Blakeslee v. PHC, Inc. et al
Chief Judge Patti B. Saris: For the reasons set forth in the attached MEMORANDUM AND ORDER, the plaintiffs motion to certify a class of all Class Ashareholders 161 is DENIED without prejudice. However, the Court ALLOWS the motion to certify a class of all Class A shareholders who voted against the merger or abstained. (Molloy, Maryellen)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
MAZ PARTNERS LP,
Individually and on Behalf of
Others Similarly Situated,
BRUCE SHEAR, et al.,
MEMORANDUM AND ORDER
January 14, 2016
In this proposed class action, the plaintiff, MAZ Partners
LP (MAZ), alleges that the directors of PHC, Inc. (PHC) breached
their fiduciary duty by approving inadequate compensation for
Class A shareholders through a flawed process in connection with
the merger with Acadia Healthcare, Inc. (Acadia). The plaintiff
contends that the proxy statement mailed to PHC shareholders
omitted material information necessary for shareholders to make
an adequately informed decision.1 It also contends that Acadia
aided and abetted this breach. MAZ, which voted against the
merger, has moved to certify a class of all shareholders who
held PHC Class A stock prior to the merger, regardless of
whether they voted for or against it.2
Opposing class certification, the defendants argue that MAZ
is not a typical or adequate class representative under Rule
23(a) for the Class A shareholders who voted for the merger, and
that MAZ lacks standing to be a class representative.
After hearing, the plaintiff’s motion to certify a class of
all Class A shareholders (Docket No. 161) is DENIED. However, the
The Second Amended Complaint of the plaintiff MAZ does not
include a violation of section 14(a) of the Securities Exchange
Act of 1934 and Securities and Exchange Commission Rule 14a-9.
The claim involving the preliminary proxy statement brought by
plaintiff Blakeslee in a consolidated case was dismissed without
prejudice at an earlier stage of the proceedings. See In re PHC,
Inc. S’holder Litig., No. 11–cv-11049, 2012 WL 1195995, at *3
(D. Mass. Mar. 30, 2012). The Court denied MAZ’s motion for
leave to amend to add a section 14(a) claim filed after remand
from the First Circuit and the close of discovery. See Docket
2 MAZ’s proposed class definition is: “All Class A stockholders
of PHC, Inc., d/b/a Pioneer Behavioral Health, who held their
Class A shares immediately prior to the effective time of the
merger between PHC and Acadia Healthcare Company, Inc. and whose
shares were converted in the merger, except Defendants and any
person, firm, trust, corporation, or other entity related to, or
affiliated with, any of the Defendants.” Docket No. 161 at 1.
Court ALLOWS the motion to certify a class of all Class A
shareholders who voted against the merger or abstained.3
The facts below are taken from the record, and are
undisputed except where stated.
PHC was a publicly traded behavioral healthcare company
organized under Massachusetts law. MAZ is a partnership that
owned over 100,000 shares of stock in PHC. PHC had two classes
of common stock. Holders of Class A stock were entitled to one
vote per share. Class B stock entitled holders to five votes per
share. MAZ had Class A stock.
PHC’s board consisted of six directors. Bruce Shear served
as a director, chairman of the board, and chief executive
officer of PHC, and held ninety-three percent of PHC’s
outstanding Class B shares and approximately eight percent of
its Class A shares. Combined, Shear controlled approximately
twenty percent of the total voting rights for all PHC shares.
Class A shareholders elected two out of six board members and
Class B shareholders elected the other four directors. Because
conjunction with this motion for class certification, both
parties fully briefed and argued cross-motions for summary
judgment. The Court used the summary judgment record to analyze
the class certification issues and will rule on summary judgment
Shear held ninety-three percent of the Class B stock, he
personally had the power to elect four out of the six directors
to the PHC board. Other than Shear, none of the other directors
held Class B stock.
