Gilmur R. Murray, Esq. (#111856)
Derek G. Howard, Esq. (#118082)
Alex J. Luchenitser, Esq. (#177367)
THE MILLS LAW FIRM
300 Drake's Landing, Suite 155
Greenbrae, California 94904
Telephone: (415) 464-4770
Craig B. Smith, Esq. (appearing pro hac vice)
David A. Jenkins, Esq. (appearing pro hac vice)
SMITH, KATZENSTEIN & FURLOW
The Corporate Plaza
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
Telephone: (302) 652-8400
Attorneys for Plaintiff Dwight E. Wininger
On Behalf of Himself and All Others Similarly Situated
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DWIGHT E. WININGER, On Behalf of Himself and Plaintiff, v. SI MANAGEMENT L.P., a Limited Partnership;
Defendants. |
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Case No.: C-97-1622 CW Date: June 19, 1998 Time: 10:00 a.m. PLAINTIFF'S MOTION FOR
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To defendants SI Management L.P., et al. and their attorneys of record: NOTICE IS HEREBY GIVEN that on June 19, 1998, plaintiff Dwight E. Wininger will and hereby does move for class certification. This motion is based on this Motion and Memorandum of Points and Authorities in Support Thereof, and the Declaration of Alex J. Luchenitser filed herewith.
The plaintiff moves for class certification under Fed. R. Civ. P. 23(b)(1) and/or (b)(2). The Plaintiff also moves for certification of the plaintiff as the class representative, for reaffirmance of the appointment of The Mills Law Firm as lead counsel for the class, and for the appointment of Smith, Katzenstein & Furlow as co-counsel for the class.
This is a suit for declaratory and injunctive relief arising out of repeated violations of the federal securities laws by the defendants. Plaintiff requests that the Court certify this action as a class action under Fed. R. Civ. P. 23(b)(1) and/or (b)(2). As demonstrated below, all of the requirements of Rule 23 are met here.
The plaintiff is a limited partner in Synthetic Industries, L.P. ("the Partnership"). The Partnership's only substantial asset is two-thirds of the stock of Synthetic Industries, Inc. ("the Company"). The defendants are the Partnership's general partner ("the General Partner") and the individuals and entities who control the General Partner.
The class for which certification is sought is defined as all persons who are currently limited partners in the Partnership ("the Limited Partners") other than defendants, their agents, and all persons acting in concert with them. First Amended and Supplemental Complaint ("Complaint"), filed effective as of December 5, 1997, ¶ 21. There are approximately 1850 class members. Ex. A, ¶ 4.1
In pursuit of their efforts to liquidate the Partnership in a manner that benefits themselves to the detriment of the class, the defendants have repeatedly violated the federal securities laws. In 1997, the defendants proposed a "Plan of Withdrawal and Dissolution for the Partnership" ("the 1997 Plan"). The defendants advocated for the 1997 Plan in a March 21, 1997 letter and a June 9, 1997 press release, prior to disseminating a proxy statement to the Limited Partners, and without filing the letter or the press release as proxy solicitations with the SEC. On August 4, 1997, this Court ruled that the plaintiff demonstrated a likelihood of success on the merits that the defendants thereby violated SEC Rules 14a-3 and 14a-6 (17 C.F.R. §§ 240.14a-3, .14a-6). Ex. B at 9-11.
In September 1997, the defendants finally disseminated a proxy statement relating to the 1997 Plan to the Limited Partners. In this proxy statement, and in several proxy solicitations that followed it, the defendants made many false and misleading statements. In addition, the 1997 Plan substantively violated the Limited Partnership Rollup Reform Act of 1993 (15 U.S.C. §§ 78f(b)(9), 78n(h), 78o-3(b)(12)-(13)).
The Delaware Court of Chancery issued a preliminary injunction against implementation of the 1997 Plan on October 23, 1997. This Court issued a temporary restraining order against implementation of the 1997 Plan on November 6, 1997. The Delaware Chancery Court's issuance of a preliminary injunction was affirmed by the Delaware Supreme Court on March 19, 1998. Based on statements made by defense counsel in Defendants' Court-Ordered Status Report, filed on April 10, 1998, plaintiff believes that the defendants probably will formally withdraw the 1997 Plan prior to the date on which this class certification motion is scheduled to be heard.
