Both Sides Win, Both Sides Lose

Many of you surely remember reading in the Nugget last October about how Judge Marilyn Hall Patel (N.D. Cal.) called everyone down to the courthouse and basically advised Defendants to file answers instead of motions to dismiss in the Cornerstone securities class action. Well, now we are at the class certification stage, and Judge Patel has issued her ruling. In it, she finds that “Defendants’ assertion that Lead Plaintiff and the named representatives are atypical and inadequate as class representatives because of Lamphere’s [he’s a class rep] purported non-reliance on the CornerStone financial statements, the possibility of a statute of limitations defense, and the existence of potential intra-class conflicts is not supported by the relevant caselaw.” However, “pursuant to the Supreme Court’s holding in Dura, the Class may not include individuals who purchased and sold CornerStone stock prior to any corrective disclosure by the company.”

Result this time? “Plaintiff’s motion for class certification is granted, subject to an amendment of the Class definition to exclude plaintiffs who purchased and sold their stock prior to any corrective disclosure in July 2001.”

So — not a total loss for Defendants by any means, as Plaintiffs proposed class period reached back to July 1998.

You can read In re Cornerstone Propane Partners, issued May 3, 2006, at 2006 U.S. Dist. LEXIS 25819.

Nugget: “Statute of limitations defenses for named plaintiffs are not a bar to class certification for securities fraud.”

The Quintessential Class Action

You could read the 20 page class certification decision in the Priceline.com securities class action, but let’s face it, if you had the energy to do that, you wouldn’t need the Nugget now would you? So want to know how Judge Dominic J. Squatrito (D. Conn.) summed it all up?

Well, he said quite simply that “this is the quintessential securities fraud class action.” That’s right, you see that’s because “an enormous group of potential plaintiffs, with losses ranging from millions of dollars to tens of dollars, seek to recover damages arising from one entity’s actions.” So, since “the focus of this litigation is upon the propriety defendants’ conduct, and any issues pertaining to individual class members only pale in comparison to the importance of defendants’ potential liability,” “this class action shall be certified under Rule 23(b)(3).”

So attack the class reps all you want, but no one can argue with this logic. No one except someone who’s wrong, of course. You know — the drinking the Flavor-Aid types.

You can read In re Priceline, issued April 4, 2006, at 2006 U.S. Dist. LEXIS 18603.

Nugget: “The court will not, at this stage of the litigation, determine which plaintiffs may or may not be able to prove loss causation; it is enough at this time that the class definition includes all persons who may have been harmed by the fraud alleged in the complaint — whether each person within this class may recover is a question reserved for another day.”

Plaintiffs Seek Contempt Order

True, this decision is a bit dated, but in the Nugget’s defense it just popped up in Lexis the other day — and it’s gets juicy. Seems Plaintiffs in the CV Therapeutics Inc securities class action want defense counsel held in contempt for allegedly revealing confidential witness information. Here’s how Judge Susan Illston (N.D. Cal.) sorted it all out.

“Plaintiff asks the Court to hold defendants in contempt and impose sanctions based on their alleged violation of this Court’s December 7, 2004 order restricting disclosure of the identities of the confidential witnesses (“CWS”) in this case. According to plaintiff, defendants’ counsel disclosed to CW3 the identities of CW1 and CW2; plaintiff submits the declaration of CW3 attesting to this fact. In that declaration, CW3 also states that defense counsel made the potential threat that, if he did not provide a declaration retracting his prior statements to plaintiff, he would be deposed. Plaintiff asks the Court to hold defendants in contempt and, as a sanction, to foreclose defendants from deposing any of the CWs.”

“Defendants submit a declaration from their counsel stating that he has no recollection of making this disclosure and that he believes it never occurred. They suggest that CW3 instead learned the identities of CW1 and CW2 through the biographical information in the CW statements, which defense counsel provided to CW3. In addition, defendants deny that defense counsel’s statement constituted a threat of deposition, and argue that counsel was merely explaining that an affidavit would avoid the need for a deposition. Defendants speculate that plaintiff’s proposed sanction is merely an attempt to gain a litigation advantage in light of the recent refutation of the complaint’s CW statements by two of the four CWs.”

“Taking CW3’s and Jay Pomerantz‘s declarations together, the Court concludes that counsel did disclose the identities of CW2 and CW1 to CW3. CW3 states unequivocally that Mr. Pomerantz did so; counsel states merely that he does not recall revealing the names and does not believe he did so. However, the Court does not find that defense counsel’s disclosure was a willful or blatant violation of its order. In addition, it does not consider defense counsel’s statement about a deposition of CW3 to be a threat.”

