Opinion
Civil No. 3:03-CV-2761-H.
September 29, 2004
MEMORANDUM OPINION AND ORDER
Before the Court is applicants' Motion to Intervene and Be Put Forth as Class Representatives, filed August 27, 2004, and Defendants' Response, filed September 16, 2004. For the following reasons, the Motion is DENIED.
I. Background
Plaintiff Oscar Private Equities ("Oscar") filed its original Class Action Complaint for Breach of Fiduciary Duty and Violations of Federal Securities Laws ("Original Complaint") on November 13, 2003. On January 27, 2004, Oscar and Plaintiffs Brett Messing and Marla Messing (the "Messings") filed their motion for appointment as lead plaintiffs and for approval of lead plaintiffs' selection of counsel. The Court appointed Oscar and the Messings as lead plaintiffs and approved their selection of lead counsel by Order entered February 6, 2004. Applicants now seek to intervene and be put forth as class representatives.
II. Legal Standards
An applicant may intervene as of right pursuant to Rule 24(a)(2) if the applicant satisfies the following requirements: "(1) the applicant must file a timely application; (2) the applicant must claim an interest in the subject matter of the action; (3) the applicant must show that disposition of the action may impair or impede the applicant's ability to protect that interest; and (4) the applicant's interest [may] not be adequately represented by existing parties to the litigation." Heaton v. Monogram Credit Card Bank of Georgia, 297 F.3d 416, 422 (5th Cir. 2002), quoting United States v. Franklin Parish Sch. Bd., 47 F.3d 755, 756 (5th Cir. 1995); Doe #1 v. Glickman, 256 F.3d 371, 380 (5th Cir. 2001) (allowing a party to intervene in an action where an adverse determination in the action would collaterally estop the party from re-litigating the issue in another court); Edwards v. City of Houston, 78 F.3d 983, 1005 (5th Cir. 1996), quoting Trbovich v. United Mine Workers of Am., 404 U.S. 528, 538 n. 10 (1972) ("[The] requirement . . . is satisfied if the applicant shows that representation of his interest `may be' inadequate; and the burden of making that showing should be treated as minimal."). The applicant has the burden of showing that it is entitled to intervention, and the "[f]ailure to satisfy any one requirement precludes intervention of right." Edwards, 78 F.3d at 999. See United States v. Texas Eastern Transmission Corp., 923 F.2d 410, 414 (5th Cir. 1991). However, the inquiry is flexible and "intervention of right must be measured by a practical rather than technical yardstick." Edwards, 78 F.3d at 999 (internal quotation omitted).
"The burden of establishing inadequate representation is on the applicant for intervention. Although the applicant's burden is minimal, `it cannot be treated as so minimal as to write the requirement completely out of the rule.'" Cook v. Powell Buick, Inc., 155 F.3d 758, 762 (5th Cir. 1998) (quoting Edwards v. City of Houston, 78 F.3d 983, 1005 (5th Cir. 1996) (en banc)). Where an applicant for intervention has the "same ultimate objective" as the plaintiffs, the applicant is presumed to be adequately represented, "unless those parties demonstrate adversity of interest, collusion, or nonfeasance." Id. If the plaintiff and the applicant do not have the "same ultimate objective," the standard of proof required is that established under Trybovich. See Edwards, 78 F.3d at 1006.
If the standard for intervention as of right is not met, permissive intervention may nevertheless be appropriate. Federal Rule of Civil Procedure 24(b) defines the requirements for permissive intervention: "[u]pon timely application anyone may be permitted to intervene in an action: 1) when a statute of the United States confers a conditional right to intervene; or 2) when an applicant's claim or defense and the main action have a question of law or fact in common." FED.R.CIV.P. 24(b).
