In re Chicago Bridge & Iron Company N.V. Securities Litigation

Background

Plaintiffs ALSAR Ltd. Partnership, Ironworkers Local 40, 361 and 417 Union Security Funds, and Iron Workers Local 580 Joint Funds brought a proposed securities-fraud class action against Chicago Bridge & Iron Company N.V., Philip K. Asherman, Ronald A. Ballschmiede, and Westley S. Stockton. They alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

Plaintiffs moved for class certification under Federal Rule of Civil Procedure 23. The court had appointed retired United States District Judge Shira A. Scheindlin as Special Master. After reviewing the parties’ submissions and holding an evidentiary hearing, the Special Master recommended certifying the class, appointing ALSAR and Ironworkers as class representatives, appointing Kahn Swick & Foti as class counsel, and defining the class period as October 30, 2013, through June 23, 2015. Defendants objected to the recommendations concerning typicality, adequacy, predominance, the class period, and other issues.

Court’s analysis

Rule 23 requires a proposed class to satisfy requirements including numerosity, commonality, typicality, adequacy of representation, ascertainability, predominance of common issues, and superiority of the class action over other methods of resolving the dispute. The court reviewed the challenged legal conclusions independently and reviewed unchallenged findings for clear error.

The court rejected Defendants’ objections concerning predominance. Defendants argued that individual questions about whether class members relied on alleged misrepresentations would prevent class treatment. Plaintiffs relied on the fraud-on-the-market presumption, which generally allows reliance to be presumed when the stock traded in an efficient market. Defendants conceded for class-certification purposes that the market for Chicago Bridge & Iron stock was efficient.

The court held that Defendants had not shown a complete lack of price impact sufficient to defeat that presumption. It ruled that Defendants bore the burden of persuasion and had to prove the absence of price impact by a preponderance of the evidence. The court also rejected the argument that a five-percent statistical-significance threshold was required in every case. It concluded that results between five and ten percent could be considered in context, although weaker statistical significance provided less support for the ultimate finding.

The court further held that the alleged corrective disclosures could be evaluated at the class-certification stage. It agreed that the Vertical Research Partners report and the Prescience Point Research Group report contained information that could be new and corrective, rather than merely speculation or repetition of public information. It also upheld the Special Master’s conclusions that several other disclosures were corrective, including disclosures concerning Chicago Bridge & Iron’s accounting, construction delays, cost estimates, and potential responsibility for project problems. The court also upheld use of a price-maintenance theory for an alleged misrepresentation in Chicago Bridge & Iron’s April 23, 2015, quarterly filing.

The court rejected Defendants’ challenge to the adequacy of the proposed representatives and counsel. It found no basis to disqualify the proposed representatives or counsel because of their fee-sharing agreement and noted that the agreement complied with the rules identified in the opinion. The court also found the remaining class-certification requirements satisfied, including numerosity, commonality, typicality, ascertainability, and superiority.

Disposition

The court adopted the Special Master’s report except to the extent its reasoning was inconsistent with the opinion and granted Plaintiffs’ motion. The court appointed ALSAR and Ironworkers as class representatives for a class consisting of people and entities that purchased or otherwise acquired Chicago Bridge & Iron Company N.V. common stock on the New York Stock Exchange from October 30, 2013, through June 23, 2015. The class excludes Defendants; CBI’s officers and directors; their immediate family members and legal representatives, heirs, successors, and assigns; and entities in which Defendants had or have a controlling interest.

The court appointed Kahn Swick & Foti as class counsel. It ordered the parties to confer and submit a proposed form and manner of notice for the court’s review by April 13, 2020, or to identify any disagreement about the notice. The Clerk was directed to close the motion at Docket No. 179. This order decided class-certification issues; it did not determine whether Defendants were ultimately liable for securities-law violations.