‘Although courts have differed on how much weight to assign to each of the Lax factors, we, as have other courts, shall place the most emphasis on the last of the four factors: the approximate loss suffered by the movant.”
How later courts described this case
- ‘Although courts have differed on how much weight to assign to each of the Lax factors, we, as have other courts, shall place the most emphasis on the last of the four factors: the approximate loss suffered by the movant.”
- “[T]he recent trend in this district is for movants to adjust their LIFO calculations to remove any losses arising from securities that were bought and sold before a defendant’s corrective disclosure.”
- “[C]ourts in this district and others have stated a preference for LIFO over FIFO in assessing loss for purposes of the appointment of lead plaintiff.”
- “[I}n determining the largest financial interest, most courts simply determine which potential lead plaintiff has suffered the greatest total losses.” (citation omitted)
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JERRY PEACOCK, Individually and on Behalf of All
Others Similarly Situated,
23 Civ. 1794 (PAE)
Plaintiff,
“Vv OPINION & ORDER
DUTCH BROS, INC. et al.,
Defendants.
PAUL A. ENGELMAYER, District Judge:
This decision appoints lead plaintiff and counsel in a putative securities class action.
Plaintiff Jerry Peacock filed this action under the federal securities law on behalf of purchasers
of Dutch Bros, Inc. (“Dutch Bros”) securities between and including March 1, 2022 and May 11,
2022 (the “class period”). Dkt. 1 (““Compl.”) § 1. Peacock claims, inter alia, that, during the
class period, defendants Dutch Bros, its Chief Executive Officer (“CEO”) Jonathan Ricci, and its
Chief Financial Officer (“CFO”) Charles L. Jemley (collectively, “defendants”), made false or
misleading statements of material fact as to Dutch Bros’s financial operations and prospects
and/or omitted material facts necessary to make their statements not misleading. Jd. 43,7. As
alleged, these tended to conceal that Dutch Bros, a coffee product seller and drive-thru shop
operator, was facing increased costs and expenses and thus experiencing increased margin
pressure. Jd. Peacock alleges that, upon the correction of these actionable misstatements and
omissions after the market’s close on May 11, 2022, Dutch Bros’s share price fell by nearly 27%
by the market’s close the following day, May 12, 2022, injuring investors. Jd. { 6.
Pending now are motions by Douglas Rein, Tyler Scheinost, and Michael Rice to serve as
lead plaintiff, and to appoint their respective attorneys as lead counsel. See Dkts. 13 (“Rein
Mot.”), 17 (“Scheinost Mot.”), 20 (“Rice Mot.”). Rice has since filed a notice stating that he
does not oppose Rein and Scheinost’s motions. See Dkt. 23.
For the following reasons, the Court grants Rein’s motion and appoints Douglas Rein as
lead plaintiff, and Kahn Swick & Foti, LLC (“KSP”) as lead counsel.!
I. Background
A. Factual Allegations”
Dutch Bros, a publicly traded company incorporated under Delaware law, operates and
franchises drive-thru coffee shops and sells coffee and coffee-related products. Compl. {ff 2, 13.
As of March 31, 2022, Dutch Bros represented that it had 572 shops across 12 states in the
United States, with 310 operated by the company and 262 franchised. Jd. § 2.
Peacock’s claims stem from alleged misstatements and omissions by Ricci and Jemley
during a March 1, 2022 conference call regarding Dutch Bros’s 2021 fourth quarter and full year
financials, as well as its anticipated 2022 first quarter financials. Jd. (3. The statements that
Peacock challenges include, inter alia: that “we are not immune to margin pressures, but are
managing it appropriately,” id. 4 17; that Dutch Bros has not “felt compelled” to alter its pricing
in response to cost pressures and was “feeling good as we enter ’22 with the trajectory of our
margins,” id. { 18; that, as to its cost of goods, “we have a pretty simple pantry of goods” and
“we’re just not feeling compression in margins,” id. { 19; and that, as to the company’s financial
! The Court, by a separate order, will update the case caption to henceforth be: Douglas Rein,
Individually and On Behalf of All Others Similarly Situated v. Dutch Bros, Inc. et al.
2 The Court’s account of the underlying facts of this case are drawn from the Complaint, Dkt. 1
(“Compl.”). The Court accepts these facts as true solely for the purpose of deciding these
motions, and provides only those facts necessary to resolve the pending motions.
outlook for the first quarter given the COVID-19 wave caused by the Omicron variant, “[i]t
doesn’t really move the needle much,” id. { 20.