Even though there may be a common question of law or fact, intervention is "wholly discretionary with the district court." Nationwide Money Services, Inc. v. Convenient Cash Sys., L.L.C., No. 3:03-CV-0931-D, 2002 WL 31455506, *1 (N.D. Tex. Oct. 31, 2002) (quoting Bush v. Viterna, 740 F.2d 350, 359 (5th Cir. 1984) (per curiam)). The purpose of the intervention rule is "to prevent multiple lawsuits where common questions of law or fact are involved but is not intended to allow the creation of whole new lawsuits by the intervenors." Deus v. Allstate Ins. Co., 15 F.3d 506, 525 (5th Cir. 1994). "Federal courts should allow intervention where no one would be hurt and the greater justice could be attained." Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1995) (quoting McDonald v. E.J. Lavino Co., 430 F.2d 1065, 1074 (5th Cir. 1970)) (internal quotations omitted). Intervention is favored in the class action context when intervention is sought to "strengthen representation of the class in the face of defendants' challenge to the adequacy of class representation." See Bromley v. Mich. Educ. Ass'n, 178 F.R.D. 148, 153 (E.D. Mich. 1998); In re Enron Sec., Derivative ERISA, No. MDL-1446, Civ.A. H-01-3624, 2004 WL 405886, at *33 (S.D. Tex. 2004).
The Court notes that the adequacy of class representation in the context of a motion to intervene and as used throughout the case law and herein refers to any of the four factors (numerosity, commonality, typicality, and adequacy) required for proper class certification.
III. Analysis
In the instant class action, applicants for intervention seek to intervene to strengthen the class representation. (Pl.'s Br. at 2.) Defendants challenge the adequacy of the preliminary lead plaintiffs by challenging their typicality. (See Def.'s Br. at 9.) This challenge prompted the motion to intervene to strengthen the class representation. (Id.) The Court evaluates a motion to intervene under both the intervention of right and permissive intervention standards. A. Intervention of Right Heaton establishes four requirements that an applicant must show to intervene in an action of right. Heaton, 297 F.3d at 422. The parties do not dispute that the applicants have an interest in the subject matter or that their interest, if not properly adjudicated here, may impair the applicants' ability to protect its interest. Therefore, the Court only addresses the two disputed issues related to applicants' ability to intervene of right: (1) adequate representation by the plaintiffs (typicality), and (2) timeliness.
Defendants ask the Court to deny applicants Motion because it comes without notice to the class under Federal Rule of Civil Procedure 23(d)(2). However, Defendants misread the Rule, which applies to the discretionary authority of the Court to make Orders. FED. R. CIV. P. 23 ("[T]he court may make appropriate orders . . . (2) requiring . . . that notice be given.") (emphasis added). The Court also concludes that the purpose of the Rule is to protect the class and that the class had notice of the pending suit and the opportunity to move to be added as lead plaintiff upon publication of a notice pursuant to § 21D(a)(3)(A)(I) of the Private Securities Litigation Reform Act of 1995, on November 17, 2003. (Hart Aff. at 10.) Therefore, the Court finds Defendants' argument to be without merit.
1. Adequate Representation
Applicants seek to intervene and be put forth as class representatives because they and Plaintiffs believe Defendants will challenge the typicality of the lead plaintiffs as class members. (Pl.'s Br. at 2.) While Defendants' acknowledge this as to Brett Messing and Oscar Investments, they take no position regarding the adequacy of Marla Messing at this time. (Def.'s Br. at 9-10; Def.'s Resp. at 22.) Defendants however, assert that "intervenors do not attempt to explain why these new plaintiffs are needed at this point in addition to Marla Messing. Thus, they fail to fully elaborate sufficient potential harm to the putative class." (Def.'s Br. at 10.)
Although applicants claim to intervene to bolster the typicality of the class representatives, (see Def's Br. at 9), the applicants have provided little support for the contention that the additional six plaintiffs will improve upon the existing class representation provided by Marla Messing. It is not clear from the pleadings or briefs whether Marla Messing is a sophisticated investor or made unique statements concerning Allegiance's stock. (See Def.'s Br. at 9-10 ("It was not until Holland and Parella confronted lead plaintiffs' with Messings' published comments undercutting the main premise of this lawsuit that they sought to bolster the lawsuit by adding other plaintiffs. . . . [and] intervenors do not attempt to explain why these new plaintiffs are needed at this point in addition to Marla Messing.").) That the additional six plaintiffs "unquestionably relied on the accuracy of the market price for Allegiance securities" (Pl.'s Br. at 2), is irrelevant to the question of whether the intervenors' interests are adequately represented, since no allegations have been made by Defendant that Marla Messing did not also unquestionably rely on the accuracy of the market price. "Typicality exists when the claims of named and unnamed plaintiffs have a common source and rest upon the same legal and remedial theories. Typicality does not mean that the claims of the representative parties be identical to those of the absent members." Lehocky v. Tidel Techs., Inc., 220 F.R.D. 491, 500 (S.D. Tex. 2004). No allegations exist that Marla Messing's claims are in any way based upon different legal theories or different factual bases.
