Court Opinion

ID: 6324982
Source: CourtListenerOpinion
Date Created: 2022-03-18 21:11:59.702328+00
Date Added: 2024-06-11T09:21:56.844490
License: Public Domain

03/18/2022
               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                              December 2, 2021 Session

       IN RE SMILEDIRECTCLUB, INC. SECURITIES LITIGATION

               Appeal from the Chancery Court for Davidson County
               No. 19-1169-IV         Russell T. Perkins, Chancellor
                      ___________________________________

                           No. M2021-00469-COA-R3-CV
                       ___________________________________

In this action alleging violations of a federal securities law due to purported
misrepresentations and omissions in an initial public stock offering, the plaintiffs sought
to certify a class consisting of all persons who purchased common stock during the initial
public offering. The trial court certified the class, determining that the requirements of
Tennessee Rule of Civil Procedure 23 had been satisfied. The defendants have appealed.
Although we dismiss the plaintiffs’ claims under section 12 of the Securities Act of 1933,
codified at 15 U.S.C. § 77l, due to lack of standing, we otherwise affirm the trial court’s
certification of the proposed class.

      Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                      Affirmed as Modified; Case Remanded

THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which JOHN W.
MCCLARTY and KRISTI M. DAVIS, JJ., joined.

Steven A. Riley; Milton S. McGee, III; and Elizabeth O. Gonser, Nashville, Tennessee,
and Scott D. Musoff, New York, New York, for the appellants, SmileDirectClub, Inc.;
David Katzman; Kyle Wailes; Steven Katzman; Jordan Katzman; Alexander Fenkell;
Susan Greenspon Rammelt; Richard Schnall; and Camelot Venture Group.

John S. Hicks and Christopher E. Thorsen, Nashville, Tennessee, and Sharon L. Nelles,
Andrew J. Finn, and Shane M. Palmer, New York, New York, for the appellants, J.P.
Morgan Securities LLC; Citigroup Global Markets Inc.; BofA Securities, Inc.; Jefferies
LLC; UBS Securities LLC; Credit Suisse Securities (USA) LLC; Guggenheim Securities,
LLC; Stifel, Nicolaus & Company, Incorporated; William Blair & Company, LLC; and
Loop Capital Markets LLC.
Jerry E. Martin, David W. Garrison, and Seth M. Hyatt, Nashville, Tennessee, for the
appellees, Brittany Vang and Matthew G. Mancour.

                                                  OPINION

                                 I. Factual and Procedural Background

        On December 20, 2019, the plaintiffs, Brittany Vang and Matthew Mancour1
(collectively, “Plaintiffs”), filed a complaint in the Davidson County Chancery Court
(“trial court”) on behalf of “all purchasers of SmileDirectClub, Inc. . . . Class A common
stock that was issued pursuant and/or traceable to the Company’s Registration Statement
and Prospectus . . . filed with the U.S. Securities and Exchange Commission . . . in
connection with SmileDirectClub’s September 12, 2019 initial public stock offering.”
Plaintiffs alleged that SmileDirectClub, Inc. (“SDC”) had violated the disclosure
requirements of the Securities Act of 1933, codified at 15 U.S.C. § 77a, et seq.
(“Securities Act”), such that SDC and its officers, directors, underwriters, and managing
members (collectively, “Defendants”) were strictly liable for Plaintiffs’ damages.2
Plaintiffs specifically alleged violations of sections 11, 12(a)(2), and 15 of the Securities
Act. See 15 U.S.C. §§ 77k, 77l, and 77o.

        Plaintiffs pled, inter alia, that the initial public offering documents (“offering
documents”) contained materially untrue and misleading statements because they “falsely
overstate[d] the caliber and scope of dental services [SDC] customers receive and
omit[ted] critical material information about the Company’s true business model.”
Plaintiffs asserted that the offering documents also “understate[d] regulatory and
legislative risks in numerous states around the country,” made “false and misleading

1
  The December 20, 2019 complaint listed Zachary Boorstein and Robert Boorstein as additional
plaintiffs. However, by the time the motion for class certification was filed in October 2020, only Ms.
Vang and Mr. Mancour were listed as plaintiffs.
2
    The Securities Act of 1933 further provides in pertinent part:

                  The district courts of the United States and the United States courts of any
          Territory shall have jurisdiction of offenses and violations under this subchapter and
          under the rules and regulations promulgated by the Commission in respect thereto, and,
          concurrent with State and Territorial courts, except as provided in section 77p of this title
          with respect to covered class actions, of all suits in equity and actions at law brought to
          enforce any liability or duty created by this subchapter.

15 U.S.C. § 77v (emphasis added). The United States Supreme Court has made clear that subsection 77p
does not “deprive state courts of their jurisdiction to decide class actions brought under the 1933 Act.”
See Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061, 1069 (2018).

                                                      -2-
statements about customer satisfaction,” and “failed to disclose ballooning costs that had
occurred at the time of the [initial public offering].”

       In their complaint, Plaintiffs claimed that a class action was necessary inasmuch as
there were numerous potential class members who were damaged by their purchase of
common stock during the initial public stock offering. Plaintiffs also claimed that these
potential class members satisfied the requirements of maintaining a class action set forth
in Tennessee Rule of Civil Procedure 23. Plaintiffs sought certification of the proposed
class as well as, inter alia, an award of damages and injunctive relief. Plaintiffs further
demanded a trial by jury. Although Defendants filed a motion seeking to dismiss the
complaint for failure to state a claim upon which relief could be granted or to have the
proceedings stayed pending the outcome in a parallel federal action, the trial court denied
the motion on June 4, 2020.

        On July 7, 2020, Defendants filed a motion seeking permission to file an
interlocutory appeal of the trial court’s June 4, 2020 order. Also on July 7, 2020,
Defendants SDC, David Katzman, Kyle Wailes, Steven Katzman, Jordan Katzman,
Alexander Fenkell, Susan Greenspon Rammelt, Richard Schnall, and Camelot Venture
Group (collectively, “SDC Defendants”), filed an answer to the complaint. Defendants
J.P. Morgan Securities LLC; Citigroup Global Markets Inc.; BofA Securities, Inc.;
Jefferies LLC; UBS Securities LLC; Credit Suisse Securities (USA) LLC; Guggenheim
Securities, LLC; Stifel, Nicolaus & Company, Incorporated; William Blair & Company,
LLC; and Loop Capital Markets LLC (collectively, “Underwriter Defendants”) filed a
separate answer on the same day.

        On July 22, 2020, the trial court entered an order concerning Defendants’ motion
for an interlocutory appeal, determining that although an interlocutory appeal was
appropriate with respect to the trial court’s denial of a stay, it was not appropriate
regarding the court’s denial of the motion to dismiss. The trial court therefore granted the
motion in part and denied it in part. However, this Court subsequently denied permission
for an interlocutory appeal on August 20, 2020.

      On October 2, 2020, Plaintiffs filed a motion, pursuant to Tennessee Rule of Civil
Procedure 23, seeking certification of the following class:

       [A]ll persons who purchased or acquired common stock pursuant or
       traceable to the Registration Statement and Prospectus issued in connection
       with [SDC’s] September 12, 2019 initial public offering (the “Class”).
       Excluded from the Class are the Defendants themselves, any person, firm,
       trust, corporation, or entity related to or affiliated with the Defendants and
       any person employed by the Davidson County Chancery Court.

                                           -3-
Plaintiffs averred that the proposed class satisfied all of the requirements of Rules 23.01
and 23.02.

       Defendants filed a response opposing class certification, arguing, inter alia, that:
(1) the proposed class representatives were not adequate, (2) the proposed class
representatives’ claims were not typical, (3) individual questions predominated over
common issues, and (4) the proposed class definition was too broad. Plaintiffs and
Defendants filed numerous documents, including affidavits, in support of their respective
positions concerning class certification.

       On April 28, 2021, the trial court entered an order granting Plaintiffs’ motion for
class certification, stating in pertinent part:

               Rule 23 of the Tennessee Rules of Civil Procedure governs class
       actions. In pertinent part, Rule 23 directs that a class may be certified for
       litigation of claims where:

              (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 interest of the class.

       Tenn. R. Civ. P. 23.01. Once Plaintiffs have satisfied each of the four
       prerequisites of Rule 23.01, they must then establish that the proposed class
       action meets at least one of the three categories set forth in Rule 23.02.
       Here, Plaintiffs move for class certification under Rule 23.02(3), which
       provides:

              An action may be maintainable as a class action if the
              prerequisites of 23.01 are satisfied, and in addition:

              ***

              (3) the court finds that the question 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
                                            -4-
      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.

Tenn. R. Civ. P. 23.02(3). Once these prerequisites are met, a Court may
certify the suit as a class action without examining the underlying merits of
the claims. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974).

***

        Plaintiffs assert that the Class here consists of all persons who
purchased or acquired the 58.5 million shares of SmileDirect common
stock pursuant or traceable to the IPO and the allegedly materially untrue or
misleading Offering Documents. Although the exact number of Class
members has yet to be determined, based on the millions of shares issued
and their trading on the NASDAQ exchange, Class members likely number
in the thousands and are geographically dispersed. Joinder of parties so
numerous and widespread would be burdensome, expensive, and
impracticable to both the parties and judicial system. Accordingly, Rule
23.01(1) is satisfied here. See Grae v. Corrections Corp. of Am., 330
F.R.D. 481, 501 (M.D. Tenn. 2019) (“Whatever the total number of
plaintiffs, it is plain that they are too numerous for joinder to be
practicable.”).

***

[T]he alleged misrepresentations in the Offering Documents relate to all
investors and the existence and materiality of any misrepresentation
presents a common issue. Stated differently, the falsity or misleading
nature of Defendants’ alleged statements are common questions.
Moreover, the central issues in this case – whether the Offering Documents
contain untrue or misleading statements; whether those statements are
material; and whether, as a result of those statements, Defendants violated
the Securities Act – as well as the common damages formula set forth in the
Securities Act, involve questions of law or fact common to Plaintiffs and all
Class members. Rule 23.01(2) is satisfied here.

