In Re Vanda Pharmaceuticals Inc. Securities Litigation ( 2013 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JEFF SMALL, :
Individually and On Behalf of All Others :
Similarly Situated, :
:
Plaintiff, : Civil Action No.: 13-955 (RC)
:
v. : Re Document Nos.: 11, 12
:
VANDA PHARMACEUTICALS INC. et al., :
:
Defendants. :
:
TUAN HOANG, :
On Behalf of Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.: 13-1028 (RC)
:
v. : Re Document No.: 6
:
VANDA PHARMACEUTICALS INC. et al., :
:
Defendants. :
MEMORANDUM OPINION
GRANTING MOTION TO CONSOLIDATE CASES; AND
APPOINTING LEAD PLAINTIFF AND LEAD COUNSEL
I. INTRODUCTION
Before the Court are the motions of two movants, each seeking to be appointed as lead
plaintiff and to have their counsel appointed lead counsel, in a putative securities fraud class
action brought under the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995 (“PSLRA”). The movants also seek consolidation of the two
above-captioned lawsuits. Because the cases involve common questions of law and fact, the
Court will grant the parties’ motions to consolidate. As set forth more fully below, because
Movant Darryl McCall has the largest financial interest and is entitled to a presumption favoring
the counsel of his choice, the Court will appoint Mr. McCall as lead plaintiff and his counsel,
Faruqi & Faruqi LLP and Finkelstein Thompson LLP, as lead and liaison counsel, respectively.
II. FACTUAL BACKGROUND
Vanda Pharmaceuticals Inc. (“Vanda”) is a biopharmaceutical company whose common
stock trades on the NASDAQ Global Stock Market under the ticker symbol VNDA. See Compl.
¶¶ 2, 16, ECF No. 1. Its focus is on the development and commercialization of drugs and
products for the treatment of disorders of the human central nervous system. See id. ¶ 2.
This litigation is centered on representations made by Vanda and its officers relating to
Tasimelteon, an oral compound currently in Vanda’s product pipeline for treatment of Non-24-
Hour Disorder (“Non-24”). Non-24 is a rare circadian rhythm disorder that affects many totally
blind individuals. See id. ¶ 3. Because these individuals lack the ability to perceive light and
dark periods of day and thus process the periodic stimuli, their “internal clocks” are often not
synchronized to the “normal” 24-hour social cycle, whereby people sleep at night and wake
during the day. See id. ¶ 4. The goal of Tasimelteon is to treat Non-24 by aligning the brain’s
wave and hormone rhythms to the normal 24-hour social day—a process known as
“entrainment.” See id. ¶¶ 4–5.
According to the allegations contained in the complaint, Vanda and its officers issued
materially false or misleading statements about Tasimelteon’s efficacy and the results of its
Phase III clinical trials. Specifically, it is alleged that Vanda (1) changed the design of the
primary Phase III study several times, including a complete replacement of the primary endpoint
one month before results were announced, because the company was in possession of data
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suggesting that the original primary endpoint was not going to be met; (2) used a replacement
primary endpoint that had never been used before in sleep-drug clinical trials and was not
endorsed by the FDA; (3) enrolled patients in the Phase III trials by “stretching” the clinical
definition of Non-24; and (4) combined data from two Phase III studies in order to demonstrate a
benefit for Non-24 patients, where the two Phase III studies failed individually. See id. ¶¶ 6–7.
The complaint also alleges that on June 19, 2013, TheStreet.com, a financial news
website, published an article raising doubts about the efficacy and quality of the trial procedure
and test data for Tasimelteon and noted, among other things, the multiple changes in the primary
endpoint over the course of the Phase III trials. See id. ¶ 8. That same day, Vanda shares
declined more than 22 percent, closing at $8.51 per share. See id. ¶ 9.
On June 24, 2013, Plaintiff Jeff Small filed a putative class action complaint on behalf of
all persons who purchased Vanda stock between December 18, 2012, and June 18, 2013, (the
“Class Period”) against Vanda; its President and Chief Executive Officer, Mihael H.