On May 11, 2022, after the market closed, Dutch Bros issued a press release reporting a
net loss of $16.3 million in the first quarter of 2022, compared to a $4.8 million net loss in the
first quarter of 2021, and an adjusted net loss of $2.5 million, which represented a loss of $0.02
per share. Id. $44, 22. Ona conference call that day, Ricci attributed the loss in part to “margin
pressure” that arose “primarily” from “our decision to be disciplined on the price we took,”
“faster inflation and cost of goods, especially in dairy,” “the pull forward of deferred expenses
related to the maintenance of shops,” and “normal new store inefficiency amplified by the
volume of new and ramping units in quarter 1.” Jd. 23. Ricci stated that Dutch Bros had not
“nerceive[d] the speed and magnitude of cost escalation within the quarter,” including of dairy
costs, which made up 28% of the company’s “commodity basket” and rose nearly 25% in the
first quarter. Jd Jemley similarly attributed the first-quarter losses to the fact that “[i]nflation in
both ingredient and operating costs has risen rapidly, catching us off guard from the speed and
the sharpness of this rise.” Jd. 24; see also id. J 25.
On May 12, 2022, Dutch Bros’s share price closed at $25.11 per share, representing a
26.9% drop in value. Id. { 26.
Peacock alleges that Ricci and Jemley, by virtue of their positions within Dutch Bros,
knew that their representations at the March 1, 2022 conference call with respect to rising costs
and the company’s management of margin pressure were materially false and/or misleading. Id.
16, 21. He brings claims under Section 10(b) of the Securities Exchange Act of 1934 (the
3 Unless otherwise noted, the Court has omitted emphasis from the quoted statements of Ricci
and Jemley.
“Exchange Act”) and Rule 10b-5 promulgated thereunder, against all defendants, and Section
20(a) of the Exchange Act, against Ricci and Jemley. See id. □□□ 45-59.
B. Procedural! History
On March 1, 2023, Peacock filed the Complaint. Dkt. 1. On March 28, 2023, Peacock
served the Complaint and summons on Dutch Bros. Dkt. 5. On April 3, 2023, the Court entered
the parties’ joint stipulation setting the deadline for motions to appoint lead plaintiff. Dkt. 9. On
May 1, 2023, Rein, Scheinost, and Rice filed motions to serve as lead plaintiff and for their
respective attorneys to serve as lead counsel, along with memoranda of law, declarations, and
proposed orders in support. See Dkts. 12, 13 (“Rein Mot.”), 14 (Rein Decl.”), 15, 16, 17
(“Scheinost Mot.”), 18 (“Scheinost Decl.”), 19, 20, 21. On May 22, 2023, Rice filed a notice of
non-opposition to the competing motions. Dkt. 23. The same day, Scheinost and Rein each filed
a brief opposing the other’s submission. See Dkt. 24 (“Scheinost Opp.”), 25 (“Rein Opp.”), 26.
Il. Discussion
A. Appointing Lead Plaintiff
Motions for appointment of lead plaintiff and approval of lead counsel in putative class
actions brought under the securities laws are governed by the Private Securities Litigation
Reform Act (“PSLRA”). See In re Millennial Media, Inc. Sec. Litig., 87 F. Supp. 3d 563, 568-
69 (S.D.N.Y. 2015); Bo Young Cha v. Kinross Gold Corp., No. 12 Civ. 1203 (PAE), 2012 WL
2025850, at *2 (S.D.N.Y. May 31, 2012). The PSLRA directs the Court to appoint as lead
plaintiff the party or parties “most capable of adequately representing the interests of class
members,” 15 U.S.C. § 78u-4(a)(3)(B)G).
Under the PSLRA, there is a rebuttable presumption that the most adequate plaintiff is
the person or group of persons that: (1) has either “filed the complaint or made a motion in
response to a notice,” id. § 78u-4(a)(3)(B)Gii)(D(aa); (2) in the determination of the Court, has
the “largest financial interest in the relief sought by the class,” id. § 78u-4(a)(3)(B)Gi) (bb);
and (3) satisfies all the requirements of Federal Rule of Civil Procedure 23, which governs class
actions, see id. § □□□□□□□□□□□□□□□□□□□□□□□□ “This presumption may be rebutted only upon proof
by a member of the purported plaintiff class that the presumplively 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.” Levitt v. Rogers, 257 F.
