MEMORANDUM AND ORDER
Thе lead plaintiffs in this securities fraud class action are former shareholders of Tyco International, Ltd. They assert securities fraud claims against Tyco, former Tyco executives and board members L. Dennis Ko-zlowski, Mark H. Swartz, Mark A. Belnick, Frank E. Walsh, Jr., Michael A. Ashcroft (the “individual defendants”), and Tyco’s independent accountant and auditor, Pricewat-erhouseCoopers (“PwC”),(collectively the “defendants”).
Plaintiffs allege that defendants misrepresented the value of several different companies Tyco acquired during the class period and misreported Tyco’s own financial condition. They also claim that the individual defendants looted the company by misappropriating corporate funds in the form of undisclosed cash bonuses and forgiven loans. The looted proceeds were then used to reward the individual defendants for them participation in the accounting fraud scheme. Plaintiffs contend that this looting and accounting fraud scheme defrauded the investing public in violation of the federal securities laws. They claim that defendants made materially false and misleading statements and omitted material information in various registration statements and publicаtions, which concealed the corporate misconduct and mismanagement, in violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, 771(a)(2) and 77o, and Sections 10(b), 20(a) and 20(A) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b), 78t(a) and 78t-l, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. See Consolidated Compl. 112.
Plaintiffs have moved for the certification of a class “consisting of all persons and entities who purchased or otherwise acquired Tyco securities between December 13, 1999 and June 7, 2002 (the “Class Period”), and who were damaged thereby (the “Class”), excluding defendants, all of the officers, directors and partners thereof, members of their immediate families and their legal representatives, heirs, successors or assigns, and any entity in which any of the foregoing have or had a controlling interest.” Lead Pis.’ Mot. for Class Certification (Doc. No. 348) at 1. The proposed class representatives are Plumbers and Pipefitters National Pension Fund (“P & P Pension Fund”), United Association General Officers Pension Plan (“UAGO”), United Association Office Employees Pension Plan and United Association of Local Union Officers & Employees Pension Fund (“UAOE”), Teachers Retirement System of Louisiana (“TRSL”), the Louisiana State Emplоyees Retirement System (“LASERS”), and Voyageur Asset Management (“Voyageur”).
Tyco argues that the class should not be certified because the lead plaintiffs are not adequate class representatives and the interests of the class members are too disparate to permit the case to be managed as a class action.
CLASS CERTIFICATION STANDARD
To prevail on their motion for class certification, plaintiffs must satisfy all four requirements of Rule 23(a) and demonstratе that the class meets one of the criteria outlined in Rule 23(b). See Amchem Prods. v. Windsor,
(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, the claims or defenses of the
(3) 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.
Fed.R.Civ.P. 23(a). These requirements are ordinarily known as numerosity, commonality, typicality, and adequacy.
Next, plaintiffs must demonstrate that the class meets one of the criteria outlined in Rule 23(b). See Amchem,
The class certification inquiry “ ‘generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiffs cause of .action.’” Waste Mgmt. Holdings, Inc. v. Mowbray,
ANALYSIS
Instead of addressing each of the prerequisites for certification as set forth above, Tyco has raised five arguments in opposition to class certification. These arguments implicate both Rule 23(a)’s adequacy requirement and Rule 23(b)(3)’s predominance and manageability requirements.
