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Tchatchou v. India Globalization Capital, Inc.

United States District Court, D. Maryland, Southern Division

February 28, 2019

ALDE-BINET TCHATCHOU, Plaintiff,
v.
INDIA GLOBALIZATION CAPITAL, INC., et al. Defendants. GABE HARRIS-CARR, Plaintiff,
v.
INDIA GLOBALIZATION CAPITAL, INC., et al. Defendants.

          MEMORANDUM OPINION

          Paul W. Grimm United States District Judge

         Before me now are two separate but related lawsuits. The suits were filed on the same day and have two defendants in common: India Globalization Capital, Inc. ("India Globalization") and its president and chief executive officer, Ram Mukunda. Both suits accuse the company, Mukunda, and other company officials of misleading investors in violation of the Securities Exchange Act and Rule 10b-5.

         A series of motions have been filed seeking to consolidate the cases, appoint a lead plaintiff, and select lead counsel. Having reviewed these motions and additional requested briefings, I am consolidating the cases, appointing the IGC Investor Group as lead plaintiff, and approving its selection of co-lead counsel.

         FACTUAL BACKGROUND

         India Globalization is a public company based in Bethesda, Maryland. Harris-Carr Compl. ¶¶3, 13, Harris-Carr v. India Globalization Capital, Inc., No. 18-3408-GJH (D. Md. Nov. 2, 2018), ECF No. I.[1] Its common stock trades on the NYSE American exchange. Id. ¶ 3. The company has two distinct businesses. Its primary business, according to the pleadings before me, is the "development and commercialization of cannabinoid-based alternative therapies for indications such as Alzheimer's disease, Parkinson's disease, and pain." Id. ¶ 18. Separately, the company continues to maintain a "legacy business that involves trading commodities and heavy equipment rental." Id.

         The controversy between India Globalization and its investors can be traced to September 25, 2018, when the company issued a press release entitled, "IGC to Enter the Hemp/CBD-Infused Energy Drink Space." Id. ¶ 24. The press release announced the company had entered into a 10-year agreement for the right to market various products in North and South America, including a sugar-free energy drink called "Nitro G." Id. It appeared to indicate the deal involved a manufacturer in Malaysia. Id.

         The announcement precipitated a meteoric rise in India Globalization's stock, from $2.33 per share on September 25, 2018, to $13 per share on October 2, 2018. Id. ¶25. But the bonanza was short-lived. On October 28, 2018, the financial news site Marketwatch published an article identifying several "red flags" about the company. Id. ¶ 27. In particular, the article reported that India Globalization had a history of announcing plans to enter into the "latest hot market" (for example, blockchain), that it had nevertheless "assigned very little funding to research and development," and that the SEC had been pressing the company to demonstrate compliance with stock exchange rules. Id. The article keyed in on the press release's suggestion (which may have been a triumph of chutzpah over common sense) that the company would work with a manufacturer in Malaysia, noting that "that country has a mandatory death sentence for cannabis possession and no medical marijuana program." Id.

         As might be expected, amid this scrutiny, the company's stock price dropped "precipitously." Tchatchou Compl. ¶ 19, Tchatchou v. India Globalization Capital Inc., No. 18- 3396-PWG, ECF No. 1. The next day, October 29, 2018, NYSE American announced that it had commenced proceedings to delist India Globalization's common stock from the exchange and that all trading of the stock was immediately suspended. Harris-Carr Compl. ¶31. The announcement provided two bases for the decision. To begin, it said, the exchange's regulators had

commenced delisting proceedings against the Company pursuant to [an NYSE American guideline] which states that where the issuer has substantially discontinued the business that it conducted at the time it was listed or admitted to trading, and has become engaged in ventures or promotions which have not developed to a commercial stage or the success of which is problematical, it shall not be considered an operating company for the purposes of continued trading and listing on the Exchange.

Id. In addition, the regulators had concluded that "the Company or its management have engaged in operations which, in the opinion of the Exchange, are contrary to the public interest." Id.

         Investors filed these two class action lawsuits on November 2, 2018. The respective complaints include identical claims. First, they accuse the company and various executives of making false or misleading statements in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5. Second, they accuse certain executives of aiding and abetting the fraud in violation of Section 20(a) of the Exchange Act.

