The opinion of the court was delivered by: Gerard E. Lynch, District Judge
Plaintiffs move for certification of a class, appointment of class representatives, and certification of class counsel in a lawsuit against defendants Citigroup, Inc., its divisions Citicorp USA and Salomon Smith Barney ("SSB"), and its research analyst Jack Grubman. The motion will be granted in part and denied in part.
The underlying claims in this case involve allegations that defendants engaged in a scheme to defraud purchasers and sellers of stock in Metromedia Fiber Network, Inc. ("Metromedia") by issuing materially misleading analyst reports. The purpose of the misleading reports was allegedly to attract Metromedia's investment banking business for the investment banking division of SSB. This Court dismissed most of plaintiffs' claims in an Opinion and Order dated January 5, 2005. See In re Salomon Analyst Metromedia Litig., 373 F. Supp. 2d 235 (S.D.N.Y. 2005). The Court held, however, that with respect to certain research reports issued in 2001, the complaint pled fraud with sufficient particularity to withstand defendants' motion to dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6). The surviving claims involve allegations that analyst reports issued between March 8 and July 25, 2001, contained false "Buy" recommendations and falsely expressed confidence that a $350 million credit facility from Citigroup USA would fully fund Metromedia's business plan, despite defendants' knowledge of material risks and restrictions regarding the credit facility. Further detail regarding the underlying claims can be found in the January 5, 2005, Opinion and Order.
Plaintiffs now seek certification of the following class pursuant to Federal Rule of Civil Procedure 23:
All persons or entities who purchased or otherwise acquired securities of Metromedia from March 8, 2001 through July 25, 2001 (the "Class Period"), inclusive, and who were damaged thereby (the "Class"). Excluded from the Class are Defendants; any director, officer, subsidiary, or affiliate of Salomon, Citicorp USA, Inc., and/or Citigroup; any entity in which any excluded person has a controlling interest; and their legal representatives, heirs, successors and assigns.
(P. Mem. in Support of Mot. for Class Certification ("P. Mem.") at 2.)
Plaintiffs also seek certification of the following putative class members as representatives of the class: lead plaintiff Peter Carolan; lead plaintiff Techgains Corporation, otherwise known as Techgains I; Techgains II, III, IV, and V; and the Technology Associates Management Company ("TAMC"), a venture capital firm that manages the various Techgains funds.
Defendants oppose certification, arguing that Techgains I lacks standing, that the other proposed representatives are inadequate and atypical for purposes of Rule 23(a), and that plaintiffs have failed to show that common issues will predominate over individual issues for purposes of Rule 23(b).
I. Standard for Class Certification
Class certification is warranted only where the class and its proposed representatives meet the requirements both of Federal Rule of Civil Procedure 23(a)-generally referred to as numerosity, commonality, typicality, and adequacy-and of one of the subsections of Rule 23(b). See Fed. R. Civ. P. 23; Heerwagen v. Clear Channel Commc'ns, 435 F.3d 219, 225 (2d Cir. 2006). Here, the only subsection of Rule 23(b) on which plaintiffs rely is Rule 23(b)(3), which requires a finding that "common" questions of law or fact "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).
As this Court has previously commented, the standard of proof in applying Rule 23 is not well established. See DeMarco v. Robertson Stephens Inc., 228 F.R.D. 468, 470 (S.D.N.Y. 2005). Indeed, the standard is arguably less clear now than when that case was decided. See, e.g., Heerwagen, 435 F.3d at 232-33 (holding that in some circumstances a plaintiff must show that he or she has satisfied Rule 23(b)(3) by a preponderance of the evidence, while acknowledging that in other circumstances the court is prohibited from weighing the plaintiff's evidence at all). Nevertheless, certain principles are consistently applied in this circuit. There is no question, for example, that despite the Second Circuit's generally liberal interpretation of Rule 23, see, e.g., Noble v. 93 Univ. Place Corp., 224 F.R.D. 330, 337 (S.D.N.Y. 2004), citing, inter alia, Korn v. Franchard Corp., 456 F.2d 1206, 1208-09 (2d Cir. 1972), district courts must "rigorous[ly] analy[ze]" whether the plaintiffs have satisfied each element of the Rule. Heerwagen, 435 F.3d at 225. Though this analysis may require courts to "'probe behind the pleadings'" to determine whether class certification is warranted, Robertson Stephens, 228 F.R.D. at 470, quoting General Telephone Co. v. Falcon, 457 U.S. 147, 160-61 (1982), courts generally must not assess the merits of plaintiffs' underlying claims on a Rule 23 motion, id.; nor should courts even weigh the competing evidence presented by the parties at the class certification stage where such weighing would result in an inappropriate consideration of the merits. See Heerwagen, 435 F.3d at 232-33.*fn1
