Corporate Governance

Makor v Tellabs Class Certification

By Gregg Emmel

The Race to the Bottom has been covering the ongoing case of Tellabs and its progeny, a case mostly known for providing content to the pleading standards in the PSLRA.  You can can find the posts here.

Although the Supreme Court reversed the Seventh Circuit, the appellate court on remand reaffirmed its decision to allow the case to go forward.  The mandate, therefore, returned to the trial court.  The most recent development concerned class certification.

Tellabs is a Delaware corporation that designs, manufactures, markets, and services optical networking, broadband access, and voice quality enhancement solutions. Plaintiffs were current and former Tellabs investors, who alleged that the defendants violated securities laws by making deceptive statements. The defendants were Tellabs and four officers and or directors of Tellabs during the class period. In this action, plaintiffs sought to certify a particular nationwide class, class representatives, and class counsel for a putative class action.

The class comprised of all persons who purchased Tellabs common stock between December 11, 2000, and June 19, 2001, excluding the defendants, Tellabs subsidiaries, officers, and directors. Plaintiffs proposed three class representatives including Alan A. Mobley.

Defendants objected to the plaintiffs' definition and scope of the class, arguing that the class period should end almost two months earlier. Additionally, Tellabs asserted that the class should exclude Tellabs employees, members of the Brieger class (members of the class certified in the co-pending case Brieger v Tellabs), and 'in-and-out' purchasers. Defendants also objected to Mobley and the other proposed class representatives.

The court granted plaintiffs' motion for class certification, appointment of class representatives, and appointment of class counsel, however, the one exception was the exclusion of Mobley. Defendant's argument for an earlier end to the class period went to the merits of the case and did not impact the propriety of the certification of a later date. Similarly, the court concluded that 'in-and-out' traders who suffered damages during the class period would be included in the class, and excluding those who suffered no losses. The Brieger class members are not excluded from this class, because claim splitting, defendant's proposed reason for excluding these members, does not generally apply to class action suits. The Tellabs employees remained in the class at this stage, as there is no necessary impact on the class as defined; however, if evidence to the contrary arises during discovery the court may re-examine this issue.

Defendants argued that Mobley could not serve as a class representative because during the class period he made a net profit, as such he has no standing, and without standing, he cannot be typical of the members of the class. Mobley made numerous transactions during the class period and whether or not he made a net profit has yet to be determined, even determining how to assess his profit or loss is not certain. The court found that because of these issues, Mobley will have to spend more time establishing standing than others in the class, and therefore typicality is lost.

The primary materials for this post are available on the DU Corporate Governance Website.

Full post as published by The Race to the Bottom on April 21, 2009 (boomark / email).