Eighth Circuit Reverses Class Certification Of Securities Fraud Claims Against Brokerage Firm, Holding That Common Issues Do Not Predominate
On April 23, 2021, the United States Court of Appeals for the Eighth Circuit reversed the certification of a class pursuing securities fraud claims against a brokerage firm for retail investors (“the Company”). Ford v. TD Ameritrade Holding Corp., et al., No. 18-3689 (8th Cir. April 23, 2021). Plaintiff, on behalf of a putative class of investors who purchased and sold securities through the Company, brought securities fraud claims under the Securities Exchange Act of 1934, alleging the Company’s order routing practices violated its “duty of best execution” by systematically sending orders to trading venues that benefited the Company, rather than to venues that provided the best outcome for customers. The Court held that the predominance and superiority requirements of Federal Rule of Civil Procedure 23(b)(3) were not satisfied because determining economic loss, in this case, would entail a trade-by-trade individualized inquiry. Having found that the district court abused its discretion in certifying the class, the Court reversed the district court’s order and remanded for further proceedings.
Overview Of Cases Of Particular Interest Currently Pending Before The Supreme Court Of The United States
Looking ahead, we preview cases currently pending before the Supreme Court—which have already been accepted for review by the Court, and in some cases have already been argued—that may be of particular interest to readers of the Need-to-Know Litigation Weekly. These cases pertain to various topics in Securities Litigation, Antitrust, IP Litigation, and jurisdictional questions of broad interest.
Supreme Court Will Hear Case Raising Whether Securities Class Action Defendants May Rebut The Basic Presumption Of Reliance In Opposing Class Certification By Pointing To The Generic Nature Of The Alleged Misstatements To Demonstrate Lack Of Price Impact
On December 11, 2020, the United States Supreme Court granted a petition for certiorari to review a decision from the United States Court of Appeals for the Second Circuit to address whether a defendant in a securities class action may rebut the presumption of classwide reliance recognized in Basic Inc. v. Levinson, 485 U.S. 224 (1988), by pointing to the generic nature of the alleged misstatements in showing that the statements had no impact on the price of the security (and whether, in seeking to do so, a defendant has the burden of persuasion). Goldman Sachs Group, Inc. v. Arkansas Teacher Ret. Sys., No. 20-222 (U.S. Dec. 11, 2020).
Delaware District Court Grants Class Certification With Modifications In Suit Against Student Loan Processor
On August 25, 2020, U.S. District Judge Maryellen Noreika certified two classes of investors bringing claims against a student loan servicing company (the “Company”), certain of its executives, and the underwriters of two of the Company’s debt offerings. Lord Abbett Affiliated Fund Inc., et al. v. Navient Corp., et al., No. 1:16-cv-00112 (D. Del. Aug. 25, 2020). Plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“the Exchange Act”) and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“the Securities Act”) alleging that defendants inflated the price of the Company’s securities by concealing problems in its loan servicing practices and other risks. The Court granted plaintiffs’ motion for class certification in part, certifying one class of investors with alleged claims under the Securities Act and a second narrowed class with alleged claims under the Exchange Act.
Seventh Circuit Vacates Decision To Certify Class, Holding That District Court Must Consider Sufficiency Of Defendants’ Evidence To Rebut Fraud-On-The-Market Presumption Of Reliance, As Required Under Halliburton II
On July 16, 2020, the United States Court of Appeals for the Seventh Circuit unanimously vacated the Northern District of Illinois, Eastern Division’s decision to grant class certification to plaintiffs bringing securities fraud claims against a national insurance provider (the “Company”), holding that the district court decision to exclude certain evidence at the class certification stage was based in part on a legal error. Carpenters Pension Trust Fund, et al. v. Allstate Corp., et al., No. 19-1830 (7th Cir. July 16, 2020). The Court remanded to the district court for further proceedings, providing guidance as to what should be considered when applying Rule 23(b)(3)’s predominance requirement in the class certification process.
Second Circuit Holds That Price Impact Can Be Established For Class Certification Based On “Inflation Maintenance” Theory Even Where Inflation Is Not “Fraud-Induced,” And Affirms, In A Split Panel, District Court’s Determination That Defendants Failed To Rebut The Basic Presumption Of Reliance
On April 7, 2020, the United States Court of Appeals for the Second Circuit upheld certification of a shareholder class asserting claims under the Securities Exchange Act of 1934 against a financial institution and certain of its executives. Arkansas Teacher Ret. Sys. v. Goldman Sachs Group, Inc.
