Free Reply to Response to Motion - District Court of Arizona - Arizona

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Barry G. Reed, AZ Bar No. 020906 Hart L. Robinovitch, AZ Bar No. 020910 ZIMMERMAN REED P.L.L.P. 14646 N. Kierland Boulevard, Suite 145 Scottsdale, AZ 85254 Telephone: (480) 348-6400 Facsimile: (480) 348-6415 Email: [email protected] Carolyn G. Anderson (admitted Pro Hac Vice) Timothy J. Becker (admitted Pro Hac Vice) Anne T. Regan (admitted Pro Hac Vice) ZIMMERMAN REED P.L.L.P. 651 Nicollet Mall, Suite 501 Minneapolis, Minnesota 55402 Telephone: (612) 341-0400 Email: [email protected] Richard A. Lockridge (admitted Pro Hac Vice) Gregg M. Fishbein (admitted Pro Hac Vice) Mary E. Briedé (admitted Pro Hac Vice) LOCKRIDGE GRINDAL NAUEN, P.L.L.P. 100 Washington Avenue South, Suite 2200 Minneapolis, Minnesota 55401 Telephone: (612) 339-6900 Email: [email protected] Attorneys for Plaintiffs UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) ) ) ) ) Plaintiffs, ) ) v. ) ) American Express Financial Advisors, Inc., aka Ameriprise Financial, ) ) Inc., ) ) Defendant. John Haritos, David and Emily Austin, Michael Tooley, and Omar Shahine, On Behalf of Themselves and all Others Similarly Situated, Case No.: 02-2255 PHX-PGR PLAINTIFFS' REPLY MEMORANDUM SUPPORTING THEIR MOTION FOR CLASS CERTIFICATION ORAL ARGUMENT REQUESTED (Assigned to the Honorable Paul G. Rosenblatt)

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TABLE OF CONTENTS INTRODUCTION ...................................................................................................... II Common Issues of Fact or Law Predominate............................................ 3 A. Individual Questions Do Not Swamp the Common Ones. ............................ 3 B. Reliance On Material Omissions Would Be Presumed. ................................ 5 C. Under Advisers Act Section 206(2), No Showing of Reliance Is Required. Plaintiffs Need Only Present Common Proof of a Material Omission. . 5 II. Classwide Treatment Is Not Only the Superior Treatment, It is Likely the Only Treatment for Claims Similar to The Claims In This Case. .... 8 A. Morris Is Inapplicable to the Class Certification Motion Before this Court. 8 B. AEFA's "Value Conferred" Offset Defense Does Not Present Manageability Issues. ................................................................................................... 11 III. The Named Plaintiffs Are Adequate......................................................... 13 CONCLUSION .......................................................................................................... 15 I.

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TABLE OF AUTHORITIES CASES Abrahamson v. Fleschner, 568 F.2d 862 (2d Cir. 1977).......................................... 6 Citizens Ins. Co. v. Daccahch, 105 S.W. 3d 712 (Tex. Ct. App. 2003)................. 15 County of Suffolk v. Long Island Lighting Co, 710 F. Supp. 1407 (E.D. N.Y. 1983) ................................................................................................................. 14 Fickinger v. C.I. Plan'g Corp., 103 F.R.D. 529 (E.D. Pa. 1984)........................... 13 In re Ashanti Goldfields Sec. Litig., No. CV 00-0717, 2004 U.S. Dist. LEXIS 5165, at *45-46 (E.D.N.Y. Mar. 30, 2004)....................................................... 13 In re Potash Antitrust Litig., 159 F.R.D. 682 (D. Minn. 1995) ............................. 10 In re Sugar Indus. Antitrust Litig., MDL No. 201, 1976 WL 1374 (N.D. Cal. May 21, 1976)................................................................................................... 11 Krell v. Prudential Ins. Co., 148 F.3d 283 (3d Cir. 1998) ....................................... 4 Lockwood Motors, Inc. v. General Motors Inc., 162 F.R.D. 569 (D. Minn. 1995) ............................................................................................................. 7, 10 Lukenas v. Bryce's Mountain Resort, Inc., 538 F.2d 594 (4th Cir. 1976) ............. 10 Lukenas v. Bryce's Mountain Resort, Inc., 66 F.R.D. 69 (W.D. Va. 1975) .......... 10 Morris v. Wachovia Securities, 223 F.R.D. 284 (E.D. Va. 2004)...................... 8, 14 Morris v. Wachovia Securities, Inc., 277 F. Supp. 2d 622 (E.D. Va. 2003) ................................................................................................. 5, 7, 8, 9, 14 Peil v. Speiser, 97 F.R.D. 657 (E.D. Pa. 1983) ...................................................... 14 SEC v. Blavin, 760 F.2d 706 (6th Cir. 1985) ........................................................... 6 SEC v. Capital Gains Bureau, 375 U.S. 180 (1963)................................................ 5 SEC v. Steadman, 603 F.2d 1126 (5th Cir. 1979) .................................................... 6 Sheldon v. Profit Sharing Plan, 828 F. Supp. 1262 (W.D. Mich. 1993) ................. 5 Sullivan v. Chase Investment Services, 79 F.R.D. 246 (N.D. Cal. 1978) ...... 6, 7, 15 Transamerica Mortgage Co. v. Lewis, 444 U.S. 11 n.14 (1979) ........................... 11 TSC Indus. v. Northway, Inc., 426 U.S. 438 (1976)................................................. 7 Vernazza v. SEC, 327 F.3d 851 (9th Cir. 1993) ....................................................... 6 Weinberger v. Jackson, 102 F.R.D. 839 (N.D. Cal. 1984) .................................... 13

