In RE Lottery.com, Inc. Securities Litigation

Background

The court considered defendants’ request under Federal Rule of Civil Procedure 42(a) to consolidate two related actions: the Million action, a proposed class action, and the Hoffman action, an individual action brought by Harold Hoffman. The defendants who had appeared in the Hoffman action were Lottery.com, Inc., Matthew Clemenson, and Ryan Dickinson.

The Million action alleged that, after Trident Acquisitions Corp. entered into a business combination agreement with AutoLotto, Inc., Lottery.com and other defendants made materially misleading public filings about Lottery.com’s financial and operational condition. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of people who purchased Lottery.com stock during the stated class period. The court had appointed RTD Bros LLC, Todd Benn, Tom Benn, and Tomasz Rzedzian as lead plaintiffs and Glancy Prongay & Murray LLP as lead counsel.

Hoffman filed his separate action after the original Million complaint but before the Million amended complaint. He asserted the same Securities Exchange Act provisions based on allegedly misleading statements following the business combination. His complaint stated that he individually purchased 20,000 Lottery.com shares on November 22, 2021, and did not assert claims on behalf of a class. The opinion identifies Hoffman as an attorney proceeding without a lawyer.

Parties’ positions

The defendants argued that the two cases involved substantially identical claims and would require overlapping motion practice, discovery, class procedures, and trial-related work. They also argued that consolidation would not prejudice either side because discovery in securities cases is stayed under the Private Securities Litigation Reform Act in the circumstances described by the defendants.

Hoffman opposed consolidation. He argued that he had not yet amended his complaint to match the Million amended complaint and that his individual case would involve more limited discovery than the class action. He also stated that he did not want his case included in class counsel’s expansion of the litigation.

Legal standard

Rule 42(a) allows a court to consolidate actions that share a common question of law or fact. The court stated that consolidation is discretionary and requires consideration of the facts, fairness, judicial efficiency, and possible prejudice. The party seeking consolidation bears the burden of showing common legal or factual issues.

Court’s analysis

The court found that the actions involved substantially identical questions of law and fact. Both asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act, involved people who purchased Lottery.com stock, sought relief against Lottery.com and several senior investors, and alleged the same wrongdoing, misstatements, and fraudulent scheme. Although the Million action included additional defendants and broader class allegations, the court found that Hoffman’s allegations were largely encompassed by the class complaint.

The court rejected Hoffman’s claim of prejudice. It found that the Million action’s slightly more advanced posture and broader allegations did not make consolidation improper because the time period and statements in Hoffman’s case appeared to be fully covered by the class action. The court also concluded that Hoffman’s anticipated limited discovery did not justify separate proceedings, particularly given the discovery stay and expected motion practice.

The court reasoned that refusing to consolidate could lead to duplicative pleadings, document discovery, witness testimony, wasted judicial resources, unnecessary confusion, and potentially inconsistent results. It concluded that these efficiency benefits outweighed the prejudice Hoffman had identified.

Ruling and case management

The court granted defendants’ letter motion and consolidated the Hoffman action, Case No. 1:22-cv-10764, with the Million action, Case No. 1:22-cv-07111. Unless the court ordered otherwise, future filings in the consolidated case were to be filed under docket number 22-cv-07111 (JLR), and the consolidated matters were to be referred to collectively as In re Lottery.com, Inc. Securities Litigation.

The court adjourned the March 22, 2023 Initial Pretrial Conference without date. It also extended defendants’ deadline to respond to Hoffman’s complaint to April 3, 2023, while directing the parties otherwise to follow the briefing schedule in the Million action. The order addressed consolidation and case management; it did not decide whether the securities claims were legally or factually valid.