The Honor able Janet C. Hall, of the United States District Court for the District of 1 Connecticut, sitting by

desig nation. 1 0 6

- 3 7 9 4

- cv T eam st ers Lo cal 44 5 Frei ght D i vi si o n P ensi o n Fund v. B o m b ardier , Inc . 1 UN ITED STA TES C OU RT OF AP P EA LS 2 F OR THE SE CO ND CI RC UI T 3 August Term, 2007 4 (Argued: Marc h 13, 2008 Dec ided: October 14, 2008) 5 Docke t No. 06-3794-c v 6

_____________________ 7 T EA M ST ER S L O CA L 445 F R E I GH T D I VI S I ON P EN S I ON F UND , O N I T S O WN BE H A LF AN D O N BE H A LF 8 OF AL L THO S E S I MI L ARL Y S I TU AT ED , 9 10 Plaintif f-Appellant , 11 12 v. 13 14 B O M BARD I ER I NC ., B O M BARD I ER C A PIT A L I NC ., B O M BARD I ER C A PIT A L M OR TGAGE 15 S EC UR I TI Z ATI ON C O RP ., L AU R E NT B E A U D O IN , B R I AN P ET ERS , R OB E R T G ILL E SP IE , L AWRENC E F. 16 A SSELL , 17 18 De fe nd an ts- Ap pe lle es. 19

_____________________ 20 21 Be fore : B.D

. P ARKE R , and L I VI NGS TON , Circuit Judges , and H A LL , District Judge

. 1 22 23 Appea l from an inter locutory order of the United States District Court for the Southern 24 District of Ne w York ( Scheindlin, J .) deny ing c lass cer

tification. A F F I RMED . 25 26 J O EL P. L AI TMAN (S amue l P. Spo rn , Chri sto ph e r L ome tti , 27 Kurt Hunc iker, Jay P. Saltz man, Fr ank R. Schirripa, on the 28 brief ), S C HOE NGOL D S PO R N L AI TMAN & L OME TTI , P.C., 29 N EW Y O RK , NY, for Plain tif f- Ap pe lla nt.2 1 P A T RI CK M. M C G U I RK (A . Ro be rt Pie tr zak , I sa a c S. 2 Gre aney , on the brief ) S I DL EY A US TI N L L P, N EW Y O RK , 3 NY, for Defendants-Appe llees

. 4 5 B AR R I NGTON D. P ARKE R , Circuit Judge : 6 7 8 Teamsters L ocal 445 F reig ht Division P ension Fund ( “Te amsters” ), lea d plaintiffs in a 9 putative sec urities class ac tion, appeal f rom an interloc utory

order of the United States District 10 Court for the Southern D istrict of NewYork (Sche indlin, J. ). The district c ourt conc luded that 11 Teamsters failed to satisfy the pre dominance r equire ment of Rule 23(b)( 3), F ed. R. Civ. P, and 12 denied its motion for class c ertifica tion. W e agree d to hear

this int erloc utory

appea l to consider 13 whether

the district court a

pplied the cor

rec t standard of

proof—the pr eponder ance of the 14 evidenc e standa

rd—to this decision. This appea l also raises se vera l ancillary issues: whether the 15 dis tr ic t c ourt

ma de c le arl y

e rr on e ou s f

a c tua l f ind ing s in de ny ingc la ss c e rt if

ic atio n; whe the r i t 16 was re quired to per mit a full evidentiary

hear ing be fore employing a preponde ranc e of the 17 evidenc e standa

rd; and whe ther it was oblig ated to allow a dditional class discovery befor e 18 de nyingc la ss c e rt if ic a tio n. F ind ingno e rr or

in a ny of the se are a s, we a ff

ir m. 19 20 BACK GR OUND 21 Bomba

rdier, I nc. (“ BI ”) is a Ca

nadian c orporation that manufac tures and se lls a variety of 22 products, includingairc raf t, rec reational vehicles, a

nd locomotives. Bombar dier Capital, Inc. 23 (“ B CI ” ) i s a

wh oll y ow ne d s ub sid iary

of B Ithat w a s invo lve d in

fi na nc ingand le a sin g mob ile 24 homes. Bomba

rdier Ca pital Mortga g e Secur itiz ation Corporation (“ BCM”) , a wholly ownedSteve Maich, Scapegoat CEOs Bury a Bad Y ear: TD, Be ll Cl ear the De cks , N a t’ l Po st, 2 Dec . 27, 2002; Allan Swift, Turbulent Y ear for Quebe c Inc . Changes Called Healthy , T or on to Star, De c . 2 7, 20 02 ; see also Bombardier Fac es Bumpy Y ear: Que bec H

it Especially Hard By Pa inf ul C or po ra teSq ue e

ze , T he Ha lif

a x Da ily Ne ws , D e c . 2 6, 20 02 ; Quebe c-Base d Companies Undergo Shak

eups: Re stless Stockholders Put Pressure on Top for Change , Calg ary Her ald, Dec

. 26, 2002; Allan Swift, Bombardier Face s Bumpy Year , Winds or Star, De c. 26, 2002. 3 1 subsidiary

of B CI , packa g ed mobile home loans a nd sold them to the public as “the Cer tificates,” 2 the se c ur iti e s th a t are the su bje c t of thi s li tig a tio n. $1 .8 5 b ill ion wo rt h o f C e rt if

ic a te s w e re so ld 3 in s e ve n s e pa

rate of fe ri ng s b e tw e e n 1 99 8 a

nd 20 01 , e a c h s e c ur e d b y

a dis tin c t po ol o f m ob ile 4 ho me loa

n c on tr a c ts a

nd mor tg a g e s. Th e Ce rt if

ic a te s w e re ty

pic a lly tr a de d r e lativ e ly

inf re qu e ntl y 5 and in larg e amounts by sophisticated institut ional investors, such as Te amsters. In May 2002, 6 Teamsters purcha sed $250,000 par value Ser ies 2000-A Class A-2 Ce rtificate s for a total 7 investment of $234,826. 8 In Se pte mbe r 2 00 1, B I , B CI , a nd B CM d isc on tin

ue d d e bt o ff

e ri ng s se c ur e d b y

mob ile 9 ho me loa

ns . In Dec ember

2002, the Series 2000A Ce rtificate s were downg rade d to below 10 investment g rade . That same month, the Tor on to S tar and other

paper s repor

ted that the pric e of 11 B Ish are s h a d d

ra sti c a lly fa lle n in 20 02 in p art

du e to “ qu e sti on s a

bo ut [i ts] f

ina nc ingarm , 12 [BCI ]” and the Nat ion al P os t announce d that BI

“could take a g oodwill writeoff of up to $2- 13 billion,” in order to “quickly clea r up some of the most pressing c halleng es fa cingthe company ’s 14 lending unit.” In Marc h 2003, the Can ad ian Pr ess repor

ted that B Iand B CIwer e downg rade d 2 15 to “under

revie w, with neg ative implications” and that BI “wa rned of the prospec t of major 16 writedowns,” and the Hamilton Spectator stated that “[n]on-cash writedowns will li kely includeAllan Swift, Bombardier Shares TakeHit After W arning , Hamilton Spectator, Mar . 5, 3 20 03 ; A lla

n Sw if t, New Bombardier CEO Tellier Slashes Profit Expectations, W arns of WriteOf fs , The Cana dian Press, Mar . 4, 2003. 4 1 [BCI ], already

written down in 2001.” 3 2 In Fe bruar y 2005, Teamsters sued. The Complaint allege s that from 1998 to 2001, senior 3 mana g e me nt at B CM, B CI , a nd B Idis re g ard e d und e rwri tin g sta nd ard s, re g ula

rl y un de rwro te 4 loa

ns to b or ro we rs wh o w e re no t c re dit wo rt hy , a nd purc ha se d la

rg e qu anti tie s o f f

a c ia lly 5 defe ctive and de ficient mobile home loans . Th e Com pla int a lle g e s th a t th e se re c kle ss 6 un de rwri tin g pr a c tic e s c a us e d e sc a latin g de lin qu e nc y ra te s, wh ic h w e re sy ste matic a lly 7 underr eporte d. I t contends that Certificate price s collapsed f ollowing the downg rade s and the 8 Dec ember

