The opinion of the court was delivered by: David O. Carter United States District Judge
ORDER GRANTING PLAINTIFFS' MOTION TO CERTIFY CLASS (Dkt. 48)
Before the Court is Plaintiffs' Motion For Class Certification (Dkt. 48). After considering all papers filed, and oral argument, the Court GRANTS Plaintiffs' Motion in its entirety.
Lead Plaintiffs Reydel Quintana, Dat T. Tran, and Agnes Cho (Plaintiffs), filed the operative Amended Complaint (Am. Compl., Dkt. 14) in this case on July 8, 2011. They alleged two causes of action on behalf of all persons and entities who purchased the common stock of Defendant Radient Pharmaceuticals Corporation ("Radient") from January 18, 2011 through March 4, 2011 (the Class Period).*fn1 Am. Compl. ¶ 1.
The first cause of action is a violation of Section 10(b) of the Securities and Exchange Act of 1934 (the Exchange Act) and SEC Rule 10b-5. The second cause of action claims that officers of Radient are liable as control persons of the company (Section 20(a) of the Exchange Act). Plaintiffs sued Radient, Radient's Chairman of the Board and CEO, Douglas C. MacLellan (MacLellan), and Radient's CFO, Akio Ariura (Ariura) (collectively, referred to as Defendants).
The Section 10(b) and Rule 10b-5 claim was brought against all parties, but on October 26, 2011, this Court granted a Motion To Dismiss that claim as to Ariura. Order Granting In Part And Denying In Part Motion To Dismiss (Dkt. 30). Plaintiffs elected not to amend their complaint. Notice Of Lead Plaintiffs' Intent Not To Amend (Dkt. 31). Thus, the remaining claimses are Section 20(a) as to Ariura and MacLellan, and Section 10(b) and Rule 10b-5 as to MacLellan and Radient.
Plaintiffs have brought this Motion seeking to certify a class, and Defendants have filed two Oppositions: one on behalf of Radient (Dkt. 58), and the other on behalf of Ariura and MacLellan (Dkt. 59). For the reasons that follow, the Court GRANTS Plaintiffs' Motion To Certify Class.
Radient is a small pharmaceutical company whose main business is the research, development, manufacturing, and sale of Onko-Sure, a U.S. Food and Drug Administration ("FDA") approved In-Vitro Diagnostic Cancer Test. Amd. Cmpl. ¶¶ 2-3. Since at least the early 1980's, Onko-Sure has allegedly competed with the industry standard, the Carcinoembryonic Antigen marker test (the "CEA"). Id. at ¶ 3. Radient's efforts to convince medical practitioners and institutions to utilize Onko-Sure, instead of the CEA, have allegedly been a slow and expensive process. Id. at ¶ 4. Radient's reported revenue for the 2010 fiscal year was $231,662, its operating expenses were over $14 million, and its net loss was $85,711,853. Id. at ¶ 5. Radient allegedly acknowledged in its SEC filings that its ability to continue operations was dependent upon raising additional capital. Id. at ¶ 6. In short, Plaintiffs aver that, in the time leading up to the Class Period, Radient was desperate for operating cash. Id. at ¶ 9.
Additionally, Plaintiffs claim that, in the time leading up to the Class Period, Radient was also engaged in litigation with investors for either being in default or breach of its financing obligations. Id. at ¶ 11. Therefore, Plaintiffs allege that, Radient's stock price declined before the Class Period and its financing costs increased, including its ongoing obligations to pay interest and issue additional stock to existing investors. Id. Accordingly, Plaintiffs claim that Radient was under intense pressure to prevent any further stock price declines. Id.
Plaintiffs are suing over a press release issued on January 18, 2011, in which Defendants stated that Radient and the prestigious Mayo Clinic were conducting a clinical trial together for Onko-Sure. Id. at ¶¶ 2-3, 12, 35-36. Plaintiffs claim that Radient misled investors, taking advantage of the importance associated with such a joint clinical trial so that the company could inflate its stock price and raise more financing. Id. at ¶¶ 13, 37. Plaintiffs claim that just twelve days after the press release, on January 30, 2011, Radient successfully raised additional financing when it completed its largest offering ever. Id. at ¶ 14. Specifically, Radient received $6.73 million in proceeds when it signed a definitive agreement for the private placement of $8.4 million in Convertible Promissory notes. Id.
