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Soto. v. Hensler

United States District Court, D. Delaware

February 14, 2017

JAVIER SOTO, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
JAMES M. HENSLER, ROBERT D. SCHERICH and GREGORY M. BELLAND, Defendants. UMESH JANI, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
JAMES M. HENSLER, ROBERT D. SCHERICH and GREGORY M. BELLAND, Defendants.

          MEMORANDUM OPINION

          CHRISTOPHER J. BURKE UNITED STATES MAGISTRATE JUDGE

         In these related securities class actions (referred to herein as the "Soto Action" and the "Jani Action, " respectively), presently pending before the Court are motions filed by: (1) Raymond Cook ("Cook") and Dyson Capital Management Ltd. ("Dyson, " and collectively with Cook, "Cook and Dyson") and (2) John and Mary Elizabeth Moring Anacker (collectively, "the Anackers"). (Soto Action, D.I. 10, D.I. 13; Jani Action, D.I. 11)[1] Cook and Dyson's motion seeks an order consolidating the two cases. And both motions seek to have the respective movants appointed as Lead Plaintiff, as well as to have their counsel appointed as Lead Counsel and Liaison Counsel. (Id.)[2] For the reasons stated below, the Court GRANTS Cook and Dyson's motion and DENIES the Anackers' motion.

          I.FACTUAL AND PROCEDURAL BACKGROUND

         On April 22, 2016, the Soto Action was filed against Defendants James M. Hensler, Robert D. Scherich and Gregory M. Belland ("Defendants"), who are senior executives of Horsehead Holding Corp. ("Horsehead" or the "Company"). (D.I. 1) The Soto Complaint asserts claims, pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a) (the "Exchange Act"), and Securities and Exchange Commission ("SEC") Rule 10b-5, on behalf of all purchasers of Horsehead securities between May 21, 2014 and February 2, 2016 (the "Class Period"). (Id.)

         On May 18, 2016, the Jani Action was filed. (Jani Action, D.I. 1) The Jani Complaint asserts claims pursuant to the same statutes and rules at issue in the Soto Complaint, on behalf of the same proposed class at issue in the Soto Complaint, and against the same Defendants sued in the Soto Complaint. (Id.)

         The allegations in the respective Complaints are similar, and they relate to Horsehead, a leading U.S. producer of zinc metal. (D.I. 1 at ¶ 2; Jani Action, D.I. 1 at ¶ 2) In September 2011, Horsehead began construction on a new, purportedly state-of-the-art zinc production facility in Mooresboro, North Carolina, (D.I. 1 at ¶ 3; Jani Action, D.I. 1 at ¶ 3), and made a number of positive statements about the future capabilities and production capacity of the Mooresboro Facility, (D.I. 1 at ¶¶ 3-4; Jani Action, D.I. 1 at ¶¶ 3-4). The Complaints allege, however, that thereafter (and unbeknownst to the investing public), the Mooresboro Facility was plagued with severe construction, engineering and operational defects. (D.I. 1 at ¶ 6; Jani Action, D.I. 1 at ¶ 6) Yet throughout the Class Period, Defendants are alleged to have provided operational updates that misstated the extent and seriousness of the facility's problems, provided misleading zinc production figures and failed to disclose cash and revenue shortfalls that threatened the Company's ability to pay its creditors and to complete the facility's ramp-up. (D.I. 1 at ¶ 7; Jani Action, D.I. 1 at ¶ 7)

         It is alleged that through 2014 and into early 2015, the Company's stock thus traded at an artificially inflated price. (D.I. 1 at ¶ 8; Jani Action, D.I. 1 at ¶ 8) The Company proceeded forward with a January 2015 Horsehead stock offering (offering 5.75 million shares of its common stock at $12.75 per share, and generating $73 million in gross offering proceeds), despite allegedly making similarly false and misleading disclosures in the relevant registration statement. (D.I. 1 at ¶ 9; Jani Action, D.I. 1 at ¶ 9). The Complaints allege that only thereafter, in a series of partial disclosures, did the Company reveal various production problems at the Mooresboro Facility. (D.I. 1 at ¶ 10; Jani Action, D.I. 1 at ¶ 10) At the same time, however, certain Defendants continued to make allegedly false and misleading positive statements about the Company's ability to address these issues and to grow in the future. (Id.)

         By January 2016, the Company had seen its corporate debt downgraded, and it had failed to make a $1.8 million interest payment to creditors. (D.I. 1 at ¶ 11; Jani Action, D.I. 1 at ¶ 11) Then on January 22, 2016, the Company announced that it was idling the Mooresboro Facility. (D.I. 1 at ¶ 12; Jani Action, D.I. 1 at ¶ 12) On February 2, 2016, the Company announced that it had initiated bankruptcy proceedings under Chapter 11 of the U.S. Bankruptcy Code. (D.I. 1 at ¶ 13; Jani Action, D.I. 1 at ¶ 13) And in a bankruptcy filing on that same day, the Company made additional disclosures about the significant issues that plagued the Mooresboro Facility, stating that it would take approximately $82 million in funds over two years to get the facility back on track. (Id.)[3]

         The Complaints allege that as a result of the Defendants' false statements, Horsehead common stock traded at an artificially inflated price during the Class Period, but that after the above-referenced revelations were made public, Horsehead common stock plummeted, causing economic harm and damages to class members. (D.I. 1 at ¶ 15; Jani Action, D.I. 1 at ¶ 15) By February 2016, when trading in Horsehead stock was suspended, the stock was down to $0.08 per share in value, and is now said to be essentially worthless. (Id.)