Plaintiff seeks the following relief: (1) a declaratory judgment concerning defendants' violations of the federal securities laws; (2) an injunction against future violations; and (3) if the 1997 Plan is not abandoned, an injunction on federal securities grounds against the implementation of the 1997 Plan. Complaint, ¶¶ 144-48. Plaintiff alleges that the following important facts are among the facts about which defendants have failed to make adequate disclosure:
In reviewing a motion for class certification, the Court must consider the facts alleged in the complaint as true. Blackie v. Barrack, 524 F.2d 891, 901 n.17 (9th Cir. 1975), cert. denied, 429 U.S. 816 (1976). The initial certification of a class is a matter separate from the merits of the case, and a court must not consider the underlying merits of the case when deciding whether to certify a class. See Weinberger v. Jackson, 102 F.R.D. 839, 843 (N.D. Cal. 1984). "The question [on class certification] is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met." Eisen v. Carlisle & Jacqueline, 417 U.S. 156, 178 (1974) (quoting Miller v. Mackey International, Inc., 452 F.2d 424, 427 (5th Cir. 1971)). Furthermore, in ruling on a motion for class certifica tion, courts should err in favor of class certification. Esplin v. Hirschi, 402 F.2d 94, 99 (10th Cir. 1968), cert. denied, 394 U.S. 928 (1969); In re Memorex Securities Cases, 61 F.R.D. 88, 94 (N.D. Cal. 1973).
Under Rule 23(a), there are four prerequisites which must be satisfied for class certification:
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
If these four requirements are met, a class action is maintainable if the prerequisites of one of the subsections of Rule 23(b) are also satisfied. In this case, plaintiff seeks certification under Rule 23(b)(1) and/or Rule 23(b)(2). Rule 23(b)(1) provides for the maintenance of a class action if the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests . . . .
Rule 23(b)(2) provides for class certification if "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole."
Courts have held that, in addition to the express requirements of Rule 23, two implicit requirements must be satisfied in order for a class to be certified -- a class must exist, and the named representative must be a member of that class. Bower v. Bunker Hill Co., 114 F.R.D. 587, 591 (E.D. Wash. 1986). The requirement that a class must exist is to be liberally construed, and every class member need not be readily ascertained at the outset -- only general outlines of the class membership must be determined initially. See Rutherford v. United States, 429 F. Supp. 506, 508-09 (W.D. Okla. 1977). The two implicit requirements are easily met here -- there is no dispute that there is a well-defined class composed of approximately 1850 limited partners in the Partnership and that plaintiff Wininger is one of these limited partners.
As stated above, the requirements of Rule 23(a) are (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation. The proposed class meets each of these four requirements.
Joinder of all members of a proposed class need not be impossible before certification can be granted. Instead, the plaintiff only needs to show that the number of members makes joinder difficult or impracticable. See Harris v. Palm Springs Alpine Estates, 329 F.2d 909, 913-14 (9th Cir. 1964). And the exact number of class members does not have to be ascertainable if common sense indicates that the class is so large that joinder of all members would be impracticable. See Orantes-Hernandez v. Smith, 541 F. Supp. 351, 370 (C.D. Cal. 1982). In this case, the class is composed of approximately 1850 limited partners. Ex. A, ¶ 4. Common sense clearly indicates that joinder of each individual limited partner would be extremely difficult and impractica ble.
Rule 23(a)(2) requires that there be issues of law or fact common to the class. Commonality may be found if members of the class have been affected by a general policy of the defendant and this policy is the focus of the litigation. See Sweet v. General Tire & Rubber Co., 74 F.R.D. 333, 335 (N.D. Ohio 1976). It is not required that all questions of law and all underlying factual patterns be shared by all plaintiffs. Jordan v. County of Los Angeles, 669 F.2d 1311, 1320 (9th Cir.), vacated on other grounds, 459 U.S. 810 (1982). "Where the facts as alleged show that defendant's course of conduct concealed material information from an entire putative class, the commonality requirement is met." Shankroff v. Advest, Inc., 112 F.R.D. 190, 193 (S.D.N.Y. 1986).