2002 and Mar ch 2003 disclosure s. The Complaint further a lleg es that this conduct 9 violated Sections 10(b) a nd 20(a) of the Sec urities Ex chang e Ac t of 1934, 15 U.S.C. § 78a et 10 seq., and Rule 10b- 5 there under, 17 C.F .R. § 240.10b-5. 11 In F e br

ua ry 20 06 , T e amst e rs mov e d p ur su ant t o Ru le 23 (b )( 3) fo r c e rt if ic a tio n o f a

c la ss 12 of all open ma

rket purc haser s of the Certific ates be tween F ebrua ry 7, 2000 and F ebrua

ry 7, 2005. 13 Th e a

pp e lle e s o pp os e d p ri nc ipa lly on the g ro un d th a t Ce rt if

ic a te ho lde rs we re no t a

pr op e r R ule 14 23 (b )( 3) c la ss b e c a us e Te amst e rs c ou ld n ot a de qu a te ly de mon str a te that Ce rt if

ic a te pr ic e s ti me ly 15 inc or

po rate d in fo rm a tio n mate ri a l to the str e ng th o f t he un de rl yingc oll a te ra l. 16 The district cour t denied the motion. Teamsters Local 445 Freight Div. Pension Fund v

. 17 Bombardier, Inc

. , N o . 0 5 C i v . 1 8 9 8 ( S A S ) , 2 0 0 6 W L 2 1 6 1 8 8 7 ( S

. D

. N

. Y

. A u g . 1 , 2 0 0 6 )

. It 18 identified the “ decisive” question as whethe r Tea msters could show that cla ss issues 19 predominate d over individual issues so that common proof c ould be used to establish the re lianceThe Basic Inc . v. Levinson fr a ud -o n- the -m ark e t th e or

y inv olv e s tw o r e butta

ble 4 pr e sumpt ion s th a t pe rm it a fi nd ingof

c la ss- wi de re lia

nc e wi th r e sp e c t to a

Rul e 10 b- 5 c la im: “ that ( 1) mis re pr e se ntatio ns by an is su e r a ff

e c t th e pr ic e of

se c ur iti e s tr a de d in

the op e n ma

rk e t, and (2 ) i nv e sto rs re ly

on the mark e t pr ic e of

se c ur iti e s a s a

n a c c ur a te me a su

re of the ir int ri ns ic value.” Hev esi v. Citigroup Inc. , 366 F.3d 70, 77 ( 2d Cir. 2004). I t is “based on the hy

pothesis that, in an open and de veloped se curities mar ket, the pric e of a c ompany ’s stock is deter mined by the ava ilable mater ial information re g ardingthe company and its business” and that “ [m ]i sleadingstatements will theref ore de fra ud purcha sers of stoc k even if the purc haser s do not directly rely on the misstatements.” Ba sic , 485 U.S. at 241-242 (interna l quotation marks omitted). The theor y is premised on the e x istence of an inf or matio na lly

e ff ic ie nt m ark e t, i n w hic h “ mark e t pr of e ssi on a ls g e ne ra lly

c on sid e r m os t pu

bli c ly announce d materia l statements about companie s, thereby aff ectingstock price s.” Id . at 246 n.24. 5 1 element of

their cla im under Section 10(b) and Rule 10b-5. Id . at *4. Tea msters invoked the 2 fra ud-on-the- marke t doctrine a s one theory of re liance. Id. a t *5 ; see Basic Inc. v . Levinson , 485 3 U.S. 224, 242-49 (1998). The district cour t concluded that the fra

ud-on-the- marke t presumption 4 4 was only

available if the Certificates wer e found to have tra ded in an “ efficient ” mar ket, one that 5 was “ open and de veloped e noug h so that it quickly incorporate[d] materia l information into the 6 price of the sec urity .” Id. a t *5 . A c c or din g to t he dis tr ic t c ourt , if

Te amst e rs c ou ld “ no t ava il 7 itself of the pre sumption t hat investors re lied on defe ndants’ misrepr esentations, the require ment 8 that c omm on

iss ue s p re do min a te ov e r i nd ivi du a l is su e s [w ou ld] n ot b e satis fi e d, and c la ss 9 cer

tification [would] be denie d.” Id. at *1. 10 Be lieving that the standard of proof f or ana ly zing Tea msters’ evide nce of

marke t 11 eff

iciency “ha[d] not been prec isely define d,” the district cour t determined that the 12 preponde ranc e of the evidenc e standa rd applied. Id . at *3, 9. I t understood this Court’s decision 13 in Hee rwagen v. Clear Channel Communications , 435 F.3d 219 ( 2d Cir. 2006), to presc ribe a 14 binary

standard of

proof f or Rule 23 issues. Te am ste rs , 2006 WL 2161887, at *4. The district6 1 court be lieved that a pla intiff was re quired to demonstrate by a “pr eponder ance of the e vidence ” 2 class ce rtification issues that ar e “suf ficiently independe nt of the merits to justify weig hing the 3 evidenc e,” but to make only “some showing ” of issues that a re “ eff ectively identical to the 4 merits.” Id. (interna l quotation marks omitted). Finding that “the availability of a pr esumption 5 [of reliance ] i s not a merits issue,” the district c ourt applied the pr eponder ance of the e vidence 6 standard. Id. at *9. 7 The district cour t analy zed Teamster s’ evidenc e of ma rket e fficie ncy

acc ording to five of 8 the eig ht fac tors set forth in Cammer v. B loom , 7 1 1 F. S u p p . 1 2 6 4 (D

. N. J

. 1 9 8 9 ): (1 ) t h e a v er age 9 wee kly

tradingvolume of the Cer tificates, ( 2) the number

of sec urities analy sts following a nd 10 repor

ting on them, ( 3) the e x tent to which marke t makers tra ded in the Certific ates, (4) the 11 issuer’s e ligibility to file an SEC reg istration Form S-3, and ( 5) the de monstration of a c ause a nd 12 e ff

e c t r e latio ns hip be tw e e n une xpe c te d, mate ri a l di sc los ur e s a nd c ha ng e s in the Ce rt if

ic a te s’ 13 price s . Te am ste rs , 2006 WL 2161887, at *6-7, 10-12

. I tfo un d th at two fa ct o rs

—th e a v er age 14 wee kly

tradingvolume of the Cer tificates e x presse d as a pe rce ntag e of the outstanding sha res a nd 15 the filing of an SEC For m S-3 for ea ch cla ss of the Certificates—supported a finding of marke t 16 eff

iciency

. Id. at *10-11. How ever , the district court de termined that the othe r three fac tors—the 17 exis tence of sec urities analy sts following a nd repor ting on the Ce rtificate s, the showing that 18 marke t makers tra ded in them, and the de monstration of a c ausal re lationship between the 19 disclosure of material infor mation about the Certificates and their pr ices—did not. Id . at *10-12. 20 Ba sed on this analy sis and other infor mation available, the district court conc luded that 21 Te amst e rs fa ile d to de mon str a te by a pr e po nd e ra

nc e of the e vid e nc e that th e Ce rt if ic a te s tr a de d inAfter we g rante d leave to appea l, Teamster s withdrew a motion for rec onsideration that 5 it h a d p re vio us ly

fi le d b e fo re the dis tr ic t c ourt . Teamsters intended to re new its class c ertification moti on and soug ht to subpoena the 6 Tr us te e of the Ce rt if

ic a te s at is su e , th e ho lde rs of the Ce rt if

ic a te s d ur inga fi ve -ye ar p e ri od , th ir

ty or more a dditional broker- deale rs and/or institutional purchase rs of the Cer tificates, a

nd unidentified ana ly sts. 7 1 an ef

ficient mar

ket and ther efor e could not re ly on the fra

ud-on-the- marke t presumption. Id. at 2 *12. Be cause class member s would have to prove relianc e individually , the cour t determined 3 that T e amst e rs c ou ld n ot s a tis fy Rul e 23 (b )( 3) ’s pr e do min anc e re qu ir e me nt a nd c la ss 4 cer

