In re Cp Ships Ltd. Securities Litigation

• Citation: 578 F.3d 1306
• Decision Date: 13 August 2009
• Docket Number: No. 08-16334.,08-16334.
• Parties: In Re: CP SHIPS LTD. SECURITIES LITIGATION. Geoffrey Gottfried, individually and on behalf of all others similarly situated, Billy R. Hood, James W. Nelson, individually and on behalf of all others similarly situated, Raymond Tyler, on behalf of himself and all others similarly situated, Kirvin Hendrix, et al., Plaintiffs-Appellees, v. Allen Germain, Interested Party-Appellant, CP Ships Ltd., Ray Miles, Ian Webber, Frank Halliwell, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

578 F.3d 1306

In Re: CP SHIPS LTD. SECURITIES LITIGATION.

Geoffrey Gottfried, individually and on behalf of all others similarly situated, Billy R. Hood, James W. Nelson, individually and on behalf of all others similarly situated, Raymond Tyler, on behalf of himself and all others similarly situated, Kirvin Hendrix, et al., Plaintiffs-Appellees, v. Allen Germain, Interested Party-Appellant, CP Ships Ltd., Ray Miles, Ian Webber, Frank Halliwell, Defendants-Appellees.

No. 08-16334.

United States Court of Appeals, Eleventh Circuit.

August 13, 2009.

Ralph M. Stone, Shalov, Stone, Bonner & Rocco, LLP, New York City, for Germain.

Jennifer L. Enck, Michael K. Yarnoff, Barroway, Topaz, Kessler, Meltzer & Check, LLP, Radnor, PA, Daniel S. Sommers, Matthew B. Kaplan, Cohen, Milstein, Sellers & Toll, PLLC, Washington, DC, Laurie Webb Daniel, Holland & Knight, Atlanta, GA, Daniel J. Kramer, Amy L. Barton, Aaron S. Delaney, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for Plaintiffs-Appellees.

Appeal from the United States District Court for the Middle District of Florida.

Before WILSON, KRAVITCH and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge:

Objector-Appellant Allen Germain appeals from the district court's final order approving the settlement of a securities class action lawsuit. Germain, a class member in the instant action, is also a member of a class pursuing related litigation in Canada ("Canadian Actions"). Germain is a Canadian citizen who purchased his securities on the New York Stock Exchange ("NYSE"). Germain argues that the district court lacked subject matter jurisdiction over the claims of foreign stock purchasers or, in the alternative, should have declined jurisdiction as a matter of comity. In addition, Germain argues that notice was inadequate and that the settlement is not fair, reasonable or adequate. For the reasons set forth below, we affirm the decision of the district court.

FACTS

Defendant-Appellee CP Ships Ltd. ("CP Ships" or "the Company") is a prominent container shipping company. It operates in several countries. The Company is organized under the laws of Canada and headquartered in London or Gatwick, England. Although officially headquartered in England during the class period (January 29, 2003 to August 9, 2004) ("Class Period"), crucial headquarters activities — including the relevant operations and personnel that were central to the fraud (i.e. the accounting department and executive offices) — were located in Tampa, Florida. These accounting operations were micromanaged by Defendant Halliwell, first in his capacity as Chief Operating Officer and later in his capacity as Chief Executive Officer. Halliwell was based in, and worked out of, the Tampa office during the Class Period. Roughly eighty percent of CP Ships' shares are traded on the Toronto Stock Exchange ("TSX") and roughly twenty percent are traded on the NYSE.

From 1993 to 2003, CP Ships acquired nine different businesses. Each business retained its own financial accounting system. In 2004, CP Ships instituted a single accounting platform ("SAP") over most of its businesses. After the SAP implementation, the Company announced that the transition had caused it to understate its operational costs. The Company's stock price dropped approximately 22.4 percent on the NYSE and 21.5 percent on the TSX. The allegations in the instant case and the Canadian Actions are both based on this occurrence.

The instant class action asserts claims for securities fraud in violation of Section 10(b) and 20(a) of the Exchange Act. On April 5, 2007, the district court dismissed the Complaint for failure to meet the heightened requirements for pleading scienter under the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The plaintiffs appealed to this Court. While the appeal was pending, the parties agreed to settle for $1.3 million. This is a small fraction of the original losses of $130 to $180 million alleged in the Complaint. The settlement class includes the claims of some foreigners but specifically excludes the claims of Canadian citizens who purchased CP Ships stock on the TSX.

After notices of settlement were published, an objector, Earl Downey, argued that the settlement would prevent some members of the Canadian class from pursuing their action in Canada. The district court ultimately issued an order concluding that Downey lacked standing to challenge the settlement. Nonetheless, the plaintiffs issued a supplemental notice ("Supplemental Notice") addressing some of his concerns. It included additional information about the Canadian Actions, including the contact information of the counsel in the Canadian Actions. There was an opportunity to opt out of the class after the Supplemental Notice.

