Securities Regulation Daily Wrap Up, SHAREHOLDER ACTIVISM—9th Cir.: Writ of mandamus denied because the district court did not commit clear error, (May 11, 2026)

By R. Jason Howard, J.D.

The absence of clear error by the district court struck a mortal blow against Crain’s petition for mandamus.

The Ninth Circuit has denied a petition for a writ of mandamus to vacate a district court’s ruling that declined to appoint Crain Walnut Shelling, LP, as lead plaintiff in a securities fraud class action under the Private Securities Litigations Reform Act (PSLRA) after finding that the lower court did not commit clear error, and the other Bauman factors did not demonstrate that mandamus was appropriate (In re Crain Walnut Shelling, LP, No. 25-5435 (9th Cir. May 7, 2026)).

Class action. On August 30, 2024, the first claim in a putative class action was filed and alleged federal securities claims against Super Micro and its executives. Members of the putative class filed ten separate motions for appointment as lead plaintiff, including both Crain Walnut and Universal. Over time, each member withdrew its petition or filed statements of non-opposition except for Crain Walnut and Universal.

The district court found that Crain’s $49 million in losses from its investment in Super Micro securities dwarfed Universal’s $12 million in calculated losses and held that “Crain Walnut had made a prima facie showing of adequacy and typicality under Rule 23(a) of the Federal Rules of Civil Procedure and was thus presumptively the most adequate plaintiff.” Universal challenged Crain’s adequacy, specifically questioning the statements of Crain’s CEO that he was the sole owner of Crain Walnut despite public records indicating that Crain Walnut had a general partner and may be part of a network of interrelated entities. Based on that, the district court determined that discovery was necessary before the court could make a final decision.

Discovery. Discovery proved problematic for Crain Walnut as the CEO’s deposition revealed inconsistencies with Crain’s supposed organizational structure. On June 26, 2025, the district court entered an order analyzing Crain Walnut’s lead plaintiff motion which followed the PSLRA’s sequential process and determined that Crain Walnut was the presumptive lead plaintiff. The district court then adopted a lowered “genuine and serious doubt” standard for rebutting a presumption of adequacy under the PSLRA, citing a lack of controlling precedent, and reasoned that the lowered standard was “consistent with the principles governing choice of a standard of proof and Ninth Circuit precedent.”

Using the lowered standard, the district court found that Universal had rebutted the presumption of Crain’s adequacy and denied its lead plaintiff motion, citing concerns about Crain’s lack of care and unwillingness to participate in discovery which left the court with “genuine and serious doubts that Crain Walnut would adequately meet all the obligations that come with representing the putative class as lead plaintiff.”

In an order dated July 10, 2025, Universal was appointed lead plaintiff, but the court granted Crain’s motion for leave to file a motion for reconsideration of the denial of its lead plaintiff motion. On August 5, 2025, the district court denied the motion for reconsideration and maintained that the “genuine and serious doubt” standard was properly applied and alternatively determined that the deposition testimony of Crain’s CEO and the filing inaccuracies cumulatively demonstrated that Crain was inadequate to be lead plaintiff even under a preponderance of the evidence standard.

Writ of mandamus. Crain filed a writ of mandamus seeking to vacate the district court’s order denying it lead plaintiff status and the Ninth Circuit explained that in determining whether mandamus is appropriate, it considered the five Bauman factors: (1) The party seeking the writ has no other adequate means, such as a direct appeal, to attain the relief he or she desires. (2) The petitioner will be damaged or prejudiced in a way not correctable on appeal. (This guideline is closely related to the first.) (3) The district court’s order is clearly erroneous as a matter of law. (4) The district court’s order is an oft-repeated error or manifests a persistent disregard of the federal rules. (5) The district court’s order raises new and important problems, or issues of law of first impression (Bauman v. U.S. Dist. Ct., 557 F.2d 650, 654–55 (9th Cir. 1977) (simplified)).

Clear error. The court began its analysis with Bauman’s third factor “because such analysis may be dispositive.” Crain Walnut argued that the district court clearly erred on three occasions: (1) when it applied a sub-preponderance standard of review in denying Crain Walnut’s lead plaintiff motion; (2) when it determined that the available evidence, even under a preponderance of the evidence standard, showed Crain Walnut’s inadequacy; and (3) when it applied an unfair “double standard” to Universal’s lead plaintiff motion.

The court addressed each in turn and stated that “given our longstanding rule that we apply a preponderance of the evidence standard of proof in civil litigation, the application of the ‘genuine and serious doubt’ standard would have amounted to a clear error had the district court simply made its ruling based on that standard.” However, the court continued, stating that because the district court reasoned alternatively in its denial of reconsideration that “Crain Walnut’s presumption of adequacy had been rebutted even under the correct preponderance of the evidence standard,” the court was not left with a definite and firm conviction that a mistake had been committed.

Ultimately, the Ninth Circuit explained that even if several of the Bauman factors favored Crain Walnut, the absence of clear error by the district court struck a mortal blow against its petition for mandamus.

Conclusion. The Ninth Circuit clarified that preponderance of the evidence is the correct standard for rebutting the presumption of adequacy afforded to a presumptive lead plaintiff under the PSLRA. Because the district court applied that standard in its reconsideration order and did not clearly err in determining that Crain Walnut’s “presumption of adequacy had been rebutted based on the available evidence,” the Ninth Circuit denied the petition for writ of mandamus.

The case is No. 25-5435.

Judge: Smith, N.R.

Attorneys: David J. Zimmer (Zimmer, Citron & Clarke, LLP) for Crain Walnut Shelling, LP.

Companies: Crain Walnut Shelling, LP

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