead plaintiffs and the proposed class, and the court found none.

Ruling and Next Steps

The court appointed Amanda Houghton, Charles Douglas, and Susan Franklin as lead plaintiffs and approved their selection of Gerstein Harrow LLP and Fairmark Partners LLP as lead counsel. The court resolved the motion on the papers and vacated the scheduled March 15, 2023 hearing. It set a case-management conference for April 11, 2023, and required a joint case-management statement, including a proposed trial calendar, by April 4, 2023. The order did not decide the underlying claims involving COMP or whether the PSLRA ultimately governs the case.