Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_14-cv-04416/USCOURTS-cand-5_14-cv-04416-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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 Case No.: 14-CV-04416-LHK 

 ORDER GRANTING PLAINTIFF COYLER’S MOTION FOR APPOINTMENT AS LEAD PLAINTIFF 

 

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UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

ADAM ZHAMUKHANOV, 

Plaintiff, 

v. 

ACELRX PHARMACEUTICALS, INC., et 

al., 

Defendants. 

Case No. 14-CV-04416-LHK 

ORDER GRANTING PLAINTIFF 

COYLER’S MOTION FOR 

APPOINTMENT AS LEAD PLAINTIFF 

AND APPROVAL OF COYLER’S 

SELECTION OF LEAD COUNSEL 

Re: Dkt. Nos. 9, 13, and 14 

Before the Court are three motions to appoint lead plaintiff and approval of lead counsel. 

The first is Plaintiff Dennis Simcox’s motion for appointment of Simcox as lead plaintiff and 

approval of Simcox’s selection of counsel. ECF No. 9. The second is Plaintiff Rick L. Coyler’s 

unopposed motion for appointment of Coyler as lead plaintiff and approval of Coyler’s selection 

of counsel. ECF No. 13 (“Coyler Mot.”). The third is Plaintiff Harry Zweifel’s motion to appoint 

Zweifel as lead plaintiff and approval of Zweifel’s selection of counsel. ECF No. 14. Defendants 

have filed a statement of non-opposition to all three of Plaintiffs’ motions and have stated they 

take no position as to the appointment of lead plaintiff and/or the selection of lead counsel. ECF 

No. 21. Pursuant to Civil Local Rule 7-1(b), the Court finds all three motions appropriate for 

determination without oral argument, and thus VACATES the hearing set for these motions on 

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 Case No.: 14-CV-04416-LHK 

 ORDER GRANTING PLAINTIFF COYLER’S MOTION FOR APPOINTMENT AS LEAD PLAINTIFF 

 

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March 26, 2015, at 1:30 p.m. The Court GRANTS Coyler’s unopposed motion for the reasons set 

forth herein, and DENIES the other two motions. 

I. BACKGROUND 

This case is a putative securities class action brought against Defendant AcelRx 

Pharmaceuticals, Inc. (“AcelRx”), and its Chief Executive Officer and Chief Financial Officers, 

brought on behalf of all persons “who purchased or otherwise acquired AcelRx’s common stock 

and/or call options, or sold/wrote AcelRx’s put options between December 2, 2013 and September 

25, 2014 inclusive (‘Class Period’).” ECF No. 1 (“Compl.”) ¶ 1. 

“AcelRx is a specialty pharmaceutical company focused on the development and 

commercialization of innovative therapies for the treatment of acute and breakthrough pain.” Id.

¶¶ 2, 20. The Complaint, filed by Plaintiff Adam Zhamukhanov, alleges that AcelRx made 

materially false and misleading statements and failed to disclose adverse facts regarding AcelRx’s 

new drug application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) for the drug 

Zalviso (sufentanil sublingual tablet system). Id. ¶ 3. 

Specifically, the Complaint alleges that AcelRx announced that the FDA had accepted the 

NDA for Zalviso on December 2, 2013. Id. ¶ 21. AcelRx made additional statements that the 

NDA had been “accepted” and the company “anticipate[d] generating the first commercial sales of 

Zalviso in the United States in the first quarter of 2015.” Id. ¶ 24. On July 25, 2014, AcelRx 

revealed that it received a “Complete Response Letter” from the FDA which requested additional 

information about Zalviso. Id. ¶ 28. On that news, the price of “shares of AcelRx declined $4.44 

per share, nearly 41%.” Id. ¶ 29. On August 11, 2014, AcelRx issued a press release stating that 

AcelRx was working with the FDA on the Complete Response Letter and “anticipate[s] we can 

refile the Zalviso NDA before the end of 2014, pending the outcome of the meeting with the 

FDA.” Id. ¶ 31. The Complaint alleges that these statements were materially false or misleading 

when made because the statements failed to disclose important information about Zalviso’s 

regulatory approval and financial prospects. Id. ¶ 33. Finally, on September 20, 2014, AcelRx 

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 ORDER GRANTING PLAINTIFF COYLER’S MOTION FOR APPOINTMENT AS LEAD PLAINTIFF 

 

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issued a press release revealing that the company planned to resubmit the Zalviso NDA sometime 

in 2015, and “the planned resubmission will qualify as a Class 2 resubmission with a review 

period of six months.” Id. ¶ 34. Based on that news, the price of “shares of AcelRx declined 

$1.31 per share, over 19%.” Id. ¶ 35. 

