United States District Court, E.D. North Carolina, Eastern Division
LEONARD C. ASH, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
POWERSECURE INTERNATIONAL, INC., SIDNEY HINTON, and CHRISTOPHER T. HUTTER, Defendants. SANDRA TAYLOR, et al., Plaintiffs,
POWERSECURE INTERNATIONAL, INC., et al., Defendants. BRANDON HIGGINS, et al., Plaintiffs,
POWERSECURE INTERNATIONAL, INC., et al., Defendants.
JAMES C. DEVER, III, District Judge.
Three members of the purported class have filed motions to consolidate these three actions, to be appointed lead plaintiff, and to have their choice of lead counsel and liaison counsel approved. As explained below, the court grants Maguire Financial, LP's ("Maguire") motion, Ash v. PowerSecure Int'l. Inc. et al., No. 4:14-CV-92-D [D.E. 13], to consolidate these actions, to be appointed lead plaintiff, and to have its choice of counsel approved.
PowerSecure International, Inc. ("PowerSecure") develops and markets energy technology products, services, and data management systems to industrial and commercial users and suppliers of natural gas and electricity. Taylor v. PowerSourcelnt'l.Inc. et al., No. 5:14-CV-385-D (filed July 8, 2014), Compl. [D.E.1] ¶ 2. PowerSecure has three operating segments: its Distributed Generation products and services segment ("DG"), its Utility Infrastructure products and services segment ("UI"), and its Energy Efficiency products and services segment ("EE"). Id . Sidney Hinton is PowerSecure's CEO. Id . ¶ 1. Christopher Hutter is PowerSecure's CFO. Id.
Between August 8, 2013, and May 7, 2014, defendants reported several quarters of record revenues, increasing earnings, and record backlog. Id . ¶ 3. Defendants also claimed that it would achieve gross margins in the "mid to high 20s" and would meet its "goal of implied EPS [of] $1.10-$1.30 in 2015." Id . During this time, PowerSecure issued and sold over 2.5 million shares of stock, and Hinton received and sold significant numbers of PowerSecure securities. Id . ¶ 4.
During the same time period, PowerSecure encountered significant operational issues with its UI segment that increased costs, and longer-than-expected sales cycles in its DG segment that failed to produce the expected levels of revenue. Id . ¶ 5. On May 7, 2014, when PowerSecure disclosed these operational problems and the resulting impact on first quarter results, its stock price dropped by more than 62% the following trading day. Id .; see Higgins, No. 5:14-CV-388-F, Compl. ¶ 4. Plaintiffs in the pending actions brought suit, all alleging violations of Rule 10b-5, 17 C.F.R. 240.10b-5, by all defendants, and section 20(a) of the Exchange Act, 15 U.S.C. § 78t, by the individual defendants. See Higgins, No. 5:14-CV-388-F, Compl. ¶¶ 40-54; Ash, No. 4:14-CV-92-D, Compl. ¶¶ 33-47; Taylor, No. 5:14-CV-385-D, Compl. ¶¶ 62-73.
First, the court considers parties' motions to consolidate the pending actions. See 15 U.S.C. § 78u-4(a)(3)(B)(ii) (providing that a trial court shall not appoint a lead plaintiff until rendering a decision on a motion to consolidate). The court may consolidate actions if they "involve a common question of law or fact." Fed.R.Civ.P. 42(a); 15 U.S.C. § 78u-4(a)(3)(B)(ii) (providing that the pending actions must "assert substantially the same claim or claims" to be consolidated). The purpose of consolidation is to avoid unnecessary cost or delay. Equal Emp't Opportunity Comm'n v. HBE Corp. , 135 F.3d 543, 550 (8th Cir. 1998); Marketel Media. Inc. v. Mediapotamus. Inc., No. 5:13-CV-427-D, 2013 WL 5965681, at *3-4 (E.D. N.C. Nov. 8, 2013) (unpublished). "District courts have broad discretion under [Rule 42(a)] to consolidate causes pending in the same district." A/S J. Ludwig Mowinckles Rederi v. Tidewater Constr. Corp. , 559 F.2d 928, 933 (4th Cir. 1977). In exercising its discretion, a court weighs the risks of possible prejudice and confusion from consolidation with the risks of inconsistent adjudications of common factual and legal issues, the burden on parties and judicial resources posed by multiple lawsuits, and other efficiencies created by a single suit in lieu of multiple suits. Arnold v. E. Air Lines. Inc. , 681 F.2d 186, 193 (4th Cir. 1982). With respect to securities cases, "consolidation is often warranted where multiple securities fraud class actions are based on the same public statements and reports." In re Micro Strategy Inc. Sec. Litig. , 110 F.Supp.2d 427, 431 (E.D. Va. 2000) (quotation omitted); see In re Facebook. Inc. IPO Sec. and Derivative Litig. , 288 F.R.D. 26, 35 (S.D.N.Y. 2012).
