IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DOUGLAS C. SMITH,
Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
v.
HERCULES, INC., a Delaware
corporation, and THOMAS
GOSSAGE,
Defendants.
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C.A. No. 01C-08-291 WCC
NON-ARBITRATION CASE
JURY TRIAL DEMANDED
Submitted: October 8, 2002
Decided: January 31, 2003
MEMORANDUM OPINION
On Plaintiff’s Motion for Class Certification. Granted.
Richard G. Elliott, Jr. and Jennifer C. Bebko, Richards, Layton & Finger, One
Rodney Square, P.O. Box 551, Wilmington, Delaware 19899. Attorneys for Plaintiff,
Douglas C. Smith.
Jeffrey S. Goddess, Rosenthal, Monhait, Gross & Goddess, 1401 Mellon Bank
Center, P.O. Box 1070, Wilmington, Delaware 19899. Attorney for Plaintiff, Douglas
C. Smith.
Arthur Makadon, Esquire, and Geoffrey A. Kahn, Esquire, and Sally M. Williams,
Esquire, Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor,
Philadelphia, Pennsylvania 19103-7599. Attorneys for Defendants, Hercules, Inc.,
and Thomas Gossage.
Kathleen Furey McDonough, Esquire, and Jennifer Gimler Brady, Esquire, Potter
Anderson & Corroon LLP, Hercules Plaza, Sixth Floor, 1313 North Market Street,
P.O. Box 951, Wilmington, Delaware 19899-0951. Attorneys for Defendants,
Hercules, Inc. and Thomas Gossage.
CARPENTER, J.
Plaintiff has filed a Motion for Class Certification pursuant to Superior Court
Civil Rule 23. The putative class involved in this motion presents to this Court a
novel issue, whether a class that is composed of high ranking employees and
executives of a company may be certified for purposes of bringing a class action
against that company. Upon review of the briefs and after presentation of oral
arguments, for the foregoing reasons this Court concludes that certification is
appropriate.
I. BACKGROUND
Hercules
Incorporated
(“Hercules”)
acquired
BetzDearborn,
Inc.
(“BetzDearborn”) a water treatment chemical company on October 15, 1998, for
$3.2 billion. Shortly after the BetzDearborn - Hercules merger (“the merger”),
Hercules initiated a formal process to integrate BetzDearborn into Hercules and
produce substantial “synergies,” 1 which were intended to result in cost savings and
revenue enhancement. The synergies were measured in the areas of “headcount
reductions, supply chain improvements, revenue improvements, facility cost
reductions, financial and tax improvements, and other areas.” 2 In late 1998,
1
“Synergy” has been defined as “the annualized reduction of expenses or improvement in
profits as determined by the Integration’s Program Office and confirmed by Audit in a report to
the Board of Directors.” See Pl.’s Mot. For Class Certification at Exhibit A.
2
Complaint ¶ 9.
2
immediately after the merger, Hercules formulated a detailed plan in which the
synergies were to be achieved through the efforts of six departments,3 with each
department compelled to achieve specific tasks and targets. Approximately 130
Hercules employees (Mr. Smith and the putative class participants)(“Plaintiff” or
collectively “Plaintiffs”) worked within these six departments and were thus eligible
participants in this plan. From the savings plan’s inception, Hercules management
informed Plaintiffs that they would be compensated for their extra efforts,
depending on the success in achieving the target synergies. The time that Plaintiffs
devoted to the plan was above and beyond their usual work hours, which included
their weekends and nights to promote the plan.
By August, 1998, Hercules publicly targeted $100 million of savings from
synergies; this target was increased to $150 million in April, 1999, just eight months
later. Plaintiffs began working on the plan prior to the merger and continued
throughout the calendar year 2000. During this time, an executive and senior
management committee
developed
the
Integration
Synergies
Incentive
Compensation Plan (“ISICP”) to award extra compensation to those who were
instrumental in achieving the synergies. The ISICP was finalized in November,
3
The six departments consisted of the corporate department, the information technology
department, pulp and paper departments, the manufacturing department, the technology
department, and the WTC (a department of former BetzDearborn employees).
3
1999, and operated retroactively to cover from October 15, 1998, the date of the
merger, to the end of 2000.
The ISICP participants were grouped according to their position in the
company and level of involvement in the Integration Program. “Members of senior
management, who had overall decision-making and leadership responsibility in
connection with the program, were targeted to receive awards ranging from 40% to
90% of their base salary (‘Tier I Participants’), while the remaining participants,
who were responsible for implementing specific synergy tasks, were targeted to
receive awards of 20% to 30% of their base salary (‘Tier II participants’).” 4
Additionally, under the ISICP “Senior Management reserve[d] the right to modify
final actual awards up or down based on an individual’s performance and
contribution to the integration effort during the plan period.”
The Program Liaisons coordinated the activities of their respective teams and
reported those activities to the Program Office. The Integration Program consisted
of two phases, the planning phase and the implementation phase. During the
planning phase, the Executive Committee approved definitions for each of the
categories of synergies, which the Program Office communicated to each of the
teams. “The teams, in turn, were required to identify specific tasks by which
4
Br. of Defs. In Opp’n to Pl.’s Mot. For Class Certification at 6.
4
synergies could be achieved. Each Team Leader was responsible for approving the
synergies proposed by his team.”5 During the implementation phase, the six teams
attempted to achieve the targeted synergies. The Integration team and Program
Office Liaisons each met on a weekly basis to report on the synergies achieved to
date, as well as any adjustments to the targeted synergy totals.
The original ISICP promised awards to ISICP participants depending upon
the total synergy goal achieved, and was to be validated through an audit by Price
Waterhouse Cooper (“PWC”), Hercules’ auditors for its books and records. In
1999, Plaintiffs allegedly received personalized letters that set forth their individual
target levels, and their corresponding target award, which again depended upon the
total synergy goal achieved under the ISICP Plan.6 The individual letters explained
that the higher the synergies achieved, the higher the employee’s award
compensation. Plaintiff asserts that Hercules reserved a minimum of $16 million
to pay the class under the ISICP based upon projected synergy targets, and that the
management of Hercules had “promised that the ISICP was separate and apart from
any other award, bonus or plan and was not affected by profitability, cash flow,
5
Id. at 4 (internal citations omitted).
