## Facts

- A class-action lawsuit was filed against a company in connection with a merger, alleging the company issued a deceptive or fraudulent proxy statement to shareholders.
- The company (defendant) challenged the court’s certification of the class, arguing the representative plaintiffs would not fairly and adequately represent absent class members.
- The defendant focused on one representative plaintiff, Sachnoff, as an example of alleged inadequacy.
- The defendant argued Sachnoff was related to one of the attorneys serving as class counsel, suggesting a potential conflict of interest or improper attorney control.
- The defendant also asserted Sachnoff showed little interest in the litigation, similar to what the defendant characterized as Sachnoff’s lack of engagement in an earlier lawsuit.
- In addition, the defendant contended Sachnoff had concealed that he was a “market maker,” implying his trading role could create interests different from ordinary shareholders.
- Sachnoff owned 100 shares of stock in the company.
- The dispute, as presented, concerned whether the class could proceed with the certified representatives in light of these asserted conflicts and credibility concerns.

## Issues

1. Under Federal Rule of Civil Procedure 23(a)(4), were the representative plaintiffs—particularly Sachnoff—so conflicted or uninterested that they could not fairly and adequately represent the class challenging the merger proxy statement?
2. Does a representative plaintiff’s family relationship to class counsel, limited stock ownership, and alleged nondisclosure of market-maker status require denial or undoing of class certification?

## Decision

- The court concluded that the defendant had not shown the representative plaintiffs were inadequate under Rule 23(a)(4).
- The court rejected the argument that Sachnoff’s relationship to class counsel, standing alone, required a finding of inadequate representation without a concrete showing of conflicting interests or improper conduct affecting the class.
- The court treated the alleged lack of personal engagement and the size of Sachnoff’s shareholdings as insufficient, by themselves, to defeat adequacy where the representatives’ interests aligned with those of the class in challenging the proxy statement and merger-related disclosures.
- The court found the asserted market-maker point did not establish a disabling conflict on the record presented and did not justify overturning class certification.

## Legal Principles

- A class may be certified only if “the representative parties will fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(4).
- Adequacy focuses on whether the proposed representatives have interests aligned with the class and whether any conflicts, credibility problems, or outside influences threaten faithful prosecution of the case.
- A familial or other relationship between a class representative and class counsel does not automatically defeat adequacy; the question is whether the relationship creates an actual conflict or otherwise compromises representation.
- Limited ownership of shares does not automatically disqualify a shareholder from serving as a class representative in a securities case; the key inquiry is whether the representative’s incentives and objectives match those of absent class members.
- Allegations that a representative plaintiff is inattentive or has imperfect familiarity with the litigation do not necessarily bar class treatment when the representative’s interests are aligned and qualified counsel can litigate the claims for the class.
- A defendant seeking to overturn or block class certification based on adequacy bears the burden to show concrete risks to fair representation, not merely speculative concerns.

## Conclusion

Cook Inv. Co. v. Harvey involved a merger-related securities class action alleging a deceptive proxy statement, where the defendant attacked class certification by arguing that a representative plaintiff’s relationship to class counsel, minimal share ownership, supposed lack of interest, and alleged concealment of market-maker status rendered the representation inadequate. The court held the showing was insufficient to establish a Rule 23(a)(4) adequacy defect and declined to disturb class certification on those grounds.


Cook Inv. Co. v. Harvey, 1975 WL 394 (1975)