Edward D. Jones & Co. v. Cole

• Decision Date: 30 November 1994
• Docket Number: No. 85A02-9309-CV-00504,85A02-9309-CV-00504
• Citation: 643 N.E.2d 402
• Parties: EDWARD D. JONES & COMPANY, Appellant-Defendant, v. Cleon F. COLE, Virgil C. and Virginia M. Corll, William F. and Barbara N. Corn, et al., Appellees-Plaintiffs.
• Court: Indiana Appellate Court

Page 402

643 N.E.2d 402

EDWARD D. JONES & COMPANY, Appellant-Defendant, v. Cleon F. COLE, Virgil C. and Virginia M. Corll, William F and Barbara N. Corn, et al., Appellees-Plaintiffs.

No. 85A02-9309-CV-00504.

Court of Appeals of Indiana Second District.

Nov. 30, 1994.

Edward O. Delaney, Michael R. Fruehwald, Anne N. Deprez, Amy B. Judge, Barnes & Thornburg, Indianapolis, Richard P. Fisher, Fisher & Ireland, Wabash, for appellant.

Joseph H. Yeager, Jr., James H. Ham, III, Robert D. Moreland, Baker & Daniels, Indianapolis, Scott L. Starr, Jon M. Myers, Starr Austin & Tribbett, Logansport, Stephen H. Downs, Tiede, Metz & Downs, P.C., Wabash, for appellees.

OPINION

HOFFMAN, Judge.

Appellant-defendant Edward D. Jones & Company ("Jones") appeals from an order certifying a class in an action alleging oral misrepresentations and omissions in the sale of certain investments. The plaintiffs' complaint stems from the facts recited below.

Jones is a national brokerage firm with over 1,600 offices throughout the United States. One branch office is located in Marion, Indiana. Each of the thirty-two plaintiffs were clients of Jones between December 1983 and December 1987. The plaintiffs purchased mutual funds, securities, and other investments from one Jones' employee in particular, Richard Seaman, who worked at the Marion, Indiana office.

Jones portrayed itself to its clientele and the public generally through advertisements, public relations efforts, and its own employees' representations as a small-town conservative brokerage firm selling only low-risk securities and investments. However, according to the complaint, once client confidence was established and while at the same time promoting a conservative philosophy and image, Jones invested in high-risk, high-commission, complex investments. Jones did this without full disclosure of either the material facts associated with the investments or the risks involved. According to the plaintiffs, this conduct was part of a far-reaching scheme orchestrated by Jones to quickly maximize its own profits without regard to the conservative interests of its clients or its intended image.

Although the plaintiffs' business relations with Jones were limited to Seaman, the complaint set forth a detailed account of how Seaman's sales practices were not uniquely his but were instead reflective of Jones' overall method of training its sales force and its specific instructions to its employees concerning their sales. As a result of Jones' investments and Seaman's practices in particular, each of the named plaintiffs alleged they suffered substantial losses of all or most of their initial investments.

Consequently, in February 1992, the plaintiffs initiated this action by filing a complaint in the Wabash Circuit Court. The plaintiffs alleged, inter alia, violations of the Indiana Securities Act, IND.CODE § 23-2-1-1 et seq. (1982 Ed.); the Indiana RICO Statute, IND.CODE § 34-4-30.5-1 et seq. (1982 Ed.); as well as common-law theories of actual and constructive fraud. In May 1993, on motion by the plaintiffs and after conducting a hearing, the trial court certified this action as a class action. The trial court defined the class as encompassing:

"All persons who at any time purchased securities* from ... Seaman while he was an employee/representative of [Jones] and who have since sold the investment on or before October 1, 1993; and, who meet one or more of the following criteria:

1. The sales price received for the investment was less than the investor paid for the investment after excluding any increases in the value of the investment resulting from any reinvestment of dividends.

2. The investment was purchased in reliance upon specific representations made by ... Seaman as to the income to be expected on the investment, including fixed periodic payments; and, the investment failed to produce the income represented to be received.

AND

All persons who at any time purchased limited partnership interests from ... Seaman while he was an employee/representative of [Jones] and who meet both of the following criteria:

1. The interest was purchased in reliance upon specific representations made by ... Seaman that the investment was 'no risk' or 'low risk' or similar words to that effect; and, the investment was actually one of 'significant risk' or 'high risk'; and 2. The value of the limited partnership interest as of October 1, 1993 was at least 15% less than the sales price paid for that interest...."

