Motion to Approve or Confirm Settlement in Sonny St. John Individually and on Behalf of All Others Similarly Situated, v. Cloopen Group Holding Limited, Changxun Sun, Yipeng Li, Kui Zhou, Qingsheng Zheng, Xiaodong Liang, Zi Yang, Ming Liao, Feng Zhu, Lok Yan Hui, Jianhong Zhou, Ching Chiu, Cogency Global Inc., Colleen A. Devries, Goldman Sachs (Asia) L.L.C., Citigroup Global Markets, Inc., China International Capital Corporation Hong Kong Securities Limited, Tiger Brokers (Nz) Limited, Futu, Inc.| Trellis.Law

On April 19, 2021 a Motion-Secondary was filed involving a dispute between Sonny St. John Individually And On Behalf Of All Others Similarly Situated,, and Changxun Sun, China International Capital Corporation Hong Kong Securities Limited, Ching Chiu, Citigroup Global Markets, Inc., Cloopen Group Holding Limited, Cogency Global Inc., Colleen A. Devries, Feng Zhu, Futu, Inc., Goldman Sachs, Jianhong Zhou, Kui Zhou, Lok Yan Hui, Ming Liao, Qingsheng Zheng, Tiger Brokers, Xiaodong Liang, Yipeng Li, Zi Yang, for Commercial Division in the District Court of New York County.

Preview
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: COMMERCIAL DIVISION

SONNY ST. JOHN, Individually and on Behalf of All
Others Similarly Situated, Index No. 652617/2021

Plaintiff,
Part 53: Hon. Andrew Borrok
v.

CLOOPEN GROUP HOLDING LIMITED, ORAL ARGUMENT REQUESTED
CHANGXUN SUN, YIPENG LI, KUI ZHOU,
QINGSHENG ZHENG, XIAODONG LIANG, ZI
YANG, MING LIAO, FENG ZHU, LOK YAN HUI,
JIANHONG ZHOU, CHING CHIU, COGENCY
GLOBAL INC., COLLEEN A. DEVRIES, GOLDMAN
SACHS (ASIA) L.L.C., CITIGROUP GLOBAL
MARKETS INC., CHINA INTERNATIONAL
CAPITAL CORPORATION HONG KONG
SECURITIES LIMITED, TIGER BROKERS (NZ)
LIMITED, and FUTU, INC.,

Defendants.

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS’ MOTION FOR FINAL
APPROVAL OF CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION

Max R. Schwartz
Emilie B. Kokmanian
Mandeep S. Minhas
SCOTT+SCOTT ATTORNEYS AT LAW LLP
The Helmsley Building
230 Park Avenue, 17th Floor
New York, New York 10169
Telephone: (212) 223-6444
Facsimile: (212) 223-6334
mschwartz@scott-scott.com
ekokmanian@scott-scott.com
mminhas@scott-scott.com

Counsel for Plaintiff Sonny St. John

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TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................... 1
FACTUAL AND PROCEDURAL BACKGROUND.................................................................... 2
ARGUMENT .................................................................................................................................. 2
I. THE SETTLEMENT IS FAIR, REASONABLE, AND ADEQUATE,
AND SHOULD BE APPROVED .......................................................................... 2
A. Colt Factor One: Likelihood of Success on the Merits and Amount
Recovered in Light of Litigation Risks....................................................... 3
B. Colt Factors Two Through Four: Extent of Support from the
Parties, Judgment of Counsel, and Presence of Good-Faith
Bargaining ................................................................................................. 11
C. Colt Factor Five: Complexity and Nature of Case.................................... 12
II. THE PLAN OF ALLOCATION IS FAIR AND ADEQUATE ........................... 13
III. THE SETTLEMENT CLASS SHOULD BE CERTIFIED .................................. 15
A. The Settlement Class Easily Satisfies CPLR 901 ..................................... 15
B. CPLR 902’s Discretionary Factors Also Support Certification................ 17
IV. NOTICE TO THE CLASS SATISFIED THE REQUIREMENTS OF
ARTICLE 9 OF THE CPLR AND DUE PROCESS ........................................... 18
CONCLUSION ............................................................................................................................. 19

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TABLE OF AUTHORITIES

Page(s)

Cases

Borden v. 400 E. 55th St. Assocs., L.P.,
24 N.Y.3d 382 (2014) ..............................................................................................................16

City Trading Fund v. Nye,
72 N.Y.S.3d 371 (Sup. Ct., N.Y. Cnty. 2018) .........................................................................12

Denburg v. Parker Chapin Flattau & Klimpl,
82 N.Y.2d 375 (1993) ................................................................................................................3

Dura Pharms., Inc. v. Broudo,
544 U.S. 336 (2005) ...................................................................................................................7

Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc.,
873 F.3d 85 (2d Cir. 2017).....................................................................................................6, 9

Fernandez v. Legends Hosp., LLC,
No. 152208/2014, 2015 WL 3932897 (Sup. Ct., N.Y. Cnty. June 22, 2015) ............................3

Fiala v. Metro. Life Ins. Co., Inc.,
899 N.Y.S.2d 531 (Sup. Ct., N.Y. Cnty. 2010) .......................................................................12

Fishoff v. Coty Inc.,
No. 09 Civ. 628, 2010 WL 305358 (S.D.N.Y. Jan. 25, 2010), aff’d 634 F.3d
647 (2d Cir. 2011) ......................................................................................................................7

Glam & Glitz Nail Design, Inc. v. iGel Beauty, LLC,
No. SA CV 20-00088, 2022 WL 17078947 (C.D. Cal. Sept. 30, 2022)....................................6

Gordon v. Verizon Commc’ns,
148 A.D.3d 146 (App. Div. 1st Dep’t 2017) .................................................................3, 11, 12

Hosue v. Calypso St. Barth, Inc.,
No. 160400/2015, 2017 WL 4011213 (Sup. Ct., N.Y. Cnty. Sept. 12, 2017) ...........................3

Hubbard v. BankAtlantic Bancorp, Inc.,
688 F.3d 713 (11th Cir. 2012) ...................................................................................................8

IDT Corp. v. Tyco Grp., S.A.R.L.,
13 N.Y.3d 209 (2009) ................................................................................................................2

In re Advanced Battery Techs., Inc. Sec. Litig.,
298 F.R.D. 171 (S.D.N.Y. 2014) .............................................................................................13

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In re Am. Bank Note Holographics, Inc.,
127 F. Supp. 2d 418 (S.D.N.Y. 2001)........................................................................................7

In re Bayer AG Sec. Litig.,
No. 03 Civ. 1546, 2008 WL 5336691 (S.D.N.Y. Dec. 15, 2008) ..............................................3

In re Colt Indus. S’holder Litig.,
155 A.D.2d 154 (App. Div. 1st Dep’t 1990) .................................................................3, 11, 12

In re Dozier Fin., Inc.,
No. 4:18-cv-1888, 2018 WL 4599860 (D.S.C. Sept. 6, 2018), report adopted,
2019 WL 1075072 (D.S.C. Mar. 7, 2019) .................................................................................4

In re Giant Interactive Grp., Inc. Sec. Litig.,
279 F.R.D. 151 (S.D.N.Y. 2011) ...............................................................................................7

In re Glob. Crossing Sec. and ERISA Litig.,
225 F.R.D. 436 (S.D.N.Y. 2004) ...............................................................................................8

In re SunEdison, Inc. Sec. Litig.,
329 F.R.D. 124 (S.D.N.Y. 2019) .......................................................................................16, 17

In re Telik, Inc. Sec. Litig.,
576 F. Supp. 2d 570 (S.D.N.Y. 2008)........................................................................................7

In re WorldCom, Inc. Sec. Litig.,
388 F. Supp. 2d 319 (S.D.N.Y. 2005)......................................................................................13

Klein v. Robert’s Am. Gourmet Food, Inc.,
28 A.D.3d 63 (App. Div. 2d Dep’t 2006) ..............................................................................3, 9

Lea v. TAL Educ. Grp.,
837 F. App’x 20 (2d Cir. 2020) .................................................................................................5

Maley v. Del Glob. Techs. Corp.,
186 F. Supp. 2d 358 (S.D.N.Y. 2002)......................................................................................14

Nawrocki v. Proto Constr. & Dev. Corp.,
No. 104229/2007, 2010 WL 1531428 (Sup. Ct. N.Y. Cnty. Apr. 7, 2010),
aff’d, 82 A.D.3d 534 (App. Div. 1st Dep’t 2011) ....................................................................17

Patel v. L-3 Commc'ns Holdings Inc.,
No. 14-CV-6038-VEC, 2016 WL 1629325 (S.D.N.Y. Apr. 21, 2016) .....................................5

Pressner v. MortgageIT Holdings, Inc.,
No. 602472/2006, 2007 WL 1794935 (Sup. Ct. N.Y. Cnty. May 29, 2007) ...........................11

iii

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Pruitt v. Rockefeller Ctr. Props., Inc.,
167 A.D.2d 14 (App. Div. 1st Dep’t 1991) .................................................................15, 16, 17

Ret. Fund v. J.P. Morgan Chase & Co.,
301 F.R.D. 116 (S.D.N.Y. 2014) .............................................................................................15

Ret. Sys. v. Morgan Stanley & Co.,
772 F.3d 111 (2d Cir. 2014).....................................................................................................16

