Case Name: In re FireEye, Inc. Securities Litigation

Case No.: 2014-1-CV-266866 (consolidated with 2014-1-CV-268110)

This is a consolidated securities class action against defendant FireEye, Inc., its top executives and directors, and the underwriters of FireEye’s second public offering of securities on March 6, 2014 (the “Second Offering”), in which FireEye sold 14 million shares. The lead case (2014-1-CV-266866) is brought by plaintiffs IBEW Local Union 363 – Money Purchase Pension Plan, IBEW Local Union 363 – Pension, IBEW Local Union 363 – Welfare Plan, IBEW Local Union 363 – Supplemental Unemployment Benefit Fund, and IBEW Local Union 363 – Joint Apprenticeship Training Fund (collectively, “IBEW 363”) on behalf of a class of those who purchased FireEye’s common stock pursuant to or traceable to its Offering and Registration Statement in connection with the Secondary Offering. Another consolidated case (2014-1-CV-268110) is brought by Steven Platt on behalf of the same class of purchasers or acquirers of FireEye common stock pursuant/traceable to the Registration Statement and Prospectus in connection with the Second Offering. Both actions allege violations of the Securities Act of 1933, 15 U.S.C., §§ 77k, 77l(a)(2), and 77o (the “Securities Act”) based on materially misleading statements and omissions in the Registration Statement and Prospectus regarding the true state of FireEye’s business, its decelerating revenue growth, and problems FireEye was having with acquisitions and its securities breach detection software.

On January 30, 2015, the Court granted institutional investor DeKalb County Employees Retirement Plan (“DeKalb”) leave to file a complaint in intervention. On March 4, 2015, plaintiffs IBEW 363, DeKalb, and Platt filed their Consolidated First Amended Class Action Complaint for Violations of the Securities Act of 1933 (the “FAC”).

In the FAC, plaintiffs allege that FireEye is a security company providing automated threat forensics and dynamic malware protection against cyber threats. According to plaintiffs, FireEye’s September 20th, 2013 initial public offering price was $20 per share, trading up to $36 per share by the close of its first day. After going public, FireEye allegedly made several positive statements about its technology in a November 7th, 2013 announcement of record financial results for the third quarter of 2013, a November 14th, 2013 Form 10-Q, a January 2nd, 2014 announcement of the acquisition of cybersecurity software firm Mandiant Corporation, and a February 11th, 2014 announcement of record financial results for the fourth quarter of 2013, all of which caused the price of FireEye shares to rise until it reached a record-closing high of $95.63 on March 5, 2014.

Plaintiffs allege, however, that FireEye’s top executives and directors were planning to dump over eight million shares of their personal holdings into the market through a secondary offering in order to reap nearly $700 million in resulting insider selling proceeds. On February 3, 2014, FireEye filed an initial registration statement on Form S-1 to register a large block of additional FireEye shares for sale to the public in a secondary public offering. After two subsequent amendments dated March 3 and 6, 2014, the final terms of the Second Offering were for 14 million shares at $82.00 per share (which plaintiffs allege was an 8.5% discount compared to the closing market price of $88.19 earlier that day). Only 5.58 million of these shares (valued at $460 million) were to be sold by FireEye itself to raise funds for the company, with the remaining 8.417 million shares (valued at roughly $690 million) to be sold by and for the exclusive benefit of existing FireEye insiders and other large shareholders, including the Individual Defendants.

Plaintiffs allege that the March 6th, 2014 Registration Statement continued to tout the company’s business, products and performance, including claims that FireEye’s platform provided a “comprehensive” and “complete” solution for cybersecurity threats with “negligible” false-positive rates, and that FireEye’s software has the ability to “identify and block” known and previously unknown cybersecurity threats. The Registration Statement also contained representations concerning the purported benefits of Mandiant as a “significant opportunity [for FireEye] to leverage the inherent synergies between products and services.” Plaintiffs allege that these representations were materially misleading in the following ways:

• FireEye’s “virtual machine” was not a “complete solution” because it was not as capable as more traditional signature-based Intrusion-Prevention Systems (“IPS”) software at detecting known threats, so customers would have to use FireEye and IPS;

• FireEye products generated numerous “alerts” that were false or which failed to contain enough information to help customers identify the problem;

• FireEye software was likely to perform poorly in head-to-head testing by an influential and well-regarded independent software testing company NSS Labs;

• FireEye was experiencing difficulties integrating Mandiant into FireEye’s business;
• The implementation of FireEye’s business plans would require it to increase its expenditures, particularly on research and development, at a tremendous rate, with the result that the Registration Statement’s claim that “profitability was becoming more achievable” was materially incorrect and misleading;

• The Second Offering was timed to occur just before FireEye would have to disclose a significant slowdown in product revenue growth, a significant increase in operating costs, and significantly diminished prospects for profitability in the foreseeable future.

