MEMORANDUM
Plaintiffs are stockholders and former stockholders of defendant Newbridge Networks Corp. (“Newbridge”). These seven different class action cases have been consolidated into this one class action, reiterated in the First Amended Consolidated Complaint which they filed on May 8, 1995. Newbridge is a Canadian corporation that designs, makes, and markets integrated digital networking products for global networking applications, including ATM systems used by banks. The amended complaint names as individual defendants Newbridge’s “controlling persons”: its founder, Chairman of the Board, and CEO, Terence H. Matthews; its President, COO, and a director, Peter Sommerer; and its Executive Vice-President, Finance, and CFO, Peter D. Charbonneau.
*1166 Plaintiffs allege that defendants issued false and misleading statements concerning the business condition and earnings prospects of Newbridge. They further assert that they lost money as a result of purchasing Newbridge stock because defendants failed to disclose substantial expenses and decreased profit margins. Plaintiffs seek damages in three counts: (1) a claim for “fraud on the market” against all defendants pursuant to § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5; (2) a claim for “controlling person” liability against the individual defendants pursuant to § 20(a)-of the Securities Exchange Act, 15 U.S.C. § 78t(a); and (3) a common-law claim for “negligent misrepresentation.”
A hearing was held on defendants’ motion to dismiss on December 11, 1995. The issue is joined by defendants’ motion to dismiss and plaintiffs’ pending motion for class certification. Also pending are defendants’ motion for an order pursuant to -Federal Rules of Civil Procedure 26(c), 26(d), 26(g)(3), and 37(a)(4) and plaintiffs cross-motion to compel discovery pursuant to Federal Rules 30 and 37(a)(2).
I.
Plaintiffs allege that “[pjrior to and during the Class Period, defendants publicly disseminated a series of highly optimistic statements concerning Newbridge’s business, operations and profitability that were materially false and misleading.” Amended Compl. ¶ 2. Plaintiffs’ allegations, which are presumed to be true for purposes of defendants’ motion to dismiss, may fairly be summarized as follows.
The amended complaint states that “defendants used communications with securities analysts to promote the Company and to artificially inflate the price of Newbridge stock during the class period.” Id. ¶32. Newbridge officers and top managers regularly communicated with such analysts; “the investment firm S.G. Warburg & Co. Inc., specifically • represented in a June 10, 1994, analyst report concerning Newbridge that it had received ‘company guidance’ from New-bridge with regard to anticipated revenues and other business matters.” Id. ¶ 34. Communications with analysts took the form of conference calls, meetings, and analyst briefings with company officials. Id. ¶ 35. “Newbridge also endorsed the reports of analysts, adopted them as its own, and placed its imprimatur on them as well as on the projections, forecasts, and statements contained therein.... ” Id.
One specific allegation involved company statements that on February 14, 1994, prior to the beginning of the class period, defendants announced-—presumably in a press release, although the amended complaint does not so specify—that GTE Telephone Operations had selected Newbridge to provide its 36150 MainStreet ATMnet switching equipment for several “key” networks. Id. ¶ 45. A Febraary 15,1994 press release announced “a marketing alliance the Company had entered into with MCI and additional investments Newbridge had made in certain affiliated companies, including ACC, a maker of local area network bridges and routers.” Id. That release quoted defendant Matthews as stating that he was “pleased with progress made during the quarter to enter joint development programs with third parties.” Id. Following such statements, analysts themselves disseminated positive appraisals of Newbridge. Id. ¶ 46.
On March 29, 1994, the first day of the class period, Newbridge hosted a securities analyst meeting in New York that was attended by “one or more of the Individual Defendants.” Id. ¶ 48. At that meeting, “defendants told the attending analysts, among other things, that Newbridge would experience ‘no significant deterioration in its current profit margins’; that demand in the carrier market for the Company’s ATM switch ‘outpaced expectations’; and that the Company had been awarded a $65 million contract to supply networking equipment to a German telecommunications company and also a contract to provide products to a Venezualan company, which contracts, according to a Smith Barney report dated March 30, 1994, ‘further increase our confidence in FY94 and FY95 estimates.’ ” Id. ¶ 49 (citations to March 30, 1994 CS First Boston analyst report omitted). Another analyst re *1167 port following the March 29, 1994 meeting stated that “the company reiterated,” among other things, that it was “ ‘well positioned to sell ATM systems to the telcos and to corporations.’ ” Id. ¶ 50 (quoting March 30, 1994 S.G. Warburg analyst report).
