ENDOCHOICE HOLDINGS, INC. et al.
KENNETH T. RACZEWSKI et al. J.P. MORGAN SECURITIES, LLC et al.
KENNETH T. RACZEWSKI et al.
DILLARD, C. J., GOBEIL and HODGES, JJ.
securities fraud action, Kenneth T. Raczewski and Jesse L.
Bauer sued EndoChoice Holdings, LLC ("EndoChoice")
and certain of its executives and directors,  together with
J.P. Morgan Securities, LLC, Merrill Lynch, Pierce, Fenner,
& Smith, Inc., William Blair and Company, LLC, and
Stifel, Nicolaus, & Company, Inc. (collectively, the
"defendants") for violations of the Securities Act
of 1933 in connection with EndoChoice's 2015
initial public offering ("IPO"). The defendants
appeal from the certification of the class, arguing that the
trial court abused its discretion in certifying the class
under OCGA § 9-11-23 (a) (4) and (b) (3). After a review
of the record, we affirm the Superior Court of Fulton
County's grant of class certification.
record shows that EndoChoice is a medical device company
specializing in products used by gastrointestinal medical
providers. Its principal place of business is in Alpharetta,
Georgia. EndoChoice's IPO took place on June 5, 2015. In
connection with the IPO, EndoChoice filed a registration
statement on Form S-1 and Form S-1/A and a Prospectus
(collectively, the "offering materials") with the
U.S. Securities and Exchange Commission ("SEC"),
offering 6, 350, 000 shares of EndoChoice common stock at a
price of $15 per share. The offering materials highlighted
the "Fuse" endoscopy system, EndoChoice's
"flagship" product. The offering materials also
detailed EndoChoice's "world-class" sales force
and a second generation version of the Fuse system.
November 5, 2015, EndoChoice reported its results for the
third quarter of 2015, announcing that it had sold 21 Fuse
units, a number that fell short of the projected 26-27 units.
EndoChoice's stock price fell from $10.28 to $8.01 per
share after this news. Following a series of public
disclosures about the company's continued failure to meet
projected sales goals, EndoChoice shares closed at $5.09 per
share as of July 15, 2016. Thereafter, on September 27, 2016,
EndoChoice agreed to be acquired by Boston Scientific for $8
per share. The merger closed in November of 2016.
purchased 50 shares of EndoChoice stock on June 5, 2015, for
$14.50 per share, and 50 shares on June 9, 2015, for $19.00
per share. He sold his shares on November 21, 2016, at a
price of $8 per share. Raczewski purchased 750 shares of
EndoChoice stock on June 10, 2015, for $17.40 per share. He
sold his shares on October 12, 2016, at a price of $7.97 per
and Raczewski (collectively, the "plaintiffs")
filed the underlying complaint under §§ 11, 12 (a)
(2), and 15 of the Securities Act of 1933 (the
"Securities Act"),  alleging that the offering
materials contained material misrepresentations and omissions
in violation of the federal securities laws. The plaintiffs
allege the decline in sales was known at the time of the IPO
and that the defendants failed to disclose this information.
The plaintiffs allege that under § 11, the defendants
are strictly liable for any material misrepresentations or
omissions in the offering materials. They further allege the
defendants breached their affirmative duty to provide
adequate disclosures about risks, adverse conditions, and
market uncertainties, thereby violating 17 CFR § 229.303
(a) (3) (ii). The plaintiffs contend their damages are
traceable to the offering materials' allegedly false or
misleading information pertaining to the quality and design
of the Fuse system, the ability of EndoChoice's sales
force to effectively market and sell the Fuse system, and the
availability of the second generation Fuse system. The
plaintiffs proposed a class of persons or entities who were
damaged by purchasing or acquiring common stock pursuant or
traceable to EndoChoice's June 5, 2015 IPO.
plaintiffs filed a motion for class certification on May 30,
2017. The trial court conducted a hearing on the motion on
January 24, 2018. At the hearing, the parties stipulated that
the putative class satisfied the numerosity requirement of
OCGA § 9-11-23 (a) (1), the commonality requirement of
OCGA § 9-11-23 (a) (2), and the superiority requirement
of OCGA § 9-11-23 (b) (3). The trial court concluded
that the plaintiffs satisfied the typicality, adequacy, and
predominance requirements necessary to proceed on behalf of
the proposed class. The trial court limited the class to those
who purchased shares of EndoChoice common stock prior to
August 3, 2016.
reviewing a trial court's decision to certify a class, we
are mindful that trial courts are
vested with broad discretion to decide whether to certify a
class, and absent an abuse of that discretion, we will not
disturb the trial court's decision. Implicit in this
deferential standard of review is a recognition of the
fact-intensive basis of the certification inquiry and of the
trial court's inherent power to manage and control
pending litigation. Thus, we will affirm the trial
court's factual findings unless they are clearly
erroneous. Under the clearly erroneous test, factual findings
must be affirmed if supported by any evidence.
Lewis v. Knology, Inc., 341 Ga.App. 86, 87 (799
S.E.2d 247) (2017) (citations and punctuation omitted).
Moreover, "[t]he decision whether to certify a class
depends in large part upon the description of the class, the
claims raised and the evidence and arguments presented in
support of class certification. Accordingly, we consider this
case based upon the record before us[.]" Roland v.
Ford Motor Co., 288 Ga.App. 625, 632 (2) n. 7 (655
S.E.2d 259) (2007). Because OCGA § 9-11-23 is based on
Rule 23 of the Federal Rules of Civil Procedure, it is
appropriate that we look to federal cases interpreting that
rule for guidance. Lewis, 341 Ga.App. at 90 (1) n.
determining the propriety of a class action, the first issue
to be resolved is not whether the plaintiffs have stated a
cause of action or may ultimately prevail on the merits[, ]
but whether the requirements of OCGA § 9-11-23 (a) have
been met." Duffy v. The Landings Assn., 254
Ga.App. 506, 507 (1) (563 S.E.2d 174) (2002) (citation and
punctuation omitted). That subsection requires plaintiffs to
(1) numerosity-that the class is so numerous as to make it
impracticable to bring all members before the court; (2)
commonality-that there are questions of law and fact common
to the class members which predominate over any individual
questions; (3) typicality-that the claim of the named
plaintiff is typical of the claims of the class members; (4)
adequacy of representation-that the named plaintiff will
adequately represent the interest of the class; and (5)