1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

CITY OF MIAMI GENERAL EMPLOYEES' &

SANITATION EMPLOYEES' RETIREMENT 

TRUST, ET AL., 

Plaintiffs, 

vs. 

RH, INC., ET AL., 

Defendants.

CASE NO. 17-cv-00554-YGR 

ORDER GRANTING PLAINTIFFS’ MOTION 

TO CERTIFY CLASS

Re: Dkt. No. 94 

Plaintiffs bring this putative class action against defendants RH, Inc. (“RH”), Gary 

Friedman, and Karen Boone for alleged violations of Section 10(b) of the Securities Exchange Act 

of 1934. (Dkt. No. 45, Consolidated Class Action Complaint (“CCAC”) (citing 15 U.S.C. § 

78(b)).) Now before the Court is plaintiffs’ motion for (1) certification of the following class: “All 

persons and entities who purchased or otherwise acquired the common stock of Restoration 

Hardware Holdings, Inc. (“RH”) during the period from March 26, 2015 through June 8, 2016, 

inclusive (the “Class”)”; (2) appointment of lead plaintiffs Public School Teachers Pension & 

Retirement Fund of Chicago (“Chicago Teacher”) and Arkansas Teacher Retirement System 

(“Arkansas Teacher”) as Class Representatives; and (3) appointment of Bernstein Litowitz Berger 

& Grossman LLP as Class Counsel. (Dkt. No. 94 (“Motion”).) Having carefully reviewed the 

papers submitted and oral arguments at the hearing held on October 1, 2018, and for the reasons 

set forth more fully below, the Court GRANTS plaintiffs’ motion. 

I. BACKGROUND

The facts at issue in this case, as pleaded in plaintiffs’ 100-page Consolidated Class Action 

Complaint, are well-known to the parties; relevant facts from the Complaint are set forth below. 

(See CCAC.) 
2 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

Plaintiffs bring the instant action on behalf of purchasers of RH stock between March 26, 

2015 and June 8, 2016 (the “Class Period”). (CCAC ¶ 1.) Plaintiffs allege that statements RH 

made during the Class Period about the launch of a new home furnishing line, RH Modern, and 

statements about RH’s inventory were misleading, in violation of Section 10(b) of the Securities 

Exchange Act of 1934, 15 U.S.C. § 78(b). (Id. ¶¶ 178-202.) Specifically, plaintiffs allege that RH 

launched RH Modern knowing that it had not ordered sufficient product to support the launch. 

(Id.) Plaintiffs allege more than two-dozen false statements between the start of the Class Period, 

March 26, 2015, and March 29, 2015. (Id. 178-202.) They also allege four corrective disclosure 

dates starting on December 10, 2015 and ending on June 8, 2016, when plaintiffs allege that RH 

revealed the truth about RH Modern’s inventory shortfalls. (Id. ¶¶ 10-11.) 

Plaintiffs filed the instant motion on June 22, 2018. (Motion.) Lead plaintiffs and 

proposed class representatives in this action are Arkansas Teacher and Chicago Teacher. 

Arkansas Teacher is a frequent plaintiff in securities class actions and is currently serving as lead 

plaintiff or class representative in eleven securities class actions. (Dkt. No. 101-3, Trans. of 

Deposition of Rodney Graves (“Graves Depo.”) at 19:22-25.) Arkansas Teacher has two 

employees who oversee these matters, both of whom do so on a part-time basis. (Id. at 22:1-7, 

16:20-19:7.) 

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 23(a), a court may certify a class only where “(1) 

the 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). Courts refer to these four requirements as 

“numerosity, commonality, typicality[,] and adequacy of representation.” Mazza v. Am. Honda 

Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012). 

