Borteanu v. Nikola Corporation ( 2021 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 Daniel Borteanu, ) No. CV-20-01797-PHX-SPL ) 9 ) No. CV-20-01819-PHX-DLR (cons.) 10 Plaintiff, ) No. CV-20-02123-PHX-JJT (cons.) vs. ) N o. CV-20-02168-PHX-DLR (cons.) 11 ) No. CV-20-02237-PHX-DLR (cons.) ) No. CV-20-02374-PHX-DWL (cons.) 12 Nikola Corporation, et al., ) ) 13 Defendants. ) ORDER ) 14 ) 15 On December 15, 2020, this Court issued an Order consolidating six cases and 16 naming Angelo Baio as lead plaintiff pursuant to the requirements of the Private Securities 17 Litigation Reform Act of 1995 (“PSLRA”). (Doc. 50). On July 23, 2021, the Ninth Circuit 18 granted a petition for writ of mandamus to the extent it sought to vacate the December 2020 19 Order’s appointment of Angelo Baio as lead plaintiff. In re Mersho, 6 F.4th 891 (9th Cir. 20 2021). The Ninth Circuit remanded to this Court to redetermine the lead plaintiff in a 21 manner consistent with its opinion. (Id.). 22 Having reviewed the briefing submitted to the Court (Docs. 16, 17, 19, 24, 28, 30, 23 31, 34, 37, 39, 40, 41, 42, 46, 47, 48, 49) and pursuant to the Ninth Circuit’s July 23, 2021 24 decision, this Court now issues the following ruling as to appointment of lead plaintiff.1 25 1 Because it would not assist in resolution of the instant issues, the Court finds the 26 pending motion is suitable for decision without oral argument. See LRCiv. 7.2(f); Fed. R. 27 Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). The Court also denies Angelo Baio’s Motion for an Evidentiary Hearing (Doc. 77) 28 because it would not assist the Court in determining the lead plaintiff in accordance with 1 I. BACKGROUND 2 A. Factual Background 3 This action concerns alleged violations of the Securities Exchange Act of 1934 4 (“SEA”) (15 U.S.C. §§ 78a et seq.) by Defendants Nikola Corporation (comprised of 5 merged companies VectoIQ and Nikola) and its officers, founder of Nikola and Executive 6 Chairman Trevor R. Milton; former VectoIQ Chief Executive Officer and current Director 7 Steve Girsky; former VectoIQ Chief Financial Officer Steve Shindler; Nikola CEO, 8 President, and Director Mark A. Russell; and Nikola Chief Financial Officer Kim J. Brady 9 (Doc. 5 at 3–4; CV-20-01819, Doc. 1 at 5; CV-20-02123, Doc. 1 at 7–9; CV-20-02168, 10 Doc. 1 at 6–7; CV-20-02237, Doc. 1 at 5; CV-20-02374, Doc. 1 at 5). 11 Defendant Nikola Corporation is a publicly traded Delaware corporation with its 12 headquarters in Arizona. (Doc. 5 at 3; CV-20-01819, Doc. 1 at 5; CV-20-02123, Doc. 1 at 13 7; CV-20-02168, Doc. 1 at 6; CV-20-02237, Doc. 1 at 2; CV-20-02374, Doc. 1 at 5). It 14 designs and manufactures electric vehicles and their components. (Doc. 5 at 3; CV-20- 15 01819, Doc. 1 at 2; CV-20-02123, Doc. 1 at 6–7; CV-20-02168, Doc. 1 at 7; CV-20-02237, 16 Doc. 1 at 2; CV-20-02374, Doc. 1 at 6). Defendant Nikola Corporation is the result of a 17 2020 merger between Nikola and VectoIQ Acquisition Corporation. (Doc. 5 at 3; CV-20- 18 01819, Doc. 1 at 2; CV-20-02123, Doc. 1 at 4; CV-20-02168, Doc. 1 at 8; CV-20-02374, 19 Doc. 1 at 6). VectoIQ is a shell corporation formed for the purposes of acquiring other 20 companies. (CV-20-01819, Doc. 1 at 6; CV-20-02123, Doc. 1 at 4). The companies 21 announced the merger on March 3, 2020. (Doc. 5 at 5; CV-20-01819, Doc. 1 at 7; CV-20- 22 02123, Doc. 1 at 13; CV-20-02168, Doc. 1 at 8). They filed the necessary documents with 23 the Securities and Exchange Commission. (Doc. 5 at 7–14; CV-20-01819, Doc. 1 at 7–9; 24 CV-20-02123, Doc. 1 at 17–26; CV-20-02168, Doc. 1 at 9–16; CV-20-02374, Doc. 1 at 25 26 the Ninth Circuit’s opinion. See United States v. Batiste, 868 F.2d 1089, 1091 n.4 (9th Cir. 27 1989) (noting the “well-settled principle that a district court has broad discretion to manage its own calendar”); United States v. Walczak, 783 F.2d 852, 857 (9th Cir. 1986) (“Whether 28 an evidentiary hearing is appropriate rests in the reasoned discretion of the district court.”). 1 7,11). Nikola and VectorIQ finalized their merger on June 3, 2020, forming Nikola 2 corporation. (Doc. 5 at 3). Throughout the process and after the merger was complete, 3 Defendant Nikola Corporation, individual Defendants, and other Nikola employees shared 4 press releases, other advertising materials, and promotional videos and images of Nikola 5 products. (Doc. 5 at 14–17; CV-20-01819, Doc. 1 at 7–8; CV-20-02123, Doc. 1 at 17, 24– 6 28; CV-20-02168, Doc. 1 at 7–9, 14–15, 20–21; CV-20-02374, Doc. 1 at 2, 6–7, 12–16). 7 After the merger was completed, Defendant Nikola Corporation’s securities were 8 publicly traded on the NASDAQ. (CV-20-01819, Doc. 1 at 2; CV-20-02168, Doc. 1 at 3; 9 CV-20-02374, Doc. 1 at 7). Plaintiffs purchased Nikola Corporation securities at allegedly 10 artificially inflated prices based on misrepresentations made by Defendants. (Doc. 5 at 3; 11 CV-20-01819, Doc. 1 at 5; CV-20-02123, Doc. 1 at 7; CV-20-02168, Doc. 1 at 6; CV-20- 12 02237, Doc. 1 at 2; CV-20-02374, Doc. 1 at 5). On September 10, 2020, non-party 13 Hindenburg Research Group published a report describing apparent falsities in the 14 statements made by founder Defendant Trevor Milton and advertising materials published 15 by Nikola, VectorIQ, and Defendant Nikola Corporation. (Doc. 5 at 18–31; CV-20-01819, 16 Doc. 1 at 16–20; CV-20-02123, Doc. 1 at 15, 27; CV-20-02168, Doc. 1 at 22–25; CV-20- 17 02374, Doc. 1 at 3). On September 15, Hindenburg Research Group published a second 18 report, accusing Defendant Nikola Corporation of Securities Fraud. (Doc. 5 at 31; CV-20- 19 02168, Doc. 1 at 25–27). After these reports were publicized, the price of Defendant Nikola 20 Corporation securities fell. (Doc. 5 at 31–36; CV-20-01819, Doc. 1 at 20; CV-20-02123, 21 Doc. 1 at 27–28; CV-20-02168, Doc. 1 at 25–27; CV-20-02374, Doc. 1 at 4). Plaintiffs 22 allege the fall in price caused them to lose great sums of money. (Doc. 5 at 36; CV-20- 23 01819, Doc. 1 at 20; CV-20-02123, Doc. 1 at 28; CV-20-02168, Doc. 1 at 27; CV-20- 24 02237, Doc. 1 at 6; CV-20-02374, Doc. 1 at 4). They seek relief under Sections 10(b) and 25 20(a) of the SEA, and Securities and Exchange Commission Rule 10b-5. 