United States District Court, District of Columbia
LEONARD HOWARD, individually and on behalf of all others situated, Plaintiff,
LIQUIDITY SERVICES INC., WILLIAM P. ANGRICK III, and JAMES M. RALLO, Defendants.
A. HOWELL, Chief Judge
putative shareholder class action, the plaintiffs allege that
Liquidity Services, Inc. ("LSI") publicly touted
its retail division as a driver of the company's overall
growth despite internal knowledge that the retail division
was troubled and suffering from deteriorating margins due to
heightened competition. The plaintiffs assert claims under
section 10(b) and of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the Security Exchange
Commission's Rule 10b-5, promulgated thereunder,
see 17 C.F.R. §240.10b-5, as well as section
20(a) of the Exchange Act, alleging that the defendants
disseminated "materially false and misleading
information" and omitted "other material
information that artificially inflated Liquidity's stock
price." Amended Compl. ("Am. Compl.") ¶
1, ECF No. 35. When the truth emerged, LSI's stock price
plummeted, resulting in financial losses to investors who
purchased the stock at inflated prices.
co-lead plaintiffs, Caisse de depot et placement du Quebec
("Caisse") and the Newport News Employees'
Retirement Fund ("NNERF"), now seek to certify a
class consisting of purchasers of common stock of LSI from
February 1, 2012, to May 7, 2014, (the "class
period") against the defendants: LSI; the company's
Chief Executive Officer, William Angrick; and the
company's Chief Financial Officer, James
Rallo.Presently before the Court are the
plaintiffs' motion for class certification and
appointment of class representatives and class counsel, and
the defendants' related motion for summary judgment on
the issue of the co-lead plaintiffs' reliance on alleged
misrepresentations and omissions. For the reasons set forth
below, the plaintiffs' motion for class certification and
appointment of class representatives and class counsel is
granted. The defendants' motion for partial summary
judgment is denied.
plaintiffs' allegations are detailed in the Court's
prior opinion in this action. See Howard v. Liquidity
Servs., Inc., 177 F.Supp.3d 289, 295-303 (D.D.C. 2016).
The factual background and procedural history relevant to
understanding the pending motion for class certification and
motion for summary judgment are set out below.
factual background proceeds in four parts. Following an
overview of LSI's business model, and LSI's
Department of Defense business, the alleged
misrepresentations concerning the retail division are set
out. This section concludes with an overview of the
plaintiffs' investment advisories, since the
defendants' opposition to class certification focuses in
large part on purported distinctions between these advisories
and other putative class members.
Liquidity Services, Inc.
founded in 1999, provides online auction marketplaces for
"surplus and salvage assets"-also known as a
"reverse supply chain"-for which service the
company retains a percentage of the sale proceeds. Defs.'
Mot. Summ. J., Ex. 1, LSI Form 10-K for Fiscal Year Ended
Sept. 30, 2014 at 1, ECF No. 83-2. LSI is comprised of three
business divisions: (1) the retail division, sometimes
referred to as the commercial division, which sells consumer
goods; (2) the capital assets division, which sells large
items including material-handling equipment, rolling stock
such as trucks and military tanks, heavy machinery, and scrap
metal; and (3) the public sector division, which sells
surplus and salvage assets on behalf of local and state
governments. See Defs.' Opp'n Pls.' Mot.
Class Cert., Ex. 42, LSI Corporate Structure Chart, ECF No.
81-43; Defs.' Mem. Supp. Mot. Protective Order at 3, ECF
No. 65. The capital assets division is further divided by
type of seller into the "commercial capital assets
division" and Department of Defense ("DoD")
business. See LSI Corporate Structure Chart;
Defs.' Mem. Supp. Mot. Protective Order at 3. The
commercial capital assets division consists of three online
marketplaces, each with a particular focus: Truck Center,
Network International, and Golndustry. Defs.' Mem. Supp.
Mot. Protective Order at 3; Disc. Hr'g Tr. dated Oct. 14,
2016 ("Disc. Hr'g Tr.") at 5:2-8, ECF No. 72.
Network International enables energy sector clients to sell
equipment in the oil, gas, and petrochemical industries.
Golndustry provides surplus asset management, auction, and
valuation services largely to Asian and European clients in
the manufacturing sector. Truck Center sells trucks and
trailers through online auctions. -See Defs.' Mem. Supp.
Mot. Dismiss at 7, ECF No. 40; Am Compl. ¶ 49.
Court previously dismissed claims based on alleged
misrepresentations regarding "inorganic growth" in
the commercial capital assets division, i.e., growth
by the acquisition of Network International and Golndustry.
Howard, 177 F.Supp.3d at 317; Disc. Hr'g Tr. at
9:1-3. The Court has also clarified that, based on the
plaintiffs' evidence, the allegations of material
misrepresentations about "organic growth"-growth
through sustained margins and improvements in sales-concern
only the retail division, and has limited discovery
accordingly. Disc. Hr'g Tr. at 9:5-16, 14:18-20.
