UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF TEXAS 

DALLAS DIVISION 

MATT BRODY, on behalf of himself and 

all others similarly situated, 

 Plaintiff, 

 vs. 

ZIX CORPORATION, RONALD A. 

WOESSNER, JOHN A. RYAN, DANIEL S. 

NUTKIS, STEVE M.YORK, and DENNIS 

F. HEATHCOTE, 

 Defendants. 

Civil Action No. 3:04-CV-1931-K 

ECF

LEAD PLAINTIFF’S MOTION FOR 

CLASS CERTIFICATION AND BRIEF IN SUPPORT

 

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TABLE OF CONTENTS

 Preliminary Statement and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 

 Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 

1. Procedural History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 

2. Lead Plaintiff’s Allegations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 

 Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

I. The Applicable Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 

 II. The Proposed Class Satisfies All The Requirements of 

 Certification Under Rule 23(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 

 A. The Requirements of Rule 23(a) Are Met. . . . . . . . . . . . . . . . . . . . . .6 

1. The Proposed Class More Than Satisfies the 

 Numerosity Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6 

2. Questions of Law or Fact Common to the 

 The Members of the Class Exist . . . . . . . . . . . . . . . . . . . . . . .8 

3. Lead Plaintiff’s Claims are Typical of the Claims 

 Of the Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 

4. The Proposed Class Representatives Will Fairly 

 And Adequately Protect the Interests of the Class . . . . . . . . . 11 

a. The Proposed Class Representatives . . . . . . . . . . . . . .11 

b. Zeal and Competence of Counsel . . . . . . . . . . . . . . . 12 

B. The Requirements of Rule 23(b)(3) Are Satisfied . . . . . . . . . . . . . . . 13 

1. Common Questions of Law or Fact Predominate . . . . . . . . . . 13 

a. Weekly Trading Volume . . . . . . . . . . . . . . . . . . . . . .14 

b. Response to Financial News . . . . . . . . . . . . . . . . . . . 15 

c. Securities Analysts . . . . . . . . . . . . . . . . . . . . . . . . . . .16 

d. Institutional Investors . . . . . . . . . . . . . . . . . . . . . . . .. 16 

e. Form S-3’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 

f. Market Capitalization and Float . . . . . . . . . . . . . . . . .17 

 2. A Class Action is the Superior Method of Adjudication . . . . . 18 

 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

 

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TABLE OF AUTHORITIES 

Cases

Barrie v. Intervoice-Brite, Inc., No. 3:01-CV-1071-K, 2006 WL 2792199, at *2 (N.D. Tex. Sept. 

26, 2006) (Kinkeade, J.)..................................................................................................... passim 

Bell v. Ascendant Solutions, Inc., 422 F.3d 307 (5th Cir. 2005)................................................... 14 

Berger v. Compaq Computer Corp., 257 F.3d 475, 479 (5th Cir. 2001), clarified, 279 F.3d 313 

(5th Cir. 2002)....................................................................................................................... 5, 11 

Bertulli v. Indep. Ass’n of Cont’l Pilots, 242 F.3d 290, 296-97 (5th Cir. 2001) ............................ 8 

Cammer v. Bloom, 711 F.Supp. 1264, 1293 (D.N.J. 1989) .......................................................... 14 

Feder v. Electronic Data Systems Corp., 429 F.3d 125, 129-30 (5th Cir. 2005) ......................... 11 

In re Dynegy, Inc. Sec. Litig., 226 F.R.D. 263, 287 (S.D. Tex. 2004)............................................ 8 

In re Elec. Data Sys. Corp. Sec. Litig., 226 F.R.D. 559, 564 (E.D. Tex 2005) .......................... 6, 8 

In re Reliant Energy ERISA Litig., No. 02-2051, 2005 WL 2000707, at *2 (S.D. Tex. Aug. 18, 

2005) ........................................................................................................................................... 8 

James v. City of Dallas, 254 F.3d 551 (5th Cir. 2001) ................................................................. 10 

Mullen v. Treasure Chest Casino, L.L.C., 186 F.3d 620, 625 (5th Cir. 1999) ......................... 8, 10 

Oscar Private Equity Investments v. Holland, No. 03-2761H, 2005 WL 877936, at *2 (N.D. Tex. 

April 15, 2005)................................................................................................................... passim 

Pederson v. Louisiana State University, 213 F.3d 858, 868 (5th Cir. 2000).................................. 6 

Stirman v. Exxon Corp., 280 F.3d 554 (5th Cir. 2002)................................................................. 10 

Turner v. Murphy Oil USA, Inc., 234 F.R.D. 597, 604 (E.D. La. 2006) ........................................ 8 

Unger v. Amedisys, Inc., 401 F.3d 316, 321 (5th Cir. 2005) ........................................ 5, 11, 14, 15 

Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030 (5th Cir. 1981) ........................................... 7 

Statutes

15 U.S.C. § 78u-4(a)(3)(B)............................................................................................................. 2 

Fed. R. Civ. P. 23(a)(3)-(4)............................................................................................................. 2 

Fed. R. Civ. P. 23(b)(3)................................................................................................................... 1 

 

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Private Securities Litigation Reform Act of 1995 .......................................................................... 2 

SEC Rule 10b-5 .............................................................................................................................. 3 

Sections 10(b) and 20(a) of the Exchange Act ............................................................................... 3 

 

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LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 1 

PRELIMINARY STATEMENT AND SUMMARY

Lead Plaintiff, the Shinabarker Group (“Lead Plaintiff”), comprised of Terry 

Shinabarker, Joseph Simone, Carlo D’Amico, and C. Eric Ray (“Proposed Class 

Representatives”), respectfully moves for class certification and submits this memorandum of 

law in support. Lead Plaintiff requests that this Court: (i) certify the proposed plaintiff class 

described below; (ii) appoint Lead Plaintiff as Class Representative; and (iii) appoint its counsel, 

Schiffrin Barroway Topaz & Kessler, LLP and Murray, Frank & Sailor LLP as Class Counsel 

and Claxton & Hill as Liaison Class Counsel, pursuant to Fed. R. Civ. P. 23(b)(3) (“Rule 23”). 

