Petrie v. Electronic Game Card, Inc.
308 F.R.D. 336
C.D. Cal.2015Background
- Putative securities fraud class action against EGC and individuals including Boyne, Cole, Christiansen, Donovan, Farrell, Houssels, and Estate of Steinberg.
- TAC alleges violations of Section 10(b) and Rule 10b-5 and control-person liability under Section 20(a).
- Class period is April 5, 2007 to May 18, 2010, with alleged misrepresentations about EGC’s finances and consolidation of EGCL.
- Allegations center on (i) overstated cash balances and forged audit confirmations; (ii) a claimed 2002 Secret Agreement affecting EGCL ownership and consolidation.
- SEC halted trading on February 19, 2010; auditor Mendoza & Berger withdrew opinions; EGC delisted and ultimately filed for bankruptcy.
- Court analyzes Rule 23 prerequisites and fraud-on-the-market viability to certify a class under Rule 23(b)(3).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Numerosity satisfied? | Plaintiffs: class numbers in hundreds exceed impracticable joinder. | Defendants concede numerosity. | Numerosity satisfied. |
| Commonality present? | Common questions include misrepresentation, scienter, and damages. | Common questions exist; no dispute. | Commonality satisfied. |
| Typicality of Lead Plaintiffs? | Lovell, Yu typical; Lee challenges based on standing; Lovell adequate. | Lead Plaintiffs have unique defenses jeopardizing typicality. | Lovell and Yu typical; Lee not. |
| Adequacy of representation? | Lead Plaintiffs and counsel will adequately represent class. | Concerns about conflicts and vigor of prosecution. | Yu and Lovell adequate; Lee inadequate. |
| Predominance and fraud-on-the-market viability? | Common questions predominate under fraud-on-the-market; market efficiency shown. | Reliance and Cammer factors contested; efficiency not clear. | Fraud-on-the-market presumption established; predominance satisfied. |
Key Cases Cited
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (Supreme Court 2011) (Rule 23 certification requires affirmative demonstration of Rule 23 prerequisites)
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (U.S. 1997) (comprehensive class action certification standards)
- Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989) (Cammer factors for market efficiency)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (economic loss and material misrepresentation pleading standards; reliance not per se required)
- Cheney v. CyberGuard Corp., 213 F.R.D. 484 (S.D. Fla. 2003) (analyst coverage and market efficiency considerations in Cammer framework)
- In re Countrywide Fin. Corp. Sec. Litig., 273 F.R.D. 586 (C.D. Cal. 2009) (application of Cammer factors to market efficiency and fraud-on-the-market analysis)