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Chandler v. Ulta Beauty, Inc.

United States District Court, N.D. Illinois, Eastern Division

June 26, 2018

BARBARA CHANDLER, Plaintiff,
v.
ULTA BEAUTY, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          ROBERT M. DOW, JR. UNITED STATES DISTRICT JUDGE

         This is a securities class action against Ulta Beauty, Inc. (“Ulta” or the “Company”), Mary N. Dillon, and Scott M. Settersten (collectively, the “Defendants”). Four movants sought appointment as lead plaintiff and lead counsel in this matter: (1) Daniel Hurlbut, Marlene Hurlbut, Cynthia Busse, and Lawrence Banker (collectively, the “Hurlbut Group”) [14; 32][1], (2) Asha Ullah, Ahmad Ullah, and Dr. Vaijinath Chakote (collectively, the “Ullah Group”) [22], (3) Iron Workers Local 580 (the “IW 580”)[2] [23], and (4) Lehigh County Employees Retirement Fund [19]. Lehigh County Employees Retirement Fund filed a motion to withdrawal [40] its motion for appointment as lead plaintiff and approval of selection of lead counsel. Accordingly, Lehigh County Employees Retirement Fund's motion to withdraw [40] is granted and its motion for appointment as lead plaintiff and approval of selection of lead counsel [19] is stricken. For the reasons set forth below, the Hurlbut Group's motion to for leave to file a sur-reply [53] is granted. The Court grants the motion [14; 32] of Lawrence Banker, Cynthia Busse, Danny Hurlbut, Marlene Hurlbut for appointment as lead plaintiffs and approves their selection of Levi & Korsinsky, LLP as lead counsel and Salas Wang LLC as liaison counsel. The Court denies the remaining motions [22; 23] for appointment as lead plaintiff. The case is set for further status on July 17, 2018 at 10:00 a.m.

         I. Background

         Defendant Ulta Beauty, Inc. operates a chain of beauty stores that offers cosmetics, fragrance, skin and hair care products, and salon services to customers throughout the United States. [1, at ¶ 2.] Defendant Mary N. Dillon served at all relevant times as the Company's Chief Executive Officer and Director. Id. at ¶ 16. Defendant Scott M. Settersten served at all relevant times as the Company's Chief Financial Officer, Treasurer and Assistant Secretary. Id. at ¶ 17.

         Plaintiff alleges that “Defendants made false and/or misleading statements and/or failed to disclose: (i) the Company was engaged in the widespread practice of repackaging returned cosmetics and re-shelving them alongside unblemished products to sell at full retail price, and (ii) that as a result of the foregoing, Ulta's public statements were materially false and misleading at all relevant times.” Id. at ¶ 4. On February 9, 2018, “media outlets reported that a consumer class action had been filed against the Company, alleging that the Company engaged in the ‘widespread and surreptitious' practice of repacking returned cosmetics and re-shelving them alongside unblemished products to sell at full price.” Id. at ¶ 5. The price of Ulta's stock fell following this news. Id. at ¶ 6. On February 23, 2018, CBS News published a story reporting on statements made by at least one former Ulta employee indicating that Ulta store managers pressured the Company's employees to clean and resell used products. Id. at ¶ 7. The price of Ulta's stock fell further following this news. Id. at ¶ 8.

         On March 2, 2018, Plaintiff Barbara Chandler filed this securities class action on behalf of all persons who purchased or otherwise acquired Ulta securities between March 30, 2016 and February 23, 2018, both days inclusive, seeking to recover damages caused by Defendants' alleged violations of federal securities laws. Id. at ¶ 1. Pending before the Court are the motions to be appointed as lead plaintiff and for approval of counsel filed by (1) the Hurlbut Group, (2) the Ullah Group, and (3) IW 580.

         II. Legal Standard

         The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides guidelines for the appointment of a lead plaintiff in a securities class action case. The PSLRA requires that the Court “appoint as a lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of the class members[.]” 15 U.S.C. § 78u-4(a)(3)(B)(i). The PSLRA establishes a rebuttable presumption that the “most adequate plaintiff” is the “person or group of persons” who “has either filed the complaint or made a motion in response to a notice, ” “has the largest financial interest in the relief sought by the class, ” and “otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.” 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(aa); (bb); and (cc). This presumption may be rebutted, however, if a member of the purported class establishes that the “presumptively most adequate 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). The PSRLA further provides that the “most adequate 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).

