Menkes, et al v. Stolt-Nielsen SA, et al
MEMORANDUM OF DECISION AND ORDER granting 111 Motion for Settlement, Signed by Judge Dominic J. Squatrito on 9/10/10. (Blue, A.).
Menkes, et al v. Stolt-Nielsen SA, et al
UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT JOEL MENKES, Individually and on behalf of all others similarly situated, Plaintiffs, v. STOLT-NIELSEN S.A., JACOB STOLT-NIELSEN, NIELS G. STOLT-NIELSEN, SAMUEL COOPERMAN, and REGINALD J.R. LEE, Defendants. : : : : : : : : : : : : : : :
MEMORANDUM OF DECISION AND ORDER On March 1, 2006, Lead Plaintiffs Irene Rucker1 and Gustav Rucker filed a Second Consolidated Amended Class Action Complaint ("Complaint" or cited as "Dkt. # 55, ¶ __") on behalf of a putative class of purchasers of Stolt-Nielsen S.A. securities against Stolt-Nielsen S.A., Stolt-Nielsen Transportation Group, Jacob Stolt-Nielsen, Niels G. Stolt-Nielsen, Samuel Cooperman, and Reginald J.R. Lee (collectively "the Defendants"), alleging violations of Sections 10(b), 15 U.S.C. § 78j(b) (2000), and 20(a), 15 U.S.C. § 78t (2000), of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. §§ 78a-78mm (2000), and Rule
Irene Rucker has since passed away.
10b-5, 17 C.F.R. § 240.10b-5 (2000), promulgated thereunder. On July 6, 2009, the parties jointly filed a Stipulation of Settlement ("Stipulation" or cited as "Dkt. # 113, ¶ __") in order to voluntarily resolve the claims of the putative class without resort to further litigation. Now pending before the Court is Lead
Plaintiff's motion for preliminary approval of the proposed settlement of this action pursuant to Rule 23(e) of the Federal Rules of Civil Procedure. For the reasons that hereafter follow, Lead
Plaintiff's motion (Dkt. # 111) is GRANTED. I. FACTS A. Stolt-Nielsen Stolt-Nielsen S.A. ("SNSA") is a Luxembourg holding corporation. Through its subsidiaries, SNSA engages in worldwide During
transportation, storage, and distribution of bulk liquids.
the time periods relevant to Lead Plaintiff's claims, Stolt-Nielsen Transportation Group, Inc. ("SNTG") was a wholly owned SNSA subsidiary based in Connecticut. SNTG primarily engaged in
transportation of bulk liquids on worldwide seaborne trade routes, and, with several major liquid chemical manufacturers among its clients, was one of the largest parcel tanker operators in the world. Jacob Stolt-Nielsen, SNSA's founder, served as Chairman of SNSA's Board of Directors and served on SNTG's Board of Directors. Niels
G. Stolt-Nielsen was SNSA's Chief Executive Officer and also served on SNTG's Board of Directors. Samuel Cooperman served as Chairman 2
of SNTG's Board of Directors. Executive Officer.
Reginald J.R. Lee was SNTG's Chief
The securities at issue in Lead Plaintiff's Exchange Act claims are: (1) SNSA's American Depository Receipts ("ADR"),2 which were traded on the NASDAQ National Market System during the period relevant to this action; and (2) SNSA's ordinary shares, which were traded on the Oslo Stock Exchange during the period relevant to this action. B. Antitrust Offenses From 1998 to 2002, SNTG and two of its primary competitors, Norway-based Odfjell Seachem AS and Netherlands-based Jo Tankers B.V., agreed to allocate deep-sea trade routes and to refrain from competing for business from each others' customers on those routes. See United States v. Stolt-Nielsen S.A., 524 F. Supp. 2d 609, 611 (E. D. Pa. 2007). These agreements were found to constitute per se
violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 (1994). Stolt-Nielsen, 524 F. Supp. 2d at 611. In early 2002, Paul O'Brien, SNTG's Senior Vice-President and General Counsel, inadvertently discovered documents revealing the market allocation agreements between SNTG and its competitors of
ADRs are "financial instruments that allow investors in the United States to purchase and sell stock in foreign corporations in a simpler and more secure manner than trading in the underlying security in a foreign market." Pinker v. Roche Holdings Ltd., 292 F.3d 361, 365 (3rd Cir. 2002). American Depositary Receipts are "tradeable in the same manner as any other registered American security, may be listed on any of the major exchanges in the United States or traded over the counter, and are subject to the Securities Act and the Exchange Act." Id. at 367.
which he was apparently unaware.
United States v. Stolt-Nielsen O'Brien first
S.A., 524 F. Supp. 2d 609, 611 (E. D. Pa. 2007).
reported his discovery and concerns for SNTG's compliance with antitrust law to Cooperman, his superior at the time. Id. Shortly
thereafter, O'Brien resigned from his position and filed a constructive-discharge lawsuit against SNTG and Cooperman, alleging that SNTG had "failed to cease and rectify its allegedly ongoing criminal conduct," and that he was "ethically and legally barred from rendering legal services to, and remaining in, the management of [SNTG] while the company's alleged illegal activities continued." O'Brien v. Stolt-Nielsen Transp. Group Ltd., 48 Conn. Supp. 200, 201, 838 A.2d 1076, 1079 (Conn. Super. June 13, 2003). As part of that
lawsuit, O'Brien sought a declaratory judgment "as to his rights to reveal confidential client information and materials protected by the attorney-client privilege . . . to law enforcement authorities." Id. In response, Cooperman and Lee "took action to terminate the Stolt-Nielsen, 524
anticompetitive conduct that O'Brien reported." F. Supp. 2d at 611.
On November 22, 2002, the Wall Street Journal published an article describing O'Brien's constructive-discharge lawsuit which prompted the Antitrust Division of the United States Department of Justice ("the Division") to initiate an investigation of SNTG's commercial activities. United States v. Stolt-Nielsen S.A., 524 F. Upon learning of this
Supp. 2d 609, 612 (E. D. Pa. 2007). 4
investigation, SNTG approached the Division regarding the possibility of admission into the Division's Corporate Leniency Program. Id.3 SNTG ultimately entered into a Conditional Leniency Id. at 613. As
Agreement with the Division on January 15, 2003.
a result of the information furnished by SNTG under the Conditional Leniency Agreement, the Division successfully prosecuted SNTG's co-conspirators. Id. at 614.4 C. Securities Fraud At issue in this litigation are a number of statements publicly disseminated by SNSA while SNTG actively engaged in the aforementioned unlawful market allocation scheme. Specifically, on
February 1, 2001, SNSA issued a press release announcing its fourth quarter financial results for Fiscal Year 2000 which contained the following statement, attributable to Niels G. Stolt-Nielsen: Income from operations for SNTG's tank container division increased to $19.9 million for the full year of 2000 from $17.8 million in 1999. While pricing remains competitive in most markets, shipments in 2000 were up 11% from 1999 with similar growth anticipated in 2001. (Dkt. # 55, ¶ 57.) On March 28, 2001, SNSA issued a press release
The Division's Corporate Leniency Program is "designed to provide an opportunity and incentive for companies to self-report activity that violates the criminal antitrust laws. Under the Corporate Leniency Program, the first company to report its illegal antitrust activity to the Division is immunized from prosecution provided it meets the Program's conditions." Stolt-Nielsen, 524 F. Supp. 2d at 611. Odfjell Seachem AS was fined and two of its executives served prison terms and were personally fined. See Stolt-Nielsen, 524 F. Supp. 2d at 614. Jo Tankers B.V. was fined and one of its executives served a prison term and was personally fined. See id.