***

      Loss causation is the “causal link between the alleged misconduct
and the economic harm ultimately suffered by the plaintiff.” Ohio Pub.
                                  -5-
Emp. Ret. Sys. v. Federal Home Loan Mortg. Corp., 830 F.3d 376, 384 (6th
Cir. 2016). A plaintiff does not need to prove loss causation at the class
certification stage. See Erica P. John Fund, Inc. v. Halliburton Co., 563
U.S. 804, 813 (2011). Loss causation “addresses a matter different from
whether an investor relied on a misrepresentation, presumptively or
otherwise, when buying or selling a stock.” Id. While “Plaintiffs must
prove that portion of the price fall that they seek in damages is directly
attributable to the misrepresentation, so that they do not recover a windfall,
. . . they do not need to prove it at the certification stage.” Weiner v. Livity
Health, Inc., No. 3:17-cv-01469, 2020 WL 467783, at *4 (M.D. Tenn. Jan.
29, 2020).

       “Individual differences regarding the purchasing and selling of stock
during the proposed class period [do] not destroy the typicality
requirement.” Ross v. Abercrombie & Fitch Co., 257 F.R.D. 435, 456 (S.D.
Ohio 2009). “All purchasers of stock during a class period share a common
interest in showing that the stock was unlawfully inflated.” Id.

***

For purposes of class certification, the common question of whether the
Offering Documents were materially misleading predominates over any
secondary tracing issues that might be encountered later in the litigation.
The typicality requirement of Rule 23.01 is met here.

***

       Here, Plaintiffs’ interests are aligned with those of the Class.
Plaintiffs purchased SmileDirect stock pursuant or traceable to the Offering
Documents that allegedly contained materially untrue and misleading
statements; thus, all members of the proposed class allege claims arising
from the same wrongful conduct that are based on the same legal theories
as Plaintiffs’ claims. Furthermore, there are no ascertainable conflicts
between Plaintiffs and the Class. Plaintiffs have demonstrated their
commitment to pursue this action and to maximizing a recovery on behalf
of all Class members. Lastly, Plaintiffs’ counsel are highly qualified,
widely experienced in securities class actions, and competent to conduct the
proposed litigation. The adequacy requirement of Rule 23.01 is satisfied
here.

***

                                     -6-
              In addition to meeting the requirements of Rule 23.01, a class must
      satisfy one of the categories of Rule 23.02. Here, Plaintiffs move for class
      certification under Rule 23.02(3). To satisfy the requirements of Rule
      23.02(3), Plaintiffs must prove that common questions predominate and
      that a class action is a superior way to resolve the controversy.

      ***

             The crux of Plaintiffs’ claim is that the Offering Documents
      contained misstatements and/or omissions of material fact. This issue will
      predomina[te] over any secondary issues. Moreover, proof of Defendants’
      alleged misrepresentations and/or omissions are susceptible to generalized
      proof. See Cosby [v. KPMG, LLP, No. 3:16-CV-121-TAV-DCP], 2020
      WL 3548370, at *33-34 [(E.D. Tenn. June 29, 2020)]. “[T]he fact that
      damages may have to be ascertained on an individual basis is not sufficient
      to defeat” predominance or class certification. Kaplan v. S.A.C. Capital
      Advisors, L.P., 311 F.R.D. 373, 382 (S.D.N.Y. 2015); see also Gaynor [v.
      Miller, No. 3:15-CV-232-TAV-DCP], 2018 WL 3751606, at *18 [(E.D.
      Tenn. Aug. 6, 2018)] (“Because the statutory formula applies, the
      individual damages questions are sufficiently reduced that predominance of
      the common questions, answers, and fact remains.”). The common
      questions of law and fact here predominate over any questions affecting
      only individual members. The predominance requirement is satisfied here.
      See Gaynor, 2018 WL 3751606, at *14.

      ***

             The Court has considered counsels’ arguments and agrees with
      Plaintiffs that a class action is the superior method of adjudication. As
      explained above, Plaintiffs assert that 58.5 million shares of SmileDirect
      common stock pursuant or traceable to the IPO and the allegedly materially
      untrue or misleading Offering Documents were purchased. The vast
      amount of shares, the geographical diversity of the Class members, and the
      predominant issues in this case warrant a finding that a class action is the
      superior method of adjudication. Further, the Court does not foresee any
      management difficulties in maintaining the class action. Accordingly, the
      Court determines that Plaintiffs have established that a class action is the
      superior method to adjudicate this case.

       Defendants timely appealed the trial court’s order certifying the class. On May
13, 2021, the trial court entered an order staying the proceedings pending resolution of
this appeal concerning the class certification ruling.

                                         -7-
                                    II. Issues Presented

        Defendants present the following issues for our review, which we have restated
slightly:

       1.     Whether the trial court erred by determining that the claims of the
              proposed class representatives are typical pursuant to the
              requirements of Tennessee Rule of Civil Procedure 23.01(3).

       2.     Whether the trial court erred by determining that the proposed class
              representatives can adequately represent the interests of the class
              pursuant to the requirements of Tennessee Rule of Civil Procedure
              23.01(4).

       3.     Whether the trial court erred by determining that issues common to
              the class predominate over individual issues pursuant to the
              requirements of Tennessee Rule of Civil Procedure 23.02(3).

       4.     Whether the trial court erred by certifying a class with no temporal
              limitation, thereby purportedly including members who have no
              actionable injury given the timing of their trades.

                                  III. Standard of Review

       Tennessee Code Annotated § 27-1-125 (2017) vests this Court with the authority
to “hear appeals from orders of trial courts granting or denying class certification” under
Tennessee Rule of Civil Procedure 23. Concerning the standard of review for class
action certifications, this Court has previously elucidated:

               A trial court’s decision on class certification is entitled to deference.
       See Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d 632, 637 (Tenn.
       1996). The grant or denial of class certification is discretionary, and the
       court’s decision will stand absent abuse of that discretion. Id. (citing
       Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1197 (6th Cir. 1988)).
       The abuse of discretion standard typically applies when a choice exists in
       the trial court among several acceptable alternatives. Lee Med., Inc. v.
       Beecher, 312 S.W.3d 515, 524 (Tenn. 2010) (citing Overstreet v. Shoney’s,
       Inc., 4 S.W.3d 694, 708 (Tenn. Ct. App. 1999)). Because the trial court is
       vested with the responsibility to make that choice, a reviewing court cannot
       second-guess the lower court’s judgment or merely substitute an alternative
       it finds preferable. Id. at 524 (citations omitted). A reviewing court must
       instead affirm the discretionary decision so long as reasonable legal minds
       can disagree about its correctness. Eldridge v. Eldridge, 42 S.W.3d 82, 85
                                             -8-
(Tenn. 2001) (citing State v. Scott, 33 S.W.3d 746, 752 (Tenn. 2000); State
v. Gilliland, 22 S.W.3d 266, 273 (Tenn. 2000)). The same principles apply
here; a trial court’s certification decision must stand if reasonable judicial
minds can differ about the soundness of its conclusion. Freeman v. Blue
Ridge Paper Prod., Inc., 229 S.W.3d 694, 703 (Tenn. Ct. App. 2007)
(citing White v. Vanderbilt Univ., 21 S.W.3d 215, 223 (Tenn. Ct. App.
1999)). “The abuse of discretion standard of review does not, however,
immunize a lower court’s decision from any meaningful appellate
scrutiny.” Beecher, 312 S.W.3d at 524 (citing Boyd v. Comdata Network,
Inc., 88 S.W.3d 203, 211 (Tenn. Ct. App. 2002)).

        A trial court’s discretion is not unbounded. Cf. Gulf Oil Co. v.
Bernard, 452 U.S. 89, 100, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). A trial
court must consider controlling legal principles and relevant facts when
making a discretionary decision. Beecher, 312 S.W.3d at 524 (citing
Konvalinka v. Chattanooga-Hamilton Cnty. Hosp. Auth., 249 S.W.3d 346,
358 (Tenn. 2008); Ballard v. Herzke, 924 S.W.2d 652, 661 (Tenn. 1996)).
A trial court abuses its discretion if it (1) applies an incorrect legal standard,
(2) reaches an illogical or unreasonable decision, or (3) bases its decision
on a clearly erroneous evaluation of the evidence. Elliott v. Cobb, 320
S.W.3d 246, 249-50 (Tenn. 2010) (citation omitted); see also Walker v.
Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 308 (Tenn. 2008)
(citation omitted). Additionally, a trial court abuses its discretion if it
“strays beyond the applicable legal standards or when it fails to properly
consider the factors customarily used to guide the particular discretionary
decision.” Beecher, 312 S.W.3d at 524 (citing State v. Lewis, 235 S.W.3d
136, 141 (Tenn. 2007)).

        Appellate courts review a trial court’s discretionary decision to
determine “(1) whether the factual basis for the decision is properly
supported by evidence in the record, (2) whether the lower court properly
identified and applied the most appropriate legal principles applicable to the
decision, and (3) whether the lower court’s decision was within the range of
acceptable alternative dispositions.” Id. at 524-25 (citing Flautt & Mann v.
Council of Memphis, 285 S.W.3d 856, 872-73 (Tenn. Ct. App. 2008)). We
review the trial court’s legal conclusions de novo with no presumption of
correctness. Id. at 525 (citing Johnson v. Nissan N. Am., Inc., 146 S.W.3d
600, 604 (Tenn. Ct. App. 2004); Boyd v. Comdata Network, Inc., 88
S.W.3d 203, 212 (Tenn. Ct. App. 2002)). We review the trial court’s
factual conclusions under the preponderance of the evidence standard. Id.
(citations omitted).

