Zawatsky v. Vroom, Inc.

Background

Three proposed shareholder class actions were pending against Vroom, Inc., Paul J. Hennessy, and David K. Jones. The cases were Zawatsky v. Vroom, Inc., No. 21 Civ. 2477; Holbrook v. Vroom, Inc., No. 21 Civ. 2551; and Hudda v. Vroom, Inc., No. 21 Civ. 3296. The shareholders brought similar claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The complaints alleged that Vroom and its executives made misleading statements or omitted important information about Vroom’s inventory, staffing, sales operations, customer demand, losses, and future financial prospects. The plaintiffs alleged that Vroom’s stock price was artificially inflated and that class members suffered losses when Vroom disclosed worse-than-previously-reported operational and financial results. The complaints generally relied on overlapping public statements, earnings calls, and financial disclosures, although two cases used a June 9, 2020 class-period start date and the other used November 11, 2020.

Rhondda Cynon Taf Pension Fund moved to consolidate the three cases, be appointed lead plaintiff, and approve its selection of Barrack, Rodos & Bacine as lead counsel. Six other parties also sought lead-plaintiff status, but they later filed notices of non-opposition or acknowledged that they did not have the largest financial interest.

Consolidation

Federal Rule of Civil Procedure 42(a) allows consolidation when cases involve common questions of law or fact. The court concluded that the three complaints relied on essentially the same facts and presented common questions, including whether Vroom’s public statements contained material misrepresentations or omissions and whether the plaintiffs suffered damages as a result.

The court held that differences in the proposed class periods did not prevent consolidation because the cases substantially overlapped. It ordered the cases consolidated for all purposes, including discovery, pretrial proceedings, and trial. The consolidated cases were to proceed under the caption In re: Vroom, Inc. Securities Litigation and master docket number 21 Civ. 2477 (PGG). The court clarified that consolidation did not make any person or entity a party to a case in which that person or entity had not been named, served, or added under the Federal Rules of Civil Procedure.

Lead Plaintiff

The Private Securities Litigation Reform Act generally creates a rebuttable presumption that the class member with the largest financial interest is the most adequate lead plaintiff, provided that the person also satisfies the relevant class-representation requirements. Rhondda represented that it purchased 125,027 shares during the class period, made net purchases of 114,098 shares, invested $4,955,827, and suffered an approximate loss of $414,235. The court noted that the other movants reported smaller losses.

Because the motion was unopposed and no party rebutted the presumption, the court treated Rhondda as the presumptive lead plaintiff. The court also found that Rhondda made the required preliminary showing that its claims were typical of the proposed class: Rhondda alleged that it purchased Vroom securities at prices inflated by the defendants’ alleged misstatements or omissions and suffered damages.

The court further found that Rhondda could adequately represent the class. It noted that Rhondda had a substantial claimed loss, that its counsel had substantial securities-class-action experience, and that no movant had identified a conflict or unique defense that would prevent Rhondda from representing the class.

Lead Counsel

Under the Private Securities Litigation Reform Act, the lead plaintiff selects class counsel subject to court approval. Rhondda selected Barrack, Rodos & Bacine. Based on the firm’s experience and submitted materials, the court concluded that the firm was qualified to serve as lead counsel and approved Rhondda’s selection.

Disposition

The court granted Rhondda’s motion to consolidate the three cases, appoint Rhondda as lead plaintiff, and select Barrack, Rodos as lead counsel. All other motions were denied. The court directed that a consolidated class-action complaint be filed by September 3, 2021, and scheduled an initial pretrial conference for October 14, 2021.