WILLIAM ALSUP, District Judge.
A motion for class certification was earlier conditionally granted. Having satisfied the conditions set forth in that order, plaintiffs now move for certification of classes. After consideration of the record and a hearing, this order certifies three classes, appoints class counsel, and appoints a class representative for each class.
This action began as a suit against 25 defendants. Six remain. Certification of the classes is sought only as to auditor defendant Rothstein Kass & Company, PC. The background has been set forth in previous orders (see Dkt. No. 264). This action is based on various state law theories. It is not a securities fraud case. Various limited partnership investment opportunities cratered. All of the investment opportunities were arranged and controlled by defendant Sky Bell Asset Management, LLC. In turn, the investment funds invested in yet other funds ostensibly in accordance with the stated investment strategies. Each opportunity was a separate limited partnership and each went bad. Plaintiffs allege that the auditor should have discovered the various management wrongs.
Plaintiffs move for certification of classes to be defined as follows (Br. 2):
A hearing on plaintiffs' initial motion for class certification took place in October 2011 (Dkt. No. 207). Following consideration of full briefing, various supplemental submissions, and a hearing, an order conditionally granted plaintiffs' motion (Dkt. No. 264). Three of the four proposed classes were conditionally certified, namely an Agile Sky class, Night Watch class, and PipeLine class, each consisting of persons or entities who acquired limited partnership interests in the respective limited partnerships. The fourth proposed class, consisting of persons or entities who acquired limited partnership interests in Wailea Partners, LP, was not certified, conditionally or otherwise.
The order analyzed each of the Rule 23(a) requirements. It found numerosity lacking for the proposed Wailea class. Thus, all class claims against defendant McGladrey & Pullen, LLP, fell away, leaving Rothstein Kass as the only auditor defendant remaining in the action. Numerosity was found as to the proposed PipeLine, Night Watch, and Agile Sky classes based on counsel's representations and documentation that, at a minimum, the limited partnerships had the following number of non-defendant investors: PipeLine had 93; Night Watch had 70; and Agile Sky had 40. Post order and recent submissions, however, now show that the PipeLine class has only 35 non-defendant investors. This shortfall will be addressed below. Commonality and typicality as to the three proposed classes were also found.
As to adequacy, Mr. Eric Braun was found to be an adequate representative of the proposed PipeLine class. Mr. Edgar Tuttle was found to be an adequate representative of the proposed Night Watch class. A determination of the adequacy of the proposed representative for the Agile Sky class was not made. Instead, plaintiffs were permitted to amend their complaint to clarify whether the proposed representative for the Agile Sky class was the Braun Family Trust, or Mr. Braun, as co-trustee on behalf of the Braun Family Trust, as was suggested in the reply brief. This issue is resolved herein below.
Gold Bennett Cera & Sidener LLP, plaintiffs' counsel of record at the time, sought appointment as class counsel. After thorough review of their unsatisfactory record of performance in this action, the order concluded that Gold Bennett Cera & Sidener LLP, would be appointed class counsel only subject to satisfaction of the conditions set forth in that order, namely, association of co-counsel "known to practice at the level customary for an investor class in this district" (Dkt. No. 264 at 10-11).
As to Rule 23(b)(3), under which plaintiffs sought certification, the order found that there were "clear common issues of fact as to each of the proposed classes concerning the quality of the work performed by Rothstein Kass on its audits of the three limited partnerships at issue" (id. at 9). The order presumed those issues would predominate and also found that a class action would probably be superior to multiple individual actions and that difficulty in managing the class action would be reduced, as the case had been narrowed to only one defendant.
After the hearing on the motion for class certification, plaintiffs were permitted to amend to cure various pleading defects. Plaintiffs filed a fourth amended complaint to make clear that claims three, four, and five were alleged by the Night Watch and PipeLine classes, not only the Agile Sky class.
