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Plumbers & Pipefitters National Pension Fund v. Burns

United States District Court, Sixth Circuit

June 3, 2013

Plumbers & Pipefitters National Pension Fund, et al., Plaintiff,
Michael Burns, et al., Defendants.


JAMES G. CARR, Sr., District Judge.

This is a securities fraud case in which plaintiffs, [1] Plumbers & Pipefitters National Pension Fund (P&P) and West Virginia Laborers Pension Trust Fund (WVL), claim defendants, Michael Burns and Robert Richter, made false or misleading disclosures in financial statements related to Dana Corporation (Dana) securities and bonds.

Pending is plaintiffs' motion for class certification (Doc. 166). For the reasons that follow, I grant plaintiffs' motion in part, and set futher proceeding in part.

Jurisdiction exists under 28 U.S.C. § 1331.


Plaintiffs claim Burns and Richter, former Dana officers, violated 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5 of the Securities Exchange Act of 1934 (the Act). Plaintiffs allege Burns and Richter made false statements and material omissions regarding Dana's financial disclosures in violation of Rule 10b-5. Plaintiffs also allege that, as controlling persons, defendants caused other Dana employees to make false statements in violation of § 20(a) of the Act.

Burns served as Dana's chief executive officer, and Richter as its chief financial officer. In those positions, both signed Dana's financial filings with the Securities and Exchange Commission during the fiscal-year quarters included in the proposed class period (April 21, 2004 through October 7, 2005). Defendants also disclosed Dana's quarterly earnings during press releases and conference calls, and signed Dana's § 302 certificates in compliance with the Sarbanes-Oxley Act.[3] Defendants further assured investors that Dana used accounting controls that complied with generally accepted accounting principles.

During the class period, Dana stated that it managed to earn profits despite drastic and sudden increases in steel prices.[4] Dana told investors that, despite the increases, it could continue to profit due to improved cost efficiencies.

Based on Dana's positive financial statements, the value of Dana's securities steadily increased over the class period. Dana released positive reports for both projected and actual earnings. Further, defendants assured investors that Dana had implemented improved accounting controls. Burns also made several optimistic statements to investors regarding Dana's profitability and growth during this time. Plaintiffs claim these statements were false or misleading.

Contrary to the public statements, some of Dana's divisions had suffered major adversity during the class period. Fifty percent of the company's drive shaft division operated at a loss, and its light axle division saw drastic decreases in profitability. Despite the losses, defendants issued mandates to their subordinates that each factory increase earnings by six percent each year.

On September 15, 2005, defendants announced (entirely unexpectedly from the perspective of the stock and bond markets) that, because of the rising cost of steel, Dana would reduce its earnings projections by fifty percent. It also announced it would likely restate its financial statements for the second quarter of 2005, and write down substantial tax-deferred assets. Dana's stock prices fell twenty percent on the day of the announcement.

On October 10, 2005, defendants announced that investors should no longer rely on Dana's financial statements from fiscal-year 2004 or from the first half of fiscal-year 2005. They told investors they would likely revise and reissue those statements. They stated that Dana had discovered "material weaknesses" in its accounting systems and internal accounting controls. On the day of that announcement, Dana's stock prices fell thirty-five percent and continued declining thereafter.

On December 30, 2005, defendants reissued Dana's earnings statements for the first two quarters of fiscal-year 2005. In the statements, it reduced its reported net income by $44 million. Then, on January 17, 2006, Dana reported a $1.27 billion loss for the third quarter of 2005 and reduced its tax-deferred assets by $918 million through an evaluation allowance.

In February, 2006, the Securities and Exchange Commission announced it would formally investigate Dana's accounting structure and reporting policies. Dana thereafter defaulted on millions of dollars of debt and filed for bankruptcy on March 3, 2006. Richter retired the same day.

Plaintiffs sued, alleging defendants knew, or recklessly disregarded facts from which they should have known that various statements and documents were materially false or misleading. Thus, plaintiffs alleged, defendants violated applicable provisions of the Act and its accompanying regulations.

Defendants filed a motion to dismiss under Fed.R.Civ.P. 12(b)(6), asserting that plaintiffs failed to plead adequately a case of securities fraud under Rule 10b-5. I granted the motion, deciding that plaintiffs had failed to plead fraud, and specifically scienter, under the heightened pleading requirements of the Private Securities Litigation Reform Act of 1995 (PSLRA) and Fed.R.Civ.P. 9(b). Frank v. Dana Corp., 525 F.Supp.2d 922, 931 (N.D. Ohio 2007), rev'd, 547 F.3d 564 (6th Cir. 2008).

Reversing, the Sixth Circuit held that I had misstated the law as it then stood. Frank v. Dana Corp., 547 F.3d 564, 567-569 (6th Cir. 2008). The court vacated my decision and remanded for me to redecide the motion under the correct standard. Id. Thereafter, I again dismissed the complaint, holding plaintiffs had inadequately pled their case. Frank v. Dana Corp., 649 F.Supp.2d 729, 745 (N.D. Ohio 2009), rev'd, 646 F.3d 954 (6th Cir. 2011). The Sixth Circuit once more disagreed, holding that plaintiffs had adequately pled a case under the Act. Frank v. Dana Corp., 646 F.3d 954, 957-958 (6th Cir. 2011).

