Rensel v. Centra Tech, Inc. et al
Filing
322
Order Granting 239 the Plaintiffs' Renewed Motion for Class Certification. Lead Plaintiffs Jacob Zowie Thomas Rensel and Wang Yun He, and proposed class representatives Chi Hao Poon, King Fung Poon, Jae J. Lee, and Mateusz Ganczarek are appoin ted as Class Representatives. Additionally, Levi & Korsinsky, LLP and Taylor-Copeland Law are hereby appointed as Class Counsel Signed by Judge Robert N. Scola, Jr on 9/10/2021. See attached document for full details. (jbs) Modified text on 9/10/2021 (jbs).
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United States District Court
for the
Southern District of Florida
Jacob Zowie Thomas Rensel and
others, Plaintiffs,
v.
Centra Tech, Inc., Defendant.
)
)
)
Civil Action No. 17-24500-Civ-Scola
)
)
)
Order Granting the Plaintiffs’ Renewed Motion for Class Certification
In this putative class action, the Plaintiffs allege that Centra Tech, Inc.
(“Centra Tech) violated securities laws through its fraudulent and unlawful sale
of cryptocurrencies. (See generally Am. Compl., ECF No. 97.) The Court initially
denied the Plaintiffs’ motion for class certification as untimely and for failure to
satisfy the ascertainability requirement by not offering sufficient proof of
administrative feasibility. (Order, ECF No. 235.) The Court also denied the
Plaintiffs’ renewed motion for class certification. (Order, ECF No. 258.)
The Plaintiffs appealed this Court’s order denying class certification. The
Eleventh Circuit vacated this Court’s order denying the Plaintiffs’ initial motion
for class certification and remanded for further proceedings. On remand, the
Plaintiffs requested to proceed on their renewed motion for class certification
(Renewed Mot. for Class Cert., ECF No. 239.) The Court held a hearing on the
renewed motion on September 8, 2021. The Court has carefully considered the
Eleventh Circuit’s mandate, the parties’ written submissions, the record, and
the applicable law. For the reasons stated below, the Court grants Plaintiffs’
renewed motion for class certification. (ECF No. 239.)
1. Facts
A. Centra Tech and the Initial Coin Offering
This litigation arises from Centra Tech, Inc.’s (“Centra Tech) alleged
fraudulent and unlawful sale of cryptocurrencies. (See generally Am. Compl.,
ECF No. 97.) Plaintiffs Jacob Zowie Thomas Rensel, Wang Yun He, Chi Hao
Poon, King Fung Poon, Jae J. Lee, and Mateusz Ganczarek are current and
former owners of Centra Tech Tokens (“CTR Tokens”) purchased during Centra
Tech’s initial coin offering (“ICO”) from July 23, 2017 through October 5, 2017.
(Am. Compl., ECF No. 97 at ¶¶ 1–3.)
Defendant Centra Tech is a company founded in May 2016 that
purported to sell cryptocurrency. (Id. at ¶ 97.) Centra Tech marketed the use of
the Centra Wallet or a Centra Card, forms of payment that would allow users to
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pay for everyday purchases with cryptocurrencies. (Id. at ¶¶ 5, 6, 68.) Centra
Tech falsely represented that the Centra Cards were purportedly backed up
MasterCard and Visa. (Id. at ¶ 9.)
To raise funds to develop the marketed products, Centra Tech held an
initial coin offering (“ICO”) between July 23, 2017 and April 20, 2018. (Id. at
¶ 3.) The ICO involved the sale of “Centra Tech Tokens” or “CTR Tokens.” Each
token entitled the holder to certain rights related to Centra Tech, including a
.08% of the “rewards of the network profit generated inside of the terms and
conditions of the token.” (Id. at ¶ 45.) Thus, although not marketed as a
security, the CTR Tokens were securities similar to the stock sold at an initial
public offering. (Id. at ¶¶ 59, 141, 161.) To entice investors, Centra Tech
enlisted the promotional services of two well-known celebrities, Floyd
Mayweather, Jr. and DJ Khaled. (Id. at ¶¶ 67, 68.) Centra Tech also began an
online promotional campaign involving regular blog posts touting the benefits
of CTR Tokens. (Id. at ¶¶ 90, 106.) As a result of those marketing efforts,
thousands of investors, including the Plaintiffs, participated in the ICO. Centra
Tech raised $32 million as a result of the ICO.
Centra Tech made several misrepresentations to investors in promoting
the ICO. It claimed that the Centra Tech Debit Card would be able to operate
on Visa and Mastercard networks and allow users to make transactions in
digital currencies in “real time.” (Id. at ¶ 230.) However, Centra Tech was never
authorized to use the Visa or Mastercard networks and the Centra Tech Debit
Card never allowed users to make digital currency transactions in real time.
Centra Tech also fabricated fictional executives who they claimed were working
with Centra Tech, touted Centra Tech’s nonexistent insurance policy, and
made false claims regarding its insurance and state licenses to increase
investor confidence and solicit additional purchases of CTR Tokens. (Id. at
¶¶ 270-285; 286-291; 292-299.) Centra Tech made these statements to induce
Plaintiffs and the general public to invest in more unregistered CTR Token
securities and as part of a scheme to artificially inflate the value of the patently
worthless unregistered CTR Token securities. (Id. at ¶¶ 336.)