Jones now appeals.

On appeal, Jones raises several issues which we consolidate into two:

(1) whether the trial court properly certified this action as a class action; and

(2) whether the class was properly defined by the trial court.

An abuse of discretion standard is employed for our review of a trial court's certification of a class; we neither reweigh the evidence nor judge the credibility of witnesses. American Cyanamid Co. v. Stephen (1993), Ind.App., 623 N.E.2d 1065, 1070. If, viewing the evidence most favorable to the judgment as well as all reasonable inferences to be drawn therefrom, we find there is substantial evidence to support the trial court's ruling, we will affirm. Id. Although T.R. 23(C) requires a hearing before class certification, the plaintiffs are not required to establish the likelihood that they will ultimately succeed on the merits. Bowen v. Sonnenburg (1980), Ind.App., 411 N.E.2d 390, 401; see Eisen v. Carlisle & Jacquelin (1974), 417 U.S. 156, 177, 94 S.Ct. 2140, 2152, 40 L.Ed.2d 732, 748. The trial court entered special findings of fact and conclusions of law on Jones' motion. See Ind.Trial Rule 52(A). Thus, this Court employs a two-tiered standard of review. American Cyanamid, 623 N.E.2d at 1070. We will first determine whether the findings support the judgment. Id. Next, we will determine whether the conclusions of law and resulting judgment are clearly erroneous based on the facts as set forth by the trial court. Id. On appeal, Jones challenges only the trial court's findings as to commonality, typicality, and predominance of common questions under Ind.Trial Rule 23.

Ind.Trial Rule 23 requires that there be "questions of law or fact common to the class," T.R. 23(A)(2), and that "questions of law or fact common to members of the class predominate over any questions affecting only individual members, T.R. 23(B)(3)." These two elements are satisfied if the court finds the claims of the individual plaintiffs are derived from a common nucleus of operative fact. Arnold v. Dirrim (1979), Ind.App., 398 N.E.2d 426, 436; see Skalbania v. Simmons (1982), Ind.App., 443 N.E.2d 352, 359 A common nucleus of operative fact exists where there is a common course of conduct. See Skalbania, 443 N.E.2d at 358; In re American Continental/Lincoln S & L Sec. Lit. (D.Ariz.1992), 140 F.R.D. 425, 430; Kirkpatrick v. J.C. Bradford & Co. (11th Cir.1987), 827 F.2d 718, 724, cert. denied, (1988) 485 U.S. 959, 108 S.Ct. 1220, 1221, 99 L.Ed.2d 421.

The trial court found the existence and implementation of a common scheme by Jones to defraud its clients to be a common nucleus of operative fact establishing the above elements. However, Jones maintains Seaman's fiduciary duty of full disclosure, as well as issues of reliance, causation, damages, and statutes of limitations, relating to the actual and constructive fraud claims, are all individual issues not provable on a common basis.

An argument very similar to this one was rejected by this Court in Skalbania, 443 N.E.2d at 358-59 (rejecting argument that fraud is too individualized for class action treatment). In the same vein, in American Continental, class action treatment was found to be appropriate in a securities fraud action where although plaintiffs' claims were not identical, their claims were united by a common thread--a standardized sales pitch by the defendant to lure plaintiffs to buy certain securities. American Continental, 140 F.R.D. at 431. The American Continental court specifically rejected defendant's argument that class actions are not maintainable where alleged fraud is consummated primarily through oral misrepresentations unless the representations are identical. Id. The court reasoned the gravamen of the alleged fraud is not the specific representations but rather the "whole roster of deception designed to contrive a false image of [defendant]." Id. at 431. As the court specifically stated,

"The center of gravity of the fraud transcends the specific details of oral communications.... [T]he alleged fraud [is] not conceived or perpetrated by the [defendant's representatives] themselves. Rather, they [are] merely conduits of information communicated to them by or with the help of Defendants.

* * * * * *

The exact wording of the oral misrepresentations, therefore, is not the predominant issue. It is the underlying scheme which demands attention. Each plaintiff is similarly situated with respect to it, and it would be folly to force each bond purchaser to prove the nucleus of the alleged fraud again and again."

Id.; see...