, ––F.3d––, 2020 WL 1682772 (2d Cir. 2020). Plaintiffs alleged that the company made misrepresentations about its practices with respect to collateralized debt obligations (“CDOs”) and failed to disclose alleged conflicts of interest involving the selection of the subprime mortgages underlying the CDOs. As discussed in our prior post
, in 2018 the Second Circuit vacated the district court’s prior class certification order and remanded with instructions to apply a “preponderance of the evidence” standard in determining whether the company had rebutted the presumption of reliance under Basic Inc. v. Levinson
, 485 U.S. 224 (1988), and to consider certain of defendants’ evidence of lack of price impact from the alleged misrepresentations in assessing whether the presumption had been rebutted. Arkansas Teacher Ret. Sys. v. Goldman Sachs Group, Inc.
, 879 F.3d 474, 484–85 (2d Cir. 2018). On remand, the district court again certified a class. On an interlocutory appeal pursuant to Rule 23(f), the Second Circuit affirmed. The Court unanimously held that the “inflation-maintenance” theory was properly applied, rejecting defendants’ argument that the theory should not apply where the inflation resulted from “general statements” about the company’s business practices.
Central District Of California Denies Class Certification Of Securities Act Claims Because Common Issues Found Not To Predominate Over Individualized Knowledge Issues
On March 13, 2020, Judge Philip S. Gutierrez of the United States District Court for the Central District of California denied class certification in an action against a restaurant franchising company and certain of its executives asserting claims under Section 12(a)(2) of the Securities Act of 1933 in connection with the company’s IPO. Vignola v. FAT Brands, Inc., No. CV 18-7469 PSG (C.D. Cal. Mar. 13, 2020), ECF No. 94. The Court previously determined at the motion to dismiss stage that allegations based on a statement in an SEC filing expressing confidence in the “track record and vision” of the management team was potentially misleading because it allegedly omitted that certain subsidiaries had entered bankruptcy and the involvement of a company executive in managing those subsidiaries. Slip op. at 3, 6-7. However, the Court denied the motion for class certification, holding that the predominance and superiority requirements were not satisfied because individualized inquiries would be necessary to establish putative class members’ knowledge (or lack of knowledge) of the bankruptcies and the executive’s involvement with those subsidiaries. Id. at 7, 9.
Northern District Of Illinois Certifies Class In A Commodities Market Manipulation Suit, Holding That Proposed Class Made A Sufficient Showing Of Rule 23 Requirements
On January 3, 2020, Judge Edmond E. Chang of the United States District Court for the Northern District of Illinois Eastern Division granted Plaintiffs’ motion to certify a class of investors in an action alleging that two major food companies (“Defendants”) manipulated the wheat futures market. Plaintiffs asserted claims against Defendants under Sections 6(c)(1) and 9(a)(2) of the Commodity Exchange Act (“CEA”), under Section 2 of the Sherman Antitrust Act (“Sherman Act”), and for common law unjust enrichment. Harry Ploss v. Kraft Foods Group Inc. et al., No. 1:15-cv-02937 (N.D. Ill. Jan. 3, 2020).
District Of Massachusetts Holds That Plaintiff Who Purchased Stock After Corrective Disclosure Lacks Standing To Pursue Putative Securities Class Action
On September 23, 2019, Judge Denise J. Casper of the United States District Court for the District of Massachusetts denied class certification in a securities fraud action brought against a biopharmaceutical company (the “Company”) and several of its current and former officers and directors, and granted defendants’ motion for judgment on the pleadings in connection with plaintiff’s individual claim. Karth v. Keryx Biopharmaceuticals, Inc., C.A. No. 16-11745-DJC (D. Mass. Sept. 23, 2019). Plaintiff alleged that the Company misled investors about the number of entities that manufactured its FDA-approved drug and that its stock price declined when it revealed that it only had a single manufacturer, which was experiencing issues that affected the drug’s availability for sale. The Court declined to certify the putative class, finding that plaintiff was an inadequate representative because the timing of his stock purchases made his claims atypical from those of the proposed class. As to his individual claim, the Court granted defendants’ judgment on the pleadings, finding that plaintiff could not plead loss causation because the Company’s disclosures about the single manufacturer pre-dated the alleged stock drop by six months, and finding that plaintiff could not plead reliance because plaintiff purchased his shares two months after the curative disclosures.
