In re: GENERAL INSTRUMENT CORPORATION SECURITIES LITIGATION No. 96 C 1129 United States District Court, N.D. Illinois, Eastern Division November 18, 1999 Leinenweber, Bobrick, United States Magistrate Judges MEMORANDUM OPINION AND ORDER *1 The following motions are before the court: Plaintiffs' Motion for Class Certification, Plaintiffs' Motion to Compel Defendants to Produce E–Mail and Other Computer–Generated Documents, and Plaintiffs' Motion to Compel the Forstmann Little Defendants to Produce Documents. FACTUAL BACKGROUND The following summary of the facts is taken from the Second Consolidated Amended Class Action Complaint. “In considering a motion for class certification, the substantive facts as alleged in the complaint are taken as true.” Beale v. Edgemark Finance Corp., 164 F.R.D. 649, 652 (N.D.Ill.1995). At all times relevant to this litigation, defendant General Instrument Corporation (“GI”) was engaged in the telecommunications business. GI manufactured analog addressable set-top terminals, commonly known as “cable television boxes.” GI was also involved in satellite television encryption and digital compression systems. The Class Period proposed by the plaintiffs begins on March 21, 1995 and ends on October 18, 1995. On March 21, 1995, the first day of the requested Class Period, GI filed its 1994 Annual Report. The Annual Report made various false claims regarding a new cable television box known as the CFT 2200 and a new digital compression system known as DigiCipher II. The Annual Report falsely claimed that various cable network operators had ordered significant quantities of the CFT 2200, that shipments of the CFT 2200 were scheduled to begin in 1995, and that “volume shipment” of DigiCipher II products was also expected to begin in 1995. Throughout the Class Period, GI continued to make false statements concerning the CFT 2200 and the DigiCipher II products. On several occasions during this time period GI made false claims regarding when the products would be shipped, among other false statements. Financial analysts, relying on GI's misrepresentations, issued positive reports regarding GI. On September 11, 1995, at a meeting attended by analysts from more than 100 securities firms, GI continued to make false claims regarding the CFT 2200 and DigiCipher II products. Nevertheless, at the same meeting GI disclosed that it would ship no more than 500,000 CFT 2200 units, not 800,000 as previously announced. GI also disclosed various problems relating to the shipment of DigiCipher II products. After these disclosures, the price of GI common stock declined 8.3 percent. On October 18, 1995, the last day of the proposed Class Period, GI reported a third quarter loss of $41 million. On the next day, GI stock plunged almost 25 percent in massive trading. As of March 15, 1995, there were approximately 122.4 million shares of the company's common stock outstanding. The average daily volume of trading in GI common stock during the requested Class Period was 1.1 million shares. Plaintiffs estimate that “thousands” of persons purchased GI stock during the requested Class Period. Second Consolidated Amended Class Action Complaint at ¶ 41. *2 There are five proposed class representatives. Jeffrey Heydt purchased 200 shares on June 20, 1995. Maurice Braunstein purchased 45 shares on July 20, 1995. Michael Golding purchased shares on July 21, 1995. Maurice Levie purchased 150 shares on September 13, 1995 and then purchased additional shares on October 3 and October 10, 1995. Mark Fisher purchased 500 shares on October 12, 1995. DISCUSSION Motion for Class Certification The plaintiffs move to certify a class as follows: all persons who purchased the common stock of GI during the period from March 21, 1995 to October 18, 1995, and who suffered damages as a result. The defendants in the present action are excluded from the class proposed by the plaintiffs. A motion for class certification may not form the basis for an inquiry into the substantive merits of the suit. Eisen v. Carlisle & Jacquelin, 94 S.Ct. 2140, 2152–2153 (1974). The court will therefore disregard the defendants' arguments regarding the substance of the allegedly untrue statements by GI. For the same reason the court will disregard the defendants' arguments that the proposed class period should be shortened in order to exclude certain statements which in the defendants' opinion are insufficiently related to the plaintiffs' claims. The criteria for certifying a class are set forth at Fed.R.Civ.P. 23. It is a two-step process. The first step is set forth at subdivision 23(a). Subdivision 23(a) lists four prerequisites for certifying a class: numerosity, commonality, typicality, and adequacy. See Fed.R.Civ.P. 23(a). If all four of the subdivision 23(a) prerequisites are satisfied, the court then moves to the second step, described in subdivision 23(b). Subdivision 23(b) lists three options, only one of which must be satisfied. The plaintiffs allege that the proposed class fits the third option, which is that “the 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.” Fed.R.Civ.P. 23(b)(3). The first 23(a) prerequisite is numerosity, i.e., that “the class is so numerous that joinder of all members is impracticable.” Fed.R.Civ.P. 23(a). The average daily volume of trading in GI common stock during the requested Class Period was 1.1 million shares, and plaintiffs estimate that thousands