Polymeropoulos; its Senior Vice President and Chief Financial Officer, James P. Kelly; and its
Senior Vice President and Chief Medical Officer, Paolo Baroldi. See generally Compl. The
complaint pleads securities fraud in violation of Section 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. § 78j(b) (2012), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5
(2013); and control person liability as to the individual defendants pursuant to Section 20(a) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a) (2012). On July 8, 2013, Plaintiff Tuan
Hoang filed another putative class action complaint against Vanda, Mr. Polymeropoulos, and
Mr. Kelly, containing similar allegations and covering the same Class Period. See generally
Complaint, Hoang v. Vanda Pharms. Inc., No. 13-cv-1028 (D.D.C. July 8, 2013), ECF No. 1.
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On June 25, 2013, counsel for Mr. Small published via Globe Newswire a notice of the
pending lawsuit that informed members of the putative class that they “have until August 24,
2013[,] to ask the Court to appoint [them] as Lead Plaintiff for the class.” Lieberman Decl.
Ex. A at 1, ECF No. 12-3; see also 15 U.S.C. § 78u-4(a)(3)(A)(i) (2012) (requiring such notice).
Timely, competing motions for appointment as lead plaintiff were filed by Mr. Small and
Movant Darryl McCall, who each also sought to have their respective attorneys appointed as lead
counsel.1 See generally McCall Mot., ECF No. 11; Small Mot., ECF No. 12. The parties also
seek to consolidate the separate actions filed by Mr. Small and Mr. Hoang.
III. MOTION TO CONSOLIDATE CASES
Under the PSLRA framework, the Court is to first rule on any pending motions for
consolidation before appointing a lead plaintiff. See 15 U.S.C. § 78u-4(a)(3)(B)(ii) (2012). The
Federal Rules of Civil Procedure allow courts to consolidate actions where they involve common
questions of law or fact. See Fed. R. Civ. P. 42(a)(2); see also Blackmoss Invs., Inc. v. ACA
Capital Holdings, Inc., 252 F.R.D. 188, 190 (S.D.N.Y. 2008) (consolidating multiple class action
securities fraud cases).
Consolidation in this case is uncontested, and for good reason. The two pending
complaints both claim securities fraud under Section 10(b), Rule 10b-5, and Section 20(a);
arising out of the same alleged misrepresentations relating to Tasimelteon and its Phase III
clinical trials; on behalf of the same putative class; over the same class period. See supra Part II.
These cases are well suited for consolidation, and the Court will grant the parties’ motion.
1
Mr. Hoang did not file a motion or any responsive brief, presumably because his
counsel—who is the same counsel retained by Mr. McCall—determined that Mr. McCall holds a
greater financial interest in this litigation. Compare McLellan Decl. Ex. B, ECF No. 11-3, with
Plaintiff Certification ¶ 4, Hoang v. Vanda Pharms. Inc., No. 13-cv-1028 (D.D.C. July 8, 2013),
ECF No. 1-1.
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IV. MOTION TO APPOINT LEAD PLAINTIFF
A. Legal Standard
The PSLRA establishes a framework for the appointment of a lead plaintiff in private
class actions brought under the Securities Exchange Act of 1934. See 15 U.S.C. § 78u-4(a)(3)
(2012). Under the statute, the Court “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 the class members . . . .” Id. § 78u-4(a)(3)(B)(i). The PSLRA also
requires that the Court adopt a presumption that the “most adequate plaintiff” is the person or
group of persons that
(aa) has either filed the complaint or made a motion in response to a notice [of the
pending lawsuit];
(bb) in the determination of the court, has the largest financial interest in the relief
sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil
Procedure.