Excluded from the proposed Class are Defendants1

 and certain individuals and entities affiliated 

with Defendants. ¶ 32.2

The proposed class consists of all persons or entities who purchased or otherwise 

acquired Zix Corporation (“Zix” or the “Company”) securities between October 30, 2003 and 

May 4, 2004, inclusive (the “Class Period”), and who were damaged thereby (the “Class”); 

Securities fraud cases are ideally suited for class treatment. Class actions in securities 

fraud cases not only provide a mechanism to resolve numerous related claims in one forum, but 

also further the policies underlying both Fed. R. Civ. P. 23 and the Securities Exchange Act of 

1934 (“Exchange Act”). 

As such, Courts overwhelmingly take a liberal reading of Rule 23 in securities fraud 

actions. As shown herein, this Action satisfies all of the Rule 23 requirements for class 

certification and, as such, should be certified. Additionally, the Proposed Class Representatives, 

 1

 The defendants herein are Zix, John A. Ryan (“Ryan”), Daniel S. Nutkis (“Nutkis”), 

Steve M. York (“York”), Ronald A. Woessner (“Woessner”), and Dennis F. Heathcote 

(“Heathcote”) (collectively “Defendants”).

2

 Citations to the Consolidated Complaint For Violations of the Federal Securities Laws 

(the “Consolidated Complaint”) shall appear as “¶__.” 

 

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LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 2 

who have successfully prosecuted this action to date, including defeating Defendants’ motion to 

dismiss and motion for reconsideration, should be certified as class representatives. 

 

STATEMENT OF FACTS

1. Procedural History

On or about September 3, 2004, the first of seven class action complaints alleging 

violations of the federal securities laws was filed against Defendants Heathcote, Nutkis, Ryan, 

Woessner, York, Wael Mohamed (“Mohamed”), Russell J Morgan (“Morgan”), and Zix. On 

November 2, 2004, the Shinabarker Group filed a motion to: (i) consolidate these actions for all 

purposes; (ii) be appointed as lead plaintiff; and (iii) approve its selection of counsel as lead 

counsel for the proposed Class. On January 3, 2005, this Court entered an Order consolidating 

the seven pending actions for all purposes under Case No. 3:04-CV-1931-K and set a schedule 

for the filing of a consolidated class action complaint and Defendants’ response thereto. 

On July 11, 2005, this Court issued a Memorandum Opinion and Order (the “July 11, 

2005 Order”) concerning the four competing lead plaintiff motions and granting the Shinabarker 

Group’s motion. Among other things, the Court determined that the Shinabarker Group was the 

most adequate of the four lead plaintiff movants under the Private Securities Litigation Reform 

Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(a)(3)(B), because “the Shinabarker Group sustained 

the largest loss, with approximately $563,185....” July 11, 2005 Order, at 4. Also, the Court 

found that the Shinabarker Group met the “typicality and adequate representation requirements” 

of Fed. R. Civ. P. 23(a)(3)-(4). Id. at 6. 

On October 28, 2005, Lead Plaintiff filed the Consolidated Complaint. Defendants 

moved to dismiss the Complaint on February 17, 2006. After fully briefing the issues raised in 

Defendants’ motion, on September 26, 2006, this Court issued a Memorandum Opinion and 

 

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Order denying the Defendants’ motion in its entirety and concluding that “Plaintiff’s complaint 

sufficiently alleges a Section 10(b) fraud claim against Defendants with requisite particularity. 

Plaintiff’s complaint also sufficiently alleges a Section 20(a) claim against Defendants with the 

requisite notice.” On October 31, 2006, Defendants filed an answer to the Complaint. On 

November 7, 2006, Defendants filed a Motion for Reconsideration of Order Denying Motion to 

Dismiss, which was opposed by Lead Plaintiff. The parties fully briefed the Defendants’ motion 

for reconsideration and, on February 25, 2007, this Court denied the Defendants’ motion. 

2. Lead Plaintiff’s Allegations

Zix is a global provider of e-messaging protection and transaction services. ¶ 15. 

Defendants Ryan, Nutkis, York, Woessner, and Heathcote were officers of Zix during the Class 

Period. ¶¶ 16-20. 

Lead Plaintiff alleges that throughout the Class Period, Defendants violated Sections 

10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder, by issuing 

materially false and misleading statements regarding Zix’s core product, PocketScript, in reports 

filed with the Securities and Exchange Commission (“SEC”), Company press releases, and 

conference calls with securities analysts. The Complaint further alleges that these misstatements 

caused the price of Zix securities to be artificially inflated. 

In particular, Defendants substantially inflated the number of physicians already “using” 

PocketScript and the number of devices “deployed” by Zix.3 For example, defendant Ryan 

stated during an October 30, 2003 analyst conference call that Zix had already deployed

PocketScript to over 500 physicians -- five times the actual number of deployments of the 

product at that time. ¶ 41; 44. 