***
                                      -9-
       Rule 23 of the Tennessee Rules of Civil Procedure governs class
action certification. Walker, 249 S.W.3d at 307 (citing Hamilton v. Gibson
Cnty. Util. Dist., 845 S.W.2d 218, 225 (Tenn. Ct. App. 1992)). The burden
is on the proponent of class certification to demonstrate that a class action
is appropriate. Id. This burden is two-fold. The proponent must first
satisfy the numerosity, commonality, typicality, and adequacy of
representation requirements of Rule 23.01. Id. at 307-08 (citing Tenn. R.
Civ. P. 23.01). Rule 23.01 permits class certification 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 interest of the class.

Tenn. R. Civ. P. 23.01. The proponent of class certification must
demonstrate compliance with each of Rule 23.01’s requirements. Walker,
249 S.W.3d at 307-08.

       The proponent must next establish the class action is maintainable
under Rule 23.02. Id. at 308. In contrast to Rule 23.01, the proponent of
class certification must establish only one Rule 23.02 basis for the
maintenance of a class action. Id. Rule 23.02 provides three bases for class
action certification:

      (1)    the prosecution of separate actions by or against
             individual members of the class would create a risk of

             (a)    inconsistent or varying adjudications with
                    respect to individual members of the class
                    which would establish incompatible standards
                    of conduct for the party opposing the class, or

             (b)    adjudications with respect to individual
                    members of the class which would as a practical
                    matter be dispositive of the interests of the other
                    members not parties to the adjudications or
                    would substantially impair or impede their
                    ability to protect their interest; or

                                   - 10 -
             (2)    the party opposing the class has acted or refused to act
                    on grounds generally applicable to the class, thereby
                    making appropriate final injunctive relief or
                    corresponding declaratory relief with respect to the
                    class as a whole; or

             (3)     the court finds that the question 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.

             Tenn. R. Civ. P. 23.02. Class certification is permissible only if the
             proponent demonstrates compliance with both Rule 23.01 and Rule
             23.02. Freeman, 229 S.W.3d at 702 (citing Hamilton, 845 S.W.2d at
             225).

      Roberts v. McNeill, No. W2010-01000-COA-R9-CV, 2011 WL 662648, at *3-5
      (Tenn. Ct. App. Feb. 23, 2011).

Wofford v. M.J. Edwards & Sons Funeral Home Inc., 528 S.W.3d 524, 537-39 (Tenn. Ct.
App. 2017).

       Furthermore, this Court has explained that it is necessary to conduct a “rigorous
analysis” when reviewing a class certification, stating:

             The trial court has the responsibility to conduct its own inquiry into
      whether the requirements of Rule 23 have been met. Valley Drug Co. v.
      Geneva Pharmaceuticals, Inc., 350 F.3d 1181, 1188 (11th Cir. 2003). In
      this case, that means an evaluation of whether common questions of law or
      fact predominate over individual questions and whether class action
      provides the superior method of resolving the claims.

                                          - 11 -
             The extent and components of a thorough or rigorous analysis
      necessary for a class certification decision depend upon the claims and
      defenses presented, the type of class certification requested, the issues
      raised regarding the compliance with the rule’s requirements, the members
      of the purported class, and other questions presented by the particular case
      and the requirements of Rule 23. The trial court must “understand the
      claims, defenses, relevant facts, and applicable substantive law in order to
      make a meaningful determination of the certification issues.” Castano v.
      Am. Tobacco Co., 84 F.3d [734,] 744 [(5th Cir. 1996)]; see also Carroll v.
      Cellco Partnership, 313 N.J. Super. 488, 713 A.2d 509, 512 (1998).

      ***

              Where the trial court fails to look beyond the pleadings and conduct
      a rigorous analysis of the issues, the case must be remanded to permit the
      trial court to make that analysis and to make the findings required by Rule
      23. Geriarty v. Grant Thornton, LLP, 368 F.3d 356, 367 (4th Cir. 2004)
      (the trial court indicated it was relying on plaintiff’s assertions regarding
      the factual issue of the efficiency of the market which triggered the
      presumption of reliance).

Wofford, 528 S.W.3d at 539-40 (quoting Gov’t Emps. Ins. Co. v. Bloodworth, No.
M2003-02986-COA-R10-CV, 2007 WL 1966022, at *22 (Tenn. Ct. App. June 29, 2007).

                                     IV. Typicality

       Defendants argue that the trial court erred by determining that the claims of
Plaintiffs as proposed class representatives were typical of the proposed class’s claims,
pursuant to the requirements of Tennessee Rule of Civil Procedure 23.01(3), because
Plaintiffs’ claims were subject to unique causation and standing defenses that might not
apply to other class members. Specifically, Defendants contend that Plaintiffs were “in-
and-out traders” who purchased their SDC shares from third-party websites rather than
purchasing directly from Defendants and who sold their shares before all of the alleged
misrepresentations in the offering documents were revealed.           We will address
Defendants’ causation and standing issues in turn.

                                     A. Causation

       Defendants advance the argument that claims filed pursuant to sections 11 and 12
of the Securities Act require a showing of a “causal connection between the alleged
misstatement or omission [in the offering documents] and a diminution in the security’s
value—i.e., that the revelation of the prior misstatement or omission caused the value of
the security to drop,” an element known as “loss causation.” See, e.g., In re Smart
                                           - 12 -
Techs., Inc. S’holder Litig., 295 F.R.D. 50, 59 (S.D.N.Y. 2013); see also Lentell v.
Merrill Lynch & Co., Inc., 396 F.3d 161, 172 (2d Cir. 2005).3 The federal courts have
made clear, however, that plaintiffs asserting claims pursuant to sections 11 and 12(a)(2)
do not need to allege or prove “loss causation.” See In re Morgan Stanley Info. Fund Sec.
Litig., 592 F.3d 347, 359 (2d Cir. 2010); see also Obasi Inv. LTD v. Tibet Pharm., Inc,
931 F.3d 179, 182 (3d Cir. 2019); Indiana State Dist. Council of Laborers & Hod
Carriers Pension & Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 947 (6th Cir. 2009).
Rather, “in order to make out prima facie violations of sections 11 and 12(a)(2), plaintiffs
must allege that an omitted material fact was required to be included [in the offering
documents] by the securities laws or that its absence rendered statements in the
prospectus misleading.” In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 277 (3d Cir.
2004). “The question of materiality, it is universally agreed, is an objective one,
involving the significance of an omitted or misrepresented fact to a reasonable investor.”
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 445 (1976); see Green v. Green, 293
S.W.3d 493, 511 (Tenn. 2009). As the United States Supreme Court has explained, the
“basic purpose of the [Securities Act]” is to “provide greater protection to purchasers of
registered securities.” Herman & MacLean v. Huddleston, 459 U.S. 375, 383 (1983).

        As Defendants correctly point out, however, the liability provided for in the
Securities Act is subject to an affirmative “negative loss causation” defense, for which a
defendant bears the burden of proof. See 15 U.S.C. §§ 77k(e), 77l(b); see also Fed.
Hous. Fin. Agency for Fed. Nat’l Mort. Ass’n v. Nomura Holding Am., Inc., 873 F.3d 85,
153 (2d Cir. 2017) (explaining that with regard to a section 12(b) claim “loss causation is
an affirmative defense to be proven by defendants, not a prima facie element to be proven
by plaintiffs.”); Greenapple v. Detroit Edison Co., 618 F.2d 198, 204 (2d Cir. 1980)
(explaining that pursuant to section 11, “while plaintiff need show no causal connection
between the decline in the price of the security and the materially false misstatement or
omission, the defendant may escape liability in whole or in part if he can prove that the
decline in market value is unrelated to the material misstatements or omissions.”).
Defendants posit that inasmuch as Plaintiffs did not maintain ownership of their stock
when certain alleged omissions or misrepresentations were revealed to the market, they
will be subject to a negative loss causation defense that may not affect other class
members’ claims.

      Rule 23.01(3) provides in relevant part that “[o]ne or more members of a class
may sue or be sued as representative parties on behalf of all only if . . . the claims or

3
 “[W]hen a federal cause of action . . . is brought in state court, federal law governs substantive issues
while state law governs procedural matters.” Blackburn v. CSX Transp., Inc., No. M2006-01352-COA-
R10-CV, 2008 WL 2278497, at *7 (Tenn. Ct. App. May 30, 2008). Moreover, our Supreme Court has
previously instructed with regard to class actions that “because of the identical language in our Rule 23
and in Rule 23 of the Federal Rules of Civil Procedure that federal authority is persuasive.” Meighan v.
U.S. Sprint Commc’ns Co., 924 S.W.2d 632, 637 (Tenn. 1996) (citing Bayberry Assocs. v. Jones, 783
S.W.2d 553 (Tenn. 1990)).
                                                 - 13 -
defenses of the representative parties are typical of the claims or defenses of the class.”
As this Court has previously explained with regard to typicality:

       “[A] plaintiff’s claim is typical if it arises from the same event or practice
       or course of conduct that gives rise to the claims of other class members,
       and if his or her claims are based on the same legal theory.” Freeman [v.
       Blue Ridge Paper Prod., Inc.,] 229 S.W.3d [694,] 703 [(Tenn. Ct. App.
       2007)] (quoting In re Am. Med. Sys., Inc., 75 F.3d 1069, 1082 (6th Cir.
       1996)) (alteration in original) (citation omitted) (internal quotation marks
       omitted). The typicality inquiry focuses on whether the legal and remedial
       theories of the class representatives are sufficiently similar to those of the
       unnamed class members. Mullen v. Treasure Chest Casino, LLC, 186 F.3d
       620, 625 (5th Cir. 1999) (citing Lightbourn v. Cnty. of El Paso, Tex., 118
       F.3d 421, 426 (5th Cir. 1997)); Hanon v. Dataproducts Corp., 976 F.2d
       497, 508 (9th Cir. 1992) (citations omitted).

