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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: COMMERCIAL DIVISION
X
In re NIO INC. SECURITIES LITIGATION :
: Index No. 653422/2019
:
This Document Relates To: : The Honorable Barry R. Ostrager
: Part 61
ALL ACTIONS. :
: Motion Sequence No. 003
X
PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO
DEFENDANTS’ JOINT MOTION TO STAY ALL PROCEEDINGS
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TABLE OF CONTENTS
Page
I. PRELIMINARY STATEMENT .........................................................................................1
II. STATEMENT OF FACTS ..................................................................................................2
III. PROCEDURAL BACKGROUND ......................................................................................3
IV. ARGUMENT .......................................................................................................................6
A. Legal Standard .........................................................................................................6
B. The State Action Was Filed Shortly After the Federal Action and Has
Significantly Advanced Ahead of the Federal Action .............................................7
C. The Commercial Division Is Better Suited than Federal Courts to
Adjudicate 1933 Act Claims ..................................................................................11
D. The Federal Action Does Not Offer Complete Relief Because There Is Not
a Complete Identity of Parties, 1933 Act Damages May Be Limited in the
Federal Action, and the Claims Are More Fully Developed in the State
Action .....................................................................................................................12
1. A Complete Identity of Parties Is Lacking ................................................12
2. Section 11 Damages May Be Limited in the Federal Action ....................14
3. The Facts and Claims Are More Developed in the State Action ...............15
E. Plaintiffs Will Be Prejudiced if a Stay Is Granted .................................................17
F. Proceeding in State and Federal Court Does Not Constitute Prejudice to
Defendants .............................................................................................................18
V. CONCLUSION ..................................................................................................................19
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TABLE OF AUTHORITIES
Page
CASES
2005 Tomchin Family Charitable Trust v. Tremont Partners, Inc.,
2009 WL 10635640
(Sup. Ct. N.Y. Cty. Sept. 16, 2009) ...........................................................................................7
Abrams v. Xenon Indus., Inc.,
145 A.D.2d 362 (1st Dep’t 1988) ............................................................................................12
ACE Fire Underwriters Ins. Co. v. ITT Indus., Inc.,
2006 WL 3849060
(Sup. Ct. N.Y. Cty. July 19, 2006) .............................................................................................8
Araujo v. Uxin Ltd., et al.,
2019 WL 3250017
(Sup. Ct. N.Y. Cty. July 15, 2019) ................................................................................... passim
Carmona v. Loma Negra Compania Industrial Argentina Sociedad Anonima,
2019 WL 3783328
(S.D.N.Y. Aug. 9, 2019) ..........................................................................................................19
Cyan, Inc. v. Beaver County Employees Retirement Fund,
138 S. Ct. 1061 (2018) .............................................................................................................11
Ferber v. Fairfield Greenwich Grp.,
2010 WL 2927274
(Sup. Ct. N.Y. Cty. July 22, 2010) ...........................................................................................18
Hala v. Orange Regional Med. Ctr.,
60 Misc. 3d 274 (Sup. Ct. N.Y. Cty. 2018) .............................................................................11
Hoffman v. AT&T Inc.,
2019 N.Y. Misc. LEXIS 3406
(Sup. Ct. N.Y. Cty. June 21, 2019) ............................................................................6, 9, 10, 11
Hope’s Windows v. Albro Metal Products Corp.,
93 A.D.2d 711 (1st Dep’t 1983) ..............................................................................................12
In re Dentsply Sirona, Inc. S’holders Litig.,
2019 N.Y. Misc. LEXIS 4260
(Sup. Ct. N.Y. Cty. Aug. 2, 2019) ................................................................................... passim
In re Dentsply Sirona, Inc. S’holders Litig.,
2019 WL 4695724
(Sup. Ct. N.Y. Cty. Sept. 26, 2019) .........................................................................................16
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In re LendingClub Sec. Litig.,
282 F. Supp. 3d 1171 (N.D. Cal. 2017) ...................................................................................14
In re Netshoes Sec. Litig.,
64 Misc.3d 926 (Sup. Ct. N.Y. Cty. 2019) ..............................................................................16
In re NYSE Euronext Shareholders/ICE Litig.,
39 Misc. 3d 619 (Sup. Ct. N.Y. Cty. 2013) ...............................................................................7
In re PPDAI Group Sec. Litig.,
2019 N.Y. Misc. LEXIS 3481
(Sup. Ct. N.Y. Cty. July 1, 2019) ..................................................................................... passim
In re Qudian Sec. Litig.,
2018 WL 6067209
(Sup. Ct. N.Y. Cty. Nov. 14, 2018) ...........................................................................................8
In re SunEdison, Inc. Sec. Litig.,
329 F.R.D. 124 (S.D.N.Y. 2019) ...............................................................................................9
In re Topps Co., Inc. S’holder Litig.,
2007 WL 5018882
(Sup. Ct. N.Y. Cty. June 8, 2007) ......................................................................................14, 19
McCarthy v. Kerrigan,
59 Misc. 3d 872 (Sup. Ct. N.Y. Cty. 2018) .............................................................................13
Mt. McKinley Ins. Co. v. Corning Inc.,
33 A.D.3d 51 (1st Dep’t 2006) ..........................................................................................16, 18
OneBeacon America Insurance Co.. v. Colgate-Palmolive Co.,
96 A.D.3d 541 (1st Dep’t 2012) ..............................................................................................13
Pierre Assocs. Inc. v. Citizens Cas. Co. of New York,
32 A.D.2d 495 (1st Dep’t 1969) ..............................................................................................18
Reaves v. Kessler,
2017 WL 2482948
(Sup. Ct. N.Y. Cty. June 8, 2017) ............................................................................................13
Tekni-Plex, Inc. v. Meyner & Landis,
1995 WL 17904283
(Sup. Ct. N.Y. Cty. Apr. 25, 1995) ............................................................................................8
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Wachovia Bank, N.A. v. Silverman,
84 A.D.3d 611 (1st Dep’t 2011) ..............................................................................................11