As a result of these misrepresentations, the founders of Centra Tech,
Defendants Sharma, Farkas, and Trapani, are currently the subjects of an SEC
enforcement action for securities fraud (S.E.C. v. Sharma et al., No. 18-cv-2909DLC (S.D.N.Y.) and are being criminally prosecuted in the Southern District of
New York for the fraudulent Centra Tech scheme (United States v. Sharma et
al., No. 18-cr-340-LGS (S.D.N.Y.)). 1
1
Sohrab Sharma was sentenced to eight years in prison “in connection with his leading role in
a scheme to induce victims to invest more than $25 million worth of digital funds in Centra
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B. Plaintiffs’ Purchases of CTR Tokens
From July 23, 2017 through October 5, 2017, the Plaintiffs all purchased
CTR Tokens through respective Centra smart contracts. (Am. Compl., ECF
No. 97 at ¶ 73.) A smart contract is a “a system running on a ‘blockchain’ that
enables transactions to automatically execute according to pre-specified rules.
(Id. at ¶ 73.) Because smart contracts run on block chains, the execution of
smart contracts and related transactions are recorded in the public ledgers
that blockchains create. (Id.)
Centra Tech maintains business records of transactions to purchase CTR
Tokens. These records contain information provided by investors to Centra
Tech via Google Forms. (ECF Nos. 239-9, 239-10.) Investors who purchased
CTR Tokens were asked to provide their names, contact information, digital
wallet address, and emails. (Id.) Centra Tech also provided a spread sheet to
the SEC containing the identities of all the investors in CTR Tokens and other
Centra Tech products. 2
On July 30, 2017, Co-Lead Plaintiff Jacob Zowie Thomas Rensel used 16
Ether to purchase 8,050 CTR Tokens. (Id. at ¶ 34.) On October 27, 2017,
Rensel exchanged his CTR Tokens for 0.7096997 of Bitcoin, which at the time
was valued at 13.723 Ether. (Id.) Rensel claims that because he bought CTR
Tokens at 16.1 Ether and exchanged them for Bitcoin worth 13.723 Ether, he
has suffered a loss in the amount of 2.38 Ether. (Id.)
Between September 21, 2017 and September 24, 2017, Co-lead Plaintiff
Wang Yun He expended 511.35 Ether to purchase 102,269.4 CTR Tokens. (Id.
at ¶ 38.) Yun He exchanged 150 Bitcoin to purchase 600,000 CTR Tokens
between September 26, 2017 and October 1, 2017. (Id.) In total, Yun He
purchased a total of 702,269.42079 CTR Tokens. (Id.) On December 16 and 17,
2017, Yun He sold all his CTR Tokens for 30.355 Bitcoin. (Id.) Yun He claims
that this sale reflects a loss of 119.645 Bitcoin and 511.35 Ether.
On August 25, 2017, Plaintiff Chi Hao Poon expended 100 Ether to
purchase 56,000 CTR Tokens. (Id. at ¶ 40.) Poon still holds the CTR Tokens
purchased during the ICO. (Id.), Poon’s 56,000 CTR Tokens are worth 0.00
Ether, representing a loss of 100 Ether.
Tech, Inc. . . .Sharma pled guilty to conspiring to commit securities fraud, wire fraud, and mail
fraud.” https://www.justice.gov/usao-sdny/pr/leading-co-founder-cryptocurrency-companysentenced-8-years-prison-ico-fraud-scheme. (Last visited on September 9, 2021). Robert
Farkas was sentenced to one year and one day in prison in connection with his role in the
Centra Tech scheme. https://www.justice.gov/usao-sdny/pr/co-founder-cryptocurrencycompany-who-defrauded-ico-investors-sentenced-prison. (Last visited on September 9, 2021).
2 At the oral argument on September 8, 2021, counsel for the Plaintiffs represented that a copy
of this spreadsheet had been obtained through third-party discovery.
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Plaintiff King Fung Poon used 100 Ether to purchase 56,000 CTR Tokens
on August 25, 2017 and still holds the CTR Tokens he purchased on that date.
(Id. at ¶ 42.) Since October 2018, the CTR Tokens decreased in value to 0.00
Ether, representing a loss of 100 Ether. (Id. at ¶ 43.)
Plaintiff Jae J. Lee used 30 Ether to purchase 6,000 CTR Tokens on
September 12, 2017. (Id. at ¶ 44.) Lee’s tokens are worth 0.00 Ether and
indicate a loss of 30 Ether. (Id. at ¶ 45.)
Plaintiff Mateusz Ganczarek expended 40 Ether for 16, 2017 CTR Tokens
on September 16 and 17, 2017. (Id. at ¶ 46.) Ganczarek purchased his tokens
through a smart contract and still holds the original tokens he purchased
during the ICO. (Id.)
2. Procedural Background
In the amended complaint, the Plaintiffs alleged violations of securities
laws against Centra Tech, its principals, and promoters. The Plaintiffs
voluntarily dismissed their claims against some Defendants and the Court
dismissed the claims against other Defendants. Accordingly, the only claims
that survive are those against Centra Tech for securities fraud under Section
12(a)(1) of the Securities Act, 15 U.S.C. § 771(a)(1), Section 10(b) of the
Exchange Act, and Rule 10b–5 under the Securities Exchange Act, 17 C.F.R.
§ 240.10b–5.
Following Centra Tech’s failure to appear in this action by a courtordered date, the Plaintiffs filed a motion for a Clerk’s Entry of Default against
Centra Tech, (ECF No. 169), which the Clerk issued on January 31, 2019. (ECF
No. 172.) On June 13, 2019, the Plaintiffs filed a motion for a default
judgement against Centra Tech (ECF No. 211) and a motion for class
certification. (ECF No. 212.) Two days later, counsel for Centra Tech finally
entered a notice of appearance and filed a motion to set aside the Clerk’s Entry
of Default. (ECF Nos. 213, 214.) Centra Tech also filed a response in opposition
the Plaintiffs’ motion for default judgment and motion for class certification.
