Can a plaintiff who bought a security in one offering bring a class action on behalf of purchasers in other offerings if the plaintiff alleges a misstatement common to all of the offerings? In cases under Sections 11 and 12 of the 1933 Securities Act—particularly those involving mortgage-backed securities—the consensus view had been that a plaintiff lacked standing to assert class claims regarding offerings in which the plaintiff did not buy. On September 6, the Second Circuit rejected that consensus view in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. (pdf)., creating a split with the First Circuit’s decision in Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp. (pdf), 632 F.3d 762 (1st Cir. 2011). Plaintiffs’ lawyers may seek to use the NECA-IBEW decision to broaden class litigation against securities issuers and underwriters.
On the “class standing” issue, the Second Circuit took the position that “in a putative class action, a plaintiff has class standing if he plausibly alleges (1) that he ‘personally suffered some actual . . . injury as a result of the putatively illegal conduct of the defendant,’ . . . and (2) that such conduct implicates ‘the same set of concerns’ as the conduct alleged to have caused injury to other members of the putative class by the same defendants.” The court gave an example of a suit over a series of corporate debt offerings that contained identical misrepresentations about the issuing company’s solvency. In the Second Circuit’s view, such multiple offerings can implicate the same set of concerns and thus create class standing. But the court emphasized that just because a plaintiff may have class standing to bring claims over offerings in which the plaintiff did not purchase, class certification is not necessarily appropriate. Standing “is an inquiry separate from [the plaintiff’s] ability to represent the interests of absent class members under Fed. R. Civ. P. 23(a).”
Because of the circuit split it creates, NECA-IBEW may well be subject to further review (either en banc or by the Supreme Court). But in the meantime, defense counsel laboring in the Second Circuit should be prepared to argue against standing by showing that different securities offerings involve materially different evidence and thus raise different concerns. And, if necessary, they should attack class certification under Rule 23 regardless of whether the court finds that class standing exists.