Saska v. Metro. Museum of Art,
54 N.Y.S.3d 566 (Sup. Ct., N.Y. Cnty. 2017) .........................................................................12

Stecko v. RLI Ins. Co.,
121 A.D.3d 542 (App. Div. 1st Dep’t 2014) ...........................................................................17

Sykes v. Mel S. Harris & Assocs. LLC,
780 F.3d 70 (2d Cir. 2015).......................................................................................................16

Wal-Mart Stores, Inc. v. Visa U.S.A., Inc.,
396 F.3d 96 (2d Cir. 2005).........................................................................................................3

Zimmerman v. Portfolio Recovery Assocs., LLC,
No. 09 CIV. 4602, 2013 WL 6508813 (S.D.N.Y. Dec. 12, 2013)...........................................14

Statutes

15 U.S.C.
§78t(a) ........................................................................................................................................5
§78j(b) ........................................................................................................................................5

17 C.F.R.
§240.10b-5 .................................................................................................................................5

Civil Practice Law and Rules
Rule 901 .............................................................................................................................15, 17
Rule 901(1) ..............................................................................................................................15
Rule 901(3) ..............................................................................................................................16
Rule 901(4) ..............................................................................................................................17
Rule 901(5) ..............................................................................................................................17
Rule 902 .......................................................................................................................15, 17, 18

Other Authorities

Janeen McIntosh, et al., Recent Trends In Securities Class Action Litigation:
2022 Full-Year Review, NERA ECON. CONSULTING (Jan. 25, 2022) ......................................10

Laarni T. Bulan & Laura E. Simmons, Securities Class Action Settlements:
2022 Review and Analysis, CORNERSTONE RESEARCH (2022) ................................................10

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U.S. Dep’t of State, Bureau of Consular Affairs, Taking Voluntary Depositions of
Willing Witnesses, China Judicial Assistance Information (2019) ...........................................6

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Plaintiffs (consisting of State Class Representative Sonny St. John, together with Federal

Plaintiff Guozhang Wang in the related Federal Action1) respectfully submit this brief in support

of Plaintiffs’ Motion for Final Approval of Class Action Settlement and Plan of Allocation. The

proposed Settlement’s terms are set forth in the Stipulation of Settlement (the “Stipulation”) filed

on August 16, 2023 (NYSCEF No. 107).2

INTRODUCTION

After more than two years of litigation, the Parties in this State Action and in the

substantively similar action brought on behalf of the same Class in the related Federal Action

(collectively, the “Actions”) have agreed to settle, on a global basis, all claims asserted against all

Defendants in both Actions for $12,000,000 in cash.3 The Plaintiffs in both Actions allege that

Defendants violated the federal securities laws by making misstatements and omissions of material

fact in the Offering Materials for Cloopen Group Holding Limited’s (“Cloopen”) February 9, 2019

initial public offering of Cloopen American Depository Shares (“ADS”).

The proposed $12 million Settlement was reached only after vigorously contested motions

to dismiss practice in both Actions, approximately nine months of fact discovery and the

certification of a class in the State Action, and protracted arm’s-length settlement negotiations

1
The Federal Action refers to the substantively similar action brought in the United States
District Court for the Southern District of New York on behalf of a substantially similar Class of
investors, captioned Dong v. Cloopen Group Holding Limited, et al., No 1:21-cv-10610-JGK-
RWL (S.D.N.Y.).
2
Unless otherwise indicated herein: (1) all capitalized terms have the meanings set forth in
the Stipulation; and (2) in quoted material, unless otherwise indicated, all citations and internal
quotation marks are omitted and all emphasis is added.
3
After being advised of the Settlement, the Federal Court dismissed the Federal Action with
prejudice. Order entered June 6, 2023 (ECF No. 135). Unless otherwise indicated or referenced
to the above-captioned action (i.e., “NYSCEF No.”), all ECF No. references are to the Federal
Action, Dong v. Cloopen Grp. Holding Ltd., No. 1:21-cv-10610-JGK-RWL (S.D.N.Y.).

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overseen by a highly experienced mediator, Robert Meyer, Esq., of JAMS (the “Mediator”).

Plaintiffs and their counsel respectfully submit that this Settlement represents an excellent

recovery in the face of very substantial litigation risk and collectability issues. Moreover, although

individual “Notice Packets” have been mailed to over 4,900 potential Settlement Class Members

or their nominees, to date, no objections or “opt-out” requests have been received. See

accompanying Joint Affirmation of Max R. Schwartz and Michael Dell’Angelo (“Joint Aff.”), ¶8;

Affidavit of Eric Schachter Regarding: (A) Mailing of Notice and Claim Form; (B) Publication of

Summary Notice; and (C) Report on Requests for Exclusion Received to Date (“Schachter Aff.”),

¶¶5, 16. For these and the other reasons detailed herein, the Settlement easily meets the CPLR’s

standards for approval.

