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In re Outerwall Inc.

United States District Court, W.D. Washington, Seattle

March 6, 2017

IN RE OUTERWALL INC., ET AL. STOCKHOLDER LITIGATION

          ORDER ON MOTIONS TO APPOINT LEAD PLAINTIFF AND LEAD COUNSEL

          JAMES L. ROBART, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Before the court are Movant Mark Rudd's motion to appoint lead plaintiff and counsel (Rudd Mot. (Dkt. # 9))[1] and Plaintiff Syed Abbas's motion to appoint lead plaintiff and counsel (Abbas Mot. (Dkt. # 13)). The court has considered the motions, the submissions in opposition to and in support of the motions, the relevant portions of the record, and the applicable law. Being fully advised, [2] the court GRANTS Mr. Rudd's motion and DENIES Mr. Abbas's motion for the reasons set forth below.

         II. BACKGROUND

         A. The Complaints

         This putative class action arises from the planned acquisition and merger of Defendant Outerwall, Inc. by affiliates of Apollo Global Management, LLC (“Apollo”). (Abbas Compl. (Dkt. # 1) ¶ 1.)[3] Outerwall “delivers retail product and services to consumers via self-service interactive kiosks.” (Id. ¶ 12.) Apollo is a “global alternative investment manager.” (Id. ¶ 21.)

         On July 25, 2016, Outerwall and Apollo issued a joint press release announcing their Agreement and Plan of Merger (“the Merger Agreement”). (Id. ¶ 2.) The Merger Agreement specified a tender offer to “purchase all of the outstanding shares of Outerwall common stock for $52.00 in cash for each share of Outerwall stock [that a stockholder] own[s].” (Id. ¶ 2.) The offer commenced on August 5, 2016, and ended on September 1, 2016. (Id.)

         Shortly after Outerwall and Apollo announced the Merger Agreement, Plaintiffs filed five putative class actions in this District. (See Abbas Compl.); Baumgartner, No. C16-1281JLR, Dkt. # 1; Hunter, No. C16-1285JLR, Dkt. # 1; Mallinger, No. C16-1316JLR, Dkt. # 1; Filippov, No. C16-1329JLR, Dkt. # 1. The initial case-which Mr. Abbas filed-was assigned to the undersigned judge, and the four later-filed cases were transferred to the undersigned judge and subsequently consolidated. (See 9/28/16 Order (Dkt. # 7).)

         Plaintiffs allege that the transaction was the product of “an unfair process stemming not from the Board's concern for the best interests of stockholders, but rather from the Board's desire to avoid a proxy contest with an activist investor and potential ouster from their positions.” (Abbas Compl. ¶ 3.) Plaintiffs further allege that Outerwall and Apollo announced the transaction “just as [Outerwall] began to enjoy the results of initiatives to improve its financial results.” (Id. ¶ 4.) Specifically, they assert that “as recently as July 19, 2016, an analyst with B. Riley & Co. set a $58.00 per share price target for the Company-a $6.00 premium to the Offer Price” of $52.00. (Id.)

         In addition, Plaintiffs allege that “the Board agreed to lock up the deal with [five] coercive deal protective devices in the Merger Agreement, ” including (1) a “no-solicitation clause” that prevented Outerwall from soliciting and providing non-public information to alternate bidders; (2) an “information rights” provision that required Outerwall to notify Apollo of any competing bidder and all material terms of any competing bid; (3) “matching rights” that gave Apollo three business days to match any better offer Outerwall received as well as two business days after a material amendment is made to the terms and conditions of a competing offer or a newly submitted offer; (4) a “non-waiver” provision that restricted Outerwall from modifying or terminating any material provision of a confidentiality agreement to which Outerwall or its subsidiaries are a party; and (5) a provision that required Outerwall to pay Apollo $26.9 million if Outerwall pursued a competing bid. (Id. ¶ 5.) Finally, Plaintiffs allege that the Schedule 14D-9 that Outerwall filed with the Securities and Exchange Commission (“the SEC”) on August 5, 2016, omitted material information or contained material misrepresentations. (Id. ¶ 6.)

         Plaintiffs bring this putative class action on behalf of Outerwall's public stockholders for violations of Sections 14(e), 14(d)(4), and 20(a) of the Securities Exchange Act of 1934 (“the Act”), for breach of fiduciary duty, to enjoin a vote on the planned transaction, to rescind the transaction, and to recover damages and/or fees and costs. (See Abbas Compl. ¶ 1); see also Filippov, No. C16-1329JLR, Dkt. # 1 ¶ 70 (asserting a violation of Section 14(d)(4)); Hunter, No. C16-1285JLR, Dkt. # 1 ¶ 74 (alleging breach of fiduciary duty); Mallinger, No. C16-1316JLR, Dkt. # 1 ¶ 84 (same). Plaintiffs bring suit “on behalf of all persons and entities that own Outerwall common stock” (Abbas Compl. ¶ 26) for the period of the tender offer (id. ¶ 2).

