Bhangal v. Hawaiian Electric Industries, Inc.

Background

Bhapinderpal S. Bhangal filed a securities class action under the Private Securities Litigation Reform Act (PSLRA) on behalf of people who purchased Hawaiian Electric securities between February 28, 2019, and August 16, 2023. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5.

Phu Tran, Melvin Wong, the Pontiac Retirement System, Mark Williams, Daniel Warren, and Douglas A. Keehn filed motions seeking appointment as lead plaintiff. The proposed lead plaintiffs also asked the court to appoint their chosen law firms as lead counsel. Wong and Keehn later expressed non-opposition to other plaintiffs’ appointment because they recognized that other movants had larger financial interests. Tran, the Pontiac Retirement System, and Warren also proposed serving jointly, but the court denied that proposed stipulation and considered the competing motions separately.

Legal standard

The PSLRA requires the court to appoint the person or group most capable of adequately representing the proposed class. The statute creates a presumption favoring a movant who timely responded to the published notice, has the largest financial interest in the relief sought, and makes a preliminary showing of adequacy and typicality under Rule 23 of the Federal Rules of Civil Procedure. That presumption can be rebutted by proof that the proposed lead plaintiff cannot fairly and adequately protect the class or faces unique defenses that would prevent adequate representation.

Why Tran was not selected

The court found that Tran claimed the largest financial loss, approximately $564,463.13. The court also found that Tran had shown adequacy because his filings indicated he had no conflicts with other class members and that he and his counsel would prosecute the case vigorously.

The court nevertheless found that Tran failed Rule 23’s typicality requirement. Tran bought the stock on August 14, 2023, after reports about Hawaiian Electric’s wildfire policies and the Lahaina fire were already public, and sold it at a loss on August 15. The court concluded that his timing suggested his losses may have resulted from information other than the alleged false or misleading statements or omissions. The court also noted that Tran had not submitted a declaration explaining his purchase history or otherwise establishing why he satisfied the class-representative requirements.

The court further found that Tran would face unique defenses. It cited his purchases after a partial disclosure and his purchase of a high volume of shares followed by selling almost all of them the next day. Those trading patterns, the court reasoned, could support an argument that he traded for strategic reasons rather than relying on defendants’ alleged misstatements.

Selection of Warren and other rulings

Because Tran did not satisfy Rule 23, the court considered the movant with the next-largest losses. Warren claimed approximately $240,675 in losses. The court found that Warren made a preliminary showing of adequacy and typicality because he bought Hawaiian Electric shares during the class period and claimed damages from defendants’ false or misleading statements or omissions. The court also found no indication of a conflict between Warren and other class members, and it credited Warren’s adequacy declaration and Pomerantz LLP’s evidence that it could prosecute the case vigorously.

The court rejected the Pontiac Retirement System’s argument that its status as an institutional investor and prior successful litigation experience made it more qualified. The court held that those facts did not rebut Warren’s presumptive status or show that Warren was inadequate or subject to unique defenses. The court also rejected Williams’s argument that the proposed joint application showed an improper lawyer-driven arrangement, explaining that the PSLRA permits a group of people to seek appointment together and that Williams had provided no proof that Warren could not adequately represent the class.

Order and effect

The court granted Daniel Warren’s motion to be lead plaintiff and appointed Pomerantz LLP as lead counsel. It denied the motions to be lead plaintiff filed by Phu Tran, Melvin Wong, the Pontiac Retirement System, and Mark Williams. Lead counsel was assigned responsibility for pleadings, motions, discovery, settlement negotiations, trial preparation and trial, and other matters concerning prosecution or resolution of the consolidated action.

The court ordered that later-filed or transferred securities class actions in the district involving purchasers of Hawaiian Electric securities be consolidated into this action, subject to applications for relief. The order states that it is without prejudice to a party’s right to seek severance. It also required the parties to meet and confer and submit proposed schedules for an amended complaint and briefing on defendants’ anticipated motion to dismiss. This order decided who would lead the litigation; it did not decide whether defendants violated the securities laws.