of persons bought shares during the requested Class Period. “A finding of numerosity may be supported by common sense assumptions.” In Re VMS Securities Litigation, 136 F.R.D. 466, 473 (N.D.Ill.1991). Here a common sense assumption where an average of more than 1 million shares are traded every day over the course of several months is that thousands of individuals bought shares during that time period. The court therefore finds that the class is so numerous that joinder of all members is impracticable, thereby satisfying the first prerequisite. *3 The second prerequisite is commonality, that “there are questions of law or fact common to the class.” Fed.R.Civ.P. 23(a). “The party seeking class certification must demonstrate that there is at least one question of law or fact common to the class. The commonality requirement is usually met where a question of law refers to standardized conduct by defendants toward members of the proposed class, thereby presenting a common nucleus of operative facts.” VMS at 473 (citations omitted). Here the “standardized conduct” by the defendant is the allegedly false statements made by the defendants. The legal and factual questions relating to these statements are common to the class members. The court therefore finds that the commonality requirement has been met. The third requirement is typicality, i.e., that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Fed.R.Civ.P. 23(a). The typicality requirement is liberally construed. Scholes v. Moore, 150 F.R.D. 133, 137 (N.D.Ill.1993). The representative parties' claims are typical if they “arise 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. Typical, however, does not mean identical.” Id. (internal citations omitted; internal quotation marks omitted). The defendants argue that the class representatives are not typical because none of the class representatives purchased stock prior to June 20, 1995, well after the beginning of the proposed class period (March 21, 1995). The defendants argue that as the representative plaintiffs did not buy their shares until later in the proposed class period, they are atypical of the class. The court finds this argument to be unconvincing. First, as was mentioned supra, the representative parties need not be identical in order to be typical. Second, regardless of when an individual purchased shares, the putative class members' claims would all arise from the same basic course of conduct by GI and would all be based on the same legal theory. See, e.g. Blackie v. Barrack, 524 F.2d 891, 902 (9th Cir.1975) (upholding district court's class certification where alleged securities fraud involved 45 documents issued over the course of 27 months). The court therefore finds that the typicality requirement is met. The fourth prerequisite is adequacy, i.e., that “the representative parties will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a). There are two parts to this inquiry: “(1) whether conflicts of interest exist between the representatives and the rest of the class members, and (2) whether the named plaintiffs' counsel will adequately protect the interests of the class.” VMS at 478. The defendants' argument on adequacy is similar to their argument on typicality. The defendants argue that there are conflicts of interests within the group of class representatives and between the representatives and the class members. With regard to the first conflict, the defendants argue that the interests of the five class representatives are in conflict because they each bought shares at different times. The representatives who bought shares earlier in the class period would have an interest in placing the blame on earlier statements by GI, while the representatives who bought later in the class period have an interest in placing the blame on later statements. With regard to the second conflict, the defendants argue that the representatives, none of whom bought shares prior to June 20, 1995, have a conflict of interest with the class members who bought shares earlier in the class period. The defendants argue that the conflicts of interest between the representatives themselves and between the representatives and the class members would preclude the representative parties from adequately protecting the interests of the class members. *4 The Seventh Circuit has noted that class action defendants' efforts to “help” the court by identifying supposed “conflicts of interest” among the defendants' adversaries should be viewed with some skepticism. “[I]t is often the defendant, preferring not to be successfully sued by anyone, who supposedly undertakes to assist the court in determining whether a putative class should be certified. When it comes, for instance, to determining whether ‘the representative parties will fairly and adequately protect the interests of the class,’ ... it is a bit like permitting a fox, although with a pious countenance, to take charge of the chicken house.” Eggleston v. Chicago Journeymen Plumbers, 657 F.2d 890, 895 (7th Cir.1981). The court acknowledges that a conflict of interest between early and late purchasers is at least theoretically possible. Nevertheless, the court finds that this theoretical conflict is outweighed by the practical consideration that the only way to completely avoid the potential for conflict would be to certify different classes for each day of the class period (or even, in this era of