App’x 450, 452 (2d Cir. 2007) (quoting 15 U.S.C. § □□□□□□□□□□□□□□□□□□□□□
Here, Rein and Scheinost are the only movants who continue to seek appointment as lead
plaintiff. See Dkt. 23 (notice of Rice’s non-opposition). Accordingly, the Court will consider
only their motions,
1. Notice
On March 2, 2023, notice of the lawsuit was published over Business Wire, a national
wire service, making May 1, 2023 the deadline to file a motion in this Court to serve as lead
plaintiff. See Rein Decl., Ex, 3; Scheinost Decl., Ex. 1; see also 15 U.S.C. § 78u—
4(a\(3\(A)G)C1). Both Rein and Scheinost timely moved to serve as lead plaintiff and thus
satisfy the first requirement. See Rein Mot. at 6; Scheinost Mot. at 4; 15 U.S.C. § 78u—
Bayo.
2. Financial Interest
a. Applicable Legal Principles
In determining who has the largest financial stake in the litigation, courts in this Circuit
have traditionally applied a four-factor test, first set forth in Lax v. First Merchants Acceptance
Corp., No. 97 Civ. 2715 (DHC), 1997 WL 461036, at *5 (N.D, TH. Aug. 11, 1997). The Lax
factors include:
(1) the total number of shares purchased during the class period;
(2) the net shares purchased during the class period (in other words, the difference
between the number of shares purchased and the number of shares sold during the
class period);
(3) the net funds expended during the class period (in other words, the difference
between the amount spent to purchase shares and the amount received for the sale
of shares during the class period); and
(4) the approximate losses suffered.
City of Monroe Emps.’ Ret. Sys. v. Hartford Fin. Servs. Grp., 269 F.R.D. 291, 293 (8.D.N.Y.
2010).
Of these factors, courts have consistently held that the fourth, the magnitude of the loss
suffered, is most significant. See, e.g., Kniffin v. Micron Tech., Inc., 379 F. Supp. 3d 259, 263
(S.D.N.Y. 2019); Kaplan v. Gelfond, 240 F.R.D. 88, 93 (S.D.N.Y, 2007) (‘Although courts have
differed on how much weight to assign to each of the Lax factors, we, as have other courts, shall
place the most emphasis on the last of the four factors: the approximate loss suffered by the
movant.”), reconsidered on other grounds, In re IMAX Sec. Litig., No. 06 Civ. 6128 (NRB),
2009 WL 1905033 (S.D.N.Y. June 29, 2009); Bo Young Cha, 2012 WL 2025850, at *2; see also
Foley y. Transocean Ltd., 272 F.R.D. 126, 128 (S.D.N.Y. 2011) (“[I}n determining the largest
financial interest, most courts simply determine which potential lead plaintiff has suffered the
greatest total losses.” (citation omitted)).
To calculate the approximate loss sustained by a prospective lead plaintiff, courts,
including in this District, typically employ one of two methodologies: First-In-First-Out
(“FIFO”) or Last-In-First-Out (“LIFO”). The overwhelming trend both in this District and
nationwide has been to use LIFO to calculate such losses. See, e.g., City of Sunrise Firefighter's
Pension Fund v. Citigroup Inc., No. 20 Civ. 9132 (AJN), 2021 WL 396343, at *3 (S.D.N.Y. Feb.
4, 2021) (“In evaluating approximate losses, most courts in this district rely on the... “LIFO"
method.” (citation omitted)); City of Monroe, 269 F.R.D. at 295 (“[C]ourts in this district and
others have stated a preference for LIFO over FIFO in assessing loss for purposes of the
appointment of lead plaintiff.”); Sa//ustre v. CannaVest Corp., 93 F. Supp. 3d 265, 270 n.5
(S.D.N.Y. 2015). Under the LIFO methodology, courts assume that stocks acquired most
recently were sold first. See Rodriguez v. DraftKings Inc., Nos. 21 Civ. 5739 (PAE), 21 Civ.
6497 (PAE), 2021 WL 5282006, at *4 (S.D.N.Y. Nov. 12, 2021) (citing Viadimir v. Bioenvision,
Inc., No. 07 Civ. 6416 (SHS) (AJP), 2007 WL 4526532, at *5 (S.D.N.Y. Dec, 21, 2007).