“Accordingly, the Court declines to make the requested contempt finding or to impose the drastic sanction proposed by plaintiff. Plaintiff’s motion is DENIED.”

You can read Crossen v. CV Therapeutics, issued August 10, 2005, at 2005 U.S. Dist. LEXIS 41396.

Nugget: “The Court hereby GRANTS plaintiff’s motion to certify the class and appoint Crossen as lead plaintiff.”

Cavalry Arrives in CIGNA

When Defendants in the CIGNA Corp. securities class action planned to attack the proposed class representative (SERS) on loss causation grounds, Plaintiffs just didn’t sit idly by. Instead, they sought “to allow two other putative class members — the Miami General Employees’ Sanitation Employees Retirement Trust (“Miami Employees”) and the Public Employees’ Retirement System in Mississippi (“MPERS”) — to intervene as additional proposed class representatives.”

Defendants balked, but Judge Legrome D. Davis (E.D. Penn.) (writing for Judge Michael M. Baylson — for reasons unknown) (E.D. Penn.) stymied them, noting that “CIGNA is planning to file a summary judgment motion on these grounds within the next week. Apparently fearful of this motion, SERS has secured the agreement of Miami Employees and MPERS to become additional proposed class representatives. SERS quite properly indicates that its motive in doing this is to protect the interests of the putative class. The Court finds this to be a legitimate substantive reason to allow the intervention. If, due to a failure to prove loss causation and/or economic loss, SERS is dismissed as a party or is deemed to be an unworthy class representative notwithstanding its Lead Plaintiff status, the interests of the putative class will clearly be at risk. Given the significance that the PSLRA has placed on the status and responsibility of the Lead Plaintiff in this type of case, the Court finds that any present or potential doubts about SERS being able to fulfill its role should be alleviated by allowing Miami Employees and MPERS to join SERS as proposed class representatives.”

And to top it all off, Judge Davis easily wiped away Defendants’ supposed reasons for opposing the intervention, noting that “Defendant has not offered any substantive reason, other than the fact that they do not want the burden of dealing with the claims of new parties to delay what they hope will be a successful termination of SERS as Lead Plaintiff. However, Defendant has no right to expect that any ruling against SERS on loss causation and/or economic loss grounds will necessarily terminate Defendant’s liability to the other members of the putative class. To do so would eviscerate the whole concept that Congress had in mind in establishing the Lead Plaintiff concept in the PSLRA.”

You can read In re Cigna, issued March 23, 2006, at 2005 U.S. Dist. LEXIS 41293.

Nugget: “If defendants are successful in their summary judgment motion against SERS, such a result should not cause termination of the entire case if other putative class members are willing, able and ready to step forward as class representatives and also as Lead Plaintiffs and can prove loss causation and/or economic loss.”

Two Birds, One Order.

Defendants must be seeing stars in the Veeco securities class action. Seriously, it’s bad enough losing the motion to dismiss, but losing class certification in the same Order? Say it ain’t so. But it is so, and this time it’s Judge Colleen McMahon (S.D.N.Y.) on the Bench. Her opinion covers a lot of ground, and Defendants aren’t without certain victories (like shaving the class period from 15 to 9 months), but let’s face it, you know you’re in trouble when the Judge says that “Plaintiffs’ extensive allegations of fraud — whether or not sufficient to ultimately establish defendants’ liability — undoubtedly satisfy Rule 9(b)’s and the PSLRA’s heightened pleading requirements.”

And following a trend the Nugget has long reported, Judge McMahon provided what arguably is the best description yet of just how non-complicated the whole Dura loss causation thing really is, holding that “plaintiffs allege that they were harmed when Veeco’s stock plummeted as a result of defendants’ disclosure of prior misrepresentations and material omissions relating to the company’s performance and earnings. The complaint thus contains the very allegations regarding share price decrease and public exposure to the truth the Supreme Court found lacking in the Dura complaint.”

That’s right all you Dura exaggerators (you know who you are), enough to get past motions to dismiss and class certification objections.

You can read In re Veeco, issued March 21, 2006, at 2006 U.S. Dist. LEXIS 13226.

