Delaware Supreme Court Reverses the Superior Court's Certification of Class in Suit Against Securities Dealers
Wit Capital Group, Inc. v. Benning, No. 568, 2004, 2006 WL 249983 (Del. Jan. 31, 2006).
The plaintiffs sued the defendants, Wit Capital Group Inc. and Wit Capital Corporation ("Wit"), securities broker/dealers, alleging that the defendants breached their account agreement by failing to allow the plaintiffs to purchase certain IPO shares. The plaintiffs argued, pursuant to Superior Court Civil Rule 23(b)(3), that common questions of law or fact predominated over questions affecting individual class members. Reversing the Superior Court's decision to certify a class, the Delaware Supreme Court found that the plaintiffs failed to show fact of common injury affecting all plaintiffs.
Before the Delaware Supreme Court, Wit argued that the Superior Court erred when it certified a class with four sub-classes. According to the defendants, had the plaintiffs been allowed to purchase shares, some of the plaintiffs might have sold their stock for a profit, but others might have held the stock, and even others might have sold the stock for a loss. Wit argued that any alleged breach of the Account Agreement did not harm the plaintiffs on a class-wide basis. In response, the plaintiffs contended that the certification was appropriate because the shares offered in the IPO immediately traded at a higher value on the open market. In the securities industry, the difference between the offering price and the first day of public trading is referred to as the "pop." Under plaintiffs' "pop" theory, the entire class was injured because each person lost the opportunity to purchase shares at the lower IPO price. The Supreme Court found that whether particular plaintiffs were injured by the lost opportunity to purchase the shares in the IPO depended on whether the opportunity would have resulted in a benefit or an injury. In some cases, plaintiffs lost the opportunity to lose money. Thus, those plaintiffs who would have sold the shares at a loss were not injured. Accordingly, the Supreme Court found that Rule 23(b)(3) was not satisfied because the plaintiffs could not establish a fact of injury common to all class members.
Jason C. Jowers