In Re Snap Inc. Securities LitigationRESPONSEC.D. Cal.October 1, 201812345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR BORIS FELDMAN, State Bar No. 128838 Email: boris.feldman@wsgr.com IGNACIO E. SALCEDA, State Bar No. 164017 Email: isalceda@wsgr.com WILSON SONSINI GOODRICH & ROSATI Professional Corporation 650 Page Mill Road Palo Alto, CA 94304-1050 Telephone: (650) 493-9300 Facsimile: (650) 565-5100 Attorneys for Defendants Snap Inc., Evan Spiegel, Robert Murphy, Andrew Vollero, and Imran Khan UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA IN RE SNAP INC. SECURITIES LITIGATION Case No. 2:17-cv-03679-SVW-AGR CLASS ACTION DEFENDANTS’ RESPONSE TO PURPORTED WITHDRAWAL OF LEAD PLAINTIFF Honorable Stephen V. Wilson This Document Relates To: All ActionsCase 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 1 of 7 Page ID #:2313 12345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR - 1- Defendants Snap Inc., Evan Spiegel, Robert Murphy, Andrew Vollero, and Imran Khan (collectively, “Defendants”) submit this response to the purported withdrawal of Lead Plaintiff Thomas DiBiase filed by the Lead Counsel on September 28, 2018. See ECF. No. 118. (“Notice of Withdrawal”). The process proposed by Lead Counsel to replace Lead Plaintiff with two other individuals selected by Lead Counsel violates the Private Securities Litigation Reform Act of 1995 (“Reform Act” or “PSLRA”). I. LEAD COUNSEL ATTEMPTS TO SWAP OUT THE LEAD PLAINTIFF SELECTED BY THE COURT To refresh the Court’s recollection, there was a contest for lead plaintiff in this litigation. On September 18, 2017, pursuant to the lead plaintiff provisions of the Reform Act, 15 U.S.C. § 77z-1(a)(3) & § 78u-4(a)(3), the Court appointed Mr. DiBiase, who had purported losses of $309,900, and approved his choice of counsel to be Lead Counsel. ECF No. 54. Mr. DiBiase won out over movant Shinu Gupta, who had purported losses of $1,017,273.01. On November 1, 2017, Lead Plaintiff filed a Consolidated Amended Complaint (ECF No. 67). There, in addition to Mr. DiBiase, Lead Counsel added another putative class representative, David Steinberg. Id. On August 30, 2018, Lead Counsel filed a motion for class certification. ECF No. 114. Simultaneously, Lead Counsel moved to withdraw David Steinberg as a named plaintiff and replace him with two individuals previously unconnected to this case, Donald R. Allen and Shawn B. Dandridge. ECF No. 115. Together with Mr. DiBiase, Messrs. Allen and Dandridge were proposed as class representatives. Defendants noticed depositions of all three proposed class representatives. On September 20, 2018, hours before Mr. DiBiase’s noticed deposition in Toronto, and after defense counsel had already flown there, the Lead Counsel indicated that Mr. DiBiase would not appear at his deposition, due to undisclosed personal reasons. Defendants asked whether Mr. DiBiase intended to proceed as Case 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 2 of 7 Page ID #:2314 12345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR - 2- Lead Plaintiff. After three days, on September 24, 2018, Lead Counsel informed Defendants that Mr. DiBiase would not serve as Lead Plaintiff and would withdraw from the case. Defendants urged Lead Counsel to notify the Court immediately. Defendants also indicated to Lead Counsel that the change in Lead Plaintiff could not be resolved by stipulation. Ex. 1. In a sleight of hand, Lead Counsel now proposes to swap out the Court-appointed Lead Plaintiff and replace him with its own selected plaintiffs. This is not permitted by the Reform Act. The Court has some flexibility in fashioning a response to the withdrawal of Mr. DiBiase, but the law is clear that the Lead Plaintiff process needs to be reopened and that an opportunity should be given for the most qualified lead plaintiff candidate to select the lead counsel, not the other way around. The present situation is the opposite of what Congress intended when passing the Reform Act. Instead of Lead Plaintiff picking counsel, counsel are picking and swapping out lead plaintiffs. II. THE COURT SHOULD REOPEN THE LEAD PLAINTIFF PROCESS The PSLRA does not permit plaintiff’s counsel to effectively run a securities lawsuit and pick lead plaintiffs of their choice. Quite the contrary: “merely accepting counsel’s suggestion with input from no other potential lead plaintiff is contrary to the PSLRA.” In re Neopharm, Inc. Sec. Litig., No. 02-C-2976, 2004 U.S. Dist. LEXIS 5814, at *9 (N.D. Ill. Apr. 7, 2004). That is why “courts generally require at least a modified renewed PSLRA selection process upon withdrawal of a lead plaintiff[.]” Claude v. Robert, No. C08-1008 MJP, 2015 U.S. Dist. LEXIS 