Opinion by: Judge Anne K. Albright
Holding: Plaintiffs alleging securities fraud were denied class
certification because, despite demonstrating commonality of questions of law and
fact, they failed to show that joinder of approximately 35 putative claimants
was impracticable or that their claims were typical or their representation
adequate, given the variety in the source, nature of and reliance on information
received by the plaintiffs and putative class members.
Facts: The four Original Defendants were individuals and entities accused
of procuring investors for a Ponzi scheme run by three non-parties, the MLJ
Group. The second amended complaint named 14 New Defendants and additional related
claims.
Plaintiff’s Amended Motion for Class Certification requested certification
of a class of all persons who invested in securities, in the form of promissory
notes, by lending money to borrowers of the MLJ Group. The requested class excluded
individuals who profited off the Ponzi scheme and those affiliated with any
Defendant.
The Amended Motion was served via counsel on the Original Defendants, but there were no Affidavits of Service for the New Defendants. The Original Defendants
responded to the Amended Motion and participated in prior discovery; the New Defendants
did not do either.
Analysis: The Court held that the Amended Motion did not meet the threshold
requirements of Maryland Rule 2-231(b). As to the first numerosity requirement,
the Court accepted an Original Defendant’s estimate that the putative class
would be made up of 35 members, and the Plaintiffs provided only conclusory
arguments for why joinder would be impracticable. As to second requirement of
commonality, the Court was satisfied that Plaintiffs identified seven common questions
of law and fact.
As for the third typicality requirement, some Plaintiffs were contacted regarding
the transaction by a non-party accountant rather than a Defendant. Other putative
class members contacted by the Defendants themselves did not receive scripted,
uniform information. The variety in the sources of information, the information
received, and the reliance on the information makes the Plaintiffs’ claims less
typical.
As for the fourth adequacy requirement, because the Plaintiffs may have
relied on statements of the non-party accountant rather than a Defendant, the
named Plaintiffs cannot adequately represent the putative class. Additionally,
the accountant is both a potential target of claims and putative class member. Thus,
only one of the four threshold requirements of Maryland Rule 231(b) was met.
The Plaintiffs also failed to meet the requirements of Maryland Rule 2-231(c)(3).
As for the predominance requirement, fraud claims are not normally susceptible
to class treatment because there could be too much variety regarding the degree
of reliance placed on representations. This appears to be case here given the
role of the non-party accountant and the receipt of unscripted information, as
discussed above. As for the superiority of class action requirement, considering
the pre-set trial schedule, the fact that the New Defendants were not given a
chance to address these questions, and that more time would not cure the other failings
of the Amended Motion, Plaintiff’s argument fails.
Thus, Plaintiffs’ Amended Motion for Class Certification was denied.
The full opinion is available in PDF.
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