In Leyva v. Buley, 125 F.R.D. 512, 515-16 (E.D. Wash. 1989), the Court summarized the common sense approach taken by the Ninth Circuit to the commonality requirement:
The second element requires questions of law or fact common to the class. Fed. R. Civ. P. 23(a)(2). However, the rule does not require that all questions of law and fact be common. Blackie v. Barrack, 524 F.2d 891, 902 (9th Cir.), cert. denied, 429 U.S. 816 (1976). . . . As the Ninth Circuit stated in Blackie, courts take a common sense approach. When the class is united by a common interest in determining whether the defendant's course of conduct is, in its broad outlines actionable, differences in the class members' positions should not defeat class certification. Id.
The proposed class easily meets the commonality requirement. Among the questions of law and fact common to the class are: (1) whether the defendants have repeatedly violated the federal securities laws; (2) whether it is appropriate to issue a declaratory judgment relating to defendants' repeated violations of the federal securities laws; (3) whether it is appropriate to issue an injunction against future violations of the securities laws on the part of the defendants; (4) whether the defendants have falsely represented that the General Partner would be entitled to receive more than 30 percent of the Partnership's distributions after the priority return is reached; (5) whether the defendants have adequately disclosed that they have interests that are in conflict with the interests of the Limited Partners; and (6) whether the defendants have adequately disclosed that a control premium can be obtained for the Partnership's controlling interest in the Company. In addition, if the defendants do not abandon the 1997 Plan, other issues common to the class will be relevant, including: (1) whether it is appropriate to issue an injunction on federal securities law grounds against implementation of the 1997 Plan; and (2) whether the 1997 Plan violates the Rollup Reform Act.
The typicality requirement of Rule 23(a) is met if the named plaintiff's claim "stems from the same event, practice, or course of conduct that forms the basis of the class claims and is based upon the same legal or remedial theory." Jordan v. County of Los Angeles, 669 F.2d at 1321; see also Dura-Bilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87, 99 (S.D.N.Y. 1981). Plaintiff Wininger's claims and the claims of the class stem from the same course of conduct -- defendants' repeated violations of the securities laws. The claims of the plaintiff and the class are also based on the same legal and remedial theories -- that the defendants have violated the securities laws, and that these violations justify equitable relief.
The requirement that "the representative parties will fairly and adequately protect the interests of the class" involves a two-pronged inquiry. First, counsel for the proposed class representa tives must have the competence to prosecute the litigation. Second, there can be no disabling conflicts between the interests of the named class representative and the members of the class. See, e.g., Roberts v. Heim, 670 F. Supp. 1466, 1491 (N.D. Cal. 1987), aff'd in part and rev'd in part on other grounds, 857 F.2d 646 (9th Cir. 1988), cert. denied, 493 U.S. 1002 (1989); In re Victor Technologies Securities Litigation, 102 F.R.D. 53, 62 (N.D. Cal. 1984), aff'd, 792 F.2d 862 (9th Cir. 1986). The burden is on the party opposing certification to show that the named plaintiff will be an inadequate representative. In re Data Access Systems Securities Litigation, 103 F.R.D. 130, 140 (D.N.J. 1984).
Both prongs of Rule 23(a)(4)'s adequacy requirement are satisfied here. The Mills Law Firm, lead counsel for the plaintiff, has broad experience with class actions on behalf of limited partners and with other complex class actions. Ex. C. Co-counsel for the plaintiff, Smith, Katzenstein & Furlow, is a highly respected Delaware law firm which has extensive experience in class and derivative litigation. Plaintiff's counsel have aggressively and competently prosecuted this action, as well as the Delaware action that involves the same parties. Indeed, plaintiff's counsel succeeded in obtaining injunctive relief against the 1997 Plan in both actions.
In the past, The Mills Law Firm has achieved spectacular successes on behalf of limited partners in class actions. A recent example of the outstanding results achieved by The Mills Law Firm is Genovese v. Television of Toledo, Inc., U.S. District Court, District of Connecticut, Case No. 395CV01423. See Ex. C. In that case, the general partner had sought to sell a television station owned by the partnership to an entity which the general partner would have owned and controlled. The Mills Law Firm blocked that self-dealing transaction. Shortly thereafter, the station sold on the open market for a price which netted over $23 million more for the partnership than the general partner's original proposed transaction. Instead of the $62,500 per unit offered by the general partner, the limited partners were paid $183,000 per unit.
