IN RE APHRIA, INC. SECURITIES LITIGATION

Background

Proposed lead plaintiffs Shawn Cunix and Elizabeth Alexander asserted claims against Aphria Inc., Victor Neufeld, Carl Merton, Cole Cacciavillani, John Cervini, Andrew DeFrancesco, and SOL Global Investments Corp., formerly known as Scythian Biosciences Corp. The claims arose under Section 10(b) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5(b), and Section 20(a). The court had previously granted motions to dismiss filed by Cacciavillani, Cervini, and DeFrancesco, leaving claims against Aphria, Neufeld, and Merton. Scythian had not appeared.

Plaintiffs moved under Federal Rule of Civil Procedure 23 to certify a class of people and entities who purchased or otherwise acquired Aphria securities on domestic exchanges or in domestic transactions between July 17, 2018, and April 12, 2019, inclusive, and were damaged thereby.

Rule 23 Requirements

The court considered the four Rule 23(a) requirements—numerosity, commonality, typicality, and adequacy—as well as the implied requirement that the class be ascertainable, meaning that membership can be determined using objective criteria. It also considered Rule 23(b)(3), which requires that common issues predominate over individual issues and that a class action be superior to other methods of resolving the dispute.

The court found numerosity because Aphria shares traded in an average volume of 25.27 million shares per week during the class period and there were at least thousands of potential class members. It found commonality because the proposed class members alleged injury from similar material misrepresentations and omissions. It found typicality because Cunix allegedly bought Aphria securities at artificially inflated prices during the class period and suffered damages from the defendants’ conduct. The court also found that the plaintiffs’ interests aligned with the class and that Levi & Korsinsky was adequate class counsel.

The court found the class ascertainable because its definition was limited by the securities involved, the time period, and the requirement of a domestic exchange or domestic transaction.

Predominance and Market Efficiency

To establish predominance for the securities-fraud claims, plaintiffs sought to use the fraud-on-the-market presumption of reliance. That presumption requires proof, among other things, that the security traded in an efficient market. Plaintiffs relied on an expert report by economic consultant Chad Coffman. Defendants challenged the report but did not submit a rebuttal expert report.

Applying the factors used to evaluate market efficiency, the court found defendants’ challenges to the number of analyst reports and market makers unpersuasive. The court noted that more than 100 reports covered Aphria stock and that Aphria stock traded on multiple exchanges, including the New York Stock Exchange, the Toronto Stock Exchange, and the over-the-counter market. The court also rejected defendants’ challenges to the report’s analysis of the market’s response to disclosures. Considering the evidence as a whole, the court found that Aphria stock traded in an efficient market throughout the class period.

The court also found predominance because common issues could be addressed through generalized proof, and found superiority because individual lawsuits would be costly and inefficient given the likely number of class members.

Class Period

Defendants argued that the class period should end on December 3, 2018, when the Hindenburg Report was released. Plaintiffs argued that the alleged truth emerged through a series of partial corrective disclosures ending in April 2019. The court found that it could not say there was no substantial doubt about the report’s curative effect. Because the parties disputed whether the report fully revealed the alleged misconduct and whether later publications disclosed new information, the court declined to resolve that issue at the certification stage. The class period therefore remained July 17, 2018, through April 12, 2019, inclusive.

Alexander’s Standing

The court found that Alexander had not sufficiently shown that her purchases were domestic transactions, as required for claims under Section 10(b). Alexander relied on purchases made through her United States-based broker and involving identified market makers. The court held that those materials did not establish where or on what terms the parties formed their agreement or otherwise incurred irrevocable liability in the United States. Alexander therefore could not serve as a class representative.

Disposition

Judge George B. Daniels granted plaintiffs’ motion for class certification. The court certified the class of people and entities who purchased or otherwise acquired Aphria securities on domestic exchanges or in domestic transactions between July 17, 2018, and April 12, 2019, inclusive, and were damaged thereby. The court appointed Shawn P. Cunix as class representative and Levi & Korsinsky as class counsel. The court ordered the Clerk of Court to close the docket entries for the class-certification motion and the now-moot motion for oral argument.