Federal Court Decides Start and End Dates Of Class Certification Are The Registration Statement Date And The Date Typicality Of Claims End
Shockley v. Adams Golf, Inc., No. Civ.A. 99-371-KAJ, 2005 WL 3654346 (D.Del. June 27, 2005)
This is a securities class action. The background to this case is provided in In re Adams Golf, Inc. Securities Litigation
, 176 F.Supp.2d 216, 219-22 (D.Del. 2001), aff'd in part, rev 'd in part
, 381 F.3d 267, 270-72 (3d Cir. 2004). In the present opinion, the Court resolved two remaining issues related to class certification. Pursuant to oral arguments on plaintiff's motion for class certification on May 17, 2005, the Court granted the motion but reserved its decision as to both: the appropriate time period applicable for defining the class of securities holders bringing an action under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2); and the "nature of a subclass with respect to any liability under section 12(a)(2)" of the Securities Act of 1933, "including the appropriate time period for defining the subclass."
The Court held that July 10, 1998, the date when the Registration Statement became effective was the start date of the class. Similarly, October 22, 1998, signifying the last date when the class had typical claims was the end-date for the class.
This action involved claims under section 11 relating to the purchase of securities based on a materially false and misleading Registration Statement. The parties to this suit disputed the appropriate date applicable to mark the start date of the class period and the end-date of the class.
The Court held that because a claim under section 11 could only be triggered by those who "purchased securities pursuant to a materially false or misleading registration statement," the earliest start date for the class could only be the date when shares could be bought. Accordingly, the Court held that July 10, 1998 was that date because the Prospectus carried that date and that was the earliest date when shares could be bought.
Similarly, the parties disputed the end-date for the class: defendants claimed it was October 22, 1998, thus eliminating any recovery beyond that date; plaintiffs challenged that date and contended that full disclosure began on January 7, 1999 and therefore that date would mark the end-date of the class. The Court concluded that October 22, 1998 was the end point for the certification of the class. It reasoned that typicality would "be lacking in the class after that date." That conclusion did not preempt claims of those who purchased, based on the false and misleading Registration Statement after that date.
The Court also addressed plaintiffs claims that section 12(a)(2) may be certified against all defendants because that section contemplated liability for solicitation of purchases of the Adam Golf, Inc. securities. The Court, however, agreed with defendants that section 12(a)(2) contemplated only liability for those who transfer title to the shares and to those who "successfully solicit the purchase based on direct and active solicitation." This was because the Court considered it as too much of a stretch of the relevant section's reach to consider the mere creation of the securities documents as "direct and active solicitation." Therefore, while Adam Golf, Inc. fell into the ambit of section 12(a)(2), the Adam Golf defendants did not because it would be contrary to law to certify the class against them.