Speaks v. U.S. Tobacco Coop., Inc., No. 5:12-CV-729-D

CourtUnited States District Courts. 4th Circuit. Eastern District of North Carolina
Writing for the CourtJAMES C. DEVER III Chief United States District Judge
Docket NumberNo. 5:12-CV-729-D
PartiesTERESA M. SPEAKS, TOBY SPEAKS, STANLEY SMITH, EDDIE BROWN, ROBERT POINDEXTER, MIKE MITCHELL, ROY L. COOK, ALEX SHUGART, H. RANDLE WOOD, ROBIN ROGERS, and DANIEL LEE NELSON, Plaintiffs, v. U.S. TOBACCO COOPERATIVE, INC. f/k/a FLUE-CURED TOBACCO COOPERATIVE STABILIZATION CORPORATION, Defendant.
Decision Date20 February 2018

TERESA M. SPEAKS, TOBY SPEAKS, STANLEY SMITH, EDDIE BROWN,
ROBERT POINDEXTER, MIKE MITCHELL, ROY L. COOK,
ALEX SHUGART, H. RANDLE WOOD, ROBIN ROGERS,
and DANIEL LEE NELSON, Plaintiffs,
v.
U.S. TOBACCO COOPERATIVE, INC.
f/k/a FLUE-CURED TOBACCO COOPERATIVE STABILIZATION CORPORATION, Defendant.

No. 5:12-CV-729-D

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

February 20, 2018


ORDER

On October 31, 2012, plaintiffs, on behalf of themselves and the class they seek to represent, filed a complaint against U.S. Tobacco Cooperative, Inc. (the "Cooperative" or "defendant") asserting claims for declaratory judgment, forced distribution of reserves, and judicial dissolution [D.E. 1]. Plaintiffs are members of the Cooperative and current or former flue-cured tobacco farmers. Plaintiffs contend that after Congress enacted the Fair and Equitable Tobacco Reform Act in 2004 and ended the Tobacco Price Support Program, the Cooperative's purpose ended and that the Cooperative should therefore be forced to distribute its reserves and be judicially dissolved. When the plaintiffs filed this federal complaint, a competing putative class action by a different group of Cooperative members was pending against the Cooperative in Wake County Superior Court (the "Fisher/Lewis" action). On December 5, 2012, the parties in this federal case moved to stay this case pending the outcome of a motion for class certification in the Fisher/Lewis action. See [D.E.

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18]. On December 17, 2012, the court granted the motion to stay. See [D.E. 22].

The litigation in state court concerning class certification took longer than anticipated, and this court received updates from the parties in this action and granted a series of joint motions to stay. See [D.E. 23, 26-40]. On December 21, 2016, approximately three and a half years after the Wake County Superior Court granted the motion for class certification in the Fisher/Lewis action and after the Supreme Court of North Carolina permitted an interlocutory appeal of that order, the Supreme Court of North Carolina affirmed the order granting class certification. See Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp., 369 N.C. 202, 794 S.E.2d 699 (2016).

In early 2017, the parties in this federal case began discussing how to proceed with this case. On May 11 and 12, 2017, pursuant to this court's local rules which mandate mediation, the parties in this federal case participated in a hard-fought two-day mediation with the Honorable Frank W. Bullock, Jr., a distinguished, retired United States District Judge and certified mediator. After extensive negotiations, the parties in this putative federal class action entered into a $24 million proposed class action settlement agreement. See [D.E. 60-1]. On September 8, 2017, the plaintiffs moved to certify a settlement class and for preliminary approval of the proposed class action settlement [D.E. 60]. On September 13, 2017, this court entered an order preliminarily approving the class action settlement and scheduled the final fairness hearing for January 19, 2018 [D.E. 63]. On September 13, 2017, plaintiffs filed an amended complaint [D.E. 64]. Shortly thereafter, the parties designed and implemented an extensive notice program. The notice program cost approximately $1.5 million, and the Cooperative paid for the notice program pursuant to the settlement agreement. Meanwhile, the Fisher/Lewis action is ongoing in Wake County Superior Court, has proceeded through its own notice program, but has not proceeded to judgment.

On January 5, 2018, plaintiffs moved for final approval of the class action settlement [D.E.

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216]. On January 19, 2018, this court held a final fairness hearing. See [D.E. 259]. At the fairness hearing, this court heard arguments from plaintiffs' counsel, defense counsel, and the objectors. This court has carefully considered all arguments made by plaintiffs' counsel, defense counsel, and the objectors (including some who are represented by the lawyers representing the plaintiffs in the competing Fisher/Lewis action). As often happens when there are competing class actions, these lawyers are concerned about, inter alia, the preclusive effect that this proposed class action settlement will have on the Fisher/Lewis class action. See Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 373-87 (1996) (holding that a federal court reviewing a federal putative class action must give preclusive effect under the Full Faith and Credit Act to a Delaware court judgment in a competing class action in Delaware state court settling shareholders' claims under state and federal securities law). This court thoroughly has reviewed the extensive record, including all objections. As explained below, this court finds that the proposed class action settlement is fair, reasonable, and adequate to all class members, and grants the motion for final approval of the class action settlement.