District Of Connecticut Certifies Class In Cryptocurrency Mining Suit, Holding That Proposed Class Could Establish Reliance Based On Common Proof
On June 21, 2019, Judge Michael P. Shea of the United States District Court for the District of Connecticut granted plaintiffs’ motion to certify a class of investors in an action alleging that two cryptocurrency companies falsely represented that they were using investors’ money to mine for cryptocurrency when, in fact, they were engaged in a Ponzi scheme. Plaintiffs asserted claims against the companies and their owners under Section 10(b) of the Securities Exchange Act of 1934, Connecticut securities law, and for common law fraud. Audet v. Fraser, No. 3:16-CV-0940 (MPS), 2019 WL 2562628 (D. Conn. June 21, 2019). The Court held that each of the requirements for class certification was satisfied and, in particular, that even though no presumption of reliance was available, reliance on misrepresentations could be established on a class-wide basis based on common proof.
Supreme Court Rules That Deadline For Appealing Class Certification Decision Is Not Subject To Equitable Tolling
On February 26, 2019, the United States Supreme Court unanimously reversed a decision from the United States Court of Appeals for the Ninth Circuit, which had held that Rule 23(f) of the Federal Rules of Civil Procedure is subject to equitable tolling in appropriate circumstances. Nutraceutical Corp. v. Lambert, No. 17-1094, -- S.Ct. -- (2019). The Supreme Court ruled that the deadline in Rule 23(f) is mandatory and not subject to equitable tolling.
Northern District Of California Certifies Class In Securities Stock Drop Suit, Finding That “In-and-Out” Traders Should Not Be Excluded From The Class Definition
On July 17, 2018, Judge Jon S. Tigar of the United States District Court for the Northern District of California granted plaintiffs’ motion to certify a class in a securities class action against Twitter, Inc. (the “Company”) and two of its officers. In re Twitter Inc. Securities Litigation, No. 3:16-cv-05314 (N.D. Cal. July 17, 2018). Plaintiffs allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by making materially false and misleading statements regarding user growth and engagement, resulting in a 15 percent stock drop when the Company later disclosed that user engagement was “slowing quite dramatically.” The Court previously had granted in part and denied in part defendants’ motion to dismiss.
Central District Of California Certifies Class In Securities Stock Drop Action Against Restaurant Chain, Finding Insider Trades With Private Counterparty Did Not Preclude Certification Under Section 20A
On July 3, 2018, Judge David O. Carter of the United States District Court for the Central District of California granted plaintiffs’ motion to certify a class in a securities fraud action against Tex-Mex restaurant chain El Pollo Loco Holdings, Inc. (the “Company”) and certain of its officers and directors. Turocy, et al. v. El Pollo Loco Holdings Inc. et al., No. 8:15-cv-01343 (C.D. Cal. July 3, 2018).
Supreme Court Rules That Successive Class Actions Are Not Tolled Under American Pipe
On June 11, 2018, the Supreme Court of the United States held that the tolling rule first stated in American Pipe & Construction Co. v. Utah
, 414 U.S. 538 (1974) cannot salvage otherwise-untimely successive class claims. China Agritech, Inc. v. Resh
, No. 17-432, __ S. Ct. __, 2018 WL 2767565. In American Pipe
, the Court held that the timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint. The issue presented in China Agritech
was whether American Pipe
tolling can salvage an untimely successive class claim. The Sixth Circuit and the Ninth Circuit ruled that American Pipe
tolling applied to successive class action lawsuits, while certain other circuits, including the First, Second, Fifth, and Eleventh, held that American Pipe
tolling did not apply. In China Agritech
, the Court resolved the circuit split and unanimously held that, upon denial of class certification, a putative class member may only intervene as an individual plaintiff or commence an individual suit, but may not commence a new class action beyond the time allowed by the applicable statute of limitations.
