Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-01160/USCOURTS-cand-3_14-cv-01160-30/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

RICHARD HAYES, et al.,

Plaintiffs,

v.

MAGNACHIP SEMICONDUCTOR 

CORP., et al.,

Defendants.

Case No. 14-cv-01160-JST 

ORDER GRANTING CLASS

CERTIFICATION

Re: ECF No. 231

I. BACKGROUND

MagnaChip is a Delaware corporation with its principal place of business in Seoul, Korea, 

which “designs and manufactures semiconductor products for high-volume consumer 

applications.” ECF No. 231 at 9; ECF No. 249 at 10. After MagnaChip emerged from bankruptcy 

in 2009, Avenue Capital became its majority shareholder, owning 70.3% of the company’s shares. 

ECF No. 231 at 9. Avenue Capital appointed three of its employees to MagnaChip’s board of 

directors. Id. 

In March 2011, MagnaChip completed an IPO and its stock began trading on the New 

York Stock Exchange (“NYSE”) at $14 per share. Id. For the eleven consecutive quarters that 

followed, MagnaChip “posted positive net income and beat analysts’ consensus estimates of 

[earnings per share],” and as a result, MagnaChip’s stock rose to a high of $23.57 per share. Id. 

But Plaintiffs allege that, [w]hile MagnaChip appeared to be healthy and successful, in reality the 

‘success’ was a sham and resulted from Defendants’1 wide-ranging accounting fraud, which 

 

1

In addition to Avenue Capital, Plaintiffs’ original suit named MagnaChip and several of its 

officers. ECF No. 1. Plaintiffs have since settled with all Defendants but Avenue Capital. ECF 

No. 270. 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 1 of 17
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

included fabricated sales, kickbacks, recognition of revenue for products that had not been 

manufactured, and channel stuffing.” Id. at 10. On January 27, 2014, MagnaChip “delayed the 

release of Q4 and year-end 2013 results,” and the company’s stock price declined by 8%. Id. 

Throughout 2014, MagnaChip issued what Plaintiffs’ describe as “partial disclosures related to the 

fraud” described above.” Id. Most importantly, on March 11, 2014, Avenue Capital released a 

disclosure stating that corrections to its revenue recognition methodology “will require the 

restatement of its financial statements” and that MagnaChip’s financial statements from 2011 to 

2013 “should no longer be relied upon.” Id. at 11. According to Plaintiffs, although “these partial

disclosures did in fact result in a price decline, [it] was far more limited than would have been 

experienced had the Company told the complete truth” immediately. Id. Finally, on February 12, 

2015, “MagnaChip issued restated financials for the fiscal years 2011, 2012, and the first three 

quarters of 2015.” Id. Plaintiffs allege that the restatements demonstrate how MagnaChip had 

fraudulently inflated its revenue and net profits. Id. Following this disclosure, MagnaChip’s stock 

price fell 50%, and continued to decline throughout February 2015. Id.

During the 2011 IPO, at three registered secondary offerings, and at a Rule 144A private 

sale, Avenue Capital sold portions of its MagnaChip holdings. ECF No. 249 at 11. Plaintiffs 

allege that Avenue Capital obtained over $300 million in revenue by “dump[ing] 85% of its 

MagnaChip shares” on “unsuspecting investors.” ECF No. 231 at 10. Because “Avenue Capital 

was the largest beneficiary of the fraud alleged in this action, and the control person of 

MagnaChip throughout the Class Period,” Plaintiffs argue that its actions violated Sections 20A

and 20(a) of the Exchange Act, 15 U.S.C. § 78t-1. Id. at 8. Plaintiffs now seek to certify the 

following class:

all persons who purchased or otherwise acquired MagnaChip Semiconductor 

Corporation (“MagnaChip” or the “Company”) common stock between February 

1, 2012 and February 12, 2015 (the “Class Period”), inclusive. Excluded from the 

Class are any parties who are or have been Defendants in this litigation, the

present and former officers and directors of MagnaChip and any subsidiary 

thereof, members of their immediate families and their legal representatives, 

heirs, successors or assigns and any entity in which any current or former 

Defendant has or had a controlling interest.

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 2 of 17
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Id. at 2. They also seek to appoint Keith Thomas and Herb Smith as class representatives, and 

Pomerantz, LLP and the Rosen Law Firm, P.A. as class counsel. Id. Plaintiffs submitted a report 

by Zachary Nye (“Nye Report”) in support of their motion, ECF No. 232-1, and Avenue Capital 

submitted a rebuttal report by Paul Gompers (“Gompers Report”), ECF No. 249-2.

II. LEGAL STANDARD

Class certification under Rule 23 is a two-step process. First, a plaintiff must demonstrate 

that the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a) are met: 

“One or more members of a class may sue or be sued as representative parties on behalf of all 

members only if (1) the 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). “Class certification 

is proper only if the trial court has concluded, after a ‘rigorous analysis,’ that Rule 23(a) has been 

satisfied.” Wang v. Chinese Daily News, Inc., 709 F.3d 829, 833 (9th Cir. 2013) (quoting WalMart Stores, Inc. v. Dukes, 564 U.S. 338, 351, (2011)).