Important here, the LIFO methodology excludes losses incurred from “in-and-out”
transactions. “In-and-out” trades occur when a prospective lead plaintiff purchases and sells
their holdings during the class period-—that is, after the stock price was allegedly fraudulently
inflated and before it dropped due to a corrective disclosure. See Bo Young Cha, 2012 WL
2025850, at *4. In Dura Pharmaceuticals, Inc. vy. Broudo, 544 U.S, 336 (2005), the Supreme
Court held that courts should not account for such pre-disclosure transactions in tabulating the
losses incurred because where “the purchaser selis the shares quickly before the relevant truth
begins to leak out, the misrepresentation will not have led to any loss.” Dura, 544 U.S. at 342.
Accordingly, “courts in this district ordinarily will not include losses that occurred prior to the
first corrective disclosure of the alleged fraudulent misrepresentation made by the defendant.”
City of Sunrise, 2021 WL 396343, at *3; see also, e.g., Sallustro, 93 F. Supp. 3d at 272 (noting
that such losses are not recoverable because they are “not proximately caused by the defendant’s
misstatements” (citation omitted)). And although “the Dura [C]ourt addressed a motion to
dismiss, the Court’s reasoning applies with equal force to a motion to appoint [lead plaintiff and]
lead counsel.” Sallustro, 93 F. Supp. 3d at 273 (citation omitted) (collecting cases). “Because
the lead plaintiff should be the class member who stands to recover the most from that litigation,
courts should ‘consider only those losses that will actually be recoverable in the class action.””
City of Sunrise, 2021 WL 396343, at *3 (quoting Topping v. Deloitte Touche Tohmatsu CPA, 95
F, Supp. 3d 607, 617 (S.D.N.Y. 2015)); see also Kniffin, 379 F. Supp. 3d at 264 (“[T]he recent
trend in this district is for movants to adjust their LIFO calculations to remove any losses arising
from securities that were bought and sold before a defendant’s corrective disclosure.”); Micholle
v. Ophthotech Corp., No. 17 Civ. 210 (VSB), 2018 WL 1307285, at *5 (S.D.N.Y. Mar. 13,
2018) (collecting cases); Sallustro, 93 F. Supp. 3d at 273-74 (“[T]he court would be abdicating
its responsibility under the PSLRA if it were to ignore [the issue of loss causation at the lead
plaintiff appointment] stage,” as “[r]elying on losses that, under Dura, are clearly not recoverable
is irreconcilable with this Court’s duty to ascertain which plaintiff has the greatest financial
interest in this litigation.” (citation omitted)).
b. The Parties’ Calculations Under the Lax Factors
Rein and Scheinost agree that the benchmark price—that is, the average trading price
over the 90-day “lookback period” following the end of the class period, against which to
measure losses—is $35,5248 per share. See Rein Decl., Ex. 2; Scheinost Decl., Ex. 3, They also
agree that the LIFO method applies. See Rein. Opp. at 1; Scheinost Opp. at 2-3. They disagree,
however, as to certain Lax factors—most importantly, the calculation of each’s total loss.
i. Rein’s Transactions
Rein represents that, before the March 1~May 11, 2022 class period, he had purchased
5,000 shares, at a combined purchase price of $286,000, and continued to hold these shares as of
the start of the class period. Rein Decl., Ex. 2, On March 25, 2022, he purchased an additional
2,000 shares, for a combined cost of $111,985, bringing his total to 7,000 shares. See id. Then,
on March 29, 2022, he sold all 7,000 shares—-the 5,000 purchased before the class period and the
2,000 purchased a few days earlier—at a price of $63.88 per share, such that the sale proceeds of
the 5,000 and the 2,000 shares, respectively, were $319,400 and $127,760. Jd. The sale of the
7,000 shares, for a total of $447,160, yielded a gain of $49,175 over his aggregate purchase price
of $397,985.
After the March 29 sale, Rein, between March 31 and April 5, 2022, purchased 7,000
shares at share prices between $54.19 and $58.35, for a combined purchase price of $399,859.80.
He retained those 7,000 shares through the end of the class period. See id. Valuing those shares
at the 90-day lookback price of $35.5248/share, the shares were worth $248,673.60, meaning
that Rein lost $151,186.20 on them.
