Levy v. Gutierrez

• Decision Date: 30 September 2019
• Docket Number: Civil No. 14-cv-443-JL
• Citation: 448 F.Supp.3d 46
• Parties: Adam S. LEVY, v. Thomas GUTIERREZ, et al.
• Court: U.S. District Court — District of New Hampshire

448 F.Supp.3d 46

Adam S. LEVY,

v.Thomas GUTIERREZ, et al.

Civil No. 14-cv-443-JL

United States District Court, D. New Hampshire.

Signed September 30, 2019

Avi Josefson, Gerald Silk, Pro Hac Vice, John C. Browne, Bernstein Litowitz Berger & Grossmann LLP, New York, NY, Jeffrey C. Spear, Jennifer A. Eber, Orr & Reno PA, Concord, NH, for Adam S. Levy.

Jason D. Frank, Bingham McCutchen LLP, Emily E. Renshaw,, Pro Hac Vice, Jordan D. Hershman, Pro Hac Vice, William R. Harb, Pro Hac Vice, Morgan Lewis & Bockius LLP, Ian D. Roffman, Joseph Toomey, Pro Hac Vice, Nutter McClennen & Fish LLP, Gregory L. Demers, Pro Hac Vice, R. Daniel O'Connor, Pro Hac Vice, Randall W. Bodner, Pro Hac Vice, Firm Ropes & Gray LLP, Boston, MA, Brian J.S. Cullen, Cullen Collimore PLLC, Nashua, NH, David A. Katz, Pro Hac Vice, Kevin Schwartz, Pro Hac Vice, Wachtell Lipton Rosen & Katz, Richard A. Rosen, Pro Hac Vice, Paul Weiss Rifkind Wharton & Garrison, Miles N. Ruthberg, Pro Hac Vice, Jason C. Hegt, Pro Hac Vice, Sarah E. Diamond, Pro Hac Vice, Latham & Watkins LLP, New York, NY, Brenda E. Keith, Edmund J. Boutin, Boutin & Altieri PLLC, Londonderry, NH, Hilary H. Mattis, Pro Hac Vice, Matthew Rawlinson, Pro Hac Vice, Latham & Watkins LLP, Menlo Park, CA, Brian T. Glennon, Pro Hac Vice, Latham & Watkins LLP, Los Angeles, CA, Nathan Reed Fennessy, Preti Flaherty Beliveau Pachios LLP, Concord, NH, for Thomas Gutierrez, et al.

MEMORANDUM ORDER

Joseph N. Laplante, United States District Judge This is a putative securities law class action, concerning allegedly untrue or misleading statements made to investors about material components for the iPhone, involves the question of whether short sellers, arbitrageurs, and other sophisticated investors who do not believe that the market price for a security reflects all public information at the time they transact (collectively, "value investors") may invoke the presumption of reliance articulated in Basic v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), even though the presumption is based on the idea that investors rely on the integrity of market prices. Lead plaintiff Douglas Kurz, together with Securities Act plaintiff Palisade Strategic Master Fund (Cayman) Limited (collectively "plaintiffs"), has moved to certify a proposed class consisting of all people and entities that acquired GTAT common stock, GTAT's 3% Convertible Notes Due 2020, or publicly-traded options for GTAT common stock from November 5, 2013 through October 6, 2014, at 9:40 a.m. EST, under Fed. R. Civ. P. 23(a) & 23(b)(3).¹ Apple, Inc., the last remaining defendant, opposes class certification, asserting that individualized issues will predominate as to proving damages and reliance — core elements of the plaintiffs' securities fraud claim. In addition, Apple asserts that Kurz and Palisades would be atypical and inadequate class representatives due to their investment strategies. After considering the parties' written and oral arguments, the court concludes these plaintiffs may invoke the Basic presumption.

In Halliburton Co. v. Erica P. John Fund, the Supreme Court affirmed that although sophisticated value investors may have divergent motivations and beliefs about markets as compared to traditional investors, these investors still presumably "rel[y] on the fact that a stock's market price will eventually reflect material information" when making investment decisions. 573 U.S. 258, 134 S.Ct. 2398, 189 L.Ed.2d 339 (2014) (" Halliburton II"). Apple has not persuaded this court that the integrity of market prices played no part whatsoever in a value investors' decision making, or that value investors like Palisade would have employed similar investment strategies had they been aware the price for GTAT securities was tainted by fraud. As such, Kurz and Palisade may invoke the Basic presumption to prove reliance on a classwide basis, regardless of the number of value investors that qualify as absent class members. In addition, Kurz and Palisade have adequately demonstrated that damages for each claim can be calculated on a classwide basis under a formula that can account for each class member's individual circumstances. Accordingly, the proposed class satisfies each Rule 23(a) and Rule 23(b)(3) requirement for class certification. The motion is granted.