The pending actions present common questions of fact and law and are appropriate for consolidation. All three actions allege a class period over the same range, March 10, 2014, to May 7, 2014, although one goes further back in time. See Higgins, No. 5:14-CV-388-F, Compl. ¶ 17; Ash, No. 4:14-CV-92-D, Compl. ¶¶ 1, 15; Taylor, No. 5:14-CV-385-D, Compl. ¶ 16 (asserting that the putative class period begins August 7, 2013). All three allege the same or similar material misrepresentations in a PowerSecure press release and conference call on March 10, 2014. Higgins, No. 5:14-CV-388-F, Compl. ¶¶ 17-20; Ash, No. 4:14-CV-92-D, Compl. ¶¶ 15-21; Taylor, No. 5:14-CV-385-D, Compl. ¶¶ 35-37. All three allege the same May 7, 2014 disclosure of PowerSecure's true financial condition that triggered the decrease in PowerSecure's stock price. Higgins, No. 5:14-CV-388-F, Compl. ¶¶ 21-22; Ash, No. 4:14-CV-92-D, Compl. ¶¶ 22-26; Taylor, No. 5:14-CV-385-D, Compl. ¶¶ 41-48. As noted, the legal claims in the three actions are identical. The court finds that the common questions of fact and law strongly favor consolidation, and no evidence suggests that consolidation would prejudice the defendants. See Micro Strategy Inc. , 110 F.Supp.2d at 431 (holding that "minor differences" such as a difference in alleged class periods did not detract from the "overwhelming factual and legal similarities among the cases").
Next, the court considers the motions of three purported class members to be appointed lead plaintiff and to have their selection of lead counsel and liaison counsel approved. The relevant portion of the statute states:
[T]he court shall consider any motion made by a purported class member... and shall appoint as 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 class members.... [T]he court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that... [ 1] in the determination of the court, has the largest fmancial 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)(i), (iii).
The court first examines the movants' and complainants' alleged financial interest. The financial interest in the relief sought is the loss that the defendants allegedly caused to the plaintiffs, first, by fraudulently inflating the purchase price of a security through misrepresentation or omission, and second, by subsequently disclosing corrective information that caused the security price to decrease. See Dura Pharm., Inc. v. Broudo , 544 U.S. 336, 342-46 (2005); Katyle v. Penn Nat'l Gaming. Inc. , 637 F.3d 462, 472-73 (4th Cir. 2011) (holding that the corrective disclosure may happen at a single time or gradually); Glaser v. Enzo Biochem. Inc. , 464 F.3d 474, 479 (4th Cir. 2006) ("It is only after the fraudulent conduct is disclosed to the investing public, followed by a drop in the value of the stock, that the hypothetical investor has suffered a loss' that is actionable....").
Here, the alleged corrective disclosure occurred after the market closed on May 7, 2014. See Ash, No. 4:14-CV-92-D, Maguire Mem. Supp. Mot. Consolidate [D.E. 13-1] 5. The court calculates the financial interest of the would-be lead plaintiffs by determining the drop in the value of their securities, after the May 7, 2014 closing price of $18.60, that the corrective disclosure caused. See id., Ex. B [D.E. 13-4] (noting the closing price on May 7, 2014).
Maguire alleges a total loss attributable to the corrective disclosure of$2, 182, 170. Id . This loss was allegedly caused by the May 8, 2014 sale of 93, 000 shares of PowerSecure stock at the price of $6.91 per share and by the May 8, 2014 cover ...