In re DVI Inc. Securities Litigation, --- F.R.D. ----, 2008 WL 1900384 (E.D.Pa. 2008)

Brief Summary
Because law firm’s allegedly fraudulent activity as defendant corporation’s counsel was never made public, and because the firm owed no direct duty of disclosure to the shareholders, the plaintiffs’ motion for class certification failed due to the inability to show that the plaintiff class as a whole relied on the firm’s alleged misrepresentations or omissions.

Complete Summary
Plaintiff investors sought class certification in a derivative suit against Diagnostic Ventures, Inc. (“DVI”) and against others who had allegedly aided DVI in committing securities fraud. One such co-defendant was law firm Clifford Chance LLP. Clifford Chance argued that, as to itself, class certification was improper under Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 128 S.Ct. 761 (2008). The district court agreed.

The court’s analysis began with Federal Rule of Civil Procedure 23(b)(3), which requires that issues common to the class predominate over individual class member issues. In assessing the predominance issue, the court looked to the elements underlying plaintiffs’ cause of action. The plaintiffs’ cause of action under Section 10(b) of the Securities Exchange Act included the necessary element of “reliance upon misrepresentation or omission[.]” The court reasoned that if plaintiffs were forced to prove reliance on the part of each individual class member, the predominance test would not be met and class certification would fail.

The court noted two ways that plaintiffs could avoid proving individual reliance. First, under the fraud on the market approach, investors are presumed to have relied on a misrepresentation if the misrepresentation was made publicly and the misinformation was arguably reflected in the company’s stock price. This exception, the court held, did not apply to Clifford Chance because, like the defendants in Stoneridge, Clifford Chance’s actions were never made public. Second, under the Affiliated Ute exception, reliance is presumed when the defendant has a direct duty to disclose information to investors but fails to do so. Again, and as with the defendants in Stoneridge, Clifford Chance had no direct duty of disclosure to DVI’s investors.

Significance of Opinion
This case presents one of the first applications of the Supreme Court’s holding in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. While not certifying a class against a law firm, the court did certify a class against defendants Merrill Lynch & Co., Inc., and Deloitte & Touche, LLP.

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Register Now for the Eighth Annual Legal Malpractice & Risk Management Conference and receive a 10% Early Bird Discount before December 1, 2008

for the Eighth Annual Legal Malpractice & Risk Management Conference and receive a 10% Early Bird Discount before December 1, 2008

March 4-6, 2009
The Westin Chicago River North Hotel
320 North Dearborn
Chicago, Illinois

Attend the industry's premier annual event focused on current and important developments in the law and litigation of malpractice claims, legal malpractice insurance and risk management strategies. Each conference panel examines recent case law and significant developments throughout the last year. One and one-half days will be devoted to legal malpractice (March 4-5), and one and one-half days will be devoted to risk management (March 5-6). The conference will be held in Chicago at The Westin Chicago River North Hotel.

Earn up to 13.75 hours of CLE credit including up to 5.50 ethics credit!

Conference Topics
Legal Malpractice Sessions (March 4-5)
• Guess Where You Are Being Sued – Bankruptcy Court
• Developments Concerning the Litigation Attorney – Jurisdiction, Ethics Rules and Admission of Fault
• Expert Witnesses – Selecting the Expert and Structuring the Interview
• Insurance Law – Prior Knowledge and Additional Negligence Claims
• Statutory Causes of Action – Consumer Protection Statutes
• Developments in Disciplinary Defense
• Stump the Panel

Legal Malpractice/Risk Management Cross-Over Sessions (March 5)
• Patent Law – Jurisdiction and Loss Measurement
• The Insurance Marketplace and Considerations
• Reducing Loss – Self-Help, Mitigation and Protection

Risk Management Sessions (March 5-6)
• The General Counsel Forum
• Plaintiff’s Perspective — Red Flags and Criteria Used in Selecting Cases
• Risk Management and Electronic Advertising — Websites and E-mail
• Grab and Leave Cases — How to Protect the Firm When People Leave
• On Horizon — Subprime, MJP and Alternative Billing

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Discounts (only one discount per person)
Returning registrants receive 5% off the conference price
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Early birds receive 10% until December 1, 2008

For more information, please visit www.LMRM.com or click here to Register Online Now! To speak with the Conference Planner, Katherine McCormack, please call 312-704-3329.