tification was de nied. Id. 5 In August 2006, shortly afte r the district cour

t entere d its ruling, and a fter a n eleve n6 month period of discove ry that included a thr ee- month ex tension, the district court stay ed 7 a dd iti on a l di sc ov e ry . T e amst e rs the n s ou g ht, and we g ra nte d, le ave to a

pp e a l th e de nia l of

c la ss 8 cer

tification. SeeRule 23(f), F ed. R. Civ. P. I n Dec ember 2006, Teamsters asked the district 5 9 court to lift the stay and to per

mit an additional six months of discovery to develop more proof 10 that the Certificates trade d in an ef ficient mar

ket. I t argued that our de cision in Mi le s v . M e rri ll 6 11 Lynch &Co., (

In re I nitial Pub. Off

erings Sec. Litig.) , 471 F.3d 24 ( 2d Cir. 2006) (“ In re I PO ”), 12 which wa s issued after it had moved for c lass cer tification, established for

the first time that the 13 preponde ranc e of the evidenc e standa rd applied to its Rule 23 evidenc e. 14 The district cour t denied the r equest. Teamsters Local 445 Freight Div. Pension Fund v

. 15 Bombardier, Inc

. , No. 05 Civ. 1898 (SAS), at 8 (S.D.N.Y. Jan. 3, 2007) (orde r deny ing disc overy 16 reque st). I t observed that the holding of In re I PO “wa s not wholly

unanticipated” and that8 1 Hee rwagen had alr eady place d Teamsters “on notice that a cour t would likely

apply the 2 pr e po nd e ra

nc e of the e vid e nc e te st t o a

ny dis pute d is su e s o f f

a c t r e qu ir ingre so lut ion

in o rd e r t o 3 make a

deter mination as to class ce rtification, unless that issue wa s ‘ef fec tively identical’ to a 4 merits issue.” Id . at 3-4, 6. It noted that Teamsters’ re quest for a dditional discovery could have 5 been ma de ea

rlier a nd that the additional discover y reque sted was unlikely

to cure the 6 defic iencies in the c lass cer tification motion. Id . at 5-7. 7 In acc epting Teamsters’ appe al, we a g ree d to consider thre e questions: (1) whe ther the 8 “some showing ” or “ preponde ranc e of the evidenc e” sta ndard of proof a pplies to the Rule 23 9 require ments in securities cla ss actions; (2) whe ther the district c ourt proper ly applied the 10 preponde ranc e of the evidenc e standa rd to Teamsters’ evide nce of predominanc e; and ( 3) 11 whether

the class should be c ertified be cause the district court ove rlooked e vidence 12 demonstratingthat the Certificates trade d in an ef ficient mar

ket, eve n under a

preponde ranc e of 13 the evidenc e standa rd. 14 15 DI SCU SSIO N 16 We reviewfor a buse of discr etion the district court’s de nial of cla ss cer tification. In re 17 IPO , 471 F.3d at 31. Whi le we a lso apply the abuse -of- discretion standa rd to the rulingthat 18 Teamsters did not meet the pre dominance r equire ment of Rule 23(b)( 3), we revie w for c lear err or 19 the fa ctual finding s underlying the ruling , including the deter mination that the Certificate s do not 20 trade in an ef

ficient mar

ket. Id. at 40-41. We re view de novo any issues of law unde rlying the 21 Rule 23 ruling, inc luding the que stion of whether the district court a

pplied the cor

rec t standard ofTeamsters contends that we should review the denial of its re quest for a n evidentiar

y 7 h ea ri n g de novo beca

use “this issue is inex tricably linked to the District Court’s application of th e h igh e r ‘ p r e p o n d e r an c e o f

th e e v id e n c e ’ s ta

n d ar d ” to it s e v id e n c e o f

p r e d o mi n an c e . We disag ree . See I

n re IPO , 471 F.3d at 41 (explaining that in deter mining cla ss cer

tification, “a dis tr ic t ju dg e ha s ampl e dis c re tio n to c ir c ums c ri be bo th t he e xten t of

dis c ov e ry

c on c e rn ingRul e 23 require ments and the e x tent of a he aringto determine whether such re quirements ar e met”)

. Revisions to Rule 23(b)( 3) that we nt into effec t after the district court’s de nial of the 8 class ce rtification motion superfic ially altere d the rule’ s tex t without subst antively chang ing the pr e do min anc e re qu ir e me nt. 9 1 proof. Id . We also review for a buse of discr etion a district cour t’s decision not to hold an 2 e v i d e n t i ar

y h e ar i n g an d

t o d e n y f urth e r c l a s s d i s c o v e r

y. Id. ; se e als o W

ill s v . A me ra da He

ss 7 3 Corp. , 3 79 F .3 d 3 2, 41 (2 d Ci r. 20 04 ); Zappia Middle E. Constr . Co. Lt d. v. Emirate of Abu 4 Dhabi , 215 F.3d 247, 253 ( 2d Cir. 2000). 5 6 A. Sta nd

ar d o f Pro of f or Ru le23 Re qu ire me nts 7 In d e te rm ini ngwh e the r c la ss c e rt if ic a tio n is a

pp ro pr iate , a

dis tr ic t c ourt

mus t f ir st 8 a s c e rt a i nw h e th e r

th e c l a i m s m e e tth e p r e c o n d i t i o n s o f R u l e 2 3 ( a ) o f

nu m e r o s i ty, c o m m o n a l i ty, 9 ty picality , and ade quacy . I t may then consider

g rantingclass ce rtification whe re it “f inds that the 10 qu e sti on s o f l aw o r f a c t c omm on

to c la ss m e mbe rs pr e do min a te ov e r a ny qu e sti on s a ff

e c tin g on ly 11 individual members, and that a class ac tion is superior to other ava ilable methods for f airly and 12 e ff

ic ie ntl y a dju dic a tin g the c on tr ov e rs y .” F e d. R. C iv. P. 2 3( b) (3 ). Th is a pp e a l a dd re sse s a 8 13 question that weaves throug h these va rious require ments of Rule 23: the standar d of proof 14 a pp lic a ble to e vid e nc e pr of

fe re d to me e t th e m. 15 We addre ssed this very question shortly

afte r the district cour

t denied Te amsters’ motion.10 1 In In re I

PO , w e “ re a dil y

a c kn ow le dg e [d]” that ou r c a se law u

p unti l th a t po int

“ [ha d] be e n le ss 2 than clea

r.” In re I PO , 4 71 F .3 d at 32 . We se t f or th t he fo llo wi ngsta

nd ard s, amon g oth e rs , to 3 g overn c lass cer

tification: 4 (1) a

district judge may

cer tify a cla ss only

afte r makingdeter

minations that each of

the 5 Rule 23 require ments has bee n met; (2) such de terminations can be made only if the 6 judge resolves f actua l disputes releva

nt to each Rule 23 r equire ment and finds that 7 whateve r under ly ing f acts a re r eleva nt to a particula

r Rule 23 re quirement have bee n 8 established and is pe rsuade d to rule, base d on the re levant fa cts and the a pplicable leg al 9 standard, that the require ment is met; [ and] (3) the oblig ation to make such 10 de te rm inatio ns is n ot l e sse ne d b y ov e rl a p b e tw e e n a

Rul e 23 re qu ir e me nt a

nd a me ri ts 11 iss ue , e ve n a me ri ts i ssu e that is ide nti c a l w itha Rul e 23 re qu ir e me nt. 12 13 Id

. at4 1

. W e d i s av o we d an y i mp l i ca t i o ni no ur e ar l i er d ec i s i o n s th at th e “ s o m e s h o wi n g” 14 standard ma

y apply to Rule 23 issues and require d district courts “to asse ss all of the re levant 15 evidenc e admitted at the c lass cer tification stag e” when dete rmining whether to gr ant a Rule 23 16 motion. Id . at 42. 17 The district cour t, which did not have the be nefit of our decision in In re I

