Ali v. Franklin Wireless Corp.

1

2

3

4

5

6

7

8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

10

11 MOHAMMED USMAN ALI, Case No.: 3:21-cv-00687-AJB-MSB

individually and on behalf of all others

12

similarly situated,

13 ORDER GRANTING MOTION FOR

Plaintiff, CLASS CERTIFICATION

14

15 v. (Doc. No. 41)

16

FRANKLIN WIRELESS CORP., OC

17 KIM, and DAVID BROWN,

18

Defendants.

19

20 Before the Court is Lead Plaintiff Gergely Csaba’s (“Lead Plaintiff”) Motion for

21 Class Certification. (Doc. No. 41.) Defendants Franklin Wireless Corporation (“Franklin”

22 or the “Company”), O.C. Kim, and David Brown (collectively “Defendants”) filed an

23 opposition, to which Lead Plaintiff replied. (Doc. Nos. 47, 48.) For the reasons set forth

24 below, the Court GRANTS Lead Plaintiff’s motion.

25 I. BACKGROUND

26 On April 16, 2021, Mohammed Usman Ali filed a Class Action Complaint against

27 Defendants for violations of the Securities Exchange Act of 1934 (the “Exchange Act”).

28 On September 15, 2021, the Court appointed Gergely Csaba as Lead Plaintiff and

1 Pomerantz LLP (“Pomerantz”) as Lead Counsel pursuant to section 21D(a)(3)(B) of the

2 Exchange Act.

3 The operative pleading in this case is the Amended Complaint (“FAC”). (Doc. No.

4 26.) The FAC details that Franklin is a provider of wireless solutions, including mobile

5 hotspots, routers and modems, and markets and sells its products directly to wireless

6 operators, as well as indirectly through partners and distributors. (Id. at 5.) According to

7 the FAC, Defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule

8 10b-5 promulgated thereunder by misleading the market to believe that the Company had

9 no knowledge that its mobile hotspot devices were manufactured with defective lithium-ion

10 batteries. (Id.) The FAC alleges that during the class period, Franklin knew, but did not

11 disclose that the hotspot devices were manufactured with defective lithium-ion batteries

12 that posed a serious safety hazard because the batteries could overheat and cause severe

13 burns and, in some cases, catch fire. (Id. at 5, 11–18.) Defendants filed an Answer, and

14 Lead Plaintiff now seeks class certification. (Doc. Nos. 27, 41).

15 II. LEGAL STANDARD

16 A plaintiff seeking to represent a class must satisfy the threshold requirements of

17 Rule 23(a) as well as the requirements for certification under one of the subsections of Rule

18 23(b). Rule 23(a) provides that a case is appropriate for certification as a class action if:

19 “(1) the class is so numerous that joinder of all members is impracticable; (2) there are

20 questions of law or fact common to the class; (3) the claims or defenses of the

21 representative parties are typical of the claims or defenses of the class; and (4) the

22 representative parties will fairly and adequately protect the interests of the class.” Fed. R.

23 Civ. P. 23(a). “In addition to meeting the conditions imposed by Rule 23(a), the party

24 seeking class certification must also show that the action is appropriate under Rule

25 23(b)(1), (2) or (3).” Astiana v. Kashi Co., 291 F.R.D. 493, 503 (S.D. Cal. 2013) (citing

26 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614 (1997)).

27 The plaintiff bears the burden of demonstrating that each element of Rule 23 is

28 satisfied, and a district court may certify a class only if it determines the plaintiff has carried

1 his or her burden. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 158–61

2 (1982); Doninger v. Pac. Nw. Bell, Inc., 564 F.2d 1304, 1308 (9th Cir. 1977).1 The court

3 must conduct a “rigorous analysis,” which may require it “to probe behind the pleadings

4 before coming to rest on the certification question.” Wal-Mart Stores, Inc. v. Dukes, 564

5 U.S. 338, 350 (2011). Ultimately, the class certification determination is committed to the

6 court’s discretion. See Loc. Joint Exec. Bd. of Culinary/Bartender Tr. Fund v. Las Vegas

7 Sands, Inc., 244 F.3d 1152, 1161 (9th Cir. 2001).

8 III. DISCUSSION

9 Lead Plaintiff seeks to certify the following class:

10

All persons and entities other than defendants who purchased or otherwise

11 acquired Franklin Wireless Corporation (“Franklin” or the “Company”)

12 common stock between September 17, 2020 and April 8, 2021 (the “Class

Period”), inclusive. Excluded from the Class are any parties who are or have

13 been Defendants in this litigation, the present and former officers and

14 directors of Franklin and any subsidiary thereof, members of their immediate

families and their legal representatives, heirs, successors or assigns and any

15 entity in which any current or former Defendant has or had a controlling

16 interest.