6
Complaint ¶ 23.
5
downturns in the market or other factors, which may affect Hercules.” 7 That same
year, Hercules shareholders had been informed that the selected departments were
on target to achieve the final synergies around $165,000,000, and that the
department team leaders were informed that the synergies had reached
$255,731,000, which was above the highest target level of $150,000,000. In early
2000 before Thomas Gossage (“Gossage”) was hired, Hercules had apparently
informed each of the six departments that they were on target to meet, or possibly
exceed, the highest target level. The team leaders consequently informed their team
members about the progress.
Gossage, a former chief executive officer (“CEO”) of Hercules was re-hired
in October, 2000, for the same position with the intent to improve Hercules’
deteriorating financial condition.8 When Gossage was hired, the ISICP had been
active for almost two years. In late 2000, after Gossage was hired, he allegedly
instructed PWC to perform an “analysis” on the viability of the ISICP, which
Plaintiffs allege was inconsistent with the original ISICP terms which required an
“audit” of the results. Defendants claim that the Executive Committee expected
from the inception of the Integration Program that the reported synergy totals would
7
Complaint ¶ 25.
8
Complaint ¶ 19.
6
be subject to an “audit.”9 The “audit” was intended to ensure that “real and valid”
synergies had been achieved, and was therefore not only supposed to uncover
computational errors and instances of double counting, but to also determine
whether the reported synergies had actually been realized; whether the reported
synergies fit within the definitions approved by senior management; and whether
the reported synergies were in fact synergies (i.e., recurring cost savings or revenue
enhancements resulting from the merger). Therefore, the audit was intended to be
“an independent assessment . . . to make sure that what’s being done is
appropriate.” 10
In March, 2001, Gossage notified Plaintiffs by individual letters that the
achieved synergies were slightly below the required minimum levels to generate any
bonus under the ISICP terms. According to Plaintiffs, their actual payout was
significantly lower than the minimum synergy levels. Furthermore, Hercules did
not consider their individual performances, which was originally part of the ISICP.
Plaintiffs claim that Gossage intentionally gave PWC incorrect instructions
and explanations for the ISICP, and instructed PWC to do the analysis instead of the
“audit,” which was required in the ISICP. They further allege that Gossage took
9
Br. of Defs. In Opp’n to Pl.’s Mot. For Class Certification at 5.
10
Id. at 6.
7
“other affirmative and intentional actions to cause Hercules to breach the terms of
the Plan.” Plaintiffs claim that Gossage was able to virtually eliminate the bonus
pool, by performing the analysis, which resulted in Plaintiffs’ damages. Defendants
allege that “PWC termed its work an ‘analysis’ rather than an ‘audit’ because the
reported synergies simply were not susceptible to an audit.”11 Defendants argue that
in PWC’s report dated March 16, 2001, PWC set forth the scope of its engagement,
which was consistent with the “audit” called for under the ISICP. They further
contend that it is based on this analysis, that PWC concluded that the reported
synergies should be adjusted to, at most, $122 million, which was below the
minimum threshold for payments under the ISICP. “PWC detailed the grounds for
these adjustments, including, but not limited to, adjustments to which the Program
Office agreed; computational errors; double counting; unsupported amounts;
amounts unrelated to the BetzDearborn acquisition; amounts based on synergy
definitions not approved by the Program Office; and amounts not consistent with
a synergy.” 12
On August 31, 2001, Plaintiff filed a complaint against Hercules and Gossage
for breach of contract and related counts arising out of the ISICP. On November 20,
11
Id. at 7, n.2.
12
Id. at 8.
8
2001, Plaintiff moved for class certification.13 Initial presentation and argument on
the motion was held on December 6, 2001, at which time the Court reserved
decision and directed that class certification discovery should go forward, along
with merits discovery. Defendants filed papers in opposition to class certification
on May 20, 2002. On June 14, 2002 Plaintiff filed a brief in support of its motion.
Subsequently, Defendants filed their reply brief in opposition on June 28, 2002.
Thereafter, oral arguments were presented to this Court on July 15, 2002.
II. DISCUSSION
A.
RULE 23(a)
Class actions function as a procedural device which serve to advance the
efficiency and economy of litigation. For a motion for class certification to be
successful, a “two-step analysis” must be conducted. “The first step, a prerequisite
for class action certification, is that the action satisfy each of the four requisites of
Rule 23(a).”14 Superior Court Civil Rule 23(a) establishes four requirements before
an action may be maintained as a class action:
13
At the time this action was brought, several participants in the program had resigned
from the company and forfeited their rights to any share of the awards.
14
Leon N. Weiner & Assoc., Inc. v. Krapf, 584 A.2d 1220, 1224 (Del. 1991) (citing
Nottingham Partners v. Dana, 564 A.2d 1089, 1094-95 (Del. 1989)).
9
One or more members of a class may sue or be sued as representative
parties on behalf of all only if (1) the class is so numerous that joinder
of all members is impracticable, (2) there are questions of law or fact
common to the class, (3) the claims or defenses of the representative
parties are typical of the claims or defenses of the class, and (4) the
representative parties will fairly and adequately protect the interests of
the class.15
Under the prerequisites of Rule 23(a), the first two focus on the characteristics of
the proposed class, while the latter two focus on the characteristics of the named
party as the proposed class representative.16 If all of the prerequisites of subsection
(a) are satisfied, then the second step requires determining whether the class action
falls within one of three categories provided in Rule 23(b), discussed below.17
The burden of demonstrating that each requisite element has been satisfied
is on the party seeking certification.18 In this case, Defendants assert that Plaintiff’s
motion for class certification should be denied because it is “distinctively unlike any
class ever certified in the long and much litigated history of class actions.” As such,
this Court will examine in some detail each element of Rule 23.
1.
NUMEROSITY 23(a)(1)
15
SUPER. CT . CIV . R. 23(a); see also Paine Webber R & D Partners, L.P. v. Centocor,
Inc., 1997 WL 719096, at *4 (Del. Super. Ct.).