Additionally, the proposed Plan of Allocation (“POA”), designed by Plaintiffs’ damages

expert, provides for a customary pro rata distribution of the Net Settlement proceeds to Settlement

Class Members and should also be approved.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs respectfully refer the Court to the accompanying Joint Affirmation for a detailed

discussion of the history of the Actions, the extensive work performed by Plaintiffs’ Counsel, the

risks of continued litigation, and the negotiations under the independent Mediator’s auspices that

led to the Settlement. Joint Aff., ¶¶13-57.

ARGUMENT

I. THE SETTLEMENT IS FAIR, REASONABLE, AND ADEQUATE, AND SHOULD
BE APPROVED

New York courts strongly favor settlements as a matter of public policy. IDT Corp. v. Tyco

Grp., S.A.R.L., 13 N.Y.3d 209, 213 (2009) (“stipulations of settlement are judicially favored and

may not be lightly set aside”). “Strong policy considerations favor” settlements because “[a]

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negotiated compromise of a dispute avoids potentially costly, time-consuming litigation and

preserves scarce judicial resources; courts could not function if every dispute devolved into a

lawsuit.” Denburg v. Parker Chapin Flattau & Klimpl, 82 N.Y.2d 375, 383 (1993); accord Wal-

Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 116 (2d Cir. 2005) (citing “strong judicial

policy” favoring settlements).

When considering whether to finally approve a class action settlement, New York courts

focus on “the fairness of the settlement, its adequacy, its reasonableness, and the best interests of

the class members.” Hosue v. Calypso St. Barth, Inc., No. 160400/2015, 2017 WL 4011213, at *2

(Sup. Ct., N.Y. Cnty. Sept. 12, 2017). Specifically, New York courts consider: (i) the likelihood

that plaintiffs will succeed on the merits; (ii) the extent of support from the parties; (iii) counsel’s

judgment; (iv) the presence of good-faith bargaining; and (v) the complexity of the legal and

factual issues. See Fernandez v. Legends Hosp., LLC, No. 152208/2014, 2015 WL 3932897, at

*2 (Sup. Ct., N.Y. Cnty. June 22, 2015). In addition, in analyzing the likelihood of success on the

merits, courts have noted that finding “adequacy” involves “balancing the value of [a] settlement

against the present value of the anticipated recovery following a trial on the merits, discounted for

the inherent risks of litigation.” Klein v. Robert’s Am. Gourmet Food, Inc., 28 A.D.3d 63, 73 (App.

Div. 2d Dep’t 2006). These factors, commonly referred to as the “Colt factors” (after In re Colt

Indus. S’holder Litig., 155 A.D.2d 154 (App. Div. 1st Dep’t 1990)), all favor approval here.

A. Colt Factor One: Likelihood of Success on the Merits and Amount Recovered
in Light of Litigation Risks

When assessing a proposed class action settlement, courts first consider the plaintiff’s

likelihood of ultimate success on the merits. Gordon v. Verizon Commc’ns, 148 A.D.3d 146, 162

(App. Div. 1st Dep’t 2017); Colt, 155 A.D.2d at 160. As a general matter, securities actions are

“notoriously complex and difficult to prove.” In re Bayer AG Sec. Litig., No. 03 Civ. 1546, 2008

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WL 5336691, at *5 (S.D.N.Y. Dec. 15, 2008); see also In re Dozier Fin., Inc., No. 4:18-cv-1888,

2018 WL 4599860, at *3 (D.S.C. Sept. 6, 2018), report adopted, 2019 WL 1075072 (D.S.C. Mar.

7, 2019) (collecting cases finding that “securities [cases] [. . .] are neither straightforward nor

routine.”). This case was no exception.

Although Defendants’ motions to dismiss were denied in both Actions (NYSCEF No. 74;

ECF No. 113), Plaintiffs recognize that proving the necessary facts to prevail on the merits would

be challenging, and that surviving summary judgment was not guaranteed. The risks of litigation

here were plainly substantial, and some of the challenges that Plaintiffs faced in establishing

liability on the claims that they propose to settle were made clear early on. For example, Plaintiffs

expected Cloopen to continue to advance the argument that it had no duty to disclose its declining

Net Customer Retention Rate during Q4 2020 financials because it contended that, at the time the

Prospectus was filed, this was “interim data” under Section 11 or Item 303. Plaintiffs expected

Cloopen would also continue to advance arguments that the Registration Statement contained

detailed and specific warnings, including 60 pages of risk factors, that warned about competitive

and financial risks and disclosed the trends of increasing losses, increasing accounts receivable,

and decreasing Retention Rates that were allegedly omitted. Further, Defendants would continue

to contend that the Registration Statement provided explicit and extensive disclosures about the

Series F Warrants, and contrary to Plaintiffs’ allegations, disclosed that the warrant liabilities were

subject to remeasurement at each reporting period. While Plaintiffs disputed these arguments,

Plaintiffs recognize that each of them created material uncertainty regarding the ultimate outcome

of the Actions at summary judgment or trial, where legal arguments are based on factual

sufficiency, in contrast to the more liberal, plaintiff-friendly standards applied at the pleadings

stage. Joint Aff., ¶¶60-74.