               “A necessary consequence of the typicality requirement is that the
       representative’s interests will be aligned with those of the represented
       group, and in pursuing his own claims, the named plaintiff will also
       advance the interests of the class members.” In re Am. Med. Sys., Inc., 75
       F.3d at 1082 (citing 1 Herbert B. Newberg & Alba Conte, Newberg on
       Class Actions § 3.13 (3d ed. 1992)). “The typicality requirement reflects
       the belief that a class action’s progress should not be compromised by a
       diversion of attention from the substance of the basic claim involved in the
       case.” Bayberry Assocs. v. Jones, 87-261-II, 1988 WL 137181, at *9
       (Tenn. Ct. App. Nov. 9, 1988) (citation omitted), vacated for lack of a final
       judgment, 783 S.W.2d 553 (Tenn. 1990). “Its purpose, therefore, is to
       screen out class actions in which the legal or factual position of the
       representative party is markedly different from that of the other members of
       the class, even though common issues of law or fact may also be present.”
       Id. (citations omitted).

               The claims or defenses of a class representative are atypical if a
       defense unique to that person or a small subclass is likely to become a
       major focus of the litigation. Koos v. First Nat. Bank of Peoria, 496 F.2d
       1162, 1164-65 (7th Cir. 1974) (citation omitted); see also In re Schering
       Plough Corp. ERISA Litig., 589 F.3d 585, 599-601 (3d Cir. 2009); Gary
       Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
       903 F.2d 176, 180 (2d Cir. 1990) (citations omitted); Rolex Emps. Ret.
       Trust v. Mentor Graphics Corp., 136 F.R.D. 658, 663-64 (D. Or. 1991)
       (citations omitted). Regardless of whether courts frame this issue in terms
       of typicality or adequacy of representation, the danger is that a class
       representative will not properly advance the interests of the absent class
                                          - 14 -
       members if overly concerned with defenses or affirmative defenses unique
       to him. Gary Plastic, 903 F.2d at 180 (citations omitted); see also Beck v.
       Maximus, Inc., 457 F.3d 291, 301 (3d Cir. 2006) (“A proposed class
       representative is neither typical nor adequate if the representative is subject
       to a unique defense that is likely to become a major focus of the
       litigation.”).

Roberts v. McNeill, No. W2010-01000-COA-R9-CV, 2011 WL 662648, at *6 (Tenn. Ct.
App. Feb. 23, 2011) (footnotes omitted).

        Plaintiffs maintain that the typicality requirement has been met herein because
their claims are “identical to the claims of all other Class members” in that Plaintiffs and
other class members “purchased [SDC] common stock pursuant or traceable to the
Offering Documents, they all allege that the Offering Documents failed to disclose the
same material facts, and all bring the same claims against the same Defendants as a
result.” Plaintiffs further argue that each claim “turns upon the very same facts and legal
theories, and will be proven by the same evidence.” By contrast, Defendants posit that
the affirmative negative loss causation defense purportedly applicable to Plaintiffs’
claims will likely become a major focus of the litigation.

        The trial court determined that Plaintiffs’ claims were typical of class members’
claims. In doing so, the court relied upon In re Am. Med. Sys., Inc., 75 F.3d 1069, 1082
(6th Cir. 1996), wherein the United States Sixth Circuit Court of Appeals explained that a
plaintiff’s claim is typical “if it arises from the same event or practice or course of
conduct that gives rise to the claims of other class members, and if his or her claims are
based on the same legal theory.” Id. (quoting 1 HERBERT B. NEWBERG & ALBA CONTE,
NEWBERG ON CLASS ACTIONS, § 3.13, at 3-76 (3d ed. 1992)). The Sixth Circuit Court
further explained that a “necessary consequence of the typicality requirement is that the
representative’s interests will be aligned with those of the represented group, and in
pursuing his own claims, the named plaintiff will also advance the interests of the class
members.” Id. With regard to Defendants’ argument concerning Plaintiffs’ purported
causation issues, the trial court herein stated that “[i]ndividual differences regarding the
purchasing and selling of stock during the proposed class period [do] not destroy the
typicality requirement,” and “[a]ll purchasers of stock during a class period share a
common interest in showing that the stock was unlawfully inflated,” citing Ross v.
Abercrombie & Fitch Co., 257 F.R.D. 435, 456 (S.D. Ohio 2009). We agree with the
trial court’s conclusion.

        Federal courts have recognized that “[t]ypicality generally presents a low burden
that is easily satisfied.” See In re HealthSouth Corp. Sec. Litig., 261 F.R.D. 616, 627
(N.D. Ala. 2009); see also Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1540 (8th Cir.
1996). The typicality requirement essentially requires that “other members of the class . .

                                           - 15 -
. have the same or similar grievances as the plaintiff.” Alpern, 84 F.3d at 1540. As the
United States Eighth Circuit Court of Appeals further has explained:

       The [typicality] burden is “fairly easily met so long as other class members
       have claims similar to the named plaintiff.” DeBoer [v. Mellon Mortg.
       Co.], 64 F.3d [1171,] 1174 [(8th Cir. 1995)]. Factual variations in the
       individual claims will not normally preclude class certification if the claim
       arises from the same event or course of conduct as the class claims, and
       gives rise to the same legal or remedial theory.

Id. See Cosby v. KPMG, LLP, No. 3:16-CV-121-TAV-DCP, 2020 WL 3548379, at *31
(E.D. Tenn. June 29, 2020), report and recommendation adopted, No. 3:16-CV-121-
TAV-DCP, 2021 WL 1828114 (E.D. Tenn. May 7, 2021) (finding that the proposed class
representative’s Securities Act claims were “typical because they arise out of the same
event that gives rise to the claims of other class members—that is, Defendant’s alleged
misstatements and omissions.”); see also In re Marsh & McLennan Co., Inc. Sec. Litig.,
No. 04 CIV. 8144 (CM), 2009 WL 5178546, at *10 (S.D.N.Y. Dec. 23, 2009) (“Factual
differences involving the date of acquisition, type of securities purchased and manner by
which the investor acquired the securities will not destroy typicality if each class member
was the victim of the same material misstatements and the same fraudulent course of
conduct.”).

        Although Defendants attempt to characterize Plaintiffs as “in-and-out traders” who
could potentially be subject to negative loss causation defenses that other class members
may not face, the trial court did not appear to credit this characterization.4 Even
assuming, arguendo, that Plaintiffs could properly be characterized as “in-and-out
traders,” there is no bright line rule providing that in-and-out traders’ claims are
automatically atypical. See In re Vivendi Universal, S.A., 242 F.R.D. 76, 86 n.5
(S.D.N.Y. 2007), aff’d sub nom. In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (2d Cir.
2016) (“[C]ourts have consistently found that [status as an in-and-out trader] does not
render a representative’s claim atypical.”). See also In re Dynegy, Inc. Sec. Litig., 226
F.R.D. 263, 283 (S.D. Tex. 2005) (“Defendants have not cited and the court has not
found any case that has relied on the negative causation defense to limit a putative class
at the class certification stage of litigation.”).         In addition, the possibility of
individualized issues with certain affirmative defenses, even a statute of limitations
defense, is usually insufficient to prevent class certification. See Waste Mgmt. Holdings,
Inc. v. Mowbray, 208 F.3d 288, 296 (1st Cir. 2000); see also Smilow v. Sw. Bell Mobile
Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003) (explaining that “where common issues
otherwise predominated, courts have usually certified Rule 23(b)(3) classes even though

4
 According to Defendants, Mr. Mancour maintained ownership of his stock in SDC for only one day
while Ms. Vang owned her stock for approximately six weeks.

                                            - 16 -
individual issues were present in one or more affirmative defenses”); In re Tyco Int’l,
Ltd., 236 F.R.D. 62, 71 (D.N.H. 2006) (explaining that “classes are routinely certified
where common issues predominate even though individual issues exist with respect to
other matters such as affirmative defenses or damages”).

        Defendants rely on In re Smart Techs., Inc. S’holder Litig., 295 F.R.D. at 59-60, as
support for their position that in-and-out traders’ claims are atypical when compared to
the claims of regular purchasers within the class. However, in In re Smart Techs., Inc.
S’holder Litig., the plaintiffs had alleged that any loss sustained in selling their shares
was attributable solely to a disclosure that occurred on November 9, 2010. See id. As
such, the court excluded in-and-out traders who sold their shares prior to the November 9,
2010 disclosure as atypical because they would be subject to a negative loss causation
defense. See id. By contrast, in this matter, Plaintiffs alleged in their complaint that the
stock price fell 27.5 percent on the first day of trading as “adverse facts then-known by
Defendants, but concealed from the market, seeped out.”5 Plaintiffs further alleged that
the stock price continued to decline over the ensuing weeks as further negative
disclosures occurred, including, inter alia, the filing of a federal lawsuit against SDC,
adoption of strict regulatory legislation in California, and reporting of corporate financial
losses. As such, this case clearly presents a different factual scenario than that presented
in In re Smart Techs., Inc. S’holder Litig.

        We find the case of In re Constar Int’l Inc. Sec. Litig., 585 F.3d 774, 778 (3d Cir.
2009), to be more factually similar and therefore instructive to the case at bar. In In re
Constar Int’l Inc. Sec. Litig., the plaintiffs alleged that the defendant corporation’s initial
public offering documents contained materially misleading statements and omitted
required information. Id. The plaintiffs asserted that in the months to follow, damaging
financial disclosures and press releases caused the stock price to fall by more than fifty
percent. Id. The plaintiffs filed a federal lawsuit pursuant to the Securities Act and
sought to certify a class of stock purchasers. Id. at 779. The federal district court
certified the class, finding that the requirements of Federal Rule of Civil Procedure 23
had been met. Id.

      On appeal to the United States Third Circuit Court of Appeals, the Constar
defendants argued that certification of the class of plaintiffs was in error. In analyzing
the various arguments presented by the defendants concerning class certification, the
Third Circuit Court stated:

        A prima facie case under § 11 is straightforward, requiring only a showing
        of a material misrepresentation or omission from a defendant’s registration

5
 One exhibit that Plaintiffs presented to the trial court was an article pointing out risks and concerns with
SDC’s initial public offering. The article was published on September 11, 2019, the day before the
offering took place.
                                                   - 17 -
statement. That is, § 11 imposes liability “if a registration statement, as of
its effective date: (1) contained an untrue statement of material fact; (2)
omitted to state a material fact required to be stated therein; or (3) omitted
to state a material fact necessary to make the statements therein not
misleading.” In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 269
(3d Cir. 2006) (internal quotation marks omitted).