16
Leon, 584 A.2d at 1225; Paine Webber, 1997 WL 719096, at *4.
17
Mentis v. Delaware American Life Insurance Co., 2000 WL 973299, at *2 (citing Paine
Webber, 1997 WL 719096); Leon, 584 A.2d at 1224 (citing Nottingham Partners, 564 A.2d at
1094-95).
18
Paine Webber, 1997 WL 719096, at *5; Mentis, 2000 WL 973299, at *3 (citing
Muttart, et. al. v. American Guarantee & Mortgage Co., 1998 WL 110067 (Del. Super. Ct.)).
10
Under Rule 23(a)(1), the proposed class must be “so numerous that joinder
of all members is impracticable.” Although there is no numerical cutoff under the
numerosity requirement, numbers in the proposed class in excess of forty, and
particularly in excess of one hundred, have sustained the numerosity requirement. 19
However, “[t]he number of potential class members is not, in itself, determinative
of this analysis, and the moving party need not show the exact size of the proposed
class to meet this requirement.” 20 Delaware courts have held that in determining
whether joinder of class members would be impractical depends on the
circumstances surrounding the case and not merely the number of class members.21
Therefore, the size of the class itself is not as determinative as is the effect that the
size would have on the pending litigation. The test in Delaware has been explained
not to be the impossibility of joinder, but instead a showing of “litigational
inconvenience,” focusing on the practicality of the case.22 As such, “[a] showing
19
Mentis, 2000 WL 973299, at *3; 5 JAMES WM . MOORE ET AL., MOORE ’S FEDERAL
PRACTICE ¶ 23.22 [3] (3d ed. 1997); Leon, 584 A.2d at 1225.
20
Liberty Lincoln Mercury, Inc. v. Ford Marketing Corp., 149 F.R.D. 65, 73 (D.N.J.
1993) (internal citations omitted); Mentis, 2000 WL 973299, at *3.
21
Mentis, 2000 WL 973299, at *3; O’Neil v. Appel, 165 F.R.D. 479, 490 (W.D.Mich.
1996); see also Christiana Mortgage Corp. v. Delaware Mortgage Bankers Assoc., 136 F.R.D.
372, 377 (D.Del. 1991).
22
Paine Webber, 1997 WL 719096, at *5 (citing Leon, 584 A.2d at 1225 (citing to 5
JAMES WM . MOORE ET AL., MOORE ’S FEDERAL PRACTICE , ¶ 23.05[1] at 23-144, 23-145 (2d
ed.1990))); Liberty Lincoln, 149 F.R.D. at *73-74 (quoting Lerch v. Citizens First Bancorp, Inc.,
11
of strong litigational inconvenience in the prosecution of claims separately or
joinder by the proposed class members is sufficient.”23
Practicability of joinder has been found to depend on a number of factors,
including:
(1) judicial economy arising from the avoidance of a multiplicity of
actions; (2) the geographical dispersion of class members; (3) the
financial resources of class members; (4) the ability of claimants to
institute individual lawsuits; (5) the amount of each member’s
individual claim; (6) knowledge of the names and existence of the
potential class members; and (7) whether potential class members have
already joined other actions.24
As to numerosity, in the present case it is clear that the class could potentially
be comprised of over one hundred members.25 Addressing the practicability factors
in turn, this Court finds the numerosity requirement to be satisfied. First, judicial
144 F.R.D. 247, 250 (D.N.J. 1992); see also In re Kaiser Group International, Inc., 278 B.R. 58,
64 (D.D.E. 2002 ) (quoting Ardrey v. Federal Kemper Ins. Co., 142 F.R.D. 105, 111 (E.D. Pa.
1992) (“The requirement of numerosity does not require that joinder be impossible but instead
dictates that joinder of all the parties is impracticable when the procedure would be ‘inefficient,
costly, time-consuming, and probably confusing.’”)).
23
Esler v. Northrop Corp., 86 F.R.D. 20, 34 (W.D.Mo. 1979); see also Christiana
Mortgage, 136 F.R.D. at 378.
24
Primavera Familienstiftung v. Askin, 178 F.R.D. 405, 410 (S.D.N.Y. 1998); see also
Liberty Lincoln, 149 F.R.D. at 74 (citations omitted); O’Neil, 165 F.R.D. at 489; Zimmerman v.
Home Shopping Network, Inc., 1990 WL 118363, at *12 (Del. Ch.).
25
The briefs indicate that 138 were initially selected to participate in the ISICP, 6
resigned prior to the conclusion of the Integration Program, thereby forfeiting their right to an
award under the ISICP. Further, another 26 have since left Hercules and in connection with there
termination have executed releases that preclude their participation in this action, therefore there
are possibly 106 putative members.
12
economy and the avoidance of multiple actions would clearly be accomplished by
proceeding with the claims as a class action. While it would not be impossible to
adjudicate each claim separately, class certification offers the benefit of adjudicating
common issues once. It thus avoids the cost and time inherent in over 100 separate
hearings on the same issues or the procedural burden of requiring joinder of these
separate claims and objections. Such a large number of parties, while not dispositive
on the point, clearly weighs heavily in favor of a class action.26
Second, the briefs indicate that the putative class members are geographically
dispersed throughout Europe and the United States. Specifically, they indicate that
potential class members are spread over ten states (Pennsylvania, New Jersey,
Delaware, Florida, Arkansas, Georgia, Ohio, Virginia, North Carolina, Alabama)
and nine countries (England, Belgium, Italy, Canada, the Netherlands, Singapore,
Brazil, Chile, and the United States). The Court finds this to be significant, and
individual joinder would therefore be impracticable for some members of the class.
The Defendants, while acknowledging that the potential class members live in
different states and countries, argue that the great majority of putative class
members are concentrated in one geographic area and those that are not could easily
join the litigation. They argue that although 26 of 132 putative class members live
26
See, e.g., Gaffin v. Teledyne, Inc., 1987 WL 18430, at *4 (Del. Ch.).
