In re Constar International Securities Litigation

• Decision Date: 29 October 2009
• Docket Number: No. 08-2461.,08-2461.
• Citation: 585 F.3d 774
• Parties: In re CONSTAR INTERNATIONAL INC. SECURITIES LITIGATION. Constar International Inc; Charles F. Casey; William G. Little; Michael J. Hoffman; James C. Cook; Alan W. Rutherford; John W. Conway; Angus F. Smith; Frank J. Mechura; Lazard Freres & Co., LLC.; Citigroup; J.P. Morgan Securities, Inc.; Deutsche Bank Securities, Inc.; Salomon Smith Barney, Inc.; Crown Holdings, Inc., Appellants.
• Court: U.S. Court of Appeals — Third Circuit

585 F.3d 774

In re CONSTAR INTERNATIONAL INC. SECURITIES LITIGATION.

Constar International Inc; Charles F. Casey; William G. Little; Michael J. Hoffman; James C. Cook; Alan W. Rutherford; John W. Conway; Angus F. Smith; Frank J. Mechura; Lazard Freres & Co., LLC.; Citigroup; J.P. Morgan Securities, Inc.; Deutsche Bank Securities, Inc.; Salomon Smith Barney, Inc.; Crown Holdings, Inc., Appellants.

No. 08-2461.

United States Court of Appeals, Third Circuit.

Argued July 13, 2009.

Filed: October 29, 2009.

Steven B. Feirson, Esq. [Argued], David W. Brown, Esq., Michael L. Kichline, Esq., Stuart T. Steinberg, Esq., Dechert, Jill M. Baisinger, Esq., Marc J. Sonnenfeld, Esq., Morgan, Lewis & Bockius, Philadelphia, PA, for Defendants-Appellants, Constar International Inc; Charles F. Casey; William G. Little; Michael J. Hoffman; James C. Cook; Alan W. Rutherford; John W. Conway; Angus F. Smith; Frank J. Mechura; Lazard Freres & Co., LLC.; Citigroup; J.P. Morgan Securities, Inc.; Deutsche Bank Securities, Inc. Salomon Smith Barney, Inc.; Crown Holdings, Inc.

Eric A. Isaacson, Esq. [Argued], Joseph D. Daley, Esq., Coughlin, Stoia, Geller, Rudman & Robbins, San Diego, CA, Laura S. Stein, Esq., Philadelphia, PA, for Plaintiffs-Appellees, Ameesh Bhandari; Randolph Redstone.

Before: RENDELL, FUENTES, and ROTH, Circuit Judges.

OPINION OF THE COURT

RENDELL, Circuit Judge.

In this securities class action, defendants Constar International, Crown Holdings, Salomon Smith Barney, Citigroup Global Markets, Citigroup, Deutsche Bank Securities, J.P. Morgan Securities, and Lazard Freres & Co. appeal the District Court's Order granting class certification. Defendants argue that the District Court erred by adopting a liberal construction of Rule 23 in favor of class certification, by not conducting a rigorous analysis of the Rule 23 requirements for class certification—especially as to the predominance inquiry—and by failing to consider the opinion of defendants' expert. We disagree, and conclude that the District Court properly granted class certification.

Constar manufactures PET (polyethylene terephthalate) plastic food and beverage containers. Its initial public offering ("IPO") occurred on November 14, 2002, when its parent company and co-defendant, Crown Holdings, sold 10.5 million shares to the public at an offering price of $12.00 per share. Plaintiffs,¹ who purchased registered shares from that offering, claim that this price was inflated because Constar's registration statement contained materially false and misleading statements, and because it omitted required information. Plaintiffs seek relief against Constar under § 11 of the Securities Act of 1933, 15 U.S.C. § 77k, which "provides a private right of action to individuals who have suffered harm from misstatements in an issuer's registration statement." In re Merck & Co. Sec. Litig., 432 F.3d 261, 273 (3d Cir.2005). They also seek judgment against Constar's underwriters and controlling entities (the remaining defendants named above) under § 15 of the Securities Act, 15 U.S.C. § 77o.

According to plaintiffs, the registration statement misrepresented Constar as a competitive business with a strong future when, in fact, its business was deteriorating and weak. Specifically, they allege that Constar materially misrepresented the company's goodwill, assets, operational strength and capacity, equipment quality, and customer base. Plaintiffs also allege that Constar's parent, Crown Holdings, had transferred a substantial part of Crown's debt to Constar as part of Constar's IPO.

