Katz v. China Century Dragon Media, Inc.
287 F.R.D. 575
C.D. Cal.2012Background
- Plaintiffs are CDM shareholders who bought CDM stock in Feb-Mar 2011 during the IPO and aftermarket.
- Defendants include CDM’s Director Defendants, Individual Defendants, MaloneBailey (auditor), and Underwriter Defendants.
- Plaintiffs allege false/misleading statements about CDM’s revenues, profits and cash flow in the IPO prospectus/registration statement under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933.
- MaloneBailey allegedly falsified accounting records; its audit opinion was withdrawn for 2009-2008, and CDM’s stock traded post-IPO before delisting.
- The court resolves two motions: (1) certification of a class under Rule 23 and (2) cross-claims for indemnity and contribution arising from the 1933 Act claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Indemnity between co-defendants under the 1933 Act | Underwriter Defendants seek indemnity from MaloneBailey for liabilities, including under the 1933 Act. | MaloneBailey argues indemnity is unavailable under federal securities law and state-law claims are inapplicable. | Indemnity claims are barred by federal law and dismissed. |
| Accrual/timing of contribution claims | Contribution is available and accrues when a party pays a judgment. | Contribution claims accrue earlier under Rule 13(g) and state law may apply. | Contribution claims premature because no judgment has been paid; dismissed without prejudice. |
| Numerosity for Section 12(a)(2) claims against Gunnar | There were enough Gunnar purchasers to satisfy numerosity. | Insufficient evidence of number of Gunnar purchasers. | Numerosity not proven for Section 12(a)(2) claims; Second Cause not certified. |
| Rule 23(b)(3) certification scope | Common questions predominate; class is superior for adjudicating the claims. | Individual defenses and subgroups defeat predominance; Section 12 claims are non-classifiable. | Class certified in part for First, Third, and Fourth Causes of Action; Second Cause not certified. |
Key Cases Cited
- Laventhol, Krekstein, Horwath & Horwath v. Horwitch, 637 F.2d 672 (9th Cir. 1980) (indemnity unavailable under federal securities laws)
- Stewart v. American International Oil & Gas Co., 845 F.2d 196 (9th Cir. 1988) (indemnity/contribution principles under securities laws)
- Asdar Group v. Pillsbury Madison and Sutro, 99 F.3d 289 (9th Cir. 1996) (accrual of contribution under Securities Act claims)
- In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994) (materiality standard applies to 11 and 10(b) claims)
- Dukes v. Wal-Mart Stores, Inc., 131 S. Ct. 2541 (S. Ct. 2011) (rigorous analysis for Rule 23(a) prerequisites)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality standard for securities claims)
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (class certification considerations; predominance/superiority)