Second, a plaintiff must also establish that one of the bases for certification in Rule 23(b) is 

met. Here, Plaintiffs invoke Rule 23(b)(3), which requires that Plaintiffs show both 

“predominance” and “superiority”: that the presence of “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. Pro. 23(b)(3).

The party seeking class certification bears the burden of demonstrating by a preponderance 

of the evidence that all four requirements of Rules 23(a) and at least one of the three requirements 

under Rule 23(b) are met. See Dukes, 131 S. Ct. at 2551 (“A party seeking class certification 

must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to 

prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.”). 

In ruling on class certification, courts do not consider the merits of the plaintiffs’ claims. 

Keilholtz v. Lennox Hearth Products Inc., 268 F.R.D. 330, 335 (N.D. Cal. 2010). Courts “must 

take the substantive allegations of the complaint as true” but “need not accept conclusory or 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 3 of 17
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

generic allegations regarding the suitability of the litigation for resolution through class action.” 

Id. (citations omitted). As a general matter, the Ninth Circuit has found Rule 23(b)(3) class 

actions to be “useful where a large number of purchasers or holders of securities claim to have 

been defrauded by a common course of dealing on the part of the defendants.” Harris v. Palm 

Springs Alpine Estates, Inc., 329 F.2d 909, 913 (9th Cir. 1964).

III. DISCUSSION

A. Rule 23(a) Requirements

1. Numerosity

The numerosity requirement is satisfied when a plaintiff shows that “the class is so 

numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(1). Plaintiffs 

contend that “[d]uring the class period, the number of MagnaChip shares outstanding ranged from 

approximately 34.1 million to 37.1 million shares.” ECF No. 231 at 12. “The Court certainly may 

infer that, when a corporation has millions of shares trading on a national exchange,” the 

numerosity requirement is met. In re Cooper Companies Inc. Sec. Litig., 254 F.R.D. 628, 634 

(C.D. Cal. 2009). Moreover, Avenue Capital does not contest numerosity. The Court concludes 

that Plaintiffs have satisfied their burden to show that the number of putative class members is 

sufficiently numerous that their joinder would be impracticable.

2. Commonality

The commonality requirement is satisfied when a plaintiff shows that “there are questions 

of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2). Commonality exists when 

plaintiffs’ claims “depend upon a common contention” of “a nature that is capable of classwide 

resolution,” such that “determination of its truth or falsity will resolve an issue that is central to the 

validity of each one of the claims in one stroke.” Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 

2545 (2011). 

Thomas contends that this requirement is met, because questions of law or fact common to 

the putative class “include, among others: (i) whether MagnaChip’s financial statements were 

materially false and misleading; (ii) whether the underlying misrepresentations and omissions 

were made with scienter; (iii) whether Avenue Capital controlled MagnaChip during the Class 

Period; (iv) whether Avenue Capital has a ‘good faith’ defense to liability under Section 20(a) of 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 4 of 17
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

the Exchange Act; and (v) to what extent the members of the Class have sustained damages and 

the proper measure of damages.” ECF No. 231 at 14.

The Court concludes that commonality exists because Plaintiffs claim that MagnaChip 

made the same alleged statements to the entire putative class, as members of the investing public. 

Thus, the information contained in the alleged statements is determinative of whether MagnaChip

misrepresented material facts. Commonality also exists because whether Avenue Capital 

controlled MagnaChip is determinative of Avenue Capital’s liability.

3. Typicality

Typicality exists if “the claims or defenses of the representative parties are typical of the 

claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3). “The test of typicality is whether other 

members have the same or similar injury, whether the action is based on conduct which is not 

unique to the named plaintiffs, and whether other class members have been injured by the same 

course of conduct.” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citation and 

internal quotation marks omitted).

Plaintiffs argue that they satisfy the typicality requirement because their claims, like those 

of the other class members, “derive from the same legal theories and the same misrepresentations 

and omissions.” ECF No. 231 at 14. Avenue Capital responds that Plaintiffs do not meet the 

typicality requirement because they “are subject to unique defenses that threaten to become the 

focus of the litigation.” ECF No. 249 at 15. 

First, Avenue Capital argues that both proposed class representatives are “subject to the 

defense that they did not rely on MagnaChip’s alleged misstatements after March 11, 2014, when 

MagnaChip announced that nearly three years of its financial statements would be restated and 

‘should no longer be relied upon.’” Id. Given the Court’s finding, discussed below in Part 

III.B.2., that the Class Period cannot extend beyond March 11, 2014, this argument is moot. 

