Chapter 25

Economic Analysis in Securities Class Certification

Cathy M. NidenMohan Rao

25.1 Introduction

Proposed class actions must satisfy requirements for class certification before proceeding to litigation. Rule 23 of the Federal Rules of Civil Procedure (FRCP) addresses the procedural aspects of federal class actions. Parts (a) and (b) of Rule 23 specify the criteria the court must consider in deciding whether to grant class certification. A proposed class action must meet all of the requirements of Rule 23(a):

1. The class is so numerous that joinder of all members is impracticable [numerosity];
2. There are questions of law or fact common to the class [commonality];
3. The claims or defenses of the representative parties are typical of the claims or defenses of the class [typicality]; and
4. The representative parties will fairly and adequately protect the interests of the class [adequacy].1

In addition to satisfying Rule 23(a), a proposed class must meet at least one of the three criteria laid out in Rule 23(b) of the FRCP:

A class action may be maintained if Rule 23(a) is satisfied and if:

1. prosecuting separate actions by or against individual class members would create a risk of:
A. inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or
B. adjudications with respect to individual class members that, as a practical matter, would be dispositive of the ...

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