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Likewise, in the Federal Action, Federal Plaintiff brought claims under Section 10(b) of

the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §78j(b), and Rule 10b-5

promulgated thereunder, 17 C.F.R. §240.10b-5, as well as Section 20(a) of the Exchange Act, 15

U.S.C. §78t(a). Those claims require proof of the element of scienter. “The scienter needed to

sustain a Section 10(b) claim is intent to deceive, manipulate, or defraud, or at least knowing

misconduct.” ECF No. 113 at 38 (internal quotations omitted). While the court in the Federal

Action held that Federal Plaintiff sufficiently pled scienter (id. at 50), the burden of pleading

scienter is less exacting than the burden of proving it. See Lea v. TAL Educ. Grp., 837 F. App’x

20, 23 (2d Cir. 2020) (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 328-29

(2007)) (“To allege a strong inference of scienter, a plaintiff ‘must plead facts rendering an

inference of scienter at least as likely as any plausible opposing inference,’ unlike at trial where a

plaintiff must prove scienter by a preponderance of the evidence, i.e., ‘that it is more likely than

not that the defendant acted with scienter.’”); Patel v. L-3 Commc'ns Holdings Inc., No. 14-CV-

6038-VEC, 2016 WL 1629325, at *15 (S.D.N.Y. Apr. 21, 2016) (“Although Lead Plaintiffs have

pled a strong inference of corporate scienter for the purpose of surviving Defendants’ Motion to

Dismiss, to survive summary judgment or to win at trial, Lead Plaintiffs will need to prove that

the Aerospace Systems CFO acted with the requisite scienter at the time of each of the alleged

misstatements in order for L-3 to be held liable for the alleged Section 10(b) violation.”) (emphasis

in original).

Plaintiffs also faced an uphill battle in obtaining proof of their claims because most of the

evidence in this case is located in the People’s Republic of China. Plaintiffs’ ability to obtain

deposition discovery was uncertain, as virtually all relevant witnesses are located there, and “China

has indicated that taking depositions, whether voluntary or compelled, and obtaining other

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evidence in China for use in foreign courts may, as a general matter, only be accomplished through

requests to its Central Authority under the Hague Evidence Convention” – an extensive, multi-

year process during which evidence will disperse and witnesses’ memories will fade. U.S. Dep’t

of State, Bureau of Consular Affairs, Taking Voluntary Depositions of Willing Witnesses, China

Judicial Assistance Information (2019)4; see also Glam & Glitz Nail Design, Inc. v. iGel Beauty,

LLC, No. SA CV 20-00088, 2022 WL 17078947, at *3 (C.D. Cal. Sept. 30, 2022). Further, while

Cloopen had begun to collect and review documents in response to Plaintiffs’ discovery demands,

it took the position that it was unable to produce any documents while Chinese regulators

considered whether Cloopen’s documents or data, stored within mainland China, could be

produced in litigation in the United States. In sum, the risk of being unable to collect relevant

evidence was far greater here than in cases where all relevant witnesses and documents are located

in the United States or in countries that are more willing to assist foreign litigants than China. In

addition, the bulk of the documents located in China, if they were produced at all, were likely to

be produced in Chinese, requiring translation and creating an additional cost and layer of

complexity not present in the ordinary securities class action. Joint Aff., ¶¶60-74.

Even if Plaintiffs prevailed on liability, Defendants had colorable “negative loss causation”

arguments – i.e., that some of the Class’s alleged damages resulted from factors other than belated

disclosures that the Offering Documents contained the alleged material misstatements and

omissions. See Fed. Hous. Fin. Agency for Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc.,

873 F.3d 85, 99 (2d Cir. 2017). Defendants raised negative causation defenses ranging from

macroeconomic factors that they say caused the drop in Cloopen’s ADS, to factors unrelated to

4
Available at https://travel.state.gov/content/travel/en/legal/Judicial-Assistance-Country-
Information/China.html (last visited Dec. 15, 2023).

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the undisclosed information that purportedly contributed to those drops, to the timing of when the

allegedly undisclosed information was released relative to the drop in the price of Cloopen’s ADS.

