By: Daily Record Staff//March 19, 2013
By: Daily Record Staff//March 19, 2013//
U.S. COURT OF APPEALS FOR THE SECOND CIRCUIT
Duty of Disclosure
Class Certification — Predominance
Levitt v. J.P. Morgan Securities Inc.
Judges Pooler, Livingston and Carney
Background: The defendants appealed from an order granting the plaintiffs’ motion for class certification. The defendants argued that the court erred certifying the class under violations of the Securities Exchange Act, Section 10(b) because the defendant as a clearing firm engaged in mere clearing conduct. Therefore, the defendant owed no fiduciary duty to the plaintiffs who were customers of the introducing broker-dealer.
Ruling: The Second Circuit reversed. The court found that the district court improperly applied a presumption of reliance. Absent the presumption, the class failed to satisfy the predominance requirement of Rule 23(b)(3) of the Federal Rules of Civil Procedure. Specifically, the defendants continuing to clear transactions for another defendant despite alleged knowledge of the ongoing manipulative scheme and by failing to cancel unpaid trades did not trigger a duty of disclosure.
Kerry A. Dziubek of Arnold & Porter for the defendants-third-party-plaintiffs-cross-defendants-appellants; Leslie Trager for the plaintiffs-appellees