This expedited appeal arises out of an order entered in the United States District Court for the Southern District of New York (Rakoff, J.) certifying two classes in this securities fraud action against Petróleo Brasileiro S.A. — Petrobras (“Petrobras”) and various other defendants. See In re Petrobras Sec. Litig. (the “Certification Order”),
Petrobras is a multinational oil and gas company headquartered in Brazil and majority-owned by the Brazilian government. Though Petrobras was once among the largest companies in the world, its value declined precipitously after the exposure of a multi-year, multi-billion-dollar money-laundering and kickback scheme, prompting a class action by holders of Petrobras equity and debt securities (“Plaintiffs”) against multiple defendants (“Defendants”): Petrobras and certain wholly owned subsidiaries (the “Subsidiaries”; collectively with Petrobras, the “Petrobras Defendants”
The district court certified two classes (the “Classes”) for money damages under Federal Rule of Civil Procedure 23(b)(3): the first asserts claims under the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78a et seq.; and the second asserts claims under the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77a et seq.
First, Appellants challenge both class definitions insofar as they include all otherwise eligible persons who purchased Petrobras debt securities in “domestic transactions.” Because Petrobras’s debt securities do not trade on a domestic exchange, the district court must assess each class member’s over-the-counter transactions for markers of domesticity under
Second, with regard to the Exchange Act Class, the Petrobras Defendants
For the reasons set forth below, we AFFIRM IN PART and VACATE IN PART the judgment of the district court and REMAND the case for further proceedings consistent with this opinion.
BACKGROUND
We provide here a brief summary of the proceedings below as relevant for the issues on appeal. For additional background on Plaintiffs’ allegations and causes of action, see the district court’s prior orders. See In re Petrobras Sec. Litig. (the “July 2015 Order”),
I. Factual Background
A. Plaintiffs’ Allegations of Corruption at Petrobras
Plaintiffs’ claims arise out of a conspiracy that began in the first decade of the new millennium, at which time Petrobras was expanding its production capacity. The company used a competitive bidding process for major capital expenditures, including the construction and purchase of oil refineries. Over a period of several years, a cartel of contractors and suppliers coordinated with corrupt Petrobras executives to rig Petrobras’s bids at grossly inflated prices. The excess funds were used to pay
Brazil’s Federal Police discovered the scheme during a money-laundering investigation, and ultimately arrested a number of the individuals involved. As details of the scandal emerged, Petrobras made corrective disclosures that, according to Plaintiffs, significantly understated the extent of incorrectly capitalized payments and inflated asset values. Even so, the value of Petrobras’s securities declined precipitously. Plaintiffs allege that, “[a]t its height in 2009, Petrobras was the world’s fifth-largest company, with a market capitalization of $310 billion”; by early 2015, its worth had allegedly declined to $39 billion. 4th Am. Compl. ¶ 2.
B. Petrobras Securities
Petrobras’s common and preferred shares trade on a Brazilian stock exchange, the BM&F BOVESPA. The company sponsors American Depository Shares (“ADS”)
In addition, Petrobras has issued multiple debt securities (the “Notes”; collectively with ADS, “Petrobras Securities”) underwritten by syndicates of domestic and foreign banks. The Notes do not trade on any U.S. exchange. Investors trade Notes in over-the-counter transactions, whether in connection with an initial debt offering or in the global secondary market.
II. Procedural History
In December 2014 and January 2015, Petrobras investors filed five putative class actions asserting substantially similar claims against Petrobras and other defendants. The district court consolidated those actions in February 2015 and certified the Classes in February 2016. The district court also presided over several individual actions involving similar claims.
A. Plaintiffs’ Causes of Action
As relevant for this appeal, Plaintiffs assert a cause of action under the Exchange Act against the Petrobras Defendants, and three causes of action under the Securities Act against various Petrobras and Underwriter Defendants.
1. Claims Under the Exchange Act
. Plaintiffs’ Exchange Act claims are brought against Petrobras and the Subsidiaries on behalf of holders of Petrobras ADS and Notes. Plaintiffs assert that, during the class period of January 22, 2010, to July 28, 2015, the Petrobras Defendants
2. Claims Under the Securities Act
Plaintiffs rely on similar factual allegations in their claims under the Securities Act, brought on behalf of Petrobras Note-holders. Plaintiffs allege that the Petrobras Defendants and the Underwriter Defendants made materially false representations in registration statements and other documents connected with offerings of Petrobras Notes in May 2013 and March 2014 (the “Offerings”), thereby establishing liability under Sections 11, 12(a)(2), and 15 of the Securities Act. See 15 U.S.C. §§ 77k, 77l(a)(2), 77o.
