Ragan v. AppHarvest, Inc.

Background

Gary H. Ragan filed a proposed securities-fraud class action against AppHarvest, Inc., Chief Executive Officer Jonathan Webb, and Chief Financial Officer Loren Eggleton. The complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as control-person claims under Section 20(a) against Webb and Eggleton. The alleged class covered people and entities that purchased or acquired AppHarvest securities between May 17, 2021, and August 10, 2021.

The complaint alleged that the defendants made materially false or misleading statements and failed to disclose problems involving workforce training, the company’s ability to produce Grade No. 1 tomatoes consistently, and the effect of those problems on AppHarvest’s business and prospects. AppHarvest’s August 11, 2021 announcement reported a substantial net loss, lowered its full-year sales guidance, and attributed the results in part to operational and workforce difficulties. AppHarvest’s share price fell approximately 29 percent that day, according to the opinion.

A related proposed class action, brought by the Plymouth County Retirement Association, was filed in the same court on November 22, 2021. It asserted similar claims against the same defendants but proposed a class period beginning October 9, 2020. Four parties initially moved for appointment as lead plaintiff under the Private Securities Litigation Reform Act, or PSLRA. Two applicants withdrew, leaving Alan Narzissenfeld and Plymouth County as the remaining applicants.

Lead Plaintiff

The PSLRA generally creates a presumption in favor of the applicant with the largest financial interest who otherwise satisfies the relevant requirements of Rule 23. The court considered factors including shares purchased, net shares purchased, net funds spent, and approximate losses, with the amount of loss treated as the most important factor.

Narzissenfeld claimed a loss of $391,369.23 from AppHarvest-security transactions during the class period in the Ragan action. Plymouth County had no loss during that period because it did not purchase AppHarvest securities after October 2020. Plymouth County relied on the longer class period in its related complaint and claimed losses based on purchases of Novus shares before AppHarvest began trading on the NASDAQ.

The court declined to use Plymouth County’s longer class period for selecting the lead plaintiff. It reasoned that the statements made before Plymouth County’s purchases did not address the operational problems, workforce-training difficulties, projected 2021 results, or consistent production of Grade No. 1 tomatoes that were later identified in the August 2021 announcement. The court stated that it expressed no view on whether an earlier start date might ultimately be permissible for the proposed class.

The court concluded that Narzissenfeld had the largest financial stake under the class period used for the lead-plaintiff analysis. It also found that he made the required preliminary showing that his claims were typical of the proposed class and that he could adequately represent it. The court therefore appointed Narzissenfeld as lead plaintiff.

Lead Counsel

The PSLRA permits the most adequate plaintiff, subject to court approval, to select and retain counsel. Narzissenfeld selected Levi & Korsinsky, LLP. The court found the firm experienced and qualified to handle the securities-fraud matter and approved it as lead counsel.

Consolidation

Federal Rule of Civil Procedure 42(a) allows consolidation of cases involving common legal or factual questions. The court found consolidation appropriate because the two actions involved identical defendants, the same alleged misstatements and omissions, and identical claims. It consolidated the cases for all purposes, including discovery, pretrial proceedings, and trial, under Master File No. 21-cv-7985-LJL, with the consolidated caption In re AppHarvest Securities Litigation. The court directed that the related case, No. 21-cv-9676-LJL, be closed as a separate case and that future filings generally be made under No. 21-cv-7985-LJL.

Disposition

The court granted the motion at Dkt. No. 11 to approve Alan Narzissenfeld as lead plaintiff and Levi & Korsinsky, LLP as lead counsel. It also granted the motion at Dkt. No. 15 to consolidate the related actions. All other motions were denied. The opinion did not decide the truth of the alleged misstatements or whether any defendant was liable for securities fraud.