Kirkpatrick v. J.C. Bradford & Co.
| Citation | 827 F.2d 718 |
| Decision Date | 15 September 1987 |
| Docket Number | Nos. 86-8624,s. 86-8624 |
| Parties | Fed. Sec. L. Rep. P 93,383, 9 Fed.R.Serv.3d 276 Suzanne KIRKPATRICK; Dorothy D. Casler and Charles H. Lindsey, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. J.C. BRADFORD & CO., Defendant-Appellee. Glenn T. SANDERS on behalf of himself and all others similarly situated, and Leslie D. Sanders, Plaintiffs-Appellants, v. ROBINSON HUMPHREY/AMERICAN EXPRESS, INC., and Shearson/American Express, Inc., Defendants-Appellees. Tommy E. PARKER, as custodian for Kimberly M. PARKER and James L. Smith, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. PAINE WEBBER GROUP, INC., Defendant-Appellee. to 86-8626. |
| Court | United States Courts of Appeals. United States Court of Appeals (11th Circuit) |
Glenn Delk, Churchill & Ferguson, Atlanta, Ga., Kenneth A. Jacobsen, Richard D. Greenfield, Haverford, Pa., for plaintiffs-appellants in Nos. 86-8624, 86-8625.
Ames Davis, Robert E. Boston, Nashville, Tenn., for defendant-appellee in No. 86-8624.
Lloyd S. Clareman, Harvey D. Myerson, Bradley C. Twedt, Timothy J. Carey, Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, New York City, Peter J. Anderson, Mack Young, Peterson Young Self & Asselin, Atlanta, Ga., for defendants-appellees in No. 86-8625.
Brenda M. Nelson, Greenfield & Chimicles, Kenneth A. Jacobsen, Richard D. Greenfield, Philadelphia, Pa., for plaintiffs-appellants in No. 86-8626.
Richard M. Kirby, Hansell & Post, Atlanta, Ga., Robert E. Zimet, Skadden, Arpts, Slate, Meaglher & Flom, New York City, for defendant-appellee in No. 86-8626.
Appeals from the United States District Court for the Northern District of Georgia.
Before VANCE and KRAVITCH, Circuit Judges, and BROWN *, Senior Circuit Judge.
Plaintiffs in these companion cases filed certified interlocutory appeals pursuant to 28 U.S.C. Sec. 1292(b) challenging the district court's denial of class certification under Rule 23 of the Federal Rules of Civil Procedure. The district court denied class certification in each case on the alternative grounds that the named plaintiffs were not adequate class representatives as required by Fed.R.Civ.P. 23(a)(4) and that individual questions of fact predominated over common questions of law and fact in contravention of Fed.R.Civ.P. 23(b)(3). Concluding that the district court applied erroneous legal standards, we reverse and remand for further consideration.
These are a few of the many cases arising out of the virtual collapse in 1984 of the Petro-Lewis oil and natural gas investment funds. From 1970 to 1984, about 180,000 people purchased more than $3 billion worth of Petro-Lewis securities and limited partnerships. When the price of oil and gas declined in 1981 and 1982, Petro-Lewis began borrowing funds to pay partnership distributions, to service its debt, and to promote the sale of additional programs. In February 1984, revealing for the first time that it was in dire financial straits, Petro-Lewis announced that it would implement a series of drastic economy measures, including cutting partnership distributions by as much as 50 per cent and selling between one quarter and one third of its reserves. Numerous lawsuits followed.
In In re Petro-Lewis Securities Litigation, [1984-85 Transfer Binder], Fed.Sec.L.Rep. p 91,899 (D.Colo.1984), the U.S. District Court for the district of Colorado approved a settlement of eleven consolidated class suits brought under various provisions of the federal securities laws against the directors and certain corporate entities of the Petro-Lewis organization. Under the terms of the settlement, the participating class members agreed to release the defendants and all Petro-Lewis subsidiaries in return for the formation of a royalty trust and a settlement fund valued at $23.5 million. The settlement agreement expressly provided that the plaintiff class members retained the right to file suit against any nondefendants, including broker-dealers of Petro-Lewis securities and limited partnerships.
