On May 3, China Agritech successfully defeated a motion for class certification in a shareholder action filed in the U.S. This is the first court order denying class certification in a proposed securities class action against a China-based U.S.-listed company.
“Defeating a motion for class certification is very rarely accomplished in the U.S. courts,” says Bingna Guo, a Beijing-based O’Melveny & Myers partner who was part of the team that assisted China Agritech on its victory. “Instead of facing the challenges of potentially thousands of plaintiffs, China Agritech is now only facing challenges from four individual plaintiffs.”
She notes now the potential remedies the plaintiffs can ask for is substantially reduced and its client now faces a much more simplified case.
China Agritech’s legal team, which was led by O’Melveny partners Guo, Los Angeles-based Seth Aronson and New York-based Abby Ruzdin, persuaded the court that the plaintiffs were not entitled to class certification because they failed to prove that China Agritech’s stock traded in an efficient market – which is a prerequisite for maintaining a securities fraud class action for damages.
Guo says that with the recent heightened scrutiny by the U.S. securities regulator on China-based U.S.-listed companies, “this case shows that fighting against class certification is a tactic that Chinese companies facing securities litigations need to seriously consider.”
China Agritech was sued in February 2011 by Theodore Dean and other shareholders (the plaintiffs), alleging violations of several provisions in U.S. securities laws.
The plaintiffs’ attempt to certify the class to proceed with the lawsuit as a class action was defeated. The court denied their class certification for failure to prove that the stock traded in an efficient market, which is essential to invoke the fraud on the market presumption. ALB
Candice Mak is North Asia Editor at ALB. Follow her on Twitter: @ALB_Magazine.
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