Plaintiffs allege that a March 13th, 2014 Bloomberg Businessweek magazine article exposed FireEye’s involvement in the Target Corporation data breach that occurred in late November 2013 and resulted in roughly 40 million credit card numbers being stolen from Target’s computer systems. According to the Businesweek report, FireEye’s “complete solution” had been installed at Target, but Target had “turned off” the automatic “kill” features because of concerns about the technology’s ability to identify and attack only dangerous malware without inadvertently shutting down important computer systems that were not being attacked or that were otherwise not at risk. Similarly, on March 13, 2014, Reuters reported that the “vast majority” of FireEye’s customers had turned off the automatic kill function because of such concerns. In response to the Target data breach and media coverage, FireEye’s share price fell over $4.00 from $79.93 on March 13 to $75.87 on March 14.

Plaintiffs further allege that on April 2, 2014, NSS Labs reported that FireEye’s threat-detection products had scored “below average” in security effectiveness compared to five other security companies and received the worst score of all systems tested in overall breach detection. In response, FireEye shares fell $10.14 to close at $54.86.

On May 6, 2014, FireEye announced its first quarter results for 2014, with revenue far below analysts’ estimates and slowing demand for core products, forcing it to rely on its lower margin, service-based offerings, which could not provide the same level of profitability. In response to further disclosures of significant weaknesses in FireEye’s business, shares fell sharply, closing at $28.65 on May 7, 2014.

The FAC asserts causes of action for violations of Sections 11, 12(a)(2), and 15 of the Securities Act. The first and second causes of action are brought against FireEye and its top executives and directors David DeWalt, Michael J. Sheridan, Ashar Aziz, Enrique Salem, Gaurav Garg, Promod Haque, Ronald E. F. Codd, William M. Coughran Jr., and Robert F. Lentz (the “Individual Defendants,” collectively with FireEye, the “FireEye Defendants”), as well as the underwriters of the Second Offering, including Morgan Stanley & Co. LLC, Barclays Capital Inc., J.P. Morgan Securities LLC, Goldman, Sachs & Co., UBS Securities LLC, Deutsch Bank Securities Inc., Citigroup Global Markets Inc., Pacific Crest Securities LLC, and Nomura Securities International, Inc. (the “Underwriter Defendants”). The third cause of action is brought against the Individual Defendants.

Currently at issue are (1) plaintiffs’ motion for class certification, which defendants oppose, and (2) defendants’ motion to file under seal documents associated with their opposition.

IV. Motion for Class Certification

Plaintiffs propose to certify a class of all persons who purchased the common stock of FireEye pursuant and/or traceable to the Registration Statement and Prospectus (the “Offering Documents”) issued in connection with FireEye’s March 6, 2014 secondary public offering. They also move to appoint DeKalb as class representative and to appoint Scott+Scott, Attorneys at Law, LLP as class counsel and Bottini & Bottini, Inc. as liaison counsel.

a. Legal Standard

Section 382 of the California Code of Civil Procedure authorizes certification of a class “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court ….” The certification question is essentially a procedural one that does not ask whether an action is legally or factually meritorious. (Sav-On Drug Stores, Inc. v. Superior Court (Rocher) (2004) 34 Cal.4th 319, 326, 326.) As interpreted by the California Supreme Court, section 382 requires the plaintiff to demonstrate by a preponderance of the evidence “the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” (Brinker Restaurant Corp. v. Superior Court (Hohnbaum) (2012) 53 Cal.4th 1004, 1021; see also Sav-On Drug Stores, Inc. v. Superior Court , supra, 34 Cal.4th 319 at p. 332 [plaintiff’s burden is by a preponderance of the evidence].)
Pleadings are not evidence and cannot satisfy the plaintiff’s evidentiary burden. (Cruz v. Sun World International, LLC (2015) 243 Cal.App.4th 367, 375-376.) The trial court may consider the totality of the evidence, including evidence presented by the defendant, in determining whether the plaintiff has established the elements required for class certification. (Ibid.)
b. Traceability

