Sharp Farms v. Speaks
| Decision Date | 28 February 2019 |
| Docket Number | No. 18-1316, No. 18-1325,18-1316 |
| Citation | 917 F.3d 276 |
| Parties | SHARP FARMS; Robert W. May ; Tucker Farms Inc.; Worthington Farms, Inc., Objectors-Appellants, v. Teresa M. SPEAKS; Toby Speaks ; Stan Smith; Eddie Brown; Robert Poindexter ; Mike Mitchell; Roy L. Cook; Alex Shugart ; H. Randle Wood; Robin Rogers; Daniel Lee Nelson, Plaintiffs-Appellees, and U. S. Tobacco Cooperative Inc., f/k/a Flue-Cured Tobacco Cooperative Stabilization Corporation, Defendant-Appellee. Dan Lewis, Potential Intervenor-Appellant, v. Teresa M. Speaks; Toby Speaks ; Stan Smith; Eddie Brown; Robert Poindexter ; Mike Mitchell; Roy L. Cook; Alex Shugart ; H. Randle Wood; Robin Rogers; Daniel Lee Nelson, Plaintiffs-Appellees, and U. S. Tobacco Cooperative Inc., f/k/a Flue-Cured Tobacco Cooperative Stabilization Corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Charles Alan Runyan, RUNYAN & PLATTE, Beaufort, South Carolina, for Appellants. Gary K. Shipman, SHIPMAN & WRIGHT, LLP, Wilmington, North Carolina, for Appellees Teresa Speaks, et al. Derek L. Shaffer, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellee United States Tobacco Cooperative Inc. ON BRIEF: Andrew S. Platte, RUNYAN & PLATTE, Beaufort, South Carolina, for Appellants Sharp Farms, Robert W. May, Tucker Farms, Inc., and Worthington Farms, Inc. John L. Coble, MARSHALL, WILLIAMS & GORHAM, LLP, Wilmington, North Carolina, for Appellant Dan Lewis. William G. Wright, SHIPMAN & WRIGHT, LLP, Wilmington, North Carolina; Namon Leo Daughtry, DAUGHTRY, WOODARD, LAWRENCE & STARLING, Smithfield, North Carolina, for Appellees Teresa Speaks, et al. Lee M. Whitman, Tobias S. Hampson, WYRICK ROBBINS, Raleigh, North Carolina; Jonathan Cooper, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellee United States Tobacco Cooperative Inc.
Before GREGORY, Chief Judge, THACKER, and QUATTLEBAUM, Circuit Judges.
Affirmed in part, reversed and remanded by published opinion. Chief Judge Gregory wrote the opinion, in which Judge Thacker and Judge Quattlebaum joined. Judge Quattlebaum wrote a concurring opinion.
This appeal of a class-action settlement concerns a longstanding dispute between U.S. Tobacco Cooperative, Inc., an agricultural cooperative of flue-cured tobacco growers in North Carolina, and a class of plaintiffs consisting of current and former Cooperative members. From its inception in 1946, the Cooperative administered a federal price-support program designed to stabilize tobacco prices for member growers through purchasing their unsold tobacco at a guaranteed minimum price and marketing the tobacco to buyers. With a mixed record of success, the price-support program ultimately came to an end in 2004, when Congress enacted the Fair and Equitable Tobacco Reform Act ("FETRA"). By this point, the Cooperative had accumulated a capital reserve fund of hundreds of millions of dollars generated from the tobacco the members delivered or the fee assessments they paid to the Cooperative as members participating in the price-support program.
On October 31, 2012, the plaintiffs ("Speaks plaintiffs") filed a class-action complaint against the Cooperative, seeking a declaratory judgment, distribution of the reserve funds to members, and judicial dissolution of the Cooperative as an alternative form of relief. They argued that after Congress enacted FETRA and the price-support program ended, the Cooperative’s primary purpose ceased to exist, and it should be forced to distribute the reserve funds and be judicially dissolved. The parties eventually mediated the case in May 2017 and moved for the district court to certify the class and approve their $ 24 million settlement as fair, reasonable, and adequate for the class members. The district court did so.
But this is not the whole picture. At the time the Speaks plaintiffs filed their complaint in October 2012, a parallel class action against the Cooperative was making its way through North Carolina state court. That case was brought several years earlier, and it included a class of member growers (the " Fisher-Lewis plaintiffs") who form a subset of the Speaks class in this appeal but whose claims to the reserve fund are arguably much stronger than the claims of the Speaks plaintiffs. Indeed, a North Carolina court, reviewing a proposed settlement for the Fisher-Lewis plaintiffs in 2006, concluded that $ 76.8 million in relief was not even in the "ball park" of being fair, reasonable, and adequate for class members.