I.
A.

The Cooperative is a non-profit cooperative marketing association of flue-cured tobacco farmers organized in 1946 under the North Carolina Cooperative Marketing Act (the "Marketing Act"), N.C. Gen. Stat. §§ 54-129-54-166. Plaintiffs are, or have been, producers of flue-cured tobacco and are currently members of the Cooperative. The Marketing Act seeks to

promote, foster, and encourage the intelligent and orderly producing and marketing of agricultural products through cooperation, and to eliminate speculation and waste, and to make the distribution of agricultural products as direct as can be efficiently done between producer and consumer, and to stabilize the marketing problems of agricultural products . . . .

Id. § 54-129. The Marketing Act provides that an association has the power to "engage in any

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activity in connection with the producing, marketing, selling, harvesting, preserving, drying, processing, canning, packing, storing, handling, or utilization of any agricultural products produced or delivered to it by its members and other farmers[,]" and to "establish reserves and to invest the funds thereof in bonds or such other property as may be provided in the bylaws." Id. §§ 54-151(1), (5). Since the Cooperative's inception, the Articles of Incorporation also confirm the Cooperative's powers "[t]o engage in any activity in connection with the marketing, selling[,] processing, manufacturing[,] or utilization of flue-cured tobacco . . . or the manufacture or marketing of products or by-products derived therefrom, or in the financing of any such activity," and vests the Cooperative's Board of Directors (the "Board") with the power to "enact and determine" its By-laws. [D.E. 229-2] 5-6, 8 (Article VII, X). Since the Cooperative's inception, the Cooperative's By-laws have empowered the Board to "conduct, manage[,] and control the affairs and business of the association," and "[t]o make and enter into agreements for the processing, manufacturing, warehousing . . . and marketing of the tobacco handled by the association or the products or by-products derived therefrom, including the leasing or purchasing of warehouses and other facilities," and to borrow money for "any corporate purpose[]." [D.E. 229-3] 5, 11 (Article III(a), (d), XV). Moreover, no evidence suggests that the stock certificates (e.g., [D.E. 73-29]) issued to each member, or any marketing agreement between the Cooperative and a member, have purported to limit the Cooperative's purpose or power.

From 1946 to 2004, the Cooperative's primary function was to administer the Tobacco Price Support Program. See Edward Kacsuta Decl. [D.E. 229] ¶ 12. The Tobacco Price Support Program was a federal price support program designed to stabilize tobacco prices for farmers. Under the program, tobacco farmers agreed to limit their production, and in exchange, the Cooperative would purchase from farmers all unsold tobacco at a guaranteed minimum price and then market the

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tobacco to tobacco buyers. The Cooperative funded its purchases with loans from the Commodity Credit Corporation ("CCC"), an arm of the United States Department of Agriculture ("USDA"). Until 1982, the loans were "nonrecourse" and collateralized solely with the tobacco that the Cooperative purchased. The Cooperative processed and stored tobacco purchased under the Tobacco Price Support Program (the "loan tobacco") for the CCC's benefit. As the Cooperative sold the loan tobacco, it sent the proceeds to the CCC to repay the price support loans. However, because the loans were "nonrecourse," the CCC sustained losses on the loans in all years in which the Cooperative did not resell the tobacco above the guaranteed minimum price. These losses were borne solely by the federal government (i.e., the federal taxpayers) and not by the Cooperative or its members. See id. ¶¶ 13-14.

Although in most years the Cooperative lost money on the sale of its tobacco, the Cooperative realized a profit, after repayment of the CCC's loans, from its tobacco sales for the 1967-1973 crop years. See id. ¶ 15. The Cooperative distributed a portion of that profit to its members, and retained the remaining proceeds (approximately $26.8 million) as reserves. Id. ¶¶ 16, 19. In its December 1975 newsletter, the Cooperative's Board informed its members that it was building reserves to "maintain the viability of [the Cooperative] during periods of limited receipts and operations," and to "prepare for the rainy days." [D.E. 73-4] 1. The Board also informed its members that this was the first opportunity "to prepare to stand on our feet if that should become necessary." Id. No member of the Cooperative challenged the Board's decision to establish reserves at the time. See James Hill Decl. [D.E. 230] ¶ 13.

In 1982, Congress passed the No Net Cost Act which was designed to prevent taxpayers from bearing the losses from the Tobacco Price Support Program. See Strickland v. Flue-Cured Tobacco Coop. Stabilization Corp., 643 F. Supp. 310, 313...

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