Monday, December 05, 2016

Plaintiff with axe to grind not suitable to be lead

By Rodney F. Tonkovic, J.D.

A district court denied a plaintiff's motion to be appointed lead plaintiff in a fraud class action. According to the court, the plaintiff who, among other actions, emailed company executives promising to "take all your asses down" would not be an adequate class representative. While the plaintiff's anger at those who he believed defrauded him was understandable, it raised a serious risk that he would be unable to act in the best interest of the class (Finocchiaro v. NQ Mobile, Inc., December 1, 2016, Buchwald, N.).

This securities fraud action was brought on behalf of investors in NQ Mobile, Inc. The complaint claims that the investors suffered losses as a result of NQ Mobile's fraudulent misrepresentations and omissions made in violation of the antifraud provisions of the Exchange Act.

Daniel Finocchiaro moved to be appointed lead plaintiff and also sought the appointment of co-lead counsel. No other plaintiffs filed their own motions, nor did any object to Finocchiaro's motions. There were, however, at least five other eligible alternative lead plaintiffs available if Finocchiaro was deemed unfit. NQ Mobile opposed both of Finocchiaro's motions.

Grudge poses a risk. NQ Mobile first challenged the sufficiency of the notice published by plaintiffs' counsel. The company argued that the notice provided the wrong deadline by which motions to serve as lead plaintiff were due and that the notice itself was published in only one issue of the Wall Street Journal’s print edition in an extremely small font. The court found that the error as to the deadline date was harmless and immaterial. Also, the single notice in the WSJ was sufficient under the statute, and, while small, the notice contained the required information.

Next, the court found that the undisputed evidence showed that Finocchiaro sent a number of highly profane and aggressive emails to NQ Mobile executives. In these emails, Finocchiaro vowed, among other statements, to "take all your asses down" and to "go to the end of the earth to ensure you feel the pain you’ve inflicted on me." Further, Finocchiaro published false information about NQ Mobile on a website and then sent that information to a Bloomberg reporter. He also used a fake name and email address to communicate with NQ Mobile representatives after filing the complaint. Finocchiaro's anger was understandable, the court said, but his grudge raised a serious risk that he would not act in the class's best interests when negotiating with the defendants, and his motion was denied.

The court then denied Finocchiaro's motion for the appointment of co-lead counsel. NQ Mobile argued that the firms made numerous errors in the litigation showing both an inability to comply with the applicable rules and a lack of securities class action experience. The court, however, did not find the counsels' technical and procedural errors to be disqualifying and noted that they did, in fact, have some relevant experience coupled with "impressive legal credentials." Ultimately, however, the papers in support of Finocchiaro's motion failed to explain why the appointment of two firms was justified. The court denied the motion without prejudice and invited any plaintiff moving to be appointed lead plaintiff to explain why two firms are warranted.

The case is No. 15-cv-6385.