Peterson v. Dougherty Dawkins, Inc.

• Citation: 1998 ND 159,583 N.W.2d 626
• Decision Date: 20 August 1998
• Docket Number: No. 970321,970321
• Parties: Craig PETERSON, as Personal Representative of the Estate of Grace Gregerson, Wencil Dusek, John Schafer, Art Merkel, Dean Nelson, Albin Sherve and Alvhild Sherve for themselves and on behalf of all others similarly situated, Plaintiffs and Appellees, v. DOUGHERTY DAWKINS, INC., f/k/a Dougherty Dawkins, Strand and Bigelow f/k/a Dougherty, Strand and Yost Incorporated, a Minnesota Corporation, Defendant and Appellant. Civil
• Court: United States State Supreme Court of North Dakota

Page 626

583 N.W.2d 626

1998 ND 159

Craig PETERSON, as Personal Representative of the Estate of Grace Gregerson, Wencil Dusek, John Schafer, Art Merkel Dean Nelson, Albin Sherve and Alvhild Sherve for themselves and on behalf of all others similarly situated, Plaintiffs and Appellees, v. DOUGHERTY DAWKINS, INC., f/k/a Dougherty Dawkins, Strand and Bigelow f/k/a Dougherty, Strand and Yost Incorporated, a Minnesota Corporation Defendant and Appellant.

Civil No. 970321.

Supreme Court of North Dakota.

Aug. 20, 1998.

Rebecca Heigaard McGurran (argued), of David C. Thompson, Grand Forks, and Craig A. Peterson (appearance), of Peterson Law Office, Fargo, for plaintiffs and appellees.

Gregory J. Schaefer (argued), and Frank A. Taylor, of Hinshaw & Culbertson, Minneapolis, MN, and Michael M. Thomas (appearance), of Conmy, Feste, Bossart, Hubbard & Corwin, Ltd., Fargo, for defendant and appellant.

MARING, Justice.

¶1 Dougherty Dawkins, Inc. (Dougherty) appeals from an order certifying a class action and from an order denying its motion for reconsideration. We affirm.

¶2 In 1986 the City of Fargo issued MIDA bonds to finance the renovation of the Black Building in downtown Fargo. Under MIDA bond financing, the city holds record title to the property as a conduit for the private developer and leases the property back to the developer with an option to purchase for a nominal sum after the bonds are repaid. See City of Fargo v. D.T.L. Properties, Inc., 1997 ND 109, p 2, 564 N.W.2d 274. MIDA bonds are payable solely from the revenues pledged for repayment, and the city has no liability on the bonds. N.D.C.C. § 40-57-15; State v. Larsen, 515 N.W.2d 178, 182 (N.D.1994).

¶3 Dougherty served as the underwriter for the Black Building MIDA bonds, and marketed the bonds around the country. The bonds, totaling $2.75 million, were sold in $5,000 increments. Dougherty issued an "Official Statement" to prospective purchasers outlining the details of the project and the bond offering. The bond offering closed in October 1986.

¶4 The bonds were declared in default in April 1990, and the property was eventually sold. ¹ The bondholders lost virtually all of their investments.

¶5 In 1996, seven individual bondholders (the plaintiffs) brought a class action on behalf of all bondholders against Dougherty, alleging Dougherty had defrauded them by material misrepresentations and omissions in the Official Statement. There are 101 potential class members living in 10 states. ² Thirty-nine class members reside in North Dakota.

¶6 A hearing was held on November 7, 1996, to determine whether to certify the class action under N.D.R.Civ.P. 23(b). At the conclusion of the hearing the court orally granted the plaintiffs' motion to certify the class action. The court granted Dougherty leave to conduct discovery and resubmit the issue of certification after the record was more fully developed.

¶7 Dougherty conducted extensive discovery and moved for reconsideration of the court's decision to certify. A hearing on the motion was held on September 18, 1997. On October 13, 1997, the court issued two written orders, one certifying the action as a class action and one denying Dougherty's motion to reconsider. Dougherty appealed.

¶8 The sole issue presented on appeal is whether the trial court erred in certifying this as a class action.

¶9 An order certifying a class action is appealable. N.D.R.Civ.P. 23(d)(3); Holloway v. Blue Cross of North Dakota, 294 N.W.2d 902, 906 (N.D.1980). The trial court has broad discretion in determining whether to certify a class action under N.D.R.Civ.P. 23(b), and its decision will be overturned on appeal only if the court has abused its discretion. See, e.g., Old Broadway Corp. v. Hjelle, 411 N.W.2d 81, 82 (N.D.1987); Saba v. Counties of Barnes, Benson, Burleigh, Eddy, Foster, Griggs, Kidder, Nelson, and Wells, 307 N.W.2d 590, 593 (N.D.1981); see also Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741, 743-744 (Iowa 1985). ³ Similarly, we will disturb a court's ruling on a motion to reconsider only if an abuse of discretion is shown. Ellingson v. Knudson, 498 N.W.2d 814, 818 (N.D.1993). A trial court abuses its discretion only if it acts in an unreasonable, arbitrary, or unconscionable manner. Old Broadway, 411 N.W.2d at 82-83; Saba, 307 N.W.2d at 593.