17 (Doc. Nos. 26 at 4, 41 at 10.) Apart from focusing solely on the numerosity requirement

18 under Rule 23(a)(1), Defendants do not meaningfully dispute that Lead Plaintiff’s proposed

19 class meets the Rule 23 standards. (Doc. No. 47 at 6–8.) The Court, however, will

20 nevertheless independently evaluate whether Lead Plaintiff has met each prerequisite to

21 certification. See Gen. Tel., 457 U.S. at 161 (class actions “may only be certified if the trial

22 court is satisfied, after a rigorous analysis, that the prerequisites” have been satisfied).

23 A. Rule 23(a) Requirements

24 Rule 23(a) sets forth four requirements for class certification: (1) numerosity; (2)

25 commonality; (3) typicality; and (4) adequacy of representation. Fed. R. Civ. P. 23(a). The

26 Court considers each in turn.

27

28

1 1. Numerosity

2 Rule 23(a)(1) requires the proposed class to be “so numerous that joinder of all

3 members is impracticable[.]” Fed. R. Civ. P. 23(a)(1). “‘[I]mpracticability’ does not mean

4 ‘impossibility’”; rather, the inquiry focuses on the “difficulty or inconvenience of joining

5 all members of the class.” Harris v. Palm Springs Alpine Ests., Inc., 329 F.2d 909, 913–14

6 (9th Cir. 1964). “As a general matter, courts have found that numerosity is satisfied when

7 class size exceeds 40 members, but not satisfied when membership dips below 21.” Slaven

8 v. BP Am., Inc., 190 F.R.D. 649, 654 (C.D. Cal. 2000). In determining whether numerosity

9 is satisfied, the court may draw reasonable inferences from the facts before it. See Gay v.

10 Waiters’ & Dairy Lunchmen’s Union, 549 F.2d 1330, 1332 n.5 (9th Cir. 1977); Astiana,

11 291 F.R.D. at 501.

12 According to Lead Plaintiff, “a total of 2,172,392 million shares of Franklin Wireless

13 Common Stock was traded by investors” on the NASDAQ during the class period. (Doc.

14 No. 41-2 at 10.) Because Franklin has millions of shares trading on a national exchange,

15 Lead Plaintiff argues, the Court may infer that numerosity is met. Lead Plaintiff further

16 asserts there are thousands of geographically dispersed members of the proposed class,

17 whose identities can be readily ascertained from securities brokerage and nominee firms’

18 books and records.

19 Defendants contend that numerosity is not met because “Franklin knows of fewer

20 than 1000 beneficial shareholders in the public market” and that such number “is a far cry”

21 from the thousands of class members Lead Plaintiff believes exist. (Doc. No. 47 at 6.)

22 Defendants also argue that Lead Plaintiff has not shown that joinder would be

23 impracticable. These arguments are unavailing.

24 As Defendants concede in their brief, numerosity is generally presumed to be met in

25 classes of at least 40 members, and in securities cases where millions of shares are traded

26 during the proposed class period. Defendants make no argument that the proposed class

27 number fewer than 40. (See id. at 6 (arguing only that there are likely less than 1,000

28 members).) Indeed, Defendants’ briefing indicates there are at least 478 members—more

1 than enough to meet the numerosity requirement. Slaven, 190 F.R.D. at 654 (“numerosity

2 is satisfied when class size exceeds 40 members”).

3 Defendants have also not rebutted Lead Plaintiff’s showing that Franklin had over 2

4 million shares trading on the NASDAQ during the class period. Consequently, the

5 presumption of numerosity based on the numbers of nationally traded shares also apply in

6 this case. See In re Twitter Inc. Sec. Litig., 326 F.R.D. 619, 626 (N.D. Cal. 2018) (“The

7 Court certainly may infer that, when a corporation has millions of shares trading on a

8 national exchange, the numerosity requirement is met.”).

