178 F.R.D. 545 (D.Colo. 1998), Civ. A. 95-K-1045, Schwartz v. Celestial Seasonings, Inc.

Docket Nº:Civ.A. 95-K-1045.
Citation:178 F.R.D. 545
Opinion Judge:KANE, Jr., Senior District Judge.
Party Name:Arthur M. SCHWARTZ, Marnette Ritter and Marnie's Crewel Studio on behalf of themselves and all others similarly situated, Plaintiffs, v. CELESTIAL SEASONINGS, INC., Painewebber, Inc., Shearson/Lehman Brothers, Inc., Mo Siegel, Ronald V. Davis, Philip B. Livingston, Vestar/Celestial Investment Limited Partnership, John D. Howard, James P. Kelley, Ar
Attorney:Gerald L. Bader, Jr.,Randolph S. Dement, Bader, Villaneuva & Feder, P.C., Denver, CO, Dennis J. Johnson, Law Offices of Dennis Johnson, South Burlington, VT, for Plaintiffs. John S. Phillips, Fred H. Bartlit, Jr., Bartlit, Beck, Herman, Palenchar & Scott, Denver, CO, Jeffrey Rudman, Peter J. MacD...
Case Date:March 31, 1998
Court:United States District Courts, 10th Circuit, District of Colorado
 
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178 F.R.D. 545 (D.Colo. 1998)

Arthur M. SCHWARTZ, Marnette Ritter and Marnie's Crewel Studio on behalf of themselves and all others similarly situated, Plaintiffs,

v.

CELESTIAL SEASONINGS, INC., Painewebber, Inc., Shearson/Lehman Brothers, Inc., Mo Siegel, Ronald V. Davis, Philip B. Livingston, Vestar/Celestial Investment Limited Partnership, John D. Howard, James P. Kelley, Arthur J. Nagle, Daniel S. O'Connell, Robert L. Rosner, and Barnet M. Feinblum, Defendants.

Civ.A. No. 95-K-1045.

United States District Court, D. Colorado.

March 31, 1998

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[Copyrighted Material Omitted]

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Plaintiffs in action alleging violation of the securities laws moved for class certification, and defendants moved to dismiss for failure to state a claim. The District Court, Kane, Jr., Senior District Judge, held that: (1) plaintiffs carried their burden of showing that they satisfied requirements of for class certification; (2) section of the Securities Act concerning civil liabilities on account of a false registration statement extends not only to persons who buy in a public offering, but to all persons who acquired stock traceable to a public offering conducted via a misleading registration statement; (3) statements concerning future of company in light of marketing agreement with another company were actionable in securities fraud suit, notwithstanding defendant's claim that statements were immaterial statements of corporate optimism; and (4) alleged cautionary statements in prospectus regarding future of company which were not highly specific, very factual, and which did not directly address the predictive statements that formed the basis of securities fraud complaint, did not render such predictive statements immaterial, so as to preclude fraud claim.

Plaintiff's motion granted; defendants' motions denied.

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Gerald L. Bader, Jr.,Randolph S. Dement, Bader, Villaneuva & Feder, P.C., Denver, CO, Dennis J. Johnson, Law Offices of Dennis Johnson, South Burlington, VT, for Plaintiffs.

John S. Phillips, Fred H. Bartlit, Jr., Bartlit, Beck, Herman, Palenchar & Scott, Denver, CO, Jeffrey Rudman, Peter J. MacDonald, S. Tara Miller, Hale & Dorr, Boston, MA, for Celestial Seasonings, Siegel, Davis, Livingston, Vestar/Celestial Inv. Ltd. Partnership, Howard, Kelley, Nagle, O'Connell, Rosner & Feinblum.

George B. Curtis, Thomas Marshall Piccone, Gibson, Dunn & Crutcher, Denver, CO, for PaineWebber, Inc., and Lehman Brothers, Inc.

MEMORANDUM OPINION AND ORDER ON PENDING MOTIONS

KANE, Jr., Senior District Judge.

Plaintiffs Arthur M. Schwartz, Marnette Ritter and Marnie's Crewel Studio sue Celestial Seasonings, Inc. (" Celestial" ) and others for violations of securities laws. Pending are (1) Plaintiffs' Motion for Class Certification and Appointment of Lead Counsel and (2) Motions to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b) filed by Vestar/Celestial Investment Limited Partnership and the named individual Defendants (collectively, the " Celestial Defendants" ) and PaineWebber, Inc. and Lehman Brothers, Inc. (collectively, the " Underwriter Defendants" ). I grant the motion for class certification, appointing Schwartz and Ritter as the class representatives and their counsel as lead counsel. I deny the motions to dismiss.

I. Introduction.

A. Factual Background.

On July 12, 1993, Celestial issued approximately two million shares of stock in an initial public offering (" IPO" ). The IPO Prospectus revealed that Celestial was introducing new ready-to-drink iced tea products in an attempt to expand beyond its established hot tea business and had entered into a marketing agreement with Perrier Group of America, Inc. (" Perrier Agreement" ), under which Perrier obtained exclusive rights to make and sell the new Celestial iced tea drinks in the United States and Canada. On January 25, 1994, Celestial made a secondary public offering of stock (" SPO" ) and the SPO prospectuses again discussed the new iced tea products and the Perrier Agreement. In May 1994, Celestial's stock prices declined after it announced it had entered discussions with Perrier to amend or terminate the Perrier Agreement.

