United States District Court, D. Connecticut
LARRY LABUL, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
XPO LOGISTICS, INC., BRADLEY S. JACOBS, JOHN J. HARDIG, Defendants.
RULING AND ORDER ON MOTIONS TO APPOINT LEAD PLAINTIFF
AND LEAD COUNSEL
Vanessa L. Bryant United States District Judge
December 14, 2018, Larry Labul (“Plaintiff” or
“Mr. Labul”) sued XPO Logistics, Inc.
(“XPO”), Bradley S. Jacobs, and John J. Hardig
(“Defendants”), alleging that Defendants
defrauded investors in violation of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 (“Exchange
Act”), 15 U.S.C. §78j(b) and 15 U.S.C. §
78t(a). [Dkt. 1 (Compl.)]. Plaintiff brought the action on
behalf of himself and all others who purchased or otherwise
acquired XPO securities between February 26, 2014 and
December 12, 2018, inclusive (the “Class
the Court now are competing motions for appointment as lead
plaintiff and approval of lead counsel. For the reasons set
forth below, the Court GRANTS the motion of the Pension Funds
for appointment as lead plaintiff, [Dkt. 31], APPROVES its
selection of Robbins Geller as lead counsel for the class,
and DENIES AS MOOT the motions by Bradley Cooper, Riviera
Beach Police Pension Fund, Local 464A, and XPO Investor
FACTUAL AND PROCEDURAL BACKGROUND
XPO is a corporation that provides transportation and
logistics services to customers in various industries in the
United States and internationally. [Dkt. 1 (Compl.) ¶
15, 20]. XPO's stock trade on the New York Stock Exchange
(“NYSE”) under the ticker symbol
“XPO.” Id. ¶ 2, 15.
formerly known as Express-1 Expedited Solutions, Inc.
(“Express-1”). On September 2, 2011, Defendant
Bradley Jacobs, through Jacobs Private Equity, LLC, acquired
a 71% ownership interest in Express-1, and became Chairman of
the Board of Directors and Chief Executive Officer
(“CEO”) and renamed the company “XPO
Logistics, Inc.” Id. ¶ 3, 21. Since that
time, XPO has allegedly pursued an aggressive mergers and
acquisitions (“M&A”) strategy, completing
seventeen acquisitions and deploying $6.1 billion of capital.
Id. ¶¶ 3, 5, 21, 23. On August 2, 2017,
Jacobs announced plans to earmark up to $8 billion for
additional acquisitions. Defendant John Hardig served as
Chief Financial Officer (“CFO”) of XPO during all
relevant times. Id. ¶ 17.
acquired XPO common stock allegedly at artificially inflated
prices during the Class Period. [Dkt. 1 ¶ 14]. He claims
the stock he owned lost value and caused him damage when a
report revealed the untruth of XPO's representations as
to its financial stability and success. Id. ¶
alleges that, throughout the Class Period, Defendant XPO made
materially false and misleading statements regarding its
business, operational and compliance policies. Id.
¶ 6. He alleges that the Individual Defendants, Jacobs
and Hardig, controlled the contents of XPO's SEC filings,
press releases, and other market communications which
Plaintiff alleges were misleading. Id. ¶ 19. He
further alleges that Defendants Jacobs and Hardig knew that
the representations XPO made were materially false and
misleading and that adverse facts were not being disclosed.
alleges the beginning of the Class Period on February 23,
2015, when XPO filed an Annual Report Form 10-K with the SEC,
reporting a net loss of $63.6 million, or $2.00 per diluted
share, on revenue of $2.36 billion for 2014, compared to a
net loss of $48.53 million, or $2.26 per diluted share, on
revenue of $702.3 million for 2013. Id. ¶ 24.
It also reported its debt obligations and estimated future
amortization expense for amortizable assets for the next five
years. Id. ¶ 26-27. On February 29, 2016, XPO
filed an Annual Report on Form 10-K with the SEC, reporting a
net loss of $191.1 million, or $2.65 per diluted share, on
revenue of $7.62 billion in 2015. Id. ¶ 29. It
again reported its debt obligations and estimated future
amortization expense for amortizable assets for the next five
years. Id. ¶ 30-31. XPO filed Annual Reports
with the SEC for 2016 and 2017 as well. For 2016, XPO
reported net income of $69 million, or $0.53 per diluted
share, on revenue of $14.62 billion. Id. ¶ 33.