Northern District Of California Certifies Class In Securities Fraud Action Against Medical Device Manufacturer
On May 8, 2018, Judge Claudia Wilken of the United States District Court for the Northern District of California granted class certification in an action asserting claims under Section 10(b) of the Securities Exchange Act based on allegations that the medical device manufacturer Thoratec and certain of its officers misrepresented the performance of its primary product. Cooper v. Thoratec Corp.
, 2018 WL 2117337 (N.D. Cal. May 8, 2018). Plaintiffs alleged that defendants made false and misleading statements about the rate of thrombosis suffered by users of its product, first in 2011 and continuing after a New England Journal of Medicine study revealed in November 2013 that thrombosis rates had increased since the clinical trials (which caused Thoratec’s stock to drop by six percent). After the company disclosed the impact of higher thrombosis rates in 2014, the stock lost a quarter of its value.
Southern District Of New York Denies Class Certification For Failure To Satisfy Predominance Prong Of Rule 23(b)(3)
On April 17, 2018, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York denied class certification in an action asserting claims for breach of contract and breach of trust against Wells Fargo Bank, N.A. Royal Park Investments SA/NV v. Wells Fargo Bank NA
, 1:14-cv-09764 (S.D.N.Y. Apr. 17, 2018). Plaintiff alleged that defendant disregarded contractual duties arising out of its role as trustee of two RMBS trusts by failing to protect RMBS Certificate holders and breached its common law duty of trust to avoid conflicts of interest by putting its own interests ahead of the beneficiaries’ and failing to take necessary action to the detriment of beneficiaries. Adopting in its entirety Magistrate Judge Sarah Netburn’s Report and Recommendation (“R&R”), see Southern District Of New York Magistrate Judge Recommends Denial Of Class Certification In Action Against RMBS Trustee
, the Court denied class certification on the basis that individual questions affecting proposed class members predominated over common issues.
United States Supreme Court Considers Application Of American Pipe Tolling To Subsequent Class Actions
On Monday, March 26, 2018, the United States Supreme Court heard oral argument in an appeal that presents the question whether American Pipe
tolling—which provides that the pendency of a class action generally tolls the statute of limitations for claims of individual members of the putative class—applies not just to subsequent individual actions but also to subsequent class actions. Transcript, China Agritech, Inc. v. Resh
, No. 17-432 (U.S. argued Mar. 26, 2018). Plaintiffs, alleged owners of shares in China Agritech, filed a putative securities fraud class action following the filing of two other similar class actions for which class certification had been denied. There was no dispute that the claims of the individual named plaintiffs were timely under the tolling rule of American Pipe & Construction Co. v. Utah
, 414 U.S. 538 (1974). The district court, however, dismissed the class claims as time-barred, only to be later reversed by the Ninth Circuit. The Circuit Courts of Appeals have reached varying conclusions regarding whether, or the circumstances in which, the filing of a putative but ultimately not certified class action will operate to toll subsequently-asserted class claims, thereby allowing for the seriatim filing of otherwise time-barred class actions in the hope that a class may eventually be certified. The China Agritech
case provides an opportunity for the Supreme Court to resolve the conflict.
Southern District Of New York Partially Denies Certification Of Putative Class Action Claims For Lack Of Class Standing
On March 22, 2018, Chief Judge Colleen McMahon of the United States District Court for the Southern District of New York granted in part and denied in part class certification in a putative class action alleging breach of contract claims against Citibank, N.A. Merryman et al. v. Citigroup Inc. et al.
, 15 Civ. 9185 (CM) (S.D.N.Y. Mar. 22, 2018). Plaintiffs, former holders of American Depositary Receipts (“ADRs”) in three separate companies, brought this putative class action on behalf of a proposed class who currently or previously held any of 35 separate ADRs for which defendant served as depositary bank. Plaintiffs alleged that defendant breached the contracts governing these ADRs by converting cash distributions received from foreign issuers at one foreign exchange rate and then supposedly using a less favorable rate when remitting the proceeds to ADR holders and retaining the difference (the “spread”). The Court granted class certification with respect to the securities previously owned by plaintiffs, but held that plaintiffs lacked class standing to bring claims on behalf of holders of other securities.