announcing its first quarter financial results for Fiscal Year 2001 which contained the following statement, attributable to Niels G. Stolt-Nielsen: For SNTG's tank container operations, income from operations fell to $2.7 million in the first quarter of 2001, down from $4.9 million in the first quarter of last year. While shipments were up 10% from the comparable quarter, pricing competition, weak utilization, and empty repositioning costs negatively impacted the results. For the remainder of the year, we anticipate overall growth in the business to continue to be about 10% over last year and while we expect to continue to see strong price competition, margins should improve and by the latter half of the year be similar to the comparable quarters of last year. (Dkt. # 55, ¶ 59.) On October 26, 2001, SNSA filed an Annual Report
with the Securities Exchange Commission ("SEC") on Form 20-F/A5 which contained the following statement: Shipments in the year 2000 increased from the downturn encountered in 1999. Increases were primarily the result of improved demand in three main operating regions of Asia Pacific, Europe, and the United States. Shipment levels in 2001 continue to reflect improved demand particularly from the United States and Asia. (Dkt. # 55, ¶ 61.) On May 31, 2002, SNSA filed an Annual Report with
the SEC on Form 20-F which contained the following statement: The market for the integrated transportation and logistics services provided by SNTG is in its infancy. In providing such services, SNTG competes primarily with a few other large terminal and transport companies who are developing such services . . . . SNTG's tanker operations compete with operators based primarily in Europe and the Asia Pacific region . . . . The competition in the tank
Form 20-F/A is used by foreign private securities issuers to amend their annual reports filed on Form 20-F under section 13(a) or 15(d) of the Exchange Act. See 17 C.F.R. § 249.220f (2000).
container market is fragmented, although the relative size of the competition is increasing on a worldwide basis. SNTG also competes, to a lesser extent, with tank container leasing companies. (Dkt. # 55, ¶ 63.)6 On March 27, 2002, SNSA issued a press release
announcing its first quarter financial results for Fiscal Year 2002 which contained the following statement, attributable to Niels G. Stolt-Nielsen: Excluding the restructuring charges, [SNTG] reported results on par with the first quarter of last year . . . Income from operations for SNTG's parcel tanker division was $20.5 million in the first quarter of 2002 compared to $20.3 million in the first quarter of 2001. Contracts of affreightment continue to be renewed at higher levels and SNTG recently renewed a multi-year contract for one of its largest customers. We are anticipating a pickup in rates in the second half of the year and throughout 2003 as the world economies continue their recovery . . . . SNTG's tank container operations income from operations improved to $4.7 million in the first quarter of 2002 compared from $2.7 million in the first quarter of last year. While shipments in the first quarter were similar to the comparable quarter last year, utilization rose to 71.1% compared to 67.7% last year. For the remainder of the year we anticipate seeing continued pressure on pricing while utilization should be similar to what we saw in the first quarter. We still see shipments for the year growing 5% compared to 2001. (Dkt. # 55, ¶ 64.) On June 26, 2002, SNSA issued a press release
announcing its second quarter financial results for Fiscal Year 2002 which contained the following statement, attributable to Niels G. Stolt-Nielsen: While the results in the second quarter for [SNTG] were down compared to last year, our core contract business,
This statement also appeared on SNSA's Form 20-F/A filed October 26, 2001. (Dkt. # 55, ¶ 63.)
particularly for specialty chemicals, remains healthy. We continue to see improvements in Stolt Offshore's results. SNTG's tank container division's income from operations improved significantly to $6.3 million in the second quarter of 2002 compared to $4.0 million in the same quarter of 2001. Utilization in the second quarter compared to the same period last year rose 7.0% to 74.4%. Shipments are up some 6% although pricing continues to be tight. (Dkt. # 55, ¶ 66.) On October 8, 2002, SNSA issued a press release
announcing its third quarter financial results for Fiscal Year 2002 which contained the following statement attributable to Niels G. Stolt-Nielsen: [SNTG] posted a solid quarter . . . . SNTG's tank container division delivered another strong result with income from operations rising to $6.2 million from $5.6 million in the comparable quarter of 2001. Year-to-date shipments are up some 10% compared to last year and utilization in the third quarter hit a record level of 77.7% although the business continues to see a tight pricing environment. (Dkt. # 55, ¶ 68.) Lead Plaintiff claims that these statements were
rendered false or misleading by Defendants' involvement in the unlawful market allocation scheme. Specifically, Lead Plaintiff
claims that, at the time they were disseminated: (1) the statements relating to "price" or "pricing" were false or misleading because SNTG was "not competing on price with its competitors" (Dkt. # 55, ¶¶ 58, 60, 67, 69); (2) the statements relating to shipment increases and contract renewals were false or misleading because they failed to account for the unlawful market allocation scheme as a cause of such shipment increases and contract renewals (Dkt. # 55, ¶¶ 62, 65); and (3) the statements relating to the competitive nature of SNTG's 8
tank container operations or to competition in the market for integrated transportation and logistics were false or misleading because SNTG was involved in the unlawful market allocation scheme (Dkt. # 55, ¶¶ 60, 63). Lead Plaintiff further claims that these statements artificially inflated the market prices for the SNSA securities at issue, and that those having purchased at such inflated prices suffered losses when the truth was publicly revealed. ¶ 88.)7 (Dkt. # 55,
Accordingly, Lead Plaintiff seeks to recover these alleged
losses on behalf of all persons similarly situated. D. Litigation On June 19, 2006, this Court issued its Memorandum of Decision denying Defendants' motion to dismiss the Complaint. Menkes v.
Stolt-Nielsen S.A. et al., No. 3:03CV409 (DJS), 2006 WL 1699603 (D. Conn. June 19, 2006). On December 4, 2006, discovery was stayed
pending resolution of criminal proceedings against Defendants in the United States District Court for the Eastern District of
On November 22, 2002--the day the Wall Street Journal first reported that O'Brien had filed his constructive-discharge lawsuit and accused SNTG of engaging in unlawful conduct--the price of SNSA ADRs fell 14.7% from $7.62 per share to close at $6.50 per share, and the price of SNSA ordinary shares fell 14% from 53.5 NOK to 46 NOK. (Dkt. # 55, ¶¶ 72, 91.) On February 20, 2003, the Wall Street Journal published a cover story describing SNTG's involvement in the unlawful allocation scheme in greater detail. (Dkt. # 55, ¶ 73.) On that day, the price of SNSA ADRs fell 16.3% from $7.10 per share to close at $5.94 per share. (Dkt. # 55, ¶ 73.) Lead Plaintiff further alleges that SNSA ordinary shares "declined 16% to 49.1NOK," but does not indicate the price of SNSA ordinary shares on the previous trading day to show the effect of the news revelation on their market price. (Dkt. # 55, ¶ 91.) (As compared to the 46 NOK closing price three months prior on November 22, 2002, the February 20, 2003 closing price of 49.1NOK represents a 6.7% appreciation in value.)
