A court may certify a class action under Federal Rule of Civil Procedure 23(b)(3) only if it is satisfied, "after a rigorous analysis,"1 that the plaintiffs have met the Rule 23(a) requirements of numerosity, commonality, typicality, and adequacy, and also shown that "the [common] questions of law or fact . . . predominate over any questions affecting individual members and that a class action is superior to other available methods for a fair and efficient adjudication of the controversy."2 The text of the Rule might seem to erect formidable barriers, but for years it has been received wisdom in the legal community that the degree of difficulty in getting a class certified depends in large part on the substantive theory of recovery.3 In particular, consensus holds that allegations of securities fraud are particularly suitable for class action treatment.4 Basic v. Levinson5 cut the individualized issue of reliance out of the securities and Exchange Commission's standard Rule 10b-5 cause of action,6 replacing it with the common issues of materiality and market efficiency, and the rest is history.7 In Amchem Products, Inc. v. Windsor,8 the Supreme Court notably failed to shake up this settled understanding, commenting that "[p]redominance is a test readily met in certain cases alleging consumer or securities fraud."9 Securities class actions now typically follow what one court has called an "all too familiar path":10 motions practice and discovery "of massive proportions,"11 followed by settlement on the eve of trial.12
How familiar is this pattern? A recent empirical survey of class actions in four federal districts over a two-year period found that a "(b)(3) class was certified in 94% to 100% of the securities cases ...."13 Such data have caused one commentator to opine that the securities class action is no longer best understood as a lawsuit at all.14 Instead, he argues, these suits "have more in common with business deals than they do with traditional adversarial litigation," and "the attorneys' activities are primarily business-oriented, not legal, in nature."15
This Article is written in the conviction that things are not quite as bad as all that (or quite as good, depending on which side of the case caption you are on). In many cases, class certification is not a foregone conclusion, and defense counsel would be well advised to oppose it vigorously. The purpose of this Article is to explore the situations in which such opposition has the best chance of success. Part II examines the easiest case for class certification. Part III discusses the ways in which allegations of securities fraud may depart from that paradigm case. Next, Part IV examines a recent decision of the Third Circuit that illustrates the correct approach to certification analysis. Finally, Part V sketches the most promising arguments with which to oppose motions for class certification in the securities fraud context.
Revisiting these issues is particularly timely given the 1998 adoption of Federal Rule of Civil Procedure 23(f), which allows, at the circuit court's discretion, immediate appeal of class certification rulings.16 Prior to the adoption of Rule 23(f), the district court's decision on class certification frequently ended the case, one way or the other, as a practical matter: the defendants would settle if the class was certified, and the plaintiffs would give up if it was not.17 With appellate review unavailable, most of the development of the Rule 23(b)(3) standards took place at the district court level. Rule 23(f) has allowed the appellate courts back into the process, and they have given every indication that they intend to take an active role. As Judge Easterbrook put it recently, district courts for too long have been forced to rely on "only decisions from other district judges, most in cases later settled and thus not subject to appellate consideration. By granting review now, we can consider whether these cases correctly understood the applicable principles. …