In another example, Conrad v. PBTV, Inc., United States District Court, District of Connecticut, Case No. 396CV00863, The Mills Law Firm represented a class of 193 limited partners. See Ex. C. The limited partners were seeking to force their general partner to liquidate their 12-year old limited partnership. The Mills Law Firm successfully negotiated a settlement which required the immediate marketing for sale of the television station that was the limited partnership's sole asset. The roughly $50 million sale netted over $32 million for the limited partners, more than triple their original investment.
The plaintiff's interests are not in conflict with the interests of the class members. All the Limited Partners have common interests in receiving full and true disclosure and in making sure that the General Partner complies with federal law. The fact that many limited partners may have voted for the 1997 Plan does not mean that these limited partners have interests antagonistic to those of the plaintiff. The securities laws are designed to ensure that investors cast informed votes. See, e.g., Popkin v. Wheelabrator-Frye, Inc., 1973 WL 412 at *4 (S.D.N.Y. 1973) (fact that great majority of shareholders voted for transaction did not preclude plaintiff from being adequate class representative in suit challenging adequacy and fairness of contents of proxy statement).
In addition, the Court has already appointed plaintiff Wininger as lead plaintiff and The Mills Law Firm as class counsel pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (15 U.S.C. § 78u-4(a)(3)(B)). Ex. D at 2. For the foregoing reasons, plaintiff Wininger is an adequate class representative.
Rule 23(b)(1)(A) permits class certification where "the prosecution of separate actions by or against individual members of the class would create a risk of . . . inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class." Rule 23(b)(1)(A) is applicable here. Inconsistent adjudications by different courts on whether the defendants made false and misleading statements or failed to disclose material facts in their proxy solicitations would subject the defendants to incompatible standards of conduct. The defendants would be subjected to conflicting requirements with respect to what they would have to disclose in any future proxy solicitations about matters such as the General Partner's entitlement to distributions, their conflicts of interest, and the availability of a control premium.
Furthermore, if the 1997 Plan is not withdrawn, the defendants would be subjected to incompatible standards of conduct if varying adjudications were made relating to the 1997 Plan. For example, if one court were to rule that the 1997 Plan violates the Rollup Reform Act while another court were to hold that it does not, defendants would be subjected to incompatible standards.
Rule 23(b)(1)(B) provides for class certification where
the prosecution of separate actions by or against individual members of the class would create a risk of . . . adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.
Here, a declaratory judgment that the defendants violated the securities laws or an injunction against future violations would be dispositive of the interests of all members of the class with respect to those matters. Moreover, if the 1997 Plan is not withdrawn, an injunction on federal securities grounds against implementation of the 1997 Plan would also be dispositive of the interests of all the class members. Therefore, this action meets the requirements of Rule 23(b)(1).
Certification under Rule 23(b)(2) is proper where "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." Fed. R. Civ. P. 23(b)(2); see also, e.g., Equal Employment Opportunity Comm'n v. General Telephone Co. of the Northwest, 599 F.2d 322, 333 n.26 (9th Cir. 1979), aff'd, 446 U.S. 318 (1980). Here, the defendants have acted on grounds generally applicable to the class -- they have made numerous false and misleading statements in proxy solicitations mailed to every class member.
The remedy sought by the plaintiff is declaratory and/or injunctive relief designed to ensure future compliance with the securities laws on the part of the defendants. This remedy would affect the entire class. Moreover, if the 1997 Plan is not abandoned, this action will continue to seek injunctive and declaratory relief against the 1997 Plan based on the federal securities laws, which would also affect the entire class. Thus, this case is tailor-made for certification under Rule 23(b)(2).
For the foregoing reasons, plaintiff respectfully requests that this Court certify this action as a class action under Rules 23(b)(1) and/or 23(b)(2), certify the plaintiff as the class representative, reaffirm the appointment of The Mills Law Firm as lead counsel for the class, and appoint Smith, Katzenstein & Furlow as co-counsel for the class.
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Dated: April 10, 1998 |
THE MILLS LAW FIRM |
D:\Winword\DOCS\SYN2\MotClassCert.doc/clh
1 All exhibits cited herein are attached to the Declaration of Alex J. Luchenitser filed herewith.