The Speaks plaintiffs filed their October 2012 complaint just as the Fisher-Lewis plaintiffs were gathering momentum—they had substantially survived a motion to dismiss and moved for class certification before the state court. Acknowledging that the preexisting Fisher-Lewis proceedings could affect their case, the Speaks plaintiffs then stayed the case for several years while those proceedings played out. During this time, the Fisher-Lewis plaintiffs met with more success, achieving class certification and successfully defending against the Cooperative’s appeal challenging certification. Within two weeks of the North Carolina Supreme Court’s decision affirming class certification, however, the Speaks parties began their own settlement negotiations. They reached a tentative settlement for $ 24 million within five months—a settlement that included the Fisher-Lewis certified class and extinguished its claims.
Before this Court are the Objectors-Appellants— Fisher-Lewis class members who objected to the Speaks settlement—and would-be intervenor Dan Lewis. Lewis contends that the district court abused its discretion in denying his motion to intervene in Speaks . Because he filed his appeal with this Court far beyond the 30-day appeal deadline prescribed by statute, we must dismiss his appeal for lack of jurisdiction.
The Objectors claim, at bottom, that they got a raw deal. They first contend that the district court abused its discretion in certifying the Speaks settlement class under Federal Rule of Civil Procedure 23(a), arguing that the Speaks class counsel and class representatives cannot and did not adequately protect their interests in this case. The Objectors also challenge the district court’s final approval of the $ 24 million settlement as fair, reasonable, and adequate under Rule 23(e). Finally, they argue that the district court erred in denying certain Fisher-Lewis class members’ attempts to opt out the entire Fisher-Lewis certified class from Speaks .
We affirm the district court’s denial of the attempted group opt-out. But after a careful review of this record—which spans nearly 15 years and 5,000 pages—we cannot agree that the Objectors’ interests were adequately protected or that a $ 24 million settlement is fair, reasonable, and adequate for the class. For this reason, we reverse the district court’s order certifying the class and granting final approval of the class-action settlement and remand for further proceedings consistent with this opinion.
Created in 1946, U.S. Tobacco Cooperative, Inc. is an agricultural cooperative of flue-cured tobacco growers organized under the North Carolina Cooperative Marketing Act.1 N.C. Gen. Stat. §§ 54-145 to 54-166. The Cooperative’s purpose is to "engage in any activity involving or relating to the business of receiving, grading, processing, drying, packing, storing, financing, marketing, selling, and/or distribution, on a cooperative basis, of flue-cured tobacco or products or by-products derived therefrom of its members." J.A. 345.
Under North Carolina law and the Cooperative’s governing documents, the Cooperative may establish a capital reserve. See N.C. Gen. Stat. § 54-151(5) ; J.A. 366–67 (articles of incorporation), J.A. 3200 (1947 bylaws), J.A. 3503–04 (1967 bylaws). In the 1970s, the Cooperative’s Board of Directors established such a reserve to "prepare for [ ] rainy days" in the event federal subsidies ended. J.A. 3963. The plaintiffs in this lawsuit are a class of current and former members of the Cooperative who brought an action for dissolution of the Cooperative and distribution of excess capital reserves.2 J.A. 262–90.
To become a member of the Cooperative, a flue-cured tobacco producer "paid five dollars ... in exchange for one share of [the Cooperative’s common] stock." Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp. , 369 N.C. 202, 794 S.E.2d 699, 703 (2016) (" Fisher-Lewis "). According to the Cooperative’s governing documents, this common stock could be "purchased, owned or held only by producers who shall patronize the corporation in accordance with uniform terms and conditions ... and only such persons shall be regarded as eligible members of the corporation." J.A. 346. If the common stock passed to someone ineligible for membership, that person had "no rights or privileges on account of such stock," and the Cooperative could "purchase such stock at its book or par value, whichever is less." J.A. 346–47.
From 1946–2004, the Cooperative administered a federal price-support program for flue-cured tobacco for the benefit of its member growers. Under this program, tobacco producers who could not sell their flue-cured tobacco delivered it to a warehouse, where the Cooperative graded the tobacco and tried to sell it at auction. Fisher-Lewis , 794 S.E.2d at 703. "The auction was subject to a minimum price established annually by the United States Department of Agriculture, and the tobacco would not be sold for less than that price." Id. If the Cooperative could not sell the tobacco, it "would process and store it, while advancing the minimum price less an administrative fee to the tobacco producer." Id. The Cooperative paid the tobacco producers with loans from the Commodity Credit Corporation ("CCC"), an entity owned and operated by the federal government that assisted in administering the price-support program. Id. Any unsold tobacco served as...
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