13
abroad, 21 are current Hercules employees “thereby negating [Plaintiff’s] concern
that communication among the putative class members would be difficult.”27
Despite this, the Court finds this class dispersion “highly persuasive evidence that
joinder of all class members is impracticable.” 28
The third, fourth and fifth factors cause particular concern for the Defendants.
Considering their financial resources, the Defendants argue that the putative class
members are or were among the highest ranking executives and managers of
Hercules, with salaries ranging from $45,000 to $825,000 and averaging $146,000.
Defendants argue that the financial wherewithal of the putative members to bring
individual claims obviate the need for a class action. While Defendants correctly
state that “[o]ne of the basic reasons for promulgating Rule 23 was to provide small
claimants with a method of obtaining redress for claims which would otherwise be
too small to warrant individual litigation,” 29 the Court notes that this is not the sole
27
Reply Br. of Defs. In Opp’n to Pl.’s Mot. For Class Certification at 8.
28
Zimmerman v. Home Shopping Network, Inc., 1990 WL 118363, at *12 (Del. Ch.);
Shapiro v. Nu-West Industries, Inc., 2000 WL 1478536, *3 (Del. Ch.) (finding that
“[p]articipation by stockholders dispersed over nine different states throughout the country would
be exceedingly difficult.”) (citing Meeker v. Bryant, 1981 WL 7633 (Del. Ch.)).
29
Primavera, 178 F.R.D. at 411 (citing Stoudt v. E.F. Hutton & Co., Inc., 121 F.R.D. 36,
38 (S.D.N.Y. 1988)).
14
reason for Rule 23.30 The class action device was designed to promote judicial
efficiency and to protect the interests of absentee class members, as well as to
provide a remedy when individual litigation is economically unrealistic.31
Therefore, in light of the number of potential class members, as well as the
significant geographic disbursement, the Court cannot find that the numerosity
requirement cannot be met simply because some of the putative members possess
the financial wherewithal to proceed on their own.
The Court agrees with the Plaintiff that individual lawsuits would be difficult
given the complexity and interrelatedness of each of the teams to the overall success
of the Integration Plan. Although each participant worked in different teams, only
the total synergies achieved is germane to the bonus pool and the ultimate payout
under the ISICP. Defendants however argue that there is no basis to believe that all
one hundred plus potential class members would pursue individual actions if
30
Defendants rely inter alia upon Liberty Lincoln, which provides that “a class action is
not appropriate when proposed class members are able to protect and defend their own interests.”
Liberty Lincoln, 149 F.R.D. at 74. In Liberty Lincoln, each of the purported class members were
substantial businesses capable of litigating for itself. As the court in Liberty Lincoln reasoned,
citing Stoudt v. E.F. Hutton & Co., Inc., 121 F.R.D. 36, 38 (S.D.N.Y. 1988): “[When] each
proposed class member ... possesses the ability to assert an individual claim, the goal of obtaining
redress can be accomplished without the use of the class action device.” Further, “[a]ll 123 . . .
dealerships . . . [were] (1) known and readily identifiable by name and address, (2) easily subject
to service of process and notice, and (3) confined to the limited geographical area of the State of
New Jersey.” Liberty Lincoln, 149 F.R.D. at 74 (emphasis in original).
31
See JAMES WM . MOORE ET AL., 5 MOORE ’S FEDERAL PRACTICE , ¶ 23.03 (3d ed. 1997).
15
certification were denied, particularly when a significant number of the potential
class continue to be employed by Hercules and have unique loyalties to the
company and its stockholders. While the Court acknowledges that one’s status with
the company may affect their interest in joining the class, the Court also believes
that this employment has a chilling effect on one’s willingness to pursue individual
litigation in spite of their belief that they have been wronged by the actions of the
Defendant. In essence the class certification provides those employees with a
means to address the wrong while at the same time providing “cover” from
perceived retaliatory actions if they went it alone. While joinder or consolidation
are available, in light of all the other factors, this Court finds that proceeding as a
class action would be most efficient.
Considering the amount of the individual claims, Defendants argue that
Plaintiffs’ damage claims (assuming $250 million of synergies and deducting
amounts already paid) range from $30,000 to $2.8 million and average $194,000 (if
putative class totals 106, salaries and damages claims are still substantial, averaging
$128,000 and $133,000, respectively), and provide “ample financial ability and
incentive to protect and defend their own interests.” However, the Court agrees with
the Plaintiff that the amount of damages of each participant is not conclusive of
16
whether one must file an individual suit.32 Further, despite Defendants stressing the
amount of the mathematical average claim, given the broad range of salaries
involved, focusing on the average is misleading. This Court must consider those
with the smaller claims as well as those with substantial claims. In doing so, if the
Court were to deny certification, then those with smaller claims may be jeopardized
due to the high cost of litigation. The Court also believes the cost associated with
pursuing this complex litigation against a major corporation will be significant and
a deterrent to most members of the class if they pursue the action individually. The
Court finds that the financial resources of some members of the putative class does
not disqualify the class from certification and is further outweighed by the
efficiency of proceeding as a class and the interest of protecting the overall
members of the class.
Finally, the sixth factor can be addressed quickly.33 The briefs provide the
names and addresses of potential class members as they are listed in the final ISICP
payout list. Defendants argue that the “ease of identification” factor in the
numerosity analysis focuses on the identities of the class members and not their
32
Benning v. Wit Capital Group, 2001 WL 1388544 (Del. Supr.); Glosser v. Cellcor, Inc.,
1995 WL 106527 (Del. Ch.) (discussing section (b)(3) of Rule 23).
33
The seventh element need not be addressed. There is no record of any of the potential
class members having joined another action.
17
current home addresses, and further argue that knowledge of names and existence
of a class member is the most important factor in considering numerosity. After a
careful evaluation of the cases provided by the Defendants, this Court must disagree
as to this interpretation. Specifically, while Primavera34 does contain this language,
in the context of that case, that court found that a multiplicity of actions could no
longer be avoided due to five separate actions having already been filed and were
pending before that court, leaving a class of only 57-77 potential class members.