(ECF Nos. 216, 217.) The Court decided the disputes in separate orders.
The Court denied the Plaintiffs’ original motion for class certification and
their renewed motion for class certification. The Court determined that the
motion for class certification was untimely and that the Plaintiffs had failed to
show the class was ascertainable by failing to prove administrative feasibility.
(ECF No. 235.) The Court denied the renewed motion for failure to adduce new
evidence, changed circumstances, or new information about the class
members’ claims. (Order, ECF No. 258.) Because Centra Tech had failed to
appear in this case by a court-ordered date and had failed to excuse its
noncompliance, the Court granted the Plaintiffs’ motion for default judgment
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and entered a final judgment against Centra Tech. (ECF No. 263.) The Court
found Centra Tech liable to the individual Plaintiffs and awarded monetary
damages to each named Plaintiff. (Id.)
The Plaintiffs appealed this Court’s order denying their motion for class
certification. On appeal, the Eleventh Circuit vacated this Court’s order and
remanded for further proceedings. Rensel v. Centra Tech, Inc., 2 F.4th 1359,
1370 (11th Cir. 2021). The Court held that the motion was timely, that
administrative feasibility was not a requirement of ascertainability or Rule 23,
and that the Plaintiffs’ proposed classes (including the one at issue in the
renewed motion) “easily” satisfied the requirements of ascertainability. Id.
Although the Eleventh Circuit did not reverse the finding of liability against
Centra Tech, the appellate court vacated the final judgment in so far as it did
not account for all of the relief sought by the Plaintiffs. Id.
After the Eleventh Circuit issued its mandate, the Court held a status
conference on the matter on September 1, 2021. The Plaintiffs requested that
the Court rule on the arguments advanced in the Plaintiffs’ renewed motion for
class certification (as opposed to those in the initial motion). (Renewed Mot. for
Class Cert., ECF No. 239). The Court granted the Plaintiffs’ request to proceed
on their renewed motion, noting that the motion had been fully briefed by both
parties. (See generally, Resp. in Opp’n, ECF No. 249; Reply, ECF No. 250.)
In the renewed motion for class certification, the Plaintiffs claim that
Centra Tech’s deception and fraudulent scheme had the effect of injuring
thousands of persons who purchased CTR Tokens during the ICO. The
Plaintiffs move to certify the following class:
All persons and entities who purchased or otherwise acquired Centra
Tech Tokens (“CTR Tokens”) directly from Defendant Centra Tech in
connection with its “official” initial coin offering from July 23, 2017
through October 5, 2017. (“Class Period”).
Excluded from the Class are: (i) defendant Centra Tech; (ii) any person
who was an officer, director or employee of Centra Tech, Inc.; (iii) any
immediate family member of any excluded person; (iv) any firm, trust,
corporation or other entity in which any excluded person or entity has or
had a controlling interest; and (v) the legal representatives, affiliates,
heirs, successors in-interest, or assigns of any such excluded person or
entity.
(Renewed Mot. for Class Certification, ECF No. 239 at 11.) The Plaintiffs ask
the Court to appoint Plaintiffs Chi Hao Poon, King Fung Poon, Jae J. Lee, and
Mateusz Ganczarek as Class Representatives and to appoint Levi & Korsinsky
and Taylor-Copeland Law as Class Counsel. (Id. at 10, 29.) In their renewed
motion, the Plaintiffs have dropped Plaintiff Rodney Warren from the proposed
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Class because he purchased his CTR Tokens outside the Class period.
3. Legal Standard
“Under Rule 23, certification is proper where the proposed classes satisfy
an implicit ascertainability requirement, the four requirements listed in
Rule 23(a), and the requirements listed in any of Rule 23(b)(1), (2), or (3).”
Karhu v. Vital Pharms., Inc., 621 F. App’x 945, 946 (11th Cir. 2015).
Specifically, Rule 23(a) requires that that party seeking certification
demonstrate four prerequisites: “(1) that the class is so numerous that joinder
of all members is impracticable; (2) that there are questions of law or fact
common to the class; (3) that the claims or defenses of the representative
parties are typical of the claims or defenses of the class; and (4) that the
representative parties will fairly and adequately protect the interests of the
class.” Fed. R. Civ. P. 23(a).
Satisfaction of the Rule 23(a) factors, however, does not end the inquiry,
and a class still may not be certified unless one of the requirements of
Rule 23(b) are satisfied. Klay v. Humana, Inc., 382 F.3d 1241, 1250 (11th Cir.
2004). The Plaintiffs pursue monetary relief and thus seek certification of the
proposed class pursuant to Rule 23(b)(3). Rule 23(b)(3) requires a plaintiff to
prove that common questions predominate over any questions affecting only
individual members; and class resolution is superior to other available
methods for the fair and efficient adjudication of the controversy. Harris v.
Nortek Glob. HVAC LLC, No. 14-CIV-21884, 2016 WL 4543108, at *3 (S.D. Fla.
Jan. 29, 2016) (citing Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615
(1997)). Additionally, although not explicitly contemplated by Rule 23,
ascertainability is an implicit requirement for class certification. Cherry v.
Dometic Corp., 986 F.3d 1296, 1302 (11th Cir. 2021).