A. Equity Conflict
Tyco first argues that the lead plaintiffs cannot satisfy Rule 23(a)’s adequacy requirement because their interest in recovering damages from Tyco on behalf of the class is in conflict with the interest that other class members have in preventing Tyco from paying damages. Tyco develops this “equity conflict”
Tycо has produced expert testimony to support the claimed equity conflict. See Decl. of John W. Peavy, III. Plaintiffs, however, have countered with their own experts who have called into question the assumptions on which the equity conflict is based. Among other things, plaintiffs challenge Tyco’s contention that any payment that it makes to the class will produce a corresponding drop in the company’s stock price. According to plaintiffs, this assumption is incorrect because historical data demonstrates that a company’s stock price more often than not rises after it announces a payment to a securities fraud class. Decl. of Steven Fein-stein U12 (analyzing securities class action settlements greater than $25 million paid by solvent companies since 2002). Plaintiffs’ data, however, does not necessarily undermine Tyco’s equity conflict argument. It is conceivable that a company’s stock price could rise after a settlement payment is announced because the payment is lower than the payment anticipated by the market. An equity conflict might still exist in such cases if the company’s stock price would have risen even higher if the cаse had been dismissed
I need not determine whether Tyco’s equity conflict argument can withstand plaintiffs’ challenges, however, because the conflict is not a bar to certification for other reasons. First, it is important to bear in mind when considering the equity conflict that equity holders have a strong interest in recovering on their own claims against Tyco even if they have reаson to oppose efforts by other class members to recover on their claims. This is because any adverse impact on Tyco’s stock price that results from a payment to an individual class member must be borne by all of Tyco’s current shareholders. Decl. of Lu-den Bebchuk YY 20 — 22. Thus, if an equity holder owns 1% of Tyco’s stock, the equity conflict will cost it only It as a shareholder for every dollar that it receives as a class member. This is significant because it means that the lead plaintiffs’ unqualified interest in maximizing the recovery that they obtain from Tyco on behalf of the class is directly aligned with the intеrest that equity holders have in recovering on their own claims against Tyco.
More fundamentally, Tyco cannot rely on the equity conflict to prevent the certification of a class because its argument fails to properly account for the interests of non-equity holders. The proposed class includes thousands of class members who are unaffected by an equity conflict and who will have no practical way to pursue their claims against Tyco unless a class is certified. While equity holders may have an interest in preventing non-equity holders from recovering damages from Tyсo, no subgroup of class members can prevent the remaining class members from proceeding as a class simply because that subgroup’s members will be harmed if a payment is ultimately made to the other class members. At most, such conflicts entitle the subgroup to alternative relief, such as the substitution of class representatives, the redefinition of the class to exclude the subgroup, or notice of the conflict and an opportunity to opt out.
Tyco does not claim that the equity conflict can be remedied by either substituting class representatives or redefining the class. Chаnging class representatives will not cure the conflict because it is based on an alleged antagonism of interests between two substantial subgroups of class members rather than between the named class representatives and the rest of the class. Thus, if Tyco’s objection is valid, no one can adequately represent a class that includes both equity holders and non-equity holders.
Redefining the class to exclude equity holders is problematic for two related reasons. First, because equity holders retain an interest in recovering on their own claims against Tyco even if the equity cоnflict is valid, it is unclear how equity holders would benefit if the class were redefined to exclude them. Second, while the categorical exclusion of equity holders would free the lead plaintiffs from the equity conflict, it would do so by denying equity holders their right under Rule 23 to decide individually whether to remain as class members or to opt out of the litigation. See Fed.R.Civ.P. 23(c)(2)(B). Because the benefits to equity holders of opting out of the class are by no means clear cut, I am unwilling to deny them their right to choose whether to remain in the class.
While neither the substitution of class representatives nor the categorical exclusion of equity holders is an adequate response to the equity conflict, equity holders can address the conflict in other ways. First, an equity holder can become a non-equity holder at any time by selling enough stock. Thus, equity holders who fear that Tyco’s stock price will fall if a payment is announced to the class can avoid further losses by divesting themselves of their stock in Tyco. Second, equity holders who fear that the lead plaintiffs will focus only on Tyco without vigorously pursuing claims against other defendants can seek the certification of a subclass of equity holders. Finally, equity holdеrs who do not want to be a part of the class can exercise their right under Rule 23(c)(2)(B) to opt out of the litigation. Because equity holders can protect themselves from the equity conflict in several different ways, any equity holders who remain in the class after being notified
Tyco alternatively argues that I must certify a subclass of equity holders immediately because they claim that the lead plaintiffs’ interest in recovering damages from Tyco will cause them to neglect their claims against other defendants. This request is premature. The lead plaintiffs are pursuing a litigation strategy that is predicated on the theory that Tyco is liable for the wrongdoing of the individual defendants and that PwC aided the individual defendants in committing the fraud. They thus have a strong interest in demonstrating that all of the defendants are liable for damages. Further, Tyco itself has obvious interests in both avoiding liability and in seeing that any resulting liability is shared with its codefendants. Accordingly, equity holders will not go unprotected if I decline to certify a subclass immediately. See Dierks v. Thompson,
B. Loss Causation
Tyco next argues that the proposed class is unmanageable and its designated representatives are inadequate because the evidence that class members must rely on to prove loss causation will differ depending on when they sold their Tyco stock.