Here, the proposed class includes both plaintiffs who purchased their shares directly in the Secondary Offering and plaintiffs who can trace their shares purchased in the aftermarket back to the Secondary Offering, a definition that mirrors the standing requirements for plaintiffs’ claims. Issues surrounding “tracing” arise where a company has issued shares under more than one registration statement: under these circumstances, “the plaintiff must prove that her shares were issued under the allegedly false or misleading registration statement, rather than some other registration statement.” (In re Century Aluminum Co. Sec. (9th Cir. 2013) 729 F.3d 1104, 1106, italics added; see also Abbey v. Computer Memories, Inc. (N.D. Cal. 1986) 634 F.Supp. 870, 874.) The requirement that shares be directly traceable to the registration statement at issue “is the condition Congress has imposed for granting access to the ‘relaxed liability requirements’ § 11 affords,” in particular, its imposition of liability even in the absence of evidence of reliance upon the registration statement. (In re Century Aluminum Co. Securities Litigation, supra, 729 F.3d at pp. 1106-1107; see also Abbey v. Computer Memories, Inc., supra, 634 F.Supp. at p. 875.) Issues regarding tracing generally do not arise where plaintiffs can prove “that they purchased their shares directly in the secondary offering itself,” but where plaintiffs purchased in the aftermarket, tracing is often impossible due to the manner in which modern trading is accomplished. (In re Century Aluminum Co. Securities Litigation, supra, 729 F.3d at pp. 1106-1107.)

Here, defendants’ primary argument in opposition to class certification is that neither direct nor aftermarket purchasers of shares issued in the Secondary Offering constitute a sufficiently ascertainable group to permit class certification, because no purchaser can trace shares to the Secondary Offering due to the way it was structured. Defendants explain that the Secondary Offering followed an initial public offering (“IPO”) and was a “firm commitment offering,” meaning that FireEye did not sell shares directly to the public. Rather, the underwriters to the Secondary Offering purchased all 14 million shares and placed them in an account with the Depository Trust Company (“DTC”) controlled by Morgan Stanley. Consistent with standard industry practice, DTC commingled those shares with shares from the IPO that were already in the account. When a buyer subsequently purchased shares from the underwriters, he or she acquired only a beneficial interest in generic shares held in the DTC account, not ownership of specific shares identified by stock certificates. According to defendants’ expert, it is consequently impossible to determine whether a buyer acquired shares issued in the Secondary Offering as opposed to the IPO, even if the buyer purchased shares on the date of and at the price of the Secondary Offering. Similarly, any purchases on the open market after the Secondary Offering would not be traceable to the Secondary Offering.

As noted by defendants, courts have long and consistently held that such commingling of “old” and “new” shares in a DTC account may defeat standing in an action under Section 11 and related sections of the Securities Act due to the tracing requirement. (See Abbey v. Computer Memories, Inc., supra, 634 F.Supp. 870, 873 [granting summary judgment due to impossibility of tracing shares commingled in a DTC account]; Perrin v. Southwest Water Co. (C.D. Cal., July 2, 2014, No. CV087844DMGAGRX) 2014 WL 10979865 [same]; In re Puda Coal Securities Inc. Litigation (S.D.N.Y., Oct. 1, 2013, No. 11 CIV. 2598 KBF) 2013 WL 5493007 [same]; Kirkwood v. Taylor (D. Minn. 1984) 590 F.Supp. 1375, 1385-1386 aff’d, (8th Cir. 1985) 760 F.2d 272 [granting summary judgment in certain actions and decertifying class in another action due to this issue].) However, these decisions have largely arisen in the summary judgment context, and courts have also held that difficulties with traceability are generally to be resolved during the merits phase of litigation and do not defeat class certification. (See, e.g., Kirkwood v. Taylor, supra, 590 F.Supp. at pp. 1385-1386 [noting that the court lacked sufficient information to deny class certification based on issues with tracing at the time the class was initially certified]; In re LILCO Securities Litigation (E.D.N.Y. 1986) 111 F.R.D. 663, 671 [“tracing is a question of fact reserved for trial”]; Harden v. Raffensperger, Hughes & Co., Inc. (S.D. Ind. 1996) 933 F.Supp. 763, 766-767 [class certification proper despite “difficult questions of fact” regarding traceability]; United Food and Commercial Workers Union v. Chesapeake Energy Corp. (W.D. Okla. 2012) 281 F.R.D. 641, 656 [courts addressing this issue have held that tracing is a merits issue inappropriate for consideration at the class certification stage, citing cases]; but see In re Initial Public Offering Securities Litigation. (S.D.N.Y. 2004) 227 F.R.D. 65, 118-119, fn. 402 [tracing ownership of shares purchased after untraceable shares entered the market would almost certainly not be possible, and no class should be certified as to these aftermarket purchases], vacated and remanded sub nom. on another ground by In re Initial Public Offerings Securities Litigation (2d Cir. 2006) 471 F.3d 24.)

