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IN RE NEOPHARM

August 17, 2004.

IN RE NEOPHARM, INC. SECURITIES LITIGATION.


The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge

MEMORANDUM OPINION AND ORDER

This case is a putative class action brought against defendants, NeoPharm, Inc. ("NeoPharm"), James M. Huffey ("Huffey"), and Inram Ahmad ("Ahmad") (collectively "defendants"), alleging violations of § 10(b) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78j(b), Rule 10b-5 promulgated under § 78j(b), and § 20(a) of the Act, 18 U.S.C. § 78t(a). Before the court is the renewed motion for class certification brought by lead plaintiff Operating Engineers Construction Industry and Miscellaneous Pension Fund, Local 66-Pittsburgh ("Operating Engineers"). Operating Engineers seeks an order certifying a class consisting of "all persons who purchased or otherwise acquired NeoPharm common stock between October 31, 2001 and April 19, 2002 and appointing Operating Engineers as class representative."*fn1 For the reasons set forth below, the motion is granted.

STANDARDS

  "The Federal Rules of Civil Procedure ("the Rules") provide the federal district courts with `broad discretion' to determine whether certification of a class-action lawsuit is appropriate." Keele v. Wexler, 149 F.3d 589, 592 (7th Cir. 1998). Under the Rules, a determination of class certification requires a two-step analysis. First, the named plaintiff must demonstrate that the action satisfies the four threshold requirements of Rule 23(a):
(1) numerosity (the class must be so large `that joinder of all members is impracticable'); (2) commonality (there must exist `questions of law or fact common to the class'); (3) typicality (named parties' claims or defenses `are typical . . . of the class'); and (4) adequacy of representation (the representative must be able to `fairly and adequately protect the interests of the class').
Id. at 594; Fed.R. Civ. P. 23(a). Additionally, the action must "qualify under one of the three subsections of Rule 23(b)." Hardin v. Harshbarger, 814 F. Supp. 703, 706 (N.D. Ill. 1993). In this case, Operating Engineers seeks certification under subsection 23(b)(3). Rule 23(b)(3) provides that an action may be maintained as a class action if "the court finds that questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." When evaluating a motion for class certification, the court accepts as true the allegations made in support of certification, and does not examine the merits of the case. Hardin, 814 F. Supp. at 706 (citing, inter alia, Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78 (1974)). The party seeking class certification bears the burden of showing that the requirements for class certification have been met. Id. (citing, inter alia, Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 161 (1982)). Failure to establish any one of the requirements precludes class certification. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993).

  BACKGROUND

  The court previously gave extensive treatment to the factual allegations of this case in its opinion denying in part defendants' motion to dismiss. See In re NeoPharm Sec. Litig., No. 02 C 2976, 2003 WL 262369 (N.D. Ill. Feb. 7, 2003). The factual background, therefore, will not be repeated again here.

  DISCUSSION

  A. Rule 23(a)

  1. Numerosity-Rule 23(a)(1)

  To meet the numerosity requirement, the class must be so large "that joinder of all members is impracticable." Keele, 149 F.3d at 594; Fed.R. Civ. P. 23(a)(1). In order to establish numerosity, a plaintiff need not allege the exact number of members of the proposed class. Johnson v. Rohr-Ville Motors, Inc., 189 F.R.D. 363, 368 (N.D. Ill. 1999). Generally, where the membership of the proposed class is at least 40, joinder is impracticable and the numerosity requirement is met. Id. (citing Swanson v. American Consumer Indus., Inc., 415 F.2d 1326, 1333 (7th Cir. 1969)). The court is entitled to make "common-sense assumptions that support a finding of numerosity." Gaspar v. Linvatec Corp., 167 F.R.D. 51, 56 (N.D. Ill. 1996).

  Defendants do not contest numerosity. Although Operating Engineers does not specify the exact number of proposed class members, the court is satisfied that the numerosity requirement is met. As Operating Engineers points out, NeoPharm stock trades on NASDAQ and more than 16 million shares are outstanding. It can be reasonably inferred that hundreds, if not thousands, of persons would be included in the proposed class. Because of this number of persons, it would be impracticable to join all individual class members in one suit. Accordingly, the court finds that the numerosity requirement has been satisfied. 2. Commonality-Rule 23(a)(2)

  To meet the commonality requirement, "there must exist `questions of law or fact' common to the class.'" Keele, 149 F.3d at 594; Fed.R. Civ. P. 23(a)(2); see also, Tylka v. Gerber Prods. Co., 178 F.R.D. 493, 496 (N.D. Ill. 1998) (noting that if at least one question of law or fact is common to the class, then commonality is satisfied). "A common nucleus of operative fact is usually enough to satisfy the commonality requirement of Rule 23(a)(2)." Keele, 149 F.3d at 594 (quotation omitted). A common nucleus of operative fact exists where "defendants have engaged in standardized conduct toward members of the proposed class." Id. "[T]he commonality requirement has been characterized as a `low hurdle' easily surmounted." Scholes v. Stone, McGuire & Benjamin, 143 F.R.D. 181, 185 (N.D. Ill. 1992).

  Defendants do not contest commonality. Operating Engineers points to several common questions of law and fact that exist as to all members of the proposed class, including (1) whether the defendants violated the Act; (2) whether the defendants omitted and/or misrepresented material facts; (3) whether defendants' statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; (iv) whether defendants knew or recklessly disregarded that their statements were false and misleading; (v) whether the price of NeoPharm's publicly traded securities were artificially inflated; and (vi) the extent of damage sustained by members of the putative class and the appropriate measure of damages. Based on these common questions of law and fact, the court finds that the commonality factor has been met. 3. Typicality-Rule 23(a)(3)

  To meet the typicality requirement, the named plaintiff's claims or defenses must be "typical . . . of the class." Keele, 149 F.3d at 594; Fed.R. Civ. P. 23(a)(3). The typicality requirement, although closely related to the commonality question, focuses on the class representative. "A plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory." Id. at 595 (citing De La Fuente v. Stoekly-Van Camp, Inc., 713 ...


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