Willis et al v. Morgan Keegan & Company, Inc. et al

Filing 309

ORDER denying 291 Motion to Intervene and disallowing Objection 292 . Signed by Judge Samuel H. Mays, Jr on 04/10/2013.

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

In re REGIONS MORGAN KEEGAN )
SECURITIES,
DERIVATIVE
and )
)
ERISA LITIGATION
)
)
This Document Relates to:
)
In re Regions Morgan Keegan )
)
Closed-End Fund Litigation,
)
)
No. 2:07-cv-02830-SHM-dkv

No. 2:09-2009 SMH V

ORDER
On January 4, 2013, the Court entered an Order
preliminarily approving settlement, providing for notice, and
preliminarily certifying a plaintiff class.
Order,” ECF No. 276.)

(“Preliminary

The settlement was reached among Lion

Fund, L.P., Dr. J. Samir Sulieman, and Larry Lattimore, on
behalf of the Class, and C. Fred Daniels, in his capacity as
Trustee ad Litem (“TAL”) 1, on behalf of the TAL Subclass,
(collectively the “Lead Plaintiffs”), and J. Kenneth Alderman,
Carter E. Anthony, James C. Kelsoe, Jr., MK Holding, Inc., Allen
B. Morgan, Jr., Morgan Asset Management, Inc., Morgan Keegan &
Company, Inc., Regions Financial Corporation, Brian B. Sullivan,
1

C. Fred Daniels is the court-appointed Trustee for the Leroy McAbee, Sr.
Family Foundation Trust, the Harold G. McAbee Family Trust, the KPS Group,
Inc. Profit Sharing Retirement Plan, the Boyd F. Horn IRA Rollover Trust, the
Alice C. Cade for the benefit of Carroll Corbin Bays Trust, and the Patricia
Penzone Irrevocable Trust for the benefit of Charles A. Penzone. (Combined
Amended Complaint ¶ 1, ECF No. 186.)

Joseph C. Weller, and the Regions Morgan Keegan Closed-End Funds
(the “Funds” 2), (collectively the “Defendants”).
Before the Court are Jerome Christenson, Gloria Christenson,
and Jerome Christenson as IRA Beneficiary’s (collectively the
“Christensons”) Motion for Permissive Intervention, (“Mot. to
Intervene,” ECF No. 291), and Notice of Objection to the
Proposed Final Settlement (“Christenson Obj.”, ECF No. 292).
Also before the Court are the Objections of W. Allen McDonald,
(“Allen Obj.”, ECF No. 300), Robert Shattuck, (“Shattuck Obj.”,
ECF No. 282; ECF No. 297-5), David W. Burns (“Burns Obj.”, ECF
No. 297-7), and Brian A. Shaffer, (“Shaffer Obj.”, ECF No. 288).
The Lead Plaintiffs filed a combined Response in opposition to
the Christensons’ Motion to Intervene and the five Objections on
April 2, 2013.

(“Lead Pls.’ Resp.”, ECF No 296.)

The Lead

Plaintiffs’ Response also argues that 5 requests for exclusion
from the class are untimely, 12 requests for exclusion fail to
supply required information, and 25 requests for exclusion are
moot because made by persons alleged by the Lead Plaintiffs to
be excluded from the class.

(Id.)

For the following reasons, the Christensons’ Motion to
Intervene is DENIED.

The Christensons’ Objection is disallowed.

2

“Funds” refers to the RMK High Income Fund, Inc. (“RMH”), RMK Strategic
Income Fund, Inc. (“RSF”), RMK Advantage Fund, Inc. (“RMA”), and RMK MultiSector High Income Fund, Inc. (“RHY”). (Id.) The names of the Funds in this
action were changed to Helios High Income Fund, Inc., RMK Strategic Income
Fund, Inc., Helios Advantage Fund, Inc., and Helios Multi-Sector High Income
Fund, Inc. after the Funds were acquired by Hyperion Brookfield Asset
Management, Inc. on July 29, 2008. (Id. at n.1.)

2

The other four individuals’ Objections are properly before the
Court and will be considered in determining whether to approve
the Final Settlement.

The Court need not rule on the exclusions

because the Lead Plaintiffs have not properly moved to
invalidate.
I.

