Public Employees' Retirement System v. Merrill Lynch & Co.
277 F.R.D. 97
S.D.N.Y.2011Background
- This securities action consolidates four cases alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act arising from the sale of mortgage pass-through certificates using allegedly false or omitted statements.
- Plaintiffs led by Mississippi Public Employees’ Retirement System and joined by Los Angeles County Employees Retirement Association and others moved on March 23, 2011 to certify a class covering 18 offerings from February 2006 through September 2007 and to appoint class counsel.
- Defendants Merrill Lynch entities opposed class certification, arguing there were no common issues or predominance and that individualized defenses would predominate.
- On June 15, 2011, the court granted class certification, reaffirming the decision in light of Rule 23(a) and 23(b)(3) standards and the securities-law context.
- The Amended Complaint pleads 20 counts across Sections 11, 12(a)(2), and 15, based on Offering Documents for 18 offerings, the Sponsor/Depositor structure, and the issuance of certificates tied to mortgage pools.
- The court’s analysis centers on whether common, class-wide proof can establish liability and damages, with focus on material misrepresentations, predictability of losses, and the appropriateness of a class resolution under Rule 23.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed class satisfies Rule 23(a) requirements | Plaintiffs contend numerosity, commonality, typicality, and adequacy are met. | Defendants argue commonality and predominance are lacking due to individualized issues. | Yes; Rule 23(a) factors are satisfied. |
| Whether Rule 23(b)(3) predominates over individual issues | Common questions about Offering Documents predominate; damages and loss causation can be resolved on a class basis. | Predominance is defeated by individualized reliance, knowledge, and statute-of-limitations defenses. | Yes; predominance shown despite some individualized issues. |
| Whether reliance is a barrier to class certification under Sections 11 and 12(a)(2) | Reliance is not required for Section 11/12(a)(2) except in limited reliance scenarios; market-wide misstatements support class-wide relief. | Some class members may require individualized reliance proof. | Not required for the class at this stage; reliance defenses do not defeat certification. |
| Whether the class period and theory of damages support class treatment | Damages are tied to market value and common misrepresentations; formation and waterfall structure make damages amenable to class-wide calculation. | Damages could vary by tranche and timing, requiring individualized proof. | Damages capable of class-wide treatment; subclasses may be used if needed. |
| Whether the class is superior to other litigation forms | Class action is superior due to efficiency, judicial economy, and dispersion of injuries across ~1,600 investors. | Individual actions could be pursued; class treatment risks misalignment with some members’ interests. | Yes; class action is superior. |
Key Cases Cited
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (U.S. 1997) (class certification requires careful Rule 23 analysis and manageability)
- In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267 (S.D.N.Y. 2003) (court-approved class action securities relief with extensive common issues)
- Moore v. PaineWebber, Inc., 306 F.3d 1247 (2d Cir. 2002) (addressing reliance and predominance in class certification)
- Miles v. Merrill Lynch & Co. (In re Initial Pub. Offerings Sec. Litig.), 471 F.3d 24 (2d Cir. 2006) (issues of knowledge and predominance in securities class actions; later clarified)
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (U.S. 2011) (commonality requires common contentions capable of classwide resolution)