PO , understood 18 our dec ision in Hee rwagen , 435 F.3d 219, to set for th two differ ent standar ds of proof, 19 dependingon whether a g iven Rule 23 issue was “ eff ectively identical to the mer its.” Te am ste rs , 20 2006 WL 2161887, at *4 (interna l quotation marks omitted). I t found that “[t] he use of a 21 pr e sumpt ion

to p ro ve tr ans a c tio n c a

us a tio n is sim

ply a pr oc e dura l to ol t

hat a llo ws a

pla int if f t o 22 satisfy

the pre dominance r equire ment of Rule 23(b)( 3).” Id. at *9. B eca use the availability

of 23 the fra

ud-on-the- marke t presumption did not overlap with the merits, the district cour t applied 24 the pre pondera

nce of the evidenc e standa

rd to Teamsters’ evide nce r eg ardingthe ef ficienc y of 25 the Certificates’ mar ket. Id.11 1 Although w e did not use the wor ds “pre pondera nce of the evidenc e” in In re I

POto 2 descr ibe the standa rd of pr oof applica

ble to Rule 23 issues, we in ef fec t require d the application 3 of a c og nate standa rd by direc ting district cour

ts “to assess all of the r eleva nt evidence admitted 4 at the cla ss cer

tification stag e,” to “ resolve[] factual disputes re levant to ea ch Rule 23 5 require ment,” and “ [t o] find[ ] t hat whate ver unde rlying f acts a re r eleva nt to a particula

r Rule 23 6 require ment have be en esta blished,” notwithstanding a n issue’s over lap with the merits. Id. at 7 41-42. Today , we dispel a ny rema ining c onfusion and hold that the pre pondera nce of the 8 evidenc e standa

rd applies to evide nce pr offe red to e stablish Rul e 23’s r equire ments. The district 9 court ther efor e applied the corr ect standa rd. 10 Te amst e rs ur g e s a dif fe re nt r e su lt f

or tw o p ri nc ipa l r e a so ns , n e ith e r o f whic h is 11 pe rs ua siv e . It argue s f ir st that In re I

PO“expressly

repudiate[d] ” our e arlier

endorse ment of the 12 preponde ranc e of the evidenc e standa rd in Hee rwagen , a

nd se c on d th a t w e “ a do pte d a mid dle 13 g ro un d, un de r whic h a Di str ic t Judg e is r e qu ir e d to make pr e lim ina ry fi nd ing s o n th e c la ss 14 cer

tification issues, but not to apply the pre pondera

nce of the evidenc e standa

rd.” A lthough In re 15 IPO

expli citly

overr uled our prior

decisions in In re Visa Chec k/MasterMone y Antitrust L itig. , 16 280 F.3d 124 ( 2d Cir. 2001), and Caridad v. Metro-North Commuter R.R. , 191 F. 3d 283 ( 2d Cir. 17 1999), it only

overr uled Hee rwagen to the extent that the decision supported an a pplication of the 18 “some showing ” standa rd to fac tual disputes relatingto Rule 23 require ments. In re I PO , 471 19 F.3d at 42. Moreover , In re I PO did not establish any

“middle g round” standa

rd of pr oof. 20 Teamsters makes much of our statement in In re I

PO , wher e we char acte rized as dictum the 21 statement in Hee rwagen that “[c]ompl ying w ith Rul e 23(b) (3)’ s predominanc e re quirementWe e xpla ine d th a t th e state me nt w a s n ot n e c e ssa ri ly c or re c t be c a us e 9 [i ]f a standard lowe r than pre pondera nce w ere permitted, a judg e could r ule that predominanc e is shown by that lesser standa

rd without g oing f

urther a nd ruling that individual issues have bee n shown to predominate. T he evide nce might be in equipose, or the judg e mig ht simpl y not have c onsidered whether the def endant’ s contrar

y evidenc e is persuasive. T he situation is somewhat similar to a judg e rulingthat the plaintiff is not e nti tle d to summa

ry jud g me nt o n und isp ute d f a c ts w ith out r

uli ngthat th e de fe nd ant i s e nti tle d to summa

ry jud g me nt. In re I PO , 471 F. 3d at 37 n.8. 12 1 cannot be shown by less than a pr eponder ance of the e vidence .” In re I PO , 471 F.3d at 37 2 (q u o t i n g Hee rwagen , 435 F.3d at 233). This char acte rization was acc urate . Wit hout resolving 3 the issue of the standa rd of pr oof ac tually

applied by

the district court, Hee rwagen na rr ow ly he ld 4 that if the dis tr ic t c ourt a pp lie d th e pr e po nd e ra

nc e of the e vid e nc e sta

nd ard , it did no t e rr be c a us e 5 the pre dominance inquiry was suff iciently independe nt of the merits of the a ction. Hee rwagen , 6 435 F.3d at 233. The ac curate cha rac terization of an endor sement of the pr eponder ance of the 7 evidenc e standa

rd as dictum does not, howe ver, e stablish a new, “ middle gr ound” standa rd of 8 proof. Te amsters similarly overstate s the signif

icanc e of a

footnote in In re I

PO , w he re we c a st 9 doubt on our comment in Hee rwagen that “ [i]f p la int if f h a d a le sse r b ur de n, the n a

mot ion to 10 cer

tify a Rule 23(b) (3) c lass would be g rante d despite the motion judge ’s belief that it is m ore 11 likely

than not that individual issues would predominate.” In re I PO , 471 F. 3d at 37 n.8 (citing 12 Hee rwagen , 435 F.3d at 233). Our f oo tno te me re ly

lim ite d w hat w a s e sse nti a lly dic tum in 13 Hee rwagen by

observingthat it overstated the a dverse implications of applying a standard of 14 proof less string ent than that of pr eponder ance of the e vidence

. In re I PO , 471 F. 3d at 37 n.8. 9 15 Neither

of the stateme nts in In re I POcan be ar the weig ht that Teamster s would place on them.13 1 Second, Te amsters a rgues that the district cour t should not have applied the 2 preponde ranc e of the evidenc e standa rd without g rantingit the opportunity to conduct fur

ther 3 discovery

and a f ull evidentiary

hear ing on the issue of the e fficie ncy of the Cer

tificates’ marke t. 4 Te amst e rs did

no t r e qu e st a

n e vid e nti ary

he ari ng in i ts m oti on

fo r c la ss c e rt if

ic a tio n, its 5 w i th dr aw nm o t i o nf o r r e c o n s i d e r a t i o n , o r

i t s m o t i o nf

o r l e av e t o a

p p e a l t o th i s C o urt . It 6 never

theless contends nowthat “[w]here a district c ourt dec ides not to hold a ‘full blown 7 evidentiar

y hear ing,’ as is the ca se her e, the prima facie sta nd ard sh ou ld b e a

pp lie d[,]” sim ila

r t o 8 what is employ ed whe n decidingissues of per sonal jurisdiction without an evidentiary hear ing. 9 I t relies on our state ment in In re I POthat “ [t]he Rul e 23 re qu ir e me nts are thr e sh old iss ue s, 10 simil ar in some r espec ts to preliminary issues such as pe rsonal or subjec t matter jurisdiction.” 11 Id . at 40. 12 We find this arg ument unconvincing . In requiringcourts “to a ssess all of the re levant 13 evidenc e admitted at the c lass cer tification stag e,” to “ resolve[] factual disputes re levant to ea ch 14 Rule 23 require ment,” and to “ find[] that whateve r under lying f acts a re r eleva nt to a particula

r 15 Rule 23 require ment have be en esta blished,” we did not prescr ibe any particula r wa y of 16 proce eding

. Id. a t 41 -4 2. To the c on tr ary , w e e mph a size d th a t di str ic t c ourt s r e ta in “ ampl e 17 dis c re tio n” to l imi t di sc ov e ry and “ the e xten t of

the he ari ng ” on

Rul e 23 iss ue s “ in o rd e r t o 18 assure that a cla ss cer tification motion does not become a prete x t for a pa

rtial trial of the me rits.” 19 Id . at 41 ; se e als o Hee rwagen , 435 F.3d at 233 (noting that “[t] he amount of discove ry” g rante d 2 0 o nc la s s c e rti f

ic a ti o nis s u e s “ is g e n e r a ll y le f t t o th e tr ia l c o urt’ s c o n s id e r a b le d is c r e ti o n ” )

