United States District Court, D. New Jersey
JARROD NASIN, individually and on behalf of all others similarly situated, Plaintiffs,
HONGLI CLEAN ENERGY TECHS. CORP., et al., Defendants.
WILLIAM J. MARTINI, U.S.D.J.
the Court are two competing motions from Plaintiffs Glenn
Ellis and Marcel Lecours Jr. (collectively, “Ellis
Movants”) and Yajun Zhai, William Dubois, Adrian
Parker, Joe Traylor, and Anthony Sallustro (collectively,
“Zhai Movants”), under the Private Securities
Litigation Reform Act of 1995 (“PSLRA”),
requesting appointment as lead plaintiffs and approval of
their selection of counsel. 15 U.S.C. § 78u-4(a)(3)(B).
This Court has jurisdiction under 28 U.S.C. § 1331 and
Section 27 of the Securities Exchange Act of 1934 (the
“Exchange Act”). The matter was taken on
submission without oral argument. Fed.R.Civ.P. 78(b). For the
reasons stated below, the Zhai Movants' motion is
GRANTED and the Ellis Movants' motion is
a federal securities action on behalf of purchasers of Hongli
Clean Energy Technologies Corporation (“Hongli”)
securities between the proposed class periods. The class
seeks to recover damages and pursue remedies under Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5
promulgated thereunder against Hongli, a Florida corporation
that is a vertically integrated coal and coke producer based
in the People's Republic of China.
facts relevant to the present motions are taken from two
Complaints filed against Hongli and its chief executive and
financial officers (jointly, “Defendants”). Civ.
No. 17-3244, ECF No. 1 (“Nasin
Complaint”); Civ. No. 17-4762, ECF No. 1
(“Ellis Complaint”). The Complaints,
both filed in this District against the Defendants, make
similar factual and legal allegations but differ on the class
period. The Ellis Complaint contends to use an
expanded class period-the furthest date allowed under the
statute of limitations-while the Nasin Complaint
argues its shorter class period is “far more
realistic.” The Complaints allege, essentially, that
Defendants issued materially false and misleading public
statements as to Hongli's business and financial
condition that deceived investors, artificially inflated the
price of Hongli publicly traded securities, and caused
Plaintiffs and other members of the public to purchase stock
at artificially inflated prices. Nasin Compl.
¶¶ 15-22, 45-47. Specifically, in a disagreement
that ended with Defendants dismissing its independent
auditor, Defendants failed to disclose an improper recording
of an impairment expense on its assets. Id. at 23.
As a result, Hongli's public statements were materially
false and misleading. Id. at ¶¶ 23, 25.
With trading suspended on Hongli's shares, its securities
are now illiquid and rendered worthless. Id. at
MOTION FOR LEAD PLAINTIFF
Court will first determine whether the Zhai or Ellis Movants
should serve as lead plaintiff and then address the selection
of lead counsel. Although the Court concludes the Ellis
Movants are the presumptive lead plaintiff because they
suffered the largest financial loss and made a prima
facie showing of adequacy and typicality, the Zhai
Movants have successfully rebutted the presumption by showing
the Ellis Movants are subject to a unique defense and
otherwise qualify as the most adequate plaintiff.
the purpose of identifying a party who can vigorously
prosecute the class members' interest, the PSLRA outlines
how to select a lead plaintiff. See, e.g., In re
Cendant Corp. Sec. Litig., 404 F.3d 173, 192 (3d Cir.
2005). The procedure involves two steps in that “the
court first identifies the presumptive lead plaintiff, and
then determines whether any member of the putative class has
rebutted the presumption.” In re Cendant Corp.
Litig., 264 F.3d 201, 262 (3d Cir. 2001) (citing 15
U.S.C. § 78u-4(a)(3)(B)(iii)(I)-(II)).
Court must adopt a presumption that the most adequate
plaintiff “is the person or group or persons that . . .
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.” 15 U.S.C.
§ 78u-4(a)(3)(B)(iii)(I). To do so, the Court must
conclude whether the movant with the largest financial
interest has made a prima facie showing of Rule
23's typicality and adequacy requirements. In re
Cendant Corp. Litig., 264 F.3d at 263. If contested, the
Court must find whether a movant has rebutted the
presumption. A movant may rebut the presumption with proof
that the presumptively most adequate plaintiff “will
not fairly and adequately protect the interests of the class;
or is subject to unique defenses that render such plaintiff
incapable of adequately representing the class.” 15
U.S.C. § 78u-4(a)(3)(B)(iii)(II). The Third Circuit has
identified unique defenses to a class representative such as
misaligned interests with the class “and the
representative might devote time and effort to the defense at
the expense of issues that are common and controlling for the
class.” Beck v. Maximus, Inc., 457 F.3d 291,
297 (3d Cir. 2006) (citations omitted). “A proposed
class representative is neither typical nor adequate if the
representative is subject to a unique defense that is likely
to become a major focus of the litigation.”
Beck, 457 F.3d at 301.
Largest Financial Interest, Adequacy, Typicality, and the
“Most Adequate Plaintiff” Rebuttable
in this Circuit evaluate the following three factors to
determine which movant has the largest financial interest:
(1) the number of shares the movants purchased during the
putative class period; (2) the total net funds the movants
expended during the same period; and (3) the approximate loss
the movants suffered. In re Cendant Corp. Litig.,
264 F.3d at 262 (citations omitted). In this Circuit, courts
have attributed the third element as the most significant
factor. See In re Vonage Initial Pub. Offering (IPO) Sec.
Litig., Civ. No. 17-177 (FLW), 2007 WL 2683636, at *4
(D.N.J. Sept. 7, 2007) (citing cases).
its expanded class period, the Ellis Movants suffered losses
of $677, 606.40, with the largest individual movant having a
loss of $465, 144.71. Lifshitz Decl., Ex's E-F; ECF No.
7. Whereas the Zhai Movants, in its proposed class period,
suffered total losses of $458, 201.75, with the individual
movant having the largest loss of $229, 343.58. Rosen Decl.,
Ex. 3; ECF No. 10.
whether the movant has made a prima facie showing of
typicality and adequacy, the “most adequate
plaintiff” must (1) “have claims or defenses that
are typical of the claims or defenses of the class, ”
(the “typicality requirement”) and (2) “be
able to fairly and adequately protect the interests of the
class (the “adequacy requirement”). Id.;
Fed R. Civ. P. 23(a). With typicality, the Court
“should consider whether the circumstances of the
movant with the largest losses are markedly different or the
legal theory upon which the claims [of that movant] are based
differ” from the basis for other class members'
claims.” In re Cendant Corp. Litig., 264 F.3d
at 265 (internal quotation marks and citation omitted). As to
adequacy, the Court should determine whether the movant
“has the ability and incentive to represent the claims