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holding that "general defenses asserted against putative class representatives may be just as applicable to other members of the class and may warrant the establishment of subclasses" but they do not "defeat the initial inquiry"
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Williams & Anderson PLC, by: Peter G. Kumpe and Stephen A. Hester, Little Rock, for appellants.
Carney Williams Bates Bozeman & Pulliam, PLLC, by: Marcus N. Bozeman and Tiffany Oldham, Little Rock, for appellees.
PAUL E. DANIELSON, Justice.
Appellants Arkansas Media, LLC; Larry E. Morton; Greg W. Fess; Max W. Hooper; Henry G. Luken, III; Robert E. Becker; the Sandra Morton Life Trust; the Judy Fess Life Trust; and the Mindy Roberts Hooper Life Trust (collectively " Arkansas Media" ) appeal from the circuit court's order granting class certification pursuant to Arkansas Rule of Civil Procedure 23 to appellees Max E. Bobbitt; Robert D. and Margaret Keith Revocable Trust; Sharon K. Trusty; Don B. Vollman Revocable Trust; Terry Williams; and Joe T. Wilson, Jr., on behalf of themselves and all others similarly situated (collectively " the Class" ). Arkansas Media asserts that the circuit court abused its discretion in granting class certification because: (1) the typicality requirement is not satisfied; (2) the individual issues would predominate at trial and would destroy commonality; (3) a class action is not the superior method for a fair and efficient adjudication of the case; and (4) class certification is improper because the remedy the Class seeks is worthless. We affirm the circuit court's order.
Although Equity Broadcasting Corporation was listed as a defendant and nominal defendant on Arkansas Media's notice of appeal, it is not a party to the instant appeal.
The instant class-action litigation stems from a proposed merger between Equity Broadcasting Corporation (" EBC" ) and Coconut Palm Acquisition Company (" CPAC" ). On July 31, 2007, a fourth amended complaint was filed by the Class. In it, the Class asserted four counts against Arkansas Media: (1) a class-action claim for breach of fiduciary duty and violation of Arkansas Code Annotated § 4-27-1101; (2) a class-action claim for the creation of a constructive trust; (3) a derivative claim for breach of fiduciary duty and declaratory judgment; and (4) a derivative claim for the creation of a constructive trust. That same day, the Class filed a motion for class certification pursuant to Ark. R. Civ. P. 23.
In its memorandum-of-law-in-support of its class-certification motion, the Class provided the following statement of facts, which details, generally, its allegations against Arkansas Media:
On December 10, 2007, Arkansas Media filed its response in opposition of the class-certification motion. It asserted that a class action was inappropriate for several reasons, including: (1) the derivative claims should be separated from the direct claims; (2) a multitude of individual issues overwhelmed any common ones; (3) a class action was not the superior method of adjudicating the Class's claims; and (4) typicality was not satisfied. The Class replied, asserting that Rule 23's requirements were satisfied.
On August 17, 2008, the circuit court held a hearing on the Class's motion for class certification, at the conclusion of which the circuit court took the matter under advisement. Four days later, the circuit court entered an order granting the Class's motion for voluntary dismissal of its derivative claims and dismissing those claims without prejudice. Arkansas Media, with leave of the circuit court, then supplemented its objections to the motion for class certification. It asserted that, since the hearing on the motion for class certification, EBC's successor company, Equity Media Holdings Corporation (" EMHC" ), had filed for Chapter 11 bankruptcy protection. It then amended its superiority argument, adding that:
On April 16, 2009, the circuit court entered its order granting class certification. In its order, the circuit court found that each of the requirements of Ark. R. Civ. P. 23 was satisfied and defined the class as follows:
(Footnote omitted.) Arkansas Media now appeals, challenging the circuit court's findings on only three of Rule 23's requirements: typicality, predominance, and superiority.
Rule 23 governs class actions and provides, in pertinent part:
Ark. R. Civ. P. 23(a), (b) (2009). Our law is well settled that the six requirements for class-action certification include: (1) numerosity, (2) commonality, (3) typicality, (4) adequacy, (5) predominance, and (6) superiority. See Teris, LLC v. Chandler, 375 Ark. 70, 289 S.W.3d 63 (2008). The determination that the class-certification criteria have been satisfied is a matter within the broad discretion of the circuit court, and this court will not reverse the circuit court's decision absent an abuse of that discretion. See id. In reviewing a class-certification order, this court focuses on the evidence in the record to determine whether it supports the circuit court's conclusion
regarding certification. See id. Neither the circuit court nor this court shall delve into the merits of the underlying claims when deciding whether the Rule 23 requirements have been met. See id. A circuit court may not consider whether the plaintiffs will ultimately prevail or even whether they have a cause of action. See id. We, thus, view the propriety of a class action as a procedural question. See id.
