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In re Extreme Networks Inc. Securities Litigation

United States District Court, N.D. California, San Jose Division

June 28, 2016

In re EXTREME NETWORKS INC. SECURITIES LITIGATION This Document Relates to All Actions.

          ORDER APPOINTING LEAD PLAINTIFF AND LEAD COUNSEL [RE: ECF NOS. 27, 28, 68]

          BETH LABSON FREEMAN United States District Judge

         In this putative securities class action, Arkansas Teacher Retirement System (“ATRS”) and the City of Lakeland Employees Pension Plan (“Lakeland”) have filed competing motions seeking appointment of lead plaintiff status. The motions were fully briefed, and the Court heard arguments on the matter on May 5, 2015. For the reasons that follow, the Court GRANTS the Motion to appoint ATRS as lead plaintiff, GRANTS the appointment of Labaton Sucharow LLP as lead counsel and Berman DeValerio as liaison counsel, and DENIES the Motion to appoint Lakeland as lead plaintiff.

         I. BACKGROUND

         Defendant Extreme Networks, Inc. (“Extreme Networks”) develops and sells network infrastructure equipment, and offers related services contracts for extended warranty and maintenance. See Complaint (ECF No. 1) ¶ 3. On October 23, 2015, Plaintiff Jui-Yang Hong, individually and on behalf of a putative class of individuals who purchased or otherwise acquired Extreme Networks common stock between November 4, 2013, and April 9, 2015, inclusive, filed a class action Complaint in the Northern District of California against Extreme Networks and individual Defendants Charles W. Berger, Kenneth B. Arola, and John T. Kurtzweil, all of whom are officers of the company. See generally Id. The Complaint alleges that Defendants disseminated materially false and misleading statements, and concealed material adverse facts regarding the company’s financial condition and growth prospects. Id. ¶¶ 2, 26-72. Specifically, it alleges that Defendants misrepresented the company’s business prospects and engaged in a scheme to deceive the market by artificially inflating the price of Extreme Networks common stock. Id. ¶ 73. Later, when Defendants’ alleged misrepresentations and fraudulent conduct became apparent to the market, the price of Extreme Networks common stock fell sharply. Id. As a result of their purchases of Extreme Networks common stock during the relevant class period, the Complaint alleges that the plaintiff and class members suffered economic loss under federal securities laws. Id.

         On December 1, 2015, the Court consolidated this case, Hong v. Extreme Networks, Inc. et al., No. 4:15-cv-04883-BLF, with another case, Kasprzak v. Extreme Networks, Inc. et al., No. 5:15-cv-04975-BLF, upon stipulation of the parties. See Order Granting Stipulation and Proposed Order Consolidating Cases (ECF No. 18). In the months following, the consolidated case, proceeding under the present master file number, garnered four separate motions seeking appointment of lead plaintiff status. Those four motions were on behalf of (1) William Reardon, an individual (ECF No. 18); (2) Mark Kasprzak, an individual (ECF No. 23); (3) Arkansas Teacher Retirement System, an institutional investor (ECF No. 27); and (4) City of Lakeland Employees Pension Plan, an institutional investor (ECF No. 28). Reardon and Kasprzak subsequently withdrew their motions for lead plaintiff appointment, conceding that they did not have the largest financial stake in the relief being sought by the class. See Notice of Withdrawal of Motion Regarding Motion of William Reardon (ECF No. 55); Notice of Withdrawal of Motion of Mark Kasprzak (ECF No. 42). This left the two competing lead plaintiff motions from institutional investors, ATRS and Lakeland.

         Lakeland filed papers in opposition to ATRS’ lead plaintiff motion on January 5, 2016, see (ECF No. 45), and ATRS filed a Reply on January 12, 2016, see (ECF No. 53). ATRS filed its Opposition to Lakeland’s lead plaintiff motion on January 5, 2016, see (ECF No. 44), and Lakeland filed a Reply on January 12, 2016, see (ECF No. 51). Thereafter, pursuant to Civil Local Rule 7-3(d), Lakeland filed a Statement of Recent Events, see (ECF No. 62), and Statement of Recent Decisions, see (“Statement of Recent Decisions, ” ECF No. 63), and ATRS filed a Motion for Leave to File a Statement of Supplementary Materials, see (ECF No. 68).[1] The Court heard arguments on the Motions on May 5, 2016, and took the matter under submission.

         II. LEGAL STANDARD

         The selection of a lead plaintiff or plaintiffs in class action litigation brought under federal securities law is governed by the Private Securities Litigation Reform Act (“PSLRA”) amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934. See 15 U.S.C. §§ 77z-1, 78u-4. In relevant part, the amendments provide that:

the court shall consider any motion made by a purported class member in response to [the required notice of the filing of a class action suit], including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the member or members of the purported class that the court determines to be the most capable of adequately representing the interests of class members.

15 U.S.C. § 78u-4 (a)(3)(B)(i).

         As the Ninth Circuit in In re Cavanaugh, 306 F.3d 726 (9th Cir. 2002) described, the PSLRA lays out a three-step process for identifying the lead plaintiff. First is verification of the proper posting of a “notice ‘in a widely circulated national business-oriented publication or wire service.’” 306 F.3d at 729 (quoting 15 U.S.C. § 78u-4(a)(3)(A)(i)). Second is the district court’s consideration of “the losses allegedly suffered by the various plaintiffs before selecting as the ‘presumptively most adequate plaintiff’-and hence the presumptive lead plaintiff-the one who ‘has the largest financial interest in the relief sought by the class’ and ‘otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.’” Id. at 729-30. “In other words, the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit, ” and then determine “whether he satisfies the requirements of Rule 23(a), in particular those of ‘typicality’ and ‘adequacy.’” Id. at 730. Third is the opportunity for plaintiffs not found to be the presumptive lead plaintiff to rebut the presumptive lead plaintiff’s showing in satisfaction of the adequacy and typicality requirements for lead plaintiff designation. Id. at 730.

         III. DISCUSSION

         A. Notice

         There is no dispute that notice pursuant to 15 U.S.C. § 78u-4(a)(3)(A)(I) was properly given. See Cavanaugh, 306 F.3d at 729. The Court therefore proceeds to step two.

         B. Presumptively Most Adequate Plaintiff

         The PSLRA sets forth a rebuttable presumption that the “most adequate plaintiff, ” that is, the one who is to be selected as lead plaintiff, is the one who:

(aa) has either filed the complaint or made a motion in response to a notice under subparagraph (A)(i);
(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.

15 U.S.C. § 78u-4(a)(3)(B)(iii)(I).

         This presumption

may be rebutted only by proof by a member of the purported plaintiff class that the presumptively most ...

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