9 In support of their arguments against a finding of numerosity, Defendants cite

10 Anderson v. Weinert Enters., 986 F.3d 773 (7th Cir. 2021). (Doc. No. 47 at 6–7.) Anderson,

11 however, is not binding on this Court, and in any event, readily distinguishable from this

12 case. In Anderson, the Seventh Circuit Court of Appeals affirmed a district court’s finding

13 that numerosity was not satisfied where the proposed class “include[d] no more than 37

14 members” and “joinder of those 37 members was not impracticable.” 986 F.3d at 775.

15 Here, as previously mentioned, Defendants themselves indicate there are at least

16 over 400 members. And as to the impracticability of joinder, there is no indication that an

17 overwhelming majority of the proposed class lives within a 50-mile radius of the presiding

18 court—as was the case in Anderson. See 986 F.3d at 777 (“All but two of the class members

19 lived within a 50-mile radius of the courthouse in the Eastern District of Wisconsin where

20 Anderson filed suit.”) The Court agrees with Lead Plaintiff that considering Franklin’s

21 securities are traded on the NASDAQ to class members residing across the globe, it can

22 reasonably infer that they do not all live within a 50-mile radius of San Diego, California.

23 In further support of the inference, Lead Plaintiff lives in Hungary and movants Jack and

24 Barbara Pape live in Arizona.

25 Accordingly, for the reasons stated and drawing reasonable inferences from Lead

26 Plaintiff’s assertions, the Court finds he has satisfied the requirement of numerosity. See

27 Gay, 549 F.2d at 1332 n.5; Astiana, 291 F.R.D. at 501.

28

1 2. Commonality

2 Rule 23(a)(2) requires there be “questions of law or fact common to the class[.]”

3 Fed. R. Civ. P. 23(a)(2). Commonality is satisfied where claims “depend upon a common

4 contention of such a nature that it is capable of classwide resolution—which means that

5 determination of its truth or falsity will resolve an issue that is central to the validity of

6 each one of the claims in one stroke.” Dukes, 564 U.S. at 350. The plaintiff’s burden for

7 showing commonality is “minimal.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th

8 Cir. 1998), overruled on other grounds by id. at 338. Accordingly, “[t]he existence of

9 shared legal issues with divergent factual predicates is sufficient, as is a common core of

10 salient facts coupled with disparate legal remedies within the class.” Id. at 1019.

11 Here, Lead Plaintiff asserts that there are many common factual and legal questions

12 in this case, including:

13 (i) Whether federal securities laws were violated by Defendants’ conduct as

alleged;

14

(ii) Whether Defendants made any untrue statements of material fact or

15 omitted to state any material facts necessary to make statements made, in light

of the circumstances under which they were made, not misleading;

16

(iii) Whether Franklin and the Individual Defendants acted with the requisite

17 level of scienter under Section 10(b) of the Exchange Act;

(iv) Whether the Individual Defendants were controlling persons of the

18

Company under Section 20(a) of the Exchange Act;

19 (v) Whether and to what extent the prices of Franklin common stock shares

were artificially inflated during the Class Period due to the alleged false and

20

misleading statements or omissions;

21 (vi) Whether reliance is presumed under the fraud-on-the-market doctrine;

and

22

(vii) Whether Lead Plaintiff and other members of the Class suffered

23 damages, as well as the appropriate measure thereof.

24 (Doc. No. 41 at 16.) Defendants offer no argument to the contrary.

25 It is clear this case meets Rule 23(a)(2)’s minimum requirement that there be “even

26 a single common question.” Dukes, 564 U.S. at 359. As the above listed questions are core

27 factual and legal issues common to the class, the Court finds Lead Plaintiff’s proposed

28 class satisfies the commonality requirement.

1 3. Typicality

2 Rule 23(a)(3)’s typicality requirement provides that “a class representative must be

3 part of the class and possess the same interest and suffer the same injury as the class

4 members.” Gen. Tel., 457 U.S. at 156 (quoting E. Tex. Motor Freight Sys., Inc. v.

5 Rodriguez, 431 U.S. 395, 403 (1977)). The purpose of the requirement is “to assure that

6 the interest of the named representative aligns with the interests of the class.” Hanon v.

7 Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992). “[T]he typicality requirement is

8 ‘permissive’ and requires only that the representative’s claims are ‘reasonably co-extensive

9 with those of absent class members; they need not be substantially identical.’” Rodriguez

10 v. Hayes, 591 F.3d 1105, 1124 (9th Cir. 2010) (quoting Hanlon, 150 F.3d at 1020).