. We 21 require only

that a cour

t “re ceive enoug h evidenc e, by aff idavits, documents, or testimony , to beTe amst e rs make s th is r e qu e st o n th e g ro un d th a t it sig na le d to the dis tr ic t c ourt that it 10 ha d “ mov e d f

or c la ss c e rt if

ic a tio n r e a so na

bly be lie vin g that it s pa rti al re c or d o f C e rt if ic a te eff iciency would be adjudg ed ag ainst the lesser ‘ some showing ’ standar d.” 14 1 satisfied that ea ch Rule 23 re quirement ha s been me t.” In re I PO , 471 F.3d at 41. 2 For

the same r easons, we also deny Teamsters’ re quest to remand to pe rmit additional 3 discovery

on class ce rtification issues in the eve nt that the preponde ranc e of the evidenc e 4 sta nd ard is h e ld t o a

pp ly

. Te amst e rs wa ite d f our m on ths a ft e r t

he dis tr ic t c ourt ’s de nia l of its 10 5 c la ss c e rt if

ic a tio n mo tio n a

nd sta y of dis c ov e ry , a

nd se ve ra l mo nth s a ft e r w e g ra nte d le ave to 6 appea l, to request additional discove ry from the district cour

t. Be cause it did not s eek, a nd we 7 did not gr ant, leave to appea l the district court’s January 2007 decision deny

ing the reque st, we 8 are not require d to consider whe ther a dditional discovery is warr anted. In any

event, we note that 9 th e d i s tri ctco urt ’s d en i al o f t h e r equ es td i d n o tab u s e i t s b ro add i s cr et i o nt o d i re ct an d m an age 10 discovery

. W

ill s , 379 F.3d at 41. 11 12 B. Factual Findings 13 B a se d o n it s c on sid e ratio n o f f ive of the e ig ht Cam me r fac tors, the district court found 14 that T e amst e rs fa ile d to sh owby a pr e po nd e ra

nc e of the e vid e nc e that th e Ce rt if ic a te s tr a de d in 15 an e ff

ic ie nt m ark e t—o ne in whic h th e pr ic e s o f t he Ce rt if ic a te s in c or

po rate mos t pu

bli c 16 information ra

pidly —and wa s theref

ore una ble to rely

on the fra

ud-on-the- marke t presumption of 17 relianc e. Te am ste rs , 2006 WL2161887, at *10-12. Te amsters c ontends that the district court 18 abused its discre tion when deter mining that the Cer

tificates tra ded in an inef

ficient mar

ket byTeamsters does not contest the district c ourt’s consider ation of the Cam me r fac tors, but 11 only the deter mination that the fac tors weig h in favor of a findingof Certificate marke t ineffic iency . The Cammer fac tors have be en routinely applied by

district courts consider ing the eff iciency of equity marke ts. At least one cour t has applied them to bond marke ts with a rec og nition of the differ ence s betwee n the manner in which debt bonds and e quity secur ities trade

. In re Enron Corp. Sec

. , 529 F. Supp. 2d 644, 748 (S.D. Tex . 2006). This Court has not adopted a test for the ma

rket e fficie ncy

of stocks or bonds, a

nd we do not do so her e. 15 1 making clea

rly err oneous fa ctual finding s relatingto three Cam me r fa c tor s: ( 1) that ana ly sts did 2 no t c ov e r o r r e po rt on the Ce rt if

ic a te s, (2 ) t

hat th e re we re no fi rm s ma kin g a mark e t in

the bo nd s, 3 and (3) that the empirica l data did not demonstrate a causa l relationship betwee n unexpected, 4 materia l information and the Cer tificates’ price s . 11 5 6 1. Analyst Coverage of the Ce rtifi cates 7 Acc ordingto Cammer , the exist ence of a numbe r of f inancial a naly sts who report on a 8 secur ity

supports a findingof marke t effic iency beca use it permits an infer ence that financ ial 9 state me nts re latin g to a se c ur ity are “ c los e ly

re vie we d b y

inv e stm e nt p ro fe ssi on a ls, wh o . . . in 10 turn make buy

/sell recommendations to client investors.” Cammer , 7 11 F . Su pp . at 12 86 ; ac c or

d 11 In re Xc elera.c om Sec . Liti g. , 430 F.3d 503, 514 ( 1st Cir. 2005) (“B oth parties agree that the 12 g reater the numbe r of se curities ana ly sts following a nd repor ting on a company ’s stock, the 13 g reater the likelihood that information relea sed by a compa ny is being relied upon by 14 investors.”). 15 Teamsters argued to the district cour t that the “ana ly st covera g e” f actor supports a finding 16 that the Certificates trade d in an ef ficient mar

ket for two ma in rea sons. First, its ex pert, Dr . Tavy16 1 Ronen, attested that f orty -four individual analy sts from twenty -eig ht firms specific ally repor ted 2 on BI

duringthe class pe riod. Ronen Supp. Aff. ¶ 21. She rea soned that “[s]i nce the Certificates 3 are ba c ke d b y

loa ns that w e re purc ha se d b y a div isi on of B omb ard ie r, Inc ., and

sin c e ana ly sts 4 pr ov ide d in fo rm atio n o n B Ia s a wh ole , in c lud ingany

mate ri a l in fo rm a tio n o n it s d ivi sio ns , 5 Certificate investors had a strong base of

information to drawupon in determiningthe price of 6 the Certificates.” Id. Ronen also attested that BI and B CI“we re integrate d in the servicingof the 7 Certificates[,] and had a rra ng ed for financ ing into the Cer

tificates,” which mea

nt that “any

news 8 a ff e c tin g the ir

fi na nc ia l he a lthand

he nc e a bil ity to c on tin ue su pp or tin g /se rv ic ingthe se 9 Certificates would be e x pecte d to impact the investors.” Ronen Re ply Aff. ¶ 22. Second, Ronen 10 pointed to the fac t that the three major bond rating a g encie s—Fitch, Moody ’s Investors Service 11 and Standar d & Poor’ s—rated the Certificates, which a lso helped Certificate price s ref lect 12 materia l information about B Iand B CI . Ronen Supp. Aff. ¶ 21. 13 The a

ppellees disputed these arguments. Their e x pert, Andr ew Car ron, conte nded that 14 th e act iv it ies of an aly st s w ho fol lo wedBI were i rrel evan t b ecaus e th e C ert if ica tes were n otBI 15 de bt s e c ur iti e s. Carr on Af f. ¶ 3 9. He a lso argue d th a t T e amst e rs fa ile d to sh owthat ana ly sts 16 specific ally

followed the Cer

tificates themse lves and c riticized Ronen’s relianc e on rating a g ency 17 activity