         The commencement of the litigation kicked off a competition among investors seeking to consolidate the two suits and to win appointment as lead plaintiff (and with it, of course, a competition among the. various law firms hoping to represent them). Among the seven groups or individual investors who asked to be named lead plaintiff, five later withdrew their motions or filed a "non-opposition," acknowledging that other movants had larger financial stakes in the litigation and were therefore more likely to win appointment. See ECF Nos. 14-17, 23. The two remaining movants are Guita Bahramipour ("Ms. Bahramipour") and a seven-person group known as the IGC Investor Group ("IGC").

         All issues have been briefed in full. See ECF Nos. 18, 21, 32, 33. No hearing is necessary. See Loc. R. 105.6.

         DISCUSSION

         The Private Securities Litigation Reform Act (the "PSLRA") dictates the procedures a court must follow in resolving these motions. Under the statute, the court's first task is to address any motions for consolidation. See 15 U.S.C. § 78u-4(a)(3)(B)(ii). After that, the court may appoint a lead plaintiff (an action the statute directs the court to take "[a]s soon as practicable") and approve the selection of counsel. See Id. I will proceed in that order.

         Consolidation

         Six movants have filed motions to consolidate these cases. See ECF Nos. 14, 16-18, 21, 23. On January 10, 2019, 1 gave the parties and putative class members one week to file any responses in opposition to these motions. ECF No. 26. No one filed a response.

         The principles governing the consolidation of securities fraud suits "are found not in the PSLRA, but in Rule 42" of the Federal Rules of Civil Procedure. In re MicroStrategy Inc. Sees. Litig., 110 F.Supp.2d 427, 431 (E.D. Va. 2000). Rule 42 gives a court discretion to consolidate actions that "involve a common question of law or fact." Fed.R.Civ.P. 42(a)(2). In exercising this discretion, the court "must consider the interest of judicial economy as well as the interest of the parties in a fair and impartial procedure." In re MicroStrategy, 110 F.Supp.2d at 431. In that regard,

courts considering whether to order consolidation must determine whether "the specific risks of prejudice and possible confusion from consolidation are overborne by the risk of inconsistent adjudications of common factual and legal issues, the burden on parties, witnesses and available judicial resources posed by multiple lawsuits, the length of time required to conclude multiple suits as against a single one, and the relative expense to all concerned."

Id. (quoting Arnold v. Eastern Air Lines Inc., 681 F.2d 186, 193 (4th Cir. 1982)).

         Here, there is no question the two suits involve common questions of law and fact. Both complaints center on the company's statements in its September 25, 2018 press release, alleging these statements were part of a scheme to artificially inflate the stock price and defraud investors. See Tchatchou Compl. ¶¶ 18, 23; Harris-Carr Compl. ¶¶ 26, 44. On the basis of these allegations, the complaints assert identical legal claims.

         To be sure, the suits are not without their differences. While both name India Globalization and Mr. Mukunda as defendants, each names at least one other defendant the other does not.[2] The suits also propose different (but overlapping) class periods. Both suits would close the class period on October 29, 2018, when the NYSE American suspended all trading of the company's stock. Tchatchou, though, would have the class period start on September 26, 2018, the day after the company issued the press release announcing the deal to market the Nitro G energy drink. Tchatchou Compl. ¶ 1. Harris-Carr, by contrast, would start the class period earlier, on June 21, 2018, to include the date the company filed its annual Form 10-K report with the U.S. Securities and Exchange Commission ("SEC").

         These distinctions are by no means fatal to the motions for consolidation. As this Court has previously explained: "Differences in class periods, parties, or damages among the suits do not necessarily defeat consolidation, so long as the essential claims and facts alleged in each case are similar." In re Royal Ahold N.V. Sees. & ERISA Litig., 219 F.R.D. 343, 348 (D. Md. 2003). Consolidation is often appropriate, regardless, where the securities fraud actions "are based on the same public statements and reports." Id. That is the case here. And seeing as no putative class members have raised any concerns that consolidation might prejudice them, I can see no reason to keep the suits separate. It is my decision, accordingly, that these two suits are now consolidated.

         Lead ...


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