Richland v. Cheatham

• Decision Date: 27 July 1967
• Docket Number: No. 66 Civ. 1300,66 Civ. 1473,66 Civ. 1849.,66 Civ. 1695,66 Civ. 1803,66 Civ. 1300
• Citation: 272 F. Supp. 148
• Parties: Sylvia RICHLAND and F. L. Salomon & Co., etc., Plaintiffs, v. Owen R. CHEATHAM et al., Defendants. Malcolm M. STULL and Marilyn Stull, Plaintiffs, v. GEORGIA-PACIFIC CORPORATION et al., Defendants. Bernard S. SCHWARTZ, Plaintiff, v. Dorothy D. BROOKS et al., Defendants. Marvin SCHEIN, etc., Plaintiff, v. Dorothy D. BROOKS et al., Defendants. Betty K. WEINTRAUB, Plaintiff, v. GEORGIA-PACIFIC CORPORATION et al., Defendants.
• Court: U.S. District Court — Southern District of New York

272 F. Supp. 148

Sylvia RICHLAND and F. L. Salomon & Co., etc., Plaintiffs, v. Owen R. CHEATHAM et al., Defendants.

Malcolm M. STULL and Marilyn Stull, Plaintiffs, v. GEORGIA-PACIFIC CORPORATION et al., Defendants.

Bernard S. SCHWARTZ, Plaintiff, v. Dorothy D. BROOKS et al., Defendants.

Marvin SCHEIN, etc., Plaintiff, v. Dorothy D. BROOKS et al., Defendants.

Betty K. WEINTRAUB, Plaintiff, v. GEORGIA-PACIFIC CORPORATION et al., Defendants.

Nos. 66 Civ. 1300, 66 Civ. 1473, 66 Civ. 1695, 66 Civ. 1803, 66 Civ. 1849.

United States District Court S. D. New York.

July 27, 1967.

Wolf, Popper, Ross, Wolf & Jones, New York City, for plaintiffs Richland et al. (Paul L. Ross and Donald N. Ruby, New York City, of counsel).

Stull & Stull, New York City, for plaintiffs Stull (Richard J. Stull, New York City, of counsel).

Milton Paulson, New York City, for plaintiff Schwartz.

Abraham I. Markowitz, New York City, for plaintiff Schein.

Harry B. Coran, New York City, for plaintiff Weintraub.

Shearman & Sterling, New York City, for defendant Georgia-Pacific Corporation (Robert L. Clare, Jr., and John E. Hoffman, Jr., New York City, of counsel).

Webster, Sheffield, Fleischmann, Hitchcock & Chrystie, New York City, for certain defendants (Manly Fleischmann and William L. D. Barrett, New York City, of counsel).

Sullivan & Cromwell, New York City, for certain defendants (Marvin Schwartz, New York City, of counsel).

White & Case, New York City, for defendant Robert B. Pamplin (Edgar E. Barton and Konrad Knake, of counsel).

RYAN, District Judge.

We have before us a motion by defendants for an order determining that these five actions are not to be maintained as class actions because they do not meet the requirements of Rule 23(a) (4) or Rule 23(b) (3) and because the notice required under Rule 23(c) (2) cannot be given.

Specifically, defendants contend that the actions

(1) fail to meet the requirements that they will fairly and adequately protect the interest of the members of the alleged classes;

(2) fail to meet the additional requirements that (i) questions of law or fact common to the members of the alleged classes predominate over individual issues, and that (ii) the class action is superior to other available methods for the fair and efficient adjudication of the controversy. They also contend that no adequate notice could be given to the multitudes referred to in the Market Purchase Actions, and that other forms of adjudication could more fairly and judiciously be used to adjudicate claims of persons allegedly aggrieved, such as consolidation, for which they have separately moved.

The plaintiffs, of course, disagree with defendants and endeavor to show that they can comply with the requirements of Rule 23 in all respects.

There are five market purchase actions brought under Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5 and 10b-6 thereunder, on behalf of the plaintiffs themselves, and representatively on behalf of all persons who purchased common stock of Georgia-Pacific Corporation during or after certain time periods described below. The plaintiffs claim that they and all persons were required to pay higher prices for such common stock than they would have paid, but for certain alleged acts and practices of the defendants.

The basic time periods referred to in the complaints are those initially described in the complaint in an action entitled "Securities and Exchange Commission v. Georgia-Pacific Corporation, et al." (66 Civ. 1215 (S.D.N.Y.))¹ and roughly relate to certain dates which became relevant under the terms of certain acquisition agreements between Georgia-Pacific and other companies—(1) St. Croix Paper Company, (2) Vanity Fair Paper Mills, Inc., (3) Royal Fiber Corporation and Royal Container Co., San Francisco, and (4) Bestwall Gypsum Company. Such basic periods referred to in the complaints are:

(1) February 21 through April 15, 1963 (St. Croix);

(2) February 4 through March 24, 1964 (Vanity Fair);

(3) July 9 through July 29, 1964, (Royal); and

(4) February 17 through March 19, 1965 (Bestwall).

