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Mortimer v. Diplomat Pharmacy Inc.

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

July 19, 2019

CHASE MORTIMER, Plaintiff,
v.
DIPLOMAT PHARMACY INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          HON, VIRGINIA M. KENDALL UNITED STATES DISTRICT JUDGE.

         This is a securities class action against Diplomat Pharmacy, Inc., (“Diplomat”), Brian T. Griffin, Jeffrey Park, Joel Saban, and Atul Kavthekar (collectively, “Defendants”). Two movants now seek appointment as lead plaintiff and lead counsel in this matter: Arsany Girgis [Dkt. 27] and the Iron Workers Local No. 25 Pension Fund (the “Pension Fund” or the “Fund”) [Dkt. 26]. For the reasons set forth below, the Court grants the Pension Fund's motion for appointment as lead plaintiff [Dkt. 26] and approves its selection of Robins Geller Rudman & Dowd LLP (“Robins Geller”) as lead counsel. The Court denies Girgis's motion [Dkt. 27] and dismisses Eugene Klabak's motion [Dkt. 21] as moot.

         I. Background

         Defendant Diplomat provides specialty pharmacy services. In 2017, Diplomat entered the Pharmacy Benefit Management (“PBM”) business by acquiring National Pharmaceutical Services (“NPS”) and LDI Integrated Pharmacy Services (“LDI”). Three complaints were filed and eventually consolidated before this Court. (See Dkt. 42.) The complaints generally allege that Defendants violated federal securities laws by making false or misleading statements and failing to disclose key facts about the integration and growth of Diplomat's PBM business, the LDI and NPS acquisitions, impending impairment charges to its PBM business, and the nature of its preliminary 2019 full-year outlook. See Dkt. 1 ¶ 34; see also Dkt. 1, No. 19 C 2635 (“Prentice Compl.) 26; Dkt. 1, No. 19 C 2631 (Riehm Compl.”) 26. On November 6, 2018, Diplomat announced its financial results for the third quarter ending September 30, 2018 and Defendants attributed its “solid” results to its ability to “successfully execute on [its] growth plan” and “strong . . . PBM performance.” Dkt. 1 ¶ 24; Prentice Compl. ¶24; Riehm Compl. ¶24. The corrective statements and disclosures at issue in the complaints are discussed in further detail below.

         There were originally five movants seeking appointment as lead plaintiff. Alexander Virgili withdrew his motion before the Court entered a briefing schedule on the movants' motions. (Dkt. 37, 42.) On May 15, 2019, Feihua Xu and Frank Mazur filed a notice of non-opposition to the Pension Fund's motion for appointment as lead plaintiff. (Dkt. 51.) The same day, Eugene Klabak filed a notice of non-opposition to the competing motions. (Dkt. 50.) Only Girgis and the Fund now remain.

         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 mem-bers[.]” 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). 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. Discussion

         a. Largest Financial Interest

         The PSLRA presumes that the most adequate plaintiff is the one 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.” Chandler v. Ulta Beauty, Inc., No. 18 CV- 577, 2018 WL 3141763, at *2 (N.D. Ill. June 26, 2018) (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.” Id. (citing Lax v. First Merch. Acceptance Corp., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997).

         The movants agree that the fourth factor, approximate losses suffered, is most important for determining a moving party's financial interest, but they disagree about how losses should be calculated here. In his opening brief, Girgis claimed $156, 079.32 in losses. (Dkt. 29 at 6; Dkt. 31-1, 31-2.) He later filed a corrected certification and corrected loss analysis adjusting his claimed losses to $130, 006.90. (Dkt. 45-46, Dkt. 53 at 4-5.) Though the Pension Fund takes issue with the propriety of Girgis having filed a corrected certification and adjusted loss amount, it does not dispute Girgis's adjusted claimed losses of $130, 006.90.

         The Pension Fund claims $220, 005.61 in losses. Girgis argues that the Fund actually suffered no compensable losses and has no financial interest in the case because it is an “in-and-out trader, ” having purchased and sold all its shares before the alleged fraud was revealed for the first time. Girgis argues that the Court should apply the Dura loss causation standard at this stage and find that the complaints do not allege that Defendants caused the Fund's losses and that the Fund thus has no financial interest in the case and should not be appointed lead plaintiff. (Dkt. 53 at 7-10) (citing Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 345-46 (2005). The Fund argues that the Court should not apply Dura at the lead-plaintiff stage, but that even if it does, the Fund still has a larger financial interest than Girgis because it sold its shares after a partial corrective disclosure and its claimed losses remain $220, 005.61 even if Dura applies.

         Some courts consider loss causation when appointing a lead plaintiff under the PSLRA. See, e.g., Chandler, 2018 WL 3141763, at *4 (excluding losses incurred before corrective disclosures from movant's financial interest calculation); In re Bally Total Fitness Sec. Litig., 2005 WL 627960, at *6 (N.D. Ill. March 15, 2005) (finding that presumptive lead plaintiff status was rebutted where in-and-out trader would be required to devote significant time and attention to loss causation issues); Pelletier v. Endo International PLC, 2018 WL 3035745, at *2 (E.D. Pa. June 19, 2018) (holding that losses incurred before any disclosures could not have been caused by the disclosures and should not be included in the “‘largest financial interest' calculus”); Sallustro v. CannaVest Corp., 93 F.Supp.3d 265, 273 (S.D.N.Y. 2015) (“Therefore, when evaluating a plaintiff's financial interest for purposes of selecting a lead plaintiff, courts in this Circuit consider that plaintiff's recoverable loss, and do not take into account losses from shares sold prior to corrective disclosures.”)

         The Pension Fund argues that the Court should consider losses calculated on a LIFO (last in, first out) and FIFO (first in, first out) basis rather than Girgis's proposed “compensable damages” methodology because Girgis relied on the former method in his opening brief and only switched to the latter method after learning that the Fund's claimed losses were larger than his. There are some courts that frown upon a movant switching theories midstream after it learns it is not the top dog. See, e.g., Chandler, 2018 WL 3141763, at *3 n.5 (“Indeed, courts have rejected proposals to alter a proposed loss calculation method made after it was apparent that the proponent of the change would not have the largest financial interests under the initially proposed method.”); Constr. Workers Pension Tr. Fund v. Navistar Int'l Corp., 2013 WL 3934243, at *3 (N.D. Ill. July 30, 2013) (“It was only after Retirement Funds discovered that it did not have the largest loss amount when compared to other Plaintiffs that Retirement changed its position in later filings as to the proper loss calculation, seeking to exclude pre-June 7, 2012 losses.”); Cook v. Allergn PLC, 2019 WL 1510894, at *3 (S.D.N.Y. Mar. 21, 2019) (“The fact ...


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