(Dkt. # 77.)8
Subsequently, the parties actively
sought to reach a compromise, and towards that end, engaged in mediation on May 6, 2008 before the Honorable Nicholas H. Politan, a retired United States District Judge for the District of New Jersey. Although the parties were unable to resolve their dispute at that mediation, their continued efforts ultimately proved successful when they reached an agreement-in-principle to settle the litigation in March 2009, the terms of which are set forth in the Stipulation. Lead Plaintiff now moves for preliminary approval of the proposed settlement, which requires: (1) certification of a settlement class; (2) preliminary approval of the proposed settlement; (3) appointment of a Class Representative, of Class Counsel and of a Claims Administrator; and (4) approval of the proposed notice to the class. II. STANDARD Federal Rule of Civil Procedure 23 imposes strict requirements as to whether an action may be maintained on behalf of a class. R. Civ. P. 23(a)-(b). Fed.
Yet, courts have long favored the voluntary
settlement of complex class action litigation, and putative class plaintiffs may pursue settlement negotiations without having first formally established that the action satisfies the certification requirements of Rule 23.
See generally United States v. Stolt-Nielsen S.A., 524 F. Supp. 2d 609 (E. D. Pa. 2007); United States v. Stolt-Nielsen S.A., 524 F. Supp. 2d 586 (E. D. Pa. 2007).
See McReynolds v. Richards-Cantave, 588
F.3d 790, 803 (2d Cir. 2009); Wal-Mart Stores, Inc. v. VISA U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005); In re Paine Webber Ltd. P'ships Litig., 147 F.3d 132, 138 (2d Cir. 1998); Weinberger v. Kendrick, 698 F.2d 61, 72-73 (2d Cir. 1982). Where pre-certification
negotiations successfully culminate in an agreement, plaintiffs typically seek certification for the limited purpose of giving effect to the settlement reached. See Amchem Prods., Inc. v. Windsor, 521
U.S. 591, 618 (1997) ("Among current applications of Rule 23(b)(3), the `settlement only' class has become a stock device," (i.e., commonplace)). These circumstances necessarily alter the character See id. at 620 ("Confronted with a request
of the Rule 23 inquiry.
for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems . . . for the proposal is that there be no trial."). The prospect of settlement nullifies a defendant's Cf. In re
incentive in contesting the propriety of certification.
Initial Public Offering Securities Litigation, 471 F.3d 24, 39 n.9 (2d Cir. 2006) (Normally, "[e]very class action defendant wants its evidence disputing Rule 23 requirements considered in order to try to fend off the enormous settlement pressure often arising from certification."). Thus, courts must ultimately consider motions
for `settlement-only' certification without the benefit of adversarial presentation on whether the action satisfies the requirements of Rule 23. See Amchem Prods., Inc. v. Windsor, 521 11
U.S. 591, 620 (1997). Nonetheless, courts must perform a "rigorous analysis" to determine that "the requirements of Rule 23 [are] met, [and] not just supported by some evidence." In re Initial Public Offering
Securities Litigation, 471 F.3d 24, 33 (2d Cir. 2006) (citing General Telephone Co. of the Southwest v. Falcon, 457 U.S. 147, 161 (1982)). In fact, to ensure that Rule 23 properly functions "to protect absentees by blocking unwarranted or overbroad class definitions," a motion for settlement-only certification demands the court's "undiluted, even heightened, attention." Amchem, 521 U.S. at 620.
"Such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold." Id. See D'Amato v. Deutsche Bank, 236 F.3d 78, 85
(2d Cir. 2001) ("When a settlement is negotiated prior to class certification . . . it is subject to a higher degree of scrutiny in assessing its fairness."); Plummer v. Chemical Bank, 668 F.2d 654, 657-58 (2d Cir. 1982) ("[I]f settlement has been negotiated before class action determination and the appointment of a class representative, the court must be doubly careful in evaluating the fairness of the settlement. . . . Because of the limited control
exercisable by class members, class settlements are susceptible to abuse." (citations omitted)); Weinberger v. Kendrick, 698 F.2d 61, 72-73 (2d Cir. 1982). These dynamics frame the Court's 12
consideration of the motion at bar. III. DISCUSSION A. Class Certification For the purposes of settlement only, Lead Plaintiff seeks certification of the class pursuant to Rules 23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure. As set forth in the
Stipulation, the class is to include "all purchasers" of SNSA ADRs, and "all United States-located purchasers of [SNSA] ordinary shares traded on the Oslo Stock Exchange" during the relevant time periods. (Dkt. # 113, ¶ 1.3.)9 To certify a putative class, the Court must first determine whether the asserted claims meet the four threshold requirements of Rule 23(a) of the Federal Rules of Civil Procedure: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997); Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., 546 F.3d 196, 201-02 (2d Cir. 2008). In addition, "parties seeking class
certification must show that the action is maintainable under Rule
To be excluded from the class are:
Defendants, members of the families of each of the Individual Defendants; any parent, subsidiary, affiliate, partner, officer, employee, executive or director of any Defendant during the Class Period; any entity in which any such excluded person has a controlling interest; and the legal representatives, heirs, successors, and assigns of any such excluded party[; and] any putative Class Members who timely and validly exclude themselves from the Class in accordance with the requirements set forth in the Notice. (Dkt. # 113, ¶ 1.3.)
23(b)(1), (2), or (3)."
Amchem, 521 U.S. at 614.
Here, Lead Plaintiff seeks class certification pursuant to Rule 23(b)(3), which enables "vindication of the rights of groups of people who individually would be without effective strength to bring their opponents into court at all." omitted). Id. at 617 (quotation marks
To qualify for certification under Rule 23(b)(3), a class
must meet two requirements beyond the Rule 23(a) prerequisites: (1) predominance; and (2) superiority. Fed. R. Civ. P. 23(b)(3).
Within the Second Circuit, a certifying court "must [have] receive[d] enough evidence, by affidavits, documents, or testimony, to be satisfied that each Rule 23 requirement has been met." In re
Initial Public Offering Securities Litigation, 471 F.3d 24, 41 (2d Cir. 2006). "[T]he preponderance of the evidence standard applies
to evidence proffered to establish Rule 23's requirements." Bombardier, 546 F.3d at 202. Cf. In re Flag Telecom Holdings, Ltd.
