Stadium Capital LLC v. Co-Diagnostics, Inc.

Background

Stadium Capital LLC filed a proposed securities class action against Co-Diagnostics, Inc., Dwight H. Egan, and Brian L. Brown. It alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Stadium claimed that the defendants reassured investors about demand for Co-Diagnostics’ Logix Smart COVID-19 test while failing to disclose that demand had sharply declined. Stadium alleged that the company’s stock fell almost 82% after it disclosed revenue for the quarter ending in June 2022.

Drew Lee later filed a separate proposed class action against the same defendants, alleging the same misconduct during the same period. Both cases concerned substantially overlapping allegations, claims, and proposed class periods. Stadium timely moved to consolidate the actions, become lead plaintiff, and have Kaplan Fox & Kilsheimer, LLP appointed lead counsel. No other class member, including Lee, timely applied to serve as lead plaintiff or opposed Stadium’s motion.

Consolidation

Under Rule 42 of the Federal Rules of Civil Procedure, courts may consolidate actions involving common questions of law or fact. The court found that the two actions were sufficiently similar to justify consolidation. It noted that the later-filed Lee complaint appeared in many respects to have been copied from Stadium’s earlier complaint. The court therefore granted Stadium’s request to consolidate the actions.

Lead Plaintiff

The Private Securities Litigation Reform Act requires the court to appoint the plaintiff most capable of adequately representing the proposed class. The statute generally creates a rebuttable presumption in favor of a plaintiff who filed a complaint or moved for appointment, has the largest financial interest in the relief sought, and satisfies the requirements of Federal Rule of Civil Procedure 23.

The court found Stadium to be the most adequate plaintiff. Stadium was the only plaintiff seeking appointment, claimed to have the largest alleged loss among interested class representatives, and made a sufficient preliminary showing that it satisfied Rule 23. No party submitted evidence or argument rebutting Stadium’s presumed status. The court granted Stadium’s application to serve as lead plaintiff.

Lead Counsel and Disposition

The court approved Stadium’s selection of Kaplan Fox as lead counsel because the firm’s submissions showed experience in large securities class actions. The order assigned Kaplan Fox responsibility for coordinating pleadings, motions, discovery, depositions, pretrial conferences, settlement negotiations, trial preparation, and other matters concerning prosecution or resolution of the claims.

The court granted Stadium’s motion, directed the Clerk of Court to consolidate the actions under Case No. 1:22-cv-06978, and directed the Clerk to terminate the specified motion entries. Judge Mary Kay Vyskocil did not decide the underlying securities-fraud allegations in this order.