15 U.S.C. §§ 26 78j(b), 78t. (Doc. 5 at 39, 41; CV-20-01819, Doc. 1 at 24–25; CV-20-02123, Doc. 1 at 31, 27 33; CV-20-02168, Doc. 1 at 31–32; CV-20-02237, Doc. 1 at 15–17; CV-20-02374, Doc. 1 28 at 20–24). The Holzmacher Plaintiffs also assert a third claim for relief under Section 14(a) 1 of the SEA against Defendants Nikola Corporation and Steve Girsky. 15 U.S.C. § 78n- 2 1(a)(1). (CV-20-02123, Doc. 1 at 33). Plaintiff Douglas Malo also brings a claim for a 3 violation of California’s unfair competition law against all Defendants. (CV-20-02237, 4 Doc. 1 at 11–15). 5 The movants seeking to consolidate and appoint lead counsel also invested in Nikola 6 Corporation stock, based on the promises made in the media by Defendant Milton and other 7 Nikola employees, and lost great sums of money. (Docs. 17 at 6, 19 at 11, 20 at 9–10, 21 8 at 11, 24 at 7–8, 28 at 16, 30 at 11–12, 31 at 5). 9 B. Procedural Background 10 Four related Complaints were filed in this Court. The first was filed by Plaintiff 11 Daniel Borteanu on September 15, 2020. (Doc. 1). That same day, Plaintiff Borteanu also 12 issued notice as is required by the PSLRA by publishing a press release on Businesswire. 13 (Doc. 19-2). Plaintiff Borteanu later filed an Amended Complaint on September 21, 2020. 14 (Doc. 5). The second complaint was filed by Plaintiff John Wojichowski on September 17, 15 2020. (CV-20-01819, Doc. 1). The third complaint was filed by Plaintiffs Albert 16 Holzmacher, Michael Wood, and Tate Wood on November 1, 2020. (CV-20-02123, Doc. 17 1). Finally, the fourth complaint was filed by Plaintiff William Eves on November 10, 18 2020. (CV-20-02168, Doc. 1). 19 Two other related Complaints were transferred to this Court. The first was filed by 20 Plaintiff Arab Salem in the Eastern District of New York on September 16, 2020. Salem v. 21 Nikola Corp., No. 20-cv-04354 (E.D.N.Y.). That Court granted a stipulation to transfer on 22 November 24, 2020, and the case was transferred to this District on December 8, 2020. 23 Salem v. Nikola Corp., No. 20-CV-02374-PHX-DWL (D. Ariz.). The second was filed by 24 Plaintiff Douglas Malo in the Eastern District of California on October 16, 2020. Malo v. 25 Nikola Corp., No. 20-cv-02168 (C.D. Cal.). That Court granted a stipulation to transfer on 26 November 16, 2020, and the case was transferred to this District on November 20, 2020. 27 Malo v. Nikola Corp., No. 20-CV-02237-PHX-DLR (D. Ariz.). Both Salem and Malo 28 assert the same causes of action under Sections 10(b) and 20(a) of the SEA, against the 1 same Defendants, though not all the individual Defendants were included in both 2 Complaints. (CV-20-02237, Doc. 1 at 5, 15–17; CV-20-02374, Doc. 1 at 5, 20–24). 3 Six Motions to Appoint Lead Plaintiff were filed with this Court.2 (Docs. 16, 19, 24, 4 28, 30, 31). In addition to consolidation of related actions, these movants sought to be 5 named lead plaintiff and to have their attorneys appointed lead counsel. Two of the six, 6 Shahab Sandhu and The Investor Group, filed notices of non-opposition, meaning they 7 accept that they are not the most qualified to serve as lead plaintiff but would do so if the 8 Court so needed. (Docs. 34 & 37). The other four movants are Angelo Baio (Doc. 16), 9 Nayankumar Patel (Doc. 19), Nikola Investor Group II (Vincent Chau, Stanley Karcynski, 10 George Mersho) (Doc. 24), and Mahjabin Dinyarian (Doc. 30). 11 On December 15, 2020, this Court issued an Order consolidating the six cases.3 12 (Doc. 50). The Order also named Angelo Baio as Lead Plaintiff and approved Baio’s choice 13 of counsel. (Doc. 50). Following the Order, Nikola Investor Group II (“Group II”) 14 petitioned the Ninth Circuit for a writ of mandamus to vacate the Order. On July 23, 2021, 15 the Ninth Circuit granted Group II’s petition for a write of mandamus “to the extent it seeks 16 to vacate the district court’s order appointing Angelo Baio as lead plaintiff.” In re Mersho, 17 6 F.4th at 903. The Ninth Circuit declined to instruct this Court to appoint Group II as lead 18 plaintiff and instead remanded the case to this Court to redetermine the lead plaintiff in a 19 manner consistent with the Ninth Circuit’s opinion. Id. 20 The Court now takes the six Motions (Docs. 16, 19, 24, 28, 30, 31), three Responses 21 (Docs. 39, 40, 41), two Notices of Non-opposition (Docs. 34 & 37), five Replies (Docs. 22 42, 46, 47, 48, 49), and the Ninth Circuit’s opinion (Doc. 69) under review. 23 24 2 Four other Motions to Appoint Lead Plaintiff were filed by Dennis Stacy (Doc. 25 20), Nikola Investor Group I (Doc. 21), T3 Trading Group LLC (Doc. 25), and Patrick Brostowin (Doc. 32). All four Motions were later withdrawn. (Docs. 35, 36, 38, 45). The 26 Court omits these withdrawn Motions. 