Opinion
Civil No. 14-cv-443-JL
09-30-2019
Adam S. LEVY, v. Thomas GUTIERREZ, et al.
Avi Josefson, Gerald Silk, Pro Hac Vice, John C. Browne, Bernstein Litowitz Berger & Grossmann LLP, New York, NY, Jeffrey C. Spear, Jennifer A. Eber, Orr & Reno PA, Concord, NH, for Adam S. Levy. Jason D. Frank, Bingham McCutchen LLP, Emily E. Renshaw,, Pro Hac Vice, Jordan D. Hershman, Pro Hac Vice, William R. Harb, Pro Hac Vice, Morgan Lewis & Bockius LLP, Ian D. Roffman, Joseph Toomey, Pro Hac Vice, Nutter McClennen & Fish LLP, Gregory L. Demers, Pro Hac Vice, R. Daniel O'Connor, Pro Hac Vice, Randall W. Bodner, Pro Hac Vice, Firm Ropes & Gray LLP, Boston, MA, Brian J.S. Cullen, Cullen Collimore PLLC, Nashua, NH, David A. Katz, Pro Hac Vice, Kevin Schwartz, Pro Hac Vice, Wachtell Lipton Rosen & Katz, Richard A. Rosen, Pro Hac Vice, Paul Weiss Rifkind Wharton & Garrison, Miles N. Ruthberg, Pro Hac Vice, Jason C. Hegt, Pro Hac Vice, Sarah E. Diamond, Pro Hac Vice, Latham & Watkins LLP, New York, NY, Brenda E. Keith, Edmund J. Boutin, Boutin & Altieri PLLC, Londonderry, NH, Hilary H. Mattis, Pro Hac Vice, Matthew Rawlinson, Pro Hac Vice, Latham & Watkins LLP, Menlo Park, CA, Brian T. Glennon, Pro Hac Vice, Latham & Watkins LLP, Los Angeles, CA, Nathan Reed Fennessy, Preti Flaherty Beliveau Pachios LLP, Concord, NH, for Thomas Gutierrez, et al.
Avi Josefson, Gerald Silk, Pro Hac Vice, John C. Browne, Bernstein Litowitz Berger & Grossmann LLP, New York, NY, Jeffrey C. Spear, Jennifer A. Eber, Orr & Reno PA, Concord, NH, for Adam S. Levy.
Jason D. Frank, Bingham McCutchen LLP, Emily E. Renshaw,, Pro Hac Vice, Jordan D. Hershman, Pro Hac Vice, William R. Harb, Pro Hac Vice, Morgan Lewis & Bockius LLP, Ian D. Roffman, Joseph Toomey, Pro Hac Vice, Nutter McClennen & Fish LLP, Gregory L. Demers, Pro Hac Vice, R. Daniel O'Connor, Pro Hac Vice, Randall W. Bodner, Pro Hac Vice, Firm Ropes & Gray LLP, Boston, MA, Brian J.S. Cullen, Cullen Collimore PLLC, Nashua, NH, David A. Katz, Pro Hac Vice, Kevin Schwartz, Pro Hac Vice, Wachtell Lipton Rosen & Katz, Richard A. Rosen, Pro Hac Vice, Paul Weiss Rifkind Wharton & Garrison, Miles N. Ruthberg, Pro Hac Vice, Jason C. Hegt, Pro Hac Vice, Sarah E. Diamond, Pro Hac Vice, Latham & Watkins LLP, New York, NY, Brenda E. Keith, Edmund J. Boutin, Boutin & Altieri PLLC, Londonderry, NH, Hilary H. Mattis, Pro Hac Vice, Matthew Rawlinson, Pro Hac Vice, Latham & Watkins LLP, Menlo Park, CA, Brian T. Glennon, Pro Hac Vice, Latham & Watkins LLP, Los Angeles, CA, Nathan Reed Fennessy, Preti Flaherty Beliveau Pachios LLP, Concord, NH, for Thomas Gutierrez, et al.
MEMORANDUM ORDER
Joseph N. Laplante, United States District Judge This is a putative securities law class action, concerning allegedly untrue or misleading statements made to investors about material components for the iPhone, involves the question of whether short sellers, arbitrageurs, and other sophisticated investors who do not believe that the market price for a security reflects all public information at the time they transact (collectively, "value investors") may invoke the presumption of reliance articulated in Basic v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), even though the presumption is based on the idea that investors rely on the integrity of market prices. Lead plaintiff Douglas Kurz, together with Securities Act plaintiff Palisade Strategic Master Fund (Cayman) Limited (collectively "plaintiffs"), has moved to certify a proposed class consisting of all people and entities that acquired GTAT common stock, GTAT's 3% Convertible Notes Due 2020, or publicly-traded options for GTAT common stock from November 5, 2013 through October 6, 2014, at 9:40 a.m. EST, under Fed. R. Civ. P. 23(a) & 23(b)(3). Apple, Inc., the last remaining defendant, opposes class certification, asserting that individualized issues will predominate as to proving damages and reliance — core elements of the plaintiffs' securities fraud claim. In addition, Apple asserts that Kurz and Palisades would be atypical and inadequate class representatives due to their investment strategies. After considering the parties' written and oral arguments, the court concludes these plaintiffs may invoke the Basic presumption.
Doc. nos. 203 (redacted) and 204 (sealed, unredacted version).
In Halliburton Co. v. Erica P. John Fund, the Supreme Court affirmed that although sophisticated value investors may have divergent motivations and beliefs about markets as compared to traditional investors, these investors still presumably "rel[y] on the fact that a stock's market price will eventually reflect material information" when making investment decisions. 573 U.S. 258, 134 S.Ct. 2398, 189 L.Ed.2d 339 (2014) (" Halliburton II"). Apple has not persuaded this court that the integrity of market prices played no part whatsoever in a value investors' decision making, or that value investors like Palisade would have employed similar investment strategies had they been aware the price for GTAT securities was tainted by fraud. As such, Kurz and Palisade may invoke the Basic presumption to prove reliance on a classwide basis, regardless of the number of value investors that qualify as absent class members. In addition, Kurz and Palisade have adequately demonstrated that damages for each claim can be calculated on a classwide basis under a formula that can account for each class member's individual circumstances. Accordingly, the proposed class satisfies each Rule 23(a) and Rule 23(b)(3) requirement for class certification. The motion is granted.
I. Background
The plaintiffs' allegations are more thoroughly detailed in the court's May 4, 2017 order on the defendants' motion to dismiss. At the core of this case, the plaintiffs seek to recover damages for allegedly untrue or misleading statements made to GT Advanced Technologies Inc. ("GTAT") investors about GTAT's ability to produce sapphire materials exclusively for Apple. Historically, GTAT produced and sold advanced sapphire crystallization furnaces ("ASFs") to third parties, which then used the ASFs to produce synthetic sapphire. By mid-2013, however, GTAT's furnace-production operation began to struggle, prompting it to negotiate a transformative deal with Apple in which GTAT would exclusively manufacture and provide sapphire for Apple's products.
Doc. no. 150. The following account draws from that order, as well as the parties' briefing on the class certification motion.
Under the Apple-GTAT agreement, Apple constructed and provided GTAT a facility in Arizona to operate more than 2,000 ASFs to produce sapphire. In addition, Apple agreed to fully cover GTAT's costs through four prepaid installments. On November 4, 2013, GTAT announced details about the agreement to investors, claiming it would significantly boost GTAT's revenue. Three days later, it provided additional details in its quarterly report to the Securities and Exchange Commission.
In the days after the announcement, GTAT's securities prices jumped. In December 2013, GTAT commenced a new securities offering for 3% Convertible Notes and a secondary offering for common stock. The plaintiffs emphasize that during this time, GTAT and its executives consistently represented that GTAT "was experiencing great success in fulfilling the terms of the Apple agreement and that GTAT's cash position was strong." Apple, in turn, notes that some market observers "recognized the technological and economic challenges GTAT faced," and that even lead plaintiff Kurz testified in his deposition that he believed it was " ‘really unlikely ... that the material production at that scope and magnitude would be able to be successfully implemented in such a short period of time.’ "
Pls. Mot. for Class Cert. Mem. (doc. no. 203-1) at 5. The plaintiffs further assert that Apple exercised inordinate control over GTAT's facilities and operations and dictated the information GTAT was allowed to disclose to investors. Id. at 8-9.
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 7 (quoting Kurz Depo. (doc. no 210-27) at 72:6-73:2).
