Villare v. ABIOMED, Inc.

Background

Two proposed securities class actions were filed against ABIOMED, Inc., Michael R. Minogue, and Todd A. Trapp. The plaintiffs alleged that ABIOMED made materially false or misleading statements, and failed to disclose adverse information, about declining revenue growth, the company’s plan to address that decline, the likelihood of restoring growth, and the possibility that ABIOMED would reduce its full-year 2020 revenue guidance. ABIOMED later disclosed three consecutive quarters of slowing revenue growth and reduced its guidance, after which its stock price fell.

The Villare action was filed on August 6, 2019. The Barry action was filed on October 7, 2019, the deadline stated in the public notice for investors seeking lead-plaintiff status. Local 705 moved to consolidate the cases, become lead plaintiff, and have Labaton Sucharow LLP approved as lead counsel. Babak Bamdad separately sought appointment as lead plaintiff and approval of Faruqi & Faruqi, LLP as lead counsel. Terry Council and Joseph Barry later withdrew or conceded that they did not have the largest financial interest, leaving Local 705 and Bamdad as the remaining competing applicants.

Consolidation

The court applied Federal Rule of Civil Procedure 42(a), which permits consolidation when cases share common legal or factual questions and consolidation would avoid unnecessary cost or delay. The court found that the two actions involved the same company and defendants and nearly the same facts, claims, and legal theories. Although the complaints differed somewhat in their class periods and allegations, the court found those differences did not outweigh the benefits of consolidation. The court also found little risk of prejudice because no party opposed consolidation and the cases were still at an early stage.

The court therefore consolidated the Villare and Barry actions. The Barry action was later ordered closed, and future filings were directed to the Villare docket.

Lead Plaintiff

The Private Securities Litigation Reform Act requires the court to appoint the class member most capable of adequately representing the class. The statute generally presumes that the most adequate plaintiff is the timely applicant with the largest financial interest who also makes a preliminary showing of typicality and adequacy under Federal Rule of Civil Procedure 23.

The court determined that the shorter class period—from January 31, 2019, through July 31, 2019—should be used for the lead-plaintiff comparison. It found that the Barry complaint did not plausibly allege that statements made in November 2018 were false or misleading about revenue declines that allegedly occurred later. The court also found a risk that the longer period had been selected to increase a potential plaintiff’s loss calculation.

For the shorter period, Bamdad claimed losses of $581,516.80, while Local 705 claimed losses of $441,987.85. Bamdad therefore initially qualified for the statutory presumption based on the larger financial interest, and the court found that his claims were typical of the class and that he had made a preliminary showing of adequacy.

Local 705 rebutted that presumption by presenting evidence that Bamdad had pleaded guilty in 2010 to third-degree Medicaid fraud after admitting that he submitted claims for prescription drugs that had not been dispensed. His pharmacy license was revoked and later reinstated, and his conviction was expunged in 2019. The court found the prior fraud conviction highly concerning because the proposed class alleged that investors were victims of a fraudulent securities scheme. It concluded that Bamdad was not an adequate class representative despite the expungement.

The court found Local 705 to be a sophisticated institutional investor with experience in securities class actions, substantial resources, and a substantial financial interest. It also found that Local 705’s claims were typical and that no conflict with other class members had been identified. The court appointed Local 705 as lead plaintiff.

Lead Counsel

The court considered Bamdad’s argument that Labaton had taken inconsistent positions about whether a prior fraud conviction disqualified a lead plaintiff. The court took judicial notice of Labaton’s statements in another case but rejected Bamdad’s challenge. It explained that a lawyer may take different legal positions for different clients when the facts differ, and it found meaningful factual differences between the two cases. The court concluded that Labaton was qualified to serve as lead counsel.

Disposition

The court granted Local 705’s motions to consolidate the Villare and Barry actions, appoint Local 705 as lead plaintiff, and approve Labaton Sucharow LLP as lead counsel. It directed that all future filings use the Villare docket and caption and ordered the Barry action closed.