In Re: GENENTECH, INC! Fed. Sec. L. Rep. (CCH) P95,347!

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OVERVIEW:! A group of investors filed an action against a corporation and an inside-trader company, alleging securities fraud and further alleging that the inside trader, based on inside information, sold its shares of stock at artificially inflated prices. The investors sought certification of two classes of plaintiffs, one comprised of all investors who purchased stock during a specified period and the second comprised of investors who purchased stock "contemporaneously" with the inside trader's stock. The court addressed the Fed.R. Civ. P.23(b) prerequisites of NUMEROSITY, COMMONALITY, TYPICALITY, and ADEQUACY and found that each of these were met for each class. The court certified both classes after modifying the proposed second class so as to better define the term "contemporaneously." The inside trader argued that representatives of the second class lacked standing because they did not trade contemporaneously with its sale of stock. The court declined to consider this argument for the purpose of class certification, staring that if it later appeared that the representatives lacked standing, the consequence was dismissal of the action, not denial of certification.!

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FACTS:! The plaintiffs allege that during the class period, defendants engaged in a classic open market securities fraud involving the dissemination of false and misleading information regarding Genentech.! They further allege that the LUBRIZOL defendants (there were other defendants) were privy to certain inside information through Donald Murfin who acted as Lubrizol's representative on Gentech's board! Lubrizol defendants allegedly sold during the class period more than 500,000 shares of Genentech stock at artificially inflated process realizing a profit of $23M! Petitioner's complaint contains three causes of action: (Count 1,2,3 respectively)! 1. MANIPULATION CLAIM - for violation of sec10(b) of securities exchange act! 2. Claim against all defendants for FRAUD AND DECEIT! 3. INSIDER TRADING CLAIM - against Lubrizol defendants! Court accepted a stipulation from all defendants except Lubrizol to allow plaintiffs to maintain count 1 as a CLASS ACTION, and thereafter certified a class comprising of purchasers of Genentech stock between March 6, 1987 and September 28, 1988. Court certified NO other classes.!

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ISSUES: May the plaintiffs maintain Count III (INSIDER TRADING CLAIM) as a class action against the Lubrizol defendants? Should this class be certified by the court? -- yes for both!

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RATIO:! Four Pre requisites for determining whether or not a class should be certified:!

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1. NUMEROSITY -- class is so numerous that joinder of all members is impracticable! In this case the class pertaining to insider trading is a smaller class than the manipulation claim. To satisfy the numerosity requirement, plaintiffs need not stablish the exact number of members, but must merely demonstrate that it is sufficiently numerous. Accordingly, the Court finds that both the proposed class for plaintiffs insider trading class, and the proposed class for the manipulation claim, are sufficiently numerous that joinder of all class members is impracticable.!

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2. COMMONALITY! Gravamen of plaintiffs manipulation claim is that for a period of 18 months, Genentech officers and directors, in conjunction with Lubrizol's defendants, disseminated false and misleading information all of which artificially inflated the price of Genentech's common stock and consequently caused harm to purchasers.! Confronted with a class of purchasers allegedly defrauded over a period of tine by similar misrepresentations, courts have taken a common sense approach that the class is united by a COMMON INTEREST.!

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3. TYPICALITY - nature of the claim or defense of the class representative, and not to the specific facts from which is arose or the relief sought. Typicality requirement was met as to the manipulation claim. !

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4. ADEQUACY - whether class representatives will fairly and adequately represent the class. Plaintiffs attorneys have sufficient experience to represent the class!

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Court granted plaintiffs motion for certification for Counts 1 and 3. ! Count 1 - all persons, except defendants and their affiliates, who purchased common stock from March 6, 1987 through September 28, 1988! Count 3 -- all persons except defendants and their affiliates, who (1) purchased stock during the period from June 25, 1987 through March 9, 1988, and (2) purchase their stock contemporaneously with the sale of common stock by LEI (affiliate of Lubrizol)! !