Sanders v. Robinson Humphrey/American Exp., Inc.

• Decision Date: 28 March 1986
• Docket Number: Civ. A. No. C 85-172 A,C 85-1586 A and C 85-1891 A.
• Citation: 634 F. Supp. 1048
• Court: U.S. District Court — Northern District of Georgia
• Parties: Glenn T. SANDERS, on behalf of himself and all others similarly situated, Plaintiffs, v. ROBINSON HUMPHREY/AMERICAN EXPRESS, INC., et al., Defendants. Tommy E. PARKER, as custodian for Kimberly M. PARKER, and James L. Smith, on behalf of themselves and others similarly situated, Plaintiffs, v. PAINE WEBBER GROUP, INC., Defendant. Suzanne KIRKPATRICK, Dorothy D. Casler and Charles H. Lindsey, Plaintiffs, v. J.C. BRADFORD & CO., Defendant.

634 F. Supp. 1048

Glenn T. SANDERS, on behalf of himself and all others similarly situated, Plaintiffs, v. ROBINSON HUMPHREY/AMERICAN EXPRESS, INC., et al., Defendants.

Tommy E. PARKER, as custodian for Kimberly M. PARKER, and James L. Smith, on behalf of themselves and others similarly situated, Plaintiffs, v. PAINE WEBBER GROUP, INC., Defendant.

Suzanne KIRKPATRICK, Dorothy D. Casler and Charles H. Lindsey, Plaintiffs, v. J.C. BRADFORD & CO., Defendant.

Civ. A. Nos. C 85-172 A, C 85-1586 A and C 85-1891 A.

United States District Court, N.D. Georgia, Atlanta Division.

March 28, 1986.

COPYRIGHT MATERIAL OMITTED

Kenneth A. Jacobsen, Nicholas E. Chimicles of Greenfield & Chimicles, Philadelphia, Pa., J. Alexander Porter, Glenn A. Delk, Gail Tusan Joyner of Asbill, Porter, Churchill & Nellis, Atlanta, Ga., for plaintiffs in Civ. A. No. C 85-172 A.

Harvey D. Myerson, Lloyd S. Clareman of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, New York City, Peter J. Anderson, R. Hal Meeks, Jr., David C. Jensen of Peterson, Young, Self & Asselin, John C. Gray of Gray, Gilliland, & Gold, Atlanta, Ga., for defendants in Civ. A. No. C 85-172 A.

Nicholas E. Chimicles of Greenfield & Chimicles, Philadelphia, Pa., D. Lake Rumsey, Jr. of Driebe & Rumsey, Atlanta, Ga., for plaintiffs in Civ. A. No. C 85-1586 A.

Richard M. Kirby of Hansell & Post, Atlanta, Ga., Robert E. Zimet, Jeremy A. Berman, Marco Schnabl and Charles F. Walker of Skadden, Arps, Slate, Meagher & Flom, New York City, for defendant in Civ. A. No. C 85-1586 A.

J. Alexander Porter, Glenn A. Delk, Gail Tusan Joyner, of Asbill, Porter, Churchill & Nellis, Atlanta, Ga., Nicholas E. Chimicles and Kenneth A. Jacobsen of Greenfield & Chimicles, Philadelphia, Pa., for plaintiffs in Civ. A. No. C 85-1891 A.

John C. Gray of Gray, Gilliland & Gold, P.C., Atlanta, Ga., Ames Davis, of Waller, Landsden, Dortch, & Davis, Nashville, Tenn., for defendant in Civ. A. No. C 85-1891 A.

ORDER

VINING, District Judge.

In these federal securities actions, the plaintiffs have filed motions for class certification, pursuant to Rule 23 of the Federal Rules of Civil Procedure. The court already has considered and ruled on the defendants' motions to dismiss and numerous discovery and procedural motions. These cases are now ripe for a determination of whether they may proceed as class actions.¹ An understanding of the history of the Petro-Lewis cases is necessary before the court considers the motions for class certification.

I. HISTORY OF THE PETRO-LEWIS LITIGATION

From 1970 to 1983, Petro-Lewis was the nation's largest seller of oil and gas income funds. These programs raised money from investors, who became limited partners, and used the proceeds to purchase oil and gas producing properties. Cash distributions to the limited partners, which were paid quarterly, began almost immediately after each partnership was formed and were to continue for 10 to 15 years or more until the wells were depleted. Petro-Lewis, an independent oil and gas producer and manager of petroleum investments for public and private partners, acquired oil and gas properties for public limited partnerships, shared ownership of those properties, and managed the limited partnerships as a general partner. Over a 14-year period, Petro-Lewis sold, through securities brokerage firms, in excess of $3 billion worth of partnerships to approximately 180,000 people.

As oil and gas prices began to decline in 1981 and 1982, Petro-Lewis was forced to borrow funds to pay partnership distributions, service the debt it was incurring, and promote the sale of additional programs. In February 1984 Petro-Lewis revealed that it would sustain a substantial loss, that it was cutting distributions to limited partners by as much as 50 percent, that the company would have to sell between one quarter and one third of its total reserves to reduce bank debt, and that Petro-Lewis was immediately terminating all sales of partnership programs. Numerous lawsuits against Petro-Lewis followed.