Securities Litigation, 574 F.3d 29, 38-39 (2d Cir. 2009) (Concluding that district court abused its discretion by failing to find that all Rule 23 certification requirements were satisfied by a preponderance of the evidence). 1. Numerosity Numerosity exists where the proposed class is "so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1).
"Impracticable" does not mean that joinder of all parties must be impossible, but "only that the difficulty or inconvenience of joining 14
all members of the class make use of the class action appropriate." Central States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, LLC, 504 F.3d 229, 244-45 (2d Cir. 2007). Practicability generally "depends on all the circumstances surrounding a case." 1993). Robidoux v. Celani, 987 F.2d 931, 936 (2d Cir.
Relevant factors include "judicial economy arising from the
avoidance of a multiplicity of actions, geographic dispersion of class members, financial resources of class members, the ability of claimants to institute individual suits, and requests for prospective injunctive relief which would involve future class members." Id. Joinder is generally presumed to be impracticable Marisol A. v. Giuliani,
when a putative class exceeds 40 members.
126 F.3d 372, 376 (2d Cir. 1997) (per curiam); Consolidated Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995); Fogarazzo v. Lehman Bros., Inc., 263 F.R.D. 90, 96 (S.D.N.Y. 2009). Further, "in
securities class actions relating to publicly owned and nationally listed corporations, the numerosity requirement may be satisfied by a showing that a large number of shares were outstanding and traded during the relevant period." In re NYSE Specialists Securities
Litigation, 260 F.R.D. 55, 70 (S.D.N.Y. 2009) (quotation marks omitted). See, e.g., Fogarazzo v. Lehman Bros., Inc., 263 F.R.D.
90, 101 (S.D.N.Y. 2009); In re Blech Securities Litigation, 187 F.R.D. 97, 103 (S.D.N.Y. 1999). Here, the proposed claims administrator has received "1,208 15
separate names" listed on SNSA's transfer records as purchasers of SNSA ADRs or ordinary shares during the class period. (Declaration
of Ellen Gusikoff Stewart in Support of Lead Plaintiff's Motion for Preliminary Approval of Settlement (Dkt. # 125, ¶ 5)). This
persuades the Court that, by a preponderance of the evidence, the numerosity requirement is met. 2. Commonality Commonality exists where there are "questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). This is not a
demanding standard, as it "is established so long as the plaintiffs can identify some unifying thread among the [class] members' claims." Haddock v. Nationwide Financial Services, Inc., 262 F.R.D. 97, 116 (D. Conn. 2009) (quotation marks omitted). As do the Rule 23(a)
requirements of typicality and adequacy-of-representation, the commonality requirement "serve[s] as [a] guidepost[ ] for determining whether . . . maintenance of a class action is economical and whether the named plaintiff's claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence." Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 626 n.20 (1997) (quotation marks omitted). Here, Lead Plaintiff offers no specific evidence to support his claim that the commonality requirement is met. Nonetheless, the
Court is satisfied that commonality exists because identical questions of both law and fact would be raised by the claims of each 16
class member if these were to be asserted individually.
on their securities fraud claims under Section 10(b) and Rule 10b-5, each class member, proceeding independently, would have to prove that: (1) Defendants made materially false statements or omitted materials facts; (2) the statements or omissions were made in connection with the purchase or sale of securities; (3) the statements or omissions were made with scienter; (4) the purchaser relied on the statements or omissions (i.e., "transaction causation"); (5) the purchaser suffered economic loss; and (6) the statements or omissions caused that loss (i.e., "loss causation"). See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008); Securities and Exchange Commission v. DiBella, 587 F.3d 553, 563 (2d Cir. 2009); ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009). Here, the questions of whether Defendants' statements or omissions were material, whether they were made in connection with the purchase or sale of securities, and whether they were made with scienter, are necessarily common to each class member given that Defendants' conduct alone is relevant to their proof. Similarly,
the question of whether the class members commonly suffered economic losses is necessarily resolved by the proposed class definition, which specifically excludes any person who did not hold SNSA securities on at least one of the two days when their market prices 17
Further, the question of loss causation is common to all class Without more, "an inflated purchase price will not itself Dura
constitute or proximately cause the relevant economic loss." Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 342 (2005).
establishing loss causation requires proof "`that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security.'" In re Flag Telecom
Holdings, Ltd. Securities Litigation, 574 F.3d 29, 35 (2d Cir. 2009) (quoting Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005)). The Second Circuit has identified "two requirements
necessary to establish loss causation: (1) the loss must be foreseeable, and (2) the loss must have been caused by the materialization of the concealed risk." Id. at 40. To establish
that the loss was foreseeable, a plaintiff must prove that the risk of loss was "`within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor.'" Id. (quoting Lentell, 396 F.3d at 173). Here, each
class member, proceeding independently, would similarly have to prove that the defendants' allegedly false or misleading statements had concealed a risk of loss in the value of their SNSA holdings that materialized when SNTG's involvement in the unlawful market allocation scheme was revealed. Finally, to prevail on their control person claim under Section 20(a), each class member, proceeding independently, would have to 18
prove: (1) a primary violation by a controlled person; (2) Defendants' control of the primary violator; and (3) that Defendants were, in some meaningful sense, culpable participants in the controlled person's violation. See ATSI Communications, Inc. v. Here, each class
Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007).
member's control person claim should be identical given that Defendants' conduct alone is relevant to satisfying the applicable standard, and given that each class member's claim arises from the same statements made by Defendants. Since IPO, district courts within the Second Circuit have continued to find commonality satisfied on the ground that each member of a putative securities fraud class, proceeding individually, would have to prove the same elements to prevail. See,
e.g., In re Initial Public Offering Securities Litigation, 243 F.R.D. 79, 85 (S.D.N.Y. 2007) ("The commonality requirement has been applied permissively in securities fraud litigation. In general, where
putative class members have been injured by similar material misrepresentations and omissions, the commonality requirement is satisfied."); In re Vivendi Universal, S.A. Securities Litigation, 242 F.R.D. 76, 84 (S.D.N.Y. 2007) (similar). Accordingly, the
existence of substantial questions of law and fact with respect to the claims of all putative class members in this action persuades the Court that, by a preponderance of the evidence, the commonality requirement is met. 19
3. Typicality Typicality exists where "the claims or defenses of the representative parties are typical of the claims or defenses of the class." Fed. R. Civ. P. 23(a)(3). "To establish typicality under
Rule 23(a)(3), the party seeking certification must show that each class member's claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant's liability." In re Flag Telecom Holdings, Ltd. Securities
Litigation, 574 F.3d 29, 35 (2d Cir. 2009) (quotation marks omitted). Thus, "[w]hen it is alleged that the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented, the typicality requirement is usually met irrespective of minor variations in the fact patterns underlying individual claims." Cir. 1993). Here, the typicality requirement is met. The claims of each Robidoux v. Celani, 987 F.2d 931, 936-37 (2d
class member are likely to vary depending on the dates of purchase and sale, and on the effect of the alleged misstatements that were disseminated on those dates, but such minor distinctions will not preclude the propriety of class adjudication. See In re Flag Telecom
Holdings, Ltd. Securities Litigation, 574 F.3d 29, 37 (2d Cir. 2009) (Reliance of class members on differing misstatements exposing only some to an affirmative defense of negative causation would not always preclude the certification of a single class). 20 As alleged, each
class member's claim arises from the same general course of events, and each class member would present similar legal arguments to prove the defendants' liability. These factors persuade the Court that,
by a preponderance of the evidence, the typicality requirement is met. 4. Adequacy of Representation The adequacy of representation requirement demands that "the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). The requirement
is satisfied where: (1) the proposed class representative's interests are to vigorously pursue the claims of the class and are not antagonistic to the interests of other class members; and (2) the proposed class counsel are qualified, experienced and able to conduct the litigation. Flag, 574 F.3d at 35; Denney v. Deutsche The inquiry focuses "on
Bank AG, 443 F.3d 253, 268 (2d Cir. 2006).