Defendants raise the issue of tracing in a novel context, arguing that commingling of shares in a DTC account during the Secondary Offering itself, rather than in subsequent aftermarket resales of the shares at issue, destroys traceability. Their argument is essentially that no plaintiff could possibly have standing to bring this action due to the way the Secondary Offering was structured. This is an issue that goes to the heart of the merits of plaintiffs’ case and impacts all the plaintiffs in the proposed class equally, and as such it is not appropriately resolved on a motion for class certification. (See Brinker Restaurant Corp. v. Superior Court (Hohnbaum) (2012) 53 Cal.4th 1004, 1023-1025 [any “peek” that the court must take into the merits to resolve issues related to class certification must be closely circumscribed].) While it may be appropriate to deny class certification where an action is clearly without merit in rare circumstances (see Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 436-444, limiting Collins v. Safeway Stores, Inc. (1986) 187 Cal.App.3d 62, 69-70), here, the cases suggest that purchases made directly from the underwriters during a secondary offering are adequately linked to the offering without the need for additional tracing (see, e.g., In re Century Aluminum Co. Securities Litigation, supra, 729 F.3d at pp. 1106 [proof that plaintiffs purchased shares directly in the secondary offering itself “would obviously eliminate any questions about the lineage of plaintiff’s shares”]; Perrin v. Southwest Water Co., supra, 2014 WL 10979865 at *7 [plaintiffs can satisfy the tracing requirement by proving that they “purchased the shared directly in the secondary offering itself,” for example, by showing they bought their shares directly from the underwriters at the offering price]; Kirkwood v. Taylor, supra, 590 F.Supp. at p. 1378 [stock “directly purchased in the underwritten public offering” is subject to Section 11; indicia of a direct purchase include purchase at the offering price and a lack of commission on the sale]).
Thus, defendants do not show that plaintiffs’ claims are clearly without merit, and as discussed further below, issues regarding tracing do not necessarily render the class impossible to ascertain, nor do they impact the other requirements for class certification. Defendants’ arguments regarding the impact of the structure of the Secondary Offering are consequently not appropriately resolved at this time. (See Linder v. Thrifty Oil Co., supra, 23 Cal.4th 429, 437 [where plaintiff contended a merits determination was particularly inappropriate on class certification for an issue of first impression].)

c. Ascertainability and Numerousity

“The trial court must determine whether the class is ascertainable by examining (1) the class definition, (2) the size of the class and (3) the means of identifying class members.” (Miller v. Woods (1983) 148 Cal.App.3d 862, 873.) “Class members are ‘ascertainable’ where they may be readily identified without unreasonable expense or time by reference to official records.” (Rose v. City of Hayward (1981) 126 Cal.App.3d 926, 932; cf. Cruz v. Sun World International, LLC, supra, 243 Cal.App.4th at p. 382 [class was not ascertainable where members could not be readily identified without unreasonable expense or time].)

Here, class members who purchased shares directly from the underwriters can be easily identified from the underwriters’ own records, and subsequent purchasers may be identifiable through holder, brokerage firm, and/or transfer agent records.

While defendants correctly note that plaintiffs offered only argument rather than evidence on this point in support of their moving papers, it is clear from defendants’ own evidence, such as the prospectus, that 14,000,000 shares were offered in the Secondary Offering by the underwriters, and it is obvious that defendants’ records will identify the purchasers. The class of direct purchasers is clearly numerous and ascertainable. (See In re Dynegy, Inc. Securities Litigation (S.D. Tex. 2005) 226 F.R.D. 263, 275 [making these findings based on a similar prospectus]; In re LILCO Securities Litigation (E.D.N.Y. 1986) 111 F.R.D. 663, 665, fn. 5, 671 [certifying a class of “[a]ll those who purchased LILCO common stock under an offering by LILCO of common stock pursuant to a prospectus dated November 15, 1982” over defendants’ traceability objection; “the Underwriters know who purchased stock pursuant to that offering”].) Again, the issue of whether the structure of the Secondary Offering destroys these class members’ claims is not appropriately resolved at this time.