Id. § 78u-4(a)(3)(B)(iii)(I). The presumption may then be rebutted only upon “proof” that the
presumptively most adequate plaintiff (1) “will not fairly and adequately protect the interests of
the class”; or (2) “is subject to unique defenses that render such plaintiff incapable of adequately
representing the class.” Id. § 78u-4(a)(3)(B)(iii)(II).
Thus, the PSLRA creates a four-step process for the selection of a lead plaintiff: First, a
plaintiff files a complaint and publicizes the pendency of the action, opening a 60-day window
for members of the class to move for appointment as lead plaintiff. Second, the Court must
apply the PSLRA presumption and identify the movant with the largest financial interest in the
relief sought by the class. Third, the Court evaluates whether that movant satisfies the
requirements of Rule 23 of the Federal Rules of Civil Procedure. And finally, the Court gives
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other plaintiffs an opportunity to rebut the presumptive lead plaintiff’s showing that it satisfies
Rule 23. See generally In re XM Satellite Radio Holdings Sec. Litig., 237 F.R.D. 13, 17–18
(D.D.C. 2006).
B. Analysis
1. Timely Complaint or Motion
The Court first narrows the field of potential lead plaintiffs to those who have complied
with the procedural requirements of the PSLRA. The PSLRA’s selection process seeks to
promote early appointment of a lead plaintiff. See id. at 17. Thus, “[t]he plain language of the
statute precludes consideration of a financial loss asserted for the first time in a complaint, or any
other pleading, for that matter, filed after the sixty (60) day window has closed.” In re Telxon
Corp. Sec. Litig., 67 F. Supp. 2d 803, 818 (N.D. Ohio 1999); accord In re XM, 237 F.R.D. at 17;
see also 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa) (limiting the presumption of “most adequate
plaintiff” to those who have “either filed the complaint or made a motion in response to a
notice”).
By the time the 60-day window closed in this case, three individuals had come forward
seeking to serve as lead plaintiff: Jeff Small, Darryl McCall, and Tuan Hoang. Each of these
men filed the necessary complaint or motion. See generally Compl., ECF No. 1 (Small); McCall
Mot., ECF No. 11 (McCall); Complaint, Hoang v. Vanda Pharms. Inc., No. 13-cv-1028 (D.D.C.
July 8, 2013), ECF No. 1 (Hoang). And each also timely filed the certification required by the
PSLRA, attesting to, among other things, their transactions in Vanda securities during the class
period and their willingness to serve as lead plaintiff. See 15 U.S.C. § 78u-4(a)(2)(A). See
generally Lieberman Decl. Ex. B, ECF No. 12-4 (Small certification); McLellan Decl. Ex. B,
ECF No. 11-3 (McCall certification); Plaintiff Certification ¶ 4, Hoang v. Vanda Pharms. Inc.,
6
No. 13-cv-1028 (D.D.C. July 8, 2013), ECF No. 1-1 (Hoang certification). The pool of eligible
plaintiffs is thus limited to these three individuals.
2. Largest Financial Interest
The Court next considers which eligible plaintiff has the largest financial interest. See 15
U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb). “The PSLRA’s presumption that the most adequate plaintiff
is the one with the largest financial interest reflects Congress’[s] desire to curtail lawyer-driven
securities class actions.” In re XM, 237 F.R.D. at 17 (citing H.R. Rep. No. 104-369, at 31 (1995)
(Conf. Rep.), reprinted in 1995 U.S.C.C.A.N. 730, 730). This is so, because the framers of the
statute assumed that the plaintiff with the greatest stake “would be more likely to play an active
role in directing and overseeing the litigation.” Id. (citing Barnet v. Elan Corp., 236 F.R.D. 158,
161 (S.D.N.Y. 2005)).2 In determining which plaintiff has the largest financial interest, other
judges in this district have considered three factors: “(1) the number of shares that the movant
purchased during the putative class period; (2) the total net funds expended by the plaintiffs
during the class period; and (3) the approximate losses suffered by the plaintiffs.” Id. (citing In
re Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001)).
