Case 2:15-cv-01654-JAK-AJW Document 26 Filed 07/07/15 Page 1 of 6 Page ID #:233 Present: The Honorable Andrea Keifer Deputy Clerk JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE Not Reported Court Reporter / Recorder Attorneys Present for Plaintiffs: Not Present Attorneys Present for Defendants: Not Present Proceedings: (IN CHAMBERS) ORDER RE PLAINTIFF'S MOTION OF KARSAN GROUP FOR APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF CHOICE OF COUNSEL (DKT. 9) Introduction On March 6, 2015, Plaintiff Jason Feola ( Feola ) filed this putative class action in which he alleges that Appliance Recycling Centers of America, Inc. ( ARCA or the Company ), Edward R. Cameron, Jeffrey A. Cammerrer, and Mark G. Eisenschenk violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), 78t(a). Compl., Dkt. 1. On May 5, 2015, Karsan Value Funds and Peter B. Miller ( Movant or Karsan Group ) 1 brought a motion for appointment as Lead Plaintiff and for approval of the selection of The Rosen Law Firm, P.A. ( Rosen ) as Lead Counsel for Plaintiff and the proposed Class (the Motion ). Dkt. 9. There has been no opposition to either motion. A hearing on the Motion was conducted on July 6, 2015, and the matter was taken under submission. Dkt. 25. For the reasons set forth in this Order, the Motion is GRANTED. II. Factual Background ARCA is a publicly traded company, headquartered in Minneapolis, Minnesota. It sells new household appliances through retail stores and provides recycling and replacement services for electric utilities and energy efficiency programs. Compl., Dkt. 1 14. On August 6, 2014, ARCA issued a press release, announcing that the California Board of Equalization ( BOE ) would be conducting an examination of sales and use taxes as to the appliance replacement sales by ARCA during 2011-2013. Id. 4. On August 7, 2014, which was the next day, the share price of ARCA stock fell to $2.99, which was a decline of $1.11 per share or more than 27%, since the prior market close. Id. 5. 1 No information has been presented as to what, if any, relationship exists between Miller and Karsan Value Funds. Their alleged, respective losses are listed, but without any further explanation. Page 1 of 6
Case 2:15-cv-01654-JAK-AJW Document 26 Filed 07/07/15 Page 2 of 6 Page ID #:234 On February 11, 2015, ARCA issued another press release. This one announced that it would be participating in BOE s Managed Audit Program and that investors should no longer rely on some of its prior financial statements. Id. 6. The press release also stated that the Company believed that the outcome of the audit program would result in a $4 million charge against earnings. Id. The next day the market price of ARCA stock fell to $2.54 per share, which was a decline of $0.43 per share or more than 14% since the prior market close. Id. 7. On March 6, 2015, Feola filed this putative class action against Defendants in which he alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Compl., Dkt. 1. The Complaint alleges that Defendants made misrepresentations about the operations of ARCA between March 15, 2012 and February 11, 2015. Id. 1, 3. More specifically, the Complaint alleged that: Id. 3. Defendants made false and/or misleading statements and/or failed to disclose that (i) [sic] ARCA s financial statements contained errors concerning sales tax related to its appliance replacement programs; (2) the Company lacked adequate internal controls over its financial reporting; and (3) as a result of the foregoing, the Company s financial statements were materially false and misleading at all relevant times. The Complaint also alleges that public statements by the Company misrepresented its financial statements. It also alleges that this misconduct caused Plaintiff and other members of the putative Class to suffer damages in connection to their purchases of shares of ARCA. Id. 55. The same day the Complaint was filed, Plaintiff s counsel published a notice in Business Wire pursuant to Section 21D(a)(3)(A)(i) of the Private Securities Litigation Reform Act, 15 U.S.C. 78u-5 ( PSLRA ). It advised potential class members of the claims alleged and informed them of the 60-day deadline to move to be appointed as Lead Plaintiff. Declaration of Laurence M. Rosen ( Rosen Decl. ), Ex. 1, Dkt. 11-1. On May 5, 2015, Karsan Group brought the Motion. Dkt. 9. No other class members have moved to be designated as Lead Plaintiff. Defendants have not opposed the Motion, but have reserved their rights to object to class certification at the appropriate time. Defendant s Statement, Dkt. 20 at 2. III. Analysis A. Lead Plaintiff Legal Standard The selection of the Lead Plaintiff in class actions under the Securities Exchange Act of 1934 is governed by the PSLRA. 15 U.S.C. 78u-4(a)(3)(B). A court is to consider a motion to name a Lead Plaintiff that is timely filed by a class member in response to a published notice of a class action. 15 U.S.C. Page 2 of 6
