(N.D.Ill. 1981). Accordingly, and for the reasons set forth in
our prior opinion, any class certified herein would only include
those persons who purchased GSC stock on or before April 10,
1970, the third alternative class proposed by the plaintiffs.
As a preliminary matter, the plaintiffs have left it to the
Court to determine whether to name Abrams, Issen, or both of them
as class representatives. Throughout the course of this
litigation, Abrams and his counsel, with the stated agreement of
Issen and his counsel, have taken the lead in conducting
discovery, responding to defendants' various motions to dismiss
and for injunctive relief, and moving for class certification.*fn11
Whether or not Issen has effectively abandoned this case as
defendants charge, it is clear that he has not been as intimately
involved in this matter during the past five years as have Abrams
and his counsel.*fn12 In such circumstances, and in view of the fact
that the plaintiffs themselves apparently have no strong desire
to proceed as joint class representatives, Abrams would seem to
be the logical representative of the proposed class. The Court
suggests that Issen join in the class represented by Abrams so
that his claims can be adjudicated therein. Issen is requested to
advise the Court within twenty days as to his willingness to do
so. Accordingly, we now turn to a discussion of Abrams'
qualifications to lead a class of purchasers of GSC stock who
purchased between January 1, 1969, and April 10, 1970.
The class proposed in the renewed motion for class
certification is much narrower and involves fewer claims than did
the proposed class in plaintiffs' initial motion for class
certification. The renewed motion only seeks certification with
respect to the failure to disclose the details of loans made to
certain defendants during the proposed class period of
approximately 15 months. The initial motion sought certification
with respect to a host of unrelated omissions and
misrepresentations chargeable to defendants over the course of
approximately 55 months. Defendants continue to oppose class
certification on the ground that Abrams and the proposed class
fail to meet the requirements of Rule 23 of the Federal Rules of
Courts generally favor class actions in securities fraud cases,
King v. Kansas City Southern Industries, Inc., 519 F.2d 20, 26
(7th Cir. 1975); Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir.
1970); Helfand v. Cenco, Inc., 80 F.R.D. 1, 5 (N.D.Ill. 1977).
Since the claims of individual investors are often too small to
merit separate lawsuits, the class action is a useful device in
which to litigate similar claims as well as an efficient
deterrent against corporate wrongdoing. Blackie v. Barrack,
524 F.2d 891 (9th Cir. 1975); Green v. Wolf Corp., 406 F.2d 291 (2d
Cir. 1968), cert. denied, 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d
766 (1969). The class plaintiffs, however, still must bear the
burden of establishing compliance with the four requirements of
Rule 23(a) and at least one of the categories listed in Rule
23(b). Hochschuler v. G.D. Searle & Co., 82 F.R.D. 339, 343
(N.D.Ill. 1978); Thompson v. T.F.I. Companies, Inc., 64 F.R.D.
140, 145-46 (N.D.Ill. 1974). As set forth below, the class
proposed herein meets the four requirements of Fed.R.Civ.P. 23(a)
and Fed.R.Civ.P. 23(b)(3).
Numerosity: Fed.R.Civ.P. 23(a)(1)
GSC had in excess of 6,000 shareholders in 1969 and 1970 who
generated a trading volume of over 200,000 shares per year.
Although the exact size of a shareholder class running from
January 1, 1969, through April 10, 1970, is unknown, it appears
that the class is potentially so numerous that joinder would be
impractical as required by Rule 23(a)(1). If it should appear
that the class is not as large as expected, the Court will, of
course, retain the option to alter, amend, modify, or decertify
the class at a later date. Fed.R.Civ.P. 23(c)(1).
Common Questions of Law or Fact: Fed.R.Civ.P. 23(a)(2)
The common questions involved in this case are, broadly,
whether the defendants were obligated to disclose the details of
loans made to GSC officers and directors and whether the failure
to disclose the loan detail violates the federal securities law.
The assertedly material omissions occurred in documents
circulated throughout the proposed class period. Other courts
have found the requisite commonality of law or fact and certified
a class of stock purchasers based upon allegations of a series of
similar misrepresentations or nondisclosures all related to a
common theme and perpetrated over a period of time. Blackie v.
