Opinion ID: 2346742
Heading Depth: 1
Heading Rank: 4

Heading: the class certification question

Text: In its cross-appeal Teledyne contends that the trial court erred by failing to decertify the class and by awarding class-wide damages because reliance could not be, and was not, proven on a class-wide basis. When reviewing the formulation and application of legal precepts made by the Court of Chancery, the standard of appellate review is de novo. Nationwide Mut. Ins. Co. v. Starr, Del.Supr., 575 A.2d 1083, 1086 (1990). For the reasons stated below, we conclude that the trial court erred: a) by failing to decertify the class as to the question of individual shareholder justifiable reliance; and b) by awarding damages on a class-wide basis since the findings of fact made by the trial court demonstrate that individual shareholder justifiable reliance was not proven on a class-wide basis. A class action may not be maintained in a purely common law or equitable fraud case since individual questions of law or fact, particularly as to the element of justifiable reliance, will inevitably predominate over common questions of law or fact. [7] See, e.g., In re One Bancorp Sec. Litig., 136 F.R.D. 526, 533 (D.Me.1991) (fraud-on-the-market presumption of reliance is not available in state law fraud claims; proof of individualized reliance from each member of the proposed plaintiff class effectively ... prevented respondents from proceeding with a class action, since individual issues then would have overwhelmed the common ones) (quoting Basic, Inc. v. Levinson, 485 U.S. 224, 242, 108 S.Ct. 978, 989, 99 L.Ed.2d 194 (1988)); Katz v. Comdisco, Inc., 117 F.R.D. 403, 412 (N.D.Ill.1987) (common law fraud claims do not lend themselves to class action treatment; common law actions for fraud and negligent misrepresentation require each individual plaintiff to prove that he or she relied on the alleged misrepresentation; individual issues of reliance would predominate over any common questions); Gavron v. Blinder Robinson & Co., 115 F.R.D. 318, 325 (E.D.Pa.1987) (common law fraud count raises numerous issues which are personal to each plaintiff and are, therefore, uncommon to the class as a whole; since individual issues, not common issues, predominate, certification denied); Beebe v. Pacific Realty Trust, 578 F.Supp. 1128, 1151-52 (D.Ore.1984) (common law fraud and negligent misrepresentation claims require proof of individual reliance; certification refused). [8] We agree with the holdings of these cases and conclude that the trial court erred by failing to decertify the class because of the inherently individual issue involving the element of justifiable reliance in this purely common law equitable fraud case. As stated above, we also conclude that the trial court erred by awarding damages on a class-wide basis since the court's own findings of fact demonstrate that any presumption of class-wide justifiable reliance was rebutted notwithstanding the court's conclusion to the contrary. In Gaffin, Del.Ch., C.A. No. 5786-NC, Hartnett, V.C., 1990 WL 195914 (Dec. 4, 1990), the trial court made the following findings of fact: 1) The offering circular dated February 9, 1976 made no mention that Teledyne's 1975 Annual Report would be forthcoming. Slip op. at 9. 2) 9500 Annual Reports were hand delivered to New York nominees and brokers on February 18, 1975, nine days before the close of the tender. Id. at 30. 3) The Annual Reports were sent by first class mail to all other shareholders on February 18, 19, and 20. Id. at 9. 4) Highly sophisticated shareholders likely knew of the January 29, 1976 press release setting forth Teledyne's 1975 year-end increased earnings. Id. at 35. 5) As to all other shareholders, many had likely received the 1975 Teledyne Annual Report just prior to the close of the Tender Offer. Id. at 31. These facts demonstrate that the presumption of class-wide reliance was rebutted as to both the sophisticated shareholders and all other shareholders. The trial court found that the Annual Reports had been hand-delivered to the sophisticated shareholders well in advance of the closing date and that these sophisticated shareholders were presumably or likely aware of the most recent financial information via the press releases and public filings. The presumption of justifiable reliance was rebutted as to the sophisticated shareholders since the court found that the sophisticated shareholders presumably had knowledge of the most recent financial information on Teledyne. In addition, since many of the other shareholders likely had received the Annual Report before the close of the repurchase offer, it is reasonable to assume that at least some of the other shareholders had considered the updated financial information while others arguably at least had an adequate period of time in which to consider the updated information. See 37 Am.Jur.2d § 448, § 479 (certain facts and circumstances can give rise to a presumption against reliance such as where there is an opportunity to learn the truth by the use of accessible means of information). As to all other shareholders in the class, therefore, significant individual questions concerning the level of knowledge possessed by each shareholder existed and, therefore, any presumption of justifiable reliance as to all other shareholders was rebutted as well. Thus, individual shareholder justifiable reliance on the terms of and omissions from the offering circular in connection with the decision to tender Teledyne shares was not proven on a class-wide basis. Therefore, the decisions of the Court of Chancery in refusing to decertify the class and in awarding damages on a class-wide basis are reversed.