Willis v. Big Lots, Inc., No. 12-cv-604 (S.D. Ohio Mar. 17, 2017)
Judge Michael H. Watson granted the plaintiffs’ motion for class certification and appointed two institutional investors as lead plaintiffs in a securities fraud class action brought against a closeout retailer and its officers under Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5. The plaintiffs alleged that the company provided false and misleading information to investors regarding the retailer’s performance and prospects during the class period, which artificially inflated the retailer’s stock price. The defendants opposed class certification, arguing that the institutional investors did not have claims typical of all class members, they were not adequate representatives for the class, and individual damages and reliance issues would predominate over classwide issues.
The court rejected the defendants’ argument against typicality, reasoning that the plaintiffs’ claims — which depended on the fraud-on-the-market reliance theory — were typical of the class, and the institutional investors — who used investment advisers — were not subject to any unique nonreliance defenses because investment advisers still rely on publicly available information, including a stock’s market price. Because all class members had an interest in proving the retailer’s stock was artificially inflated during the class period regardless of their specific purchase and sale dates, the court rejected the defendants’ argument that the institutional investors were inadequate class representatives because they sold their interests prior to the end of the class period. The court swiftly dismissed the defendants’ other adequacy arguments, pointing to the institutional investors’ active commitment to the case.
Finally, the court concluded that individual inquiries regarding reliance and damages would not predominate. Because the plaintiffs advanced a methodology for calculating damages on a classwide basis that was consistent with their theory of liability, the court found that individual damages issues would not predominate over classwide issues. The court also determined that plaintiffs could invoke the rebuttable presumption of reliance set forth in Basic v. Levinson, 485 U.S. 224 (1988). The defendants attempted to rebut this presumption, arguing that the company’s stock price was inefficient because it did not increase in a statistically significant manner at the time of the alleged misrepresentations. Citing the U.S. Supreme Court’s statement in Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), that price impact may be rebutted with “evidence that the misrepresentation (or its correction) did not affect the market price of the defendant’s stock,” the court adopted the “price maintenance theory,” reasoning that a misrepresentation may also have a price impact, by maintaining a stock’s artificially inflated price. The court concluded that the defendants failed to rebut the Basic presumption because they failed to show that there was no statistically significant price impact following the corrective disclosures. Accordingly, the court certified the class and appointed the institutional investors as class representatives.