Wolin, Derivatively on Behalf of Caterpillar, Inc. v. Oberhelman et al

Filing 47

ORDER entered by Judge Sara Darrow on March 31, 2014. Stokar IRA's #37 Motion to Stay Consolidation of Related Actions Pending Proof of This Court's Jurisdiction Over Certain of the Related Actions, Withdrawal of Intervention, and for Appointment of Lead Counsel is GRANTED IN PART and DENIED IN PART. Stokar IRA's request for a stay is DENIED; Stokar IRA's requests to consolidate only with Wolin's action and for appointment of its counsel as lead and liaison counsel are DENIED. Stokar IRA's #43 Motion for Leave to File a Reply in Support of its Motion to Stay Consolidation is GRANTED. Iron Workers', Sterling Heights' and Wolin's joint #36 Motion to Consolidate Related Actions, Appoint Lead Counsel, and Set Briefing Schedule is GRANTED IN PART and DENIED IN PART. The following actions are consolidated: No. 13-1104, No. 13-1141, No. 13-1344, and No. 13-1509. By April 14, 2014, the parties are to notify the Court of any agreement upon, at most, two law firms to serve as co-lead counsel subject to the Court's authorization. The Court DEFERS entering a case scheduling order, including deadline for filing a consolidated complaint, until lead counsel has been appointed. (JD, ilcd)

E-FILED

Monday, 31 March, 2014 01:50:15 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
IRON WORKERS MID-SOUTH
PENSION FUND, Derivatively on Behalf
of CATERPILLAR INC.,
Plaintiff,
v.
DOUGLAS R. OBERHELMAN, et al.,
Defendants,
and
CATERPILLAR INC., a Delaware
Corporation,
Nominal Defendant.
CITY OF STERLING HEIGHTS
GENERAL EMPLOYEES’ RETIREMENT
SYSTEM, Derivatively on Behalf of
CATERPILLAR INC.,
Plaintiff,
v.
DOUGLAS R. OBERHELMAN, et al.,
Defendants,
and
CATERPILLAR INC., a Delaware
Corporation,
Nominal Defendant.

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MICHAEL D. WOLIN, Derivatively on
Behalf of CATERPILLAR INC.,
Plaintiff,
v.
DOUGLAS R. OBERHELMAN, et al.,
Defendants,
and
CATERPILLAR INC., a Delaware
Corporation,
Nominal Defendant.
THE ELLEN J. STOKAR IRA,
Derivatively on Behalf of CATERPILLAR
INC.,
Plaintiff,
v.
DOUGLAS R. OBERHELMAN, et al.,
Defendants,
and
CATERPILLAR INC., a Delaware
Corporation,
Nominal Defendant.

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) Case No. 1:13-cv-01344-SLD-JAG
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) Case No. 1:13-cv-01509-SLD-JAG
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ORDER

Four shareholders of Nominal Defendant Caterpillar Inc. (“Caterpillar”)—Iron Workers
Mid-South Pension Fund (“Iron Workers”), City of Sterling Heights General Employees’
Retirement System (“Sterling Heights”), Michael D. Wolin (“Wolin”), and the Ellen J. Stokar
IRA (“Stokar IRA”)—have brought separate derivative actions alleging that Defendants, who

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are directors and officers of Caterpillar, breached their fiduciary duties and wasted corporate
assets.

Because the Court finds that Iron Workers and Sterling Heights have sufficiently

pleaded the requisites for diversity jurisdiction, Stokar IRA’s Motion to Stay Consolidation of
Related Actions Pending Proof of This Court’s Jurisdiction Over Certain of the Related Actions,
Withdrawal of Intervention, and for Appointment of Lead Counsel, ECF No. 37,1 is GRANTED
IN PART and DENIED IN PART. Stokar IRA’s request for a stay is DENIED. Stokar IRA’s
Motion for Leave to File a Reply in Support of its Motion to Stay Consolidation, ECF No. 43, is
GRANTED. Iron Workers’, Sterling Heights’ and Wolin’s joint Motion to Consolidate Related
Actions, Appoint Lead Counsel, and Set Briefing Schedule, ECF No. 36, is GRANTED IN
PART and DENIED IN PART. For the following reasons, all four derivative actions are
consolidated and all requests for appointment of lead counsel are DENIED without prejudice;
establishment of a case schedule is DEFERRED until lead counsel has been appointed.
BACKGROUND
The plaintiffs in these four actions are Caterpillar shareholders.

