United States District Court, D. Delaware
JAVIER SOTO, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
JAMES M. HENSLER, ROBERT D. SCHERICH and GREGORY M. BELLAND, Defendants. UMESH JANI, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
JAMES M. HENSLER, ROBERT D. SCHERICH and GREGORY M. BELLAND, Defendants.
CHRISTOPHER J. BURKE UNITED STATES MAGISTRATE JUDGE
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) 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.) For the reasons stated below, the
Court GRANTS Cook and Dyson's motion and DENIES the
I.FACTUAL AND PROCEDURAL BACKGROUND
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.)
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.
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 ¶
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.)
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.
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
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).
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,
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.
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
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.
Designation of Lead Plaintiff and of Lead Counsel and Liaison
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).
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.
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.
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.
Presumptive Lead Plaintiff
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.
Motion for Appointment
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.