Opinion
Case No. A-00-CA-776-SS
May 5, 2003
O R D E R
BE IT REMEMBERED on the 5th day of May 2003 the Court reviewed the file in the above-styled cause, and specifically, Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction, or Alternatively, for Summary Judgment [#162], Plaintiffs' response thereto [#166], and Defendants' reply [#169], along with Rusing-Bell, Mehta, and Humphrey's Motion to Intervene [#167], Defendants' response thereto [#173] Plaintiffs' reply [#176], Defendants' reply in opposition [#177], and Plaintiffs' response thereto and Motion to Strike Portions of Defendants' Opposition [#178]. Having considered the motions and responses, the relevant law, and the case file as a whole, the Court now enters the following opinion and orders.
Background
This Court has recounted the factual background of this dispute on numerous occasions but will briefly address it one final time. This lawsuit is a consolidated securities action grounded in strict liability and negligence against pcOrder.com, Inc., its directors, controlling shareholder Trilogy Software, Inc., and its investment bankers (collectively, the "Defendants") pursuant to Sections 11 and 15 of the Securities Act of 1933. The suit is brought by investors who purchased stock they allege was issued pursuant to misleading Registration Statements filed with the Securities and Exchange Commission ("SEC") in connection with pcOrder.com's March 1999 initial public offering and/or its December 1999 secondary public offering.
On February 26, 1999, pcOrder.com conducted an initial public offering, and on December 7, 1999, a secondary public offering. In conjunction with each, pcOrder.com filed a registration statement with the SEC. The investors contend the February 1999 and December 1999 registration statements and prospectuses contained therein were false and misleading when filed with the SEC because they misrepresented pcOrder.com had a viable business plan, had an ability to generate and report accurate operating and financial information, and stated pcOrder.com was not competing with Trilogy Software for revenue. See Consolidated Class Action Compl., at 1.
The Court-appointed lead plaintiffs, Gene Burke, David Petrick, and Bret Beebe (collectively, "Lead Plaintiffs"), claimed they and other members of the proposed class of investors suffered tens of millions of dollars in damages as a result of their purchasing pcOrder.com stock issued pursuant to and traceable to misleading registration statements and moved for class certification. Id. at 2 16. On October 21, 2002, this Court entered its order ("October 21 Order") denying class certification and held (1) only Bret Beebe, not Dr. Gene Burke or David Petrick, has standing to sue, but (2) regardless, the Court will not certify the class because the proposed class representatives and their counsel do not satisfy the Rule 23 adequacy requirement. Milberg, Weiss, Bershad, Hynes and Lerach, L.L.P. ("Milberg Weiss") subsequently moved to withdraw as counsel for the Lead Plaintiffs, who in turn moved for the Court to reconsider its order denying certification. On December 16, 2002, the Court entered its order ("December 16 Order") granting Milberg Weiss's motion to withdraw, and denying Lead Plaintiffs motion for reconsideration of the October 21 Order. Shortly thereafter, Lead Plaintiffs filed a petition pursuant to Rule 23(f) of the Federal Rules of Civil Procedure with the Fifth Circuit for leave to appeal the Court's denial of class certification. The Fifth Circuit denied the Lead Plaintiffs leave to appeal on March 18, 2003.
The only remaining claims in this lawsuit are the individual claims of the Lead Plaintiffs Beebe, Burke and Petrick, see October 21 Order, and the claims of the other individuals who filed complaints in this case (Jerry Krim, Barry Pinkowitz and Jean Schwartz Burke). On January 17, 2003, Defendants moved to dismiss the lawsuit for lack of subject matter jurisdiction in light of the Court's explicit holding that neither Burke not Petrick has standing to sue under Section 11, and because they have offered Beebe the maximum relief to which he would be entitled if he prevailed, which they contend renders Beebe's claims moot. Additionally, the Defendants argue that the claims of the other individuals who filed complaints, Krim, Pinkowitz and Jean Burke, must also be dismissed because they do not have standing under Section 11 either. Then, on March 5, 2003, three additional investors, Dawn Rusing-Bell, Kishore Mehta, and Deidre Humphrey filed a motion to intervene in the lawsuit.