Background

Lead Plaintiffs bring suit against Defendants in the ClosedEnd Fund Litigation.

Lead Plaintiffs assert claims on behalf of

a class of individuals and entities that purchased or acquired
publicly traded securities of four closed-end mutual Funds that
were

“issued,

underwritten,

sold,

and

managed

by

two

wholly

owned and controlled subsidiaries of Defendant Regions Financial
Corporation (“RFC”).”
ECF No. 186.)

(Combined Amended Complaint, “CAC”, ¶ 4,

Lead Plaintiffs bring a federal securities class

action generally alleging that the Defendants misrepresented the
types of assets and the true value of assets in which the Funds
invested.
heavily

(CAC ¶¶ 5-6.)

invested

particular,

in

subprime

“fundamental

Lead Plaintiffs allege that the Funds

Asset-Backed

Securities

mortgage-related

investment

ABS,

limitation”

(“ABS”)

and,

in

violation

meant

to

diversification of assets in which the Funds could invest.
¶¶

6,

15-16.)

Lead

Plaintiffs

also

allege

that

the

of

in
a

assure
(CAC
Funds

falsely classified their portfolio securities as corporate bonds
and preferred stocks in SEC filings, overstated the values of
3

their portfolio securities, mischaracterized the Funds as “high
yield,” and misrepresented the professional management of the
Funds’ portfolios.

(CAC ¶¶ 6, 17-18, 21-22, 26-28, 25.)

Plaintiffs filed suit on December 21, 2007. (See ECF No. 1.)
This Court consolidated two then-separately pending suits and
appointed

Lead

Plaintiffs

and

Lead

Counsel

by

Order

dated

December 15, 2010.

(See ECF No. 179, Order Appointing Lead

Plaintiffs

Counsel

and

Lead

and

Consolidating

Plaintiffs filed the CAC on February 22, 2011.
five

causes

of

action,

all

based

on

Cases.)

Lead

The CAC alleges

federal

law.

Lead

Plaintiffs allege Defendants violated §§ 11, 12(a)(2), and 15 of
the Securities Act of 1933, 15 U.S.C. § 77a (“’33 Act”), and §§
10(b) and 20(a), and Rule 10b-5 of the Securities Exchange Act
of 1934, 15 U.S.C. § 78a (“’34 Act”).
Plaintiffs

seek

restitution

in

losses,

preliminary
the

prejudgment

form

and

of

permanent

compensatory

interest,

reasonable attorneys’ fees.

(CAC ¶¶ 317-67.)

rescission

injunctive
damages
rights,

Lead

relief,

for
costs,

their
and

(Id. at Section XIII.)

On October 12, 2012, Lead Plaintiffs filed their Unopposed
Motion for Preliminary Approval of a Proposed Settlement and for
Preliminary Class Certification.

(ECF No. 261.)

On January 4,

2013, the Court granted Lead Plaintiffs’ Motion, approving the
preliminary settlement and preliminarily certifying the class.
(Preliminary Order.)

On March 8, 2013, the Lead Plaintiffs
4

filed a Motion for Final Approval of the Proposed Settlement and
Final Class Certification.

(“Mot. for Final Approval,” ECF No.

283.)
II.

Standard of Review

The

Christensons

move

for

permissive

Federal Rule of Civil Procedure 24(b).

intervention

under

Under Rule 24(b), where

there is no conditional right to intervene by federal statute, a
court

“must

consider

two

factors:

(1)

whether

the

proposed

intervenor ‘has a claim or defense that shares with the main
action a common question of law or fact’; and (2) ‘whether the
intervention will unduly delay or prejudice the adjudication of
the original parties’ rights.’”

Vassalle v. Midland Funding

LLC, 708 F.3d 747, at *28 (6th Cir. 2013) (quoting Fed. R. Civ.
P. 24(b)(1)(B); 24(b)(3)).

A court may allow any individual or

entity that meets these criteria to intervene.

See Brewer v.

Republic Steel Corp., 513 F.2d 1222, 1224-25 (6th Cir. 1975);
Fed. R. Civ. P. 24(b)(1).
whether

allowing

prejudice.

The Court has discretion to determine

intervention

will

cause

undue

delay

or

See Head v. Jellico Housing Auth., 870 F.2d 1117,

1124 (6th Cir. 1989).
Whether the motion is timely made is a threshold question in
deciding

a

motion

for

permissive

intervention.

