The opinion of the court was delivered by: Judith Keep, District Judge
(1) GRANTING LEAD PLAINTIFF'S
MOTION FOR CLASS CERTIFICATION
This is a securities fraud class-action suit brought pursuant to the Securities Exchange Act of 1934, Rule 10-b5 promulgated thereunder, and the Private Securities Litigation Reform Act of 1995 ("PLSRA"). On May 14, 2003, Lead Plaintiff Florida State Board of Administration ("Lead Plaintiff), an institutional investor of the pension funds of the State of Florida, filed the instant motion for class certification. Defendants Applied Micro Circuits Corp., and individual defendants ("Defendants" or "AMCC") filed an opposition on June 2, 2003, to which Lead Plaintiff replied on June 16, 2003. All parties proceed through counsel. [ Page 2]
The background is taken from the amended complaint and other papers of the parties and does not constitute findings of fact by this court.
Applied Micro Circuits Corp. produces switching equipment for voice and data fiber optic networks. AMCC saw soaring sales, and an even higher flying stock price, in the late 1990s, selling to such telecom companies as Nortel, Cisco, Lucent, and JDSU as they quickly built fiber optic networks. The individual defendants ("insider defendants"), senior officers of AMCC, had extensive holdings in and much of their personal wealth tied up in their company's stock. In the fall of 2000, AMCC and the public received warnings that demand was falling rapidly for fiber optic products. By the end of October 2000, the entire telecom industry was in the doldrums, and AMCC's share prices fell significantly.
Plaintiff alleges the actionable conduct allegedly occurred from November 13, 2000 to February 5, 2001 (the "Class Period"). Essentially, Lead Plaintiff alleges that the individual Defendants intentionally issued false and misleading statements to prop up AMCC's stock price, while simultaneously unloading their inside shares. The gist of the alleged misleading statements is that AMCC's sales were growing in line with previous forecasts and AMCC was not experiencing the same problems of reduced demand and canceled orders as were their competitors and customers. At the same time that Defendants were publicly making such positive statements and denying rumors that AMCC was experiencing these industry-wide problems, Defendants knew that substantial amounts of AMCC's customer contracts were being canceled or delayed, and the company's customers were warning that future prospects were quite poor. During the Class Period (November 13, 2000 to February 5, 2001), the stock price of AMCC climbed back to its previous high, while the insider Defendants sold over $100 million of their own holdings. Less than one day after the last of these insider sales, AMCC reversed course in its public pronouncements and the stock rapidly declined, causing massive losses to the misled investors. [ Page 3]
A. Legal Standard for Class Certification
Fed.R.Civ.P. 23(a) provides four independently required criteria which must be met in order for a class to be certified:
(1) the class is so numerous that joinder of all
members is impracticable;
(2) there are questions of law or fact common to
(3) the claims or defenses of the representative
parties are typical of the claims or defenses
of the class; and
(4) the representative parties will fairly and
adequately protect the interests of the class.
A proposed class action must also satisfy one of the subdivisions of Rule 23(b). See Valentino v. Carte-Wallace, Inc. 97 F.3d 1227
,1233 (9th Cir. 1996). Lead Plaintiff argues that this motion is proper under Rule 23(b)(3). Rule 23(b)(3) requires that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. Fed.R.Civ.P. 23(b)(3).
A court need not reach the merits of the action in determining whether a class action is appropriate. Eisen v. Carlisle and Jacqueline, 417 U.S. 156, 179, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). However, a court may consider evidence even if that evidence also relates to the merits. Hanon v. Dataproducts Corp.. 976 F.2d 497, 509 (9th Cir. 1992). In analyzing a motion for class certification, a court should accept the substantive allegations of the complaint as true. Blackie v. Barrack, 524 F.2d 891, 901 n. 17 (9th Cir. 1975).
The plaintiff carries the burden of demonstrating satisfaction of the prerequisites for class certification. Mantolete v. Bolger, 767 F.2d 1416, 1424 (9th Cir. 1985). The plaintiff's failure to prove any one of Rule 23's requirements destroys the alleged class action. Rutledge v. Electric Hose & Rubber Co., 511 F.2d 668, 673 (9th Cir. 1975). Courts must rigorously assess whether the four prerequisites have been met. General Tel. Co. v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). Conditional certification of an improper class on a speculative possibility that it may later meet the requirements is improper, Blackie, 524 F.2d at 901. Ultimately, the class certification [ Page 4]
determination is committed to the discretion of the district court. Price v. Lucky Stores. Inc.. 501 F.2d 1177, 1179 (9th Cir.1974). See, e.g., Schwartz v. Upper ...