In In re Petro-Lewis Securities Litigation 1984-85 Transfer Binder, Fed.Sec.L.Rep. ¶ 91,899 (D.Colo.1984), the court set forth the history of the Petro-Lewis litigation that lead to these class actions.² In that case, the court consolidated eleven class actions filed between February 9, 1984, and May 9, 1984. The defendants were the Petro-Lewis Corporation, the Petro-Lewis Funds, Petro-Lewis Securities Corporation, and the seven directors of Petro-Lewis Corporation. The amended consolidated class action complaint set forth claims under the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78a, et seq., and the Securities Act of 1933, as amended, 15 U.S.C. §§ 77a, et seq. The plaintiffs in the original Colorado action sought to represent two classes: (1) a "securities class," consisting of the purchasers of securities, including common stock, warrants, and preferred stock, and (2) a "partnership class," consisting of persons who purchased, reinvested in, or otherwise acquired limited partnership interests in over 100 partnerships formed by Petro-Lewis to purchase oil and natural gas producing properties between August 1975, and February 1984, and in the Petro-Lewis deferred income program formed in 1981. The Petro-Lewis complaint alleged that during the relevant times the defendants made, or caused to be made, statements in Petro-Lewis prospectuses, periodic shareholder and investor reports, filings with the Securities and Exchange Commission, press releases, investor letters, and other documents, that were materially false and misleading and that the defendants omitted to disclose certain material facts and adverse information about Petro-Lewis and the partnerships that it managed. Some plaintiffs sought relief in the form of rescission of their purchases of limited partnership interests. All plaintiffs sought damages, interest, costs, and disbursements.

On July 3, 1984, co-lead counsel for the plaintiffs and counsel for the defendants in the Colorado litigation executed an agreement in principle to settle all eleven class actions. The settlement agreement consisted of two primary components: (1) formation of a royalty trust, and (2) creation by the defendants of a settlement fund consisting of cash and non-cash considerations valued at $23.5 million. Notices were sent to approximately 180,000 holders of limited partnership interests in 45 limited partnerships, plus approximately 7,000 members of the stockholder class. In addition, 40,000 notices were sent to brokers for forwarding to persons on whose behalf interests were held. According to a public announcement made December 26, 1984, all 45 affected limited partnerships voted, by very substantial margins, in favor of the settlement. The settlement required Petro-Lewis, on behalf of all defendants, to contribute consideration of $23.5 million to a settlement fund, which included $10 million in cash plus approximately 720,000 trust units valued at $13.5 million.

The class members who participated in the settlement were to sign a release form which provided that all the defendants, and any subsidiary or affiliate of Petro-Lewis, would be released with respect to all claims, demands, and causes of action. The release form, however, was not intended to release any broker-dealer in its capacity as an agent for Petro-Lewis or any of its affiliates in connection with the issuance, purchase, or sale of any of the securities of, or interest in, Petro-Lewis, or any of the limited partnerships of which Petro-Lewis or any subsidiary or affiliate of Petro-Lewis was a general partner. Counsel for all parties agreed that the purpose and intent of the release was solely to protect the defendants in the Colorado action and that it was intended that all the plaintiff class members retain any rights that they might have to proceed against and collect from broker-dealers or other nondefendants who might be liable to them.

The court conditionally certified the partnership class and the securities class for purposes of settlement only. The court indicated that there were serious questions of law and fact which placed the outcome of the class actions, if tried rather than settled, in substantial doubt. One such question was:

In view of the substantial number of distinct partnerships and the variations in facts relevant to, and potential conflicts among, the claims of those partnerships, there is doubt whether this action could be certified under Fed.R.Civ.P. 23 (except conditionally, for settlement purposes) and, if certified, whether the partnership class would have to be splintered into numerous subclasses.

¶ 91,889 at 90,470.

After carefully examining the proof of claim and release forms and the notices to be sent out, the court approved the proposed settlement as fair, reasonable, and adequate for all members of the plaintiff classes.

II. THE INSTANT LITIGATION

The plaintiffs seek to represent individuals who purchased, reinvested in, or acquired from the defendants limited partnership interests in Petro-Lewis income programs from January 1, 1981, to February 6, 1984. The amended complaints in these three proposed class actions are divided into three parts. The plaintiffs spend 30 pages setting forth the alleged wrongdoings by Petro-Lewis. For example, the amended complaint alleges that statements made in the Petro-Lewis prospectuses from 1981 to 1984 were false and misleading because they did not disclose the risks inherent in purchasing Petro-Lewis partnership interests. Amended Complaint ¶ 22.³ Petro-Lewis also allegedly failed to disclose excessive leveraging of all partnerships, made unsecured loans to partnerships to inflate distributions to limited partners and to attract new sales, made false and misleading financial statements, annual and periodic reports, press releases and news-letters, and failed to disclose that substantial tax benefits expected to be received by...