Cordes Financial Services v. A.G. Edwards & Sons
| Decision Date | 11 September 2007 |
| Docket Number | Docket No. 06-2143-cv. |
| Citation | 502 F.3d 91 |
| Parties | CORDES & COMPANY FINANCIAL SERVICES, INC. and EqualNet Communications Corporation, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. A.G. EDWARDS & SONS, INC., BancBoston Robertson Stephens & Company, Bear Stearns & Co., Chase Hambrecht & Quist, Inc., CIBC Oppenheimer Corp., Cowen & Co., Credit Suisse First Boston Corporation, DB Alex. Brown LLC formerly known as BT Alex Brown Inc., Donaldson, Lufkin & Jenrette, Inc., Everen Securities, Inc., The Goldman Sachs Group, Inc., Hanifen Inhoff Inc., ING Barings LLC, J.C. Bradford & Co., J.P. Morgan Securities, Inc., Jefferies & Company, Inc., Johnson Rice & Company, Legg Mason Wood Walker Inc., Lehman Brothers Inc., Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., NationsBanc Montgomery Securities, Paine Webber Group, Inc., Piper Jaffray & Co., Inc., Prudential Securities Incorporated, Raymond James & Associates, Inc., Salomon Smith Barney, Inc. and UBS Warburg LLC, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
A. Robert Pietrzak, Sidley Austin LLP (Joel M. Mitnick, Benjamin R. Nagin, of counsel), New York, NY, for Defendant-Appellee Bear, Stearns & Co. Inc.
Thomas J. Kavaler, Cahill Gordon & Reindel LLP (Elai Katz, of counsel), New York, NY, for Defendant-Appellee Prudential Equity Group, LLC (sued as Prudential Securities Incorporated).
Joseph Ingrisano, Kutak Rock LLP (Robert A. Jaffe, of counsel), Washington, D.C., for Defendant-Appellee A.G. Edwards & Sons, Inc.
Charles E. Koob, Simpson Thacher & Bartlett LLP (Joseph F. Tringali, of counsel), New York, NY, for Defendants-Appellees Lehman Brothers Inc. and J.P. Morgan Securities Inc. (sued as Chase Hambrecht & Quist).
Jeremy G. Epstein, Shearman & Sterling LLP (Kenneth M. Kramer, Richard F. Schwed, of counsel), New York, NY, for Defendants-Appellees Credit Suisse Securities (USA) LLC, f/k/a Credit Suisse First Boston LLC (sued as Credit Suisse First Boston Corporation) and Donaldson Lufkin & Jenrette, Inc.
Jay N. Varon, Foley & Lardner LLP (Samuel J. Winer, Bryan B. House, of counsel), Washington, D.C., for Defendants-Appellees Everen Securities, Inc., Raymond James & Associates, Inc. and Piper Jaffray & Co. (sued as U.S. Bancorp Piper Jaffray Inc.).
Douglas A. Rappaport, DLA Piper US LLP (Lewis A. Noonberg, Philip Huynh, of counsel), New York, NY, for Defendant-Appellee Deutsche Bank Securities, Inc. .
Bernard J. Garbutt III, Morgan Lewis & Bockius LLP (Leza M. DiBella, of counsel), New York, NY, for Defendant-Appellee Jefferies & Company, Inc.
Charles O. Monk II, Saul Ewing LLP (Joseph M. Fairbanks, of counsel), Baltimore, MD, for Defendant-Appellee Legg Mason Wood Walker, Inc.
David Radlauer, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. (Mark A. Cunningham, of counsel), New Orleans, LA, for Defendant-Appellee Johnson Rice & Company.
L. Norton Cutler, Perkins Coie, LLP, Denver, CO, for Defendant-Appellee Hanifen Imhoff Inc.
Before: SACK, B.D. PARKER, and HALL, Circuit Judges.
The first of the named plaintiffs in this lawsuit — Cordes & Company Financial Services, Inc. ("Cordes") — is the assignee of an antitrust claim against the defendants formerly asserted by Western Pacific Airlines Inc. ("Western Pacific"). The interests in this litigation of the second named-plaintiff — EqualNet Communications Corporation ("EqualNet") — are being pursued by the Unsecured Creditors Trust ("Creditors Trust") of a subsidiary of EqualNet: EqualNet Corp. ("EN"). Creditors Trust acquired a two-thirds stake in any proceeds EqualNet obtains through this lawsuit. The plaintiffs allege in their Consolidated Class Action Complaint (the "Complaint") that the defendants, who are initial public offering ("IPO") underwriters, violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by agreeing to charge all corporations conducting mid-size IPOs who used their services a fee equal to seven percent of the proceeds of the offering. Cordes and Creditors Trust sought class certification pursuant to Federal Rule of Civil Procedure 23.
The United States District Court for the Southern District of New York (Lawrence M. McKenna, Judge) denied the motion for class certification because, it concluded, two Rule 23 requirements — the adequacy requirement of Rule 23(a)(4) and the predominance requirement of Rule 23(b)(3) — were not met.
Rule 23(a)(4) provides that it is a prerequisite to pursuit of an action as a class that "the representative parties will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4). The district court reasoned that because Cordes and Creditors Trust are assignees of the entities that instituted this lawsuit and are not themselves members of the putative class, they are not qualified to act as representatives of the class. For reasons set forth below, we think that the fact that the assignee-plaintiffs do not themselves fall within the definition of the class as set forth in the Complaint does not, ipso facto, foreclose their ability to act as class representatives in lieu of the entities that originally brought the claims, both of them members of the class. On remand, the district court should decide whether, on the facts presented in this case, Cordes and Creditors Trust are each adequate representatives of the class.
Rule 23(b)(3) requires, inter alia, that for a lawsuit to be pursued as a class action, "the questions of law or fact common to the members of the class [must] predominate over any questions affecting only individual members...." Fed. R.Civ.P. 23(b)(3). The district court concluded that the plaintiffs failed to establish that this litigation meets that requirement because they did not offer evidence to establish that antitrust injury — one of the elements of the antitrust claim alleged in the Complaint — could be proved by a method common to the class.
The antitrust injury element raises both factual questions related to whether the plaintiff has suffered harm and legal questions related to whether that harm is "of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). We think that the district court should have distinguished between antitrust injury's factual questions — as to which both parties offered evidence — and its legal questions — as to which neither party offered evidence. We conclude, for reasons set forth below, that the legal questions raised by the antitrust injury element of this case are common to the class. On remand, the district court should therefore decide whether the factual questions are common to the class. And if the court determines that the factual questions relevant to antitrust injury here are individual to each class member, the court should then determine (1) whether common questions nonetheless predominate, and (2) whether certification of a part of the case would be appropriate even if certification of the whole would not be.
Cordes, the first named-plaintiff, purchased the interest supporting its claim in this lawsuit from the bankruptcy estate of Western Pacific. In 1995, Western Pacific engaged in an IPO of its capital stock, the proceeds of which were approximately $47 million. Two years later, Western Pacific filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Colorado. In 1998, that proceeding was converted to a liquidation proceeding under Chapter 7. In 2001, the trustee of the estate in bankruptcy filed a complaint in this action in the United States District Court for the Southern District of New York. The trustee alleged that beginning in the mid-1990s, the defendants, investment banks that had underwritten mid-size IPOs, engaged in a horizontal price-fixing scheme of which Western Pacific was a victim...
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