Loss causation is an element of a securities fraud class action claim under § 21D of the Exchange Act. 15 U.S.C. § 78u-4(b)(4). In Dura Pharms., Inc. v. Broudo,
Tyco contends that plaintiffs have effectively divided the class into several distinct subgroups by pleading three different corrective disclosures in the consolidated complaint. One subgroup consists of class members who sold their Tyco stock before the first corrective disclosure. The remaining subgroups consist of class members who sold their stock after the first disclosure but before the second disclosure, class members who sold their stock after the second disclosure but before the third disclosure, and class members who continued to hold their stock after the third disclosure. Tyco argues that class members in the first subgroup must be excluded from the class immediately because they cannot prove under any circumstances that their losses were caused by a corrective disclosure. It also argues that the remaining subgroups cannot be included in a single class because each subgroup must rely on different corrective disclosures to prove
Tyco’s argument for the immediate exclusion of class members who sold their stock before the first cоrrective disclosure alleged in the complaint is based on the faulty premise that loss causation must be pleaded with particularity. Disputes about loss causation turn primarily on questions of fact. Worthy v. Camplin,
I also am unpersuaded by Tyco’s assertion that the proposed class is unmanageable because some class members will have stronger loss causation arguments than others based upon when they sold their Tyco stock. As the First Circuit has recognized, classes are routinely certified where common issues predominate even though individual issues exist with respect to other matters such as affirmative defenses or damages. Smilow v. Southwestern Bell Mobile Sys., Inc.,
Finally, Tyco has failed to properly develop its argument that the lead plaintiffs cannot adequately represent the class on the issue of loss causation. If the lead plaintiffs purchased their stock before the first possible corrective disclosure and held it until after the final possible corrective disclosure, they havе good reason to argue for every disclosure that the evidence in the case will support because they can only recover damages for changes in Tyco’s stock price that are tied to corrective disclosures. While the lead plaintiffs lack similar incentives to argue for corrective disclosures that may have occurred either before they purchased their stock or after they sold it, their interests would not be harmed if such disclosures are recognized unless the recognition of a disclosure that does not benefit them undermines their argument for the recognition of beneficial disclosures. Thus, the interests of the lead plaintiffs are not necessarily in conflict with the interests of other class members on the issue of loss causation simply because all members of the class will not benefit from all possible corrective disclosures. Since Tyco has failed to better develop its argument, I cannot credit its contention that the lead plaintiffs are inadequate class representatives on this issue.
C. Exchange Act Claims and Securities Act Claims
Tyco’s third argument is that the conspiracy alleged in the consolidated complaint is so vast, and the legal theories on which thе complaint is based are so disparate, that the case cannot be effectively managed as a class action. To support this argument, Tyco notes that the class period encompasses more than two years and that the defendants’ alleged fraud scheme involved some 56 different registration state-
I hold no illusions about the complexity of this case. More than 70 million pages of documents have been produced in discovery, at least 200 depositions are anticipated and I have already issued many orders addressing a wide variety of difficult legal questions. Complexity alone, however, cannot be the basis for refusing to certify a class where common issues predominate and alternatives to class certification do not exist for the vast majority of the allegedly injured parties. Plaintiffs base their case against the defendants on the premise that the individual defendants operated Tyco as a criminal enterprise over a substantial period of time. The statements that form the basis for then-claims allegedly are part of a common scheme of acquisition accounting fraud and undisclosed looting that remained consistent through the life of the conspiracy. While some class members undoubtedly will have stronger claims than others based upon when they purchased their stock, the challenges that such individual differences present are inconsequential when weighed against the common interests that unite thе entire class. Thus, I am unpersuaded that the case cannot be managed as a class action merely because it encompasses many different misstatements and omissions over a period of more than two years.
