Merger Related Class Action, Class Certified

The court in In re Cooper Companies Inc. Securities Litigation, 2009 WL 32568, 13 (C.D.Cal., Jan. 5, 2009) granted Plaintiffs' Motion for Class Certification according to Rules 23(a) and 23(b)(3).

In re Cooper addressed certification of a class alleging false statements regarding the company's overall business condition and the proper time for a court to address the common reliance element of fraud-on-the-market.

Federal Rule of Civil Procedure 23 sets forth two sets to maintain a class action. First, the proposed class must satisfy the four requirements of Rule 23(a): (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 interests of the class. FED.R.CIV.P. 23(a).

Second, the party seeking certification must show that the action falls within one of the three subsections of Rule 23(b). In this case, Plaintiffs sought certification pursuant to 23(b)(3), which allows certification where “the court finds that questions 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.” FED.R.CIV.P. 23(b)(3).

The original Complaint alleged that defendants issued a series of false statements regarding Cooper’s business condition. Defendants failed to disclose that: (i) Cooper improperly accounted for assets acquired in the Ocular merger, which had the effect of lowering amortization expense; (ii) Cooper’s aggressive earnings guidance reflected the improper accounting for intangible assets and was inflated by the amount of the understated amortization expense; (iii) the merger results touted by defendants were unrealistic; (iv) Ocular channel stuffed its Biomedics products; (v) Cooper’s lack of a competitive product would prevent it from meeting its aggressive growth targets for 2005 and (vi) Cooper and Ocular in fact competed in the two-week lens market.

Analyzing the elements of 23(a), the Court reasoned that: (1) the class’ numerosity was readily apparent given there were thousands of possible members; (2) the major questions in the case-did Cooper misrepresent the condition of the company, and did Defendants know that their statements about the condition of the company were false and misleading-were common to the class members; (3) the class representatives, funds that manage their assets to provide for their workers’ retirements, suffered the same, or greater, losses as the other members of the class and received the same information that other shareholders received; and (4) since the interests of the class representatives were aligned with the rest of the class, and since the class representatives likely had the means and incentives to effectively prosecute the suit, there was little doubt that the class representatives w fairly and adequately represent the interests of the proposed class.

For the second part of the class certification test, 23(b), Defendants attacked the predominance of common reliance. The Cooper Plaintiffs plead the fraud-on-the-market theory by alleging that the Defendants made false overly optimistic financial forecasts and appraisals in analyst calls. These are the types of statements that reasonable investors rely upon when making an investment. It is this common reliance that Defendants argued did not predominate throughout the class.

For example, Defendants argued that officers of Ocular made disclosures and statements prior to the merger that nullified alleged misrepresentations made on a later date by Cooper officials in the merger announcement. The Court dismissed this argument stating: “whether subsequent statements cure any prior omissions or misrepresentations is a question of fact which cannot be appropriately resolved on” a motion for class certification. Unioil, 107 F.R.D. at 621. See also Basic, 408 U.S. at 249 n. 29. FN7

Defendants also argued that certain kinds of investors-short sellers, in-and-out traders, and index holders-are not entitled to the fraud-on-the-market presumption because they cannot show loss causation. Similarly, this argument is misplaced - short sellers may be included in a class at the certification stage. See In re Magma Design Automation Sec. Litig., No. C 05-2394 CRB (N.D.Cal.2007). If Defendants could show that certain proposed class members’ losses were not caused by misstatements, then they should do so at summary judgment or trial. See In re Micron Technologies Inc. Sec. Litig., 247 F . R.D. 627, 634 (D.Idaho)

Finally, Defendants argued that the Ocular shareholders who acquired their Cooper shares in the two companies’ merger should be precluded from membership in the class, or that the Court should deny class certification based upon these individuals’ inclusion. According to Defendants, those individuals allegedly released their claims against Cooper and its officers related to violation of federal securities laws. The question of that settlement’s impact was, again, not one to be determined on a motion for class certification, but on summary judgment or at trial.

Accordingly, the Court ordered certification of the proposed class pursuant to Rule 23(b)(3).
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