Phillips v. Churchill Capital Corp. IV

• Court: U.S. District Court — Northern District of Alabama
• Writing for the Court: ANNEMARIE CARNEY AXON UNITED STATES DISTRICT JUDGE
• Decision Date: 16 September 2021
• Docket Number: 1:21-cv-00539-ACA
• Citation: Phillips v. Churchill Capital Corp. IV, 1:21-cv-00539-ACA (N.D. Ala. Sep 16, 2021)
• Parties: RANDY PHILLIPS, Plaintiff, v. CHURCHILL CAPITAL CORPORATION IV, et al., Defendants.

RANDY PHILLIPS, Plaintiff, v. CHURCHILL CAPITAL CORPORATION IV, et al., Defendants.

No. 1:21-cv-00539-ACA

United States District Court, N.D. Alabama, Eastern Division

September 16, 2021

MEMORANDUM OPINION AND ORDER

ANNEMARIE CARNEY AXON UNITED STATES DISTRICT JUDGE

Plaintiff Randy Phillips filed this action on behalf of himself and similarly situated individuals or entities, asserting claims under Sections 10(b) and 20(a) of the Securities and Exchange Act (“Exchange Act”) and Rule 10-b5 promulgated under the Exchange Act. (Doc. 1).

Before the court are five timely motions for appointment as lead plaintiff and approval of lead counsel filed by the following individuals or entities:

(1) Stephen Stanley and Gary Durrell (doc. 25);

(2) Max Royal LLC, Seung R. Lee, Hee K. Lee, and Aaron Lan (collectively, the “CCIV Investor Group”) (doc 30)

(3) Dr. Michael Howell (doc. 31);

(4) Paradigm Business Park, LLC and Sichao Xu (doc. 33); and

(5) Randy Phillips and Robin Seecharan (doc. 34).

For the reasons explained below, the court finds that Paradigm Business Park, LLC and Mr. Xu have the greatest financial interest in the relief sought by the class, and they otherwise meet the relevant requirements of Federal Rule of Civil Procedure 23. In addition, no other member of the purported plaintiff class has submitted proof that Paradigm Business Park, LLC and Mr. Xu will not fairly and adequately represent the class or that they are subject to unique defenses rendering them incapable of adequately representing the class.

Accordingly the court GRANTS Paradigm Business Park, LLC and Mr. Xu's motion for appointment as lead plaintiff and for approval counsel. (Doc. 33).

The court DENIES the remaining motions for appointment of lead plaintiff and approval of counsel. (Docs 25, 30, 31, 34).

I. BACKGROUND AND PROCEDURAL HISTORY

Plaintiff Randy Phillips filed this putative securities class action against Defendants Churchill Capital Corporation IV (“CCIV”)^[1], Atevia, Inc. d/b/a Lucid Motors, Michael Klein, Jay Faragin, and Peter Rawlinson. (Doc. 1). According to the complaint, CCIV is a blank check company, also known as a special purpose acquisition company (“SPAC”) that raises money to buy a private company, effectively taking that company public while avoiding the tradition initial public offering process. (Id. at ¶ 6). CCIV is a shell company as defined under the Exchange Act because it has no operations and nominal assets consisting almost entirely of cash. (Id.). Mr. Klein is the Founder, Chairman, CEO and Director of CCIV. (Doc. 1 at ¶ 8). Mr. Taragin is CCIV's Chief Financial Officer. (Id. at ¶ 9).

Lucid Motors is an American electric car company, founded in 2007. (Doc. 1 at ¶ 7). As of 2020, Lucid Motors was developing its first car, the Lucid Air. (Id.).

At the close of market on January 8, 2021, CCIV was trading at $10.03 a share. (Doc. 1 at ¶ 21). On January 11, 2021, Bloomberg News reported that Lucid Motors was in talks to go public through one of Mr. Kline's SPAC's. (Id.). Sources for the article said that the transaction could be valued at up to $15 billion. (Id.). At the close of business on January 11, 2021, CCIV's share price was $13.20. (Doc. 1 at ¶ 21). By January 22, 2021, the price per share of CCIV had risen to $22.34 due to leaks and rumors regarding a pending merger with Lucid Motors. (Id. at ¶ 22).

In February 2021, Mr. Rawlinson, Lucid Motors' CEO, told Forbes magazine that he “want[ed] to make at least 6, 000 Airs at a new plant in Casa Grande, Arizona, this year, potentially generating $900 million of revenue. Volume could top 25, 000 units in 2022 as versions of Air priced at $77, 000 arrive. Further growth is expected with the 2023 introduction of an electric crossover, tentatively named Gravity, followed by even cheaper and smaller models to compete with Tesla's top-selling Model 3.” (Doc. 1 at ¶ 23). Mr. Rawlinson also appeared on television news programs explaining his plans for Lucid Motors' growth in the electric car market, discussing rumors of a SPAC deal, and stating that Lucid Motors aimed for a spring 2021 delivery of its first vehicles. (Id. at ¶¶ 24-25). CCIV's stock price then closed at an all-time high of $58.05 on February 18, 2021. (Id. at ¶ 25).