STATUTES, RULES AND REGULATIONS
15 U.S.C.
§77.................................................................................................................................... passim
§77k(e)(1) ................................................................................................................................14
§78.................................................................................................................................... passim
New York Civil Practice Law and Rules
§2201..........................................................................................................................................6
§3013........................................................................................................................................16
Federal Rule of Civil Procedure
Rule 9(b) ..................................................................................................................................16
LEGISLATIVE HISTORY
Private Securities Litigation Reform Act of 1995 (“PSLRA”)
Pub. L. No. 104-67, 109 Stat. 737 (1995) ........................................................................3, 6, 17
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Plaintiffs Michael Donlon, Nima Gorjizadeh, Neeraja Reddy, and Arthur Isman (“Plaintiffs”)
respectfully submit this memorandum of law in opposition to Defendants’1 motion to stay this
consolidated action (the “State Action”).2
I. PRELIMINARY STATEMENT
Five months after the State Action was filed and three months after agreeing to: (i) the
consolidation of the cases underlying the State Action; (ii) the appointment of lead plaintiff and lead
counsel in the State Action; (iii) accept serve on behalf of the Defendants in the State Action; and
(iv) a briefing schedule for filing the Complaint and Defendants’ anticipated motion to dismiss,
Defendants abruptly shifted course after reviewing the Complaint’s detailed allegations of Securities
Act of 1933 (“1933 Act”) violations by moving to stay in a blatant attempt at forum shopping.
Overlooking the many cases denying stay motions in 1933 Act cases in the Commercial
Division that equally weigh the relevant factors, Defendants principally rely on the “first-filed”
factor because a 1933 Act claim relating to NIO’s IPO (defined below) was filed in federal court one
month before the State Action. Def. Mem. at 6-10. But Defendants ignore that the first-filed rule
cannot be mechanically applied and it does not favor either party where, as here, the two actions
were filed reasonably close in time. Defendants offer no argument demonstrating otherwise.
1
“Defendants” refers to the defendants who filed this motion: NIO Inc. (“NIO” or the
“Company”), Puglisi & Associates, Donald Puglisi, Padmasree Warrior, Morgan Stanley & Co.
LLC, Goldman Sachs (Asia) L.L.C., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner &
Smith Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Credit Suisse Securities
(USA) LLC, UBS Securities LLC, and WR Securities, LLC.
2
All references to “NYSCEF” entries are to the docket in the State Action. References to “Def.
Mem.” are to Defendants’ memorandum of law in support of their motion (NYSCEF Doc. No. 45).
References to “¶__” are to paragraphs in the Consolidated Class Action Complaint, dated
October 25, 2019 (NYSCEF Doc. No. 37) (the “Complaint”). References to “Def. Ex.” are to the
exhibits appended to the Affirmation of Robert A. Fumerton, dated November 13, 2019. NYSCEF
Doc. No. 46. References to “Pl. Ex. __” are to the exhibits appended to the accompanying
Affirmation of Michael G. Capeci, dated November 22, 2019. Unless otherwise stated, all internal
citations are omitted and all emphasis is added.
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Even worse, Defendants downplay or inaccurately describe the relevant law and facts in
addressing the remaining factors, all of which strongly favor Plaintiffs. Specifically: (i) the State
Action is at a significantly advanced stage compared to the Federal Action (defined below); (ii) the
Commercial Division is a more suitable forum for 1933 Act cases than federal court; (iii) critical
defendants who are served in the State Action have not been named in the Federal Action, and no
defendants have been served in the Federal Action; (iv) there is no lead plaintiff appointed in the
Federal Action even though the applications have been pending since June 2019, meaning there is no
operative pleading and, therefore, Defendants have no basis for describing what form the Federal
Action will take; (v) it is unclear whether 1933 Act claims will continue to be part of the Federal
Action if a lead plaintiff is appointed because the plaintiff who filed the Federal Action is no longer
vying for lead; (vi) Plaintiffs’ damages may be significantly limited if the Federal Action proceeds
instead of the State Action; (vii) the Federal Action omits two key aspects of Plaintiffs’ 1933 Act
claims that are central to the State Action, and it is unclear if they will ever be asserted in the Federal
Action; (viii) Plaintiffs will be prejudiced by a stay because there was not a full and fair opportunity
for them to move for lead plaintiff in the Federal Action; (ix) Plaintiffs have also been prejudiced by
Defendants’ delay in making this motion; and (x) Defendants’ state grounds for prejudice –
defending 1933 Act claims in state and federal court – has been repeatedly found insufficient.
There are no factors that favor Defendants. The overwhelmingly majority of factors weigh
strongly in Plaintiffs’ favor. For these reasons, and as explained below, Defendants’ stay motion
should be denied and the State Action should proceed without delay.
II. STATEMENT OF FACTS
NIO is an electric car company based in China. ¶2. At the time of NIO’s initial public
offering on or about September 12, 2018 (“IPO”), which generated over $1 billion in net proceeds
for the Company (¶4), NIO derived all of its revenue from sales of its first production model, the
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ES8, to consumers in China. ¶2. NIO did not have its own manufacturing facility for the ES8, and
instead relied on a third-party to produce the ES8. ¶8.
Plaintiffs assert claims under Sections 11, 12(a)(2), and 15 of the 1933 Act for three sets of
false and misleading statements, and violations of two SEC regulations, made in the Registration
Statement: (i) that the ES8 was suffering from documented quality and design problems at the time
of the IPO (¶7); (ii) that the new manufacturing facility the Registration Statement stated was
currently being built in China, which 25% of the IPO’s proceeds were supposed to support, was
actually not being built (¶8); and (iii) that planned upcoming reductions in subsidies that the Chinese
government was offering for ES8 customers had inflated sales of the ES8 and was subjecting the
Company to increased competition (¶9). ¶¶101-24.
On June 11, 2019, when the first complaint was filed in the State Action, NIO’s common
stock closed at $2.61 per share – a 58.3% decline from the IPO price of $6.26 per share. ¶11.
III. PROCEDURAL BACKGROUND
Following the announcement of NIO’s fiscal year 2018 financial results on March 6, 2019,
three complaints were filed against NIO, its Chief Executive Officer, Bin Li (“Li”), and its Chief
Financial Officer, Louis T. Hsieh (“Hsieh”), alleging claims under the Securities Act of 1934 (the
“1934 Act”): (i) Tan v. NIO Inc., No. 1:19-cv-1424 (E.D.N.Y., filed on March 12, 2019) (“Tan”)
(Def. Ex. B); (ii) Sidoli v. NIO Inc., No. 3:19-cv-1320 (N.D. Cal., filed on March 12, 2019)
(“Sidoli”) (Def. Ex. C); and (iii) Jeon v. NIO Inc., No. 3:19-cv-1644 (N.D. Cal., filed on March 29,
2019) (“Jeon”) (Def. Ex. D) (collectively, the “1934 Act Actions”). None of the 1934 Act Actions
allege any claims under the 1933 Act.