Second, Avenue Capital claims that Smith is subject to two unique defenses: (a) that 

“MagnaChip’s allegedly fraudulent statements were not a factor in his purchasing decisions” 

because he continued to purchase MagnaChip stock after March 2014, ECF No. 249 at 16, and (b) 

that Smith was an “in-and-out trader” who therefore “will not be able to show loss causation,” id.

at 17 n.6. The Court disregards the first unique defense for the same reasons stated above. The 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 5 of 17
6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Court also rejects Avenue Capital’s in-and-out trader argument. As Plaintiffs note, Smith retained 

several thousand shares of MagnaChip stock until after the final disclosure, which would make the 

in-and-out trader label inapposite. ECF No. 275 at 16. To the extent Avenue Capital claims 

otherwise, that is a factual dispute not appropriately resolved in this order. 

Third, Avenue Capital claims that Thomas is subject to the “unique defense of non-reliance

. . . because he testified that his transactions in MagnaChip stock were based on technical stock 

information . . . rather than MagnaChip’s reported earnings or ‘fundamentals.’” ECF No. 249 at 

16 n.5. Although courts have disqualified “day-traders” from serving as lead plaintiffs in 

securities cases, Thomas’s use of technical stock information did not rise to that level. Applestein 

v. Medivation, Inc., No. C 10-00998 MHP, 2010 WL 3749406, at *3 (N.D. Cal. Sept. 20, 2010) 

(finding atypical a proposed class representative who made as many as 44 trades in a single day). 

Indeed, Thomas testified that he “relied on the integrity of market prices to make his trading 

decisions” and that “he would not have purchased shares had he known of the alleged fraud.” 

ECF No. 275 at 15. Under those circumstances, Thomas’s use of technical stock information does 

disqualify him. See Hodges v. Immersion Corp., No. C-09-4073 MMC, 2009 U.S. Dist. LEXIS 

122565, at *11 (N.D. Cal. Dec. 21, 2009) (refusing to disqualify a day-trader where defendants 

offered no evidence that “his particular trading activities would subject him to a defense that he 

would have purchased his shares regardless of the alleged fraud”). 

The Court concludes that Thomas’s and Smith’s claims are typical of those of the putative 

class members.

4. Adequacy of Representation

A plaintiff may bring claims on behalf of a class only if she “will fairly and adequately 

protect the interests of the class.” Fed. R. Civ. P. 23(a)(4). “Resolution of two questions 

determines legal adequacy: (1) do the named plaintiffs and their counsel have any conflicts of 

interest with other class members, and (2) will the named plaintiffs and their counsel prosecute the 

action vigorously on behalf of the class?” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th 

Cir. 1998) (citations omitted).

Plaintiffs contend that they have “already demonstrated their adequacy by negotiating a 

favorable settlement from the settling Defendants, and vigorously pursuing remaining claims 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 6 of 17
7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

against Avenue Capital.” ECF No. 231 at 14. They also claim to have “engaged qualified, 

experienced, and capable attorneys.” Id. In response, Avenue Capital recycles the unique defense 

arguments it raised in its typicality analysis. ECF No. 249 at 14. The Court rejects those 

arguments for the reasons described above, and sees no evidence of any conflict of interest 

between the named representatives and the rest of the class. Accordingly, the Court finds that 

Thomas, Smith and their counsel will adequately protect the interests of the class.

B. Rule 23(b)(3) Requirements

This provision requires the court to find that: (1) “the questions of law or fact common to 

the 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).

1. Predominance 

“The predominance analysis under Rule 23(b)(3) focuses on ‘the relationship between the 

common and individual issues’ in the case” and tests whether the proposed class is “’sufficiently 

cohesive to warrant adjudication by representation.”’ Wang v. Chinese Daily News, Inc., 737 

F.3d 538, 545 (9th Cir. 2013) (quoting Hanlon, 150 F.3d at 1022). Here, there are two main areas 

of dispute relating to predominance: reliance and damages.

a. Reliance

First, the parties dispute whether Plaintiffs may properly invoke the “rebuttable 

presumption of reliance” outlined by the Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224 

(1988), which obviates the need to make individualized showings of reliance. This presumption is 

based on “what is known as the ‘fraud-on-the-market’ theory, which holds that the market price of 

shares traded on well-developed markets reflects all publicly available information, and, hence, 

any material misrepresentations.” Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 

2408 (2014) (“Halliburton II”). “Under this theory, plaintiffs’ reliance on misleading statements 

about a company’s financial position can be presumed if: (1) the alleged misrepresentations or 

omissions were publicly known, (2) they were material, (3) the stock traded in an efficient market, 

and (4) the plaintiff traded stock between when the misrepresentations or omissions were 

effectuated and when the truth was revealed.” In re Montage Tech. Grp. Ltd. Secs. Litig., 2016 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 7 of 17
8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

U.S. Dist. LEXIS 53734, at *20-21 (citing Halliburton II, 134 S. Ct. at 2407-2408). Only the 

question of market efficiency is disputed here.

The parties agree that a now-widely adopted district court decision, Cammer v. Bloom, 

711 F. Supp. 1264 (D.N.J. 1989), outlines five relevant (but not exclusive) factors for determining 

market efficiency. ECF No. 231 at 17; ECF No. 249 at 20. For the reasons below, the Court 

agrees with Plaintiffs that the Cammer factors demonstrate that MagnaChip’s stock traded on an 

efficient market, and therefore that individualized issues related to reliance will not predominate 

over class ones. 