Barrack, 524 F.2d 891 (9th Cir. 1975); Green v. Wolf Corp.,
406 F.2d 291 (2d Cir. 1968), cert. denied, 395 U.S. 977, 89 S.Ct.
2131, 23 L.Ed.2d 766 (1969); Piel v. National Semiconductor
Corp., 86 F.R.D. 357 (E.D.Pa. 1980); Hochschuler v. G.D. Searle
& Co., 82 F.R.D. 339 (N.D.Ill. 1978); Lewis v. Capital Mortgage
Investments, 78 F.R.D. 295 (D.Md. 1977).
In our earlier opinion in this case, Issen v. GSC Enterprises,
Inc., 508 F. Supp. 1298 (N.D.Ill. 1981), we refused to certify the
class then proposed by the plaintiffs on the ground that it
lacked the requisite commonality of legal and factual questions.
As we said at that time:
the plaintiffs in the instant case have not alleged
similar fraudulent misrepresentations or
nondisclosures extending throughout the proposed
class period or even a common thread or scheme to
which all the alleged nondisclosures relate, aside
from the general claim of corporate mismanagement or
breach of fiduciary duty that seems to pervade the
complaint. Some of the purportedly undisclosed loans
were repaid or charged off as uncollectible well
before the close of the purported class period while
other allegedly undisclosed transactions did not
occur until near the end of the period. The mere
conclusory allegation that the defendants engaged in
a common course of conduct by which they failed to
disclose certain insider loans at one point in the
class period, the true financial position of the
corporation and its subsidiaries at another point in
the period, and certain questionable payments to or
for the benefit of corporate directors or controlling
shareholders at still other times during the six-year
period, along with various and sundry other
nonspecific allegations of nondisclosures, is
insufficient to draw this case within the ambit of
those cases in which a much narrower standard of
commonality of law or fact justified class treatment.
Rather, this case is more akin to others in which
courts have failed to find a scheme or course of
conduct involving common questions of law or fact in
a series of separate misrepresentations or
nondisclosures occurring over a long period of time.
Fruchthandler v. Blakely, 73 F.R.D. 318, 321
(S.D.N.Y. 1976) ("where the plaintiff alleges
omissions from several documents published over a
period of time, he must show at least a common thread
which unites the several documents
into one common course of action."); Levine v.
American Export Industries, Inc., CCH Fed.Sec.L.Rep.
¶ 95, 412 (S.D.N.Y. 1976); Feldman v. Lifton, 64
F.R.D. 539 (S.D.N.Y. 1976). See also Turner v. First
Wisconsin Mortgage Trust, 454 F. Supp. 899, 908-10
(E.D.Wis. 1978); Gross v. Diversified Mortgage
Investors, 438 F. Supp. 190, 196 (S.D.N.Y. 1977).
508 F. Supp. at 1301 (footnotes omitted).
By narrowing the scope of the class and the issues to be
accorded class treatment, the plaintiffs have now brought this
case within the ambit of those in which class certification of
common questions has been held to be appropriate. The common
course of conduct or scheme in the instant case involves the
continued failure to disclose the loan detail allegedly in
violation of the federal securities laws. Common questions
include, and are not necessarily limited to, the duty to disclose
the loan detail, the materiality of that information, the
existence of scienter, loss causation, and the effect of the
defendants' disclosure of the aggregate loan amounts. Individual
questions of reliance do not generally preclude class
certification. Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968),
cert. denied, 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766 (1969);
Helfand v. Cenco, Inc., 80 F.R.D. 1, 9 (N.D.Ill. 1977).
Accordingly, defendants' objections on this score are without
merit with respect to the substantially revised class.
Typicality: Fed.R.Civ.P. 23(a)(3)
Certain defendants contend that Abrams' claim for relief is not
typical of the class he seeks to represent because he is subject
to unique defenses relating to his asserted lack of reliance on
the GSC form 10-K report filed with the Securities and Exchange
Commission for the years 1969 and 1970 and GSC's proxy statements
for those years, which documents contain the omissions of the
loan detail upon which he bases his section 10(b) claim. As we
stated earlier in this opinion, however, Abrams may not state a
claim under section 10(b) or Rule 10b-5 based upon omissions
contained in GSC form 10-Ks filed with the SEC, the exclusive
remedy for such omissions being under section 18(a). Therefore,
any dispute as to his reliance on these documents is irrelevant
to the class certification question with respect to the section
10(b) claims. The defendants apparently do not dispute Abrams'
presumed reliance on the GSC annual report for 1969.
