In re Scor Holding (Switzerland) Ag Litigation, Master File No. 04 Civ. 7897(DLC).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtDenise Cote
Citation537 F.Supp.2d 556
PartiesIn re SCOR HOLDING (SWITZERLAND) AG LITIGATION. This Document Relates to: All Actions.
Docket NumberMaster File No. 04 Civ. 7897(DLC).
Decision Date06 March 2008
537 F.Supp.2d 556
In re SCOR HOLDING (SWITZERLAND) AG LITIGATION. This Document Relates to: All Actions.
Master File No. 04 Civ. 7897(DLC).
United States District Court, S.D. New York.
March 6, 2008.

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COPYRIGHT MATERIAL OMITTED

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John P. Coffey, Steven B. Singer, Beata Gocyk-Farber, Avi Josefson, Bernstein Litowitz Berger & Grossmann LLP, New York, NY, Robert M. Roseman, Andrew D. Abramowitz, Daniel Mirarchi, Rachel E. Kopp, Spector Roseman & Kodroff, P.C., Philadelphia, PA, Mark S. Willis, Avi Garbow, Elizabeth S. Finberg, Matthew K. Handley, Cohen Milstein Hausfield & Toll, P.L.L.C., Washington, D.C., for Plaintiffs.

Stephen W. Greiner, Richard Mancino, Jeanne M. Luboja, Mary Eaton, Willkie Farr & Gallagher LLP, New York, NY, for Defendants SCOR Holding (Switzerland) AG (f/k/a Converium Holding AG), Dirk Lohmann and Martin Kauer.

Thorn Rosenthal, Cahill Gordon & Reindell LLP, New York, NY, for Defendant Richard Smith.

OPINION AND ORDER

DENISE COTE, District Judge.


This Opinion partially grants a motion to certify a class in an action brought under the federal securities laws. It denies the motion to the extent it seeks to include foreign investors who purchased shares on a foreign exchange and to begin the class period during the "quiet period" that followed the initial public offering of the stock at issue.

Lead Plaintiffs in this putative securities class action, Public Employees' Retirement System of Mississippi ("PERSM") and Avalon Holdings, Inc. ("Avalon"), asserted claims under the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act") against Converium Holding AG ("Converium") (now known as SCOR Holding (Switzerland) AG, or "SCOR"), certain of its officers and directors, its former parent company, Zurich Financial Services ("ZFS"), as well as Securities Act claims against the lead underwriters of Converium's initial public offering in December of 2001 (the "IPO"). These defendants filed motions to dismiss, and in an Opinion dated December 28, 2006, all claims against ZFS, the underwriters, and the former Converium directors were dismissed. In re Converium Holding AG Sec. Litig., No. 04 Civ. 7897(DLC), 2006 WL 3804619 (S.D.N.Y. Dec.28, 2006) (the "December 2006 Opinion"). The December 2006 Opinion also dismissed the Exchange Act claims against Converium and its former officers (Drik Lohmann, Martin Kauer, and Richard Smith, collectively, the "Officer Defendants," and together with Converium/SCOR, the "Defendants") that were based on alleged misrepresentations made in connection with the Converium IPO. Following a motion for reconsideration filed by the Lead Plaintiffs, however, see In re Converium Holding AG Sec.

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Litig., No. 04 Civ. 7897(DLC), 2007 WL 1041480 (S.D.N.Y. Apr.9, 2007) (granting the motion in part), an Opinion dated September 14, 2007, denied the motions to dismiss those claims to the extent that they were brought on behalf of those who purchased in the "aftermarket" following the IPO, rather than directly in the IPO itself. In re Converium Holding AG Sec. Litig., No. 04 Civ. 7897(DLC), 2007 WL 2684069, at *2-4 (Sept. 14, 2007). Lead Plaintiffs now move for class certification. For the reasons stated below, that motion is granted in part.