Factor One: Weekly Trading Volume

The first Cammer factor is the “average weekly trading volume during the class period.” 

711 F. Supp. at 1286. “Turnover measured by average weekly trading of 2% or more of the 

outstanding shares would justify a strong presumption that the market for the security is an 

efficient one; 1% would justify a substantial presumption.” Id. at 1292. According to Nye’s 

Report, MagnaChip’s average weekly share trading volume for the class period was 4.2% of 

shares outstanding. ECF No. 231 at 19. This is double the 2% that Cammer stated would justify a 

strong presumption of market efficiency. Avenue Capital responds MagnaChip’s trading volume 

fell below 2% or 1% for multiple months during the class period, despite the 4.2% figure. ECF 

No. 249 at 21. But given that Cammer identified average trading volume as the relevant number, 

the Court does not find that response very persuasive. This factor favors a finding of market 

efficiency.

Factor Two: Analyst Coverage

The second Cammer factor is whether a “significant number of securities analysts

“followed and reported on a company’s stock during the class period.” 711 F. Supp. at 1286. 

According to the Nye Report, over 300 analysts reported on MagnaChip during the Class Period. 

ECF No. 231 at 20. Avenue Capital responds that Nye failed to “account for the significant 

decline in analyst coverage” toward the end of the Class Period, which it claims “fell by more than 

50%.” ECF No. 249 at 21. According to the Gompers Report, by the end of the class period, only 

seven analysts were covering MagnaChip’s stock. Id. Avenue Capital argues that after this 

decline, the analyst coverage was no longer “significant,” as Cammer requires. Id. But Avenue 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 8 of 17
9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Capital cites no case that identifies a threshold number of analysts and the Court declines to create 

one here.2 Moreover, the shortening of the Class Period, see below, reduces the force of Avenue 

Capital’s argument. This factor, too, weighs in favor of market efficiency. 

Factor Three: Market Makers and Arbitrageurs

The third Cammer factor is the presence of “market makers” or “individuals [who] would 

react swiftly to company news and reported financial results by buying or selling stock and driving 

it to a changed price level.” 711 F. Supp. at 1286. Plaintiffs make two somewhat contradictory 

arguments about this factor. First, in their moving papers, Plaintiffs argue that the factor is 

irrelevant because MagnaChip’s stock traded on the NYSE during the Class Period. ECF No. 231 

at 22. They claim that the NYSE’s status as an “auction market” means that MagnaChip has a 

“single designated market maker,” rather than multiple market makers. Id. (citing Vinh Nguyen v. 

Radient Pharm. Corp., 287 F.R.D. 563, 573 (C.D. Cal. 2012). Because the presence of a 

designated market maker suggests market efficiency, Plaintiffs say they need not otherwise show 

the presence of market makers. ECF No. 231 at 20. Avenue Capital responds that Plaintiffs 

single market maker argument fails “because approximately 82% of MagnaChip’s total trading 

volume during the Proposed Class Period occurred on venues other than the NYSE.” To rebut this 

argument, Plaintiffs claim in their reply brief that Nye also found that a “significant number of 

market makers facilitated trading in MagnaChip shares,” putting the number at over 170. ECF 

No. 275 at 20. In essence, Plaintiffs appear to argue that MagnaChip’s designated market maker 

satisfies Cammer factor three, but even if it did not, that the 170 market makers facilitating trading 

do. The Court agrees that both the presence of a designated market maker and so many market 

makers in other trading venues weigh in favor of a finding of market efficiency.

Factor Four: S-3 Eligibility

The fourth Cammer factor is the company’s eligibility to file an S-3 Registration Statement 

in connection with public offerings. 711 F. Supp. at 1286. Plaintiffs claim that “MagnaChip was 

eligible and did file S-3 registration statements with the SEC during the Class Period.” ECF No. 

 

2

It bears noting that other courts have weighed this factor in favor of market efficiency when only 

four or six analysts published reports during the class period. See In re Nature’s Sunshine Prod.’s 

Inc. Sec. Litig., 251 F.R.D. 656, 663 (D. Utah 2008).

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 9 of 17
10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

231 at 21. Avenue Capital faults Plaintiffs for failing to note that MagnaChip became “ineligible

to file a Form S-3 beginning on January 27, 2014, when the Company announced it would delay 

the release of its fourth quarter and year-end 2012 financial results.” ECF No. 249 at 23. 

Plaintiffs respond that where, as here, a company’s “ineligibility was only because of timing 

factors rather than because the minimum stock requirements set forth in the instructions to Form 

S–3 were not met,” this factor still favors market efficiency. Cammer, 711 F. Supp. at 1286. 

Plaintiffs are correct that Avenue Capital does not challenge MagnaChip’s ability to meet the 

minimum stock requirements to file S-3 Registration Statements. Therefore, the Court concludes 

that this factor weighs in favor of a finding of market efficiency. 

