United States District Court, D. Massachusetts
STEVEN EMERSON, individually and on behalf of all others similarly situated; SHELDON GRONER; BARRY HEANY; and MARK HANESS, Plaintiffs,
GENOCEA BIOSCIENCES, INC., WILLIAM D. CLARK, and JONATHAN POOLE, Defendants.
MEMORANDUM AND ORDER
B. SARIS CHIEF UNITED STATES DISTRICT JUDGE.
proposed class action, two competing lead plaintiffs allege
securities fraud by a biopharmaceutical company. The
plaintiffs assert that Genocea Biosciences, Inc.
(“Genocea”) and two officers artificially
inflated the company's stock price by reporting overly
optimistic prospects for a potential herpes treatment when,
in reality, the company's finances could not support
successful regulatory approval of the drug. When the company
later reported that it was abandoning the treatment, its
share price fell precipitously. This prompted several
plaintiffs to sue under the federal securities laws.
before the Court are two competing motions to appoint a lead
plaintiff and class counsel. After hearing and consideration
of the parties' submissions, the motion to appoint the
Genocea Investor Group as lead plaintiff with Scott䧊,
Attorneys at Law, LLP, and Levi & Korsinsky, LLP, as
co-lead class counsel and Block & Leviton, LLP, as
liaison counsel (Docket No. 22) is ALLOWED. The
competing lead-plaintiff motion of Sheldon Groner (Docket No.
16) is DENIED.
is a biopharmaceutical company based in Cambridge,
Massachusetts, that researches and develops vaccines and
immunotherapies. Docket No. 1, ¶¶ 2-3,
Between May and September 2017, Genocea's lead product
candidate was a genital herpes immunotherapy product called
GEN-003. Id. ¶¶ 1, 4, 19. The complaint
alleges that the company and its officers made materially
false or misleading statements, or failed to disclose
information about GEN-003 -- primarily that Genocea's
financial health was inadequate to support Phase 3 trials of
the drug. Id. ¶ 5. As a result, the plaintiffs
believe Genocea overstated the prospects of bringing GEN-003
to market. Id.
instance, in May 2017, Genocea disclosed that the company
expected GEN-003 to be ready for Phase 3 trials by the fourth
quarter of 2017. Id. ¶ 20. In July and August
2017, the company made additional disclosures indicating
positive results of Phase 2b trials and reiterating the
company's expectation that GEN-003 would soon be ready
for Phase 3 trials. Id. ¶¶ 21-22. However,
after the markets closed on September 25, 2017, Genocea
disclosed that it was halting spending on GEN-003,
“exploring strategic alternatives for the drug, ”
and cutting 40 percent of its workforce. Id.
¶¶ 6, 23. The next day, the company's share
price fell $4.08, or 75 percent, to close at $1.25 per share.
Id. ¶¶ 6, 24.
drop in Genocea's share price prompted three putative
class action lawsuits under §§ 10(b) and 20(a) of
the Securities Exchange Act of 1934, 15 U.S.C. §§
78j (b) and 78t(a), and under Rule 10b-5, 17 C.F.R. §
240.10b-5. See Id. ¶¶ 1, 26-50. At a
hearing in January 2018, the Court allowed a motion to
consolidate the three cases. The Court took under advisement
competing motions for the appointment of a lead plaintiff and
class counsel. Those motions are now ripe for decision.
General Framework for Appointing a Lead Plaintiff
Private Securities Litigation Reform Act
(“PSLRA”) requires the Court to “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.” 15 U.S.C. § 78u-4(a)(3)(B)(i). A class
member may trigger a rebuttable presumption that she is the
“most adequate plaintiff” by satisfying three
criteria: (1) filing the complaint or making a timely motion
to be lead plaintiff; (2) having the largest financial
interest in the relief sought; and (3) otherwise satisfying
Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C.
§ 78u-4(a)(3)(B)(iii)(I). Another class member may rebut
this presumption “only upon proof” that the
presumptive “most adequate plaintiff” either (1)
“will not fairly and adequately protect the interests
of the class, ” or (2) “is subject to unique
defenses that render such plaintiff incapable of adequately
representing the class.” 15 U.S.C. §
Aggregating Plaintiffs to Form Largest Financial
analyzing who has the “largest financial interest in
the relief sought, ” courts are divided on whether and
when to allow groups of class members to aggregate their
losses. See 7B Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1806
(3d ed. 2017) (discussing various approaches and noting that
“many courts have emphasized that the decision . . .
must be made on a case-by-case basis”). See
also Elizabeth Chamblee Burch, Optimal Lead
Plaintiffs, 64 Vand. L. Rev. 1109, 1137-39 (2011)
(describing various approaches). On one end of the spectrum,
some courts have flatly refused to appoint groups of
unrelated persons as lead plaintiffs. See, e.g., In
re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156,
157-58 (S.D.N.Y. 1997) (ruling that “aggregation of
unrelated plaintiffs to serve as lead plaintiffs defeats the
purpose of choosing a lead plaintiff” and undermines
PSLRA purpose of “prevent[ing] lawyer-driven
litigation”). Others permit aggregation, taking note of
the PSLRA's direction to consider the “person or
group of persons” with the largest financial interest
in the case. See, e.g., In re Advanced Tissue
Scis. Sec. Litig., 184 F.R.D. 346, 350 (S.D. Cal. 1998)
(quoting 15 U.S.C. § 78u- 4(a)(3)(B)(iii)(I)). Still
others fall somewhere in between. See Burch,
supra, at 1138 (discussing courts that have
appointed groups where no bad faith exists, where the group
has demonstrated cohesiveness, or where close-knit group
members had pre-litigation relationships).
appears to be the only Court of Appeals decision on point,
the Third Circuit has adopted a “rule of reason”
approach. See In re Cendant Corp. Litig., 264 F.3d
201, 266-67 (3d Cir. 2001). Noting that the PSLRA expressly
permits a “group of persons” to serve as lead
plaintiff, the Third Circuit “disagree[d] with those
courts that have held that the statute invariably precludes a
group of ‘unrelated individuals' from serving as a
lead plaintiff.” Id. at 266 (citing 15 U.S.C.
§§ 78u-4(a)(3)(B)(iii)(I) and 78u-4(a)(3)(B)(i)).
Instead, the Third Circuit held that the nature and extent of
the group members' prior relationship, if any, as well as
the size ...