 Based on these allegations, Plaintiff brings two causes of action against AcelRx, AcelRx’s 

Chief Executive Officer (“CEO”) Richard A. King, and AcelRx’s Chief Financial Officers 

(“CFO”) Timothy E. Morris and James H. Welch,1 on behalf of Plaintiff and all other purchasers 

of AcelRx securities during the Class Period. 

 First, Plaintiff claims that all Defendants violated § 10(b) of the Securities Exchange Act, 

15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated pursuant to § 10(b) of the 

Securities Exchange Act. Compl. ¶¶ 54-63. Second, Plaintiff claims that the individual 

Defendants violated Section § 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a). Id. ¶¶ 64-

67. 

 On December 1, 2014, Simcox, Coyler, and Zweifel each moved the Court to be appointed 

as lead plaintiff, and for approval of their selection of counsel as lead counsel for the class. ECF 

Nos. 9, 13, and 14. Coyler claims to have purchased AcelRx stock during the Class Period. See 

ECF No. 13-1, Declaration of Evan J. Smith (“Smith Decl.”), Ex. A (“Plaintiff’s Certification”). 

Colyer later filed a Further Statement in support of his appointment as lead plaintiff, stating that he 

has the largest financial stake in the litigation. ECF No. 18. Simcox and Zweifel later filed 

statements of nonopposition to Coyler’s appointment as lead plaintiff, agreeing that neither 

Simcox nor Zweifel appears to have the largest financial interest in the outcome of the litigation. 

ECF No. 17 (Zweifel Statement of Non-opposition) at 1; ECF No. 22 (Simcox Statement of Nonopposition) at 1-2. Both Simcox and Zweifel agree they are not the presumptively most adequate 

plaintiff under the Private Securities Litigation Reform Act (“PSLRA”).

 

1

 Welch was the CFO of AcelRx until March 24, 2014, and Morris has been the CFO since March 

25, 2014. 

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II. LEGAL STANDARD 

 The Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u–4, governs the 

selection of a lead plaintiff in private securities class actions. In the PSLRA’s own words, this 

plaintiff is to be the “most capable of adequately representing the interests of class members.” 15 

U.S.C. § 78u–4(a)(3)(B)(i). Under the PSLRA, a three-step process determines the lead plaintiff. 

In re Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). First, the first plaintiff to file an action 

governed by the PSLRA must publicize the pendency of the action, the claims made, and the 

purported class period “in a widely circulated national business-oriented publication or wire 

service.” 15 U.S.C. § 78u–4(a)(3)(A)(i)(I).2

 This notice must also alert the public that “any 

member of the purported class may move the court to serve as lead plaintiff.” 15 U.S.C. § 78u–

4(a)(3)(A)(i)(II).3

 Second, the court must select the presumptive lead plaintiff. See In re Cavanaugh, 306 

F.3d at 729–30 (citing 15 U.S.C. § 78u–4(a)(3)(B)(iii)(I)). In order to determine the presumptive 

lead plaintiff, “the district court must compare the financial stakes of the various plaintiffs and 

determine which one has the most to gain from the lawsuit.” Id. at 730 (footnote omitted). Once 

the district court identifies the plaintiff with the most to gain, the district court must determine 

whether that plaintiff, based on the information he provides, “satisfies the requirements of Rule 

23(a), in particular those of ‘typicality’ and ‘adequacy.’” Id. If he does, that plaintiff becomes the 

presumptive lead plaintiff. Id. If not, the court selects the plaintiff with the next-largest financial 

stake and determines whether that plaintiff satisfies the requirements of Rule 23. Id. The court 

repeats this process until it selects a presumptive lead plaintiff. Id.

