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Kanugonda v. Funko, Inc.

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

June 27, 2018

SATYANARAYANA KANUGONDA, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
v.
FUNKO, INC., et al., Defendants.

          ORDER DENYING LEAD PLAINTIFF MOTION AND STRIKING MOTION FOR LEAVE TO FILE LEAD PLAINTIFF MOTION

          RICARDO S. MARTINEZ, CHIEF UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         This matter comes before the Court on the Motion of A. Parikh for Appointment as Lead Plaintiff and Approval of Choice of Counsel. Dkt. #4. Purported class member and interested party Carl Berkelhammer has filed a motion for leave to file a motion for appointment as lead plaintiff and has opposed A. Parikh's Motion.[1] Dkts. #15 and #16. Having considered the filed documents and the relevant record, and for the reasons set forth below, the Court denies A. Parikh's Motion for Appointment as Lead Plaintiff and Approval of Choice of Counsel (Dkt. #4) and strikes Mr. Berkelhammer's motion (Dkt. #15) as moot.

         II. BACKGROUND

         A. Plaintiff's Lawsuit

         This action arises from Defendant Funko Inc.'s (“Funko”) November 1, 2017 initial public offering (“IPO”). Dkt. #1 at ¶ 1. Plaintiff contends that Funko's Form S-1, filed with the Securities and Exchange Commission, contained untrue statements of fact and omissions with regards to Funko's profits and growth, insulation from adverse industry, sales, and earnings trends, and materially misleading statements regarding Funko's business, operations, and prospects. Id. at ¶ 4. Funko's stock was initially valued at $12.00 per share during the IPO. Id. at ¶ 3. After the untrue statements of fact and omissions came to light, Funko's stock plummeted to $6.00 per share on December 21, 2017, resulting in significant losses and damages for Plaintiff and other similarly situated Class members. Id. at ¶ 5. Plaintiff asserts claims under Sections 11, 12, and 15 of the Securities Act of 1933 (15 U.S.C. §77a et seq.).

         III. DISCUSSION

         A. Legal Standard

         Movant A. Parikh's (“Movant”) request for appointment as lead plaintiff is governed by the 1995 Private Securities Litigation Reform Act (“PSLRA”). Pub. L. 104-67, 109 Stat. 737 (relevant portion codified at 15 U.S.C. § 77z-1). Under the PSLRA, the Court is to appoint a lead plaintiff who is intended to “monitor, manage, and control the litigation” and who “owes a fiduciary duty to all members of the proposed class.” In re Network Associates, Inc., Sec. Litig., 76 F.Supp.2d 1017, 1020, 1032 (N.D. Cal. 1999). The lead plaintiff is not necessarily the plaintiff filing the lawsuit, but is intended to be the class member “most capable of adequately representing the interests of class members.” 15 U.S.C. § 77z-1(a)(3)(B)(i). To this end, the PSLRA sets up a three step process. In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). That process consists of: (1) public notice of the pending lawsuit, (2) identification of a “presumptively most adequate plaintiff, ” and (3) an opportunity for other plaintiffs to rebut the appointment of the presumptive lead plaintiff. Id. at 729-30.

         As the first step in the process, proper notice is vital and “[a] court has an independent duty to scrutinize published notice for compliance with the PSLRA requirements.” Janovici v. DVI, Inc., 2003 WL 22849604, at *5 (E.D. Pa. Nov. 25, 2003) (citations omitted). The PSLRA requires that a plaintiff filing suit, within 20 days, “cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class” of the details of the action and that “not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.” 15 U.S.C. § 77z-1(a)(3)(A)(i). Additionally, a prospective lead plaintiff may file a complaint and be eligible for appointment as lead plaintiff. 15 U.S.C. § 77z-1(a)(3)(B)(iii)(I)(aa); Coopersmith v. Lehman Bros., Inc., 344 F.Supp.2d 783, 786 (D. Mass. 2004) (eligible parties are “1) those who have moved for appointment within 60 days and 2) those who have filed a complaint”). Where multiple actions asserting substantially the same claims are filed, “only the plaintiff or plaintiffs in the first filed action shall be required to cause notice to be published.” 15 U.S.C. § 77z-1(a)(3)(A)(ii).

         B. Proper Notice Was Not Provided

         Movant's Motion relies on a notice filed in a prior action before this Court: Jacobs v. Funko Inc., 2:18-481MAT. Dkt. #4 at 2. That case was filed on April 2, 2018, and the plaintiff in that action duly provided notice of the action in Business Wire, a widely circulated national business-oriented publication or wire service, on April 4, 2018. Dkt. #5 at 4. The notice specifically provided that “a class action lawsuit in the United States District Court Western District of Washington (Docket Number: 2:18-cv-00481)” had been filed and that “investors have 60 days from the date of this notice to file a lead plaintiff motion.” Id. However, the plaintiff in that action voluntarily dismissed the action on May 21, 2018. Jacobs v. Funko Inc., 2:18-481MAT, Dkt. #12. Movant argues that the notice provided in the terminated Jacobs action started the 60 day period for lead plaintiff motions, applied as to all subsequently filed actions, excused Plaintiff of the need to provide notice, and that Movant is entitled to be appointed lead plaintiff by default. The Court does not agree.

         Movant's argument relies on a strict reading of 15 U.S.C. § 77z-1(a)(3)(A)(ii), which provides: “If more than one action on behalf of a class asserting substantially the same claim or claims arising under this subchapter is filed, only the plaintiff or plaintiffs in the first filed action shall be required to cause notice to be published in accordance with clause (i).” But applying this section strictly in the circumstances of this case would be inconsistent with the statutory scheme.

         Allowing Movant to rely on the notice previously filed in a dismissed case would rob class members of the full 60 day period to file a motion. Class members are unquestionably given 60 days in which “any member of the purported class may move the court to serve as lead plaintiff.” 15 U.S.C. § 77z-1(a)(3)(A)(i)(II). But the Jacobs action was not pending for a full 60 days. Between dismissal of the Jacobs action on May 21, 2018, and filing of the instant action on June 4, 2018, there was simply no action in which a class member could file a motion ...


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