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Pelletier v. Endo International PLC

United States District Court, E.D. Pennsylvania

June 19, 2018

ALEXANDRE PELLETIER, Individually and on Behalf of All Others Similarly Situated
v.
ENDO INTERNATIONAL PLC, RAJIV KANISHKA LIYANAARCHIE DE SILVA, SUKETU P. UPADHYAY and PAUL V. CAMPANELLI

          MEMORANDUM OPINION

          SAVAGE, J.

         In this private securities fraud action, we must appoint lead plaintiffs and lead counsel under 15 U.S.C.A. § 78u-4. In doing so, we are confronted with two competing principles for determining the lead plaintiffs -- the presumptive lead plaintiff rule and the preference for appointing institutional investors. We must also choose the appropriate method for calculating who has the larger financial interest.

         Even if we use the measure proposed by the two individuals seeking appointment, their aggregate financial interest is only minimally greater than the institutional investor. Under these circumstances, we conclude the institutional investor preference outweighs the presumptive lead plaintiff rule.

         On November 14, 2017, Alexandre Pelletier filed a class action complaint asserting that the defendants, Endo International plc, its former and present CEOs, and its CFO violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The complaint alleges that Par Pharmaceutical Holdings, Inc. (“Par”), a wholly-owned subsidiary of Endo, conspired with several other pharmaceutical companies to fix generic drug prices in violation of the federal antitrust laws. It alleges that Endo and its officers made false or misleading public statements and failed to disclose or actively concealed material adverse facts about Endo's business, operations, prospects and revenue, artificially inflating Endo's share prices. The complaint asserts a fraud-on-the-market theory of loss causation, alleging that each of three corrective disclosures made on November 3, 2016, [1] March 1, 2017, [2] and October 31, 2017[3] caused the market value of Endo's securities to drop.

         Contemporaneously with filing his complaint, Pelletier caused notice of the pending class action to be published on PR Newswire. On January 16, 2018, two motions for appointment of lead plaintiffs and lead counsel were filed. Wayne A. Wingard and Nathan Joseph Dole moved for appointment as lead plaintiffs, and the appointment of Pomerantz LLP as lead counsel, and Pribanic and Pribanic LLC as liaison counsel.[4] Park Employees' Annuity and Benefit Fund of Chicago (the “Fund”) moved for appointment as lead plaintiff and the appointment of Bleichmar Fonti & Auld LLP as lead counsel.[5]

         Analysis

         A court must appoint a lead plaintiff whom it “determines to be most capable of adequately representing the interests of class members.” 15 U.S.C.A. § 78u-4(a)(3)(B)(i). Determining “the most adequate plaintiff” requires a two-step process. First, the court must identify the presumptive lead plaintiff, the person or group having the largest financial interest. Second, it then determines whether the presumption has been rebutted by any member of the putative class. In re Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001) (citing 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I) & (II)).

         There are three criteria for identifying the presumptive lead plaintiff. First, the person or group selected must either have filed the complaint or made a timely motion in response to the published notice of the pending class action. 15 U.S.C. § 78u-4(a)(3)(A)(i)(I) & (II), § 78u-4(a)(3)(B)(iii)(I) & (II)). Second, the court must identify the movant having the “largest financial interest in the relief sought by the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb). Third, the party with the largest financial interest must satisfy the adequacy and the typicality requirements of Rule 23.[6]

         There is no dispute that the movants satisfy the first and third criteria. The disputed issue is who has the larger financial interest. The movants calculate their respective financial interest differently.

         Largest Financial Interest

         The three relevant factors in the financial interest analysis are: (1) the number of shares purchased during the class period; (2) the total net funds expended by the plaintiffs during the class period; and (3) the approximate losses suffered by the plaintiffs. Cendant, 264 F.3d at 262 (citing Lax v. First Merch. Acceptance Corp., Nos. 97 C 2715, et seq., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997); In re Olsten Corp. Sec. Litig., 3 F.Supp.2d 286, 295 (E.D.N.Y. 1998) (citing Lax for these factors).

         Calculated under the Lax-Olsten factors approved by Cendant and using LIFO and FIFO accounting methods, Wingard and Dole together claim an aggregate loss of $118, 603, and the Fund's loss at $112, 536.[7] Thus, under this method, it appears the Wingard-Dole group's aggregated loss is $6, 000.00 greater than the Fund's.

         The Fund argues that the loss causation formula used in Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346-47 (2005), is the appropriate calculus. According to this formula, only those losses that are proximately caused by the defendant's fraud are recoverable. Consequently, losses incurred before disclosure of the relevant misrepresentation are not included in recoverable loss.

         We agree with the Fund. What the plaintiffs lost is what they may recover. Including losses that were incurred before any disclosure could not have been caused by any disclosures and are not recoverable. Thus, those shares are not included in the “largest financial interest” calculus.

         Under the Dura analysis, the Fund calculates its loss to be $187, 000 and the Wingard-Dole group's loss at $132, 000, giving the Fund the larger financial interest. Excluding from the calculation those shares purchased at inflated prices and sold at inflated prices before disclosure of the relevant misrepresentation, the Fund purchased 20, 000 more shares of Endo stock than the Wingard-Dole group. Hence, applying a Dura analysis, the Fund's net loss is greater than that of the Wingard-Dole group.

         The Lax factors, adopted by the Third Circuit, are the (1) number of shares purchased during the putative class period; (2) the total net funds expended by the plaintiffs during that period; and the approximate losses suffered by the plaintiffs. Cendant, 264 F.3d at 262 (citing Lax v. First Merchants Acceptance Corp., 1997 WL 461036 at *5 (N.D. Ill., Aug. 11, 1997).

         Under the Lax-Olsten factors, which do not address whether losses are proximately caused by the alleged securities fraud, the Fund's net expenditures are $180, 000.00 more than the Wingard-Dole group's expenditures. The Wingard-Dole group purchased 65, 605 shares during the class period, which is 4, 769 more shares that the Fund purchased during the class period. However, the 65, 605 shares purchased by the Wingard-Dole group include 38, 730 shares that were not affected by the disclosures.

         The PSLRA does not provide any guidance as to the method for calculating the largest financial interest. It speaks of the “largest financial interest in the relief sought.” It does not reference loss, but references damages -- “the relief sought.”

         The calculation of financial interest is impacted by the statutory limitation imposed on damages. In the PSLRA, Congress placed a cap on damages recoverable in a private securities fraud action. Section 21D of the Act, 15 U.S.C. § 78u-4 sometimes referred to as the “look back” or “bounce back” provision, states that

in any private action . . . in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.

Id. § 78u-4(e)(1). The “mean trading price” is defined as the “average of the daily trading price of that security, determined as of the close of the market each day during the 90- day period” following the disclosure. Id. § 78u-4(e)(3). If the plaintiffs sell their securities prior to the close of the 90-day period, the mean trading price is calculated for the period beginning immediately after the corrective disclosure and ending on the date of sale of the security:

[I]f the plaintiff sells or repurchases the subject security prior to the expiration of the 90-day period . . . the plaintiff's damages shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security.

Id. § 78u-4(e)(2). See In re Oxford Health Plans, Inc. Sec. Litig., 244 F.Supp.2d 247, 250 (S.D.N.Y. 2003) (construing this provision to apply to “a sale or repurchase during the ninety day period, in which case the Plaintiffs' damages shall not exceed the difference between the actual price, paid or received, and ...


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