In these cases, plaintiffs allege that the actions of the defendant brokerage firms and individuals in selling and promoting interests in Petro-Lewis violated sections 11 and 12(2) of the Securities Act of 1933, 15 U.S.C. Secs. 77k, 77l (2), section 10 of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j, Rule 10b-5 promulgated thereunder, 17 C.F.R. Sec. 240.10b-5, and various common law and statutory obligations under state law. 1 Claiming to represent classes of plaintiffs who, between January 1, 1981 to February 6, 1984, purchased, reinvested in, or otherwise acquired Petro-Lewis limited partnership interests from the defendant firms, the plaintiffs alleged that the defendants knowingly or recklessly participated with Petro-Lewis in disseminating materially misleading information regarding Petro-Lewis' financial condition and failed to provide other information that would have made the statements not misleading.
After discovery and hearings, the district court issued an order and an amended order denying certification of the classes under Rule 23 of the Federal Rules of Civil Procedure. Although the court determined that each suit satisfied the class action prerequisites of Rule 23(a)(1), (2), and (3), the court denied certification on the ground that the named plaintiffs were not adequate class representatives as required by Rule 23(a)(4). The basis for this determination was that the named plaintiffs did not demonstrate that they would pursue the litigation with sufficient vigor to protect the interests of the class. As an alternative ground of decision, the court held that individual questions of law and fact outweighed common questions and thus that the actions did not satisfy the standards of Rule 23(b)(3). Concluding that its ruling was based upon determinations of law as to which there may be substantial ground for difference of opinion and that an immediate appeal from the denial of class certification would materially advance the ultimate determination of the actions, the court certified its order for an interlocutory appeal pursuant to 28 U.S.C. Sec. 1292(b). We accepted jurisdiction. See id.
The district court's conclusion that individual questions predominate over common questions is based directly on the court's interpretation of the substance of the plaintiffs' claims. Consequently, we will consider first that aspect of the court's denial of class certification.
In holding that certification was improper under Rule 23(b)(3), 2 the court concluded that common questions of law and fact in the 10(b) and 10b-5 claims were dominated by individual questions of reliance on the part of the particular purchasers, statutes of limitations in each state in which there may be class members, and arbitration agreements in many of the purchase contracts. The court viewed the state law claims to be inappropriate for class action treatment because liability would depend upon the substantive law of the different states. Finally, the court refused to consider certifying classes limited to the section 11 and 12(2) claims after concluding that the 10(b) and state law claims were the dominant claims asserted in the complaints.
The complaints allege that the defendants violated section 10(b) and Rule 10b-5 by engaging in two related but different courses of conduct. First, the complaints contend that the defendants participated with Petro-Lewis in disseminating misleading prospectuses and in engaging in a standardized promotion by the individual brokers. Second, the plaintiffs claim that the firms continued to sell and promote Petro-Lewis shares despite the firms' awareness or reckless disregard of Petro-Lewis' severe financial difficulties. Based on these allegations, the plaintiffs assert three theories of liability under which common issues of law and fact necessarily would outweigh individual issues. They first contend that their claims concern primarily acts of omission and thus that reliance on the part of individual purchasers should be presumed under the rule of Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1975). Second, they argue that the claims fall under the fraud-on-the-market theory adopted by our predecessor court in Shores v. Sklar, 647 F.2d 462 (5th Cir. May 1981) (en banc), cert. denied, 459 U.S. 1102, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983). 3 Finally, they argue that the allegations involve a common course of conduct toward all defendants, and thus that any issues of individual reliance could not predominate over common questions of facts. See e.g., Kennedy v. Tallant, 710 F.2d 711 (11th Cir.1983).
The district court rejected each of these theories. The court found the characterization of the claims as involving primarily omissions to be precluded by the interpretation in Huddleston v. Herman & McLean, 640 F.2d 534 (5th Cir. Unit A March 1981), aff'd in part and rev'd in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983), and Cavalier Carpets v. Caylor, 746 F.2d 749 (11th Cir.1984), of the requirements for an omissions case under Affiliated Ute. The court rejected the fraud-on-the-market theory as insufficiently supported by the pleadings or the evidence proffered by the plaintiffs. Finally, the court refused class action treatment under the course of conduct theory based on the court's determination that the plaintiffs' allegations involve primarily individualized oral representations rather than a common scheme by the defendants toward the plaintiff purchasers.
We agree with the district court that under the precedent of this circuit the plaintiffs' complaints cannot be properly characterized as omissions cases under the standards of Affiliated Ute. Here, as in...
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