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STATUTES Investment Advisers Act, 15 U.S.C. § 80b-6 ................................................... 5, 6, 7 RULES Federal Rule of Civil Procedure 23...................................................................... 2, 3 TREATISES Newberg on Class Actions (West 2002) ...................................................... 3, 10, 13 RESTATEMENTS Morris v. Wachovia Securities, 223 F.R.D. 284 (E.D. Va. 2004)...................... 8, 14 Restatement of Contracts (Second) ........................................................................ 12

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INTRODUCTION In its opposition to Plaintiffs' Motion for Class Certification, AEFA implicitly concedes that it cannot defeat Plaintiffs' motion. Instead, AEFA advances a defense to Plaintiffs' motion based upon a mischaracterization of Plaintiffs' complaint and a theory of liability that is not before this Court. Attempting to cast Plaintiffs' complaint as one alleging "fraudulent inducement" based upon "affirmative misrepresentations" that the Plaintiffs' plans would be personalized, objective, and unbiased, AEFA plucks isolated strands from a hearing transcript and select paragraphs from Plaintiffs' Second Amended Complaint. But this Court has never characterized Plaintiffs' complaint as one alleging fraudulent inducement. Indeed, the Court aptly characterized "the essence of plaintiffs' claims" as follows: "AEFA sells its financial plans to the buyers without disclosing its conflicts of interest and the biased nature of its investment advice." Order Denying AEFA's Mot. to Dismiss, June 13, 2004. This essential theory has been sharpened through months of class discovery. Thus, AEFA's presupposed "fraudulent inducement" case is not only inconsistent with allegations in the Second and proposed Third Amended Complaints, the record through discovery, but also the language of the Investment Advisers Act, which does not require allegations of fraudulent inducement to state a claim. Even if AEFA had marketed itself as offering un-personalized advice, a viable claim would exist, as this case is premised on AEFA's insufficient disclosures. The fact that AEFA marketed itself as providing personalized, unbiased and objective advice is not an element to Plaintiffs' legal claim­ it simply makes AEFA's fiduciary violations more offensive. AEFA's defense wilts in light of the arguments AEFA made in its efforts to dismiss this suit and altogether collapses in the face of AEFA's non-opposition to Plaintiffs' Motion to Amend. See Def. Mem. Mot. to Dismiss, at 10, lines 20-21, Nov. 2, 2004 (recognizing that issues arise from FAS Agreement and Financial Plans, and not

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face-to-face meetings with financial advisors) and at 12-15 (arguing adequacy of disclosures); Motion to Dismiss Hr'g Tr., April 12, 2004 at 14, 52-53 (AEFA counsel discussing adequacy of disclosures). AEFA's attempts at misdirection and alchemy--in which insufficient disclosures are described as "improved" over time, and facts plainly in dispute are transmuted into the truth according to AEFA--cannot serve as a basis for denial of class certification. Nor does AEFA's disparagement of the Named Plaintiffs create a true conflict of interest rendering them unsuitable representatives. AEFA's arguments are deeply flawed, and this Court must view the harangue for what it is: nonmeritorious. The predominant issue of AEFA's liability to the Named Plaintiffs and the putative class under the Investment Advisers Act ("Advisers Act") is not defeated by AEFA's sophistry. The issues before this Court are straightforward: 1) Plaintiffs allege that AEFA has violated the Advisers Act; 2) Plaintiffs assert that common issues of liability predominate over individual questions of liability; and 3) Plaintiffs have presented common proof of AEFA's liability through deposition testimony and materials obtained in class discovery. Class certification is not only the superior means for resolving these claims, it is the only means to resolve these claims. ARGUMENT Rule 23 does not crumble under the specter of individual issues or speculative conflicts. In fact, Rule 23 expressly acknowledges that individual issues of proof present themselves in every action. The test created by Congress, and for this Court to consider in its discretion, questions whether common elements of law or fact predominate over those individual issues. Fed. R. Civ. P. 23 (b)(3). Unlike AEFA, Plaintiffs have considered both common and individual issues, assigning each their appropriate weight. Little doubt exists that common issues outweigh any purported individual issues.