In February 2011, Shear and Acadia CEO Joey Jacobs began
meeting to discuss a possible merger of the two companies. The
two CEOs agreed on a stock-for-stock merger where PHC
shareholders would own 22.5% and Acadia shareholders would own
the remaining 77.5% of the newly merged corporation’s stock. The
Class B shareholders would receive a pro rata share of an
additional five million dollars. As the holder of ninety-three
percent of the outstanding Class B shares, Shear would receive
approximately $4.7 million of the additional consideration. The
two CEOs also agreed that Shear would appoint two directors on
Acadia’s board and serve as a corporate executive in post-merger
After Jacobs sent a letter of intent to the PHC board
detailing the agreed upon terms, on March 28, 2011, the board
appointed director William Grieco to serve as the “lead
independent director.” Even after this appointment, Shear
maintained an active role in merger negotiations. Grieco and
Shear had a longstanding professional relationship, and Shear
had appointed Grieco to the PHC board. Grieco sought and
eventually secured the second post-merger director position in
The PHC board retained Stout Risius Ross, Inc. (SRR) to
provide an opinion on the merger’s overall fairness. However,
the board did not ask SRR to determine the fairness of the
additional five-million-dollar consideration for Class B shares.
SRR only determined that the share price for Class A
shareholders, in the aggregate, was fair, and presented its
findings to the board. The five directors, other than Shear,
voted unanimously to recommend the merger to the shareholders.
Shear abstained from the board vote.
Acadia and PHC signed the merger agreement on May 23, 2011.
In June 2011, after the merger’s announcement, MAZ filed suit to
enjoin the merger, which it did not press. On September 27,
2011, PHC disseminated its Final Proxy Statement to the PHC
shareholders that disclosed the details of the merger. The Proxy
was nearly 500 pages long. It is disputed whether the Proxy
omitted material information.
Merger approval required a two-thirds super-majority vote
of (1) Class A voting stock alone, (2) Class B voting stock
alone, and (3) Class A and B voting stock combined. Together,
the directors held a total of 24.8% of PHC’s outstanding voting
power. On October 26, 2011, the PHC shareholders present at the
meeting voted in favor of the merger, with 88.7% of Class A
shares and 99.9% of Class B shares voting for the merger.
Approximately twenty-nine percent of total PHC shares either
voted against the merger or abstained from the vote. Prior to
merger consummation, there was a payment of a ninety-milliondollar cash dividend to the equity holders of Acadia. On
November 1, 2011, the merger was fully consummated and PHC’s
shares were automatically converted to Acadia shares. The
plaintiff did not seek the remedy of appraisal pursuant to
M.G.L. ch. 156D, § 13.02(a). MAZ sold its shares in January 2012
at a profit.
The defendants argue that MAZ lacks standing to pursue its
claims because it benefited from the merger as a result of the
dramatic value increase in Acadia shares post-merger. The
defendants point out that, as of September 2013, Acadia shares
The trial court presiding over the proceedings prior to appeal
granted summary judgment in favor of the defendants, finding
that the plaintiff had suffered no injury as a consequence of
the conversion of PHC shares into Acadia shares at the time of
the merger, and therefore, either lacked standing or proof of an
essential element of its claims. Docket No. 121. The First
Circuit reversed on the ground that the plaintiff should have
been afforded the opportunity to conduct additional discovery.
See In re PHC, Inc. S’holder Litig., 762 F.3d 138, 145 (1st Cir.
had increased in value by 400%. The plaintiff responds that it
does have Article III standing because it was injured by the
inadequate percentage of Acadia’s shares it received. In other
words, if MAZ had received 26% of the post-merger shares, rather
than 22.5%, as well as a cut of the five-million-dollar
sweetener for Class B shareholders, it would have been richer.
“The constitutional prerequisites for Article III standing
are satisfied so long as a plaintiff colorably alleges an actual
injury that is both traceable to the defendant’s conduct and
redressable by a favorable decision.” Nisselson v. Lernout, 469
F.3d 143, 150 (1st Cir. 2006). A shareholder challenging a
merger sustains “a cognizable injury in fact at the time the
merger was approved.” In re Celera Corp. S'holder Litig., 59
A.3d 418, 430 (Del. 2012) (holding that a shareholder which sold
its stock on the public market several days before the merger
was actually consummated had standing as a class
representative). To have standing, “the plaintiff must have been
a stockholder at the time the terms of the merger were agreed
upon because it is the terms of the merger, rather than the
technicality of its consummation, which are challenged.” In re
Beatrice Cos., Litig., Nos. 155 and 156, 1987 WL 36708, at *3
(Del. Feb. 20, 1987).
