In re Tyco Int’l MDL MD

2007 DNH 075

• Court: District Court, D. New Hampshire
• Decided: June 12, 2007
• Docket: MDL No. 02-1335-B
• Status: Published

Opinion

In re Tyco Int’l MDL MD02-1335-PB 06/12/07

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

In re Tyco International, Ltd. MDL DOCKET NO. 02-1335-PB Multidistrict Litigation (MDL 1335) SECURITIES CATEGORY Case N o . 03-cv-1352-PB Opinion N o . 2007 DNH 075

MEMORANDUM AND ORDER

This class action arises from a decision by Tyco

International Ltd. (“Tyco”) to sell off a minority interest in

one of its wholly owned subsidiaries, TyCom Ltd. (“TyCom”). The

proposed class consists of all persons or entities who purchased

TyCom stock, either pursuant to a July 2 6 , 2000 Registration

Statement and Prospectus (“Prospectus”) for TyCom’s initial

public offering (“IPO” or “Offering”), or on the open market

between July 2 6 , 2000 (“Effective Date”) and December 1 7 , 2001

(“Class Period”). Lead plaintiff, Mark Newby, claims that

defendants Tyco, TyCom, L . Dennis Kozlowski, Mark H . Swartz, and

Neil R. Garvey devised a scheme to fraudulently reap more than

$200 million in cash from the July 2 6 , 2000 IPO of common shares in TyCom. Newby also claims that analysts employed by the

Underwriters of the Offering issued false reports in furtherance

of the scheme. On September 2 , 2005, I granted the Underwriters’

motion to dismiss and denied motions to dismiss by the other

defendants (Doc. N o . 5 1 4 ) .

Newby has moved for the certification of a class consisting

of

All persons and entities who purchased shares of TyCom Ltd. (“TyCom” or the “Company”) common stock pursuant to or traceable to the July 2 6 , 2000 Registration Statement and Prospectus (“Prospectus”) for TyCom’s initial public offering (the “Offering”) or who purchased TyCom common stock on the open market during the period July 2 6 , 2000 through December 1 7 , 2001 (the “Class Period”) and were damaged thereby (the “Class”), to recover damages caused by defendants’ violations of the federal securities laws. Excluded from the Class are the defendants, officers and directors of Tyco, TyCom, or the Underwriter Defendants, members of the immediate family of each of the Individual Defendants, and affiliates of the corporate defendants.

Lead Pl.’s Mot. for Class Certification at 1 (Doc. N o . 6 5 3 ) .

Defendants argue that the class should not be certified

because the lead plaintiff is not a typical or adequate class

representative. Alternatively, they argue that the class period

should be shortened to exclude investors who sold their TyCom

shares prior to March 2 1 , 2001.

-2- I. CLASS CERTIFICATION STANDARD

Federal Rule of Civil Procedure 23 sets out the familiar

requirements for class certification. Fed. R. Civ. P. 2 3 . The

class representative has the burden of showing that each

requirement has been met. Makuc v . Am. Honda Motor Co., 835 F.2d

389, 394 (1st Cir. 1987). The class certification inquiry has

two steps. First, the class representative must show that the

proposed class satisfies all four of Rule 23(a)’s threshold

requirements, which are commonly known as numerosity,

commonality, typicality, and adequacy. Second, he must

demonstrate that the lawsuit may be maintained as a class action

under one of the three subsections of Rule 23(b).

A. Rule 23(a)

The numerosity requirement limits class actions to those

cases in which “the class is so numerous that joinder of all

members is impracticable.” Fed. R. Civ. P. 23(a)(1). “[N]umbers

alone are not usually determinative,” but both the number of

potential class members as well their geographic distribution are

relevant to the numerosity determination. Andrews v . Bechtel

Power Corp., 780 F.2d 1 2 4 , 131-32 (1st Cir. 1985). In addition,

-3- a proposed class is more likely to satisfy the numerosity

requirement if it is difficult to identify potential class

members. Id. at 132.

The commonality requirement provides that there must be

“questions of law or fact common to the class.” Fed. R. Civ. P.

23(a)(2). Commonality “is not a high bar.” In re Chiang, 385

F.3d 256, 265 (3d Cir. 2004). The requirement “‘will be

satisfied if the class representatives share at least one

question of law or fact with the grievances of the prospective

class.’” Id. (quoting Johnston v . HBO Film Mgmt., 265 F.3d 1 7 8 ,

184 (3d Cir. 2001)). “[A]n identity of claims or facts among

class members” is not required. Johnston, 265 F.3d at 184.

