Downing et al v. Goldman Phipps PLLC et al
MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that defendants' motion to dismiss for lack of jurisdiction - CAFA [# 142] is denied. IT IS FURTHER ORDERED that defendants' motion to dismiss for lack of jurisdiction CBF Order [# 140] is denied. IT IS FINALLY ORDERED that defendants motion to dismiss Counts V through VIII for lack of subject matter jurisdiction lack of standing [# 144] is denied. Signed by District Judge Catherine D. Perry on June 30, 2015. (MCB)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
DON M. DOWNING, et al.,
GOLDMAN PHIPPS PLLC, et al.,
) Case No. 4:13CV206 CDP
MEMORANDUM AND ORDER
This case is one of several arising from disputes over fees among lawyers
representing groups of plaintiffs in the genetically modified rice multi-district
litigation (Rice MDL) that took place in this District. There are two groups of
plaintiffs in this action. The first includes several law firms that sue on behalf of a
class that provided or paid for common-benefit litigation services and materials
and on behalf of a subclass that provided the services. The second group is
composed of the two co-trustees of a trust that was created to reimburse the various
Rice MDL plaintiffs’ counsel for their collective litigation efforts. The two sets of
plaintiffs assert unjust enrichment and quantum meruit claims against two groups
of attorneys and law firms. The plaintiffs allege that the defendant attorneys used
the federal Rice MDL litigation materials to prosecute their own state-court claims
on behalf of plaintiffs who were not subject to the federal Rice MDL orders.
Defendants have filed three motions to dismiss this case for want of subjectmatter jurisdiction. First, they contend that the claims brought on behalf of a class
should be dismissed because there are an insufficient number of plaintiffs to
support jurisdiction under the Class Action Fairness Act (CAFA). That motion
will be denied, because the pleadings and evidence provided by plaintiffs show that
CAFA’s requirements have been met. Second, defendants argue that prior
decisions in the Rice MDL regarding jurisdiction are dispositive in this case. That
ruling, however, dealt with a different jurisdictional issue in a different case; the
court has CAFA jurisdiction over this case, and so that motion will be denied.
Finally, defendants argue that the Co-Trustees do not have standing to assert their
claims. The Co-Trustees do have standing, however, and so the third motion will
In 2006, the USDA announced that the rice supply in the United States had
been contaminated by Bayer’s genetically modified rice. Thousands of rice
producers and non-producers filed suit against various Bayer entities in federal and
state courts. The Phipps Group1 and the Murray Group2 represented many of those
plaintiffs in the federal and state cases. The Judicial Panel on Multidistrict
Litigation transferred all pending federal cases to this court, In re Genetically
Modified Rice Litigation, 4:06MD1811 CDP (“Rice MDL”), and Don Downing
and Adam Levitt were appointed as plaintiffs’ co-lead counsel. Over the course of
the next several years, Gray, Ritter, & Graham, P.C., and various other firms and
attorneys invested considerable time and resources into the Rice MDL cases,
providing substantial benefits to other plaintiffs in the federal litigation.
On February 24, 2010, I issued an order in the Rice MDL creating a
common benefit trust fund to compensate co-lead counsel and those attorneys
working with co-lead counsel, who had provided common benefit services to the
other plaintiffs in this litigation (the Common Benefit Order). See In re
Genetically Modified Rice Litig., No. 4:06MD1811, ECF No. 2574, 2010 WL
716190 (E.D. Mo. Feb. 24, 2010). In coordination with my order establishing the
Fund, a trust deed was executed establishing the Genetically Modified Rice
Common Benefit Qualified Settlement Fund (the CBF Trust). The Trust named
References to the “Phipps Group” include the following defendants: Goldman Phipps PLLC,
Goldman Pennebaker & Phipps, P.C., Phipps Cavazos PLLC, Mikal C. Watts, P.C., Keller
Stolarczyk PLLC, Martin J. Phipps, Mikal C. Watts, Banks Law Firm PLLC, and Charles A.
Banks. The members of this group are citizens of Texas and Arkansas.