27 3 The Ninth Circuit only addressed this Court’s Order with respect to its appointment of lead plaintiff. (See Doc. 69). Therefore, the Order (Doc. 50) remains in effect to the 28 extent it consolidated the six cases. 1 II. LEGAL STANDARDS 2 A. Lead Plaintiff Appointment 3 The PSLRA provides the framework for selecting a lead plaintiff in a securities class 4 action case. Tsirekidze v. Syntax-Brillian Corp., No. CV-07-2204-PHX-FJM, 2008 WL 5 942273, at *2 (D. Ariz. Apr. 7, 2008). “The party who files the action must publicize its 6 pendency, the proposed class period, and the nature of the claims.” Id. (citing 15 U.S.C. § 7 78u-4(a)(3)(A)(i)). “The publication must also inform potential class members that they 8 have 60 days to come forward and move to be appointed lead plaintiff.” Id. (citing § 78u- 9 4(a)(3)(A)(ii)). If multiple class actions are brought “asserting substantially the same 10 claims,” publication is required only of the first plaintiff to file. § 78u-4(a)(3)(A)(ii). The 11 statute expressly allows a “group of persons” to move for appointment. § 78u- 12 4(a)(3)(B)(iii)(I). Once the 60-day window closes, the Court determines the lead plaintiff 13 (“most adequate plaintiff”). § 78u–4(a)(3)(B)(i). 14 The PSLRA establishes a rebuttable presumption that the most adequate plaintiff is 15 the person or group of persons that: 16 (aa) has either filed the complaint or made a motion in response to a notice. . . .; 17 (bb) in the determination of the court, has the largest financial 18 interest in the relief sought by the class; and 19 (cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. 20 21 § 78u-4(a)(3)(B)(iii)(I); Lomingkit v. Apollo Educ. Grp. Inc., No. CV-16-00689-PHX- 22 DLR, 2016 WL 3345514, at *2 (D. Ariz. June 16, 2016). As to Rule 23, the typicality and 23 adequacy requirements are the only requirements relevant to the selection of a lead 24 plaintiff. In re Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002). “The test for typicality asks 25 ‘whether other members have the same or similar injury, whether the action is based on 26 conduct which is not unique to the named plaintiffs, and whether other class members have 27 been injured by the same course of conduct.’” In re Cloudera, Inc. Sec. Litig., No. 19-cv- 28 03221-LHK, 2019 WL 6842021, at *5 (N.D. Cal. Dec. 16, 2019) (citation omitted). “The 1 test for adequacy asks whether the class representative and counsel ‘have any conflicts of 2 interest with other class members’ and whether the class representative and his counsel will 3 ‘prosecute the action vigorously on behalf of the class.’” Id. (citing Staton v. Boeing Co., 4 327 F.3d 938, 957 (9th Cir. 2003)). 5 “If the would-be lead plaintiff establishes that it meets the Rule 23 requirements, 6 other potential lead plaintiffs may try to rebut the presumption.” Tsirekidze, 2008 WL 7 942273, at *2 (citing § 78u-4(a)(3)(B)(iii)(II)). The presumption “is rebuttable only by 8 proof that the presumptively adequate plaintiff ‘will not fairly and adequately protect the 9 interests of the class’ or ‘is subject to unique defenses that render such plaintiff incapable 10 of adequately representing the class.’” Lomingkit, 2016 WL 3345514, at *2 (citing § 78u- 11 4(a)(3)(B)(iii)(II)). “This perplexing statutory scheme suggests that the initial 12 determination on typicality and adequacy should be a product of the court’s independent 13 judgment, and that arguments by members of the purported plaintiff class . . . should be 14 considered only in the context of assessing whether the presumption has been rebutted.” 15 Tsirekidze, 2008 WL 942273, at *2 (internal quotations omitted). Potential lead plaintiffs 16 are ranked in terms of their financial interest in the litigation, from greatest to least. Id. at 17 *3. Courts then move down the line to determine whether the potential lead plaintiffs 18 satisfy the Rule 23 requirements, until it finds one who does. Cavanaugh, 306 F.3d at 732. 19 B. Lead Counsel Appointment 20 The PSLRA also provides guidelines for selecting lead counsel. It dictates that the 21 appointed lead plaintiff designates the lead counsel. “The most adequate plaintiff shall, 22 subject to the approval of the court, select and retain counsel to represent the class.” § 78u– 23 4(a)(3)(B)(v). Under this rule, the Court has the authority to reject the lead plaintiff’s 24 choice of counsel, but not the authority to select its own. See Cohen v. U.S. Dist. Ct. for N. 25 Dist. of Cal., 586 F.3d 703, 707–10 (9th Cir. 2009). In the event of a rejection by the Court, 26 the appointed lead plaintiff would simply put forth another option. Id. 27 /// 28 /// 1 III. DISCUSSION 2 A. Lead Plaintiff Appointment 3 In its December 2020 Order, this Court found that Group II timely filed a Motion 4 for Consolidation, Appointment as Lead Plaintiff, and Approval of Counsel in response to 5 a notice. (Doc. 50 at 10). This Court also found that Group II had the largest financial 6 interest because it calculated its damages at $6,010,333.00, which is millions higher than 7 any other would-be lead plaintiff. (Id. at 9). The Ninth Circuit took no issue with either of 8 these findings. In re Mersho, 6 F.4th at 896. Now on remand, this Court reaffirms both. 9 Group II timely made a motion in response to a notice, and it has the largest financial 10 interest in the relief sought by the class. 