On September 9, 2014, Apple publicly announced its then-newest iPhone models, both of which featured ion-strengthened glass, not sapphire, cover screens. According to the plaintiffs, "the price of GTA securities declined precipitously" thereafter. One month later, GTAT announced that it had filed for bankruptcy protection, "destroying virtually any remaining value in the Company's securities." The plaintiffs assert that these "disclosures" revealed to investors that Apple and GTAT's statements concerning their agreement were false and misleading, that is, "that GTAT's executives believed from the very start ... that the Apple[-GTAT] Agreement was a disaster for the Company."
Pls. Mot. for Class Cert. Mem. at 5-6.
Id. As part of GTAT's bankruptcy plan, the Bankruptcy Court deemed all claims against GTAT prior to March 2016, including claims arising in this action, to be satisfied, discharged, and released in full. See Order Confirming Amended Joint Plan, GTAT, No. 14-11916-HJB (Bankr. D.N.H. Mar. 8, 2016) (filed as doc. no. 225-9), ¶ 13.4.
Consol. Compl. (doc. no. 87) ¶ 17.
Three days after GTAT declared bankruptcy, individual plaintiffs began filing class action complaints against Apple and other defendants for violations of the Securities Act of 1933 ("Securities Act"), the Securities Exchange Act of 1934 ("Exchange Act"), and SEC Rule 10b-5, see 17 C.F.R. § 240.10b–5. These complaints were ultimately consolidated for all purposes as part of this proceeding. In May 2015, the court appointed Douglas Kurz as lead plaintiff. In May 2017, the court dismissed some of the plaintiffs' consolidated claims, but denied the defendants' request to dismiss this action in its entirety. In June 2018, the court granted final approval to settlements reached with the individual GTAT defendants and with the underwriter defendants. Now, more than three years into this litigation, Apple remains as the only defendant left to oppose the plaintiffs' motion for class certification.
Doc. no. 77.
See Mem. Order Granting and Denying Mot. to Dismiss (doc. no. 150) at 3-26.
Doc. no. 183.
II. Applicable legal standard
A. Class certification
The plaintiffs have moved for class certification under Fed. R. Civ. P. 23(b)(3). The proposed class consists of:
All persons and entities who: (i) purchased or otherwise acquired GTAT's publicly traded common stock and/or debt securities; purchased or otherwise acquired publicly traded call options on GTAT common stock; or sold publicly traded put options on GTAT common stock during the Class Period from November 5, 2013 through 9:40am Eastern Standard Time on October 6, 2014, inclusive; (ii) purchased or otherwise acquired securities in or traceable to the Company's offering of $214 million in aggregate principal amount of its 3.00% Convertible Senior Notes due 2020 conducted on or around December 5, 2013; or (iii) purchased or otherwise acquired securities in or traceable to the Company's offering of 9,942,196 shares of common stock conducted on or around December 5, 2013 and were damaged thereby.
See Pls. Mot. for Class Cert. Mem. (doc. no. 203-1) at 2. "Excluded from the Class are Defendants; Defendants' affiliates and subsidiaries; the officers and directors of GTAT and Apple and their subsidiaries and affiliates at all relevant times; members of the immediate family of any excluded person; heirs, successors, and assigns of any excluded person or entity; and any entity in which any excluded person has or had a controlling interest." Id. at n.2.
To obtain class certification, the plaintiffs must establish by a preponderance of the evidence that Rule 23(a)'s four prerequisites are satisfied. See, e.g., In re Nexium Antitrust Litig., 777 F.3d 9, 18 (1st Cir. 2015). Specifically, the plaintiffs must show:
(1) the [proposed] class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a). These requirements "ensure[ ] that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate," Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 349, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), and " ‘effectively limit the class claims to those fairly encompassed by the named plaintiffs claims.’ " Id. (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982) ).
Where, as here, the plaintiffs have moved to certify the proposed class under Rule 23(b)(3), they must also satisfy the rule's predominance and superiority requirements. This requires a showing that "questions of law or fact common to class members predominate over any questions affecting only individual members, and that 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 In re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6, 18 (1st Cir. 2008).
These rules "do[ ] not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule." Wal-Mart Stores, 564 U.S. at 350, 131 S.Ct. 2541. The court, in turn, must engage in a "rigorous analysis," which may involve "prob[ing] behind the pleadings." Id. (quoting Gen. Tel. Co., 457 U.S. at 160, 102 S.Ct. 2364 ); see also In re Nexium, 777 F.3d at 18. For example, in a securities fraud action such as this where the plaintiffs have invoked the Basic presumption, see infra Part II.B, the court is "entitled to look beyond the pleadings in its evaluation of the applicability of the fraud-on-the-market presumption of reliance, and its resolution of the class-certification question." In re PolyMedica Corp. Sec. Litig., 432 F.3d 1, 6 (1st Cir. 2005). But the court may not turn the class-certification proceeding into an unwieldy trial on the merits. See id. at 17. Rather, the court may inquire into the merits of the action only "to the extent that the merits overlap the Rule 23 criteria." New Motor Vehicles, 522 F.3d at 24 ; In re Celexa & Lexapro Mktg. & Sales Practices Litig., 315 F.R.D. 116, 121 (D. Mass. 2016), leave to appeal denied sub nom. In re Celexa & Lexapro (D. Mass. June 17, 2016).
B. Basic v. Levinson's presumption of reliance
"In a securities fraud action under § 10(b) of the Exchange Act, and Rule 10b–5 promulgated thereunder, plaintiffs are typically required to prove that they individually relied on a defendant's misrepresentation." In re Xcelera Sec. Litig., 430 F.3d 503, 507 (1st Cir. 2005). "The traditional (and most direct) way a plaintiff can demonstrate reliance is by showing that [they were] aware of a company's statement and engaged in a relevant transaction — e.g., purchasing common stock — based on that specific misrepresentation." Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 810, 131 S.Ct. 2179, 180 L.Ed.2d 24 (2011) (" Halliburton I"). In Basic v. Levinson, however, the Court recognized that "requiring such direct proof of reliance ... place[s] an unnecessarily unrealistic evidentiary burden on" plaintiffs who have "traded on an impersonal market." Halliburton II, 573 U.S. at 268, 134 S.Ct. 2398 (citing Basic, 485 U.S. at 245, 108 S.Ct. 978 ). "That is because, even assuming an investor could prove that he was aware of the misrepresentation, [they] would still have to ‘show a speculative state of facts,’ " that is, " ‘how [they] would have acted ... if the misrepresentation had not been made.’ " Id. (quoting Basic, 485 U.S. at 245, 108 S.Ct. 978 ). The Court also noted that "[r]equiring proof of individualized reliance" from every securities fraud plaintiff "effectively would ... prevent[ ] [plaintiffs] from proceeding with a class action" in securities fraud suits. Basic, 485 U.S. at 242, 108 S.Ct. 978. "If every plaintiff had to prove direct reliance on the defendant's misrepresentation, ‘individual issues then would ... overwhelm[ ] the common ones,’ making certification under Rule 23(b)(3) inappropriate." Halliburton II, 573 U.S. at 268, 134 S.Ct. 2398 (quoting Basic 485 U.S. at 242, 108 S.Ct. 978 ).
To address these concerns, the Basic Court established a presumption of reliance based on two constituent presumptions. "First, if a plaintiff shows that the defendant's misrepresentation was public and material and that the stock traded in a generally efficient market, [they are] entitled to a presumption that the misrepresentation affected the stock price." Id. at 279, 134 S.Ct. 2398. This is because, under the fraud-on-the market theory, "the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations." Id. at 268, 134 S.Ct. 2398. "Second, if the plaintiff also shows that he purchased the stock at the market price during the relevant period, he is entitled to a further presumption that he purchased the stock in reliance on the defendant's misrepresentation." Id. at 279, 134 S.Ct. 2398.
