295 F.R.D. 50
S.D.N.Y.2013Background
- Lead plaintiff seeks class certification under Rule 23(a) and 23(b)(3) for all persons who purchased SMART common stock in the U.S. prior to Nov. 10, 2010, traceable to the Offering Materials.
- Defendants do not oppose class certification but seek exclusions for non-U.S. purchasers, aftermarket purchasers for Section 12(a)(2), and post-disclosure buyers to avoid atypicality and manageability issues.
- The offering consisted of a U.S. and Canadian IPO; SMART registered the shares with the SEC and cross-listed on NASDAQ and TMX; Canadian shares were not issued under the U.S. registration statement.
- November 9, 2010 disclosed weaker results for NextWindow and conservative North American growth, which plaintiff alleges caused a price drop attributed to the corrective disclosure.
- Plaintiff’s claims focus on alleged misrepresentations and omissions in the Offering Documents about demand for SMART’s core whiteboards and NextWindow-related products.
- The court addresses Morrison’s extraterritoriality and standing principles to determine which purchasers may join the class, and whether traceability and loss causation issues foreclose some members from inclusion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Morrison apply to Securities Act claims to exclude non-U.S. purchasers? | Morrison’s extraterritoriality should not bar sections 11 and 12(a)(2) claims for foreign purchases. | Morrison applies and non-U.S. purchases cannot be included in the class. | Non-U.S. purchasers excluded |
| Should aftermarket purchasers be included for the 12(a)(2) claim? | Traceability allows aftermarket buyers to be included if they purchased under the defective registration. | Aftermarket purchasers lack standing for 12(a)(2) claims. | Aftermarket 12(a)(2) claims excluded |
| Are post-November 9, 2010 purchasers typical for Rule 23(a)(3)? | All pre- and post-disclosure purchasers share common misstatement/verifications. | Post-disclosure purchasers knew of the untruths, making them atypical. | Post-9/11/2010 purchasers excluded for typicality |
| Are in-and-out purchasers typical given loss causation defenses? | In-and-out purchasers are part of the same course of conduct as pre-disclosure buyers. | In-and-out purchasers have negative loss causation defenses that are atypical. | In-and-out purchasers excluded for typicality |
| Does tracing affect predominance under Rule 23(b)(3)? | Tracing issues can be managed; liability questions predominate. | Tracing introduces individualized issues that threaten predominance. | Predominance satisfied; tracing not fatal at certification |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010) (extraterritoriality applies to securities transactions and related claims)
- In re IPO, 471 F.3d 24 (2d Cir. 2006) (group certification considerations; tracing and commonality)
- In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29 (2d Cir. 2009) (class certification where certain claims cannot succeed; exclude them)
- In re IndyMac Mortgage-Backed Secs. Litig., 286 F.R.D. 226 (S.D.N.Y. 2012) (predominance and adequacy standards; class action suitability)
- In re Initial Public Offering Sec. Litig., 483 F.3d 70 (2d Cir. 2007) (typicality under Rule 23(a) and related considerations)
- Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) (domestic focus of securities laws; transactions must be domestic)
- Vivendi Universal, S.A., Secs. Litig., 842 F. Supp. 2d 522 (S.D.N.Y. 2012) (extraterritoriality and Securities Act claims considerations)