Case 2:15-cv-01654-JAK-AJW Document 26 Filed 07/07/15 Page 3 of 6 Page ID #:235 78u-4(a)(3)(B)(i). The PSLRA provides a rebuttable presumption that the most adequate plaintiff to serve as Lead Plaintiff is the person or group of persons that: (aa) has either filed the complaint or made a motion in response to a published notice of class action; (bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and (cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C. 78u-4(a)(3)(B)(iii)(I). 2. Application The information submitted shows that Karsan Group meets the qualifications of the most adequate plaintiff under the criteria set forth in the PSLRA. a) Willingness to Serve as Class Representative Karsan Group filed a Motion on May 5, 2015 pursuant to the notice of class action that was published on March 6, 2015. See Rosen Decl., Ex. 1, Dkt. 11-1. Further, Sajid Karsan, President of Karsan Value Funds, and Peter B. Miller have attached certifications verifying that they are willing to serve as class representatives, and will be able to provide testimony at deposition and trial in support of the asserted claims. See Rosen Decl., Ex. 2, Dkt 11-2. Thus, Karsan Group has demonstrated its willingness to act as Lead Plaintiff. b) Largest Financial Interest Before selecting the presumptive lead plaintiff, the court must consider the losses allegedly suffered by the various plaintiffs and choose the one who has the largest financial interest in the relief sought by the class. In re Cavanaugh, 306 F.3d 726, 729-30 (9th Cir. 2002). Here, Karsan Group is the only person who has sought to be named as Lead Plaintiff. Dkt. 9. During the class period, Karsan Group purchased 32,072 shares of ARCA stock for which it paid $88,149.98. Rosen Decl., Ex. 3, Dkt. 11-3. In the Motion, Karsan Group states that it has incurred losses greater than $11,000. Dkt. 10 at 5. Because no other party has moved to be named Lead Plaintiff, Karsan Group has sufficiently demonstrated that it is the one who has the largest financial interest. Page 3 of 6
Case 2:15-cv-01654-JAK-AJW Document 26 Filed 07/07/15 Page 4 of 6 Page ID #:236 c) Rule 23 of the Federal Rules of Civil Procedure (1) Legal Standard To establish a rebuttable presumption that a putative class member is the most adequate plaintiff, such person must show that the requirements of Fed. R. Civ. P. 23 may be satisfied. 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(bb). Under Rule 23(a), a class may be certified if the following requirements are met: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. In making the determination that a proposed Lead Plaintiff satisfies the applicable elements of Rule 23, the court need not raise its inquiry to the level required on a motion for class certification. Rather, all that is required is a preliminary showing that the lead plaintiff's claims are typical and adequate. Aronson v. McKesson HBOC, Inc., 79 F. Supp. 2d 1146, 1158 (N.D. Cal. 1999); Wenderhold v. Cylink Corp., 188 F.R.D. 577, 587 (N.D. Cal. 1999). The typicality requirement of Rule 23 is satisfied where the claims or defenses of the representative parties are typical of the claims or defenses of the class. Fed. R. Civ. P. 23(a)(3). The purpose of the typicality requirement is to assure that the interest of the named representative aligns with the interests of the class. Kamar v. Radio Shack Corp., 254 F.R.D. 387, 396 (C.D. Cal. 2008) (quoting Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir.1992) ( Typicality refers to the nature of the claim or defense of the class representative, and not to the specific facts from which it arose or the relief sought. )). The test of typicality is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct. Id. (quoting Hanon, 976 F.2d at 508). The typicality requirement is not met if the class representative is subject to unique defenses which threaten to become the focus of the litigation. Id. (quoting Hanon, 976 F.2d at 508). The adequacy requirement of Rule 23 is satisfied where the class representative will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a)(4). [T]he representation is adequate when the representative's interests are not antagonistic to the interests of absent class members, it is unlikely that the action is collusive, and counsel for the class is qualified and competent. Ferrari v. Gisch, 225 F.R.D. 599, 607 (C.D. Cal. 2004) (quoting In re Northern Dist. of Cal., Dalkon Shield IUD Prod. Liab. Litig., 693 F.2d 847, 855 (9th Cir.1982)). Further, the class representative must have a sufficient interest in the outcome of the case to ensure vigorous advocacy. Id. (citing Riordan v. Smith Barney, 113 F.R.D. 60, 64 (N.D.Ill.1986)). Adequacy, for purposes of the lead plaintiff determination, is contingent upon both the existence of common interests between the proposed lead plaintiffs and the class, and a willingness on the part of the proposed lead plaintiff[s] to vigorously prosecute the action. Id. (quoting In re Milestone Scientific Sec. Lit., 183 F.R.D. 404, 416 (D.N.J.1998)). (2) Application Karsan Group claims that the typicality requirement is met because it shares substantially similar Page 4 of 6