 Third, those plaintiffs not selected as the presumptive lead plaintiff may “rebut the 

presumptive lead plaintiff’s showing that it satisfies Rule 23’s typicality and adequacy 

requirements.” Id. (citing 15 U.S.C. § 78u–4(a)(3)(B)(iii)(II)). This is done by showing that the 

 

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 This publication is to be made “[n]o later than 20 days after the date on which the complaint is 

filed.” 15 U.S.C. § 78u–4(a) (3)(A)(i). 

3

 Those who wish to move the court for appointment as lead plaintiff must do so “not later than 60 

days after the date on which the notice is published.” 15 U.S.C. § 78u–4(a)(3)(A)(i)(II). 

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 ORDER GRANTING PLAINTIFF COYLER’S MOTION FOR APPOINTMENT AS LEAD PLAINTIFF 

 

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presumptive lead plaintiff either “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.” 15 U.S.C. § 78u–4(a)(3)(B) (iii)(II)(aa)-(bb). If the court determines that the presumptive 

lead plaintiff does not meet the typicality or adequacy requirement, then it must return to step two, 

select a new presumptive lead plaintiff, and again allow the other plaintiffs to rebut the new 

presumptive lead plaintiff’s showing. In re Cavanaugh, 306 F.3d at 731. The court repeats this 

process “until all challenges have been exhausted.” Id. (citation and footnote omitted). 

 Under the PSLRA, the lead plaintiff is given the right, subject to court approval, to “select 

and retain counsel to represent the class.” 15 U.S.C. § 78u–4(a)(3)(B)(v). “[T]he district court 

should not reject a lead plaintiff’s proposed counsel merely because it would have chosen 

differently.” Cohen v. U.S. Dist. Court, 586 F.3d 703, 711 (9th Cir. 2009) (citation omitted). “[I]f 

the lead plaintiff has made a reasonable choice of counsel, the district court should generally defer 

to that choice.” Id. at 712 (citations omitted). 

III.ANALYSIS 

 In conformity with the procedure established by the PSLRA and the Ninth Circuit in In re 

Cavanaugh, the Court will decide whether Coyler should serve as lead plaintiff and Brower Piven, 

A Professional Corporation (“Brower Piven”) as lead counsel and Brodsky & Smith, LLC (“Brodsky 

& Smith”) as liaison counsel for the Class in the instant action. 

A. Procedural Requirements 

On October 2, 2014, the day after filing the Complaint, Zhamukhanov’s counsel published 

a notice in Business Wire. See Smith Decl., Ex. C. This notice was timely because it was 

published within 20 days after the filing of the complaint, and it listed the claims, the class period, 

and advised putative class members that they had 60 days from the date of the notice to file a 

motion to seek appointment as lead plaintiff in the lawsuit. See 15 U.S.C. § 78u–4(a)(3)(A). 

Coyler then filed the instant motion within the statutory period specified in 15 U.S.C. § 78u–

4(a)(3)(A). Coyler has therefore met the statutory procedural requirements. 

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B. Financial Interest 

The PSLRA provides that, after notice of the class action has been given, a “court shall 

consider any motion made by a purported class member in response to the notice . . . and shall 

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 interest of class members.” 15 

U.S.C. § 78u–4(a)(3)(B)(i). The most capable plaintiff is generally the one who has the greatest 

financial stake in the outcome of the case, so long as he or she meets the requirements of Rule 23. 

In re Cavenaugh, 306 F.3d at 729. District courts have equated financial interest with actual 

economic losses suffered. See Perlmutter v. Intuitive Surgical, Inc., 10-CV-03451-LHK, 2011 

WL 566814, at *3 (N.D. Cal. Feb. 15, 2011). 

 Here, Coyler holds the largest financial stake in this litigation. Coyler has submitted a 

declaration establishing that during the Class Period he purchased 125,000 securities that are the 

subject of this action. See Plaintiff’s Certification. There is no dispute that Coyler suffered the 

greatest financial loss during the Class Period. Indeed, both Simcox and Zweifel have conceded 

they do not have the largest financial stake in the action and that Coyler has the largest financial 

interest. See ECF Nos. 17, 22. Therefore, Coyler is presumptively the most adequate plaintiff. In 

re Cavanaugh, 306 F.3d at 730.

