Tan v. Goldman Sachs Group Inc.

Background

The court was handling seven related securities cases involving different issuer classes. It had previously ordered the cases to be closely coordinated, but not fully consolidated. The court then considered motions to appoint lead plaintiffs and lead counsel in each individual action. Six actions had unopposed motions, while the Tencent action had competing motions from Michael Krueger and Zhang Zhenming.

The Plaintiffs Group submitted motions in six of the seven actions and one of the two Tencent motions. The group proposed a common leadership and decision-making structure for the coordinated cases. Krueger opposed that structure and sought appointment as lead plaintiff in the Tencent action.

Legal standards

The Private Securities Litigation Reform Act requires the court to appoint the person or group most capable of adequately representing the class. The statute creates a presumption in favor of a timely movant with the largest financial interest who makes the required preliminary showing under Rule 23 of the Federal Rules of Civil Procedure. At this stage, the court focused on typicality—the similarity between the proposed lead’s claims and the class’s claims—and adequacy of representation, including conflicts, sufficient interest, and qualified counsel.

The court considered the number of shares purchased, net shares purchased, total net funds spent, and approximate losses when evaluating financial interest. The amount of loss was the most important factor. The statute also permits a lead plaintiff to select counsel, subject to court approval. The court may approve co-lead counsel if doing so does not duplicate services or increase fees and expenses.

Rulings on the lead-plaintiff motions

For the Vipshop, Gaotu, ViacomCBS, iQIYI, and Baidu actions, the court found that the Plaintiffs Group’s proposed lead plaintiffs had timely filed, claimed the largest losses in their respective issuer classes, and made unrebutted preliminary showings of typicality and adequacy. The court found that they were willing and able to collaborate across the coordinated actions. It granted the motions to appoint leads in those five actions and approved the proposed lead counsel.

For the Discovery and ViacomCBS actions, the court granted the unopposed motions seeking appointment of groups of co-lead plaintiffs. Although the factors concerning group leadership did not all point in the same direction, the court emphasized the proposed groups’ small size, sophistication, plans for cooperation, and the absence of evidence of bad faith. It also approved the proposed co-lead counsel in those actions.

In the Tencent action, Krueger had the larger claimed financial loss—$163,233.53, nearly twice Zhenming’s claimed loss. The court nevertheless found Krueger inadequate under Rule 23 because his and his counsel’s adversarial approach toward the other plaintiffs raised concerns about conflicts and counsel selection. The court concluded that meaningful cooperation among the lead plaintiffs was necessary to avoid unnecessary legal costs, delay, uncertainty, and internal disputes. It therefore found that Krueger would not fairly and adequately protect the class’s interests and denied his motion to be appointed lead plaintiff.

The court granted Zhenming’s motion because he made an unrebutted preliminary showing of typicality and adequacy and had the largest financial interest among the adequate Tencent applicants. The court also approved his selection of Pomerantz LLP as lead counsel.

Appointments and case-management structure

The court ordered these appointments:

- Vipshop, No. 21-cv-08413: Alexander Shapovalov as lead plaintiff; Johnson Fistel LLP as lead counsel. - Gaotu, No. 21-cv-08618: Syed Zaheer as lead plaintiff; Berger Montague and Rosca & Scarlato LLC as lead counsel. - Tencent, No. 21-cv-08752: Zhang Zhenming as lead plaintiff; Pomerantz LLP as lead counsel. - ViacomCBS, No. 21-cv-08897: The Kellner Newcomer Family Partnership and Felix Urman as lead plaintiffs; Pomerantz LLP as lead counsel. - iQIYI, No. 21-cv-10286: Yan Cai Jiang as lead plaintiff; Scott+Scott Attorneys at Law LLP as lead counsel. - Baidu, No. 21-cv-10791: Dr. Jeffrey Wachtel as lead plaintiff; Hedin Hall LLP as lead counsel. - Discovery, No. 22-cv-00169: Oklahoma Firefighters Pension and Retirement System, Oklahoma Law Enforcement Retirement System, and Jamal Pesaran as lead plaintiffs; Grant & Eisenhofer P.A. and Scott+Scott Attorneys at Law LLP as lead counsel.

The court approved a Plaintiffs’ Executive Committee consisting of Scott+Scott Attorneys at Law LLP, Hedin Hall LLP, Pomerantz LLP, Johnson Fistel LLP, Berger Montague PC, Grant Eisenhofer P.A., and The Schall Law Firm. It also approved Thomas L. Laughlin, IV and David W. Hall as co-chairs and coordinating counsel, as well as the proposed structure for prosecuting the cases. Lead plaintiffs may ask the court to amend that structure if necessary to keep control of the coordinated actions with the lead plaintiffs rather than their counsel.

Further proceedings

The lead plaintiffs must file amended complaints in each coordinated action within 60 days of the order. The complaints should be coordinated where appropriate but tailored to their particular actions. Coordinating counsel and defense counsel must submit a proposed schedule for briefing motions to dismiss within seven days. The court expected to address those motions in a single opinion.

Disposition

Judge Paul A. Crotty granted the Plaintiffs Group’s motions, as modified at the end of the order, and denied Krueger’s motion. The order appointed lead plaintiffs and lead counsel; it did not decide the underlying securities claims.