In reviewing a motion for class certification, the Court must conduct a
“rigorous analysis” of the facts and law to determine whether the parties
proposing the class has met its burden of demonstrating compliance with
Rule 23. Gen. Tel. Co. of the S.W. v. Falcon, 457 U.S. 147, 161 (1982); see also
Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Servs., Inc., 601
F.3d 1159, 1169 (11th Cir. 2010) (citation omitted). While the district court’s
class certification analysis “may ‘entail some overlap with the merits of the
plaintiff’s underlying claim,’ Rule 23 grants courts no license to engage in freeranging merits inquiries at the certification stage.” See Amgen Inc. v. Conn. Ret.
Plans & Trust Funds, 133 S. Ct. 1184, 1195 (2013) (citations omitted). Rather,
“[m]erits questions may be considered to the extent—but only to the extent—
that they are relevant to determining whether the Rule 23 prerequisites for
class certification are satisfied.” Id.
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The defaulted status of a defendant will not preclude the plaintiffs from
receiving class certification so long as the requirements of Rule 23 are satisfied.
Holmes v. DRS Processing LLC, No. 3:18-CV-1193-J-39JRK, 2020 WL 7419687,
at *4 (M.D. Fla. Nov. 3, 2020) (Klindt, MJ.), report and recommendation
adopted, No. 3:18-CV-1193-J-39JRK, 2020 WL 8222232 (M.D. Fla. Dec. 23,
2020) (Davis, J.) (certifying class against a defaulted defendant); Leo v.
Classmoney.net, No. 18-CV-80813, 2019 WL 238548, at *2 (S.D. Fla. Jan. 10,
2019) (Matthewman, J.) (recognizing that the prerequisites for class
certification must be satisfied notwithstanding a defendant’s failure to appear
and defend an action); Kron v. Grand Bahama Cruise Line, LLC, 328 F.R.D.
694, 698-703 (S.D. Fla. 2018) (certifying class against a defaulted defendant in
a TCPA case) (Martinez, J.).
4. Analysis
To show that class certification is appropriate under Rule 23, the party
seeking class certification must show that the action satisfies the standards of
both Rule 23(a) and 23(b). Turner v. Beneficial Corp., 242 F.3d 1023, 1025
(11th Cir. 2001). The parties dispute whether the Plaintiffs’ renewed motion for
class certification is timely and whether the Plaintiffs have satisfied the
requirements of Rule 23. Additionally, the Plaintiffs aver that because Centra
Tech is a defaulted defendant it has lost its opportunity to oppose class
certification.
In an abundance of caution and because the Court finds Centra Tech’s
arguments unavailing, the Court addresses those arguments in this Order.
Moreover, the Court will not revisit the parties’ timeliness arguments because
the Eleventh Circuit already determined that the Plaintiffs’ motion for class
certification was timely. The Court likewise adopts the Eleventh Circuit’s
holding that the Plaintiffs have “easily” shown that the proposed class is
ascertainable. Lastly, and after careful consideration, the Court finds that the
Plaintiffs have satisfied the requirements of Rule 23 and the motion is due to
be granted.
A. Class Definition
Before reaching the Rule 23(a)’s requirements, the Court addresses the
proposed class definition. Plaintiffs’ class definition seeks to certify: “All
persons and entities who purchased or otherwise acquired Centra Tech Tokens
(“CTR Tokens”) directly from Defendant Centra Tech in connection with its
“official” initial coin offering from July 23, 2017 through October 5, 2017.
(“Class Period”).” (emphasis added).
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The Court finds that with a slight modification, the definition is concise
and specific such that the group is capable of being identified. Specifically, the
proposed class should include only those individuals or entities who actually
purchased and held CTR Tokens during the class period. Luczak v. Nat’l
Beverage Corp., No. 0:18-CV-61631-KMM, 2021 WL 3163544, at *3 (S.D. Fla.
July 12, 2021) (Moore, J.) (modifying and approving class definition in a
securities case that included those who actually held the securities at issue
during the class period or because of the alleged misconduct).
Accordingly, the proposed class is modified only to the extent that it
removes “otherwise acquired,” from the proposed definition. Id.; see also Thorpe
v. Walter Inv. Mgmt., Corp., No. 1:14-cv-20880, 2016 WL 4006661, at *5 (S.D.
Fla. Mar. 16, 2016) (“A plaintiff claiming a violation of a private securities fraud
under Rule 10b–5 must prove, inter alia, reliance on the misrepresentation. It
plainly follows then that a person who did not resolve to purchase a security
cannot claim reliance on a purported misrepresentation.”) (citation omitted and
emphasis included in original). Notably, all the Plaintiffs, except Warren,
purchased and held CTR Tokens during the proposed class period. The
proposed definition is otherwise concise and specific as it excludes purchases
made through secondary markets, which could affect the required showing of
reliance on Centra Tech’s misrepresentations. The Court also approves the
exclusion of Centra Tech, its principals and their family members, and
controlling shareholders.
B. Ascertainability
The Court is not required to determine the issue of ascertainability
because the Eleventh Circuit held that the Plaintiffs’ proposed subclasses,
including the class proposed here, “easily” met the standard for
ascertainability. Rensel, 2 F. 4th at 1369. Even so, a brief discussion is
necessary to the extent the parties’ papers conflate ascertainability and
administrative feasibility.
Ascertainability serves as an implied prerequisite of Rule 23. Cherry, 986
F.3d at 1302 (11th Cir. 2021). “Class representatives bear the burden of
establishing that their proposed class is adequately defined and clearly
ascertainable, and they must satisfy this requirement before the district court
can consider whether the class satisfies the enumerated prerequisites
of Rule 23(a).” Id. The Eleventh Circuit has traditionally collapsed class
definition and ascertainability into one inquiry. Id. To that end, “a proposed
class is ascertainable if it is adequately defined such that its membership is
capable of determination.” Id. at 1304. And “membership can be capable of
determination without being capable of convenient determination.” Id.
