Johnstone v. Ernst & Young

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BRUCE R. JOHNSTONE, on behalf of
himself and all others similarly
situated,
Movant-Appellant,
and
LUCIAN B. COX, III, on his behalf
and on behalf of all others similarly
situated; JOSEPH DANIEL JOHNSON;
CERES VANDIVER; DOUGLAS A.
CHURDAR, on behalf of themselves
and all others similarly situated,
Plaintiffs,
v.
ERNST & YOUNG,
No. 96-2219
Defendant & Third Party Plaintiff-
Appellee,
and
ROSS COSMETICS DISTRIBUTION
CENTERS, INCORPORATED; EUGENE D.
DERRY; ROGER M. ROSENBERG;
BARRY A. BLOOMFIELD; SHASHIKANT
S. SHETH; MICHAEL E. EMERY; JOHN
M. WATERS; ROSS FREITAS;
MAHENDRA SHETH; KIRIT SHETH;
JAMNADAS SHETH; VIRENDRA SHETH;
JAYESH SHETH; S & J PERFUME
COMPANY; STARION INTERNATIONAL
LIMITED; EUGENE H. KARAM,
Defendants,
v.
TRISTAR CORPORATION, a/k/a Starion
International Limited, a/k/a S&J
Perfume Company, a/k/a Jayesh
Sheth, a/k/a Virenda Sheth, a/k/a
Kirit Sheth, a/k/a Mahendra Sheth,
a/k/a John M. Waters, a/k/a
Jamandas Sheth, a/k/a Barry A.
Bloomfield, a/k/a Roger M.
Rosenberg, a/k/a Eugene H. Karam,
a/k/a Michael E. Emery, a/k/a
Eugene D. Derry, a/k/a Ross
Freitas, a/k/a Ross Cosmetics
Distribution Centers, Incorporated,
Third Party Defendant,
PEARL LEVY,
Claimant.
2
JOSEPH DANIEL JOHNSON; CERES
VANDIVER; DOUGLAS A. CHURDAR, on
behalf of themselves and all others
similarly situated,
Plaintiffs-Appellants,
and
LUCIAN B. COX, III, on his behalf
and on behalf of all others similarly
situated;
Plaintiff,
v.
ERNST & YOUNG,
Defendant & Third Party Plaintiff-
Appellee,
No. 96-2220
and
ROSS COSMETICS DISTRIBUTION
CENTERS, INCORPORATED; EUGENE D.
DERRY; ROGER M. ROSENBERG;
BARRY A. BLOOMFIELD; SHASHIKANT
S. SHETH; MICHAEL E. EMERY; JOHN
M. WATERS; ROSS FREITAS;
MAHENDRA SHETH; KIRIT SHETH;
JAMNADAS SHETH; VIRENDRA SHETH;
JAYESH SHETH; S & J PERFUME
COMPANY; STARION INTERNATIONAL
LIMITED; EUGENE H. KARAM,
Defendants,
v.
3
BRUCE R. JOHNSTONE, on behalf of
himself and all others similarly
situated,
Movant,
TRISTAR CORPORATION, a/k/a Starion
International Limited, a/k/a S&J
Perfume Company, a/k/a Jayesh
Sheth, a/k/a Virenda Sheth, a/k/a
Kirit Sheth, a/k/a Mahendra Sheth,
a/k/a John M. Waters, a/k/a
Jamandas Sheth, a/k/a Barry A.
Bloomfield, a/k/a Roger M.
Rosenberg, a/k/a Eugene H. Karam,
a/k/a Michael E. Emery, a/k/a
Eugene D. Derry, a/k/a Ross
Freitas, a/k/a Ross Cosmetics
Distribution Centers, Incorporated,
Third Party Defendants,
PEARL LEVY,
Claimant.
Appeals from the United States District Court
for the District of South Carolina, at Spartanburg.
G. Ross Anderson, District Judge.
(CA-92-1706-3,
CA-93-1405-7-3)
Argued: May 6, 1997
Decided: June 16, 1997
Before LUTTIG, WILLIAMS, and MICHAEL, Circuit Judges.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
4
COUNSEL
ARGUED: Stephen T. Gannon, LECLAIR RYAN, Richmond, Vir-
ginia, for Appellants. Thomas Lee Riesenberg, Associate General
Counsel, ERNST & YOUNG, L.L.P., Washington, D.C., for Appel-
lee. ON BRIEF: Stanley K. Joynes, III, LECLAIR RYAN, Rich-
mond, Virginia; Steven J. Toll, Daniel S. Sommers, COHEN,
MILSTEIN, HAUSFELD & TOLL, P.L.L.C., Washington, D.C.;
Robin F. Zwerling, Hillary Sobel, ZWERLING, SCHACHTER,
ZWERLING & KOPPELL, L.L.P., New York, New York; Robert P.