I also find no merit in Tyco’s argument that I cannot certify a class that includes both Securities Act claims and Exchange Act claims. The sole example that Tyco cites to support this argument again concerns the subject of loss causation. Tyco argues that Exchange Act claimants have an interest in proving that Tyco’s stock price fell in part because of the disclosure to the market of the New York District Attorney’s investigation of Kozlowski’s alleged violations of New York’s sales tax laws. It then claims that the Securities Act claimants will be harmed by such evidence because it undermines their argument that their damages are caused by the disclosure to the market of the different misrepresentations that serve as the basis for then- Securities Act claims. This argument overlooks the fact that plaintiffs base both their Exchange Act claims and their Securities Act claims on the premise that Kozlowski led an overarching conspiracy that еncompassed all of the misstatements and omissions on which both types of claims are based. As a result, evidence that Tyco’s stock price declined after it became clear to the market that Kozlowski could no longer be trusted might actually support rather than undermine plaintiffs’ Securities Act claims. Accordingly, I reject Tyco’s contention that a class that includes both Securities Act claims and Exchange Act claims is unmanageable.
D. Voyageur
Tyco next argues that Voyageur lacks standing to sue because it did not suffer any losses as a result of the alleged fraud. Voyageur responds by claiming that it has derivative standing to sue on behalf of its clients because it purchased Tyco stock for them pursuant to an agreement that granted it discretionary authority to “buy, sell, or otherwise effect transactions” for its clients. P & P Pension Fund Investment Manager Agr., May 1, 1996, H 6.
The United States Supreme Court has repeatedly recognized that “[i]n the ordinary course, a litigant must assert his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties.” Powers v. Ohio,
Voyageur does not even attempt to satisfy the Constitution’s injury in fact requirement. Instead, relying on the Supreme Court’s decision in Blue Chip Stamps v. Manor Drug Stores,
E. UAGO and UAOE
Tyco’s last argument is that UAGO and UAOE are inadequate class representatives because they failed to produce certain investment management agreements pursuant to defendants’ discovery request. I disagree. The record indicates that plaintiffs have substantially complied with the discovery requests. See, e.g., Dep. of Ernest H. Soderstrom at 103:13-23 (noting that UAGO and UAOE had produced all but two or three of the investment management agreements); Tr. of Jun. 28, 2005 Tel. Conf. at 21:18-24 (additional discovery requests unnecessary for certification determination). Neither plaintiff is an inadequate class representative simply because it may have inadvertently failed to timely produce a few documents in an otherwise substantial discovery request. Thus, I decline to remove them as lead plaintiffs based on thеir alleged failure to fully comply with Tyeo’s discovery requests.
CONCLUSION
For the reasons set forth above, plaintiffs’ motion for class certification (Doc. No. 348) is granted. Voyageur, however, is removed as a lead plaintiff because it lacks standing to sue.
SO ORDERED.
Notes
. PwC has joined Tyco in opposing plaintiffs' motion for class certification. See PwC Obj. (Doc. No. 491).
. Tyco does not argue that plaintiffs have failed to satisfy Rule 23(a)’s numerosity requirement, nor does it explicitly assert that certification of the proposed class would be inconsistent with the rule’s commonality and typicality requirements.
The numerosity requirement is satisfiеd when the number of potential class members and their geographic distribution are sufficiently great that joinder of all plaintiffs is not feasible. Andrews,
The commonality requirement “is not a high bar.” In re Chiang,
Plaintiffs have likewise satisfied the typicality requirement, because the lead plaintiffs’ claims arise from the same alleged accounting fraud scheme that injured the rest of the class. See, e.g., In re Pharm. Indus.,
. I follow other courts and commentators in referring to this alleged conflict as an "equity conflict.” See, e.g., In re Dynegy, Inc. Sec. Litig., 226 F.R.D. 263, 277 (S.D.Tex.2005); In re Health-South Corp. Sec. Litig.,
. Plaintiffs challenge the evidence that Tyco relies on to prove that the proposed class includes several hundred equity holders. For example, plaintiffs claim that Tyco improperly aggregated the holdings of individual mutual funds within fund families even though the individual funds are distinct entities. Decl. of Lucien Bebchuk U1111-13. Plaintiffs also complain that Tyco has arbitrarily chosen March 31, 2005 as the date on which to determine whether a class member is an equity holder when only class members who are equity holders when a payment to the class is announced will be harmed by the payment if the conflict works in the way that Tyco suggests. Because any current equity holder has the power to become a non-equity holder at any time prior to the announcement of a payment to the class, plaintiffs argue that Tyco's methodology is fatally flawed. I do not need to evaluate these arguments because I dispose of Tyco's equity conflict argument for other reasons.