Bricklayers' & Allied Craftworkers Local 2 Albany v. New Oriental Education &…

Background

Two related securities actions were pending against New Oriental Education & Technology Group Inc. and Michael Mihong Yu, Zhihui Yang, and Chenggang Zhou. The first was filed by Bricklayers' & Allied Craftworkers Local #2 Albany, NY Pension Fund; the second was filed by Andres Mijares-Ortega. Both complaints were brought for people who purchased New Oriental American Depository Shares between April 24, 2018, and July 22, 2021. They alleged violations of Section 10(b) and Rule 10b-5, as well as Section 20(a), based on allegedly false or misleading statements and omissions concerning New Oriental's business practices and Chinese regulations affecting the tutoring industry.

The order addressed motions by Pavers & Road Builders District Council Pension Fund, Granite Point Capital funds, Public Employees' Retirement System of Mississippi, Potrero LLC, ACATIS Investment Kapitalverwaltungsgesellschaft mbH, and Neng Guo. Potrero and Guo stated that they did not oppose competing lead-plaintiff motions because they had not suffered the greatest financial loss. Pavers & Road Builders acknowledged that it also had not suffered the greatest loss. Granite Point, Mississippi PERS, and ACATIS opposed the other appointment requests.

Consolidation

The Private Securities Litigation Reform Act required the court to decide consolidation before appointing a lead plaintiff. Under Federal Rule of Civil Procedure 42, cases may be consolidated when they share a common question of law or fact. The parties agreed that the two actions concerned the same defendants, alleged the same securities-law violations, and covered the same period. The court therefore found consolidation appropriate and granted the motion to consolidate cases 22 Civ. 1014 and 22 Civ. 1876.

Lead Plaintiff

The Private Securities Litigation Reform Act requires appointment of the class member most capable of adequately representing the class. It creates a rebuttable presumption in favor of the applicant with the largest financial interest who also makes the required initial showing under Rule 23 of the Federal Rules of Civil Procedure. At this stage, the court examines only a preliminary showing of typicality and adequacy, rather than conducting the full class-certification analysis.

The court found that ACATIS had suffered the largest financial loss, $8,599,214, compared with Granite Point's $3,464,461 loss and Mississippi PERS's $3,307,010 loss. ACATIS also had spent more than $10 million during the class period and had the greatest number of net shares purchased. The court concluded that ACATIS had the largest financial interest and was therefore the presumptive lead plaintiff.

The court rejected challenges to ACATIS's typicality and adequacy. ACATIS said it had purchased New Oriental shares during the class period, relied on the alleged misrepresentations, and suffered the same type of injury alleged by other class members. It also had a significant interest in the case, identified no conflict with other class members, and selected experienced counsel.

Granite Point and Mississippi PERS argued that ACATIS lacked standing and had unusual trading strategies because it purchased shares after partial corrective disclosures. The court was not persuaded at this early stage. ACATIS is an asset manager suing on behalf of the Marco Polo Fund. A declaration from Professor Christoph A. Kern stated that German law gave ACATIS authority to make investment decisions and to sue for the Fund, while the Fund itself could not sue. The court found this sufficient for a preliminary showing of standing. It also said that purchases after third-party reports did not, on the record presented, show that ACATIS's claims were markedly different from those of other class members. The court noted that the trading-strategy issue could be examined more fully during a later class-certification motion.

The court held that ACATIS satisfied the applicable Rule 23 requirements and granted its motion for appointment as lead plaintiff.

Lead Counsel

The Act permits the lead plaintiff, subject to court approval, to select and retain class counsel. ACATIS selected Bernstein Litowitz Berger & Grossmann LLP. Based on the firm's experience litigating class actions and its submitted qualifications, the court approved that selection and granted ACATIS's motion to appoint Bernstein Litowitz as lead counsel.

Order and Scope

The court granted ACATIS's motion to consolidate the two cases, granted its motion for appointment as lead plaintiff, and granted its motion to appoint Bernstein Litowitz Berger & Grossmann LLP as lead counsel. It denied all other motions seeking appointment of a lead plaintiff or lead counsel. The order concerned case organization and representative selection; it did not decide the merits of the alleged securities-law violations.