Nugget: “The court has no reason to believe that [the class representative is inadequate based on ignorance], and finds it odd that defendants would set themselves up as champions of the class interests by making such an argument.”

Dura Can’t Plug These Leaks And Dribbles

Magistrate Judge Andrew J. Peck (S.D.N.Y.) has recommended that Judge Lewis A. Kaplan (S.D.N.Y.) (featured in Monday’s Brontosaurus article) certify the NTL securities class action. As Judge Peck noted, “the major issue on the motion is whether the named plaintiffs (Fleck and Cheyne) are typical or are subject to unique defenses based on loss causation issues.” In holding that they were not, “the Court finds that the class complaint adequately alleges that certain negative information about NTL leaked out during the class period, and thus the named plaintiffs can show loss causation and are not atypical.”

That’s right, yet another Dura loss for Defendants (regular Nugget readers know the drill). Why you ask? Well, as Judge Peck put it, “because Lead Plaintiffs have made some showing that these disclosing events slowly revealed the false information regarding NTL and have tied some if not all of the dissipation in the value of NTL’s stock to those events, they have adequately plead loss causation.” Of course, “some of that loss may be attributable to general stock market declines or decreases in NTL’s stock price unrelated to the alleged fraud,” but “the Court cannot determine how much of Fleck’s loss is attributable to the alleged fraud and how much is attributable to other factors for which defendants are not liable. But this same question will have to be determined for the class as a whole – it is not unique to Fleck (or Cheyne).”

So, “accordingly, Fleck’s situation is typical of others in the class – a need to show the drop in NTL’s share price during the class period was not attributable to general factors but to ‘dribbled’ disclosures or ‘leakage’ of truthful information regarding NTL’s prior misrepresentations and/or omissions.”

You can read In re NTL, issued February 14, 2006, at 2006 U.S. Dist. LEXIS 5346.

Nugget: “Indeed, defendants’ opposition to class certification on this ground essentially is a motion to dismiss on loss causation grounds.”

In. Out. Certified.

In the BearingPoint securities class action pending in the rocket docket, Judge T. S. Ellis, III (E.D. Va.) found himself confronted with the “somewhat novel question” of “whether ‘in-and-out’ purchasers of BearingPoint stock, namely those who bought and sold their shares within the class period, can prove loss causation.” Defendants, relying on Dura (no, don’t adjust your set, just more defendants going down the drain with Dura — again), argued that including these traders “in the proposed class will require individual examination of each in-and-out trader to determine whether each such trader has satisfied the loss causation requirement.”

But Judge Ellis rejected Defendants’ argument, holding instead that “although in-and-out traders often have no associated damage because they purchased and sold at prices with the same artificial inflation, this is not always the case. In cases where, as here, there are multiple disclosures, in-and-out traders may well be able to show a loss. Moreover, it is also conceivable that the inflationary effect of a misrepresentation might well diminish over time, even without a corrective disclosure, and thus in-and-out traders in this circumstance would be able to prove loss causation. In sum, because in-and-out traders may conceivably prove loss causation, they are appropriately counted as members of the proposed class.”

Result? You guessed it, class certified.

You can read In re Bearing Point, issued January 17, 2006, at 2006 U.S. Dist. LEXIS 1718.

Nugget: “Even so, the conclusion that the proposed class includes in-and-out traders, does not, alter the conclusion that common issues of law and fact will predominate over individual issues. The issue of whether in-and-out traders can satisfy loss causation is a single legal issue, not dependent on individual factual determinations, and the proper determination of individual damages can be determined at trial through the use of expert witnesses.”

Who Says We’re Professionals?

Perhaps you recall back in August when Judge Harvey Bartle III (E.D. Penn.) rejected Defendants’ Dura arguments in the Vicuron Pharmaceuticals securities class action. Well, it looks like things aren’t improving much for them at the class certification stage. You see, Defendants balked when Lead Plaintiffs “Massachusetts State Carpenters Pension Fund (“MSCPF”), Massachusetts State Guaranteed Annuity Fund (“MSGAF”), and the Greater Pennsylvania Carpenters Pension Fund (“GPCPF”) asked to also serve as class representatives (seems nice of them to offer, doesn’t it?), arguing that they “are unfit” “because they are ‘professional plaintiffs’ barred from serving in this capacity by the PSLRA and because they played little or no role in the decision to purchase Vicuron stock.”