 3

 As defined by the Company, “deployed” is when PocketScript has been installed in a 

physician’s office and the physician and/or physician’s assistants had received training. A 

physician was “using” PocketScript when he/she would write a prescription over the system. 

 

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Moreover, based on the patently false number of “deployed” PocketScript devices, Zix 

issued revenue projections for fiscal years 2003 and 2004 that were directly contradicted by then 

known facts. Defendants engaged in these actions knowingly and/or recklessly in order to 

bolster Zix’s stock price to allow insiders to sell more than $4.6 million of their Zix stock at 

artificially inflated prices and enable the Company to finance its Class Period acquisition of 

MyDocOnline. ¶¶ 91-98. 

Based on these false projections and materially false statements by Defendants, the price 

of Zix stock rose dramatically from roughly $9 per share on October 30, 2003, to over $17 per 

share on April 12, 2004. During this time, several of the Defendants acted on these high stock 

prices and sold large portions of their stock – defendant Woessner sold 85.7% of his stock during 

this time for proceeds of $1,518,576.44; defendant Nutkis sold 80.8% of his stock for proceeds 

of $1,102,302.45; and defendant York sold 86.2% of his stock for proceeds of $1,490,544.99. 

The total of proceeds from Defendants’ insider sales was $4.6 million. ¶¶ 92-95. 

On the last day of the Class Period, May 4, 2004, Defendants shocked the market by 

revealing in a conference call with investors and analysts that, despite defendant Ryan’s previous 

statements, Zix had “deployed” only 230 PocketScript devices. ¶¶ 81-83. This revelation caused 

Zix’s stock to plummet $2.12 per share or 15.58 percent on May 5, 2004, from $13.61 per share 

to close at $11.49 per share. On the following day, shares of Zix fell an additional $2.60 per 

share or 22.63 percent to close at $8.89 per share. ¶¶ 84-85. By July 2004, the stock had fallen 

to $7 a share for a total loss of nearly 50%. ¶ 85. 

 

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ARGUMENT

I. THE APPLICABLE STANDARDS

 Rule 23 provides, in pertinent part: 

(a) Prerequisites to a Class Action. One or more members of a class 

may sue or be sued as representative parties on behalf of all 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. 

(b) Class Actions Maintainable. An action may be maintained as a class 

action if the prerequisites of subdivision (a) are satisfied, and in addition: 

. . . . 

(3) the court finds that the questions of law or fact common to the 

members of the class predominate over any questions affecting only 

individual members, and that a class action is superior to other available 

methods for the fair and efficient adjudication of the controversy. The 

matters pertinent to the findings include: (A) the interest of members of 

the class in individually controlling the prosecution or defense of separate 

actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the 

desirability or undesirability of concentrating the litigation of the claims in 

the particular forum; (D) the difficulties likely to be encountered in the 

management of a class action. 

Under Rule 23, the proposed class representative bears the burden of demonstrating that a class 

action is appropriate and that all requirements of Rule 23 are satisfied. Berger v. Compaq 

Computer Corp., 257 F.3d 475, 479 (5th Cir. 2001), clarified, 279 F.3d 313 (5th Cir. 2002). 

While a court must conduct a rigorous analysis to find the facts supporting class certification, 

going beyond the pleadings to understand the claims, defenses, relevant facts, and applicable 

substantive law, it is not to conduct a mini-trial on the merits of the class or individual claims. 

Oscar Private Equity Investments v. Holland, No. 03-2761H, 2005 WL 877936, at *2 (N.D. Tex. 

April 15, 2005) (citing Unger v. Amedisys, Inc., 401 F.3d 316, 321 (5th Cir. 2005)). See also

 

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Barrie v. Intervoice-Brite, Inc., No. 3:01-CV-1071-K, 2006 WL 2792199, at *2 (N.D. Tex. Sept. 

26, 2006) (Kinkeade, J.). 

II. THE PROPOSED CLASS SATISFIES ALL THE

REQUIREMENTS OF CERTIFICATION UNDER RULE 23(a)

In order to certify a class pursuant to Rule 23, a plaintiff must satisfy the four 

requirements of Rule 23(a) and at least one of the conditions under Rule 23(b). Barrie, 2006 WL 

2792199, at *3. As demonstrated below, Lead Plaintiff herein has brought forth sufficient facts 

to satisfy all of the requirements of Rule 23(a), and the requirements of Rule 23(b)(3) that 

common questions of law and fact predominate as to all members of the proposed class and that 

a class action is superior to alternative methods for the fair and efficient adjudication of 

Defendants’ alleged violations of law. 

A. The Requirements Of Rule 23(a) Are Met

 Rule 23(a) establishes four prerequisites to class certification. Representatives may sue 

on behalf of a class 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 

representatives are typical of those of the class; and (4) the representative parties will fairly and 

adequately protect the interests of the class. 

1. The Proposed Class More Than 

Satisfies the Numerosity Requirement

Rule 23(a)(1) requires that a proposed class be so numerous that joinder of all class 

members would be impracticable. A movant need not establish the exact number of members of 

the class, but rather, must merely demonstrate that they are sufficiently numerous so that joinder 

of all members is impracticable. See In re Elec. Data Sys. Corp. Sec. Litig., 226 F.R.D. 559, 564 

(E.D. Tex 2005) (citing Pederson v. Louisiana State University, 213 F.3d 858, 868 (5th Cir. 