Consequently, of LSI's three business divisions, the
capital assets and the public sector divisions are not at
issue. Id. at 11:5-8, 8:10-18, 10:15-18. Thus, the
only remaining allegations concern misrepresentations and
omissions regarding organic growth in the retail division.
Department of Defense Contracts
to and during the class period, a large portion of LSI's
revenue came from exclusive rights to sell DoD surplus and
scrap property. LSI had two contracts with DoD: a non-rolling
surplus goods contract, which granted LSI the exclusive right
to sell surplus property turned in to the Defense Logistics
Agency ("DLA"), and an exclusive scrap material
contract, which granted LSI the right to sell substantially
all DoD scrap property turned into the DLA, such as metals,
alloys, and building materials. Defs.' Mot. Dismiss, Ex.
1, LSI Form 10-K for Fiscal Year Ended Sept. 30, 2012 at 6,
ECF No. 40-2 ("The Surplus Contract accounted for 29.9%,
30.3%, and 27.2% of [LSI] revenue ... for the fiscal years
ended September 30, 2010, 2011 and 2012, respectively. .. .
the Scrap Contract .. . accounted for 25.0%, 25.5%, and 16.1%
of [LSI] revenue ... for the fiscal years 2010, 2011 and
2012, respectively."). LSI entered into the surplus
contract in 2001 and renewed the contract in 2008; LSI
entered into the scrap goods contract in 2005. Id.
In late November of 2012, LSI acknowledged: if "we are
not awarded new DoD contracts when our current contracts
expire, [if] any of our DoD contracts are terminated[, ] or
[if] the supply of assets under the contracts is
significantly decreased, we would experience a significant
decrease in revenue and have difficulty generating
income." Id. at 8.
the scrap goods contract expired in June 2012, DoD extended
the contract for two additional one-year terms, through June
2014. Id. at 6. The surplus contract expired in
February 2012, at which time DoD exercised two one-year
renewal options, extending the contract until February 2014.
Id. The plaintiffs allege that as the 2014 contract
expiration dates approached, "[f]ear was mounting . . .
within all levels of the Company" that the contracts
with DoD, which were "subject to a competitive bidding
process, " would not "be renewed on the same
favorable terms, or even renewed at all." Am. Compl.
this time, LSI "sought to expand into the larger and
more lucrative retail and commercial markets" because
"it could not count on maintaining an exclusive
relationship with the federal government indefinitely."
Pls.' Mem. Supp. Mot. for Class Cert. ("Pls.'
Mem. Supp. Class Cert.") at 3, ECF No. 64. This
expansion entailed increased efforts and acquisitions in the
retail reverse supply chain market and the commercial capital
assets market, including expanding its distribution center in
Dallas, Texas, which opened in 2005 to sell excess goods for
major commercial retailers. Specifically, LSI aimed to have
deeper client engagement with existing clients, and to expand
its geographic reach and client base. See id.;
see also Am. Compl. ¶¶ 8, 53. In October
2011, LSI acquired Jacob's Trading, which sells bulk
returns from well-known retailers. LSI Form 10-K for Fiscal
Year Ended Sept. 30, 2012 at 3, 8.
April 2014, LSI lost the DoD surplus contract to a
competitor, at the same time LSI's DoD scrap contract was
renewed on new and less favorable terms.
Alleged Misrepresentations and Omissions
in part on information supplied by twenty confidential
witnesses ("CWs"), including a vice-president,
directors, and other senior managers of LSI components, the
plaintiffs allege that, from February 1, 2012, to May 7,
2014, the defendants constructed a story of sustained growth
and expansion of LSI's business outside of the DoD
contracts. See Am. Compl. ¶¶ 1-20. In
particular, the plaintiffs contend that the defendants issued
fraudulent and misleading public statements on fifteen
separate days over nine consecutive fiscal quarters regarding
the growth of its non-DoD business-particularly emphasizing
the "two pillars of growth: (1) 'organic' growth
through sustained margins and
improvements in client penetration and services; and (2)
'inorganic growth through Liquidity's
acquisition strategy." Am. Compl. ¶ 5
(emphasis in original). The plaintiffs allege that
misrepresentations artificially inflated stock prices
throughout the class period, Am. Compl. ¶ 60, and that
LSI's CEO, Mr. Angrick, exploited this "wave of
artificial stock inflation" with "strategically
timed stock sales during the Class Period" that
"paid him $68.2 million"
id. ¶ 18 (emphasis in original).
noted above, only those allegations concerning
misrepresentations about the organic growth of LSI's
retail division remain. Howard, 177 F.Supp.3d at
317; Disc. Hr'g Tr. at 14:18- 20. On two of the fifteen
days originally at issue, the defendants made statements
concerning only inorganic growth (in particular about the
acquisition of Golndustry), and no statements concerning
organic growth in the retail division. Thus, the statements
issued on those two days are no longer relevant because the
plaintiffs' claims concerning inorganic growth through
acquisition have been dismissed.
plaintiffs quote extensively from public statements made in
press releases, earnings calls, and filings with the U.S.