B. The Certification Order
On February 2, 2016, the district court granted Plaintiffs’ motion to certify two classes under Rule 23(b)(3), one asserting claims under the Exchange Act and the other asserting claims under the Securities Act. Certification Order,
Because Petrobras Notes do not trade on any U.S.-based exchange, Noteholders in both Classes are only entitled to assert claims under the Exchange Act and the Securities Act if they can show that they acquired their Notes in “domestic transactions.” Morrison,
The Exchange Act Class is defined, in relevant part,
[A]ll purchasers who, between January 22, 2010 and July 28, 2015, ... purchased or otherwise acquired [Petrobras Securities], including debt securities issued by [the Subsidiaries] on the [NYSE] or pursuant to other domestic transactions, and were damaged thereby-
Id. at 372.
The Securities Act Class is defined, in relevant part, as:
[A]ll purchasers who purchased or otherwise acquired [Notes] in domestic transactions, directly in, pursuant and/or traceable to [U.S.-registered public offerings on May 15, 2013, and March 11, 2014] ..., and were damaged thereby[9 ]
Id. The Securities Act Class definition is temporally limited to purchases made “before Petrobras made generally available to its security holders an earnings statement covering a period of at least twelve months beginning after the effective date of the offerings.” Id. This language conforms to
III. The Instant Appeal
On June 15, 2016, a panel of this Court granted Appellants’ timely filed petition for permission to appeal the Certification Order under Federal Rule of Civil Procedure 23(f) and Federal Rule of Appellate Procedure 5(a). On August 2, 2016, a separate panel granted Appellants’ motion for a stay pending resolution of this expedited interlocutory appeal.
DISCUSSION
A plaintiff seeking certification of a Rule 23(b)(3) class action bears the burden of satisfying the requirements of Rule 23(a) — numerosity, commonality, typicality, and adequacy of representation — as well as Rule 23(b)(3)’s requirements: (1) that “the questions of law or fact common to class members predominate over any questions affecting only individual members” (the “predominance” requirement); and (2) that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy” (the “superiority” requirement). Fed. R. Civ. P. 23(a), (b)(3); In re U.S. Foodservice Inc. Pricing Litig.,
Appellants do not challenge the district court’s findings with regard to the class certification elements under Rule 23(a). Rather, they assert two arguments under Rule 23(b)(3). Appellants first argue that both Classes fail to satisfy ascertainability, predominance, and superiority because putative class members must establish, on an individual basis, that they acquired their securities in “domestic transactions.” The Petrobras Defendants assert a second predominance challenge specific to the Exchange Act Class: they argue that the district court erred in finding that Plaintiffs successfully established a class-wide presumption of reliance under the “fraud on the market” theory.
I. Standard of Review
“We review a district court’s conclusions as to whether the requirements of Federal Rule of Civil Procedure 23 were met, and in turn whether class certification was appropriate, for abuse of discretion.”
II. “Domestic Transactions” as a Condition for Class Membership
The two certified Classes include all claims arising out of Petrobras Notes purchased in “domestic transactions” during the class period, thereby capturing the broadest membership possible under Morrison. Appellants argue that the difficulties inherent in assessing putative class members’ transaction records make the Classes uncertifiable for several reasons, the most important of which, for our purposes, are (1) the ascertainability doctrine, which has seen recent developments in this Circuit and others; and (2) predominance. We hold that both class definitions satisfy the as-certainability doctrine as it is defined in this Circuit. We further hold, however, that the district court erred in conducting its predominance analysis without considering the need for individualized Morrison inquiries. On that basis, we vacate the district court’s certification decision and remand for further proceedings.
1. Defining “Domestic Transactions”: Morrison and Absolute Activist
“It is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.” Morrison,
As noted in the margin, we assume that a purchase of Petrobras ADS qualifies under Morrison’s first prong as long as the transaction occurs on the NYSE, a “domestic exchange.” See City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG,
This Court’s decision in Absolute Activist elaborated on that standard: for “securities that are not traded on a domestic exchange,” a transaction is considered “domestic if [1] irrevocable liability is incurred or [2] title passes within the United States.” Absolute Activist Value Master Fund Ltd. v. Ficeto,
The location or residency of the buyer, seller, or broker will not necessarily establish the situs of the transaction. Id. at 68-69. Rather, plaintiffs demonstrate the location where irrevocable liability was incurred or legal title transferred by producing evidence “including, but not limited to, facts concerning the formation of the contracts, the placement of purchase orders, ... or the exchange of money.” Id. at 70.