BACKGROUND

The relevant facts were reviewed in detail in the December 2006 Opinion, but they can be briefly summarized here. Prior to the IPO, Converium was a wholly owned subsidiary of ZFS. Converium (now. known as SCOR) was a multinational reinsurer organized under the laws of Switzerland, with offices in, inter alia, Switzerland, New York, and Germany. This action was filed following the collapse of Converium's largest business unit, Converium North America, in September 2004. Lead Plaintiffs allege, in brief, that between the time leading up to the Converium IPO in. late 2001 and some time between July and September 2004, the Defendants grossly misrepresented the sufficiency of Converium North America's loss reserves, primarily for policies written by ZFS in North America between 1996 and 2000. Lead Plaintiffs allege that the Defendants, in various press releases, SEC filings, and analyst conference calls concealed the fact that those reserves were hundreds of millions of dollars less than they needed to be to cover Converiurn's exposure to claims made by ceding insurers.1 Because loss reserves are booked as liabilities on a reinsurer's balance sheet, as a result of these alleged misrepresentations Converium North America's — and thus Converium's — financial position was presented to the public as being far stronger than it actually was during the relevant period. The sole remaining claims in this action are claims against the Defendants under Sections 10(b) and 20(a) of the Exchange Act based upon these alleged misrepresentations.

DISCUSSION

Pursuant to Rules 23(a) and 23(b)(3), Fed.R.Civ.P., Lead Plaintiffs request certification of a class encompassing all those who purchased Converium stock between December 11, 2001, the date of the Converium IPO, and September 2, 2004, either on the SWX Swiss Exchange ("SWX") or in the form of American Depository Shares ("ADSs") on the New York Stock Exchange ("NYSE").2 In opposition, Defendants argue (1) that this Court lacks subject matter jurisdiction over the claims of foreigners who purchased Converium shares on the SWX; (2) that the class cannot include any person who purchased Converium stock before January 7, 2002, because the market for Converium shares

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was not efficient before that time; (3) that the class cannot include any person who purchased Converium stock after November 19, 2002 or, in any event, July 20, 2004, because the public was on notice of Converium North America's loss reserve problems as of those dates; and (4) that the class action mechanism is not a superior method for resolving the claims of foreign purchasers in light of the potential difficulties presented both by giving notice of the class action to those purchasers and by any attempt to enforce a judgment reached in an opt-out class action in the countries in which those shareholders reside.

Each of these arguments will be addresses as necessary below. Notably, however, Defendants do not offer argument in opposition to Lead Plaintiffs' motion insofar as the motion seeks certification of a class comprising United States residents who purchased Converium shares on the SWX, or any person who purchased Converium ADSs on the NYSE, between January 7 and November 19, 2002.

I. Subject Matter Jurisdiction Over Foreign Purchasers on the SWX

Defendants' initial contention is that this Court does not have subject matter jurisdiction over the claims of foreign persons who purchased Converium shares on the SWX.3 (For case of reference, such potential class members will be referred to as "Foreign Plaintiffs.") Lead Plaintiff Avalon, an institutional investor incorporated in Nevis and based in Athens, Greece, is a member of this category of plaintiffs. For the reasons stated below, the Lead Plaintiffs have failed to meet their burden of demonstrating that this Court possesses subject matter jurisdiction over the claims of the Foreign Plaintiffs, and therefore the Foreign Plaintiffs will not be included in the class certified by this Opinion, and their claims will be dismissed. As a consequence, the sole Lead Plaintiff will be PERSM.

A plaintiff bears the burden of proving by a preponderance of the evidence that subject matter jurisdiction exists. McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936); Aurecchione v. Schoolman Transp. Sys., Inc., 426 F.3d 635, 638 (2d Cir.2005). Jurisdictional allegations must be shown affirmatively, and may not be inferred favorably to the party asserting jurisdiction. APWU v. Potter, 343 F.3d 619, 623 (2d Cir.2003). In resolving factual, challenges to subject matter jurisdiction, a court may consider evidence outside of the pleadings. United States v. Space Hunters, Inc., 429 F.3d 416, 425-26 (2d Cir.2005).

Federal district courts are courts of limited jurisdiction. They have been granted jurisdiction over, inter alia, civil actions that arise under the laws and Constitution of the United States, that is, jurisdiction over federal-question cases. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 560, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005). The existence of federal jurisdiction is assessed "claim by claim," and plaintiff by plaintiff. Id. at 554, 125 S.Ct. 2611. Where federal-question jurisdiction exists for a claim brought by a single plaintiff, it is not destroyed because claims brought by another plaintiff in the same action are jurisdictionally defective. Id. at 561-62, 566, 125 S.Ct. 2611. The remedy in such circumstances is to dismiss the plaintiff bringing defective claims. Id. at 561, 125 S.Ct. 2611.