uncovering `conflicts of interest between named parties and the class they seek to represent.'" Flag, 574 F.3d at 35 (quoting Amchem To defeat a
Prods., Inc. v. Windsor, 521 U.S. 591, 625 (1997)).
motion for certification, any such conflicts "must be fundamental." In re Flag Telecom Holdings, Ltd. Securities Litigation, 574 F.3d 29, 35 (2d Cir. 2009). See, e.g., Baffa v. Donaldson, Lufkin &
Jenrette Securities Corp., 222 F.3d 52, 60 (2d Cir. 2000) ("While it is settled that the mere existence of individualized factual questions with respect to the class representative's claim will not 21
bar class certification, class certification is inappropriate where a putative class representative is subject to unique defenses which threaten to become the focus of the litigation." (quotation marks omitted)); Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1077-78 (2d Cir. 1995) (Class certification may properly be denied where the class representatives have so little knowledge of and involvement in the class action that they would be unable or unwilling to protect the interests of the class against the possibly competing interests of the attorneys.) (quotation marks omitted). Finally,
where settlement is contemplated, "[a]dequacy must be determined independently of the general fairness review of the settlement; the fact that the settlement may have overall benefits for all class members is not the `focus' in `the determination whether proposed classes are sufficiently cohesive to warrant adjudication.'" Denney v. Deutsche Bank AG, 443 F.3d 253, 268 (2d Cir. 2006) (quoting Ortiz v. Fibreboard Corp., 527 U.S. 815, 858 (1999)). Here, the adequacy of representation requirement is met. Through prior efforts in this litigation, Lead Plaintiff and his predecessors have sufficiently demonstrated that their interests are to vigorously pursue the claims on behalf of the class. Lead
Plaintiff represents that he has no conflicts with potential class members, and there otherwise is no indication that fundamental conflict might exist precluding certification. The claims of
anticipated class members are expected to be homogeneous in nature, 22
and nothing suggests the possible existence of subgroups with interests sufficiently adverse to warrant the creation of subclasses. See, generally Amchem Prods., Inc. v. Windsor, 521 U.S. Furthermore, Lead Plaintiff represents that,
591, 625-27 (1997).
in accordance with the PSLRA, he "will not seek any recovery from the Settlement Fund over and above his pro rata share, as calculated by the Plan of Allocation." (Dkt. # 125 ¶ 6.)10 Finally, Lead
Plaintiff has satisfactorily demonstrated that proposed class counsel is sufficiently qualified and experienced to effectively represent the proposed class. (See Plaintiff's Memorandum of Law
In Support of Motion for Preliminary Approval of Settlement (Dkt. # 112-1.)) These factors persuade the Court that, by a preponderance
of the evidence, the adequacy of representation requirement is met. 5. Ascertainability Beyond the foregoing, a distinct "implied requirement of ascertainability" must be satisfied for certification of class actions pursuant to Rule 23. In re Initial Public Offering See,
Securities Litigation, 471 F.3d 24, 30, 44-45 (2d Cir. 2006).
e.g., Spagnola v. Chubb Corp., 264 F.R.D. 76, 97 (S.D.N.Y. 2010); Fogarazzo v. Lehman Bros., Inc., 263 F.R.D. 90, 97 (S.D.N.Y. 2009); Casale v. Kelly, 257 F.R.D. 396, 406 (S.D.N.Y. 2009); Jermyn v. Best
The PSLRA provides that "[t]he share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class." 15 U.S.C. § 78u-4(a)(4).
Buy Stores, L.P., 256 F.R.D. 418, 432 (S.D.N.Y. 2009); Cortigiano v. Oceanview Manor Home For Adults, 227 F.R.D. 194, 207 (E.D.N.Y. 2005). To satisfy the ascertainability requirement, "[c]lass
membership must be readily identifiable such that a court can determine who is in the class and bound by its ruling without having to engage in numerous fact-intensive inquiries." F.R.D. at 97. Spagnola, 264
Class membership "must be ascertainable `at some point
in the case,' but not necessarily prior to class certification." IPO, 471 F.3d at 45 (quoting In re Methyl Tertiary Butyl Ether Products Liability Litigation, 209 F.R.D. 323, 337 (S.D.N.Y. 2002)). Class membership is readily identifiable where it "can be ascertained by reference to objective criteria." (quotation marks omitted). Spagnola, 264 F.R.D. at 97
Such criteria must be "sufficiently
definite so that it is administratively feasible for the Court to determine whether a particular individual is a member." F.R.D. at 432 (quotation marks omitted). Jermyn, 256
Thus, the need for numerous
individualized determinations or insufficiently precise criteria in defining class membership can preclude the propriety of class certification. In re Initial Public Offering Securities See, e.g., Harris v.
Litigation, 471 F.3d 24, 45 (2d Cir. 2006).
Initial Sec., Inc., No. 05 Civ. 3873, 2007 WL 703868, at *3 n.4 (S.D.N.Y. Mar. 7, 2007) (class defined as "dark-skinned" employees deemed unascertainable "because there is no objective criteria to which the Court could refer to determine whether someone is 24
sufficiently `dark-skinned' to be a class member."). Here, the ascertainability requirement is met. The proposed
class is defined as all purchasers of SNSA ADRs and all United States-based purchasers of SNSA ordinary shares traded on the Oslo Stock Exchange during the relevant class periods. Lead Plaintiff
proposes to rely on SNSA's transfer records as the principal means of identification of all class members. (Dkt. # 112, p. 11.) With
respect to purchasers of SNSA ordinary shares, Lead Plaintiff further proposes specific procedures designed to ascertain the applicability of the "United States-based" restriction on class membership and to resolve ambiguities. ¶ 7-12.)) (See Affidavit of Lara McDermott (Dkt. # 127,
In aggregate, these measures persuade the Court that, by
a preponderance of the evidence, the ascertainability requirement is met. 6. Predominance Predominance exists where "questions of law or fact common to class members predominate over any questions affecting only individual members." Fed. R. Civ. P. 23(b)(3). To satisfy
predominance, "a plaintiff must show that those issues in the proposed action that are subject to generalized proof outweigh those issues that are subject to individualized proof." In re Salomon
Analyst Metromedia Litigation, 544 F.3d 474, 480 (2d Cir. 2008) (quotation marks omitted). Predominance is "a more demanding Moore v.