The “Murray Group” includes defendants Stephen B. Murray, Sr., and Murray Law Firm; they
are citizens of Louisiana.
Don Downing and Adam Levitt as trustees (the Co-Trustees) and set forth the
purpose of the Trust:
[t]o provide for the compensation and litigation-related expenses of
attorneys who have provided services for the common benefit of all
plaintiffs in the [Multi-District Genetically Modified Rice] Litigation,
. . . [and] to provide for the payment of any excess administrative
costs and expenses of the [Fund] established by this same Court.
The purpose of the [Trust] is limited to the matters set forth herein,
and this Agreement shall not be construed to confer on the Trustee
any authority to carry on any business or activity for profit.
The Trust also listed five express powers of the Trustees: pay taxes and
expenses, manage the assets of the Fund, hire accountants, execute documents of
transfer and conveyance, and ensure compliance with Internal Revenue Code §
468B. Additional powers could be ordered by the court after hearing upon notice
to all parties. ECF No. 2937-1.
The Common Benefit Order required Bayer to hold back 8% of any gross
recovery by producer plaintiffs for attorneys’ fees and an additional 3% of any
gross recovery for common benefit costs and expenses; that money would be paid
into the CBF Trust fund. At that time, I concluded that this federal court did not
have subject-matter jurisdiction to order holdbacks in the state-court cases, but I
urged those plaintiffs and their counsel to participate in the common benefit fund
to avoid being unjustly enriched by the efforts of common benefit attorneys. I also
ordered that any funds submitted to the Trust from state court settlements or
judgments would be distributed on the same basis as those from federal cases.
The Common Benefit Order was appealed to the Eighth Circuit, which
affirmed: “[T]he district court does not have the power to order parties in cases not
before it to contribute to the Fund.” In re Genetically Modified Rice Litigation,
764 F.3d 864, 874 (8th Cir. 2014). In so holding, the Court of Appeals rejected
arguments that equitable principles could serve as an independent basis requiring
state-court plaintiffs’ counsel to contribute to the CBF Trust fund. Id.
The two groups of attorney plaintiffs seek to recover attorney’s fees and
expenses they incurred in the Rice MDL. The Phipps Group and Murray Group
attorney defendants obtained recoveries for clients in state-court cases that were
not part of the Rice MDL and so did not contribute to the CBF Trust fund.
Plaintiffs allege that the Phipps and Murray Groups used MDL common-benefit
materials and work product to prosecute cases in state court on behalf of non-MDL
The first four counts of the Second Amended Complaint are brought by the
law firms3 (collectively “Gray Ritter” or Class Plaintiffs) on their own behalf and
Gray, Ritter & Graham, P.C., is a law firm incorporated in the State of Missouri and is a citizen
of that state. Wolf Haldenstein Adler Freeman & Herz, LLC, is a law firm with its principal
place of business in Illinois and is a citizen of Illinois, New York, New Jersey, Connecticut, and
on behalf of an alleged class and subclass. The Class is defined as “all persons and
entities that provided or paid for common benefit services, materials, and/or
related expense items” and is alleged to number in the “thousands.” 2d Am.
Compl. ¶ 59–60, ECF No. 128 (emphasis added). The Subclass is limited to those
who provided the common benefit services, etc., and is alleged to number over
100. Id. Both Class and Subclass exclude the defendants in this action. Counts I
and III assert unjust enrichment and quantum meruit claims, respectively, by the
Class against the Phipps Group. Counts II and IV assert unjust enrichment and
quantum meruit claims, respectively, by the Subclass against the Murray Group.
The remaining four counts are brought by the second group of plaintiffs,
Don Downing and Adam Levitt, in their capacity as the Co-Trustees of the CBF
Trust.4 The Co-Trustees present unjust enrichment and quantum meruit claims
against the Phipps Group (Counts V and VII) and Murray Group (Counts VI and
Defendants have filed three motions attacking jurisdiction. The first alleges
that this court lacks subject-matter jurisdiction under the Class Action Fairness Act
of 2005 (“CAFA”) because there are fewer than 100 plaintiffs. The second
contends that this court lacks subject-matter jurisdiction generally because the
California. Gray Reed & McGraw, P.C., is a law firm with its principal place of business in
Texas, where it is incorporated.