Case 2:15-cv-01654-JAK-AJW Document 26 Filed 07/07/15 Page 5 of 6 Page ID #:237 questions of law and fact with other members of the class, and his [sic] claims are typical of the members of the class. Mot., Dkt. 10 at 6. Karsan Group seeks to be appointed Lead Plaintiff for all persons other than defendants who purchased the securities of ARCA between March 15, 2012 and February 11, 2015. Id. at 2. It also seeks to recover damages caused by Defendant s violations of federal securities laws.... Id. Karsan Group claims that it purchased stock at prices inflated due to Defendant s alleged conduct and suffered damages, just as did all members of the class. Id. For these reasons, the typicality requirement is satisfied. Karsan Group and the class members have common claims. They are based on the same legal theory and arise from the same alleged conduct of Defendants. Karsan Group also may satisfy the adequacy requirement. There is no showing of any conflict between Karsan Group and other class members. Karsan Group s losses of more than $11,000 demonstrate that it has a significant interest in the outcome of the litigation. See Rosen Decl., Dkt. 11-3, Ex. 3. Moreover, Karsan Group has retained counsel with significant experience in prosecuting security class actions. This provides further support for the assertion that it will prosecute this action vigorously. See Rosen Law Firm Biography, Dkt. 11-4, Ex. 4. For these reasons, the adequacy requirement has been satisfied. For the foregoing reasons, there is a rebuttable presumption that Karsan Group is the most adequate plaintiff. Thus, Karsan Group filed a motion in response to a published notice of class action, it has the largest financial interest as it is the only movant seeking designation as Lead Plaintiff, and has shown it can meet the applicable requirements of Civil Rule 23. (d) The Presumption that Karsan Group is the Most Adequate Plaintiff Has Not Been Rebutted The presumption in favor of appointing a class member as Lead Plaintiff may be rebutted. However, this requires a showing by a purported member of the plaintiffs class that the presumptively most adequate plaintiff will not fairly and adequately protect the interest of the class; or is subject to unique defenses that render such plaintiff incapable of adequately representing the class. 15 U.S.C. 78u-4(a)(3)(B)(iii)(II). No purported member of the plaintiffs class has provided such evidence. For the foregoing reasons, the Motion is GRANTED. B. Approval of Counsel The PSLRA provides that the Lead Plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class. 15 U.S.C. 78u 4(a)(3)(B)(v); In re Diamond Foods, Inc., 281 F.R.D. 405, 413 (N.D. Cal. 2012). A court may reject the Lead Plaintiff s choice of counsel only when necessary to protect the interests of the class. 15 U.S.C. 78u 4(a)(3)(B)(iii)(II)(aa). The PSLRA evidences a strong presumption in favor of approving a properly-selected lead plaintiff s decision as to counsel selection and counsel retention. In re Cavanaugh, 306 F.3d 726, 734 n.14 (9th Cir. 2002) (quoting In re Cendant Corporation Litigation, 264 F.3d 201, 276 (3d Cir. 2002)). Page 5 of 6
Case 2:15-cv-01654-JAK-AJW Document 26 Filed 07/07/15 Page 6 of 6 Page ID #:238 Karsan Group has requested approval of its selection of the Rosen firm as Lead Counsel. It contends that Rosen is experienced in the area of securities litigation and class actions and has prosecuted securities fraud class actions and other complex litigation and has obtained substantial recoveries on behalf of investors. Mot., Dkt. 10 at 7. Rosen lists more than 50 securities class actions cases in which it has served as lead counsel or co-lead counsel. See Rosen Law Firm Biography, Dkt. 11-4, Ex. 4. No one has opposed the selection of the firm in this matter. Because Rosen has demonstrated its qualifications, its selection as counsel in this matter is APPROVED. IV. Conclusion For the foregoing reasons, the Motion is GRANTED. Karsan Group is appointed as Lead Plaintiff, and The Rosen Law Firm, P.A. is approved as counsel. IT IS SO ORDERED. Initials of Preparer ak Page 6 of 6