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I. Common Issues of Fact or Law Predominate. AEFA's obsession with the allegations of "personalized" and "unbiased" advice and its conjured fraudulent inducement theory skews its argument; as a result, AEFA altogether fails to address the crux of Plaintiffs' Motion for Class Certification. AEFA has not disputed the following in its opposition: · A failure to disclose material information is sufficient to establish a violation of the Investment Advisers Act; · An investment adviser has a duty to be scrupulously forthright, and must avoid all conflicts of interest; · Plaintiffs have presented common proof of failures to disclose conflicts of interest; · Plaintiffs have presented common proof of failures to disclose conflicts of interest; and · Plaintiffs have presented common proof of a conflict of interest between AEFA and its financial advisory clients. Thus, AEFA has implicitly conceded the key elements of Plaintiffs' Motion for Class Certification. This Court should not, at this stage, determine Plaintiffs' "probable outcome on the merits." Fed. R. Civ. P. 23 (c)(1), Advisory Comm. Note (2003 Am.). Rather, on a motion for class certification, this Court need only "identify the nature of the issues that actually will be presented at trial." Id. Along with Plaintiffs' motion to amend their complaint, this Court has been presented ample evidence allowing an "informed certification decision" in favor of Plaintiffs. Id. A. Individual Questions Do Not Swamp the Common Ones.

Rule 23 does not require that class members be identically situated. 1 Newberg on Class Actions § 3.15 (West 2002) [hereinafter Newberg]. Here, Plaintiffs and the Class are similarly situated with respect to the course of institutional conduct described in Plaintiffs' opening memorandum. Importantly, Plaintiffs' claims are directed to AEFA's conduct, not the conduct of its individual financial advisor agents--no individual advisor

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has been named as a party. This is because AEFA, not the advisors, is the "investment adviser" for the purposes of the Advisers Act. Rather than attempt to counter Plaintiffs' common proof of institutional policies and procedures that were directed to the Class, AEFA focuses on the "personalized" nature of the Financial Plans due to the "unique" financial circumstances of each Class Member. This approach entirely misses the point: the existence of different checking account and retirement fund balances is not a relevant individual issue. Further, the existence of varying PMM scripts in the different Market Groups also fails to defeat class certification. No material differences exist between the corporate PMM scripts and the scripts written by Market Group managers. Compare, e.g., Elliot Decl. Ex. E at 73 ("The PMM Script describes the potential roadblocks to financial planning") with Elliot Decl. Ex. D at 3 ("We have found that there are several roadblocks that stop people from getting ahead and part of my job as a financial advisor is to help people overcome these roadblocks") and Elliot Decl. Ex. C at AEFA094855 ("There are a series of roadblocks that make people get off track and my job is to help you decrease the effects of those roadblocks."); see also Elliot Decl. Ex. G at 5; Krell v. Prudential Ins. Co., 148 F.3d 283, 310-315 (3d Cir. 1998) (where sales presentations were based upon corporate outline and did not vary materially, class certification was appropriate). Not only have Plaintiffs presented common proof of how institutional directives to increase the share of client assets under management were implemented--through the New Hampshire settlement documents, evidence of sales contests and incentives in the Market Groups in which Plaintiffs were permitted discovery, and corporate mandates to increase the share of client assets under management--Plaintiffs have also presented overwhelming common evidence relating to the undisclosed material facts. These factual questions, common to all Class Members throughout the proposed Class Period, are the ones that predominate.

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B.

Reliance On Material Omissions Would Be Presumed.

Because Plaintiffs' case is grounded in omissions, no showing of reliance is required. Contrary to AEFA's protestations, Plaintiffs have alleged "primarily" an omissions case; as this Court has confirmed, the essential claims here concern undisclosed conflicts of interest. See SAC ¶¶ 47, 54, 85, 87 (alleging material nondisclosures and concealment); TAC ¶¶ 3-4, 47-48 (setting forth classwide claims for nondisclosure). These omissions give rise to the predominant issue of law under Advisers Section 206(1)--whether AEFA employed "any device, scheme or artifice to defraud" its prospective clients. 15 U.S.C. § 80b-6 (1). Reliance on material nondisclosures would be presumed for the purposes of the Advisers Act. See Pl. Mem. at 40-44. C. Under Section 206(2) of the Advisers Act, No Showing of Reliance Is Required. Plaintiffs Need Only Present Common Proof of a Material Omission.