Don Downing is a Missouri citizen. Adam Levitt is a citizen of Illinois.
complaint seeks to enforce the Common Benefit Order that was entered in the Rice
MDL. Finally, defendants argue that the Co-Trustees lack standing to bring claims
on behalf of the CBF Trust.
“If the court determines at any time that it lacks subject-matter jurisdiction,
the court must dismiss the action.” Fed. R. Civ. P. 12(h). Subject-matter
jurisdiction refers to the court’s “statutory or constitutional power to adjudicate the
case.” United States v. Cotton, 535 U.S. 625, 630 (2002) (emphasis omitted)
(quoting Steel Co. v. Citizens for Better Env’t, 523 U.S. 83, 89 (1998)).
Class Action Fairness Act
Defendants’ first motion requests dismissal of Counts I through IV on the
grounds that there are too few plaintiffs to support CAFA jurisdiction.
Under CAFA, district courts have original jurisdiction over any civil class
action in which there is (1) an aggregate amount in controversy of at least
$5,000,000, exclusive of interest and costs, and (2) minimal diversity, that is,
where at least one plaintiff and one defendant are citizens of different states. 28
U.S.C. § 1332(d)(2), (6). CAFA also establishes narrow exceptions to its
jurisdiction, only one of which is relevant here: a court does not have jurisdiction
where “the number of members of all proposed plaintiff classes in the aggregate is
less than 100.” 28 U.S.C. § 1332(d)(5); see also Mississippi ex rel. Hood v. AU
Optronics Corp., 134 S. Ct. 736, 740 n.1 (2014) (noting exceptions to CAFA).
The number of proposed class members may be determined from the face of the
complaint. See Brown v. Mortg. Elec. Registration Sys., Inc., 738 F.3d 926, 932
(8th Cir. 2013).
CAFA retained the general rule that the proponent of federal jurisdiction
bears the burden of establishing jurisdiction. See Westerfeld v. Indep. Processing,
LLC, 621 F.3d 819, 822 (8th Cir. 2010). Once CAFA’s initial jurisdictional
requirements have been established, the objecting party bears the burden of
proving the applicability of any exception. See id. Any doubts as to the
applicability of an exception are resolved against the party seeking to establish an
exception to jurisdiction. Id.
A plain reading of Plaintiffs’ Second Amended Complaint shows that the
amount in controversy exceeds $5 million. ECF No. 129 at ¶ 2. Defendants are
citizens of Texas, Arkansas, and Louisiana, and the Class Plaintiffs and CoTrustees are citizens of Missouri, Illinois, Texas, New York, New Jersey,
Connecticut, and California. This meets the minimal diversity requirement. See
Grupo Dataflux v. Atlas Global Group, L.P. 541 U.S. 567, 578 n.6 (2004) (“We
understand ‘minimal diversity’ to mean the existence of at least one party who is
diverse in citizenship from one party on the other side of the case, . . .”). Thus, the
first two requirements for CAFA jurisdiction are met; the only question is whether
there are 100 or more plaintiffs.
The Class proposed in this case consists of “all persons or entities that
provided or paid for common benefit services, materials, and/or related expense
items.” Plaintiffs have alleged that the Class numbers in the thousands, and that
the Subclass, which includes only those who “provided” such benefits, numbers
over 100. The defendants have provided no evidence that the actual numbers of
Class and Subclass members are below the jurisdictional threshold. Instead, they
cite to a finding of the Special Master that only six law firms are entitled to further
funds from the CBF Trust in the event that additional payments are made. That
finding is simply not relevant to the case at bar. Courts evaluate the number of
plaintiffs by what is proposed in the complaint, Brown, 738 F.3d at 932, and so I
look to whether the proposed class exceeds 100 members.