As required by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), the law
firms representing the plaintiffs in Tan and Sidoli each issued public notices to apprise NIO investors
that 1934 Act claims had been filed and that any movants for lead plaintiff were required to file by
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no later than Monday, May 13, 2019. Pl. Ex. 1. These notices informed investors that 1934 Act
claims had been filed against NIO, Li, and Hsieh. Id. They do not state that any claims were being
advanced in connection with NIO’s IPO or under the 1933 Act. Id.
Just before the lead plaintiff deadline expired, on Friday, May 10, 2019, a plaintiff
represented by Glancy Prongay & Murray LLP (“GPM”) filed Tarapara v. NIO Inc., No. 1:19-cv-
2777 (E.D.N.Y.) (the “Federal Action”). GPM, which does not represent any of the 1934 Act Action
plaintiffs, filed on behalf of its client a 12-page complaint alleging violations of Sections 11 and 15
of the 1933 Act. Def. Ex. E. The Federal Action does not challenge any statements regarding
quality and design problems with the ES8. Id. The Federal Action does not allege claims against:
(i) defendant J.P. Morgan Securities LLC; (ii) defendant Donald Puglisi (“Puglisi”), NIO’s
authorized U.S. representative who signed the Registration Statement; (iii) defendant Puglisi &
Associates (“P&A”), a Delaware corporation appointed as NIO’s agent for service of process who
was Puglisi’s employer; (iv) defendant Denny Ting Bun Lee (“Lee”), a director-appointee at the time
of the IPO; and (v) defendant James Gordon Mitchell (“Mitchell”), a director-appointee at the time
of the IPO. Id.
Prospective lead plaintiffs filed motions in both Tan and Sidoli in compliance with the
May 13, 2019 deadline. Pl. Exs. 3-4. On May 22, 2019, Sidoli and Jeon were transferred into the
Eastern District of New York on NIO’s unopposed motion. Def. Mem. at 4. Only two movants for
lead plaintiff are still seeking appointment – (i) a consortium of individual investors that have styled
themselves as the “NIO Investor Group,” represented by Levi & Korsinsky LLP (“L&K”); and
(ii) Mark Mundy (“Mundy”), represented by the Rosen Law Firm (“Rosen”). Pl. Ex. 2. These lead
plaintiff applications have been fully submitted since June 2019, almost six months ago. Id.
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Defendants concede that the 1934 Act Actions and the Federal Action are not consolidated
and that neither the NIO Investor Group nor Mundy have been appointed as lead plaintiff. Def.
Mem. at 4. Further, neither the NIO Investor Group nor Mundy have filed a complaint in federal
court alleging 1933 Act claims. Id. Nor has L&K or Rosen filed a 1933 Act case in federal case.
Id. Further, GPM and Tarapara are no longer vying to be appointed as lead. Pl. Ex. 2. And the
docket in the Federal Action, which comprises just four entries, indicates that no 1933 Act
Defendant have been served. Pl. Ex. 5.
One month after the Federal Action was filed, the first complaint alleging 1933 Act claims in
connection with the IPO was filed in this Court on June 11, 2019. NYSCEF Doc. No. 1. On
June 20, 2019, July 23, 2019, and July 24, 2019, three similar class action complaints were also filed
in this Court (Index Nos. 653610/2019, 654202/2019, and 654236/2019).
On August 2, 2019, Plaintiffs and Defendants in the State Action filed a stipulation and
proposed order for consolidation, appointing lead counsel, setting a briefing schedule for Plaintiffs’
amended complaint and Defendants’ anticipated motion to dismiss, and amending the caption.
NYSCEF Doc. No. 16 (the “Order”). The Order does not contemplate a motion to stay the State
Action in favor of the Federal Action or the 1934 Act Actions. Id. To the contrary, the Order does
not even mention the existence of the Federal Action or the 1934 Act Actions. Id. Moreover,
Defendants did not indicate at any time in negotiating, and stipulating to, the Order that they
intended to move to stay the State Action. On August 14, 2019, the Court granted, and entered, the
Order. Id. Pursuant to the Order, Defendants’ motion to dismiss was scheduled to be filed by
December 24, 2019, Plaintiffs’ opposition thereto is due February 24, 2020, and Defendants’ reply
brief is due March 25, 2020.
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On October 25, 2019, after an inadvertent oversight by counsel for Plaintiffs (NYSCEF Doc
Nos. 32, 36), Plaintiffs filed the 36-page Complaint, carefully detailing why each of the three
categories of false and misleading statements in the Registration Statement are actionable. The
Complaint was the product of months of work across four law firms, including the use of in-house
investigators, reviewing documents relating to the IPO, analysts’ reports related to NIO, news
reports on NIO, and other relevant public information. As a result of these efforts, Plaintiffs were
able to better enhance and develop the operative allegations and claims, including the addition of a
Section 12(a)(2) claim. ¶¶142-49.
Almost five months after the State Action was initiated, and only after reviewing the clear-
cut violations of the 1933 Act detailed in the Complaint, Defendants belatedly informed Plaintiffs for
the first time on November 8, 2019 of their intention to move to stay the State Action. At the
November 12, 2019 preliminary conference, the parties agreed to a briefing schedule for Defendants’
motion to stay, Plaintiffs agreed to revisit discovery after this motion is resolved,3 and the Court
indicated that Defendants’ motion to dismiss will be due in early January 2020 if their stay motion is
denied. NYSCEF Doc. No. 53.
IV. ARGUMENT
A. Legal Standard
In deciding whether to issue a discretionary stay under CPLR 2201, “[t]here are numerous
factors that a court may consider[,]” including: (i) which action was commenced first and the stage
3
Defendants mischaracterize Plaintiffs’ position on discovery. Def. Mem. at 5 & n.5. At no point
during the parties’ November 8 meet and confer, the parties’ e-mail exchanges thereafter, or the
November 12 preliminary conference did Plaintiffs agree to a discovery stay. Plaintiffs fully intend
to promptly enforce their right to discovery, which is not barred by the PSLRA in the Commercial
Division – see Hoffman v. AT&T Inc., 2019 N.Y. Misc. LEXIS 3406, at *2 (Sup. Ct. N.Y. Cty.