criterion than the commonality inquiry under Rule 23(a)." 25
PaineWebber, Inc., 306 F.3d 1247, 1252 (2d Cir. 2002) (citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623-24 (1997)). The inquiry
"tests whether a proposed class is sufficiently cohesive to warrant adjudication by representation." (quotation marks omitted).11 Here, as noted above with respect to commonality, several questions are shared by the members of the proposed class, including: (1) whether the defendants made materially false statements or omitted materials facts; (2) whether the statements or omissions were made in connection with the purchase or sale of securities; (3) whether the statements or omissions were made with scienter; and (4) whether the class members suffered economic loss. Conversely, the Salomon Analyst, 544 F.3d at 480
claims of each class member, if asserted individually, would require individualized proof to show: (1) the extent of actual losses individually incurred; and (2) individual reliance on the defendants' statements or omissions (i.e., transaction causation). The need to prove actual losses individually incurred by each class member does not defeat predominance because differences in the amount and recoverability of individual damages do not necessarily make class actions unmanageable. See McLaughlin v. American Tobacco
Co., 522 F.3d 215, 231 (2d Cir. 2008) (citing 6 Alba Conte & Herbert
If predominance exists "with respect to the Section 10(b) claim--i.e., the `primary violation'--the predominance requirement will also be met with respect to the Section 20(a) claim, as the issue of control is susceptible to generalized proof." In re SCOR Holding (Switzerland) AG Litigation, 537 F. Supp. 2d 556, 572 n.21 (S.D.N.Y. 2008).
B. Newberg, Newberg on Class Actions § 18:27 (4th ed. 2002)); In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124, 140 (2d Cir. 2001); Fed. R. Civ. P. 23 advisory committee's note ("[A] fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action, and it may remain so despite the need, if liability is found, for separate determination of the damages suffered by individuals within the class."). In contrast, the need to "establish reliance individually by members of the class . . . defeat[s] the requirement of Rule 23 that common questions of law or fact predominate over questions affecting only individual members." In re Initial Public Offering Securities See Fed. R. Civ. P. 23
Litigation, 471 F.3d 24, 42 (2d Cir. 2006).
advisory committee's note ("[A]lthough having some common core, a fraud case may be unsuited for treatment as a class action if there was material variation in the representations made or in the kinds or degrees of reliance by the persons to whom they were addressed."). See, e.g., Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., No. 05 Civ. 1898, 2006 WL 2161887, at *1 (S.D.N.Y. Aug.1, 2006) (If plaintiff cannot establish that it "relied on defendants' misrepresentations, the requirement that common issues predominate over individual issues will not be satisfied, and class certification must be denied.") aff'd, 546 F.3d 196 (2d Cir. 2008). But a plaintiff may overcome this obstacle by invoking the 27
fraud-on-the-market doctrine, under which reliance is presumed if it can be shown that false or misleading material statements were publicly made concerning a security traded in an efficient market. In re Salomon Analyst Metromedia Litigation, 544 F.3d 474, 478 (2d Cir. 2008).12 The fraud-on-the-market doctrine rests on the premise
that an efficient securities market "transmits information to the investor in the processed form of a market price." Levinson, 485 U.S. 224, 244 (1988). Basic Inc. v.
Given that the market price of
a security is deemed to reflect related public statements, "it can be assumed that an investor who buys or sells stock at the market price relies upon the statement." Stoneridge Inv. Partners, LLC v.
Scientific-Atlanta, 552 U.S. 148, 159 (2008) (citing Basic, 485 U.S. at 247). See Hevesi v. Citigroup Inc., 366 F.3d 70, 77 (2d Cir. 2004)
(The fraud-on-the-market doctrine "creates a rebuttable presumption that (1) misrepresentations by an issuer affect the price of securities traded in an open market, and (2) investors rely on the market price of securities as an accurate measure of their intrinsic value."). Thus, "where a defendant has (1) publicly made (2) a
material misrepresentation (3) about stock traded on an impersonal, well-developed (i.e., efficient) market, investors' reliance on
12 Although inapplicable here, a rebuttable presumption of reliance can also be invoked "if there is an omission of a material fact by one with a duty to disclose," in which case "the investor to whom the duty was owed need not provide specific proof of reliance." Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 159 (2008) (citing Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972)).
those misrepresentations may be presumed."
In re Salomon Analyst
Metromedia Litigation, 544 F.3d 474, 481 (2d Cir. 2008) (citing Basic, 485 U.S. at 248 n.27). Additionally, in considering the
applicability of the fraud-on-the-market presumption, the Second Circuit has observed that Basic "requires that the plaintiff `traded the shares between the time the misrepresentations were made and the time the truth was revealed.'" U.S. at 248 n.27). Id. at 481 n.4 (quoting Basic, 485
In other words, transactions initiated before
misrepresentation or after corrective disclosure cannot be presumed to have occurred in reliance upon information transmitted to investors in the processed form of a market price. See, e.g.,
Karvaly v. eBay, Inc., 245 F.R.D. 71, 80 n.17 (E.D.N.Y. 2007) (observing that there is "no legitimate reason for extending the class definition to include" transactions occurring prior to defendant's misrepresentations); Debora v. WPP Group PLC, No. 91 Civ. 1775 (KTD), 1994 WL 177291, at *3 (S.D.N.Y. May 05, 1994) (plaintiff having purchased securities after corrective disclosures could not have relied on the issuer's misrepresentations). Here, the alleged misrepresentations appeared either as part of a press release or financial report filed with the SEC, and were thus publicly made. material. The alleged misrepresentations were also
In the securities fraud context, "[t]he materiality of
a misstatement depends on whether `there is a substantial likelihood that a reasonable shareholder would consider it important in deciding 29
how to act.'"