The fourth amended complaint now pleads five claims for relief. Certification is sought as to claims two, three, four, and five, all alleged against Rothstein Kass. The claims are as follows: claim two alleges aiding and abetting breaches of fiduciary duty; claim three alleges negligence; claim four alleges unjust enrichment; and claim five alleges for an accounting. This order does not adjudicate whether any such claims have merit.
The order conditionally granting the motion for class certification specifically stated that classes would not be defined and certified until: (1) association of co-counsel "known to practice at the level customary for an investor class in this district"; (2) submission of a precise list of investors for the Agile Sky, PipeLine, and Night Watch classes, including names, addresses, amounts invested, and the date of investment; and (3) submission by counsel indicating the longest period of statute of limitations. These conditions have been satisfied.
Rule 23(a) requires a court granting class certification to find: (1) numerosity of the class; (2) commonality of legal or factual questions; (3) typicality of the named plaintiffs' claims and defenses; and (4) that the named plaintiffs and plaintiffs' counsel can adequately protect the interests of the class. Certification under Rule 23(b)(3) requires that the court find "that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy."
The prior order left three main substantive issues to be resolved, pending submission of supplemental briefing: (1) choice of law regarding class claims; (2) adequacy of the proposed class counsel and proposed Agile Sky class representative; and (3) definition of the classes. In light of plaintiffs' submission of a corrected list of investors, a fourth issue now needs to be discussed regarding numerosity as to the PipeLine class, next addressed.
As stated, numerosity was found as to the PipeLine, Agile Sky, and Night Watch proposed classes, all based on the representations of counsel. The Court determined that at a minimum the PipeLine class would consist of 93 members.
After the order conditionally granting the motion for class certification, counsel submitted a list of investors for the three proposed classes. By the Court's count, the list identified the following number of non-defendant investors: PipeLine had only 35, not 93 as earlier represented; Night Watch had 80; and Agile Sky had 53. An order issued requiring counsel to explain the discrepancy in the number of prospective PipeLine class members previously proffered to the Court and the number identified in plaintiffs' submission dated November 30, 2011. Defendant Rothstein Kass responded that it had previously determined that there were 93 PipeLine class members based on a physical count of K-1s sent to persons or entities who were investors in PipeLine in 2006, which was the last year it conducted an audit for PipeLine (Dkt. No. 311).
In their response, counsel for plaintiffs indicated that after the conditional class certification order, they obtained additional records from the PipeLine partnership and the successor auditor to Rothstein Kass, who performed the audit for the year ended December 31, 2008. Those records formed the basis of plaintiffs' more recent corrective submission. Plaintiffs now state that as of December 1, 2008, the year in which the limited partners sustained damages in connection with their respective Sky Bell partnership investments, there were only 39 limited partners in the PipeLine class, from which four must be deducted as affiliated with defendants. Defendant does not dispute this.
It is regrettable that counsel's previous submissions on the numerosity issues were so unreliable. Still, we will continue with class treatment given that we have come so far down the road of class certification (and given that defendant does not oppose) (Dkt. No. 307).
Where certification of a nationwide class is sought, as it is here, there is the potential that class treatment would be unmanageable if various state laws were applied to the claims. At the first hearing on the class certification motion, in an effort to address this potential problem of manageability, the Court inquired as to whether California law would apply to all claims. Defendant contended that it should not. Plaintiffs disagreed. Supplemental briefing was ordered to address this choice-of-law issue.
The parties expressly agree that the negligence claim will be governed by California law (Dkt. Nos. 272 at 3; 279 at 10). As for the claim for aiding and abetting breaches of fiduciary duty, the parties disagree. Plaintiffs call for California law to apply. Defendant contends that Delaware law should apply to some, if not all, of the individual class members claims for aiding and abetting breaches of fiduciary duty. Resolution of this choice-of-law issue can be postponed, for at a minimum, we now know that there will not be a multiplicity of various state laws tied to the residency of individual class members. Therefore, most likely, there will not be a manageability problem on the issue of choice of law.