Here, the plaintiff held stock both at the times the merger
was approved and consummated, and has sufficiently alleged that
it was harmed when the defendants breached their fiduciary duty
by approving inadequate merger compensation. That MAZ benefited
from the merger does not defeat standing so long as it can prove
that it would have received greater compensation if there were
no breach of fiduciary duty. The plaintiff has alleged a
concrete injury sufficient for Article III standing.
Rule 23 Standard
A class may be certified pursuant to Rule 23 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.
Fed. R. Civ. P. 23(a). In addition to the four prerequisites of
Rule 23(a) discussed above, a court must also find that at least
one of the three alternate requirements of Rule 23(b) is
satisfied. Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 38
(1st Cir. 2003).
The plaintiff seeks to certify the class pursuant to Rule
23(b)(1) or (b)(3).5 An action may be maintained only if the
court also finds that “the questions of law or fact common to
class members predominate over any questions affecting only
individual members, and that a class action is superior to other
available methods for fairly and efficiently adjudicating the
controversy.” Fed. R. Civ. P. 23(b)(3).
“A party seeking class certification must affirmatively
demonstrate his compliance with [Rule 23].” Wal-Mart Stores,
Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011). “[I]t may be
necessary for the court to probe behind the pleadings before
coming to rest on the certification question.” Id. (quoting Gen.
Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 160 (1982)).
Certification is proper only if this Court “is satisfied, after
a rigorous analysis, that the prerequisites of Rule 23(a) have
been satisfied.” Falcon, 457 U.S. at 161.
III. Rule 23(a) Requirements
The plaintiff estimates that there were 651 holders of
record for PHC Class A stock, and approximately twenty-nine
percent of those shares either abstained or voted against the
Since I have certified the class under Rule 23(b)(3), I will
not address (b)(1).
merger (188 holders). Many holders of record, like brokerage
houses, actually held PHC stock for numerous customers. Courts
have generally found that a class size of forty or more
individuals will satisfy the numerosity requirement. George v.
Nat’l. Water Main Cleaning Co., 286 F.R.D. 168, 173 (D. Mass.
2012). The defendants do not put forth any evidence countering
the plaintiff’s showing of numerosity. This element has been
“Rule 23(a)’s requirement of commonality is a low bar, and
courts have generally given it a permissive application.” In re
New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6,
19 (1st Cir. 2008). Commonality necessitates only the existence
of a “single issue common to all members of the class.”
Natchitoches Parish Hosp. Serv. Dist. V. Tyco Int’l, Ltd., 247
F.R.D. 253, 264 (D. Mass. 2008) (emphasis in original). MAZ has
put forth several common issues of law and fact, including
whether the directors breached their fiduciary duty, whether
Acadia aided and abetted any breach, and whether Shear was a
controlling shareholder. These common issues are sufficient to
satisfy this requirement.
The plaintiff argues that it is typical of all Class A
shareholders who owned PHC stock prior to the merger because all
shareholders were harmed by the defendants’ breach of fiduciary
duty. The defendants respond that the plaintiff is not typical
because it lacks Article III standing and is subject to the
individual, unique defense of acquiescence. The defendants
highlight the fact that MAZ had already decided to liquidate its
holdings in PHC before the merger was announced.
Class certification is appropriate only where “the claims
or defenses of the representative parties are typical of the
claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3). The
Supreme Court has stated:
The commonality and typicality requirements of Rule
23(a) tend to merge. Both serve as guideposts for
determining whether under the particular circumstances
maintenance of a class action is economical and whether
the named plaintiff's claim and the class claims are so
interrelated that the interests of the class members
will be fairly and adequately protected in their
Falcon, 457 U.S. at 157 n.13. The typicality investigation
“properly focuses on the similarity of the legal theory and
legal claims; the similarity of the individual circumstances on
which those theories and claims are based; and the extent to
which the proposed representative may face significant unique or
atypical defenses to her claims.” In re Schering Plough Corp.