11 This Court also found that Group II “otherwise satisfies the requirements of Rule 12 23 of the Federal Rules of Civil Procedure” because it meets the typicality and adequacy 13 requirements. (Doc. 50 at 10). As to typicality, it remains true that Group II’s claims arise 14 out of the same events as the six original Plaintiffs: Group II members bought Nikola stock 15 at allegedly artificially inflated prices during the class period and lost money when the 16 value of the stock dropped after the fraud allegations against Nikola came out. (Doc. 24 at 17 17, 19). The other movants, who suffered the same kind of loss, describe the same events 18 in their motions to consolidate, to varying degrees of specificity. (Docs. 17 at 6, 19 at 11, 19 20 at 9–10, 21 at 11, 28 at 16, 30 at 11–12, 31 at 5). Again, the Ninth Circuit took no issue 20 with this Court’s typicality finding. In re Mersho, 6 F.4th at 896. This Court now reaffirms 21 its finding that Group II’s claims are typical of the class. 22 As to the adequacy requirement, this Court found that Group II was adequate 23 because it has no conflicts with other members of the class, its losses are such that it has a 24 significant interest in the outcome of the case, and its proposed counsel—Pomerantz LLP 25 and Block & Leviton LLP—is highly qualified and will assist in vigorous prosecution. 26 (Doc. 50 at 10). Having found Group II to be both typical and adequate—satisfying the 27 Rule 23 requirements—this Court held that the presumption in favor of Group II was 28 established. (Id.). At step three, however, this Court found that “it is not clear how the 1 members of [Group II] found each other, and courts generally prefer group members to 2 have a prelitigation relationship.” (Id. at 11). The absence of evidence concerning the 3 members’ prelitigation relationship gave the Court “misgivings” about Group II’s cohesion 4 and “its ability to control the litigation without undue influence from counsel.” (Id. at 11– 5 12). As a result, this Court found that the presumption had been rebutted and held that 6 Group II would not be appointed lead plaintiff. (Id. at 12). 7 It was this final step—rebutting the presumption—that the Ninth Circuit took issue 8 with. The Ninth Circuit found that by relying on the absence of evidence showing Group 9 II’s cohesion, this Court failed to give effect to the presumption, effectively leaving the 10 burden on Group II to prove its adequacy. In re Mersho, 6 F.4th at 901 (“By penalizing 11 [Group II] for not explaining how they found each other, the district court continued to 12 place the burden on [Group II] to prove adequacy.”). The burden “should have shifted to 13 the competing movants to show inadequacy” and the presumption should have only been 14 rebutted upon a showing of evidence casting “genuine and serious doubt on [the] plaintiff’s 15 willingness or ability to perform the functions of lead plaintiff.” Id. Because of this error, 16 the Ninth Circuit vacated this Court’s order and remanded the case so this Court could 17 “redetermine the lead plaintiff in a manner that is consistent with [the Ninth Circuit’s] 18 opinion.” Id. at 903. 19 Now on remand, this Court begins by noting the Ninth Circuit’s remark that this 20 Court could have considered “the lack of a pre-litigation relationship as part of [its] 21 adequacy analysis at step two,” as opposed to where this Court considered it—at step three. 22 Id. at 901 (“This is not to say that district courts are precluded from considering pre- 23 litigation relationships or cohesion altogether. District courts have ‘latitude’ in what 24 information they can consider to assess adequacy.”). Accordingly, this Court will start by 25 reassessing Group II’s Rule 23 adequacy at step two, specifically focusing on its group 26 members’ cohesion, prelitigation relationships, and ability to prosecute the litigation and 27 control counsel. 28 As noted, the PSLRA expressly allows a “group of persons” to move for 1 appointment. § 78u-4(a)(3)(B)(iii)(I). A group can serve as lead plaintiff, so long as it 2 satisfies the same statutory requirements as any other movant. Cloudera, 2019 WL 3 6842021, at *6. This includes the Rule 23 adequacy requirement, which—as mentioned— 4 means showing that “the group will ‘fairly and adequately protect the interests of the 5 class.’” Id. (citing Fed. R. Civ. P. 23(a)(4)). One helpful factor in determining whether a 6 plaintiff group is adequate is the extent to which the group members are related or have a 7 prelitigation relationship. The lack of a pre-litigation relationship is relevant to adequacy 8 because “it may indicate that members may not work together well to vigorously prosecute 9 the litigation or they might not be able to control counsel.” In re Mersho, 6 F.4th at 901 10 (citing Cloudera, 2019 WL 6842021, at *6–8); see also In re Cendant Corp. Litig., 264 11 F.3d 201, 266 (3rd Cir. 2001) (“If the court determines that the way in which a group . . . 12 was formed or the manner in which it is constituted would preclude it from fulfilling the 13 tasks assigned to a lead plaintiff, the court should disqualify that movant on the grounds 14 that it will not fairly and adequately represent the interests of the class.”). 