District Of New Jersey Finds Defendants Failed To Rebut Fraud-On-The-Market Presumption And Certifies Class Action Against Pharmaceutical Company For Alleged False Statements
On February 28, 2018, Judge Peter Sheridan of the United States District Court for the District of New Jersey granted class certification in an action against Aeterna Zentaris, Inc. and certain of its executives. Li V. Aeterna Zentaris, Inc.
, No. 3:14-CV-07081 (D.N.J. Feb. 28, 2018), ECF No. 144. Plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act of 1934, based on allegations that Aeterna made false or misleading statements about the progress of certain clinical trials involving the drug Macrilen, a growth hormone stimulator intended to diagnose whether a person has adult growth hormone deficiency (“AGHD”).
District Of Minnesota Certifies Securities Fraud Class Action But Narrows The End Of Putative Class Period To The Date Of The Initial Corrective Disclosure
On January 30, 2018, Judge John R. Tunheim of the United States District Court for the District of Minnesota granted class certification in a consolidated securities fraud class action against Medtronic and certain of its officers and employees. West Virginia Pipe Trades Health & Welfare Fund v. Medtronic, Inc
., et al.
, No. 13-cv-01686-JRT-FLN (D. Minn. Jan. 30, 2018). Plaintiffs—institutional investors who purchased Medtronic stock during the proposed class period—allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by manipulating early clinical studies of INFUSE, an alternative to replacement bone-tissue graft, by knowingly concealing adverse side effects observed in clinical trials, and by failing to sufficiently disclose that it paid physician authors a total of $210 million to publish positive articles about INFUSE in medical journals. Plaintiffs allege that Medtronic’s deception artificially inflated the company’s stock price, causing a large stock drop in August 2011, when the truth was revealed through a corrective disclosure. Plaintiffs sought to certify a class of all purchasers of Medtronic stock between September 8, 2010 and August 3, 2011. The Court certified the class, but shortened the class period end date to June 3, 2011, which is the date of the initial corrective disclosure.
Southern District Of New York Magistrate Judge Recommends Denial Of Class Certification In Action Against RMBS Trustee
In a January 10, 2018 ruling unsealed on January 19, Magistrate Judge Sarah Netburn of the United States District Court for the Southern District of New York recommended denial of Royal Park Investments’ request for class certification in an action against Wells Fargo Bank, N.A. (“Wells Fargo”). Royal Park Investments SA/NV v. Wells Fargo Bank, N.A.
, 14-CV-09764-KPF-SN (S.D.N.Y. Jan. 10, 2018). Plaintiff asserts claims for breach of contract and breach of trust in connection with Wells Fargo’s role as trustee of two RMBS trusts, alleging that Wells Fargo disregarded contractual duties by failing to protect RMBS Certificateholders and breached its common law duty of trust to avoid conflicts of interest by putting its own interests ahead of the beneficiaries’ and failing to take necessary action to the detriment of beneficiaries. Concluding that individual questions affecting proposed class members predominated over common issues, Magistrate Judge Netburn recommended that plaintiff’s motion be denied.
Second Circuit Vacates Class Certification Order And Reaffirms Standard For Defendants To Rebut The Basic Presumption Of Reliance
On January 12, 2018, the United States Court of Appeals for the Second Circuit vacated a district court order certifying a securities fraud class action brought by purchasers of common stock in The Goldman Sachs Group, Inc. (“Goldman” or the “Company”). Arkansas Teachers Ret. Sys. v. Goldman Sachs
, No. 16-250 (Jan. 12, 2018). The district court certified the class, ruling that defendants failed to rebut the presumption of reliance first articulated in Basic Inc. v. Levinson
, 485 U.S. 224 (1988) because defendants did not “conclusively” prove a “complete absence of price impact.” On appeal, the Second Circuit ruled that, consistent with its precedent, defendants seeking to rebut the Basic
presumption of reliance must do so by a preponderance of the evidence. Because it was unclear if the district court applied a more demanding standard than preponderance of the evidence, the Second Circuit vacated the district court’s decision and remanded it to consider the defendants’ evidence under the proper standard.
