Keywords: Securities Act, defendant, Fraud, Class Actions, Class Standing

I previously blogged about the Second Circuit's troubling decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. (pdf), 693 F.3d 145 (2d Cir. 2012), which invented a "class standing" doctrine allowing a named plaintiff in a class action to assert Securities Act claims regarding securities that he or she never purchased. In the wake of that decision, plaintiffs have filed a flurry of motions to reconsider district court decisions that had dismissed claims like these for lack of standing.

So far, a few courts have granted those motions and revived some or all of the previously dismissed claims. E.g., New Jersey Carpenters Health Fund v. DLJ Mortg. Capital, Inc. (pdf), 2013 WL 357615 (S.D.N.Y. Jan. 23, 2013). But other courts have declined to do so, preferring to wait for a decision on the pending certiorari petition in NECA.

Defendants facing such reconsideration motions should consider asking for a similar delay and preserve the argument that NECA is wrongly decided. There is little point litigating those claims in earnest until we know whether NECA's novel class-standing rule will be reviewed by the Supreme Court.

Alternatively, defendants could oppose reconsideration on the ground that the claims regarding the unpurchased securities don't truly raise the same set of concerns as the claims regarding the purchased securities, as required by the Second Circuit's new standing test. Indeed, in the New Jersey Carpenters case, the defendant was able to limit the reinstated claims by pointing to differences among the mortgage originators whose underwriting standards were allegedly misstated in the offering materials at issue.

Finally, if litigation of these revived claims re-commences, defendants should emphasize that NECA announced a mere standing rule—it did not decide that a named plaintiff who has bought security X can represent a class of purchasers of securities Y and Z. There likely will be ample fodder for challenging commonality, typicality, adequacy, and predominance at the class-certification stage.

Originally published on February 22, 2013.

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Edited by Archis A. Parasharami and Kevin S. Ranlett