Once the threshold requirements of Rule 23(a) are met, plaintiffs must then show “through 

evidentiary proof” that a class is appropriate for certification under one of the provisions in Rule 

23(b). Comcast Corp. v. Behrend, 599 U.S. 27, 33 (2013). Here, plaintiffs seek certification under 
3 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

Rule 23(b)(3), which requires plaintiffs to establish “that the questions of law or fact common to 

class members predominate over any questions affecting only individual members, and that a class 

action is superior to other available methods for fairly and efficiently adjudicating the 

controversy.” Fed. R. Civ. P. 23(b)(3). The predominance inquiry focuses on “whether proposed 

classes are sufficiently cohesive to warrant adjudication by representation.” Hanlon v. Chrysler 

Corp., 150 F.3d 1011, 1022 (9th Cir. 1998) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 

591, 623 (1997)).

“[A] court’s class-certification analysis must be ‘rigorous’ and may ‘entail some overlap 

with the merits of the plaintiff’s underlying claim.’” Amgen, Inc. v. Conn. Ret. Plans & Trust 

Funds, 133 S. Ct. 1184, 1194 (2013) (quoting Dukes, 564 U.S. at 351); see also Mazza, 666 F.3d 

at 588. The Court considers the merits to the extent they overlap with the Rule 23 requirements. 

Ellis, 657 F.3d at 983. The Court must resolve factual disputes as “necessary to determine 

whether there was a common pattern and practice that could affect the class as a whole.” Id. 

(emphasis in original). “When resolving such factual disputes in the context of a motion for class 

certification, district courts must consider ‘the persuasiveness of the evidence presented.’” Aburto 

v. Verizon Cal., Inc., No. 11-CV-03683, 2012 WL 10381, at *2 (C.D. Cal. Jan. 3, 2012) (quoting 

Ellis, 657 F.3d at 982), abrogated on other grounds as recognized by Shiferaw v. Sunrise Sen. 

Living Mgmt., Inc., No. 13-CV-2171, 2014 WL 12585796, at * 24n. 16 (C.D. Cal. June 11, 2014). 

“A party seeking class certification must affirmatively demonstrate [its] compliance with the 

Rule.” Dukes, 564 U.S. at 350. Ultimately, the Court exercises its discretion to determine 

whether a class should be certified. Califano v. Yamasaki, 442 U.S. 682, 703 (1979).

III. DISCUSSION

A. Classwide Applicability of Common Methodology for Measurement of Damages 

Rule 23(b)(3) “requires a court of to find that ‘the questions of law or fact common to class 

members predominate over any questions affecting only individual members.’” Comcast Corp. v. 

Behrend, 569 U.S. 27, 33 (2013) (citation omitted). “Considering whether ‘questions of law or 

fact common to the class members predominate’ begins, of course, with the elements of the 

underlying cause of action.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 810 
4 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

(2011). To establish liability on their Section 10(b) claims, plaintiffs must show economic loss, or 

damages. See id. Accordingly, for the purposes of Rule 23(b)(3), it is plaintiffs’ burden to show 

that common damages issues predominate individual damages issues. Lambert v. Nutraceutical 

Corp., 870 F.3d 1170, 1182 (9th Cir. 2017), cert. granted on other grounds, 138 S. Ct. 2675 

(2018). Lambert affirmed the Ninth Circuit’s longstanding rule that “uncertain damages 

calculations should not defeat certification . . . as long as a valid method has been proposed for 

calculating those damages.”1 See id., at 1182. 

As a preliminary matter, the out-of-pocket, or event study, method is the standard 

measurement of damages in Section 10(b) securities cases. See Affiliated Ute Citizens of Utah v. 

United States, 406 U.S. 128, 155 (1972) (out-of-pocket method is “the correct measure of 

damages” in Exchange Act case); see also, Hatamaian v. Advanced Micro Devices, Inc., No.: 14-

cv-00226, 2016 WL 1042502, at *8 (N.D. Cal. Mar. 16, 2016). Courts regularly reaffirm that the 

out-of-pocket, or event study, method matches plaintiffs’ theory of liability under Section 10(b) of 

the Securities Exchange Act, making it the standard method for calculating damages in virtually 

every Section 10(b) class action. See e.g., In re SanDisk LLC Sec. Litig., 2018 WL 4293336, at *2 

(N.D. Cal. Sept. 4, 2018) (“The out-of-pocket method is widely considered an accepted method 

for the evaluation of materiality damages to a class of stockholders in a defendant corporation.”).2

 1

 Lambert acknowledged and harmonized the change in law worked by Comcast v. 