2. The District Court’s Pre-Certification Morrison Inquiries
Before certifying the Classes, the district court twice adjudicated Morrison-
Plaintiffs responded with new allegations and documentary evidence regarding Notes transactions for each of the four putative named plaintiffs. Defendants once again moved to dismiss. The district court found that two of the named plaintiffs had adequately pleaded domestic transactions based on their acquisition of Notes directly from U.S. underwriters in the Offerings. December 2015 Order,
The district court determined that the other two named plaintiffs had failed to satisfy the Morrison inquiry and dismissed their Securities Act claims. Id. at 340-43. One plaintiff, for example, presented a confirmation slip stating that Petrobras Notes had been purchased “in U.S. dollars and that the Notes were held in ‘[s]afe-keeping of securities abroad, depository country: U.S.A.’ ” Id. at 341 (quoting the 4th Am. Compl.). According to the district court, this “language suggests that the purchase occurred outside the United States because it refers to the United States as ‘abroad.’ ” Id. (emphasis added). The district court similarly found insufficient an allegation that an investment manager “located in the United Kingdom[ ] instructed its U.S. affiliate, located in Chicago, Illinois, to transfer Petrobras Notes to [the plaintiff entity,] located in the United Kingdom.” Id. The court noted that “a ‘transfer,’ rather than a purchase, [was] all that [was] alleged. Moreover, the allegations suggest that irrevocable liability was incurred in the United Kingdom,” where both the plaintiff and the investment manager were located, “rather than in the United States.” Id.
In an attempt to preserve those claims, Plaintiffs offered two alternative methods for establishing domestic transactions as a matter of law. First, Plaintiffs argued that a securities transaction should qualify as “domestic” if beneficial title is transferred when the transaction is settled through a domestic securities depository, such as the Depository Trust Company (“DTC”) located in New York City. Id. The district court disagreed, finding that “[t]he mechanics of DTC settlement are actions needed to carry out transactions, but they involve neither the substantive indicia of a contractual commitment necessary to satisfy Absolute Activist’s first prong nor the formal weight of a transfer of [legal] title necessary for its second.” Id. at 342 (emphasis added); see also id. (“[T]he Second Circuit has [ ] indicated that domestic ‘actions needed to carry out transactions, and not the transactions themselves,’ are insufficient to satisfy Morrison.” (quoting Loginovskaya v. Batratchenko,
Finally, Plaintiffs proposed a method for constructively establishing the domesticity
B. Ascertainability
“Most [] circuit courts of appeals have recognized that Rule 23 contains an implicit threshold requirement that the members of a proposed class be readily identifiable,” often characterized as “an ‘ascertainability’ requirement.” Sandusky Wellness Ctr., LLC v. Medtox Sci, Inc.,
In Brecher v. Republic of Argentina, we offered our first and, thus far, only affirmative definition
[T]he touchstone of ascertainability is whether the class is sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member. A class is ascertainable when defined by objective criteria that are administratively feasible and when identifying its members would not require a mini-hearing on the merits of each case.
Brecher,
We take this opportunity to clarify the ascertainability doctrine’s substance and purpose. We conclude that a freestanding administrative feasibility requirement is neither compelled by precedent nor consistent with Rule 23, joining four of our sister circuits in declining to adopt such a requirement. The ascertainability doctrine that governs in this Circuit requires only that a class be defined using objective criteria that establish a membership with definite boundaries. Applying that doc
1. The Proceedings Below and Arguments on Appeal
In its Certification Order, the district court rejected Defendants’ argument that, “because of the nuances of the ‘domestic transaction’ standard, determining [class membership] and damages will be an administratively unfeasible task for this Court, for putative class members who receive notice of the action, and for future courts facing claims from class members who have not properly opted out.”
Appellants renew that argument on appeal, packaged as a challenge to the district court’s finding “that the Morrison determination is ‘administratively feasible.’ ” Id. at 364 (quoting Brecher,
With all due respect to our colleagues on the Third Circuit, we decline to adopt a heightened ascertainability theory that requires a showing of administrative feasibility at the class certification stage. The reasoning underlying our decision in Brecher does not suggest any such prerequisite, and creating one would upset the careful balance of competing interests codified in the explicit requirements of Rule 23. In declining to adopt an administrative feasibility requirement, we join a growing consensus that now includes the Sixth, Seventh, Eighth, and Ninth Circuits. See Briseno,
2. Our Decision in Brecher v. Republic of Argentina
Brecher was one of several opinions in which we assessed a class action initiated by holders of Argentinian bonds “[a]fter Argentina defaulted on between $80 and $100 billion of sovereign debt in 2001.” Brecher,
When the district court granted summary judgment to the plaintiffs, we vacated in part after finding that the district court’s method of calculating aggregate damages had likely produced impermissi-bly inflated awards. See Seijas v. Republic of Argentina,
We concluded that, without the continuous holder requirement, the modified class was unascertainable. Id. at 26. We first defined the elements of ascertain-ability, explaining that a proposed class: (1) must be “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member”; and (2) must be “defined by objective criteria that are administratively feasible,” such that “identifying its members would not require a mini-hearing on the merits of each case.” Id. at 24 (citations omitted). These requirements operate in harmony: “the use of objective criteria cannot alone determine ascertainability when those criteria, taken together, do not establish the definite boundaries of a readily identifiable class.