The typicality requirement calls for a showing that “the

claims or defenses of the representative parties are typical of

the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3).

Although the class representative’s claims need not be identical

to those of the class as a whole, they must be “‘based on the

same legal theory and arise from the same practice or course of

conduct.’” In re Compact Disc Minimum Advertised Price Antitrust

Litig., 216 F.R.D. 1 9 7 , 204-05 (D. M e . 2003) (quoting In re

Playmobil Antitrust Litig., 35 F. Supp. 2 3 1 , 241 (E.D.N.Y.

-4- 1998)). A class representative’s claims are not typical if they

“may be subject to unique defenses that would divert attention

from the common claims of the class,” In re Bank of Boston Corp.

Sec. Litig., 762 F. Supp. 1525, 1532 (D. Mass. 1991), or “if

factual differences predominate to the extent where the court

must make highly fact-specific or individualized determinations

in order to establish a defendant’s liability to each class

member.” Collazo v . Calderon, 212 F.R.D. 4 3 7 , 443 (D.P.R. 2002).

Finally, the adequacy requirement is satisfied if “the

representative parties will fairly and adequately protect the

interests of the class.” Fed. R. Civ. P. 23(a)(4). The adequacy

requirement has two prongs. First, a class representative must

show that “counsel chosen by the representative party is

qualified, experienced and able to vigorously conduct the

proposed litigation.” Andrews, 780 F.2d at 130. Second, the

class representative must demonstrate “that the interests of the

[class representative] will not conflict with the interests of

any of the class members.”

B. Class Certification under Rule 23(b)

Next, a class representative must demonstrate that the class

meets one of the criteria outlined in Rule 23(b). See Amchen

-5- Prods., Inc. v . Windsor, 521 U.S. 5 9 1 , 613-14 (1997). Here,

Newby seeks certification under Rule 23(b)(3). Under Rule

23(b)(3), he must show that “the questions of law or fact common

to the members of the class predominate over any questions

affecting only individual members, and that a class action is

superior to other available methods for the fair and efficient

adjudication of the controversy.” Fed. R. Civ. P. 23(b)(3).

“[T]he (b)(3) class action was intended to dispose of all other

cases in which a class action would be ‘convenient and

desirable,’ including those involving large-scale, complex

litigation for money damages.” Allison v . Citgo Petroleum Corp.,

151 F.3d 4 0 2 , 412 (5th Cir. 1998) (quoting Amchem, 521 U.S. at

615). Participation in a 23(b)(3) class is not mandatory; the

court is obliged to notify putative class members that they may

opt out of the class and seek relief as individuals. See Fed. R.

Civ. P. 23(c)(2)(B); Amchem, 521 U.S. at 617.

II. ANALYSIS

In challenging Newby’s motion for class certification,

defendants, for the most part, merely reiterate arguments that I

rejected in ruling on their motions to dismiss the Tycom

-6- complaint and plaintiffs’ motion for class certification in the

Securities Action. In re Tyco Int’l, Ltd., 236 F.R.D. 62 (D.N.H.

2006) (“Tyco Class Cert.”). I conclude here, as I did in those

Orders, that defendants’ arguments are without merit.

The defendants first argue that Newby cannot satisfy the

typicality or adequacy requirements of Rule 23(a) because his

unrepresentative trading record puts him in conflict with most

members of the putative class.1 Alternatively, defendants argue

that if the class is certified, the class period should be

shortened to exclude investors who sold their TyCom shares prior

to March 2 1 , 2001. I address each argument in turn.

A. Typicality and Adequacy

Defendants typicality and adequacy arguments essentially

take the form of one consolidated argument. Because Newby bought

and sold most of his shares early in the class period, defendants

contend, his interests conflict with those of class members who

purchased later and/or who retained shares longer. Specifically,

1 Defendants do not contest the numerosity or commonality requirements of Rule 23(a) or the commonality or superiority requirements of Rule 23(b)(3). Accordingly, I deem those arguments to be waived by defendants and accept Newby’s contention that these requirements are satisfied.

