Cheng v. Canada Goose Holdings Inc.

Background

Li Hong Cheng filed a proposed securities-fraud class action against Canada Goose Holdings Inc., Dani Reiss, Jonathan Sinclair, and John Black. The complaint alleged violations of Section 10(b) and Section 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5. It alleged that the defendants made materially false or misleading statements, or failed to disclose information, about Canada Goose’s sourcing of down and fur, compliance with Federal Trade Commission regulations, and an alleged Federal Trade Commission investigation. The complaint also alleged that a People for the Ethical Treatment of Animals press release, a Federal Trade Commission closing letter, and a New York Post article each contributed to declines in Canada Goose’s stock price. The opinion stated that these facts were provided for background and were not findings of fact.

Motions for Lead Plaintiff and Counsel

Steven Hulaj, National Elevator Industry Pension Fund, and Ricardo Cardoso each timely moved to be appointed lead plaintiff under the Private Securities Litigation Reform Act and sought approval of proposed lead counsel. Cardoso later acknowledged that he did not have the largest financial interest and did not oppose Hulaj’s or National Elevator’s motions. The defendants did not take a position on the merits of these motions.

The court compared the movants using the number of shares purchased, net shares purchased, net funds expended, and approximate losses. Hulaj purchased more total and net shares, but National Elevator had the larger financial loss and had expended more net funds. The court treated the size of the loss as ordinarily the most important factor, particularly because National Elevator’s losses were more than three times Hulaj’s losses. The court also noted that the complaint alleged three separate disclosures that contributed to declines in the stock price, making reliance primarily on retained shares less appropriate.

The court found that National Elevator satisfied the preliminary typicality and adequacy requirements under Federal Rule of Civil Procedure 23. Its claims arose from the same conduct as the other class members’ claims, nothing indicated a conflict with the class, it alleged significant damages, and its proposed counsel, Robbins Geller Rudman & Dowd LLP, had substantial securities-class-action experience. The court further found that the other movants did not rebut the statutory presumption favoring National Elevator. The court also stated that Hulaj’s certification errors would independently weigh against appointing him as lead plaintiff, even if he had held the largest financial interest.

Rulings and Further Proceedings

The court granted National Elevator’s motion for appointment as lead plaintiff and approval of Robbins Geller Rudman & Dowd LLP as lead counsel. It denied Hulaj’s and Cardoso’s motions for appointment as lead plaintiff and approval of lead counsel. It denied National Elevator’s motion to strike as moot.

The court directed National Elevator to file a second amended complaint within 60 days after the opinion and order was issued. The defendants were directed to answer or otherwise respond within 60 days after National Elevator served that complaint. The order did not decide the underlying securities-fraud claims.