Turning to the facts of the case, we expressed concern that the class was insufficiently bounded:
The secondary market for Argentine bonds is active and has continued trading after the commencement of this and other lawsuits.... Further, all bonds from the same series have the same trading number identifier (called a CU-SIP/ISIN), making it practically impossible to trace purchases and sales of a particular beneficial interest. Thus, when it becomes necessary to determine who holds bonds that fall inside (or outside) of the class, it will be nearly impossible to distinguish.between them once traded on the secondary market without a criterion as to time held.
Id. at 25-26 (citations omitted). We concluded that “ft]his case presents [ ] a circumstance where an objective standard— owning a beneficial interest in a bond series without reference to time owned — is insufficiently definite to allow ready identification of the class or the persons who will be bound by the judgment.” Id. at 25 (footnote omitted).
As this summary clarifies, we reached our decision in Breeher by asking whether the class was defined by objective criteria that made the class’s membership sufficiently definite, not whether the class was administratively feasible.
This interpretation finds farther support' in the district court cases we cited in Breaker's articulation and application of the ascertainability standard. Compare Bakalar v. Vavra,
3. Ascertainability and Rule 23
Having concluded that our decision in Brecher did not create an independent administrative feasibility requirement, we now consider whether such a requirement is compulsory under Rule 23, or at least complementary to the requirements enumerated therein. We find that it is neither. In pursuing this analysis, we are mindful that “[c]ourts are not free to amend [the Federal Rules of Civil Procedure] outside the process Congress ordered.” Amchem Prods., Inc. v. Windsor,
The heightened ascertainability test, as articulated by the Third Circuit and endorsed by Appellants, treats administrative feasibility as an absolute standard: plaintiffs must provide adequate “assurance that there can be ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’”
On its face, this test appears to duplicate Rule 23’s requirement that district courts consider “the likely difficulties in managing a class action.”
The proposed administrative feasibility test also risks encroaching on territory belonging to the predominance requirement, such as classes that require highly individualized determinations of member eligibility. See, e.g., Mazzei v. The Money Store,
We conclude that an implied administrative feasibility requirement would be inconsistent with the careful balance struck in Rule 23, which directs courts to weigh the competing interests inherent in any class certification decision. Accord Briseno,
Our decision in Brecher did not create an administrative feasibility requirement, and we decline to adopt one now. The ascertainability requirement, as defined in this Circuit, asks district courts to consider whether a proposed class is defined using objective criteria that establish a membership with definite boundaries. This modest threshold requirement will only preclude certification if a proposed class definition is indeterminate in some fundamental way. If there is no focused target for litigation, the class itself cannot coalesce, rendering the class action an inappropriate mechanism for adjudicating any potential underlying claims. In other words, a class should not be maintained without a clear sense of who is suing about what. Ascertainability does not directly concern itself with the plaintiffs’ ability to offer proof of membership under a given class definition, an issue that is already accounted for in Rule 23.
4. Application
The district court’s analysis in the Certification Order is not precisely consistent with the ascertainability standard articulated in this opinion. The district court focused primarily on the types of feasibility concerns that we hold are not controlling of the ascertainability analysis, and effectively addressed ascertainability as a component of superiority.
The Classes include persons who acquired specific securities during a specific time period, as long as those acquisitions occurred in “domestic transactions.” Id. at 372. These criteria — securities purchases identified by subject matter, timing, and location — are clearly objective. The definition is also sufficiently definite: there exists a definite subset of Petrobras Securities holders who purchased those Securities in “domestic transactions”
Unlike in Brecher or the cases cited therein, neither the parties nor the properties that are the subject of this litigation are fundamentally indeterminate. Finding no error in the district court’s conclusion on this point, we reject Appellants’ contention that the classes defined by the district court fail on ascertainability grounds.
C. Predominance
1. Legal Standard
A district court may only certify a class under Federal Rule of Civil Procedure 23(b)(3) if “questions of law or fact common to class members predominate over any questions affecting only individual members.” This “predominance” requirement is satisfied if: (1) resolution of any material “legal or factual questions ... can be achieved through generalized proof,” and (2) “these [common] issues are more substantial than the issues subject only to individualized proof.” Mazzei,
The distinction between “individual” and “common” questions is thus central to the predominance analysis. As the Supreme Court has explained:
An individual question is one where “members of a proposed class will need to present evidence that varies from member to member,” while a common question is one where “the same evidence will suffice for each member to make a prima facie showing or the issue is susceptible to generalized class-wide proof.”