ECA, Local 134 IBEW Joint Pension Trust of Chicago
v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)). A misstatement
is material where there is "`a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.'" Basic, 485 U.S. at 231-32 (quoting
TSC Industries, Inc., v. Northway, Inc., 426 U.S. 438, 449 (1976)). See In re Salomon Analyst Metromedia Litigation, 544 F.3d 474, 482 (2d Cir. 2008) ("`The touchstone of the inquiry is . . . whether defendants' representations or omissions, considered together and in context, would affect the total mix of information and thereby mislead a reasonable investor regarding the nature of the securities offered.'" (quoting Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002)). Here, Defendants' misrepresentations
concealed STNG's involvement in an unlawful market allocation scheme which exposed SNSA to criminal and civil liability and likely distorted SNSA's financial performance disclosures.13
13 When evaluating the materiality of alleged misstatements in securities fraud cases, the Second Circuit occasionally looks to SEC Staff Accounting Bulletin No. 99, 64 Fed. Reg. 45150, 45150-52 (Aug. 19, 1999) ("SAB No. 99"), which is deemed persuasive authority on the matter, and "consider[s] the factors it sets forth in determining whether the misstatement significantly altered the `total mix' of information available to investors." ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 197-98 (2d Cir. 2009). See Ganino v. Citizens Utils. Co., 228 F.3d 154, 163 (2d Cir. 2000). SAB No. 99 explains that "[t]he omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the
reasonable investor having contemplated a transaction involving SNSA securities would most certainly have considered this information to be important. Defendants' misrepresentations therefore
sufficiently affected the total mix of information upon which the decision to buy or sell SNSA securities would have rested to support the conclusion that they were material. Further, Lead Plaintiff has satisfied his burden of proof with respect to the efficiency of the markets in which the securities at issue were traded. Although the Second Circuit has not explicitly
adopted a test for market efficiency, it has noted that the inquiry set forth in Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989) has "been routinely applied by district courts considering the efficiency of equity markets." Teamsters Local 445 Freight Div.
Pension Fund v. Bombardier Inc., 546 F.3d 196, 204 n.11, 210-11 (2d Cir. 2008). See, e.g., In re American Intern. Group, Inc. Securities
Litigation, 265 F.R.D. 157, 175-81 (S.D.N.Y. 2010); In re Initial Public Offering Securities Litigation, 260 F.R.D. 81, 94-95
inclusion or correction of the item." 64 Fed. Reg. at 45151. But a misstatement's "magnitude by itself, without regard to the nature of the item and the circumstances in which the judgment has to be made, will not generally be a sufficient basis for a materiality judgment." Id. at 45152. SAB No. 99 further provides a non-exhaustive list of qualitative factors which can "render material a quantitatively small misstatement [in] a financial statement." Id. As relevant here, these include: (1) "[w]hether the misstatement masks a change in earnings or other trends"; (2) "[w]hether the misstatement concerns a segment or other portion of the registrant's business that has been identified as playing a significant role in the registrant's operations or profitability"; (3) "[w]hether the misstatement involves concealment of an unlawful transaction"; and (4) management's expectation "that a known misstatement may result in a significant positive or negative market reaction." Id. Here, each of these factors applies and supports the conclusion that even quantitatively small distortions in SNSA's financial disclosures during the relevant period were material.
(S.D.N.Y. 2009); Fogarazzo v. Lehman Bros., Inc., 263 F.R.D. 90, 102 n.83 (S.D.N.Y. 2009). Cammer identifies five factors that can be
considered to ascertain whether a security is traded in an efficient market: (1) the security's average weekly trading volume;14 (2) the number of analysts who follow the security;15 (3) the extent which market makers and arbitrageurs trade the security;16 (4) the issuer's eligibility to file SEC registration Form S-3;17 and (5) evidence of
High weekly trading volume suggests efficiency "because it implies significant investor interest in the company. Such interest, in turn, implies a likelihood that many investors are executing trades on the basis of newly available or disseminated corporate information." Cammer, 711 F. Supp. at 1286. "Turnover measured by average weekly trading of two percent or more of the outstanding shares would justify a strong presumption that the market for the security is an efficient one; one percent would justify a substantial presumption." Id. at 1293 (citations omitted). "The more securities analysts who follow and report on a company's stock, the greater the likelihood that information disseminated by a corporation is being relied upon by the stock trading public." Krogman v. Sterritt, 202 F.R.D. 467, 475 (N. D. Tex. 2001). Thus, "the existence of a number of financial analysts who report on a security supports a finding of market efficiency because it permits an inference that financial statements relating to a security are `closely reviewed by investment professionals, who . . . in turn make buy/sell recommendations to client investors.'" Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 205 (2d Cir. 2008) (quoting Cammer, 711 F. Supp. at 1286). Market makers and arbitrageurs "`react swiftly to company news and reported financial results by buying or selling stock and driving it to a changed price level.'" Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 206 (2d Cir. 2008) (quoting Cammer, 711 F. Supp. at 1286-87). Their capacity "to seek out new information and evaluate its effects on the price of securities distinguishes them from ordinary investors, who lack the time, resources or expertise to evaluate all the information concerning a security. . . . In an efficient market, then, an ordinary investor who becomes aware of publicly available information cannot make money by trading on it because the information will already have been incorporated into the market by arbitrageurs." In re PolyMedica Corp. Securities Litigation, 432 F.3d 1, 9 (1st Cir. 2005) (citation and quotation marks omitted). The SEC permits the filing of an S-3 Registration Statement only where "the stock is already traded on an open and efficient market, such that further disclosure is unnecessary." Krogman, 202 F.R.D. at 476. "To be eligible to use Form S-3 in connection with an equity offering, an issuer must, among other things, have been filing reports under the Exchange Act for at least thirty-six months and either have out-standing $150 million of voting stock held by nonaffiliates or $100 million of such stock outstanding coupled with an annual trading volume
17 16 15 14
a causal relationship between unexpected corporate events or financial releases and the security's price.18 1286-87 (D.N.J. 1989). 711 F. Supp. 1264,
Three additional factors identified in
Krogman v. Sterritt have also subsequently been considered as part of the Cammer analysis, namely: (1) the security's market capitalization;19 (2) the security's bid-ask spread;20 and (3) the proportion of the security's trading volume attributable to insiders.21 omitted). 202 F.R.D. 467, 478 (N. D. Tex. 2001) (quotation marks Together, these factors seek to evaluate the "two core
requirements for an efficient market: `large numbers of rational and
of three million shares per year." Cammer, 711 F. Supp. at 1271 n.5 (citation omitted). Form S-3 is thus "`predicated on the Commission's belief that the market operates efficiently for these companies, i.e., that the disclosure in Exchange Act reports and other communications by the registrant, such as press releases, has already been disseminated and accounted for by the market place.'" Id. at 1284 (quoting SEC Securities Act Release No. 6235, 45 Fed. Reg. 63,693 (Sept. 25, 1980)). "[I]n an efficient market, a stock's price remains relatively stable in the absence of news, and changes very rapidly as the market receives new and unexpected information." Krogman, 202 F.R.D. at 477. Therefore, evidence of a causal relationship between unexpected corporate events or financial releases and the security's price is "the essence of an efficient market and the foundation for the fraud on the market theory." Cammer, 711 F. Supp. at 1287. "Market capitalization, calculated as the number of shares multiplied by the prevailing share price, may be an indicator of market efficiency because there is a greater incentive for stock purchasers to invest in more highly capitalized corporations." Krogman, 202 F.R.D. at 478. A large bid-ask spread, i.e., the difference between the price at which purchasers are willing to buy and the price at which sellers are willing to sell, "is indicative of an inefficient market, because it suggests that the stock is too expensive to trade." Krogman, 202 F.R.D. at 478. The greater the proportion of the security's trading volume is attributable to insiders (i.e., the lower the "float"), the less likely it is that the security's price accurately reflects all available public information because insiders are more likely to have access to private information relating to the security. Krogman, 202 F.R.D. at 478.