2000)). The Fifth Circuit holds the numerosity requirement presumptively satisfied where “any 

 

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class composed of the sellers of a nationally traded security during a period in which hundreds of 

thousands or even millions of shares of the security were traded must necessarily be so numerous 

that joinder of all members is impracticable.” Holland, 2005 WL 877936, at *6 (citing Zeidman 

v. J. Ray McDermott & Co., 651 F.2d 1030, 1039 (5th Cir. 1981)); see also Barrie, 2006 WL 

2792199, at *3; Schwartz v. TXU Corp., No. 02-CV-2243-K, 2005 WL 3148350, at * 13 (N.D. 

Tex. Nov. 8, 2005). 

During the Class Period, Zix shares actively traded on the NASDAQ, a well-developed 

and efficient market. ¶ 33. The total number of outstanding shares ranged from approximately 

28 million on September 30, 2003,4

 to over 41 million shares on October 30, 2005.5 The 

average daily trading volume for this security during the Class Period was 684,140. See

Declaration of Scott D. Hakala, Ph.D., CFA Regarding Market Efficiency, dated April 1, 2007, 

(“Hakala Decl.”) at ¶ 8, App. pp. 11-12. While the exact number of Class members cannot be 

determined, Lead Plaintiff believes that there are hundreds or thousands of Class members. Id. 

Thus, it is presumed that the proposed Class satisfies the numerosity requirement of Rule 

23(a)(1). Barrie, 2006 WL 2792199, at *3 (numerosity established where 32 million shares 

outstanding and average daily trading of 644,000). 

Plaintiffs’ counsel plan to furnish notice to the class by publication in widely circulated 

publications and to mail notice to all class members who can be identified with reasonable effort, 

including notice to various broker/dealers. The costs of notice will be advanced by Plaintiffs’ 

Co-Lead Counsel. 

4 See Zix’s quarterly report on Form 10-Q filed with the SEC on September 30, 2003. 5 See Zix’s quarterly report on Form 10-Q filed with the SEC on October 28, 2005.

 

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2. Questions of Law or Fact Common to

the Members of the Class Exist

To satisfy the commonality requirement of Rule 23(a)(2), all questions of fact or law 

need not be common. Rather, only some questions need to be common. See In re Elec. Data 

Sys., 226 F.R.D. at 564 (finding the commonality requirement satisfied “if at least one issue’s 

resolution will affect all or a significant number of the class members.”); Barrie, 2006 U.S. Dist. 

LEXIS 69299, at *3 (same). “The test for commonality is not demanding and is met ‘where 

there is at least one issue, the resolution of which will affect all or a significant number of the 

putative class members.’” In re Reliant Energy ERISA Litig., No. 02-2051, 2005 WL 2000707, 

at *2 (S.D. Tex. Aug. 18, 2005) (quoting Mullen v. Treasure Chest Casino, L.L.C., 186 F.3d 620, 

625 (5th Cir. 1999. There is a low threshold for commonality, and the fact that some plaintiffs 

have different claims or require individualized analysis does not defeat commonality. Turner v. 

Murphy Oil USA, Inc., 234 F.R.D. 597, 604 (E.D. La. 2006); Schwartz, 2005 WL 3148350, at 

*13 (“The Fifth Circuit has observed that ‘the threshold for commonality is not high.’”) (citing

Bertulli v. Indep. Ass’n of Cont’l Pilots, 242 F.3d 290, 296-97 (5th Cir. 2001)). 

 Where, as here, it is alleged that defendants made “uniform misrepresentations to the 

investing public” in filings with the SEC and in press releases, which artificially inflated the 

market price of the defendant company’s securities, injuring each class member who purchased 

such artificially priced securities, the commonality requirement of Rule 23(a)(2) is met. In re 

Elec. Data Sys., 226 F.R.D. at 564; In re Dynegy, Inc. Sec. Litig., 226 F.R.D. 263, 287 (S.D. Tex. 

2004) (“Lead Plaintiff's allegations regarding the existence, nature, significance, and uniformity 

of the fraudulent scheme perpetrated by defendants ... via material misrepresentations and 

omissions in public statements ... constitute issues common to all class members.”) 

 

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Lead Plaintiff, on behalf of the Class, asserts claims of securities fraud resulting from a 

continuous course of conduct by Defendants that involved both omissions and 

misrepresentations in their public statements throughout the Class Period. The Class members’ 

claims all arise out of the same set of facts and are based upon common legal theories. Each 

Class member is confronted with common issues including, but not limited to, whether: 

a. Defendants’ conduct, as alleged in the Consolidated Complaint, violated the federal 

securities laws; 

b. Defendants’ statements to the investing public during the Class Period 

misrepresented material facts about the business, operations and financial condition 

of Zix, including: 

 1. statements regarding the number of actual deployments of PocketScript; 

 2. statements regarding the market and sales potential for PocketScript; 

3. omissions regarding technical complications faced by the Company in 

deploying PocketScript; and 

 4. forecasts regarding future performance of Zix. 

c. Defendants knew or recklessly disregarded that their Class Period statements were 

materially false and misleading; 

d. the price of Zix common stock was artificially inflated due to the Defendants’ 

statements during the Class Period; and 

d. members of the Class have sustained damages and the proper measure of damages. 

¶ 36. 

Therefore, the requirement of Rule 23(a)(2) is easily satisfied. See Holland, 2005 WL 

877936, at *6 (“[M]aterial misrepresentations [about the defendants’ operations] made in an 

efficient market inflated the stock price, causing the class to suffer losses. This is sufficient to 

meet Lead Plaintiffs’ burden to establish commonality.”). 

