Elkind v. Liggett & Myers, Inc.

United States District Court for the Southern District of New York · 1977 · Corporations

77 F.R.D. 708 (1977)

Updated August 22, 2026

CorporationsSecurities class actionsClass certificationRule 10b-5Rule 23(c)(1)class expansionadequate representationtypicality

Facts

Plaintiff alleged that after strong 1971 and first-quarter 1972 earnings, L & M knew by June 19, 1972 that its profit picture had sharply worsened but did not publicly disclose that information until July 18, 1972. He also alleged that beginning June 28, 1972, L & M selectively leaked the poor earnings information to certain brokers before the public announcement. Judge Cannella had certified one class for the nondisclosure claim starting June 19 and one for the tipping claim starting June 28, but both classes ended on July 12, 1972, the date plaintiff bought his shares. Plaintiff later developed evidence of post-July 12 tipping and argued that both classes should include purchasers through July 18, 1972.

Issue

May the court, before deciding the merits, expand previously certified Rule 10b-5 classes to include purchasers who bought stock after the named plaintiff's purchase date where the claims allege an ongoing scheme of nondisclosure and selective tipping through the later date? More specifically, can the named plaintiff adequately represent July 12 to July 18 purchasers on both the nondisclosure and tipping counts?

Rule

Under Rule 23(c)(1), a class certification order may be altered before the decision on the merits, including by expansion, when later-developed facts show that the named plaintiff can adequately represent the added members. Although the general rule in nondisclosure cases is that a plaintiff ordinarily should not represent purchasers who bought after his own purchase, that rule should yield to the facts of a particular case when the plaintiff alleges a common scheme or course of conduct extending through the later period and therefore has sufficient incentive to develop the facts affecting later purchasers.

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Nadia Kim filed a Rule 10b-5 class action in federal court in Manhattan against Pine Harbor Foods, alleging the company concealed a sharp earnings collapse from March 3 until March 20 while selectively leaking the news to favored analysts. The court initially certified a class ending on March 14, the date Nadia bought her shares, and expressly stated the order was subject to alteration. On the first day of a bench trial, before any merits ruling, Nadia moved to extend the class through March 20 based on discovery obtained after certification.

How should the court rule on Nadia's motion to expand the class?

Explanation. Rule 23(c)(1) allows a certification order to be altered or amended before the decision on the merits, and the opinion recognizes that this can include expansion, not just limitation. The key is whether later-developed facts show the named plaintiff can adequately represent later purchasers despite the usual concern in nondisclosure cases. (Derived from Elkind v. Liggett & Myers, Inc. (1977).)