A successful showing, however, is "rebuttable rather than conclusive." Id. at 268, 134 S.Ct. 2398. "Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or [their] decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance." Basic, 485 U.S. at 248, 108 S.Ct. 978. "So for example, if a defendant could show that the alleged misrepresentation did not, for whatever reason, actually affect the market price, or that a plaintiff would have bought or sold the stock even had [they] been aware that the stock's price was tainted by fraud, then the presumption of reliance would not apply." Halliburton II, 573 U.S. at 269, 134 S.Ct. 2398 (citing Basic, 485 U.S. at 248–249, 108 S.Ct. 978 ). "In either of those cases, a plaintiff would have to prove that [they] directly relied on the defendant's misrepresentation in buying or selling the stock." Id. In the class certification context, if the presumption were rebutted as to a sizable portion of a purported class, individual showings of reliance would effectively foreclose the plaintiffs' ability to satisfy Rule 23(b)(3)'s predominance requirement. See Arkansas Teachers Ret. Sys. v. Goldman Sachs Grp., Inc., 879 F.3d 474, 482–83 (2d Cir. 2018) ("If every plaintiff had to prove she relied on a misrepresentation in choosing to buy stock, ... individual issues of reliance would overwhelm common ones and make certification under Rule 23(b)(3) inappropriate in every case."); In re PolyMedica, 432 F.3d at 7 (noting that individual showings of reliance "would effectively foreclose securities fraud class actions because individual questions of reliance would inevitably overwhelm the common ones").
Compare GAMCO Inv'rs, Inc. v. Vivendi, S.A., 927 F. Supp. 2d 88, 100 (S.D.N.Y. 2013), aff'd sub nom. GAMCO Inv'rs, Inc. v. Vivendi Universal, S.A., 838 F.3d 214 (2d Cir. 2016) ("[A] class may be certified despite the presence of members who allegedly did not rely on the integrity of the market."), and In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267, 282 (S.D.N.Y. 2003) (rejecting argument that institutional investor plaintiffs were atypical because "[m]aking careful investment decisions does not disqualify an investor from representing a class of defrauded investors or from relying on the presumption of reliance"), with Ganesh, L.L.C. v. Computer Learning Ctrs., Inc., 183 F.R.D. 487, 491 (E.D. Va. 1998) (denying class certification because the number of shares shorted exceeded the company's shares outstanding, but allowing plaintiffs to replead and simply exclude short sellers from the class definition).
Here, Apple does not dispute the plaintiffs' affirmative showings for invoking the Basic presumption. Instead, it contends that certain value investors — specifically, those engaged in short sales, market-neutral convertible arbitrage, or options trading — are categorically foreclosed from invoking Basic's presumption of reliance. Apple therefore bears the burden of rebutting the presumption of reliance as to these investors by a preponderance of the evidence. See Waggoner v. Barclays PLC, 875 F.3d 79, 103 (2d Cir. 2017), cert. denied, ––– U.S. ––––, 138 S. Ct. 1702, 200 L.Ed.2d 954 (2018).
In short, the plaintiffs have shown that the alleged misrepresentations were public statements that were material to investors, and that the purported class purchased GTAT securities "between when the misrepresentations were made and when the truth was revealed." Halliburton II, 573 U.S. at 278, 134 S.Ct. 2398 ; see Consol. Compl. (doc. no. 87) ¶¶ 217-76, 360-376; Kurz Decl. (doc. no. 35-3). They also have demonstrated through the report of their expert, Chad Coffman, "that the markets for GTAT stock, 3% Notes, and options were efficient during the Class Period," as analyzed under the Cammer and Krogman factors. See Pls. Mot. for Class Cert. Mem. (doc. no. 203-1) (citing Coffman Report, Sections VII, VIII, IX (doc. no. 203-3) at 11-59); see generally Cammer v. Bloom, 711 F. Supp. 1264 (D. N.J. 1989) (identifying as relevant factors (1) average weekly trading volume, (2) analyst coverage, (3) market makers, (4) SEC Form S–3 eligibility, and (5) price reaction to unexpected information, in addition to other factors courts consider in addressing efficiency); Krogman v. Sterritt, 202 F.R.D. 467, 474 (N.D. Tex. 2001) (identifying as additional factors "(1) the capitalization of the company; (2) the bid-ask spread of the stock; and (3) the percentage of stock not held by insiders (the ‘float’)").
III. Class Certification Analysis
Apple focuses its class certification opposition on two of the plaintiffs' six required showings. First, it contends that individualized issues will predominate, see Fed. R. Civ. P. 23(b)(3), because the plaintiffs purportedly (i) cannot prove reliance – a core element of their securities fraud claim – on a classwide basis and (ii) have not provided a methodology for calculating classwide damages. Second, Apple contends that Palisade and Kurz are neither typical nor adequate, see Fed. R. Civ. P. 23(a)(3)(4), and thus cannot serve as representatives of the proposed class. Each of these contentions turns, in part, on whether value investors like Palisade, who employ sophisticated investment strategies to beat the market, may properly invoke Basic's presumption of reliance. The court therefore focuses on these specific contentions. After conducting a "rigorous analysis" into whether the plaintiffs have satisfied each Rule 23(a) and 23(b)(3) prerequisite, see Comcast Corp. v. Behrend, 569 U.S. 27, 33, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013) ; In re Nexium, 777 F.3d at 17-18, the court concludes that class certification is warranted under Rule 23(b)(3).
Although not disputed, the court still finds that the Rule 23(a) requirements of numerosity, commonality, and adequacy of counsel are met here. See Wal–Mart Stores, Inc., 564 U.S. at 350–51, 131 S.Ct. 2541 ("[C]ertification is proper only if ‘the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) [and here, Rule 23(b)(3),] have been satisfied.’ " (quoting Gen. Tel. Co., 457 U.S. at 161, 102 S.Ct. 2364 ). The proposed class, consisting of thousands, if not tens-of-thousands, of GTAT shareholders, see Coffman Report (doc. no. 203-3) ¶ 64, readily satisfies Rule 23(a)'s numerosity threshold. See, e.g., In re Colgate-Palmolive Softsoap Antibacterial Hand Soap Mktg. & Sales Practices Litig., No. 12-MD-2320-PB, 2015 WL 7282543, at *5 (D.N.H. Nov. 16, 2015) (Barbadoro, J.) (explaining that 40 individuals are generally sufficient (citation omitted)). Next, the proposed class's alleged injuries arise from the same conduct – the defendants' alleged misrepresentations and omissions regarding the Apple-GTAT venture – satisfying Rule 23(a) commonality's "low hurdle." See In re Bos. Sci. Corp. Sec. Litig., 604 F. Supp. 2d 275, 281 (D. Mass. 2009) (Woodlock, J.). Finally, the plaintiffs have shown that their counsel is qualified and will vigorously prosecute this case. See Pls. Mot. for Class Cert. Mem. (doc. no. 203-1) at 25; Firm Resume (doc. no. 203-21).
A. Predominance
To certify a class under Rule 23(b)(3), a court must find that "questions of law or fact common to class members predominate over any questions affecting only individual members." Fed R. Civ. P. 23(b)(3). The focus of this inquiry is "whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem Prods. v. Windsor, 521 U.S. 591, 594, 623, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). "[W]here common issues otherwise predominated, courts have usually certified Rule 23(b)(3) classes even though individual issues were present in one or more affirmative defenses. After all, Rule 23(b)(3) requires merely that common issues predominate, not that all issues be common to the class." Smilow v. Southwestern Bell Mobile Systems, Inc., 323 F.3d 32, 39 (1st Cir. 2003) (citations omitted).
An inquiry into predominance "begins, of course, with the elements of the underlying cause of action." Halliburton I, 563 U.S. at 809, 131 S.Ct. 2179. The plaintiffs seek liability against Apple as a "controlling person" under both Section 15 of the Securities Act and Section 20(a) of the Exchange Act. The plaintiffs claim that, as a controlling person, Apple remains liable for the Securities Act and Exchange Act violations by the other (now-dismissed) defendants, so long as the plaintiffs can establish these defendants actually violated these laws. The alleged violations include securities fraud, see 17 U.S.C. § 78j (codifying Section 10(b) of the Exchange Act); SEC Rule 10b-5, 17 C.F.R. 250.10b-5 (SEC regulation promulgated under Section 10(b)), and making materially misleading statements or omissions in registration statements with the Securities and Exchange Commission, see 15 U.S.C. § 77k (codifying section 11 of the Securities Act); see also 15 U.S.C. § 77l (codifying section 12(a) of the Securities Act).