 

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3. Lead Plaintiff’s Claims are Typical 

of the Claims of the Class

“Rule 23(a)(3) requires that the claims of the class representative not differ significantly 

from the claims of the class as a whole.” Schwartz, 2005 WL 3148350, at *13. 

[T]he test for typicality is not demanding. It focuses on the similarity 

between the named plaintiffs’ legal and remedial theories and the theories 

of those whom they purport to represent. Typicality does not require a 

complete identity of claims. Rather, the critical inquiry is whether the 

class representative’s claims have the same essential characteristics of 

those of the putative class. 

Stirman v. Exxon Corp., 280 F.3d 554, 562 (5th Cir. 2002) (citing James, 254 F.3d at 571). Like 

commonality, the test for typicality is not demanding. Holland, 2005 WL 877936, at *6 (citing

Mullen, 186 F.3d at 625). 

Here, Lead Plaintiff’s claims are typical of the claims of the members of the Class in that 

they all arise from the same allegedly unlawful course of conduct and are based on the same 

legal theories. Here, Lead Plaintiff has alleged that the members of the Class purchased Zix 

securities at artificially inflated prices during the Class Period and sustained damages as a result 

of Defendants’ fraudulent conduct. See Barrie, 2006 WL 2792199, at *4 (typicality found where 

the claims of lead plaintiffs and the potential class members all arose from a common course of 

conduct and each of the putative class members would bring claims based upon the alleged 

conduct under the same legal theories); Schwartz, 2005 WL 3148350, at *13-14 (finding 

typicality where lead plaintiffs and class members claims all arose from the same false and 

misleading statements made by defendants and where those misrepresentations caused the same 

artificial inflation in lead plaintiffs’ and class members’ shares). Accordingly, the Proposed 

Class Representatives satisfy the typicality requirement of Rule 23(a)(3). 

 

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4. The Proposed Class Representatives Will Fairly 

and Adequately Protect the Interests of the Class

To certify a class, “[t]he Court must find that the class representatives, their counsel, and 

the relationship between the two are adequate to protect the interests of absent class members.” 

Unger, 401 F.3d at 321. To satisfy this element, a movant must demonstrate that: 1) there are no 

conflicts of interest between the proposed representatives and the class they seek to represent; 

2) the proposed class representative is willing and abile to take an active role in and control the 

litigation and to protect the interests of the absentee class members; and 3) that the class counsel 

has the competence and ability to conduct the litigation. Feder v. Electronic Data Systems 

Corp., 429 F.3d 125, 129-30 (5th Cir. 2005); Berger, 257 F.3d at 479-80; Barrie, 2006 WL 

2792199, at *4. Although a proposed class representative must show a willingness and ability to 

take an active role in the litigation, a class representative is entitled, and in fact expected, to rely 

upon class counsel to conduct investigations and draft pleadings. Holland, 2005 WL 877936, at 

*3-4. Here, both Lead Plaintiff and its counsel have to this point vigorously pursued this action, 

thus indicating their willingness to do so and supporting the Proposed Class Representatives’ 

adequacy. See Barrie, 2006 WL 2792199, at *4. 

 a. The Proposed Class Representatives 

In Holland, the proposed class representative had initiated the complaint because it was 

clear to him that “based on the conduct of [the company’s] management [], there was something 

actionable here.” Holland, 2005 WL 877936, at *3-4. He also reviewed discovery materials and 

directed his attorneys in drafting the amended complaint. Id. Finally, he believed, based on the 

investigation of his attorneys, that the defendants knew various statements to be false when 

made. Id. The court held that these facts indicated that the lead plaintiff had taken an active role 

in the litigation, and accordingly granted class certification. Id. at *15. 

 

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As will be demonstrated by the depositions of the proposed class representatives, each 

has taken a diligent and active role in this litigation. Each of the proposed class representatives 

has actively monitored the progress of this litigation. See Holland, 2005 WL 877936, at *4. 

Moreover, each of the proposed class representatives fully understands his responsibilities as a 

class representative, including the duty to participate in the lawsuit by taking part in the decision 

making process and by keeping abreast of the progress of the litigation, as well as the duty to 

consider the interests of the class just as he would consider his own interests. Messrs. 

Shinabarker, Simone, D’Amico, and Ray understand that any settlement must be fair, reasonable, 

and adequate, and must be approved by the Court. 

Messrs. Shinabarker, Simone, D’Amico, and Ray have not received, been promised or 

offered and will not accept any form of compensation, directly or indirectly, for prosecuting or 

serving as a representative party in this Action, except for (i) such fees, costs and other payments 

as the Court expressly approves to be paid to them or on their behalf; or (ii) reimbursement, paid 

by their attorneys, of actual and reasonable out-of-pocket expenditures incurred by them in 

connection with the prosecution of this Action. They also understand that they are each 

responsible for his pro rata share of litigation expenses, will receive only his pro rata share of 

any settlement or judgment pursuant to a court approved plan of allocation, and will not receive 

any additional compensation for being class representative. Finally, to their knowledge, they are 

not subject to any special defenses not applicable to the Class as a whole, and suffer from no 

conflicts that would interfere with the prosecution of this action. 

 b. Zeal and Competence of Counsel 

As the firm résumés attached to the Claxton Affidavit (App., pp. 69-128) attest, Lead 

Counsel Murray, Frank & Sailer LLP, Schiffrin Barroway Topaz & Kessler, LLP and Claxton & 

Hill have wide experience in the type of action before this Court and are fully able to adequately 

 

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represent the interests of the Class. See App., pp. 72, 87 and 123. In particular, Murray, Frank 

& Sailer LLP has been prosecuting securities class actions for over 16 years, and Schiffrin 

Barroway Topaz & Kessler, LLP has been prosecuting securities class actions for 20 years. Id. 

