Source: http://de.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180215_0000105.DDE.htm/qx
Timestamp: 2019-04-21 04:48:32+00:00

Document:
ELON MUSK, et al., Defendants, and TESLA, INC., a Delaware corporation, Nominal Defendant.
CHRISTOPHER J. BURKE, UNITED STATES MAGISTRATE JUDGE.
In these related shareholder derivative suits (referred to herein as the "Freeman Action" and the "Arkansas Action, " respectively), presently pending before the Court are competing motions to consolidate the actions, appoint lead plaintiffs, and appoint lead counsel: Plaintiffs Arkansas Teacher Retirement System, Boston Retirement System, Roofers Local 149 Pension Fund, Oklahoma Firefighters Pension and Retirement System, KBC Asset Management NV, ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H., and Stichting Blue Sky Active Large Cap Equity Fund USA's (collectively, the "Arkansas Plaintiffs") Motion for Consolidation and to Appoint Co-Lead Plaintiffs and Co-Lead Counsel ("Arkansas Motion"), (D.I. 14; Arkansas Action, D.I. 10),  and Plaintiffs Francis B. Freeman, Jr. and Marnie Walski McMahon's (together, the "Freeman Plaintiffs") Motion to Consolidate Related Derivative Actions, to Appoint Francis B. Freeman, Jr. and Mamie Walski McMahon as Co-Lead Plaintiffs, and to Appoint Bottini & Bottini, Inc. as Lead Counsel ("Freeman Motion"), (D.I. 19; Arkansas Action, D.I. 16). Both the Arkansas Plaintiffs and Freeman Plaintiffs agree that the actions should be consolidated. (D.I. 16 at 4, 9; D.I. 20 at 1, 7-8) The individual Defendants ("Individual Defendants") and nominal Defendant Tesla, Inc. ("Tesla[, ]" and together with the Individual Defendants, "Defendants") have not filed responses to either motion and presumably take no position on the motions.
For the reasons stated below, the Court GRANTS-IN-PART the Freeman Motion to the extent it seeks consolidation of the Freeman Action and Arkansas Action, DENIES-IN-PART the Freeman Motion to the extent it seeks appointment of the Freeman Plaintiffs as Co-Lead Plaintiffs and Bottini & Bottini, Inc. as Lead Counsel, and GRANTS the Arkansas Motion in its entirety.
On October 19, 2016, after opposition from the other Tesla shareholders, Vice Chancellor Joseph R. Slights III appointed the Arkansas Plaintiffs as co-lead plaintiffs, and Grant & Eisenhofer P.A., Kessler Topaz Melzer & Check, LLP, and Robbins Geller Rudman & Dowd LLP (the same counsel representing the Arkansas Plaintiffs here and who are seeking appointment as Co-Lead Counsel here) as co-lead counsel. (D.I. 16 at 3; see also id, ex. A) The Court of Chancery Action remains ongoing.
On May 4, 2017, the Arkansas Plaintiffs filed the Arkansas Motion in both the Freeman and Arkansas Actions. (D.I. 14; Arkansas Action, D.I. 10) The Freeman Plaintiffs likewise filed their competing motion in both actions on June 2, 2017. (D.I. 19; Arkansas Action, D.I. 16) Briefing on both motions, which the parties handled in a consolidated fashion, was complete on July 14, 2017. (D.I. 33; Arkansas Action, D.I. 30) Both actions have been assigned to the Court and referred to the Court for handling through case-dispositive motions.
As their titles indicate, there are three issues raised in the Freeman Motion and the Arkansas Motion: (1) whether the cases should be consolidated; (2) whether the Freeman Plaintiffs or the Arkansas Plaintiffs should be designated as Co-Lead Plaintiffs; and (3) whether the Freeman Plaintiffs' counsel or the Arkansas Plaintiffs' counsel should be designated Lead Counsel or Co-Lead Counsel. The Court will address these issues in turn.
"If actions before the court involve a common question of law or fact, the court may ... consolidate the actions[.]" Fed.R.Civ.P. 42(a). The Court has broad authority to consolidate actions for trial involving common questions of law or fact if, in its discretion, it finds that such consolidation would "facilitate the administration of justice." Ellerman Lines, Ltd. v. Ail. & Gulf Stevedores, Inc., 339 F.2d 673, 675 (3d Cir. 1964); see also KBC Asset Mgmt. NV ex rel. Chemed Corp. v. McNamara, 78 F.Supp.3d 599, 602-03 (D. Del. 2015); Resnik v. Woertz, 774 F.Supp.2d 614, 624-25 (D. Del. 2011). Although the existence of common questions of law or fact is a prerequisite to consolidation, their presence does not require consolidation pursuant to Federal Rule of Civil Procedure 42(a). Rohm & Haas Co. v. Mobil Oil Corp., 525 F.Supp. 1298, 1309 (D. Del. 1981). Instead, in considering such a motion, the Court must balance any savings of time and effort gained through consolidation against any "inconvenience, delay, or expense" that may result. Id.