Similarly, Defendants have not challenged, nor have intervenors asserted a weakness in, Plaintiff Marla Messing's ability to adequately represent the class on the basis of commonality. "A common question is one that, when answered as to one class member, will affect all or a significant number of the putative class members." Id. at 499 (internal quotation omitted). The Court therefore concludes that applicants have failed to meet their burden to demonstrate inadequate representation by the existing class representatives.
2. Timeliness
Defendants also challenge the timeliness of the applicants' motion to intervene. The timeliness of a motion to intervene of right or with permission of the court is "determined from all the circumstances," see Doe v. Glickman, 256 F.3d 371, 376 (5th Cir. 2001); United States v. Marion County Sch. Dist., 590 F.2d 146, 148 (5th Cir. 1979), but includes "(1) the length of time the applicants knew or should have known of their interest in the case; (2) prejudice to existing parties caused by [the] applicants' delay; (3) prejudice to [the] applicants if their motion is denied; and (4) any unusual circumstances." Ruiz v. Estelle, 161 F.3d 814, 827 (5th Cir. 1998); Doe v. Duncanville Indep. Sch. Dist., 994 F.2d 160, 167-68 (5th Cir. 1993). A motion to intervene is not made untimely by the fact that a class has not been certified. See Bromley v. Michigan Educ. Ass'n-NEA, 178 F.R.D. 148, 157 (E.D. Mich. 1998).
Defendants argue that applicants' knowledge of the case and signed sworn certificates authorizing filing of the complaint in December 2003 and January 2004 demonstrate that waiting until now to file a motion to intervene is untimely. (Def.'s Br. at 9.) Although Defendants' Answer did not affirmatively challenge the adequacy of the class representation, (see Def.'s Ans. at 22), applicants authorized the complaint knowing that the adequacy and typicality of the Lead Plaintiffs might be challenged. That Defendants did not indicate an intent to challenge the typicality of lead plaintiffs until discovery had been partially completed does not make applicants' motion more timely under the first prong of the timeliness analysis.
Additionally, discovery proceedings have begun and would be significantly expanded by the addition of six new lead plaintiffs. This motion was ripe for review less than three weeks prior to the deadline for motions regarding the certification of the class. (See Order, dated August 3, 2004.) Allowing intervention would require the Court to delay the case further so that Defendants could properly conduct discovery as to the added plaintiffs, further delaying the case. Since no evidence exists that Marla Messing is an inadequate or atypical class member, the Court concludes that allowing intervention would result in undue delay and unnecessary prejudice to the Defendants. (See Def.'s Br. at 9-10.) Therefore, the Court concludes that applicants may not intervene in the instant action as of right.
B. Permissive Intervention
Similarly, the Court denies applicants' motion to intervene with permission of the Court. The Court also concludes that "[i]ncreasing the number of Lead Plaintiffs would detract from the Reform Act's fundamental goal of client control, as it would inevitably delegate more control and responsibility to the lawyers for the class and make the class representatives more reliant on the lawyers." Gluck v. CellStar Corp., 976 F.Supp. 542, 549 (N.D. Tex. 1997). See also In re Waste Mgmt., Inc. Sec. Litig., 128 F.Supp.2d 401, 431 (S.D. Tex. 2000). Without good cause to do so, the Court declines to exercise its discretion to allow intervention in the instant case.
IV. Conclusion
For the foregoing reasons, applicants' Motion for Leave to Intervene and Be Put Forth as Class Representatives is DENIED.
SO ORDERED.