That experience has been put to good use in this case; to date, counsel have successfully moved 

for consolidation of all related actions, drafted and filed the Consolidated Complaint, and 

successfully opposed Defendants’ motion to dismiss the Consolidated Complaint. Claxton & 

Hill, local counsel, is also very experienced in securities class actions. Mr. Claxton has litigated 

securities class actions for 26 years. Moreover, Murray, Frank & Sailer LLP and Schiffrin 

Barroway Topaz & Kessler, LLP have each been praised by courts for their zeal and competence 

in securities class action litigation. Id. 

In addition, Lead Counsel has no interests antagonistic to the interests of the other 

members of the Class.6 

B. The Requirements Of Rule 23(b)(3) Are Satisfied

 Lead Plaintiff seeks certification under Rule 23(b)(3). Therefore, in addition to satisfying 

the foregoing elements, Lead Plaintiff must also show that: (1) common questions predominate 

over any questions affecting only individual members; and (2) a class action is superior to other 

available methods for the fair and efficient adjudication of the controversy. See Mullen, 186 

F.3d at 623-24. Here, common questions of law and fact predominate, and a class action is the 

superior (if not the only) method available to fairly and efficiently litigate this securities suit. 

1. Common Questions of Law or Fact Predominate

Predominance “tests whether proposed classes are sufficiently cohesive to warrant 

adjudication by representation.” Amchem Prod. Inc. v. Windsor, 521 U.S. 591, 623 (1997). In 

 6

 Plaintiffs’ Co-Lead Counsel are advancing costs to fund this action and have fully adequate resources to 

fund and pursue this action to conclusion. 

 

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order for common questions of law or fact to predominate, “common issues must constitute a 

significant part of the individual cases.” Mullen, 186 F.3d at 626. The test is “readily met in 

certain cases alleging consumer or securities fraud or violations of the antitrust laws.” Amchem, 

521 U.S. at 625 (distinguishing asbestos and personal injury cases). 

If the circumstances of each plaintiff’s alleged reliance on fraudulent representations 

differ, then each individual plaintiff will have to prove reliance and the proposed class does not 

meet the predominance requirement. Barrie, 2006 WL 2792199, at *5. Where, however, the 

securities at issue are traded on an efficient market, the fraud-on-the-market presumption permits 

investors to show reliance as a class. Id. 

In determining market efficiency, courts in this Circuit examine the following factors: 

1) the average weekly trading volume expressed as a percentage of 

outstanding shares; 2) the number of securities analysts following and 

reporting on the stock; 3) the extent to which market makers and 

arbitrageurs trade in the stock; 4) the company's eligibility to file SEC 

registration Form S-3 (as opposed for Form S-1 or S-2); 5) 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”; 6) the company's market capitalization; 7) the 

bid-ask spread for stock sales; and 8) float, the stock's trading volume 

without counting insider-owned stock. 

Barrie, 2006 WL 2792199, at *6 (citing Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 313 

n.10 (5th Cir. 2005); Unger, 401 F.3d at 323; Holland; 2005 WL 877936, at *8-9. In this case, 

the market for Zix shares meets all of the requirements for efficiency articulated in these cases. 

a. Weekly Trading volume 

“A high weekly stock trading volume suggests the presence of active, informed investors 

Unger, 401 F.3d at 324. Indeed, a large weekly volume of stock trades is one of the strongest 

factors in gauging the efficiency of the market. Barrie, 2006 WL 2792199, at *6. As noted in 

Cammer v. Bloom, 711 F.Supp. 1264, 1293 (D.N.J. 1989), the case which set forth the basis for 

 

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the test used by the Fifth Circuit to determine whether an efficient market exists, “average 

weekly trading of two percent or more of the outstanding shares would justify a strong 

presumption that the market for the security is an efficient one; one percent would justify a 

substantial presumption.” 

In the instant case, there can be no dispute that the number of shares traded weekly 

during the putative Class Period approximated 12.39% of the outstanding shares (after 

discounting the trading volumes reported by NASDAQ by half). (Hakala Decl., at ¶ 8, Ex.s C & 

D, App. at 11-12). Indeed, Zix’s average daily trading volume, as a percentage of outstanding 

shares, of 684,140 shares, or a daily turnover rate of 2.55%, is well above the 1-2% minimum 

courts have found to support market efficiency. Barrie, 2006 WL 2792199, at *6. Accordingly, 

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

b. Response to Financial News 

 The responsiveness of stock to corporate events is “one of the most important marketefficiency factors.” Unger, 401 F.3d at 324. “In an efficient market, where information is nearly 

perfect, material misstatements alter a stock's price almost immediately." Id. “Evidence of a 

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

response in the price of the stock is an important indicator of market efficiency.” Barrie, 2006 

WL 2792199, at *8. “Some courts have stated that this factor is paramount to the others in a 

determination of market efficiency.” Id. In this case, there was a causal relationship between 

financial news and the response to the stock price. 

 In Holland, the court found a regression analysis of the statistically significant stock 

movements to be particularly helpful in determining the responsiveness of the stock to news. 

