133 F.R.D. 25 | E.D. Pa. | 1990
MEMORANDUM AND ORDER
The named plaintiff in this case, Lee Squitieri, has moved, pursuant to Rule 23 of the Federal Rules of Civil Procedure, that this action be maintained as a class action. On October 4, 1990, the parties stipulated and agreed that the claims in Count I of the Amended Class Action Complaint (the “Amended Complaint”), which are based upon violations of the federal securities laws, shall be maintained as a class action under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure. Stipulation and Order as to Class Determination (ordered Oct. 5, 1990). Thus, the only issue to resolve on plaintiffs motion is whether plaintiffs pendent state law claim for negligent misrepresentation in Count II of the Amended Complaint should be certified for class treatment. For the reasons set forth below, I will not certify Count II for class treatment. In addition, I will deny defendants’ motion for partial summary judgment dismissing plaintiff’s pendent claim for negligent misrepresentation.
I. BACKGROUND
Plaintiff alleges that the defendants made a series of false and misleading statements regarding the finances, profits, and future prospects of Commodore International, Ltd. (“Commodore”), which caused an artificial inflation of the market price of Commodore securities throughout the class period and caused thousands of investors to suffer substantial damages. Commodore is a Bahamian corporation with its principal executive office in West Chester, Pennsylvania, which manufactures and sells microcomputer products worldwide through wholly-owned subsidiaries and independent distributors. Amended Class Action Complaint Till 6, 14. The named plaintiff, Lee Squitieri, purchased 200 shares of Commodore stock on June 28, 1989, at $14.25 per share. Id. ¶ 5.
Specifically, plaintiff alleges the following: that defendants made false and misleading statements on several occasions between April 18, 1989 and October 19, 1989, which were reported in The Wall Street Journal and PR News Wire
On June 25, 1990, plaintiff filed a Motion for Class Certification. The class that plaintiff proposes would include all persons who purchased Commodore common stock from June 5, 1989 through October 19, 1989 (the “Class”) and who suffered a loss thereby.
II. CLASS ACTION CERTIFICATION
Under Federal Rule of Civil Procedure 23(a), a plaintiff may sue on behalf of a class 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 to satisfying each of the requirements set out in Rule 23(a), the proposed class must meet one of the three standards set out in Rule 23(b). The plaintiff in this action seeks certification under Rule 23(b)(3), which provides two additional criteria for class action treatment: (1) questions of law or fact common to class members must predominate over any questions affecting only individual members; and (2) the class action device must be superior to other available methods of adjudication. Fed.R.Civ.P. 23(b)(3).
The burden is on the party seeking to utilize the class action form to prove that the requirements of Rules 23(a) and 23(b) are met. Davis v. Romney, 490 F.2d 1360, 1366 (3d Cir.1974); Glick v. E.F. Hutton & Co., 106 F.R.D. 446, 447 (E.D.Pa.1985). The Third Circuit has noted, however, that “[cjlass actions are a particularly appropriate and desirable means to resolve claims based on the securities laws, ‘since the effectiveness of the securities laws may depend in large measure on the application of the class action device.’ ” Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir.), cert. denied, 474 U.S. 946, 106 S.Ct. 342, 88 L.Ed.2d 290 (1985) (citation omitted). Thus, “ ‘[t]he interests of justice require that in a doubtful case ... any error, if there is to be one, should be committed in favor of allowing a class action.’ ” Id. (citations omitted). In addition, at the Rule 23 motion stage, the requirements of the rule itself, not the merits of the case, are at issue. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178, 94 S.Ct. 2140, 2152, 40 L.Ed.2d 732 (1974); Rishcoff v. Commodity Fluctuations Systems, Inc., 111 F.R.D. 381, 382 (E.D.Pa.1986).
In the instant case, plaintiff seeks class certification under Rule 23(b)(3) of his pendent state law claim for negligent misrepresentation. While I recognize that the propriety of certifying Rule 23(b)(3) classes in common law securities fraud cases is a close question, see, e.g., Peil v. Speiser, 806 F.2d 1154, 1159 n. 8 (3d Cir.1986), I find that the plaintiff has failed to demonstrate that common questions predominate over individual questions, or that a class action is superior to other available methods of adjudication of this dispute.
Furthermore, a class action suit which would require the court to hold separate trials on the reliance issue with respect to possibly thousands of individual claimants would pose considerable administrative difficulty. Using a special master or questionnaires, as plaintiff suggests, would not obviate the need for separate jury trials on the reliance issue, unless the parties are able to agree otherwise. In addition, since the plaintiffs individual negligent misrepresentation claim will be resolved at trial on special interrogatories breaking down the issues to separate individual reliance, the application of collateral estoppel provides a less complex alternative to a class action. In any event, my present sense of the case is that if I certify a class on the state law claim, the reliance tail will wag the negligent misrepresentation dog.
In addition, on the present underdeveloped state of the record, other factors arguing against finding commonality and superiority under Rule 23(b)(3) are the differences among the laws of the various states regarding negligent misrepresentation and the lack of clarity in state law on these claims. See In re Bexar County, 125 F.R.D. at 636 (class certification of pendent state law claims was inappropriate because “individual questions of state law regarding the elements of ... various theories will certainly predominate.”).
Because common issues do not predominate over individual issues with respect to plaintiffs common law misrepresentation claim, and because the class action device is not superior to other available methods of adjudicating this dispute, I will not certify Count II of the Amended Complaint for class determination.
III. SUMMARY JUDGMENT
Defendants have moved for partial summary judgment dismissing plaintiffs pendent claim for negligent misrepresentation. Because that claim involves genuine issues of material fact, I will deny defendants’ motion.
. Several of these statements were attributed to defendant Irving Gould, Chairman of the Board of Directors and Chief Executive Officer of Commodore. Amended Complaint ¶¶ 19-20, 24, 29.
. Plaintiff originally proposed that the class period run from April 18, 1989 through October 19, 1989. Plaintiffs Motion for Class Certification at 1. On October 17, 1990, on plaintiff's unopposed motion, the court amended the class period.