ERISA Litig., 589 F.3d 585, 597-98 (3d Cir. 2009) (expressing
concern that the class representative was not sufficiently
similar to class members because it was unclear how many members
signed releases or covenants not to sue as the class
representative had). The purpose of the typicality requirement
is to ensure that the “class representative’s interests and
incentives will be generally aligned with those of the class as
a whole.” Id. at 599. “The representative plaintiff satisf[ies]
the typicality requirement when [its] injuries arise from the
same events or course of conduct as do the injuries of the
class, and when plaintiff’s claims and those of the class are
based on the same legal theory.” DeRosa v. Mass. Bay Commuter
Rail Co., 694 F. Supp. 2d 87, 100 (D. Mass. 2010). “Rule
23(a)(3) may have independent significance when it is used to
screen out class actions in which the legal or factual position
of the representatives is markedly different from that of other
members of the class . . . .” 7A Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1764 (3d ed. 2015).
Courts have held that potential class members should be
excluded based on lack of typicality if the defenses against the
potential members would be atypical of their defenses against
the named plaintiffs. See In re Smart Tech, Inc. S’holder
Litig., 295 F.R.D. 50, 60 (S.D.N.Y. 2013) (holding the named
plaintiff lacked typicality because the defendants’ defense
against the proposed class members “would be atypical of any
defense they could assert against plaintiff”); see also Miller
ex rel. S.M. v. Bd. of Educ. of Albuquerque Pub. Sch., 455 F.
Supp. 2d 1286, 1294 (D.N.M. 2006) (holding “conflict is likely
to be present if the members of the proposed class are subject
to the defense of failure to exhaust administrative remedies,
while the class representatives are not”); cf. DeRosa, 694 F.
Supp. 2d at 100 (“Both typicality and adequacy may be defeated
where the class representatives are subject to unique defenses
which threaten to become the focus of the litigation.”).
The defendants contend that MAZ acquiesced in the merger
when it sold its Acadia shares in January 2012 at a profit as
part of its pre-merger decision to liquidate its stock, thereby
disqualifying it from challenging the merger’s fairness. The
defendants also argue that the Class A shareholders, who voted
for the merger, acquiesced in it and are barred from seeking
recovery. MAZ responds that selling shares post-merger does not
implicate the acquiescence doctrine, and even those shareholders
who voted for the merger did not acquiesce because they were not
fully informed by the Proxy.
An analysis of the acquiescence doctrine is necessary to
determine whether the defense of acquiescence is similarly
applicable to these two groups of shareholders. Under
Massachusetts law, a shareholder may be estopped from
challenging a merger if he voted in favor of the merger based on
a proxy statement that was not materially misleading. Pavlidis
v. New England Patriots Football Club, Inc., 675 F. Supp. 696,
698 (D. Mass. 1987) (ruling “a stockholder who joins the
majority can hardly complain of the majority’s action”). “A
stockholder who, with knowledge of the facts, himself has given
his consent to, or acquiesced in, acts of the directors or other
corporate officers, or of majority stockholders, cannot
ordinarily attack such acts afterwards.” Id. (quoting 12B W.
Fletcher, Cyclopedia of the Law of Private Corporations § 4862
(rev. perm. ed. 1984)). “Shareholders who voted against the
merger and did not seek appraisal for their shares cannot be
said to have acquiesced in the merger.” Id. at 698-99.
Additionally, the “shareholders who abstained from the merger
vote are in no different a position than those who voted against
the merger.” Id. at 700 (noting “Massachusetts cases demonstrate
that acquiescence is not to be inferred from abstention”).
However, a stockholder who was not in a position to make an
informed decision is not bound by his vote. Sullivan v. First
Mass. Fin. Corp., 569 N.E.2d 814, 818 (Mass. 1991) (ruling “as a
consequence of this breach of duty to make full and fair
disclosure, the minority stockholders who voted for the reverse
stock split were not in a position to make an informed decision
and are not bound by their votes”). In light of the sparse
Massachusetts case law on point, the parties have relied
extensively on Delaware case law to determine the contours of
the acquiescence doctrine in the context of a merger. In
corporate matters, Massachusetts courts will regularly look to
opinions of the Delaware courts as courts “with great experience
in such matters.” See Coggins v. New England Patriots Football
Club, Inc., 492 N.E.2d 1112, 1116 (Mass. 1986).