***

In a § 11 case, plaintiffs do not have the burden of proving causation,
although defendants “may assert, as an affirmative defense, that a lower
share value did not result from any nondisclosure or false statement.” In re
Adams Golf Inc. Sec. Litig., 381 F.3d 267, 277 (3d Cir. 2004). Similarly,
plaintiffs do not need to establish reliance on an issuer’s statements, unless
they purchased the stock more than “twelve months . . . after the effective
date of the registration statement.” 15 U.S.C. § 77k(a). Under § 11(e), the
measure of damages is set as the difference between the price paid for a
security purchased pursuant to the registration statement, and the price at
the time suit was filed or the security was sold. 15 U.S.C. § 77k(e). “[A]ny
decline in value is presumed to be caused by the misrepresentation in the
registration statement . . . .” McMahan & Co. v. Wherehouse Entm’t, Inc.,
65 F.3d 1044, 1048 (2d Cir. 1995). Thus, the elements of a § 11 claim
“stand in stark contrast” to those of a claim under the Exchange Act (such
as a § 10(b) claim), which requires “a showing of reasonable reliance and
scienter.” Adams Golf, 381 F.3d at 273 n.5.

***

As the District Court noted, because reliance is not an element under § 11,
“the conduct of the defendants, not the knowledge of the plaintiffs, is
determinative” of materiality. (Joint App. 28.) The crucial questions are:
“[W]as there a misrepresentation? And, if so, was it objectively material?”
(Joint App. 29.) Since reliance is irrelevant in a § 11 case, a § 11 case will
never demand individualized proof as to an investor’s reliance or
knowledge (except where more than twelve months have passed since the
registration statement became effective).              Further, because a
misrepresentation is material if a reasonable investor would have
considered a fact important, the effect of a material misrepresentation is felt
uniformly across the class of investors, regardless of whether the market is
efficient.

***

                                    - 18 -
               Defendants also maintain that plaintiffs have failed to prove that loss
       causation and injury were common issues that would predominate, and urge
       that the District Court erred by holding otherwise. They analogize their
       case to Newton [v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d
       154 (3d Cir. 2001), as amended (Oct. 16, 2001)], where, “[b]ecause
       plaintiffs’ claims . . . require[d] an economic injury determination for each
       trade,” the class failed “to satisfy the predominance requirement.” 259 F.3d
       at 190. Again, defendants’ argument might be persuasive if this were a §
       10(b) case. Section 11 does not require a showing of individualized loss
       causation, because injury and loss are presumed under § 11. It bears
       repeating that, in a § 11 case, plaintiffs do not bear the burden of proving
       causation, damages are calculated as the difference between the purchase
       price of a security and the price at the time suit was filed or the security was
       sold, and any decline in value is presumed to be caused by the
       misrepresentation.

              We also note that, although loss causation is an affirmative defense
       in a § 11 case, this defense would not defeat predominance here. Section
       11(e) allows defendants to “limit damages by showing that plaintiffs’ losses
       were caused by something other than their misrepresentations.” [In re]
       Merck [& Co. Sec. Litig.], 432 F.3d [261,] 274 [(3d Cir. 2005)]. Any
       affirmative defense on this ground would present a common issue—not an
       individual one. If something other than the alleged misrepresentations
       produced a drop in stock price, be it the weather, market conditions, or any
       other factor, class members would be affected uniformly. If, for example,
       Investors X, Y, and Z all purchase Security A, and Security A’s price
       happens to fall dramatically in the ensuing months, the cause of that decline
       would not differ as to each investor.

Id. at 782-85 (other internal citations and footnotes omitted).

       Although we recognize Defendants’ postulate that the timing of the sales of
various class members’ stock might affect what Defendants are required to prove with
regard to the affirmative defense of negative loss causation, we agree with the trial
court’s determination that this argument would not defeat typicality. Defendants bear the
burden of proving the affirmative defense, and if they choose to try and present varying
factual situations to show other purported reasons for the decline in stock value based on
when class members sold their stock, that will be their responsibility. However, Plaintiffs
have alleged that material misrepresentations or omissions in the offering documents
caused the price of the stock to be artificially inflated, which is sufficient to state a prima
facie claim under the Securities Act, and they have alleged that these misrepresentations
or omissions affected the entire class. We conclude that the possibility of Defendants’
raising individualized negative loss causation defense arguments does not lead to the
                                             - 19 -
supposition that the proposed class representatives will not properly advance the interests
of the other class members or that those defenses are likely to become a major focus of
the litigation. See Roberts, 2011 WL 662648, at *6. We therefore determine Defendants’
causation arguments to be unavailing.

                                        B. Standing

       Defendants also point out that in order to have standing to bring a claim pursuant
to section 12(a)(2), a plaintiff “must have purchased securities directly from the
defendants.” See Freidus v. Barclays Bank PLC, 734 F.3d 132, 141 (2d Cir. 2013); see
also In re Regions Morgan Keegan Sec., Derivative & Erisa Litig., No. 2:13-CV-02654-
SHM-DKV, 2014 WL 12611247, at *8 (W.D. Tenn. Aug. 4, 2014) (“[P]urchasers in
private or secondary market offerings are precluded from bringing actions under Section
12(a)(2).”) (quoting In re Sterling Foster & Co., Inc. Sec. Litig., 222 F. Supp. 2d 216,
244-45 (E.D.N.Y. 2002)). Defendants contend that although other class members may
have standing to bring a claim pursuant to section 12(a)(2), Plaintiffs have no such
standing because they did not purchase their shares directly from Defendants. In their
appellate brief, Plaintiffs appear to concede that they lack standing pursuant to section
12(a)(2). However, Plaintiffs posit that (1) they can represent class members with section
12(a)(2) claims even if Plaintiffs only have section 11 claims and (2) Defendants’
argument is best addressed in a dispositive motion rather than at the class certification
stage.

       Concerning this issue, the trial court stated in pertinent part:

              Defendants also argue that because neither Mr. Mancour nor Ms.
       Vang bought their shares directly from any Defendant in the IPO, both Mr.
       Mancour and Ms. Vang are subject to standing challenges to bring a
       Section 12(a)(2) claim, which also renders them atypical of the purported
       Class. “In order to have standing under § 12(a)(2), . . . plaintiffs must have
       purchased securities directly from the defendants.” Freidus v. Barclays
       Bank PLC, 734 F.3d 132, 141 (2d Cir. 2013). “[C]laims under Section
       12(a)(2) may [not] be brought by those who . . . purchased securities in a
       ‘secondary market.’” Caiafa v. Sea Containers Ltd., 331 F. App’x 14, 16-
       17 (2d Cir. 2009) (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 578
       (1995)). However, “[a] single class can contain plaintiffs who have section
       11 claims and section 12(a)(2) claims where the same course of conduct
       gives rise to liability under both sections.” New Jersey Carpenters Health
       Fund v. Residential Capital, LLC, 272 F.R.D. 160, 166 (S.D.N.Y. 2011).
       Thus, Mr. Mancour and Ms. Vang can represent class members with
       Section 12(a)(2) claims even if they only have Section 11 claims. See id.
       (permitting named Plaintiff to represent class members with Section

                                            - 20 -
       12(a)(2) claims despite the fact that it only has Section 11 claims and did
       not purchase from an underwriter).

               The Court finds that Defendants’ standing argument does not defeat
       class certification. For purposes of class certification, the common question
       of whether the Offering Documents were materially misleading
       predominates over any secondary tracing issues that might be encountered
       later in the litigation. The typicality requirement of Rule 23.01 is met here.

        Based upon our review of the applicable case law, we find the trial court’s reliance
on New Jersey Carpenters Health Fund misplaced. See 272 F.R.D. 160, 166 (S.D.N.Y.
2011). In New Jersey Carpenters Health Fund, the District Court for the Southern
District of New York was asked to determine whether one of the plaintiffs and proposed
class representatives, Boilermaker and Blacksmith National Pension Trust
(“Boilermaker”), lacked standing to bring claims under section 12(a)(2) of the Securities
Act inasmuch as Boilermaker had purchased its securities “on the aftermarket, and not at
the initial public offering.” See id. In response to that issue, the district court stated in
pertinent part:

               A single class can contain plaintiffs who have section 11 claims and
       section 12(a)(2) claims where the same course of conduct gives rise to
       liability under both sections. Thus, Boilermaker can represent class
       members with section 12(a)(2) claims despite the fact that it only has
       section 11 claims, and Defendants’ argument to the contrary has been
       rejected by this Circuit and this District. See, e.g., Hevesi v. Citigroup, Inc.,
       366 F.3d 70, 82 (2d Cir. 2004) (“[I]t is inevitable that, in some cases, the
       lead plaintiff will not have standing to sue on every claim.”); In re Dreyfus
       Aggressive Growth Mut. Fund Litig., No. 98 Civ. 4318(HB), 2000 WL
       1357509, at *3, 2000 U.S. Dist. LEXIS 13469, at *13-14 (S.D.N.Y. Sep.
       19, 2000) (“Courts have repeatedly certified classes where the class
       representatives had not invested in all of the subject securities.”).

Id. We note, however, that Boilermaker was neither the sole plaintiff nor the sole
proposed class representative in that case. Id. at 162. In other words, other plaintiffs and
proposed class representatives in the action did maintain standing to assert claims under
section 12(a)(2) of the Securities Act. See id.

       In a subsequent decision, Stadnick v. Vivint Solar, Inc., Fed. Sec. L. Rep. P 98874
(S.D.N.Y. Dec. 10, 2015), aff’d, 861 F.3d 31 (2d Cir. 2017), the District Court for the
Southern District of New York was asked to determine whether the sole named plaintiff
and proposed class representative could maintain claims under section 12(a)(2) on behalf
of other class members when the plaintiff lacked standing to bring such claims on his
own behalf. The Stadnick plaintiff argued that “the similarity between [his] claims under
                                          - 21 -
§ 11 and claims under § 12(a)(2) is enough.” Id. at *18. The Stadnick court disagreed
and dismissed the plaintiff’s claims. Id.