Court Denies Class Certification In Putative Class Action Against Fiber Optic Technology Company Where Defendants Successfully Rebutted Presumption Of Reliance By Showing No Statistically Significant Price Impact
On December 5, 2017, the United States District Court for the Northern District of California denied class certification in a putative securities fraud class action against Finisar Corporation (“Finisar”), a technology company focused on fiber optic subsystems, and its current chairman/CEO and former CEO, in which plaintiffs alleged that defendants misled investors by denying that Finisar’s revenue growth was the result of inventory build-up by customers. In re Finisar Corporation Securities Litigation
, No. 5:11-cv-01252-EJD (N.D. Cal. Dec. 5, 2017). In denying plaintiffs’ motion for class certification, the Court ruled that defendants successfully rebutted the fraud-on-the-market presumption of reliance by demonstrating that defendants’ statements had no statistically significant impact on Finisar’s stock price.
Second Circuit Affirms “Dark Pool” Class Certification Order, Reiterating Limited Scope Of Affiliated Ute, But Holding That Direct Evidence Of Price Impact Is Not Always Required To Satisfy Basic’s Presumption Of Reliance And That Defendants Attempting To Sever The Link Between Alleged Misrepresentations And Plaintiffs’ Purchase Price Must Do So By A Preponderance Of The Evidence
On November 6, 2017, the United States Court of Appeals for the Second Circuit affirmed a class certification order in a case concerning claims under the Securities Exchange Act of 1934 (the “Exchange Act”) relating to the operation of alternative trading systems (so-called “dark pools”). Waggoner v. Barclays PLC
, No. 16-1912-cv, -- 3d. -- (2d Cir. Nov. 6, 2017). Plaintiffs—three individuals who purchased American Depository Shares in Barclays PLC—asserted claims against Barclays PLC, its U.S. subsidiary Barclays Capital Inc., and three senior officers of the companies, based on allegedly misleading statements indicating that Barclays monitored its alternative trading system (known as Liquidity Cross or “LX”) to protect clients from high-frequency traders. In affirming class certification based on the presumption of reliance in Basic Inc. v. Levinson
, 485 U.S. 224 (1988), the Second Circuit held that direct evidence of price impact is not always required in order to demonstrate market efficiency.
Second Circuit Partially Vacates Class Certification, Holding That Whether Securities Transactions Are “Domestic” Raises Predominance Issues; Clarifying Ascertainability Test Under Rule 23; And Reiterating Holistic Analysis For Market Efficiency
On July 7, 2017, in a decision making several significant rulings and clarifications, the United States Court of Appeals for the Second Circuit vacated in part an order certifying classes asserting claims under the Securities Exchange Act of 1934 (the “Exchange Act”) and the Securities Act of 1933 (the “Securities Act”) on the basis that the lower court had insufficiently considered whether individual determinations as to whether over-the-counter bond purchases were “domestic” would predominate over common issues of fact and law. In re Petrobras Securities
, -- 3d. -- (2d Cir. July 7, 2017). The Court further clarified that, unlike the Third Circuit, the Second Circuit requires only that a class be “defined using objective criteria that establish a membership with definite boundaries” to meet the threshold ascertainability requirement under Rule 23 of the Federal Rules of Civil Procedure, and that, in Exchange Act cases, plaintiffs may be able to avail themselves of the “fraud on the market” theory presumption of reliance even if they do not establish statistically significant price changes in response to relevant news, provided that the entirety of the plaintiffs’ analysis supports market efficiency.
Supreme Court Holds Voluntary Dismissal With Prejudice Does Not Constitute An Appealable “Final Decision” That Would Allow The Appeal Of A Class Certification Decision
On June 12, 2017, the United States Supreme Court, in an opinion authored by Justice Ginsburg, held that “[f]ederal courts of appeals lack jurisdiction under [28 U.S.C.] § 1291 to review an order denying class certification (or, as here, an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice.” Microsoft Corp. v. Baker
, 582 U.S. ___ (2017). The Court reversed and remanded the Ninth Circuit Court of Appeals’ decision and held that a voluntary dismissal with prejudice does not constitute a “final decision,” as required to bring an appeal under § 1291. Therefore, the Court found that the plaintiffs, after voluntarily dismissing their claims with prejudice, did not have a right to appeal the district court’s order striking their class action allegations.
Bill Would Impose New Restrictions On Class Actions
On March 9, 2017, the U.S. House of Representatives voted to approve the Fairness in Class Action Litigation Act of 2017 (“H.R. 985” or the “Bill”), a bill that, if signed into law, would significantly modify class action practice.