Each shareholder

initiated its own derivative suit on Caterpillar’s behalf against Caterpillar’s directors and
officers.2 The Court has jurisdiction pursuant to 28 U.S.C. § 1332. Taken together, the four
complaints allege that Defendants breached their fiduciary duties, wasted corporate assets,
unjustly enriched themselves, and aided and abetted one another in the breaches of their
fiduciary duties. The claims stem from Caterpillar’s acquisition of ERA Mining Machinery
Limited (“ERA Mining”)—which manufactures hydraulic roof supports used in underground
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Unless otherwise indicated, all docket references in this Order refer to the Wolin case, No. 13-1344.
The four complaints substantially overlap, but exhibit some differences related to the alleged violations and the
particular directors and officers sued. All four plaintiffs claim that Caterpillar’s directors breached their fiduciary
duties and wasted corporate assets. Iron Workers, Sterling Heights, and Wolin also allege that Caterpillar’s
directors unjustly enriched themselves. Compl. ¶¶ 142–44, ECF No. 1. Sterling Heights additionally alleges that
Caterpillar’s directors aided and abetted one another in the breaches of fiduciary duties. Case No. 13-1141, Am.
Compl. ¶¶ 109–14, ECF No. 26. Regarding differences in Defendants, Wolin does not name Eugene Fife, and
Stokar IRA does not name Edward Rapp.
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coal mining—and its wholly-owned subsidiary, Zhengzhou Siwei Mechanical & Electrical
Manufacturing Co., Ltd. (“Siwei”), in June 2012 for $690 million. Compl. ¶ 2. On January 18,
2013, Caterpillar announced that it would be writing down the value of the goodwill related to
its acquisition of ERA Mining and Siwei by $580 million, which was 84% of the price
Caterpillar paid for the two companies. Caterpillar claimed the write-down was linked to years
of deliberate accounting misconduct that had been concealed at Siwei. Compl. ¶ 4.
Defendant officers and directors allegedly blamed Siwei senior managers for the
misconduct and resulting reduction in goodwill value. See id. ¶ 4. Plaintiffs allege, however,
that Defendants share in the blame, and breached their fiduciary duties to Caterpillar, wasted
corporate assets, and were unjustly enriched by disregarding information pointing to Siwei’s
overvaluation and failing to require due diligence in examining Siwei’s financial information
Id. ¶¶ 1, 6.
Iron Workers filed a derivative action on March 6, 2013. Sterling Heights filed its own
derivative suit on March 26, 2013. On May 16, 2013, Iron Workers and Sterling Heights jointly
moved to consolidate their two actions and appoint their respective counsel as co-lead counsel.
While these motions were pending, on June 4, 2013, Stokar IRA moved to intervene in the Iron
Workers case as well as to stay rulings on consolidation and the appointment of lead counsel for
at least 60 days to allow it to complete its investigation into wrongdoing by Defendants. Iron
Workers and Sterling Heights opposed the intervention on the grounds that they were already
adequately representing Caterpillar’s interests, and Stokar IRA had no unique interest in the
litigation not shared by the other Caterpillar shareholders. Defendants did not object to Stokar
IRA’s intervention. Wolin filed the third derivative action on August 5, 2013.

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On October 15, 2013, Iron Workers, Sterling Heights, and Wolin jointly moved to
consolidate their three cases and appoint their respective counsel as co-lead counsel. Having
completed its investigation of Caterpillar’s books and records, Stokar IRA filed its own
complaint on October 24, 2013.

On November 1, 2013, Stokar IRA moved to stay

consolidation with the Iron Workers and Sterling Heights cases, claiming that those Plaintiffs
had failed to sufficiently plead the existence of diversity jurisdiction.

Mot. Stay Consol. ¶ 5,

ECF No. 37. Stokar IRA requested consolidation of its case with the Wolin action alone, and
appointment of one of Stokar IRA’s counsel as lead or co-lead counsel, and another as liaison or
co-liaison counsel. Id. ¶¶ 7–8. On March 21, 2014, both Iron Workers and Sterling Heights
filed amended complaints wherein they identified and provided the state of citizenship of each
of their respective trustees.
DISCUSSION
Iron Workers and Sterling Heights submitted amended complaints that sufficiently
allege that the complete diversity of parties required by 28 U.S.C. § 1332 exists in their
respective actions.