Factor Five: Cause and Effect Relationship

The fifth Cammer factor is the existence of “empirical facts showing a cause and effect 

relationship between unexpected corporate events or financial releases and an immediate response 

in the stock price.” 711 F. Supp. at 1286. Plaintiffs claim that the Nye Report demonstrates this 

cause and effect relationship. ECF No. 231 at 21. Nye “examined nine dates on which 

MagnaChip released quarterly or annual financial results” along with the “corrective disclosure 

dates examined in the complaints.” Id. His analysis showed that “MagnaChip’s stock price 

typically reacted more strongly on the event dates than on non-event dates during the Class 

Period.” Id.

Gompers, Avenue Capital’s expert, criticizes Nye’s cause and effect study on several 

grounds. First, Gompers claims Nye should not have used “analyst reports published after each 

event to justify whether MagnaChip’s stock price reacted efficiently. ECF No. 249 at 23. Nye 

does not effectively rebut this criticism, and neither did Plaintiffs’ counsel at the hearing on this 

motion. Nonetheless, Avenue Capital cites no case rejecting Nye’s approach, and the Court 

concludes that while Nye might better have relied on a different set of analyst reports, the criticism 

reduces the persuasive force of his study only slightly. 

Second, Gompers attacks the Nye Report for analyzing “only 15 event days out of the 763 

trading days during the Class Period.” Id. at 24. Plaintiffs say 15 event days is sufficient. The 

parties do not identify, and the Court did not find, any cases on point from this district. Because 

Plaintiffs have identified several out-of-district cases where a similar or lesser number of event 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 10 of 17
11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

days sufficed, ECF No. 275 at 33, however, and their reasoning is persuasive. The Court rejects 

this particular challenge to Nye’s cause and effect study. 

Third, Gompers claims Nye’s regression model suffers from a number of deficiencies: it 

failed to “control for the statistically significant effect that market-wide factors in Korea had on 

MagnaChip’s returns,” it relies on a flawed industry index that “excludes several potentially 

relevant companies and includes companies of questionable comparability,” and it produced 

“residual returns” that demonstrate either a deficient model or an inefficient market. Id. As to the 

first criticism, even assuming the failure to control for Korea-specific information is a legitimate 

criticism, Plaintiffs correctly note that this would affect the “weight rather than admissibility” of 

the study. See Rudebusch v. Hughes, 313 F.3d 506, 516 (9th Cir. 2002). As to the second, 

Plaintiffs explain that even incorporating Gomper’s suggestions related to the industry indexes, 

Nye’s results remained the same, making that objection irrelevant. ECF No. 275 at 23. And as to 

the third, Plaintiffs’ expert rejects the contention that all statistically significant returns in large 

stocks are explainable by identifiable news events. According to the Nye Report, “87% of 

MagnaChip’s statistically significant dates were associated with news.” Id. at 24. This figure, 

Plaintiffs claim, is similar to those found to satisfy Cammer in other cases. Id. (citing McIntire v. 

China MediaExpress Holdings, Inc., 38 F. Supp. 3d 415, 433 (S.D.N.Y. 2014); In re Alstom SA 

Sec. Litig., 253 F.R.D. 266, 280 (S.D.N.Y. 2008). Avenue Capital’s criticisms are not substantial 

enough to warrant this Court’s rejection of Nye’s cause and effect study. The fifth factor also 

suggests that MagnaChip’s stock traded on an efficient market. 

All five factors weigh in favor of a finding market efficiency.3 In many ways, this case is 

similar to In re Diamond Foods, Inc., where the defendant “purportedly identif[ied] fundamental 

flaws in plaintiff’s event study,” but did not “not provide a study or other evidence concluding that 

 

3

In addition to criticizing Nye’s analysis of the Cammer factors, Avenue Capital offers the more 

general argument that the Nye Report fails to provide “an objective, unbiased standard for 

assessing market efficiency.” ECF No. 249 at 20. Specifically, Avenue Capital claims Nye failed 

to test for one of three specific forms of market efficiency. Id. But Avenue Capital does not direct 

the Court to any case requiring this type of tiered analysis rather than the finding of “general 

efficiency” articulated by the Supreme Court in Halliburton II. 134 S. Ct. at 2414. Moreover, 

courts have acknowledged that “some subjectivity” is unavoidable in the context of event studies, 

which means the ultimate determination of market efficiency cannot be entirely objective. See In 

re Diamond Foods, 295 F.R.D. at 249. Here, the fact that Nye faithfully followed the Cammer

factors weakens any argument that his analysis was subjective and therefore unreliable.

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 11 of 17
12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

the market for [the relevant] stock was not efficient during the class period.” 295 F.R.D. 240, 250 

(N.D. Cal. 2013). Responding to similar attacks on a cause and effect study in a different case, 

one court in this district noted that “[s]haky but admissible evidence is to be attacked by cross 

examination, contrary evidence, and attention to the burden of proof, not exclusion . . . . 