For 2017, XPO reported a net income of $340.2 million, or
$2.45 per diluted share, on revenue of $15.38 billion.
Id. ¶ 37.
alleges that the statements in XPO's 10-Ks were
materially false and misleading and failed to disclose that:
“(i) XPO's highly touted aggressive M&A
strategy had yielded only minimal returns to the Company;
(ii) XPO was utilizing improper accounting practices to mask
its true financial condition, including inter alia,
underreporting of bad debts and aggressive amortization
assumptions; and (iii) as a result, the Company's public
statements were materially false and misleading.”
Id. ¶ 41.
December 12, 2018, Spruce Point Capital Management
(“Spruce Point”) published a report regarding XPO
entitled “Trucking Ridiculous; End of the Road.”
Id. ¶ 42. It reported that a forensic
investigation revealed financial irregularities covering up
XPO's growing financial strain and inability to complete
acquisition plans. Id. ¶ 7, 42. The Spruce
Point report stated that it had uncovered “concrete
evidence to suggest dubious tax accounting, under-reporting
of bad debts, phantom income through unaccountable M&A
earn-out labilities, and aggressive amortization assumptions:
all designed to portray glowing ‘Non-GAAP'
results.” Id. ¶ 42. It further reported
that “XPO insiders have aggressively reduced their
ownership interest in the Company since coming public, and
recently enacted a new compensation structure tied to
‘Adjusted Cash Flow Per Share' - defined in such a
non-standard way that it is practically meaningless.”
Id. ¶ 7. The report concluded, “[i]n our
opinion, XPO has used a nearly identical playbook from URI
leading up to its SEC investigation, executive felony
convictions, and share price collapse.” Id.
Publication of the report was followed by the decline of
XPO's stock price by 26.17%. Id. ¶ 44.
December 14, 2018, Plaintiff Larry Labul filed this action on
behalf of all persons and entities who purchased or otherwise
acquired XPO securities between February 26, 2014 and
December 12, 2018, seeking to recover damages caused by
Defendants' alleged violations of federal securities laws
and to pursue remedies under Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder, against
XPO and the Individual Defendants. [Dkt. 1 ¶ 1].
Plaintiff Labul attached to the Complaint a certification, as
required by federal securities law, in which he listed his
transactions in XPO securities and stating that he is
“willing to serve as a representative party on behalf
of a Class of investors who purchased or acquired XPO
securities during the class period.” [Dkt. 1-1 (Labul
same day, Plaintiff published notice of the action, as
required by the PSLRA, 15 U.S.C. § 78u-4(a)(3)(A)(i), in
MarketWatch, advising members of the purported class
of the pendency of the action, the claims therein, the
purported class period, and that the deadline to file a
motion to serve as lead plaintiff was February 12, 2019.
See Pomerantz Law Firm Announces the Filing of a Class
Action against XPO Logistics, Inc. and Certain Officers -
XPO, MarketWatch (Dec. 14, 2018).
February 11, 2019, the parties filed a joint stipulation
seeking approval of the Court to extend certain deadlines.
[Dkt. 18 (Joint Stipulation)]. In doing so, counsel for
Defendants accepted service of the summons and Complaint on
behalf of Defendants and waived any defense as to the
sufficiency of service of process. Id. at 2. The
parties requested that the Court-appointed lead plaintiff
have sixty days after appointment to file an amended or
consolidated complaint or to designate the original Complaint
as the operative complaint and that Defendants then have
sixty days to answer, move against, or otherwise respond to
the operative complaint. Id. at 3. On March 7, 2019,
the Court approved the requested deadlines and specified that
the lead plaintiff would have twenty-one days to oppose a
responsive motion and Defendants would have fourteen days to
file a reply. See [Dkt. 66 (Mar. 7, 2019 Order)].
