In re Charles Schwab Corp. Securities Litigation, No. 3:2008cv01510 - Document 601 (N.D. Cal. 2010)
Court Description: ORDER DENYING THE UNION MISSION'S MOTION TO EXTEND TIME FOR EXCLUSION FROM THE CLASS by Judge Alsup denying 476 Motion (whalc1, COURT STAFF) (Filed on 4/9/2010)
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In re Charles Schwab Corp. Securities Litigation Doc. 601 1 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE NORTHERN DISTRICT OF CALIFORNIA 11 For the Northern District of California United States District Court 10 12 No. C 08-01510 WHA 13 IN RE: 14 CHARLES SCHWAB CORPORATION SECURITIES LITIGATION. 15 16 This Document Relates To All Cases. / ORDER DENYING THE UNION MISSION’S MOTION TO EXTEND TIME FOR EXCLUSION FROM THE CLASS UNDER FRCP 6 AND VACATING HEARING 17 18 The Union Mission, a class member and charitable organization that provides food and 19 shelter for the poor in Southeastern Virginia, moves to extend the deadline to opt out of the 20 certified class under FRCP 6(b)(1)(B). The opt-out period ended over three months ago on 21 December 28, 2009 (Fernandez Decl. Exh. 1 at 3). Due to an alleged illness, however, counsel 22 for The Union Mission neglected to check the October 2009 mail for his client until February 16, 23 2010 (Farthing Decl. ¶ 15). The Union Mission then sent its opt-out request to the claims 24 administrator on February 22, 2010 (id. at ¶ 9). For the reasons explained below, The Union 25 Mission’s motion to extend the opt-out deadline must be DENIED. 26 The standard for determining whether The Union Mission should be allowed to opt out of 27 the class after the applicable deadline is whether its failure to comply with the deadline is the 28 result of “excusable neglect.” See Silber v. Mabon, 18 F.3d 1449, 1454-55 (9th Cir.1994). This Dockets.Justia.com For the Northern District of California United States District Court 1 standard allows courts, “where appropriate, to accept late filings caused by inadvertence, mistake, 2 or carelessness, as well as by intervening circumstances beyond the party’s control.” Pioneer Inv. 3 Serv. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380, 388 (1993). When evaluating whether 4 “excusable neglect” applies, a court should consider the “degree of compliance with the best 5 practicable notice procedures; when notice was actually received and if not timely received, why 6 not; what caused the delay, and whose responsibility was it; how quickly the belated opt out 7 request was made once notice was received; how many class members want to opt out; and 8 whether allowing a belated opt out would affect either the settlement or finality of the judgment.” 9 Silber, 18 F.3d at 1455 (internal footnote omitted). Additionally, the court should consider the 10 danger of prejudice to the opposing party, and whether the movant acted in good faith. Pioneer, 11 507 U.S. at 395. 12 Here, the background facts are relatively straightforward. The Union Mission invested in 13 defendant Schwab’s YieldPlus fund, and lost $1.5 million — or 35 percent — of its investment 14 (Farthing Decl. ¶¶ 10–12). Attorney Philip Farthing is the registered agent under Virginia law for 15 The Union Mission (id. at ¶ 4). Attorney Farthing’s address is also the address of record for The 16 Union Mission’s account at Schwab, and he has the power of attorney over The Union Mission’s 17 Schwab account (Fernandez Decl. ¶¶ 3–4, Exhs. 3–4).* 18 Attorney Farthing’s law offices received the class notice for The Union Mission on 19 October 16, 2009 (Farthing Decl. ¶ 13). Attorney Farthing, however, didn’t become aware of the 20 notice until February 16, 2010 (id. at ¶¶ 15, 24). The reasons for this are two-fold: (1) he suffered 21 from severe migraine headaches, chronic pain, and clinical depression during the period in 22 question, which rendered him unable to focus on work, and (2) between August 2009 and 23 December 2009, his law offices underwent a staff change, resulting in the improper sorting of the 24 class notice with the incoming mail (it was put in the “routine” pile rather than the “urgent” pile) 25 26 27 28 * Attorney Farthing, in his declaration, claimed that the class notice should have been sent to the principal office of The Union Mission rather than to his law offices, because the former was the “address on the account” (id. at ¶ 13). In its opposition, however, Schwab included compelling evidence that Attorney Farthing’s address was the address of record for The Union Mission’s Schwab account. The reply brief was noticeably silent in responding to this issue. 