Further, the parties in that case had not established why joinder would be
impracticable, and in that context noted the importance of knowing the class
member’s names and existence. Moreover, looking at authority relied upon in
Primivera, several other factors were not established. Specifically, in Giullari,35
judicial economy was not an issue as the size of the class and the potential for
individual claims was not a concern for the court. Additionally, unlike here, there
was no serious problem of geographic disbursement, as nearly all the class members
resided in the Western District of New York. The court therefore found joinder
practical. Further, in Moore,36 there were only 54 putative members at the time all
34
Primavera Familienstiftung v. Askin, 178 F.R.D. 405 (S.D.N.Y. 1998).
35
Giullari v. Niagara Falls Memorial Medical Center, 1997 WL 65862, at *3
(W.D.N.Y.).
36
Moore v. Trippe, 743 F.Supp. 201, 211 (S.D.N.Y. 1990).
18
of which were known. However, all the members resided in the same state and
lived in the Metropolitan New York area. Moreover, membership into the group the
class consisted of provided for stringent regulations requiring new members to
spend time with the group. Therefore, joinder was not found to be impracticable.
Finally, in Block37 there were only 24 potential members, all of whom were known
and had the financial resources to make joinder practical. In conclusion, the court
indicated that the small number did not justify a class action.
In contrast, this case involves a fairly large putative class of over 100
members. A significant portion of this class is disbursed over numerous states and
countries, thereby risking the exclusion of some members by joinder and
complicating the efficiency of the court as well. While recognizing that the size of
the individual claims and the financial resources of some of the members of the
group, as well as those member’s ability to bring individual actions are relevant, the
practicality really is that this dispute will never be litigated without class
certification. For the reasons set forth above, the Court must find the numerosity
requirement to be satisfied.38
2.
COMMON QUESTIONS OF LAW OR FACT 23(a)(2)
The second requirement will be met “‘where the question of law linking the
37
Block v. First Blood Assocs., 125 F.R.D. 39, 43 (S.D.N.Y. 1989).
38
As discussed infra, should any members decide not to pursue its claim or decides to
proceed individually, the court is providing the option to “opt out” of this action.
19
class members is substantially related to the resolution of the litigation even though
the individuals are not identically situated.’”39 Therefore, it is the general course of
conduct complained of which unites the different class members.40 Thus, if the
named plaintiff shares at least one question of law or fact with the grievances of the
prospective class this requirement will be met.41 “But, if there is significant factual
diversity among the class members, or if it is a case of common legal questions
dependent on divergent facts, class status is unavailable.” 42 Consequently, factual
differences in the claims of the class do not preclude a finding of commonality, nor
does the necessity of making an individualized determination of damages for each
class member generally defeat commonality.43
39
Leon, 584 A.2d at 1225, (quoting Gordon v. Forsyth County Hospital Authority, Inc.,
409 F.Supp. 708, 717-18 (M.D.N.C. 1976) aff’d in part, vacated in part, 544 F.2d 748 (4th Cir.
1976)).
40
Gaffin, 1987 WL 18430, at *5 (citing Kaufman v. Lawrence, 76 F.R.D. 397, 399
(S.D.N.Y. 1977)).
41
Mentis, 2000 WL 973299, at *3.
42
Id. (citing Paine Webber, 1997 WL 719096, at *5 (citing Leon, 584 A.2d at 1225)).
43
5 JAMES WM . MOORE ET AL., MOORE ’S FEDERAL PRACTICE ¶ 23.23[2] (3d ed. 1997).
20
Here, Plaintiff asserts that there is more than just one common and material
question of law or fact as identified in the Complaint. 44 Essentially, the Plaintiff
argues that when the Defendants reduced the total synergies from the reported
amount in excess of $250 to less than $125 million, it injured all the employees the
same way “by dramatically reducing the pool of cash to be distributed to the plan
participants.” The Court here agrees with the Plaintiff that a common question of
law and fact exists among all the putative class members. The Plaintiff has met the
burden of proving that there is a common nucleus of operative facts. Despite some
factual differences within the class that may necessitate an individualized finding
of damages, the commonality requirement is not defeated. The calculations of
synergies by the Defendants similarly affected each plaintiff by reducing the amount
of the ISICP to be distributed and it appears that all participants were given
44
The Complaint alleges the following common issues of law or fact:
(1) whether Hercules contracted with the Class, agreeing to abide by the
terms of the ISICP; (2) whether Hercules failed to abide by the terms of the ISICP;
(3) whether Hercules is obligated to pay the Class corresponding to the highest
target level of the ISICP; (4) whether Hercules breached its contract and/or its
duty of good faith and fair dealing with the Class by failing to pay the proper
amount due the members of the Class; (5) whether the promises of Hercules to the
Class induced the Class to rely to their detriment; (6) whether Hercules has been
unjustly enriched at the expense of the Class; (7) whether Gossage interfered with
the contract between Hercules and the Class; (8) whether Gossage interfered for
his own personal gain at the expense of the Class; and (9) whether the Class has
sustained damages and the proper measure of those damages.
See Pl.’s Mot. For Class Certification at 2, n.1 (citing Complaint ¶ 4).
21
expected payouts based upon the amount of synergies achieved.
The facts
underlying the substantive issues have a commonality as to issues of law and fact.
The mathematical calculations of damages may differ between members, but the
Court does not believe this defeats this requirement. Consequently, a common issue
of law and fact exists.
3.
TYPICALITY 23(a)(3)
The “typicality” requirement is satisfied if the representative’s interests are
consistent with those of the class members.45 As such, typicality will be found
despite factual differences if a representative’s claim “‘arises from the same event
or course of conduct that gives rise to the claims . . . of other class members and is
based on the same legal theory.’”46
However, “[i]f the proposed class
representative’s claims require more or less proof than would be required by the
claims of other members of the class, class certification is unavailable.” 47
Plaintiff argues that his claims arose from the same breach of the ISICP, by
Hercules and Gossage, as the other class members, and consequently the facts and
45
Leon, 584 A.2d at 1225-26 (quoting Singer v. The Magnavox Co., 1978 WL 4651 (Del.
Ch.)).