Defendants’ arguments contesting the validity of plaintiffs’ expert’s conclusions based on his 

market model may be presented at trial.” In re Montage Tech. Grp. Ltd. Secs. Litig., 2016 U.S. 

Dist. LEXIS 53734, at *28. The same is true here. In addition, the fact that MagnaChip trades on 

the NSYE, though not dispositive of market efficiency, certainly helps to confirm that conclusion. 

ECF No. 231 at 19 (citing cases). In sum, the preponderance of the evidence supports a finding of 

class-wide reliance. 

Rebuttal Evidence

Avenue Capital argues that even if Plaintiffs could demonstrate an efficient market and 

therefore invoke the presumption of reliance, that presumption is “rebutted as of March 11, 2014 

because no investor could have reasonably relied after that date.” ECF No. 249 at 31. Amgen Inc. 

v. Connecticut Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1193 (2013) (internal citations and 

alterations omitted) ( “The presumption, however, is just that, and can be rebutted by appropriate 

evidence.”); see also, Basic, 485 U.S., at 248–249 (“[I]f petitioners could show that the ‘market 

makers’ were privy to the truth . . . , and thus that the market price would not have been affected 

by their misrepresentations, the causal connection could be broken: the basis for finding that the 

fraud had been transmitted through market price would be gone.”). Specifically, Avenue Capital 

points to the language in its March 2014 disclosures that its prior financial statements “should not 

be relied upon.” ECF No. 249 at 32. Avenue Capital argues that reliance after that disclosure 

would have been unreasonable. ECF No. 249 at 32. Plaintiffs respond that the 2014 statement 

was “itself false and misleading” and therefore could not be “fully corrective.” ECF No. 275 at 

11.4 

Avenue Capital has the better argument here. A number of district courts have declined to 

 

4

Plaintiffs allege that the March 2014 statement disclosed that the fraud was related to revenue 

recognition for one sales channel, but hid the fact that the “fraud wiped out the majority of

MagnaChip’s reported profits, was extremely widespread in scope and nature, and involved 

MagnaChip’s management.” ECF No. 275 at 11. 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 12 of 17
13

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

extend the class period in a securities case beyond the date of disclosures like those made by 

MagnaChip here. For example, in In re Fed. Nat. Mortg. Ass’n Sec., Derivative & ERISA Litig.,

247 F.R.D. 32, 39–40 (D.D.C. 2008) (“Fannie”), the court ended the class period on the date that 

the “company explicitly warned investors to discount its prior financial statements and that it 

anticipated a restatement of around $9 billion as a result of a top-to-bottom review of its books.” 

The court explained that “there was nothing equivocal about [the company’s] disavowal of its 

financial statements,” and that the “announcement put investors on notice that Fannie Mae’s 

financial future was, at best, uncertain.” Id. Particularly given that the “market reacted 

immediately,” the court decided that “investors who purchased Fannie Mae stock after [the 

disclosure] . . . should not be able to claim a reasonable reliance on Fannie Mae's financial

statements.” Id. Importantly, the court was not persuaded by the plaintiffs’ argument that this 

disclosure was only partial. Rather, it concluded that “while the subsequent disclosures in 2005 

might have provided additional information as to the extent of the alleged fraud, investors were 

already proceeding with full knowledge that substantial errors and irregularities existed with the 

earlier financial statements.” Id. This Court sees no way to distinguish this case from Fannie in 

light of the unequivocal nature of MagnaChip’s March 2014 disclosure. And like in Fannie, the 

fact that MagnaChip’s disclosure may have only revealed part of the fraud does not change the 

fact that the disclosure did warn investors against any reliance on the company’s prior financial 

statements. 

The same is true of In re Nature’s Sunshine Prod.’s Inc. Sec. Litig., 251 F.R.D. 656, 666–

67 (D. Utah 2008) (“Nature”). There, the defendant argued that the class period should end once 

“Nature filed an 8–K warning investors not to rely on any of its financials.” Id. The district court 

rejected the plaintiffs argument that the “8–K was only a partial corrective disclosure and that 

further corrective disclosures were revealed after [that initial disclosure], which made Nature’s 

stock price continue to fall.” Instead, the court found as a matter of law that the 8–K served as “a 

curative disclosure . . . render[ed] it unreasonable for an investor, or the market, to continue to be 

mislead [sic] by the defendants alleged misrepresentations.” Id.