Joint Aff., ¶¶67-69. Such causation issues all too frequently come down to inherently

unpredictable “battles of the experts,” and an adverse result could have easily gutted the value of

Plaintiffs’ otherwise meritorious claims. See, e.g., In re Am. Bank Note Holographics, Inc., 127

F. Supp. 2d 418, 426-27 (S.D.N.Y. 2001) (“In [a] ‘battle of experts,’ it is virtually impossible to

predict with any certainty which testimony would be credited [and] which damages would be

found to have been caused by actionable, rather than the myriad nonactionable factors[. . . .]”)

(internal quotation marks in original); In re Giant Interactive Grp., Inc. Sec. Litig., 279 F.R.D.

151, 161-62 (S.D.N.Y. 2011) (approving settlement where litigation risk included credible

causation defenses).

Further, in the Federal Action, Defendants have strenuously argued, and would continue to

argue, that even if Lead Plaintiff could establish a material misstatement or omission, he could not

prove the requisite mental state of scienter – i.e., that Defendants misled investors intentionally or

with extreme recklessness. See also Joint Aff., ¶62. The scienter requirement is regarded as “the

most difficult and controversial aspect of a securities fraud claim.” Fishoff v. Coty Inc., No. 09

Civ. 628, 2010 WL 305358, at *2 (S.D.N.Y. Jan. 25, 2010), aff’d 634 F.3d 647 (2d Cir. 2011); see

also In re Telik, Inc. Sec. Litig., 576 F. Supp. 2d 570, 579 (S.D.N.Y. 2008) (“[p]roving a

defendant’s state of mind is hard in any circumstances.”).

Likewise, if the Federal Action had proceeded, Federal Plaintiff would also have

encountered significant loss causation and damages defenses relating to the Exchange Act claims

at the summary judgment phase and trial. Pursuant to Dura Pharms., Inc. v. Broudo, 544 U.S.

336, 345-47 (2005), Federal Plaintiff would need to show that it was the disclosure of the alleged

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securities violations that caused investors’ losses, as opposed to other unrelated matters. See also

Joint Aff., ¶68. Establishing loss causation is a “complicated and uncertain process, typically

involving conflicting expert opinion[s],” In re Glob. Crossing Sec. and ERISA Litig., 225 F.R.D.

436, 459 (S.D.N.Y. 2004), and Defendants have strongly contested loss causation.

Even if Plaintiffs survived summary judgment and prevailed across the board on liability,

causation, and damages issues at trial, there would still be no assurance that a favorable jury verdict

would survive Defendants’ inevitable post-trial motions and appeals. See, e.g., Hubbard v.

BankAtlantic Bancorp, Inc., 688 F.3d 713, 730 (11th Cir. 2012) (overturning jury verdict for

plaintiffs).

Plaintiffs also faced the risk of being unable to collect on a judgment against Cloopen

because its financial status and ability to withstand a greater judgment than the recovery here is, at

a minimum, questionable, if not in serious doubt. On May 17, 2023, the New York Stock Exchange

suspended the trading of Cloopen ADS for the Company’s failure to file annual reports with the

U.S. Securities and Exchange Commission (“SEC”) for years ended December 31, 2021, and

December 31, 2022. Cloopen ADSs stock are currently trading at $0.00010 (as of December 18,

2023) and have been trading under $1 per ADS since May 31, 2023. Joint Aff., ¶70. Further,

because Cloopen is a China-based company and appears to have no significant assets in the United

States (or elsewhere outside of China), and because Cloopen and its officers had no insurance

policy applicable to the claims here, collectability issues were a major additional risk. Joint Aff.,

¶71. In addition, the United States and China have no treaties providing for enforcement of

judgments rendered in each other’s courts. Indeed, courts in China are seldom known to recognize

and enforce United States civil court judgments. Joint Aff., ¶72.

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Although collectability is not an issue as to the Underwriter Defendants, those defendants

(unlike Cloopen) would have been able to assert a “due diligence” defense by arguing that they

reasonably relied on Cloopen’s assurances with regard to any allegedly misstated or omitted

matters. A due diligence defense is difficult to overcome. See Fed. Hous. Fin. Agency, 873 F.3d

at 125 (noting that “we are aware of only two other federal decisions [. . .] holding on summary

judgment that a Section 12 defendant cannot pursue [a due diligence] defense”). In addition, the

Underwriter Defendants here, like in similar cases, claim to be indemnified by the security issuer,

Cloopen. Joint Aff., ¶73.

While Plaintiffs maintain that the Settlement Class’s claims are meritorious, Defendants

have steadfastly maintained throughout the case that the claims are meritless. In addition to the

other numerous hurdles to establishing Defendants’ liability and damages, the Actions lack several

of the hallmarks of a typical, successful securities action. For example, there was no restatement

of financial results prior to the settlement, no SEC investigation, and no criminal indictment on

which Plaintiffs could “piggy-back.” Indeed, the Actions presented several unusual risk factors due

to the difficulties of taking depositions and conducting document discovery in China, as detailed

above, and of enforcing a favorable judgment in China even if the evidence to establish liability

against Cloopen could be obtained. Joint Aff., ¶¶60-74.