. Id. Analy zing the fr equenc y

of transa ctions and ave rag e pric e of tra nsactions in the 18 Certificates on day s following thr ee spe cific instanc es in which the c redit rating of the 19 Certificates was c hang ed, Carr on conclude d that “[e]it her the re [is] insufficient data to deter mine 20 whether

the Certificate price s ref

lected the cre dit analy st covera g e,” or “Certific ate pr ices did notWhil e a fa vo ra ble ratin g by

on e of the thr e e ma

jor bo nd ra tin g a g e nc ie s ma

y “ make [] it 12 easie r to sell the sec urity

to investors, who rely

upon [t he rating a g ency ’s] analy sis and evaluation,” Am. Sav. Bank , FSB v. UB S PaineW

ebber, I nc. ( In re Fitch, I

nc.) , 330 F.3d 104, 106 (2 d Ci r. 20 03 ), the re are re a so ns why a dis tr ic t c ourt

may c on c lud e that r a tin g a g e nc ie s le ss dir e c tly imp a c t th e pr ic e of

bo nd s in c omp ari so n to ana ly sts wh o f oll owan e qu ity , d ir e c tly

re late i n fo rm at i o nt o b uy er s , an d en gage i nth e a ct o f s el l i n g. SeeRa nd all S . T ho mas & J ame s F. Cotter, Measuring Sec urities Market Efficienc y in the Re

gulatory Setting , 63-SUM L aw & 17 1 rea ct in a consistent manne r, indicatingthat the marke t was not eff icient.” Car

ron Aff . ¶¶ 42- 44, 2 Ex . 11-12. 3 Th e dis tr ic t c ourt fo un d th a t “ Te amst e rs . . . p re se nte d n o e vid e nc e that ana ly sts 4 specific ally

followed the Cer

tificates, the va lue of whic h is tied to the perfor mance of the 5 underlying mobile homes, a nd only incidentally

to the perf

ormanc e of B Ior its subsidiaries.” 6 Te am ste rs, 2006 WL2161887, at *10. On this g round, the district cour t determined that a lack 7 of ana ly st covera g e indicate d that the marke t was ineff icient. Id. We f

ind no e rr or in t his 8 deter

mination. Cont rar

y to Teamster s’ claims, the district cour t did not dis reg ard its evidenc e on 9 this point . Rather, it ac knowledg ed Ronen’s opinion that the for ty -four “ana ly sts who followed 10 BI

followed the Cer

tificates a s well” be cause “B CIwas ser vicing the collater al for the 11 Certificates, and be cause BI financ ially

supported B CI .” Id . The district cour t simpl y found 12 Ronen’s ac count unper suasive and instea d acc epted Car ron’s re asoning that there wer e no 13 analy sts who specifica lly followed the Cer

tificates. More over, a lthough the district c ourt did not 14 addre ss the question of whethe r the thre e major bond r ating ag encie s promoted the ef ficienc y of 15 the Certificate marke t in a manner akin to that of ana ly sts reportingon equities, it was not 1 6 r e qu i r e d

t o d o s o i n

l i g h to f th e c o mp e l l i n g r e a s o n s i nth e r e c o r d f o r r e j e c t i n g s u c hanan a l o g y. 12Conte mp. Pr ob s. 10 5, 11 3- 14 (2 00 0) (c on c lud ing that r a tin g a g e nc ie s a

re no t ana log ou s to “ se llside equity

analy sts” who follow equities, publish their re sear ch and e arning s estimates, and “provid[e] a valuable c onduit for information to pass fr om companies to investors”)

. 18 1 2. Ma rk

e t M ak e rs 2 Mark e t make rs pr omo te the e ff ic ie nc y of a se c ur ity ’s mark e t be c a

us e the y “ re a c t sw if

tly 3 to company

news a nd repor ted financ ial results by

buying or

selling stock a

nd driving it to a 4 chang ed pric e leve l.” Cammer , 711 F. Supp. at 1287. We beg in with the SEC’s definition of a 5 “ mark e t make r” a s 6 a dea ler who, w ith respec t to a particula r sec urity , (i) re g ularly

publishes bona fide, 7 c omp e tit ive bid and of fe r q uo tatio ns in a

re c og nize d inte rd e a le r q

uo tatio n s y ste m; o r ( ii) 8 f

ur n i s h e s b o n a

f i d e c o mp e t i t i v e b i d

an d o f f e r qu o t a t i o n s o nr e qu e s t ; an d , ( i i i ) i s r e a dy, 9 wi lli ngand a ble to e ff e c t tr ans a c tio ns in r e a so na ble qu anti tie s at hi s q

uo te d p ri c e s w ith 10 oth e r b ro ke rs or de a le rs . 11 12 17 C.F.R. § 240.15c3-1[c]8 (2006). 13 Teamsters made thre e main ar g uments in support of its claim that market make rs for the 14 Certificates exist ed. F irst, its ex pert opined that the lead unde rwriter s of ea ch cla ss of the 15 Certificates ac ted as mar ket maker s beca

use the Cer

tificates a re a nalog ous to equity

I POs. Ronen 16 Sup p. Af

f. ¶ 2 4. Se c on d, ba se d o n h e r a na ly sis of tr a din g re c or ds , Ro ne n c on c lud e d th a t a 17 number of a dditional firms that were not underwr iters also ser ved as ma rket make rs. Id. Third, 18 Jose phMc Ad ams, the bo nd tr a de r f or Te amst e rs ’ i nv e stm e nt a dv iso r, te sti fi e d th a t he “ [fe lt] 19 confide nt” that on any g iven day

during the class pe riod, he c ould have obtaine d a quote f rom 20 any

one of a number of br oker- deale rs. McAda ms also testified that betwee n 2002 and 2005, he 21 “wa s awa

re of specific bids or offe rs” f

or the Cer tificates, a

nd that he believe d that “[t] here wer e19 1 six to seven de aler s that . . . have be en and did c ontinue to be ac tive in the manufa cture d housing 2 marke t.” 3 The a

ppellees, r elying on Ca

rron’ s aff idavit, disputed the exi stence of marke t makers f or 4 the Certificates. He attested that a mar ket maker is by definition an entity

that “commit[s] to buy 5 (bids) and to sell (of fer s) the sec urity

at spec ified price s.” Carr on Aff. ¶ 46. Carron f

aulted 6 Ronen’s study

identifying six non-underwr iter marke t makers be cause it was based on 7 transac tion data that did not demonstrate that the f irms actually

made “ active bids/off

ers.” Id. 8 Th e dis tr ic t c ourt c on c lud e d th a t T e amst e rs did no t de mon str a te that any fi rm “ re g ula rl y 9 publish[ ed] bids and quotes for the Cer tificates,” or that any

firm “would f

urnish bids and quotes 10 on reque st and . . . would eff ect tra nsactions for e ach Ce rtificate .” Te am ste rs , 2 0 0 6 WL 11 2161887, at *11. I t also rejec ted Ronen’s a rgument that the lead unde rwriter acte d as a ma

rket 12 maker

for the Ce rtificate s beca

use the Cer

tificates we re a

nalog ous to equity

I POs. Id. The 13 district court believe d that Teamsters should have, but did not, “indepe ndently ” show that the 14 Certificate marke t was ef ficient. Id

. 15 This finding w as not err oneous. The district c ourt consider ed Te amsters’ e vidence and 16 found that it failed to show that fir ms eng ag ed in either

of the two a ctivities identified by the 17 SEC as defining a mar ket maker

. Id. Although Rone n attested that both under writers and non18 underwriters made a mar ket in the Certificates, ac cordingto Carron, the limited tradingdata on 19 which her

conclusion wa s based did not indicate that the firms ac tually furnished bids or quote s 20 on reque st, or wer e re ady , willing, and a ble to eff ect tra nsactions in the Certificates. Moreove r,McAdams’ expression of g ener al conf idence that he could have obtained a quote from 13 sever al broke r-de aler s during the class pe riod and that he believed the re w ere firms that wer e “ac tive” in mobile home-ba cked se curities does not show that f irms actually

furnished bids and offe red quotations on request, or we re r eady , willing, and a ble to eff ect tra nsactions in the Certificates. He f

ailed to identify

any of the fir ms that purportedly

made spe cific bids or of

fer s fo r t he Ce rt if ic a te s d ur ingthe c la ss p e ri od

and on ly te sti fi e d to ob ta ini ngan a c tua l bi d o r q uo te afte r the close of

the class pe riod. Te amst e rs argue s th a t th e dis tr ic t c ourt e rr e d w he n it

fo un d th a t th e a

bs e nc e of fi rm s 14 that “re g ularly

publish[ ed]” bids and quotes for the Certificates favor ed a f inding of marke t ine ff ic ie nc y be c a us e bo nd mark e ts d if

fe r f ro m e qu ity

mark e ts i n th a t no e nti tie s r e g ula rl y pu bli sh bo nd bid s and qu ote s. We n e e d n ot a dd re ss t his argume nt h e re , w he re the dis tr ic t c ourt ba se d it s marke t maker f

inding on c onsiderably

more than the absenc e of the regular publication of bids and qu ote s f or the Ce rt if

ic a te s.