Plaintiffs allege that the press release was materially false and misleading because, according to an article issued by TheStreet.com on March 7, 2011: (1) the Mayo Clinic did not have a partnership agreement with Radient; (2) the Mayo Clinic was not engaged in clinical studies with Radient; (3) the Mayo Clinic was not to provide any clinical study results about Onko-Sure; and (4) the Mayo Clinic's only relationship with Radient was a contract between Radient and a subsidiary of the Mayo Clinic that sold blood and tissue samples for Radient's clinical trial.*fn3 Id. at ¶ 15. Plaintiffs aver that the news that the Mayo Clinic was not conducting a clinical trial with Radient caused Radient's stock to drop dramatically. Id. at ¶¶ 16, 40. The Company's stock price fell about 21 percent from its opening price on the day of TheStreet's report. Mot. 2. The extent of any collaboration between Radient and Mayo is sharply disputed, see Opp. 3-5; Reply 3-7, but that is properly a merits issue. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78 (1974).*fn4
Federal Rule of Civil Procedure 23 governs class actions. Fed. R. Civ. P. 23. A party seeking class certification must demonstrate the following prerequisites: "(1) numerosity of plaintiffs; (2) common questions of law or fact predominate; (3) the named plaintiff's claims and defenses are typical; and (4) the named plaintiff can adequately protect the interests of the class." Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citing Fed. R. Civ. P. 23(a)). A district court must engage in a "rigorous analysis" to determine whether the party seeking certification has met the prerequisites of Rule 23(a). Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1233 (9th Cir. 1996) (quoting In re Am. Med. Sys.,75 F.3d 1069, 1079 (6th Cir. 1996)). The party may not rest on mere allegations, but must provide facts to satisfy these requirements. Doninger v. Pac. Northwest Bell, Inc., 564 F.2d 1304, 1309 (9th Cir. 1977).
In addition to satisfying the four prerequisites of numerosity, commonality, typicality, and adequacy, a party must also demonstrate either: (1) a risk that separate actions would create incompatible standards of conduct for the defendant or prejudice individual class members not parties to the action; or (2) the defendant has treated the members of the class as a class, making appropriate injunctive or declaratory relief with respect to the class as a whole; or (3) common questions of law or fact predominate over questions affecting individual members and that a class action is a superior method for fairly and efficiently adjudicating the action. Fed. R. Civ. P. 23(b). Here, Plaintiffs move only under (b)(3).
The decision to grant or deny a motion for class certification is committed to the trial court's broad discretion. See, e.g., Yamamoto v. Omiya, 564 F.2d 1319, 1325 (9th Cir. 1977). In determining whether a plaintiff has satisfied the requirements of Rule 23, a court may not inquire into whether the plaintiff will prevail on the merits of the case. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, (1974). However, though a court must accept the substantive allegations in the complaint as true, In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 691 F.2d 1335, 1342 (9th Cir. 1982), in some cases it may be necessary for the court to look beyond the pleadings to determine whether the plaintiff has satisfied the certification requirements. Gen. Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 160, (1982).
Plaintiffs assert claims under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b--5. The elements of a § 10(b) private action are: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv. Partners, LLC v. Scientific--Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008). They also assert claims against Ariura and MacLellan for violating Section 20(a) of the Securities Exchange Act, which requires (1) an underlying violation of securities laws, and (2) that the individual defendants exercised actual power or control over the primary violator. Howard v. Everex Systems, Inc., 228 F.3d 1057, 1065 (9th Cir. 2000).
The chief point of contention here is the reliance element of the § 10(b) and 10b-5 claim. If Plaintiffs have to show how each individual investor relied on the press release, suing as a class would not be ...