Defendants Sommerer, Charbonneau, and Rodgers, as well as several other Newbridge officers and directors who are not named as defendants, sold substantial numbers of shares within two weeks of the March 29, 1994 analyst meeting and realized considerable profits from those sales. Id. ¶ 51. Defendant Charbonneau sold all of his shares during this period. Id.
Plaintiffs contend that defendants did not disclose “the significant marketing and advertising expenses the Company would and ultimately did incur in connection with” trade shows during the first week of May 1994, despite their knowledge that such expenses “would adversely impact Newbridge’s first fiscal quarter for the period ending July 30, 1994.” Id. ¶ 52. Defendants used the trade shows to “hype Newbridge’s product lines and also publicly announce a joint venture relationship between Newbridge and Ungermann-Bass, Inc.” Id. A May 4, 1994 press release, which quoted defendant Sommerer, made optimistic statements with respect to that joint venture. Id.
At a June 6, 1994 analyst meeting in New York, “attended by one or more of the Individual Defendants and other Newbridge executives,” defendants made optimistic statements about a particular family of ATM networking equipment, the “VIVID” product. Id. ¶ 53.
Also in early June 1994, defendants announced results for Newbridge’s fiscal fourth quarter and full year ending April 30, 1994. Defendants did not disclose existing business and operational. problems; instead, “defendant Matthews referenced in the Company’s June 8, 1994 press release the ‘substantial contracts being secured with customers throughout the world’; the ‘strong acceptance of the Newbridge packet switching products’; the fact that Newbridge’s ATM product line ‘is attracting increasing interest ivith the rate of order intake growing as the year progressed;’ and the May 1994 trade shows.” Id. ¶ 54. With these statements before them, analysts issued highly favorable reports about the company. Id. ¶ 55 (citing reports). Defendants issued several press releases during the month following June 8, 1994, which described “various contracts, agreements and joint ventures Newbridge had recently entered into.” Id. ¶56 (citing press releases).
On July 1, 1994, defendants filed with the SEC Newbridge’s Form 10-K for the fiscal year ending April 30, 1994. Each of the individual defendants signed the 10-K, which “described the Company’s business and operations only in the most glowing and superlative terms.” Id. ¶ 57. The 10-K made representations with respect to Newbridge’s product lines, business strategy, research and development activities, customer service and support, and manufacturing processes. With respect to the company’s manufacturing processes, the 10-K specifically stated that “ ‘[t]o date, Newbridge has not experienced any significant delays relating to the availability of materials.’ ” Id.
A July 12, 1994 article in The Financial Post concerning Newbridge’s July 11, 1994 announcement of a planned share repurchase quoted Sandra Plumbley, a Newbridge spokesperson, as stating that “[n]othing has changed in our fundamentals ... There have been times when the stock is just too good to invest.... [The share repurchase] has an anti-dilutive effect. It means earnings per share would go up.” Id. ¶ 59. Plaintiffs contend that despite Plumbley’s representations, the “fundamentals” had changed as a result of declining earnings, order and shipment delays, increased expenses, and “other adverse business conditions.” Id. Two Newbridge executives not named as individual defendants sold many of their shares within one week of the July 11, 1994 announcement “(and only two weeks before the price of the shares plummeted on August 1,1994).” Id. ¶ 60.
On August 1, 1994, Newbridge announced that earnings per share for the first quarter of fiscal year 1995, ending July 30, 1994, would decline, and thereafter the price of common shares “plummeted, from $41 to *1168 $28% per share.” Id. ¶ 61. Several press reports following the announcement noted that members of the press were “caught off guard” and critical of Newbridge for its perceived non-disclosure of negative information. Id. ¶¶ 62-64.
Plaintiffs contend that defendants failed to disclose material information with respect to optimistic statements voluntarily made during the class period. Defendants did not disclose that:
(i) the Company was experiencing long delays in closing several multi-million dollar contracts, which delays were adversely impacting Newbridge’s revenues; (ii) several large and important customers were unable to secure financing for their purchase of certain Newbridge products, which likewise was adversely impacting Newbridge’s revenues; (iii) Newbridge was not shipping products to certain customers because of a lack of parts in Newbridge’s inventory; and (iv) the Company’s research and development expenses were actually increasing as a percentage of sales, contrary to all prior trends, which was for such expenses to be declining as a percentage of sales.
