Defendant's Attorney: Not available

Description: New York City, New York securities law lawyers represented the Plaintiffs who brought a putative class action against the Defendant alleging verious violation of federal securities law.

Jernigan Capital, Inc. (“Jernigan”) was a public Real Estate Investment Trust (“REIT”) specializing in self-storage real-estate properties that traded on the New York Stock Exchange. R&R at 1. On October 26, 2020, Jernigan's shareholders voted to sell Jernigan to affiliates of NexPoint Advisors, L.P. (“NexPoint”) for $900 million, a transaction that took effect on November 6, 2020 (the “Transaction”). Id. The new entity, privately held, is known as NexPoint Storage Partners. Id.

Plaintiff filed his Complaint, later amended on April 6, 2021, on behalf of former shareholders of Jernigan common stock who voted to approve the Transaction and sold their shares for $17.30 per share as part of the Transaction. R&R at 2. Asserting claims under Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), Plaintiff alleges that the proxy materials (“Proxy”) on which shareholders relied when they voted in favor of the Transaction failed to disclose material information that, if known, would have caused them to insist on a higher price for their shares. R&R at 2. In particular, according to Plaintiff, the Proxy did not disclose that Extra Space, a competing REIT operating in the self-storage sector, was participating in the Transaction by providing $300 million in exchange for seats on the new entity's board and rights to Jernigan's properties. Id. Plaintiff seeks money damages for this omission, to be calculated as the difference between Jernigan's fair value and the $17.30 per share that shareholders received from the Transaction. Pl. Opp. at 1.

Plaintiff now moves for class certification under Federal Rule of Civil Procedure 23 (“Rule 23”). R&R at 3. The proposed class consists of all shareholders who held Jernigan common stock as of September 11, 2020 - the record date for eligibility to vote on the Transaction - and who ultimately sold their shares for $17.30 each upon close of the Transaction. Id. Excluded from the proposed class are Defendants, namely Jernigan's officers and directors, along with their immediate family members and legal representatives, heirs, successors and assigns, and any entity in which Defendants have or had a controlling interest. Id.

After the class-certification motion was fully briefed and oral argument was held, the Magistrate Judge recommended granting Plaintiff's motion to certify the class. R&R at 21. The Magistrate Judge concluded that the proposed class satisfied each of the elements required for class certification under Rule 23(a) and (b)(3), focusing on Defendants' Rule 23(a) challenge to Plaintiff's adequacy as a class representative and their Rule 23(b)(3) challenge to Plaintiff's proposed methodology for measuring damages. See id. at 5.

First, the Magistrate Judge found that Plaintiff is an adequate class representative, noting that he had demonstrated a commitment to the class through his participation in the litigation and that he possessed enough relevant experience in the industry to supervise the case and class counsel. R&R at 8. That Plaintiff did not negotiate a cap on his counsel's contingency fee, while relevant to the Magistrate Judge's adequacy inquiry, did not disqualify him from serving as lead plaintiff. Id. at 9. Nor did the Magistrate Judge agree with Defendants that Plaintiff had “ceded control” of this litigation to his proposed class counsel, or that an error in his declaration about the amount of stock that he held - later corrected - suggested an overall lack of diligence. Id. at 10. The Magistrate Judge also noted that Plaintiff's proposed class satisfied the rest of the Rule 23(a) factors. Id. at 6-7.

The Magistrate Judge also found that, under Rule 23(b)(3), common issues of liability and damages predominated over individual issues. R&R at 20. As the Magistrate Judge noted, “all of the class members' claims rise and fall on the same Proxy misstatements and omissions and same theory of loss causation and would be measured in a similar way.” Id. Plaintiff's proposed methods of calculating damages did not upset this conclusion. Id. The Magistrate Judge found that Plaintiff's proposed models for measuring damages tracked his claim that a materially false and misleading Proxy “support[ed] a sale price that did not reflect the true value of the Company,” allowing the buyer to “purchase it for a discount.” Id. at 19. Analyzing various Section 14(a) cases, the Magistrate Judge concluded that Plaintiff's proposed theory of damages - and his suggested methodologies to calculate those damages - represented the “typical measure of damages” in such cases. Id. at 14. The Magistrate Judge deemed benefit-of-the-bargain damages similarly consistent with Plaintiff's theory of liability because the theory suggests that Defendants hid Extra Space's involvement in the Transaction to extract a bargain price on the stock. Id. at 17. As for Defendants' argument that Plaintiff's theory of damages rested on overly speculative assumptions, the Magistrate Judge found it more appropriate to address that issue in the context of a motion for summary judgment rather than in a motion under Rule 23. Id. at 18-19.

On July 5, 2023, Defendants objected to portions of the R&R. Def. Obj. On July 19, 2023, Plaintiff filed his opposition to Defendants' objections. Pl. Opp.

Outcome: Settled for an undisclosed sum and dismissed.

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