See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 268 (1806).

Accordingly, the Court now considers consolidation of the cases and appointment of lead
counsel. Although no Plaintiff has requested consolidation with all three other cases, the Court
considers sua sponte the consolidation of all four overlapping actions. See Conn. Gen. Life Ins.
Co. v. Sun Life Assurance Co. of Canada, 210 F.3d 771, 774 (7th Cir. 2000)) (noting that where
circumstances are appropriate, a court can consolidate cases “whether or not the parties want the
cases consolidated”).

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I.

Consolidation
A.

Legal Framework

Under the Federal Rules of Civil Procedure, “[i]f actions before the court involve a
common question of law or fact,” the court may consolidate the cases. Fed. R. Civ. P. 42(a)(2).
While consolidation is “the best means of avoiding wasteful overlap when related suits are
pending in the same court,” Blair v. Equifax Check Servs., Inc., 181 F.3d 832, 839 (7th Cir.
1999), the decision whether to consolidate is committed to the Court’s discretion, Disher v.
Citigroup Global Markets, Inc., 487 F. Supp. 2d 1009, 1013 (S.D. Ill. 2007) (citing United
States v. Knauer, 149 F.2d 519, 520 (7th Cir. 1945)). Courts consider factors such as: the
similarity of questions of law and fact, the goals of judicial efficiency and avoidance of
inconsistent verdicts, and whether consolidation will delay the proceeding, Slezak v. Indep.
Courier Servs., Inc., Nos. 12-cv-1477, 13-cv-1037, 2013 WL 442772, at *1 (C.D. Ill. Feb. 5,
2013), as well as the risk of jury confusion and impact of consolidation on each party’s right to
receive a fair trial, Davis v. City of Springfield, No. 07-3096, 2007 WL 3243053, at *2 (C.D. Ill.
Nov. 1. 2007) (holding that risk of prejudice to defendants “tips the balance in favor of separate
trials”).
B.

Analysis

The four cases at issue here involve common questions of law or fact, as all plaintiffs
will seek to establish that substantially the same Caterpillar directors and officers (1) breached
their fiduciary duties and (2) wasted corporate assets in the course of Caterpillar’s acquisition of
ERA Mining and Siwei. Moreover, deciding these issues in one proceeding as opposed to four
will conserve judicial resources and avoid the possibility of inconsistent verdicts.

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Consolidating these actions is not likely to prejudice any party. Iron Workers, Sterling
Heights, and Wolin actively seek to have their cases consolidated, and Defendants have
indicated no objection to consolidation. Jt. Mot. Consol. 2, ECF No. 36. This reflects each
party’s confidence that consolidation would not jeopardize its right to a fair trial. Indeed, the
only shade of objection that has been made to consolidation was Stokar IRA’s request to stay
consolidation with Iron Workers and Sterling Heights pending proof of jurisdiction, based on
concern that lack of complete diversity in those two cases would destroy the Court’s jurisdiction
over all four actions should they be consolidated. Mot. Stay Consol. ¶¶ 3, 6. Because Iron
Workers and Sterling Heights have now sufficiently pleaded the requisites for diversity
jurisdiction, Stokar IRA’s objection is moot.
While Iron Workers and Sterling Heights opposed Stokar IRA’s motion to intervene, the
new and different considerations presented by consolidation convince the Court that no
additional prejudice would accrue to any party by including Stokar IRA among the consolidated
cases. First, Iron Workers and Sterling Heights objected to intervention on the bases that (1) the
pre-existing plaintiffs already adequately represented Caterpillar and (2) Stokar IRA had no
unique interest in the litigation not shared by other Caterpillar shareholders. Iron Workers and
Sterling Heights, however, did not claim they or Caterpillar would be prejudiced by Stokar
IRA’s intervention.3 Stokar IRA is no longer merely seeking to intervene, but has filed its own
complaint; it will thus be litigating on Caterpillar’s behalf regardless of whether it does so
individually or jointly, or whether Caterpillar’s interests are already represented by other
shareholders. Additionally, Defendants’ express lack of objection to the intervention indicates

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Iron Workers and Sterling Heights did argue that the other parties could be prejudiced by unnecessary delay
resulting from the stay of proceedings Stokar IRA simultaneously requested in its motion to intervene. See Case
No. 13-cv-1104, Pls.’ Mem. in Opp. Mot. Intervene 11–12, ECF No. 23. Stokar IRA’s requests for stays are now
moot, so this potential source of prejudice no longer exists.

