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Premium Plus Partners, L.P. v. Davis

August 22, 2008

PREMIUM PLUS PARTNERS, L.P., PLAINTIFF,
v.
PETER J. DAVIS, JR., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Plaintiff Premium Partners, L.P.'s ("Premium") renewed motion for class certification. For the reasons stated below, we deny the motion.

BACKGROUND

Premium alleges that it held substantial short positions in 30-Year Treasury Options at 9:25 a.m. on October 31, 2001. Premium contends that Defendant Goldman, Sachs & Company ("Goldman") and Defendant Massachusetts Financial Services Company ("MFS") paid Defendant Peter J. Davis ("Davis") to funnel to them nonpublic information that Davis discovered at a confidential United States Department of Treasury ("Treasury Department") quarterly refunding meeting ("Meeting"), including a conference that took place between 9:00 a.m. and 9:25 a.m. on October 31, 2001. Davis allegedly learned during the Meeting that the Treasury Department would suspend the 30-Year Treasury Bond. Premium contends that when the information was released to the public, the demand for 30-Year Treasury Bonds increased and, in turn, the costs increased for investors that had to cover short positions in 30-Year Treasury Futures and 30-Year Treasury Bond Options.

According to Premium, after the Meeting at 9:35 a.m., Davis called Defendant John M. Youngdahl ("Youngdahl"), who works for Goldman, and at approximately 9:38 a.m., Davis called Defendant Steven E. Northern ("Northern"), who works for MFS. Davis allegedly informed Youngdahl and Northern that the Treasury Department was going to suspend the 30-Year Treasury Bond. Goldman then allegedly immediately purchased $84 million in 30-Year Treasury Bonds and significant amounts of 30-Year Treasury Futures. MFS also allegedly immediately purchased $65 million in 30-Year Treasury Bonds before public disclosures. Premium claims that Defendants manipulated the 30-Year Treasury Bond market, artificially influencing the price of 30-Year Treasury Bonds, Futures, and Options. That in turn allegedly required investors such as Premium to pay additional costs to cover short positions in 30-Year Treasury Futures and Options.

Premium includes in its complaint Commodity Exchange Act ("CEA"), 7 U.S.C. § 1 et seq., claims brought against Goldman and Youngdahl (Count I), CEA claims brought against MFS and Northern (Count II), a CEA claim brought against Davis (Count III), Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq., claims brought against all Defendants (Count IV), civil conspiracy claims brought against Goldman, Youngdahl, and Davis (Count V), civil conspiracy claims brought against MFS, Northern, and Davis (Count VI), Sherman Antitrust Act claims brought against Goldman, Youngdahl, and Davis (Count VII), and Sherman Antitrust Act claims brought against MFS, Northern, and Davis (Count VIII). The prior judge in this case granted in part and denied in part Defendants' motions to dismiss, dismissing all claims brought against Northern, and all state law claims (Counts IV-VI). The prior judge also dismissed all Sherman Act claims without prejudice.

On July 30, 2008, we granted MFS's motion for summary judgment in its entirety, and we granted Goldman's motion for summary judgment to the extent that the CEA claim brought against Goldman is based on the trades of 30-Year Treasury Bonds. We denied without prejudice Goldman's motion for summary judgment to the extent that the CEA claim is based upon alleged purchases of 30-Year Treasury Futures. We also granted Premium's motion for leave to conduct appropriate discovery and denied without prejudice Premium's motions to strike. Premium now requests that the court certify a class.

