Livesay v. Punta Gorda Isles, Inc.

• Decision Date: 04 March 1977
• Docket Number: Nos. 76-1881,76-1906,s. 76-1881
• Citation: 550 F.2d 1106
• Parties: Fed. Sec. L. Rep. P 95,928 Cecil LIVESAY and Dorothy Livesay, for themselves and on behalf of all others similarly situated, Plaintiffs-Appellants, v. PUNTA GORDA ISLES, INC. et al., Defendants-Appellees. Cecil LIVESAY and Dorothy Livesay, for themselves and on behalf of all others similarly situated, Petitioners, v. PUNTA GORDA ISLES, INC. et al., Respondents.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1106

550 F.2d 1106

Fed. Sec. L. Rep. P 95,928

Cecil LIVESAY and Dorothy Livesay, for themselves and on behalf of all others similarly situated, Plaintiffs-Appellants, v. PUNTA GORDA ISLES, INC. et al., Defendants-Appellees.

Cecil LIVESAY and Dorothy Livesay, for themselves and on behalf of all others similarly situated, Petitioners, v. PUNTA GORDA ISLES, INC. et al., Respondents.

Nos. 76-1881, 76-1906.

United States Court of Appeals,

Eighth Circuit.

Submitted Jan. 13, 1977.

Decided March 4, 1977.

Melvyn I. Weiss, New York City, for appellants; Richard L. Ross, Clayton, Mo., on brief.

John J. Hennelly, Jr., St. Louis, Mo., for appellee, Coopers & Lybrand; Veryl L. Riddle and Thomas C. Walsh, St. Louis, Mo., on brief.

William A. Richter, St. Louis, Mo., for appellees, Punta Gorda Isles and others; Lewis R. Mills and Karen Holm, St. Louis, Mo., on brief.

PETITION FOR WRIT OF MANDAMUS

Before HEANEY and STEPHENSON, Circuit Judges, and STUART, ^* District Judge.

STEPHENSON, Circuit Judge.

In these consolidated cases, Cecil and Dorothy Livesay (plaintiffs) seek review of the district court's order decertifying their action as a class action. In No. 76-1881, plaintiffs appeal from that order. In No. 76-1906, plaintiffs seek a writ of mandamus compelling the district court to vacate its decertification order.

On July 27, 1973, plaintiffs filed a complaint seeking approximately $2650 in individual damages resulting from their purchase of $5000 worth of debentures and 100 shares of common stock issued by Punta Gorda Isles, Inc. (Punta Gorda), a Florida land development corporation, pursuant to a registration statement and prospectus dated May 2, 1972. The essence of plaintiffs' claim was that the prospectus and registration statement contained materially misleading statements and omissions. ¹ The named defendants were Punta Gorda, certain individuals who were officers and directors of Punta Gorda, and the accounting firm of Coopers & Lybrand (Coopers) which had certified the financial statements in the registration statement and prospectus. Plaintiffs sought to represent a class of approximately 1,800 persons who had purchased securities at the May 2, 1972, public offering.

On April 9, 1974, plaintiffs moved pursuant to Fed.R.Civ.P. 23 to have the action certified as a class action. On May 13, 1974, the district court granted Coopers' motion for a stay of all discovery except discovery relating to the class action determination. On June 24, 1974, oral argument on the class action certification motion was held. On July 16, 1974, the district court denied Coopers' motion to strike the class action allegations in the complaint, but did not at that time certify the class. On September 23, 1974, the district court denied plaintiffs' motion to lift the stay on substantive discovery.

On November 1, 1974, plaintiffs filed a petition for a writ of mandamus in this court, requesting that the district court be ordered to lift the stay on substantive discovery. This court denied the petition by order dated November 15, 1974, but expressed the view that plaintiffs should request a prompt ruling on their motion for class action certification and that the district court should promptly rule on the motion and thereafter permit discovery on the merits. Livesay v. Punta Gorda Isles, Inc., No. 74-1827 (8th Cir., November 15, 1974).

On December 30, 1974, an evidentiary hearing on the class action certification motion was held in the district court. On June 19, 1975, the district court entered an order certifying the action as a Rule 23(b)(3) class action, which order expressly found plaintiffs to be adequate class representatives. The order also held that plaintiffs' counsel had a conflict of interest because he had represented one of the underwriters of the Punta Gorda offering on unrelated matters. The order deemed this conflict serious because none of the underwriters had been joined as defendants in the plaintiffs' suit. Plaintiffs' counsel withdrew, and on June 30, 1975, plaintiffs' current counsel entered its appearance.

On July 25, 1975, plaintiffs moved to dissolve the stay on substantive discovery. Coopers opposed the motion and sought a reconsideration of the order certifying the action as a class action. On October 23, 1975, the district court denied plaintiffs' motion to dissolve the stay. In its order, the district court expressed concern about the adequacy of plaintiffs as class representatives, based largely on plaintiffs' failure to join any underwriters as defendants. The court did not, however, decertify the class action at that time, because it believed that such decertification might jeopardize the claims of absent class members. The court directed the parties to prepare forms of notice of the pendency of the class action to be mailed to the class members and also lifted the stay on discovery to the extent that plaintiffs could seek the names and addresses of the class members. The parties submitted proposed forms of notice in November 1975.