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their absence of concern over suffering prejudice as a result of Stokar IRA’s presence in the
proceedings.
Accordingly, the Court finds that consolidating all four actions is appropriate.
II.

Appointment of Lead Counsel
A.

Legal Framework

Federal Rule of Civil Procedure 23.1 requires that a plaintiff in a shareholder derivative
suit “fairly and adequately represent the interests of shareholders or members who are similarly
situated in enforcing the right of the corporation.” Fed. R. Civ. P. 23.1(a). The Federal Rules,
however, are silent on appointment of lead counsel in a shareholder derivative action. When
exercising their discretion in this matter of “case management, rather than adjudication,” courts:
(1) appoint both a lead plaintiff and lead counsel, or (2) appoint a lead counsel only, on the
theory that the action is filed on behalf of the company, not a particular plaintiff. Chester Cnty.
Emps.’ Ret. Fund v. White, No. 11 C 8114, 2012 WL 1245724, at *1 (N.D. Ill. Apr. 13, 2012).
The Federal Judiciary Center’s Manual for Complex Litigation (“MCL”) describes the
basic principles guiding designation of particular attorney functions in litigation involving
multiple parties:
The types of appointments and assignments of responsibilities will depend on many
factors. The most important is achieving efficiency and economy without jeopardizing
fairness to the parties. . . . The functions of lead counsel may be divided among several
attorneys, but the number should not be so large as to defeat the purpose of making such
appointments.
MCL § 10.221 (4th ed. 2004).
Courts have encountered circumstances where an excess of lead attorneys does, indeed,
“defeat the purpose” of appointing lead counsel by threatening efficiency and economy. See id.
In one case, four shareholder derivative suits—with a motion for class certification pending—

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were consolidated into one, with three of the plaintiffs’ law firms appointed co-lead counsel. In
re Cont’l Illinois Sec. Litig., 572 F. Supp. 931, 932 (N.D. Ill. 1983) (“Continental Illinois”).
Plaintiffs also had other attorneys representing them and contributing assistance at the direction
of lead counsel. The court noted that the central issue in the case, whether defendant directors
and officers should have known there was inadequate security to issue loans that later defaulted,
was not unusually difficult or complex. Id. at 933.
Determining reasonable attorney’s fees in the event of plaintiffs’ success would be
difficult, the Continental Illinois Court stated, because “there are more lawyers on the plaintiffs’
side of the case than [the court] or anyone else could possibly keep track of.” Id. at 932. The
court sought to avoid the scenario in In re Fine Paper Antitrust Litig., 98 F.R.D. 48 (E.D. Pa.
1983), where distribution of work among various attorneys and firms led to extensive
duplication of efforts, performance of unnecessary services, and incursion of unnecessary
expenses, with the result that plaintiffs’ attorneys eventually sought to claim over 40 percent of
a $50,650,000 settlement for legal fees and expenses. Therefore, the Continental Illinois Court
vacated the designation of counsel, and directed plaintiffs’ counsel to confer and submit a roster
of attorneys “no larger than necessary to provide effective representation.” 572 F. Supp. at 933,
935.
B.

Analysis

The joint motion by Iron Workers, Sterling Heights, and Wolin seeks to have appointed
as co-lead counsel: Robbins Geller Rudman & Dowd LLP, which currently represents Iron
Workers and Sterling Heights; Robbins Arroyo LLP, which represents Iron Workers; and the
Law Offices of Bernard M. Gross, P.C., which represents Wolin. Jt. Mot. Consol. 7, ECF
No. 36. Stokar IRA requests that its counsel—Stull, Stull & Brody and Meites Mulder—be

