In Re DVI, Inc. Securities Litigation
639 F.3d 623
| 3rd Cir. | 2011Background
- Investors in Diagnostic Ventures, Inc. (DVI) allege violations of §10(b) and Rule 10b-5 against multiple defendants, including Deloitte and Clifford Chance.
- DVI was a healthcare finance company whose bankruptcy in 2003 followed disclosures of alleged collateral and accounting irregularities.
- The district court certified a Rule 23(b)(3) class for all defendants except Clifford Chance, relying on the fraud-on-the-market presumption of reliance.
- The court weighed market efficiency factors for DVI stock and its 1997/1998 Notes, finding both markets efficient through event-study evidence.
- Deloitte challenges the market-efficiency finding and argues loss causation must be proved at class certification; Clifford Chance appeals denial of class certification for scheme liability.
- The Third Circuit affirms the district court’s rulings on predominance and loss causation framework, and ultimately affirms denial of class certification as to Clifford Chance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Predominance satisfied for fraud-on-the-market claim? | Lead plaintiffs rely on fraud-on-the-market presumption for common proof. | Predominance fails due to lack of common reliance after rebuttals. | Predominance satisfied for Deloitte; rebuttals insufficient to defeat class since market efficiency established. |
| Can rebuttal evidence defeat the fraud-on-the-market presumption at certification? | Presumption should survive unless market impact is shown. | Defendant can defeat reliance with lack of market impact. | Rebuttal showing no market impact can defeat the presumption and cure predominance for the class. |
| Whether Clifford Chance may be certified under §10(b) scheme liability? | Clifford Chance participated in a scheme so liable under 10(b). | Public attribution to Clifford Chance lacking; no reliance propagated to investors. | No class certification against Clifford Chance; attribution requirement not met; remoteness precludes reliance-based class action. |
| Loss causation required at class certification stage? | Loss causation not prerequisite to invoking presumption of reliance. | Loss causation must be established for class before reliance presumed. | Loss causation need not be proven at certification to invoke fraud-on-the-market; rebuttal focused on market impact. |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (Supreme Court, 1988) (fraud-on-the-market presumption source; market-price reliance)
- Stoneridge Investment Partners v. Scientific-Atlanta, 552 U.S. 146 (Supreme Court, 2008) (scheme liability and reliance necessity; public disclosure required)
- Cent. Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (Supreme Court, 1994) (aiding-and-abetting limits in private actions under §10(b))
- Semerenko v. Cendant Corp., 223 F.3d 165 (3d Cir., 2000) (fraud-on-the-market: reliance presumption and proof framework)
- In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir., 1997) (market efficiency and reliance analysis guidance)
- In re Merck & Co. Sec. Litig., 432 F.3d 261 (3d Cir., 2005) (timing and speed of information absorption in market efficiency)