Behrend, in which the Supreme Court held that class certification required a “rigorous analysis” to 

determine that plaintiffs offer a valid damages model. See Comcast v. Behrend, 569 U.S. 27, 35 

(2013). This stands in contrast to pre-Comcast decisions allowing class certification based on an 

inquiry “limited to whether or not the proposed method is so insubstantial as to amount to no 

method at all.” In re Static Random Access Memory (SRAM) Antitrust Litigation, 264 F.R.D. 603, 

615 (N.D. Cal. 2009). 

2

 See also Angley v. UTI Worldwide Inc., 311 F. Supp. 3d 1117, 1129 n.20 (C.D. Cal. 

2018) (collecting cases); In re Lendingclub Sec. Litig., 282 F. Supp. 3d 1171, 1184 (N.D. Cal. 

2017) (Plaintiffs’ “proposed method—using an event study—is widely accepted for calculating 

damages of a class of stockholders.”); Baker v. SeaWorld Entm’t Inc., 2017 WL 5885542, at *12-

13 (S.D. Cal. Nov. 29, 2017) (rejecting the assertion that “Plaintiffs fail to proffer a class-wide 

method for computing damages” and offer only “a hypothetical damages model” because 

“Plaintiffs contend that they will utilize the standard measures of damages in virtually all Section 

10(b) cases—the out-of-pocket methodology.”); Basile v. Valeant Pharm. Int’l, Inc., 2017 WL 

3641591, at *14 (C.D. Cal. Mar. 15, 2017) (under the out-of-pocket method, “‘the amount of price 
5 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

Defendants aver that plaintiffs’ “failure to describe a specific method is fatal to 

certification because there is no way for the Court to determine whether the proposed 

methodologies will measure damages that are solely attributable to plaintiffs’ theory of liability.” 

(Opp. at 10 (citing Doyle, 663 F. App’x at 579) (internal quotations omitted).) However, in Doyle, 

the Ninth Circuit faulted plaintiffs’ method for calculating damages for failed to “measure only the 

damages that are attributable to the theory of liability.” Here, plaintiffs assert a fraud-on-themarket theory of liability, accordingly, the method proposed by plaintiffs—which is based on an 

economic valuation analyzing the extent to which the disclosure(s), correcting the alleged 

misrepresentations and omissions, caused the price of RH stock to fall—will limit damages to 

those that are attributable to that theory of liability. See Nursing Home Pension Fund v. Oracle 

Corp., 2006 WL 8071391, at *11 n. 4 (N.D. Cal. Dec. 20, 2006) (finding that the out-of-pocket 

method, which “consist[]]s of an event study and analysis of price movement attributable to 

company specific events,” is “[t]he methodology used to calculate damages in fraud-on-the-market 

cases [and] is well-established.”) Moreover, unlike in Doyle, there are no individualized issues 

regarding liability.3 

In support of their second agreement, that plaintiffs’ proposed method does not contain 

anything that “addresses any of the specific of this litigation,” defendants aver that “Dr. Feinstein 

could replace the two referenced to ‘RH’ with the name of another company and come to the 

conclusion that this same general methodology would apply in any other set of circumstances 

involving securities litigation.” (Opp. at 5.) However, this assertion seems to reflect the fact that 

securities fraud cases fit Rule 23 “like a glove,” rather than suggest that class treatment is 

inappropriate. See Epstein, MCA, Inc., 50 F.3d 644, 668 (9th Cir. 1995); see also Booth v. 

Strategic Realty Tr., Inc., 2015 WL 3957746, at *9 (N.D. Cal. June 28, 2015). As noted above, 

plaintiffs’ damages method is specifically tied to plaintiffs’ claims under Section 10(b) and 

 

inflation during the period can be charted and the process of computing individual damages will 

be virtually a mechanical task’” (citing Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975)). 