46
Leon, 584 A.2d at 1226 (quoting Zeffiro v. First Pa. Banking & Trust Co., 96 F.R.D.
567, 569 (E.D. Pa. 1983)); Paine Webber, 1997 WL 719096, at *5.
47
Paine Webber, 1997 WL 719096, at *5.
22
legal theories surrounding the ISICP and whether a subsequent breach occurred are
identical to each class member. However, Defendants contend that the Plaintiff’s
interests are not typical because he is subject to defenses that differentiate him from
the other potential class members thereby making him an inappropriate class
representative. Defendants argue that Plaintiff was a member of the top tier of
participants in the ISICP and is therefore not typical of the 97 individuals in the
second tier.
Despite Defendants’ claims that Plaintiff is an inappropriate representative,
this Court notes that the issue is whether Plaintiff’s claims are typical of those of the
potential class, not whether Plaintiff is typical of the potential class.48 “When
inquiring into the typicality requirement under Rule 23(a)(3), the focus must be on
the defendants’ behavior and not that of the plaintiffs.” 49 The Court finds that the
existence of unique defenses, while they may affect the individual’s ultimate right
to recover, do not necessarily render the claims of a specific plaintiff to be atypical
of the larger class.50 “The defendants’ contention that the existence of a unique
defense renders a representative’s claim atypical has been rejected where . . . , as
48
See, e.g., Paine Webber, 1997 WL 719096, at *8.
49
Forman v. Data Transfer, Inc., 164 F.R.D. 400, 404 (E.D. Pa. 1995) (citing Baby Neal
v. Casey, 43 F.3d 48, 58 (3d Cir. 1994)).
50
O’Malley v. Boris, 2001 WL 50204, at *4 (Del. Ch.).
23
here, an alleged defense may affect the individual’s ultimate right to recover, but it
does not affect the presentation of the case on the liability issues for the plaintiff
class, that defense should not make a plaintiff’s claim atypical.”51 Further, despite
Defendants’ claims, placement of the putative class members into the two different
tiers of the ISICP does not create a conflict, but is only relevant to the amount of
damages. While the different tiers may receive different amounts, differences in the
amount of damages will not destroy typicality.52 Because Plaintiff’s claims are
typical of all the putative class members, the Court finds the third prerequisite
satisfied.
4.
ADEQUACY OF REPRESENTATION 23(a)(4)
The forth prerequisite determines whether the class representative is
competent to represent the entire class.53 This requirement is comprised of two
elements: “(a) that the interests of the representative party must coincide with those
of the class; and, (b) that the representative party and his attorney can be expected
51
Id. (citing Zeffiro v. First Pennsylvania Banking & Trust Co., 96 F.R.D. 567, 570 (E.D.
Pa. 1983)).
52
5 JAMES WM . MOORE ET AL., MOORE ’S FEDERAL PRACTICE ¶ 23.24[5] (3d ed. 1997).
53
Paine Webber, 1997 WL 719096, at *6 (citing Prezant v. DeAngelis, 636 A.2d 915,
923 (Del. 1994)).
24
to prosecute the action vigorously.” 54 Both are questions of fact which are left to
the discretion of the court to be resolved on a case-by-case basis.55
It is only the first element that is in contention in the present motion.56 In
determining whether the interests of a representative coincide with those of the
class, the court looks to see if any conflict exists between named parties and the
class they seek to represent. “[O]nly a conflict that goes to the very subject matter
of the litigation will defeat a party’s claim of representative status.”57 One possible
source of conflict is the existence of defenses unique to a named plaintiff. “‘Where
it is predictable that a major focus for litigation will be on an arguable defense
unique to the named plaintiff or a small sub-class, then the named plaintiff is not a
proper class representative.’ In this regard, the adequacy prong of Rule 23 overlaps
54
Gaffin, 1987 WL 18430, at *6, (quoting Mersay, et al. v. First Republic Corp. of
America, et al., 43 F.R.D. 465, 469 (S.D.N.Y. 1968) (internal citations omitted)); see also Leon,
584 A.2d at 1225; O’Malley, 2001 WL 50204, at *5.
55
Gaffin, 1987 WL 18430, at *6, (quoting Mersay, 43 F.R.D. at 469); In re Best Lock
Corp. Shareholders Litigation, 2001 WL 1398580, at *24 (Del. Ch.) (citing Price v. Wilmington
Trust Co., 730 A.2d 1236, 1238 (Del. Ch. 1997)).
56
Defendants do not contest the qualifications of Plaintiff’s attorneys, and the Court is
satisfied that Plaintiff’s attorneys are sufficiently qualified and experienced to manage the
proposed class litigation and that Plaintiff possesses a basic familiarity with the facts and issues
involved in the lawsuit.
57
7A CHARLES ALLEN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND
PROCEDURE : CIVIL § 1768 (2d ed. 1986); Mentis, 2000 WL 973299, at *6.
25
with considerations of typicality.” 58
Defendants assert that Plaintiff is not an adequate class representative for
three reasons. First, Defendants argue that different interests exist between the two
tiers as Plaintiff and Tier I have an interest in reinstating the original percentage
targets, whereas Tier II would prefer the revised structure that paid them
proportionally more. Second, Defendants argue that a conflict exists among all
members of the putative class because individual performance was a key factor in
determining upward and downward adjustments under the ISICP. Third, Defendants
argue that a conflict would exist with a class comprised of both current and former
employees. They suggest that the goal of former employees is to maximize their
monetary recovery, while the current employees have an ongoing fiduciary duty to
the company and its shareholders, as well as a direct, personal interest in the
continued economic viability of Hercules.
The purported conflict of interest between Tier I and Tier II is based on the
ISICP which originally targeted Tier I to receive a higher percentage of their base
salaries than those in Tier II. The ISICP also allowed for an upward or downward
adjustment based on performance, for which Tier II was awarded a higher
percentage than Tier I. However, Plaintiff notes that his interests coincide with the
58
O’Neil, 165 F.R.D. at 493 (internal citations omitted).