Gray Ritter brings Counts I through IV on behalf of those who “provided” or
“paid for” the Rice MDL litigation. The affidavit provided by Don Downing states
that there were approximately 5000 rice producers in the Rice MDL who paid for
common-benefit expenses and who would recover in this case. See Downing Decl.
¶ 2–3, ECF No. 154-1. That affidavit also avers that of the 34 law firms that could
be considered members of the Subclass, the number of partner-plaintiffs who
would be in the subclass numbers over 200. See id. at ¶ 4–5. Defendants have
provided no evidence that these numbers are inaccurate, and so they fail in their
burden to prove that the number of plaintiffs is jurisdictionally deficient. See
Westerfeld, 621 F.3d at 823.
Common Benefit Order
Defendants’ second motion contends that no subject-matter jurisdiction
exists for any of the claims because this case represents an attempt to enforce the
Common Benefit Order imposed in the Rice MDL. Defendants assert that the law
of the case doctrine governs this issue. They rely on my decisions in the Rice
MDL and on Eighth Circuit’s decision in that case that held this court lacks
subject-matter jurisdiction to order parties not then before the court as part of the
Rice MDL to contribute to the CBF Trust. See, e.g., In re Genetically Modified
Rice Litig., 764 F.3d 864, 873–74 (8th Cir. 2014) (“[S]tate-court cases, related or
not, are not before the district court.”).
This challenge to subject-matter jurisdiction is without merit. The law of the
case doctrine dictates that a legal decision, once made by the court, will “continue
to govern the same issues in subsequent stages in the same case.” Arizona v.
California, 460 U.S. 605, 618 (1983) (citation omitted) (emphasis added). The
instant action is a new case; although it relates to the Rice MDL, it is not part of
that case. As discussed above, CAFA provides an independent source of subjectmatter jurisdiction for this action. The Rice MDL had different parties and
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presented a wholly different jurisdictional issue. The decisions in the Rice MDL
do not deprive the court of jurisdiction over this case.
Standing of Co-Trustees
In their final jurisdictional motion, defendants contend that the Co-Trustees
lack standing to assert Claims V through VIII. Article III of the Constitution limits
federal jurisdiction to cases or controversies; if a plaintiff lacks standing to sue, the
district court has no subject-matter jurisdiction. ABF Freight Sys., Inc. v. Int’l
Broth. of Teamsters, 645 F.3d 954, 958 (8th Cir. 2011). To establish standing, a
plaintiff must show (1) an injury-in-fact that (2) can be fairly traced to the
defendant’s action and (3) will likely be redressed by a favorable court decision.
Id. (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992)).
The Co-Trustees argue that this action is an attempt to recover property of
the CBF Trust, which will be used to compensate the attorneys who provided
litigation services and those who paid for litigation expenses. They compare this
case to Downing v. Riceland Foods, Inc., 298 F.R.D. 587, 588 (E.D. Mo. 2014), in
which this court held that the Co-Trustees had standing to pursue unjust
enrichment claims against an entity that was a party both within the Rice MDL and
in state court. See id. at 591–92.
Defendants first argue that the Co-Trustees have no standing because the
CBF Trust has no property interest in the recoveries made by defendants’ clients in
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their state court cases. This argument appears to misconstrue the theory of
recovery. The Co-Trustees seek damages from the defendants-lawyers – not from
their clients. ECF No. 157 at 6. Essentially, the Co-Trustees argue that the CBF
Trust is underfunded because the defendants failed to pay for the benefits they
received – benefits that reduced the defendants’ own cost of litigating on behalf of
their clients. While the Second Amended Complaint requests restitution totaling
8% or 11% of the defendants’ clients’ gross recovery, these numbers merely reflect
the plaintiffs’ proposed method of calculating damages.5
The Trust deed did not specifically define trust property. Instead, it
referenced the Common Benefit Order and stated that all contributions to the fund
shall be held in trust for the payment of reasonable compensation and expenses:
Section 2.1 The Court has ordered the Defendants in all
cases within the jurisdiction of the Court, and in each related case
pending in state courts where the parties have agreed or where the
court having jurisdiction of such case has so ordered, to make
contributions to the Fund to the extent and for the purposes as set
forth in the Order, or such further orders of the Court as may be
entered after the Order which either amend, supplement, modify or
otherwise replace the Order.
