In re Smart Techs., Inc. S'holder Litig.
| Decision Date | 11 January 2013 |
| Docket Number | 11 Civ. 7673 (KBF) |
| Parties | IN RE SMART TECHNOLOGIES, INC. SHAREHOLDER LITIGATION |
| Court | U.S. District Court — Southern District of New York |
Before the Court is Lead Plaintiff City of Miami General Employees' and Sanitation Employees' Retirement Trust's ("plaintiff") motion for class certification pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure.1 Plaintiff seeks certification of the following class: "All persons or entities who purchased or otherwise acquired SMART common stock pursuant or traceable to the Offering Materials, and who were damaged thereby."2
Recognizing that putative class actions brought under the Securities Act of 1933 (the "Securities Act"), like this one, are "especially amenable" to class treatment, see In re IndyMac Mortgage-Backed Secs. Litig., --- F.R.D. ---, 2012 WL 3553083, at *2 (S.D.N.Y. Apr. 17, 2012), defendants3 do not dispute that certification of a class is proper here.4 Rather, they contest the scope of the classand argue that the Court should exclude: (1) investors who purchased after the purported November 9, 2010, "corrective disclosure"; (2) "in-and-out" traders; (3) investors who purchased their shares outside of the United States, based upon Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010); and (4) with respect to plaintiff's section 12(a)(2) claim, secondary market purchasers. In addition, defendants argue that the class cannot include purchasers who bought shares of defendant SMART Technologies, Inc. ("SMART") in the secondary market because those investors are unable to "trace" their shares to the registration statement filed by SMART in connection with its July 14, 2010, initial public offering.
For the reasons set forth below, the Court certifies the following class:
The Court set forth the facts underlying this action in its prior decisions on defendants' motions to dismiss the Amended and Second Amended Complaints, respectively. See McKenna v. SMART Techs., Inc., No. 11 Civ. 7673, 2012 WL 113195, at *2-6 (S.D.N.Y. Apr. 3, 2012) ("McKenna I"); McKenna v. SMART Techs., Inc., No. 11 Civ. 7673, 2012 WL 3589655, at *1-2 (S.D.N.Y. Aug. 21, 2012)("McKenna II"). Familiarity with both is presumed, and the Court recounts only those facts relevant to disposition of the instant motion.
After McKenna I and McKenna II, plaintiffs' remaining Securities Act claims relate to defendants' purported misrepresentations and omissions regarding (a) demand for SMART's "core" whiteboards; and (b) demand for products related to SMART's then-recently-acquired NextWindow business.
On July 14, 2010, SMART commenced an initial public offering (the "IPO") of 38.83 million shares of its Class A Subordinate Voting stocks in both the United States and Canada.
In the United States, SMART conducted the IPO pursuant to (i) a registration statement, filed with the Securities Exchange Commissions ("SEC") on June 24, 2010, as amended on June 28, 2010, and July 12, 2010, and made effective on July 14, 2010 (the "Registration Statement"); and (ii) a prospectus dated on or about July 14, 2010, and incorporated into the Registration Statement, and filed with the SEC on July 15, 2010 (the "Prospectus" and with the Registration Statement, the "Offering Documents").
In Canada, SMART conducted the IPO pursuant to a separate prospectus filed with the relevant Canadian securities commission as required by the Ontario Securities Act (the "Canadian prospectus"). In other words, the shares sold in Canada were not sold pursuant to the Offering Documents.5
SMART registered all 38.83 million offered shares with the SEC. SMART filed with the SEC both the Prospectus and the Canadian prospectus, as part of the Registration Statement, confirming that all shares were indeed registered with the SEC--regardless of where SMART issued the shares (i.e., the U.S. or Canada).
All shares, regardless of where they were issued, share the same CUSIP.6
Subsequent to the IPO, SMART cross-listed the shares on the NASDAQ and the Toronto Stock Exchange ("TMX"). All shares were (and are) cross-tradeable: they can be sold either on the NASDAQ or the TMX.
