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Yellowdog Partners, LP v. Curo Group Holdings Corp.

United States District Court, D. Kansas

March 13, 2019

YELLOWDOG PARTNERS, LP and CARPENTERS PENSION FUND OF ILLINOIS, individually and on behalf of all others similarly situated, Plaintiffs,
v.
CURO GROUP HOLDINGS CORP.; DONALD F. GAYHARDT; WILLIAM BAKER; and ROGER W. DEAN, Defendants.

          MEMORANDUM AND ORDER

          JOHN W. LUNGSTRUM UNITED STATES DISTRICT JUDGE

         Plaintiff Yellowdog Partners, LP (“Yellowdog”) initiated this action under the federal Securities Exchange Act of 1934 against defendant CURO Group Holdings Corp. and three of its officers. Yellowdog asserts claims on its behalf and on behalf of a class consisting of all persons who purchased CURO securities from July 31, 2018, up to and including October 24, 2018. This matter presently comes before the Court on competing motions for appointment as lead plaintiff filed by Yellowdog (Doc. # 21) and by another putative class member, Carpenters Pension Fund of Illinois (“the Fund”) (Doc. # 19).[1] The Court conducted a hearing on the motions on March 8, 2019. Based on the arguments made in the movants' briefs and at the hearing, and for the reasons set forth below, the Court appoints the Fund as lead plaintiff in this action, and it approves the Fund's selection of counsel to represent the putative class. Accordingly, the Court grants the Fund's motion and denies Yellowdog's motion.

         I. Applicable Law

         The Private Securities Litigation Reform Act (PSLRA) provides that in a private securities class action, 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 class members.” See 15 U.S.C. § 78u-4(a)(3)(B). The statute further creates the presumption that this “most adequate plaintiff” is the person or group that “has the largest financial interest in the relief sought by the class, ” so long as that person or group has filed a timely motion and satisfies the requirements of Fed.R.Civ.P. 23. See Id. The presumption may be rebutted only upon proof that the one with the largest financial interest will not fairly and adequately protect the interests of the class or is subject to unique defenses that renders that person incapable of adequately representing the class. See id.

         In this case, both Yellowdog and the Fund filed timely motions, it appears that both satisfy the adequacy and typicality requirements of Rule 23, and neither has suggested that a presumption in favor of the other could be rebutted. Both movants are represented by experienced and capable counsel. Thus, the appointment of lead plaintiff turns entirely on which movant has the larger financial interest in the relief sought by the class.

         The PSLRA does not provide a standard for determining the size of a member's financial interest in the litigation. Nor has the Supreme Court or the Tenth Circuit addressed the issue. Both movants agree that courts generally apply the factors first enunciated in Lax v. First Merchants Acceptance Corp., 1997 WL 461036 (N.D. Ill. Aug. 11, 1997), and both would have the Court apply the Lax factors here. Those factors are as follows: “(1) the number of shares purchased; (2) the number of net shares purchased; (3) the total net funds expended by the plaintiffs during the class period; and (4) the approximate losses suffered by the plaintiffs.” See Id. at *5. The Court agrees that consideration of those factors is appropriate in this case.

         “Of these factors, courts have consistently held that the fourth factor, the magnitude of the loss suffered, is the most significant.” See Cha v. Kinross Gold Corp., 2012 WL 2025850, at *2 (S.D.N.Y. May 31, 2012). The trend is to treat the four factors as listed in reverse order of importance. See Richman v. Goldman Sachs Group, Inc., 274 F.R.D. 473, 475-76 (S.D.N.Y. 2011). The Court agrees with that ranking of the importance of the factors (from fourth to first). Yellowdog argues that the first factor should be given significant weight because it is the most objective of the four and thus the least susceptible to manipulation. Yellowdog cites Pio v. General Motors Co., 2014 WL 5421230 (E.D. Mich. Oct. 24, 2014), to support that argument. In Pio, the court declined an invitation to rely solely on the fourth factor, and it noted that the first three factors provide the most objective measurement because the fourth factor depends on the method used to calculate it. See Id. at *4. The court further noted that some courts had found the second factor to be the most determinative. See Id. In this case, the Court will consider all four factors, but it will give the most weight to the fourth factor, based on its conclusion that the plaintiffs' losses, and thus their claims for damages, are the most important factor in determining the largest financial interest in this litigation.