Notably, in its eagerness to thrust the issue of reliance upon the Court, AEFA fails to distinguish between the separate subsections of the Advisers Act and the varying standards of proving a violation under those sections. This oversight is important, because a claim for a breach of fiduciary duty under section 206(2) of the Advisers Act requires different standards of pleading and proof than a claim for fraud under section 206(1). Courts have commonly characterized section 206(2) as setting forth the statutory fiduciary duty of investment advisers. SEC v. Capital Gains Bureau, 375 U.S. 180, 193 (1963). Consistent with the equitable underpinnings of the Advisers Act and judicial recognition that it addresses the "delicate" fiduciary relationship, under section 206(2) Plaintiffs need not show "intent to injure" or even "actual injury," as is required for private plaintiffs seeking monetary damages under Rule 10b-5. Morris v. Wachovia Securities, Inc., 277 F. Supp. 2d 622, 641-42 (E.D. Va. 2003); Sheldon v. Profit Sharing Plan, 828 F. Supp. 1262, 1284 (W.D. Mich. 1993). As the Supreme Court clarified in Capital Gains, the Advisers Act imposes statutory fiduciary standards upon investment

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advisors and mandates that they act with "reasonable care"; since that time, courts have affirmed that "the general purpose of the statute argues in favor of liability for negligence alone," 375 U.S. at 193; SEC v. Steadman, 603 F.2d 1126, 1132 (5th Cir. 1979). In contrast to SEC enforcement actions or private damages actions under Rule 10b-5, under section 206(2) a private investor seeking an equitable remedy need not present proof of intent to injure or actual injury; thus, "it logically follows that no showing of reliance is required." Morris, 277 F. Supp. 2d at 641 (citing SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985)); see also Capital Gains, 375 U.S. at 193 (stating that "[f]raud has a broader meaning in equity [than at law] and intention to defraud or misrepresent is not a necessary element"); Vernazza v. SEC, 327 F.3d 851, 860 (9th Cir. 1993)(finding scienter only an element under Advisers Act section 206(1)); Steadman v. SEC, 603 F.2d 1126, 1132 (5th Cir. 1979)(comparing Exchange Act § 17(a) and Advisers Act § 206).1 Plaintiffs have provided common proof of AEFA's breach of its fiduciary duties to its prospective clients. First, Plaintiffs will establish that the Class was owed a duty through the plain language of the Advisers Act itself, which displaces AEFA's argument that its financial advisors are not wearing their fiduciary hats during the "PMM" meeting.2 15 U.S.C. § 80b-6 (2) (duty owed to actual and prospective clients). Under the Advisers Act, prospective and actual clients alike are entitled to full and fair AEFA mis-cites Abrahamson v. Fleschner, 568 F.2d 862, 878 (2d Cir. 1977), for the proposition that a private plaintiff must show proof of reliance and proof of harm in order to state a claim under section 206 of the Advisers Act. Def. Mem. at 35. That preTransamerica decision held not only that the Advisers Act provided a private right of action, but also that the plaintiff could seek monetary damages, a holding since invalidated by Transamerica. Accordingly, pre-Transamerica, a private investor's burden of pleading and proof tracked that under Rule 10b-5. See Sullivan v. Chase Inv. Servs., 79 F.R.D. 246, 258-59 (N.D. Cal. 1978). Pre- and post-Transamerica decisions soundly state that not all Adviser Act sections require proof of scienter, proof of injury, or reliance. See Section II.B., infra.
2 1

The fact that a question has been raised as to whether AEFA's nearly 11,000 financial advisors are acting as fiduciaries prior to a prospective client's payment for financial planning services proves that this case is ripe for class certification--the issue would be a common issue of law that predominates over any individual questions.