Rein thus makes the following calculations relevant to the Lax factors. His total share
purchases during the class period were 9,000. His net share purchases during the class period
were 7,000 (9,000 shares purchased less 2,000 shares sold). ‘The net funds he expended during
the class period were $384,084.80 (purchases of $111,985 and $399,859.80, less sale proceeds of
$127,760). And the loss he suffered was $102,01 1.20. Rein Opp. at 9 & n.2. He tabulates the
latter figure, which he calls his “Total LIFO/Dura Loss[],” by including (1) his gain ($33,400)
on the 5,000 shares he purchased before the class period and sold during the class period; (2) his
gain ($15,775) on the 2,000 shares he purchased and sold during the class period; and (3) his loss
($151,186.20) on the 7,000 shares purchased during the class period and retained as of the end of
that period, id. at 9; Rein Decl., Ex. 2.
Scheinost disputes several of Rein’s calculations. As to net shares, he argues that the
5,000 shares that Rein purchased before the class-period must be excluded, with only purchases
and sales during the class period considered. Scheinost Opp. at 3-4. Scheinost thus tabulates
that Rein purchased only 2,000 net shares. Jd. As to the net funds expended, Scheinost likewise
argues that only monies that Rein expended and received during the class period may be counted.
He thus tabulates that Rein expended a net total of $64,685 (expenditures of $111,985 and
$399,859.80 on, respectively, the 2,000 and 7,000 shares purchased during the class period; less
$319,400 and $127,760 in, respectively, proceeds from the sales of the 5,000 shares bought
before the class period and the 2,000 shares bought during it). Jd. at 3. Scheinost does not take
issue with Rein’s calculation of his “LIFO loss” as $102,011.20.
it. Scheinost’s Transactions
Scheinost does not report any transactions in Dutch Bros stock before the class period.
Scheinost represents that, on May 5, 2022, he purchased 10,000 shares, at $46.63 per share, for a
total cost of $466,300. See Scheinost Decl., Ex. 3. And on May 11, 2022—the last day of the
class period—he sold 4,600 shares, yielding proceeds of $159,498: to wit, 2,500 at $34.71 per
share (proceeds of $86,775), and 2,100 at $34.63 (proceeds of $72,723). See id.
Scheinost’s Lax factor calculations are as follows. His total share purchases during the
class period were 10,000. Scheinost Opp. at 3. His net share purchases were 5,400, 7d He
expended a net total of $306,802 (total share cost of $466,300 less sales proceeds $159,498). Jd.
And he incurred a total “LIFO loss” of $114,968.08. See id. Scheinost’s loss calculation
includes losses of (1) $55,000, on the 4,600 shares he sold during the class period (subtracting,
from the purchase price of $214,498, sales proceeds of $159,458); and (2) $59,968.08, on the
5,400 shares he retained at the end of the class period (subtracting, from purchase price of
$251,802, a total of $191,833.92, based on the 90-day lookback price of $35,5248 per share).
See id.
Rein argues that Scheinost’s loss calculation wrongly includes in-and-out transactions—
specifically, Scheinost’s purchase and sale, both during the class period, of 4,600 shares. Rein
Opp. at 1-2. Rein argues that, under Dura, losses on the sale of these shares must be excluded,
because Scheinost did not hold them as of Dutch Bros’s corrective disclosure after the market’s
close on May 11, 2022. See id. at 4~6 (citing cases); see Dkt. 26-1. By Rein’s calculation,
10
Scheinost incurred a loss of $59,968.08, based solely on the 5,400 shares that Scheinost bought
during the class period and retained at its end. Rein Opp. at 1-2. Scheinost, anticipating this
argument, rejoins that (1) Rein, having “endorsed the traditional LIFO calculation” in connection
with the calculation of his own loss, would be “chang[ing] methods” were he to seek to exclude
Scheinost’s 4,600 shares of in-and-out transactions; and (2) the high trading volume and 14%
decline in share price of Dutch Bros stock on May 11, 2022 suggests that “the corrective
disclosure released after market hours on May 11, 2022 may have leaked prior to market close,”
and thus Scheinost’s loss that day should be included. Scheinost Opp. at 4—5.