Based on the evidence in the record, the Court concludes that Mr. McCall has the largest
financial interest in this litigation. According to his certification, Mr. McCall purchased 49,500
shares of Vanda stock during the putative class period, expended $620,522.25, and suffered a
loss of approximately $151,869.80. See McLellan Decl. Exs. B–C, ECF Nos. 11-3 to 11-4. By
contrast, Mr. Small purchased 4,190 shares, expended approximately $45,811, and lost
approximately $9,039; and Mr. Hoang purchased 4,690 shares, expended $50,558.48, and does
2
The Court notes that, while the framers of the PSLRA expressed a clear preference that
institutional investors serve as lead plaintiffs, see H.R. Rep. No. 104-369, at 34 (1995) (Conf.
Rep.), reprinted in 1995 U.S.C.C.A.N. 730, 733, no institutional investor has stepped forward in
this case.
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not provide a detailed accounting of his losses. See Lieberman Decl. Exs. B–C, ECF Nos. 12-4
to 12-5 (Small); Plaintiff Certification ¶ 4, Hoang v. Vanda Pharms. Inc., No. 13-cv-1028
(D.D.C. July 8, 2013), ECF No. 1-1 (Hoang). The parties point to no reason—and the Court sees
none at this time—to doubt the accuracy of the figures provided in the plaintiff certifications.
Mr. McCall’s losses alone are greater than even the combined expenditures of Messrs. Small and
Hoang during the putative class period. Thus, under all three factors considered by the Court,
Mr. McCall holds the largest financial stake in this litigation.
3. Typicality and Adequacy
The PSLRA requires that the Court next determine whether Mr. McCall satisfies the
requirements of Rule 23 of the Federal Rules of Civil Procedure. See 15 U.S.C.
§ 78u-4(a)(3)(B)(iii)(I)(cc). “The inquiry does not differ from the one conducted in a Rule 23
analysis.” In re Fannie Mae Sec. Litig., 355 F. Supp. 2d 261, 263 (D.D.C. 2005) (citing In re
Cavanaugh, 306 F.3d 726, 736 (9th Cir. 2002)). “It should be noted, however, that at this stage,
‘the party moving for lead plaintiff of the consolidated action need only make a preliminary
showing that it satisfies the typicality and adequacy requirements of Rule 23.’” In re XM, 237
F.R.D. at 18 (emphasis added) (quoting In re Olsten Corp. Sec. Litig., 3 F. Supp. 2d 286, 296
(E.D.N.Y. 1998)). Significantly, although the Rule 23(a) analysis typically includes four
requirements—numerosity, commonality, typicality, and adequacy—only typicality and
adequacy are relevant to the presumptive lead plaintiff’s prima facie showing under the PSLRA.
See Reese v. Bahash, 248 F.R.D. 58, 62 (D.D.C. 2008).
To meet the typicality requirement, a presumptive lead plaintiff “must demonstrate that
its claims arose out of the same course of conduct and are based on the same legal theory” as
those of the absent putative class members. In re Fannie Mae, 355 F. Supp. 2d at 263 (citing
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Stewart v. Rubin, 948 F. Supp. 1077, 1088 (D.D.C. 1996), aff’d, 124 F.3d 1309 (D.C. Cir.
1997)); accord Reese, 248 F.R.D. at 63. Mr. McCall asserts that his claims are typical because
he (1) purchased Vanda securities during the Class Period; (2) paid inflated prices as a result of
Defendants’ allegedly false or misleading statements; and (3) thereby suffered damages when the
value of Vanda’s stock declined. See McCall Mot. 8, ECF No. 11. No party has contested this
assertion. Mr. McCall’s showing satisfies the typicality requirement in the securities fraud
context, because it indicates that Mr. McCall’s claims arise out of the same alleged fraud as those
of the absent class members. See Plumbers Local #200 Pension Fund v. Wash. Post Co., 274
F.R.D. 33, 37 (D.D.C. 2011) (citing Reese, 248 F.R.D. at 63).
