Bass, Berry & Sims attorney Chris Lazarini analyzed a putative class action case that posed whether common questions of law or fact predominate on the reliance element of Plaintiffs’ Section 10(b) claims. The court concluded that they do not, relying on the threshold requirements set forth in FRCP 23(a) and (b): numerosity, commonality, typicality, and superiority, each of which must exist for class certification.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Roman vs. UBS Financial Services, Inc. of Puerto Rico, No. 12-1663 (D. P.R., 11/22/16)
*FRCP 23 (a) and (b) set out four threshold requirements for class certification: numerosity, commonality, typicality, and superiority, each of which must exist for class certification.
**Where individual issues of reliance predominate over common issues, class certification should be denied.Following multiple procedural events in this putative class action involving UBS’ Puerto Rico Bond Funds (the “Funds”), the Court adopted the Report and Recommendation of the Magistrate Judge that class certification should be denied because individual issues of reliance predominate over common ones. On Plaintiffs’ motion for reconsideration, the Court explains its prior order. Plaintiffs alleged that UBS manipulated demand for the Funds, controlled the secondary market in which the Funds traded, and favored reducing its inventory of the Funds over the interests of its clients, all while UBS’ financial advisors touted the Funds as safe. These fraud allegations, the Court explains, are based on alleged affirmative acts, as opposed to alleged “omissions” of material facts, and bring into focus whether common questions of law or fact predominate on the reliance element of Plaintiffs’ Section 10(b) claims.
The Court concludes that they do not. First, Plaintiffs conceded that they could not rely on the fraud-on-the-market presumption of reliance, because the Funds were not traded on a public exchange and did not trade in an efficient market. See Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011) (see SLA 2015-45) and Halliburton v. Erica P. John Fund, Inc., 573 U.S. ___, 134 S. Ct. 2398 (2014) (see SLA 2014-24) (both discussing the fraud-on-the-market theory).
Next, the Court rejects Plaintiffs’ claimed entitlement to an Affiliated Ute presumption of reliance for Defendants’ failure to disclose their alleged fraud. See Affiliated Ute Citizens of the State of Utah v. United States, 406 U.S. 128 (1972) (finding a presumption of reliance where defendants failed to disclose material facts in the face of a duty to disclose). The Court acknowledges that any fraudulent scheme involves some degree of concealment, but explains that courts have consistently limited Affiliated Ute to “omissions” cases so as not to allow the presumption to overwhelm the reliance requirement in cases involving affirmative acts. Here, the Court concludes, because Plaintiffs’ theory of liability is built on Defendants’ alleged affirmative acts, questions surrounding each putative class member’s reliance – based on his or her knowledge of and experience in the market, investment objectives, and information about the Funds obtained from his or her financial advisor – overwhelm any common issues and require denial of the request for class certification.