15 Courts disagree on what weight to give the absence of a prelitigation relationship 16 when determining a plaintiff group’s adequacy. See Eichenholtz v. Verifone Holdings, Inc., 17 No. C 07-06140 MHP, 2008 WL 3925289, at *8 (N.D. Cal. Aug. 22, 2008) (“There is 18 widespread disagreement amongst district courts regarding this issue.”); Sabbagh v. Cell 19 Therapeutics, Inc., Nos. C10-414MJP, C10-480MJP, C10-559MJP, 2010 WL 3064427, at 20 *4 (W.D. Wash. Aug. 2, 2010) (“[N]o other aspect of the appointment process has 21 generated more controversy (and more inconsistent methodologies) than consideration of 22 the adequacy of groups to serve as Lead Plaintiff.”). Some courts “do not seem to inquire 23 about the relationship between the parties that comprise a group” unless there is a concern 24 about the plaintiff’s ability to monitor counsel. Eichenholtz, 2008 WL 3925289, at *8 25 (listing cases). Other courts, however, “directly inquire into group composition.” Id. 26 (listing cases). The Ninth Circuit has never directly addressed the issue. 27 The leading case in this District, Tsirekidze, held that “courts have uniformly 28 refused to appoint as lead plaintiff groups of unrelated individuals, brought together for the 1 sole purpose of aggregating their claims in an effort to become the presumptive lead 2 plaintiff.” Tsirekidze, 2008 WL 942273, at *3 (internal quotations omitted) (citing In re 3 Gemstar-TV Guide Int’l, Inc. Sec. Litig., 209 F.R.D. 447, 451 (C.D. Cal. 2002)). The 4 general concern with appointing such groups is that it encourages lawyers to “cobble 5 together” otherwise unrelated investors to aggregate their losses and obtain lead plaintiff 6 status. Id. From that point, the lawyers will control the entire litigation, presumably not in 7 the best interests of the class. Id.; see Sabbagh, 2010 WL 3064427, at *4. This “defeats the 8 purpose of choosing a lead plaintiff” and cuts against the purpose of the PLSRA. 9 Tsirekidze, 2008 WL 942273, at *3. 10 While this concern is valid, caselaw indicates that just because group members are 11 unrelated does not necessarily preclude the group from being appointed lead plaintiff. The 12 relatedness between the group members, including the existence of a prelitigation 13 relationship, is just one consideration in the analysis; the critical test is whether the group 14 can fairly and adequately protect the interests of the class—and this test can be met even 15 where the group members lack a prelitigation relationship. As the Third Circuit has 16 explained: [W]e disagree with those courts that have held that the statute 17 invariably precludes a group of “unrelated individuals” from serving as a lead plaintiff. . . . The statute contains no 18 requirement mandating that the members of a proper group be “related” in some manner; it requires only that any such group 19 “fairly and adequately protect the interests of the class.” We do not intimate that the extent of the prior relationships and/or 20 connection between the members of a movant group should not properly enter into the calculus of whether that group would 21 “fairly and adequately protect the interests of the class,” but it is this test, not one of relatedness, with which courts should be 22 concerned. 23 Cendant, 264 F.3d at 266–67 (citations omitted) (emphasis added); see also In re 24 Northwestern Corp. Sec. Litig., 299 F. Supp. 2d 997, 1006 (D. S.D. 2003) (“[A]s 25 recognized by the District Court for the District of Columbia, ‘[t]he text of the PSLRA 26 does not limit the composition of a group of persons to those only with a pre-litigation 27 relationship, nor does the legislative history provide a sound enough foundation to support 28 such a gloss.’” (citing In re Baan Co. Sec. Litig., 186 F.R.D. 214, 216 (D.D.C. 1999))). 1 A review of decisions reveals that courts in the Ninth Circuit generally agree. For 2 example, in Borenstein v. Finova Group Inc., this District found “[t]he reasons for limiting 3 the types of groups that can qualify as lead plaintiffs” to be “generally persuasive.” 4 Borenstein v. Finova Grp. Inc., No. Civ. 00-619PHXSMM, Civ. 00-926PHXPGR, Civ. 5 00-978PHXSMM, Civ. 00-1010PHXEHC, Civ. 00-1100PHXROS, 2000 WL 34524743, 6 at *7 (D. Ariz. Aug. 30, 2000). In determining whether two individual investors could be 7 appointed lead plaintiff, however, the Borenstein court found that their education and 8 experience as investors and their attested ability and willingness to take an active role 9 outweighed the fact that “counsel may have initiated [their] joint motion [for lead plaintiff 10 appointment].”4 Id. And in Ferreira v. Funko, Inc., the Central District of California 11 recognized that many courts refuse “to aggregate the losses of a group of unrelated 12 persons,” but nonetheless appointed a three-member group as lead plaintiff after finding 13 that (1) the group was not too large to represent the class adequately and (2) the group 14 could capably perform the lead plaintiff function. Ferreira v. Funko, Inc., No. 2:20-cv- 15 02319-VAP-PJWx, 2020 WL 3246328, at *6 (C.D. Cal. June 11, 2020); see also 16 Eichenholtz, 2008 WL 3925289, at *8 (finding that “a pre-existing relationship between 17 entities that comprise a group is not required if the resulting group is small and cohesive 18 enough such that it can adequately control and oversee the litigation”); Sabbagh, 2010 WL 19 3064427, at *4–5 (“The trend in recent years . . . seems to be away