“The adequacy of a lead plaintiff is determined by considering whether the plaintiff ‘has
the ability and incentive to represent the claims of the class vigorously,’ has retained ‘adequate
counsel,’ and if there exists any ‘conflict between [the movant’s] claims and those asserted on
behalf of the class.’” In re XM, 237 F.R.D. at 18 (alteration in original) (quoting Hassine v.
Jeffes, 846 F.2d 169, 179 (3d Cir. 1988)). Mr. McCall’s substantial financial stake provides an
incentive for him to “vigorously” represent the claims of the class and, as discussed more fully
below, see infra Part V, he has retained adequate counsel to represent the interests of the class.
Moreover, there is no record evidence that his interests conflict with those of the other class
members. Therefore, the Court finds that Mr. McCall adequately represents the interests of the
putative class. See also Reese, 248 F.R.D. at 63 (finding that adequacy exists where a plaintiff
has the largest financial interest, there is no evidence of conflict, and the plaintiff has selected
qualified and competent counsel).
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4. Unique Defenses
Finally, the Court allows the other plaintiffs to rebut the presumption that Mr. McCall is
the most adequate lead plaintiff by providing “proof” that he (1) “will not fairly and adequately
protect the interests of the class”; or (2) “is subject to unique defenses that render [him]
incapable of adequately representing the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). No plaintiff
has attempted to make such a showing, and the Court sees no evidence in the record (let alone
the “proof” required by the PSLRA) to suggest that Mr. McCall will not fairly or adequately
protect the interests of the putative class, or that he is subject to any unique defenses. Indeed,
neither Mr. Small nor Mr. Hoang even filed a brief in opposition to Mr. McCall’s motion for
appointment as lead plaintiff.3 The Court will therefore appoint Mr. McCall as lead plaintiff in
this consolidated action.
V. MOTION TO APPOINT LEAD COUNSEL
As noted above, Mr. McCall seeks to have his counsel of choice appointed as lead
counsel in this consolidated action. “The PSLRA ‘evidences a strong presumption in favor of
approving a properly-[selected] lead plaintiff’s decisions as to counsel selection and counsel
retention.’” In re XM Satellite Radio Holdings Sec. Litig., 237 F.R.D. 13, 21 (D.D.C. 2006)
(quoting In re Cendant Corp. Litig., 264 F.3d 201, 276 (3d Cir. 2001)); see also 15 U.S.C.
§ 78u-4(a)(3)(B)(v) (2012) (“The most adequate plaintiff shall, subject to the approval of the
court, select and retain counsel to represent the class.”). Mr. McCall has selected Faruqi &
Faruqi LLP as lead counsel and Finkelstein Thompson LLP as liaison counsel. Both firms have
substantial experience representing shareholder classes in securities fraud litigations. See
3
Beyond the attachment of his certification to his complaint, Mr. Hoang filed no papers
at all in support of his candidacy for lead plaintiff. See supra note 1.
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generally McLellan Decl. Exs. D–E, ECF Nos. 11-5 to 11-6. Given the lack of dispute regarding
the firms’ experience and qualifications, the Court will appoint Faruqi & Faruqi LLP and
Finkelstein Thompson LLP as lead and liaison counsel, respectively.
VI. CONCLUSION
For the foregoing reasons, the Court will consolidate Civil Action Nos. 13-955 and
13-1028 under the common caption and case number In re Vanda Pharmaceuticals Inc.
Securities Litigation, Civil Action No. 13-955. The Court will appoint Movant Darryl McCall as
lead plaintiff in the consolidated action and his counsel of choice as lead and liaison counsel.
The Court will deny Plaintiff Jeff Small’s motion for appointment as lead plaintiff and
appointment of lead counsel. An order consistent with this Memorandum Opinion is separately
and contemporaneously issued.
Dated: December 4, 2013 RUDOLPH CONTRERAS
United States District Judge
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