Second Circuit Affirms Judgment Rejecting Securities Fraud Claims Because Plaintiffs Would Have Bought Securities Even Knowing Of Alleged Fraud
On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment of the Southern District of New York, after a bench trial, finding that Vivendi Universal, S.A. (“Vivendi”) rebutted the fraud-on-the-market presumption of reliance, thereby defeating a non-class, individual group of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934. GAMCO Inv’rs, Inc. v. Vivendi Universal, S.A., —F.3d—, 2016 WL 5389281 (2d Cir. Sept. 27, 2016). The Court affirmed the district court’s determination that plaintiffs—a number of “value funds” controlled by GAMCO Investors, Inc. (“GAMCO”)—did not rely on Vivendi’s market price, and would have purchased the securities even had they known of Vivendi’s alleged misstatements respecting its liquidity risk. While acknowledging that it would seem unlikely that an investor, “aware of fraud,” would purchase a security, the Court repeatedly emphasized that sufficient evidence in the trial record supported the district court’s findings.
Class Certification Granted In Securities Class Action Against Wal-Mart
On September 20, 2016, Judge Susan O. Hickey of the United States District Court for the Western District of Arkansas certified a class of investors in an action brought against Wal-Mart Stores Inc. for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. et al.,
No. 5:12-cv-05162 (W.D. Ark. Sept. 20, 2016). The Court held that the proposed class met the numerosity, commonality, typicality, and adequacy of representation requirements under Rule 23 of the Federal Rules of Civil Procedures (“Rule 23”), and named the City of Pontiac General Employees’ Retirement System as class representative.
Second Circuit Holds Judges Can Decertify Class Actions After Jury Verdicts
On July 15, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the post-verdict decertification of a previously certified class action against Wells Fargo subsidiaries. Mazzei v. Money Store
, No. 15-2054 (2nd Cir. July 15, 2016). The Court held that district courts have the power to decertify a class after a jury verdict and before the entry of final judgment.
Best Buy Shareholders File Motion For Rehearing In Eighth Circuit; Argue Ruling Overturning Class Certification Conflicts With Halliburton.
On May 10, 2016, Best Buy shareholder plaintiffs filed a motion for rehearing in the United States Court of Appeals for the Eighth Circuit, seeking en banc review of the first circuit court ruling to apply the United States Supreme Court’s seminal decision in Halliburton II, and hold that a defendant had rebutted the fraud-on-the-market presumption of reliance by showing lack of price impact. IBEW Local 98 Pension Fund et al. v. Best Buy Co. Inc. et al.
, case number 14-3178, in the U.S. Court of Appeals for the Eighth Circuit. Plaintiffs seek rehearing of the Court’s 2-1 decision in April, which relied on Halliburton II in overturning the class certification order of the United States District Court for the District of Minnesota, after finding that the District Court had ignored evidence presented by defendants demonstrating that the alleged misstatements did not impact the share price. In seeking rehearing, Plaintiffs are attempting to align the Eighth Circuit with the United States Court of Appeals for the Seventh and Eleventh Circuits, which have held that for purposes of invoking the fraud-on-the-market presumption, a plaintiff may point to evidence that a false statement maintained an inflated price until the price dropped as a result of a corrective disclosure.
Facebook Argues That The Absence Of An Effective Plan To Manage Discovery From Unnamed Class Members May Warrant Reconsideration Of The Court’s Decision Granting Class Certification
On May 10, 2016, Facebook filed a letter in the United States District Court for the Southern District of New York action in connection with class action litigation concerning its $16 billion IPO. In re Facebook Inc., IPO Securities and Derivative Litigation
, Case No. 1:12-md-02389 (S.D.N.Y.). Facebook, defending against claims under Sections 11, 12, and 15 of the U.S. Securities Act of 1933 (the “Securities Act”), contends that the absence of an effective plan for obtaining individualized discovery from unnamed class members may render the case “unmanageable” as a class action and, as a result, “the Court may wish to reconsider class certification at some point.” Facebook further requested that, “at the very least, if the case proceeds as a class action,” the Court confirm that Facebook “will have the right to take individualized discovery from absent class members in a later phase of the case.” The Court’s ultimate decision on these issues may impact parties in similar cases.