Analysis
I. Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction
A. Standard for 12(b)(1) Motion
Defendants move to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), on the grounds the remaining claims are either moot or brought by plaintiffs without standing to sue under Section 11. FED. R. CIV. P. 12(b)(1). In deciding whether to dismiss, a court may consider: "(1) the complaint alone; (2) the complaint supplemented by undisputed facts; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Robinson v. TCI/US West Communications, Inc., 117 F.3d 900, 904 (5th Cir. 1997). But "[d]ismissal is proper only when `it appears certain that the plaintiffs cannot prove any set of facts in support of their claim which would entitle them to relief.'" Id. (internal quotation and citations omitted).
B. The Burkes' Claims
The Defendants argue the Court should dismiss the Burkes' claims for lack of subject matter jurisdiction because the Burkes do not have standing to sue. Standing is an essential and unchanging part of the case-or-controversy requirement of Article III,' . . . and determines the courts' "fundamental power even to hear the suit." Grant v. Gilbert, 324 F.3d 383, 386 (5th Cir. 2003) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) and Ford v. NYL Care Health Plans, Inc., 301 F.3d 329, 333 (5th Cir. 2002), cert. denied, Ford v. Aetna U.S. Healthcare, Inc., 123 S.Ct. 1574 (2003)).
This Court has held Dr. Burke's purchases are not directly traceable to the allegedly problematic registration statements, and thus, he has no standing to sue under Section 11. See October 21 Order at 8. In spite of the fact the Court already denied Plaintiffs' motion for reconsideration, Plaintiffs once again "urge the Court to take another look at the [Section 11 standing] issue." See Opp. at 9. The Plaintiffs disagree with the Court's conclusions and so they should appeal instead of repeatedly advancing the same rejected arguments. Dr. Burke's claims must be dismissed for lack of subject matter jurisdiction. Additionally, under the rationale articulated by the Court, Jean Burke, who purchased 200 shares of stock on June 29, 1999, the same day Dr. Burke made his first purchase, does not have standing to sue. See October Order at 7-8; Mot. to Dismiss App. Ex. 9 ("J. Burke Certification").
The Plaintiffs do not contest Defendants' assertion that Pinkowitz and Krim do not have standing, and thus the Court can grant Defendant's motion to dismiss their claims as unopposed. See Local Rule CV-7(d). Regardless, both individuals purchased their stock on the open market in December of 1999, and therefore they, just like Dr. Burke and Petrick, cannot directly trace their shares to either of the problematic registration statements. See October 16 Order at 7-8 (explaining as of December 7, 1999, 9% of the stock certificate was comprised of shares not issued pursuant to either registration statement and to have Section 11 standing, the plaintiffs needed to trace their stock purchases directly, not to show the stock they purchased was likely issued pursuant to a misleading registration statement).
C. Bret Beebe's Claims
Now that the Court has denied class certification and dismissed all of the claims in this lawsuit except Beebe's, the only remaining issue is the effect of the Defendants offer to settle on Beebe's claims. The Defendants argue that because they have offered Beebe the full amount of damages he sought in his complaint, there is no remaining live controversy and the case must be dismissed. At first glance, one might assume Beebe would take Defendants' offer and run with it, especially since the prospects of his recovering any money from the Defendants have become quite remote. Yet Beebe has not accepted the offer, arguing the Defendants (1) miscalculated the damages to which Beebe is entitled under the statute; (2) did not include costs in their offer so they have not fully satisfied the relief he is requesting; and (3) have not taken into account the equitable remedies to which he might be entitled.