Assessment of Lax Factors
Rein and Scheinost each portrays himself as having incurred the greater loss. Although
neither side’s calculations are entirely faithful to the principles articulated by the Supreme Court
in Dura, Rein’s claim to be the greater monetary loser under Dura is clearly correct.
In Dura, the Court explained that, where “the purchaser sells the shares quickly before
the relevant truth begins to leak out, the misrepresentation will not have led to any loss.” Dura,
544 U.S. at 342. That principle requires that, as Rein argues, losses attributable to Scheinost’s
sales during the class period be disregarded. That is because any loss on shares purchased and
sold through in-and-out transactions before the allegedly corrective disclosure cannot, on the
facts alleged, be linked to defendants’ alleged misrepresentations and thus, “under Dura, are
clearly not recoverable,” Sallustro, 93 F. Supp. 3d at 274. See, e.g., Africa v. Jianpu Tech. Inc.,
No. 21 Civ. 1419 (JMF), 2021 WL 1999467, at *2 (S.D.N.Y. May 19, 2021) (excluding loss
incurred from in-and-out transactions); City of Sunrise, 2021 WL 396343, at *5 (same, as to loss
prior to first alleged corrective disclosure); Topping, 95 F. Supp. 3d at 618 (same). The effect of
this is to make Scheinost’s Dura-adjusted loss $59,968.08, well below the $114,968.33 that he
calculated, and well below the $102,011.20 loss that both parties calculated for Rein.
11
The Court further finds that both parties have miscalculated Rein’s Dura-adjusted loss.
Properly measured, it is $151,186.40, not $102,011.20. That is because, examining Rein’s
trading history, it is clear that the first 7,000 shares that he purchased have no place in this joss
calculation. All were sold on March 29, 2022, long before the May 11, 2022 corrective
disclosure, leaving Rein, at that point, without any shares. Rein’s trading outcome on those
shares thus was necessarily unaffected—tet alone proximately caused—by the company’s
corrective disclosure. See Sallustro, 93 F. Supp. 3d at 272. Rein’s loss is properly measured by
the 7,000 shares he bought during the ensuing week, all of which he held, without further trading
activity, through the end of the class period, and on which his loss is undisputedly valued at
$151,186.40.
The Court’s calculations for the prospective lead plaintiffs are thus as follows, with the
gray-highlighted figures reflecting the four Lax factors and the total retained shares’:
4 The Court’s calculation of expenditures and loss differs marginally (within one dollar) from the
parties’ figures. This is likely due to the Court’s use of the presumably rounded 90-day trading
price provided by the parties, and does not make a difference to the outcome of these motions.
12
ots Rin Tier Senos
“Total Shares Purchased During ClassPeriod’ || 9,000 | = 10,000
Total Shares Sold During Class Period 7,000 4,600
Total Shares Purchased During and Retained as 7,000 5,400
of the End of Class Period (“Retained Shares”)
‘Net Funds Expended During Class Period’ = |—-—-$384,085.00 | $306,802.00
Total Loss on All Shares Transaeted’ $102,011.40 $114,968.08
See Rein Decl., Ex. 2; Scheinost Decl., Ex. 3.
Based on the analysis above, Rein has a larger financial stake in this action, Scheinost
outpoints Rein on two Lax factors: the total and net shares purchased during the class period.
But Rein prevails on the other two: the net funds expended during the class period and, by a
decisive margin, the approximate loss—the most important Lax factor. Rein incurred a
$151,186.40 loss on his retained shares, far more than twice the $59,968.08 that Scheinost lost
5 This figure reflects only those shares purchased during the class period, It excludes, as to Rein,
the 5,000 shares he purchased before the class period.
6 Scheinost asserts that Rein’s net expenditures are $64,685, which reflects the net amount of
money spent by Rein in buying and selling shares during the class period. Scheinost Opp. at 3.
However, this Lax factor requires determination of “the difference between the amount spent to
purchase shares and the amount received for the sale of shares during the class period,” City of
Monroe, 269 F.R.D. at 293, and is thus better read to account only for shares transacted during
the class period. Accordingly, Rein’s asserted net expenditure calculation is superior, as it
excludes the funds spent by Rein to purchase the 5,000 shares before the class period and the
funds gained by Rein in selling those 5,000 shares during the class period. Those shares are
irrelevant to this litigation, as Rein purchased them before the misrepresentations on which this
lawsuit is based.