Tyson Foods, Inc. v. Bouaphakeo, — U.S. -,
The predominance inquiry is a core feature of the Rule 23(b)(3) class mechanism, and is not satisfied simply by showing that the class claims are framed by the common harm suffered by potential plaintiffs. Amchem Prods.,
The predominance inquiry mitigates this risk by “ask[ing] whether the common, aggregation-enabling, issues in the case are more prevalent or important than the non-common, aggregation-defeating, individual issues.” Tyson Foods,
2. Application
A proper assessment of predominance in this action involves two predicate questions about the role of Morrison inquiries. First, is the determination of domesticity material to Plaintiffs’ class claims? See Amchem Prods.,
With regard to the first question, “Morrison makes clear that [determining] whether [federal securities law] applies to certain conduct is a ‘merits’ question.” Absolute Activist,
The district court clearly recognized Morrison’s importance because the class definitions import Morrison’s unelaborated legal standard, namely that Petrobras Securities must have been purchased in “domestic transactions.” See Certification Order,
The Certification Order is susceptible to two possible readings: either the district court implicitly held that Morrison inquiries constituted a common issue, or the court simply sidestepped the question. Either way, given the nature of the Morrison inquiries at issue, the district court cannot be said to have “give[n] careful scrutiny to the relation between [the] common and individual questions” central to this case. See Tyson Foods,
On the available record, the investigation of domesticity appears to be an “individual question” requiring putative class members to “present evidence that varies from member to member.” Id. (citation omitted). As discussed above, a plaintiff may demonstrate the domesticity of a particular transaction by producing evidence “including, but not limited to, facts concerning the formation of the contracts, the placement or purchase orders, the passing of title, or the exchange of money.” Absolute Activist,
In cases that have applied Morrison and Absolute Activist — including the district court’s own experience adjudicating Petrobras-specific inquiries — factfinders have considered various types of evidence offered to prove the domesticity of various types of transactions. See, e.g., Loginovskaya,
The district court suggested that the pertinent locational details for each transaction are likely to be found in the “record[s] routinely produced by the modern financial system,” and “are highly likely to be documented in a form susceptible to the bureaucratic processes of determining who belongs to a Class.” Certification Order,
Significantly, the Classes include investors who purchased Notes in the initial Offerings, as well as investors who purchased their Notes on the secondary market. See Certification Order,
The need for Morrison inquiries nominally presents a common question because the need to show a “domestic transaction” applies equally to each putative class member. However, Plaintiffs bear the burden of showing that, more often than not, they can provide common answers. Amgen,
Consider, for instance, the Supreme Court’s recent Amgen decision, which similarly involved class claims under Section 10(b) the Exchange Act.
In the present action, by contrast, it cannot be said that the class members’ Morrison inquiries will “prevail or fail in unison.” Id. The district court has already
Finally, we emphasize that district courts are authorized to implement management strategies tailored to the particularities of each case. In addition to modifying class definitions and issuing class-wide rulings, district courts can, for example, bifurcate the proceedings to home in on threshold class-wide inquiries; sever claims not properly adjudicated on a class-wide basis to isolate key common issues; or certify subclasses that separate class members into smaller, more homogenous groups defined by common legal or factual questions.
For the foregoing reasons, we vacate the district court’s certification of the Classes insofar as they include all otherwise eligible class members who acquired their Securities in “domestic transactions.” We take no position as to whether, on remand, the district court might properly certify one or more classes that capture some or all of the Securities holders who fall within the Classes as currently defined.
III. “Fraud on the Market” and the Presumption of Reliance
The second issue on appeal concerns the district court’s finding that the Exchange Act Class was entitled to a presumption of class-wide reliance on the market price of Petrobras’s ADS and Notes. In reaching that conclusion, the district court found that Plaintiffs satisfied their burden of showing that the Petrobras Securities traded in efficient markets, as required under the “fraud on the market” theory-established in Basic Inc. v. Levinson,
A. The “Fraud on the Market” Theory
1. Legal Standard
Plaintiffs alleging claims under Section 10(b) of the Exchange Act must prove “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”
On its face, the reliance element would appear to preclude class certification on predominance grounds: “[e]ach plaintiff would have to prove reliance individually,” with the result that “common issues would not ‘predominate’ over individual ones.” Id. at 2416 (citation omitted). The Supreme Court resolved that tension almost three decades ago in Basic Inc. v. Levinson, reasoning that “[a]n investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price,” and so “an investor’s reliance on any public material misrepresentations [ ] may be presumed for purposes of a Rule 10b-5 action.”
