Harris v. Union Elec. Co.

• Decision Date: 14 February 1989
• Docket Number: No. 70374,70374
• Citation: Harris v. Union Elec. Co., 766 S.W.2d 80 (Mo. 1989)
• Parties: Fed. Sec. L. Rep. P 94,302 Harold HARRIS, et al., Plaintiffs-Respondents, and David L. Campbell and Estate of Edward W. Fredrickson, Petitioners-Respondents, and David L. Campbell, Petitioner-Respondent, v. UNION ELECTRIC COMPANY, Defendant-Appellant, and Centerre Trust Company, formerly St. Louis Union Trust Company, Defendant-Appellant.
• Court: Missouri Supreme Court

Page 80

766 S.W.2d 80

Fed. Sec. L. Rep. P 94,302

Harold HARRIS, et al., Plaintiffs-Respondents and David L. Campbell and Estate of Edward W. FredricksonPetitioners-Respondents and David L. Campbell, Petitioner-Respondent, v.UNION ELECTRIC COMPANY, Defendant-Appellant and Centerre Trust Company, formerly St. Louis Union Trust Company, Defendant-Appellant.

No. 70374.

Supreme Court of Missouri, En Banc.

Feb. 14, 1989.

As Modified on Denial of Rehearing March 14, 1989.

Lawrence G. Crahan, Francis X. Duda, Jordan B. Cherrick, Ann E. Buckley, David S. Slavkin, Theodore R. Carter, St. Louis, for defendant-appellant.

David L. Campbell, John J. Campbell, William J. Raack, St. Louis, for plaintiffs-respondents.

ROBERTSON, Judge.

This appeal is the fourth in a series of class action suits involving Union Electric Company and holders of its Series 2005 Bonds.The litigation spans the last decade and bears a complex procedural pedigree.In April, 1978, Union Electric announced that it planned to redeem approximately $50,000,000 of the $70,000,000 in Series 2005 Bonds originally issued in March, 1975.Believing the bonds were sold with solid "call protection" for ten years, several bondholders filed suit seeking declaratory, injunctive and monetary relief for a class of bondholders.As a result of the suit, Union Electric halted its redemption plan.

The present action is a consolidated appeal by defendants-appellantsUnion Electric Company and Centerre Trust Company.The trial court granted summary judgment in favor of the named plaintiffs and the class of bondholders they represent.¹The order enjoined Union Electric from redeeming the Series 2005 bonds at par value from money deposited with its trustee, Centerre.The trial court also reaffirmed a prior award of attorneys' fees and expenses, plus interest to petitioners, David Campbell and the Estate of Edward W. Frederickson(plaintiffs' counsel) and awarded additional attorneys' fees to plaintiffs' counsel.The Court of Appeals, Eastern District, affirmed.

We granted transfer to consider whether a prior recovery of money damages in a class action bars subsequent injunctive relief for a nearly identical class.We have jurisdiction.Mo. Const. art. V, § 10.Reversed and remanded with directions to enter summary judgment in favor of Union Electric and for such other proceedings as may be consistent with this opinion.

I.Procedural History

On March 19, 1975, Union Electric Company offered for sale $70,000,000 of its First Mortgage Bonds, 10 1/2 Series due March 1, 2005.The bonds were issued under the terms of a supplemental indenture with Union Electric as grantor and St. Louis Union Trust Company(now Centerre Trust Company) as Trustee.The bonds had a par value of $1,000, and were sold by a syndicate of eighty-eight underwriters who offered the bonds to the public.By April 9, 1975, all of the bonds were sold.The named plaintiffs in this action were original purchasers of the bonds.²

Following the initial sale, the market value of the bonds fluctuated, adjusting for the rise and fall of interest rates.In late 1976, long-term bond yields began to fall.Utility companies, forced into the debt market in 1974 and 1975 in the face of soaring interest rates, were tempted to seek early retirement of their high-yield bonds through redemption or refunding.Union Electric began investigating the possibility of a redemption of its Series 2005 bonds.

On April 11, 1978, Union Electric publicly announced its plan to call $50,000,000 of its Series 2005 bonds.To implement its plan, Union Electric incurred nearly $50,000,000 in short-term debt at an interest rate below 10.6 percent.The cash was deposited with the mortgage trustee, Centerre Trust Company, and credited to Union Electric's Maintenance Fund and Improvement Fund.Union Electric intended to redeem the short-term debt by a private placement of a new long-term mortgage bond issue at an interest rate of 9.35 percent.