Holland, 2005 WL 877936, at *11. Lead Plaintiff submits herewith the event study and 

regression analysis performed by its expert, Scott D. Hakala, Ph.D., CFA, which concludes that 

 

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the market for Zix’s common shares was efficient in that the market rapidly reacted to and 

reflected all public information in the share price during the Class Period. Hakala Decl. at ¶ 6; 

App., pp. 9-11. Dr. Hakala performed a detailed, integrated event study that found that most of 

the movements in the stock price of Zix over time are explained by a combination of companyspecific, industry-specific and market factors (or events). Hakala Decl. ¶¶ 11-17; App., pp. 13-

18. The event study found that there were demonstrable dates when statements by the 

Defendants cited in the Complaint affected the market price of Zix and/or facilitated the inflation 

in Zix’s share price. Hakala Decl. at ¶¶ 13-14, 16; App., pp. 14-17. Additionally, the event study 

found that various partially corrective events were significant in explaining the decline in Zix’s 

share price during and in the days immediately following the proposed Class Period. ¶ 16, App., 

p. 17. Accordingly, this factor weighs in favor of a finding of market efficiency. 

c. Securities Analysts 

 The number of securities analysts who review and report on a company’s stock can 

increase the likelihood that information disseminated by the corporation is relied upon by the 

stock trading public. Barrie, 2006 WL 2792199, at *7. In this case, two different securities 

analysts covered and reported on Zix stock, including the well respected brokerage firm Rodman 

& Renshaw. Hakala Decl. at ¶¶ 8, 10; App., pp. 11-13. This factor also weighs in favor of a 

finding of market efficiency. 

d. Institutional Investors 

 An indicator of market efficiency is the level of institutional ownership of Zix, which 

ranged from 2,409,339 shares held by a total of 46 institutions on September 30, 2003, to 

7,796,363 shares held by 64 identified institutions on September 30, 2004. Hakala Decl., at ¶ 9, 

App., p. 12. Because institutional investors tend to be more active in monitoring their 

investments and more sophisticated in their investing, such significant institutional shareholdings 

 

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lead to a strong inference of market efficiency. Id. Institutions actively traded the shares of Zix 

(as indicated by the turnover of holdings from quarter to quarter from September 30, 2003, 

through September 30, 2004). Id. This factor weighs in favor of a finding of market efficiency. 

e. Form S-3’s 

 “Form S-3 is a short form for the registration of securities that a company may use if 

certain registrant and transaction requirements are met.” Barrie, 2006 WL 2792199, at *7. “A 

company that has filed monthly reports with the SEC for one year and has common equity held 

by non-affiliates of the registrant in excess of $75 million is eligible to file Form S-3.” Id. 

“Only corporations whose stocks are actively traded and widely followed are allowed by the 

SEC to file Form S-3.” Id. Accordingly, “courts have recognized eligibility for filing of an S-3 

Registration Statement as a factor indicating market efficiency, reasoning that the SEC permits 

companies to file an S-3 upon the premise that the stock is traded in an open and efficient 

market, such that further disclosure is unnecessary.” Id. In this case, Zix was eligible to file 

Form S-3’s, and in fact filed two during the Class Period, on November 3, 2003 and February 12, 

2004 during the proposed Class Period. Hakala Decl., at ¶ 6; App., pp. 9-11. Accordingly, this 

factor weighs in favor of a finding of market efficiency. 

 f. Market Capitalization and Float

 “Market capitalization is another indicator of market efficiency.” Barrie, 2006 WL 

2792199, at *8. “Float is the percentage of a corporation’s shares that are held by the public as 

opposed to insiders.” Id. Prices of stocks that have greater holdings by insiders as opposed to 

the public are less likely to reflect all available information about the security. Id. Market 

capitalization is calculated as the number of shares multiplied by the prevailing share price, and 

may indicate market efficiency because there is a greater incentive for stock purchasers to invest 

in more highly capitalized corporations. Id. Investors are more confident investing in 

 

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LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 18 

corporations with large market capitalizations because large firm size and dollar trading volume 

tend to reflect the magnitude of economic incentive to eliminate mispricing. Id. Accordingly, 

this factor weighs in favor of a finding of market efficiency. The total number of outstanding 

shares ranged from approximately 28 million on September 30, 2003, to over 41 million shares 

on October 30, 2005. Hakala Decl., at ¶ 7; App., p. 11. Of the shares outstanding, the 

outstanding shares not held by officers or directors were consistently in excess of 26 million. Id. 

Shares held by non-affiliates had a trading value of $362,587,156 as of February 20, 2004. Id. 

The trading value of shares held by non-affiliates (the public float) was consistently in excess of 

$190 million throughout the Class Period. Id. 

2. A class action is the superior method of adjudication

Courts uniformly recognize the general superiority of class treatment in securities actions 

involving large numbers of investors. See Amchem, 521 U.S. at 617. “Class actions are 

considered superior when individual actions would be wasteful, duplicative, present managerial 

difficulty and be adverse to judicial economy.” Barrie, 2006 WL 2792199, at *11. In 

considering superiority, a court should be mindful of the policy underlying Rule 23 to “achieve 

economies of time, effort and expense, and promote uniformity of decisions as to persons 

similarly situated, without sacrificing procedural fairness or bringing about other undesirable 

results.” Id. (citing Henry v. Cash Today, Inc., 199 F.R.D. 566, 570 (S.D. Tex. 2000)). 

