Last week, I blogged that I had read all of the 10b-5 opinions that Sotomayor either authored or joined as both a judge on the Southern District of New York and on the Second Circuit and came to the conclusion that her 10b-5 jurisprudence is definitely mainstream (defendant pretty much wins).  One of the cases that I included in that dataset was In re Initial Public Offerings Securities Litigation, 471 F.3d 24 (2006), in which Sotomayor was part of the unanimous panel, but not the author.  Though I had eliminated from my dataset cases that were nominally 10b-5 cases but that were addressing procedural or ancillary issues, I included this one.  The case is actually about class certification.  The district court (Shira Sheindlin, district court judge) had certified the class, but the Second Circuit reversed.  In doing so, the court really went into the substance of the 10b-5 claims, and the case emerges as an analysis of the 10b-5 problems that the plaintiffs would have on the merits.  A reader and appellate specialist was kind enough to send me an email and point out that this case is interesting for other, though related reasons.

Apparently, In re IPO Securities Litigation overruled two Second Circuit cases on class certification:  Caridad v. Metro-North Commuter Railroad (2d Cir. 1999) and In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124 (2d Cir. 2001).  The author of In re IPO Securities Litigation, Judge Jon O. Newman, was the author for the two-judge majority of Caridad, and Sotomayor joined the two-judge majority opinion in In re Visa/MasterMoney.  Both of these cases granted certification of a plaintiff class amidst much language emphasizing that "a motion for class certification is not an occasion for examination of the merits of the case" (Caridad at 291); "district courts must not consider or resolve the merits of the claims of the purported class" and "weighing of the evidence is not appropriate at this stage in the litigation" (293).  In re Visa/MasterMoney cites Caridad and repeats these guidelines:  "a motion for class certification is not an occasion for examination of the merits of the case." (Visa at 135).  In both cases, the courts reviewed expert testimony and judged the testimony on "whether plaintiffs' expert evidence is sufficient to demonstrate common questions of fact warranting certification of the proposed class, not whether the evidence will ultimately be persuasive" (Visa at 135).  The cases also note that the court of appeals is "noticeably less deferential to the district court when the court has denied class status than when it has certified a class." (Caridad at 291).

So, if you are a plaintiff (or plaintiff's attorney) in the In re IPO Securities Litigation case, you are probably cautiously optimistic when the defendants appeal your grant of class certification to the Second Circuit and you draw Newman and Sotomayor as two out of your three judges on the panel.  Apparently your optimism would be misplaced.  Acknowledging that the Second Circuit had "been less than clear as to the applicable standards for class certification, and on occasion, as we discuss below, we have used language that understandably led Judge Scheindlin astray," Newman then delivers an end to the In re IPO Securities Litigation saga by de-certifying the class.  In doing so, Newman must explain that Caridad misread Supreme Court precedent on Rule 23 and even admits in a footnote the following:  "As the author of Caridad, I welcome the opportunity to acknowledge the shortcomings of its language and to participate with the panel in the pending case in providing needed clarification."  Newman then explains that therefore, Visa Check is off-base as it was relying on Caridad, and that courts will necessarily have to grappel with the merits to perform a "rigorous analysis" required by Rule 23.  Newman cites to other circuits and to the 2003 amendments to Rule 23 as support for clarifying that the standard is higher than the weak "some showing" standard Judge Sheindlin applied to the Rule 23 threshold requirements, relying on precedent.  Before engaging in this rigorous analysis, Newman reaches several conclusions, including that a Rule 23 determination "can be made only if the judge resolves factual disputes relevant to each Rule 23 requirement and finds that whatever underlying facts are relevant . . . have been established and is persuaded to rule, based on the relevant facts and the applicable legal standard, that the requirement is met."  In addition, in some strange double-negative sentences on page 42, the court seems to say that expert's testimony has to rise to some level of persuasion beyond "not fatally flawed" to establish a Rule 23 requirement and that a judge may weigh conflicting evidence to determine the existence of a Rule 23 requirement.

I am not a civil procedure/federal courts professor, or an appellate attorney, so I leave to others to say whether the revised standard is a correct legal standard for Rule 23 or not.  I discuss this merely because I am led to believe that the appellate bar does think it's somewhat relevant.  I would think that judges change their minds and that this is how jurisprudence is created.  How many professors have fallen back on the "I reserve the right to get smarter" defense on why your scholarly perspectives have changed? 

Note that at the time the Second Circuit issues its opinion, motions to dismiss in this case have been denied (not all, but the pertinent ones here).  Those motions were appealed.  If the Second Circuit thought Judge Sheindlin goofed by not granting the motions to dismiss, then reviewing those MTD denials would be one way of righting this wrong.  (Early in the opinion, Newman remarks: "udge Scheindlin held that the Plaintiffs' allegations of loss causation were sufficient when they alledged that the Defendants had manipulated the market.  She also held that it was fair to infer dissipation of the inflated price over time in a manipulation case, notwithstanding the Second Circuit's intervening decision in Emergent Capital Investment Management, LLC v. Stonepath Group, Inc. . . .") 

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