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(emphasis in original). Id. at 1303. On the other hand, a class is inadequately
defined when it is defined through vague or subjective criteria. Id. at 1301.
When a proposed class lacks an adequate definition, the district court cannot
ascertain who belongs in that proposed class. Id. at 1302. Neither this analysis
nor the remainder of the Rule 23 analysis requires “administrative feasibility”;
if the action involves a proposed Rule 23(b)(3) class, like the present matter,
the district court may consider administrative feasibility as part of the
manageability criterion under Rule 23(b)(3). Id. at 1304.
Here, the Plaintiffs have adduced sufficient evidence to “meet the Cherry
standard for ascertainability.” Rensel, 2 F. 4th at 1369. Indeed, membership in
the class turns on objective, verifiable criterion of having purchased CTR
Tokens during the specific dates of the ICO. Id. For example, a spreadsheet
produced by Centra Tech to the Securities Exchange Commission identifies all
of the investors who purchased digital tokens issued by Centra Tech, each
investor’s contact information, the digital wallet addresses of the investors that
purchased CTR Tokens, and information identifying each purchase. The
spreadsheet contains tabs and includes purchase information during the ICO
period. Plaintiffs’ counsel represented at oral argument that the Plaintiffs had
come into possession of the spreadsheet through third-party discovery. Thus,
they have a means for identifying all individuals who purchased CTR Tokens
and identifying those who purchased the tokens during the class period
through a cross-referencing process.
Centra Tech also maintained business records of information submitted
by investors that purchased CTR Tokens during the ICO. The business records
contain information from ICO investors including their email addresses, full
names, digital wallet addresses, birth dates, and home addresses. (ECF Nos.
234-5, 239-9, 239-10.) For example, the Plaintiffs submit an email from Centra
Tech to Poon confirming the purchase of CTR Tokens. (ECF No. 239-10.) This
confirmation email has a date, the purchaser’s name, home address, email
address, and digital wallet address. (Id.) Similarly, the Plaintiffs advance a
blank Google Form document related to the Centra ICO, which requires
investors to provide identifying contact information. (ECF No. 239-9.) Centra
Tech has also represented to the Court that it maintains some records in
relation to purchases of CTR Tokens. (Sykes Decl., ECF No. 26-3 at ¶¶ 16–18.)
As the Eleventh Circuit held, the Plaintiffs have adduced sufficient
means to show that class membership is capable of being determined. Rensel,
2 F.4th at 1370. That the Plaintiffs have yet to obtain some of these records
from Centra Tech is not dispositive in this case because discovery has not been
meaningfully conducted and Centra Tech does not dispute the existence of the
documents or that the Plaintiffs may obtain same through discovery. Cherry,
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108 F. 3d at 1303 (“A class is “clearly ascertainable” if we are certain that its
membership is “capable of being” determined . . . But membership can be
capable of determination without being capable of convenient determination.
Administrative feasibility is not an inherent aspect of ascertainability.”)
(emphasis added in original) (internal citations omitted).
Centra Tech argues that the motion should be denied because it asserts
a new theory or new proposed class. (ECF No. 246 at 10.) In other words,
Centra Tech avers that the Plaintiffs have improperly amended the class from
the three subclasses proposed in the original motion. However, the proposed
class in the renewed motion was also raised in the original motion and
considered by the Eleventh Circuit.
C. Requirements of Rule 23(a)
(1) Numerosity
Rule 23(a)(2)’s numerosity prerequisite requires that “the class is so
numerous that joinder of all members is impracticable.” “[A] plaintiff need not
show the precise number of members in the class.” Evans v. U.S. Pipe &
Foundry Co., 696 F.2d 925, 930 (11th Cir. 1983) (citations omitted). “A
reasonable estimate is enough.” Bostwick v. SMH (US) Inc., 1998 WL 934642, at
*3 (N.D. Ga. Oct. 30, 1998), aff’d sub nom. Bostick v. SMH (US), Inc., 228 F.3d
413 (11th Cir.2000) (citing Evans). While there is no exact number to establish
numerosity, the Eleventh Circuit has found that “generally less than twentyone is inadequate, more than forty adequate, with numbers between varying
according to other factors.” Cox v. Am. Cast Iron Pipe Co., 784 F.2d 1546, 1553
(11th Cir. 1986) (internal citation omitted). Accordingly, the numerosity
requirement is a “generally low hurdle.” Vega, 564 F.3d at 1267. Even so, a
plaintiff still has the burden to make “some showing” that the class meets the
numerosity requirement. Id. The Eleventh Circuit has acknowledged that at
least one court has recognized that when the numerosity question is a close
one, a balance should be struck in favor of a finding of numerosity because the
court has the option to decertify pursuant to Rule 23(c)(1). Evans, 696 F.2d at
930.
The Plaintiffs have satisfied the numerosity requirement and Centra Tech
does not dispute this in its response to the renewed motion. The Plaintiffs
allege that there are thousands of Class members that will be confirmed
through the methods described in the prior section. The Centra Tech
spreadsheet identifies at least 3500 different purchases (not investors) during
the ICO, and the criminal complaint alleges that thousands of individual and
entities were harmed by Centra Tech’s scheme. (Renewed Mot. for Class
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Certification, ECF No. 239 at 22.) The Court is satisfied that the Plaintiffs
satisfied the numerosity requirement.