Securities and Exchange Commission ("SEC") during
each of the nine fiscal quarters that fall in the class
period. The plaintiffs allege that the defendants' public
statements about LSI's financial performance through the
February 7, 2014 release were materially misleading and led
investors to believe that the company was growing its retail
division business and maintaining margins. According to the
plaintiffs, contrary to LSI's public statements, the
retail division was suffering from deteriorating margins due
to heightened competition. Am. Compl. ¶¶ 65, 67-73.
As detailed in the Court's previous opinion, the
plaintiffs have made no allegation that the released
financial results were inaccurate. Howard, 177
F.Supp.3d at 306-07. Rather, the plaintiffs allege that the
defendants misrepresented the underlying health of the retail
division by making statements attributing "strong
results" for the fiscal quarters to
"record volumes in both [LSI's] commercial
capital assets and retail supply chain verticals."
Am. Compl. ¶ 106; Defs.' Mot. Dismiss, Ex. 1, FSI
Earnings Conference Call Transcript (dated Feb. 1, 2012) at
3, ECF No. 48-2 (emphasis in original).
LSI and its executives made many statements touting the
strength of the retail division. Beginning on February 1,
2012, and throughout the class period, LSI maintained that
"[r]ecord GMV [gross merchandise
volume] results were primarily driven by
growth in the volume of goods sold in [LSI's]
retailsupply chain and municipal government marketplaces by
existing and new clients." Am. Compl. ¶ 111
(quoting a May 3, 2012 pressrelease) (emphasis in original).
In the third quarter of 2012, LSI continued to report that
the company's "strong results for the quarter
were driven by record volumes in both our retail supply chain
group, which did not slow down from its seasonal high in the
second quarter as we continued to add new clients and further
penetrate existing clients, and continued growth in our
public sector verticals, " id. ¶ 135
(emphasis in the original). During the earnings call
discussing results for the fourth quarter of 2012, Mr.
Angrick repeated that LSI "enjoyed broad-based organic
growth" due to market share expansion within the
commercial, non-DoD, market. Id. ¶ 146. LSI
also publicly claimed that competition was not seriously
affecting the health of its retail division. On December 12,
2012, during LSI's Investor Day presentation, Mr. Rallo
stated that "when you look to the competition, there
is a lot of it, but it's not very formidable."
Id. ¶ 165 (emphasis in original); see also
Id. ¶ 185 (citing Mr. Rallo's statement during
the March 5, 2013 earnings call discussing second quarter
2013 financial results).
continued to proclaim that its retail division was a source
of growth throughout 2013. On January 31, 2013, the
defendants released first quarter results for fiscal year
2013. Id. ¶ 172. During the earnings call with
analysts, Mr. Rallo lauded the "retail business"
for "perform[ing] extremely well during the first
quarter." Id. ¶ 179. On May 2, 2013, LSI
released the second quarter 2013 financial results.
Id. ¶ 187. During the earnings call, Mr. Rallo
again attributed the increase in GMV to the "nice
growth in the retail side of our business, driving
efficiencies there." Id. ¶ 192 (emphasis in
original). While LSI's third quarter earnings fell below
previous guidance, fourth quarter earnings met or exceeded
guidance, which Mr. Angrick attributed to "strong
sequential growth in our retail supply chain marketplaces
driven primarily from new consumer electronic programs with
existing clients." Id. ¶ 220 (emphasis in
defendants' laudatory statements about the retail
division persisted into early 2014. On February 7, 2014, the
defendants released the first quarter financial results for
fiscal year 2014 and Mr. Angrick stated that the
"better than expected financial results"
were "driven by strong topline performance in our
retail supply chain and municipal government
businesses" and that the "retail supply chain
business saw sequential growth in GMV." Id.
¶¶ 226-27 (emphasis in original).
8, 2014, the defendants announced financial results for the
second quarter of fiscal year 2014, which fell below
guidance. Id. ¶ 233. GMV had decreased by 12
percent, while adjusted EBITDA (earnings before interest,
tax, depreciation and amortization) and adjusted diluted EPS
(earnings per share) suffered43 percent and 46 percent
declines, respectively, as compared to the same period in the
previous year. Id. In the statement accompanying
LSI's Form 8-K, filed with the SEC, Mr. Angrick
attributed these results to several factors, including the
loss of the DoD surplus contract; the restructured, less
profitable DoD scrap contract; "mix changes in our . ..
retail businesses and delayed capital asset projects in both
the U.S. and Europe;" and "unusual softness in our
energy vertical due to an industry wide decline in line pipe
and related equipment." Id. ¶ 234; Merrill
Lynch Analyst Report (dated Apr. 3, 2014) at 2-3. On this
news, LSI's stock price plummeted nearly 30 percent.
Id. ¶239. The plaintiffs allege that the
defendants' public statements about the financial
performance of LSI through the February 7, 2014 release were
materially misleading and caused investors to believe that
the company was growing its non-DoD business. Contrary to
LSI's public statements, the plaintiffs allege that the
LSI's components that were publicly touted as driving the
organic and inorganic growth were internally known as drags
on performance. Am. Compl. ¶¶5-10.
plaintiffs further assert that, "[b]etween June 20,
2012, and May 7, 2014, selective information was revealed
about Liquidity's financial performance and outlook,
which had a material adverse impact upon Liquidity's
stock price without revealing the full extent of the known
risks and challenges facing the Company." Id.