11 However, a court should not certify a class if “there is a danger that absent class members

12 will suffer if their representative is preoccupied with defenses unique to it.” Hanon, 976

13 F.2d at 508.

14 Here, Lead Plaintiff and the proposed class members all purchased Franklin common

15 stock shares and assert the same Section 10(b) claims, based on the same

16 misstatements/omissions by Defendants, and the same Section 20(a) claim of “control

17 person” liability. Because Lead Plaintiff’s claims arise from the same events that give rise

18 to the other class members’ claims and will utilize the same evidence and legal theories

19 that apply to the class as a whole, they are typical of the class. Defendants have not

20 presented a defense unique to Lead Plaintiff or otherwise shown that typicality is not met.

21 Accordingly, the Court finds that Lead Plaintiff has satisfied typicality.

22 4. Adequacy

23 Rule 23(a)(4) requires the class representative to “fairly and adequately protect the

24 interests of the class.” Fed. R. Civ. P. 23(a)(4). In assessing this requirement, courts within

25 the Ninth Circuit apply a two-part test, asking: (1) does the named plaintiff and her counsel

26 have any conflicts of interest with other class members?; and (2) will the named plaintiff

27 and her counsel prosecute the action vigorously on behalf of the class? See Staton v. Boeing

28 Co., 327 F.3d 938, 957 (9th Cir. 2003) (citing Hanlon, 150 F.3d at 1020).

1 Lead Plaintiff asserts, and the Court agrees, that both prongs are met here. Lead

2 Plaintiff “possess[es] the same interest and suffer[ed] the same injury as the class

3 members,” Amchem, 521 U.S. at 626–27, and there is no indication of any actual or

4 potential conflict. Lead Plaintiff has been actively involved in pursuing this litigation and

5 is willing to serve as a representative party on behalf of the proposed class and understands

6 his fiduciary as a class representative. (Doc. No. 41-4 at 3.) He attests to being “fully

7 committed” to prosecuting this action in the best interest of the class and is prepared to

8 give deposition testimony and to testify at trial. (Id.) Defendants do not dispute Lead

9 Plaintiff’s adequacy. Accordingly, the Court finds Lead Plaintiff will “fairly and

10 adequately protect the interests of the class” and can be appointed as class representative.

11 Fed. R. Civ. P. 23(a)(4).

12 Lead Counsel is also well-qualified to represent the proposed class. The record

13 shows that Pomerantz has and will continue to vigorously prosecute the claims of the class

14 and submitted documentary evidence of its experience in litigating securities-fraud class

15 actions. (Doc. No. 41-3.) There is also no indication that the firm’s interests are adverse to

16 those of the class, and Defendants do not dispute Pomerantz’s adequacy. Accordingly, the

17 Court finds Pomerantz will fairly and adequately represent the interests of the class and

18 can be appointed as class counsel. See Fed. R. Civ. P. 23(g)(2).

19 B. Rule 23(b)(3) Requirements

20 Next, certification under Rule 23(b)(3)—the subsection under which Lead Plaintiff

21 seeks certification—is appropriate only where the plaintiff establishes that (1) issues

22 common to the class predominate over issues affecting individual class members; and (2)

23 the class action device is superior to other methods available for adjudicating the dispute.

24 See Fed. R. Civ. P. 23(b)(3). The Court discusses these requirements in turn.

25 1. Predominance

26 The predominance analysis “focuses on the relationship between the common and

27 individual issues.” Hanlon, 150 F.3d at 1022. “When common questions present a

28 significant aspect of the case and they can be resolved for all members of the class in a

1 single adjudication, there is clear justification for handling the dispute on a representative

2 rather than on an individual basis.” Id.

3 The determination begins with the elements of the underlying cause of action. To

4 recover damages for violation of § 10(b) and Rule 10b–5, a private plaintiff must prove

5 “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a

6 connection between the misrepresentation or omission and the purchase or sale of a

7 security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6)

8 loss causation.” Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014).

