Bass, Berry & Sims attorney Chris Lazarini provided insight on a putative class action involving ’33 and ’34 Act claims against ReWalk Robotics, Ltd. (ReWalk), and its officers, directors and IPO underwriters. The court denied the defendants’ FRCP 12(b)(5) motion to dismiss based on the lack of timely service after comparing the time period for service under FRCP4(m) with the PSLRA’s time periods relating to public notice of the filing and appointment of lead plaintiff and then applying the two-step process of determining whether (1) the plaintiff had shown “good cause” for the untimely service and (2) in the absence of “good cause,” whether the court should, exercising discretion, dismiss without prejudice or extend the service deadline.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.
Yan vs. ReWalk Robotics, Ltd., No. 17-10169 (D. Mass., 2/23/18)
Dismissal for lack of timely service involves a two-step process: the court must determine (1) whether the plaintiff has shown “good cause” for the untimely service and (2) if there is no “good cause” shown, whether the court should, exercising discretion, dismiss without prejudice or extend the service deadline.
This is a putative class action involving ’33 and ’34 Act claims against ReWalk Robotics, Ltd. (“ReWalk”) and its officers, directors and IPO underwriters, related to ReWalk’s IPO. Here, the Court denies Defendants’ FRCP 12(b)(5) motion to dismiss for failure to timely complete service of process under FRCP 4(m) after examining the interplay between FRCP 4(m) and the Private Securities Litigation Reform Act’s (“PSLRA”) process for appointment of a lead plaintiff and the efforts made to serve all defendants.
FRCP 4(m) generally requires service to be made within 90 days of the filing of a complaint. The Rule provides for dismissal without prejudice of any defendant not served within 90 days, but if the plaintiff can show good cause why service was not timely made, the Court must extend the time for service for an appropriate period. The PSLRA requires the original plaintiff to give public notice of the pendency of the action within 20 days of filing the complaint, allows for 60 days from that notice for interested parties to seek appointment as lead counsel and directs the court to appoint lead counsel within 90 days of the public notice.
The original complaint was filed on January 31, 2017 by a group of individual investors (the “Investor Group”) who sought to be appointed as lead plaintiffs. As required by the PSLRA, the Investor Group gave public notice of the suit within 20 days of their filing. On March 31, 2017, Yan, who was not a member of the Investor Group and who claimed to have a financial loss greater than the Investor Group, timely moved to be appointed as lead plaintiff, and the Investor Group withdrew their motion. On May 1, 2017, the 90-day period to serve defendants expired, and no motion to extend the service deadline was made. On May 10, 2017, Yan’s counsel filed an affidavit of service, stating that ReWalk and the underwriter defendants were served on May 5, 94 days after the complaint was filed, and that the domestic and foreign individual defendants were served by mailing the summons and complaint to ReWalk’s office.
On June 9, 2017, the Court appointed Yan as lead plaintiff. “Within days” of the appointment, Yan’s counsel asked the lead defense counsel if he would accept service for the individual defendants. Although there is no confirming documentation, the Court accepts Yan’s counsel’s statement that defense counsel agreed to accept service on the domestic individuals, but not on the foreign ones. Actual service was accomplished on the domestic individuals on August 22, 2017, 203 days after the complaint was filed. Yan’s counsel served the foreign individuals through the Hague Convention, which process was completed for all but one in October 2017.
In considering Defendants’ motion, the Court first states FRCP 4(m) does not apply to the foreign defendants and denies that part of the motion. The Court next has little trouble finding “good cause” for extending the deadline to serve ReWalk and the underwriter defendants, because Yan had no authority to serve them until after he had been appointed lead plaintiff, which appointment was not made until 129 days after the original complaint was filed, and because the delay was trivial.
Turning to the domestic individuals, the Court describes the Investor Group’s counsel’s actions as “sloppy, if not altogether negligent,” and calls it a “close call,” but concludes that good cause for the delay exists because Yan’s counsel spoke with lead defense counsel “within days” of Yan’s appointment and because there is little possibility of prejudice to the individuals who are represented by the same counsel as ReWalk.