Id. ¶ 5; see also id. ¶ 69. Plaintiffs do not specifically identify which contracts defendants were having difficulty closing, but note that the identity of those contracts, some of which were with unspecified companies in Latin America, “is particularly within defendants’ knowledge.” Id. ¶ 69. Plaintiffs do claim that “Newbridge was unable to ship several ... contracts ... in complete form because Newbridge lacked the right mix of parts in its inventory.” Id. This claim, if proved, would belie defendants’ earlier representation in its 10-K that Newbridge had not experienced delays relating to the availability of materials. Id. According to plaintiffs, other contracts were not shipped because Newbridge had difficulty obtaining financing guarantees. Id.
Moreover, sales in Newbridge’s T-l multiplexer product line were flat or declining, in contrast with prior reporting periods. Similarly, defendants failed to disclose that the company was experiencing increased research and development expenditures (in contrast with representations in the 10-K), increased promotional expenses as a result of 1994 trade shows, and increased expenses “as a result of the consolidation of ACC’s results with the Company’s results effective June 8, 1995 [sic], when Newbridge acquired a controlling 51% interest in the company.” Id. Finally, defendants did not disclose “existing and serious structural deficiencies in the Company’s 36150 ATMnet switch” which “placed Newbridge at a serious disadvantage to competitors such as General DataComm Industries, which secured several lucrative ATM equipment contracts with major telecommunications carriers including MCI Communications Corporation.” Id.
II.
Our Court of Appeals recently stated that a motion to dismiss should not be granted “unless plaintiffs can prove no set of facts in support of their claim which would entitle them to relief.”
Kowal v. MCI Communications Corp.,
III.
Defendants have moved to dismiss the amended complaint without leave to replead. Defendants contend that the complaint fails to state a claim for securities fraud under Federal Rule of Civil Procedure 12(b)(6). According to defendants, plaintiffs have not alleged securities fraud; instead, plaintiffs have “alleged only the Defendants made projections that missed the mark.” Mot. to Dismiss at 10. Defendants also argue that plaintiffs have not pleaded any allegations of fraud with the particularity required by Federal Rule of Civil Procedure 9(b).
See id.
at 9 (citing
Kowal v. MCI Communications Corp.,
A.
SEC Rule 10b-5 provides that it is unlawful “[t]o make any untrue statement of a
*1169
material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.” Our Court of Appeals has held that “[t]o state a claim for securities fraud under Rule 10b-5, a plaintiff must allege that the defendant knowingly or recklessly made a false or misleading statement of material fact in connection with the purchase or sale of a security, upon which plaintiff reasonably relied, proximately causing his injury.”
Kowal v. MCI Communications Corp.,
In dismissing a securities fraud complaint for failure to state a claim, the court in
Kowal
emphasized that “many of plaintiffs’ allegations called for pejorative characterizations of disclosed factual matters.”
Kowal,
By contrast, plaintiffs in the instant case have alleged more than unrealistic expectations or overly optimistic projections. Instead, they argue that “defendants’ omissions of the material problems with the Company’s operations operated in tandem with the consistent pattern of optimistic representations to mislead the investing public.” Pls.’ Opp’n at 18 (citing
Robbins v. Moore Medical Corp.,
Despite defendants’ suggestion to the contrary, optimistic statements and forecasts, made voluntarily, can trigger a duty to disclose additional information if such information is necessary so as not to mislead the market. The
Kowal
court itself stated that “while a company is generally under no obligation to disclose its expectations for the future to the investing public, ... if the company chooses to volunteer such information, its disclosure must be full and fair, and the courts may conclude that the company was obliged ‘to disclose additional material facts ... to the extent that the volunteered disclosure was misleading....’”
Kowal,
Several of plaintiffs’ factual allegations present more difficult questions under
Kowal
insofar as they are not correlated with any particular omissions. For example, on March 29, 1994, Newbridge hosted a securities analyst meeting in New York, attended by “one or more of the Individual Defendants,” at which “defendants told the attending analysts, among other things, that Newbridge would experience ‘no significant deterioration in its current profit margins’; that demand in the carrier market for the Company’s ATM switch ‘outpaced expectations’; and ‘further increase our confidence in FY94 and FY95 estimates.’ ”
Id.
¶¶ 48-49 (citations to March 30, 1994 CS First Boston analyst report omitted). Similarly, defendants did not disclose “the significant marketing and advertising expenses the Company would and ultimately did incur in connection with” trade shows during the first week of May 1994, despite their knowledge that such expenses “would adversely impact Newbridge’s first fiscal quarter for the period ending July 30, 1994.”
Id.
1152. In addition, a July 12, 1994 article in
The Financial Post
concerning Newbridge’s July 11, 1994 announcement of a planned share repurchase quoted Sandra Plumbley, a New-bridge spokesperson, as stating that “ ‘[njothing’ has changed in our fundamentals.”
