McCormack v. Dingdong Ltd.

Background

Ryan McCormack brought a proposed securities-fraud class action against Dingdong (Cayman) Ltd., several Dingdong officers and directors, underwriters, and Dingdong’s authorized United States representative. He alleged violations of Sections 11, 12, and 15 of the Securities Act based on claimed material misrepresentations and omissions in Dingdong’s registration statement for its initial public offering. The opinion treated those allegations as allegations and made no findings about their truth.

McCormack moved for appointment as lead plaintiff and for approval of his selected lead counsel under the Private Securities Litigation Reform Act of 1995, a statute governing securities class actions. He stated that he bought 40 Dingdong shares for $24.96 per share and later sold them for $12.35 per share, claiming a $504.40 loss. No other Dingdong shareholder filed a competing motion.

Notice

The court found the notice published by McCormack’s counsel materially deficient. It did not state the proposed class period, even though the complaint and McCormack’s motion used different periods. The notice also did not clearly tell class members that they could ask the court to appoint them as lead plaintiff or explain how to do so. Instead, it repeatedly directed potential class members to contact McCormack’s law firm.

The court said these defects undermined the purpose of the statutory notice requirement, which is to encourage the most adequate plaintiff to come forward and take control of the litigation. The court did not decide whether the notice deficiency alone required denial of McCormack’s motion because it also found that McCormack had not made the required preliminary showing that he could adequately represent the class.

Lead-plaintiff determination

The statute creates a rebuttable presumption in favor of a proposed lead plaintiff who satisfies specified requirements, including having the largest financial interest and meeting the relevant requirements of Federal Rule of Civil Procedure 23. Because no other shareholder sought appointment, McCormack was presumptively the candidate with the largest financial interest. The court emphasized, however, that it had to independently evaluate the statutory requirements even though the motion was unopposed.

For purposes of the lead-plaintiff motion, the court considered whether McCormack had made a preliminary showing of typicality and adequacy under Rule 23. Adequacy asks whether the proposed representative will fairly and effectively protect the class’s interests. The court found that McCormack’s claimed $504.40 loss was a token amount in the context of securities litigation, that he did not assert his losses were similar to or greater than those of other class members, and that his certification provided no meaningful information about his background, investing experience, or sophistication.

The court also noted that McCormack sold his shares months before the complaint’s alleged corrective disclosure: a March 17, 2022 report about Dingdong’s alleged food-safety violations. Because losses incurred before a company’s misconduct is publicly revealed generally are not recoverable for this purpose, the court found a risk that McCormack’s losses could not be linked to the alleged misconduct. The court concluded that he had not shown that he would fairly and adequately protect the class’s interests.

Disposition

The court denied McCormack’s motion for appointment as lead plaintiff and approval of his choice of lead counsel. It stated that, because McCormack could not adequately represent the class, the case could not proceed as a class action with him as the representative. The court also stated that McCormack could pursue his claims on an individual basis. Separately, the parties were ordered to submit a proposed schedule within 21 days for any amended complaint and the response that would follow.