-7- defendants contend that Newby’s trading record is atypical

because he acquired all of his TyCom shares within the first two

days of the class period (July 26-27, 2000), sold the bulk of

those shares five months later (December 2000), and retained only

300 shares2 for the duration of the class period (through

December 1 7 , 2001). Defendants then suggest that Newby is an

atypical and inadequate class representative because (1) Newby

has no incentive to prove that misstatements alleged to have been

made after he purchased his stock were inflationary, and (2) it

is “extremely unlikely that Newby’s optimal theory of loss

causation . . . will resemble” that of investors who sold after

December 2000.

I reject these arguments for the same reasons that I

rejected similar arguments in certifying the Tyco Securities

Plaintiffs’ class.

1 [ ] am unpersuaded by Tyco’s assertion that the proposed class [representative is inadequate] because

2 The parties dispute whether Newby has standing to bring claims with respect to an additional 1,000 shares purchased on July 2 7 , 2000 by and for the Newby, Inc. profit sharing plan, which later transferred to Newby’s personal account. Because this dispute has no bearing on the question of class certification and because the record on this matter is not fully developed in the briefs, I decline to address it here.

-8- some class members will have stronger loss causation arguments than others based upon when they sold their Tyco stock. As the First Circuit has recognized, classes are routinely certified where common issues predominate even though individual issues exist with respect to other matters such as affirmative defenses or damages. Smilow v . Sw. Bell Mobile Sys., Inc., 323 F.3d 3 2 , 39 (1st Cir. 2003). There is no reason why this principle should not also apply to the subject of loss causation. Here, the need to make different loss causation determinations for class members depending on when they sold their stock does not alter the “sufficient constellation of common issues [that] binds class members together” into a single class. Waste Mgmt. Holdings [Inc. v . Mowbray], 208 F.3d [288,] 296 [(1st Cir. 2000)].

Tyco Class Cert., 236 F.R.D. at 7 1 . See also Swack v . Credit

Suisse First Boston, 230 F.R.D. 2 5 0 , 260 (D. Mass. 2005)

(representatives’ claims do not have to be identical with absent

class members’ claims); In re Pharm. Indus. Average Wholesale

Price Litig., 230 F.R.D. 6 1 , 78 (D. Mass. 2005) (“[A] plaintiff’s

claim is typical if it arises from the same event or practice or

course of conduct that gives rise to the claims of other class

members, and if his or her claims are based on the same legal

theory.”). Although my ruling certifying the class in the

Securities Action expressly dealt only with potential intra-class

conflicts concerning loss causation, my reasoning applies equally

to both of defendants’ intra-class conflict arguments.

-9- Accordingly, I reject defendants’ typicality and adequacy

arguments.

B. Shortened Class Period

Defendant next argue that the class period should be

shortened to exclude investors who sold their TyCom shares prior

to March 2 1 , 2001. This argument is based on defendants’

contention that investors who sold their TyCom shares prior to

this date cannot show loss causation because the Consolidated

Complaint fails to identify a corrective disclosure prior to

March 2 1 , 2001. I reject this argument for the same reasons that

I rejected a similar request in certifying the Tyco Securities

Tyco’s argument for the immediate exclusion of class members who sold their stock before the first corrective disclosure alleged in the complaint is based on the faulty premise that loss causation must be pleaded with particularity. Disputes about loss causation turn primarily on questions of fact. Wortley v . Camplin, 333 F.3d 2 8 4 , 295 (1st Cir. 2003). Moreover, unlike elements of a § 10(b) claim such as fraud and scienter, neither Federal Rule of Civil Procedure 9(b) nor the Private Securities Litigation Reform Act require that securities fraud plaintiffs plead loss causation with specificity. Dura [Pharm., Inc. v . Broudo], 544 U.S. [336,] 347 [(2005)]. Instead, the complaint need only “provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind.” Id. The plaintiffs have satisfied this requirement by pleading

-10- that their claimed losses were caused by corrective disclosures. That they have specifically identified certain corrective disclosures in the complaint does not preclude them from later identifying additional disclosures. Thus, it is too early in the litigation to exclude former shareholders from the class simply because their losses were caused by corrective disclosures that have not yet been specifically identified. Tyco remains free to develop the issue further during discovery and to renew its argument in a properly supported motion for summary judgment at the appropriate time.

Tyco Class Cert., 236 F.R.D. at 7 1 .

III. CONCLUSION

For the reasons set forth above, plaintiff’s motion for

class certification (Doc. N o . 651) is granted.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

June 1 2 , 2007

cc: Counsel of Record

-11-