Helfand v. Cenco, Inc.

80 F.R.D. 1
CourtDistrict Court, N.D. Illinois
DecidedOctober 17, 1977
DocketNos. 75 C 2227, 75 C 2506, 75 C 2981, 75 C 3394 and 76 C 1085
StatusPublished
Cited by38 cases

This text of 80 F.R.D. 1 (Helfand v. Cenco, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Helfand v. Cenco, Inc., 80 F.R.D. 1 (N.D. Ill. 1977).

Opinion

MEMORANDUM OPINION AND ORDER

CROWLEY, District Judge.

Plaintiffs in the above consolidated cases1 have presented to the Court a joint motion for determination of a class pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure.2 All of these damage ac[5]*5tions are brought to enforce rights created by the federal securities regulations and the common law.3 The plaintiffs have alleged that defendants made certain false and misleading statements to the public and engaged in or permitted the consummation of a fraudulent course of conduct in connection with the preparation, certification and publication of certain financial statements of the corporate defendant, Cenco, Inc. (Cenco). The particular focus of these actions is on alleged violations of Section 10 of the Exchange Act and Rule 10b-5, which were part of a pervasive and deceptive scheme to manipulate the market price of Cenco securities during the period pertinent to this motion for class certification. The plaintiffs charge that inventory manipulation, altered sales figures and fictitious leasing agreements all were part of a common plan to falsify corporate financial information. The defendants are the corporation itself, the accounting firm of Seidman and Seidman, and various individuals who were previously officers or employees of Cenco. Since June, 1975, when stock trading was suspended, new management has assumed control of the company and reports to shareholders have contained information about the past wrongful conduct within the corporation.'

We are urged to certify a class on the basis of Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure 4 defined as follows:

All persons and entities who purchased shares of Common Stock of Cenco, shares of Preferred Stock of Cenco convertible into Cenco Common Stock and Cenco convertible Notes and Debentures on or after May 1, 1970, through June 24, 1975, and who either sold such securities at a loss or continue to hold such securities at a loss. Excluded from the class are the individual defendants and members of the immediate family of each of the individual defendants.

There are a number of factors which must be given careful attention in consideration of this motion. At the outset recognition must be given to a strong policy favoring class actions in securities fraud actions. King v. Kansas City Southern Industries, Inc., 519 F.2d 20, 26 (7th Cir., 1975). Private actions under the securities regulations can be effective deterrents against corporate wrongdoers as well as an additional method of fostering the disclosures mandated by the law. Blackie v. Barrack, 524 F.2d 891 (9th Cir., 1975); Green v. Wolf Corporation, 406 F.2d 291 (2nd Cir., 1968). Moreover, because individual claims are often small, the class action is a useful tool for investors who seek to litigate similar issues.

[6]*6This does not mean that at this point in the litigation the Court may make any inquiry into the merits of the suit; indeed, such inquiry has been specifically forbidden. Eisen v. Carlisle and Jacquelin, 417 U.S. 156, 177-178, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). Defendants may, however, preserve a protective shield against a plaintiff class, for if the defendant prevails on the merits after certification, res judicata will insulate against future actions by unnamed class members; but if no class is approved, another plaintiff may bring a similar action. Jimenez v. Weinberger, 523 F.2d 689 (7th Cir., 1975).

Our initial examination concerns two implied prerequisites for class certification: first, that there be a true class, not just a disparate group, and second, that the plaintiffs seeking to become the representatives be authentic members of the proposed class. In the matter before us, there is clearly a class which' is reasonably ascertainable by objective criteria. Persons who were or are now stockholders of Cenco, and therefore may be within the bounds of this proposed class, can be easily identified from corporate records so that they may be notified according to the provisions in Rule 23(c)(2). The issue of whether the proposed plaintiff representatives are members of the class raises a quasi-standing requirement. The named plaintiffs come within the time framework of the suggested stockholder class, and thus all have the minimum attributes of membership at this initial stage, though the adequacy of their representation must be examined more fully under the specific directives of Rule 23(a)(4).

Numerosity [Rule 23(a)(1)], the first of the absolute requirements for class certification, is clearly met in this case. It is undisputed that the proposed plaintiff class is comprised of thousands of geographically diverse constituents and thus consists of a sufficient number of persons to make joinder impracticable. Cenco’s Form 10-K filed with the SEC for the year ending December 31, 1975, reported approximately 15,000 holders of publicly traded securities; it is estimated that the inclusion in the class of previous holders could expand this number to 20,000 or 25,000 persons. This number is plainly beyond the minimum of 25-50 individuals necessary for certification. Swanson v. American Consumer Industries, Inc., 415 F.2d 1326, 1333 n. 9 (7th Cir., 1969); Fidelis Corporation v. Litton Industries, Inc., 293 F.Supp. 164 (S.D.N.Y.1968).

Commonality in questions of law and fact [Rule 23(a)(2)] is the second prerequisite, which is not to be confused with the problem of predominance imbedded in Rule 23(b)(3). Both common questions of law and common questions of fact are present in this case, although it is our understanding that this requirement would be met if there was a common question of either law or fact. In this instance, common questions of fact include the existence, nature, extent and materiality of the alleged misleading statements in the Cenco financial reports, and the common questions of law are directed to the existence and liability of the defendants to the class.

The typicality requirement [Rule 23(a)(3)] of similar claims and defenses is partially subsumed under the issue of adequacy of representation [Rule 23(a)(4)], which is a more appropriate place for discussion of unique defenses as a disqualification for a class representative. However, it is apparent now that the claims of the named parties for damages as a result of the various alleged acts and misrepresentations of the defendants do satisfy this provision. Affiliated Ute Citizens v. U. S., 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Green v. Wolf Corporation, 406 F.2d 291 (2nd Cir., 1968);

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Bluebook (online)
80 F.R.D. 1, Counsel Stack Legal Research, https://law.counselstack.com/opinion/helfand-v-cenco-inc-ilnd-1977.