44319, at *9-11 (W.D. Wash. Apr. 3, 2015). That approach meets the PSLRA’s requirements. It is also consistent with the statute’s goals: As courts have recognized, “one of the goals of the PSLRA was to minimize lawyer driven lawsuits.” In re Bank of Am. Corp. Auction Rate Sec. (ARS) Mktg. Litig., No. MDL 09-02014 JSW, 2009 U.S. Dist. LEXIS 63433, at *7-8 (N.D. Cal. July 9, 2009). Case 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 3 of 7 Page ID #:2315 12345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR - 3- The situation that arose in Neopharm is quite similar to that here. In Neopharm, the District Court considered a motion to withdraw the lead plaintiff and substitute him with another plaintiff selected by lead counsel. 2004 U.S. Dist. LEXIS 5814, at *3-4. The court granted the motion to withdraw, but denied the motion to substitute. It found that deferring to counsel’s choice of lead plaintiff would disturb the Reform Act’s mandate that the Court---not the lawyers---select the best lead plaintiff for the class based on the criteria set out in the statute. Id. at *4-5, *8. Accordingly, the court reopened the lead plaintiff selection process to all parties for 21 days.1 Id. at *9. It also denied plaintiff’s pending motion for class certification to allow for the selection of a new lead plaintiff. Id. at *9-10.2 As in Neopharm, the Court should reopen the statutorily-mandated lead plaintiff process. When doing so, courts have followed two approaches: (1) reopen the process and grant priority to those candidates that originally sought to serve as lead plaintiff or filed the original complaint; or (2) reopen the process to all shareholders willing to serve. The first option is illustrated in In re Smith Barney Transfer Agent Litigation, 823 F. Supp. 2d 202 (S.D.N.Y. 2011). There, upon dismissal of lead plaintiff from the action, the court denied counsel’s motion for leave to add a new lead plaintiff and reopened the lead plaintiff appointment process. Id. at 206 (“it would be 1 In reopening the lead plaintiff process for 21 days, rather than 60 days, the Neopharm court noted that it had been “clear for some time” that lead plaintiff wished to withdraw. 2004 U.S. Dist. LEXIS 5814, at *8. That is not the case here where Mr. DiBiase’s intention to withdraw was revealed privately only one week ago, and only on Friday to the Court. Defendants suggest under the circumstances the proper course is to reopen the process for 60 days, consistent with the Reform Act and other authorities, discussed below. 2 The Neopharm court also noted that the proposed substitute lead plaintiff had not filed a complaint nor timely moved for lead plaintiff appointment at the initial notice of action, a deficiency shared by both Messrs. Allen and Dandridge here. 2004 U.S. Dist. LEXIS 5814, at *5-6. Case 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 4 of 7 Page ID #:2316 12345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR - 4- imprudent to permit Lead Counsel to add a lead plaintiff of their choosing”). Although the court considered applications from all shareholders, it granted priority to the original movants for lead plaintiff status. In re Smith Barney Transfer Agent Litig., 05 Civ. 7583 (WHP), 2011 U.S. Dist. LEXIS 144351, at *9 (S.D.N.Y. Dec. 15, 2011); cf. Endress v. Gentiva Health Servs., Inc., 278 F.R.D. 78, 83-84 (E.D.N.Y. 2011) (opening lead plaintiff process for 60 days after withdrawal of lead plaintiff, where none of the plaintiffs in the consolidated actions filed the original complaint or timely moved for lead plaintiff during the initial notice period). Alternatively, the second approach was followed in Claude v. Robert, where the court reopened the lead plaintiff process to all shareholders. 2015 U.S. Dist. LEXIS 44319, at *9-11. In doing so, the court noted that “Defendants are correct that courts generally require at least a modified renewed PRSLA [sic] selection process upon withdrawal of a lead plaintiff[.]” Id. at *11. Other courts throughout the country have followed this process.3 Here, Lead Counsel appears to think that they can dispense with the lead plaintiff appointment process now that they have moved for class certification. They are wrong, and their authorities do not support their position. For example, Lead Counsel relies on In re Portal Software, Inc. Securities Litigation, No. C-03-5138 VRW, 2005 U.S. Dist. LEXIS 41178, at *14-15 (N.D. Cal. Mar. 9, 2005), to argue that this action can continue without a lead plaintiff. In Portal, however, the court considered whether adding an additional plaintiff to represent its own class, 3 See, e.g., Fort Worth Emps.’ Ret. Fund v. J.P. Morgan Chase & Co., 862 F. Supp. 2d 322, 328 (S.D.N.Y. 2012) (after withdrawal of lead plaintiff, denying motion to substitute and reopening the lead plaintiff appointment process to all shareholders for 30 days); Bank of Am. Corp., 2009 U.S. Dist. LEXIS 63433, at *7-8 (denying motion to substitute, requiring proposed lead plaintiff file a renewed motion for lead plaintiff appointment, and reopening appointment process to all applicants in the intervening time period; “one of the goals of the PSLRA was to minimize lawyer driven lawsuits.”). Case 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 5 of 7 Page ID #:2317 12345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR - 5- where a lead plaintiff remained in the action, triggered the lead plaintiff appointment process. Id. at *4. The court found that it would turn securities litigation “into a game of snakes and ladders” to restart the lead plaintiff process every time a new plaintiff was added. Id. at *14. Quite simply, there was a lead plaintiff in Portal; there is no Lead Plaintiff here. Portal’s concerns about abuse of the lead plaintiff process are inapplicable where there has functionally been no lead plaintiff determination at all given Mr. DiBiase’s withdrawal. Nor does Portal offer any support for the proposition that a class may be certified – and an action continue – without a lead plaintiff. Plaintiffs’ other two cases are distinguishable for the same reason: they do not address what happens when there is no lead plaintiff at all. See In re Oxford Health Plans, Inc. Sec. Litig., 191 F.R.D. 369, 378-80 (S.D.N.Y. 2000) (certifying class represented by three co-lead plaintiff groups; finding that not every member of every lead plaintiff group had to serve as class representative, but permitting additional lead plaintiffs to apply to be class representatives); Hevesi v. Citigroup Inc., 366 F.3d 70, 82-84 (2d Cir. 2004) (denying interlocutory appeal; finding that where there is a properly appointed lead plaintiff, additional named plaintiffs may serve as class representatives).4 4 Plaintiffs also argue that they “could easily” move to substitute Allen and Dandridge as lead plaintiffs. Notice of Withdrawal at 6 n.3. That is not so. Plaintiffs’ authority addresses situations where an existing plaintiff remained in the action; here, Messrs. Allen and Dandridge are only proposed named plaintiffs. See In re Impax Labs., Inc. Sec. Litig., No. C 04-04802 JW, 2008 U.S. Dist. LEXIS 104485, at *21-25 (N.D. Cal. Apr. 17, 2008) (finding additional party could intervene to serve as lead plaintiff where named plaintiff remained in action); Johnson v. CBD Energy, Ltd., No. H-15-1668, 2016 U.S. Dist. LEXIS 87174, at *3, *22-24 (S.D. Tex. July 6, 2016) (upon dismissing lead plaintiff from action, finding named plaintiff who filed original complaint could serve as lead plaintiff without reopening appointment process). Case 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 6 of 7 Page ID #:2318 12345678910111213141516171819202122232425262728 DEFS’ RESPONSE TO WITHDRAWAL OF LEAD PLAINTIFF No. 2:17-cv-03679-SVW-AGR - 6- In sum, the Reform Act does not allow Lead Counsel to circumvent the Court by choosing who will be the plaintiff in charge of the case. See Bank of Am. Corp., 2009 U.S. Dist. LEXIS 63433, at *7 (denying motion to substitute lead plaintiff; “one of the goals of the PSLRA was to minimize lawyer driven lawsuits . . . . When the . . . complaint was initially filed, neither member of the Hamm Group sought to act as Lead Plaintiff.”) (citation omitted); Neopharm, 2004 U.S. Dist. LEXIS 5814, at *8 (“That approach, however, simply assumes that [counsel’s] choice of lead plaintiff is the most adequate plaintiff. The better approach is to [reopen the lead plaintiff process]”). Accordingly, consistent with the Reform Act, the Court should reopen the lead plaintiff process. Defendants’ opposition to the class certification motion currently pending is due on Friday, October 5, 2018. Defendants intend to file their opposition on that day, absent the Court’s instructions to the contrary. Given that class certification should be supervised and driven by a duly appointed Lead Plaintiff, and given the serious adequacy issues that Defendants’ depositions of Messrs. Allen and Dandridge have uncovered, Defendants respectfully submit that it may be desirable to suspend temporarily the class certification process until the Court selects a new Lead Plaintiff. Dated: October 1, 2018 WILSON SONSINI GOODRICH & ROSATI, P.C. By: /s/ Boris Feldman Boris Feldman Attorneys for Defendants Snap Inc., Evan Spiegel, Robert Murphy, Imran Khan, and Andrew Vollero Case 2:17-cv-03679-SVW-AGR Document 119 Filed 10/01/18 Page 7 of 7 Page ID #:2319