(2) Commonality
Rule 23(a)(2)’s commonality requirement demands “questions of law or
fact common to the class.” Fed. R. Civ. P. 23(a)(2). As with numerosity, the
Eleventh Circuit has described the commonality requirement as a “low hurdle”
or a “light burden,” as commonality “does not require that all questions of law
and fact raised be common.” Williams v. Mohawk Indus., Inc., 13 568 F.3d
1350, 1356 (11th Cir. 2009). “Commonality requires that there be at least one
issue whose resolution will affect all or a significant number of the putative
class members. Id. at 1355. In other words, what matters to class certification
is “the capacity of a class-wide proceeding to generate common answers apt to
drive the resolution of the litigation.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S.
338, 350 (2011).
The Plaintiffs advance a series of questions that will be answered through
common proof, including whether Centra Tech sold unregistered securities;
whether Centra Tech knowingly engaged in a fraudulent scheme related to its
ICO; whether CTR Token prices were artificially inflated during the Class period
as a result of Centra Tech’s misrepresentations; and whether the Class
member sustained damages as a result of Centra Tech’s sale of unregistered
securities and fraudulent conduct. (Renewed Mot. for Class Certification, ECF
No. 239 at 15–16.)
The Plaintiffs have met their burden because the Class members share
issues of law and fact relating to Centra Tech’s misrepresentations and the
resulting financial harm to the Plaintiffs. See Katz v. MRT Holdings, LLC, No.
07-61438-CIV, 2008 WL 4725284, at *3 (S.D. Fla. Oct. 24, 2008) (Cohn, J.)
(finding plaintiffs had satisfied commonality requirement in a securities fraud
class action because they shared questions regarding whether federal
securities laws were violated, whether the defendants sold unregistered
securities, and whether the defendants participated in a fraudulent scheme);
Aranaz v. Catalyst Pharm. Partners Inc., 302 F.R.D. 657, 665 (S.D. Fla. 2014)
(Ungaro, J.) (determining commonality requirement had been satisfied in
securities fraud case).
(3) Typicality
Rule 23(a)(3)’s typicality prerequisite requires that “the claims or
defenses of the representative parties are typical of the claims or defenses of
the class.” The claims of the class members do not need to be identical to those
Case 1:17-cv-24500-RNS Document 322 Entered on FLSD Docket 09/10/2021 Page 12 of 17
of the class representative; rather, there must exist “a sufficient nexus . . .
between the legal claims of the named class representatives and those of
individual class members to warrant class certification.” Ault v. Walt Disney
World Co., 692 F.3d 1212, 1216 (11th Cir. 2012). This nexus exists if the
claims of the class representative and the class members “arise from the same
event or pattern or practice and are based on the same legal theory.” Id. at
1217 (citing Kornberg v. Carnival Cruise Lines, Inc., 741 F.2d 1332, 1337 (11th
Cir. 1984)).
The claims of proposed class representatives Hao Poon, Poon, Lee, and
Ganczarek are typical of those of the class. The Plaintiffs allege that: they each
purchased CTR Tokens during the ICO; CTR Tokens are unregistered
securities; Centra Tech made several misrepresentations to induce the
Plaintiffs to purchase CTR Tokens; Centra Tech worked in concert with its
principals and promoters to defraud investors; and the Plaintiffs relied to their
detriment on Centra Tech’s misrepresentations. (Class Representatives’ Decl.,
ECF Nos. 239-26, 239-27, 239-28, 239-29, and 239-30); (Am. Compl., ECF No.
97.) Thus, the claims arise from the same event, are premised on the same
legal theory, and share the same essential characteristics. Thorpe, 2016 WL
4006661, at *8 (finding the plaintiffs satisfied typicality requirement in a
securities fraud case because “[t]he alleged fraudulent statements comprise the
wrongful acts which will serve as the same factual predicate for Plaintiffs and
all members of the class and which will determine whether Defendants are
liable under the same securities fraud theories.”) (emphasis in original); Katz,
2008 WL 4725284, at *3 (in securities fraud and sale of unregistered securities
case, the court found the plaintiffs satisfied the typicality requirement because
the claims stemmed from the same event and were based on the same legal
theories).
(4) Adequacy
Rule 23(a)(4) requires adequacy of representation, stating that “the
representative parties will fairly and adequately protect the interests of the
class.” This requirement applies to both the named plaintiffs and their
counsel. London v. Wal–Mart, Inc., 340 F.3d 1246, 1253 (11th Cir. 2003). The
adequacy analysis encompasses two inquiries: (1) whether any substantial
conflicts of interest exist between the representatives and the class; and
(2) whether the representatives will adequately prosecute the action.” Valley
Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181, 1189 (11th Cir. 2003).
The Court finds that the named Plaintiffs possess the same interests as
the other putative class members. Further, the Court is not aware of any
conflicts that would preclude the named Plaintiffs or their counsel from
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adequately representing and protecting the interests of the proposed class.
Centra Tech argues that there is clearly a conflict between the named
Plaintiffs because Warren has been excluded from the proposed class as he
purchased his CTR Tokens outside the class period. (Resp. in Opp’n, ECF
No. 264 at 11.) This argument is unavailing. Centra Tech fails to cite to any
authority supporting its argument. Warren’s exclusion from the proposed class
does not constitute a substantial conflict for purposes of the adequacy
requirement. Indeed, the Court has already found that Centra Tech is liable to
Warren and has awarded him damages. The other Plaintiffs can continue
representing the interests and rights of the class members. Moreover, Plaintiffs’
counsel has set forth sufficient qualifications and experience in handling
similar matters. (Firm resumes, ECF Nos. 239-2, 239-3.)
