One might suppose that, to serve as a class representative in a class action, a plaintiff must itself be a member of the proposed class. In Cordes & Co. Fin. Servs. v. A.G. Edwards & Sons, Inc., No. 06-2143-cv (2d Cir. Sept. 11, 2007), however, the U.S. Court of Appeals for the Second Circuit reversed a district court ruling that had adhered too strictly to this principle. The district court had held that assignees of class members that were not themselves members of the class could not serve as class representatives. In an interlocutory appeal certified under Fed. R. Civ. P. 23(f), the Second Circuit rejected this “categorical approach” and held that the fact that the plaintiffs were not members of the proposed class did not, by itself, preclude them from serving as class representatives.

The Cordes plaintiffs asserted that the defendants, who are initial public offering (“IPO”) underwriters, violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by agreeing to charge all corporations conducting “mid-size” IPOs a fee equal to seven percent of the proceeds of the offering. The first named plaintiff had purchased the interest supporting its claim from the bankruptcy estate of a corporation that had conducted an IPO in 1995. The bankruptcy trustee had instituted an antitrust action against the defendants prior to the assignment, and the named plaintiff subsequently purchased the bankruptcy estate’s interest in the antitrust litigation. The claim of the second named plaintiff, which had also filed for bankruptcy protection, was being pursued by a trust of unsecured creditors that had acquired a two-thirds stake in any recovery that the second named plaintiff might obtain in the case. The Second Circuit noted that “[t]his case might be termed a ‘textbook example’” of the “value of allowing an assignee to stand in the shoes of the assignor before a court” because “the assignments pursuant to which Cordes and Creditors Trust are litigating this case promoted the winding up of complicated estates in bankruptcy to the benefit of creditors.”

The court did suggest that the plaintiffs’ status as assignees could prevent them from serving as class representatives if, for example, the plaintiffs had inadequate access to information necessary to pursue the claims of the class properly or if their interests were not sufficiently aligned with those of class members. The court remanded the case to the district court to determine whether the plaintiff-assignees could “fairly and adequately protect the interests of the class” as required by Fed. R. Civ. P. 23 (a)(4).

The court also directed the district court to reconsider on remand its conclusion that common questions of law or fact did not predominate over questions affecting only individual members under Fed. R. Civ. P. 23 (b)(3) because, according to the district court, the plaintiffs had failed to provide evidence that antitrust injury could be proven by a method common to the class. The court noted that “[t]he antitrust injury element raises both factual questions related to whether the plaintiff has suffered harm and legal questions related to whether that harm is of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” (Citation omitted.) The court concluded that the district court had failed to distinguish between the legal issue of whether the harm alleged constitutes antitrust injury, which the court held was common to the class, and the factual issue of whether each plaintiff had suffered an injury in fact.