On February 22, 2021, the CCIV and Lucid Motors merger was announced; the transaction value was estimated at $11.75 billion; and CCIV's share price closed at $57.37. (Doc. 1 at ¶ 26). That evening, Bloomberg News reported that Mr. Rawlinson announced production of the Lucid Air would be delayed until at least the second half of 2021, and details of the merger disclosed that Lucid Motors was projecting the production of only 557 vehicles in 2021, instead of the 6, 000 it had announced before the merger with CCIV. (Id. at ¶ 27-28).

The complaint alleges that in the months before the CCIV and Lucid Motors merger, the Defendants made false and misleading statements in order to artificially inflate CCIV's stock price, causing damage to Mr. Phillips and the other putative class members who purchased CCIV securities in anticipation of the merger. (Doc. 1 at ¶¶ 1, 13, 33-34).

The complaint asserts two causes of action: (1) violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and (2) violations of Section 20(a) of the Exchange Act against Mr. Kline, Mr. Faragin, and Mr. Rawlinson. (Id. at ¶¶ 41-46).

On May 5, 2021, Mr. Phillips published a statutorily required notice of this action in the Business Wire. (See Doc. 28 at 2). On May 6, 2021, a corrected version of the notice was published “due to multiple revisions.” (Id.).

As the court previously found, the May 6, 2021 notice contained an inaccurate deadline for the filing of lead plaintiff motions. (Doc. 28 at 2). Accordingly, the court ordered Mr. Phillips to publish an amended notice on or before June 29, 2021, advising purported class members that they must file lead plaintiff motions within 60 days of publication of the amended notice, consistent with 15 U.S.C. § 78u-4(a)(3)(A)(i)(II). (Id.).

The court also explained that as required by statute, the court would accept motions for appointment of lead plaintiff until 60 days after publication of the amended notice. (Doc. 28 at 3).

Mr. Phillips filed an amended notice on June 29, 2021, correctly informing putative class members had until August 30, 2021 to file motions for appointment as lead plaintiff. (Doc. 29).

Five different plaintiffs or groups of plaintiffs have now moved for appointment as lead plaintiff and for selection of class counsel. (Docs. 25, 30, 31, 33, 34).

II. DISCUSSION

1. Appointment of Lead Plaintiff

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) establishes the procedure for appointment of a lead plaintiff “in each private action arising under this chapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure.” 15 U.S.C. § 78u-4(a)(1). Under the PSLRA, there is a rebuttable presumption that the most adequate plaintiff is one who “has either filed the complaint or made a motion in response to a notice” and that “in the determination of the court, 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.” Id. at § 78-u4(a)(3)(B)(iii)(I). This presumption “may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff [] will not fairly and adequately protect the interests of the class; or [] is subject to unique defenses that render such plaintiff incapable of adequately representing the class.” Id. at § 78-u4(a)(3)(B)(iii)(II).

Each of the proposed lead plaintiffs either filed a complaint or made a motion in response to a notice. Therefore, the court turns to the question of which proposed lead plaintiff has the largest financial interest and whether that plaintiff will fairly and adequately represent the class.

Based on the evidence before the court, the various financial interest claimed by each proposed lead plaintiff is as follows:

Stephen Stanley and Gary Durrell

$600, 134.31

CCIV Investor Group

$2, 287, 474.95

Dr. Michael Howell

$362, 634.47

Paradigm Business Park, LLC and Sichao Xu

$3, 174, 632.83

Randy Phillips and Robin Seecharan

$351, 001.37

(Doc. 1-1; Doc. 25-5 at 2; Doc. 30-4 at 5; Doc. 32-2 at 2; Doc. 33-4 at 9; Doc. 35-1 at ¶ 5).

There is no dispute that plaintiffs Paradigm Business Park, LLC and Mr. Xu have the largest financial interest in the relief sought by the class. (Doc. 33-4 at 9; see also doc 43; doc. 50; doc. 55; doc. 56).

In addition, Paradigm Business Park, LLC and Mr. Xu have shown that they meet the requirements of Federal Rule of Civil Procedure 23. In deciding a lead plaintiff motion, most courts generally consider only the typicality and adequacy prongs of Rule 23. See e.g., Bensley v. FalconStor Software, Inc., 277 F.R.D. 231, 233 (E.D.N.Y. 2011) (“[O]f the four prerequisites to class certification, only two- typicality and adequacy-directly address the personal characteristics of the class representative.”) (quotations omitted; alteration in original); Miller v. Dyadic Intern., Inc., 2008 WL 2465286, at *6 (S.D. Fla. Apr. 18, 2000) (Of [Rule 23's] prerequisites, only two-typicality and adequacy-are relevant in deciding a motion for appointment of lead plaintiff.”). The parties vying for appointment as lead plaintiff do not dispute that this is the standard. (See Doc. 25-1 at 7-8; Doc. 30-1 at 12-15; Doc. 31 at 5-6; Doc. 33 at 12-16; Doc. 50 at 4). Therefore, the court will examine just the typicality and adequacy requirements of Rule 23.

Typicality is met when the plaintiff has “the same interest and suffer[s]...