While reliance is generally presumed from a showing of
materiality in a nondisclosure case, Affiliated Ute Citizens v.
United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741
(1972), the presumption may be rebutted by the defendants through
an affirmative showing of nonreliance. Panter v. Marshall Field
& Company, 646 F.2d 271, 284 (7th Cir. 1981); Rochez Brothers,
Inc. v. Rhoades, 491 F.2d 402, 410 (3d Cir. 1973). The defendants
in the case at bar maintain that the fact and extent of Abrams'
reliance upon GSC proxy statements from which the loan detail was
omitted will likely be a major focus of this litigation and that
this defense, assertedly unique to Abrams, renders him an
atypical member of the class and thus unfit for the role of class
representative. Courts in this and other circuits have held that
"[w]here it is predictable that a major focus of the litigation
will be on an arguable defense unique to the named plaintiff or a
small subclass, then the named plaintiff is not a proper class
representative." Koos v. First National Bank of Peoria,
496 F.2d 1162, 1164-65 (7th Cir. 1974); Kline v. Wolf, 88 F.R.D. 696
(S.D.N.Y. 1981); Panzirer v. Wolf, [1979-80 Transfer Binder] CCH
Fed.Sec. 2 Rep. ¶ 97,251 and ¶ 97,363 (S.D.N.Y. 1980). But see
Wolgin v. Magic Marker Corp., 82 F.R.D. 168, 172-73 (E.D.Pa.
1979); Hurwitz v. R.B. Jones Corp., 76 F.R.D. 149, 158 (W.D.Mo.
In support of their contention that Abrams is subject to a
unique nonreliance defense, defendants argue that Abrams has
admitted that he did not see or rely on GSC proxy statements
prior to his stock purchase. At his deposition in November, 1974,
over four years from the date he purchased
shares of GSC stock, Abrams testified that he relied on documents
sent to him by his broker in early 1970 in deciding whether to
purchase the GSC stock. In the Court's view, a fair
characterization of Abrams' deposition testimony is that although
he could not recall the specific documents he was sent, he
thought he saw the GSC annual report for 1969 and thought it
possible that he also saw the latest GSC proxy statement. Far
from being unique among purchasers of GSC stock as a result of
his inability to recall the exact documents he saw prior to his
purchase years after the transaction took place, Abrams may be
entirely typical of the members of the class he seeks to
represent who doubtless would have similar memory problems
today.*fn13 As the Court noted in Hurwitz v. R.B. Jones Corp.,
supra, 76 F.R.D. at 158, "there is nothing `unique' about a
defense of lack of reliance. If it is an issue as defendants
contend, it is one that applies to each class member." As we
indicated earlier, while affirmative proof of nonreliance will
preclude recovery under the securities laws, the existence of
individual questions of reliance will not necessarily bar class
certification on the common questions involved. Green v. Wolf
Corporation, supra, 496 F.2d at 301. If necessary, the Court may
order separate hearings on the individual questions of reliance
after determination of the common questions of law and fact.
The instant case is distinguishable from others in which the
named plaintiff in a class action was held to be an inadequate
class representative because he or she either admitted
nonreliance upon the documents in question or the objective facts
indicated that the named plaintiff did not rely upon the
documents containing the alleged misrepresentations or
nondisclosures. For example, in Panzirer v. Wolf, supra, the
plaintiff testified at her deposition that she did not see a copy
of the company's annual report prior to her purchase of the
company's stock. Instead, she said that she bought the stock
because of an article about the company that appeared in the Wall
Street Journal on the day of her purchase. She later changed her
deposition testimony stating that prior to her purchase she also
discussed the company with her broker who read to her from the
company's Standard & Poor's "tear sheet" which contained some of
the information contained in the company's annual report. The
court found the plaintiff to be an atypical class representative
since there was a genuine issue as to whether she relied
primarily on the newspaper article rather than the market's
integrity or the alleged misrepresentations in the annual report.