With respect to subsequent purchases traceable to the Secondary Offering, plaintiffs submit a declaration by Scott D. Hakala on reply that details how such tracing may be possible by using records other than DTC records to match buyers to sellers who acquired their shares in the Secondary Offering. It is generally inappropriate to submit new evidence like this on reply, and defendants have filed a sur-reply attacking the declaration as speculative. The Court agrees that the declaration is deficient because it fails to specify which of various possible tracing methods will actually be employed in this case, to provide a reliable indication of how large the resulting class will be, and to estimate the time and expense that will be required to trace.

It is plaintiffs’ burden to establish that the portion of the proposed class consisting of aftermarket purchasers is numerous and ascertainable, and they have not yet done so. As discussed further below, however, the proposed class is otherwise amenable to certification. Under these circumstances, the Court deems it appropriate to give plaintiffs an opportunity to submit supplemental briefing on the ascertainability of aftermarket purchasers before it rules on the appropriate scope of the class. Therefore, the Court will continue the hearing on plaintiffs’ motion to allow for supplemental briefing by the parties on this issue. (See In re Dynegy, Inc. Securities Litigation, supra, 226 F.R.D. at p. 281 [ordering supplemental briefing where “no evidentiary record has yet been developed regarding how aftermarket class members can or will trace their stock acquisitions to the allegedly false and misleading registration statement”].)

d. Community of Interest

The “community-of-interest” requirement encompasses three factors: (1) predominant questions of law or fact, (2) class representatives with claims or defenses typical of the class, and (3) class representatives who can adequately represent the class. (Ibid.) “Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing.” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.) The plaintiff has the burden of establishing that class treatment will yield “substantial benefits” to both “the litigants and to the court.” (Blue Chip Stamps v. Superior Court (Botney) (1976) 18 Cal.3d 381, 385.)

1. Predominant Questions of Law or Fact

With respect to the first community of interest factor, “[i]n order to determine whether common questions of fact predominate the trial court must examine the issues framed by the pleadings and the law applicable to the causes of action alleged.” (Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.) The court must also give due weight to any evidence of a conflict of interest among the proposed class members. (See J.P. Morgan & Co., Inc. v. Superior Court (Heliotrope General, Inc.) (2003) 113 Cal.App.4th 195, 215.) The ultimate question is whether the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants. (Lockheed Martin Corp. v. Superior Court, supra, 29 Cal.4th at pp. 1104-1105.) “As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.” (Hicks v. Kaufman & Broad Home Corp., supra, 89 Cal.App.4th at p. 916.)

Courts “have repeatedly found [that] suits alleging violations of the securities laws, particularly those brought pursuant to Sections 11 and 12(a)(2), are especially amenable to class action resolution.” (Public Employees’ Retirement System of Mississippi v. Merrill Lynch & Co., Inc. (S.D.N.Y. 2011) 277 F.R.D. 97, 101.) As with other actions of this type, the resolution of this action will depend largely “on establishing that certain statements and omissions [connected to the Secondary Offering] were material misrepresentations: a classic basis for a class action.” (Ibid.) Even where issues relating to tracing arise for aftermarket purchasers, these issues do not predominate over the primary issue of liability. (Freeland v. Iridium World Communications, Ltd. (D.D.C. 2006) 233 F.R.D. 40, 44-46; see also In re Dynegy, Inc. Securities Litigation, supra, 226 F.R.D. at p. 276 [“Because § 11 imposes strict liability on issuers and signatories of a registration statement for material misrepresentations, the court concludes that the common questions of law and fact concerning the presence of false statements and/or omissions of material fact in the registration statement” satisfy the requirement that common issues predominate].) Consequently, common legal and factual issues predominate notwithstanding any issues with tracing.
2. Typicality

As to the second factor,

The typicality requirement is meant to ensure that the class representative is able to adequately represent the class and focus on common issues. It is only when a defense unique to the class representative will be a major focus of the litigation, or when the class representative’s interests are antagonistic to or in conflict with the objectives of those she purports to represent that denial of class certification is appropriate. But even then, the court should determine if it would be feasible to divide the class into subclasses to eliminate the conflict and allow the class action to be maintained.