from a blanket 20 prohibition against ‘lead plaintiff groups’ with no pre-existing relationship.”); In re 21 Versata, Inc., Sec. Litig., No. C 01-1439 SI, C 01-1559 SI, C 01-1703 SI, C 01-1731 SI, C 22 01-1786 SI, 2001 WL 34012374, at *5 (N.D. Cal. Aug. 20, 2001) (“Requiring a pre- 23 litigation relationship, though appealing in its simplicity, is too rigid; it is not the only way, 24 or necessarily the best way, to ensure that the lead plaintiffs will ‘actively represent the 25 4 The Borenstein court ultimately denied lead plaintiff appointment to the two 26 individual investors, but not because of their lack of relatedness or prelitigation 27 relationship. Borenstein, 2000 WL 34524743, at *8. Instead, the court found that their objections to certain types of claims in the litigation “would pose a significant risk that the 28 complete interests of all class members would not be fairly and adequately protected.” Id. 1 interests of the purported class.’”). 2 “The beneficial characteristics sought in a group with a pre-existing relationship— 3 cohesiveness, an ability to direct litigation, and collective confluence with the interests of 4 the class—can be found in unrelated groups on a case-by-case basis.” Versata, 2001 WL 5 34012374, at *5. This Court—like others in this Circuit—opts for a case-by-case approach 6 to the issue, as opposed to the more rigid relatedness requirement that Tsirekidze suggests. 7 Here, it is undisputed that the three members of Group II—Vincent Chau, Stanley 8 Karczynski, and George Mersho—had no relationship prior to this litigation. They are 9 individual investors who reside in Texas, New Jersey, and California, respectively. (Doc. 10 24-5 at 2). While all three are experienced investors who transacted in the Nikola securities 11 that are the subject of this case, they did not know one another, had never worked with one 12 another, and had no other connections prior to this litigation. Id. Counsel for Group II does 13 not dispute this. (See Doc. 78 at 4 (“[T]he Joint Declaration . . . already makes clear that 14 Mersho, Chau, and Karczynski did not know each other prior to agreeing that they would 15 move as a group for lead plaintiff.”)). Instead, it appears that they joined together solely 16 for purposes of litigation. (Doc. 24-5 at 2). While Tsirekidze’s language—that courts 17 “uniformly” refuse to appoint plaintiff groups of unrelated individuals, brought together to 18 aggregate their claims—may indicate that this unrelatedness alone is enough to preclude a 19 presumption in Group II’s favor, this Court recognizes that the true test of adequacy is not 20 solely a measure of relatedness but rather whether Group II would “fairly and adequately 21 protect the interests of the class.” See In re Mersho, 6 F.4th at 902 (citing Cendant, 264 22 F.3d at 266–67). Aside from relatedness and the existence of a prelitigation relationship, 23 courts also consider the size of the group, the group’s prosecution procedures as set out in 24 their filings, the group’s explanations of how it was formed and how its members would 25 function, and the group’s descriptions of the mechanisms “that its members and the 26 proposed lead counsel have established to communicate with one another about the 27 litigation.” In re Network Assocs., Inc. Sec. Litig., 76 F. Supp. 2d 1017, 1026 (N.D. Cal. 28 1999); see also In re Mersho, 6 F.4th at 902 (citing Cloudera, 2019 WL 6842021, at *6). 1 After considering all these factors, this Court finds that Group II has shown 2 sufficient evidence of its adequacy, despite the absence of a prelitigation relationship 3 between its members. First, Group II is not so large that its size would impact its ability to 4 adequately represent the class. See Cendant, 264 F.3d at 267 (“At some point, a group 5 becomes too large for its members to operate effectively as a small unit.”). “Courts in the 6 Ninth Circuit often appoint lead plaintiffs consisting of three or more individual investors.” 7 Ferreira, 2020 WL 3246328, at *6; see also Johnson v. OCZ Tech. Grp., Inc., No. CV 12- 8 05265 RS, 2013 WL 75774, at *3 (N.D. Cal. Jan. 4, 2013) (“The OCZ Investor Group 9 consists of four sophisticated investors. Small, cohesive groups similar to the OCZ Investor 10 Group are routinely appointed as Lead Plaintiffs in securities actions when they have 11 shown their ability to manage the litigation effectively in the interests of the class without 12 undue influence of counsel.”). Here, Group II consists of three members. All three are 13 individual investors, not business entities. Cf. Gemstar, 209 F.R.D. at 450 (holding that 14 plaintiff group had “too many members to manage effectively this litigation” where group 15 consisted of three institutional investors and four individual investors); Eichenholtz, 2008 16 WL 3925289, at *9 (denying lead plaintiff status to group of five entities because group’s 17 declaration failed to explain how group would coordinate their efforts in litigation). This 18 Court finds that Group II’s makeup of three experienced, individual investors supports their 19 argument for lead plaintiff status. 20 Second, Group II has adequately set out its prosecution procedures and 21 communication mechanisms in its Joint Declaration. This distinguishes the present case 22 from Tsirekidze, as well as from other cases in which courts have denied lead plaintiff 23 status to groups. In Tsirekidze, for example, the plaintiff group provided “no suggestion 24 how they plan to work together as a cohesive unit.” Tsirekidze, 2008 WL 942273, at *4. 