Born v. Quad/Graphics, Inc.

Background

This consolidated proposed securities class action alleges violations of the Securities Exchange Act and related regulations. The court had consolidated the Born and Bloom actions for all purposes and invited applications for appointment of a lead plaintiff and approval of lead counsel under the Private Securities Litigation Reform Act of 1995 (PSLRA). Five applicants initially submitted materials; two later withdrew their submissions.

The remaining applicants were Alaska Electrical Pension Fund (referred to as “Alaska Pension”), Hani Anklis, and Dennis and Marilynn Born (the “Borns”). Each sought appointment as lead plaintiff and approval of selected lead counsel.

Legal standard

The PSLRA requires the court to appoint the class member most capable of adequately representing the class. The court presumed that the most adequate plaintiff would be the applicant who timely responded to public notice, had the largest financial interest in the relief sought, and made a preliminary showing of the typicality and adequacy requirements under Rule 23 of the Federal Rules of Civil Procedure.

Courts generally assess financial interest using the number of shares purchased, net shares purchased, net funds spent, and approximate losses. The court stated that the loss amount is the most important factor. At this stage, the court needed only a preliminary showing of typicality and adequacy, not a final class-certification decision.

Court’s analysis

Alaska Pension timely moved in response to public notice of the action. The court found that it had the largest financial stake under the shorter class period alleged in the Born complaint. The applicants’ losses were calculated using the last-in-first-out method. Under that class period, the stated losses were approximately $442,500 for Alaska Pension, $110,000 for Anklis, and $320,000 for the Borns.

The court declined to decide at this stage which class period would ultimately apply. It noted that neither complaint alleged that investors were misled as early as the beginning of the longer proposed period. The court also expressed concern that Anklis was a net seller and net gainer during the shorter class period, meaning that he sold more shares than he purchased and received more in proceeds than he spent. The court stated that this status effectively disqualified Anklis from representing a class defined by that period. Alaska Pension was neither a net seller nor a net gainer and had a substantial loss under either proposed class period.

The court found that Alaska Pension satisfied Rule 23’s preliminary typicality and adequacy requirements. It was a Quad/Graphics shareholder during the overlapping proposed class periods and alleged that it suffered a loss because it reasonably relied on allegedly material false or misleading statements or omissions by the defendants. The court found that the legal theories in the two complaints were identical, making Alaska Pension’s claims typical of the consolidated proposed class. It also found that Alaska Pension’s selected counsel was qualified, experienced, and able to conduct the litigation; that there was no conflict between Alaska Pension and other class members; and that Alaska Pension’s substantial stake supported vigorous advocacy.

Disposition and case management

The court granted Alaska Pension’s motion to be appointed lead plaintiff and to approve its selection of Robbins Geller Rudman & Dowd LLP as lead counsel. Alaska Electrical Pension Fund was appointed lead plaintiff, and Robbins Geller Rudman & Dowd LLP was approved as lead counsel. The competing motions by Hani Anklis and the Borns were denied.

The court ordered the lead plaintiff to file an amended consolidated complaint by April 1, 2020. The parties were ordered to meet and confer about a schedule for any motion to dismiss. Discovery was stayed pending resolution of any such motion. If the defendants answered instead, the court set an initial pretrial conference for May 15, 2020, and required a joint case-management submission.