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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`IN RE ZOOM SECURITIES LITIGATION
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`Case No. 20-cv-02353-JD
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`ORDER RE LEAD PLAINTIFF AND
`LEAD COUNSEL
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`Re: Dkt. Nos. 28, 34, 38
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`This is a consolidated shareholder class action alleging securities fraud by Zoom Video
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`Communications, Inc. (“Zoom”) and its officers. See Dkt. No. 24. Three motions for appointment
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`as lead plaintiff and approval of lead counsel have been filed. Dkt. Nos. 28, 34, 38.1
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`I.
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`APPOINTMENT OF LEAD PLAINTIFF
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`The Court has discussed in other orders the three-step process for appointing a lead
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`plaintiff under the Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-
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`4(a)(3)(B). See In re Stitch Fix, Inc. Securities Litigation, 393 F. Supp. 3d. 833 (N.D. Cal. 2019).
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`The first step is for the plaintiff in the first-filed action to “publiciz[e] the pendency of the action,
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`the claims made and the purported class period” in “a widely circulated national business-oriented
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`publication or wire service.” In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002) (citing 15
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`U.S.C. § 78u-4(a)(3)(A)). The notice must “also state that ‘any member of the purported class
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`may move the court to serve as lead plaintiff.’” Id. There is no dispute that this step was
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`adequately completed by plaintiff Michael Drieu. See Dkt. No. 12 (Notice of Publication).
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`1 One applicant, Lawrence Jarnes, filed a notice of non-opposition, recognizing that other
`applicants had a greater financial interest in the litigation. Dkt. No. 42.
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`Northern District of California
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`United States District Court
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`Case 3:20-cv-02353-JD Document 56 Filed 11/04/20 Page 2 of 5
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`In the next two steps, the Court considers “potential lead plaintiffs one at a time, starting
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`with the one who has the greatest financial interest, and continuing in descending order if and only
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`if the presumptive lead plaintiff is found inadequate or atypical.” Cavanaugh, 306 F.3d at 732. In
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`step two, the Court determines presumptive lead plaintiff status relying on the “presumptive lead
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`plaintiff’s complaint and sworn certification.” Id. at 730. In step three, the other plaintiffs have
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`“an opportunity to rebut the presumptive lead plaintiff’s showing” by “present[ing] evidence that
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`disputes the lead plaintiff’s prima facie showing of typicality and adequacy.” Id.
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`A.
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`The Group Investors
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`To determine presumptive lead plaintiff status, the Court first determines which
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`prospective lead plaintiff evidences the greatest financial interest in the litigation. The self-styled
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`“Zoom Investor Group” is made up of Michael Bens, Bhadresh Shah, Kwan Sing Ng, and Tony D.
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`Pham, and the group claims an aggregate loss of approximately $708,760. Dkt. No. 39 Exh. A.
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`While the PSLRA expressly contemplates that certain groups of persons may collectively serve as
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`lead plaintiff, 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I), “the clear consensus in our district is that a group
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`of investors who had no pre-existing relationship with one another, and whose relationship and
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`group status were forged only by a lawyer, is not appropriate to be lead plaintiff based on their
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`aggregated losses.” Stitch Fix, 393 F. Supp. 3d at 835. The members of the Zoom Investor Group
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`do not claim to have any pre-existing relationship. See Dkt. No. 39 Exh. D (Joint Declaration);
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`see also Dkt. No. 44 Exh. 1 (Further Joint Declaration). Consequently, the Court will not consider
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`this aggregate loss in determining the presumptive lead plaintiff.
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`B.
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`The Individual Investors
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`The Zoom Investor Group urges that it should still be considered the presumptive lead
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`plaintiff based on the total loss claimed by one of its members, Dr. Tony Pham. Dkt. No. 43 at 5.
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`In the alternative, the Zoom Investor Group urges the appointment of Pham as sole lead plaintiff,
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`id. at 8, and has submitted a second joint declaration stating that each member of the group is
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`willing to serve as sole lead plaintiff, Dkt. No. 44 Exh. 1 ¶ 8. A competing candidate, Adam Butt,
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`contends that Pham is not an adequate plaintiff because he is subject to unique defenses due to the
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`timing of his stock sales. Dkt. No. 46 at 8-10; Dkt. No. 47 at 6-7.