Kline v. Wolf, supra, is a clearer case of atypicality. There,
one of the named class plaintiffs made his first purchase of the
company's stock more than a month before the publication of the
annual report alleged to contain misrepresentations and two
months before it was mailed to shareholders of record. The court
labelled the plaintiff's testimony that he read a copy of the
annual report before he purchased the stock as simply
"implausible" since it was "contradicted by the undisputed fact
that the Report, although dated August 18, 1978, was not mailed
to shareholders of record until September 8 and 11, 1978." 88
F.R.D. at 698. In Kline, the defendant had also submitted an
affidavit of the plaintiff's stockbroker in which the broker
denied sending the annual report to the plaintiff. The facts in
the case at bar are not as extreme as those in either Panzirer or
Adequacy of Representation: Fed.R.Civ.P. 23(a)(4)
In order to satisfy the requirements of Rule 23(a)(4), the
interests of the class representative must coincide with those of
the rest of the class and both the class representative and his
or her attorney must be prepared to prosecute the action
vigorously, tenaciously, and with adequate financial commitment.
Hochschuler v. G.D. Searle & Co., 82 F.R.D. 339, 348 (N.D.Ill.
1978). The only potentially serious question with respect to the
coincidence of Abrams' claim with those of the class he seeks to
represent involves the asserted unique reliance defense
applicable to Abrams discussed in the preceding section on the
typicality requirement of Rule 23(a)(3). The typicality
requirement and the adequacy of representation requirement tend
to overlap to this extent, Helfand v. Cenco, Inc., 80 F.R.D. 1,
6 (N.D.Ill. 1977), and there is no need to reiterate our prior
Regarding the other arm of the inquiry into adequacy of
representation, defendants maintain that Abrams and his attorneys
have not vigorously prosecuted this case, at least with respect
to the pre-merger claims. They argue that this case is now over
seven years old and that the plaintiffs have not exhibited the
proper degree of interest in bringing the issues raised to a
final determination on the merits. As we noted earlier in this
opinion, however, the defendants as well as the Court must bear
some responsibility for the relatively slow pace of this
litigation through the years. Notwithstanding the relative age of
this case, the Court notes that during the two years the case has
been assigned to our courtroom, Abrams has exhibited that degree
of diligence and attention to be expected of a class
representative. Moreover, in certifying an unrelated class with
Abrams as class representative last April, Judge Flaum, to whom
the instant case was previously assigned, noted that Abrams and
his counsel vigorously prosecuted this case when it was before
him. Abrams v. Household Finance Corporation, No. 74 C 2244,
Mem.Op. at 8 n. 4 (N.D.Ill., April 1, 1980).
In the Court's view, it is imperative that the class be
vigorously and competently represented in a case such as this so
that the rights of absent class members are adequately protected
years after the alleged violations took place. The Court will
continually monitor this action to assure that the class is
adequately represented now and in the future, and we will of
course retain the option to decertify the class should Abrams or
his counsel fall below the standard of care required. At this
point, however, we cannot agree with the defendants that Abrams
or his counsel are unqualified to represent the proposed class.
Finally, the Court is of the opinion that the common questions
of law and fact involved in this case predominate over any
individual questions and that a class action is a preferred way
in which to proceed. Fed.R.Civ.P. 23(b)(3). As noted earlier,
individual questions of reliance can be accommodated within the
class action context.
Accordingly, a class of purchasers of GSC common stock
exclusive of defendants and their families, will be certified for
the period between January 1, 1969, and April 10, 1970, with
Abrams as class representative. The Court retains the option to
modify, alter, or amend the class at a subsequent time should it
become necessary to do so. Fed.R.Civ.P. 23(c)(1).
In summary, Abrams' motion to amend his amended complaint is
granted, and Issen's motion to amend will be deferred pending his
advising the Court as to his willingness to join in the class
represented by Abrams. Defendants' motion to dismiss or, in the
alternative, for summary judgment is granted in part and denied
in part as set forth herein, and a class of purchasers of GSC
stock will be certified under Rule 23(b)(3) with respect to the
remaining claims under section 10(b) and Rule 10b-5.
It is so ordered.