Demarco v. Robertson Stephens Inc.

228 F.R.D. 468, 2005 U.S. Dist. LEXIS 759, 2005 WL 120233
CourtDistrict Court, S.D. New York
DecidedJanuary 20, 2005
DocketNo. 03 Civ. 590(GEL)
StatusPublished
Cited by23 cases

This text of 228 F.R.D. 468 (Demarco v. Robertson Stephens Inc.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Demarco v. Robertson Stephens Inc., 228 F.R.D. 468, 2005 U.S. Dist. LEXIS 759, 2005 WL 120233 (S.D.N.Y. 2005).

Opinion

OPINION AND ORDER

LYNCH, District Judge.

This case is one of a number of similar cases currently pending in this Court alleging securities fraud based on false and misleading research analyst reports. In an Opinion and Order dated January 8, 2004, this Court denied in part and granted in part defendants’ motion to dismiss this action, retaining the claims based on section 10(b) and Rule 10-b(5) against both Robertson Stephens (“RS”) and Paul Johnson. See DeMarco v. Robertson Stephens, Inc., 318 F.Supp.2d 110 (S.D.N.Y.2004). Plaintiffs have now moved for class certification pursuant to Federal Rule of Civil Procedure 23, seeking to certify a proposed class of “all persons or entities who purchased the common stock of Corvis Corporation ... during the period from August 22, 2000, through May 25, 2001 [inclusive] (the ‘Class Period’), and who sustained damages as a result of such purchases.” (P. Mem.1.) Defendants have objected to the certification on the grounds that (i) the proposed class representatives are “inadequate”; (ii) individual proof of reliance will predominate at trial and therefore common questions do not predominate as required by Rule 23(b)(3); and (iii) plaintiffs have failed to justify the class period. For the reasons that follow, the motion for class certification will be granted.

BACKGROUND

The full factual background underlying plaintiffs’ claims may be found in the Court’s decision on the motion to dismiss. DeMarco, 318 F.Supp.2d at 114-15. In brief, the Complaint alleges that defendants issued false and misleading analyst reports on Corvis Corporation (“Corvis”) from August 22, 2000, through April 27, 2001, in order to inflate the market price of Corvis stock, which Johnson and certain RS officers owned through partnerships and other means. The shares owned by defendants were subject to a “lockup” period, during which the sale of their stock was restricted. Johnson maintained a “buy” rating on Corvis throughout the lockup period, while privately advising the partnerships to sell their Corvis shares. Both Johnson and the partnerships sold a majority of their shares soon after the lock-up period expired in January 2001, although Johnson continued to rate Corvis a “buy” for several [470]*470months afterward. On Sunday, May 27, 2001, the New York Times published an article by Gretchen Morgenson, titled “Buy, They Say. But What Do They Do?; I.P.O. Conflicts Bedevil Analysts,” which revealed that Johnson and other RS executives had been selling Corvis while advising the public to buy.

DISCUSSION

I. Standard on Class Certification

In order to certify a proposed class, plaintiffs must demonstrate that the class and its proposed representatives meet the requirements of both Rule 23(a) (generally referred to as numerosity, commonality, typicality, and adequacy) and one of the subsections of Rule 23(b). The only subsection of Rule 23(b) applicable here is 23(b)(3), which requires a finding that “common” questions of law or fact “predominate over any questions affecting only individual members,” and that a class action is “superior to other methods for the fair and efficient adjudication of the controversy.”

Plaintiffs suggest in their motion that the allegations of their Complaint must be presumed true for class certification purposes. (P. Mem.2.) Although the standard of proof on class certification is not well-established, it is clear that plaintiffs must meet a higher standard than that which prevails on a motion to dismiss. Plaintiffs initially cite to Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), in which the Supreme Court chastised the lower court for conducting “a preliminary inquiry [in this case, an evidentiary hearing] into the merits of a suit in order to determine whether it may be maintained as a class action.” Id. However, since Eisen, the Supreme Court has clarified that district courts are required to conduct a “rigorous analysis” of the Rule 23 requirements, and that such rigor may require the district court to “probe behind the pleadings before coming to rest on the certification question.” General Telephone Co. v. Falcon, 457 U.S. 147, 160-161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982).

Although some circuits have strongly implied that plaintiffs must demonstrate their compliance with Rule 23 by a preponderance of the evidence, see Szabo v. Bridgeport Machines, Inc., 249 F.3d 672 (7th Cir.2001); Gariety v. Grant Thornton LLP, 368 F.3d 356 (4th Cir.2004), the Second Circuit has sought to balance the teachings of Eisen and General Telephone by requiring plaintiffs to make “some showing” beyond the complaint, while also cautioning district courts to refrain from considering or resolving the ultimate merits of the claims or weighing the likelihood of plaintiffs’ success at some later stage of the litigation. See Caridad v. MetroNorth Commuter Railroad, 191 F.3d 283, 291-92 (2d Cir.1999) (“A motion for class certification is not an occasion for examination of the merits of the case.”); In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124,134-35 (2d Cir.2001) (“The question for the district court at the class certification stage is whether plaintiffs’ ... evidence is sufficient to demonstrate common questions of fact warranting certification of the proposed class, not whether the evidence will ultimately be persuasive.”). Lower courts in this Circuit have considered, as part of this showing, “expert opinions, evidence (by document, affidavit, live testimony, or otherwise), or the uncontested allegations of the complaint.” In re Initial Public Offering Sec. Litig., 227 F.R.D. 65, 92-93 (S.D.N.Y.2004).

II. Rule 23(a) Requirements

A. Numerosity

To satisfy the numerosity requirement of Rule 23(a), plaintiffs must show that joinder is “impracticable.” Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir.1993). Numerosity is generally presumed when a class consists of forty or more members. See Consolidated Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir.1995). The defendants do not dispute the numerosity of the proposed class. Plaintiffs have shown that Corvis had millions of outstanding shares in active trading on the NASDAQ market during the class period, and it is uncontested that “hundreds, if not thousands” of investors are within the proposed class. (P. Mem.8.)

[471]*471B. Comm,ona,lity

Rule 23(a) also requires that the action raise an issue of law or fact that is common to the class. See, e.g., Robinson v. Metro-North Commuter R.R.Co.,

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228 F.R.D. 468, 2005 U.S. Dist. LEXIS 759, 2005 WL 120233, Counsel Stack Legal Research, https://law.counselstack.com/opinion/demarco-v-robertson-stephens-inc-nysd-2005.