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`Northern District of California
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`United States District Court
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`Case 3:20-cv-02353-JD Document 56 Filed 11/04/20 Page 3 of 5
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`The Court “must calculate each potential lead plaintiff’s financial interest in the litigation”
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`using a method that is “both rational and consistently applied.” Cavanaugh, 306 F.3d at 730 n.4.
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`Both individuals present their total losses as proxies for their financial stakes. Dkt. No. 29 Exh. C
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`(Butt’s total loss was $209,517.12); Dkt. No. 39 Exh. A (Pham’s total loss was $327,300). But
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`there is reason to believe that Pham’s total loss overstates his financial interest in the relief sought
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`by the class. Pham sold his Zoom stock on December 30, 2019, for $66.99 per share, Dkt. No. 39
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`Exh. A, far lower than the share price after the alleged partial corrective disclosures over 90 days
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`prior, Dkt. No. 1 ¶ 36 (Zoom’s stock price closed at $90.76 per share on July 8, 2019); id. ¶ 38
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`(Zoom’s stock price closed at $91.40 per share on July 11, 2019). Because Pham sold his shares
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`over 90 days after the prior alleged corrective disclosure, in which time the stock price fell by
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`around $24 per share, Pham’s losses are likely greater than the PSLRA’s statutory damages cap.
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`See 15 U.S.C. § 78u-4(e). While it is too early in the litigation to estimate with any precision the
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`amount of damages any plaintiff might ultimately recover, the amount of the damages cap can be
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`rationally and consistently determined for each potential lead plaintiff by reference to the statute
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`and historical stock price data. Consequently, the Court will not consider losses that exceed the
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`statutory damages cap, as such losses are not relevant in determining which plaintiff “has the most
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`to gain from the lawsuit.” Cavanaugh, 306 F.3d at 730. Instead, the Court will compare the
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`potential lead plaintiffs’ financial interests in the relief sought by the class by calculating the
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`amounts of their total losses that are recoverable under the PSLRA.
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`The method of calculating the PSLRA’s statutory damages cap depends on whether a
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`plaintiff sold his or her shares more than 90 days after a corrective disclosure alleged in the
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`complaint. For plaintiffs who sell their stock outside of 90 days from the relevant corrective
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`disclosure, damages awards are limited to the difference between the purchase price and the mean
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`trading price of the stock during that 90-day period. 15 U.S.C. § 78u-4(e)(1). For plaintiffs who
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`sell their stock within that 90-day period, damages awards are limited to the difference between
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`the purchase price and the mean trading price of the stock between the date of the disclosure and
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`the date the stock was sold. Id. § 78u-4(e)(2).
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`Northern District of California
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`United States District Court
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`Case 3:20-cv-02353-JD Document 56 Filed 11/04/20 Page 4 of 5
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`Pham sold his stock more than 90 days after the preceding corrective disclosures alleged in
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`the complaint. Dkt. No. 1 ¶¶ 35-38 (alleging partial corrective disclosures between July 8 and 11,
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`2019); Dkt. No. 39 Exh. A at 1 (Pham sold his shares on December 30, 2019). The total purchase
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`price for Pham’s 10,000 shares of Zoom stock was $997,200. Dkt. No. 39 Exh. A. Historical
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`stock price data show that the mean trading price for Zoom stock in the 90-day period starting July
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`11, 2019, was $88.48 per share.2 The product of this mean trading price and Pham’s 10,000
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`shares is $884,800. Therefore, under Section 78u-4(e)(2), Pham can recover no more than
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`$112,400 of his total loss ($997,200 less $884,800).
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`Butt sold his stock less than 90 days after the March and April 2020 disclosures. See Dkt.