       Similarly, in the later case of Yi Xiang v. Inovalon Holdings, Inc., 327 F.R.D. 510
(S.D.N.Y. 2018), the same court was again asked to determine whether the lead and only
named plaintiff and proposed class representative could maintain claims under section
12(a)(2) on behalf of other class members when the plaintiff lacked standing to bring
such claims on his own behalf. The plaintiff relied on New Jersey Carpenters Health
Fund, 272 F.R.D. at 166, for its argument that “because the ‘same course of conduct
gives rise to liability under both [S]ections [11 and 12(a)(2)],’ Lead Plaintiff ‘can
represent class members with [S]ection 12(a)(2) claims despite the fact that it has only
Section 11 claims.’” See id. at 520. The Yi Xiang court, quoting Stadnick, disagreed,
determining that the class could be certified but that the section 12(a)(2) claims would be
dismissed based on the lead plaintiff’s lack of standing to maintain such claims. See id.
at 521, 532.

        The approach taken in the Stadnick and Yi Xiang opinions has been utilized by
other federal courts as well. See, e.g., In re Merix Corp. Sec. Litig., No. CV 04-826-MO,
2009 WL 10692857, at *4 (D. Or. Nov. 5, 2009) (quoting O’Shea v. Littleton, 414 U.S.
488, 494 (1974) (“[I]f none of the named plaintiffs purporting to represent a class
establishes the requisite of a case or controversy with the defendants, none may seek
relief on behalf of himself or any other member of the class.”)); see also Ong ex rel. Ong
IRA v. Sears, Roebuck & Co., 388 F. Supp. 2d 871, 891 (N.D. Ill. 2004) (explaining that
the “fact that [proposed class representatives] have filed a class action lawsuit that
includes putative class members who did purchase the relevant securities does not confer
the necessary standing” when proposed class representatives “never purchased any
securities in those offerings”); Friedman v. Rayovac Corp., 295 F. Supp. 2d 957, 976
(W.D. Wis. 2003).

       Furthermore, this approach is in accord with case law concerning standing of class
representatives in general. For example, in Wofford, 528 S.W.3d at 542, this Court
explained:

             At least one named class representative must have standing for a
      class action to proceed. Prado-Steiman ex rel. Prado v. Bush, 221 F.3d
      1266, 1280 (11th Cir. 2000). “[E]ach claim must be analyzed separately,
      and a claim cannot be asserted on behalf of a class unless at least one
      named plaintiff has suffered the injury that gives rise to that claim.” Id.
      (quoting Griffin v. Dugger, 823 F.2d 1476, 1483 (11th Cir. 1987)).

       For the foregoing reasons, we determine that the trial court erred by “applying an
incorrect legal standard” when analyzing the standing sub-issue. See Lee Med., Inc. v.
Beecher, 312 S.W.3d 515, 524 (Tenn. 2010).             Insofar as the proposed class
                                         - 22 -
representatives failed to demonstrate that they had standing to assert a claim based upon
section 12(a)(2) on their own behalf, they were unable to bring a class action asserting
such a claim on behalf of other class members. Accordingly, the section 12(a)(2) claims
must be dismissed. We otherwise conclude that the trial court did not abuse its discretion
in determining that the typicality requirement had been met.

                               V. Adequacy of Representation

       Defendants argue that Plaintiffs are inadequate class representatives because their
testimony in discovery demonstrated that they were unable to “explain basic information”
about the case, contradicted the allegations of the complaint, and had “abdicated
complete control” to their attorneys. According to Defendants, Ms. Vang admitted in her
deposition that she had never read the offering documents while Mr. Mancour disavowed
the complaint’s theories concerning how the offering documents were misleading.
Defendants posit that the litigation is lawyer driven and that Plaintiffs admitted to having
been solicited by attorneys to serve as class representatives and having no meaningful
involvement in the decision-making process.

         The trial court stated as follows with respect to the adequacy of representation
issue:

                “The adequacy inquiry . . . serves to uncover conflicts of interest
         between named parties and the class they seek to represent. A class
         representative must be part of the class and possess the same interest and
         suffer the same injury as the class members.” Amchem Prod., Inc. v.
         Windsor, 521 U.S. 591, 625-26 (1997) (citations and internal quotations
         omitted). The Court looks to two criteria for determining adequacy of
         representation: “1) the representative must have common interests with
         unnamed members of the class, and 2) it must appear that the
         representatives will vigorously prosecute the interests of the class through
         qualified counsel.” In re Am. Med. Sys., Inc., 75 F.3d at 1083 (citation
         omitted). The Court also “reviews the adequacy of class representation to
         determine whether class counsel are qualified, experienced and generally
         able to conduct the litigation.” Stout v. J.D. Byrider, 228 F.3d 709, 717
         (6th Cir. 2000).

                The purpose of the requirement that class representatives fairly and
         adequately protect the interests of the class is to protect the legal rights of
         absent class members. See Kirkpatrick v. J.C. Bradford & Co., 827 F.2d
         718, 726 (11th Cir. 1987). Because all members of a class are bound by the
         res judicata effect of the judgment, a principal factor in determining the
         appropriateness of class certification is “the forthrightness and vigor with
         which the representative party can be expected to assert and defend the
                                             - 23 -
       interests of the members of the class.” Mersay v. First Republic Corp., 43
       F.R.D. 465, 470 (S.D.N.Y. 1968). Class representatives are inadequate if
       their “participation is so minimal that they virtually have abdicated to their
       attorneys the conduct of the case.” Kirkpatrick, 827 F.2d at 728.

              Defendants argue that Ms. Vang’s and Mr. Mancour’s deposition
       testimony demonstrates that they lack basic knowledge about the issues and
       have no meaningful control over the litigation. However,

              Plaintiffs, as laypersons, cannot be reasonably expected to
              understand the deeper legal intricacies of this matter. But
              they plainly understand that they are suing because the
              Offering Documents allegedly contained misrepresented or
              omitted material information. They also plainly intend to see
              Defendants’ alleged wrongs righted and have already
              expended considerable time and energy in services of that
              end. Rule 23 requires no more.

       Stein v. U.S. Xpress Enters., Inc., No. I :19-cv-98, Mem. Op., Dkt. 134 at
       15 (E.D. Tenn. Feb. 21, 2020); see also In re Sadia, S.A. Secs. Litig., 269
       F.R.D. 298, 310 (S.D.N.Y. 2010) (“[W]hile neither [class] representative . .
       . demonstrated a deep understanding of [the] litigation,” the representatives
       had “the requisite basic awareness of the facts of the case and a willingness
       to satisfy [their] obligations to absent Class members”); Morris v.
       Wachovia Secs., Inc., 223 F.R.D. 284, 296 (E.D. Va. 2004) (“In a complex
       lawsuit . . . the representative need not have extensive knowledge of the
       facts of the case in order to be an adequate representative.”).

              Here, Plaintiffs’ interests are aligned with those of the Class.
       Plaintiffs purchased SmileDirect stock pursuant or traceable to the Offering
       Documents that allegedly contained materially untrue and misleading
       statements; thus, all members of the proposed class allege claims arising
       from the same wrongful conduct that are based on the same legal theories
       as Plaintiffs’ claims. Furthermore, there are no ascertainable conflicts
       between Plaintiffs and the Class. Plaintiffs have demonstrated their
       commitment to pursue this action and to maximizing a recovery on behalf
       of all Class members. Lastly, Plaintiffs’ counsel are highly qualified,
       widely experienced in securities class actions, and competent to conduct the
       proposed litigation. The adequacy requirement of Rule 23.01 is satisfied
       here.

Following our review of this issue, we agree with the trial court’s conclusion.

                                           - 24 -
        Rule 23.01 provides in relevant part that “[o]ne or more members of a class may
sue or be sued as representative parties on behalf of all only if . . . (4) the representative
parties will fairly and adequately protect the interest of the class.” Concerning Rule
23.01(4), this Court has previously elucidated that the proposed class representatives
“must have common interests with the unnamed class members and it must appear that
the class representatives will vigorously prosecute the case and protect the interests of the
class through qualified counsel.’” Rogers v. Adventure House LLC, 617 S.W.3d 542, 567
(Tenn. Ct. App. 2020), perm. app. denied (Tenn. Dec. 3, 2020) (quoting Highlands
Physicians, Inc. v. Wellmont Health Sys., No. E2017-01549-COA-R3-CV, 2017 WL
6623992, at *7 (Tenn. Ct. App. Dec. 28, 2017)). Similarly, the United States Sixth
Circuit Court of Appeals has explained:

       In order to understand the nature of the adequate representation
       requirement, the Supreme Court’s recent construction of Federal Rule of
       Civil Procedure 23(a)(4) offers assistance. “The adequacy inquiry under
       Rule 23(a)(4) serves to uncover conflicts of interest between named parties
       and the class they seek to represent. A class representative must be part of
       the class and possess the same interest and suffer the same injury as the
       class members.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, [625,
       626], 117 S.Ct. 2231, 2250-51, 138 L.Ed.2d 689 (1997) (quotation omitted)
       (citations omitted). Accordingly, to satisfy the adequate representation
       requirements under Rule 23 and thereby under § 108, there must be an
       absence of a conflict of interest, and the presence of common interests and
       injury.

              There are similarities in some of the concerns addressed by
       prerequisites 23(a)(2) (commonality), 23(a)(3) (typicality), and 23(a)(4)
       (representation). As the Supreme Court explained in General Tel. Co. of
       the Southwest v. Falcon, 457 U.S. 147, 102 S.Ct. 2364, 72 L.Ed.2d 740
       (1982):

              The commonality and typicality requirements of Rule 23(a)
              tend to merge. Both serve as guideposts for determining
              whether under the particular circumstances maintenance of a
              class action is economical and whether the named plaintiff’s
              claim and the class claims are so interrelated that the interests
              of the class members will be fairly and adequately protected
              in their absence. Those requirements therefore also tend to
              merge with the adequacy-of-representation requirement,
              although the latter requirement also raises concerns about the
              competency of class counsel and conflicts of interest.

