Economic Analysis and Identification of Class Conflicts in Securities Fraud Litigation
1 June 1998
By Dr. David Tabak
The potential existence and scope of conflicts among plaintiffs is one of the few arenas in which a bid for class certification in securities class actions can be argued with highly specific references to the case at bar. A grant of class certification requires a showing of numerosity, typicality, commonality, and adequacy of class counsel. If, as is generally the case, a stock had at least moderately active trading over the proposed class period and plaintiffs' counsel is at least conversant in securities litigation, courts are unlikely to deny a grant of class certification based on lack of numerosity or prima facie inadequacy of counsel. Instead, parties seeking to block class certification are likely to have more success in examining possible conflicts between different plaintiffs' interests, and by extension, whether named plaintiffs represent the largest group of putative class members.
Many recent motions both supporting and opposing class certification have presented only theoretical discussions of the potential for class conflicts. Often, courts have virtually cried out for empirical evidence to help them assess the severity of the purported conflicts. Without such evidence, courts may be unable to weigh the relative merits of motions for or against class certification in different cases; the parties may then find it exceedingly difficult to persuade the Court to change any previously held opinions. In this paper, Dr. Tabak describes the nature of potential conflicts among plaintiffs, examines the circumstances that determine the magnitude of these conflicts, and shows how data can be used to measure the severity of the conflicts and to identify by name some of the opposing parties. He also shows that, unless proven otherwise, there is always the possibility that some prospective class members have interests that are in conflict with those of others.