20 1 a lth ou g h th e dis tr ic t c ourt did no t me nti on

Mc Ad ams’ te sti mony

on the iss ue of

mark e t make rs , 2 there was no ne ed for it to do so. Nothi ng in his testim ony compelled a

findingthat there wer e 3 firms that ac tually furnished bids and of

fer ed quotations on reque st, or wer e pre pare d to effe ct 4 transac tions in t he Certific ates the w ay that marke t makers would have done. Teamsters has not 13 5 p o i n t edu s t o ev i d en ce th atwo u l d co mp el a d i ff

er en tfi n d i n g. 14 6 7 3. Proof of Causat ion 8 Ev ide nc e that un e xpe c te d c or po rate e ve nts or

fi na nc ia l r e le a se s c a

us e an imme diate 9 r e s p o n s e in

th e p r ic e o f

a s e c ur it y h a s b e e nc o n s id e r e d

“ th e mo s t i mp o rta

n t[ ] Cam me r fac tor,” In 10 re Xce lera.com , 430 F.3d at 512, and “the e ssence of an e fficie nt market a nd the foundation for 11 the fra

ud on the marke t theory ,” Cammer , 711 F. Supp. at 1287. Without t he demonstration of 12 such a c ausal re lationship, it is difficult to presume that the ma rket will integ rate the re lease ofAn eve nt study may be re jected, how ever , if it is methodologically unsound or 15 unreliable

. See, e .g ., Bell v. Asc endant Solutions, Inc ., 422 F.3d 307, 316 ( 5th Cir 2005). 21 1 materia l information about a se curity into its price . An eve nt study that corr elates the disclosures 2 of unanticipated, mater ial information about a se curity with corre sponding f

luctuations in price 3 has bee n considere d prima facie evidenc e of the exis tence of such a causa l relationship. See, 4 e.g. , In re Xc elera.c om , 430 F.3d at 512-14, 516. 15 5 Te amst e rs pr of fe re d a n e ve nt s tud

y pr e pa re d b y its e xpe rt , w hic h p ur

po rt e dly 6 demonstrated that the rele ase of unanticipated, material infor mation in Dece mber 2002 a nd 7 Marc h 2 00 3 w a s a sso c iate d w ithsu bs e qu e nt f

luc tuatio ns in C e rt if

ic a te pr ic e s a

nd “ e xce ss” 8 returns. Te am ste rs , 2006 WL2161887, at *11; Ronen Supp. Aff. ¶ 27 & Ex . G. Ronen used 9 p r i c e s f

o r d i f f e r e n tc l a s s e s o f

C e rt i f i c a t e s th a tw e r e r e p o rt e d

d a i l y b y th e F i n an c i a l T i m e s ( “ F T IM 10 price s”) f

or the re levant portions of the study . Ronen Supp. Aff. ¶ 27; Ronen Reply Aff. ¶ 15(b). 11 Unlike Certificate transa ction price s, FTI M prices a nd other so-c alled “matrix ” pric es, ar e 12 a dju ste d d a ily

purs ua nt t o p ro pr ie tary

mod e ls t o r e fl e c t ma

rk e t c on dit ion s. Ronen offe red the 1 3 f o l l o w i n g j u s t i f

i c a t i o nf o r th e i r u s e i nth e s tu dy: 14 [M] anually adjusted price s in the absenc e of public tra ding data ar e a me aning ful 15 ind ic a tor

of mark e t e ff

ic ie nc y . T ra

ns a c tio n p ri c e s f

or pu bli c ly tr a de d in str

ume nts mos tly 16 incorpora te information provide d by analy sts, who predict pric es, ea rning s, and other 17 pe rt ine nt i nf or matio n. Simi larl y , B loo mbe rgand oth e r p ri c ingse rv ic e s p e rf or m th e ro le 18 of

ana ly sts wh e n th e re are no pu bli c ly ava ila ble pr ic e s. He nc e , th e ir

“ ind ic a tio ns ” 19 constitute a re asonable proxy for tra nsaction price s, and an e vent study conducte d on the 20 ba sis of

the se pr ic e s is re a so na

ble and me anin g fu l. 21 22 Ronen Reply

Aff. ¶ 15(b).Carron a lso argued that B loombergprice s for the Cer tificates “ did not chang e for many 16 c on se c uti ve da

y s, ” wh ic h “ ind ic a te [d] c on c lus ive ly that e ith e r B loo mbe rgpr ic e s a re no t r e lia

ble and/or the ma

rket for the Certificates is not efficie nt.” Carr on Aff. ¶ 30.

22 1 The a

ppellees c halleng ed the study on sever al g rounds. Fir st, their expert contende d that 2 the study

was fla wed be cause it sought to measur e the impac t of immaterial information— 3 disclosures about B I —on Certificate price s. Carron Af f. ¶ 28. Sec ond, Carron a rgued that the 4 integ rity

of the study

was impaire d beca

use it relied on B loombergprice s for the Cer tificates 5 rathe r than tra

nsaction price s. Id . ¶30. Contending that Bloombergprice s “ar e diffe rent fr om 6 tr ans a c tio n p ri c e s, ” and that “ [t]he re is muc h g re a te r v ari a tio n in tr ans a c tio n p ri c e s th an in 7 Bloomber g price s,” he c oncluded that “ [t o] conduct an eve nt study using ma nually adjusted 8 price s is unsound.” Id . ¶¶ 30, 33. Third, Carr on contende d that tradingdata f or the Cer tificates 16 9 contra dicted the r esults of the eve nt study beca use ana ly sis of “all [of] t he tra nsactions in ever

y 10 tranc he of the Certificates in the period f rom Dec ember

1, 2002 throug h Marc h 31, 2003,” 11 reve aled that “ [t ]he tranche s were either not tra ded or the re w ere no materia l price de clines 12 around the alleg ed disclosure dates.” Id . ¶ 37. 13 The district cour t rejec ted Ronen’s e vent study for two r easons. F irst, it faulted the 14 purported use of B loombergprice s, rea soning that 15 [b]e c a

us e B loo mbe rgand

oth e r p ro pr ie tary

pr ic ingse rv ic e s p re su

pp os e that se c ur ity 16 price s ref lect information about the company (or, in this case , the Certificate collater al), 17 these “ price s” assume mark e t e ff ic ie nc y . T o u se pr ic e s th a t a ssume mark e t e ff ic ie nc y in 18 an eve nt study desig ned to deter

mine whether

or not that marke t is efficie nt is circular 19 rea soning. Where Bloomber g price s materially differ from tra nsaction price s, as they

do 20 he re , e ve nt s tud ie s mu st u se tr ans a c tio n p ri c e s.The district cour t rea soned that “[t] he new s analy zed in event studies must relate to the 17 un de rl yingfi na

nc ia l he a lthof

the Ce rt if

ic a te s— ne ws re latin g to B Ig e ne ra lly is n ot s uf fi c ie ntl y m at er i al t o th e f

i n an ci al h ea l tho f t h e m o b i l e h o m e i n s t al l m en ts al es co n tra ct s an d m o rt gage loans that constitute the Certificates’ collate ral.” Te am ste rs , 2006 WL 2161887, at *11.

