Background
Crain Walnut Shelling, LP, a securities investor, filed a motion to be appointed lead plaintiff in a class action against Super Micro Computer, Inc. and its executives. The district court initially identified Crain Walnut as the presumptive lead plaintiff due to its largest financial interest but later denied the motion after finding its adequacy rebutted. Crain Walnut sought a writ of mandamus to vacate the district court orders.
The court’s reasoning
The panel held that the default standard of proof in civil litigation, preponderance of the evidence, applies to rebutting the presumption of adequacy under the Private Securities Litigation Reform Act. The district court erred by applying a lowered genuine and serious doubt standard, but the petition for mandamus was denied because the district court alternatively found that the evidence met the correct preponderance standard. The court found clear error was absent because Crain Walnut failed to correct filing inaccuracies regarding its ownership structure and provided testimony suggesting it would refuse to comply with discovery orders.
Preponderance of the evidence is the correct standard for rebutting the presumption of adequacy afforded to a presumptive lead plaintiff under the PSLRA.
Opinion by Judge N.R. Smith
What it means going forward
The decision establishes a uniform preponderance of the evidence standard for lead plaintiff adequacy challenges in the Ninth Circuit, ensuring that presumptive lead plaintiffs are not removed based on a lowered evidentiary threshold.
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