With respect to the claim for an accounting, the calculus is more complicated. Plaintiffs state that California law applies. Defendant states that the law of residence of the individual members of the class applies and points specifically to the laws of Florida, Washington, Colorado, and New York, which defendant deems "the most prevalent among the states of plaintiffs' residence" (Dkt. No. 272 at 2). Again, however, this issue can be postponed because even if four or five other state laws will need to be applied, a question not now resolved, it will be manageable.
With respect to the unjust enrichment claim, plaintiffs invoke California law and defendant remains silent, thereby acquiescing to application of California law. It is worth observing further that in the Court's judgment, unjust enrichment is not a stand-alone "cause of action," but instead, is a form of relief (that may be or may not be warranted after some other claim is established).
With respect to the general issue of manageability, therefore, this order finds that the action can be managed effectively as a class action.
Rule 23(a)(4) requires that the "representative parties will fairly and adequately protect the interests of the class." This requires that (1) the proposed representative plaintiffs and their counsel do not have any conflicts of interest with the proposed class and (2) that the named plaintiffs and their counsel will prosecute this action vigorously on behalf of the class. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998).
In their opening brief on the initial motion for class certification, plaintiffs proposed that the Braun Family Trust be named as class representative for the Agile Sky class. On reply, plaintiffs requested that Mr. Braun, who is co-trustee of the Braun Family Trust, serve as the class representative (Dkt. No. 236 at 6). To avoid potential standing issues that may be raised as to the Trust's capacity to sue as a trust, plaintiffs were granted leave to amend their complaint to reflect that the Braun Family Trust would be suing by its co-trustee Mr. Braun. Plaintiffs so amended.
The Braun Family Trust invested in the Agile Sky Alliance Fund, LP, and alleges harms resulting from Rothstein Kass' audit of the limited partnership. Mr. Braun, as co-trustee of the Braun Family Trust, would be an adequate representative for the Agile Sky class.
Mr. Braun was found to be an adequate representative of the proposed PipeLine class and Mr. Tuttle was found to be an adequate representative of the proposed Night Watch class.
The order conditionally granting the motion for class certification required Gold Bennett Cera & Sidener LLP, to associate co-counsel in order to be considered for appointment as class counsel. The firm of Cohen Milstein Sellers & Toll PLLC, was associated as co-counsel and requests to be appointed, together with Gold Bennett Cera & Sidener LLP, as class counsel. Cohen Milstein Attorneys Herbert E. Milstein (partner), Joshua S. Devore (partner), and Matthew B. Kaplan (associate) have entered appearances on behalf of plaintiffs. The Court expects Attorney Milstein to take an active role in managing this case.
Review of the firm and new co-counsel's resumes shows that the Cohen Milstein firm has represented individuals, small businesses, institutional investors, and employees in major class actions across the country, including in this district, and before this judge. Furthermore, the resumes of newly-joined co-counsel show that they are experienced securities class-action litigators.
The previous order discussed the record of performance of Gold Bennett in this action in detail (Dkt. No. 264 at 10-11). Given their extensive work on this action to date, and thus, their familiarity with the facts, there will be some benefit to the classes to permitting Gold Bennett to serve as class counsel along with Cohen Milstein.
The order finds the firms of Cohen Milstein and Gold Bennett will provide adequate representation to the classes and vigorously prosecute this action. Defendant does not challenge the adequacy of the above-named counsel to serve as class counsel (Dkt. Nos. 271 and 307).
For all of the above-stated reasons, plaintiffs' motion for class certification is
The following Agile Sky class is
The following Night Watch class is
The following PipeLine class is
The class definitions shall apply for all purposes, including settlement. Eric Braun is
Pursuant to Rule 23(g), Attorneys Gwendolyn R. Giblin and Solomon B. Cera of the Gold Bennett Cera & Sidener LLP, firm and Attorneys Herbert E. Milstein, Joshua S. Devore, and Matthew B. Kaplan of the Cohen Milstein Sellers & Toll PLLC, firm are hereby
Counsel shall have until
Plaintiffs have submitted a form of class notice and plan of dissemination. By