Opinion ID: 2714535
Heading Depth: 1
Heading Rank: 6

Heading: typicality of the representatives

Text: Regions next argues that the lead plaintiffs, District No. 9, I.A. of M. & A.W. Pension Trust (District 9) and Employees’ Retirement System of the Virgin Islands (Virgin Islands), are not proper class representatives because their claims are not typical, as Federal Rule of Procedure 23(a) requires. Regions argues that District 9 is not typical because (1) it benefitted from the alleged misrepresentations by selling some of its Regions stock at inflated prices during the class period; and (2) it purchased many shares of Regions stock following the corrective disclosure. The Virgin Islands also is not typical, in Regions’s view, because (1) it retained its Regions holdings long after the corrective disclosure; and (2) it purchased its shares late in the class period. Regions also argues that both are atypical because they ceded investment authority to outside managers. 18 Case: 12-14168 Date Filed: 08/06/2014 Page: 19 of 24 “The typicality requirement may be satisfied despite substantial factual differences . . . when there is a strong similarity of legal theories.” Williams v. Mohawk Indus., Inc., 568 F.3d 1350, 1357 (11th Cir. 2009) (quotation marks omitted). After careful consideration of Regions’s arguments, we find that the District Court did not abuse its discretion by finding that both lead plaintiffs meet the typicality requirement. That District 9 benefitted to some extent from the alleged fraud by selling some of its shares during the class period makes no difference here. There is no evidence that District 9 may be subject to an in pari delicto defense because it is equally at fault for the misrepresentations. See Pinter v. Dahl, 486 U.S. 622, 633, 108 S. Ct. 2063, 2071 (1988). And while some District Courts have found that an investor who suffers no net losses thanks to sales during the class period is subject to an atypical standing defense, see, e.g., In re Comdisco Sec. Litig., 150 F. Supp. 2d 943, 945–46 (N.D. Ill. 2001), those cases are inapposite here. District 9 did suffer net losses from its purchases of Regions stock, despite some sales during the class period. The evidence shows that District 9 spent about $933,000 on the 64,500 Regions shares it acquired over the class period, compared to its sale of 25,900 shares over the same period for about $256,000. Regions has not pointed us to any evidence suggesting that District 9’s gains during the period might 19 Case: 12-14168 Date Filed: 08/06/2014 Page: 20 of 24 arguably offset its losses under any generally accepted accounting method. Its argument that District 9’s sales render it atypical is thus misguided. Neither are we persuaded by Regions’s argument that District 9’s postdisclosure purchases render it atypical. We agree with our colleagues from the Fifth Circuit that “[r]eliance on the integrity of the market prior to disclosure of alleged fraud (i.e. during the class period) is unlikely to be defeated by postdisclosure reliance on the integrity of the market.” Feder v. Elec. Data Sys. Corp., 429 F.3d 125, 138 (5th Cir. 2005). This is particularly true where, as here, the post-period purchases are made “after the stock price has been ‘corrected’ by the market’s assimilation of the new information.” Id. Regions’s briefing does not identify any unique circumstances in this case that should have persuaded the District Court to deviate from this general rule. We therefore adhere to it. That the Virgin Islands purchased its shares late in the class period presents no reason to consider the District Court’s finding of typicality to be an abuse of discretion. FindWhat, 658 F.3d at 1315 (“Every investor who purchases at an inflated price—whether at the beginning, middle, or end of the inflationary period—is at risk of losing the inflationary component of his investment when the truth underlying the misrepresentation comes to light.”). Neither does the Virgin Islands’s retention of its shares long after the corrective disclosure. There is merit to Regions’s argument that “the longer the time between the purchase and sale, . . . 20 Case: 12-14168 Date Filed: 08/06/2014 Page: 21 of 24 the more likely that other factors [besides the misrepresentations] caused the loss.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 343, 125 S. Ct. 1627, 1632 (2005). Nevertheless, the District Court’s determination on this record that the Virgin Islands would not likely be subject to an atypical defense for that reason does not amount to an abuse of discretion. 8 Finally, neither representative’s use of investment advisers warrants reversal. Certainly, a large institutional investor is likely to rely on investment advisers to make investment decisions on its behalf. And yet both Congress and the courts have recognized that these sorts of investors are generally preferred as class representatives in securities litigation. See, e.g., 15 U.S.C. § 77z- 1(a)(3)(B)(iii)(I) (directing courts to “adopt a presumption that the most adequate [lead] plaintiff in any private [securities] action arising under this subchapter is the person or group of persons that . . . in the determination of the court, has the largest financial interest in the relief sought by the class”); In re DVI, 639 F.3d at 641 (“[S]ophisticated institutional investors . . . are preferred as class representatives.”); see also id. at 640 n.25 (acknowledging, while addressing a different topic, that institutional investors are likely to use outside advisors). Even sophisticated investment advisers (like those involved in this case) rely on the 8 Of course, if the circumstances have changed since the District Court’s June 2012 certification order such that the representatives are no longer typical or adequate, the District Court may revisit its initial certification decision. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S. Ct. 2364, 2372 (1982) (“Even after a certification order is entered, the judge remains free to modify it in the light of subsequent developments in the litigation.”). 21 Case: 12-14168 Date Filed: 08/06/2014 Page: 22 of 24 integrity of the market. This is true even if they do not incorporate particular informational disclosures into their investment strategies. Blackie v. Barrack, 524 F.2d 891, 907 (9th Cir. 1975) (“A purchaser on the stock exchanges may be either unaware of a specific false representation, or may not directly rely on it; he may purchase because of a favorable price trend, price earnings ratio, or some other factor. Nevertheless, he relies generally on the supposition that the market price is validly set and that no unsuspected manipulation has artificially inflated the price, and thus indirectly on the truth of the representations underlying the stock price whether he is aware of it or not, the price he pays reflects material misrepresentations.”). Given all these facts, we cannot conclude that the District Court’s typicality finding constituted an abuse of its discretion.