The defendants rely heavily on the Delaware Supreme Court’s
opinion in Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 842
(Del. 1987) to support their position that, when MAZ sold its
PHC shares for a profit post-merger, it acquiesced in the
merger. The Delaware Supreme Court held that “an informed
minority shareholder, who either votes in favor of a merger or
accepts the benefits of the transaction cannot thereafter attack
the fairness of the merger price.” Id. Delaware courts have
generally declined to apply the acquiescence doctrine where a
shareholder voted against the merger. See In re Best Lock Corp.
S'holder Litig., 845 A.2d 1057, 1080 (Del. Ch. 2001) (ruling
that “an essential element of acquiescence—that the acquiescing
party shows unequivocal approval of the transaction” was lacking
in a case where the “plaintiffs tendered their shares while
simultaneously pursuing” litigation). “As a matter of simple
logic, those who voted against a transaction cannot be said to
have acquiesced to it.” See In re PNB Holding Co. S’holders
Litig., No. CIV.A. 28-N, 2006 WL 2403999, at *21 (Del. Ch. Aug.
18, 2006) (noting that the court “cannot perceive a rational
basis for finding that those PNB stockholders who did not cast
yes votes acquiesced simply because they accepted the Merger
consideration”). The Delaware courts have also held that the
acquiescence doctrine does not apply in squeeze-out mergers
involving a controlling shareholder where minority shareholders
were “battered into accepting unfair merger consideration.” See,
e.g., Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1143 n.89 (Del.
Ch. 2006). Delaware courts have held, however, that shareholders
who vote for a merger, if fully informed, effectively acquiesce
and are barred from challenging the merger. See In re PNB, 2006
WL 2403999, at *1 (holding that “those stockholders who voted
for the Merger are barred from recovery” because the directors
“disclosed all material facts in connection with the Merger”).
Here, when the merger was announced in May 2011, MAZ filed
suit within one month seeking an injunction to halt the merger.
At the time of the merger vote, the plaintiff held approximately
100,000 Class A shares and voted all of those shares against the
merger. After merger consummation, MAZ’s PHC shares were
automatically converted to Acadia shares without MAZ taking any
action. Therefore, under Massachusetts case law, even though MAZ
sold its Acadia shares in January 2012, it did not acquiesce in
the merger and may challenge its fairness.
However, the acquiescence defense is much stronger against
the other members of the proposed class who voted for the
merger. In the typicality analysis, the Court must consider
evidence that the overwhelming supermajority of shareholders
voted for the merger. “The fact that minority shareholders voted
in favor of the merger is not fatal to their possible inclusion
in a class challenging said merger, but . . . the percentage of
prospective class members who voted in favor of a merger is a
factor to be considered in making the typicality determination.”
TBK Partners v. Chomeau, 104 F.R.D. 127, 131 (E.D. Mo. 1985)
(finding no typicality where eighty-seven percent of the
proposed class voted in favor of the merger).
Another factor this Court must consider is the contention
that shareholders who voted for the merger were not fully
informed by the Proxy. In claiming that the shareholders were
not fully informed, the plaintiff has relied on several
omissions in the Proxy. MAZ first contends that the Proxy
misleadingly implied that William Grieco had had certain powers
as the “lead independent director” that he did not possess. MAZ
next asserts that the Proxy omits that Grieco failed to disclose
that he was a front-runner for the post-merger director position
in Acadia when he was appointed “lead independent director.” MAZ
also argues that the Proxy did not adequately explain how SRR
determined the relative values of PHC and Acadia or what impact
the ninety-million-dollar dividend, issued to Acadia
shareholders, had on that value determination. MAZ points out
that the Proxy failed to state the basis for the five-milliondollar payment to Class B shareholders. See Docket No. 188, Ex.
5, at 18-19.
The plaintiff contends that these alleged material
omissions are sufficient to demonstrate that the shareholders
were so poorly informed that the acquiescence doctrine will not
bar them from the class. MAZ relies on In re Bluegreen Corp.
S’holder Litig., No. 502011-ca-018111, at *6 (Fla. Cir. Ct. Dec.
18, 2013), where the court granted class certification for all
members of the proposed class of shareholders regardless of
whether they voted for or against the cash-out merger. The
court’s reasoning was that, under Florida law, at the class
certification stage, it was not appropriate to rule on the
merits of the plaintiff’s material misrepresentations in the
proxy claims. Id.