         III. Analysis

         A. Timing of Motions

         By statute, any motions for lead plaintiff of a class action brought under the PSLRA must be made within 60 days of the Early Notice. See 15 U.S.C. §77z-1(a)(3)(A)(i)(II). The remaining movants all filed timely motions [14; 22; 23; 34] and therefore have satisfied 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa). However, the IW 580 raised new arguments in its reply brief. Specifically, IW 580 dropped Iron Workers Locals 40, 361 & 417 as a proposed co-lead plaintiff, changed its loss calculation, argued that the Hurlbut Group was inadequate, and argued that the Court should appoint IW 580 because it is the only institutional investor seeking appointment. Because IW 580 raised these arguments for the first time in its reply brief, these arguments could be deemed to be waived. Fletcher v. ZLB Behring LLC, 2006 WL 218164, at *4 (N.D. Ill. Jan. 27, 2006). However, for the sake of completeness, the Court addresses the merits of these arguments. Accordingly, the Court grants the Hurlbut Group's motion for leave to file a sur-reply [53] and will consider the arguments raised in the Hurlbut Group's sur-reply as part of its analysis.

         B. Largest Financial Interest

         The PSLRA presumes that the most adequate plaintiff is the plaintiff who-in addition to satisfying other requirements-has the largest financial interest in the relief sought by the class. “The largest financial interest provision seeks to increase the likelihood that institutional investors will serve as lead plaintiffs by requiring courts to presume that the member of the purported class with the largest financial stake in the relief sought is the ‘most adequate plaintiff.' The PSLRA, however, does not specify how courts should measure the largest financial interest in the relief sought by the class.” City of Sterling Heights Gen. Employees' Ret. Sys. v. Hospira, Inc., 2012 WL 1339678, at *3 (N.D. Ill. Apr. 18, 2012) (internal citations and quotations omitted). Most courts consider: “(1) the total number of shares purchased during the class period; (2) the net shares purchased during the class period (in other words, the difference between the number of shares purchased and the number of shares sold during the class period); (3) the net funds expended during the class period (in other words, the difference between the amount spent to purchase shares and the amount received for the sale of shares during the class period); and (4) the approximate losses suffered.” Hospira, Inc., 2012 WL 1339678, at *4 (citing Lax v. First Merch. Acceptance Corp., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997)); see also In re Cendant Corp. Litig., 264 F.3d 201, 263 (3d Cir. 2001) (“[W]e agree with the many district courts that have held that courts should consider, among other things: (1) the number of shares that the movant purchased during the putative class period; (2) the total net funds expended by the plaintiffs during the class period; and (3) the approximate losses suffered by the plaintiffs.” (citations omitted)).

         In their initial motions, each of the remaining movants agreed that the fourth factor-the approximate losses suffered-is the most critical factor in determining a moving party's financial interest. [24, at 5; 28, at 6; 34, at 9.] This is consistent with the approach taken by most courts. See Hospira, Inc., 2012 WL 1339678, at *3 (“While courts differ on the precise weight to apply to each factor, most courts agree that fourth factor-the approximate losses suffered-is the most salient factor in assessing the lead plaintiff.” (citations omitted)); Takara Trust v. Molex, Inc., 229 F.R.D. 577, 579 (N.D. Ill. 2005) (“most courts simply determine which potential lead plaintiff has suffered the greatest total losses”); see also In re CMED Sec. Litig., 2012 WL 1118302, at *3 (“In giving weight to the four factors, courts in this District, as others, place the most emphasis on the last of the four factors: the approximate losses suffered by the movant above any weight accorded to net shares purchased and net expenditures.” (citations and quotations omitted)); Foley v. Transocean Ltd., 272 F.R.D. 126, 128 (S.D.N.Y. 2011) (“[W]e, as have other courts, shall place the most emphasis on the last of the four factors, the approximate loss suffered by the movant.” (collecting cases)); In re Vicuron Pharms., Inc. Sec. Litig., 225 F.R.D. 508, 511 (E.D. Pa. 2004) (finding the ...


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