295 F.R.D. 240
N.D. Cal.2013Background
- Putative securities-fraud class action against Diamond Foods, MSPERS as lead plaintiff, and Diamond, Deloitte, Mendes, and Neil as defendants.
- Allegations center on improper accounting of walnut payments to inflate profits and stock price, in connection with Pringles acquisition talks with P&G.
- Consolidated complaint asserts violations of Section 10(b) and Rule 10b-5, and Section 20(a) against the two individuals.
- Diamond allegedly used “continuity” and “momentum” payments to defer costs, restating 2010–2011 results after market disclosures.
- Class period runs Oct 5, 2010 through Feb 8, 2012; plaintiffs seek certification under Rule 23(b)(3) for a nationwide class.
- Court granted MSPS lead-plaintiff status, conducted rigorous Rule 23 analysis, and certified the class with a modified definition excluding short sellers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 23(a) and (b)(3) requirements are met | Common questions predominate; market efficiency allows fraud-on-the-market reliance | Issues are individualized, especially reliance and damages | Yes; prerequisites met; class certified |
| Whether the fraud-on-the-market presumption applies | Diamond stock traded in an efficient market; misstatements affected price | Market efficiency disputed by defendants' experts | Yes; the market was sufficiently efficient for Basic presumption to apply |
| Whether damages can be proven on a classwide basis | Event-study damages model can measure classwide impact | Comcast requires concrete classwide damages proof | Damages capable of classwide proof via event-study methodology |
| Whether MSPERS is adequate and typical representative | MSPERS’ strategy with Artisan does not defeat typicality; no unique defenses for MSPERS | MSPERS’ timing and reliance could create conflicts | Yes; MSPERS is adequate and typical; no disqualifying conflicts |
| Whether the proposed class is properly defined (excluding shorts, etc.) | Class definition includes purchasers harmed by misrepresentations; excludes shorts | Including short-sellers or misdefining harm could undermine certification | Class definition narrowed to exclude short sales and covering purchases |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (fraud-on-the-market presumption of reliance)
- Halliburton Co. v. Erica P. John Fund., Inc., 131 S. Ct. 2179 (U.S. 2011) (reliance presumptions and trial considerations in fraud cases)
- Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 133 S. Ct. 1184 (U.S. 2013) (Rule 23 predominance and class certification standards in securities fraud)
- Hanon v. Dataproducts Corp., 976 F.2d 497 (9th Cir. 1992) (typicality and adequacy in class actions)
- In re PolyMedica Corp. Sec. Litig., 432 F.3d 1 (1st Cir. 2005) (event-study damages and class-wide proof considerations)
- In re Imperial Credit Indus., Inc. Sec. Litig., 252 F. Supp. 2d 1005 (C.D. Cal. 2003) (event-study damages framework in securities class actions)
- Daou Sys., Inc. v. Flowsoft, Inc., 411 F.3d 1006 (9th Cir. 2005) (loss causation principles in securities cases)
- Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) (loss causation pleading standards)