Id.
¶ 59. Plaintiffs contend that despite that representation, the “fundamentals”
had
changed as a result of declining earnings, order and shipment delays, increased expenses, and “other adverse business conditions.”
Id.
These allegations may be insufficient to establish that defendants had a duty to disclose such negative, firm-specific information. However, “[wjhether failure to disclose company problems is an omission causing statements to be misleading is now a factual determination left to the jury.”
Alfus v. Pyramid Technology Corp.,
B.
Federal Rule of Civil Procedure 9(b) requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud ... shall be stated with particularity.” Our Court of Appeals has explained that in their pleadings, securities fraud plaintiffs “must state the time, place and content of the false misrepresentations, the fact misrepresented and what was retained or given up as a consequence of the fraud.”
Kowal,
First, plaintiffs allege that numerous analysts’ reports evidence defendants’ misrepresentations and material omissions intended to mislead the'market. Defendants argue that plaintiffs have not adequately alleged that any defendant “adopted” any analyst’s report so as to make it a statement by the company.
See
Mot. to Dismiss at 13-14 (citing
In re Syntex Corp. Sec. Litig.,
As earlier indicated, plaintiffs allege that Newbridge officers and top managers regularly communicated with analysts; for example, one investment firm represented that it had received “company guidance” with respect to “anticipated revenues and other business matters.” Amended Compl. ¶ 34. Plaintiffs contend that while the amended complaint does satisfy Syntex, “what is significant is not whether the defendants endorsed the analysts’ forecasts, but that the analyst reports summarized representations provided by the defendants to analysts.” Pls.’ Opp’n at 33. Thus, plaintiffs argue that
while the Complaint also cites certain projections issued by the analysts, based primarily on the information provided by the Company, the allegations in the Complaint are not based on these projections and the cause of action is not dependent upon these projections having been adopted by defendants. Rather, these projections and optimistic statements by analysts are given as examples of the success of the defendants in their scheme to mislead the market into believing that everything was well with Newbridge.
Id.
at 35. However, the allegations in the amended complaint are dependent on whether information in the analysts’ reports actually originated with defendants and whether those reports fairly represent statements made by defendants. If not, it would be inappropriate to hold defendants liable on the basis of statements made in the analysts’ reports. Courts have made clear that the way to determine whether or not defendants should be held liable for such statements is by first determining whether the analysts’ reports were endorsed by defendants.
“It is not sufficient to allege that defendants provided analysts with the information on which the analysts’ reports were based.
Plaintiffs must also allege that defendants had some measure of control over the content of the final report or projection issued by the analysts.... Analysts might quote corporate spokespersons out of context or inaccurately interpret remarks made by corporate insiders.”
In re Gupta Corp. Sec. Litig.,
*1172
Plaintiffs have alleged that “Newbridge also endorsed the reports of analysts, adopted them as its own, and placed its imprimatur on them as well as on the projections, forecasts, and statements contained therein....” Amended Compl. ¶35. Several courts have found that a rather general allegation of endorsement may suffice for purposes of Rule 9(b).
See, e.g., In re Gupta Sec. Litig.,
Plaintiffs also rely on several Newbridge press releases, Newbridge’s Form 10-K, and a newspaper article to show that defendants disseminated misleading statements and failed to disclose material information. Citing Kowal and other cases, defendants argue that plaintiffs’ allegations with respect to those sources fail to satisfy the requirements of Rule 9(b). In Kowal, our Court of Appeals cited with approval the decision of the Seventh Circuit in Roots Partnership v. Land’s End, Inc.:
The plaintiffs in Roots alleged that the defendants knew or should have known that certain operational problems at the company (including slackening demand, low-margin liquidations and declining profit margins) would preclude the company from achieving its earning goals, and that the company’s earnings projections were therefore false and misleading.... [T]he court observed that plaintiffs pled “the existence of these operational problems only in the vaguest terms,” alleging, for instance, that the company failed to establish “adequate reserves for its excessive and outdated inventory,” but nowhere alleging what the company’s reserves actually were, or what they should have been.... The court accordingly concluded that plaintiffs had “failed to allege ‘with particularity’ ... that these operational problems undercut the reasonableness of defendants’ statements such that the failure to mention these problems constituted fraud.”
