United States District Court, D. Utah, Central Division
IN RE POLARITYTE, INC. SECURITIES LITIGATION, THIS DOCUMENT RELATES TO: All Actions
MEMORANDUM DECISION AND GRANTING LAWI'S MOTION TO
APPOINT LEAD PLAINTIFF AND ORDERING SUPPLEMENTAL BRIEFING ON
MOTION TO APPOINT LEAD COUNSEL
N. PARRISH, UNITED STATES DISTRICT JUDGE
matter is before the court on the Motions of Yedid Lawi for
Appointment as Lead Plaintiff and Approval of Counsel and the
Motions for Appointment of Movant Michael A. Motto as Lead
Plaintiff and Approval of Counsel.
Jose Moreno filed this private federal securities class
action complaint on June 26, 2018, alleging violations by
defendant PolarityTE, Inc. (“PolarityTE”) of
section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b),
and Rule 10b-5, promulgated by the SEC at 17 C.F.R. §
240.10b-5, as well as violations of section 20(a) of the
Exchange Act, 15 U.S.C. § 78t(a), by Denver Lough, M.D.,
Ph.D. and Jeff Dyer (the “Individual
Defendants”). PolarityTE is a biotechnology and
regenerative biomaterials company incorporated in Delaware
with its principal place of business in Salt Lake City, Utah.
PolarityTE is listed on the NASDAQ under ticker symbol
“COOL.” The parties allege that PolarityTE's
misconduct occurred over the period from March 31, 2017 to
June 22, 2018 (the “Class Period”) in the
following manner. First, on April 7, 2017, PolarityTE
purchased a patent from Dr. Denver Lough (the “Lough
Patent”), which had been rejected by the U.S. Patent
and Trademark Office (“USPTO”) one week prior.
Then, on May 29, 2018, PolarityTE filed an S-8 registration
but failed to disclose the rejection of the Lough Patent. On
June 4, 2018, the USPTO issued a final rejection of the Lough
Patent, which PolarityTE also failed to disclose. On June 25,
2018, Citron Research published a report on the Lough Patent
and PolarityTE's failures to disclose. PolarityTE's
stock price fell sharply from closing at $38.97 on Friday,
June 22, 2018 to opening at $25.60 on Tuesday, June 26, 2018.
The stock closed at $28.14 on Tuesday, June 26, 2018.
26, 2018, Moreno filed this suit in the United States
District Court for the District of Utah on behalf of a
purported class of all persons or entities that purchased
shares of PolarityTE during the Class Period. In compliance
with 15 U.S.C. § 78u-4 (a)(3)(A), on June 27, 2018,
Moreno's counsel, Block & Leviton LLP, published an
announcement that it had filed a securities fraud class
action against PolarityTE, giving other shareholders until
August 27, 2018 to file motions to be appointed lead
plaintiff (the “Notice”). On July 6, 2018, Yedid
Lawi filed a nearly identical class action complaint, also in
this court, alleging the same facts and alleged violations
during the same Class Period. On August 27, 2018, Michael A.
Motto moved for appointment as lead plaintiff in this action.
Also on August 27, 2018, Yedid Lawi moved for consolidation
of the two competing class actions and for appointment as
lead plaintiff in this action. On September 7, 2018, Motto
filed a notice of Non-Opposition to Lawi's motion. On
November 28, 2018, the court granted the motion to
consolidate the related cases and gave all parties fourteen
days to oppose Lawi's motion (until December 12, 2018).
No. parties opposed Lawi's motion. The court now rules on
the motions for appointment as lead plaintiff and for
appointment of lead counsel.
private securities class action, the court must
“appoint as lead plaintiff the member or members of the
purported plaintiff class that the court determines to be
most capable of adequately representing the interests of
class members.” Private Securities Litigation Reform
Act (PSLRA), 15 U.S.C. § 78u-4 (a)(3)(B)(i). This person
is known as the “most adequate plaintiff.”
Id. The court must “adopt a [rebuttable]
presumption that the most adequate plaintiff in any private
action arising under this chapter is the person” that:
(aa) has either filed the complaint or made a motion in
response to a notice under subparagraph (A)(i);
(bb) in the determination of the court, has the largest
financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the
Federal Rules of Civil Procedure.
15 U.S.C. § 78u-4 (a)(3)(B)(iii).
parties in this action meet the initial qualification for
lead plaintiff. First, Jose Moreno who filed the complaint.
Second, Michael Motto and third, Yedid Lawi, both of whom
made motions in response to the Notice. Michael Motto,
however, filed a Notice of Non-Opposition to Lawi's
appointment as lead plaintiff, and the court accordingly
DENIES his motion as moot. The court will therefore compare
the financial interests of Jose Moreno and Yedid Lawi.
Largest Financial Interest
PLSRA does not instruct the court how to determine the
plaintiff with the largest financial interest. Various
district courts in the Tenth Circuit have applied the
“retention method, ”while others have looked only
to the “largest monetary loss, ” to determine the
largest financial interest. Meanwhile, many courts apply the
“Lax-Olsten” Factors, first articulated in
Lax v. First Merchants Acceptance Corp., 1997 WL 461036,
at *5 (N.D. Ill. 1997) and adopted in In re Olsten Corp.
Sec. Litig.,3 F.Supp.2d 286, 295 (E.D.N.Y.1998). See
In re Crocs, Inc. Sec. Litig., 2008 WL 4298316, at
*2 (D. Colo. 2008) (discussing various methods). The
Lax-Olsten method compares four factors: “(1) the No.
of shares purchased; (2) the No. of net shares purchased; (3)
the total net funds expended by the plaintiffs during the
class period; and (4) the approximate losses suffered by the
plaintiffs.” Lax at *5. Here, Moreno does not propose a
method for calculating financial interest. Lawi asserts that
the court should look mainly to ...