23 1 Te am ste rs , 2006 WL2161887, at *11. Second, the district c ourt criticized the study for 2 m ea s uri n g “p ri ce re ac t i o n s t o n ew s s o l el y co n ce rn i n g th e f

i n an ci al h ea l tho f B I , n o ti t s m o rt gage 3 division,” concludingthat information about B Iitself was not “suf ficiently materia l” to the 4 Ce rt if

ic a te s’ c oll a te ra l. Id. After reje cting the eve nt study , the district court found that 17 5 Certificate transa ction price s actua lly “re acte d weakly

to unexpected downg rade s” of the 6 Certificates, which de monstrated mar ket ineff iciency

. Id. at *12. 7 The district cour t erre d when it found that the study used B loombergprice s. I t is clear 8 that the per

tinent portion of the eve nt study exclusively

used F TI M prices. SeeRonen Reply Aff. 9 ¶ 1 5( b) . T his e rr or is n ot m a te ri a l in

and of its e lf . I f t he dis tr ic t c ourt

me ant t o in dic a te that it s 10 first g round for

reje cting the eve nt study was the study ’s use of F TI M prices, w e ar e 11 uncomforta

ble with this conclusion. We believe the district cour t overlooked c ompelling 12 evidenc e demonstrating that, notwithstanding materia l differ ence s betwee n FTI M and transa ction 13 pr ic e s, F TI M p ri c e s ma y be le g iti mate ly

us e d in an e ve nt s tud

y . Ro ne n e xpla ine d th a t be c a us e 14 price chang es ar e the f ocus of a n event study , matrix price s may be used a s long a s they

are 15 shown to be consistent and r eliable pr ox ies for tra nsaction price s. Ronen Reply Aff. ¶ 15 (a) , (e)

. 16 Appellee s never

seriously challeng ed this argument. Ronen also provided w ell-conc eived, 17 e mpi ri c a l st

ud ie s d e mon str a tin g that F TI M p ri c e s w e re c on sis te nt a nd re lia ble pr oxie s b e c a

us eRonen furthe r demonstrated that Carr on’s own study attempting to show that 18 Bloomber g price s were not reliable pr ox ies was f lawed; that he overstate d differ ence s in the movement of F TI M and transa ction price s during the re levant per iods; and that he er red when he conclude d that “B loombergprice s and transa ction price s often moved in diffe rent dire ctions.” SeeCarron A ff. Ex. 6a-c; Ronen Reply Aff ¶ 17-19, Ex. 4-5. The district cour

t also incorre ctly

char acte rized one of Car ron’s finding s by

stating that 19 “[a]fter ana ly

zing both Bloomber g price s and transa ction price s for the Cer tificates, Car

ron conclude s that Bloomber g price s experience d g reater va riation over time than tr ansac tion prices.” Te am ste rs , 2006 WL2161887, at *11. This finding reve rsed Car ron’s a ctual conc lusion, see Carron A ff. ¶

33, but is not, i n and of itself, a materia l error

. 24 1 FTI M, Bloomber g , and tra nsaction price s g ener ally

moved in the same dire ction during the 2 months close to the disclosure dates studied. SeeRonen Reply Aff. ¶ 16, 19, Ex . 3-5. In light of 18 3 this recor d, we be lieve it was unsound to conc lude that the fa ct that there wer e mater ial 4 differ ence s in the values of F TI M and transa ction price s prohibited the use of F TI M prices in the 5 s tu dy. 19 6 The district cour t’s ultimate determination that the e vent study did not support a finding 7 of marke t effic iency was not cle arly

err oneous, howe ver, be cause of the soundness of the sec ond 8 g round for

its rejection of the study : the study ’s foc us on the disclosure of information 9 immaterial to the Certifica tes, principally

news re lating to B I

. Te am ste rs , 2006 WL 2161887, at 10 *11. The disclosure s made in De cembe r 2002 and Ma rch 2003, which wer e re lied on by 11 Te amst e rs ’ e xpe rt , r e fe r t o B I ’s “ g oo dw ill wr ite of f, ” the inc lus ion

of B CI in t he se wr ite do wn s, 12 and “the challeng es fa cing[BI ’s] lending unit.” The district court wa s not compelled, howe ver, 13 to find that these disclosure s conveyed mater ial information to Certificate investors. The25 1 disclosures may

have a ptly highlig hted the troubles of BI and sug g ested that B CIwould be 2 imp a c te d a s a

re su lt. No ne of

the m, h ow e ve r, c onne c te d th e se pr ob le ms t o th e mob ile ho me 3 loans or contr acts for ming the Ce rtificate collater al or sug g ested that proje cted B Iwritedowns 4 would compromise B Ior B CI ’s ability to ext end cr edit to support the Certificates. Nor doe s 5 Teamsters’ conte ntion that information relea sed bef ore the Dec ember

2002 article s primed the 6 marke t so that the information conve y ed in later disclosures wa s material to the Cer tificates. 7 Since the district cour t corre ctly

conclude d that the disclosures studied we re immater ial, any 8 fluctuations in the Certificates’ pric es docume nted by the eve nt study

could not rea sonably

be 9 interpre ted to ref

lect mar ket ef ficienc y . Consequently , the district court did not err in rejec ting 10 the study

as proof of ca usation. 11 Mo re ov e r, the dis tr ic t c ourt ’s a dd iti on a l de te rm inatio n th a t th e e mpi ri c a l data a c tua lly 12 supported a f

inding of marke t inefficie ncy

beca use “[t] here wer e no mater ial price drops in the 13 Certificates afte r they wer e downg rade d below investment g rade in Dece mber 2002 a nd Fe bruar

y 14 20 03 ” and

be c a us e “ tr ans a c tio n p ri c e s . . . re a c te d w e akly to u ne xpe c te d d ow ng ra de s” wa s w e ll 15 g rounded in the r ecor d. Id. at *12. Te amst e rs ’ c on te nti on s to the c on tr ary —th a t B Iand

B CI 16 historically

provided dire ct financ ial support to the Certificate collater al so as to pre clude a ny 17 Certificate price declines in re action to downg rade s and that there wer e neve rtheless “ prec ipitous 18 price rea ctions a fe w day s later whe n there was ne ws of fur ther a nticipated substantial B Iand 19 BCI

manufa cture d housing a sset write-downs”—ar e unsupported by the re cord. 2026 1 4. Finding of Market Ine fficiency 2 After

analy zing the Cam me r fac tors, the district court c oncluded that thre e of the m—the 3 absenc e of ma

rket make rs for the Certificates, the lac k of ana ly sts following the Cer tificates, a

nd 4 the a

bs e nc e of pr oo f t hat un anti c ipate d, mate ri a l in fo rm a tio n c a us e d c ha ng e s in the Ce rt if

ic a te s’ 5 price s—as well as the infreque ncy of trade s in the Certificate s “all tend to establish the 6 ineffic iency

of the Cer

tificate ma

rket” and pre vent Tea

msters from re lying on the fraud-on-the7 marke t presumption. Id . Teamsters cha lleng es this conclusion on the g round that the district 8 court ig nored f

undamental diff

ere nces in the w ay

stocks and bonds ar e tra ded. 9 We are mindful of one cour t’s observation “that a compa rison betwee n equity

and bond 10 marke ts is a comparison betwe en the pr overbia l apple and or ang e” a nd that 11 denying [the] application of fr aud on the mar ket to the bond marke t beca use it does not 1 2 o p e r a t e i nth e s am e w ay a s a n a t i o n a l e x c h an g e o r

tr a d e i nth e s am e v o l u m e , f r e qu e n c y, 13 or manne r as e quity on those exchang es is throwingout orang es bec ause the y are not 14 apples. 15 In re Enron , 5 29 F . Su pp . 2 d. a t 75 5, 76 8. We c on c lud e , h ow e ve r, that th e dis tr ic t c ourt pr op e rl y 16 used the Cam me r fac tors as an “ analy tical tool,” Unger v . Amedisys I nc. , 4 01 F .3 d 3 16 , 3 25 (5 th 1 7 C i r . 2 0 0 5 ) , an d

m a d e n o c l e ar

e r r o r i nd e t e r m i n i n g th a tT e am s t e r s f

a i l e d t o s h o w b y a 18 pr e po nd e ra

nc e of the e vid e nc e that th e Ce rt if ic a te s tr a de d in

an e ff ic ie nt m ark e t. I

n v ie w o f t

his 19 conclusion, we do not have oc casion to addr ess the nettlesome que stion of whether , for the 20 purposes of de termining the applica bility of the fr aud-on- the-mar

ket doctrine , an adjusted se t of 21 Cam me r f

a c to r s o r e v e na d if f e r e n t a n a ly ti c a l a p p r o a c ha lt o g e th e r

is b e tt e r s u it e d to an a ly ze27 1 mark e t e ff

ic ie nc y in s e c ur iti e s c a se s ari sin g fr om t he sa le of de bt i ns tr

ume nts . 2 3 CO NC LU SION 4 The de cision of the district cour t is affirmed.