2 1 (id. at ¶¶ 16–23). With respect to the second “excuse,” however, Attorney Farthing admitted that 2 “while [he] was responsible for reading all of [his] mail, whether ‘routine,’ ‘priority,’ or ‘urgent,’ 3 [he] did not do so, and on many days was not able to do so,” due to his various medical problems 4 (id. at ¶ 23). In other words, even if his mail had been properly filed, it appears as though it 5 wouldn’t have made any difference in its likelihood of being read. As a result of these events, 6 The Union Mission — which now seeks to opt out from the class and pursue its claim against 7 Schwab via individual arbitration before FINRA — is bound to the outcome of this litigation 8 unless it can obtain relief via the instant motion. For the Northern District of California United States District Court 9 Having considered and weighed the equitable factors under Pioneer, and having allowed 10 and reviewed comprehensive briefing from both sides (see Dkt. Nos. 476, 527, 544), this order 11 finds that excusable neglect has not been adequately demonstrated by The Union Mission. First, 12 notice of the class action was properly and timely provided to The Union Mission. Indeed, 13 Attorney Farthing admits that the class notice was received by his offices in October 2009, well 14 before the December 28 opt-out deadline, and that it sat in his inbox — unread — for nearly four 15 months. The law is clear that individual notice by first-class mail is sufficient to meet the notice 16 requirements of due process. Eisen v. Carlisle & Jacqueline, 417 U.S. 156, 173-77 (1974); 17 Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985). Furthermore, given the compelling 18 evidence that the class notice was sent to the address of record for The Union Mission’s Schwab 19 account, this factor clearly weighs against a finding of excusable neglect. 20 Second, the law is clear that Attorney Farthing had a duty, as the registered agent for The 21 Union Mission, to “forward to the corporation at its last known address any process, notice or 22 demand that is served on the registered agent.” Va. Code Ann. § 13.1-634(B). Moreover, the law 23 is also clear that The Union Mission is accountable for the acts and omissions of its counsel, and 24 is considered to have “notice of all facts, notice of which can be charged upon the attorney.” See 25 Pioneer Invest. Servs. Co., 507 U.S. at 397 (citation omitted). In other words, The Union Mission 26 cannot claim “excusable neglect” by shifting the blame for its overdue opt-out request onto 27 Attorney Farthing’s shoulders. This also weighs against a finding of excusable neglect. 28 3 For the Northern District of California United States District Court 1 Third, it is undisputed that four months passed since the class notice was timely delivered 2 to The Union Mission (via Attorney Farthing’s inbox), and Attorney Farthing finally went 3 through his October 2009 mail and discovered the notice. Indeed, by this time, the opt-out period 4 had lapsed by more than two and a half months. Now, this period might have been excusable 5 under the Pioneer factors had the severity and duration of Attorney Farthing’s medical conditions 6 warranted the lengthy delay. See, e.g., Islamic Republic of Iran v. Boeing Co., 739 F.2d 464, 465 7 (9th Cir.1984) (noting that illness of counsel “may amount to extraordinary circumstances when 8 the illness is so physically and mentally disabling that counsel is unable to file [court documents] 9 and is not reasonably capable of communicating to co-counsel his inability to file.”); Committee 10 for Idaho’s High Desert v. Yost, 92 F.3d 814, 824 (9th Cir.1996) (citing possible examples of 11 excusable neglect as “illness, injury or death of counsel, or members of his family, or fire, flood, 12 vandalism or destruction of counsel’s law office or word processing equipment”). 13 Here, however, Attorney Farthing’s documented medical problems do not square with an 14 inability to read legal correspondence for four months. Indeed, Schwab has produced ample 15 evidence that Attorney Farthing was transacting business on behalf of his clients during the four 16 months that the class notice was sitting in his inbox at his offices, including managing several 17 Schwab accounts, executing trades, signing checks, completing a Schwab survey, and making a 18 business call with a Schwab representative (see Fernandez Decl. ¶¶ 6–11). In its reply, The 19 Union Mission noted that Attorney Farthing was merely working from home, and “did not check 20 his daily mail with due care because of his limited ability to work” (Reply 2). The Union Mission 21 also filed medical