¶283. According to the plaintiffs, "[a]nalysts
following the company downplayed the significance of these
partial disclosures, accepting Defendants' efforts to
mitigate and blunt the truth." Id. These
partial disclosures include, inter alia, (1) a June
22, 2012 statement by Mr. Rallo to investors attending a
conference sponsored by Stifel Nicolaus that "margins
may not continue to grow as in the past, " id.
¶ 283(a); (2) a July 1, 2012 report from a short-selling
research firm, Off Wall Street Consulting Group, indicating,
among other things, that non-DoD business is "unlikely
to drive the earnings growth that investors expect, "
and that "competition is increasing, " id.
¶ 283(b); and (3) a September 12, 2012 "reduction
in price target by Stifel Nicolaus, citing a decline in GMV
in August compared to July and sales that were lower than
forecasted], " id. ¶ 283(c). The
plaintiffs claim that, "[w]hile all of these partial
disclosures revealed pieces of information that cast some
doubt on Defendants' bullish claims that Liquidity would
continue to grow and achieve guided profit levels, none of
them provided investors with anything close to the full
picture of the known risks and challenges facing the Company
and its ability to achieve the guidance levels Defendants
provided the market." Id. ¶284.
The Plaintiffs' Investment Advisors
plaintiffs Caisse, an institutional investor headquartered in
Montreal, Canada, id. ¶ 25, and NNERF, a public
pension fund established and administered by the city of
Newport News, Virginia, id. ¶ 26, invested in
LSI through "professional investment managers to whom
they extended discretionary trading authority, "
Pls.' Omnibus Reply Mem. Supp. Mot. Class Cert. &
Opp'n Defs.' Mot. Summ. J. ("Pls.' Omnibus
Reply") at 2n.5, ECF No. 89. Caisse invested in LSI
common stock through VanBerkom and Associates, Inc.
("Van Berkom"). Id.; see also Pls.'
SMF Opp'n Defs.' Mot. Summ. J. (“Pls.'
SMF”) at 6-10, ECF No. 89-1. Mathieu Sirois, a
portfolio manager at Van Berkom, made investment decisions on
behalf of Caisse concerning LSI, and served as Van
Berkom's Rule 30(b)(6) designee. Defs.' Opp'n
Pls.' Mot. Class Cert. at vi; see also generally
Defs.' Opp'n Pls.' Mot. Class Cert., Ex. 1,
Deposition of Mathieu Sirois (“Sirois Dep.”), ECF
No. 81-2. The NNERF used two investment managers who invested
in LSI common stock: Pier Capital, LLC (“Pier
Capital”) and NewSouth Capital Management, Inc.
(“NewSouth”). Pls.' Omnibus Reply at 2 n.5;
see also Pls.' SMF at 54, 71. Alexander Yakirevich, a
portfolio manager at Pier Capital, made investment decisions
on behalf of NNERF concerning LSI, and served as Pier
Capital's Rule 30(b)(6) designee. Defs.' Opp'n
Pls.' Mot. Class Cert. at vi, ECF No. 81; see also
generally Defs.' Mot. Summ. J., Ex. 17, Deposition of
Alexander Yakirevich (“Yakirevich Dep.”), ECF No.
83-19. Alexander McLean, a portfolio manager at New South,
made investment decisions on behalf of NNERF concerning LSI,
and served as New South's Rule 30(b)(6) designee. See
generally Defs.' Opp'n Pls.' Mot. Class Cert.,
Ex. 3, Deposition of Alexander McLean (“McLean
Dep.”), ECF. No. 81-4.
original lead plaintiff, Leonard Howard, an individual
investor, filed this putative class action against LSI and
Messrs. Angrick and Rallo on July 14, 2014. Compl. at 1, ECF
No. 1. Several other shareholders entered appearances to move
for appointment as lead plaintiff. See Mots. Appoint
Counsel & Appointment as Lead PL, ECF. Nos. 25, 26, 29,
31. On October 14, 2014, institutional investors Caisse and
NNERF were appointed as co-lead plaintiffs pursuant to the
Private Securities Litigation Reform Act of 1995
("PSLRA"), 15 U.S.C. § 78u-4(a)(3), given that
these two institutional investors had '"the largest
financial interest in the relief sought by the
class'" and "(b) otherwise satisf[ied] the
requirements of Rule 23 of the Federal Rules of Civil
Procedure, which, as set forth in the PSLRA, establishes the
presumption that the Institutional Investors are the
plaintiffs 'most capable of adequately representing the
interests of class members.'" Order Appointing Lead
PI. & Approving Selection of Counsel at 1, ECF No. 32.
