In re Garrett Motion Inc. Securities Litigation

Background

Three proposed class actions were pending: Husson v. Garrett Motion Inc., No. 20 Civ. 7992; Gabelli Asset Fund v. Lu, No. 20 Civ. 8296; and Froehlich v. Rabiller, No. 20 Civ. 9279. The complaints alleged that Garrett Motion Inc. and company representatives made false or misleading statements and omissions concerning Garrett’s agreement to indemnify Honeywell International Inc. for asbestos-related liabilities. The plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

The court considered motions to consolidate the actions, appoint a lead plaintiff, and approve lead counsel. Several potential lead plaintiffs initially moved for appointment, but those other motions were withdrawn. The opinion states that no party objected to consolidation and that counsel for the defendants had advised the Gabelli Entities’ counsel that the defendants consented to consolidation, although the defendants had not yet appeared.

Consolidation

Under Federal Rule of Civil Procedure 42(a), courts may consolidate actions involving common questions of law or fact. The court found consolidation appropriate because all three complaints concerned the same alleged misstatements, the same federal securities laws, and Garrett’s agreement concerning asbestos-related liabilities. The court concluded that the benefits of handling the cases together outweighed any prejudice from consolidation.

The court granted the Gabelli Entities’ motion to consolidate the three actions. It ordered future filings in the consolidated matter to be made under Case Number 20 Civ. 7992 (JPC), directed the Clerk to change that case’s caption to “In re Garrett Motion Inc. Securities Litigation,” and directed the Clerk to close Case Numbers 20 Civ. 8296 and 20 Civ. 9279.

Lead Plaintiff

The Private Securities Litigation Reform Act requires the court to appoint the member or members of the proposed class most capable of adequately representing the class. The statute creates a presumption in favor of the plaintiff or group that timely filed a complaint or motion, has the largest financial interest in the requested relief, and preliminarily satisfies the relevant requirements of Federal Rule of Civil Procedure 23.

The court found that The Gabelli Asset Fund, The Gabelli Dividend & Income Trust, The Gabelli Value 25 Fund Inc., and GAMCO Asset Management Inc., referred to collectively as the “Gabelli Entities” in this portion of the opinion, were the presumptive lead plaintiff. Based on the lower of two calculations, they allegedly purchased 1,015,091 shares, including 596,952 net shares; allegedly spent $8,854,002 in net funds; and allegedly suffered $7,105,464 in losses. The court was unaware of any competing plaintiff with a larger financial interest, and the other potential lead plaintiffs had withdrawn their motions.

The court also found that the Gabelli Entities made the required preliminary showing of typicality and adequacy under Rule 23. Their claims appeared to arise from the same events and legal theories as the other class members’ claims, and the record did not suggest conflicts with other class members. No class member offered evidence rebutting the presumption. The court therefore granted the Gabelli Entities’ motion for appointment as lead plaintiff.

Lead Counsel

The Gabelli Entities selected Entwistle & Cappucci as lead counsel. After reviewing materials describing the firm’s securities-class-action and complex-litigation experience, the court found the firm well qualified and granted the motion approving that selection.

Other Orders and Disposition

The court granted the motion to consolidate, granted the motion to appoint the Gabelli Entities as lead plaintiff, and granted the motion to approve Entwistle & Cappucci as lead counsel. It directed the Clerk to terminate the withdrawn or otherwise pending motions identified in the order. The court also granted the Gabelli Entities leave to file a consolidated amended complaint by February 25, 2021, and ordered the defendants to answer or otherwise respond by April 12, 2021. This opinion addressed case management and leadership of the proposed class actions; it did not decide whether the alleged securities-law violations occurred.