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`No. 1 ¶¶ 49-66 (alleging corrective disclosures between March 26 and April 6, 2020); Dkt. No. 29
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`Exh. C (Butt sold his shares on April 8, 2020). The total purchase price for Butt’s 6,261 shares
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`was $979,624.48. Dkt. No. 29 Exh. C. The mean trading price for Zoom stock between April 6
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`and 8, 2020, was $118.17 per share.3 The product of this mean trading price and Butt’s 6,261
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`shares is $739,862.37. Therefore, under Section 78u-4(e)(2), the applicable statutory damages cap
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`is $239,762.11 ($979,624.48 less $739,862.37), which is greater than Butt’s total loss of
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`$209,517.12. Dkt. No. 29 Exh. C.
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`C.
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`Adam Butt
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`The amount of Butt’s total loss, $209,517.12 -- which is less than his statutory damages
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`cap under Section 78u-4(e)(2) -- exceeds $112,400, the portion of Pham’s loss that is recoverable
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`under Section 78u-4(e)(1). Butt “has the most to gain from the lawsuit.” Cavanaugh, 306 F.3d at
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`730. Because Butt has provided information satisfying Rule 23(a)’s typicality and adequacy
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`requirements, Dkt. Nos. 28 at 4-5; Dkt. No. 29 Exhs. B-D, he is the presumptively most adequate
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`plaintiff. Cavanaugh, 306 F.3d at 730. Despite the Zoom Investor Group’s ill-advised attempt to
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`reserve the right to address Butt’s typicality and adequacy in their opposition, Dkt. No. 43 at 9,
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`they did not do so in their reply, see Dkt. No. 49, and have forfeited the opportunity to dispute his
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`showing of typicality and adequacy. The Court appoints Adam Butt as lead plaintiff of the
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`2 See https://finance.yahoo.com/quote/ZM/history?period1=1562803200&period2=1570665600.
`3 See https://finance.yahoo.com/quote/ZM/history?period1=1586131200&period2=1586390400.
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`Northern District of California
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`United States District Court
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`Case 3:20-cv-02353-JD Document 56 Filed 11/04/20 Page 5 of 5
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`consolidated action.
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`II.
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`APPOINTMENT OF LEAD COUNSEL
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`Under the PSLRA, the Court must also appoint lead counsel. Stitch Fix, 393 F. Supp. 3d at
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`836-37; 15 U.S.C. § 78u-4(a)(3)(B)(v) (“The most adequate plaintiff shall, subject to the approval
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`of the court, select and retain counsel to represent the class.”). “While the appointment of counsel
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`is made subject to the approval of the court, the Reform Act clearly leaves the choice of class
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`counsel in the hands of the lead plaintiff.” Cavanaugh, 306 F.3d at 734 (citations omitted). Butt
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`has selected the firm of Robbins Geller Rudman & Dowd LLP. Dkt. No. 28 at 1, 5-6. The Court
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`sees no reason to disagree with his selection. Robbins Geller Rudman & Dowd LLP is appointed
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`lead counsel for the putative class in this consolidated action.
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`III. CASE SCHEDULE AND NEXT STEPS
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`The parties are directed to meet and confer to set a schedule for the lead plaintiff’s filing of
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`a consolidated complaint and the defendants’ response to the complaint. A joint proposed
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`schedule is due by November 16, 2020.
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`Pursuant to the PSLRA and the Federal Rules of Civil Procedure -- as well as for the sake
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`of clarity and efficient case management -- lead plaintiff is directed to set out in chart form his
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`securities fraud allegations under the following headings on a numbered, statement-by-statement
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`basis: (1) the speaker(s), date(s) and medium; (2) the false and misleading statements; (3) the
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`reasons why the statements were false and misleading when made; and (4) the facts giving rise to
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`a strong inference of scienter. The chart may be attached to or contained in the consolidated
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`complaint, and will be deemed to be a part of the complaint. If lead plaintiff decides to rest on the
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`original complaint, the chart is due by the deadline to file the consolidated complaint.
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`IT IS SO ORDERED.
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`Dated: November 4, 2020
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`JAMES DONATO
`United States District Judge
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`United States District Court
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