In re: Canntrust Holdings Inc. Securities Litigation

Background

This opinion concerns four proposed shareholder class actions against CannTrust Holdings Inc. and its executives. The plaintiffs alleged that the defendants misled investors about CannTrust’s compliance with Canadian cannabis regulations and that CannTrust’s stock price fell as a result. The four actions were filed under Case Numbers 19 Civ. 6396, 19 Civ. 6438, 19 Civ. 6883, and 19 Civ. 7164.

Thirteen plaintiffs or plaintiff groups initially filed motions seeking consolidation, appointment as lead plaintiff, and approval of lead counsel. Most later withdrew their motions, filed notices of non-opposition, or failed to oppose another movant. The three groups continuing to pursue lead-plaintiff requests were the Glasson Group, Jose Silva, and Granite Point Capital Master Fund, LP together with Granite Point Capital Scorpion Focused Ideas Fund, referred to collectively as Granite Point.

Legal standards

Federal Rule of Civil Procedure 42 allows courts to consolidate cases involving common questions of law or fact. The court also considered the Private Securities Litigation Reform Act, which generally gives preference as lead plaintiff to the class member or group with the largest financial interest that otherwise satisfies the requirements for adequately representing the class under Rule 23.

Under that statute, the lead plaintiff is presumed to be the person or group that timely applied, has the largest financial interest in the requested relief, and satisfies Rule 23. Other class members may rebut that presumption by showing that the presumptive lead plaintiff will not fairly and adequately protect the class or faces unique defenses that make adequate representation impossible. The lead plaintiff may select class counsel, subject to court approval.

Court’s analysis

The court ordered consolidation because all four actions asserted identical claims against almost identical defendants on behalf of an identical proposed class, based on almost identical facts. No party opposed consolidation. The court concluded that separate litigation would be inefficient and would increase the risk of inconsistent results.

The court appointed Granite Point as lead plaintiff. It found that Granite Point had applied on time, had the largest financial interest, and satisfied Rule 23. Granite Point claimed losses of $2,135,246 in CannTrust securities, compared with claimed losses of $1,070,739.21 for Silva and $468,451.30 for the Glasson Group. The court noted that Granite Point’s loss was the greatest under the preferred method of calculating losses.

The Glasson Group argued that Granite Point’s short positions in CannTrust stock exposed it to unique defenses and could make it harder to prove that CannTrust’s alleged misrepresentations caused its losses. The court rejected those arguments. It observed that most of Granite Point’s CannTrust investments were traditional purchases, Granite Point closed its short position before the alleged corrective disclosures, and Granite Point did not claim losses based on the short position. The court also rejected an argument that Granite Point’s statutory certification was deficient because the Glasson Group presented no evidence supporting that challenge.

The court approved Labaton Sucharow LLP as lead counsel because Granite Point selected the firm, the firm had extensive securities-fraud litigation experience, and no class member provided a reason that the firm was unqualified to serve.

Disposition

Judge J. Paul Oetken granted Granite Point’s motion to consolidate the four related cases, appoint Granite Point as lead plaintiff, and approve Labaton Sucharow LLP as lead counsel. The court denied all other corresponding motions. The cases were ordered consolidated under Case Number 19 Civ. 6396 for all purposes, including discovery, pretrial proceedings, and trial. The court directed the parties to file a status letter by May 18, 2020 and directed the clerk to close the listed motions.