I. Typicality
For its first point on appeal, Arkansas Media challenges the circuit court's finding regarding typicality. It contends that the putative class representatives differ from the remaining class members and, therefore, typicality was not met. It contends that the class representatives will not be able to prove that they were the victims of fraud, nor that they were damaged as a proximate cause of any breach of Arkansas Media's fiduciary duties. Arkansas Media then addresses each class representative separately, arguing that each was either a sophisticated, experienced investor or was thoroughly advised by a financial advisor regarding the proposed merger, which it claims subjects them to a unique defense with respect to the Class's claims to which none of the other class members would be subjected. For this reason, it urges that their claims are not typical and class certification is inappropriate.
The Class responds that all persons within the certified class were victims of the same unlawful course of conduct— Arkansas Media's concealment of material facts concerning the proposed merger. Because the Class's claims arise from a common nucleus of operative facts and are based on the same legal theory, the Class asserts its class representatives' interests are typical of the class they represent. It avers that Arkansas Media's analysis of potential defenses that Arkansas Media may assert is of no value because it inappropriately delves into the merits of the litigation.
Here, the circuit court found that the typicality requirement had been met, stating:
In Summons v. Missouri Pacific Railroad, this court adopted the following explanation of Ark. R. Civ. P. 23's typicality requirement:
306 Ark. 116, 121, 813 S.W.2d 240, 243 (1991) (quoting H. Newberg, Class Actions § 3.13 (2d ed.1985) (footnotes omitted)). When analyzing this factor, we focus upon the defendant's conduct and not the injuries or damages suffered by the plaintiffs. See FirstPlus Home Loan Owner 1997-1 v. Bryant, 372 Ark. 466, 277 S.W.3d 576 (2008). Moreover, the class representative's claim must only be typical and not identical. See Asbury Auto. Group, Inc. v. Palasack, 366 Ark. 601, 237 S.W.3d 462 (2006).
In this case, both the class representatives and the class allege the same unlawful conduct by Arkansas Media— in essence, that the information and notice provided to the Class A shareholders regarding the proposed merger were inadequate. Moreover, each class member is asserting the same claims. While Arkansas Media argues that the class representatives may be subject to certain defenses to which other class members may not be subject, we have previously rejected such arguments, holding that a defendant's individual defenses or claims against particular class members or subsets of class members does not defeat the initial inquiry. See, e.g., The Money Place, LLC v. Barnes, 349 Ark. 518, 78 S.W.3d 730 2002). General defenses asserted against putative class representatives may be just as applicable to other members of the class and may warrant the establishment of subclasses. See Tay-Tay, Inc. v. Young, 349 Ark. 675, 80 S.W.3d 365 (2002). Because the class representatives' claims arise from the same course of conduct giving rise to the claims of the other class members, and because those claims are based on the same legal theories, we hold that the circuit court did not abuse its discretion in concluding that the requirement of typicality was satisfied.
II. Predominance
Arkansas Media further argues that the predominance requirement has not been satisfied. It claims that while the Class has not specifically alleged fraud, its allegations amount to such a claim, and the individual issue of whether each member of the class relied on Arkansas Media's alleged misrepresentations would predominate. With respect to the Class's breach-of-fiduciary-duty claim, it avers that the element of proximate cause would also require individual examination. Therefore, Arkansas Media contends, class certification is inappropriate because were the case tried as a class action, these individual issues would overwhelm the common issues. The Class counters that the common questions of law and fact that predominate are (1) whether Arkansas Media failed to disclose material and relevant facts and information, including the details of the merger plan as required by statute, to EBC's shareholders prior to the vote on the proposed merger; and (2) if there was a failure, whether Arkansas Media breached its fiduciary duty to EBC's shareholders and constituted an unlawful act under Ark.Code Ann. § 4-27-1302(b), which addresses the rights of a dissenting shareholder.
The Class contends that for it to prove that Arkansas Media acted unlawfully, questions of reliance will not necessarily arise in the litigation.
Here, the circuit court found that common questions existed, which predominated over any individual issues:
It was noted by the circuit court in its order that Arkansas Media conceded commonality, and Arkansas Media does not challenge the circuit court's finding on commonality on appeal.
We have held that the starting point in examining the issue of predominance is whether a common wrong has been alleged against the defendant. See General Motors Corp. v. Bryant, 374 Ark. 38, 285 S.W.3d 634 (2008). If a case involves preliminary, common issues of liability and wrongdoing that affect all class members, the predominance requirement of Rule 23 is satisfied even if the circuit court must subsequently determine individual damage issues in bifurcated proceedings. See id. We have recognized that a bifurcated process of certifying a class to resolve preliminary, common issues and then decertifying the class to resolve individual issues, such as damages, is consistent with Rule 23. See id. In addition, we have said that:
Id. at 44, 285 S.W.3d at 639 (quoting ChartOne, Inc. v. Raglon, 373 Ark. 275, 286, 283 S.W.3d 576, 584 (2008)). Our inquiry is whether there is a predominating question that can be answered before determining any individual issues.