Under federal law, however, the Supreme Court directs
district courts to conduct a “rigorous analysis” and “probe
behind the pleadings before coming to rest on the certification
question.” Dukes, 131 S. Ct. at 2551. Although the plaintiff
points to material omissions in the Proxy in its concise
statement of material facts, it fails to adequately address the
merits of these claims in its briefs for either summary judgment
or class certification beyond mere conclusory statements that
the shareholders were not fully informed by the Proxy.
I am not persuaded that, on the merits, the plaintiff has a
strong enough argument on this theory. For example, the Proxy
did adequately disclose that Grieco would assume a post-merger
director position on Acadia’s board and that Shear actively
participated in merger negotiations after Grieco was appointed
“lead independent director.” In any event, regardless of how
this dispute over whether the shareholders were fully informed
by the Proxy plays out in a full summary judgment analysis, the
shareholders who voted for the merger will have to surmount a
significant additional obstacle to achieve a recovery that MAZ
will not. Even though the defendants have asserted the
acquiescence doctrine as a defense against all proposed class
members, the strength of their argument differs dramatically
between those who voted yea and those who voted nay. For this
reason, MAZ is not typical of shareholders who voted for the
An adequacy showing requires a two-part analysis: “The
moving party must show first that the interests of the
representative party will not conflict with the interests of the
class members, and second, that counsel chosen by the
representative party is qualified, experienced and able to
vigorously conduct the proposed litigation.” In re Boston Sci.
Corp. Secs. Litig., 604 F. Supp. 2d 275, 282 (D. Mass. 2009)
(quoting Andrews v. Bechtel Power Corp., 780 F.2d 124, 130 (1st
Here, the interests of MAZ and the other Class A
shareholders align to maximize their recovery by showing that
If, after ruling on the parties’ motions for summary judgment,
the Court concludes that the Class A shareholders were not fully
informed based on material omissions in the Proxy, the plaintiff
may ask this Court to revisit the issue of typicality and the
Court may indeed acquiesce. “An order that grants or denies
class certification may be altered or amended before final
judgment.” Fed. R. Civ. P. 23(c)(1)(C).
the directors breached their fiduciary duty by agreeing to
inadequate compensation. Additionally, the proposed class
counsel, Wolf Popper LLP, Berman DeValerio, and Brower Piven,
are sufficiently experienced with complex securities litigation
to capably represent the certified class. I find the adequacy
requirement has been met.
Brandishing Comcast Corp. v. Behrend, 133 S. Ct. 1426
(2013), the defendants argue that common issues do not
predominate because the plaintiff has failed to produce a model
to calculate class-wide damages under Rule 23(b)(3).
Specifically, they argue that individualized factual issues are
unique to each shareholder regarding (1) why they voted for or
against the merger and (2) how to calculate the specific quantum
of damages allegedly owed to each shareholder. These concerns
are largely premised on a class of shareholders who voted both
for and against the merger.
“The Rule 23(b)(3) predominance inquiry tests whether
proposed classes are sufficiently cohesive to warrant
adjudication by representation.” Amchem Prods., Inc. v. Windsor,
521 U.S. 591, 624 (1997). The “predominance criterion” is “far
more demanding” than the commonality requirement. Id. at 623-24.
Although the predominance analysis imposes a high bar, “Rule
23(b)(3) requires merely that common issues predominate, not
that all issues be common to the class.” Smilow, 323 F.3d at 39.
“Where common questions predominate regarding liability, then
courts generally find the predominance requirement to be
satisfied, even if individual damages issues remain.” Id.
The defendants have gotten too big for their breaches with
their argument that this proposed class fails for lack of a
class-wide damages model. The Comcast Court reversed a class
certification order because the plaintiff’s damages model
provided for damages for antitrust theories which had been
rejected by the trial court. 133 S. Ct. at 1431. “Comcast holds
that a damages suit cannot be certified to proceed as a class
action unless the damages sought are the result of the classwide injury that the suit alleges.” Butler v. Sears, Roebuck &
Co., 727 F.3d 796, 799 (7th Cir. 2013) (emphasis in original).
