The opinion of the court was delivered by: Brieant, J.
Before the Court for decision is Plaintiffs' motion for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure. (Doc. 91).
The motion before this Court is brought by Lead Plaintiff Teamsters Affiliates Pension Plan ("TAPP") and Plaintiffs the City of Tallahassee Pension Plan ("Tallahassee") and Charter Township of Clinton Police and Fire Retirements System ("Charter"), (collectively with Tapp and Tallahassee, the "Plaintiffs" or "Proposed Class Representatives"). They move to have this consolidated class action certified as a class action on behalf of "all persons who purchased Prestige Brand Holdings, Inc. securities pursuant and/or traceable to the Company's initial public offering on or about February 9, 2005 (the "IPO") through November 15, 2005." See Proposed Order, 1. In addition to moving for class certification, Plaintiffs seek an Order certifying themselves as class representatives and their counsel as class counsel. Defendants filed a joint opposition to the motion for certification on April 18, 2007. (Doc. 106).
Plaintiffs brought this securities class action suit on behalf of purchasers of stock of Prestige Brands Holdings ("Prestige" or the "Company"), seeking remedies under the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"). The Complaint alleges that Defendants raised more than $515.2 million in an IPO pursuant to a defective Registration statement and Prospectus, which Plaintiffs claim contained materially false and misleading statements.
Defendants are the issuer, Prestige Brands Holdings, Inc., and its principals Mr. Peter C. Mann, President, Chief Executive Officer and Director of the issuer; Mr. Peter J. Anderson, Chief Financial Officer and Director; David A. Donnini, Outside Director, and Vincent J. Hemmer, Outside Director (sometimes referred to collectively as the "Prestige Defendants"); Defendants Merrill Lynch Pierce, Fenner and Smith, Inc., Goldman, Sachs and Company, and J.P. Morgan Securities, Inc., (collectively the "Underwriter Defendants"), and GTCR Golder Rauner II, LLC, a major investor in the stock of Prestige which, at relevant times, provided financial and management consulting services to Prestige.
The Supplemental Amended Complaint alleges that the Prospectus issued in connection with the IPO, filed on February 9, 2005, was materially false and misleading because it included financial statements not prepared in accordance with Generally Accepted Accounting Principles (GAAP). The Supplemental Amended Complaint alleges that the Prospectus materially overstated the company's operating results and financial condition for the fiscal years ended March 31, 2003 and 2004 and the nine months ended December 31, 2004. It is alleged that subsequently on July 27, 2005, Prestige announced material declines in sales for each of its business segments. This announcement allegedly led to a 40% one-day decline of the Company's stock price the next day. Then, on November 15, 2005, the Supplemental Amended Complaint alleges that "Prestige issued a press release announcing that it was restating its financial statements in order to correct more than three years of revenue and earnings misstatements, which resulted in a cumulative overstatement of Prestige's 'net sales' of nearly $22 million through the first quarter of fiscal 2006." Compl. ¶ 29. Plaintiffs allege that this announcement constituted an admission that the financial statements included in the prospectus were materially false and misleading. This announcement allegedly caused Prestige's stock price to decline an additional 15%.
Plaintiffs argue that their motion to certify the class should be granted, "[b]ecause the benefits of the underlying litigation apply equally to the Class as a whole and... because this securities action satisfies all applicable requirements under Rule 23 of the Federal Rules of Civil Procedure." Pl. Br. 2. Defendants filed joint opposition to the motion. While Defendants concede that "Plaintiffs have advanced a credible argument for the certification of a class of some variety", they argue that the motion for certification should be denied because the proposed class is overly broad. Def. Br. 1. Specifically, they argue that if any class is certified, the proposed class should be limited to take into account the following: 1) the Proposed Class fails to exclude those who did not purchase "directly" in the IPO; 2) it fails to satisfy the Section 11 requirement that stocks be individually traceable to the IPO; and 3) it fails to exclude those plaintiffs who sold their stock before alleged curative disclosures were made, and who were therefore not harmed by alleged fraudulent statements that inflated the stock price.
In order for this Court to grant Plaintiffs' motion for class certification, it must first determine that the class representatives satisfy "the four prerequisites for every class action: numerosity, commonality, typicality, and adequacy of representation." In re Initial Public Offering Securities Litigation,471 F.3d 24, 32 (2d Cir. 2006). These four prerequisites are contained in Rule 23(a) of the Federal Rules of Civil Procedure, which provides that:
One or more members of a class may sue or be sued as representative parties on behalf of all only if (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 ...