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Pirnik v. Fiat Chrysler Automobiles N.V.

United States District Court, S.D. New York

June 26, 2018

VICTOR PIRNIK, Plaintiff,
v.
FIAT CHRYSLER AUTOMOBILES, N.V., et al., Defendants.

          OPINION AND ORDER

          JESSE M. FURMAN, UNITED STATES DISTRICT JUDGE

         In this securities fraud lawsuit, familiarity with which is presumed, investors bring claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78(b), 78(t)(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240, against Fiat Chrysler Automobiles, N.V. (“FCA NV”), a global car company; its United States subsidiary, FCA U.S. LLC (“FCA US” and, together with FCA NV, “FCA”); and several officers and employees of the two companies, including Sergio Marchionne, the Chief Executive Officer of FCA US. In brief, Plaintiffs allege that Defendants made false and misleading statements concerning FCA's compliance with both applicable safety regulations and applicable emissions regulations. Earlier this year, Plaintiffs moved, pursuant to Rule 23 of the Federal Rules of Civil Procedure, for class certification. (Docket No. 148). In a “bottom-line” Order entered on June 15, 2018, the Court granted Plaintiffs' motion for reasons to be explained in a forthcoming Opinion. (Docket No. 214). This is that Opinion.[1]

         BACKGROUND

         The Court described the relevant background in several prior Opinions, familiarity with which is presumed, and will summarize it only briefly here. See Pirnik v. Fiat Chrysler Autos., N.V., 15-CV-7199 (JMF), 2016 WL 5818590 (S.D.N.Y. Oct. 5, 2016) (“Pirnik I”); Pirnik v. Fiat Chrysler Autos., N.V., No. 15-CV-7199 (JMF), 2017 WL 3278928 (S.D.N.Y. Aug. 1, 2017) (“Pirnik II”); Pirnik v. Fiat Chrysler Autos., N.V., No. 15-CV-7199 (JMF), 2017 WL 5312182 (S.D.N.Y. Nov. 13, 2017) (“Pirinik III”). FCA is a holding company that arose from the 2014 merger of Fiat Group Automobiles (“Fiat Group”) and Chrysler Group LLC. (Docket No. 129 (“FAC”) ¶¶ 2, 48). As a manufacturer of motor vehicles in the United States, FCA must comply with the National Traffic and Motor Vehicle Safety Act of 1966 (the “Safety Act”), 49 U.S.C. § 30101 et seq., and its implementing regulations, which are enforced by the National Highway Traffic Safety Administration (“NHTSA”). (See FAC ¶¶ 61-73). FCA must also comply with the Clean Air Act, 42 U.S.C. § 7521 et seq., and its implementing regulations, which are enforced by the Environmental Protection Agency (“EPA”). (See FAC ¶¶ 204-16).

         Plaintiffs' claims arise from representations - made, between October 2014 and April 2016, in FCA's securities filings and during earnings calls with shareholders - that FCA was in compliance with both safety and emissions regulatory requirements. (See FAC ¶¶ 275-76; 314-16; 330; 343; 348-53; see also Docket No. 166, Ex. 2 (“Nye Rebuttal”), ¶ 5). Plaintiffs claim that those statements were false and misleading because FCA routinely ignored its obligations to timely inform owners of serious safety defects, failed to provide NHTSA with proper notifications and reports, and illegally used undisclosed and hidden software to allow excess diesel emissions to go undetected and evade emissions tests. (FAC ¶ 277). Plaintiffs contend that they and other class members were damaged when, unaware of the truth, they purchased FCA securities at artificially inflated prices; they allege that the price of FCA's stock subsequently decreased as a result of partially corrective disclosures beginning in July 2015 and ending in May 2017. (FAC ¶¶ 14, 38, 42, 486, 504).

         In their motion, Plaintiffs sought to certify the following class:

All persons and entities who purchased, on a U.S. Exchange or in a transaction in the U.S., Fiat Chrysler Automobiles N.V. (“FCA, ” “Chrysler” or “the Company”) common stock between October 13, 2014 and May 22, 2017, both dates inclusive (the “Fourth Amended Complaint (“FAC”) Class Period”) excluding Defendants, current and former officers and directors of Chrysler and FCA US, members of their immediate families and their legal representatives, heirs, successors or assigns, and any entity in which Defendants have or had a controlling interest.

(Docket No. 149 (“Pls.' Cert. Mem.”), at 1). In addition, they sought appointment of the named Plaintiffs (Gary Koopmann, Timothy Kidd, and Victor Pirnik) as class representatives and appointment of Pomerantz LLP and the Rosen Law Firm P.A. as class counsel. (Docket No. 148, at 1-2). As noted, the Court issued a “bottom-line” Order granting their motion - with one minor modification noted below - on June 15, 2018. (Docket No. 214).