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disclosure. See id. Additionally, the PMM Script itself demonstrates that outside of the statutorily imposed fiduciary duty, AEFA advisors are acting as fiduciaries during the PMM meeting. See Elliot Decl. Ex. E at 5 ("Even if your prospects choose not to purchase a financial analysis...[a]ssure your prospects [a complete financial analysis is] in their best interest"), at 7 ("Establish credibility and rapport"), at 19 ("Questions about key money concerns help you uncover prospects' concerns and goals as well as their feelings about those concerns and goals") (boldfaced emphasis supplied). To prove breach of fiduciary duty under section 206(2), Plaintiffs and the Class must prove that 1) AEFA is an investment adviser, 2) AEFA used the mails or any other means or instrumentality of interstate commerce, directly or indirectly 3) to make a misstatement or omission of material fact to a client or prospective client, and 4) AEFA acted negligently. Morris, 277 F. Supp. 2d at 641; 15 U.S.C. § 80b-6 (2). Little doubt exists that the Plaintiffs and the putative Class have marshaled common proof as to all elements, although "a claim will meet the predominance requirement when there exists generalized evidence which proves or disproves an element on a simultaneous, classwide basis, since such proof obviates the need to examine each class member's individual position." Lockwood Motors, Inc. v. General Motors Inc., 162 F.R.D. 569, 580 (D. Minn. 1995). The Class need only prove the materiality of AEFA's omissions, judged by the standard of a "reasonable investor" viewing the "total mix of information." See TSC Indus. v. Northway, Inc., 426 U.S. 438 (1976); Sullivan v. Chase Inv. Servs., 79 F.R.D. 246, 259 (N.D. Cal. 1978) . No individualized analysis is required, because materiality is an "objective standard"; unlike a private action for damages under Rule 10b-5, the Class need not prove it actually relied on the material omitted facts. Morris, 277 F. Supp. 2d at 641 n.16. Despite the fact that AEFA's opposition heavily relies on Morris, AEFA fails to address the standards for pleading and proving a breach of fiduciary duty under section

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206(2). Plaintiffs, on the other hand, address those issues and support class certification with ample common proof of AEFA's breach of fiduciary duty. II. Classwide Treatment Is Not Only the Superior Treatment, It is Likely the Only Treatment for Claims Similar to the Claims in This Case. A. Morris Is Inapplicable to the Class Certification Motion Before this Court.

For two reasons, the class certification decision in Morris v. Wachovia Securities fails to defeat the claims here, 223 F.R.D. 284 (E.D. Va. 2004). First, Morris is distinguishable on its facts. Second, neither Morris nor the Fourth Circuit hold that a rescissory remedy is never suitable for class treatment. Morris merely found, on the facts before it, that rescission could not be applied on a classwide basis. 1. Morris found a fundamental conflict of interest between the named plaintiff and the putative class members because some class members had ongoing investments. In Morris, the plaintiff sought to represent a class of current and former investors in a high-end wrap account managed by Wachovia Securities investment advisers. Morris, 223 F.R.D. at 288. The complaint alleged violations of the Advisers Act and Rule 10b-5. The court denied class certification, finding that although the named plaintiff's claims met the commonality and typicality prongs of Rule 23(a), the named plaintiff's interests were antagonistic to those of the putative class members. Id. at 29295. Rescission of the investment contracts would have been inappropriate because: [G]iven the economic recovery since the period here at issue and given the diversity of Masters Program accounts, it is reasonable to conclude that a number of those who remain invested in the Masters Program would not want to nullify their investment relationships...an order stating that all Masters Program Agreements are void...would seriously impugn the Masters Program and would present the prospect of jeopardy to the assets of current Masters Program investors. Id. at 299 (emphasis added). The fact that some investors might realize diminished investments presented "a fundamental" conflict of interest between the named plaintiff

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and the putative class. Further, class certification threatened the viability of the investment program at issue. Id. at 298-99. No such "fundamental" conflict exists here between the Class Members and the Named Plaintiffs. The proposed Class Members--termed "Initial Clients with a Plan"-- seek only rescission of their first FAS Agreement and restitution of the fee paid.3 They do not seek to void current or in-force investment contracts, such as insurance policies, entered into as a result of recommendations in the Financial Plan. The remedy sought therefore fails to jeopardize any putative Class Members' assets. Nor would rescission itself "impugn" AEFA's financial advisory services. Although Plaintiffs question AEFA's business practices, and seek to prove that those business practices violated the Advisers Act, their claims, until proven, result in no reputational injury to AEFA.4 Further, because Plaintiffs, through their class definition, acknowledge that the disclosure violations occurred in the past, AEFA can rehabilitate its image by demonstrating how its practices now satisfy the legal standards applicable to investment fiduciaries. 2. Morris does not hold that rescission is ill-suited to class treatment. In addition to being factually distinguishable, Morris does not hold that an Advisers Act claim is never amenable to class treatment. Morris simply says that "claims seeking rescission must be given special scrutiny." Id. at 296. This means that a court must examine carefully the facts before it and the nature of the contract a class seeks to rescind. Indeed, the primary authority Morris relied upon, Lukenas, stands for precisely this proposition. Lukenas v. Bryce's Mountain Resort, Inc., 538 F.2d 594, 596 (4th Cir. 1976). In Lukenas, a federal Interstate Land Sale Act case, the Fourth Circuit first determined that the rescissory remedy sought was not appropriate because the plaintiffs According to AEFA, the FAS Agreement is a contract of limited duration. Def. Mem. Mot. to Dismiss, Nov. 2, 2004.
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AEFA's settlement with the State of New Hampshire renders incredible any claim of reputational harm.

