In Re Snap Inc. Securities Litigation

REPLY In Support Of NOTICE OF MOTION AND MOTION to Intervene 120

C.D. Cal.November 5, 2018

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Joel Fleming (CA Bar No. 281264) BLOCK & LEVITON LLP 155 Federal Street, Suite 400 Boston, MA 02110 (t) (617) 398-5600 (f) (617) 507-6020 joel@blockesq.com [Additional counsel listed in signature block] Attorneys for Proposed Intervenor Joseph Iuso UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA IN RE SNAP INC. SECURITIES LITIGATION Case No. 2:17-cv-03679-SVW-AGR IUSO’S REPLY IN SUPPORT OF MOTION FOR LEAVE TO INTERVENE TO OPPOSE, IN PART, LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Date: November 19, 2018 Time: 1:30 p.m. Judge: Hon. Stephen V. Wilson Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 1 of 10 Page ID #:3066 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 Reply In Support of Motion for Leave to Intervene Iuso1 submits this reply in support of his Motion to Intervene. I. INTRODUCTION The Federal Action was filed before Snap’s stock price dropped below the IPO price. As a result, the mechanical calculations required by Section 11(e) of the Securities Act will make it significantly harder (if not impossible) for IPO Buyers to establish Section 11 damages in this case. That is not the Federal Plaintiffs’ fault, but it is their problem. Unable to explain away their problem, the Federal Plaintiffs resort to mischaracterizing Iuso’s solution. Iuso is not asking the Court to endorse claim-splitting: his proposal would result in two separate classes with zero overlap. Similarly, Iuso is not seeking to “opt out” a subclass of IPO Buyers. He is asking the Court to use its undisputed power to narrow an overbroad class definition. The Federal Plaintiffs’ remaining makeweight arguments are equally insufficient. The Court should grant the Motion to Intervene and deny the Motion for Class Certification to the extent that it seeks to include Iuso and other IPO Buyers within the class definition. II. ARGUMENT A. As In LendingClub, The Federal Plaintiffs’ Need To Rely On A Risky, Value- Based Model For Section 11 Damages Renders This Action Inferior As set forth in Iuso’s opening papers, determining IPO Buyers’ Section 11 damages in this Federal Action, “presents a difficult issue” that will “seriously hamper” the Federal Plaintiffs, potentially “limiting their damages to a number well below that of [Iuso], who is no doubt entitled to a damage calculation based upon [Snap’s] stock price the day [Iuso] filed suit” in state court. In re LendingClub Sec. Litig., 282 F. Supp. 3d 1171, 1187 (N.D. Cal. 2017). “The threat that [the 1 Defined terms have the same meaning as those used in Iuso’s opening papers. Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 2 of 10 Page ID #:3067 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 Reply In Support of Motion for Leave to Intervene Federal Plaintiffs] will be limited in ways [Iuso] will not” (id.) shows that the Federal Plaintiffs are inadequate representatives of Iuso and other IPO Buyers and cannot satisfy the superiority requirement for a class that includes them. The Federal Plaintiffs’ attempt to distinguish LendingClub are entirely incoherent. All of their distinctions compare Iuso to the state plaintiffs in LendingClub. See Dkt. 151 at 10-11. But in LendingClub, it was the state plaintiffs who had to rely on a Value-Based Model to increase their Section 11 damages and the federal plaintiff who could comfortably rely on the Price-Based Model. 282 F. Supp. 3d at 1187. Here, the roles are reversed. It is the state plaintiff (Iuso) who can comfortably rely on the Price-Based Model and the Federal Plaintiffs who are forced to rely on a Value-Based Model. Therefore, LendingClub’s determination that the federal action was superior in that case (id.) means that it is the state action (i.e., the Iuso Action) which is superior in this one. B. The Federal Plaintiffs and Defendants Make The Same Mistake: Narrowing The Class Definition Will Not Result In Claim-Splitting Or Inconsistent Judgments The Federal Plaintiffs’ other arguments fare no better. Both the Federal Plaintiffs and Defendants rely heavily on the assertion that Iuso’s proposal—i.e., to exclude IPO Buyers from the class definition in this Action—would lead to impermissible claim-splitting. Defendants “do not contest Mr. Iuso’s right to intervene” but assert that he “goes too far in his requested relief” because he asks the Court to “split” the class “into pieces in different courts.” Dkt. 130 at 3-4. The Federal Plaintiffs (who do oppose intervention) echo the “claim-splitting” argument, asserting that Iuso “seeks to split class members’ claims arising from the same facts between state and federal court.” Dkt. 151 at 8 (cleaned up). Not so. Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 3 of 10 Page ID #:3068 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 Reply In Support of Motion for Leave to Intervene “The rule against claim splitting … prevent[s] the same plaintiff from filing multiple suits alleging the same claims against the same defendant when one suit will do.” Beckerley v. Alorica, Inc., No. SACV 14-0836-DOC, 2014 WL 4670229, at *4 (C.D. Cal. Sept. 17, 2014) (emphasis added). “To determine whether a suit is duplicative, we borrow from the test for claim preclusion.” Adams v. California Dep't of Health Servs., 487 F.3d 684, 688–89 (9th Cir. 2007). “[T]he appropriate inquiry is whether, assuming that the first suit [was] already final, the second suit could be precluded pursuant to claim preclusion.” Hartsel Springs Ranch of Colorado, Inc. v. Bluegreen Corp., 296 F.3d 982, 987 n.1 (10th Cir. 2002) (cited in Adams). Here, the proposed class in the Iuso Action includes only IPO Buyers. Docket 120-2, Ex. A ¶58. And Iuso is asking the Court to define the Class in this case to exclude all IPO Buyers. If the Court follows this course, a judgment in one case would not have claim-preclusive effect on the other. There would be zero overlap between the membership of the two classes, zero risk of claim- splitting, and zero risk of inconsistent judgments. Iuso’s proposal is, therefore, nothing like the intervenor’s proposal in In re Stec Inc. Sec. Litig., No. CV 09-8536-JVS MLGX, 2012 WL 6965372 (C.D. Cal. Mar. 7, 2012), on which the Federal Plaintiffs rely so heavily. In Stec, the intervenor proposed that “[c]lass members who had both Securities Act and Exchange Act claims would continue to pursue their Exchange Act claims in [federal court] and, presumably, would have the option of pursuing their Securities Act claims in [a state court action in] West Virginia … or another putative class action.” Id. at *8. That is classic claim-splitting. Here, however, Iuso is proposing that all IPO Buyers (i.e., anyone who has a Securities Act claim) be excluded from the Class in this action. So the doctrine of claim-splitting would pose no bar to those investors pursuing their claims in the State Action. Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 4 of 10 Page ID #:3069 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 Reply In Support of Motion for Leave to Intervene Defendants’ cases are equally distinguishable on the same grounds. They all involve the same plaintiff (or same class) splitting remedies across jurisdictions. Cabral v. Supple, LLC, No. EDCV-12-00085-MWF-OP, 2016 WL 1180143, at *2 (C.D. Cal. Mar. 24, 2016) (plaintiff was asking that same class be permitted to pursue different remedies in different courts); Chuang v. Dr Pepper Snapple Grp., Inc., No. CV 17-1875-MWF(MRWX), 2017 WL 2463951, at *2 (C.D. Cal. June 7, 2017) (same plaintiff; different remedies); Davidson v. Kimberly-Clark Corp., No. C 14-1783 PJH, 2015 WL 2357088, at *2 (N.D. Cal. May 15, 2015) (same plaintiff; different remedies). None of these cases is relevant to Iuso’s proposal, in which any class member in the State Action would be excluded from the definition of the class in the Federal Action. C. The Federal Plaintiffs’ Other Arguments Fail In addition to the claim-splitting argument that they share with Defendants, the Federal Plaintiffs offer a grab-bag of other arguments, none of which hold water. Iuso’s Intervention Is Timely The Federal Plaintiffs argue that Iuso’s intervention is untimely because he has “been aware of the pendency of this Action” since September 2017. Dkt. 151 at 7 n.3. The purpose of Iuso’s intervention, however, is to oppose, in part, the Federal Plaintiffs’ motion for class certification—which was not filed until August 30, 2018. Had Iuso moved to intervene before then, the Federal Plaintiffs would have argued he was too early and the issue was not ripe. Nor did Iuso sit on his rights or try to sandbag anyone. Iuso sent a letter to the Federal Plaintiffs weeks before they moved for class certification, asking them to exclude IPO Buyers from the Class when they moved for class certification. Dkt. 120-4, Ex. A. The Federal Plaintiffs ignored that request and moved to certify a class including Iuso and other IPO Buyers. We then promptly moved to intervene—about six weeks before the hearing. Compare with LendingClub, 282 F. Supp. Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 5 of 10 Page ID #:3070 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 Reply In Support of Motion for Leave to Intervene 3d at 1177 (intervention was timely where state plaintiffs moved to intervene “three weeks before the hearing on class certification”). Iuso Is Not Seeking To Opt-Out IPO Buyers; He Is Asking That They Not Be Included Within The Class Definition In The First Instance Citing Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998), the Federal Plaintiffs argue, repeatedly, that Iuso cannot “opt out” a subclass of IPO Buyers. Dkt. 151 at 1, 2, 7, 13. We agree. But that’s not what Iuso is doing. This is not a request to opt-out of a certified class; it is an attempt to prevent an overbroad class from being certified in the first instance. Specifically, Iuso is asking the Court to use its power to limit the class definition to exclude IPO Buyers. There is no dispute that “district courts have the inherent power to modify overbroad class definitions.” Victorino v. FCA US LLC, 326 F.R.D. 282, 301–02 (S.D. Cal. 2018) (collecting cases). “If the court decides that the class … is too broad … [i]t has discretion to limit or redefine the class in an appropriate manner.” Wright & Miller, 7A Fed. Prac. & Proc. Civ. § 1760. This Court’s Prior Decisions Have Not Eliminated The Section 11(e) Problem The Federal Plaintiffs argue that this Court’s orders on the motion to dismiss and Defendants’ request for certification of an interlocutory appeal mean the Court has “fully endorsed Lead Plaintiff’s theory of damages” and eliminated any risk that IPO Buyers will be unable to establish damages for their Section 11 claims. Dkt. 151 at 4-5, 16. This goes too far. The Court’s orders seem to be driven primarily by the plaintiff-friendly pleading standards applicable to a motion to dismiss. The Court expressly noted that “after an expert evaluates the stock value,” plaintiffs “may indeed be unable to prove damages,” under the Value-Based Model, but “that is not an appropriate question at this stage[.]” Dkt. 92 at 16 (emphasis added); see also id. (“Whether or not the price of Snap’s IPO accurately reflected its Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 6 of 10 Page ID #:3071 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 Reply In Support of Motion for Leave to Intervene value is not a question the Court must consider at this time. What is clear is that Plaintiffs plead sufficient facts that create ‘the reasonable inference’ that Snap’s IPO price may not have reflected its actual value with regard to Plaintiffs who filed their claim before the stock price dropped below the IPO price.”) (emphasis added).2 Moreover, this Court’s evaluation of the Federal Plaintiffs’ Value-Based Model is not the final word. Unless Defendants agree to settle, the Federal Plaintiffs will have to convince a jury3 and the Ninth Circuit, too. Significant trial and appellate risks reduce the expected value (and, thus, the settlement value) of IPO Buyers’ claims if they are litigated through this Action. In other words, the Federal Plaintiffs have the same problem here that the state plaintiffs had in LendingClub. “[E]ven if value and price can diverge for the purpose of Section 11 damages,” this question “presents a difficult issue … that could seriously hamper [the Federal] plaintiffs, limiting their damages to a number well below that of [Iuso], who is no doubt entitled to a damage calculation based upon [Snap’s] stock price the day [he] filed suit.” 282 F. Supp. 3d at 1187. Snap’s Federal Forum Provision Has Delayed The State Action But Does Not Render It Inferior The Federal Plaintiffs’ final argument is that this Action is the superior vehicle for IPO Buyers’ claims because of “Snap’s forum selection clause [purportedly] requiring all Securities Act claims to be litigated in federal court.” Dkt. 151 at 12. What the Federal Plaintiffs fail to 2 The Federal Plaintiffs studiously ignore the Court’s recognition that the fact that some class members “have a valid claim under both theories—price-based and value-based—because they filed after the stock price dropped below the IPO price … may pose a separate issue at class certification.” Id. at 16 n.26. 3 Tellingly, the Federal Plaintiffs have submitted a lengthy expert report but it does not include any estimate of the “value” of Snap’s common stock on the day this Action was filed. Dkt. 114-10 ¶54 (“I have not, as of yet, been asked to provide an opinion on loss causation or to calculate Class- wide damages in this matter.”). Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 7 of 10 Page ID #:3072 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 Reply In Support of Motion for Leave to Intervene mention is that every court to have ever considered one of these provisions—including this one— has found these federal-forum provisions to be invalid. Iuso v. Snap, Inc., 17- cv-7176-VAP-RAO, Docket No. 50 (C.D. Cal. Nov. 21, 2017); Hsieh v. Snap Inc., 2:17-cv-05569-SVW-AGR, Dkt. 48 (C.D. Cal. Aug. 29, 2017); Clayton v. Tintri, Inc., No. 17-CV-05683-YGR, 2017 WL 4876517, at *2 (N.D. Cal. Oct. 30, 2017); Nurlybayev v. Tintri, Inc., NO.17-cv-05684-YGR, Docket No. 16 at 4 (N.D. Cal. Oct. 30, 2017); Golosiy v. Tintri, Inc., No. 17-CV-05876- YGR, 2017 WL 5560652, at *2 (N.D. Cal. Nov. 20, 2017). There is no question that Snap’s federal-forum provision has delayed the Iuso Action. Defendants relied on the federal-forum provision to remove the Iuso action, forcing Iuso to spend months litigating a successful motion to remand. Iuso v. Snap, Inc., 17- cv-7176-VAP-RAO, Docket No. 50 (C.D. Cal. Nov. 21, 2017). Iuso also agreed to a brief stay in state court until the Delaware Court of Chancery could provide authoritative guidance on the validity of federal-forum provisions in Sciabacucchi action.4 But the delays will soon be at an end. Sciabacucchi presents a pure question of law and the parties argued cross-motions for summary judgment on September 27, 2018.5 The Chancery Court follows a practice of issuing opinions within 90 days of argument, so Sciabacucchi should be decided (and the Iuso Action unstayed) by the end of the year.6 “[A] district court’s order denying or granting class status is inherently tentative.” Coopers 4 Sciabacucchi v. Salzberg, No. 2018-0931 (Del. Ch.). 5 Block & Leviton LLP, counsel to Iuso, represents the plaintiff in Sciabacucchi. The Wilson Sonsini firm, which represents Defendants in this Action, represents the majority of the defendants in Sciabacucchi. 6 The Federal Plaintiffs misleadingly attempt to conflate the stay ordered in the Hsieh Action and the Iuso Action. To be clear, however, the stay in the Iuso Action will expire as soon as the Court of Chancery rules in Sciabacucchi. Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 8 of 10 Page ID #:3073 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 Reply In Support of Motion for Leave to Intervene & Lybrand v. Livesay, 437 U.S. 463, 469 n.11 (1978). In the unlikely event that Delaware affirms the validity of federal-forum provisions like Snap’s—leaving IPO Buyers with nowhere to go but federal court—the Court can always revisit class certification and modify the class definition to include IPO Buyers. But a forum-selection clause that has, thus far, been rejected by every court to consider it is not a basis to deem the Iuso Action inferior.7 D. Defendants’ Remedy Is No Solution Finally, with the “pious countenance” of a “fox [asking] to take charge of the chicken house,”8 Defendants suggest that “[r]ather than splitting up the case, Mr. Iuso’s participation in the lead plaintiff process is the better means for Mr. Iuso to address his concerns regarding Plaintiffs.” Dkt. 130 at 5. But that will not solve the problem that Iuso identifies. Section 11(e)’s damages calculation looks to the value of the security “as of the time such suit was brought.” Anyone who is appointed lead plaintiff in this Action—whether Iuso or anyone else—will face the same problems as the Federal Plaintiffs.9 III. CONCLUSION For all the foregoing reasons, the Court should grant Iuso’s Motion to Intervene and should 7 Nor should the Court be concerned by the Federal Plaintiffs’ throw-away argument that Iuso’s “narrower” claims are subject to a negative causation argument. Dkt. 151 at 12. Once unstayed, Iuso will amend his complaint to include all of the misstatements upheld by this Court. 8 Eggleston v. Chicago Journeymen Plumbers' Local Union No. 130, U. A., 657 F.2d 890, 895 (7th Cir. 1981) (“it is often the defendant, preferring not to be successfully sued by anyone, who supposedly undertakes to assist the court” in resolving questions of class certification). 9 In their opposition to the Motion for Class Certification, Defendants concede as much, stating that “Defendants believe that the ‘value” for damages calculation should be measured by the price of the stock on the date of the first-filed complaint, which in this case is May 16, 2017.” Dkt. 126 at 20 n.7. Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 9 of 10 Page ID #:3074 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 Reply In Support of Motion for Leave to Intervene deny the Federal Plaintiffs’ Motion for Class Certification to the extent that it seeks to include Iuso and other IPO Buyers within the class definition. November 5, 2018 BLOCK & LEVITON LLP /s/ Joel Fleming Jeffrey C. Block (pro hac vice forthcoming) Joel Fleming (CA Bar No. 281264) Jacob A. Walker (CA Bar No. 271217) BLOCK & LEVITON LLP 155 Federal Street, Suite 400 Boston, MA 02110 (617) 398-5600 phone jeff@blockesq.com joel@blockesq.com jake@blockesq.com Counsel for Proposed Intervenor Case 2:17-cv-03679-SVW-AGR Document 160 Filed 11/05/18 Page 10 of 10 Page ID #:3075