26
putative class because he and the other plaintiffs are similarly situated due to the
Defendants alleged breach of the ISICP. Plaintiff argues that the difference in
salaries between the tiers and the adjustment from individual performance does not
pose a conflict because he is seeking a lump sum amount for all the participants
based on the structure of the ISICP and each participant would receive the amount
specified in the individual target letter. The Court agrees. If a particular Tier II
member is satisfied with his compensation and finds he would not benefit from an
award, he or she may opt out of the litigation. In addition, the Defendants’
assumption of significantly different interest between the Tiers are conclusory at
best. It is difficult to envision that all potential class members would not benefit if
the jury found the Defendants’ actions improper and awarded damages equal to the
greater synergy allegedly achieved. Common sense would suggest that financially
their individual situations would increase considerably beyond that previously
awarded.
With respect to the alleged conflict of interest arising from a class consisting
of both current and former employees, the Court is not persuaded and finds no
support for this view. Despite Defendants’ reliance on case law where current and
former franchisees were denied class certification, the Court finds the situation in
this litigation to be quite different. The putative class here arguably have a common
27
interest in the continued economic viability of Hercules to insure their benefits.
From the Defendants’ brief, it appears that when employees left the Defendant they
signed waivers and would have no standing to be included in the class59 and, thereby
the Defendants’ actions have negated any concern for a conflict. For the named
representative to sue on behalf of the class, his interest must coincide with those of
the class. In other words, he “‘must possess the same interests and suffer the same
injury shared by all members of the class he represents.’”60 The Court finds that the
named plaintiff does possess the same interests and has suffered the same injury as
the other members of the putative class. Despite the status of former or current
employee, they all allege the same wrong committed against them by the
Defendants and all seek the same relief. As such, the adequacy of representation
requirement is satisfied.
B.
RULE 23(b)
Having found that the Plaintiff satisfied all the prerequisites of Rule 23(a),
this Court will now address whether the Plaintiff meets the requirements of Rule
59
Br. of Defs. In Opp’n to Pl.’s Mot. For Class Certification at 14.
60
Ladegaard v. Hard Rock Concrete Cutters, Inc., 2000 WL 1774091, *6 (N.D. Ill.)
(quoting Keele v. Wexler, 149 F.3d 589, 592-93 (7th Cir. 1998)).
28
23(b)(3).61 This section of the Rule is used primarily in class-wide suits seeking
money damages where a class action “‘would achieve economies of time, effort,
and expense, and promote uniformity of decision as to persons similarly situated,
without sacrificing procedural fairness or bringing about other undesirable
results.’”62 Under this section, a class action may be obtained when the Court finds
both that “(1) common questions of law or fact predominate over questions
affecting only individual members (‘predominance’) and (2) a class action is
superior to other available methods for resolving the controversy (‘superiority’).”63
61
Because the Court finds certification appropriate under Rule 23(b)(3), the Court will
not address the Plaintiff’s claims that either Rule 23(b)(1) or (b)(2) have been satisfied.
62
Paine Webber, 1997 WL 719096, at *6 (quoting Nottingham Partners, 564 A.2d at
1095-96); Mentis, 2000 WL 973299, at *6.
63
Mentis, 2000 WL 973299, at *6 (citing 5 MOORE ’S FEDERAL PRACTICE ¶ 23.44). Rule
23(b)(3) provides:
An action may be maintained as a class action if the prerequisites of paragraph (a)
are satisfied, and in addition:
****
(3) The Court finds that the questions of law or fact common to the members of
the class predominate over any questions affecting only individual members, and
that a class action is superior to other available methods for the fair and efficient
adjudication of the controversy. The matter pertinent to the findings include: (A)
The interest of members of the class in individually controlling the prosecution or
defense of separate actions; (B) The extent and nature of any litigation concerning
the controversy already commenced by or against members of the class; (C) The
desirability or undesirability of concentrating the litigation of the claims in the
particular forum; (D) The difficulties likely to be encountered in the management
of a class action.
SUPER. CT . CIV . R. 23(b)(3).
29
Further, Rule 23(b)(3) and (c)(2) entitles the class members to receive actual notice
and a right to opt out. 64
1.
PREDOMINANCE
Although similar to the commonality test under Rule 23(a)(2), the
predominance analysis under Rule 23(b)(3) is much more demanding.65 When
determining “predominance”, “[i]f one or more class issues are central to the action,
even though other matters may need to be tried separately, then the class issues
predominate over the individual’s interests and certification is appropriate under
Rule 23(b)(3).” 66 Further, variation in the relief sought by particular class members
does not automatically preclude class certification.67
Plaintiff alleges that a common question predominates as the action involves
the breach of a single agreement between Hercules and all members of the class,
64
Paine Webber, 1997 WL 719096, at *6; Zimmerman v. Home Shopping Network, Inc.,
1990 WL 118363, at *16 (Del. Ch.) (citing Nottingham Partners, 564 A.2d at 1097-98).
65
In re Kaiser, 278 B.R. at 67 (citing Amchem Products, Inc., v. Windsor, 521 U.S. 591,
624 (1997)); see also HERBERT NEWBERG & ALBA CONTE, NEWBERG ON CLASS ACTIONS §§ 310, 3-56 (3d ed. 1992).
66
Zirn v. VLI Corp., 1991 WL 20378, at *6 (Del. Ch.) (citing 7A CHARLES ALEN
WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE , CIVIL 2d § 1778).
67
Paine Webber, 1997 WL 719096, at *6; Benning v. WIT Capital Group, Inc., 2001 WL
1388544, *1 n.10 (Del. Supr.) (citing Glosser v. Cellcor Inc., 1995 WL 106527, at *2 n.5 (Del.
Ch.) (citing Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975) (“‘amount of damages is
invariably an individual question and does not defeat class action treatment’”); Newton, 259 F.3d
at 189 (“obstacles to calculating damages may not preclude class certification, although the
putative class must still demonstrate economic loss on a common basis”)).
30
specifically whether Hercules breached its promise to pay the participating
employees according to the synergies achieved pursuant to the ISICP. However,
Defendants contend that individual issues will predominate over the litigation.