February 12, 2019, six putative plaintiffs moved for
appointment as lead plaintiff and for appointment of their
counsel as lead counsel. See [Dkt. 20 (Cooper Mot.
for Appointment); Dkt. 23 (Paraskeva Mot. for Appointment);
Dkt. 27 (Riviera Beach Police Pension Fund Mot. for
Appointment); Dkt. 21 (IBT Pension Funds Mot. for
Appointment); Dkt. 33 (Trustees of Local 646A United Food and
Commercial Workers Fund Mot. for Appointment); Dkt. 36 (XPO
Investor Grp. Mot. for Appointment)]. As competing motions
were filed, one party withdrew her motion recognizing that
other parties had a greater financial stake in the action.
See [Dkt. 42 (Paraskeva Withdrawal)]. Three others
filed notices of non-opposition to the competing motions in
recognition of the fact that other parties had a greater
stake, see [Dkt. 43 (XPO Investors Grp. Notice of
Non-Opp'n); Dkt. 58 (Cooper Notice of Non-Opp'n);
Dkt. 78 Riviera Beach Police Pension Fund Notice of
Non-Opp'n)], with Mr. Cooper and Riviera Beach Police
Pension Fund expressing their continued willingness and
ability to serve as lead plaintiff or class representative
should the Court determine that the other lead plaintiff
movants with larger losses are not appropriate class
representatives. See [Dkt. 58 at 2; Dkt. 78 at 2].
for appointment as lead plaintiff by Local 817 IBT Pension
Fund, Local 272 Labor-Management Pension Fund, and Local 282
Pension Trust Fund and Local 282 Welfare Trust Fund (the
“Pension Funds”) and the Trustees of Local 464A
Funds United Food and Commercial Workers Union Pension Fun
and Local 464A United Food and Commercial Workers Union
Welfare Service Benefit Fund (“Local 646A”)
February 27, 2019, Defendants XPO and Jacobs filed a Notice
of Relevant Information Concerning the Appointment of Lead
Plaintiff and Counsel, advising the Court that they believed
lead plaintiff movant, the Pension Funds, “implicates a
significant issue that warrants careful consideration at this
time.” [Dkt. 47 (Defs.' Notice) at 1-2]. The Notice
explained an alleged ongoing effort by the International
Brotherhood of Teamsters (the “Teamsters”) to
unionize XPO facilities and a lawsuit pending in Illinois
state court against the Teamsters concerning trespass at an
XPO facility near Chicago. Id. The Pension Funds
filed additional memoranda in response to Defendants'
Notice and in further support of their motion for
appointment. See [Dkt. 59 (Pension Funds'
Opp'n to Competing Mots.); Dkt. 72 (Pension Funds'
Reply to Defs.' Notice); Dkt. 75 (Pension Funds'
Reply in support of Mot. for Appointment)]. Local 464A also
filed opposition and reply memoranda in support of its motion
for appointment. See [Dkt. 60 (Local 464A Opp'n
to Competing Mots.); Dkt. 74 (Local 464A Reply in support of
Mot. for Appointment)].
STANDARD OF REVIEW
Private Securities Litigation Reform Act
(“PSLRA”) class action brought under 15 U.S.C.
§ 78u-4, a district court must “consider any
motion made by a purported class member in response to the
notice, including any motion by a class member who is not
individually named as a plaintiff in the complaint or
complaints, 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
interests of class members” within ninety days of
publication of early notice of the action. Id.
§ 78u-4(a)(3)(B)(i); see also China Agritech, Inc.
v. Resh, 138 S.Ct. 1800, 1812 (2018) (“The PSLRA
thus contemplates a process by which all prospective class
representatives come forward in the first-filed class action
and make their arguments to the court for lead-plaintiff
status.”) (citations omitted).
making this appointment, “the court shall adopt a
presumption that the most adequate plaintiff . . . is the
person or group of persons that-(aa) has either filed the
complaint or made a motion [to be appointed lead plaintiff];
(bb) in the determination of the court, has the largest
financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the
Federal Rules of Civil Procedure.” 15 U.S.C. §
78u-4(a)(3)(B)(iii)(I). A member of the purported plaintiff
class may rebut the presumption by offering evidence 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. § 78u-4(a)(3)(B)(iii)(II).
“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 Court
approves or disapproves the lead plaintiff's choice of
counsel, deferring to the lead plaintiff's preference.
In re Host Am. Corp. Sec. Litig., 236 ...