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The Exchange Act extends a private civil remedy for money damages to purchasers and sellers of securities. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 80-81, 126 S.Ct. 1503; 164 L.Ed.2d 179 (2006); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-32, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). Where such an action is brought on behalf of both domestic and foreign purchasers, a separate evaluation of the existence of subject matter jurisdiction for each plaintiff — or, in a class action, each category of plaintiffs — must be made. Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 974, 993 (2d Cir.1975). Where the claims of the foreign purchasers are jurisdictionally defective, they are dismissed from the case. Id. at 997.

Because the federal securities laws themselves are largely silent as to their extraterritorial reach, S.E.C. v. Berger, 322 F.3d 187, 192, (2d Cir.2003), "[w]hen ... a court is confronted with transactions that on any view are predominantly foreign, it must seek to determine whether Congress would...

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  • ScripsAmerica, Inc. v. Ironridge Global LLC, CASE NO. CV 14–03962 MMM (AGRx)
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • August 11, 2015
    ...states that Turbodyne files a Form S–1, not a Form S–3, registration statement"); see also In re SCOR Holding (Switzerland) AG Litig., 537 F.Supp.2d 556, 578 (S.D.N.Y.2008) ("[T]he Lead Plaintiffs have not offered evidence that Converium had the ability to file an S–3, that there were ‘mark......
  • Asarco LLC v. Americas Mining Corp., Civil No. 1:07-CV-00018.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • August 30, 2008
    ...market. See, e.g., Bell, 422 F.3d at 313 (applying factors to stock traded on NASDAQ); In re SCOR Holding (Switzerland) AG Litig., 537 F.Supp.2d 556, 574 (S.D.N.Y.2008) (using the Cammer factors to determine efficiency of stock traded on NYSE); In re Polymedica Corp. Sec. Litig., 453 F.Supp......
  • In Re European Aeronautic Defence & Space Co. Securities Litigation., No. 08 Civ. 5389(WHP).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 26, 2010
    ...subject matter jurisdiction because the calls originated outside the United States); In re SCOR Holding (Switzerland) AG Litig., 537 F.Supp.2d 556, 565 (S.D.N.Y.2008) (finding several conference calls between European defendants and American analysts insufficient to satisfy the conduct test......
  • In re Libor-Based Financial Instruments Antitrust Litig., No. 11 MD 2262NRB.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • June 23, 2014
    ...contention that their situation is “virtually identical” to that of the plaintiffs in In re SCOR Holding (Switzerland) AG Litigation, 537 F.Supp.2d 556 (S.D.N.Y.2008), is unpersuasive. Pls.' Period 2 Opp'n at 23; see also Tr. of Oral Arg. 31:23–32:23. In SCOR Holding, the plaintiffs were fo......
  • Request a trial to view additional results
16 cases
  • ScripsAmerica, Inc. v. Ironridge Global LLC, CASE NO. CV 14–03962 MMM (AGRx)
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • August 11, 2015
    ...states that Turbodyne files a Form S–1, not a Form S–3, registration statement"); see also In re SCOR Holding (Switzerland) AG Litig., 537 F.Supp.2d 556, 578 (S.D.N.Y.2008) ("[T]he Lead Plaintiffs have not offered evidence that Converium had the ability to file an S–3, that there were ‘mark......
  • Asarco LLC v. Americas Mining Corp., Civil No. 1:07-CV-00018.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • August 30, 2008
    ...market. See, e.g., Bell, 422 F.3d at 313 (applying factors to stock traded on NASDAQ); In re SCOR Holding (Switzerland) AG Litig., 537 F.Supp.2d 556, 574 (S.D.N.Y.2008) (using the Cammer factors to determine efficiency of stock traded on NYSE); In re Polymedica Corp. Sec. Litig., 453 F.Supp......
  • In Re European Aeronautic Defence & Space Co. Securities Litigation., No. 08 Civ. 5389(WHP).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 26, 2010
    ...subject matter jurisdiction because the calls originated outside the United States); In re SCOR Holding (Switzerland) AG Litig., 537 F.Supp.2d 556, 565 (S.D.N.Y.2008) (finding several conference calls between European defendants and American analysts insufficient to satisfy the conduct test......
  • In re Libor-Based Financial Instruments Antitrust Litig., No. 11 MD 2262NRB.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • June 23, 2014
    ...contention that their situation is “virtually identical” to that of the plaintiffs in In re SCOR Holding (Switzerland) AG Litigation, 537 F.Supp.2d 556 (S.D.N.Y.2008), is unpersuasive. Pls.' Period 2 Opp'n at 23; see also Tr. of Oral Arg. 31:23–32:23. In SCOR Holding, the plaintiffs were fo......
  • Request a trial to view additional results

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