25 As far as the court could tell, “each individual [had] so far participated only to the extent 26 of signing his name onto a boilerplate certification in support of application of lead 27 plaintiff.” Id. (internal quotations omitted). The Tsirekidze court compared these facts to 28 In re Northwestern Corp. Sec. Litig., a case in which the District of South Dakota granted 1 lead plaintiff status to a group that had established “a plan for conducting litigation, 2 including mechanisms to call meetings and resolve disagreements.” Id. (citing to 3 Northwestern Corp., 299 F.Supp.2d at 1006). All told, because the plaintiff group in 4 Tsirekidze had shown “no evidence of cohesiveness,” the court denied it lead plaintiff 5 status. Id.; see also Cloudera, 2019 WL 6842021, at *7 (denying lead plaintiff status to 6 group that provided no information about how it would jointly mange the case or resolve 7 disagreements, aside from describing one conference call); Gemstar, 209 F.R.D. at 450– 8 51 (denying lead plaintiff status to group because it failed to explain how it would conduct 9 meetings with so many members, provided no mechanism for emergency or short-notice 10 meetings, and lacked decision-making process in situations where consensus was absent); 11 Varghese v. China Shenghuo Pharm. Holdings, Inc., 589 F. Supp. 2d 388, 394 (S.D.N.Y. 12 2008) (denying lead plaintiff status where group did not describe how or why group was 13 formed, how its members would work together to manage litigation, whether members had 14 ever communicated with one another or planned to do so in future, or even whether 15 members knew of one another’s existence). 16 Here, the Group II members signed a Joint Declaration that describes each 17 member’s experience, how they have communicated so far, their plans for future meetings, 18 and a system for making decisions and overseeing counsel. (Doc. 24-5); see also Ferreira, 19 2020 WL 3246328, at *7 (finding plaintiff group capable of performing lead plaintiff 20 function on basis of joint declaration which described members’ experience, asserted they 21 understood role and responsibilities of lead plaintiff, and provided process for decision- 22 making and addressing disagreements). The Joint Declaration begins by providing 23 descriptions of the members, including their occupation and their combined 65 years of 24 experience in investing in securities markets. (Doc. 24-5 at 2). Next, the Joint Declaration 25 describes a conference call that took place between the three individuals on November 10, 26 2020, prior to their coming together. (Id. at 2–3). During the call, the members discussed 27 the benefits and detriments of proceeding as a group and of pursuing lead plaintiff status, 28 what their roles and responsibilities would be if they were lead plaintiff, and how they 1 would make decisions during the prosecution of the case. (Id. at 3–4). The Joint Declaration 2 explains that they agreed “to reach decisions via consensus in a collective and collaborative 3 manner,” but that if they could not reach a consensus, that decisions would be made through 4 a majority vote. (Id. at 3). They also promised to be the decisionmakers, to actively 5 participate in the action, and to oversee and direct the activities of their counsel. (Id. at 3– 6 5). They agreed to work together and to have—at minimum—quarterly calls with their 7 counsel to discuss the case. (Id. at 4). They also agreed to meet telephonically to discuss 8 strategy “as events and circumstances in the litigation may warrant.” (Id.). Finally, the Joint 9 Declaration laid out the specific responsibilities of Group II’s counsel and acknowledged 10 that the members are the ones responsible for ensuring counsel follows through on those 11 responsibilities. (Id. at 5). 12 All told, this Court reaffirms its finding that Group II meets the Rule 23 adequacy 13 requirement, even with the additional consideration of its member’s lack of a prelitigation 14 relationship. As this Court found in its December 2020 Order, Group II has no conflicts 15 with other members of the class, its losses are such that it has a significant interest in the 16 outcome of the case, and its proposed counsel is highly qualified and will assist in vigorous 17 prosecution. (Doc. 50 at 10). And as this Court finds today, the concerns about Group II 18 members’ lack of prelitigation relationship are quelled by the group’s small size and its 19 member’s Joint Declaration, which evidences the cohesiveness of the members and their 20 adequacy to serve as lead plaintiff in this litigation. 21 Having found that Group II meets the typicality and adequacy requirements of 22 Federal Rule of Civil Procedure 23, the presumption in favor of Group II as most adequate 23 plaintiff has been established. Moving to the third and final step, this Court must now 24 consider whether the other lead plaintiff movants have rebutted this presumption. As noted 25 above, the presumption is rebutted “only upon proof” by another movant that the 26 presumptive lead plaintiff—here, Group II—either (1) will not fairly and adequately 27 protect the interests of the class or (2) is subject to unique defenses that render such plaintiff 28 incapable of adequately representing the class. In re Mersho, 6 F.4th at 899 (citing § 78u- 1 4(a)(3)(B)(iii)(II)(aa)–(bb)). 