The co-lead plaintiffs filed an amended complaint on December
15, 2014. See generally Km. Compl.
the defendants filed a motion to dismiss pursuant to Federal
Rules of Civil Procedure 12(b)(6) and 9(b), and the PSLRA.
See generally Defs.' Mot. Dismiss. The Court
dismissed part of the plaintiffs' Count I, which alleged
violations of Section 10(b) of the Securities Exchange Act of
1934 based on misrepresentations regarding the acquisitions
of Network International and Golndustry in the commercial
capital assets division. Howard, 177 F.Supp.3d at
311. The Court denied the motion to dismiss the portion of
Count I based on "alleged misrepresentations regarding
the financial performance of Liquidity Services, Inc.'s
retail and commercial capital assets divisions."
Id. Further, the Court denied the defendants'
motion to dismiss plaintiffs' Count II, which alleges
that Messrs. Angrick and Rallo are jointly and severally
liable for LSI's alleged 10(b) violation. Id. at
316-17. As explained above, during a subsequent hearing
addressing a discovery dispute, the Court clarified that the
allegations of material misrepresentations about
"organic growth" through sustained margins concern
only the retail division, based on the evidence proffered by
the plaintiffs thus far. Disc. Hr'g Tr. at
14:18-20. Following the discovery hearing, the
defendants moved for reconsideration of the Court's
previous opinion denying their motion to dismiss, Defs.'
Mot. Recons., ECF No. 73, which was denied, see
Minute Order (dated Dec. 21, 2016).
plaintiffs have now moved to certify a class consisting of
"all persons and entities who purchased or otherwise
acquired the publicly traded common stock" of LSI
"during the period of February 1, 2012 through May 7,
2014, inclusive, " and "who were damaged
thereby." Pls.' Mem. Supp. Class Cert, at 1. Shortly
after filing their opposition to class certification, the
defendants moved for partial summary judgment on the issue of
reliance by the co-lead plaintiffs. See generally
Defs.' Mot. Summ. J., ECF No. 83. The
defendants' opposition to the plaintiffs' motion for
class certification and the defendants' motion for
summary judgment advance similar arguments and, thus, both
motions are addressed in this Memorandum
legal standards governing the plaintiffs' motion for
class certification and the defendants' motion for
summary judgment are set out in turn.
certification is governed by Federal Rule of Civil Procedure
23, which requires two separate inquiries set out in Rule
23(a) and Rule 23(b). See In re Rail Freight Fuel
Surcharge Antitrust Litig., 725 F.3d 244, 249 (D.C. Cir.
2013); Richards v. Delta Air Lines, Inc. , 453 F.3d
525, 529 (D.C. Cir. 2006). First, pursuant to Rule 23(a), the
plaintiff must show that (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. These four requirements are referred to as
numerosity, commonality, typicality, and adequacy of
representation, respectively. See generally Wal-Mart
Stores, Inc. v. Dukes, 564 U.S. 338 (2011). "In
addition to satisfying Rule 23(a)'s prerequisites,
parties seeking class certification must show that the action
is maintainable under Rule 23(b)(1), (2), or (3)."
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614
(1997). Here, the plaintiffs point to Rule 23(b)(3) as the
basis for this putative class action. Accordingly, the
plaintiffs must demonstrate (1) that questions of law and
fact common to the entire class predominate, and (2) the
superiority of the class action method to other methods of
adjudication. Fed.R.Civ.P. 23(b)(3).
D.C. Circuit has cautioned that class certification "is
far from automatic." In re Rail Freight Fuel
Surcharge Antitrust Litig., 725 F.3d at 249. Indeed,
"Rule 23 does not set forth a mere pleading standard. A
party seeking class certification must affirmatively
demonstrate his compliance with the Rule-that is, he must be
prepared to prove that there are in fact
sufficiently numerous parties, common questions of law or
fact, etc." Id. (quoting Wal-Mart, 564
U.S. at 350) (emphasis in original) (internal quotation marks
omitted). Determining whether the class proponent has
satisfied its Rule 23 burden often "resembles an
appraisal of the merits, for 'it may be necessary for the
court to probe behind the pleadings before coming to rest on
the certification question.'" Id. (quoting
Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147,
160 (1982)); see also Wal-Mart, 564 U.S. at 350.
Still, "Rule 23 grants courts no license to engage in
free-ranging merits inquiries at the certification stage.
Merits questions may be considered to the extent-but only to
the extent-that they are relevant to determining whether the
Rule 23 prerequisites for class certification are
satisfied." DL v. District of Columbia, 713
F.3d 120, 125 (D.C. Cir. 2013) (quoting Amgen Inc. v.
Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 466
(2013) (internal quotation marks omitted)).
Rule of Civil Procedure 56 provides that summary judgment
shall be granted "if the movant shows that there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law." Fed.R.Civ.P.
56(a). The moving party bears the burden to demonstrate the
"absence of a genuine issue of material fact" in
dispute, Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986), while the nonmoving party must present specific facts
supported by materials in the record that would be admissible
at trial and that could enable a reasonable jury to find in
its favor, see Anderson v. Liberty Lobby, Inc.