¶10 In reviewing an order granting certification, we are guided by the broad and liberal policy in favor of class actions in this state:

Decisions as to whether class action status should be allowed seem to rest, more than many other judicial determinations, on judicial philosophy, rather than on precedent or statutory language....

We will interpret Rule 23 so as to provide an open and receptive attitude toward class actions.

We believe that Rule 23 is a remedial rule which "continues to have as its objectives the efficient resolution of the claims or liabilities of many individuals in a single action, the elimination of repetitious litigation and possibly inconsistent adjudications involving common questions, related events, or requests for similar relief, and the establishment of an effective procedure for those whose economic position is such that it is unrealistic to expect them to seek to vindicate their rights in separate lawsuits." Wright & Miller, Federal Practice and Procedure: Civil § 1754.

Rogelstad v. Farmers Union Grain Terminal Ass'n, 226 N.W.2d 370, 376 (N.D.1975); see also Old Broadway, 411 N.W.2d at 82; Saba, 307 N.W.2d at 593. ⁴

¶11 Under N.D.R.Civ.P. 23 the court may certify an action as a class action if the following four requirements are satisfied:

1. The class is so numerous or so constituted that joinder of all members, whether or not otherwise required or permitted, is impracticable;

2. There is a question of law or fact common to the class;

3. A class action should be permitted for the fair and efficient adjudication of the controversy; and

4. The representative parties fairly and adequately will protect the interests of the class.

Old Broadway, 411 N.W.2d at 83.

¶12 There is little dispute that factors (1), (2), and (4) are satisfied in this case. The class consists of over 100 bondholders scattered throughout ten states, making joinder impracticable. The bondholders' claims all arise from the same alleged misrepresentations and omissions made in the written Official Statement issued by Dougherty. Finally, the seven named plaintiffs and their attorneys are able to protect the interests of the class members.

¶13 The significant dispute in this case arises over factor (3): whether a class action will provide a fair and efficient adjudication of the controversy. Rule 23(c)(1) provides a list of thirteen factors the court must consider in determining whether the class action provides a fair and efficient adjudication. The court in this case expressly considered and addressed the factors in its order certifying the class action.

¶14 Dougherty asserts four of the thirteen factors under Rule 23(c)(1) militate against certification in this case, and the court therefore abused its discretion in granting certification. Dougherty misapprehends the rule. No one factor predominates, and each of the thirteen factors under Rule 23(c)(1) need not be satisfied before certification is appropriate. Old Broadway, 411 N.W.2d at 83; Holloway, 294 N.W.2d at 907; see also Rogelstad, 226 N.W.2d at 375; Vignaroli, 360 N.W.2d at 744 ("No weight is required by the rule to be assigned by the trial court to any criteria listed, further evidencing an intent to grant considerable discretion to the trial court."). Nor must the court explicitly address all thirteen factors. Old Broadway, 411 N.W.2d at 83; Holloway, 294 N.W.2d at 907.

¶15 In most cases some of the thirteen factors will weigh against certification and some will weigh in favor. It is for the trial court, employing its broad discretion, to weigh the competing factors and determine whether a class action will provide a fair and efficient adjudication of the controversy. Thus, even if Dougherty is correct in its assertion four of the factors weigh against certification, that does not preclude the court from certifying the class action if, in its opinion, those factors are outweighed by other factors supporting certification.

¶16 Because Dougherty argues the trial court misapplied the four challenged factors, we will briefly address Dougherty's assertions on these factors.

¶17 Dougherty argues the trial court erroneously held that North Dakota law will govern all of the bondholders' claims. Dougherty asserts the decision in Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985), precludes application of North Dakota law to the nonresident bondholders and, if other states' law must be applied, Rule 23(c)(1)(E), (K), and (L) militate against class certification. Those parts of the rule require the court to consider whether common questions of law or fact predominate, and whether management of the class or conflict of laws issues pose unusual difficulties.

¶18 Dougherty has misconstrued the trial court's order. The court did not rule that North Dakota law would govern all claims, but specifically reserved ruling on that issue. The court expressly noted that, if conflict of law questions later become "problematic," the court might create subclasses or exclude particular members from the class. See N.D.R.Civ.P. 23(e)(1).

¶19 Assuming the court later determines other states' laws apply to some claims, there is nothing in Rule 23 precluding creation of subclasses to which different states' substantive law would apply. Potential conflict of law issues do not preclude certification of a nationwide class, and courts often decline to decide choice of law issues when determining whether to certify a class action. 3 Newberg, Class Actions § 13.29 (Supp.1997); see, e.g., In re Kirschner Medical Corp. Securities Litigation, 139 F.R.D. 74, 84 (D.Md.1991).

¶20 When the...