2 No evidence has been put forth showing that Group II is subject to a unique defense 3 that would render it inadequate. Thus, the presumption will be rebutted only if this Court 4 finds that a competing movant has shown proof that Group II will not fairly and adequately 5 protect the interests of the class. Two other lead plaintiff movants, Angelo Baio and 6 Nayankumar Patel, attempt to do so by arguing that 1) Nikola Investor Group II is a group 7 of unrelated individuals brought together by counsel, 2) it has failed to explain why the 8 grouping and four law firms are necessary, 3) its filings are full of errors that suggest the 9 individuals are not involved and counsel is running the litigation, and 4) it has not shown 10 it is a cohesive group and its members are geographically diverse and unconnected. (Docs. 11 39 at 10–11, 41 at 16–20). 12 The Court’s adequacy analysis, above, addresses Baio and Patel’s arguments that 13 the unrelatedness and geographical separation of Group II’s members renders Group II 14 inadequate. Again, this Court finds that Group II has shown that it will fairly and 15 adequately protect the interests of the class even though its members lack a prelitigation 16 relationship. Thus, these arguments fail to rebut the presumption in Group II’s favor. As to 17 Baio and Patel’s argument that Group II has failed to explain why its grouping and four 18 law firms are necessary, this Court finds that Group II adequately explained the reasoning 19 for their grouping and choice of counsel in the Joint Declaration. Chau, Karczynski, and 20 Mersho explain that they decided to jointly move for lead plaintiff appointment because of 21 the similarities in their investing experience and in their losses sustained related to this 22 case. (Doc. 24-5 at 3–4). They each understood that they could have moved for lead 23 plaintiff appointment individually but agreed to come together because they shared similar 24 desires to oversee the litigation, their losses were comparable to one another, and they each 25 believed that their appointment as a group would be beneficial to themselves individually 26 and to the class as whole. (Id.). And while the competing movants raise issue with the fact 27 that Group II lists four law firms in its pleadings, this Court is satisfied with Group II’s 28 selection of only two of them to serve as co-lead counsel in this case. Finally, this Court 1 finds that Group II’s filing errors and misspellings—which Baio and Patel point to as 2 evidence that counsel is running the show and that Chau, Karczynski, and Mersho are not 3 involved—is insufficient proof to overcome the presumption. Therefore, this Court finds 4 no competing movant has rebutted the PSLRA presumption that Group II is the most 5 adequate lead plaintiff. This Court selects Group II as lead plaintiff. 6 B. Lead and Liaison Counsel Appointment 7 Having appointed Group II as lead plaintiff, the Court will now ensure Group II’s 8 choice of lead counsel is appropriate. Group II has selected Pomerantz LLP and Block & 9 Leviton LLP as co-lead counsel and has submitted firm resumes for both. (Docs. 24-6 & 10 24-7). The resumes indicate that the firms each have extensive experience in securities 11 class action cases and that they have the requisite resources to dedicate to this case. The 12 Court is satisfied that Pomerantz LLP and Block & Leviton LLP will prosecute the action 13 vigorously and competently. The Court approves Group II’s choice of counsel. 14 IV. CONCLUSION 15 The Court finds that Nikola Investor Group II is fit to serve as lead plaintiff pursuant 16 to PSLRA requirements. The Court also approves of Group II’s choice of counsel. 17 Therefore, 18 IT IS ORDERED: 19 1. That pursuant to the Ninth Circuit’s July 23, 2021 decision (Doc. 69), the Court’s 20 December 15, 2020 Order (Doc. 50) is vacated in part as to the appointment of 21 Angelo Baio as lead plaintiff and as to this Court’s approval of Baio’s selection 22 of counsel. The Order (Doc. 50) still stands as to its consolidation of Case Nos. 23 CV-20-01797-PHX-SPL, CV-20-01819-PHX-DLR, CV-20-02123-PHX-JJT, 24 CV-20-02168-PHX-DLR, CV-20-02237-PHX-DLR, and CV-20-02374-PHX- 25 DWL, with CV-20-01797-PHX-SPL being the lead case. The Order (Doc. 50) 26 also still stands as to its order that all future pleadings and papers submitted for 27 filing shall bear the following complete case number: CV-20-01797-PHX-SPL 28 and shall be filed only in the lead case; 1 2. That Angelo Baio’s Motion to Set an Evidentiary Hearing Regarding Lead 2 Plaintiff Appointment (Doc. 77) is denied; 3 3. That Vincent Chau, Stanley Karczynski, and George Mersho’s Motion for 4 Consolidation, Appointment as Lead Plaintiff, and Approval of Counsel (Doc. 5 24) is granted in part as to the appointment of Nikola Investor Group II as lead 6 plaintiff and to the approval of its counsel; 7 4. That the Motions filed by Angelo Baio; Nayankumar Patel; Dennis J. Stacy, Sr.; 8 Nikola Investor Group I; T3 Trading Group LLC; The Investor Group; Mahyabin 9 Dinyarian; Shahab Sandhu; and Patrick Brostowin (Docs. 16, 19, 20, 21, 25, 28, 10 30, 31, 32) are denied as moot. 11 Dated this 17th day of November, 2021. 12 DK A 4 13 Honorable reven P. Légan 14 United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19