(Article from Securities Law Alert, November/December 2017)
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On November 7, 2017, the Northern District of Texas denied plaintiffs’ motion for class certification in an action related to R. Allen Stanford’s Ponzi scheme. Rotstain v. Trustmark National Bank, No. 3:09-CV-2384-N (N.D. Tex. 2017) (Godbey, J.).[1] The court found the Rule 23(b)(3) predominance requirement was not satisfied because the “investors had different financial advisors who made varying oral representations in separate sales pitches for the” Stanford International Bank Limited (“SIBL”) certificates of deposit (“CDs”) at issue. The court reasoned that even if it assumed that “every class member’s claim is predicated on the sole, common omission that SIBL was a Ponzi scheme, this omission was made in a variety of differing contexts.”
The Northern District of Texas found instructive the Fifth Circuit’s decision in Simon v. Merrill Lynch, Pierce, Fenner & Smith, 482 F.2d 880 (5th Cir. 1973). There, the Fifth Circuit affirmed the district court’s denial of class certification based on plaintiff’s “failure to prove any standardized representations” by the defendant. The Fifth Circuit reasoned that “[i]f there is any material variation in the representations made or in the degrees of reliance thereupon, a fraud case may be unsuited for treatment as a class action.” The Fifth Circuit also found it significant that plaintiff “premised his reliance on the oral touting” of a security rather than a written statement. The Fifth Circuit explained that “courts usually hold that an action based substantially, as here, on oral rather than written misrepresentations cannot be maintained as a class action.”
The Northern District of Texas also relied on its prior decision in Gyarmathy & Associates v. TIG Insurance Co., 2003 WL 21339279 (N.D. Tex. June 3, 2003) (Godbey, J.). There, the court found the predominance requirement was not satisfied where “potential class members received varying [oral] representations from their brokers” in addition to written materials that “may have been identical.”
In the instant action, plaintiffs sought to represent a class consisting of more than 17,000 investors in SIBL CDs. “Given the varying oral representations made to” the thousands of putative class members, the Northern District of Texas concluded that plaintiffs “failed to carry their burden of showing that common issues of fact would predominate, as required by Rule 23(b)(3).”
[1] Simpson Thacher represents The Toronto-Dominion Bank in this matter.