C. Rule 23 

Having established that he has the largest financial interest, Coyler has also established 

that he satisfies the requirements of Rule 23(a), particularly typicality and adequacy. See In re 

Cavenaugh, 306 F.3d at 732 (“Once it determines which plaintiff has the biggest stake, the court 

must appoint that plaintiff as lead, unless it finds that he does not satisfy the typicality or adequacy 

requirements.”). This showing need not be as thorough as what would be required on a class 

certification motion. See Zhu v. UCBH Holdings, Inc., 682 F. Supp. 2d 1049, 1053 (N.D. Cal. 

2010). 

 In determining whether typicality is satisfied, a Court inquires “whether other members 

have the same or similar injury, whether the action is based on conduct which is not unique to the 

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named plaintiffs, and whether other class members have been injured by the same course of 

conduct.” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (quotation and 

quotation marks omitted); In re Diamond Foods, Inc., Sec. Litig., 281 F.R.D. 405, 408 (N.D. Cal. 

2012). In this case, like all other members of the purported class, Coyler purchased AcelRx 

common stock during the Class Period, allegedly in reliance upon Defendants’ purported false and 

misleading statements, and allegedly suffered damages as a result. Coyler’s claims appear to be 

typical, if not identical, to the claims of other members of the putative class. See Coyler Mot. at 6; 

City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., No. 12-CV-06039-

LHK, 2013 WL 2368059, at *4 (N.D. Cal. May 29, 2013) (finding typicality requirement met 

when proposed lead plaintiff “purchased [the defendant’s] common stock during the Class Period, 

allegedly in reliance upon [the d]efendants’ purported false and misleading statements, and 

alleged[ly] suffered damages as a result”). 

 The test for adequacy asks whether the class representative and his counsel “have any 

conflicts of interest with other class members” and whether the class representative and his 

counsel will “prosecute the action vigorously on behalf of the class.” Staton v. Boeing Co., 327 

F.3d 938, 957 (9th Cir. 2003). Here, there is no indication of conflicts between Coyler and other 

class members, nor is there evidence that Coyler is subject to any unique defenses. See Coyler 

Mot. at 6. Accordingly, the Court finds that, for purposes of lead plaintiff appointment, Coyler 

has made a showing satisfying the adequacy requirements of Rule 23. 

D. Rebuttal of Presumptive Lead Plaintiff 

 Having established that Coyler has the greatest financial stake and satisfies the 

requirements of Rule 23(a), Coyler is presumptively the most adequate plaintiff to represent the 

class. This presumption may be rebutted only upon proof by a member of the purported plaintiff 

class that Coyler either (1) “will not fairly and adequately protect the interests of the class,” or (2) 

“is subject to unique defenses that render [it] incapable of adequately representing the class.” 15 

U.S.C. § 78u-4(a)(3)(3)(B)(iii)(II). No purported class member has come forward with such 

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rebuttal evidence to rebut the presumption in favor of Coyler. Indeed, no party opposes Coyler’s 

motion for appointment as lead plaintiff. Accordingly, the presumption that Coyler is the most 

adequate lead plaintiff has not been rebutted, and the Court therefore need not proceed to consider 

the motion of the movant with the next largest financial stake. See In re Cavanaugh, 306 F.3d at 

730-31. Absent proof that the lead plaintiff candidate with the largest financial interest does not 

satisfy the requirements of FRCP 23, said candidate is “entitled to lead plaintiff status.” Id. at 732. 

Thus, Coyler is entitled to be the lead plaintiff in this action. 

E. Lead Counsel 

The PSLRA provides that “[t]he most adequate plaintiff shall, subject to the approval of 

the court, select and retain counsel to represent the class.” 15 U.S.C. § 78u-4(a)(3)(B)(v). The 

decision of lead counsel belongs to the lead plaintiff. In re Cavanaugh, 306 F.3d at 734 n.14. 

Coyler has chosen the law firm of Brower Piven. The Court has reviewed the firm’s resume, 

Smith Decl., Ex. D, and is satisfied that the lead plaintiff has made a reasonable choice of counsel. 

Accordingly, the Court defers to the Coyler’s choice in counsel. 

IV.CONCLUSION 

 For the reasons stated above, the Court appoints Coyler as the lead plaintiff in this action 

and approves the Coyler’s selection of Brower Piven as lead counsel. 

IT IS SO ORDERED. 

Dated: February 24, 2015 

______________________________________ 

LUCY H. KOH 

United States District Judge 

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