Labul v. XPO Logistics, Inc.

          RULING AND ORDER ON MOTIONS TO APPOINT LEAD PLAINTIFF AND LEAD COUNSEL

          Hon. Vanessa L. Bryant United States District Judge

         On 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 Period”).

         Before 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 Group.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. Factual Allegations

         Defendant 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.

         XPO was 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.

         Plaintiff 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. ¶ 7, 14.

         Plaintiff 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. Id.

         Plaintiff 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.

         Plaintiff 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.

         On 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.

         B. Procedural History

         On 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 Cert.)].

         The 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).^[1]

         On 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)].

         On 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].

         Motions 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”) remain.

         On 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)].

         II. STANDARD OF REVIEW

         In a 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).

         In 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).

         The “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 ...