(Medrazo v. Honda of North Hollywood (2008) 166 Cal. App. 4th 89, 99, internal citations, brackets, and quotation marks omitted.)

Defendants argue that testimony by DeKalb’s investment advisor discloses defenses that are uniquely applicable to DeKalb. First, they contend that the advisor “was aware of information directly negating Plaintiffs’ allegations.” However, such awareness only constitutes a defense to claims such as plaintiffs’ where the awareness pertained to the “untruth or omission” at issue in the action. (See Tsereteli v. Residential Asset Securitization Trust 2006-A8 (S.D.N.Y. 2012) 283 F.R.D. 199, 211 [“A Section 11 or 12(a)(2) claim will not succeed where a defendant can show that ‘the plaintiff knew of the untruth or omission at the time or his or her acquisition of the security.’ ”].)

Here, the only such awareness defendants point to is the advisor’s testimony contradicting plaintiffs’ claim that “a shift to subscriptions and services in FireEye’s revenue” was not disclosed.” As an initial matter, this is only one among several alleged misrepresentations and omissions at issue, and there is no indication that this particular omission will be a major focus of the litigation. Furthermore, plaintiffs’ specific claim is that FireEye failed to disclose a shift “from its higher-margin product and product subscription business to lower-margin services and support business.” (FAC, ¶ 71, italics added.) It is simply not the case that plaintiffs allege a shift to subscriptions was concealed, and the advisor’s testimony (which the Court will not discuss in detail since it was lodged under seal) does not indicate that he was aware of a shift away from subscriptions.

Defendants’ other arguments go to whether the advisor relied on the misrepresentations and omissions alleged by plaintiffs—which, as already discussed, is not an issue in this action—and his own opinions regarding the validity of plaintiffs’ claims. While such testimony “may or may not prove damaging at trial,” there is no reason to conclude that it will present a major issue since it does not directly bear on any element of or defense to plaintiffs’ claims. (In re Merck & Co., Inc., Vytorin/Zetia Securities Litigation (D.N.J., Sept. 25, 2012, No. CIV.A. 08-2177 DMC) 2012 WL 4482041, at *6-7.) Furthermore, while its advisor’s actual knowledge of the misrepresentations and omissions at issue may be imputed to DeKalb, there is no indication that DeKalb shares his opinions about the merits of this action or that a factfinder would assume it does.

As defendants do not raise any valid issues respecting typicality, DeKalb’s evidence that it purchased shares in and potentially traceable to the Secondary Offering, and is committed to maximizing its return on these investments like any other plaintiff, is adequate to show typicality.

3. Adequacy

Finally, adequacy of representation “depends on whether the plaintiff’s attorney is qualified to conduct the proposed litigation and the plaintiff’s interests are not antagonistic to the interests of the class.” (McGhee v. Bank of America (1976) 60 Cal.App.3d 442, 450.) The class representative does not necessarily have to incur all of the damages suffered by each different class member in order to provide adequate representation to the class. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 238.)

Plaintiffs submit evidence that class counsel is qualified to conduct this litigation, which defendants do not dispute. Defendants contend, however, that DeKalb has failed to monitor its counsel and lacks knowledge of this action. By contrast to the cases cited by defendants, here, DeKalb has filed a declaration demonstrating that it supervises and monitors this action and is committed to fulfilling its fiduciary duties to the class, and there is no indication that DeKalb is a “professional plaintiff,” is uninformed about the case, or inappropriately delegates decisions to counsel. (Cf. Jones v. Farmers Insurance Exchange (2013) 221 Cal.App.4th 986, 998 [declaration was executed by class counsel rather than class representative]; Howard Gunty Profit Sharing Plan v. Superior Court (Greenwood) (2001) 88 Cal.App.4th 572, 577-78 [trial court had previously found the proposed representative was a “professional plaintiff,” demonstrated inadequate knowledge about the case, and had weak credibility].) Having reviewed the deposition testimony cited by defendants (which was lodged under seal) in context, the Court finds that it does not indicate an inappropriate deference to counsel or lack of understanding of this action. (See Johnson v. Aljian (C.D. Cal. 2009) 257 F.R.D. 587, 596 [taking deposition testimony out of context unhelpful to an assessment of proposed representative’s knowledge of and willingness and ability to supervise the litigation].)