                                            - 25 -
       Id. at 157 n.13, 102 S.Ct. at 2370-71 n.13. Cf. HERBERT NEWBERG &
       ALBA CONTE, NEWBERG ON CLASS ACTIONS § 3.22, at 3-126 (3d ed. 1992)
       (“[T]he two factors that are now predominately recognized as the basic
       guidelines for the Rule 23(a)(4) prerequisite are (1) absence of conflict and
       (2) assurance of vigorous prosecution.”); CHARLES ALAN WRIGHT,
       ARTHUR R. MILLER, AND MARY KAY KANE, FEDERAL PRACTICE AND
       PROCEDURE § 1768, at 326 (2d ed. 1986) (“It is axiomatic that a putative
       representative cannot adequately protect the class if his interests are
       antagonistic to or in conflict with the objectives of those he purports to
       represent.”). For purposes of this case, the key determinants underlying the
       adequacy of representation relate to the issues of conflicts of interest,
       common interest, and common injury.

Rutherford v. City of Cleveland, 137 F.3d 905, 909 (6th Cir. 1998). See In re Am. Med.
Sys., Inc., 75 F.3d at 1083 (stating that there are “two criteria for determining adequacy of
representation: ‘1) the representative must have common interests with unnamed
members of the class, and 2) it must appear that the representatives will vigorously
prosecute the interests of the class through qualified counsel’” (quoting Senter v. Gen.
Motors Corp., 532 F.2d 511, 525 (6th Cir. 1976)).

        In the case at bar, Plaintiffs alleged that they purchased SDC common stock
pursuant or traceable to the offering documents, as did the other class members. In
addition, Plaintiffs and the other class members will need to prove that the offering
documents misrepresented or failed to disclose material facts. As such, it is clear that
Plaintiffs and the other class members have common interests and that there is no conflict
in their interests.

        Moreover, Ms. Vang testified that she received periodic updates from her
attorneys concerning the case, that she had reviewed drafts of the complaint before it was
filed, and that she was “representing the whole class” as a lead plaintiff. Ms. Vang
further testified: “I am going to do . . . my part in hiring lawyers and keeping up with
communication and doing litigation like this, for the whole class.” Ms. Vang
demonstrated awareness of her claims and where the litigation stood procedurally.
Similarly, Mr. Mancour was familiar with his claims and testified regarding his
communications with the attorneys concerning the case. When questioned regarding his
responsibilities as class representative, Mr. Mancour stated:

       So my responsibilities as a fiduciary are to fairly represent this class, see
       that they receive adequate representation. I would do that by simply
       staying engaged with communication, any sort of developments in this
       litigation, and diligently ascertaining the developments, and again doing so
       with my counsel.

                                           - 26 -
        Here, Plaintiffs have clearly testified that they understand their responsibilities as
class representatives and that they will do their part to represent the class in this litigation.
Plaintiffs have communicated with their counsel, reviewed filings, and shown familiarity
with the proceedings. As the trial court found, Plaintiffs are not required to
“demonstrate[] a deep understanding of th[e] litigation,” but rather a “basic awareness of
the facts of the case and a willingness to satisfy [their] obligations to absent Class
members.” See In re Sadia, S.A. Sec. Litig., 269 F.R.D. 298, 310 (S.D.N.Y. 2010).
Despite Defendants’ contention to the contrary, we agree with the trial court that
Plaintiffs have demonstrated that they will adequately represent the interests of the class
in this matter.

         Finally, although Defendants do not appear to argue that class counsel is
unqualified to represent the class, they do assert that Plaintiffs “did not ‘select’ their
counsel in any meaningful sense, which renders them inadequate to serve as class
representatives.” However, we reiterate that in order to comply with the requirement of
“fairly and adequately protect[ing] the interest of the class” contained in Rule 23.01(4),
the proposed class representatives “must have common interests with the unnamed class
members and it must appear that the class representatives will vigorously prosecute the
case and protect the interests of the class through qualified counsel.’” See Rogers, 617
S.W.3d at 567 (emphasis added); see also In re Am. Med. Sys., Inc., 75 F.3d at 1083.
Inasmuch as Defendants have not questioned class counsel’s qualifications, and we agree
with the trial court’s determination that class counsel are “highly qualified” to conduct
this litigation, we find Defendants’ argument to be unavailing.

                         VI. Predominance of Common Questions

        Defendants further advance that individual questions concerning each class
member’s knowledge will predominate over common issues in this matter, thus rendering
class certification unworkable under Rule 23.02(3). Following satisfaction of the
requirements of Tennessee Rule of Civil Procedure 23.01, “the proponent of class
certification must establish that the class action is maintainable under Rule 23.02.” See
Emergency Med. Care Facilities P.C. v. BlueCross BlueShield of Tenn. Inc., No. W2017-
02211-COA-R3-CV, 2018 WL 6266529, at *4 (Tenn. Ct. App. Nov. 29, 2018); see also
Wofford, 528 S.W.3d at 539. Rule 23.02(3) requires, for the class to be certified, that
“question[s] 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.”

       Rule 23.02(3) also provides:

       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
                                           - 27 -
      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.

As this Court has previously explained: “The determination of [predominance]
necessarily depends on whether the class members will require individualized hearings to
prove the elements for each cause of action.” Freeman v. Blue Ridge Paper Prods., Inc.,
229 S.W.3d 694, 704-05 (Tenn. Ct. App. 2007) (quoting Crouch v. Bridge Terminal
Transp., Inc., No. M2001-00789-COA-R3-CV, 2002 WL 772998, at *4 (Tenn. Ct. App.
Apr. 30, 2002)).

      This Court has further elucidated with regard to predominance and Rule 23.02(3):

             The predominance requirement means simply that common issues
      should predominate over, and be unencumbered by, any individual claims
      or issues involved in the action. Common questions of fact and law
      predominate if they have “a direct impact on every class member’s effort to
      establish liability and on every class member’s entitlement to . . . relief.”
      Klay v. Humana, 382 F.3d 1241, 1255 (11th Cir. 2004), quoting Ingram v.
      Coca-Cola Co., 200 F.R.D. 685, 699 (N.D. Ga. 2001). An issue of law or
      fact should be considered common “only to the extent its resolution will
      advance the litigation of the case.” Philip Morris Inc. v. Angeletti, 752
      A.2d [200,] 226 [(Md. Ct. App. 2000)], relying on Insolia v. Philip Morris
      Inc., 186 F.R.D. 535, 542 (W.D. Wis. 1998). The predominance inquiry,
      therefore, must include consideration of each element of the cause of action
      asserted and the facts necessary to prove each.

             A claim will satisfy the predominance requirement only “when there
      exists generalized evidence which proves or disproves an element on a
      simultaneous, class-wide basis, since such proof obviates the need to
      examine each class member’s individual position.” Parkhill v. Minnesota
      Mut. Life Ins. Co., 188 F.R.D. 332, 338 (D. Minn. 1999). Consequently,
      courts should not certify common question classes if most or all of the class
      members’ claims depend on the resolution of individual questions of fact.
      With regard to questions of fact, an issue is common to the class when it is
      susceptible to generalized, classwide proof.

      ***

             In order to determine whether common questions predominate, a
      court must examine the cause of action asserted on behalf of the proposed
      class. After identifying the relevant legal and factual questions, the
                                       - 28 -
      predominance inquiry requires a determination that common issues of law
      or fact exist and, then, a determination that such common issues
      predominate. That inquiry must focus on the relationship between common
      and individual issues.

Gov’t Emps. Ins. Co. v. Bloodworth, No. M2003-02986-COA-R10-CV, 2007 WL
1966022, at *14-15, 17 (Tenn. Ct. App. June 29, 2007) (other internal citations omitted).

       In this matter, the underlying claims require demonstration that “an omitted
material fact was required to be included [in the offering documents] by the securities
laws or that its absence rendered statements in the prospectus misleading.” In re Adams
Golf, Inc. Sec. Litig., 381 F.3d at 277. As the trial court correctly noted in its order:

      Under those strict liability statutes [sections 11, 12, and 15 of the Securities
      Act], “[i]f a plaintiff purchased a security issued pursuant to a registration
      statement, he need only show a material misstatement or omission to
      establish [a] prima facie case. Liability against the issuer of a security is
      virtually absolute, even for innocent misstatements.” Herman & MacLean
      v. Huddleston, 459 U.S. 375, 382 (1983). “[P]laintiffs bringing claims
      under sections 11 and 12(a)(2) need not allege scienter, reliance, or loss
      causation.” In re Deutsche Bank AG Sec. Litig., 328 F.R.D. 71, 80
      (S.D.N.Y. 2018).

             “[S]uits alleging violations of the securities laws, particularly those
      brought pursuant to Sections 11 and 12(a)(2), are especially [amenable] to
      class action resolution.” Cosby, 2020 WL 3548379, at *5 (citation
      omitted). Here, the focus centers on Defendants’ common course of
      alleged misconduct, because the claims depend mostly on establishing that
      certain statements and omissions common to all the offerings were material
      misrepresentations. While Defendants argue that differences in investor
      knowledge create insurmountable individual issues, given the many
      common issues Securities Act claims raise, even if investors have different
      levels of knowledge concerning the undisclosed information, “it does not
      follow that these individual [knowledge] issues would be sufficient to
      overcome the predominance of the common issues.” Public Emp. Ret. Sys.
      of Miss. v. Merrill Lynch & Co., Inc., 277 F.R.D. 97, 117 (S.D.N.Y. 2011).

