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Howard v. Liquidity Services, Inc.

United States District Court, District of Columbia

September 6, 2017

LEONARD HOWARD, individually and on behalf of all others situated, Plaintiff,


          BERYL A. HOWELL, Chief Judge

         In this 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.

         The 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.[1]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.

         I. BACKGROUND

         The 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.

         A. Factual Background[2]

         The 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.

         1. Liquidity Services, Inc.

         LSI, 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.

         The 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.

         2. Department of Defense Contracts

         Prior 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.

         After 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. ¶3.

         Around 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.

         In 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.

         3. Alleged Misrepresentations and Omissions

         Based 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).

         As 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.[3]

         The 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).

         Indeed, 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[4]] 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).

         LSI 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 original).

         The 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).

         On May 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.

         The 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.

         4. The Plaintiffs' Investment Advisors

         Co-lead 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.

         B. Procedural History

         The 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.

         Thereafter, 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.[5] 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).

         The 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 Opinion.[6]


         The legal standards governing the plaintiffs' motion for class certification and the defendants' motion for summary judgment are set out in turn.

         A. Class Certification

         Class 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).

         The 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)).

         B. Summary Judgment

         Federal 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).

         "Evaluating 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).


         In this 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." Id.

         The 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 fraud-on-the-market theory.").

         A. The Basic Pres umption

         A 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).

         To 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).

         That 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.").

         The defendants do not dispute that the plaintiffs have properly invoked Basic's rebuttable presumption.[7] 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 Basic presumption).[8]

         B. The Plaintiffs' Motion for Class Certification

         The 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 addressed seriatim.

         1. Rule 23(a) Requirements

         As noted, Rule 23(a) requires the plaintiff to demonstrate that the putative class meets the numerosity, commonality, typicality, and adequacy of representation prerequisites for certification.

         a. Numerosity

         Rule 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.

         b. Commonality

         Rule 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)).

         While 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 ...

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