LEGAL STANDARD

A plaintiff seeking class certification must first satisfy the requirements of Federal Rule of Civil Procedure 23(a) ("Rule 23(a)"). Rule 23(a) provides the following: "[o]ne or more members of a class may sue or be sued as representative parties on behalf of all only if: (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a). Failure by a plaintiff to satisfy any one of the above requirements in Rule 23(a) precludes a court from granting the certification of a class. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993). If a plaintiff is able to satisfy all of the requirements of Rule 23(a), the district court must then determine whether a plaintiff's action can be maintained as a class action by meeting one of the requirements of Federal Rule of Civil Procedure 23(b) ("Rule 23(b)"). See Oshana v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006)(stating that "[t]he district court may certify a class of plaintiffs if the putative class satisfies all four requirements of Federal Rule of Civil Procedure 23(a)-numerosity, commonality, typicality, and adequacy of representation-and any one of the conditions of Rule 23(b)"); Williams v. Chartwell Fin. Servs., Ltd., 204 F.3d 748, 760 (7th Cir. 2001)(explaining Rule 23(b)). In order to determine whether a class should be certified, a court may make any "factual and legal inquiries . . . necessary under Rule 23." Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675-76 (7th Cir. 2001). A court need not accept a plaintiff's assertions as conclusive, but may receive any evidence necessary to make a decision on class certification. See id. (explaining why the court accepts a complaint's factual allegations when ruling on motions to dismiss under Rule 12(b)(6) but does not when ruling on class certification motions under Rule 23). A plaintiff seeking the certification of a class bears the burden of showing that a class should be certified. Oshana, 472 F.3d at 513.

DISCUSSION

Premium contends that the court should certify a class ("Proposed Class") that consists of "[a]ll individuals and entities who held short positions in 30--Year Treasury Futures or 30-Year Treasury Options as of 9:25 a.m. (EST) on October 31, 2001 and who covered such short positions at any time thereafter." (Ren. Mot. Cert. 1).

I. Scope of Class

Defendants argue that the scope of the Proposed Class is overbroad and speculative since it is an open-ended class. A plaintiff seeking class certification bears the burden of proving "that the class is indeed identifiable as a class." Oshana, 472 F.3d at 513. According to Premium's own allegations, there was a window of less than ten minutes, when Defendants' alleged misconduct could have impacted the 30-Year Treasury Futures market. Premium has not provided a sufficient explanation for including within the Proposed Class any investors that held their positions "as of 9:25 a.m." on October 31, 2001 and covered their positions "at any time thereafter." (Ren. Mot. Cert. 1). In theory, this would include investors that covered their positions days or months later. Premium has not shown that such transactions, which occurred after a myriad of other intervening events and fluctuations in the market, could have been impacted by Defendants' alleged misconduct. In particular, it would be extremely difficult to assess whether Defendants' alleged misconduct in any way affected the losses or gains for investors after the Treasury Department made its public disclosure and the prices immediately began to rise as a result. Thus, we conclude that the Proposed Class is overbroad and that Premium seeks to include class members that could base their claims for damages on nothing more than speculation. See Oshana, 472 F.3d at 513 (citing Alliance to End Repression v. Rochford, 565 F.2d 975, 977 (7th Cir. 1977) for the proposition that "class definitions must be definite enough that the class can be ascertained").

Premium also argues that the class is not open-ended since Chicago Board of Trade specifications would make June 22, 2002, the last possible end date for the class period due to deadlines for covering short positions. (Reply Cert. 22). We first note that Premium is improperly attempting to indirectly amend the Proposed Class in its reply brief. A party cannot present new arguments or positions in a reply brief and thereby deprive the opposing party an opportunity to respond. See Aliwoli v. Gilmore, 127 F.3d 632, 635 (7th Cir. 1997)(explaining that a party may not introduce novel arguments in its reply brief). If Premium believes that the class should be limited to those covering short positions by June 22, 2002, then Premium should have clearly provided such information as part of the Proposed Class. Only after Defendants have pointed to the flaws in the scope of the Proposed Class did Premium attempt to reference hidden intentions to limit the scope. Also, even if Premium is correct as to the June 22, 2002 date, the scope of the class would be expansive. The alleged misconduct occurred on October 31, 2001, and any transactions occurring within this newly suggested ...


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