Id.
at 1278-79 (quoting
Roots Partnership v. Land’s End, Inc.,
Several of plaintiffs’ allegations are specific enough to survive scrutiny under Rule 9(b). For example, plaintiffs argue that defendants should have disclosed “existing and serious structural deficiencies in the Company’s 36150 ATMnet switch” in light of Newbridge’s initial announcement that “GTE Telephone Operations had selected New-bridge to provide” that switch for several “key” networks. Id. ¶¶45, 69. In addition, although defendants made numerous representations with respect to contracts and joint ventures with other companies, and the New-bridge 10-K stated that “Newbridge has not experienced any significant delays relating to the availability of materials,” plaintiffs allege that defendants failed to disclose delays in closing and shipping several contracts. Id. ¶¶ 5, 54, 56-57, 59, 69. While those contracts *1173 are not specifically identified, plaintiffs do specifically allege that the identity of the contracts Newbridge was unable to ship is “particularly within defendants’ knowledge.” Id. ¶ 69. Moreover, it appears from the Amended Complaint that plaintiffs base their allegation with respect to shipment delays on a statement by Kenneth Wigglesworth, New-bridge’s Vice-President of Finance, after the August 1, 1994 announcement of decreased earnings, that Newbridge “was unable to fill some shipments because inventories of certain parts were not available.” Id. Although it is a close question, plaintiffs satisfy the Kowal standard with respect to allegations about undisclosed delays in shipping contracts because of inadequate inventory.
However, plaintiffs do not offer any “statement of the facts upon which the allegations are based” with respect to allegations about the inability of “several large and important customers ... to secure financing” for purchases.
Id.
¶ 5. Plaintiffs allege that “Newbridge was unable to obtain financing guarantees from third-party banks that were necessary to ship the Company’s product to those companies.”
Id.
¶ 69. Those companies and banks are not identified, and plaintiffs do not satisfy the
Kowal
standard for pleadings on information and belief. This strict pleading standard under Rule 9(b) is intended to “ ‘prevent[ ] the filing of a complaint as a pretext for the discovery of unknown wrongs.’ ”
Kowal,
Many other allegations raise similar problems under Rule 9(b). For example, plaintiffs allege that sales in Newbridge’s T-1 multiplexer product line were flat or declining, in contrast with prior reporting periods, but fail to allege any additional information about the degree to which such sales were flat or declining, or the relevant time period. Similarly, plaintiffs allege that defendants did' not disclose various sharply increased expenses.
See
Amended Compl. ¶ 69. Plaintiffs provide no additional information with respect to the degree to which expenses increased or when they increased, or the information on which these allegations are based. Moreover, plaintiffs’ allegation that the July 12, 1994 newspaper article should have disclosed “adverse business conditions” is clearly insufficient under Rule 9(b). Our Court of Appeals rejected a similarly vague allegation in
Kowal,
holding that the complaint “lack[ed] any factual specificity to support the proposition that ‘customers were switching ... ’ and plaintiffs’ pleadings on information and belief did not aver facts regarding customer switching were particularly within the defendants’ knowledge, or identify the facts upon which their belief of customer switching was founded.”
Kowal,
Plaintiffs’ allegations, if stated with particularity, would state a claim of securities fraud, despite defendants’ argument to the contrary. Thus, this Court will grant leave to amend, as requested by plaintiffs. Where information necessary to support an allegation is particularly within defendants’ knowledge, plaintiffs must so state and identify the facts upon which the allegation is founded, as required by Kowal.
Finally, defendants argue that plaintiffs' allegations with respect to individual defendants' insider trading and, relatedly, defendants' scienter are inadequate under Rule 9(b). Plaintiffs make much of the allegation that several of the individual defendants sold significant percentages of their stock holdings during the relevant period, thereby taking advantage of the allegedly inflated share price. According to plaintiffs,
*1174
a duty to disclose arises when corporate executives sell their stock while in possession of non-public information.
See
Pls.' Opp'n at 20 (citing
Roeder v. Alpha Indus., Inc.,
IV.
Defendants argue that the amended complaint fails to state a claim of "controlling person" liability under § 20(a) against the individual defendants. Section 20(a) provides that "[e]very person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person is ... liable." 15 U.S.C. § 78t(a). "Control" is defined as "the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise." 17 C.F.R. § 240.12b-2. The amended complaint states that the individual defendants controlled Newbridge "[b]y reason of their stock ownership or other financial interests, their business relationships and their status as members of Newbridge's management and/or Board." Amended Compl. ¶ 21. Defendants argue that these general allegations of the individual defendants' positions are insufficient to plead actual control.