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sought "rescission simply as a predicate for a monetary judgment...Such an action is not suitable for treatment as a class action under Rule 23(b)(2)." Lukenas, 538 F.2d at 596. (emphasis supplied). Here, the Class is not seeking monetary damages, and Plaintiffs seek certification of their claims under Rule 23 (b)(3). Lukenas also upheld the district court's factual findings that rescission was inappropriate because a significant portion of the putative class had a "continuing interest in the financial viability of the defendant. Those purchasers who do not desire to rescind their agreements are dependent upon defendant to provide essential services such as road and sewers as well as recreational services. . . ." Lukenas v. Bryce's Mountain Resort, Inc., 66 F.R.D. 69, 72 (W.D. Va. 1975), aff'd 538 F.2d 594. Unlike Lukenas, AEFA has offered no hard evidence that any Class Members would oppose rescission because they depend upon AEFA for "essential services." Rather, AEFA presents a speculative conflict through one page of a survey, conducted in 2003, pertaining to alleged "client satisfaction." Elliot Decl. Ex. A. Putting aside the probity of AEFA's self-serving client satisfaction survey, it is immaterial that some of AEFA's clients report they are happy with the financial plans that they bought (if, indeed, that is what the client satisfaction survey found). Dubious claims of client satisfaction do not prove that a client, once properly informed of the conflicts of interest and bias in their financial advisory services, would not wish to void her FAS Agreement; further, these claims do not defeat class certification. As stated in Lockwood Motors, Inc. v. General Motors Corp., where over fifty members of a putative class of about 500 submitted affidavits stating that they did not wish to pursue claims, "[a]s a general rule, the fact that some members of a putative class object to the lawsuit is not sufficient to preclude certification under Rule 23(a)(4)." 162 F.R.D. 569, 578 (D. Minn. 1995); 1 Newberg § 3.30 at 3-150 (citing cases); see In re Potash Antitrust Litig., 159 F.R.D. 682, 692 (D. Minn. 1995).

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B.

AEFA's "Value Conferred" Offset Defense Does Not Present Manageability Issues.

AEFA employs the common defense strategy of raising the specter of "individualized damage trials" that would render class treatment unmanageable. Courts have overwhelmingly rejected purported manageability problems based upon the "minitrials" contention AEFA presents in its opposition.5 See In re Sugar Indus. Antitrust Litig., MDL No. 201, 1976 WL 1374, at *29 (N.D. Cal. May 21, 1976) (stating "denial of class certification because of conjured manageability problems is disfavored")(Anderson Aff. (July 29, 2005) Ex. A-24). AEFA's possible entitlement to recover any "value conferred" is decidedly a predominant common question of law, but does not require individualized factual analysis.6 Further, the question of how "value" will be measured is not properly resolved in a motion for class certification. Initially, AEFA's premise that it would automatically be entitled to a "valueconferred" offset is faulty. No case has squarely addressed the issue. Transamerica and its progeny address transactions where an individual purchased investments and that purchase resulted in a benefit to the plaintiff, despite the wrongdoing by the investment adviser; thus, the investment adviser was entitled to a "value-conferred" offset even though he was interested in the transaction. E.g., Transamerica Mortgage Co. v. Lewis, 444 U.S. 11, 25 n.14 (1979). In this case, the contract Plaintiffs seek to rescind is the FAS Agreement, rather than rescission of the investment contracts they purchased In another context, the Chief Judge for the District of Minnesota addressed arguments concerning "the difficulties of managing a class" this way: "If the Court were to listen to some of the plaintive cries of the protectors who array themselves among the defense bar, this Court would be sheltered, coddled and cosseted beyond the dreams of a madman. I can handle this case and so can the lawyers on both sides, and I'm confident we'll be able to do so." Anderson Suppl. Aff. Ex. A, Boschee v. Burnet Title Co., No. 00-194, Mot.for Class Certification Hr'g Tr. (May 22, 2001) at 39 (Rosenbaum, J.). This Court must disregard AEFA's representations concerning the types of products recommended in Plaintiffs' Financial Plans. See Anderson Suppl. Aff. Ex. B (showing Plaintiffs' plans overwhelmingly contained recommendations for AEFA proprietary and select products).
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pursuant to a Financial Plan recommendation. Accordingly, the value conferred requirement may not apply, because a jury may find that Plaintiffs did not directly profit from receipt of the Financial Plan. Assuming, for the sake of argument, that AEFA may present proof that some value was conferred upon the Class, such proof would be measured by an objective standard, and not by AEFA's subjective algebra, in which "value conferred" is the product of each Class Member's perceived value of what AEFA gave them and by the recommendations in the plan. Assuming that value would be measured in terms of "service," substantial authority exists that the value of a service is determined by the market price for that service; here, expert testimony could supply the market value of a service that provides a computerized plan purporting to address the six areas of financial planning, discounted by reason of the Advisers Act violation. See Rest. of Contracts (2d) §§ 371, 376. AEFA's own method of determining the price of an FAS Agreement proves that "value conferred" may be ascertained objectively and on a classwide basis. For the duration of the proposed Class Period, AEFA predetermined the fee for its financial advice irrespective of the quality of the advice or the products that would be recommended. Instead, AEFA based the fee upon a matrix developed to account for the client's gross estate, and the types of software products the advisor would employ in preparing the plan. See Anderson Aff. (July 29, 2005) Ex. D-88 (AEFA pricing matrix); see also Anderson Aff. (July 29, 2005) Ex. D-12 at AEFA019028-AEFA019035 (evaluating financial plans industry wide). In the end, expert testimony will provide the factfinder with the appropriate measure of "value." The factfinder could conclude, based upon expert testimony, that no value was conferred upon the Plaintiffs and the Class, or that only a diminished value was conferred. Competing, objective measures of value, not subjective questions relating to perceived value, will determine the "value conferred."