3

 The Court is unpersuaded by defendants’ argument at the October 1, 2018 hearing that 

this case is much more complicated than those cases in which courts have approved use of a outof-pocket or event theory method of damages calculation. 
6 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

provides for damages equal to the inflation of RH’s stock price that is attributable to the alleged 

misstatements and omissions. 

Finally, defendants’ argument that the plaintiffs’ proposed method fails “to demonstrate 

how one would measure inflation using any ‘standard tools of valuation’ if it cannot be measured 

using an event study” is essentially an assertion that plaintiffs’ method will result in incorrect 

calculations. However, this criticism prematurely addresses the quantification and allocation of 

damages, which courts consistently find are not appropriately raised at the class certification stage. 

Yokoyama v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir. 2010) (“damage 

calculations alone cannot defeat certification”). Additionally, the Ninth Circuit has held that 

plaintiffs are not required to prove their damages with “exact proof” at the certification stage. 

Alaska Rent-A-Car, Inc. v. Avis Budget Grp., Inc., 738 F.3d 960, 970 (9th Cir. 2013). 

Accordingly, the Court finds that plaintiffs have established a common methodology for 

measurement of damages that is applicable classwide. 

B. Adequacy of Proposed Class Representative Arkansas Teacher 

“To determine whether a plaintiff will adequately serve the class, courts consider two 

questions: (1) do the named plaintiffs and their counsel have any conflicts of interest with other 

class members, and (2) will the named plaintiffs and their counsel prosecute the action vigorously 

on behalf of the class?” In re Lendingclub Sec. Litig., 282 F.Supp.3d 1171, 1182 (N.D. Cal. 

2017). Here, it is undisputed that neither lead plaintiff has any conflict with any Class member. 

Defendants’ argument that that the Court should not appoint Arkansas Teacher as a Class Member 

rests entirely on the second factor. (Opp. at 15-17.) Specifically, defendants assert three facts in 

support of their argument that Arkansas Teacher cannot vigorously prosecute the instant action: 

(1) there are only two individuals at Arkansas Teacher who have spent any time on this case; (2) 

Arkansas Teacher had no knowledge of any issues with its RH holdings before being approached 

by Class Counsel; and (3) Chicago Teacher has “apparently taken the laboring oar in supervising 

class counsel.” (Id. at 15-16.) Moreover, defendants point to the fact that Arkansas Teacher is 

currently overseeing eleven securities class actions pending in federal district court. 

As a preliminary matter, defendants fail to identify any deficiencies in Arkansas Teacher’s 
7 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

United States District Court 

Northern District of Californi

a

prosecution in this case. Instead, they essentially argue that Arkansas Teacher is too busy and has 

not had enough involvement to date. Arkansas Teacher has actively participated in this litigation. 

Its deputy director duly prepared as a designee to testify in response to defendants’ Rule 30(b)(6) 

notice, which required testimony on 49 topics, and traveled to San Francisco to do so. The Court 

is unpersuaded, and defendants’ do not provide support for the idea, that the fact that class counsel 

approached Arkansas Teacher has any bearing on its adequacy as a class representative. Finally, 

courts have recognized that multiple securities suits by an institutional investor “evince a 

laudatory zeal to fulfill its fiduciary duties.” Naiditch v. Applied Micro Circuits Corp., 2001 WL 

1659115, at *3 (S.D. Cal. Nov. 5, 2001). Moreover, Arkansas Teacher’s status as an institutional 

investor means that the “5-and-4 cap” in the PSLRA does not apply. In re Extreme Networks Inc. 

Sec. Litig., 2016 WL 3519283, at *7-8 (N. D. Cal. June 28, 2016). Accordingly, the Court finds 

that plaintiffs have established that Arkansas Teacher can adequately represent the Class. 

IV. CONCLUSION

For the reasons discussed above, the Court GRANTS plaintiffs’ motion for class 

certification. 

IT IS SO ORDERED. 

Dated: 

 YVONNE GONZALEZ ROGERS

 UNITED STATES DISTRICT COURT JUDGE

October 11, 2018