Now back before me, plaintiffs seek to certify the class as:

All persons who purchased the publicly-traded securities of Dana Corporation ("Dana" or the "Company") between April 21, 2004 and October 7, 2005 ("Class Period"), and who were damaged thereby.[5]

Plaintiffs also requested that I appoint the law firm Robbins Geller Rudman & Dowd, LLP, as class counsel.

In supporting their motion, plaintiffs provided declarations from William T. Sweeney, Jr., of P&P, and Steven L. Smith, of WVL. In their declarations, Sweeney and Smith asserted that both P&P and WVL have "monitored the progress of the litigation[, ]" have "been kept informed of... major developments, " and that each "is committed to continuing to take an active role in overseeing and monitoring this litigation for the best interest of the entire class." (Doc. 166, ex. 3-4).

Plaintiffs also provided a declaration from Jane D. Nettesheim, a financial economist. In her declaration, she presented an economic analysis in support of her conclusion "that the market for Dana common stock during the Class Period was open, developed[, ] and efficient[, ]" and "that the market for Dana Bonds was efficient throughout the Class Period." (Doc. 166, ex. 5).

Defendants opposed the motion for class certification with a declaration from their financial economist, Andrew Roper. In his declaration, Roper stated that Nettesheim failed to analyze adequately the efficiency of the market in which Dana bonds traded. He stated Nettesheim did not follow generally accepted economic principles, her declaration contained biased analysis, and she otherwise failed to provide adequate reasoning and analysis regarding the efficiency of the market for Dana bonds. (Doc. 171).


To succeed in a securities fraud case under Rule 10b-5, plaintiffs must prove: 1) a material misrepresentation; 2) scienter (deceptive intent); 3) a connection with the purchase or sale of a security; 4) reliance; 5) economic loss; and 6) loss causation. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-342 (2005).

"The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.'" Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, ___; 131 S.Ct. 2541, 2550 (2011) (quoting Califano v. Yamasaki, 442 U.S. 682, 700-701 (1979)). To obtain class-certification, a potential class of securities-fraud plaintiffs must prove they satisfy all of the requirements of Fed.R.Civ.P. 23(a), and at least one of the conditions under Fed.R.Civ.P. 23(b). See, e.g., Wal-Mart, supra, ___ U.S. at ___, 131 S.Ct. at 2551; Erica P. John Fund, Inc. v. Halliburton Co., ___ 3d ____, ____; 2013 WL 1809760, *2 (5th Cir. 2013).

The Supreme Court discussed the rationale behind Rule 23(a):

[A] class representative must be part of the class and possess the same interest and suffer the same injury as the class members. Rule 23(a) ensures that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate. The Rule's four requirements-numerosity, commonality, typicality, and adequate representation-effectively limit the class claims to those fairly encompassed by the named plaintiff's claims.

Wal-Mart Stores, supra, 131 S.Ct. at 2550 (internal quotations and citations omitted).

In this case, in addition to demonstrating numerosity, commonality, typicality, and adequacy of representation, plaintiffs must show that common questions will predominate, as provided by Rule 23(b). Halliburton Co., supra, ___ F.3d at ___, 2013 WL 1809760 at *2. Thus, plaintiffs must show "the questions of law or fact common to class members predominate over any questions affecting only individual members, " and "that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Rule 23(b)(3).

In opposing the motion, defendants argue that plaintiffs have failed to show that: 1) they will adequately represent the class; 2) the proposed representatives' claims are typical of those of the class; and 3) common questions of fact and law will predominate the case.[6]

The Supreme Court recently stated that Rule 23 "does not set forth a mere pleading standard." Comcast Corp. v. Behrend, ___ U.S. ____, ____; 133 S.Ct. 1426, 1432 (2013). The plaintiffs, rather, must actually prove each requirement of Rule 23(a), and at least one of the bases in Rule 23(b). Id. When deciding whether plaintiffs have met the class-certification prerequisites under Rule 23(a), a court must undertake a "rigorous analysis, " which will frequently "overlap with the merits of the plaintiff's underlying claim." Id. (quotation omitted). However, the court should only consider the merits of the case to the extent that they overlap with the class-certification question. Amgen Inc. v. Conn. Ret. Plans and Trust Funds, ___ U.S. ____, ____; 133 S.Ct. 1184 , 1194-1195 (2013). Analysis under Rule 23(b) requires at least as searching an inquiry, and possibly more so, than that under Rule 23(a). Comcast; supra, 133 S.Ct. at 1432.

Despite the rigorous analysis that a court must undertake at this stage, at least one court in this Circuit has recently stated that "class certification in cases where [the] fraud-on-the-market' doctrine applies is routine' because each investor's loss usually can be established mechanically, [and] common questions predominate....'" Wilkof v. Caraco Pharm. Laboratories, Ltd., 280 F.R.D. 332, 337 (E.D. Mich. 2012) (quoting Schleicher ...

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