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III.

The Named Plaintiffs Are Adequate. AEFA's challenge to the Named Plaintiffs' adequacy exposes deep rifts in its

defense. "[T]he focus of Rule 23(a)(4) is on the qualification of the class attorney and the named plaintiff' interest in the litigation, not on the personal qualifications of the s plaintiff." Friedman v. Lansdale Pkg. Auth., No. 92-7257, 1993 U.S. Dist. LEXIS 12019, at *3 (E.D. Pa. Aug. 30, 1993)(Anderson Suppl. Aff. Ex. C); see also Fickinger v. C.I. Plan'g Corp., 103 F.R.D. 529, 533 (E.D. Pa. 1984); Weinberger v. Jackson, 102 F.R.D. 839, 843-44 (N.D. Cal. 1984). Courts must be wary of efforts to defeat class certification on credibility grounds because they are rarely an appropriate basis upon which to deny class certification and are seldom successful. 1 Newberg § 3:38 (citing cases). Particularly in complex litigation, challenges tantamount to clamors of "lawyer-driven litigation" must be rejected. In re Ashanti Goldfields Sec. Litig., No. CV 00-0717, 2004 U.S. Dist. LEXIS 5165, at *45-46 (E.D.N.Y. Mar. 30, 2004) (Anderson Suppl. Aff. Ex. D). AEFA does not dispute the qualifications and competence of Plaintiffs' Class Counsel, Zimmerman Reed and Lockridge Grindal Nauen.7 Instead, it attacks the Named Plaintiffs' credibility. But besmirching the Named Plaintiffs as "untruthful" in their deposition testimony proves an ineffective tactic, because AEFA's mischaracterizations, formulated from testimony taken out of context, lack record support.8 Further, attacks on To a certain degree, AEFA's argument about the Named Plaintiffs' adequacy surreptitiously presents arguments about the adequacy of Jon Drucker. This argument is undermined by AEFA's non-opposition to Jon Drucker's motion to withdraw from this case in May 2004, and Mr. Drucker is not proposed Class Counsel. AEFA's additional charge that the Plaintiffs were solicited by Mr. Drucker is unsupported by deposition testimony. E. Austin Dep. 203-04 (stating David Austin contacted Mr. Drucker, and not vice versa); O. Shahine Dep. at 28 (stating he contacted Mr. Drucker, and not vice versa); Tooley Dep. at 168 (stating he contacted Mr. Drucker, and not vice versa); Haritos Dep. at 223-25 (no testimony concerning "solicitation"). With this reply, Plaintiffs supply the complete deposition transcripts of all Named Plaintiffs so that this Court may assess, in context, the veracity of each Named Plaintiffs' testimony. See Anderson Supp. Aff. Exs. E, F, G, H, and I.
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a plaintiffs' credibility have been rejected where, as here, the disputed testimony is irrelevant to the basic claims of the case. County of Suffolk v. Long Island Lighting Co, 710 F. Supp. 1407, 1416 (E.D.N.Y. 1983); Weinberger, 102 F.R.D. at 843-44 (quoting Peil v. Speiser, 97 F.R.D. 657, 661 (E.D. Pa. 1983) and stating "I do not believe the parties opposing class certification should engage in assaults upon the character of either the prospective class representative or his counsel.").9 Unlike the minority cases cited by AEFA, no Plaintiff here is subject to unique defenses or cross-examination as a result of their deposition testimony. Stripped of its varnish, AEFA's adequacy defense merely challenges the Named Plaintiffs' knowledge of the legal claims underlying this case.10 Courts have overwhelmingly rejected claims concerning a plaintiff's insufficient understanding of the legal claims in a case. E.g., Morris v. Wachovia Secs., 223 F.R.D. at 296. Named plaintiffs need only supply the underlying facts giving rise to their legal claims. Id. Review of the Named Plaintiffs' deposition transcripts reveals that each testified truthfully and to the best of their memory under hours of arduous questioning, that each has a solid memory of the facts giving rise to their legal complaint, and that each understands their duties as a class representative. The fact that each Plaintiff may have focused, in response to specific questions by Defense Counsel, on details of their experience with AEFA or facts that raised red flags that some misconduct was afoot, is irrelevant to the question whether they are sufficiently interested in the litigation. AEFA