To prevail on their Securities Act claim against Apple, the plaintiffs must ultimately demonstrate the elements of an underlying misrepresentation-relating-to-a-security-offering claim, specifically, that:
(1) [they] purchased a registered security, either directly from the issuer or in the aftermarket following the offering; (2) the defendant participated in the offering in a manner sufficient to give rise to liability under section 11; and (3) the registration statement "contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358–59 (2d Cir. 2010) (quoting 15 U.S.C. § 77k(a) ); see also Pension Tr. v. J. Jill, Inc., 360 F. Supp. 3d 17, 22 (D. Mass. 2018) ("Claims under sections 11 and 12(a)(2) are therefore Securities Act siblings with roughly parallel elements ...." (quoting Morgan Stanley, 592 F.3d at 359-60 )); 15 U.S.C. § 77l(a)(2). Notably, Sections 11 and 12(a) of the Securities Act "impose[ ] strict liability on issuers" and do not require proof of scienter or reliance. See Silverstrand Invs. v. AMAG Pharm., Inc., 707 F.3d 95, 102 (1st Cir. 2013). Thus, plaintiffs must establish only the falsity and materiality of the defendants' statements, each of which are generally amenable to common proof. See Amgen Inc. v. Conn. Retirement Plans and Trust Funds, 568 U.S. 455, 459, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013). Accordingly, the plaintiffs' Securities Act claims satisfy Rule 23(b)(3) predominance. See also In re Constar Int'l Inc. Sec. Litig., 585 F.3d 774, 785 (3d Cir. 2009) (In opposing class certification, "[t]he formulaic nature of § 11 [of the Securities Act] leaves defendants with little room to maneuver.").
In addition, class-wide damages are calculable using a straightforward statutory formula. See 15 U.S.C. § 77k(e).
The plaintiffs' Exchange Act claims, in contrast, require a more demanding showing for class certification. To prevail, the plaintiffs must establish: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Halliburton II, at 267, 134 S.Ct. 2398 (internal citation and quotation marks omitted); see also Bos. Sci. Corp., 604 F. Supp. 2d at 282. Although most of these elements are generally amenable to common proof, see Amgen, 568 U.S. at 475, 133 S.Ct. 1184 ("[L]oss causation and the falsity or misleading nature of the defendant's alleged statements or omissions are common questions that need not be adjudicated before a class is certified."), Apple argues that two elements in this case – reliance and economic loss – are not, thereby undermining Rule 23 predominance. The court disagrees.
1. Reliance
For their Exchange Act claims, the plaintiffs invoke the Basic presumption to establish reliance under one common, classwide theory. As discussed supra, Apple does not contest that the plaintiffs have made the requisite showing to rely on the presumption. Instead, Apple contends that individualized issues will predominate and preclude class certification because significant portions of the proposed class consist of sophisticated, "value investors" who utilized strategies that would earn profits regardless of whether alleged fraud tainted the price of GTAT securities. In particular, it contends that three types of GTAT investors – short sellers, market neutral convertible arbitrageurs, and option traders – categorically cannot invoke Basic's presumption of reliance because for these investors, price integrity is (purportedly) marginally irrelevant. If true, these investors would be required to make individual showings of reliance, rather than relying on a classwide theory, which in turn would result in individual issues predominating over common ones (lest they be excluded from the proposed class). The court, however, disagrees with Apple's premise that value investors are categorically indifferent to price integrity or market fraud.
See Section II, supra, at 55–56.
"There is a fundamental difference between an investor's presumption that the market price will move and the fact that the price was tainted by fraud." Moskowitz v. Lopp, 128 F.R.D. 624, 631 (E.D. Pa. 1989) (holding that a sophisticated investor satisfied Rule 23(a) typicality, despite its "strategy of employing options, together with simultaneous buy-sell orders, to make profits by focusing not on whatever underlying value may have been reflected in [the] stock price, but on short-term price movements"). "Most investors purchase stock based on the belief that the market is, in some way and for some reason, undervaluing the stock and that the stock will thereafter appreciate." In re Computer Scis. Corp. Sec. Litig., 288 F.R.D. 112, 123 (E.D. Va. 2012). These decisions are "not a statement that the market does not reflect a collective assessment of currently available information," id., but rather, reflect the investor's thinking that they "see opportunities others[, on average] have missed," In re Diamond Foods, Inc., Sec. Litig., 295 F.R.D. 240, 253 (N.D. Cal. 2013). Value investors trade in the same efficient markets as more traditional investors and generally are no different in their thinking. "The fact that these traders have divergent motivations in purchasing shares should not defeat the fraud-on-the-market presumption absent convincing proof that price paid no part whatsoever in their decision making." In re Bally Manufacturing Securities Corp. Litig., 141 F.R.D. 262, 269 n. 6 (N.D. Ill. 1992) (internal citations and quotations omitted).
On this point, the Supreme Court's relatively recent decision in Halliburton II is instructive. In Halliburton II, the petitioner similarly contested the notion that all investors trade in reliance on the integrity of the market price by "identifying classes of investors for whom ‘price integrity’ is supposedly ‘marginally irrelevant.’ " See 573 U.S. at 273, 134 S.Ct. 2398 (internal citation omitted). "The primary example [wa]s the value investor, who believes that certain stocks are undervalued or overvalued and attempts to ‘beat the market’ by buying the undervalued stocks and selling the overvalued ones." Id. (internal citation omitted). The Court explained that Basic concluded " ‘it is reasonable to presume that most investors .. will rely on the security's market price as an unbiased assessment of the security's value in light of all public information.’ " Id. (quoting Amgen, 568 U.S. at 461, 133 S.Ct. 1184 ) (emphasis in original). As such, "there is no reason to presume that ... the value investor ... is indifferent to the integrity of market prices," id., as Apple here suggests.
Such an investor implicitly relies on the fact that a stock's market price will eventually reflect material information — how else could the market correction on which his profit depends occur? To be sure, the value investor "does not believe that the market price accurately reflects public information at the time he transacts." But to indirectly rely on a misstatement in the sense relevant for the Basic presumption, he need only trade stock based on the belief that the market price will incorporate public information within a reasonable period. The value investor also presumably tries to estimate how undervalued or overvalued a particular stock is, and such estimates can be skewed by a market price tainted by fraud.
Id. (internal citations omitted); see also Willis v. Big Lots, Inc., 242 F. Supp. 3d 634, 648 (S.D. Ohio 2017) ("[N]o cases hold[ ] that the mere fact that a class member is a value investor is, alone, enough to defeat Basic's presumption of reliance.").
Although dissenting voices have increasingly questioned Basic's logic in light of modern economic realities, see, e.g., Halliburton II, 573 U.S. at 291-93, 134 S.Ct. 2398 (Thomas, J., dissenting); Rosen v. Textron, Inc., 369 F. Supp. 2d 204, 212 (D.R.I. 2005) (acknowledging "that the fraud-on-the-market presumption has invited some criticism from the legal community" (internal quotation marks and citations omitted)), this court is not persuaded that the classes of investors identified by Apple – short sellers, market-neutral arbitrageurs, and options traders – categorically are indifferent to, or disregard whether, market prices are distorted by fraud.
a. Short Sellers
For short sellers, Apple contends such investors cannot invoke the Basic presumption because " ‘they believe that the market price is somehow mistaken.’ " This is incorrect. In the wake of Basic, district courts have regularly held that Basic's fraud-on-the-market theory makes no exceptions for short sellers, such that the use of short selling investments strategies does not prevent a finding of material reliance on market price. See, e.g., GAMCO Investors v. Vivendi Universal, S.A, 927 F. Supp. 2d 88, 102 (S.D.N.Y. 2013), aff'd sub nom. GAMCO Inv'rs, Inc. v. Vivendi Universal, S.A., 838 F.3d 214 (2d Cir. 2016) ; Schleicher v. Wendt, No. 1:02-cv-1332, 2009 WL 761157, at *9 (S.D. Ind. Mar. 20, 2009), aff'd, 618 F.3d 679 (7th Cir. 2010) ; Levie v. Sears, Roebuck & Co., 496 F. Supp. 2d 944, 949 (N.D. Ill. 2007) ("The fact that short sellers and put and call option traders may believe that there will be fluctuation in the price of a stock does not mean that they do not rely on the integrity of the information disseminated"). In Schleicher, for example, a district court found that while "[s]hort sellers seem like a difficult case at first[,] ... [t]heir decisions about the value of the stock ... can still be based on the integrity of the market price." 2009 WL 761157, at *9.
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 16 (quoting In re PolyMedica Corp. Sec. Litig., 224 F.R.D. 27, 44 (D. Mass 2004), vacated on other grounds, 432 F.3d 1 (1st Cir. 2005) ).
[U]nlike the majority of investors buying stock, [short sellers] expect[ ] the price of the stock to go down after they made the short sale.... Their disagreement with traditional buyers is that the current market price is too high, not too low. Even when a stock declines overall, the short seller can be injured if she has to cover her position earlier than she wants, a decision that would be based on the allegedly inflated market price.