In 2014, the Court affirmed the continued vitality of the “fraud on the market” theory, and clarified that the so-called “Basic presumption actually incorporates two constituent presumptions:”
First, if a plaintiff shows that the defendant’s misrepresentation was public and material and that the stock traded in a generally efficient market, he is entitled to a presumption that the misrepresentation affected the stock price.
Second, if the plaintiff also shows that he purchased the stock at the market price during the relevant period, he is entitled to a further presumption that he purchased the stock in reliance on the defendant’s misrepresentation.
Halliburton II,
2. Market Efficiency and the Cammer Factors
“The fraud-on-the-market theory rests on the premise that certain well developed markets are efficient processors of public information,” meaning that “the ‘market price of shares’ will ‘reflect all publicly available information.’ ” Amgen,
This Court “has not adopted a test for the market efficiency of stocks or bonds.” Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc.,
All but one of the Cammer factors examine indirect indicia of market efficiency for a particular security, such as high trading volume, extensive analyst coverage, multiple market makers, large market capitalization, and an issuer’s eligibility for simplified SEC filings. The fifth Cammer factor, however, invites plaintiffs to submit direct evidence, consisting of “empirical facts showing a cause and effect relationship between unexpected corporate events or financial releases and an immediate response in the stock price.” Cammer,
B. Application
At the outset, the Petrobras Defendants assert an error of law: they challenge the district court’s purported holding that Plaintiffs were entitled to the Basic presumption based solely on their indirect evidence of market efficiency. This argument mischaracterizes the district court’s analysis. True, the court noted that “Petro-bras was one of the largest and most-analyzed firms in the world throughout the Class Period,” and explained that in instances where “the indirect [Cammer] factors overwhelmingly describe a large and well-functioning market for Petrobras securities, common sense suggests that the market would materially react to material disclosures.” Certification Order,
Having confirmed the existence of Plaintiffs’ direct evidence of market efficiency, we turn to the Petrobras Defendants’ attack on the quality of that evidence. They argue, first, that the district court gave undue weight to Plaintiffs’ empirical test,, which measured the magnitude of responsive price changes in Petrobras Securities without considering the direction of those changes, and second, that the district court unduly discounted Defendants’ rebuttal evidence. We find these arguments unpersuasive.
In the class certification proceedings, the parties’ “experts [ ] sparred over whether any direct evidence of [Cammeds] fifth factor existed.” Id. at 367. Plaintiffs’ expert ran multiple event studies and reported that “there were more likely to be big price movements on days when important Petrobras events occurred, demonstrating [that] the markets in Petrobras securities were responsive to new information.” Id. at 367-68. Defendants responded with numerous challenges to “the execution and the sufficiency” of that test. Id. at 368. They specifically criticized the test’s failure to examine directionality, that is, “whether the price of a security moved up or down as expected based on the precipitating market event.” Id. at 369; see also id. at 370 (describing the defense expert’s position that “in an efficient market, the price of a security should always move in response to the release of new value-relevant information that is materially different from expectations”). Plaintiffs’ expert conducted supplementary analyses of directional price impact, but the district court accorded them “only limited weight” after Defendants highlighted certain methodological flaws. Id. at 369-70. As to the non-direetional analysis, the court declined to “let the perfect become the enemy of the good”:
In this ease, where the indirect Cammer factors lay a strong foundation for a finding of efficiency, a statistically significant showing that statistically significant price returns are more likely to occur on event dates is sufficient as direct evidence of market efficiency and thereby to invoke Basic’s presumption of reliance at the class certification stage.
Id. at 371.
We find that the district court’s conclusion “falls within the range of permissible decisions.” Roach,
The Petrobras Defendants’ contentions on appeal amount to an intensified reformulation of the claim we bypassed above: not only should putative class plaintiffs be required to offer direct evidence of market efficiency, they argue, but the evidence must specifically consist of empirical data showing that the price of the relevant securities predictably moved up in response to good news and down in response to bad news. The gravamen of their claim is that plaintiffs would only be entitled to the Basic presumption after making a substantial showing of market efficiency based on directional empirical evidence alone, irre
We reject this proposition. In short, the Petrobras Defendants are attempting to relabel a sufficient condition as a necessary one. We noted in Bombardier that “[a]n event study that correlates the disclosures of unanticipated, material information about a security with corresponding fluctuations in price has been considered prima facie evidence of the existence of such a causal relationship.” Bombardier,
The Supreme Court has similarly declined to define a precise evidentiary standard for market efficiency, but the Court’s opinions consistently suggest that the burden is not an onerous one. See Halliburton II,
The Petrobras Defendants’ proposed ev-identiary hierarchy unreasonably discounts the potential probative value of indirect evidence of market efficiency. As noted above, all but one of the widely used Cammer factors focus on elements that would logically appear in, or contribute to, an efficient securities market. Those factors would add little to the Basic analysis if courts only ever considered them after finding a strong showing based on direct evidence alone.