“[A]t class certification, the damages calculation must reflect
the liability theory.” In re Nexium Antitrust Litig., 777 F.3d
9, 23 (1st Cir. 2015). However, “it would drive a stake through
the heart of the class action device, in cases in which damages
were sought . . . to require every member of the class have
identical damages.” Butler, 727 F.3d at 800-01.
One helpful decision is Fox v. Riverview Realty Partners,
where the court certified a class of shareholders under Rule
23(b)(3), based on a damages model where damages could “be
mechanically answered on a per share basis from Class members’
records of holdings of the B shares.” No. 12-C-9350, 2014 WL
1613022, at *5, *13 (N.D. Ill. Apr. 22, 2014). In Fox, the
defendant corporate directors, accused of breach of fiduciary
duty in connection with a merger, argued that this damages model
ran afoul of Comcast. Id. at *5. The plaintiff alleged that
“each stockholder was injured identically, proportionate to his
number of preferred shares,” and the court ruled that “even if
these damages come out differently for each plaintiff, such
discrepancies do not defeat class certification.” Id. at *6.
MAZ has provided an expert report stating:
The implied PHC equity ownership in the new, combined
company (“New Acadia”) of approximately 22.5% that was
received in the Merger should have been approximately
16.9% higher in order to adequately compensate PHC
shareholders. This resulting 26.3% equity ownership
interest in New Acadia would have allowed Plaintiff MAZ
Partners L.P. and the other PHC Class A shareholders
. . . to own an additional 705,000 shares of New Acadia
than was received in the merger. The current value of
these additional shares approximates $53.2 million.
Expert Report of Matthew R. Morris, Docket No. 192, Ex. 1, at
172. The expert also contends that the additional five-milliondollar payment to Class B shareholders was too high and that, in
the majority of comparable transactions, enhanced voting
stockholders received no additional compensation. These claimed
damages are linked directly to the defendants’ alleged breach of
their fiduciary duty, and are common to all potential members of
the class (Class A shareholders who voted against the merger or
abstained). Each class member’s share could be determined based
on share ownership at the time of the merger. The fact that
eventual monetary awards may differ does not defeat class
certification because the damages stem from a common injury to
all class members. Because the plaintiff’s damages model is
consistent with its liability theory, it does not run afoul of
Comcast, and thus satisfies the predominance requirement of Rule
Rule 23(b)(3) requires a class action to be “superior to
other available methods for fairly and efficiently adjudicating
the controversy.” Fed. R. Civ. P. 23(b)(3). “In adding
predominance and superiority to the qualification-forcertification list, the Advisory Committee sought to cover cases
in which 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.” Amchem,
521 U.S. at 615. “The policy at the very core of the class
action mechanism is to overcome the problem that small
recoveries do not provide the incentive for any individual to
bring a solo action prosecuting his or her rights.” Id. at 617.
The plaintiff has shown that this case is more properly
adjudicated as a class action rather than a series of individual
lawsuits. While the plaintiff asserts breach of fiduciary duty,
this case is similar to securities fraud cases which are
particularly suitable for class certification. See Yang v. Odom,
392 F.3d 97, 109 (3d Cir. 2004). This hard-fought case would be
too expensive and time-consuming for many individual class
member shareholders to litigate.
Based on the foregoing, MAZ has met the requirements for
class certification under Rule 23(b)(3).
The plaintiff’s motion to certify a class of all Class A
shareholders (Docket No. 161) is DENIED without prejudice.
However, the Court ALLOWS the motion to certify a class of all
Class A shareholders who voted against the merger or abstained.
Pursuant to Federal Rules of Civil Procedure 23(a) and
(b)(3), the Court certifies the following class for liability
All Class A shareholders of PHC, Inc., who either
abstained from voting or voted against the PHC-Acadia
merger in the October 26, 2011 shareholder vote, who
held their Class A shares immediately prior to October
26, 2011, and whose shares were converted to Acadia
shares after the effective merger date, except
Defendants and any person, firm, trust, corporation, or
other entity related to, or affiliated with, any of the
The Court appoints MAZ Partners as Class Representative, Wolf
Popper LLP as Plaintiff’s Lead Counsel, and the law firms of
Wolf Popper LLP; Berman DeValerio; and Brower Piven, A
Professional Corporation, as Class Counsel.
/s/ PATTI B. SARIS
Patti B. Saris
Chief United States District Judge
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