(“Liberty Lobby"), 477 U.S. 242, 256-57
(1986); Allen v. Johnson, 795 F.3d 34, 38 (D.C. Cir.
2015) (noting that, on summary judgment, the appropriate
inquiry is "whether, on the evidence so viewed, a
reasonable jury could return a verdict for the nonmoving
party") (internal quotation marks omitted)); see
also Fed. R. Civ. P. 56(c), (e)(2)-(3).
whether evidence offered at summary judgment is sufficient to
send a case to the jury is as much art as science."
Estate of Parsons v. Palestinian Auth., 651 F.3d
118, 123 (D.C. Cir. 2011). This evaluation is guided by the
related principles that "courts may not resolve genuine
disputes of fact in favor of the party seeking summary
judgment, " Tolan v. Cotton, 134 S.Ct. 1861,
1866 (2014) (per curiam), and "[t]he evidence of the
nonmovant is to be believed, and all justifiable inferences
are to be drawn in his favor, " id. at 1863
(alteration in original) (quoting Liberty Lobby, 477
U.S. at 255). Courts must avoid making "credibility
determinations or weigh[ing] the evidence, " since
"[credibility determinations, the weighing of the
evidence, and the drawing of legitimate inferences from the
facts are jury functions, not those of a judge."
Reeves v. Sanderson Plumbing Products, Inc., 530
U.S. 133, 150-51 (2000) (internal quotation marks omitted);
see also Burley v. Nat'l Passenger Rail Corp.,
801 F.3d 290, 295-96 (D.C. Cir. 2015). In addition, for a
factual dispute to be "genuine, " the nonmoving
party must establish more than "[t]he mere existence of
a scintilla of evidence in support of [its] position, "
Liberty Lobby, 477 U.S. at 252, and cannot rely on
"mere allegations" or conclusory statements,
see Equal Rights Ctr. v. Post Props., 633 F.3d 1136,
1141 n.3 (D.C. Cir. 2011); Veitch v. England, 477
F.3d 124, 134 (D.C. Cir. 2006); Greene v. Dalton,
164 F.3d 671, 675 (D.C. Cir. 1999); Harding v. Gray,
9 F.3d 150, 154 (D.C. Cir. 1993); accord FED. R.
Civ. P. 56(e). If "opposing parties tell two different
stories, one of which is blatantly contradicted by the
record, so that no reasonable jury could believe it, a court
should not adopt that version of the facts for purposes of
ruling on a motion for summary judgment." Lash v.
Lemke, 786 F.3d 1, 6 (D.C. Cir. 2015) (quoting Scott
v. Harris, 550 U.S. 372, 380 (2007)). The Court is only
required to consider the materials explicitly cited by the
parties, but may on its own accord consider "other
materials in the record." Fed.R.Civ.P. 56(c)(3).
lawsuit, the plaintiffs allege violations of sections 10(b)
and 20(a) of the Securities Exchange Act of 1934. Section
10(b) makes it illegal to "use or employ, in connection
with the purchase or sale of any security . . . any
manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the Commission
may prescribe . . . ." 15 U.S.C. § 78j(b). Rule
10b-5, in turn, prohibits "mak[ing] any untrue statement
of a material fact. . . in connection with the purchase or
sale of any security." 17 C.F.R. § 240.10b-5. The
elements of a securities fraud claim brought under §
10(b) and Rule 10b-5 are "(1) a material
misrepresentation or omission by the defendant; (2) scienter;
(3) a connection between the misrepresentation or omission
and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6)
loss causation." In re Harman Intern. Indus., Inc.
Sec. Litig., 791 F.3d 90, 99 (D.C. Cir. 2015) (quoting
Janus Capital Grp., Inc. v. First Derivative
Traders, 564 U.S. 135, 140 n.3 (2011)). Section 20(a) of
the Securities Exchange Act provides that individuals who are
in "control of the primary violator" of other
provisions of the Act, including section 10(b), maybe be held
jointly and severally liable. In re Harman, 791 F.3d
at 111. The elements of a section 20(a) claim are (1) that
"there is a viable claim against the corporation, "
under section 10(b), and (2) that the section 20(a)
defendants qualify as "controlling persons."
plaintiffs have moved for class certification, and the
defendants, in addition to opposing class certification, have
moved for summary judgment. The defendants oppose class
certification primarily on the ground that the proposed lead
plaintiffs are subject to unique defenses regarding the
reliance element of their claims. Similarly, the
defendants' motion for summary judgment contends that
there are no genuine issues of material fact with respect to
the proposed lead plaintiffs' non-reliance on the alleged
misrepresentations and omissions. These two motions are
addressed in turn after setting out the applicable standard
provided in Basic v. Levinson, 485 U.S. 224, 245
(1988), for invoking the presumption of reliance, on which
the plaintiffs rely to establish their reliance on the
alleged misrepresentations and omissions. See Am.
Compl. ¶291 ("Co-Lead Plaintiffs are entitled to a
presumption of reliance on Defendants' material
misrepresentations and omissions pursuant to the
The Basic Pres umption
plaintiff asserting security fraud claims under section 10(b)
and Rule 10b-5 must prove, inter alia, reliance upon
the alleged misrepresentations or omissions in question.