Frutkin, SAVETT, FRUTKIN, PODELL & RYAN, P.C., Philadel-
phia, Pennsylvania; James W. Johnson, Goodkind Labaton, RUDOFF
& SUCHAROW, L.L.P., New York, New York; Alfred G. Yates, Jr.,
ALFRED G. YATES, JR. & ASSOCIATES, Pittsburgh, Pennsylva-
nia, for Appellants. Kathryn A. Oberly, General Counsel, ERNST &
YOUNG, L.L.P., Washington, D.C.; Michael J. Crane, Assistant Gen-
eral Counsel, ERNST & YOUNG, L.L.P., New York, New York;
Ellis M. Johnston, II, Jesse C. Belcher, HAYNSWORTH, MARION,
MCKAY & GUERARD, Greenville, South Carolina, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Bruce R. Johnstone and the members of a decertified class appeal
from the decertification order entered by the district court on July 25,
1996. The district court concluded that the class should be decertified
because of the inadequacy of both class counsel and the class repre-
sentatives. In particular, the district court objected to class counsel's
26-month-long failure to provide notice to the class members, to class
counsel's failure to adequately investigate and satisfy claims made by
class members in a parallel proceeding, and to the class representa-
tives' failure to attend depositions despite repeated notice. Johnstone
also appeals from the district court's denial of his motion to intervene.
5
The underlying facts may be briefly stated. Ross Cosmetics was a
Delaware corporation, traded on the NASDAQ, with its principal
office in South Carolina. On June 12, 1992, Ross Cosmetics disclosed
the majority ownership interest of two families, both named "Sheth,"
from Dubai, United Arab Emirates. The Sheth families also had a sig-
nificant interest in a principal supplier of Ross Cosmetics, S & J Per-
fume Co. of London. After disclosure of the Sheth families' interests,
the stock price of Ross Cosmetics fell in heavy trading from $14.50
per share to $5 per share. Afterwards, the board of directors of Ross
Cosmetics appointed a Special Committee to investigate the non-
disclosure. The Special Committee reported that Ross Cosmetics was
"a legitimate business operation," and that nondisclosure of the Sheth
ownership interests was "remarkable in its apparent senselessness."
As a result of the report, Ross Cosmetics regained some ground, and
its shares reached the $11 to $12 per share range. Nevertheless, in
September 1995, the Securities and Exchange Commission brought
enforcement proceedings, and most of the wrongdoers consented to
the charges.
Two primary civil class actions resulted. One, against Ross Cos-
metics, was a consolidation of thirteen virtually identical class action
lawsuits filed almost immediately after disclosure of the Sheth fami-
lies' interests. This consolidated class action was settled in Septem-
ber, 1993, for $9.5 million. During the pendency of the class action
against Ross Cosmetics, however, the same group of law firms
involved in the litigation against Ross Cosmetics filed a separate law-
suit against Ernst & Young, alleging that Ernst & Young had fraudu-
lently and negligently misrepresented Ross Cosmetics' financial
statements in a 1991 opinion letter. The district court certified the
lawsuit against Ernst & Young, at issue here, as a class action on
April 24, 1994.
As the case against Ernst & Young unfolded, the district court
became increasingly dissatisfied with the performance of class coun-
sel. The district judge was particularly troubled to learn that on June
20, 1996, twenty-six months after the class had been certified and
after the case finally had been docketed for trial, class counsel still
had not made provision for notice to the class members. The district
court also made clear its concern that class counsel had not diligently
disbursed the settlement proceeds in the related litigation against Ross
6
Cosmetics. Accordingly, the district court decertified the class on July
25, 1996. Afterwards, the representative plaintiffs settled their indi-
vidual claims with Ernst & Young. Because there was no longer a
class and no longer any individual class representatives, the district
court dismissed the action against Ernst & Young on August 5, 1996.
Our scope of review is narrow. When the district court refuses to
certify, or decertifies based on a determination of inadequate repre-
sentation, that decision is "within the discretion of the district court
and will be reversed only upon a showing of abuse of that discretion."
Boley v. Brown, 10 F.3d 218, 223 (4th Cir. 1993). We have also
explained that "[t]his Court, in reviewing the class certification deci-
sions of district courts under Rule 23, has generally accorded great
deference to the district court's determinations." Simmons v. Poe, 47
F.3d 1370, 1380 (4th Cir. 1995). We have alternatively phrased the
test as allowing reversal "only if we are convinced that the court was
``clearly wrong'" in the certification ruling. Central Wesleyan College
v. W.R. Grace & Co., 6 F.3d 177, 185 (4th Cir. 1993) (quoting
Windham v. American Brands, Inc., 565 F.2d 59, 65 (4th Cir. 1977)
(en banc)). We have reviewed the record, briefs, and pertinent case
law in this matter, and we have had the benefit of oral argument. Our
review persuades us that the district court did not abuse its discretion
in decertifying the class based on the inadequacy of class counsel. We
also conclude that the district court did not abuse its discretion in
denying Johnstone's motion to intervene in the action. See Hazardous
Waste Treatment Council v. South Carolina (In re Sierra Club), 945
F.2d 776, 779 (4th Cir. 1991) (district court's intervention decision is
reviewed under an abuse of discretion standard). Accordingly, we
affirm on the reasoning set forth in the district court's opinions.
Johnson v. Ernst & Young (In re Ross Cosmetics Security Litigation),
C/A No. 7:93-1405-3 (D.S.C. July 25, 1996) (order decertifying
class); Johnson v. Ernst & Young (In re Ross Cosmetics Security
Litigation), C/A No. 7:93-1405-3 (D.S.C. Aug. 6, 1996) (order deny-
ing Johnstone's motion to intervene).
AFFIRMED
7