7 This figure reflects the total loss incurred on all shares purchased or sold during the class
period. It thus includes, as to Rein, the loss on the 5,000 shares he purchased before the class
period; and as to Scheinost, the loss on the 4,600 shares he bought and sold during the period.
This figure reflects the total loss incurred on all shares purchased and retained during the class
period. It thus excludes, as to Rein, the loss on the 7,000 shares sold during the class period and,
as to Scheinost, the loss on the 4,600 shares purchased and sold during the class period.
13
on his retained shares.? Cf DraftKings Inc., 2021 WL 5282006, at *6. Although Scheinost
suffered consequential losses from the allegedly actionable transactions, Rein, by a substantial
margin, “stands to recover the most from thfis] litigation,” City of Sunrise, 2021 WL 396343, at
and thus has the largest financial stake.
As noted, Scheinost argues that the high trading volume and low trading price of Dutch
Bros stock on May 11, 2022 indicate that any corrective disclosure had “leaked” to the market by
the time he sold 4,600 shares that day, see Scheinost Opp. at 5. For two reasons, that argument
does not carry the day for Scheinost. First, even if credited, it would bring Scheinost’s losses to
$114,968.08, which is still far short of Rein’s $151,186.40. Second, at the pleadings stage, the
Court does not have a non-speculative basis on which to credit this theory. The Complaint
alleges that Dutch Bros made a single set of corrective disclosures, after the market close on
May 11, 2022, See Compl. 4, 22. It does not allege, let alone non-speculatively, an earlier
release, or leakage, of these disclosures. In contrast, the cases on which Scheinost relies in
defending the inclusion of his losses on his in-and-out transaction involve allegations of multiple
partial corrective disclosures, at least one of which preceded the sale—rather than the one-time,
comprehensive disclosure alleged here. See, e.g., Di Scala v. ProShares Ulira Bloomberg Crude
Oil, No. 20 Civ. 5865 (NRB), 2020 WL 7698321, at *3 (S.D.N.Y. Dec. 28, 2020) (on lead
plaintiff motion, “reject[ing] at this phase the application of Dura to loss calculation when the
complaint alleges multiple partial disclosures”); Cook v. Allergn PLC, Nos. 18 Civ. 12089, 18
Even if the relevant comparison were to losses on all transacted shares (including those not
retained), there would be only a $13,000 difference between Scheinost’s calculation of Rein’s
$102,011.40 loss and his calculation of his own $114,968.08 loss. In any event, as noted,
Scheinost’s inclusion of his losses from in-and-out transactions is irreconcilable with Dura and
the Court’s “duty to ascertain which plaintiff has the greatest financial interest in this litigation,”
Sallustro, 93 F. Supp. 3d at 273.
14
Civ. 12219 (CM), 2019 WL 1510894, at *3 (S.D.N.Y. Mar. 21, 2019) (on lead plaintiff motion,
finding “not clear where a Dura analysis would lead in this case,” given, inter alia, allegations
that defendant’s “misconduct was partly, but not fully, disclosed at various points during the
Class Period,” the nearly two-year length of the pleaded class period, and the “documented
decline in [defendant’s| share price during that period”). With the Complaint devoid of factual
allegations of a partial dissemination of the corrective disclosure before that post-closure
announcement on May 11, 2022, the Court has not been given any basis to treat the share price at
which Scheinost sold that day as embodying this adverse information."
Scheinost separately faults Rein for invoking the Dura principle that losses on in-and-out
trades during the class period should be excluded. Scheinost claims that Rein invoked Dura
solely strategically, as a means to minimize Scheinost’s losses. That is wrong. The declaration
Rein submitted in support of his lead-plaintiff bid expressly calculated his asserted loss as “Total
LIFO/Dura Losses,” Rein Decl., Ex. 2. That indicated his intent to apply Dura’s principles to
the loss calculations. The Court here, heeding Dura, has calculated both parties’ losses to
include only shares held at the time of the alleged corrective disclosure. That Rein first
elaborated on Dura’s applicability to Scheinost’s losses on in-and-out trades of Dura in his
opposition brief is unsurprising, as Rein’s initial motion for appointment as lead plaintiff, filed
contemporaneously with Scheinost’s, did not give Rein an opportunity to comment on
0 Even if the Court had entertained Scheinost’s conjecture that information about Dutch Bros’s
poor financial health had leaked sometime earlier than the market close on May 11, 2022, such—
depending on the date on which this leak were found to have occurred—might or might not have
assisted Scheinost’s lead-plaintiff bid. Scheinost purchased all 10,000 of his shares at $46.63 per
share on May 5, 2022, less than a week before the corrective disclosure. See Scheinost Decl.,
Ex. 3. If the leak preceded Scheinost’s purchases, an argument would exist to exclude, or give
lesser weight to, these purchases in the Court’s loss calculation. In contrast, Rein purchased his
7,000 retained shares more than one month earlier, for approximately $54-58 per share, at a time
when Scheinost does not appear to suggest that a leak had occurred. See Rein Decl., Ex. 2.