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appointed as lead or co-lead and liaison or co-liaison counsel, respectively. Mot. Stay Consol. ¶
8. Each plaintiff presents evidence of its favored law firm’s qualifications to conduct this
litigation, but no plaintiff argues whether and how its counsel is better qualified than the others
to serve the Caterpillar shareholders. Were the Court to follow the parties’ wishes, therefore,
three to four law firms would serve four plaintiffs as lead counsel alone—with the possibility of
supporting work by the other law firms of record still unaddressed.
Appointing so many lead counsel may defeat the economy and efficiency goals served
by the designation. See MCL § 10.221. Continental Illinois found the prospect of three lead
counsel supervising an undefined group of subordinates to be excessive given the relative lack
of substantive difficulty posed by the case. See 572 F. Supp. at 932. Similarly, the parties here
have not yet addressed, let alone justified, the need for so many lead law firms to conduct this
derivative suit, especially given (1) no intimation thus far that the claims at issue—primarily
concerning whether and to what extent Defendants were reckless in deciding to acquire ERA
Mining and Siwei—are unusually difficult or complicated and (2) the countervailing concerns
of duplicative costs and efforts, and needless layers of internal review, that such an assemblage
of counsel threatens.
Accordingly, the Court denies each Plaintiff’s request for appointment of lead counsel
without prejudice. The parties are to confer among themselves and select a single law firm—or
at most, two law firms—to serve as lead counsel. The parties are to file notice of any such
agreement by April 14, 2014.
CONCLUSION
Stokar IRA’s Motion to Stay Consolidation of Related Actions Pending Proof of This
Court’s Jurisdiction Over Certain of the Related Actions, Withdrawal of Intervention, and for

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Appointment of Lead Counsel, ECF No. 37, is GRANTED IN PART and DENIED IN PART.
Stokar IRA’s request for a stay is DENIED; Stokar IRA’s requests to consolidate only with
Wolin’s action and for appointment of its counsel as lead and liaison counsel are DENIED.
Stokar IRA’s Motion for Leave to File a Reply in Support of its Motion to Stay Consolidation,
ECF No. 43, is GRANTED. Iron Workers’, Sterling Heights’ and Wolin’s joint Motion to
Consolidate Related Actions, Appoint Lead Counsel, and Set Briefing Schedule, ECF No. 36, is
GRANTED IN PART and DENIED IN PART. By April 14, 2014, the parties are to notify the
Court of any agreement upon, at most, two law firms to serve as co-lead counsel subject to the
Court’s authorization. The Court DEFERS entering a case scheduling order, including deadline
for filing a consolidated complaint, until lead counsel has been appointed. Additionally:
(1) The following actions are consolidated:
CASE NAME

CASE NUMBER

FILING DATE

Iron Workers Mid-South Pension Fund v.
Oberhelman et al.

1:13-cv-01104-SLD-JAG

March 6, 2013

City of Sterling Heights General
Employees’ Retirement System v.
Oberhelman et al.

1:13-cv-01141-SLD-JAG

March 26, 2013

Wolin v. Oberhelman et al.

1:13-cv-01344-SLD-JAG

August 5, 2013

The Ellen J. Stokar IRA v.
Oberhelman et al.

1:13-cv-01509-SLD-JAG

October 24, 2013

(2) Every pleading filed in these consolidated actions, or any separate action
included herein, shall bear the following caption:

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
IN RE CATERPILLAR INC.
SHAREHOLDER DERIVATIVE
LITIGATION
This Document Relates To:

) Master Docket No. 1:13-cv-01104-SLD-JAG
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(3) When a pleading or other court paper filed in the consolidated action is intended
to apply to all actions therein, the words “All Actions” shall appear immediately after the words
“This Document Relates To:” in the caption set forth above. When a pleading or other court
paper is intended to be applicable only to one, or some, but not all of such actions, the party
filing the document shall indicate the action(s) to which the document is intended to be
applicable by the name of the plaintiff(s) and the docket number(s).
(4) The files of these consolidated actions shall be maintained in one file under
Master Docket No. 1:13-cv-01104-SLD-JEH.
(5) Each case, arising out of the same or substantially the same transactions or events
as the consolidated actions, which is subsequently filed in, removed to, or transferred to this
Court shall be consolidated for all purposes with these actions if and when it is brought to the
Court’s attention.
(6) When a case which properly belongs as part of In re Caterpillar Inc. Shareholder
Derivative Litigation, Master Docket No. 1:13-cv-01104-SLD-JEH, is hereafter filed in this
Court or transferred here from another court, the Court requests the assistance of counsel in
calling to the attention of the Clerk of the Court the filing or transfer of any case which might
properly be consolidated as part of In re Caterpillar Inc. Shareholder Derivative Litigation,

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Master Docket No. 1:13-cv-01104-SLD-JEH. Counsel are to assist in assuring that counsel in
subsequent actions receive notice of this Order.

Entered this 31st day of March, 2014.
s/ Sara Darrow
SARA DARROW
UNITED STATES DISTRICT JUDGE

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