Section 2.2 Al l contributions to the Fund shall be held as a
trust fund for the payment of reasonable compensation and expenses
approved by the Court under the Order.
Nothing in this Order should be construed as suggesting that the Court has determined this is an
appropriate measure of damages. As defendants themselves acknowledge, this action does not
seek to enforce the Common Benefit Order. Defs.’ Reply Br., ECF No. 161 at 3.
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Trust Deed, In re Genetically Modified Rice Litig., Case No. 4:06MD1811, ECF
No. 2937-1. Nothing in the Trust Deed limited the Trust Property solely to
contributions from cases brought against Bayer. Any recovery obtained by the CoTrustees in this action would not be inconsistent with the trust property as set forth
in the Trust Deed.
Based on the plaintiffs’ allegations, the funding shortfall is just as injurious
to the CBF Trust as if the funds had been embezzled by an accountant. Cf. In re
Senior Cottages of Am., LLC, 482 F.3d 997, 1004 (8th Cir. 2007) (finding an injury
was alleged where assets were transferred for less than fair value). The injury may
be fairly traced to the defendants, for if they had contributed to the CBF Trust, the
monetary deficiency would not exist. Finally, the restitution sought in this case
would ameliorate the funding shortfall and enable fuller payments to the Trust
beneficiaries. Cf. In re Genetically Modified Rice Litig., 764 F.3d 864, 873 (8th
Cir. 2014) (holding that lead counsel had standing to appeal Common Benefit
Order in part because additional funds would enable more complete payments to
common benefit attorneys), cert. denied sub nom. Phipps Grp. v. Downing, 135 S.
Ct. 1455 (2015).
Defendants argue that the Co-Trustees’ actions here exceed the powers
granted by the Trust Deed, which does not explicitly grant the power to sue. They
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raise essentially the same argument that I rejected in Riceland, and that analysis
Missouri law sets forth general powers that trustees may
exercise except where limited by the terms of the trust. These include
“(a) all powers over the trust property which an unmarried competent
owner has over individually owned property; (b) any other powers
appropriate to achieve the proper investment, management, and
distribution of the trust property; and (c) any other powers conferred
by [Missouri law].” R.S. Mo. § 456.8-815. Included among other
powers granted by Missouri law is the ability to “prosecute or defend
an action, claim, or judicial proceeding in any jurisdiction to protect
trust property and the trustee in the performance of the trustee’s
duties.” R.S. Mo. § 456.8-816 (24).
The only clause in the Trust that might be read to affirmatively
limit the powers of a trustee is one that limits the purpose of the trust
[“to provide for the compensation and litigation-related expenses of
attorneys who have provided services for the common benefit of all
plaintiffs” in the MDL] and prohibits Trustees from “carry[ing] on
any business or activity for profit.” However, the unjust enrichment
and quantum meruit claims alleged by the Trustees further the Trust’s
purpose, because they would bolster the Trust’s ability to compensate
the beneficiaries. Moreover, the Trustees will only “profit” from this
suit insofar as they are also beneficiaries of the Trust, as they provided
common-benefit litigation services in the MDL. The Trust does not
expressly prohibit a Trustee from bringing a claim to protect trust
property, and so, under Missouri law, the Trustees have the power to
bring the claims on behalf of the Trust.
298 F.R.D. at 588. The Co-Trustees have standing to bring this suit on behalf of
the CBF Trust.
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IT IS HEREBY ORDERED that defendants’ motion to dismiss for lack of
jurisdiction - CAFA [# 142] is denied.
IT IS FURTHER ORDERED that defendants’ motion to dismiss for lack
of jurisdiction – CBF Order [# 140] is denied.
IT IS FINALLY ORDERED that defendants’ motion to dismiss Counts V
through VIII for lack of subject matter jurisdiction – lack of standing [# 144] is
CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE
Dated this 30th day of June, 2015.
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