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Nikola investors get second chance at lead role in lawsuit

3 minute read

U.S. Nikola's logo is pictured at an event held to present CNH's new full-electric and Hydrogen fuel-cell battery trucks in partnership with U.S. Nikola event in Turin, Italy, December 3, 2019. REUTERS/Massimo Pinca

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  • 9th Circuit rules judge erred in passing over investor group
  • Judge ordered to reconsider who will lead proposed class claims
  • Lawsuit alleges electric truck maker defrauded investors

(Reuters) - The 9th U.S. Circuit Court of Appeals has given a group of Nikola shareholders and their attorneys at Block & Leviton and Pomerantz another chance to lead a proposed class action lawsuit alleging the electric truck maker defrauded investors.

The three-judge panel held that a Phoenix federal judge was wrong to rely on his "misgivings" about the relationship between the three investors, who claim to have lost a collective total of $6 million, when he denied them the lead role in the lawsuit. The court vacated Logan's ruling appointing an individual who allegedly lost $700,000.

"Misgivings are not evidence," U.S. District Judge Andrew Gordon of Las Vegas, sitting by designation, wrote for the panel. The panel sent the matter back to the district court for reconsideration.

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Jeremy Lieberman of Pomerantz said the investor group is very pleased with the decision, which he said serves as "important precedent" on the lead plaintiff selection process and should result in the group's appointment as lead counsel.

Counsel for the individual plaintiff did not immediately reply to a request for comment on Friday.

The lawsuit filed in September seeks damages from the company and several executives for a decrease in Nikola's share price after a short-seller accused Nikola and its founder of nepotism and fraud, prompting U.S. regulators to open probes.

The company has said it intends to vigorously defend itself against the claims.

Under the Private Securities Litigation Reform Act, the lead plaintiff is presumed to be the investor, or group of investors, with the largest loss who is otherwise typical of and adequate to represent the class.

U.S. District Judge Steven Logan wrote in December that while the investor group had cleared that bar, it appeared to be formed "solely for purposes of litigation." Logan doubted the group's cohesion and "ability to control the litigation without undue influence from counsel."

That ruling wrongly put the burden on the group to defend its presumptive status, instead of the smaller contenders to rebut it with evidence, the panel wrote on Friday.

"Competing movants must convince the district court that the presumptive lead plaintiff would not be adequate, not merely that the district court was wrong," Gordon wrote.

U.S. Circuit Judges Milan Smith Jr. and Lawrence VanDyke joined in the decision.

The case is In re George Mersho v. United States District Court for the District of Arizona, No. 20-73819 in the 9th U.S. Circuit Court of Appeals.

For the investor group: Jeffrey Block, Jacob A. Walker, and Michael Gaines of Block & Leviton and Jeremy Lieberman and J. Alexander Hood II of Pomerantz

For the individual investor: Robert Kry of MoloLamken and Laurence Rosen and Phillip Kim of The Rosen Law Firm

Read More:

Nikola share slump deepens as founder resigns

9th Circuit signals it will clarify rules for investor groups to lead class actions

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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