On March 1, 1976, the district court mailed to the parties its proposed form of notice. Both parties submitted suggested changes, and on April 9, 1976, the district court mailed to the parties the final form of notice.

On April 20, 1976, plaintiffs' counsel telephoned counsel for Punta Gorda and requested the names and addresses of the initial registered owners (after the underwriters) of the debentures and common stock sold pursuant to the May 2, 1972, registration statement. By letter dated April 21, 1976, Punta Gorda's counsel declined to furnish that information.

On July 9, 1976, plaintiffs requested the district court to conduct a conference for the purpose of discussing the issues involved in discovery of the names of class members. On July 20, 1976, plaintiffs served defendants with a motion to produce the names and addresses of the initial registered owners of the stock and debentures. On July 23, 1976, Coopers filed a motion to decertify the action as a class action. On July 26, 1976, the conference requested by plaintiffs was held at which the district court ordered the parties to submit briefs etc. in support of the various pending motions.

On September 1, 1976, the district court issued a memorandum and order decertifying the class action. The court found that plaintiffs had inordinately delayed in prosecuting the case and were thus not adequate class representatives. The order also lifted the stay on substantive discovery. Subsequently, both parties have engaged in some discovery on the merits. Plaintiffs now seek review of the September 1 decertification order by direct appeal (No. 76-1881) and by a petition for a writ of mandamus (No. 76-1906).

We are confronted with the threshold issue of our jurisdiction to hear an appeal from the district court's order decertifying the lawsuit as a class action. Defendants allege that the order is not a final order which is appealable under 28 U.S.C. § 1291. We disagree.

Orders denying class action certification are reviewable under 28 U.S.C. § 1291 if they sound the "death knell" of the action. See, e. g., Share v. Air Properties G. Inc., 538 F.2d 279, 282 (9th Cir.), cert. denied sub nom., Woodruff v. Air Properties G. Inc., 429 U.S. 923, 97 S.Ct. 321, 50 L.Ed.2d 290 (1976); Ott v. Speedwriting Pub. Co., 518 F.2d 1143, 1146-49 (6th Cir. 1975); Williams v. Mumford, 167 U.S.App.D.C. 125, 511 F.2d 363, 366, cert. denied, 423 U.S. 828, 96 S.Ct. 47, 46 L.Ed.2d 46 (1975); Shayne v. Madison Square Garden Corp., 491 F.2d 397, 399-401 (2d Cir. 1974); Graci v. United States, 472 F.2d 124, 126 (5th Cir.), cert. denied, 412 U.S. 928, 93 S.Ct. 2752, 37 L.Ed.2d 155 (1973); Eisen v. Carlisle & Jacquelin (Eisen I), 370 F.2d 119, 120-21 (2d Cir. 1966), cert. denied, 386 U.S. 1035, 87 S.Ct. 1487, 18 L.Ed.2d 598 (1967). See also Hartmann v. Scott, 488 F.2d 1215, 1220 (8th Cir. 1973); compare, In re Cessna Aircraft Distributorship Antitrust Litigation, 518 F.2d 213 (8th Cir.), cert. denied, 423 U.S. 947, 96 S.Ct. 363, 46 L.Ed.2d 282, rehearing denied, 423 U.S. 1039, 96 S.Ct. 577, 46 L.Ed.2d 414 (1975). Contra, King v. Kansas City Southern Industries, 479 F.2d 1259, 1260 (7th Cir. 1973); Hackett v. General Host Co., 455 F.2d 618, 621-26 (3d Cir.), cert. denied, 407 U.S. 925, 92 S.Ct. 2460, 32 L.Ed.2d 812 (1972).

To determine whether a decertification order sounds the "death knell" of the action, we begin by examining the amount of the class representatives' individual claim. ² Plaintiffs' individual claim for damages totals approximately $2,650. Because this claim falls between those cases where the individual claim is clearly not viable ³ and those cases where the individual claim is viable, ⁴ we must examine the amount of plaintiffs' claim in relation to their financial resources and the probable cost and complexity of the lawsuit. See, e. g., Share v. Air Properties G. Inc., supra, 538 F.2d at 282; Graci v. United States, supra, 472 F.2d at 126; Korn v. Franchard Corp., 443 F.2d 1301, 1307 (2d Cir. 1971).

Plaintiffs, both of whom are employed, have an aggregate yearly gross income of $26,000. Their total net worth is approximately $75,000, but only $4,000 of this sum is in cash. The remainder consists of equity in their home and investments.

As of December 1974 plaintiffs had already incurred expenses in excess of $1,200 in connection with this lawsuit. Plaintiffs' new counsel has estimated expenses of this lawsuit to be $15,000. The nature of this case will require extensive discovery, much of which must take place in Florida, where most defendants reside. Moreover, the allegations regarding the prospectus and financial statements will likely require expert testimony at trial.

After considering all the relevant information in the record, we are convinced that plaintiffs have sustained their burden ⁵ of showing that they will not pursue their individual claim if the decertification order stands. Although plainti...