5

 This same reasoning requires the 

 

5

The Court does not dispute that “doubts regarding the reasonableness of the reliance should be 

resolved in favor of extending the class period,” In re Data Access Sys. Sec. Litig., 103 F.R.D. 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 13 of 17
14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

shortening of Plaintiffs’ class period here. The question is not, as Plaintiffs’ argue, whether the 

March 2014 disclosure was “fully corrective,” ECF No. 275 at 11, but whether it made further 

reliance on MagnaChip’s earlier financial reports unreasonable. The Court finds that it did.6

Contrary to Plaintiffs’ position, Amgen does not counsel against resolving this question at 

the class certification stage. In Amgen, the defendant’s “rebuttal evidence aimed to prove that the 

misrepresentations and omissions alleged in [the] complaint were immaterial” because, among 

other things, public documents already disclosed the subject of the misrepresentations at the time 

they were made. Amgen, 133 S. Ct. at 1203-04. The Court declined to consider the rebuttal 

evidence, explaining that while a “defendant could rebut the fraud-on-the-market presumption of 

reliance . . . by demonstrating that news of the truth credibly entered the market and dissipated the 

effects of prior misstatements, [] proof of that sort is a matter for trial.” Id. (internal quotations 

and alterations omitted) (citing Basic, 485 U.S. at 248–249). Here, however, nobody is arguing 

that the original misrepresentations were immaterial or that evidence of MagnaChip’s misconduct 

had already entered the market when MagnaChip released its fraudulent financial reports between 

2011 and early 2014. Instead, Avenue Capital has argued that a subsequent disclosure made 

continued reliance on those financial reports unreasonable. Therefore, Amgen does not control, 

and the fact that the district court cases cited by Avenue Capital preceded Amgen does not mean 

they are no longer good law.7 

The Court concludes that the presumption of market efficiency is rebutted as of March 11, 

 

130, 143 (D.N.J. 1984), but nonetheless concludes that no doubt exists where a company explicitly 

warns investors not to rely on past financial reports because they will be restated. 

6

In re LDK Solar Sec. Litig., 255 F.R.D. 519, 527 (N.D. Cal. 2009), is distinguishable. There, 

unlike in this case, the defendant did not issue a report warning against reliance on prior financial 

statements. Rather, the court analyzed whether the class period should terminate on the date that 

the defendant “published a report disclosing [the comptroller’s] departure from LDK and 

expressing generalized concerns about LDK’s inventory accounting.” Id. The court deemed this 

report a “partial disclosure” that did not “fully reveal[]” the fraud. Id. By contrast, courts have 

found a company’s warning not to rely on prior financial statements to make future reliance on 

those statements unreasonable. See, e.g., Nature, 251 F.R.D. at 666–67. Those cases, not LDK, 

are persuasive here. 

7

The same point can be made with regard to Plaintiff’s reliance on Erica P. John Fund, Inc. v. 

Halliburton Co., 563 U.S. 804, 813 (2011) (“Halliburton I”), in which the Supreme Court held that 

plaintiffs in a securities class action are not required “to show loss causation as a condition of 

obtaining class certification.” Id. at 813. The Court imposes no such burden here as to any 

portion of the putative class period. It merely holds that, after March 11, 2014, reliance on 

Magnachip’s prior disclosures was unreasonable as a matter of law. 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 14 of 17
15

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

2014, and ends the class period on that date. 

b. Damage Calculations

Second, the parties dispute whether individualized damages questions make this case 

unsuitable for class-wide resolution. Avenue Capital argues that Plaintiffs “must be able to show 

that ‘their damages are capable of measurement on a class-wide basis’” to obtain certification, and 

that they have failed to make that showing. ECF No. 249 at 25 (citing Comcast Corp. v. Behrend, 

133 S. Ct. 1426 (2013). Avenue Capital criticizes Nye’s use of a “price inflation” theory

generally, and also identifies several problems with Nye’s methodology. Id. at 26-31. 

The reasoning in Hatamian v. Advanced Micro Devices, Inc., a similar securities class 

action case in this district, is instructive. No. 14-cv-00226 YGR, 2016 U.S. Dist. LEXIS 34150, at 

*26 (N.D. Cal. Mar. 16, 2016). Hatamanian explained how the Ninth Circuit has applied Comcast

to securities cases:

The Ninth Circuit reads Comcast to demand only that plaintiffs “be able to show 

that their damages stemmed from the defendant’s actions that created the legal 

liability.” Leyva v. Medline Indus., 716 F.3d 510, 514 (9th Cir. 2013) (citing 

Comcast, 133 S.Ct. at 1435) . . . The ultimate question, then, . . . is whether 

“damages could feasibly and efficiently be calculated once the common liability 

questions are adjudicated.” Leyva, 716 F.3d at 514.

Id. at *23-25. In other words, Comcast does not require certification proponents to rely on a classwide damages model to demonstrate predominance. Id. Like in Hatamanian, Nye’s event study, 

if reliable, should suffice to show how damages could be calculated. ECF No. 275 at 25; see In re 

Montage Tech. Grp. Ltd. Secs. Litig., 2016 U.S. Dist. LEXIS 53734, at *38 (explaining that in 

“securities fraud matter[s] . . . , courts have found that a price impact analysis such as an event 

study can serve as a method of calculating class-wide damages”). 