June 21, 2019) (Ostrager, J.) (“in the Commercial Division, discovery is not stayed by motion
practice without leave of the Court.”) – once Defendants’ stay motion is denied.
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of the litigations; (ii) which forum has greater expertise; (iii) which forum offers a more complete
disposition of the issue; (iv) whether plaintiffs will be prejudiced by a stay; and (v) whether a stay
will prejudice defendants. See In re PPDAI Group Sec. Litig., 2019 N.Y. Misc. LEXIS 3481, at *8
(Sup. Ct. N.Y. Cty. July 1, 2019); In re Dentsply Sirona, Inc. S’holders Litig., 2019 N.Y. Misc.
LEXIS 4260, at *11 (Sup. Ct. N.Y. Cty. Aug. 2, 2019).
As explained herein, all but one of these factors strongly weigh in favor of denying
Defendants’ motion to stay, with the lone outlier factor not favoring Plaintiffs or Defendants. Thus,
the balance is firmly in Plaintiffs’ favor.
B. The State Action Was Filed Shortly After the Federal Action and Has
Significantly Advanced Ahead of the Federal Action
Defendants incorrectly state, without providing any authority for the proposition, that “the
primary consideration is which [case] was filed first.” Def. Mem. at 7. This ignores the many cases
that hold that “[t]he first to file rule . . . should not be applied mechanically irrespective of other
considerations.” PPDAI, 2019 N.Y. Misc. LEXIS 3481, at *10; Dentsply, 2019 N.Y. Misc. LEXIS
4260, at *14 (same). Elevating the first-filed rule above the other factors courts consider was
rejected in PPDAI and Dentsply, and should be rejected again here.
But even if the first-filed rule was the primary consideration, it does not favor Defendants or
Plaintiffs because the State Action and Federal Action were only filed one month apart. Many courts
hold that the first-filed rule is a nullity where, as here, the competing cases were filed reasonably
closely in time. See In re NYSE Euronext Shareholders/ICE Litig., 39 Misc. 3d 619, 623-24 (Sup.
Ct. N.Y. Cty. 2013) (holding that “forum in which the litigation was first commenced is not the
dispositive factor,” “especially when commencement of the competing action(s) has been reasonably
close in time”); see also 2005 Tomchin Family Charitable Trust v. Tremont Partners, Inc., 2009 WL
10635640, at *3 (Sup. Ct. N.Y. Cty. Sept. 16, 2009) (holding that “[t]he mere fact” that an “action
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was filed first does not mandate that an application for its stay be denied,” and labeling as a
“minimal period of time” the three weeks between filing of the actions); ACE Fire Underwriters Ins.
Co. v. ITT Indus., Inc., 2006 WL 3849060, at *9-*10 (Sup. Ct. N.Y. Cty. July 19, 2006) (“first-filed
action does not automatically take precedence over a later-filed action” and “priority in bringing of
actions” is “not controlling, especially when commencement of the competing actions has been
reasonably close in time”); Tekni-Plex, Inc. v. Meyner & Landis, 1995 WL 17904283 (Sup. Ct. N.Y.
Cty. Apr. 25, 1995) (“[P]riority in time is not a controlling factor, especially, as is the case here,
where the two have been commenced very close in time.”).
Defendants nonetheless argue for a mechanical application of the first-filed rule. Def. Mem.
at 9-10. The two principal cases they rely upon are easily distinguishable. Justice Sherwood stayed
a state case alleging 1933 Act claims that: (i) was filed over five months after numerous federal
cases alleging only 1933 Act claims were filed; (ii) included identical allegations and parties as in
the federal case; and (iii) was brought by counsel whose client lost the lead plaintiff motion in the
federal case. In re Qudian Sec. Litig., 2018 WL 6067209, at *1 (Sup. Ct. N.Y. Cty. Nov. 14, 2018).
Likewise, Justice Schecter rejected a similar attempt in Gordon v. Grindum Holding Incorporated by
an unsuccessful federal court lead counsel applicant to conduct “an end-run around the federal court
lead-counsel adjudication.” Def. Ex. F at 1. None of these circumstances are present in the State
Action. No plaintiff or counsel involved in the State Action is involved in the 1934 Act Actions or
the Federal Action (Def. Exs. B-E), nor did any of them move to be appointed in Tan or Sidoli. Pl.
Exs. 3-4. Qudian and Gordon do not support a blanket application of the first-filed rule, and the
unique circumstances of those cases are not present here.4
4
While the other four cases Defendants cite relied on the first-filed rule in denying stay motions
(Def. Mem. at 9), each decision makes clear that it was just one factor to be considered and all relied
on other factors in reaching their conclusion. See PPDAI, 2019 N.Y. Misc. LEXIS 3481, at *9-*13
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Defendants also incorrectly argue that the relevant cases to compare to the State Action for
purpose of the first-filed analysis are Tan and Sidoli, not the Federal Action. Def. Mem. at 3-4.
Defendants ignore that the 1934 Act Actions cannot possibly be “first filed” compared to the State
Action because they do not allege 1933 Act claims, which are “distinct claims” from 1934 Act
claims that “are governed by different legal standards.” In re SunEdison, Inc. Sec. Litig., 329 F.R.D.
124, 133 (S.D.N.Y. 2019). Thus, the Federal Action is the only federal case that matters for the first-
filed rule analysis.
While the first-filed rule factor is inconclusive, the stage of the litigation strongly favors
Plaintiffs because the State Action is substantially ahead of the Federal Action. In the five months
since the State Action was filed, Plaintiffs have, inter alia: (i) consolidated four related cases into the
State Action; (ii) obtained appointment of lead plaintiffs and lead counsel; (iii) successfully
negotiated the acceptance of service by Defendants; (iv) expended months investigating, preparing,
and filing a detailed amended complaint; (v) successfully negotiated a briefing schedule for
Defendants’ anticipated motion to dismiss; (vi) prepared initial discovery requests; and (vii) attended
a preliminary conference before this Court. Indeed, without the delay engendered by this motion,
Defendants’ motion to dismiss in the State Action would be fully briefed by March 2020.