Id.; see also In re Cooper Cos. Sec. Litig., 254 F.R.D. 628, 641 (C.D. Cal. 2009) ("Short sellers may be included in a class at the certification stage"); Levie, 496 F. Supp. 2d at 949 (rejecting argument that short sellers, day traders and option traders must be excluded from the class because they cannot rely on the fraud-on-the-market theory); WorldCom, 219 F.R.D. at 301 (rejecting argument that short sellers and "statistical arbitrageurs" would need individualized proof of reliance, as "[e]ach of the investments strategies ... depended directly on the publicly available information concerning [the defendant], as reflected in the price of [the defendant's] securities").
As such, rebuttals of the presumption of reliance against short sellers are rare and often " ‘require[ ] an individualized inquiry into the buying and selling decisions of particular class members.’ " See GAMCO, 927 F. Supp. 2d at 101-02 (quoting In re Vivendi Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512, 584 (S.D.N.Y. 2011) ); Howard v. Liquidity Servs. Inc., 322 F.R.D. 103, 140 (D.D.C. 2017). For instance, in GAMCO, a district court found, in an "extraordinary case" following a bench trial, that a plaintiff-investor did not materially rely on the market price where the investor utilized an independent metric to make investment decisions that did not consider the defendant's liquidity. 927 F. Supp. 2d at 101 (noting that "[a] successful rebuttal of this sort will be exceedingly rare"). The record evidence demonstrated that the plaintiff "would have seen [the defendant] as a more attractive investment" had its liquidity situation been fully disclosed, and that the plaintiff would have purchased the defendant's securities even had it known of the alleged liquidity fraud. Id. at 101 ; see also In re Vivendi Universal, S.A. Sec. Litig., 123 F. Supp. 3d 424 (S.D.N.Y. 2015) (related case in which the Basic presumption was rebutted because the plaintiff "admitted that ... none of the nine corrective disclosures ... ‘corrected’ any misunderstanding by [him] concerning the value of [the issuer's securities]"). Such circumstances are not present here.
Apple's citations to PolyMedica, 224 F.R.D. at 44, and Ganesh, 183 F.R.D. at 491, do not persuade the court to diverge from the holdings above. In both PolyMedica and Ganesh, the courts' holdings relied heavily on Zlotnick v. TIE Communications, a Third Circuit Court of Appeals case predating Basic. See 836 F.2d 818, 823 (3d Cir. 1988) (holding that a short seller could not benefit from the fraud-on-the-market theory because the seller "decided the market price was not an accurate valuation ... at the time of his short sale"). But since Basic, district courts in the Third Circuit have questioned the efficacy of Zlotnick's holding. See Argent Classic Convertible Arbitrage Fund L.P. v. Rite Aid Corp., 315 F. Supp. 2d 666, 676 (E.D. Pa. 2004) ("[W]e are bound to follow a Court of Appeals decision, even if we believe that it is wrongly decided, but we believe that our interpretation of Zlotnick is fully consistent with the contradictions we have noted in the decision itself."); In re W. Union Sec. Litig., 120 F.R.D. 629, 637 (D.N.J. 1988) (finding Zlotnick's validity "somewhat questionable in light of Basic"); see also In re Sepracor Inc., 233 F.R.D. 52, 54 (D. Mass. 2005) (finding that sophisticated investment strategies are not inconsistent with the Basic presumption, in contrast to PolyMedica ). And, in Halliburton II, the Supreme Court rejected Zlotnick's underlying rationale. 573 U.S. at 273, 134 S.Ct. 2398 ("But to indirectly rely on a misstatement in the sense relevant for the Basic presumption, he need only trade stock based on the belief that the market price will incorporate public information within a reasonable period.").
On this motion, Apple has not shown that a significant number of short sellers were aware of the defendants' allegedly fraudulent conduct. Indeed, there is little record evidence supporting Apple's request to exclude short sellers and other users of sophisticated trading strategies. Accordingly, the court declines to find that short seller members of the purported class may not rely on Basic's presumption of reliance.
b. Market-Neutral Arbitrageurs
As to delta hedgers, Apple contends that these investors cannot invoke the Basic presumption because their trading strategies thrived on the inefficiencies between convertible notes and related stock prices, not the integrity of the securities' market price. Again, the court is not persuaded. Although market neutral arbitrageurs "do not attempt to predict the direction of the common stock," they do invest based on "the relative price differential" between stock and convertible bond prices. Camden Asset Mgmt., L.P. v. Sunbeam Corp., No. 99-8275-CIV, 2001 WL 34556527, at *13, 2001 U.S. Dist. LEXIS 11022 at *46-*47 (S.D. Fl. July 3, 2001). While these investors may "thrive on inefficiencies and invest to capture mismatches between convertible notes and their related stock," Basic only requires that investors "trade stock based on the belief that the market price will incorporate public information within a reasonable period." Halliburton II, 573 U.S. at 273, 134 S.Ct. 2398. As such, courts have generally certified investor classes that included arbitrageurs. See, e.g., Sepracor, 233 F.R.D. at 54 ("Convertible arbitrage is not inconsistent with reliance on the integrity of the market."); Argent, 315 F. Supp. 2d at 674 ; cf. Rosen, 369 F. Supp. 2d at 211.
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 19. Apple claims that such strategies were widespread among institutional investors in the putative class, particularly those investing in GTAT's 2020 Notes, hybrid debt instruments that could be converted into shares of GTAT stock. Id. at 19. As a result, these investors were able to hedge their convertible bond holdings by shorting enough of the common stock to match or offset the sensitivity of their convertible bonds to common stock price fluctuations. Further, Apple cites publicly available data/information showing that large institutional investors owned at least 85.2% to 90.9% of GTAT 2020 Notes during the class period. Id.
Apple's Opp. Mem. to Mot. for Class Cert. at 24.
Apple primarily relies on one case, Camden Asset Mgmt., L.P. v. Sunbeam Corp., to support its position. See 2001 WL 1268983, 2001 U.S. Dist. LEXIS 11022. There, the court denied class certification where a "significant number of class members ... bought the debentures for particularized reasons (be it convertible arbitrage, hedging, or flipping strategies) separate and apart from" the defendant's financial representations. Id. at *15, 2001 U.S. Dist. LEXIS 11022, at *54. But the court in Camden never reached the question whether arbitrageurs could invoke Basic's presumption of reliance, as the debenture markets at issue (an "undeveloped market" closed to ordinary investors) did not operate efficiently. As such, the plaintiffs could not satisfy the third requirement for invoking the fraud-on-the-market theory. See id. at *10, 2001 U.S. Dist. LEXIS 11022, at *34-36; see generally Basic, 485 U.S. at 248, 108 S.Ct. 978.
More specifically, 75% of both the class representatives and class members deposed acknowledged they employed a convertible arbitrage strategy. See id. at *15, 2001 U.S. Dist. LEXIS 11022, at *54.
Apple has not provided evidence convincingly showing that arbitrageurs are completely indifferent to the integrity of the market price or would have invested in GTAT securities and notes regardless of whether they knew the defendants' representations were in fact false. See GAMCO, 927 F. Supp. 2d at 101-02. Nor has it articulated any reason to doubt that the differentials on which arbitrageurs trade can be skewed by a market price tainted by fraud. See Halliburton II, at 274, 134 S.Ct. 2398. As such, Apple has failed to satisfy its burden to rebut the Basic presumption as generally applied to arbitrageur investors.
Additionally, Apple's expert, Dr. Lehn, testified at deposition that he could not offer any expert opinion that investors in convertible arbitrage strategies were not relying on integrity of the market price for securities. See Lehn Depo. (doc. no. 228-3) at 117:17-118:25.
c. Options Traders
Finally, Apple contends that the inclusion of options traders in the purported class will cause individual issues to predominate because options for GTAT securities and notes created opportunities for investors to engage in arbitrage. Apple cites no authority to support this contention other than Camden, which, as addressed above, does not apply to this case. In contrast, at least one court in the First Circuit has found that options traders "rely on the integrity of information disseminated in the market just as do purchasers and sellers of the underlying security." Tolan v. Computervision Corp., 696 F. Supp. 771, 779 (D. Mass. 1988) ; see also Levie, 496 F. Supp. 2d at 949 (finding that day traders, short sellers and options traders rely on integrity of markets). As such, the court finds that Apple has failed to meet its burden of production and persuasion to rebut the Basic presumption as to options traders. Or put differently, that court finds the presence of options traders in the class will not preclude class certification by causing individual reliance issues to predominate.
