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Beth Bar and Elizabeth Goldberg/New York Law Journal The 2d U.S. Circuit Court of Appeals has vacated class certification in six key cases in the massive litigation over dot-com era initial public offerings. In re IPO Securities Litigation, No. 05-3349-cv. The decision puts in doubt whether plaintiffs will ever be able to certify a class against IPO underwriters in more than 300 cases. By making it harder to win class certification, the decision could mean that tens of thousands of investors might have to pursue their claims individually. Moreover, the ruling may also help to unravel a pending $1 billion settlement agreement reached between IPO issuers and the plaintiffs. The case, filed in 2001, alleges that 55 underwriters, 310 issuers and hundreds of individual corporate officers conspired to manipulate the market for IPOs of Internet and high-tech stocks during the 1990s. U.S. District Judge Shira Scheindlin of the Southern District of New York had consolidated thousands of suits into 310 class actions and certified six of them to test arguments about whether the entire docket should move forward. The 2d Circuit has now ruled that the actions she certified were “bristling with individual questions” and could not meet a key requirement for certification of a class. Fed. R. Civ. P. 23(a) requires that a proposed class be so numerous as to render joinder of all members impractical; that there be questions of law or fact common to the class; that the claims or defenses of the representative parties be typical of the classes’ claims or defenses; and that the representative parties fairly and adequately protect the interests of the class. Additionally, Rule 23(b)(3) requires that law or fact questions common to the class predominate over questions affecting individual members, and that the class action must be “superior to other methods” of litigation. Scheindlin had held that the plaintiffs were required to make only “some showing” of compliance with the standards. The 2d Circuit ruled that she should have conducted a more rigorous inquiry. Writing on behalf of the court, Judge Jon O. Newman said that the plaintiffs’ own allegations and evidence “demonstrate that the Rule 23 requirement of predominance of common questions over individual questions cannot be met under the standards as we have explicated them.” In “discard[ing]” the some-showing standard, the 2d Circuit acknowledged that “ until now, our Court has been less clear as to the applicable standards for class certification, and on occasion . . . we have used language that understandably led Judge Scheindlin astray.” The court issued its own clarified standards. It held that: A district judge may certify a class only after making determinations that each of the Rule 23 requirements has been met. Such determination requires the judge to resolve factual disputes relevant to each standard. The obligation to make such determination is not lessened by an overlap between a Rule 23 requirement and a merits issue. Nevertheless, the judge may not assess any aspect of the merits. The judge has “ample discretion” to limit discovery and the extent of a hearing to determine certification. The court said that it was obvious that investors who were allocated shares of initial public offerings “were fully aware” of alleged promises they had to make to buy additional shares. Nor could they demonstrate that they had relied on the misrepresentations of issuers. Since “common questions of knowledge do not predominate over individual questions,” the court vacated certification for the six cases. It remanded them to Scheindlin for further proceedings but barred her from reconsidering whether the cases should be class actions.

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