In a recent decision in the now-consolidated LendingClub class action cases, Judge William Alsup of the Northern District of California appointed a lead plaintiff but unexpectedly declined to appoint lead counsel at the same time. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who will then move the court—via their current counsel, who is allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
In Judge Alsup’s August 15, 2016 decision and order (“Op.”), the Court first consolidated the pending class actions against LendingClub Corporation (“LendingClub”), a “’peer-to-peer’ lender” which “operates an online marketplace to connect borrowers to investors.” (Op. at 2.) In May 2016, LendingClub “disclosed in an SEC filing” that defendant and former CEO Renaud Laplanche “had previously failed to inform the board’s Risk Committee of his personal interest in a third-party fund called Cirrix Capital while LendingClub was contemplating investing in the fund,” and, separately, that “an internal review found that the company had sold $22 million in loans to a loan investor in violation of that investor’s ‘express instructions.’” (Op. at 2.) While “[s]everal lead plaintiff candidates filed motions for appointment,” all but the Water and Power Employees’ Retirement System, Disability and Death Plan of the City of Los Angeles (“WPERP”) either withdrew or failed to oppose WPERP’s motion. (Op. at 2-3.) The Court issued to each lead plaintiff candidate a questionnaire, to which WPERP responded, and held a hearing on the appointment of lead plaintiff, where the Court questioned WPERP on its qualifications. (Op. at 3.)
In this opinion, the Court appointed WPERP as lead plaintiff but opted for an unusual strategy with regard to lead counsel for the class. Typically, the Court appoints a lead plaintiff and lead counsel at the same time, but here that was not the case. Even though WPERP had already selected its own choice for lead counsel, the Court noted that “[a]ny important decision made by a fiduciary should be preceded by due diligence,” and since ‘[a] lead plaintiff is a fiduciary for the investor class … [n]o decision by the lead plaintiff is more important than the selection of class counsel.” (Op. at 8.) Thus, the Court ordered WPERP to “immediately proceed to perform its due diligence in the selection of class counsel, and to interview appropriate candidates.” (Op. at 8.) The Court held that WPERP “may consider its current counsel along with all other candidates but it may not give them special preference.” (Op. at 8.) “Considerations should include their fee proposal, their track record, the particular lawyers assigned to the case, their ability and willingness to finance the case, and their proposals for the prosecution of the case, or the factors set forth in the questionnaire.” (Op. at 8.)
The Court directed a schedule for the application period for class counsel and for WPERP to make its decision. The Court also directed that, “[t]hrough counsel, WPERP shall move for the appointment and approval of their selected counsel no later than September 29, 2016,” for which the Court will require declarations from WPERP explaining their due diligence in the selection process and the rationale for their final decision. (Op. at 8.) WPERP will then file those declarations under seal and not serve them to defendants, and the Court will only hold a hearing if “the Court determines that it would be beneficial.” (Op. at 9.)
The Court’s opinion is not clear as to whether WPERP’s motion for appointment of lead counsel will be filed publicly, although, unlike with the accompanying declarations, the motion itself “should be served on defense counsel.” (Op. at 9.) Thus, we will have to wait until either September 29, 2016 for the filing, or on whatever date the Court issues an order appointing lead counsel, to see whom the lead plaintiff selected. It will be interesting to see whether WPERP selects its existing counsel (and, if so, if the Court approves), or if WPERP elects to go in a different direction.
The decision to separate the appointments of lead plaintiff and lead counsel into separate processes is rare, but it is unclear whether it will have a significant impact. Indeed, Judge Alsup has done so before. Nonetheless, the LendingClub case is a good reminder that parties and their counsel should not take it as a given that lead plaintiff and lead counsel will be appointed at the same time.