         On June 21, 2016, Cook and Dyson and the Anackers each filed the instant motions. (D.I. 10, D.I. 13; Jani Action, D.I. 11) Cook is a retired U.S. Army Master Sergeant and value investor who purchased Horsehead shares between July 2014 and January 2016. (D.I. 25, ex. C at 2) Dyson is a United Kingdom-based institutional investment manager that purchased Horsehead securities on behalf of its clients. (D.I. 30, ex. A at ¶ 2) The Anackers are a married couple, (D.I. 29 at 1), and are Horsehead shareholders, (D.I. 12, exs. B, C).

         The motions were fully briefed as of July 18, 2016. (D.I. 29, D.I. 30; Jani Action, D.I. 28, D.I. 29). On July 29, 2016, Chief Judge Leonard P. Stark ordered that the cases be referred to this Court to hear and resolve all pre-trial matters, up to and including the resolution of case-dispositive motions. (D.I. 31; Jani Action, D.I. 30)

         II. DISCUSSION

          Below the Court first briefly addresses Cook and Dyson's request that the two cases be consolidated. Thereafter, the Court will take up the movants' competing requests to be designated as Lead Plaintiff and for their counsel to be designated as Lead Counsel and Liaison Counsel, respectively.

         A. Consolidation

         "If actions before the court involve a common question of law or fact, the court may ... consolidate the actions[.]" Fed.R.Civ.P. 42(a). The Court has broad authority to consolidate actions for trial involving common questions of law or fact if, in its discretion, it finds that such consolidation would "facilitate the administration of justice." Ellerman Lines, Ltd. v. Atlantic & Gulf Stevedores, Inc., 339 F.2d 673, 675 (3d Cir. 1964); see also Resnikv. Woertz, 774 F.Supp.2d 614, 624-25 (D.Del. 2011).

         Here Cook and Dyson argue that the two cases should be consolidated, and the Anackers do not oppose that request. (D.I. 13; D.I. 24 at 1 n.l) All other movants had also sought consolidation. (See supra n.2) And there can be no dispute that both cases involve common questions of law and fact. Both actions were filed by Horsehead shareholders, and the respective Defendants in both actions are identical. (D.I. \;Jani Action, D.I. 1) Both Complaints allege violations of the same statutes and rules, and they both contain nearly identical factual allegations. (Id.) For all of these reasons, the request for consolidation of the cases for all purposes shall be granted. See, e.g., Resnik, 774 F.Supp. 2d at 625.

         B. Designation of Lead Plaintiff and of Lead Counsel and Liaison Counsel

         1. Legal Standard

         The Private Securities Litigation Reform Act of 1995 ("PSLRA") establishes that in any private action arising under the Exchange Act that is brought as a class action, the Court shall consider any motion made by a class member and shall appoint as lead plaintiff the member or members of the purported plaintiff class the Court determines to be the "most capable of adequately representing the interests of class members" (or, in other words, the '"most adequate plaintiff"). 15 U.S.C. ¶ 78u-4(a)(3)(B)(i). To do so, the Court engages in a two-step process. OFI Risk Arbitrages v. Cooper Tire & Rubber Co., 63 F.Supp.3d 394, 399 (D. Del. 2014); Vandevelde v. China Nat. Gas, Inc., 277 F.R.D. 126, 131 (D. Del. 2011).

         First, the Court must identify the presumptive lead plaintiff. OFI Risk Arbitrages, 63 F.Supp.3d at 399; Vandevelde, 277 F.R.D. at 131. Under the PSLRA, the presumptive lead plaintiff is the person or group that (1) "has either filed the complaint or made a motion" to serve as lead plaintiff; (2) "has the largest financial interest in the relief sought by the class" and (3) "otherwise satisfies" the requirements of Federal Rule of Civil Procedure 23 ("Rule 23"). 15 U.S.C. ¶ 78u-4(a)(3)(B)(iii)(I)(aa)-(cc); see also OFI Risk Arbitrages, 63 F.Supp.3d at 399.

         Second, the Court must determine whether the presumption has been rebutted. OFI Risk Arbitrages, 63 F.Supp.3d at 399; Vandevelde, 277 F.R.D. at 131. The presumption may be rebutted by opposing parties "only upon proof by a member of the purported plaintiff class" that the presumptive lead plaintiff "will not fairly and adequately protect the interests 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)(aa)-(bb); see also OFI Risk Arbitrages, 63 F.Supp.3d at 399.

         Once the most adequate plaintiff is determined by the Court, 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); see also OFI Risk Arbitrages, 63 F.Supp.3d at 399. Both the selection of a lead plaintiff and the approval of lead counsel in a case like this are committed to the Court's discretioa OFI Risk Arbitrages, 63 F.Supp.3d at 399; Vandevelde, 277 F.R.D. at 131.

         2. Discussion

         a. Presumptive Lead Plaintiff

         The threshold determination of the presumptive lead plaintiff "should be a product of the court's independent judgment[.]" In re Cendant Corp. Litig, 264 F.3d 201, 263 (3d Cir. 2001); see also OFI Risk Arbitrages, 63 F.Supp.3d at 399. Below, the Court assesses the factors set out by the PSLRA that are relevant to that determination.

         (1) Motion for Appointment

         The PSLRA requires that the presumptive lead plaintiff must have filed the complaint or made a motion for appointment within 60 days of the publication of notice regarding the action. 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). Cook and Dyson, as well as the Anackers, have filed the requisite motions within the appropriate time frame.

         (2) Largest ...


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