In assessing the adequacy of a settlement, courts also weigh the recovery “against the

present value of the anticipated recovery following a trial[,] [as] discounted for the inherent risks

of litigation[.]” Klein, 28 A.D.3d at 73. Here, Plaintiffs’ expert estimated that the maximum

theoretical damages under the statute were about $170 million, but that the realistic maximum

damages, given the relevant circumstances, were approximately $135 million. Importantly, this

latter figure, like any maximum damage estimate, does not take into account the bulk of

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Defendants’ counterarguments. Joint Aff., ¶76. Indeed, as referenced above, Defendants have

argued and will likely continue to assert that their negative causation defenses would eliminate

most of the realistic damages. Id.

If one compares the proposed Settlement – $12 million – to Plaintiffs’ realistic maximum

damages of $135 million, the Settlement would result in the recovery of roughly 9% of investor

losses (and a recovery of about 7% of maximum theoretical damages) ‒ both percentages

representing a decidedly superior recovery compared to most securities settlements. Id., ¶77. For

example, NERA Economic Consulting recently reported that, between 2012 and 2022, the median

securities class action settlement equated to approximately 2.9% of maximum damages in cases

involving estimated investor losses between $100 million and $199 million.5 Likewise, even

putting percentages aside, the Settlement value here ($12 million) compares favorably to the

median securities class action settlement in the Second Circuit between 2013 and 2023 ‒ which is

$9 million.6 Moreover, the foregoing maximum damages estimates assume that Plaintiffs would

run the table on all damages questions. Defendants, however, maintain that the maximum

recoverable damages is far smaller than $135 million, which means that the percentage recovery

here is, under Defendants’ estimate, far greater than 9%. Joint Aff., ¶77. Accordingly, the

published data regarding securities class action settlements further confirms that the Settlement

represents an excellent result when compared to other securities settlements from the last decade.

5
Janeen McIntosh, et al., Recent Trends In Securities Class Action Litigation: 2022 Full-
Year Review, NERA ECON. CONSULTING, 17 (Jan. 25, 2022),
https://www.nera.com/content/dam/nera/publications/2023/PUB_2022_Full_Year_Trends.pdf.
6
Laarni T. Bulan & Laura E. Simmons, Securities Class Action Settlements: 2022 Review
and Analysis, CORNERSTONE RESEARCH, 19 (2022), https://www.cornerstone.com/wp-
content/uploads/2023/03/Securities-Class-Action-Settlements-2022-Review-and-Analysis.pdf.

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B. Colt Factors Two Through Four: Extent of Support from the Parties,
Judgment of Counsel, and Presence of Good-Faith Bargaining

Colt factors two through four also support approval. First, the Settlement has the support

of all Parties, as evidenced by the Stipulation (NYSCEF No. 107) and Plaintiffs’ affirmations in

support of the Settlement.7 Moreover, in this context, courts also consider the reaction of absent

class members, and minimal objections and exclusions are indicative of a class’s approval of a

proposed settlement. See, e.g., Pressner v. MortgageIT Holdings, Inc., No. 602472/2006, 2007

WL 1794935, at *2 (Sup. Ct. N.Y. Cnty. May 29, 2007) (approving settlement where there were

no objections to proposed settlement); Gordon, 148 A.D.3d at 157 (holding settlement with three

objectors and 250 opt outs had “the overwhelming support” of the class). Here, although neither

the Court-established deadline for filing objections of January 2, 2024 or the deadline for filing

exclusions of December 26, 2023 has yet passed, no objections or exclusions to any aspect of the

Settlement have been submitted to date. Joint Aff., ¶59; Schachter Aff., ¶¶5, 16. Should any

objections or exclusions be filed after the date of this brief, Plaintiffs will address them on reply.

Second, Plaintiffs’ Class Counsel strongly believe that the proposed Settlement is fair,

reasonable, and adequate, particularly given the risks, costs, and uncertainties of continued

litigation and the significant collectability issues present here. Joint Aff., ¶100; see also supra

§I.A. New York courts give counsel’s views regarding settlement considerable weight, see

MortgageIT, 2007 WL 1794935, at *2, and it is respectfully submitted that the combined

experience and expertise of the Plaintiffs’ Class Counsel firms here make this factor weigh

strongly in favor of approval.

7
See the accompanying affidavit/declaration of Plaintiffs Sonny St. John (“St. John Aff.”)
(¶1) and Guozhang Wang (“Wang Decl.”) (¶1).