In stark contrast, and contrary to Defendants’ sparse analysis (Def. Mem. at 10), in the six
months since the Federal Action was filed, neither Tarapara, the NIO Investor Group, nor Mundy
Preview
FILED: NEW YORK COUNTY CLERK 02/06/2020 07:47 PM INDEX NO. 656021/2019 NYSCEF DOC. NO. 37 RECEIVED NYSCEF: 02/06/2020 ([KLELW FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION X In re NIO INC. SECURITIES LITIGATION : : Index No. 653422/2019 : This Document Relates To: : The Honorable Barry R. Ostrager : Part 61 ALL ACTIONS. : : Motion Sequence No. 003 X PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ JOINT MOTION TO STAY ALL PROCEEDINGS 1 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 TABLE OF CONTENTS Page I. PRELIMINARY STATEMENT .........................................................................................1 II. STATEMENT OF FACTS ..................................................................................................2 III. PROCEDURAL BACKGROUND ......................................................................................3 IV. ARGUMENT .......................................................................................................................6 A. Legal Standard .........................................................................................................6 B. The State Action Was Filed Shortly After the Federal Action and Has Significantly Advanced Ahead of the Federal Action .............................................7 C. The Commercial Division Is Better Suited than Federal Courts to Adjudicate 1933 Act Claims ..................................................................................11 D. The Federal Action Does Not Offer Complete Relief Because There Is Not a Complete Identity of Parties, 1933 Act Damages May Be Limited in the Federal Action, and the Claims Are More Fully Developed in the State Action .....................................................................................................................12 1. A Complete Identity of Parties Is Lacking ................................................12 2. Section 11 Damages May Be Limited in the Federal Action ....................14 3. The Facts and Claims Are More Developed in the State Action ...............15 E. Plaintiffs Will Be Prejudiced if a Stay Is Granted .................................................17 F. Proceeding in State and Federal Court Does Not Constitute Prejudice to Defendants .............................................................................................................18 V. CONCLUSION ..................................................................................................................19 -i- 2 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 TABLE OF AUTHORITIES Page CASES 2005 Tomchin Family Charitable Trust v. Tremont Partners, Inc., 2009 WL 10635640 (Sup. Ct. N.Y. Cty. Sept. 16, 2009) ...........................................................................................7 Abrams v. Xenon Indus., Inc., 145 A.D.2d 362 (1st Dep’t 1988) ............................................................................................12 ACE Fire Underwriters Ins. Co. v. ITT Indus., Inc., 2006 WL 3849060 (Sup. Ct. N.Y. Cty. July 19, 2006) .............................................................................................8 Araujo v. Uxin Ltd., et al., 2019 WL 3250017 (Sup. Ct. N.Y. Cty. July 15, 2019) ................................................................................... passim Carmona v. Loma Negra Compania Industrial Argentina Sociedad Anonima, 2019 WL 3783328 (S.D.N.Y. Aug. 9, 2019) ..........................................................................................................19 Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) .............................................................................................................11 Ferber v. Fairfield Greenwich Grp., 2010 WL 2927274 (Sup. Ct. N.Y. Cty. July 22, 2010) ...........................................................................................18 Hala v. Orange Regional Med. Ctr., 60 Misc. 3d 274 (Sup. Ct. N.Y. Cty. 2018) .............................................................................11 Hoffman v. AT&T Inc., 2019 N.Y. Misc. LEXIS 3406 (Sup. Ct. N.Y. Cty. June 21, 2019) ............................................................................6, 9, 10, 11 Hope’s Windows v. Albro Metal Products Corp., 93 A.D.2d 711 (1st Dep’t 1983) ..............................................................................................12 In re Dentsply Sirona, Inc. S’holders Litig., 2019 N.Y. Misc. LEXIS 4260 (Sup. Ct. N.Y. Cty. Aug. 2, 2019) ................................................................................... passim In re Dentsply Sirona, Inc. S’holders Litig., 2019 WL 4695724 (Sup. Ct. N.Y. Cty. Sept. 26, 2019) .........................................................................................16 - ii - 3 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 Page In re LendingClub Sec. Litig., 282 F. Supp. 3d 1171 (N.D. Cal. 2017) ...................................................................................14 In re Netshoes Sec. Litig., 64 Misc.3d 926 (Sup. Ct. N.Y. Cty. 2019) ..............................................................................16 In re NYSE Euronext Shareholders/ICE Litig., 39 Misc. 3d 619 (Sup. Ct. N.Y. Cty. 2013) ...............................................................................7 In re PPDAI Group Sec. Litig., 2019 N.Y. Misc. LEXIS 3481 (Sup. Ct. N.Y. Cty. July 1, 2019) ..................................................................................... passim In re Qudian Sec. Litig., 2018 WL 6067209 (Sup. Ct. N.Y. Cty. Nov. 14, 2018) ...........................................................................................8 In re SunEdison, Inc. Sec. Litig., 329 F.R.D. 124 (S.D.N.Y. 2019) ...............................................................................................9 In re Topps Co., Inc. S’holder Litig., 2007 WL 5018882 (Sup. Ct. N.Y. Cty. June 8, 2007) ......................................................................................14, 19 McCarthy v. Kerrigan, 59 Misc. 3d 872 (Sup. Ct. N.Y. Cty. 2018) .............................................................................13 Mt. McKinley Ins. Co. v. Corning Inc., 33 A.D.3d 51 (1st Dep’t 2006) ..........................................................................................16, 18 OneBeacon America Insurance Co.. v. Colgate-Palmolive Co., 96 A.D.3d 541 (1st Dep’t 2012) ..............................................................................................13 Pierre Assocs. Inc. v. Citizens Cas. Co. of New York, 32 A.D.2d 495 (1st Dep’t 1969) ..............................................................................................18 Reaves v. Kessler, 2017 WL 2482948 (Sup. Ct. N.Y. Cty. June 8, 2017) ............................................................................................13 