The Fifth Circuit's long settled rule, most recently articulated in Grant, is "`a purported class action becomes moot when the personal claims of all named plaintiffs are satisfied and no class has been properly certified.'" 324 F.3d at 389 (quoting Zeidman v. J. Ray McDermott Co., Inc., 651 F.2d 1030, 1045 (5th Cir. 1981)). Therefore, the issue for this Court is whether the Defendants' Rule 68 offer of judgment fully satisfies Beebe's claim under Section 11.
If a plaintiff who sold his stock before filing his lawsuit Under Section 11 prevails, he is entitled "to recover such damages as shall represent the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and . . . the price at which such security shall have been disposed of in the market before suit." 15 U.S.C. § 77k(e). Beebe purchased 1000 shares of IPO stock at $72.75 per share. See Mot. to Dismiss. Ex. 17. The IPO price was only $21 per share. Beebe eventually sold his 1000 shares of stock for $6.375 per share. See Mot. to Dismiss. Ex. 16. Accordingly, under the statute, if Beebe succeeded on his claims he would be entitled to $14,625, which is $21 multiplied by 1000 minus $6.375 multiplied by 1000. The Defendants offered Beebe $14,625, plus costs. The Court holds the Defendants' offer of judgment fully satisfied everything to which Beebe would be entitled if he prevailed.
Beebe argues his demands have not been fully satisfied because the Defendants do not include prejudgment interest or equitable remedies in their Rule 68 offer of judgment. Although Defendants have offered "costs," prejudgment interest is not a "cost," but part of the damages a plaintiff may suffer. United States v. American Commercial Barge Line Co., 988 F.2d 860, 864 (8th Cir. 1993). However, in this case, interest is not part of the damages to which Beebe is entitled. The reason for the delay between Beebe's collection of the $14,625 plus costs is his (and the other now-dismissed plaintiffs') pursuit of a meritless motion for class certification. The award of prejudgment interest is in the discretion of this Court, and for the aforementioned reason, the Court would decline to award prejudgment interest to Beebe. See Whitfield v. Lindeman, 853 F.2d 1298, 1306 (5th Cir. 1988) (holding "[a]bsent statutory mandate, the award of prejudgment interest generally is discretionary with the trial court," and explaining interest is awarded based on considerations of fairness), cert. denied, Kelpak v. Dole, 490 U.S. 1089 (1989). As for Beebe's contention that he might have recovered in equity, the claim is without merit. Beebe and the other Plaintiffs do not demand equitable relief in their complaint. See Consolidated Class Action Compl. at 21 ("Prayer for Relief'). Because the Defendants have offered Beebe all to which he would be entitled personally if he had prevailed on his individual claims against the Defendants, there is no longer a live controversy between the parties and Beebe's personal claims must be dismissed as moot. See, e.g., Zimmerman v. Bell, 800 F.2d 386, 390 (4th Cir. 1986); Rand v. Monstato Co., 926 F.2d 596, 598 (7th Cir. 1991); Alpern v. Utilicorp United, Inc., 84 F.3d 1525, 1539 (8th Cir. 1996).
The Court will, however, order the Defendants to tender statutory interest dating back to the date the Defendants extended the Rule 68 settlement offer (January 15, 2003) to Beebe.
Nevertheless, the Court understands Beebe's (or more accurately his counsel's) reluctance accept the offer of judgment, even if the Defendants tender the full amount he seeks in damages. Under Fifth Circuit case law, if Beebe voluntary enters into a settlement of his claims against the Defendants and does not specifically reserve his right to appeal the trial court's refusal to certify a class, he waives that right. Dugas v. Trans Union Corp., 99 F.3d 724, 729 (5th Cir. 1996). On the other hand, if Beebe refuses a tender of payment of damages from the Defendants and, and despite that refusal, this Court enters a judgment or grants a dismissal on the basis the tender was made, he maintains the right to appeal the Court's order denying class certification because it was entered prior to the tender so long as he retains an interest in certification, such as a "desire to shift part of the costs of litigation to those who will share in its benefit if they class is certified an ultimately prevails." Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 332-336 (1980).
