In In re DVI Inc. Securities Litigation, Nos. 08-8033 & 08-8045, 2011 WL 1125926 (3d Cir. Mar. 29, 2011), the United States Court of Appeals for the Third Circuit affirmed an order granting in part a motion under Rule 23 of the Federal Rules of Civil Procedure to certify a class in a securities fraud action. In this decision, the Court made important determinations regarding the application of the fraud-on-market presumption of investor reliance and the role of loss causation at the class certification stage, holding that, in the Third Circuit, a plaintiff need not establish loss causation as a prerequisite to invoking the fraud-on-the-market presumption, but also holding that, once established, the presumption may be rebutted by showing that the misleading statements or corrective disclosures at issue did not affect the market price of the security. This decision is significant because it aligns the Third Circuit with the Second Circuit in allowing a defendant the opportunity to rebut the fraud-on-the-market presumption at the class certification stage.

Investors in Diagnostic Ventures, Inc. (“DVI”) brought this securities fraud class action against multiple parties, including DVI’s auditor, Deloitte & Touche LLP, and its legal counsel, Clifford Chance LLP, alleging violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiffs moved to certify a class under Federal Rule of Civil Procedure 23 on behalf of all DVI investors who purchased securities between August 10, 1999 and August 13, 2003, the period in which the company allegedly made misrepresentations. With respect to Deloitte, plaintiffs alleged that the auditor committed securities fraud by wrongfully issuing unqualified audit reports concerning DVI, hiding DVI’s allegedly improper accounting practices, and declining to force the company to disclose allegedly fraudulent acts. With respect to Clifford Chance, plaintiffs alleged that the law firm assisted DVI in an improper scheme via fraudulent financial reports, by conspiring with other defendants to hide material information about DVI’s financial condition, and by deflecting inquiries from the SEC.