Defendants allege that putative class members will be subject to individual defenses
depending on their role in the program and that the damages they are entitled to
turns on the role they played in the program, and that because of the substantial size
of each class member’s own individual claim, each has an “overwhelming interest
in controlling his or her own action, making the class action an inferior method.”
The Court cannot agree with the Defendants that individual defenses and
damage claims will predominate over the litigation. It has been firmly established
that variations in individual damages will not necessarily preclude certification of
a class action.68 As such, the Court agrees with Plaintiff that each participant’s level
of responsibility is irrelevant in determining class certification. Consequently, the
Court finds that any individual issues are minor in comparison to the primary issue
of the alleged breach by defendants.
68
See supra Note 54. Although these cases address fraud claims, this Court sees no
reason why the same rational would not apply in the case at bar. See also, FED . R. CIV . P. 23,
Advisory Committee Notes to 1966 Amendments to Rule 23, (class action may be appropriate
“despite the need, if liability is found, for separate determination of the damages suffered by
individuals within the class”); Spicer v. Chicago Bd. Options Exchange, Inc., 1990 WL 16983, at
*12 (N.D. Ill.) (holding that the variation and complexity in the damage analysis is part of the
damage stage of the proceedings and should not lead to a denial of certification).
31
2.
SUPERIORITY
The second part of Rule 23(b) requires a finding that the “class action is
superior to other available methods for the fair and efficient adjudication of the
controversy.”69 “Superiority is determined by comparing the efficiency and fairness
of all available methods of adjudicating the matter.” 70 In the present case, this Court
must determine whether either individual lawsuits or joinder and/or consolidation
would be superior to a class action.
Factors considered by the courts in determining whether a class action is
superior to individual lawsuits include the size of the proposed class and the size of
the anticipated recovery for each individual plaintiff. Defendants repeatedly argue
that all of the putative members are sophisticated business people capable of
maintaining their own individual actions, and that consolidating and/or joinder
would be as effective due to the size of the average claim as well as claims for
punitive damages, making the proposed class fully capable of proceeding on their
own.
The Court is again not persuaded by this argument. As already discussed,
69
SUP . CT . CIV . R. 23(b)(3); In re Kaiser, 278 B.R. at 67; see also Georgine v. Amchem
Products, Inc., 83 F.3d 610, 632 (3d Cir. 1996) (citing Katz v. Carte Blanche Corp., 496 F.2d
747, 757 (3d. Cir 1974)).
70
5 JAMES WM . MOORE ET AL., MOORE ’S FEDERAL PRACTICE ¶ 23.48[1] (3d ed. 1997).
32
given the large number of putative class members and the typicality of the claims,
proceeding as a class action seems to the Court to be the most efficient, and
therefore superior, means of adjudication.71 Further, “if a class action will provide
the most fair and efficient adjudication of a case, such an action may be superior
even though the class members have sufficient means or incentive to proceed
individually.” 72 While the Court recognizes that the class does consist of both large
and small claimants, denying certification may leave those with small claims
unprotected due to the cost of litigation. Considering the extent and nature of the
litigation already commenced, the Court agrees with the Plaintiff that the cost of
litigation would be significant and would have the adverse effect of dissuading
individual lawsuits as a result of the cost of individual discovery and expert fees.73
Finally the Court again emphasizes that it is unlikely that individual litigation would
71
5 JAMES WM . MOORE ET AL., MOORE ’S FEDERAL PRACTICE ¶ 23.48[2][a] (3d ed.
1997); see also Sala v. National R.R. Passenger Corp., 120 F.R.D. 494, 500 (E.D. Pa. 1988)
(absent class certification, court and parties could have faced possibility of litigating 50 or more
essentially identical cases).
72
5 JAMES WM . MOORE ET AL., MOORE ’S FEDERAL PRACTICE ¶ 23.48[2][a] (3d ed.
1997); see also Ardrey v. Federal Kemper Ins. Co., 142 F.R.D. 105, 115 (E.D. Pa. 1992) (no rule
exists that class action treatment inappropriate merely because plaintiffs have significant
financial interests); Hoffman Elec., Inc., v. Emerson Elec. Co., 754 F.Supp. 1070, 1079 (W.D.
Pa. 1991) (superiority of class action found, despite individual losses of at least $50,000, because
separate suits would be an inefficient use of judicial resources).
73
The Defendant makes a final argument that plaintiff is misusing the mechanism of
a class action for its in terrorem effect, “rather than its salutary reasons that give rise to Rule 23”
to maintain a class action solely to obtain a more favorable settlement. The Court cannot find any
support for this in the record.
33
occur given the employment relationship of potential class members to the
Defendants, even where one believes they have been harmed by the Defendants’
actions. Without class certification, the Defendants will be allowed to avoid being
held accountable for any improper action that was taken against its employees. This
would be simply wrong.
The Court specifically finds that the common questions of law and fact
predominate over questions affecting only individual members. A class action in
this case would achieve economies of time, effort, and expense and it would
promote uniformity of decision. The court cannot find that individual members of
the class would have unique particularized interest in pursuing individual claims,
since the core facts and legal theories would be the same as to each employee and
the cost of pursuing the litigation on a case-by-case basis would be prohibitive to
even the highest paid class members. Simply put, “the class action mechanism
provides this Court, with its limited judicial time and resources, with the most fair
and efficient course of action to deal with this controversy.” 74
74
O’Malley, 2001 WL 50204, at *8.
34
III. CONCLUSION
The class is certified on behalf of all persons who: (a) are or were, at any time
since October 15, 1998, employees of Hercules; (b) who participated in the
integration efforts described herein at Hercules; (c) who were selected by Hercules
to participate in a special one-time incentive award, and; (d) who received less than
the promised amount of compensation for the synergy target level achieved, which
resulted in damages, specifically monetary loss; with the Plaintiff as the class
representative. The Court retains the option to modify, alter, or amend the class at
a subsequent time should it become necessary to do so. Plaintiff is to submit to the
Court the proposed notice to be sent to the potential class participants for approval.
IT IS SO ORDERED.
____________________________________
Judge William C. Carpenter, Jr.
35