Plaintiffs allege that these misrepresentations became apparent to the market in the summer of 2003. On July 29, 2003, Constar acknowledged in a press release that its second-quarter results were disappointing, and in a conference call the next day attributed these results to the loss of important customers and the absence of an expected technological superiority compared to its competitors. Plaintiffs allege that these disclosures caused Constar's stock to drop thirty percent, from $9.17 per share on July 28, 2003, to $6.00 per share on July 30, 2003. On August 14, 2003, Constar issued a press release reflecting the impairment of its financial goodwill "[d]ue to the trading price of the Company's common stock and other factors." (Joint App. 128.) According to plaintiffs, this was a belated disclosure because the market had already absorbed the information regarding the goodwill impairment and other business problems. However, defendants maintain that the truth about the alleged goodwill misrepresentations did not become apparent to the market until the August 14 press release. Moreover, they claim that the losses after the July disclosures were predicated on lower sales and higher inventory costs due to unseasonable weather conditions, not the factors identified by plaintiffs.

Plaintiffs filed suit on September 5, 2003, by which time Constar's stock was trading at $5.20 per share. The District Court referred plaintiffs' motion for class certification to retired Magistrate Judge Diane Welsh and appointed her as Special Master. The Special Master recommended class certification, and the District Court adopted the Special Master's reasoning and approved her Report. The court certified the class, concluding that "plaintiffs established the elements required by Rules 23(a) and 23(b)(3)." (Joint App. 31.) Defendants filed a timely appeal.

We granted defendants' petition for an interlocutory appeal under Fed.R.Civ.P. 23(f). The District Court had jurisdiction under 28 U.S.C. §§ 1331 and 1337. We have jurisdiction under 28 U.S.C. § 1292(e) and Fed.R.Civ.P. 23(f).

Our review of a district court's grant of class certification is for "abuse of discretion, which occurs if the district court's decision rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact." In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 312 (3d Cir.2008) (internal quotation marks omitted). We review de novo whether an incorrect legal standard has been used. Id. Since "each requirement of Rule 23 must be met, a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the requirements." Id. at 320. Any matter relevant to Rule 23's prerequisites for class certification, including an expert's opinion, requires a "rigorous analysis," in which a court must "`assess all of the relevant evidence admitted at the class certification stage.'" Id. at 323 (quoting In re Initial Pub. Offering Sec. Litig., 471 F.3d 24, 42 (2d Cir.2006)). The mandates "set out in Rule 23 are not mere pleading rules." Id. at 316. Unless each requirement is actually met, a class cannot be certified. Id. at 320.

Rule 23 contains two sets of requirements. First, a party seeking class certification must demonstrate that the class satisfies the requirements of Rule 23(a):

(1) the class is so numerous that joinder of all members is impracticable [numerosity]; (2) there are questions of law or fact common to the class [commonality]; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class [typicality]; and (4) the representative parties will fairly and adequately protect the interests of the class [adequacy].

Fed.R.Civ.P. 23(a). Second, plaintiffs must show that the requirements of one of the provisions of Rule 23(b) are met. Plaintiffs here sought certification under Rule 23(b)(3), which requires a finding by the District Court "that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3). These requirements are known as predominance and superiority.

Although we afford a district court "broad discretion" in Rule 23 matters, we require that each Rule 23 component be satisfied. Hydrogen Peroxide, 552 F.3d at 310 (citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 630, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) (Breyer, J., concurring in part and dissenting in part) (stating that Rule 23 decisions implicate "highly fact-based, complex, and difficult matters")). Class certification is an especially serious decision, as it "is often the defining moment in class actions (for it may sound the `death knell' of the litigation on the part of plaintiffs, or create unwarranted pressure to settle nonmeritorious claims on the part of defendants)." Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 162 (3d Cir.2001).

The standards by which this Court evaluates class certification motions are well established. In Hydrogen Peroxide, we instructed district courts, where appropriate, to "`delve beyond the pleadings to determine whether the requirements for class certification are satisfied.'" 552 F.3d at 316 (quoting Newton, 259 F.3d at 167). "An overlap between a class certification requirement and the merits of a claim is no reason to decline to resolve relevant disputes when necessary to determine whether a class certification requirement is met." Id. The predominance inquiry is especially dependent upon the merits of a plaintiff's claim, since "the `nature of the evidence that will suffice to resolve a question determines whether the question is common or individual.'" Id. at 310-11 (quoting Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir.2005)). "`If proof of the essential elements of the cause of action requires individual treatment,'" then predominance is defeated and a class should not be certified. Id. (quoting Newton, 259 F.3d at 172).

Defendants argue that the District Court made several errors in certifying the class. First, they claim that the District Court improperly applied a "liberal construction" of Rule 23's requirements for class certification, and failed to...