Court: District Court, E.D. New York; June 25, 2018; Federal District Court
A putative class action has been initiated by the City of Warren Police and Fire Retirement System on behalf of investors who purchased Foot Locker, Inc. securities from August 19, 2016, to August 17, 2017. The claims are filed under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Foot Locker and its executives, including CEO Richard A. Johnson and CFO Lauren B. Peters. The court is currently considering an unopposed motion from New England Carpenters Guaranteed Annuity and Pension Funds for appointment as Lead Plaintiff, alongside other competing motions, three of which have been withdrawn, with only one remaining motion not opposed. The Funds' motion is granted, and Robbins Geller Rudman & Dowd LLP is appointed as Lead Counsel.
The complaint, filed on March 9, 2018, alleges that Foot Locker issued misleading financial statements and press releases on August 19, 2016, November 18, 2016, and February 24, 2017, falsely portraying the company's performance and prospects. It is claimed that the defendants failed to disclose significant adverse factors affecting the business, such as a shift to online retail and increased competition, which rendered their positive statements misleading. Following a disappointing financial report on May 19, 2017, which revealed stagnant revenue and declining profits, Foot Locker's stock price fell sharply from $70.45 to $58.72 per share.
On August 18, 2017, Foot Locker announced a 4.4% decline in second-quarter revenues, reporting $1.7 billion compared to $1.78 billion in 2016. Profits fell to $0.39 per share, significantly below the expected $0.90 and the $0.94 from the previous year. The company disclosed plans to close approximately 130 stores, exceeding the previously announced 100 closures, and anticipated weaker sales for the remainder of 2017, projecting same store sales down by 3% to 4%. Following this announcement, Foot Locker’s stock price plummeted from $47.70 to $34.38 per share.
The Complaint alleges violations of Section 10(b) and Rule 10b-5 of the Exchange Act, as well as Section 20(a) of the Exchange Act. On May 8, 2018, five motions were filed to appoint a Lead Plaintiff and designate Lead Class Counsel; three motions were withdrawn, leaving the Funds' motion unopposed. The PSLRA mandates that a plaintiff publish a notice about the action, which was completed via Business Wire on March 9, 2018. The 60-day window for class members to apply for lead plaintiff status closed on May 8, 2018, making the Funds' motion timely. The PSLRA also requires the Court to appoint the "most adequate plaintiff," presumed to be the party with the largest financial interest and who meets Rule 23 requirements.
A plaintiff presumed adequate under the Private Securities Litigation Reform Act (PSLRA) can only be challenged by demonstrating that they cannot fairly protect the class's interests or are subject to unique defenses. Even if unopposed, the Court must assess the adequacy of the movant as the lead plaintiff. The Court evaluates competing plaintiffs based on four financial factors: total shares purchased, net shares purchased, net funds expended, and approximate losses suffered, with the latter being the most critical. In this case, the Funds demonstrated the largest financial interest, reporting losses of $2,034,806.60, having purchased 102,327 shares and expended a net amount of $3,238,868.26. In contrast, Integral Capital had losses of $227,902.91 with a net expenditure of $470,475.51; Kazan had losses of $15,796.32 and a net expenditure of $43,146.22; and Boilermaker suffered losses of $776,860.54 with a net expenditure of $1,576,061.03. Overall, the Funds' financial metrics significantly surpassed those of the other parties.
Rosenberg incurred losses of $16,037 from purchasing 550 shares, with a net expenditure of $34,863, despite selling 200 shares after the class period. His financial metrics surpass those of Integral Capital and other applicants who have withdrawn their lead plaintiff motions, leading the Court to determine that the Funds have the largest financial interest in the class relief sought. Under Rule 23, the Court assesses whether the proposed lead plaintiff meets the requirements of typicality and adequacy. Typicality is established when claims arise from the same events and involve similar legal arguments, which is applicable here as all class members' claims stem from the same statements and omissions. The adequacy requirement is met as the class counsel, Robbins Geller, is qualified and experienced, class members’ interests are aligned, and there is a strong interest in the case's outcome. Thus, the Funds are deemed suitable for the role of lead plaintiff.
The interests of the Funds align with those of other class members in this class action lawsuit concerning alleged violations of the Exchange Act. All class members base their claims on the same misleading statements or omissions, which resulted in financial losses linked to a decline in share value following specific statements. LACERS' claims are similar to those of the proposed class, stemming from reliance on these allegedly false statements during the purchase of Gentiva shares. There is no indication that LACERS' claims are significantly distinct from others in the class. The Funds have reported losses exceeding $2 million, indicating a substantial financial interest in the case, which suggests a strong commitment to pursuing the matter vigorously.
Under the Private Securities Litigation Reform Act (PSLRA), the most adequate plaintiff is tasked with selecting and retaining counsel for the class, subject to court approval. The Funds have chosen Robbins Geller, a firm experienced in securities class action litigation and previously appointed as Lead Counsel in similar cases. The court supports this selection, appointing Robbins Geller as Lead Class Counsel.
The court concludes by appointing the New England Carpenters Guaranteed Annuity and Pension Funds as Lead Plaintiff and Robbins Geller as Lead Class Counsel, while denying the motion from Integral Capital and other similar motions due to their withdrawal. The net funds expended by the Funds during the class period were calculated by subtracting the proceeds from shares sold from the total spent on purchasing shares.