In re Harman, 791 F.3d at 99. As the
Supreme Court has explained, "[t]he reliance element [of
a § 10(b) and Rule 10b-5 securities fraud claim]
'ensures that there is a proper connection between a
defendant's misrepresentation and a plaintiff s
injury.'" Halliburton Co. v. Erica P. John Fund,
Inc., 134 S.Ct. 2398, 2407 (2014) (Halliburton
II) (quoting Amgen, 568 U.S. at 461). "The
traditional (and most direct) way a plaintiff can demonstrate
reliance is by showing that he was aware of a company's
statement and engaged in a relevant
transaction-e.g., purchasing common stock-based on
that specific misrepresentation." Erica P. John
Fund, Inc. v. Halliburton Co., 563 U.S. 804, 810 (2011)
(Halliburton I), la Basic v. Levinson, the Supreme
Court recognized, however, that "requiring such direct
proof of reliance . . . place[s] an unnecessarily unrealistic
evidentiary burden on the Rule 10b-5 plaintiff who has traded
on an impersonal market." Halliburton II, 134
S.Ct. at2407 (citing Basic, 485 U.S. 224, 245
(1988)). Even if a plaintiff could show awareness of the
alleged misrepresentation, he would also have to "show a
speculative state of facts, i.e., how he would have
acted... if the misrepresentation had not been made."
Basic, 485 U.S. at 245. The Supreme Court further
acknowledged that, requiring individualized proof of reliance
would essentially prevent security fraud suits from
proceeding as class actions, as individual issues of reliance
would predominate over common issues, foreclosing class
certification under Rule 23(b). Halliburton II, 134
S.Ct. at 2407-08 (citing Basic, 485 U.S. at 242).
avoid this outcome, the Basic Court established a
rebuttable presumption of reliance, predicated on the notion
that "[a]n investor who buys or sells stock at the price
set by the market does so in reliance on the integrity of
that price. Because most publicly available information is
reflected in market price, an investor's reliance on any
public material misrepresentations . . . may be presumed for
purposes of a Rule 10b-5 action." Basic, 485
U.S. at 247; accord Halliburton II, 134
S.Ct. at 2408. To invoke Basic's presumption of
reliance, "a plaintiff must prove that: (1) the alleged
misrepresentations were publicly known, (2) they were
material, (3) the stock traded in an efficient market, and
(4) the plaintiff traded the stock between when the
misrepresentations were made and when the truth was
revealed." Halliburton II, 134 S.Ct. at 2413
(citing Basic, 485 U.S. at 248; Amgen, 133
S.Ct. at 1198).
said, the Basic presumption of reliance is
"rebuttable rather than conclusive."
Halliburton II, 134 S.Ct. at 2408. A defendant may
rebut the Basic presumption with "[a]ny showing
that severs the link between the alleged misrepresentation
and either the price received (or paid) by the plaintiff, or
[its] decision to trade at a fair market price."
Basic, 485 U.S. at 248. Thus, a defendant can rebut
the Basic presumption, for example, by establishing
that the plaintiff "would have bought or sold the stock
even had he been aware that the stock's price was tainted
by fraud." Halliburton II, 134 S.Ct. at 2408;
see also Basic, 485 U.S. at 249 ("For example,
a plaintiff who believed that Basic's statements [falsely
disclaiming the possibility of a merger] were false and that
Basic was indeed engaged in merger discussions, and who
consequently believed that that Basic stock was artificially
underpriced, but sold his shares nevertheless because of
other unrelated concerns, e.g., potential antitrust
problems, or political pressures to divest from shares of
certain businesses, could not be said to have relied on the
integrity of a price he knew had been manipulated.").
defendants do not dispute that the plaintiffs have properly
invoked Basic's rebuttable
presumption. Rather, the defendants contend that the
presumption has been rebutted. As the defendants acknowledge,
they bear the burden of rebutting the Basic
presumption. Defs.' Mot. Summ. J. at 15
("Basic thus shifted the burden so that
defendants must show 'by a preponderance of the
evidence' that the presumption of reliance is
rebutted." (quoting In re Moody's Corp. Sec.
Litig., 274 F.R.D. 480, 490 (S.D.N.Y. 2011))); see
also Erica P. John Fund, Inc. v. Halliburton Co., 309
F.R.D. 251, 258 (N.D. Tex. 2015) (the defendant bears the
burden of production and persuasion as to rebutting the
The Plaintiffs' Motion for Class Certification
defendants do not dispute that the plaintiffs in this case
satisfy Rule 23(a)'s requirements of numerosity and
commonality, and the 23(b)(3) requirement of superiority of
the class action mechanism. See generally Defs.'
