Opinion
No. 2-1010 / 02-0813
Filed January 29, 2003
Appeal from the Iowa District Court for Dickinson County, David A. Lester, Judge.
Defendants appeal from class certification. AFFIRMED.
Steven L. Nelson of Davis, Brown, Koehn, Shors Roberts, P.C., Des Moines, for appellants.
Michael R. Reck and Richard W. Lozier, Jr. of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellee.
Heard by Vogel, P.J., and Miller and Eisenhauer, JJ.
Terril Telephone Company and Terril Telephone Cooperative appeal from the district court's ruling certifying a class. We affirm.
Background Facts and Proceedings. On February 18, 1999, Terril Telephone Company (Terril) mailed to its shareholders a letter soliciting voluntary redemption of company stock at $200 per share. In late April 1999 Terril decided to increase its purchase price, and on April 28, 1999, a $300 per-share price was paid to the forty shareholders who had already surrendered their stock. The $300 per-share price was also paid to seven additional shareholders who surrendered their stock between April 29 and June 8, 1999. The named plaintiff, Karleen Slater, was part of this latter group.
In July 1999, the directors of Terril took steps to convert Terril to a member-owned cooperative, and on July 22, 1999, mailed to all remaining shareholders an offer to purchase outstanding stock at $900 per share. On August 1, 2001, Slater filed suit on behalf of herself and the other shareholders who had received the $300 per-share price, alleging fraud, breach of fiduciary duty, conflict of interest, and violation of Iowa Code section 502.401 (1999). Underlying each claim made by Slater on behalf of the class was the common factual allegation that Terril's directors had failed to disclose information relevant to the fair value of the stock, including Terril's intention to convert to a member-owned cooperative. After allowing discovery the district court certified the class, and Terrilappeals.
Scope of Review . We review the certification decision for an abuse of discretion. City of Dubuque v. Iowa Trust, 519 N.W.2d 786, 791-92 (Iowa 1994).
Predominance of Common Questions . Class certification is governed by Iowa Rules of Civil Procedure 1.261 through 1.263. Given the number of class members and the quantity of factual and legal issues common to the members, there can be little doubt rule 1.261's numerosity and commonality requirements are met. See Martin v. Amana Refrigeration, Inc., 435 N.W.2d 364, 368 (Iowa 1989); Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741, 745 (Iowa 1985). In addition to requiring satisfaction of rule 1.261, rule 1.262 mandates a showing that Slater "fairly and adequately will protect the interest of the class," and that the class should be certified "for the fair and efficient adjudication of the controversy." Iowa R.Civ.P. 1.262(2). Failure of Slater to demonstrate either of these requirements would defeat certification. Dubuque, 519 N.W.2d at 791.
Terril argues Slater cannot fairly and adequately protect the class, as she has a conflict of interest in maintaining the action. See Iowa R.Civ.P. 1.263(2)( b). However, Terril offers only a speculative allegation that Slater will emphasize the evidence most pertinent to her individual circumstances, and de-emphasize facts occurring before she sold her own stock. Even if we accept the core assumption that "varying fact patterns" underlie the claims of individual members, this alone will not defeat class certification. Dubuque, 519 N.W.2d at 792 (noting not every disagreement will defeat certification, as conflict must relate to specific and common issues and controversies).
The key issue in this appeal is whether the district court abused its discretion in finding the class should be certified in the interests of a fair and efficient adjudication. In making this decision, the court was required to consider thirteen enumerated criteria, as well as other relevant factors. Iowa R.Civ.P. 1.263(1). In reviewing the relevant considerations in light of the facts of this case, we conclude many, if not most, either weigh in favor of certification, or are merely neutral in implication. The primary dispute focuses on the question of "[w]hether common questions of law or fact predominate over any questions affecting only individual members." Iowa R.Civ.P. 1.263(1)( e). Terril characterizes this factor as an overriding consideration, and contends changing circumstances between February and July 1999 impact the claims of the shareholders in such a way that individual issues predominate.
We agree with Slater that many of the distinctions forwarded by Terril are inconsequential or unsubstantiated. For example, the record at trial could well establish the timing of the decision to convert to a cooperative required disclosure of the information to members such as Slater, but not to any shareholders who had previously surrendered their stock. However, the district court was presented with only uncertain evidence as to the timing of the decision, and further pre-certification investigation into such a question would have been tantamount to a trial on the merits of each individual claim. Although preliminary inquiry into the legal and factual sufficiency of the claims is appropriate, inquiry into the merits of a case is neither encouraged nor permitted. Dubuque, 519 N.W.2d at 792; Kramersmeier v. R.G. Dickinson Co., 440 N.W.2d 873, 877 (Iowa 1989).
Terril also argues individual shareholder's reliance on the disclosure of pertinent information may have varied and thus affected their individual decisions to sell their stock. While class certification may not be appropriate where there are material variations in reliance, see Fed.R.Civ.P. 23 cmt., here there is no solid indication of a material variation. There is only Terril's speculation that this may indeed be the case, support for which is limited to one shareholder's claim that the stock's investment value was irrelevant to her decision to sell. Although some of the shareholders may have had sufficient knowledge to deduce the stock's value from the provided financial statements or other sources, a person's "status as a sophisticated investor renders him neither devoid of the protection of the securities law nor immune to injury by misrepresentation." Modell v. EliotSavings Bank, 139 F.R.D. 17, 22 (D.Mass. 1991).
Slightly more troubling is Terril's contention the claim made pursuant to Iowa Code sections 502.401 and 502.502 may be time-barred as to some class members. The statutory allegation that Terril committed fraud in the purchase of the members' stock is subject to either a five year or two year statute of limitations. Iowa Code § 502.504(2). Such an action must be brought within the shorter of either five years after the violation or within two years of when the plaintiff knew or should have known of the violation. Id. Terril argues that while Slater claims she did not learn of the alleged omissions until December 1999, other class members may have learned the relevant information more than two years before the petition was filed.
The record before the district court did indicate information about converting to a cooperative and the elevated share price was released to the remaining shareholders two years and ten days prior to the August 1, 2001 filing date. However, assuming that class members learned the information in that ten-day time frame is pure conjecture. The job of the district court is to make a reasoned decision on the record before it, not to engage in speculative musing as to the potential proof at trial.
We must remember that the issue is not whether there are any individual questions that distinguish class members, but whether the individual questions are so pervasive that the common questions do not predominate. Iowa R.Civ.P. 1.263(1)( e). The district court was vested with broad discretion not only in assessing this particular question, but also in determining what weight it assigned to the various factors under consideration. Dubuque, 519 N.W.2d at 791, 793. Moreover, unless the facts that underlie the class are "merely speculative," the proponent's burden is light. Id. at 791. In light of our standard of review, we cannot find the distinctions forwarded by Terril to be so substantial as to render class certification a clearly unreasonable or untenable decision.