records showing that Attorney Farthing also had at least thirteen appointments 22 with various medical professionals, and was treated in the emergency room twice during this four 23 month period (Farthing Supp. Decl. ¶¶ 8, 17, 21). Nevertheless, the evidence shows that Attorney 24 Farthing — while admittedly hindered in his ability to practice law — was able to transact at least 25 some business on behalf of his clients between October 2009 (when he received the class notice) 26 and February 2010 (when he “became aware of” the notice). Moreover, while he was “frequently 27 unable to come into his office to work[,]” it is undisputed that Attorney Farthing was able to work 28 out of his offices on occasion (see Utegg Decl. ¶ 5). In sum, as the registered agent for The 4 1 Union Mission, he should have exercised greater diligence and not let the October 2009 class 2 notice remain undiscovered for four months. Had the delay been a matter of weeks rather than 3 months, or had counsel been unable to perform any work on behalf of his clients, the balance of 4 the equities would likely be different. Under these facts, however, this factor weighs against the 5 finding of excusable neglect. For the Northern District of California United States District Court 6 Fourth, this order must examine the prejudice, if any, that the opposing party — here, 7 Schwab — would face if the untimely request was granted. As pointed out by Schwab in its 8 opposition brief, there are already over 50 entities and individuals that have filed late opt-out 9 requests (The Union Mission being one of them), and it remains to be seen how many of these 10 investors will seek relief to maintain separate actions against Schwab (Opp. 8; Fernandez Decl. ¶ 11 15). Given that the opt-out request was submitted over two months late, The Union Mission’s 12 claim is self-valued at around $1.5 million, and this action is both in the midst of settlement 13 negotiations and on the cusp of trial, this order agrees with Schwab’s assertion that it would face 14 prejudice if the instant motion were granted (Opp. 8). Indeed, as Schwab points out, at this late 15 stage in the litigation, the certainty and stability of class membership is crucial to damages 16 calculations and risk assessment for both sides. To find excusable neglect under these particular 17 set of facts would undermine the very purpose of the opt-out deadline for class members. 18 Fifth, this order must consider whether The Union Mission acted in good faith. Under 19 these facts, it is clear that good faith existed. Within a few days after the class notice was brought 20 to its attention, The Union Mission filed its request to opt out. Moreover, there is no evidence 21 whatsoever showing that Attorney Farthing intentionally delayed “discovering” the class notice to 22 gauge whether arbitration would be a more fruitful alternative to remaining a class member. 23 On balance, however, the Pioneer factors do not support a finding of excusable neglect. 24 While a serious and debilitating illness can provide a basis for such a finding, the illness of 25 counsel must be viewed in context with other considerations, such as the length of the delay. 26 Indeed, illness is not carte blanche to delay indefinitely. Reasonable diligence is still expected. 27 Here, Attorney Farthing has been suffering from severe migraine headaches for nearly 44 years, 28 and has managed to persevere in his legal career (see Fernandez Decl. ¶ 12, Exh. 16, showing 5 1 Attorney Farthing as a “Virginia Super Lawyer” for 2009, the same year he claims he was 2 incapacitated). While this order does not question that Farthing suffered from additional serious 3 ailments during the period in question, these ailments simply cannot excuse his failure to discover 4 the timely and properly mailed class notice for four months. He was, in his own words, 5 “responsible for reading all of [his] mail” but “did not do so” (Farthing Decl. ¶ 23). While “on 6 many days he was not able to do so” due to his medical ailments, this necessarily means that on 7 some days he was more than up to the task (ibid.). 8 9 fully brief this issue, this order finds that “excusable neglect” has not been shown. As such, The Union Mission’s motion is DENIED. The hearing on this motion is VACATED. 11 For the Northern District of California United States District Court 10 Having given full consideration to the Pioneer factors, and having allowed both sides to 12 IT IS SO ORDERED. 13 14 Dated: April 9, 2010. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6
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