21 20 19 18
intelligent investors,' and `important current information' that is `almost freely available to all participants.'" In re Initial
Public Offering Securities Litigation, 260 F.R.D. 81, 94 (S.D.N.Y. 2009) (quoting Paolo Cioppa, The Efficient Capital Market Hypothesis Revisited: Implications of the Economic Model for the United States Regulator, 5 Global Jurist Advances 1, 5-6 (2005)). In Teamsters
Local 445 Freight Div. Pension Fund v. Bombardier Inc., the Second Circuit affirmed a district court's application of the Cammer factors as an "analytical tool" to determine whether the securities there at issue were traded in an efficient market. Cir. 2008). 546 F.3d 196, 210 (2d
In so doing, the Second Circuit emphasized the critical
importance of "[e]vidence that unexpected corporate events or financial releases cause an immediate response in the price of a security," and observed that "[w]ithout the demonstration of such a causal relationship, it is difficult to presume that the market will integrate the release of material information about a security into its price." Id. at 207. The Second Circuit further specified
the type of evidence contemplated, explaining 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." Teamsters Local 445 Freight Div.
Pension Fund v. Bombardier Inc., 546 F.3d 196, 207-08 (2d Cir. 2008) (citing In re Xcelera.com Securities Litigation, 430 F.3d 503, 512-14 34
(1st Cir. 2005)).
The Court also noted that such evidence "may be Id.
rejected . . . if it is methodologically unsound or unreliable."
at 208 n.15 (citing Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 316 (5th Cir. 2005)). Here, SNSA's ADRs were listed on NASDAQ, and SNSA's ordinary shares were listed on the Oslo Stock Exchange during the relevant time periods. Listing on these exchanges, without more, is not but Lead
necessarily dispositive of market efficiency,22
Plaintiff's analysis of the Cammer factors sufficiently demonstrates market efficiency for the specific securities at issue.
In Ascendant Solutions, the Fifth Circuit rejected an argument that market efficiency was established by the fact that, among other things, the security there at issue had been listed on NASDAQ from November 1999 to May 2001, observing that "the mere fact that a stock trades on a national exchange does not necessarily indicate that the market for that particular security is efficient." 422 F.3d at 313. The Fifth Circuit further noted that "`some companies listed on national stock exchanges are relatively unknown and trade there only because they met the eligibility requirements. While the location of where a stock trades might be relevant, it is not dispositive of whether the current price reflects all available information.'" Id. at 313-14 (quoting Cammer v. Bloom, 711 F. Supp. 1264, 1281 (D.N.J. 1989)). Thus, listing on a particular exchange is not dispositive of market efficiency because "a market can be open and developed for some securities and not for others." Id. at 315. See Cammer, 711 F. Supp. at 1281 ("It would be illogical to apply a presumption of reliance merely because a security is traded within a certain `whole market' without considering the trading characteristics of the individual stock itself."). See, e.g., Blatt v. Muse Technologies, Inc., Nos. Civ.A. 01-11010-DPW, Civ.A. 01-12173-DPW , 2002 WL 31107537, at *13 (D. Mass. Aug. 27, 2002) (concluding that "a particularized inquiry remains necessary" despite stock being traded on the NASDAQ during class period). But see In re Initial Public Offering Securities Litigation, 243 F.R.D. 79, 91 (S.D.N.Y. 2007) (characterizing NASDAQ as an efficient market). Similarly, courts routinely rely on the Cammer factors to assess market efficiency for securities listed on foreign stock exchanges. See, e.g., In re SCOR Holding (Switzerland) AG Litigation, 537 F. Supp. 2d 556, 572-79 (S.D.N.Y. 2008) (concluding that plaintiffs failed to establish market efficiency for securities traded on the SWX Swiss Exchange or in the form of American Depository Shares on the New York Stock Exchange); In re Alstom SA Securities Litigation, 253 F.R.D. 266, 279-80 (S.D.N.Y. 2008) (securities actively traded on Euronext (formed from the merger of the Amsterdam Stock Exchange, the Brussels Stock Exchange, and the Paris Bourse), London Stock Exchange, and New York Stock Exchange); In re Parmalat Sec. Litig., 375 F. Supp. 2d 278, 303-05 (S.D.N.Y. 2005) (securities actively traded on the Luxembourg, Milan and Uruguayan stock exchanges, and in the over-the-counter market in the United States).
Specifically, with respect to weekly trading volume, Lead Plaintiff explains that [d]uring the Class Period, SNSA ADRs had a reported trading volume of more than 20 million shares with a dollar trading volume exceeding $280 million. Average reported daily trading volume for the SNSA ADRs during the Class Period was more than 40,000 shares with an average daily dollar volume of more than $550,000. In addition, from May 24, 2000 through February 20, 2003, SNSA ordinary shares had a reported trading volume of more than 36 million shares with a dollar trading volume exceeding $510 million. Average reported daily trading volume for the SNSA ordinary shares during the Class Period exceeded 50,000 shares with an average daily dollar volume of more than $770,000. This demonstrates that there were a substantial number of willing buyers and sellers who traded SNSA shares on a daily basis during the Class Period, thereby providing liquidity for the stock. (Declaration of Bjorn I. Steinholt, CFA (Dkt. # 126, ¶ 14.)) respect to analyst coverage, Lead Plaintiff explains that [d]uring the Class Period, several analysts provided research coverage on SNSA, including: Jarle Sjo at First Securities ASA, Per Didrik Leivdal at Pareto Securities ASA, James Winchester at Lazard Freres & Co., Henrik With at ABN AMRO, Bjorn Knutsen at Nordea Equity Research, Greg Ward at Credit Suisse and Stephen Gengaro at ING Barings. In addition, SNSA held periodic analyst conference calls where both buy side and sell side analysts could ask questions regarding the Company's performance. These analyst conference calls were also made available on Bloomberg for other analysts and investors to listen to. Bloomberg provides the investment industry with financial news and data, including software tools to analyze and trade on the financial news and data. During the Class Period, Bloomberg disseminated more than 280 stories relating to SNSA to the investment community. (Dkt. # 126, ¶ 15.) With respect to market makers and arbitrageurs, With
Lead Plaintiff has "identified at least two dozen market makers for the SNSA ADRs during the Class Period, including: Lazard Freres and 36
Co., Jeffries & Co,, Knight Equity Markets, Schwab Capital Markets and Archipelago Securities." (Dkt. # 126, ¶ 16.) Lead Plaintiff
has also "examined available information on institutional ownership of SNSA ADRs. It showed that reporting institutions owned from 2.5 (Dkt.
million to 6.6 million SNSA ADRs during the Class Period." # 126, ¶ 17.)
With respect to SNSA's eligibility to file SEC registration Form S-3, Lead Plaintiff notes that "SNSA had been an SEC reporting company for more than one year prior to 2001, [and] had a market capitalization of several hundred million dollars throughout the entire Class Period." (Dkt.
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