             The level of investors’ knowledge required at class certification is
      their “actual knowledge about the [undisclosed] condition.” Katz v. China
      Century Dragon Media, Inc., 287 F.R.D. 575, 586 (C.D. Cal. 2012). Given
      the difficulty of proving actual knowledge, courts have frequently held that
      this showing cannot be made absent evidence of “investors who are alleged

                                           - 29 -
      to have participated in the fraud in question.” In re Facebook, Inc., IPO
      Secs. & Derivative Litig., 312 F.R.D. 332, 349 (S.D.N.Y. 2015).

              Secondly, the required scope of actual knowledge at class
      certification is “widespread knowledge among members of the investing
      community about [the undisclosed] scheme perpetuated by defendants.” In
      re SunEdison, Inc. Secs. Litig., 329 F.R.D. 124, 141 (S.D.N.Y. 2019).
      Where knowledge is not widespread among investors, individual questions
      of investor knowledge cannot “permeate the litigation.” Id. at 142. If
      widespread actual knowledge is based on public information, then it creates
      common, class-wide issues and does not defeat predominance in any event.
      See Gaynor v. Miller, No. 3:15-CV-545-TAV-DCP, No. 3:15-CV-546-
      TAV-DCP, No. 3:16-CV-232-TAV-DCP, 2018 WL 3751606, at *15 (E.D.
      Tenn. Aug. 6, 2018); Facebook, 312 F.R.D. at 348.

             The crux of Plaintiffs’ claim is that the Offering Documents
      contained misstatements and/or omissions of material fact. This issue will
      predomina[te] over any secondary issues. Moreover, proof of Defendants’
      alleged misrepresentations and/or omissions are susceptible to generalized
      proof. See Cosby, 2020 WL 3548370, at *33-34. “[T]he fact that damages
      may have to be ascertained on an individual basis is not sufficient to
      defeat” predominance or class certification. Kaplan v. S.A.C. Capital
      Advisors, L.P., 311 F.R.D. 373, 382 (S.D.N.Y. 2015); see also Gaynor,
      2018 WL 3751606, at *18 (“Because the statutory formula applies, the
      individual damages questions are sufficiently reduced that predominance of
      the common questions, answers, and fact remains.”). The common
      questions of law and fact here predominate over any questions affecting
      only individual members. The predominance requirement is satisfied here.
      See Gaynor, 2018 WL 3751606, at *14.

       Based upon our thorough review of the circumstances presented in this matter in
light of applicable case law, we agree with the trial court’s determination concerning
predominance and Rule 23.02(3). We reiterate that a prima facie claim pursuant to
section 11 requires allegations that an investor had purchased a security “issued pursuant
to a registration statement” that contained a “material misstatement or omission.” See
Herman & MacLean, 459 U.S. at 382. The federal courts have established that
“materiality is judged according to an objective standard” such that materiality questions
are considered “common to all members of the class.” See In re Facebook Inc., IPO
Secs. & Derivative Litig., 312 F.R.D. 332, 349 (S.D.N.Y. 2015); see also Katz v. China
Century Dragon Media, Inc., 287 F.R.D. 575, 587 (C.D. Cal. 2012) (“[T]esting the
materiality of the alleged misrepresentations does not turn on an individualized
analysis.”).

                                          - 30 -
        Defendants assert that the presence of certain information available in the public
domain, either at the time of the initial public offering or in the ensuing weeks, was
sufficient to demonstrate that some investors might have had knowledge of the
misrepresentations in the offering documents, which is relevant because a claim under
section 11 is barred when the purchaser “knew of [an] untruth or omission” at the time of
acquisition. See 15 U.S.C. § 77k(a); Katz, 287 F.R.D. at 586. Defendants’ postulate,
therefore, is predicated not on allegations of actual knowledge, but rather on allegations
that investors were put on “inquiry notice” of the probability of a material
misrepresentation. See, e.g., Tsereteli v. Residential Asset Securitization Tr. 2006-A8,
283 F.R.D. 199, 214 (S.D.N.Y. 2012) (“[I]nquiry notice begins when the totality of the
‘circumstances would suggest to an investor of ordinary intelligence the probability that
she has been defrauded.’”) (quoting Staehr v. The Hartford Fin. Servs. Grp., Inc., 547
F.3d 406, 411, 427 (2d Cir. 2008)); see also Katz, 287 F.R.D. at 586. However,
Defendants have failed to show that such arguments of investor public “knowledge”
cannot be handled on a class-wide basis.

        As the New York federal district court explained in Tsereteli:

        [A]ny defense of inquiry notice that [the defendant] might wish to assert
        “can be achieved through generalized proof.” [The defendant] cannot have
        it both ways. Either the news reports, ratings downgrades, trustee reports,
        and other indicators they rely on would have to be sufficient to put any
        reasonable investor on notice, or they would not. Thus, this defense almost
        inevitably will be susceptible to generalized proof and cannot defeat
        predominance.

283 F.R.D. at 214 (footnote omitted). See also Gaynor v. Miller, No. 3:15-CV-545-
TAV-DCP, 2018 WL 3751606, at *15 (E.D. Tenn. Aug. 6, 2018) (citing In re IndyMac
Mortgage-Backed Sec. Litig., 286 F.R.D. 226, 239 (S.D.N.Y. 2012) (explaining that even
if news reports provided some knowledge to investors, such information was “subject to
generalized proof”)). Similarly, here, claims of information in the public domain would
be subject to generalized proof common to the entire class. We accordingly agree with
the trial court’s conclusion that questions common to the class would predominate over
individual issues, such that this action is maintainable as a class action pursuant to Rule
23.02(3).6

6
  We note that Defendants did not take issue with the trial court’s determination that “a class action is
superior to other available methods for the fair and efficient adjudication of the controversy.” See Tenn.
R. Civ. P. 23.02(3).
                                                 - 31 -
                                     VII. Class Definition

       Finally, Defendants contend that the class definition adopted by the trial court is
overbroad in that it contains no time limitations. The trial court adopted the following
class definition: “all persons who purchased or acquired common stock pursuant or
traceable to the Registration Statement and Prospectus issued in connection with
SmileDirect’s September 12, 2019 initial public offering.” Defendants posit that in-and-
out traders who sold their shares before September 24, 2019, or acquired them after
November 12, 2019, should be excluded from the class due to Plaintiffs’ allegations that
any misrepresentations and omissions were revealed through disclosure events occurring
between the two dates. As such, Defendants claim that investors who sold their shares
before or purchased them after this time period would have incurred no damages.

        In its order, the trial court noted that the Securities Act is a “strict liability statute”
that “sets forth a common statutory damages formula which presumes that losses at the
time a security is ‘sold’ result from the defendants’ misstatements, irrespective of when
that sale occurs,” citing 15 U.S.C. § 77k(e); 15 U.S.C. § 77l(b); and In re Dynegy, Inc.
Sec. Litig., 226 F.R.D. 263, 283 (S.D. Tex. 2005). The court further stated that the
Securities Act “does not reference corrective disclosures or limit losses to sales that occur
after them.” Moreover, as Plaintiffs point out, a federal district court in Tennessee has
explained that “there is no requirement in the Securities Act that a purchaser sell a
security to allege a Section 11 claim.” Gaynor, 2018 WL 3751606, at *19.

        Defendants’ arguments concerning the class definition herein are akin to
arguments raised in In re Twitter Inc. Sec. Litig., 326 F.R.D. 619, 625 (N.D. Cal. 2018),
wherein the defendants claimed that in-and-out traders who purchased and sold their
shares prior to certain alleged corrective disclosures should be excluded from the class.
In addressing this issue, the California federal district court agreed with prior federal
decisions that had held that in-and-out traders should not be excluded at the class
certification stage because they “may prove that some of the truth leaked out prior to the
corrective disclosures and caused injury at an earlier date.” Id. (citing In re Daou Sys.,
411 F.3d 1006, 1026 (9th Cir. 2005) (“[A] plaintiff may recover for interim
manifestations of later-disclosed fraud that begin to ‘leak out’ prior to the corrective
disclosure.”); In re Lendingclub Sec. Litig., 282 F. Supp. 3d 1171, 1181 (N.D. Cal. 2017).
The court further noted that because it retained the power to modify the class definition at
a later stage in the proceedings, the defendants could renew their request at a later stage
following the completion of discovery. See In re Twitter Inc. Sec. Litig., 326 F.R.D. at
625.

       Similarly, here, Plaintiffs assert that Defendants are “prematurely and improperly
rais[ing] merits issues at the class certification stage.” We agree. Defendants question
whether certain class members will be able to prove that they actually incurred damages
if they sold their SDC shares before or purchased them after various corrective
                                             - 32 -
disclosures were made. The answer to this question will depend on the proof developed
in discovery regarding those class members’ claims.

       As our Supreme Court has explained, “it is properly the trial court’s prerogative to
make the initial determination of and any subsequent modifications to class certification.
The trial court retains significant authority to redefine, modify, or clarify the class.”
Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d 632, 637 (Tenn. 1996). We
determine that any questions concerning temporal limitations on the class are better
addressed to the trial court following discovery.

                                    VIII. Conclusion

       For the foregoing reasons, we affirm the trial court’s certification of the proposed
class. Based on lack of standing, however, we dismiss Plaintiffs’ claims under section 12
of the Securities Act of 1933, codified at 15 U.S.C. § 77l. We remand this matter to the
trial court for further proceedings consistent with this opinion. Costs on appeal are
assessed to the defendants, SmileDirectClub, Inc.; David Katzman; Kyle Wailes; Steven
Katzman; Jordan Katzman; Alexander Fenkell; Susan Greenspon Rammelt; Richard
Schnall; Camelot Venture Group; J.P. Morgan Securities LLC; Citigroup Global Markets
Inc.; BofA Securities, Inc.; Jefferies LLC; UBS Securities LLC; Credit Suisse Securities
(USA) LLC; Guggenheim Securities, LLC; Stifel, Nicolaus & Company, Incorporated;
William Blair & Company, LLC; and Loop Capital Markets LLC.

                                                   s/ Thomas R. Frierson, II_____________
                                                   THOMAS R. FRIERSON, II, JUDGE

                                          - 33 -