         B. The Motions

         On October 25, 2016, Mr. Rudd filed a motion for appointment as lead plaintiff and for approval of his selection of counsel pursuant to the Private Securities Litigation Reform Act (“the PSLRA”).[4] (Rudd Mot.) Mr. Rudd also moves the court to amend its September 28, 2016, order to reflect his choice of counsel if he is selected as lead plaintiff. (Id. at 2-3; see also 9/28/16 Order ¶¶ 6-7.) Mr. Rudd contends that he should be appointed lead plaintiff because he timely filed his motion, has the largest financial interest-6, 000 shares of Outerwall common stock-in the relief sought by the class, and otherwise satisfies the requirements of Federal Rule of Civil Procedure 23. (Id. at 9-10.) If selected as lead plaintiff, Mr. Rudd seeks the court's approval of Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) as lead counsel. (Id. at 11.)

         Six days later, on October 31, 2016, Mr. Abbas moved for appointment as lead plaintiff and for approval of his selection of counsel pursuant to the PSLRA. (Abbas Mot.) Mr. Abbas contends that he should be appointed lead plaintiff because on September 16, 2016, Mr. Abbas entered into a Memorandum of Understanding (“the MOU”) with Defendants that allowed Mr. Abbas access to “material information” and “provides the framework for a potential settlement of the [consolidated] Actions.” (Id. at 7-8.) Mr. Abbas argues that “he is the only movant who already has, and will continue to, fairly and adequately protect the interests of the Class.” (Id. at 9.) Even though Mr. Abbas owns only 1, 690 shares (Abbas Cert. (Dkt. # 2) ¶ 4), [5] Mr. Abbas contends that “the presumption that the movant with the largest financial interest is the most adequate plaintiff is rebuttable” (id. at 10 (emphasis omitted)). Mr. Abbas asks the court to approve his choice of WeissLaw LLP (“WeissLaw”) as lead counsel and Breskin Johnson & Townsend PLLC (“Breskin Johnson”) as liaison counsel, if the court appoints Mr. Abbas lead plaintiff. (Id. at 17.)

         III. ANALYSIS

         A. Appointment of Lead Plaintiff Under the PSLRA

         The PSLRA “instructs district courts to select as lead plaintiff the one ‘most capable of adequately representing the interests of class members.'” In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002) (quoting 15 U.S.C. § 78u-4(a)(3)(B)(i)). The presumptively most adequate plaintiff is the plaintiff who has the greatest financial stake in the outcome of the case and meets the requirements of Federal Rule of Civil Procedure 23. See Id. The Ninth Circuit holds that the PSLRA provides a three-step process for identifying the lead plaintiff. Id. “The first step consists of publicizing the pendency of the action, the claims made[, ] and the purported class.” Id.

         “In step two, the district court must consider 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.'” Cavanaugh, 306 F.3d at 729-30. In engaging in these inquiries, “the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit.” Id. at 730. The court “then focus[es] its attention on that plaintiff” and determines “based on the information he has provided in his pleadings and declarations, whether he satisfies the requirements of Rule 23(a), in particular those of ‘typicality' and ‘adequacy.'” Id.

         At the third step, the court gives “other plaintiffs an opportunity to rebut the presumptive lead plaintiff's showing that it satisfies Rule 23's typicality and adequacy requirements.” Id.

         1. Mr. Rudd's Motion for Appointment as Lead Plaintiff

         a. Timely Notice and Motion for Appointment

         The plaintiff who filed the first lawsuit must publish notice of the complaint in a widely circulated business publication within 20 days of filing the complaint. 15 U.S.C. § 78u-4(a)(3)(A)(1). In addition, all proposed lead plaintiffs must submit a sworn certification setting forth certain facts to demonstrate to the court that the plaintiff has suffered more than a nominal loss, is not a professional litigant, and is otherwise interested and capable of serving as a class representative. 15 U.S.C. § 78u-4(a)(2)(A).

         Mr. Abbas was the first plaintiff to file suit, and he published notice in PR Newswire on September 1, 2016, within 20 days of filing suit.[6] (See Townsend Decl. ISO Abbas Mot. (Dkt. # 14) ¶ 2, Ex. A (“Abbas Notice”).) Mr. Rudd filed his motion on October 25, 2016, within 60 days of Mr. Abbas's notice. In addition, Mr. Rudd filed the required certification. (See Moore Decl. (Dkt. # 10), Ex. 3 (“Rudd Cert.”) ¶ 4.) Accordingly, the timing of Mr. Abba's notice ...


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