We hold that the circuit court did not abuse its discretion in finding that the requirement of predominance was met. The common issue that predominates here is whether Arkansas Media breached a fiduciary duty by failing to disclose all relevant information with respect to the proposed merger. This overarching issue can be resolved before the circuit court
reaches any of the individualized questions raised by Arkansas Media. See id.
While Arkansas Media claims that predominance is destroyed by the fact that each class member will have to prove reliance or proximate cause, we have repeatedly rejected such a claim. The mere fact that individual issues and defenses may be raised by a defendant regarding the recovery of individual class members cannot defeat class certification where there are common questions concerning the defendant's alleged wrongdoing that must be resolved for all class members. See FirstPlus Home Loan Owner 1997-1, supra. Moreover, we have observed that " [c]hallenges based on the statutes of limitations, fraudulent concealment, releases, causation, or reliance have usually been rejected and will not bar predominance satisfaction because those issues go to the right of a class member to recover, in contrast to underlying common issues of the defendant's liability." SEECO, Inc. v. Hales, 330 Ark. 402, 413, 954 S.W.2d 234, 240 (1997) (quoting 1 Herbert B. Newberg, Newberg on Class Actions § 4.26, at 4-104 (3d ed.1992)). We cannot say that the circuit court abused its discretion in its finding of predominance.
In its brief, Arkansas Media, without further argument or citation to authority, asserts " that any procedure which would result in one jury deciding common issues and another jury deciding individual issues would result in a violation of Article 2, section 7 of the Arkansas Constitution, the right to a jury trial." We note that we have previously rejected such an argument at this juncture, holding that " we do not know at the point of certification whether more than one jury would ultimately be necessary, and we will not speculate on the question of the inevitability of bifurcated trials or issue an advisory opinion on an issue that well may not develop." General Motors Corp., 374 Ark. at 51, 285 S.W.3d at 645. We, therefore, decline to address Arkansas Media's contention.
III. Superiority
Arkansas Media next contends that the circuit court abused its discretion in finding that the superiority requirement was satisfied. It again asserts that because the merger disclosure and results are not disputed, the most significant factual inquiry is the question of class members' reliance. It claims that where threshold individualized issues predominate, the class-action procedure is not superior. The Class responds that Arkansas Media is simply " regurgitating" its lack-of-predominance argument. It maintains that the heart of its case is focused on Arkansas Media's misrepresentations and/or omissions concerning the merger and that a class action is the superior method for determining this issue.
Arkansas Media's argument that superiority is lacking is premised on its lack-of-predominance argument, which we have already rejected. Accordingly, we hold that the circuit court did not abuse its discretion in finding superiority.
IV. Worthless Remedy
Arkansas Media, for its final point on appeal, argues that because EMHC, the surviving entity of the merger, filed for bankruptcy, the Class's proposed constructive trust would have no value. It contends that even if the Class were successful on its claims, the Class would be left with nothing at the end of multi-year litigation. For this reason, it claims a class action is inefficient and superiority is destroyed. The Class responds that Arkansas Media's contention " rests on presumptions that are premature and unwarranted at this stage of a case." It avers that to accept Arkansas Media's invitation to rule on the nature and source of any recovery would be to pass directly on the merits of the litigation.
We find Arkansas Media's argument on this point to hold no merit, as the cases relied on by Arkansas Media in no way support its proposition that a lack of remedy by itself defeats a finding of superiority. For example, in Polar International Brokerage Corp. v. Reeve, 187 F.R.D. 108 (S.D.N.Y.1999), the federal district court did rely on its finding that the class would receive nothing of value, but it did so in rejecting a proposed settlement, not in refusing to certify the class action based on a lack of superiority. Likewise, in In re MCA, Inc., 598 A.2d 687 (Del.Ch.1991), the court found that there was no real monetary benefit to the class members from the proposed settlement and, therefore, rejected the proposed class-action settlement. See also Pattillo v. Schlesinger, 625 F.2d 262 (9th Cir.1980) (affirming denial of class certification based, in part, on lack of superiority in that (1) class action was not superior to ongoing administrative proceedings for the notification and payment of certain class members; (2) class action was not an appropriate vehicle to spur the defendants to more vigorous efforts of locating and notifying those entitled to payment; (3) any claims paid would be reduced by costs and attorney's fees; and (4) the principal beneficiaries of class action would be class counsel); Cotchett v. Avis Rent A Car Sys., Inc., 56 F.R.D. 549 (S.D.N.Y.1972) (denying certification due, in part, to a lack of superiority, not only because the amount of recovery would have been but a fraction of a dollar, but because a significant portion of the class might have excluded themselves due to an offset of their recovery by substantial counterclaims and because individual notice of the action would have been required). Because Arkansas Media has presented this court with no convincing authority or argument on this issue, we hold that this issue has no merit.
For all of the foregoing reasons, we affirm the circuit court's order granting class certification.
Affirmed.