Of Course Petrick and Burke can still appeal the denial of class certification now that the Court has dismissed their claims.
Accordingly, the Court will dismiss as moot Beebe's individual claims against the Defendants. Because Beebe has not acquiesced in his claims and has an interest in shifting litigation costs to the other cost members, he has reserved his right to appeal this Court's denial of class certification after his claims are dismissed. Roper, 445 U.S. at 336. The Defendants are ordered to tender their settlement offer to Beebe, and if he refuses to accept it, to pay the $14,625 plus costs and statutory interest dating back to January 15, 2003 into the registry of the Court pending appeal and resolution of this case.
II. Motion to Intervene
Three other investors, Dawn Rusing-Bell, Kishore Mehta, and Deidre Humphrey filed a motion to intervene in the lawsuit in March. However, because this Court holds it must dismiss the remaining individual claims in this case for lack of jurisdiction, intervention is no longer an option for Rusing-Bell, Mehta or Humphrey. Non Commissioned Officers Assoc. of the United States v. Army Times Publishing Co., 637 F.2d 372, 373 (5th Cir. 1981) ("A prerequisite of intervention (which is an ancillary proceeding in an already instituted suit) is an existing suit within the Court's jurisdiction.), modified on other grounds, 650 F.2d 83 (5th Cir. 1981). This case is over, and the three investors seeking intervention must file a new cause of action against the Defendants if they wish to pursue their claims.
Notwithstanding the fact the Court has no jurisdiction over a dispute in which these three investors could intervene, the Court notes according to their motion to intervene, the three investors are represented by the same counsel (including Milberg Weiss, which filed a motion to withdraw that the Court granted) the Court held to be inadequate to represent the interests of the investor class in denying the Lead Plaintiffs' motion for class certification. While the three investors are not currently seeking class certification, they will face the same obstacles to certification the Lead Plaintiffs faced if they proceed with the same counsel. Furthermore, plaintiffs' counsel have reaffirmed their disregard for the Court's concerns about the conflicts that arise due their representing this group of investors while simultaneously representing other individuals and groups of investors.
In accordance with the foregoing:
IT IS ORDERED that Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction [#162] is GRANTED and Defendants shall tender $14,625 plus costs and statutory interest dating back to January 15, 2003 to Beebe, and if he refuses to accept it, to pay the amount into the registry of the Court;
IT IS FURTHER ORDERED that Rusing-Bell, Mehta, and Humphrey's Motion to Intervene [#167] is DENIED;
IT IS FINALLY ORDERED that any other pending motions are DISMISSED AS MOOT.
ORDER OF DISMISSAL
BE IT REMEMBERED on the 5th day of May 2003 the Court entered its order dismissing the individual claims of Jerry Krim, Barry Pinkowitz, Jean Schwartz Burke, Gene Burke, and David Petrick because they lack standing, and dismissing Bret Beebe's individual claims as moot in light of the Defendants' Rule 68 offer of judgment, and the Court now enters the following order of dismissal and final judgment:
IT IS ORDERED that the defendants shall tender to Bret Beebe the sum of Fourteen Thousand Six Hundred Twenty-Five and 00/100 dollars ($14,625), plus interest at the rate of 1.25 percent per annum from January 15, 2003 until paid, and all costs of suit, and if Beebe refuses the tendered sum, the defendants shall pay that sum into the Registry of the Court;
IT IS THEREAFTER FINALLY ORDERED that the individual claims of Jerry Krim, Barry Pinkowitz, Jean Schwartz Burke, Gene Burke, David Petrick, and Bret Beebe against the defendants are DISMISSED WITHOUT PREJUDICE for lack of jurisdiction over the subject matter pursuant to Fed.R.Civ.P. 12(b), and defendants shall go forth without delay, with all costs taxed to plaintiffs.