The gravamen of the allegations in the Market Purchase Actions is that during the basic periods the defendants, pursuant to a plan to manipulate the market, affected the price of Georgia-Pacific common stock on the New York Stock Exchange by causing Georgia-Pacific common stock to be bid for and purchased by the Georgia-Pacific Stock Bonus Trust, and by Georgia Pacific itself for its treasury, in a manner which caused an artificial rise in the price of Georgia-Pacific common stock. The alleged purpose of the defendants' acts and practices was to avoid or reduce Georgia-Pacific's obligations in respect of the above-mentioned acquisitions.

The defendants who have been served have denied the commission of the alleged acts and practices or any other acts alleged to give rise to a cause of action.

The five plaintiffs claim to be representative of an enormous and unidentified group of about 50,000 persons who purchased defendant's stock since February, 1963 through March, 1965 or April, 1966, but in reality their claims are brought on behalf of persons who purchased within or just prior to or just after one or more of the four basic periods alleged in the complaint and not merely on behalf of persons who purchased throughout an overall period running from February, 1963 through March, 1965 or 1966. There is no dispute as to this.

The only purchases made by these plaintiffs during the period in suit were of fractional shares arising from stock dividends. No fractional shares were issued by Georgia-Pacific in connection with stock dividends or stock splits. In each instance, however, if the number of shares registered in a shareholder's name entitled him to a fractional interest in a share, such person was entitled to purchase an additional fractional interest sufficient to make up one full share. In the case of stock dividends the fractional interest price was computed on the basis of the closing price of Georgia-Pacific common stock on the New York Stock Exchange on the record date. In the case of the 1964 stock split, the fractional interest price was computed on the basis of the closing price of Georgia-Pacific common stock on the New York Stock Exchange on June 15, 1964 to stockholders of record on May 8, 1964. The only stock dividend record date that falls within any of the basic periods is February 7, 1964. The August 7, 1964 stock dividend record date falls 9 days after the basic period ending on July 29, 1964.

During or about the basic periods, Georgia-Pacific issued stock dividends to shareholders of record on:

(1) March 23, 1963 (record date February 8, 1963);

(2) March 21, 1964 (record date February 7, 1964);

(3) September 25, 1964 (record date August 7, 1964); and

(4) March 26, 1965 (record date February 8, 1965).

These would seem to be the logical dates for determining purchase price, but plaintiffs in a procrustean effort to fit their purchases into or close to a basic period have used shifting dates, such as the actual date the stock purchased was issued to them, or the date they sent in the order to purchase the fractional share, or the date of their check in payment. The effect of these respective positions is apparent from the following:

The Schwartz claim—here the single plaintiff alleges he made 4 purchases totaling $185.76, 3 of which fell within three manipulative periods and 1 nineteen days after such period while the market was still affected from the preceding manipulative period. The dates he uses to fix these purchases are the dates on which the defendant issued to him stock certificates pursuant to three dividends and one stock split: 3/23/63; 3/21/64; 7/14/64; 3/26/65. On this motion, he attempts to shift those dates to the earlier dates of the checks he used to pay for these fractional shares, but I have rejected these dates. According to defendant's dates, plaintiff purchased but two fractional shares for a total of $93.89 at a price fixed by the record date of the dividend declared, only one of which fell within a basic period (the dividend of 2/7/64 for the 3/21/64 certificate) and the other nine days after one of the basic periods (dividend 8/7/64 for a 9/25/64 certificate, not pleaded by plaintiff). Neither the earliest, 3/23/63, nor the latest purchase, 3/26/65, on the basis of the record date of the dividend came anywhere near the basic periods; nor did the July 14, 1964 "purchase" which was on the basis of the earlier stock split of 6/15/64.

The Richland claim—is brought by two plaintiffs, an individual and a company, to which, over defendants' objection, have been added three more plaintiffs as intervenors. Here there is no question but that these two plaintiffs did not purchase within any of the basic periods—Richland having purchased 75 shares on April 23, 1965, 36 days after the last basic period, and Solomon having purchased 100 shares on May 8, 1964, 45 days after the last basic period. Intervening plaintiffs are not much better off: the Gold plaintiffs are alleged to have purchased 100 shares on July 8, 1963, almost 3 months after the first and 7 months before the second basic period; the Kleins, 50 shares on December 15, 1965, almost 9 months after the last basic period; and Steel, like the Schwartz plaintiffs, fixes the dates of his alleged "purchases" of the fractional shares with respect to stock dividends as 3/23/63, 3/21/64 and 5/26/65, which, as we have seen, are not the dates when their price was fixed. Like Schwartz, only the purchase of 3/21/64 based on the dividend of record date of 2/7/64 came within the second basic period. In Richland, therefore, no plaintiff and only one of the intervenors appears to be a member of some class to the extent of having purchased less than one share within one basic period.

The Schein claim—the only plaintiff here alleges he purchased 50 shares on October 14, 1964 at $57.37 per share,...