Additionally, Apple, relying on In re Lending Club Sec. Litig., 282 F. Supp. 3d 1171, 1188 (N.D. Cal. 2017), briefly contends that short sellers can also create individualized issues regarding loss causation. In Lending Club, the court excluded short sellers who incurred losses during the class period "[g]iven the practical difficulties of tracing the short seller's loss to any alleged fraud," but left in the class short sellers who incurred losses after the corrective disclosures. 282 F. Supp. 3d at 1188. This concern is not present in this case. Here, the plaintiffs' damages theory (and proposed damages methodology) focuses on losses that manifested after the defendants' alleged fraud was revealed, which is, after they made the alleged corrective disclosures. Thus, individualized issues regarding loss causation for short sales will not predominate over common questions.
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 16-17 (citing Lending Club, 282 F. Supp. 3d at 1188 ).
In short, Apple has not produced convincing proof that price paid no part whatsoever in short sellers, arbitrageurs, or option traders' decisions to buy or sell GTAT securities, notes, and/or options. As such, Apple has failed to rebut the presumption of reliance under Basic as to these categories of investors, at least for class certification purposes.
2. Damages
In addition to reliance, Apple argues that "individualized issues will predominate," and thus preclude class certification, because plaintiffs have not shown that "they can develop a damages methodology" that measures "economic losses ‘actually caused’ " on a classwide basis. Apple's objection is two-fold. First, it contends that the plaintiffs cannot recover any damages because alleged corrective disclosures at the center of the plaintiffs' theory of liability claim did not "contain[ ] any corrective information because the allegedly concealed facts were widely known." Second, it asserts that the plaintiffs' expert, Chad Coffman, failed to explain how his proposed methodology for calculating damages can account for complexities of option trades. On both issues, the court disagrees.
See Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 10 (quoting Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 345, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) ).
See id. at 11 (emphasis in original); Apple's Surreply (doc. no. 231) at 1.
Rule 23(b)'s predominance element requires, in part, that plaintiffs establish at the class certification stage "that damages are capable of measurement on a classwide basis" based on a methodology that is "just and reasonable" rather than "speculative." See Comcast, 569 U.S. at 34-36, 133 S.Ct. 1426 (citations omitted). As at trial, "any model supporting a plaintiff's damages case must be consistent with its liability case." Id. In other words, the "plaintiffs must be able to show that their damages stemmed from the defendant's actions that created the legal liability," Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70, 88 (2d Cir. 2015), that is the disclosure of previously (and fraudulently) concealed information, see Dura Pharm., 544 U.S. at 345, 125 S.Ct. 1627.
Here, the "out-of-pocket" methodology proposed by Coffman satisfies the criteria set by Comcast as applied to the plaintiffs' Section 10(b) claims. As his report explains:
For the plaintiffs' Section 11 claims, class-wide damages are calculable using a straightforward statutory formula. See 15 U.S.C. § 77k(e) ; Coffman Report (doc. no. 203-3) ¶¶ 139-41.
[T]he "out-of-pocket" method ... measures damages as the artificial inflation per share at the time of purchase less the artificial inflation at the time of sale .... [A]s is standard procedure in Section 10(b) cases, the most common methodology to quantify artificial inflation is to perform an event study that measures price reactions to disclosures that revealed the relevant truth concealed by the alleged material omissions and/or misrepresentations. This analysis, and the evidence supporting it, would be common to the class. Damages for any individual class member could then be calculated formulaically based upon information collected in the claims process (i.e., the investor's purchase and sale history for the security, which is routinely available from brokerage statements and/or other documents that provide evidence of securities transactions). Furthermore, the out-of-pocket methodology is sufficiently flexible so that it is capable of being adjusted for alternative determinations by the finder of fact.
Coffman Report ¶¶ 135-37.
As both parties note, several courts have found that Coffman's methodology, as proposed, provides a workable method for measuring damages that resulted from injuries similar to those asserted by the plaintiffs. See, e.g., Baker v. SeaWorld Entm't, Inc., 2017 WL 5885542, at *14 (S.D. Cal. Nov. 29, 2017) (approving the exact same methodology by Coffman at the class certification stage in another securities law case); Howard, 322 F.R.D. at 140 (same); See La. Mun. Police Emps. Ret. Sys. v. Green Mtn. Coffee Roasters, Inc., No. 2:11-cv-289, 2017 WL 3149424, at *7 (D. Vt. July 21, 2017) (rejecting predominance challenge where the plaintiffs offered a damages methodology that could be used on a class-wide basis, and that was consistent with their theory of the case); In re JPMorgan Chase & Co. Sec. Litig., 2015 WL 10433433, at *7 (finding Rule 23(b)(3) predominance and Comcast satisfied where the "[p]laintiffs' expert propose[d] to calculate classwide, per-share damages through an event study analysis of the stock price inflation caused by Defendants' alleged misrepresentations or omissions"). If the proposed event study ultimately shows that the misrepresentations alleged by the plaintiffs caused GTAT's stock price to artificially fluctuate upward, the plaintiffs will be able to show, because of the Basic presumption, that all investors who purchased GTAT stock during the class period were presumptively injured by the defendants' alleged fraud.
As its primary objection to this proposed methodology, Apple protests that Coffman "merely repeats the same two paragraphs he offers in every case" and offers no basis for concluding that the alleged corrective disclosures revealed the alleged fraud and caused stock prices to decrease. This objection would be proper at summary judgment or at trial, but is not at the class certification stage. In Halliburton I, the Supreme Court held that "held that loss causation and the falsity or misleading nature of the defendant's alleged statements or omissions are common questions that need not be adjudicated before a class is certified." Amgen, 568 U.S. at 475, 133 S.Ct. 1184 (citing Halliburton I, 563 U.S. at 812, 131 S.Ct. 2179 ); Wortley v. Camplin, 333 F.3d 284, 295 (1st Cir. 2003) (holding that loss causation is generally a question of fact, left to the jury to resolve). This includes any showing in which a plaintiff must demonstrate that a disclosure actually revealed alleged fraud and caused stock prices to decrease. See, e.g., Mass. Ret. Sys. v. CVS Caremark Corp., 716 F.3d 229, 237-38 (1st Cir. 2013) (articulating test for loss causation); Pirnik v. Fiat Chrysler Automobiles, N.V., 327 F.R.D. 38, 47-48 (S.D.N.Y. 2018) (explaining that the corrective nature of a disclosure goes "to the question of loss causation (that is, whether Plaintiffs' damages were caused by the alleged fraud alone or by other market factors)" (citing Halliburton I, 563 U.S. at 475, 131 S.Ct. 2179)); Green Mtn. Coffee, 2017 WL 3149424, at *7 (explaining that whether a corrective disclosure is actually corrective is an improper loss causation argument).
See Apple's Surreply (doc. no. 231) at 1; Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 13-14.
In this respect, Apple's cited authority actually undermines its position. In all but one of the cases Apple cites, the courts rejected Coffman's analysis or conclusions in the summary judgment context, in which merits questions are proper. The one case rejecting Coffman's methodology at the class certification stage – In re BP p.l.c. Sec. Litig. – is also readily distinguishable. See No. 10-md-2185, 2013 WL 6388408, 2013 U.S. Dist. LEXIS 173303 (S.D. Tex. Dec. 6, 2013), aff'd sub nom. Ludlow v. BP, P.L.C., 800 F.3d 674 (5th Cir. 2015). In BP, the defendants performed their own event study, which identified three ways in which Coffman's "constant dollar" methodology was inconsistent with the plaintiffs' theory of liability. Id., 2013 WL 6388408 at *16, 2013 U.S. Dist. LEXIS 173303 at *67-70. Because neither Coffman nor the plaintiffs could address two of the three inconsistencies, the court declined to certify the litigation for class action treatment. See id., 2013 WL 6388408 at *16, 2013 U.S. Dist. LEXIS 173303 at *75 (but still affirming part of Coffman's methodology). That is not the case here. Unlike the BP defendant, Apple has not performed an alternative event study to show that a particular class member did not in fact suffer an injury in fact. In fact, Apple has not identified any inconsistencies with Coffman's methodology or lack of logical connection between damages under this methodology and plaintiffs' theory of liability. See Comcast, 569 U.S. at 34-36, 133 S.Ct. 1426. As such, BP has no application to this case. See also Howard, 322 F.R.D. at 139 (distinguishing BP and approving Coffman's methodology under Comcast ).
