I previously blogged about the Second Circuit’s troubling decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. (pdf), 693 F.3d 145 (2d Cir. 2012), which invented a “class standing” doctrine allowing a named plaintiff in a class action to assert Securities Act claims regarding securities that he or she never purchased. In the wake of that decision, plaintiffs have filed a flurry of motions to reconsider district court decisions that had dismissed claims like these for lack of standing.
So far, a few courts have granted those motions and revived some or all of the previously dismissed claims. E.g., New Jersey Carpenters Health Fund v. DLJ Mortg. Capital, Inc. (pdf), 2013 WL 357615 (S.D.N.Y. Jan. 23, 2013). But other courts have declined to do so, preferring to wait for a decision on the pending certiorari petition in NECA.
Defendants facing such reconsideration motions should consider asking for a similar delay and preserve the argument that NECA is wrongly decided. There is little point litigating those claims in earnest until we know whether NECA’s novel class-standing rule will be reviewed by the Supreme Court.
Alternatively, defendants could oppose reconsideration on the ground that the claims regarding the unpurchased securities don’t truly raise the same set of concerns as the claims regarding the purchased securities, as required by the Second Circuit’s new standing test. Indeed, in the New Jersey Carpenters case, the defendant was able to limit the reinstated claims by pointing to differences among the mortgage originators whose underwriting standards were allegedly misstated in the offering materials at issue.
Finally, if litigation of these revived claims re-commences, defendants should emphasize that NECA announced a mere standing rule—it did not decide that a named plaintiff who has bought security X can represent a class of purchasers of securities Y and Z. There likely will be ample fodder for challenging commonality, typicality, adequacy, and predominance at the class-certification stage.