Tekni-Plex, Inc. v. Meyner & Landis, 1995 WL 17904283 (Sup. Ct. N.Y. Cty. Apr. 25, 1995) ............................................................................................8 - iii - 4 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 Page Wachovia Bank, N.A. v. Silverman, 84 A.D.3d 611 (1st Dep’t 2011) ..............................................................................................11 STATUTES, RULES AND REGULATIONS 15 U.S.C. §77.................................................................................................................................... passim §77k(e)(1) ................................................................................................................................14 §78.................................................................................................................................... passim New York Civil Practice Law and Rules §2201..........................................................................................................................................6 §3013........................................................................................................................................16 Federal Rule of Civil Procedure Rule 9(b) ..................................................................................................................................16 LEGISLATIVE HISTORY Private Securities Litigation Reform Act of 1995 (“PSLRA”) Pub. L. No. 104-67, 109 Stat. 737 (1995) ........................................................................3, 6, 17 - iv - 5 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 Plaintiffs Michael Donlon, Nima Gorjizadeh, Neeraja Reddy, and Arthur Isman (“Plaintiffs”) respectfully submit this memorandum of law in opposition to Defendants’1 motion to stay this consolidated action (the “State Action”).2 I. PRELIMINARY STATEMENT Five months after the State Action was filed and three months after agreeing to: (i) the consolidation of the cases underlying the State Action; (ii) the appointment of lead plaintiff and lead counsel in the State Action; (iii) accept serve on behalf of the Defendants in the State Action; and (iv) a briefing schedule for filing the Complaint and Defendants’ anticipated motion to dismiss, Defendants abruptly shifted course after reviewing the Complaint’s detailed allegations of Securities Act of 1933 (“1933 Act”) violations by moving to stay in a blatant attempt at forum shopping. Overlooking the many cases denying stay motions in 1933 Act cases in the Commercial Division that equally weigh the relevant factors, Defendants principally rely on the “first-filed” factor because a 1933 Act claim relating to NIO’s IPO (defined below) was filed in federal court one month before the State Action. Def. Mem. at 6-10. But Defendants ignore that the first-filed rule cannot be mechanically applied and it does not favor either party where, as here, the two actions were filed reasonably close in time. Defendants offer no argument demonstrating otherwise. 1 “Defendants” refers to the defendants who filed this motion: NIO Inc. (“NIO” or the “Company”), Puglisi & Associates, Donald Puglisi, Padmasree Warrior, Morgan Stanley & Co. LLC, Goldman Sachs (Asia) L.L.C., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, UBS Securities LLC, and WR Securities, LLC. 2 All references to “NYSCEF” entries are to the docket in the State Action. References to “Def. Mem.” are to Defendants’ memorandum of law in support of their motion (NYSCEF Doc. No. 45). References to “¶__” are to paragraphs in the Consolidated Class Action Complaint, dated October 25, 2019 (NYSCEF Doc. No. 37) (the “Complaint”). References to “Def. Ex.” are to the exhibits appended to the Affirmation of Robert A. Fumerton, dated November 13, 2019. NYSCEF Doc. No. 46. References to “Pl. Ex. __” are to the exhibits appended to the accompanying Affirmation of Michael G. Capeci, dated November 22, 2019. Unless otherwise stated, all internal citations are omitted and all emphasis is added. -1- 6 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 Even worse, Defendants downplay or inaccurately describe the relevant law and facts in addressing the remaining factors, all of which strongly favor Plaintiffs. Specifically: (i) the State Action is at a significantly advanced stage compared to the Federal Action (defined below); (ii) the Commercial Division is a more suitable forum for 1933 Act cases than federal court; (iii) critical defendants who are served in the State Action have not been named in the Federal Action, and no defendants have been served in the Federal Action; (iv) there is no lead plaintiff appointed in the Federal Action even though the applications have been pending since June 2019, meaning there is no operative pleading and, therefore, Defendants have no basis for describing what form the Federal Action will take; (v) it is unclear whether 1933 Act claims will continue to be part of the Federal Action if a lead plaintiff is appointed because the plaintiff who filed the Federal Action is no longer vying for lead; (vi) Plaintiffs’ damages may be significantly limited if the Federal Action proceeds instead of the State Action; (vii) the Federal Action omits two key aspects of Plaintiffs’ 1933 Act claims that are central to the State Action, and it is unclear if they will ever be asserted in the Federal Action; (viii) Plaintiffs will be prejudiced by a stay because there was not a full and fair opportunity for them to move for lead plaintiff in the Federal Action; (ix) Plaintiffs have also been prejudiced by Defendants’ delay in making this motion; and (x) Defendants’ state grounds for prejudice – defending 1933 Act claims in state and federal court – has been repeatedly found insufficient. There are no factors that favor Defendants. The overwhelmingly majority of factors weigh strongly in Plaintiffs’ favor. For these reasons, and as explained below, Defendants’ stay motion should be denied and the State Action should proceed without delay. II. STATEMENT OF FACTS NIO is an electric car company based in China. ¶2. At the time of NIO’s initial public offering on or about September 12, 2018 (“IPO”), which generated over $1 billion in net proceeds for the Company (¶4), NIO derived all of its revenue from sales of its first production model, the -2- 7 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 ES8, to consumers in China. ¶2. NIO did not have its own manufacturing facility for the ES8, and instead relied on a third-party to produce the ES8. ¶8. Plaintiffs assert claims under Sections 11, 12(a)(2), and 15 of the 1933 Act for three sets of false and misleading statements, and violations of two SEC regulations, made in the Registration Statement: (i) that the ES8 was suffering from documented quality and design problems at the time of the IPO (¶7); (ii) that the new manufacturing facility the Registration Statement stated was currently being built in China, which 25% of the IPO’s proceeds were supposed to support, was actually not being built (¶8); and (iii) that planned upcoming reductions in subsidies that the Chinese government was offering for ES8 customers had inflated sales of the ES8 and was subjecting the Company to increased competition (¶9). ¶¶101-24. On June 11, 2019, when the first complaint was filed in the State Action, NIO’s common stock closed at $2.61 per share – a 58.3% decline from the IPO price of $6.26 per share. ¶11. III. PROCEDURAL BACKGROUND Following the announcement of NIO’s fiscal year 2018 financial results on March 6, 2019, three complaints were filed against NIO, its Chief Executive Officer, Bin Li (“Li”), and its Chief Financial Officer, Louis T. Hsieh (“Hsieh”), alleging claims under the Securities Act of 1934 (the “1934 Act”): (i) Tan v. NIO Inc., No. 1:19-cv-1424 (E.D.N.Y., filed on March 12, 2019) (“Tan”) (Def. Ex. B); (ii) Sidoli v. NIO Inc., No. 3:19-cv-1320 (N.D. Cal., filed on March 12, 2019) (“Sidoli”) (Def. Ex. C); and (iii) Jeon v. NIO Inc., No. 3:19-cv-1644 (N.D. Cal., filed on March 29, 2019) (“Jeon”) (Def. Ex. D) (collectively, the “1934 Act Actions”). None of the 1934 Act Actions allege any claims under the 1933 Act. As required by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), the law firms representing the plaintiffs in Tan and Sidoli each issued public notices to apprise NIO investors that 1934 Act claims had been filed and that any movants for lead plaintiff were required to file by -3- 8 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 no later than Monday, May 13, 2019. Pl. Ex. 1. These notices informed investors that 1934 Act claims had been filed against NIO, Li, and Hsieh. Id. They do not state that any claims were being advanced in connection with NIO’s IPO or under the 1933 Act. Id. Just before the lead plaintiff deadline expired, on Friday, May 10, 2019, a plaintiff represented by Glancy Prongay & Murray LLP (“GPM”) filed Tarapara v. NIO Inc., No. 1:19-cv- 2777 (E.D.N.Y.) (the “Federal Action”). GPM, which does not represent any of the 1934 Act Action plaintiffs, filed on behalf of its client a 12-page complaint alleging violations of Sections 11 and 15 of the 1933 Act. Def. Ex. E. The Federal Action does not challenge any statements regarding quality and design problems with the ES8. Id. The Federal Action does not allege claims against: (i) defendant J.P. Morgan Securities LLC; (ii) defendant Donald Puglisi (“Puglisi”), NIO’s authorized U.S. representative who signed the Registration Statement; (iii) defendant Puglisi & Associates (“P&A”), a Delaware corporation appointed as NIO’s agent for service of process who was Puglisi’s employer; (iv) defendant Denny Ting Bun Lee (“Lee”), a director-appointee at the time of the IPO; and (v) defendant James Gordon Mitchell (“Mitchell”), a director-appointee at the time of the IPO. Id. Prospective lead plaintiffs filed motions in both Tan and Sidoli in compliance with the May 13, 2019 deadline. Pl. Exs. 3-4. On May 22, 2019, Sidoli and Jeon were transferred into the Eastern District of New York on NIO’s unopposed motion. Def. Mem. at 4. Only two movants for lead plaintiff are still seeking appointment – (i) a consortium of individual investors that have styled themselves as the “NIO Investor Group,” represented by Levi & Korsinsky LLP (“L&K”); and (ii) Mark Mundy (“Mundy”), represented by the Rosen Law Firm (“Rosen”). Pl. Ex. 2. These lead plaintiff applications have been fully submitted since June 2019, almost six months ago. Id. -4- 9 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 Defendants concede that the 1934 Act Actions and the Federal Action are not consolidated and that neither the NIO Investor Group nor Mundy have been appointed as lead plaintiff. Def. Mem. at 4. Further, neither the NIO Investor Group nor Mundy have filed a complaint in federal court alleging 1933 Act claims. Id. Nor has L&K or Rosen filed a 1933 Act case in federal case. Id. Further, GPM and Tarapara are no longer vying to be appointed as lead. Pl. Ex. 2. And the docket in the Federal Action, which comprises just four entries, indicates that no 1933 Act Defendant have been served. Pl. Ex. 5. One month after the Federal Action was filed, the first complaint alleging 1933 Act claims in connection with the IPO was filed in this Court on June 11, 2019. NYSCEF Doc. No. 1. On June 20, 2019, July 23, 2019, and July 24, 2019, three similar class action complaints were also filed in this Court (Index Nos. 653610/2019, 654202/2019, and 654236/2019). On August 2, 2019, Plaintiffs and Defendants in the State Action filed a stipulation and proposed order for consolidation, appointing lead counsel, setting a briefing schedule for Plaintiffs’ amended complaint and Defendants’ anticipated motion to dismiss, and amending the caption. NYSCEF Doc. No. 16 (the “Order”). The Order does not contemplate a motion to stay the State Action in favor of the Federal Action or the 1934 Act Actions. Id. To the contrary, the Order does not even mention the existence of the Federal Action or the 1934 Act Actions. Id. Moreover, Defendants did not indicate at any time in negotiating, and stipulating to, the Order that they intended to move to stay the State Action. On August 14, 2019, the Court granted, and entered, the Order. Id. Pursuant to the Order, Defendants’ motion to dismiss was scheduled to be filed by December 24, 2019, Plaintiffs’ opposition thereto is due February 24, 2020, and Defendants’ reply brief is due March 25, 2020. -5- 10 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 On October 25, 2019, after an inadvertent oversight by counsel for Plaintiffs (NYSCEF Doc Nos. 32, 36), Plaintiffs filed the 36-page Complaint, carefully detailing why each of the three categories of false and misleading statements in the Registration Statement are actionable. The Complaint was the product of months of work across four law firms, including the use of in-house investigators, reviewing documents relating to the IPO, analysts’ reports related to NIO, news reports on NIO, and other relevant public information. As a result of these efforts, Plaintiffs were able to better enhance and develop the operative allegations and claims, including the addition of a Section 12(a)(2) claim. ¶¶142-49. Almost five months after the State Action was initiated, and only after reviewing the clear- cut violations of the 1933 Act detailed in the Complaint, Defendants belatedly informed Plaintiffs for the first time on November 8, 2019 of their intention to move to stay the State Action. At the November 12, 2019 preliminary conference, the parties agreed to a briefing schedule for Defendants’ motion to stay, Plaintiffs agreed to revisit discovery after this motion is resolved,3 and the Court indicated that Defendants’ motion to dismiss will be due in early January 2020 if their stay motion is denied. NYSCEF Doc. No. 53. IV. ARGUMENT A. Legal Standard In deciding whether to issue a discretionary stay under CPLR 2201, “[t]here are numerous factors that a court may consider[,]” including: (i) which action was commenced first and the stage 3 Defendants mischaracterize Plaintiffs’ position on discovery. Def. Mem. at 5 & n.5. At no point during the parties’ November 8 meet and confer, the parties’ e-mail exchanges thereafter, or the November 12 preliminary conference did Plaintiffs agree to a discovery stay. Plaintiffs fully intend to promptly enforce their right to discovery, which is not barred by the PSLRA in the Commercial Division – see Hoffman v. AT&T Inc., 2019 N.Y. Misc. LEXIS 3406, at *2 (Sup. Ct. N.Y. Cty. June 21, 2019) (Ostrager, J.) (“in the Commercial Division, discovery is not stayed by motion practice without leave of the Court.”) – once Defendants’ stay motion is denied. -6- 11 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 of the litigations; (ii) which forum has greater expertise; (iii) which forum offers a more complete disposition of the issue; (iv) whether plaintiffs will be prejudiced by a stay; and (v) whether a stay will prejudice defendants. See In re PPDAI Group Sec. Litig., 2019 N.Y. Misc. LEXIS 3481, at *8 (Sup. Ct. N.Y. Cty. July 1, 2019); In re Dentsply Sirona, Inc. S’holders Litig., 2019 N.Y. Misc. LEXIS 4260, at *11 (Sup. Ct. N.Y. Cty. Aug. 2, 2019). As explained herein, all but one of these factors strongly weigh in favor of denying Defendants’ motion to stay, with the lone outlier factor not favoring Plaintiffs or Defendants. Thus, the balance is firmly in Plaintiffs’ favor. B. The State Action Was Filed Shortly After the Federal Action and Has Significantly Advanced Ahead of the Federal Action Defendants incorrectly state, without providing any authority for the proposition, that “the primary consideration is which [case] was filed first.” Def. Mem. at 7. This ignores the many cases that hold that “[t]he first to file rule . . . should not be applied mechanically irrespective of other considerations.” PPDAI, 2019 N.Y. Misc. LEXIS 3481, at *10; Dentsply, 2019 N.Y. Misc. LEXIS 4260, at *14 (same). Elevating the first-filed rule above the other factors courts consider was rejected in PPDAI and Dentsply, and should be rejected again here. But even if the first-filed rule was the primary consideration, it does not favor Defendants or Plaintiffs because the State Action and Federal Action were only filed one month apart. Many courts hold that the first-filed rule is a nullity where, as here, the competing cases were filed reasonably closely in time. See In re NYSE Euronext Shareholders/ICE Litig., 39 Misc. 3d 619, 623-24 (Sup. Ct. N.Y. Cty. 2013) (holding that “forum in which the litigation was first commenced is not the dispositive factor,” “especially when commencement of the competing action(s) has been reasonably close in time”); see also 2005 Tomchin Family Charitable Trust v. Tremont Partners, Inc., 2009 WL 10635640, at *3 (Sup. Ct. N.Y. Cty. Sept. 16, 2009) (holding that “[t]he mere fact” that an “action -7- 12 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 was filed first does not mandate that an application for its stay be denied,” and labeling as a “minimal period of time” the three weeks between filing of the actions); ACE Fire Underwriters Ins. Co. v. ITT Indus., Inc., 2006 WL 3849060, at *9-*10 (Sup. Ct. N.Y. Cty. July 19, 2006) (“first-filed action does not automatically take precedence over a later-filed action” and “priority in bringing of actions” is “not controlling, especially when commencement of the competing actions has been reasonably close in time”); Tekni-Plex, Inc. v. Meyner & Landis, 1995 WL 17904283 (Sup. Ct. N.Y. Cty. Apr. 25, 1995) (“[P]riority in time is not a controlling factor, especially, as is the case here, where the two have been commenced very close in time.”). Defendants nonetheless argue for a mechanical application of the first-filed rule. Def. Mem. at 9-10. The two principal cases they rely upon are easily distinguishable. Justice Sherwood stayed a state case alleging 1933 Act claims that: (i) was filed over five months after numerous federal cases alleging only 1933 Act claims were filed; (ii) included identical allegations and parties as in the federal case; and (iii) was brought by counsel whose client lost the lead plaintiff motion in the federal case. In re Qudian Sec. Litig., 2018 WL 6067209, at *1 (Sup. Ct. N.Y. Cty. Nov. 14, 2018). Likewise, Justice Schecter rejected a similar attempt in Gordon v. Grindum Holding Incorporated by an unsuccessful federal court lead counsel applicant to conduct “an end-run around the federal court lead-counsel adjudication.” Def. Ex. F at 1. None of these circumstances are present in the State Action. No plaintiff or counsel involved in the State Action is involved in the 1934 Act Actions or the Federal Action (Def. Exs. B-E), nor did any of them move to be appointed in Tan or Sidoli. Pl. Exs. 3-4. Qudian and Gordon do not support a blanket application of the first-filed rule, and the unique circumstances of those cases are not present here.4 4 While the other four cases Defendants cite relied on the first-filed rule in denying stay motions (Def. Mem. at 9), each decision makes clear that it was just one factor to be considered and all relied on other factors in reaching their conclusion. See PPDAI, 2019 N.Y. Misc. LEXIS 3481, at *9-*13 -8- 13 of 26 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 02/06/2020 11/22/2019 07:47 11:50 PM PM INDEX NO. INDEX NO. 656021/2019 653422/2019 NYSCEF DOC. NYSCEF DOC. NO. NO. 37 68 RECEIVED RECEIVED NYSCEF: NYSCEF: 11/22/2019 02/06/2020 Defendants also incorrectly argue that the relevant cases to compare to the State Action for purpose of the first-filed analysis are Tan and Sidoli, not the Federal Action. Def. Mem. at 3-4. Defendants ignore that the 1934 Act Actions cannot possibly be “first filed” compared to the State Action because they do not allege 1933 Act claims, which are “distinct claims” from 1934 Act claims that “are governed by different legal standards.” In re SunEdison, Inc. Sec. Litig., 329 F.R.D. 124, 133 (S.D.N.Y. 2019). Thus, the Federal Action is the only federal case that matters for the first- filed rule analysis. While the first-filed rule factor is inconclusive, the stage of the litigation strongly favors Plaintiffs because the State Action is substantially ahead of the Federal Action. In the five months since the State Action was filed, Plaintiffs have, inter alia: (i) consolidated four related cases into the State Action; (ii) obtained appointment of lead plaintiffs and lead counsel; (iii) successfully negotiated the acceptance of service by Defendants; (iv) expended months investigating, preparing, and filing a detailed amended complaint; (v) successfully negotiated a briefing schedule for Defendants’ anticipated motion to dismiss; (vi) prepared initial discovery requests; and (vii) attended a preliminary conference before this Court. Indeed, without the delay engendered by this motion, Defendants’ motion to dismiss in the State Action would be fully briefed by March 2020. In stark contrast, and contrary to Defendants’ sparse analysis (Def. Mem. at 10), in the six months since the Federal Action was filed, neither Tarapara, the NIO Investor Group, nor Mundy