         DISCUSSION

         The relevant legal principles are well established. A party seeking class certification must first show, by a preponderance of the evidence, that the requirements of Rule 23(a) - namely, numerosity, commonality, typicality, and adequacy of representation - are satisfied. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011); Johnson v. Nextel Commc'ns Inc., 780 F.3d 128, 137 (2d Cir. 2015). If it does so, the moving party must also demonstrate that the proposed class fits within one of the subdivisions of Rule 23(b). See, e.g., Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015). Here, Plaintiffs rely on Rule 23(b)(3), (Pls.' Cert. Mem. 2), which requires them to show that (1) “questions of law or fact common to class members predominate over any questions affecting only individual members, ” and (2) “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3). In evaluating whether all of these requirements are met, a court may consider merits issues. See, e.g., Levitt v. J.P. Morgan Sec., Inc., 710 F.3d 454, 465 (2d Cir. 2013). Nevertheless, a district judge “should not assess any aspect of the merits unrelated to a Rule 23 requirement.” In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 41 (2d Cir. 2006). In other words, “Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merits questions may be considered to the extent - but only to the extent - that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013).

         In this case, there is no dispute - and rightly so - that Plaintiffs satisfy most of the applicable Rule 23 requirements. With one minor exception, for example, Defendants do not dispute that Plaintiffs satisfy the four Rule 23(a) requirements.[2] Nor do they contest that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3). Instead, Defendants' only arguments against class certification concern the predominance requirement of Rule 23(b)(3), which calls for a showing that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Even then, the focus of Defendants' arguments is narrow: For instance, they do not contest that most of the elements Plaintiffs have to prove - including a material omission or misrepresentation; scienter; connection to the purchase or sale of a security; economic loss; and loss causation - can be proved with common evidence. They argue only that common questions do not predominate with respect to proving reliance and that Plaintiffs' damages model fails to satisfy Comcast Corp. v. Behrend, 569 U.S. 27 (2013). The Court will address each of those arguments in turn.

         A. Reliance

         The first issue - concerning reliance - turns on whether Plaintiffs can avail themselves of the fraud-on-the-market theory. Under that theory, reliance may be presumed (and thus need not be proved on an individual basis) if certain requirements are satisfied - namely, “(1) the alleged misrepresentations were publicly known, (2) they were material, (3) the stock traded in an efficient market, and (4) the plaintiff traded the stock between when the misrepresentations were made and when the truth was revealed.” Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398, 2413 (2014) (“Halliburton II”); accord Waggoner v. Barclays PLC, 875 F.3d 79, 94 & n.25 (2d Cir. 2017), cert. denied, 138 S.Ct. 1702 (2018). Of those four requirements, only market efficiency is to be considered at this stage. See Amgen, 568 U.S. at 467 (holding that materiality does not bear on the predominance requirement of 23(b)(3)). “An efficient market is ‘one in which the prices of the [stock] incorporate most public information rapidly.'” Waggoner, 875 F.3d at 94 (quoting Teamsters Local 445 Freight Div. Pension, Fund v. Bombardier Inc., 546 F.3d 196, 204 (2d Cir. 2008)). If the plaintiff establishes an efficient market, however, the defendant may rebut the presumption with “evidence that the asserted misrepresentation (or its correction) did not affect the market price of the defendant's stock.” Halliburton II, 134 S.Ct. at 2414. On that front, “[d]efendants bear the burden of persuasion . . . by a preponderance of the evidence.” Arkansas Teachers Ret. Sys. v. Goldman Sachs Grp., Inc., 879 F.3d 474, 478 (2d Cir. 2018). To meet their burden, defendants must “do more than merely produce evidence that might result in a favorable outcome; they must demonstrate that the misrepresentations did not affect the stock's price . . . .” Waggoner, 875 F.3d at 101.

         Defendants wisely do not dispute that Plaintiffs have established that FCA securities traded in an efficient market during the Class Period. FCA securities were traded on the New York Stock Exchange (“NYSE”), “a paradigmatic efficient market.” In re Moody's Corp. Sec. Litig., 274 F.R.D. 480, 489 n.3 (S.D.N.Y. 2011); see also Basic Inc. v. Levinson, 485 U.S. 224, 249 n.29 (1988) (assuming that the shares at issue traded on a “well-developed, efficient, and information-hungry market” when they traded on the NYSE). And at least four of the five factors commonly used in this Circuit to evaluate market efficiency - the “so-called Cammer factors, ” In re Petrobras Sec., 862 F.3d 250, 276 (2d Cir. 2017) (internal quotation marks omitted); see Cammer v. Bloom, 711 F.Supp. 1264, 1286-87 (D.N.J. 1989) - support the same conclusion. Among other things, the average weekly trading volume of FCA stock on the NYSE during the Class Period was 2.5%, (Docket No. 151, Ex. 1 (“Nye Supp'l Rpt.”), ¶ 36), justifying a strong presumption of efficiency, see Cammer, 711 F.Supp. at 1293 (“Turnover measured by average weekly trading of 2% or more of the outstanding shares would justify a strong presumption that the market for the security is an efficient one.”); at least twenty-five investment firms followed FCA and more than 750 analysts' reports were published about FCA during the two-and-a-half-year Class Period, (Nye ...


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