Despite these limits on the court's inquiry, however, plaintiffs seeking class certification must, at a minimum, make "'some showing'" that the proposed class comports with Rule 23's requirements, Robertson Stephens, 228 F.R.D. at 470; see Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 292 (2d Cir. 1999); In re Nigeria Charter Flights Contract Litig., 233 F.R.D. 297, 301 (E.D.N.Y. 2006); In re Initial Pub. Offering Secs. Litig., 227 F.R.D. 65, 92-93 (S.D.N.Y. 2004), and to the extent plaintiffs present evidence, they may not rely on evidence "so flawed that it would be inadmissible as a matter of law." In re Visa Check/Mastermoney Antitrust Litig., 280 F.3d 124, 135 (2d Cir. 2001). In applying the "some showing" standard, district courts in this Circuit have considered "'expert opinions, evidence (by document, affidavit, live testimony, or otherwise), or the uncontested allegations of the complaint.'" Robertson Stephens, 228 F.R.D. at 470, quoting In re Initial Pub. Offering Secs. Litig., 227 F.R.D. at 92-93. Finally, in some circumstances - most importantly, where the Rule 23 question is analytically independent of any merits issues - the district court should apply a preponderance-of-the-evidence standard to Rule 23 questions. See Heerwagen, 435 F.3d at 233; see also infra Part III.A.2.(b) (discussing further the Heerwagen, Visa Check, and Caridad standards as applied to Rule 23(b)(3)).
II. Rule 23(a) Requirements
Though this Court has applied the "some showing" standard to Rule 23(a)'s requirements, see Robertson Stephens, 228 F.R.D. at 470-72, subsequent Second Circuit case law regarding other subsections of Rule 23 raises the possibility that it may be more appropriate to apply a preponderance-of-the-evidence standard, at least where Rule 23(a) issues do not overlap with the merits. See Heerwagen, 435 F.3d at 232-33 (holding that a preponderance-ofthe-evidence standard must be applied to Rule 23(b)(3) issues where such issues are sufficiently independent of the merits). But see Nigeria Charter Flights, 233 F.R.D. at 301 (applying, post-Heerwagen, the "some showing" standard to Rule 23(a) issues). Regardless of which standard applies to Rule 23(a) here, however, the Court finds that plaintiffs have satisfied the Rule with respect to Peter Carolan but have not satisfied the Rule with respect to the Techgains funds.
To satisfy the numerosity requirement of Rule 23(a), plaintiffs must show that the class is "so numerous that joinder of all [class] members is impracticable." Fed. R. Civ. P. 23(a); Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir. 1993). Numerosity is generally presumed when a class consists of forty or more members. See Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995). Citing Metromedia's public filing with the SEC and noting an average daily trading volume of over 11 million shares during the class period, plaintiffs argue that the number of class members "far exceeds the numerical range consistently found to satisfy the numerosity requirement of Rule 23." (P. Mem. at 5.) In light of the figures presented by plaintiffs and defendants' decision not to oppose certification on numerosity grounds, the Court finds that plaintiffs have satisfied the numerosity requirement.
Rule 23(a) also requires that the action raise an issue of law or fact common to the class. See Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 155 (2d Cir. 2001); Robertson Stephens, 228 F.R.D. at 471. Commonality "does not mean that all issues must be identical as to each member, but it does require that plaintiffs identify some unifying thread among the members' claims that warrant[s] class treatment." Bolanos v. Norwegian Cruise Lines Ltd., 212 F.R.D. 144, 153 (S.D.N.Y. 2002) (citation and internal quotation marks omitted). Here, a number of issues exist to form a "unifying thread" among the class members' claims. These issues include whether defendants published reports with material misrepresentations and omissions; whether defendants acted with scienter; and whether the alleged misrepresentations affected the market price of Metromedia during the class period. Defendants do not dispute certification on the grounds of commonality. In light of all the circumstances, therefore, the Court finds that plaintiffs have adequately shown commonality for purposes of Rule 23(a).
C. Typicality and Adequacy
Rule 23(a)'s typicality provision requires that the claims of the representative parties be "typical of the claims . . . of the class." Fed. R. Civ. P. 23(a)(3). While this inquiry is related to the commonality inquiry, "the commonality inquiry establishes the existence of a certifiable class," whereas "the typicality inquiry focuses on whether the claims of the putative class representatives are typical of the class sharing common questions." In re Frontier Ins. Group, Inc. Secs. Litig., 172 F.R.D. 31, 41 (E.D.N.Y. 1997). Rule 23(a)'s adequacy provision requires that the class representative "possess the same interest and suffer the same injury as the class members." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625-26 (1997). As many courts have observed, the issues of typicality and adequacy "'tend to merge'" because "'[b]oth serve as guideposts for determining whether . . . the ...