On September 4, 2008, Appellant-Objector Allen Germain filed the instant objections to the settlement ("Objections"). The district court overruled the Objections and approved the settlement. Germain appealed. We first address subject matter jurisdiction, and then address Germain's merits challenges (i.e. to the notice and to the fairness of the settlement).

STANDARD OF REVIEW

The existence of subject matter jurisdiction is a question of law we review de novo. Pintando v. Miami-Dade Hous. Agency, 501 F.3d 1241, 1242 (11th Cir. 2007) (per curiam). This Court reviews a district court's approval of a settlement agreement for an abuse of discretion, Christo v. Padgett, 223 F.3d 1324, 1335 (11th Cir.2000), bearing in mind that "[p]roponents of class action settlements bear the burden of developing a record demonstrating that the settlement distribution is fair, reasonable and adequate," Holmes v. Continental Can Co., 706 F.2d 1144, 1147 (11th Cir.1983).

DISCUSSION

A. Subject Matter Jurisdiction

First, we must determine whether Germain raised a facial or factual attack on the existence of subject matter jurisdiction. Then, we will address the question of jurisdiction itself.

1. A Facial Challenge

"A litigant generally may raise a court's lack of subject-matter jurisdiction at any time in the same civil action, even initially at the highest appellate instance." Kontrick v. Ryan, 540 U.S. 443, 455, 124 S.Ct. 906, 915, 157 L.Ed.2d 867 (2004). However, "the parties may admit the existence of facts which show jurisdiction, and the courts may act judicially upon such an admission." Ry. Co. v. Ramsey, 22 Wall. 322, 89 U.S. 322, 327, 22 L.Ed. 823 (1875); see also United States v. Harty, 930 F.2d 1257, 1261 (7th Cir.1991) ("Although challenges to subject matter jurisdiction may be raised at any time, the appellants' argument ... is a factual challenge not raised before the district court. This court has repeatedly stated that arguments raised for the first time on appeal are waived.") (internal citations and quotations omitted).¹

Thus, there are two types of challenges to the existence of subject matter jurisdiction. "A `facial attack' on the complaint requires the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion." McElmurray v. Consol. Gov't of Augusta-Richmond County, 501 F.3d 1244, 1251 (11th Cir.2007) (internal quotations and alterations omitted). "`Factual attacks,' on the other hand, challenge the existence of subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits are considered." Id. (internal quotations omitted). In a factual challenge, "the district court must give the plaintiff an opportunity for discovery and for a hearing that is appropriate to the nature of the motion to dismiss." Williamson v. Tucker, 645 F.2d 404, 414 (5th Cir.1981).²

We conclude that Germain raised only a facial challenge before the district court. Germain did not advise the district court that he intended to raise a factual challenge. Nor did Germain request discovery or an evidentiary hearing. It is also clear from the transcript of the Final Approval Hearing that Germain was raising only a facial challenge to the Complaint.³ Furthermore, the district court's opinion expressly treats Germain's attack as facial, and he did not file a motion for reconsideration stating that he intended to mount a factual attack on the Complaint.⁴

Furthermore, Germain has not at any time expressly challenged any facts determinative of subject matter jurisdiction. As discussed below, the allegations in the Complaint establish that substantial fraudulent activity occurred at CP Ships' Tampa, Florida, accounting office. On appeal, Germain challenges only facts tangential to that conclusion. There is no evidence in the record to suggest that the district court in fact lacked subject matter jurisdiction.⁵ Cf. Rubin v. Buckman, 727 F.2d 71, 72-73 (3d Cir.1984); Eisler v. Stritzler, 535 F.2d 148, 150-52 (1st Cir.1976).⁶ We will not remand simply to allow Germain to embark on a "fishing expedition."

Accordingly, we turn to Germain's facial attack on the existence of subject matter jurisdiction. Although Germain himself, a Canadian citizen, bought his securities on the NYSE, he not only challenges the district court's jurisdiction over similar plaintiffs but also challenges the district court's jurisdiction over other foreign investors who purchased on the TSX.

2. The Allegations in the Complaint

"It is well recognized that the Securities Exchange Act is silent as to its extraterritorial application." Itoba Ltd. v. LEP Group PLC, 54 F.3d 118, 121 (2d Cir.1995). Thus,

[w]hen, as here, a court is confronted with transactions that on any view are predominantly foreign, it must seek to determine whether Congress would have wished the precious resources of United States courts and law enforcement agencies to be devoted to them rather than leave the problem to foreign countries.

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