The instant action is no different and is best managed as a class action – if only because 

the alternative would be the individual adjudication of thousands of individual cases. Indeed, to 

require Zix investors to file hundreds or possibly even thousands of individual actions “...would 

encourage a waste of judicial and private resources.” See Barrie, 2006 WL 2792199, at *11. 

Further, because shareholders may find individual litigation cost-prohibitive, the class 

mechanism provides a means for fair and efficient resolution of these claims. Indeed, few 

 

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LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 19 

members of the Class would, as a practical matter, be in a position to proceed individually 

against Defendants. See Amchem, 521 U.S. at 617 (a class action is the only feasible method of 

adjudication where those who have been injured are in a poor position to seek legal redress 

because they do not have enough information or because redress is disproportionately 

expensive); Schwartz, 2005 WL 3148350, at *16 (“it would be economically prohibitive for all 

but a limited number of Class Members (i.e., those who had the largest losses) to adjudicate their 

claims individually.”) Finally, Plaintiff’s counsel, who has substantial experience in class action 

litigation, does not anticipate any significant or unusual difficulties in the management of this 

litigation as a class action.7

 Accordingly, the class action device is the superior method for 

adjudicating the claims of the members of the Class. 

Finally, because Zix’s corporate headquarters and principal place of business was located 

in Dallas during the Class Period, this is the most desirable forum in which to prosecute this 

action. Schwartz, 2005 WL 3148350, at *16 (“Many of the acts and practices complained of 

originated in [Dallas], and much of the evidence and many of the witnesses relevant to Lead 

Plaintiff’s claims are found in the [Dallas] area.”). Accordingly, the superiority of resolving this 

litigation by means of a class action is evident. 

CONCLUSION

 For the reasons set forth herein, Lead Plaintiff respectfully requests that i) this action 

should be certified as a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of 

Civil Procedure on behalf of the Class defined herein; ii) the Proposed Class Representatives 

 7

 Plaintiffs’ counsel believe that class certification discovery will include depositions of the proposed class 

representatives, possible depositions of both sides’ experts on market efficiency and related document production, 

all of which Plaintiffs’ counsel believe can be accomplished within the time frame previously mentioned by the 

Court. 

 

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LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 20 

should be certified as class representatives; and (iii) the Proposed Class Counsel and Liaison 

Class should be appointed. 

Dated: April 13, 2007 Respectfully submitted, 

 CLAXTON & HILL

s/Roger F. Claxton 

Roger F. Claxton 

State Bar No. 04329000 

Robert J. Hill 

State Bar No. 09652100 

3131 McKinney Avenue, Suite 700 

Dallas, Texas 75204 

Telephone: (214) 969-9029 

Facsimile: (214) 953-0583 

Liaison Counsel for Lead Plaintiff 

 

Marvin L. Frank 

Lawrence D. McCabe 

MURRAY, FRANK & SAILER LLP 

275 Madison Avenue, Suite 801 

New York, NY 10016 

Telephone: (212) 682-1818 

Facsimile: (212) 682-1892 

Eric Lechtzin 

Mark Danek 

SCHIFFRIN BARROWAY TOPAZ & 

 KESSLER, LLP 

280 King of Prussia Road 

Radnor, PA 19087 

Telephone: (610) 667-7706 

Facsimile: (610) 667-7056 

Co-Lead Counsel for Lead Plaintiff and the 

Proposed Class 

 

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LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 21 

CERTIFICATE OF CONFERENCE 

I certify that on April 13, 2007, I conferred with Karl Dial, counsel for defendants and 

that the defendants oppose this motion. 

 s/Roger F. Claxton 

 Roger F. Claxton 

 

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CERTIFICATE OF SERVICE 

 I hereby certify that on this 13th day of April, 2007, I electronically filed the foregoing 

document with the clerk of court for the U.S. District Court, Northern District of Texas, using the 

electronic case filing system of the court. The electronic case filing system sent a “Notice of 

Electronic Filing” to the following attorneys of record who have consented in writing to accept 

this notice as service of this document by electronic means: 

Gerard G. Pecht 

FULBRIGHT & JAWORSKI L.L.P.

1301 McKinney, Suite 5100 

Houston, Texas 77010-3095 

gpecht@fulbright.com

Karl G. Dial 

FULBRIGHT & JAWORSKI L.L.P.

Texas Commerce Bank Tower 

2200 Ross Avenue, Suite 2800 

Dallas, Texas 75201 

kdial@fulbright.com

 I further certify that a true and correct copy of the foregoing document was sent by first 

class mail to counsel listed below that have not consented in writing to accept this notice by 

electronic means: 

Eric J. Belfi 

Marvin L. Frank 

Lawrence D. McCabe 

Murray, Frank & Sailer LLP 

275 Madison Avenue, Suite 801 

New York, NY 10016 

Eric Lechtzin 

Heather Tashman 

Schiffrin & Barroway, LLP 

280 King of Prussia Road

Radnor, PA 19087 

Thomas A. Dubbs 

Goodkind Labaton Rudoff & Sucharow 

100 Park Avenue 

New York, NY 10017 

Frank E. Goodrich 

Baron & Budd 

3102 Oak Lawn Avenue, Suite 1100 

Dallas, Texas 75219 

Jeffrey S. Nobel 

Andrew M. Schatz 

Schatz & Nobel 

1 Corporate Center, Suite 1700 

Hartford, CT 06109 

s/Roger F. Claxton 

Roger F. Claxton 

LEAD PLAINTIFF’S MOTION FOR CLASS CERTIFICATION Page 22 

 

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