Avenue Capital attacks the methodology of Nye’s event study on several grounds similar 

to those raised by the defendant in Hatamanian. The critiques fall into two main categories. First, 

Avenue Capital attacks the “fit” of Nye’s damages methodology, arguing that the study fails to 

take into account price inflation over time, the impact of the 2014 corrective disclosures, and the 

impact of confounding news. ECF No. 249 at 26-29. Like the defendant in Hatamanian, Avenue 

Capital points to a Southern District of Texas case as an example of a court rejecting an event 

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 15 of 17
16

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

study under Comcast as insufficient tailored. In re BP p.l.c. Sec. Litig., No. 10-MD-2185, 2013 

WL 6388408 (S.D. Tex. Dec. 6, 2013). But as the Hatamanian court recognized, In re BP is 

distinguishable because in that case the problem was the event study’s failure to “take into account 

two differing theories of fraud liability plaintiffs were pursuing.” 2016 U.S. Dist. LEXIS 34150, 

at *26. Plaintiffs have only one theory here. The flaws that Avenue Capital identifies in Nye’s 

study, like in Hatamanian, are “are ultimately immaterial to class certification” because they relate 

to loss causation, an issue “properly addressed by a fact-finder on the merits.” Id.

8

 

Second, Avenue Capital argues that Nye’s proposal for calculating Section 20A damages is 

inadequate. ECF No. 249 at 26. Nye’s Report contains a one-sentence explanation of Section 

20A damages: “The disgorgement remedy under § 20A of the Exchange Act can be calculated in a 

similarly mechanical manner for all Class members who purchased MagnaChip shares 

contemporaneously with Avenue Capital’s August 1, 2013 sale of MagnaChip stock.” ECF No. 

231-2 at 29. The Court agrees that this explanation is short, but sees no reason to require Plaintiffs 

to repeat their description of the event study used to calculate Section 20(a) damages if the study is 

the same for both types of claims. Nor does the Court find material Plaintiffs’ use of the term 

“disgorgement” when referring to the measure of Section 20A damages. Some courts have 

described the “measure of [Section 20A] damages as amount of disgorged profits,” In re Petco 

Animal Supplies Inc. Sec. Litig., No. 05-CV-0823-H RBB, 2006 WL 6829623, at *10 (S.D. Cal. 

Aug. 1, 2006), and the Court will certainly keep in mind the language of the statute that Avenue 

Capital identifies, which sets a limit on total recovery. ECF No. 249 at 29. Finally, the Court 

acknowledges that “no class member should be allowed to recover more than the amount of its 

economic loss,” meaning Section 20A and Section 20(a) damages should not be aggregated if that 

figure would exceed actual damages. Id. at 30 (citing The Ambassador Hotel Co. v. Wei-Chuan 

Inv., 189 F.3d 1017 (9th Cir. 1999). But Plaintiffs are correct that this issue can be resolved on a 

class-wide basis and therefore should not prevent certification. 

2. Superiority

 

8 Avenue Capital is correct that In re Diamond Foods held that calculating damages is only a 

mechanical task when there are no “specific complications that would make such a calculation 

impossible or ill-advised in this case.” In re Diamond Foods, Inc., Sec. Litig., 295 F.R.D. at 252. 

But as discussed above, the complications identified by Avenue Capital do not rise to that level.

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 16 of 17
17

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

The second Rule 23(b)(3) requirement is superiority. In determining superiority, courts 

must consider the four factors of Rule 23(b)(3): (1) the class members’ interests in individually 

controlling a separate action; (2) the extent and nature of litigation concerning the controversy 

already begun by or against class members; (3) the desirability of concentrating the litigation in 

the particular forum; and (4) the manageability of a class action. Hodges v. Akeena Solar, Inc., 

274 F.R.D. 259, 270–71 (N.D. Cal. 2011) (citing Zinser v. Accufix Research Inst., Inc., 253 F.3d 

1180, 1190 (9th Cir. 2001). “Where classwide litigation of common issues will reduce litigation 

costs and promote greater efficiency, a class action may be superior to other methods of 

litigation,” and is certainly superior “if no realistic alternative exists.” Valentino v. CarterWallace, Inc., 97 F.3d 1227, 1234-35 (9th Cir. 1996).

Courts in this district have recognized the utility of the class action device in securities 

cases. In re UTStarcom, Inc. Sec. Litig., No. C 04-04908 JW, 2010 WL 1945737, at *10 (N.D. 

Cal. May 12, 2010); In re Juniper Networks, Inc. Sec. Litig., 264 F.R.D. 584 (N.D. Cal. 2009). 

Not only are all factors met here, ECF No. 231 at 23, but Avenue Capital also does not appear to 

contest superiority. The Court concludes that a class action is superior to other methods for 

resolving this controversy.

CONCLUSION

The Court certifies the class, but imposes a March 11, 2014 end date for the Class Period. 

The Court appoints Keith Thomas and Herb Smith as class representatives, and Pomerantz, LLP 

and the Rosen Law Firm, P.A. as class counsel. 

IT IS SO ORDERED.

Dated: December 22, 2016

______________________________________

JON S. TIGAR

United States District Judge

Case 3:14-cv-01160-JST Document 286 Filed 12/22/16 Page 17 of 17