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Third, the Settlement is the product of protracted, good-faith negotiations overseen by a

mediator – Robert Meyer – with extensive experience in mediating securities and other complex

class actions. See Joint Aff., ¶71. The facts here plainly reflect an arm’s-length mediation process.

The parties did not reach a quick settlement at the opening, day-long mediation session held in

February 2023. Rather, it was not until May 2023 after extended mediation and negotiation that

the Mediator made his independent “mediator’s proposal” of $12 million, which the Parties

ultimately accepted. Id., ¶53. Nor can it be seriously doubted that all Parties were at all times

represented by highly experienced counsel. Id., ¶¶6, 97.

Additionally, while negotiations continued on a separate track, the Parties continued to

press forward in litigation, including by pursuing discovery and, in the State Action, also winning

class certification and reviewing documents that certain Defendants produced. Id., ¶¶27-40. That

the Settlement was reached only after document discovery had commenced in the State Action

also further supports approval. Fiala v. Metro. Life Ins. Co., Inc., 899 N.Y.S.2d 531, 538 (Sup.

Ct., N.Y. Cnty. 2010). Thus, the “good-faith negotiation factor” strongly supports approval of the

Settlement as well. See Gordon, 148 A.D.3d at 157 (courts will presume that negotiations were

conducted at arm’s-length and in good faith absent contrary evidence).

C. Colt Factor Five: Complexity and Nature of Case

Finally, courts look to the complexity and nature of the case (which is closely related to

Plaintiffs’ likelihood of success). See Saska v. Metro. Museum of Art, 54 N.Y.S.3d 566, 570 (Sup.

Ct., N.Y. Cnty. 2017) (evaluating the first and fifth Colt factors together in granting final approval);

City Trading Fund v. Nye, 72 N.Y.S.3d 371, 393 (Sup. Ct., N.Y. Cnty. 2018) (same).

As noted above, courts have recognized the “notorious complexity” of securities class

action cases. The instant case, for example, involved: Cloopen’s performance in the rapidly

developing cloud-based computing industry in China during the global financial upheaval of the

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Covid-19 pandemic; the regulatory risks posed to Cloopen’s business model by Chinese

authorities; and how such diverse factors may have impacted the price of Cloopen’s ADS –

subjects which would all have likely required specialized testimony from industry experts and

damages analysts. Joint Aff., ¶75. The numerous factual and legal complexities of both Actions

– as compounded by the procedural complications inherent in pursuing claims against a Chinese

Case Info

Judge

Andrew Borrok Track Judge’s New Case

Case No.

(Subscribe to View)

Document Filed Date

December 19, 2023

Case Filing Date

April 19, 2021

County

Parties

BASSIN, SHERYL SHAPIRO Attorney for the Defendant
BERGER MONTAGUE PC Attorney for the Plaintiff
CHADHA, PRIYA Attorney for the Defendant
Changxun Sun Defendant
CHINA INTERNATIONAL CAPITAL CORPORATION HONG KONG SECURITIES LIMITED Defendant
Ching Chiu Defendant
CITIGROUP GLOBAL MARKETS, INC. Defendant
CLOOPEN GROUP HOLDING LIMITED Defendant
COGENCY GLOBAL INC. Defendant
Colleen A. Devries Defendant
CORDING, CHARLES DEAN Attorney for the Defendant
COSENZA, TODD G. Attorney for the Defendant
DIAKOS, JOANNA A Attorney for the Defendant
Feng Zhu Defendant
FUTU, INC. Defendant
GOLDMAN SACHS (ASIA) L.L.C. Defendant
Jianhong Zhou Defendant
Kui Zhou Defendant
LAUGHLIN, THOMAS LIVEZEY Attorney for the Plaintiff
Lok Yan hui Defendant
Ming Liao Defendant
Qingsheng Zheng Defendant
REISCH, JORDAN D Attorney for the Defendant
Scott+Scott Attorneys at Law LLP Attorney for the Plaintiff
Scott & Scott LLP Attorney for the Plaintiff
Sonny St. john Individually and on Behalf of All Others Similarly Situated, Plaintiff
TIGER BROKERS (NZ) LIMITED Defendant
Xiaodong Liang Defendant
Yipeng Li Defendant
Zi Yang Defendant
ZOU, MARY Attorney for the Defendant
MICHAEL ANGIULO Attorney
MANDEEP MINHAS Attorneys for Plaintiffs
IGNACIO SALDANA Attorney
EMILIE KOKMANIAN Attorneys for Plaintiffs
MICHAEL DELGRECO Attorney
MAX SCHWARTZ Attorney
DAN OUYANG Attorney
ROBERT DAY Attorney
BRIAN OBERGFELL Attorney
ZACHARY VAUGHAN Attorneys for Plaintiffs

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