But, alas, Judge Bartle rejected the first argument, holding that “the fact that the MSCPF and MSGAF have been class representatives in as many prior class actions as they have does not preclude their filling that role in this case.” And as for the argument about their role in purchasing the stock, Judge Bartle shot that down too, saying “the fact that institutional plaintiffs used money managers and investment advisors to purchase Vicuron stock does not suggest plaintiffs are inadequate to protect and pursue the interests of the class.”

Result? Class certified.

You can read In re Vicuron, issued February 1, 2006, here, (thanks again to Adam T. Savett at Mehri & Skalet for the link) or at 2006 U.S. Dist. LEXIS 3861.

Nugget: “If an institutional investor cannot be a class representative simply because it turned over day-to-day investment decisions to professional money managers or advisors, few if any institutional investors could be class representatives in any securities action. Such a result is contrary to the intentions of Congress embodied in the PSLRA that institutional investors should oversee more securities actions.”

Tracing to SPO Can’t Stop Class Certification

So the question for Judge Nanette K. Laughrey (E.D. Mo. + W.D. Mo. and D.D.C.) (sorry for the court confusion here, but if anyone knows why or how Judge Laughrey was appointed to sit in both Missouri Districts, yet is not listed at all on the E.D. Mo site, and is issuing an opinion in a DC case, the rest of us are dying to know, so please tell us by leaving a comment below) in the Iridium securities class action was “whether the inability of aftermarket purchasers to recover under Section 12 defeats certification of a sub-class which pursues both Section 11 and 12 claims.”

What did the Judge do? She reasoned that “any difficulty by individual class members in tracing their particular aftermarket-purchased shares to the Registration Statement is a secondary issue to be resolved after the predominant issue of Defendant Underwriters’ liability has been decided. It would be inappropriate to foreclose such Plaintiffs’ resort to the class action format simply because some of their cases may be difficult to prove.”

Result? Class Certified.

You can read Freeland v. Iridium World Communications, issued January 9, 2006, at 2006 U.S. Dist. LEXIS 744.

Nugget: “Even if the common issues didn’t predominate, Plaintiffs could easily seek to certify two subclasses, one with Section 11 claims and one with Section 12 claims. Forcing the Plaintiffs to do so unnecessarily, however, would add yet another delay to what is already a long-lived case, especially since it would be much more efficient to consider these differences at the damages stage, if and when it is reached. This makes more sense than having repeated trials to decide the common questions of fact. Separate trials might also produce inconsistent findings.”

First Circuit Weighs in on Market Efficiency

If you’re a market efficiency buff (and let’s face it, who isn’t), then break out those reading glasses and your slide rule (not sure why you need the slide rule, but you’ll look awfully academic carrying it, and you’re certain to impress your local judiciary) and get ready to check out the First Circuit’s twin decisions that came out last month on the issue. What did they find, you ask? Well, that “an efficient market is one in which the market price of the stock fully reflects all publicly available information. By ‘fully reflect,’ we mean that market price responds so quickly to new information that ordinary investors cannot make trading profits on the basis of such information. This is known as ‘informational efficiency,’” and “we reject a second and much broader meaning of ‘fully reflect,’ known as ‘fundamental value efficiency,’ which requires that a market respond to information not only quickly but accurately, such that the market price of a stock reflects its fundamental value.”

So, “while evidence of a stock’s fundamental value may be relevant to the extent that it raises questions about informational efficiency, courts which choose to consider such fundamental value evidence at the class-certification stage run the risk of turning the class-certification proceeding into a mini-trial on the merits, which must not happen. The fraud-on-the-market presumption, after all, only establishes a presumption of reliance which can be rebutted at trial. At the class-certification stage, a party need only establish ‘basic facts’ in order to invoke the presumption of reliance. The question of how much evidence of efficiency is necessary to establish the fraud-on-the-market presumption of reliance is one of degree. While district courts have broad discretion to draw these lines, they must do so sensibly, understanding the correct definition of efficiency and the factors relevant to that determination.”

Result? Investors in the Xcelera action had their class certification upheld, while those in the Polymedica will have their class certification order re-reviewed under the market efficiency standard set by the Panel.

You can read In re Xcelera and In re Polymedica, issued December 13, 2005, at 430 F.3d 503 and 2005 U.S. App. LEXIS 27173, or search for them here under Opinions.

Nugget: “Given the various factors relevant to an efficiency determination, and the abundant evidence that can be developed with respect to each factor, the determination of whether a market is efficient is a fact-dominated inquiry. ”