See
Mot. to Dismiss at 48 (citing
In re Cryomedical Sciences, Inc. Sec. Litig.,
The amended complaint alleges that on April 1, 1994, defendant Sommerer sold 70,000 shares, which was more than half of his common shares. Amended Compl. ¶ 51. Defendant Charbonneau sold all of his 98,850 common shares during two sales in April 1994.
Id.
Plaintiffs therefore effectively provide information as to how much stock these two defendants owned during the Class Period. In addition, defendants Matthews, Sommerer, and Charbonneau each signed Newbridge's July 1, 1994 Form 10-K.
Id.
¶ 57. Thus, "each moving defendant signed at least one of the SEC filings in which false and misleading statements were made.... This is sufficient, at least at the pleading stage, to create an inference that they had at least a modicum of control over the content of these documents."
In re the Leslie Fay Cos., Inc. Sec. Litig.,
V.
Defendants argue that the amended complaint fails to state a claim of commonlaw negligent misrepresentation. Plaintiffs do not specify which state's (or states') common law is at issue. However, as one court has observed, "[a]uthorities are divided on whether plaintiffs making common law fraud claims may employ a fraud on the market theory."
Wells v. HBO & Co.,
Plaintiffs argue that if actual individual reliance must be alleged, the issue should be held “in abeyance for separate trials, following the determination on liability,” or plaintiffs should be permitted to “submit appropriate information demonstrating their actual reliance.” Pls.’ Opp’n at 47. However, defendants correctly argue in their opposition to plaintiffs’ motion for class certification that plaintiffs’ common-law claims do not lend themselves to class action treatment because of the potential choice-of-law problems that would make a class action unwieldy.
See J/H Real Estate Inc. v. Abramson,
VI.
Plaintiffs ask that this action be certified on behalf of all persons who purchased the common stock of Newbridge between March 29, 1994, and August 1, 1994, and suffered damage. Defendant Newbridge argues that class certification would be inappropriate because there are insufficient facts to support certification and the proposed class is over-broad.
Rule 23(a) provides:
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
In addition, one of the three requirements set. forth in Rule 23(b) must be satisfied. Plaintiffs claim that, as required by Rule 23(b)(3), they have met their burden of showing that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members” and that “a class action is superior to other available methods for the fair and efficient adjudication of the controversy.”
See McCarthy v. Kleindienst,
Plaintiffs allege that joinder of all members is impracticable. According to plaintiffs, Newbridge has over 80 million shares of common stock outstanding and millions of shares were traded during the Class Period. “While the exact number of class *1176 members is unknown to plaintiffs at the present time and can only be ascertained from books and records maintained by Newbridge and/or its agents, plaintiffs believe that there are thousands of class members.” Amended Compl. ¶26. Defendants argue that plaintiffs have offered no evidence to supplement their allegations; however, plaintiffs’ showing is sufficient at this pre-discovery stage of the litigation, particularly in light of plaintiffs’ allegation that additional evidence with respect to numerosity lies within New-bridge’s control.
Plaintiffs also allege that there was a common course of fraudulent conduct by defendants in connection with material misstatements and omissions in documents and statements publicly disseminated during the class period. Thus, according to plaintiffs, there are questions of law or fact common to all members of the class which predominate over questions affecting only individual members. Defendants again argue that plaintiffs offer no evidence with respect to this conclusory statement. However, it is not clear what evidence plaintiffs could present on the issue of whether there are issues of fact and law common to the class, other than the allegations of securities fraud in the amended complaint. As plaintiffs point out, "courts have widely recognized the utility of, and the necessity for, class actions in securities litigation." Pls.' Mot. at 8 (citing,
inter alia, Basic Inc. v. Levinson,
Defendants do vigorously contest plaintiffs' assertion that plaintiffs' claims are typical of those of the class. In their motion for class certification, plaintiffs represent that they are open-market purchasers of Newbridge shares and were all subject to defendants' alleged common scheme, resulting in their purchase of Newbridge shares at allegedly inflated prices. Plaintiffs argue that the central issues in this case are whether defendants' public disclosures during the class period were materially false and misleading so as to violate the securities laws, and whether those disclosures inflated the market price of Newbridge shares and damaged members of the class. Thus, plaintiffs argue that they have claims that are typical of the class as a whole. However, defendants argue that plaintiffs have made no allegations and presented no evidence as to how or where any of them purchased Newbridge shares. For example, plaintiffs do not say whether they purchased shares through NASDAQ, the Toronto Stock Exchange, or some other exchange, or in a private transaction. Defendants argue that without such information about which market plaintiffs operated within, plaintiffs cannot claim a "fraud on the market" presumption of reliance.