Internet day trading, each hour or minute of the class period). The court therefore finds that the possibility of a conflict of interest is an insufficient basis to warrant denying class certification. In making this decision the court notes that it is free to decertify or to create sub-classes later in the litigation if future developments warrant such an action. See Blackie v. Barrack, 524 F.2d 891, 911 (9th Cir.1975). The defendants have not made any challenge regarding the second part of the adequacy analysis, i.e., whether the named plaintiffs' counsel will adequately protect the interests of the class. The court has carefully reviewed the law firm resumes submitted by plaintiffs' counsel and concludes that plaintiffs' counsel appear to be well-qualified to litigate this action. The court further finds that plaintiffs' counsel appear to be vigorously litigating this action and there is no reason to believe that this vigorous representation will not continue after the class is certified. The court therefore concludes that the adequacy requirement has been met. The court has now found that each of the four 23(a) prerequisites have been met. As discussed supra, the next and final stage of the analysis is to determine whether the 23(b)(3) requirements have been met. The issues to be determined under subdivision 23(b)(3) are whether “the 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.” Fed.R.Civ.P. 23(b)(3). The court finds that the requirements of subdivision 23(b)(3) have been met. The principal issues of law and fact relate to GI's alleged misrepresentations. These issues are common to the members of the class and predominate over any questions affecting only individual members. The court further finds that a class action is superior to any other method for the fair and efficient adjudication of this controversy. In making this determination that a class action is the best method of adjudicating this dispute, the court is guided by “the strong policy favoring class actions in securities fraud actions.” Grossman v. Waste Management, Inc., 100 F.R.D. 781, 784 (N.D.Ill.1984), citing King v. Kansas City Southern Industries, Inc., 519 F.2d 20, 26 (7th Cir.1975). In a securities fraud action, “any error, if there is one, should be committed in favor of allowing a class action.” Eisenberg v. Gagnon, 766 F.2d 770, 785 (3rd Cir.1985). *5 Therefore, for the foregoing reasons, the plaintiffs' motion for class certification is granted. The class is certified as follows: “All persons who purchased the common stock of General Instrument Corporation during the period from March 21, 1995 to October 18, 1995 and who suffered damages as a result. Excluded from the class are the defendants (General Instrument Corporation, Forstmann Little & Co. and related entities, Daniel F. Akerson, Richard S. Friedland, Laurence L. Osterwise, Charles T. Dickston, Nicholas C. Forstmann, Theodore J. Forstmann, and Steven Klinsky); the officers, directors, partners, principals, affiliates, subsidiaries and parents of any defendant; members of the immediate family of any individual defendant; any entity in which any excluded person or entity has a controlling interest, and the legal representatives, heirs, successors and assigns of any excluded person or entity.” Motion to Compel Discovery The court will next address the plaintiffs' motion to compel discovery. In the motion the plaintiffs seek to compel the production of e-mail documents and other computer-generated evidence. The following facts appear to be undisputed. The plaintiffs served defendant GI with document requests for e-mail and other computer-generated evidence. GI searched for e-mail documents relating to seven individuals employed by GI. The search was restricted to the period between December 1994 and November 1995. In order to obtain the e-mail documents, GI searched backup tapes which stored old e-mails. GI has to date produced more than 110,000 pages of documents, including thousands of pages of e-mail. More than sixty depositions have been taken. The plaintiffs' principal arguments in favor of compelling production may be summarized as follows. First, the plaintiffs argue that GI improperly limited its document search by only searching for e-mails relating to seven GI employees and by only searching for e-mails sent during the period between December 1994 and November 1995. Second, plaintiffs argue that many email documents were retrieved and given to defense counsel but have not been produced to the plaintiffs. Third, the plaintiffs argue that retrieving the e-mail from the backup tapes is not unduly burdensome. The plaintiffs argue, based on an affidavit from their computer forensics expert, that the e-mails can be retrieved from the backup tapes with far less time and expense than what the defendants have claimed will be necessary. The defendants' arguments in response may be summarized as follows. First, the defendants argue that GI has already produced thousands of pages of e-mail and more than 110,000 pages of documents total. The defendants argue that the production of more documents would be of little value to the plaintiffs given the enormous number of documents already in their possession. Second, the defendants argue that plaintiffs' counsel has indicated to the court that the plaintiffs are done with discovery. Third, the defendants argue that the plaintiffs have not identified a single