In March, a New York federal judge certified a class of shareholders of certain funds that invested money in the Ponzi scheme operated by Bernie Madoff. Anwar v. Fairfield Greenwich Limited, No. 09 Civ. 0118 (S.D.N.Y. Mar. 3, 2015). Madoff, of course, pled guilty to various federal felonies and was sentenced to 150 years in prison. Plaintiffs in Anwar brought a number of claims against the defendant funds: tort claims, violations of securities law, and breach of contract. Most pertinent to this post, plaintiffs allege that the defendants made misrepresentations about the funds.
The Second Circuit had vacated an earlier decision certifying the class, ordering the lower court to determine whether common evidence could show reliance by the class on the defendants’ alleged misrepresentations. Because plaintiffs sought to certify a Rule 23(b)(3) class, the court had to decide whether common issues predominate over individual issues. The defendants argued that common issues could not predominate over individual issues on the reliance question because the communications containing the alleged misrepresentations varied between class members. Furthermore, the defendants offered evidence that some class members never received or read the communications containing the representations.
The court dismissed these arguments, finding that common issues predominate over individual issues, despite this variation among class members. The court stressed that the communications were allegedly uniformly misleading and that any variations were immaterial. This holding is consistent with earlier Second Circuit precedent, but what is notable is that this remains good law after Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). While the court also acknowledged the fact that certain class members not receiving any of the communications at issue created individual issues, it emphasized that the relevant inquiry is whether common issues predominate over individual issues; the mere presence of individual issues will not defeat class certification, as the court can address them at a later stage. As the court had held in its earlier opinion in this case, for example, the defendants could request that subclasses be created.
The court’s decision to certify the class despite the presence of individual issues owes much to the fact that the transactions at issue were financial ones—the purchase of securities. The court quoted a 2013 decision finding that “in the context of a financial transaction—which does not usually implicate the same type or degree of personal idiosyncratic choice as does a consumer purchase—payment alone may constitute circumstantial proof of reliance upon a financial misrepresentation.” Thus, variation among class members in the form of the misrepresentations is less of a concern in a securities fraud case than in most other types of fraud cases. It’s unlikely, for example, that a court would certify a class claiming misrepresentations about razors if the class members received different communications.
Fraud is generally not a claim well-suited for class certification, especially in a post-Dukes jurisprudential era. Alleged misrepresentations, and class members’ reliance on those misrepresentations, are likely to raise a host of individual questions. It’s fair to say, however, that securities fraud class action plaintiffs do not face quite the same uphill battle.