See
Defs.' Opp'n at 10 (citing
Basic Inc. v. Levinson,
Plaintiffs assert in their motion that they are open market purchasers of Newbridge shares, and the amended complaint alleges that Newbridge stock was traded on NASDAQ. They do not specifically allege that plaintiffs themselves traded the stock on NASDAQ. However, the amended complaint states that “[pjlaintiffs will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine.” Amended Compl. ¶ 30. Here, a trier of fact could reasonably infer from the facts alleged in the amended complaint that plaintiffs did purchase shares of Newbridge on the open market. Moreover, plaintiffs have adequately pleaded that there was an efficient market; plaintiffs allege not only that Newbridge stock was traded on NASDAQ, but also that
*1177
Newbridge filed periodic reports with the SEC, had a substantial daily trading volume, and was followed by securities analysts who issued reports on the company.
Id.
Such allegations are sufficient to allege an efficient market.
See, e.g., Hayes v. Gross,
Plaintiffs argue that they will provide fair and adequate representation on behalf of the class, and that their interests are in harmony with those of the other class members. Plaintiffs represent that their counsel “have extensive experience, are well respected in securities class litigation and have successfully prosecuted numerous securities cases in federal courts throughout the United States.” Pls.’ Mot. at 18. Defendants do not question the skill of plaintiffs’ counsel. Defendants do argue, however, that plaintiffs have not made any specific presentation of evidence showing that they will fairly and adequately protect the interests of the class. For example, plaintiffs have not provided any specific identifying information about themselves that would show that they are appropriate representatives. “[FJacts regarding the personal qualities of the representatives themselves are relevant, indeed necessary, in determining whether ‘the representative parties will fairly and adequately protect the interests of the class.’ ”
In re Goldchip Funding Co.,
Plaintiffs also do not indicate whether they continue to own Newbridge shares; defendants claim that a sale of shares would place a plaintiff in a different position than a class member who has not sold. Defendants argue that plaintiffs who sold their shares may even have made a substantial overall profit on their shares. One court has held that “[i]f this were the case, the Court could see no basis for allowing that plaintiff to represent a class of purchasers, who allegedly suffered a loss due to their purchase, to sue.”
In re AM Int’l, Inc. Sec. Litig.,
Defendants also argue that plaintiffs have not alleged any familiarity with the facts alleged by their counsel, and are therefore inadequate class representatives. Defs.’ Opp’n at 15 (citing,
inter alia, In re Storage Technology Corp. Sec. Litig.,
Plaintiffs next argue that a class action is superior to all other available methods for the fair and efficient adjudication of the controversy. Defendants contend that plaintiffs’ allegations are insufficient; for example, plaintiffs claim that a class action is the only viable way to bring this suit because the “typical claims” of class members are “far too small” for individual class members to maintain individual actions, without explaining what a “typical claim” would be. However, plaintiffs have alleged how many shares each purchased, and at what price. See Amended Compl. ¶ 12. Thus, defendants have sufficient information about what plaintiffs consider to be “typical claims” in this litigation.
Finally, defendants argue that the proposed class is overbroad because the class period extends to August 1, 1994, even though the last named plaintiff to have purchased Newbridge stock (Sang Ki Kim) did so on July 27, 1994. However, courts have held that the named plaintiffs’ claims need only be “typical” of those of class members, not identical. For example, in Alfus v. Pyramid Technology Corp., the court held that
[w]hile the representative must be a member with standing, the Alfus class is not confined to that period preceding Alfus’ final purchase of Pyramid stock; carving out such a period would be arbitrary. Reducing the class period according to Alfus’ purchase date would imply “that only someone who bought on the last day of a class period would be able to bring an action based on” the logical dates alleged in the Amended Complaint.
Alfus v. Pyramid Technology Corp.,
Federal Rule of Civil Procedure 23(c)(1) permits this Court to conditionally grant plaintiffs’ motion for class certification and provides that an order with respect to class certification “may be altered or amended before the decision on the merits.” As discussed above, defendants argue that plaintiffs have alleged insufficient information to justify class certification. An accompanying Order will grant plaintiffs’ motion for class certification on a conditional basis, without prejudice to renewal of defendants’ objections at the close of discovery. At that time, this Court may reconsider whether the class should be certified and whether the named plaintiffs will fairly and adequately represent the class.
VII.