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Scheinost’s loss calculation. This is thus not at all a case in which a movant “initially presents
one position in their opening brief and switch[es] to another in their opposition,” City of Sunrise,
2021 WL 396343, at *4. On the contrary, in his reply, Rein did not alter his own calculation of
loss, but merely advocated for the application of Dura’s methodology to Scheinost.
Accordingly, the Court holds, Rein has the larger financial stake in this action.
3. Rule 23 Requirements
The PSLRA’s final requirement is that the proposed lead plaintiff satisfy Rule 23’s
requirements for class certification: numerosity, commonality, typicality, and adequacy. At this
early stage of litigation, however, “only the last two factors—typicality and adequacy-—~are
pertinent.” Bo Young Cha, 2012 WL 2025850, at *6 (citation omitted). A lead plaintiffs claims
are typical where “each class member’s claim arises from the same course of events, and each
class member makes similar legal arguments to prove the defendant’s liability.” E.g., Sealambo
y, McKenzie, 268 F.R.D. 170, 173-74 (S.D.N.Y. 2010) (citation omitted). A lead plaintiff is
adequate where he “does not have interests that are antagonistic to the class that he seeks to
represent and has retained counsel that is capable and qualified to vigorously represent the
interests of the class that he seeks to represent.” E.g., Glauser vy, EVCI Ctr, Colleges Holding
Corp., 236 F.R.D. 184, 189 (S.D.N.Y. 2006),
Both Rein and Scheinost have made a satisfactory prima facie showing that their claims
are typical and adequate.'' See Rein Mot. at 7~-9; Rein Opp. at 6-8; Scheinost Mot. at 6-7.
In sum, both prospective lead plaintiffs fulfill the first and third qualifiers under the
PSLRA: timely motion and satisfaction of Rule 23. See 15 U.S.C. § 78u-4(a)(3)(B) Gi).
'! Preempting an anticipated argument, Rein argues that his sale of shares during the class does
not make him ill-suited to serve as lead plaintiff. Rein Opp. at 9. Scheinost did not, however,
make such an argument, and such an argument would not have availed Scheinost, who also sold
shares during the class period.
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Rein, however, has established that he had the “largest financial interest in the relief sought by
the class,” id. § 78u-4(a)(3)(B)(iii)(D(bb), giving rise to a rebuttable presumption that he is the
most adequate plaintiff. No party has produced evidence rebutting this presumption. See Levitt,
257 F. App’x at 452. The Court accordingly appoints Rein lead plaintiff.
B. Appointing Lead Counsel
The most adequate plaintiff may retain counsel to represent the class, subject to the
Court’s approval. 15 U.S.C. § 78u-(4)(a)(3)(B)(v). Rein has selected the law firm of KSF as
lead counsel for the class. Having reviewed the firm’s submissions as to its pertinent
background and experience, including its experience litigating securities class actions, the Court
finds the firm qualified to serve as lead counsel. Accordingly, the Court appoints KSF as lead
counsel.
CONCLUSION
For the reasons set out above, the Court grants Rein’s motion for appointment as lead
plaintiff and appoints KSF as lead counsel.
The Clerk of the Court is respectfully directed to terminate the motions pending at docket
numbers 12, 16, and 19. Pursuant to the parties’ joint stipulation, Rein shall file an amended
complaint within 28 days of this order, and defendants shall respond 28 days thereafter. See Dkt.
9. If defendants file a motion to dismiss, Rein shall oppose the motion or file any second
amended complaint within 28 days. See id. No further opportunities to amend will ordinarily be
granted.
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SO ORDERED.
Paul A. Engelmayer 4 }
United States District Judge
Dated: August 3, 2023
New York, New York
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