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Holden, v. Triangle Capital Corp.

United States District Court, E.D. North Carolina

March 12, 2018

GARY W. HOLDEN, individually and on behalf of all others similarly situated, Plaintiffs,
TRIANGLE CAPITAL CORPORATION, E. ASHTON POOLE, STEVEN C. LILLY, and GARLAND S. TUCKER, III, Defendants. ELIAS DAGHER, individually and on behalf of all others similarly situated, Plaintiffs,



         This consolidated action comes now before the court on motions maintained by four groups of putative class members seeking to be named as lead plaintiff. Movants include: 1) Geraldine Checkman (“Checkman”) (DE 27)[1]; 2) Yun Cheng, Steven Lynn Koeppel, Susan Marie Koeppel, and Chi Wai Leung (collectively, “Triangle Investor Group”) (DE 29); 3) LifeWise Family Financial Security, Inc. (“LifeWise”) (DE 34)[2]; and 4) Julie Serrano (“Serrano”) (DE 37).[3] In this posture, the issues raised are ripe for adjudication. For the following reasons, the court allows LifeWise's motion to be appointed as lead plaintiff and its selection of Wolf Haldenstein Adler Freeman & Herz LLP (“Wolf Haldenstein”) as lead counsel and Whitfield Bryson & Mason LLP (“Whitfield Bryson”) as local counsel.


         On November 21, 2017, Elias Dagher filed in the Southern District of New York the first of two putative class action securities litigation against Triangle Capital Corporation (“Triangle”), a Raleigh, North Carlina based private equity firm, and various officers of Triangle (collectively, “defendants”). Seven days later, Gary W. Holden followed suit. On January 12, 2018, the cases were transferred to this court, with Holden v. Triangle Capital Corp., 5:18-CV-10-FL being entered first.

         Plaintiffs allege that defendants have violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(a)(3)(B), and Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5, concerning Triangle's securities traded on the New York Stock Exchange under the symbol “TCAP.” It is asserted that defendants knowingly or recklessly made material false statements, misrepresentations, and omissions about the financial success of Triangle while adopting improper underwriting practices, and in doing so artificially inflated stock prices. The proposed class consists of all those who purchased or acquired Triangle's securities between May 7, 2014 and November 1, 2017 and incurred losses when Triangle announced that it had included misstatements in its financial reports.

         On January 24, 2018, defendants filed an unopposed motion for extension of time to file answer to complaint, which the court granted on January 26, 2018, directing that defendants shall answer or otherwise respond to the complaint within 21 days of the court's appointment of a lead plaintiff and counsel. As noted, on March 5, 2018, the court entered an order consolidating case numbers 5:18-CV-10-FL and 5:18-CV-15-FL.


         A. Standard of Review

         The PSLRA directs district courts to “appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be the most capable of adequately representing the interests of [the] class members.” 15 U.S.C. § 78u-4(a)(3)(B).

         As a threshold matter, in order to be considered for lead plaintiff status, each proposed lead plaintiff must, within 60 days of published notice of the pendency of the action, move to be appointed lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A). Each prospective plaintiff must provide a sworn certification representing that he or she has read the complaint, did not purchase the security at the direction of counsel or in order to participate in any private action, and is willing to serve as a representative party. Id. § 78u-4(a)(2)(A)(i)-(iii). The sworn certification must set forth “all of the transactions of the plaintiff in the security that is the subject of the complaint during the class period specified in the complaint.” Id. § 78u-4(a)(2)(A)(iv).

         If the threshold requirements are met, presumptively the most adequate plaintiff is the “person or group of persons” who (i) “has either filed the complaint or made a motion in response to [notice given], ” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa), (ii) “has the largest financial interest in the relief sought by the class, ” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb) and (iii) “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)(cc). This presumption may be rebutted by evidence that the presumptively “most adequate plaintiff” (i) “will not fairly and adequately protect the interests of the class” or (ii) “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). “Although the court should conduct a preliminary inquiry on the Rule 23 requirements, a wide-ranging analysis is not appropriate at this early stage and should be left for consideration when the court determines whether to certify the class.” 5-23 Moore's Federal Practice - Civil § 23.191 (2018).