See also Motion to Dismiss Hr'g Tr. Apr. 12, 2004 at 9, lines 1-11 (discussing how inconsistencies may be dealt with by the Court). AEFA is not candid when it states it requested supplemental responses to Mr. Tooley's interrogatories. See Letter from Wendy Harris to Timothy Becker (requesting supplemental responses only from Plaintiffs Haritos, E. Austin, D. Austin, and Shahine) (Anderson Suppl. Aff. Ex. J). Further, its misrepresentation that his deposition testimony contradicts his initial response to the inartfully drafted, and properly objected to, request for admission "You read all or part of the FAS Brochure" supplies the evidence that Mr. Tooley supplemented the response to his interrogatories.
10

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disparages these clients, more than anything, for having multiple complaints against the company, some of which they have elected (by their own choice or with the advice of counsel) not to litigate. AEFA's outrage that a client would rely on advice of counsel in narrowing counts and expressing legal claims is disingenuous at best.11 The only question before this Court is whether any of the Named Plaintiffs have interests antagonistic to the class as a whole. AEFA presents no evidence asserting that this is the case, and only intimates that a conflict could be found in the fact that some Named Plaintiffs remember facts that are not asserted by the class as a whole. Yet class certification is appropriate even when a defendants' course of conduct "giv[es] rise to a variety of claims, only some of which are suitable for class treatment. . . . ." Citizens Ins. Co. v. Daccahch, 105 S.W. 3d 712, 725 (Tex. Ct. App. 2003) (citing Sullivan v. Chase Inv. Servs., 79 F.R.D. at 265). Thus, Plaintiffs' desire to press their claims related to the FAS Agreement--the only investment contract at issue in this litigation--is entirely proper, and does not preclude individual suits related to implementation of investment advice. CONCLUSION In truth, what all former AEFA clients have in common is that they were willing to pay money for financial planning services. All are entitled to a declaration that their FAS contracts are void because AEFA breached its fiduciary duties to them. The common issue of AEFA's liability predominates over any individual issue. Plaintiffs' Motion for Class Certification must be granted.

This position is also untenable considering that it is extraordinarily unlikely that AEFA's own witnesses­Bechtold and Elliot­drafted their declarations without the assistance of legal counsel.

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Respectfully submitted, Dated: September 29, 2005 ZIMMERMAN REED, P.L.L.P. /s Carolyn Glass Anderson _________________________________ Barry G. Reed, AZ Bar No. 020906 Hart L. Robinovitch, AZ Bar No. 020910 14646 N. Kierland Boulevard, Suite 145 Scottsdale, AZ 85254 Telephone: (480) 348-6400 Facsimile: (480) 348-6415 Email: [email protected] Email: [email protected] ZIMMERMAN REED, P.L.L.P. Carolyn G. Anderson (Pro Hac Vice) Timothy J. Becker (Pro Hac Vice) Anne T. Regan (Pro Hac Vice) 651 Nicollet Mall, Suite 501 Minneapolis, Minnesota 55402 Telephone: (612) 341-0400 Email: [email protected] Email: [email protected] Email: [email protected] LOCKRIDGE GRINDAL NAUEN, P.L.L.P. Richard A. Lockridge (Pro Hac Vice) Gregg M. Fishbein (Pro Hac Vice) Mary E. Briedé (Pro Hac Vice) 100 Washington Avenue South, Suite 2200 Minneapolis, Minnesota 55401 Telephone: (612) 339-6900 Email: [email protected] Email: [email protected] Email: [email protected] Attorneys for the Plaintiffs and the Putative Class

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