Opp'n Pls.' Mot. Class Cert.; see also
Pls.' Omnibus Reply at 1 n.2. Nevertheless,
"certification is proper only if 'the trial court is
satisfied, after a rigorous analysis, that the prerequisites
of Rule 23(a) have been satisfied, '" Wal-Mart
Stores, Inc., 564 U.S. at 350-51 (quoting General
Telephone Co. of Sw. v. Falcon, 457 U.S. 147, 161
(1982); see also General Telephone Co., 457 U.S. at
160 ("[A]ctual, not presumed, conformance with Rule
23(a) remains . .. indispensable."). Thus, each
applicable Rule 23(a) and relevant Rule 23(b) requirement is
Rule 23(a) Requirements
noted, Rule 23(a) requires the plaintiff to demonstrate that
the putative class meets the numerosity, commonality,
typicality, and adequacy of representation prerequisites for
23(a)(1) permits members of a class to sue as representative
parties if "the class is so numerous that joinder of all
members is impractical." "Absent unique
circumstances, 'numerosity is satisfied when a proposed
class has at least forty members.'" Coleman ex
rel. Bunn v. District of Columbia, 306 F.R.D. 68, 76
(D.D.C. 2015) (quoting Richardson v. L'Oreal USA,
Inc., 991 F.Supp.2d 181, 196 (D.D.C. 2013)). "In
assessing the number of potential class members, the Court
need only find an approximation of the size of the class, not
'an exact number of putative class members.'"
Bunn, 306 F.R.D. at 76 (quoting Pigford v.
Glickman, 182 F.R.D. 341, 347 (D.D.C. 1998)). It is
undisputed that there were more than 1, 000 purchasers of LSI
stock during the class period. See Pls.' Mem.
Supp. Class Cert., Ex. 1, Defs.' Resps. and Objs. to
Pls.' First Set of Reqs. for Admis. ("Defs.' RFA
Responses") at 4, ECF No. 64-3. While the exact number
of class members will not be ascertained until official
notice is given, the putative class likely numbers over 1,
000, and certainly well over 40. Thus, the numerosity
requirement is satisfied.
23(a)(2) requires the plaintiffs to show the existence of
"questions of law or fact common to the class." In
addressing this requirement, the Supreme Court has explained
that the class's "claims must depend upon a common
contention" that is "capable of classwide
resolution-which means that determination of its truth or
falsity will resolve an issue that is central to the validity
of each one of the claims in one stroke."
Wal-Mart, 564 U.S. at 350 (2011); accord
DL, 713 F.3d at 125 (discussing Wal-Mart).
"The touchstone of the commonality inquiry is 'the
capacity of aclasswide proceeding to generate common
answers apt to drive the resolution of the
litigation.'" Bunn, 306 F.R.D. at 82
(emphasis in original) (quoting Wal-Mart, 564 U.S.
at 350). "Depending upon the circumstances, this may
involve many common issues that together provide a
resolution, but 'even a single common question will
do.'" Id. (quoting Wal-Mart, 564
U.S. at 359); see also In re District of Columbia,
792 F.3d 96, 100 (D.C. Cir. 2015) ("[T]he Supreme Court
explained in Wal-Mart that 'for purposes of Rule
23(a)(2) even a single common question will do.'"
(quoting Wal-Mart, 564 U.S. at 359)). "A class
may satisfy the commonality requirement even if factual
distinctions exist among the claims of putative class
members." Bunn, 306 F.R.D. at 82.
"Ultimately, ' [w]hen the party opposing the class
has engaged in some course of conduct that affects a group of
persons and gives rise to a cause of action, one or more of
the elements of that cause of action will be common to all of
the persons affected.'" Id. (quoting
Newberg on Class Actions § 3:20 (5th ed. 2014)).
Commonality often exists in securities class actions where
investors sue for misrepresentations or omissions that had an
impact on stock price. See In re Newbridge Networks
Securities Litig., 926 F.Supp. 1163, 1176 (D.D.C. 1996)
("[W]here members of a class are subject to the same
misrepresentations and omissions, and where alleged
misrepresentations fit within a common course of conduct,
common questions exist and a class action is
appropriate."); In re Veri Sign, Inc. Sec. Litig.,
No. 02-cv-2270, 2005 WL 7877645, at *5 (N.D. Cal. Jan.
13, 2005) ("Commonality is easily met in cases where
class members all bought or sold the same stock in reliance
on the same disclosures made by the same parties, even when
damages may vary." (internal quotation marks omitted)).
the defendants contest other 23(a) requirements that might
overlap with the commonality inquiry, the defendants do not
explicitly dispute that the plaintiffs satisfy Rule
23(a)(2)'s commonality requirement. Here, common
questions emerge from the defendants' common course of
conduct: allegedly issuing misrepresentations and omissions
to the investing public. As the plaintiffs contend in their
motion for class certification, "the common questions of
law and fact at issue here include: (a) whether Defendants
violated the Exchange Act; (b) whether Defendants
misrepresented and/or omitted material facts in their public
statements; (c) whether Defendants knowingly or recklessly
disregarded that their statements were false and misleading;
(d) whether the price of Liquidity's stock was
artificially inflated as a result of Defendants'
misrepresentations and/or omissions; and (e) whether and to
what extent disclosure of the ...