         While not formally withdrawing her motion, Checkman acknowledges in subsequent briefing that she does not possess the “largest financial interest in the relief sought by the class, ” as required by the PSLRA. Checkman states that if the court were “to determine that the other lead plaintiff movants with losses larger than Movant's are incapable or inadequate to represent the class in this litigation, Movant remains willing and able to serve as lead plaintiff or as class representative.” (DE 60 at 2). Of the three remaining movants, LifeWise, a single institutional investor, has an asserted financial interest in the outcome of the litigation in the amount of $743, 372.48. Triangle Investor Group, composed of a married couple together with two other individuals, has an asserted financial interest of $322, 297.58, less than half that amount. Serrano, an individual, has an asserted financial interest of significantly less, $165, 318.00.

         B. Analysis

         First, regarding the threshold requirements, there is no dispute that the three contending movants, LifeWise, Triangle Investor Group, and Serrano, have brought their motions within the appropriate time limit and included the requisite certifications. There is additionally no dispute that LifeWise has the largest financial interest, which raises a rebuttable presumption in favor of LifeWise serving as lead plaintiff, that, as stated above, can be overcome with “evidence . . . that the presumptively most adequate plaintiff will not fairly represent the class or is subject to unique defenses. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).

         The only dispute among the parties is whether LifeWise is subject to unique defenses and therefore should not serve as lead plaintiff. The only evidence offered by Triangle Investor Group and Serrano to support their contentions that LifeWise should not serve as lead plaintiff is that LifeWise's “registered principals, ” father and son Henry Salzhauer and Michael Salzhauer (collectively, “Salzhauers”), were found in 2001 by the Securities and Exchange Commission (“SEC”) to be in violation of the same securities fraud provisions at issue in the instant action. (DE 58 at 9, DE 56 at 7-8). As a result of this finding, “Henry and Michael Salzhauer consented to the entry of the cease and desist orders, and agreed to disgorge $1, 207, 019, and pay prejudgment interest of $312, 425[.]” Id. (citing Charges Henry Salzhauer, Michael Salzhauer & Vito Valentini with Fraud in Connection with Bank Conversions Sec. & Exch. Comm'n v. Vito Valentini, 01 Civ.7295 (Ng)(E.D.N.Y.) in the Matter of Henry Salzhauer & Michael Salzhauer, Litigation Release No. 17215 (Oct. 31, 2001)).[4]

         LifeWise argues in response that “the attacking movants make one argument: that a settled SEC administrative proceeding nearly two decades ago that did not involve, let alone mention, either LifeWise or its general counsel, nevertheless proves that LifeWise (and Mr. Axel) are inadequate and atypical and thereby unable to serve as a fiduciary on behalf of the class.” (DE 64 at 5).

         The court finds that the evidence submitted by Triangle Investor Group and Serrano is inadequate to rebut the presumption in favor of LifeWise serving as lead plaintiff. While the court does not minimize the seriousness of Salzhauers' violations, the court is mindful that the events in question took place roughly two decades ago; the result was a consent entry of a cease and desist order and agreement to pay; the SEC litigation in no way implicates LifeWise's general counsel, notwithstanding any family ties, or the business LifeWise; and the present situation is significantly different than those found in the authority cited to by Triangle Investor Group and Serrano in support of their contentions. See, e.g., In re Surebeam Corp. Sec. Litig., No. 03 CV 1721JM(POR), 2004 WL 5159061, at *7 (S.D. Cal. Jan. 5, 2004) (rejected presumptive lead plaintiff's principle representative was subject to over sixty complaints to securities regulators); Newman v. Eagle Bldg. Techs., 209 F.R.D. 499, 504 (S.D. Fla. 2002) (rejected presumptive lead plaintiff's group member publicly cited as violating SEC rules twice, six years earlier, losing supervisory license); Zemel Family Tr. v. Philips Int'l Realty Corp., 205 F.R.D. 434, 437 (S.D.N.Y. 2002) (rejected presumptive lead's trustee lied as to whether he was also a partner of entities that had been subject to SEC sanctions three years prior); Weisman v. Darneille, 78 F.R.D. 669, 670-71 (S.D.N.Y. 1978) (rejected lead plaintiff was convicted felon who lied and evaded during deposition as to previous litigation involvements, including SEC litigation, and was unfamiliar with the pending suit).

         Although the Fourth Circuit has not addressed this issue, the court finds instructive the Second Circuit's recognition that “[w]hile it is settled that the mere existence of individualized factual questions with respect to the class representative's claim will not bar class certification, class certification is inappropriate where a putative class representative is subject to unique defenses which threaten to become the focus of the litigation.” Baffa v. Donaldson, 222 F.3d 52, 59 (2d Cir.2000) (quoting Gary Plastic Packaging Corp. v. Merrill Lynch, 903 F.2d 176, ...

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