e. Substantial Benefits of Class Certification

“[A] class action should not be certified unless substantial benefits accrue both to litigants and the courts. . . .” (Basurco v. 21st Century Ins. (2003) 108 Cal.App.4th 110, 120, internal quotation marks omitted.) The question is whether a class action would be superior to individual lawsuits. (Ibid.) “Thus, even if questions of law or fact predominate, the lack of superiority provides an alternative ground to deny class certification.” (Ibid.) Generally, “a class action is proper where it provides small claimants with a method of obtaining redress and when numerous parties suffer injury of insufficient size to warrant individual action.” (Id. at pp. 120-121, internal quotation marks omitted.)

As stated above, the proposed class is numerous. It would be inefficient for the Court to hear and decide the same issues separately and repeatedly for each class member. Further, it would be cost prohibitive for each class member to file suit individually, as each member would have the potential for little to no monetary recovery. It is clear that a class action provides substantial benefits both to the litigants and the Court in this case.

f. Conclusion and Order

In light of the above, the Court is inclined to grant plaintiffs’ motion with respect to proposed class members who purchased shares directly in the Secondary Offering, but requires more information to determine whether the class should also include aftermarket purchasers who can trace their shares to the Secondary Offering. The motion is consequently CONTINUED to June 17, 2016 to allow plaintiffs to submit supplemental briefing and evidence showing (1) which tracing method or methods will actually be employed in this case, (2) how large the resulting class will likely be, and (3) the time and expense that will likely be required to trace. Plaintiffs shall file and serve their supplemental papers 12 court days prior to the continued hearing, and defendants shall file and serve responsive supplemental papers—addressing the only the issues identified by the Court herein—7 court days prior to the continued hearing. The parties’ supplemental memoranda shall not exceed 10 pages.

The parties are also ordered to meet and confer regarding the scope of the exclusion discussed in footnote 20 above. The parties shall indicate in their supplemental briefing whether they have come to an agreement on this issue or, if they have not resolved it, set forth their respective positions on the scope of the exclusion.

V. Motion to Seal

Defendants move to seal the following documents lodged with the Court on April 15, 2016 in connection with their opposition to the motion for class certification: (1) the unredacted version of their memorandum of points and authorities; (2) the unredacted version of the declaration of Doru Gavril, including Exhibits 3-10; and (3) the entire declaration of Richard Zinnie.

In their moving papers, defendants explain that the opposition and exhibits to the Gavril declaration contain non-public and confidential business and financial information of DeKalb, its investment advisor, Jennison Associates LLC, and other third parties, which has been designated as confidential under the protective order in this action. Defendants have thus established that this information is entitled to confidentiality (see Universal City Studios, Inc. v. Superior Court (Unity Pictures Corp.) (2003) 110 Cal.App.4th 1273, 1285-1286 [confidential matters relating to the business operations of a party may be sealed where public revelation of the information would interfere with the party’s ability to effectively compete in the marketplace]), and has filed appropriately redacted public versions of the documents at issue. Consequently, the Court finds that (1) there exists an overriding interest that overcomes the right of public access to the redacted portions of the documents at issue; (2) this interest supports sealing the unredacted documents; (3) a substantial probability exists that the overriding interest will be prejudiced if the unredacted documents are not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (Cal. Rules of Court, rule 2.550(d).)

The motion to seal is accordingly GRANTED as to the opposition and the Gavril declaration.

As to the Zinnie declaration, defendants assert that its description of the “proprietary mechanics” of the Secondary Offering and the share and trading activities in Morgan Stanley’s depository account are confidential. However, the mechanics of the Secondary Offering are described in the public version of defendants’ opposition. (See Castillo v. Toll Bros., Inc. (2011) 197 Cal.App.4th 1172, 1185, fn. 4 [parties’ discussion of an assertedly confidential declaration in their publicly filed briefs waives any purported confidentiality].) Furthermore, to the extent the declaration does reflect some confidential matter, defendants have not filed a redacted public version of the declaration, but seek to file the entire document under seal. As a result, the proposed sealing is not narrowly tailored.

The motion to seal is accordingly CONTINUED to June 17, 2016 with respect to the Zinnie declaration to enable defendants to file an appropriately redacted public version of the declaration.