In re IMAX Securities Litigation
2010 U.S. Dist. LEXIS 135341
S.D.N.Y.2010Background
- This is a securities fraud class action under Sections 10(b) and 20(a) and Rule 10b-5 against IMAX, its executives, and PWC, covering purchases on NASDAQ from Feb 27, 2003 to July 27, 2007.
- Plaintiffs allege false/misleading disclosures about IMAX theater system revenue recognition and MEA accounting throughout the class period.
- IMAX restated revenues in 2007 for 2002–2005 and expanded review to 2005–2006, changing revenue recognition to require delivery and customer acceptance for certain components.
- August 9, 2006 disclosure disclosed SEC inquiry into MEA accounting for 4Q2005 and related periods; market reacted with a price drop.
- Snow Capital moved to certify a NASDAQ-only class, appoint Snow Capital as class representative, and appoint Robbins Geller as class counsel; motion denied due to lack of typicality/adequacy and loss causation issues.
- Court found Snow Capital cannot be lead plaintiff due to loss causation gaps and potential unique defenses, precluding class certification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed class meets Rule 23(a) requirements | Snow Capital satisfies numerosity and commonality. | Snow Capital is not typical or adequate; may be subject to unique defenses. | Denied; Snow Capital not typical/adequate. |
| Whether Snow Capital can show typicality given loss causation defenses | Snow Capital's claims are typical of class. | Snow Capital lacks standing and cannot establish loss causation. | Denied; Snow Capital cannot prove typicality due to loss causation issues. |
| Whether Snow Capital can establish loss causation on its own | Loss causation shown by August 9, 2006 disclosure and restatements. | Disclosures did not correctly relate to Snow Capital's purchases. | Denied; Snow Capital cannot establish loss causation for its pre-4Q2005 purchases. |
| Whether Snow Capital is an adequate representative given its relationship with class counsel | Snow Capital seeks to represent class with Robbins Geller. | Snow's relationship with attorney Yates creates conflicts of interest. | Denied; adequacy failed due to potential conflict and appearance of impropriety. |
| Whether a Rule 23(b)(3) class is superior considering potential Canadian class, and Morrison implications | U.S. NASDAQ class is preferable; Canadian action not controlling. | Canadian class could be superior; Morrison narrows scope. | Not addressed; certification denied on Rule 23(a) grounds, so superiority moot. |
Key Cases Cited
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (loss causation requires a causal link between misstatement and loss)
- In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29 (2d Cir. 2009) (loss causation defense crucial to typicality/adequacy in lead plaintiff analysis)
- In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24 (2d Cir. 2006) (rigorous analysis required for Rule 23; overlap with merits allowed)
- In re Salomon Analyst Metromedia Litig., 544 F.3d 474 (2d Cir. 2008) (loss causation considerations in class certification context)
- In re IMAX Sec. Litig., 587 F.Supp.2d 471 (S.D.N.Y. 2008) (existing dismissal posture and loss causation framework applied to IMAX)