Indeed, indirect evidence is particularly valuable in situations where direct evidence does not entirely resolve the question. Event studies offer the seductive promise of hard numbers and dispassionate truth, but methodological constraints limit their utility in the context of single-firm analyses. See generally Alon Brav & J.B. Heaton, Event Studies in Securities Litigation: Low Power, Confounding Effects, and Bias, 93 Wash. U. L. Rev. 583 (2015); see also id. at 588 n.ll (collecting academic criticism of single-firm event studies). Notably, small sample sizes may
In sum, the district court properly considered a combination of direct and indirect evidence in reaching its conclusion that Petrobras ADS and Notes both trade in efficient markets. The court conducted a rigorous analysis of the parties’ proffered evidence and objections. We find no abuse of discretion, and therefore affirm the district court’s finding that Plaintiffs were entitled to a presumption of reliance on the market price of the Petrobras Securities. We caution that this determination is limited to the district court’s class certification order, and is not binding on the ultimate finder of fact.
CONCLUSION
For the foregoing reasons, the district court’s Certification Order is AFFIRMED IN PART and VACATED IN PART, and the case is REMANDED to the district court for further proceedings consistent with this opinion.
Notes
. The Petrobras Defendants include Petrobras itself, along with two wholly owned subsidiaries (Petrobras Global Finance B.V. and Petro-bras America Inc.) and Petrobras’s United States Representative (Theodore Marshall Helms).
. The Underwriter Defendants include the following underwriters of Petrobras debt securities: BB Securities Ltd., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of China (Hong Kong) Limited, Banca IMI, S.p.A., Scotia Capital (USA) Inc., Citigroup Global Markets Inc., Itau BBA USA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Mitsubishi UFJ Securities (USA), Inc., HSBC Securities (USA) Inc., Standard Chartered Bank, and Banco Bradesco BBI S.A.
.Plaintiffs-Appellees are the three class representatives in the underlying action: Universities Superannuation Scheme Limited (representing the Exchange Act Class); and the Employees Retirement System of the State of Hawaii and the North Carolina Department of State Treasurer (jointly representing the Securities Act Class).
. The Underwriter Defendants are not named as defendants with respect to Plaintiffs’ Exchange Act claims. They therefore limit their arguments on appeal to the first issue described in text, concerning putative class members’ proof of "domestic transactions.”
. As compared to the original consolidated complaint, the operative pleading at the time of this appeal (the Consolidated Fourth Amended Complaint, filed November 30, 2015) adds allegations concerning Defendants’ continued misconduct in 2015; provides additional details regarding the locations of the named plaintiffs’ transactions in Petrobras securities; and omits certain causes of action that were dismissed in earlier proceedings. See July 2015 Order,
. American Depository Shares "represent an interest in the shares of a non-U.S. company that have been deposited with a U.S. bank.” Investor Bulletin: American Depository Receipts, Office of Inv’r Educ. & Advocacy, SEC 1 (Aug. 2012), https://www.sec.gov/investor/alerts/adr-bulletin.pdf. ADS "allow U.S. investors to invest in non-U.S. companies” and also “give non-U.S. companies easier access to the U.S. capital markets. Many non-U.S. issuers use [ADS] as a means of raising capital or establishing a trading presence in the U.S.” Id.
. See, e.g., In re Petrobras Sec. Litig.,
. Both class definitions exclude "Defendants, current or former officers and directors of Petrobras, members of their immediate families and their legal representatives, heirs, successors or assigns, and any entity in which Defendants have or had a controlling interest.” Certification Order,
. This definition applies to claims under Sections 11 and 15 of the Securities Act. The class definition as to claims under Section 12(a)(2) is identical, except that it limits class membership to purchasers who acquired Notes directly in one of the U.S.-registered Offerings. Certification Order,
. Prior to the Certification Order, the district court had already dismissed all Section 11 claims "based on purchases of the 2014 Notes made after May 15, 2015,” the date on which Petrobras filed earning statements "covering the twelve-month period following the effective date of the 2014 Notes’ offering.” December 2015 Order,
. We note that although we have sometimes stated in the past that we “apply! ] a 'noticeably less deferential’ standard when the district court has denied class certification," Roach v. T.L. Cannon Corp.,
The first case to suggest that we apply a different standard to denials of class certification was Lundquist v. Security Pacific Auto
Thus, neither Abrams nor Robidoux applied a different standard to denials versus grants of class certification. Rather, both cases stated that this Court is more likely to find abuse of discretion in appeals involving the issue of class certification — whether certification was granted or denied — when compared with other types of legal issues. It appears that Lund-quist misinterpreted that comparison. In sum, no Second Circuit case provides any reasoning or justification for the idea that we review denials of class certification with more scrutiny than grants.