On March 13, 1996, defendants filed a motion for an order pursuant to Federal Rules of Civil Procedure 26(c), 26(d), 26(g)(3), and 37(a)(4) directing that the depositions sought by plaintiffs pursuant to their Notice of Depositions dated February 16, 1996, be had only under certain conditions. One of those conditions is that the requested depositions should be held, if at all, only after decision on the motion to dismiss. Plaintiffs have filed a cross-motion to compel discovery. The ruling on defendants’ motion to dismiss obviously moots this issue.
In their motion, defendants specify several other conditions which do not relate to the motion to dismiss. Defendants argue that the requested depositions should be held, if at all, (1) only in the city of residence of the person sought to be deposed, or at such other place as the deponent may agree; and (2) with respect to any non-party, only after plaintiffs comply with the procedures for the taking of testimony in Canada from Canadian citizens pursuant to Federal Rule of Civil Procedure 28(b) and any other applicable law. Defendants also request attorneys’ fees and costs. In their Cross-Motion, plaintiffs note that defendants’ argument regarding *1179 the location of the depositions is moot, as plaintiffs have agreed to conduct the depositions in Canada. In addition, plaintiffs represent that they have served an Amended Notice of Deposition, so that defendants’ arguments with respect to the adequacy of the deposition notice are also moot. In their Reply, defendants effectively concede that their arguments about the location of the depositions and the adequacy of the notice are moot, although they maintain that “there is still no reason why the examinations [plaintiffs] seek should not await the resolution of Defendants’ pending motion to dismiss.” Defs.’ Reply at 1. Accordingly, an accompanying Order will deny the parties’ pending discovery motions as moot.
ORDER
For the reasons stated in the accompanying Memorandum, it is this 3rd day of June, 1996, hereby
ORDERED: that defendants’ motion (22-1) to dismiss plaintiffs’ claim of securities fraud should be and is hereby GRANTED IN PART AND DENIED IN PART; and it is further
ORDERED: that, with the exception of the allegations relating to deficiencies in Newbridge’s 36150 ATMnet switch and undisclosed delays in shipping contracts because of inadequate inventory, plaintiffs’ allegations of securities fraud should be and are hereby DISMISSED with leave to amend; and it is further
ORDERED: that defendants’ motion (22-1) to dismiss plaintiffs’ claim of “controlling person” liability against the individual defendants should be and is hereby DENIED; and it is further
ORDERED: that defendants’ motion (22-1) to dismiss plaintiffs’ common-law negligent misrepresentation claim should be and is hereby GRANTED; and it is further
ORDERED: that plaintiffs’ common-law negligent misrepresentation claim should be and is hereby DISMISSED WITH PREJUDICE; and it is further
ORDERED: that plaintiffs may serve and file their Second Amended Consolidated Complaint on or before July S, 1996; and it is further
ORDERED: that defendants may, on or before July 22, 1996, renew their motion to dismiss the Second Amended Complaint for failure to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b); and it is further
ORDERED: that plaintiffs’ motion (13-1) for class certification should be and is hereby CONDITIONALLY GRANTED without prejudice to renewal of defendants’ objections to class certification at the close of discovery; and it is further
ORDERED: that this action should be and is hereby conditionally certified under Federal Rule of Civil Procedure 23(c)(1) on behalf of all persons who purchased the common stock of Newbridge Networks Corp. (“Newbridge”) between March 29, 1994 and August 1, 1994 (the “class period”) inclusive, and who were damaged thereby (“the class”). Excluded from the class are the defendants in this action, members of the immediate families of the individual defendants, any entity in which any defendant has a controlling interest or which is related to or affiliated with any of the defendants, and the legal representatives, heirs, successors-in-interest, or assigns of any such excluded party. The parties shall present to the Court, on or before July S, 1996, a proposed Order directing Class Notice and a form of Notice of the Pendency of this Action to the members of the class. It is further
ORDERED: that defendants’ motion (41-1) for an order pursuant to Federal Rules of Civil Procedure 26(c), 26(d), 26(g)(3), and 37(a)(4), and plaintiffs’ cross-motion (42-1) to compel discovery, should be and are hereby DENIED AS MOOT; and it is further
ORDERED: that a status conference to schedule further administration of this case shall be held on July 12, 1996, at 10:00 a.m., in Courtroom No. 3.
Notes
. Plaintiffs do not specifically identify those contracts in the amended complaint. However, the adequacy of plaintiffs' allegations is a question to be resolved with respect to Federal Rule of Civil procedure 9(b), not Rule 12(b)(6). Accordingly, the adequacy of plaintiffs' allegations about New-bridge contracts will be addressed in the context of Rule 9(b).