factual dispute for which they believe additional documents are necessary to prove their case. Fourth, the defendants argue that the document review required to produce the additional documents would impose an undue burden. The defendants assert that prior to producing additional documents they would be obliged to read them one by one to determine whether the documents are responsive and whether the documents contain privileged information. The defendants argue that the plaintiffs are seeking to burden the defendants with document production in an effort to distract them from expert discovery and pretrial preparation. *6 Discovery may be limited if the court determines that “the burden or expense of the proposed discovery outweighs its likely benefit” Fed.R.Civ.P. 26(b)(2). See Munoz–Santana v. INS, 742 F.2d 561 (9th Cir.1984). The court finds that the likely benefit of the requested discovery is minimal. There are three bases for this finding. First, the defendants have already produced more than 110,000 pages of documents, including thousands of pages of e-mail. Given the large number of documents already produced, the court finds it unlikely that additional documents are necessary. Second, the plaintiffs have not identified any specific factual issue for which additional discovery would help them prove their case. Third, the plaintiffs previously indicated to this court that discovery had been concluded. At a status hearing held before this court on October 8, 1999, plaintiffs' counsel stated, “We have no more discovery to take ... we're done.” Transcript of Proceedings for October 8, 1999, at 16. Plaintiff's counsel stated that it was “unlikely” that the plaintiffs would want to conduct any further discovery. Id. The court then ordered, without objection from plaintiffs' counsel, that discovery be closed on October 30. Id. Although the specific context of the discussion was depositions rather than paper discovery, it is clear to the court that plaintiffs' counsel did not believe that the production of the additional e-mails was an issue which would have precluded closing discovery on October 30. In this regard the court further notes that on October 6 the plaintiffs filed a motion requesting that the merits discovery cutoff be set for October 31. Plaintiffs' Motion to Set a Schedule for the Conclusion of Pretrial Proceedings in the Coordinated Actions at 2. In that motion plaintiffs stated, “Class plaintiffs have completed merits discovery.” Id. at 2. The court finds that the burden on defendants would be significant. It does appear to the court that the requested documents could be retrieved from the backup tapes without undue expense. Nevertheless, the technical matter of retrieving the documents from the backup tapes would be just the start of the process. Defense counsel would then have to read each e-mail, assess whether the e-mail was responsive, and then determine whether the e-mail contained privileged information. Given that the volume of e-mail at issue here is potentially very large, the court finds that the burden of reviewing the requested documents would be heavy. The court further notes that expert discovery is beginning. Forcing defense counsel to engage in document review would necessarily distract their energies from the other parts of this ongoing litigation. In weighing the burden of the requested discovery against its likely benefit, the court finds that the burden outweighs the benefit and that the plaintiffs' motion should therefore be denied. In making this ruling the court places significant weight on its finding that the plaintiffs have not identified any specific factual issue for which they believe the requested documents would be necessary. The court is willing to reconsider the plaintiffs' request if the plaintiffs indicate the specific factual issue or issue for which they in good faith reasonably believe the requested documents are necessary. The court's denial of the motion to compel will therefore be without prejudice. Motion to Compel Forstmann Little Defendants to Produce Documents *7 It appears to the court that the motion to compel Forstmann Little defendants to produce documents is now moot and that the motion may be denied on that basis. CONCLUSION Therefore, for the foregoing reasons, (1) The plaintiffs' motion for class certification is granted. The class is certified as follows: “All persons who purchased the common stock of General Instrument Corporation during the period from March 21, 1995 to October 18, 1995 and who suffered damages as a result. Excluded from the class are the defendants (General Instrument Corporation, Forstmann Little & Co. and related entities, Daniel F. Akerson, Richard S. Friedland, Laurence L. Osterwise, Charles T. Dickston, Nicholas C. Forstmann, Theodore J. Forstmann, and Steven Klinsky); the officers, directors, partners, principals, affiliates, subsidiaries and parents of any defendant; members of the immediate family of any individual defendant; any entity in which any excluded person or entity has a controlling interest, and the legal representatives, heirs, successors and assigns of any excluded person or entity.” 2) The plaintiff's motion to compel defendants to produce e-mail and other computer-generated documents is denied without prejudice. 3) The plaintiff's motion to compel the Forstmann Little defendants to produce documents is denied as moot. IT IS SO ORDERED.