Accordingly, the Plaintiffs have satisfied all of the requirements of
Rule 23(a).
D. Requirements of Rule 23(b)
To satisfy Rule 23(b), a movant must show that the action satisfies at
least one of three alternative standards. Pickett v. Iowa Beef Processors, 209
F.3d 1276, 1279 (11th Cir.2000). The Plaintiffs move for class certification
under Rule 23(b)(3), under which certification is appropriate only if:
(1) “questions of law or fact common to class members predominate over any
questions affecting only individual members”; and (2) “a class action is superior
to other available methods for fairly and efficiently adjudicating the
controversy.” Fed. R. Civ. P. 23(b)(3); see also Harris v. Nortek Glob. HVAC LLC,
No. 14-CIV-21884, 2016 WL 4543108, at *3 (S.D. Fla. Jan. 29, 2016) (Bloom,
J.) (citing Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615 (1997)).
(1) Predominance
To satisfy the predominance requirement of Rule 23(b)(3), a movant must
show that issues subject to generalized proof, which are applicable to the
putative class members equally, predominate over issues requiring
individualized evidence. Jackson v. Motel 6 Multipurpose, Inc., 130 F.3d 999,
1005 (11th Cir.1997). Common issues of fact and law predominate if they have
a direct impact on every class member’s effort to establish liability that is more
substantial than the impact of any individualized issues in resolving the claims
of each class member. See Sacred Heart, 601 F.3d at 1170. The court’s inquiry
is typically focused on “whether there are common liability issues which may
be resolved efficiently on a class-wide basis.” Brown v. SCI Funeral Servs. of
Fla., 212 F.R.D. 602, 606 (S.D. Fla. 2003) (Graham, J.).
Case 1:17-cv-24500-RNS Document 322 Entered on FLSD Docket 09/10/2021 Page 14 of 17
In this case, the Plaintiffs allege two distinct causes of action against
Centra Tech: (1) violations of Section 12(a)(1), 15 U.S.C. § 77l(a)(1), of the
Securities Act; and (2) violations of under Section 10(b) of the Exchange Act
and SEC Rule 10b-5. Because these causes of action involve different elements,
the Court will address each cause separately. Generally, class actions are “a
particularly appropriate means for resolving securities fraud actions.” In re
AmeriFirst Sec. Litig., 139 F.R.D. 423, 427 (S.D. Fla. 1991) (Hoeveler, J.).
However, individual issues of reliance may sometimes render a securities class
action inappropriate. Katz, 2008 WL 4725284, at *4.
Section 12(a)(1), 15 U.S.C. § 77l(a)(1), of the Securities Act creates a
private right of action against any person who “offers or sells a security in
violation of” Section 5, 15 U.S.C. § 77e, of the Securities Act. See, e.g., Raiford
v. Buslease, Inc., 825 F.2d 351, 353 (11th Cir. 1987). In order to establish
liability under Section 12(a)(1), a plaintiff must prove (1) the defendants sold or
offered to sell securities; (2) no registration statement was in effect as to the
securities; and (3) interstate transportation or communication and the mails
were used in connection with the sale or offer of sale. SEC v. Levin, 849 F.3d
995, 1001 (11th Cir. 2017). Therefore, claims for the sale of unregistered
securities do not involve individual issues of reliance. Accordingly, courts have
found that cases involving such claims meet the predominance requirement
of Rule 23(b)(3). See Katz, 2008 WL 4725284, at *5; see also In re 1 Glob. Cap.
LLC, No. 18-19121-RAM, 2020 WL 1486791, at *5 (Bankr. S.D. Fla. Mar. 23,
2020) (Mark, J.) (finding action involving claims for the sale of unregistered
securities meets the predominance requirement); Cooper v. Miller Johnson
Steichen Kinnard, Inc., 2003 WL 1955169, *5 (D. Minn. Apr. 21, 2003) (Kyle, J.)
(finding action involving claims for the sale of unregistered securities “easily”
meets the predominance requirement); Dietrich v. Bauer, 192 F.R.D. 119
(S.D.N.Y. 2000) (Sweet, J.) (finding action involving claims for sale of
unregistered securities satisfies the predominance requirement). Accordingly,
the Plaintiffs claims under Section 12(a)(1) satisfy the predominant
requirement.
The elements of a securities fraud claim under Rule 10b are: “(1) that the
defendant committed a deceptive or manipulative act, (2) in furtherance of the
alleged scheme to defraud, (3) with scienter, and (4) reliance.” In re: Altisource
Portfolio Sols., S.A. Sec. Litig., No. 14-81156-CIV- WPD, 2015 WL 11988900, at
*5 (S.D. Fla. Dec. 22, 2015) (citing In re Alstom SA, 406 F. Supp. 2d 433, 474
(S.D.N.Y. 2005)). While the element of reliance is required to establish the
Plaintiffs’ securities fraud claims, the Court finds that that any individual
issues of reliance do not prevent certification of the proposed class.
The Plaintiffs seek to rely on the fraud-created-the-market presumption
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of reliance. Courts that have recognized this theory have limited its use to the
narrow circumstance “where but for the fraud the securities would not have
been marketable.” Lipton v. Documation, Inc., 734 F.2d 740, 747 (11th Cir.