Union Electric directed its trustee to redeem the Series 2005 bonds at 100 percent of face value.Centerre refused to do so without judicial approval because it questioned the legality of the plan to call the bonds through the Maintenance Fund.On May 9, 1978, the plaintiffs instituted their state court action against Union Electric and Centerre.After learning of the pending lawsuit, the prospective purchasers of the replacement bonds refused to complete their purchase of the bonds.On June 19, 1978, Union Electric abandoned its redemption plan and withdrew the cash from the Maintenance Fund.

Harris I

³

Within a month after Union Electric announced its redemption plan, plaintiffHarold Harris filed suit seeking relief for himself and all other individuals holding the Series 2005 bonds.Harris maintained that the 1975 Indenture expressly precluded redemption of the bonds from funds obtained at an interest cost less than 10.6 percent for the first ten years, until March 1, 1985.Furthermore, Harris claimed that the Indenture prohibited redemptions from the Maintenance Fund and Improvement Fund, and, if the redemption was permitted, federal securities laws would be violated.In sum, Harris argued that bondholders like himself bought the bonds in reliance on solid call protection on the bonds for ten years.

Soon after Union Electric announced it had abandoned its redemption plan, Continental Casualty Company and National Fire Insurance Company of Hartford came forward as bondholders and were added as named plaintiffs in the suit originally filed by Harris.With the consent of the parties, the trial court certified the claims as a Rule 52.08(b)(1) and (b)(2) class action.The class was defined as all holders of the Series 2005 Bonds as of November 21, 1978(the date of the certification order) and their transferees.

The plaintiffs' petition contained eleven counts.It sought a declaration of plaintiffs' rights under the indenture and an injunction prohibiting the redemption plan contemplated by Union Electric.Additionally, plaintiffs requested monetary damages on the basis of statutory and common law violations.The trial court severed the plaintiffs' claims for declaratory and injunctive relief for separate trial.⁴

In their motion for summary judgment, plaintiffs argued that Union Electric was prohibited by the indenture from proceeding with the redemption plan.However, if Union Electric could redeem, plaintiffs argued that the selling prospectus failed to adequately disclose the redemption features of the Series 2005 bonds.

In December of 1979, the trial court granted the plaintiffs' motion for summary judgment.⁵The court held that Union Electric's redemption plan was not permitted under the terms of the indenture and issued an injunction prohibiting redemption on the terms proposed by Union Electric.The court did not address the prospectus disclosure issue.

On June 16, 1981, the Court of Appeals, Eastern District, reversed, characterizing the language of the indenture as unambiguous and permitting Union Electric to call the bonds by special redemption as it had planned.The Eastern District remanded the case with instructions to enter partial summary judgment in favor of Union Electric with respect to its rights under the indenture.⁶

Harris II

On remand, the trial court entered its order effecting the directions of the appellate court.The plaintiffs were given additional time to file an amended petition.Subsequently, both plaintiffs and defendants filed applications for attorneys fees and costs in relation to the Harris I litigation.After a three-day evidentiary hearing, the trial court overruled Union Electric's application for fees.On November 1, 1982, the trial court entered its order granting plaintiffs' attorneys' fees of $696,000 and expenses of $23,937.39.

The trial court based the fee award on a provision in the bond indenture permitting the court to exercise its discretion in awarding fees in any suit for the enforcement of rights under the indenture.As additional grounds, the trial court relied on "general equitable principles", to support the fee award, finding that plaintiffs' attorneys conferred a substantial benefit on the class by forestalling the redemption of the bonds.

Union Electric challenged the fee award on appeal.The Court of Appeals, Eastern District, found the fee award faulty on two grounds: first, plaintiffs received no tangible recovery, and second, Union Electric was granted summary judgment in Harris I.Furthermore, the court noted that the issues presented in plaintiffs' second amended petition had not been addressed.Although the trial court designated its order final and appealable, the court of appeals considered the fee award a "partial judgment" without any resolution of the substantive legal issues contained in the underlying claim.The court stayed the attorneys' fees judgment pending final disposition of all issues and dismissed the appeal as premature.

Harris III

While the Harris I appeal was pending, the same three named plaintiffs in the state court proceedings filed a class action in the federal court alleging that Union Electric violated Section 10(b) of the Securities Exchange Act,15 U.S.C. § 78j(b)(1982), andRule 10b-5 of the Securities Exchange Commission, 17 C.F.R. § 240.10b-5(1985).Plaintiffs also realleged all of their state court claims.Specifically, plaintiffs claimed that the bond prospectus both misrepresented and omitted material facts regarding the call-protection provisions of the bond contract, and that the attempted plan to call the bonds constituted a scheme by Union Electric to defraud its bondholders.At the request of the parties, the federal court action was stayed pending the decision of the Missouri court of appeals on plaintiffs' state court claims for declaratory and injunctive relief (Harris I ).

Following the decision in Harris I, on January 16, 1982, the federal district court...