Arthur M. Schwartz was the sole Plaintiff in this case until Marnette Ritter and Marnie's Crewel Studio moved to intervene last year. Schwartz is an experienced attorney, specializing in First Amendment law. He testified at deposition that he did not, in his personal capacity, purchase any shares of Celestial stock, but that his pension plan, the " Arthur M. Schwartz, PC, Employees Pension Trust," bought 500 shares of Celestial stock on July 21, 1993 at $30.50 per share in the IPO. Neither Schwartz nor his pension

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plan bought any shares in the SPO of January 25, 1994.

Marnette Ritter is a Colorado resident who sought to intervene as a plaintiff in this case in October 1997. In September 1993, she and her husband, Earl Anthony Ritter purchased 100 shares of Celestial stock in the secondary market at $29.75 per share. She did not buy any shares in the IPO of July 12, 1993 or the SPO of January 25, 1994.

Marnie's Crewel Studio is a closely held corporation of which Marnette Ritter is a director. Her father, Fred Beck, and her daughter, Barrett Miller, are also directors of, and her husband an officer of, the company. Marnie's Crewel Studio bought 100 shares of Celestial stock in the secondary market on September 10, 1993 at $29.75 per share. Marnette Ritter caused the corporation to buy the shares because she could not afford to do so. In December, 1993, the company bought an additional 50 shares, again in the secondary market, at $24 per share.

B. Procedural History.

On May 5, 1995, Schwartz filed a Class Action Complaint on behalf of himself and similarly situated purchasers of Celestial stock claiming that Celestial, despite knowingly or recklessly disregarding the fact that the Perrier Agreement was an illusion, made statements which misled investors to conclude that the agreement would enable it to use Perrier's resources to sell its new iced tea products. He sought damages claiming (1) primary liability for direct violations of § 11 of the Securities Act of 1993 and § 10(b) of the Securities and Exchange Act of 1934 (including Securities and Exchange Commission Rule 10b-5 promulgated thereunder); and (2) secondary liability of " control persons" for violations of § 15 of the 1933 Act and § 20 of the 1934 Act. See Securities Act of 1933, ch. 38, 48 Stat. 74 (codified as amended at 15 U.S.C. §§ 77a-77aa); Securities Exchange Act of 1934, ch. 404, 48 Stat. 881 (codified as amended at 15 U.S.C. §§ 78a-78mm).

On November 6, 1995, I granted Defendants' motions to dismiss for failure to satisfy the particularized pleading requirements of Fed.R.Civ.P. 9(b), and allowed Schwartz an opportunity to replead. See Schwartz v. Celestial Seasonings, Inc., 904 F.Supp. 1191, 1201 (D.Colo.1995). When he elected not to amend the complaint, I dismissed the case in its entirety. Schwartz appealed to the United States Court of Appeals for the Tenth Circuit. On September 5, 1997 the appeals court reversed the judgment for Defendants and remanded to this court for further proceedings. See Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1255 (10th Cir.1997).1

On October 15, 1997, Schwartz filed Plaintiff's Motion for Class Certification and Appointment of Lead Counsel, On October 27, 1997, the Celestial Defendants and the Underwriter Defendants filed motions to dismiss the complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). On November 4, 1997, I granted the motions to intervene as plaintiffs filed by Marnette Ritter (misspelled as " Ridder" ) and Marnie's Crewel Studio. I heard oral argument on Plaintiffs' motion for class certification and Defendants' motions to dismiss.

II. Plaintiffs' Motion for Class Certification and Appointment of Lead Counsel.

A. Requirements of Rule 23 .

Plaintiffs seek certification of a class comprising " all persons who purchased Celestial's common stock during the period from July 12, 1993, through and including May 18, 1994.... [excluding] defendants, members of their immediate families, their heirs, successors and assigns, and any subsidiary or affiliate of any defendant." (Compl. ¶ 26.)

Rule 23 of the Federal Rules of Civil Procedure delineates the factors to be considered

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in determining the propriety of a class action. Cook v. Rockwell Int'l Corp., 151 F.R.D. 378, 380 (D.Colo.1993). Whether a class may be certified is in the discretion of the court. Id. " ‘ [A]n inquiry into the merits of the claims of the representative or the class is inappropriate when making the decision whether the action should be certified under Rule 23.’ " Id. at 381 (quoting 7A Charles A. Wright et al., Federal Practice and Procedure § 1759 at 99 (1986)). In determining whether the requirements of Rule 23 have been met, however, it is often necessary to analyze the substantive claims and defenses of the parties and the essential elements of those claims and defenses. Cook, 151 F.R.D. at 381.

In general, class actions are favored in securities fraud actions involving numerous plaintiffs. In re Storage Tech. Corp. Securities Litigation, 113 F.R.D. 113, 115 (D.Colo.1986). Certification is not irreversible and may be altered or amended before the decision on the merits. Fed.R.Civ.P. 23(c)(1). This power to change the class certification decision has encouraged many courts to be quite liberal in certifying a class when that decision is made at an early stage, noting that the action always can be decertified or the class description altered if later events suggest it is appropriate to do so. Esplin v. Hirschi,...

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