         II. Analysis of the Largest Financial Interest

         The movants appear to agree on the amount and value of their purchases and sales of the securities during the class period. Yellowdog purchased 41, 948 shares during the proposed class period; the Fund purchased 18, 400 shares. Thus, the first factor, the number of shares purchased during the class period, weighs in favor of Yellowdog.

         The second and third Lax factors are the net shares purchased and the net funds expended during the class period. The Fund had no sales during the class period, and its net is therefore 18, 400 shares, purchased for $565, 238. Yellowdog sold 31, 447 shares during the period, which would seem to mean that it purchased a net total of 10, 501 shares during the class period (with net funds expended of $160, 409). Such calculations would tilt these factors in favor of the Fund. Yellowdog, however, argues that its net figures are the full 41, 948 shares, purchased for $703, 166. Yellowdog would have the Court ignore the sales during the class period on the basis of its first-in-first-out (FIFO) accounting method. Under that method, because Yellowdog held over 35, 000 shares at the start of the class period, those shares were sold first (the first shares in are also the first shares out), and thus because the shares purchased during the class period were not sold during that period, those purchased shares also represents the net figure, with no reduction for sales.

         This dispute is effectively resolved in the Court's consideration of the fourth factor, turning on whether the Court uses the FIFO method or the alternate last-in-first-out (LIFO) method urged by the Fund. The Court notes, however, Yellowdog's emphasis on the objective nature of these two factors. Yellowdog cites the Pio case for that argument, but the Pio court considered these factors objective because (unlike the fourth factor) they did not turn on the particular accounting method used. Thus, viewed objectively (as Yellowdog requests), the second and third Lax factors would look at the net shares purchased in a before-and-after sense, measuring the difference in position at the beginning and end of the class period. Under that analysis, Yellowdog had 10, 501 more shares at the end than at the beginning of the period, so that number is more appropriately used as the net - with the result that the second and third factors also weigh in the Fund's favor.

         In this case, the Court concludes that the plaintiff with the largest financial interest is most appropriately determined by reference to each movant's approximate losses resulting from the alleged securities fraud. That factor depends entirely on whether the Court uses the FIFO accounting method or the LIFO method. The movants do not dispute these calculations for purposes of the lead plaintiff determination: Yellowdog suffered a loss of $375, 514 under the FIFO method, but only lost $209, 549 under the LIFO method; the Fund lost $301, 811 under either method. Thus, if FIFO is used, Yellowdog suffered the greatest loss and has the largest financial interest in the litigation; if LIFO is used, the Fund has the largest interest and is the most adequate plaintiff.

         As noted above, the statute does not require the use of a particular method, and the Supreme Court and Tenth Circuit have not weighed in. The Ninth Circuit has stated that a court may select accounting methods that are rational and consistently applied. See In re Cavanaugh, 306 F.3d 726, 730 n.4 (9th Cir. 2002). These movants concede that both LIFO and FIFO are valid and accepted accounting methods. The Court concludes, however, that for purposes of determining the largest financial interest at this stage, use of the LIFO method is more appropriate.

         First, as one court noted only months ago, the overwhelming majority position and the trend among courts is in favor of LIFO over FIFO for purposes of this lead plaintiff analysis. See, e.g., Mariconda v. Farmland Partners Inc., 2018 WL 6307868, at *3 (D. Colo. Dec. 3, 2018) (in applying the Lax test, courts “greatly prefer[]” the LIFO method over FIFO) (citing cases); Kinross, 2012 WL 2025850, at *3 (“the overwhelming trend both in this district and nationwide has been to use LIFO to calculate such losses”) (citing cases). Moreover, as the court in Kinross pointed out, ...


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