1984) (recognizing that in a setting of “a new issue offering,” certain actors who
introduce an otherwise unmarketable security into the market by means of
fraud could be liable in an action for securities fraud); Katz, 2008 WL 4725284,
at *5 (finding that plaintiffs in a security fraud class action had satisfied the
requirement of predominance through a fraud-created-the-market theory
because the plaintiffs showed that but for the defendant’s fraud, the securities
would have been unmarketable); AAL High Yield Bond Fund v. Ruttenberg, 229
F.R.D. 676, 678-79 (N.D. Ala. 2005) (finding that plaintiffs in putative class
action had satisfied the element of predominance through a fraud-created-themarket presumption because they had shown that but for the defendants’ false
and misleading statements, the securities would not have come on the market
and that the initial offering allowed the defendants to disseminate those false
statements). As evidence of their theory, the Plaintiffs have cited to the criminal
and enforcement actions against Centra Tech and its individual principals for
securities fraud, as well as the white paper, blog posts, and social media posts
that were circulated to induce investors to purchase CTR Tokens during the
ICO. The Court is satisfied that Centra Tech’s misrepresentations, such as
their assurances that the offered securities were backed by Visa and
Mastercard, that they were insured by a third party, or even that they had real
and not fictitious managers, would have prevented CTR Tokens from being
marketed. In light of the foregoing, the Court finds that the plaintiff has
satisfied the predominance requirement of Rule 23(b)(3).
(2) Superiority
To satisfy the superiority requirement of Rule 23(b)(3), a movant must
show that “a class action is superior to other available methods for fairly and
efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). “The focus of
this analysis is on the relative advantages of a class action suit over whatever
other forms of litigation might be realistically available to the plaintiffs.” Sacred
Heart, 601 F.3d at 1183–84. Rule 23(b)(3) lists matters pertinent to this
finding: “(A) the class members’ interests in individually controlling the
prosecution or defense of separate actions; (B) the extent and nature of any
litigation concerning the controversy already begun by or against class
members; (C) the desirability or undesirability of concentrating the litigation of
the claims in the particular forum; and (D) the likely difficulties in managing a
class action.”
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The Plaintiffs argue that it would be superior to manage this litigation as
a class action. They cite to common questions of law, the absence of evidence
that there are any conflicts between individual class members, and the fact
that the action stems from the same event and resulted in the same kind of
harm to the Plaintiffs.
At oral argument, and for the first time in this litigation, Centra Tech
argued that a class action is not superior because the relief would be
duplicative of the enforcement and criminal actions against Centra Tech’s
principals. Centra Tech offered no evidence to support its proposition that
those actions would provide full relief to the class members, nor did it cite to
any case law. In response, counsel for the Plaintiffs represented that he had
spoken to government attorneys regarding a risk of duplicative awards to the
Plaintiffs and learned that those actions were not guaranteed to result in a
financial award to the putative class members.
Class treatment is often the best method for resolving securities fraud
claims predicated on public misrepresentations. See, e.g., Kennedy v. Tallant,
710 F.2d 711, 718 (11th Cir. 1983) (affirming certification of securities fraud
class action and noting “[i]ndeed, we find that this suit involving a single
conspiracy and fraudulent scheme against a large number of individuals is
particularly appropriate for class action. Separate actions by each of the class
members would be repetitive, wasteful, and an extraordinary burden on the
courts.”); In re AmeriFirst Sec. Litig., 139 F.R.D. at 427 (“It is well-recognized
that class actions are a particularly appropriate means for resolving securities
fraud actions.”); In re Health Ins. Innovations Sec. Litig., No. 8:17-CV-2186-T60SPF, 2020 WL 10486665, at *6 (M.D. Fla. Oct. 21, 2020) (Flynn, J.), report
and recommendation adopted, No. 8:17-CV-2186-T-60SPF, 2020 WL 10486666
(M.D. Fla. Nov. 19, 2020) (Barber, J.) (“It is well recognized that
a class action is not only a superior method but sometimes the only feasible
method to fairly and efficiently adjudicate a controversy, such as this one,
involving a large number of purchasers of securities allegedly injured
by securities law violations.”). This case is no exception. The Court is not aware
of any reason why the putative class members might have a special interest in
controlling their individual claims. On the contrary, it appears that the class
members would favor class treatment because there are an abundance of
common issues and facts in this case. See Gen. Tel. Co. of Sw. v. Falcon, 457
U.S. 147, 155 (1982) (“Class relief is peculiarly appropriate when the issues
involved are common to the class as a whole and when they turn on questions
of law applicable in the same manner to each member of the class because it
saves the resources of both the courts and the parties by permitting an issue
potentially affecting every class member to be litigated in an economical
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fashion under Rule 23.”) (internal quotations omitted); Sacred Heart, 601 F.3d
at 1184 (“[T]he predominance analysis has a tremendous impact on the
superiority analysis for the simple reason that, the more common issues
predominate over individual issues, the more desirable a class action lawsuit
will be as a vehicle for adjudicating the plaintiffs' claims both relative to other
forms of litigation such as joinder or consolidation, and in absolute terms of
manageability.”) (internal quotations omitted).
Accordingly, class certification is warranted under Rule 23.
5. Conclusion
For the reasons stated herein, the Court grants the Plaintiffs’ renewed
motion for class certification. (ECF No. 239.) Lead Plaintiffs Jacob Zowie
Thomas Rensel and Wang Yun He, and proposed class representatives Chi Hao
Poon, King Fung Poon, Jae J. Lee, and Mateusz Ganczarek are appointed as
Class Representatives. Additionally, Levi & Korsinsky, LLP and TaylorCopeland Law are hereby appointed as Class Counsel.
Done and ordered, in chambers, in Miami, Florida on September 10,
2021.
Robert N. Scola, Jr.
United States District Judge
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