See In re Moody's Corp. Sec. Litig., 2013 WL 4516788, at *10-12 (S.D.N.Y. Aug. 23, 2013) (rejecting, at summary judgment, Coffman's "factually unsupported assumption that the loss causation events were specifically related to" the misrepresentations (internal quotations omitted)); In re Bos. Sci. Corp. Sec. Litig., 708 F. Supp. 2d 110, 129 (D. Mass. 2010) (rejecting, at summary judgment, Coffman's analysis due to lack of connection between alleged fraud and stock drop); In re DVI, Inc. Sec. Litig., No. 2:03-cv-05336, 2010 WL 3522090, at *23-25 (E.D. Pa. Sept. 3, 2010) (rejecting, at summary judgment, Coffman's conclusions as to one set of allegedly corrective disclosures).
Finally, Apple challenges whether the plaintiffs' out-of-pocket damages methodology can adequately account for the variety and complexity of options, including whether the options were exercised. In doing so, Apple goes as far as to assert that the plaintiffs' expert's damages "discussion refers only to ‘shares’ and does even not address options." This is inaccurate. "Coffman's three-page damages discussion" referenced by Apple builds upon Coffman's earlier analysis on the efficiency of the markets for the GTAT securities. There, Coffman notes that data on options for GTAT common stock, including pricing, volume, volatility, and sensitivity analytics, are available through professional data analysis platforms, and that, as shown through widely-accepted options valuation models, any alleged misrepresentations inflating GTAT stock prices would translate into the value of derivatives. Further, Coffman opines that the damages for options, regardless of whether they are put or call options, can be calculated "based on the change in the distortion of the price caused by the misrepresentations or omissions." Even if, as Apple suggests, the GTAT options market was diverse and the price for each type of option was influenced by a number of complex factors, Apple offers little reason to doubt that Coffman's proposed methodology can account for changes in the historic prices for such options, regardless of whether or not the option was exercised. The court finds that common issues will predominate over individualized ones with respect to calculating damages incurred by options traders.
Apple Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 20.
Id.
Id.; see also Coffman Report (doc. no. 203-3) ¶¶ 75-90.
See id. ¶ 77, at 34 n.82.
Id. ¶ 78, at 34 n.83.
Id. ¶ 135, at 61 n.135.
At the end, Apple's damages arguments appear to set a stage for challenges to plaintiffs' underlying theory of liability and the findings of plaintiffs' experts – challenges better left for the merits stages of this action. See Pirnik, 327 F.R.D. at 47-48 ; Green Mtn. Coffee, 2017 WL 3149424, at *7. They do not, however, persuade the court that individualized issues will predominate if this case proceeds to the merits stage as a class litigation. Accordingly, the court finds that Rule 23(b)(3)'s predominance threshold is satisfied as to both classwide reliance and damages.
B. Typicality
Typicality, under Rule 23(a) requires that the "the claims or defenses of the representative parties [be] typical of the claims or defenses of the class." Fed. R. Civ. P. 23(a)(3). Plaintiffs can show their claims are typical when their claims "arise from the same event or practice or course of conduct that gives rise to the claims of other class members, and ... are based on the same legal theory." Garcia–Rubiera v. Calderon, 570 F.3d 443, 460 (1st Cir. 2009) ; see also Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992) (noting that the question of Rule 23(a) typicality is closely related to the preceding question of commonality). The requirement does not mandate that a class representative's claims be identical to those of the absent class members. Swack v. Credit Suisse First Bos., 230 F.R.D. 250, 260 (D. Mass. 2005). Nor does it mandate that the court "make highly fact-specific or individualized determinations in order to establish a defendant's liability to each class member." In re Dial Complete Mktg. & Sales Practices Litig., 312 F.R.D. 36, 54 (D.N.H. 2015) (citations and quotation marks omitted). Instead, it primarily requires an inquiry into whether the class representative's claims are likely to be "subject to unique defenses that would divert attention from the class's common claims." Id. This inquiry, however, "should be determined with reference to the defendant's actions, not with respect to particularized defenses [the defendant] might have against certain class members." Id. (quoting In re Neurontin Mktg. & Sale Practices Litig., 244 F.R.D. 89, 106 (D. Mass. 2007) (Saris, J.); see also Wagner v. NutraSweet Co., 95 F.3d 527, 534 (7th Cir. 1996). And in this regard, "[t]he requirements of typicality and adequacy tend to merge." In re Credit Suisse-AOL, 253 F.R.D. 17, 22 (D. Mass. 2008).
The plaintiffs contend that there can be no "serious dispute" that their claims are typical because they "purchased or acquired GTAT securities that were artificially inflated as a result of" the defendants' alleged fraud and "suffered damages common to all other Class members when" that fraud was revealed. Apple nevertheless argues that Palisade and Kurz are subject to unique defenses that will sidetrack their focus from the litigation of class claims. After considering these asserted defenses, the court disagrees.
Pl.'s Mot. for Class Cert. Mem. (doc. no. 203-1) at 14.
Id.
1. Palisade
Apple contends that two issues render Palisade atypical (and also inadequate ). Neither contention is persuasive. First, Apple contends that Palisade is atypical because its market-neutral investment strategies, designed to obtain returns independent of the market price of any one security, prevent it from invoking Basic's fraud-on-the-market presumption. Without the presumption, Palisade would have to prove that it directly relied on GTAT and Apple's purported misrepresentations, sidetracking the litigation and detracting from Palisade's ability to represent the larger class. See Halliburton II, 573 U.S. at 269, 134 S.Ct. 2398. But as discussed above, Basic never rejected the existence of sophisticated investment strategies like Palisade's nor barred their amenability to the presumption of reliance. See id. at 273, 134 S.Ct. 2398 ; Sepracor, 233 F.R.D. at 54. Rather, Basic only concluded that it is reasonable to presume that most investors ... will rely on the security's market price as an unbiased assessment of the security's value in light of all public information." Amgen, 568 U.S. at 461, 133 S.Ct. 1184. The evidence submitted by Apple, while documenting Palisade's reasons for utilizing convertible arbitrage strategies, does not sufficiently rebut the presumption as applied to Palisade, at least at this stage, as it does not clearly show that a market price artificially inflated by the alleged fraud played no part in Palisade's investment strategy.
See Section III.C, infra, at 41.
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 21-22.
Id.
See section III.A.1, supra, at 57-60.
Additionally, Palisade is not subject to unique defenses that would render it atypical. Apple contends that Palisade "appears to have traded in reliance on information it received from GTAT's management, which may not have been known to the Proposed Class." Although Palisade's transaction records show that it may have traded in GTAT securities on some of the days it met with an investment broker with access to GTAT's management, Apple has produced no evidence showing that the broker disclosed non-public investment information, or that he had access to such information.
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 22 (citing Chizmar 30(b)(6) Depo. (doc. no. 210-30) at 117:4-118:11; 121:6-135:11; 151:3-152:15). The exact timing of Palisade's transactions remains an issue of contention in this litigation. See Order re: discovery dispute (doc. no. 239). The plaintiffs maintain that transaction records show Palisade initiated trades for GTAT securities before receiving information about GTAT from the controversial broker. See Pls. Reply (doc. no. 228) at 13-14 (citing Chizmar 30(b)(6) Depo. (doc. no. 210-30) at 128:17-129:8).
"[C]ourts have consistently certified classes where there was no evidence that the named plaintiff received non-public information from a corporate officer." In re Indep. Energy Holdings PLC Sec. Litig., 210 F.R.D. 476, 482 (S.D.N.Y. 2002) ; see also Beaver Cnty. Emps.' Ret. Fund v. Tile Shop Holdings, Inc., 2016 WL 4098741, at *5 & n.3 (D. Minn. July 28, 2016) (finding pension fund typical where its adviser met one-on-one with management but received no material non-public information). Apple has provided no compelling reason to deviate from this common practice. Accordingly, Apple's argument that Palisade is subject to unique evidentiary showings and defenses "does not make the grade" for defeating Rule 23(a) typicality. Sepracor, 233 F.R.D. at 54 (holding that an asset management company that utilized hedging transactions was qualified to serve as class representative, even though it had engaged in hedging strategies like Palisade); see also Kalodner v. Michaels Stores, Inc., 172 F.R.D. 200, 206 (N.D. Tex. 1997) (identifying "numerous courts" that "have certified sophisticated investors as class representatives in securities fraud cases.").
2. Kurz
Apple also argues that Kurz's claims are atypical for two reasons, neither of which the court finds compelling. First, Apple asserts Kurz cannot represent the proposed class because he testified at deposition that he never expected iPhones to utilize sapphire covers in 2014. Apple therefore asserts Kurz is "ill-suited" to represent a proposed class premised on the "allegedly hidden ‘fact’ " that "iPhones announced in 2014 would not include sapphire cover screens."