For all of these reasons, the Court grants the request for consolidation of the Freeman Action and Arkansas Action for all purposes, including pre-trial proceedings and trial. See, e.g., KBC Asset Mgmt., 78 F.Supp.3d at 603; Resnik, 774 F.Supp.2d at 625.
Federal Rule of Civil Procedure 23.1 (a) provides that a "derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of shareholders ... who are similarly situated in enforcing the right of the corporation[.]" Fed.R.Civ.P. 23.1(a). Here, there is no question that the competing Plaintiffs will "fairly and adequately" represent the shareholders' interests. The question instead is whether to appoint lead plaintiffs, and if so, which Plaintiffs will best represent shareholder interests.
1. Should the Court Appoint Lead Plaintiffs?
Although no statutory authority exists for the appointment of a lead plaintiff in shareholder derivative actions like these, courts have the inherent "authority to appoint a lead plaintiff... in a derivative action in order to create an efficient case-management structure." N. Miami Beach Gen. Emps. Ret. Fund v. Parkinson, No. 10 C 6514, 2011 WL 12465137, at * 1-2 (N.D. Ill. July 5, 2011) (appointing a lead plaintiff and lead counsel to avoid "the potential for disagreements and inefficiencies"); see also Horn v. Raines, 227 F.R.D. 1, 3 (D.D.C. 2005) (appointing, inter alia, a lead plaintiff in derivative actions, as it was "necessary to provide for an, orderly litigation"). Here, although there are only two derivative actions at issue in this Court and only two competing sets of Plaintiffs, the Court finds that appointing a singular group of co-lead plaintiffs (and, relatedly, appointing lead counsel) would be beneficial. While both of these federal actions are at the same early procedural posture, both groups of Plaintiffs acknowledge that their respective pre-trial and trial strategies might diverge. (D.I. 20 at 17; D.I. 24 at 13; D.I. 33 at 1) And the briefing here also indicates that both sets of Plaintiffs have not been of like mind on issues relating to these motions. Appointing co-lead plaintiffs in this instance would help to create "an efficient, streamlined structure for directing this litigation" that avoids any delays or inefficiencies resulting from disagreement over divergent viewpoints. KBC Asset Mgmt, 78 F.Supp.3d at 603; see also Lieblein ex rel. W. Union Co. v. Ersek, Civil Action No. 14-cv-00144-MSK-KLM, 2015 WL 73815, at *1 (D. Colo. Jan. 5, 2015) (finding that designating a lead plaintiff in a shareholder derivative action would avoid the "unnecessary duplication" of efforts that would result from allowing each named plaintiff to proceed on behalf of the same shareholders).
2. Which Set of Competing Lead Plaintiffs Will Best Represent Shareholder Interests?
Next, the Court assesses which set of Plaintiffs should be chosen as lead plaintiffs. First, it will examine the question of which factors the Court should utilize in making that decision. Thereafter, it will go on to address relevant factors suggested by the parties.
a. What Factors Should the Court Utilize?
In KBC Asset Mgmt. NV ex rel. Chemed Corp. v. McNamara, 78 F.Supp.3d 599 (D. Del. 2015), a matter that was at a similar procedural posture as are the instant cases, the Court considered the following five factors when designating lead plaintiffs in consolidated shareholder derivative actions: "(1) which plaintiff has the largest financial interest; (2) the preference for institutional investors to lead a lawsuit for shareholders; (3) the quality of the pleadings; (4) the vigor with which the plaintiff has pursued the suit; and (5) the plaintiffs arrangement on the payment of attorney's fees." KBC Asset Mgmt., 78 F.Supp.3d at 604. The Court considered these factors in KBC Asset Mgmt. because: (1) a number of other federal courts had considered the same five factors in similar cases, see, e.g., Berg ex rel. Intuitive Surgical, Inc. v. Guthart, Case Nos. 5:14-CV-00515-EJD, 5:14-CV-01307-EJD, 2014 WL 3749780, at *4-7 (N.D. Cal. July 30, 2014); N. Miami Beach, 2011 WL 12465137, at *1; Dollens ex rel. Westell Techs., Inc. v. Zionts, Nos. 01 C 5931, 01 C 2826, 2001 WL 1543524, at *5-6 (N.D. Ill.Dec. 4, 2001); and (2) both sets of competing co-lead plaintiffs in the case specifically addressed the applicability of these five factors in their briefing, see KBC Asset Mgmt., 78 F.Supp.3d at 604.
The five KBC Asset Mgmt. factors are surely relevant to the question at hand, and so the Court will consider them first here. But nowhere in KBC Asset Mgmt. did the Court state that the five factors considered there were the only factors that might bear on this inquiry. If there are other factors raised that are relevant to determining which of a competing set of potential lead plaintiffs would best represent shareholders in consolidated derivative actions, then the Court should consider them. See Berg, 2014 WL 3749780, at *4-5; Nicolow v. Hewlett Packard Co., No. 12-05980 CRB, 2013 WL 792642, at *7-8 (N.D. Cal. Mar. 4, 2013).

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