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Miles v. Merrill Lynch & Co. (In re Initial Pub. Offering Sec. Litig.)

United States Court of Appeals for the Second Circuit

June 6, 2006, Argued ; December 5, 2006, Decided

Docket No. 05-3349-cv

Opinion

 [*26]  JON O. NEWMAN, Circuit Judge.

This appeal primarily concerns the issue, surprisingly unsettled in this Circuit, as to what standards govern a district judge in adjudicating a motion for class certification under Rule 23 of the Federal Rules of Civil Procedure. Comprehended within this broad issue are subsidiary issues such as whether a definitive ruling must be made that each Rule 23 requirement has been met or whether only some showing of a requirement suffices, whether all of the evidence at the class certification stage is to be assessed or whether a [**5]  class plaintiff's evidence, if not fatally flawed, suffices, and whether the standards for determination of a Rule 23 requirement are lessened when a Rule 23 requirement overlaps with an aspect of the merits of the proposed class action. Finally, the appeal presents  [*27]  the question whether granting a motion for class certification in the pending litigation exceeded the District Court's discretion.

These issues arise on an appeal by Defendants-Appellants Merrill Lynch & Co. and others ("the underwriters") from the October 13, 2004, order of the District Court for the Southern District of New York (Shira A. Scheindlin, District Judge) granting in part Plaintiffs-Appellees' motion for class certification in six securities fraud class actions. The six actions were selected by the District Court as "focus cases" out of 310 consolidated class actions, which themselves were consolidations of thousands of separate class actions. All of the lawsuits, including the six at issue on this appeal, involve claims of fraud on the part of several of the nation's largest underwriters in connection with a series of initial public offerings ("IPOs").

We conclude (1) that a district judge may not certify [**6]  a class without making a ruling that each Rule 23 requirement is met and that a lesser standard such as "some showing" for satisfying each requirement will not suffice, (2) that all of the evidence must be assessed as with any other threshold issue, (3) that the fact that a Rule 23 requirement might overlap with an issue on the merits does not avoid the court's obligation to make a ruling as to whether the requirement is met, although such a circumstance might appropriately limit the scope of the court's inquiry at the class certification stage, and (4) that the cases pending on this appeal may not be certified as class actions. We therefore vacate the class certifications and remand for further proceedings.

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471 F.3d 24 *; 2006 U.S. App. LEXIS 29859 **; Fed. Sec. L. Rep. (CCH) P94,137

In Re: INITIAL PUBLIC OFFERING SECURITIES LITIGATION. JOHN G. MILES, SASWATA BASU, MICHAEL HUFF, SEAN ROONEY, KRIKOR KASBARIAN, STATHIS PAPPAS, JAMES COLLINS, DIANE COLLINS, JOSEPH ZHEN, ZITTO INVESTMENTS, J. CHRIS ROWE, VASANTHAKUMAR GANGAIAH, FREDERICK HENDERSON, BARRY LEMBERG, ANITA BUDICH, SPIROS GIANOS, MARY JANE GIANOS, and HARALD ZAGODA, Plaintiffs-Appellees, v. MERRILL LYNCH & CO., INC., GOLDMAN, SACHS & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INC., CREDIT SUISSE FIRST BOSTON LLC, ROBERTSON STEPHENS, INC., MORGAN STANLEY & CO., INC., BEAR STEARNS & CO., INC., THE BEAR STEARNS COMPANIES, INC., J.P. MORGAN SECURITIES INC., DEUTSCHE BANK SECURITIES, INC. (f/k/a Deutsche Banc Alex. Brown, Inc., DB Alex. Brown LLC, and BT Alex. Brown Inc.), LEHMAN BROTHERS, INC., SG COWEN SECURITIES, CORP. (n/k/a SG Cowen & Co., LLC), RBC DAIN RAUSCHER, INC. (f/k/a Dain Rauscher, Inc.) and PRUDENTIAL SECURITIES, INC., Defendants-Appellants.

Subsequent History: As Amended January 3, 2007.

Settled by In re Initial Pub. Offering Sec. Litig., 2007 U.S. Dist. LEXIS 19632 (S.D.N.Y., Feb. 23, 2007)

Rehearing denied by Miles v. Merrill Lynch & Co. (In re Initial Pub. Offering Sec. Litig.), 2007 U.S. App. LEXIS 8955 (2d Cir., Apr. 6, 2007)

Prior History:  [**1]  Appeal from the October 13, 2004, order of the United States District Court for the Southern District of New York (Shira A. Scheindlin, District Judge), granting a motion for class certifications in six focus cases out of 310 consolidated class actions, which themselves were consolidations of thousands of separate class actions alleging securities law violations in connection with initial public offerings.

In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65, 2004 U.S. Dist. LEXIS 20497 (S.D.N.Y., 2004)

Disposition: Vacated and remanded.

CORE TERMS

merits, class certification, district court, underwriters, class action, issuer, district judge, predominance, overlap, Plaintiffs', Allegations, shares, undisclosed, offering, flawed, questions, manipulation, commonality, fatally, notice, individual officer, legal standard, determinations, numerosity, analyst, preliminary inquiry, class period, ascertainability, certification, aftermarket

Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, Special Proceedings, Class Actions, Appellate Review, Judicial Discretion, Prerequisites for Class Action, General Overview, De Novo Review, Civil Rights Law, Protection of Rights, Procedural Matters, Maintainability, Clearly Erroneous Review, Evidence, Inferences & Presumptions, Presumptions, Rebuttal of Presumptions, Securities Law, Elements of Proof, Reliance, Fraud on the Market, Burdens of Proof, Allocation, Securities Exchange Act of 1934 Actions, Implied Private Rights of Action, Burdens of Proof, Registration of Securities, False Registration Statements, Connection Requirement, Class Members