See Kurz Depo. (doc. no. 210-27) at 72:6-8 ("[M]y personal belief was never that it was likely that it was going to be released in 2014"). Kurz further testified the believed it would be very difficult for GTAT to produce enough sapphire for the iPhone by Fall 2014, but that sapphire screens "was clearly something that was going to happen eventually once they got it right." Id. at 71:13-75:4.
See Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 22.
Kurz's belief at the time he traded, however, is not inconsistent with the plaintiffs' theory of the case or Basic's presumption of reliance on the integrity of the market price. As provided in his deposition testimony, Kurz invested in GTAT after reading market analyst reports and other public information that painted GTAT stock as a good investment, just like the millions of other investors who each day invest based on market reports and their own personal assessments. At no point did he testify that he doubted the integrity of the market price or purchased GTAT stock indifferent to the defendants' representations. Nor did he testify, as Apple represents, that he had "known and expected that Apple would not announce the use of Sapphire in its iPhones in 2014." Although Kurz's specific investment beliefs "may have been idiosyncratic, his testimony indicates that he relied on information publicly available ... when deciding whether to purchase" GTAT securities. See Howard, 322 F.R.D. at 125 ; see also In re Diamond Foods, Inc., Sec. Litig., 295 F.R.D. 240, 253 (N.D. Cal. 2013) ("Most investors think they are a little smarter than average and see opportunities others have missed. Still, they all rely on publicly available data (with the exception, of course, of investors trading on insider information.").
See also Kurz Depo. at 104:5-9.
See id.
See Apple's Opp. Mem. to Mot. for Class Cert. at 22.
Second, Apple claims Kurz is subject to unique defenses arising from the potential spoliation of emails and text messages destroyed when he attempted to install a new operating system on his phone. At deposition, Kurz testified that, based on his knowledge of his investing strategy and practice, the lost emails contained nothing more than "automatic emails from the SEC whenever there were SEC filings for GTAT or Apple" and absolutely nothing of substance. Apple asserts that the destruction of such emails could result in the court instructing any future jury to draw an "adverse inference" with respect to Kurz. This argument falls short of rendering Kurz atypical.
Kurz Depo. at 111:19-113:10.
Apple, as the party that would ultimately bear the burden in seeking an adverse inference instruction, see United States v. Laurent, 607 F.3d 895, 902 (1st Cir. 2010), has not claimed that Kurz destroyed the emails in bad faith, has not suggested that Kurz's deleted emails contained evidence favorable to Apple's defense, and has not cited any authority suggesting an adverse inference instruction would be proper under the circumstances currently known. Although the propriety of such an instruction is neither clear nor properly before the court at this time, there is no reason to conclude at this stage that a spoliation instruction against Kurz would sidetrack or prejudice class proceedings. See Laurent, 607 F.3d at 902-03 (holding that a spoliation instruction usually makes sense only where the evidence permits a finding of bad faith destruction, not negligent destruction).
The court reaches no conclusion about the ultimate merits about any spoliation instruction Apple may seek before trial.
As such, the court finds that both Palisade and Kurz satisfy Rule 23(a)'s typicality requirement and rejects Apple's challenge against their appointments as class representatives.
C. Adequacy
The adequacy threshold requires that "the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). This requirement has two prongs: First, the plaintiffs must establish "that the interests of the [class representatives] will not conflict with the interests of any class members." Andrews v. Bechtel Power Corp., 780 F.2d 124, 130 (1st Cir. 1985) ; see also Dial, 312 F.R.D. at 55. In this regard, the requirements for typicality and adequacy "tend to merge." In re Credit–Suisse, 253 F.R.D. at 22–23 ; see also id. (citations omitted) ("Both typicality and adequacy may be defeated where the class representatives are subject to unique defenses which threaten to become the focus of the litigation."). Second, the plaintiffs must show that "counsel chosen by the representative party is qualified, experienced and able to vigorously conduct the proposed litigation." Id.
The plaintiffs' class representatives and counsel satisfy these dual requirements. To date, both Kurz and Palisade have actively participated in this litigation through discovery and strategic discussions with their counsel. And by advancing their claims, Kurz and Palisade have also established the claims of the entire putative class. Apple's arguments challenging the adequacy of Palisades and Kurz as class representatives are virtually identical (and similarly titled) to the typicality arguments rejected above. As such, Apple has failed to show how Kurz or Palisade's interests are likely to conflict with the interests of absent class members.
As discussed above, see supra at n.14, Apple does not contest that the plaintiffs have retained class counsel whom are sufficiently experienced in complex securities litigation. See also Firm Resume (doc. no 203-21); Pls. Mot. for Final Approval of Settlements and Plan of Allocation (doc. no. 183) (earning $35 million in settlements for the entire plaintiffs class).
Pls. Mot. for Class Cert. Mem. (doc. no. 203-1) at 14.
In addition, the court similarly rejects Apple's assertion that no proposed class representative is sufficiently adequate (or typical) to pursue Securities Act claims for purchases of the Secondary Offering Common Stock. Even though neither Kurz nor Palisade purchased any stock from the Secondary Offering at issue, Apple has not made clear how their lack of such purchases make Kurz or Palisade antagonistic to unnamed purchasers of Secondary Offering stock.
See Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 24 (citing In re Ariad Pharm. Sec. Litig., 842 F.3d 744 (1st Cir. 2016) (cited authority omitted)).
See also Mem. Order Denying Mot. to Dismiss (doc. no. 150) at 57-58 (finding that the plaintiffs, all of whom made purchases in GTAT's debt offering, had "standing to assert claims on behalf of purchasers of different security instruments," including GTAT's equity offering "as long as the purchases stem from the same registration statement; and that the Securities Act plaintiffs' claims do "not implicate a significantly different set of concerns" from the claims of the rest of the class.").
Finally, Apple's perfunctory challenge as to whether issues of tracing common stock purchases to the Secondary Offering defeats predominance is without merit. As previewed in the court-approved Plan of Allocations, the plaintiffs seek to recover damages for investors who purchased secondary offering common stock directly from underwriters, not in the aftermarket – a standard procedure not unique to this case, according to the plaintiffs. As such, traceability is susceptible to common proof and will not undermine/prevent predominance. The plaintiffs' proposed class representatives and counsel therefore satisfy Rule 23(a)'s adequacy requirement.
Plan of Allocation of Individual Settlements (doc. no. 228-9) ¶ 17.
Pls. Reply (doc. no. 228) at 15.
D. Superiority
Rule 23(b)(3) also requires the court to find that a class action is "superior to other available methods for the fair and efficient adjudication of the controversy." Fed. R. Civ. P. 23(b)(3). "Investors seeking damages for violations of federal securities are often considered the prototypical class action plaintiffs." Credit Suisse-AOL, 253 F.R.D. at 31 ; see also Grace v. Perception Tech. Corp., 128 F.R.D. 165, 166 (D. Mass. 1989) ("There is little question that suits on behalf of shareholders alleging violations of federal securities laws are prime candidates for class action treatment ...."). Apple contends that class treatment here is not superior because the court " ‘would have to hear significant individualized evidence on, among other things, each purchaser's knowledge and damages.’ " This argument repeats and consolidates the arguments addressed above and is similarly rejected. After conducting a rigorous analysis of all Rule 23's requirements, the court finds that a class action is "superior to other available methods for the fair and efficient adjudication of the controversy." See Fed. R. Civ. P. 23(b)(3).
Apple's Opp. Mem. to Mot. for Class Cert. (doc. no. 210) at 25 (quoting N.J. Carpenters Health Fund v. Residential Capital, LLC, 272 F.R.D. 160, 170 (S.D.N.Y. 2011), aff'd 477 F. App'x 809 (2d Cir. 2012) ).
In sum, the plaintiffs' class certification showing clears each of Rule 23(a) and 23(b)(3)'s required thresholds. The court therefore certifies this case to proceed as a class action.
IV. Conclusion
For the reasons set forth more fully above, the court finds that the plaintiffs' proposed class satisfies each of Rule 23(a) and 23(B)(3)'s requirements. Accordingly, the court GRANTS the plaintiffs' motion, certifies the proposed class defined in the plaintiffs' memorandum of law, appoints Kurz and Palisade as class representatives, and appoints Bernstein Litowitz as class counsel, see Fed. R. Civ. P. 23(g)(1)(A).
Doc. no 203.
Doc. no. 204 at 2.
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