On November 9, 2010, SMART announced its 2011 second-quarter results (the "November 9 corrective disclosure"). It disclosed that "SMART continued to generate solid revenue growth . . . driven by adoption of our core interactive and collaborative solutions," but had "seen slower than anticipated sales in our recently acquired NextWindow business" and "a more conservative growth assumption for the North American market in the second half of our fiscal year." (Corrected Second Am. Class Action Compl. ("SAC") ¶ 10, ECF No. 111; see also id. ¶¶ 71-72; Decl. of Jackie A. Lu ("Lu Decl.") Ex. B at 1, ECF No. 142.)
Plaintiff alleges that the November 9 corrective disclosure caused the price of SMART common stock to "plummet[ ]." (SAC ¶ 11; see also id. ¶ 74.)
The SAC does not plead that any other disclosure "corrected" the alleged misstatements and omissions in the Offering Documents regarding demand for SMART's core whiteboards and/or NextWindow.
Before certifying a class, a district court must conduct a "rigorous analysis" to determine whether the plaintiff has satisfied the four prerequisites of Rule 23(a)--numerosity, commonality, typicality, and adequacy, Fed. R. Civ. P. 23(a) --and the requirements of at least one prong of Rule 23(b). See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011); Teamsters Local 445 Freight Division Pension Fund v. Bombardier, Inc., 546 F.3d 196, 202 (2d Cir. 2008); In re Initial Pub. Offerings Sec. Litig., 471 F.2d 24, 41 (2d Cir. 2006) ("In re IPO"). The plaintiff must prove the Rule 23 prerequisites by a preponderance of the evidence. Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir. 2010).
Class certification is appropriate after the district court "resolves factual disputes relevant to each Rule 23 requirement and finds that whatever underlying facts are relevant to a particular Rule 23 requirement have been established and is persuaded to rule, based on the relevant facts and the applicable legal standard, that the requirement is met." Teamsters Local 445, 546 F.3d at 202 (quoting In re IPO, 471 F.2d at 41); see also Wal-Mart Stores, Inc., 131 S. Ct. at 2551-52 . However, class certification should not "become a pretext for a partial trial of the merits." Teamsters Local 445, 546 F.3d at 204 (quotation marks omitted); see also In re IPO, 471 F.3d at 41 ().
Fed. R. Civ. P. 23(a). The commonality, typicality, and adequacy requirements are "closely related." In re IndyMac, 2012 WL 3553083, at *3. Indeed, the "commonality and typicality requirements of Rule 23(a) tend to merge." Wal-Mart Stores, Inc., 131 S. Ct. at 2551 n.5.
In addition, in order to certify a Rule 23(b)(3) class--as plaintiff seeks to do here--the court must determine that "questions of law or fact common to the class predominate over any questions affecting only individual members," and that a class action is the superior method of resolving the question of liability. Fed. R. Civ. P. 23(b)(3). Although Rule 23(b)(3)'s "predominance" requirement is more exacting that Rule 23(a)'s "commonality" prerequisite, the "court's [Rule 23(b)(3)] inquiry is directed primarily toward whether the issue of liability is common to members of the class." In re IndyMac, 2012 WL 3553083, at *5 (quotation marks omitted).
Defendants do not contest that plaintiff has established numerosity, commonality, or adequacy under Rule 23(a). And although defendants concede that certification of a class is appropriate, they contest certification of the class proposed by plaintiff. Defendants seek exclusion from the class of certain categories of investors on the basis that inclusion of those purchasers either will render plaintiff atypical, see Fed. R. Civ. P. 23(a)(3), or will cause individualized issues to predominate over common ones, see Fed. R. Civ. P. 23(b)(3).
After conducting the required "rigorous analysis," the Court finds that plaintiff has satisfied its burden as to numerosity, commonality, and adequacy (including adequacy of class counsel). However, as discussed below, the Court finds that certain putative class members must be excluded in order for the class certified to meet all of Rule 23(a)'s and Rule 23(b)(3)'s requirements.
As a threshold matter, two categories of investors--non-U.S. purchasers and aftermarket purchasers with respect to the section 12(a)(2) claim--must be excluded from the class because they...
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