I. Background

The plaintiffs' allegations are more thoroughly detailed in the court's May 4, 2017 order on the defendants' motion to dismiss. ²

At the core of this case, the plaintiffs seek to recover damages for allegedly untrue or misleading statements made to GT Advanced Technologies Inc. ("GTAT") investors about GTAT's ability to produce sapphire materials exclusively for Apple. Historically, GTAT produced and sold advanced sapphire crystallization furnaces ("ASFs") to third parties, which then used the ASFs to produce synthetic sapphire. By mid-2013, however, GTAT's furnace-production operation began to struggle, prompting it to negotiate a transformative deal with Apple in which GTAT would exclusively manufacture and provide sapphire for Apple's products.

Under the Apple-GTAT agreement, Apple constructed and provided GTAT a facility in Arizona to operate more than 2,000 ASFs to produce sapphire. In addition, Apple agreed to fully cover GTAT's costs through four prepaid installments. On November 4, 2013, GTAT announced details about the agreement to investors, claiming it would significantly boost GTAT's revenue. Three days later, it provided additional details in its quarterly report to the Securities and Exchange Commission.

In the days after the announcement, GTAT's securities prices jumped. In December 2013, GTAT commenced a new securities offering for 3% Convertible Notes and a secondary offering for common stock. The plaintiffs emphasize that during this time, GTAT and its executives consistently represented that GTAT "was experiencing great success in fulfilling the terms of the Apple agreement and that GTAT's cash position was strong."³ Apple, in turn, notes that some market observers "recognized the technological and economic challenges GTAT faced," and that even lead plaintiff Kurz testified in his deposition that he believed it was " ‘really unlikely ... that the material production at that scope and magnitude would be able to be successfully implemented in such a short period of time.’ "⁴

On September 9, 2014, Apple publicly announced its then-newest iPhone models, both of which featured ion-strengthened glass, not sapphire, cover screens. According to the plaintiffs, "the price of GTA securities declined precipitously" thereafter.⁵ One month later, GTAT announced that it had filed for bankruptcy protection, "destroying virtually any remaining value in the Company's securities."⁶ The plaintiffs assert that these "disclosures" revealed to investors that Apple and GTAT's statements concerning their agreement were false and misleading, that is, "that GTAT's executives believed from the very start ... that the Apple[-GTAT] Agreement was a disaster for the Company."⁷

Three days after GTAT declared bankruptcy, individual plaintiffs began filing class action complaints against Apple and other defendants for violations of the Securities Act of 1933 ("Securities Act"), the Securities Exchange Act of 1934 ("Exchange Act"), and SEC Rule 10b-5, see 17 C.F.R. § 240.10b–5. These complaints were ultimately consolidated for all purposes as part of this proceeding. In May 2015, the court appointed Douglas Kurz as lead plaintiff.⁸ In May 2017, the court dismissed some of the plaintiffs' consolidated claims, but denied the defendants' request to dismiss this action in its entirety.⁹ In June 2018, the court granted final approval to settlements reached with the individual GTAT defendants and with the underwriter defendants.¹⁰ Now, more than three years into this litigation, Apple remains as the only defendant left to oppose the plaintiffs' motion for class certification.

II. Applicable legal standard

A. Class certification

The plaintiffs have moved for class certification under Fed. R. Civ. P. 23(b)(3). The proposed class consists of:

All persons and entities who: (i) purchased or otherwise acquired GTAT's publicly traded common stock and/or debt securities; purchased or otherwise acquired publicly traded call options on GTAT common stock; or sold publicly traded put options on GTAT common stock during the Class Period from November 5, 2013 through 9:40am Eastern Standard Time on October 6, 2014, inclusive; (ii) purchased or otherwise acquired securities in or traceable to the Company's offering of $214 million in aggregate principal amount of its 3.00% Convertible Senior Notes due 2020 conducted on or around December 5, 2013; or (iii) purchased or otherwise acquired securities in or traceable to the Company's offering of 9,942,196 shares of common stock conducted on or around December 5, 2013 and were damaged thereby.¹¹

To obtain class certification, the plaintiffs must establish by a preponderance of the evidence that Rule 23(a)'s four prerequisites are satisfied. See, e.g., In re Nexium Antitrust Litig., 777 F.3d 9, 18 (1st Cir. 2015). Specifically, the plaintiffs must show:

(1) the [proposed] class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). These requirements "ensure[ ] that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate," Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 349, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), and " ‘effectively limit the class claims to those fairly encompassed by the named plaintiffs claims.’ " Id. (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982) )...