9 In the typical securities fraud case (like this case), the factual and legal issues related

10 to most of these elements are common to the class, so the requirements for class

11 certification are usually “readily met.” Amchem, 521 U.S. at 625. The Court agrees with

12 Lead Plaintiff that the elements of falsity, materiality, scienter, and loss causation present

13 questions common to the class because they all depend on Defendants’ actions, and not

14 those of any individual class member. (Doc. No. 41 at 20–21.) Moreover, while the

15 damages determination entails individualized inquiries, it does not by itself defeat class

16 treatment under Rule 23(b)(3). See Leyva v. Medline Indus., Inc., 716 F.3d 510, 514 (9th

17 Cir. 2013) (“[T]he presence of individualized damages cannot, by itself, defeat class

18 certification under Rule 23(b)(3).”). Additionally, Lead Plaintiff has shown that “damages

19 could feasibly and efficiently be calculated once the common liability questions are

20 adjudicated.” Id. According to Lead Plaintiff’s expert report, per-share damages can be

21 determined on a class-wide basis by a well-accepted and formulaic out-of-pocket method

22 of calculating damages for all class members. (Doc. No. 41-2 at 26.)

23 Lastly, to avoid the need to prove the reliance of individual investors, plaintiffs in

24 securities fraud class actions ordinarily show reliance by establishing “fraud on the

25 market,” which gives rise to a rebuttable presumption of reliance. Halliburton, 573 U.S. at

26 268. “The fraud-on-the-market premise is that the price of a security traded in an efficient

27 market will reflect all publicly available information about a company; accordingly, a

28

1 buyer of the security may be presumed to have relied on that information in purchasing the

2 security.” Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 458 (2013).

3 To establish the presumption, a plaintiff must show “(1) that the alleged

4 misrepresentations were publicly known, (2) that they were material, (3) that the stock

5 traded in an efficient market, and (4) that the plaintiff traded the stock between the time

6 the misrepresentations were made and when the truth was revealed.” Halliburton, 573 U.S.

7 at 268. To make use of the presumption at the class certification stage, however, “[t]he

8 only elements a plaintiff must prove at the class certification stage are whether the market

9 for the stock was efficient and whether the alleged misrepresentations were public.”

10 Connecticut Ret. Plans & Tr. Funds v. Amgen Inc., 660 F.3d 1170, 1177 (9th Cir. 2011),

11 aff’d, 568 U.S. 455 (2013). A defendant may rebut the presumption, for example, “by

12 appropriate evidence, including evidence that the asserted misrepresentation (or its

13 correction) did not affect the market price of the defendant’s stock.” Halliburton, 573 U.S.

14 at 279–80.

15 In this case, Lead Plaintiff has shown that Defendants’ alleged misrepresentations

16 and omissions were publicized in various releases, statements, and quarterly reports, (Doc.

17 No. 26 at 18–20), and submitted a detailed expert report demonstrating that Franklin

18 common stock shares traded in an efficient market over the course of the class period, (Doc.

19 No. 41-2 at 5). Defendants have not offered any contrary evidence or otherwise suggested

20 that the market was inefficient. The Court is satisfied, based on the unrebutted expert

21 report, that the market was efficient, and thus, Lead Plaintiff has adequately established the

22 prerequisites for invoking the presumption at this stage. Accordingly, the Court finds the

23 predominance requirement satisfied.

24 2. Superiority

25 Superiority requires consideration of the following: (1) the interest of individuals

26 within the class in controlling their own litigation; (2) the extent and nature of any pending

27 litigation commenced by or against the class involving the same issues; (3) the convenience

28 and desirability of concentrating the litigation in the particular forum; and (4) the

1 ||manageability of the class action. See Fed. R. Civ. P. 23(b)(3)(A)1{D); Amchem, 521 U.S.

2 615-16.

3 Here, Lead Plaintiff asserts that “class members are too numerous and too

4 || geographically dispersed, and the typical claim too small, for individual actions against

5 || well-financed adversaries to be feasible.” (Doc. No. 41 at 32.) Considering the identical

6 ||claims shared by at least over 400 members of the class, the relatively small size of the

7 || typical claim, and the geographical dispersion of the class members, the Court finds a class

8 action the superior method to litigating this securities case. See Epstein v. MCA, Inc., 50

9 || F.3d 644, 668 (9th Cir. 1995) (shareholder claims based on identical facts and law fit Rule

10 || 23’s requirements “like a glove’).

11 CONCLUSION

12 Based on the foregoing, the Court GRANTS the motion for class certification and

13 || APPOINTS Gergely Csaba as class representative, and Pomerantz LLP as class counsel.

14 (Doc. No. 41.)

15 IT IS SO ORDERED.

16 ||Dated: January 3, 2023

18 United States District Judge

19

20

21

22

23

24

25

26

27

28

11