The Supreme Court has never drawn a distinction between the standard used to review district court denials or grants of class certification. See, e.g., Tyson Foods, Inc. v. Bouaphakeo,-U.S.-,
. The district court applied Morrison’s extraterritoriality analysis to Plaintiffs' claims under both the Exchange Act and the Securities Act. See July 2015 Order,
. "[Although the Notes were listed or intended to be listed on the [NYSE], they did not trade there.... [M]ere listing, without trading, is insufficient to satisfy Morrison’s first prong.” December 2015 Order,
. The district court resolved similar factual and legal questions in the related individual actions. See In re Petrobras Sec. Litig.,
. We cursorily defined ascertainability in the negative in a 2006 opinion, noting that “as-certainability [] is an issue distinct from the predominance requirement.” In re IPO, 471 F.3d at. 45. We did "not further define[]” ascertainability’s "content” until Brecher, however.
. "Of course, 'identifiable' does not mean 'identified'; ascertainability does not require a complete list of class members at the certification stage." Breeher,
. The Ninth Circuit highlighted this distinction in their survey of the circuit case law on ascertainability. Briseno,
. Weiner v. Snapple Beverage Corp., No. 07 CIV. 8742 (DLC),
In any event, our opinion in Brecher did not cite to Weiner’s fact-based analysis. We cited only to Weiner's articulation of the legal standard for ascertainability, which quoted directly from Charron. See Weiner,
. Certain arguments that appeared in Appellants’ briefs under the heading of ascertaina-bility are properly construed as challenges to superiority. This includes, for example, due process concerns regarding notice to absent class members. See Fed. R. Civ. P. 23(c)(2)(B); Hecht v. United Collection Bureau, Inc.,
. This clarified conception of ascertainability supports, rather than supplants, the plain text of Rule 23. As we noted above in our discussion of Brecher, a class must be “sufficiently definite” and "defined by objective criteria” so that "it is administratively feasible for the court to determine whether a particular individual is a member” (a superiority concern) and so that “identifying [the class's] members would not require a mini-hearing on the merits of each case” (a predominance concern). Brecher,
. As explained in the sections that follow, legal questions as to the “domesticity” of any given transaction — and the resulting individualized determinations of class member eligibility — go to the core of the predominance analysis, and are not properly analyzed as issues of ascertainability.
. As discussed in greater detail below, the Exchange Act claims include a reliance element that must be satisfied on an individual basis unless the plaintiffs establish a class-wide presumption of reliance under the "fraud on the market" theory. See Discussion Section III.A, infra.
. The district court did address Morrison-related issues when analyzing superiority. Certification Order,
. As did the district court, we reject Plaintiff's argument that a securities transaction is "domestic” under Morrison and Absolute Activist if it settles through the DTC. See December 2015 Order,
. An instructive example may be found in Myers v. Hertz Corporation, a case in which the class claims turned on a “complex, disputed issue” and “a number of subsidiary questions” concerning employee exemptions under the Fair Labor Standards Act.
. For instance, the district court might certify a subclass — or a separate class — of Petro-bras ADS holders who purchased their securities on the NYSE, or of Petrobras Noteholders who acquired their Notes directly through one of the initial Offerings.
.Moreover, our analysis is limited to the current record, and should not be taken as expressing an opinion on the wide range of conceivable circumstances in which plaintiffs may assert class claims in connection with foreign-issued securities that do not trade on a domestic exchange. For instance, a district court might find that the transaction records for a particular security among particular parties display certain common indicia of domesticity. Class plaintiffs may propose a mechanism for assembling a representative sample of the manner in which a given security will trade, with an emphasis on the domesticity factors highlighted in Absolute Activist. A district court could also carefully weigh the relationship between common and individual questions in the case and determine that any variation across plaintiffs is, on balance, insufficient to defeat predominance.
, The case commonly referred to as “Halliburton I” is Erica P. John Fund, Inc. v. Halliburton Co.,
. The Petrobras Defendants’ arguments focus on the class certification stage, but a class, once certified, bears the burden of establishing the Basic presumption at trial. See Halliburton II,
. Brav and Heaton caution courts against misinterpreting studies that fail to find statistically significant price changes: "[W]hile a statistically significant reaction to a firm-specific news event is evidence that information was reflected in the price (absent confounding effects), the converse is not true — the failure of the price to react so extremely as to be [detectable] does not establish that the market is inefficient; it may mean only that the” effect size was not large enough to be detected in the available sample. Brav & Heaton,