Milliken, 828 F.2d 1186, 1191 (6th Cir. 1987).
guide a court’s determination of timeliness:
5

Bradley

v.

Five factors

1) the length of time preceding the application for
intervention during which the proposed intervenor knew or
reasonably should have known of his interest in the case; (2)
the point to which the suit has progressed; (3) the purpose
for which intervention is sought; (4) the prejudice to the
original parties due to the proposed intervenor’s failure
after he knew of or reasonably should have known of his
interest in the case to apply promptly for intervention; and
(5) the existence of unusual circumstances militating against
or in favor of intervention.
United States v. City of Detroit, No. 77-71100, 2012 U.S. Dist.
LEXIS 172926, at *37 (E.D. Mich., Dec. 6, 2012); see also Stotts
v. City of Memphis Fire Dep’t, 679 F.2d 579, 582 (6th Cir.
1982).
The

contours

of

class

membership

are

determined

by

the

definition of the class provided by the party or parties moving
for certification.

See Arlington Video Prods. v. Fifth Third

Bancorp, No. 11-4077, 2012 U.S. App. LEXIS 3355, at *33 (6th
Cir. Feb. 14, 2013).

The definition must be precise enough to

allow a court to make an administrative determination about the
membership of a particular individual.

Id.

The Court may, in

its discretion, modify or limit the definition of the class.
Powers v. Hamilton County Public Def. Comm’n, 501 F.3d 592, 619
(6th Cir. 2007). “Any class member may object” to a proposed
settlement if it requires approval by the Court to become final.
Fed. R. Civ. P. 23(e)(5).
III. Analysis
A. Christenson Objection

6

The Lead Plaintiffs argue that the Christensons’ Objection
should be disallowed because they are not members of the class
under the definition of the Preliminary Order and therefore have
no standing to object to the terms of the settlement.
Pls.’ Resp.)

(Lead

Lead Plaintiffs contend that the class definition

excludes the Christensons because they filed a proceeding with
the Financial Industry Regulatory Authority (“FINRA”) that was
dismissed with prejudice.

(Id.)

The preliminary definition states that:
Excluded from the Class and as Class Members [is]...any Person
who has filed a proceeding with FINRA against one or more
Released Defendant parties concerning the purchase of shares
in one or more of the Closed-End Funds during the Class Period
and such proceeding was not subsequently dismissed to allow
the Person to specifically participate as a Class Member.
(Preliminary Order ¶ 4.)
The Christensons admit that they filed two FINRA arbitration
actions and that the second action was dismissed with prejudice.
(Christensons’ Reply, ECF No. 302; see also FINRA Award, ECF No.
297-1.)

The Christensons argue however, that the Arbitrators

did not, and did not have the authority to, rule on whether the
Christensons could participate in the class action, and that it
would

not

dismissed

have
“to

Class Member.”
they

never

been
allow

possible
[them]

for

to

their

specifically

(Christensons’ Reply.)

released

their

action

claims

7

to

have

participate

been
as

a

They also argue that

against

the

Defendants

or

received any consideration, and that they should not be left
without redress in either forum.

(Id.)

The Christensons argue that the “settlement class definition
purports to require a specific affirmative finding by a FINRA
Panel that someone can participate in the class action.”

(Id.)

That is not a correct interpretation of the definition.
definition

requires

not

determination

that

proper

member,

class

voluntarily

the

dismiss

participating
Christensons’

in

party

but

its

the

first

that

FINRA

FINRA

FINRA

bringing

that

class

the

the

the

party

proceeding

action.

contemplated by the definition.

make

arbitration
bringing

for

The

arbitration

panel

the

the

(FINRA Award.)

of

of

the

a

is

a

case

purpose

dismissal
is

The

of
the

kind

The dismissal

of their second action with prejudice is not, and it bars them
from class membership.

(See Id.)

Because the Christensons are not class members, they cannot
object as a matter of right under Rule 23(e) or the Preliminary
Order.

The Christensons do not cite any precedent that would

allow a non-class member who will not be bound by a settlement
reached among solely private parties to object to the terms of
that settlement.

Contrary to the Lead Plaintiffs’ contention,

there is also no precedent in this Circuit that forbids a court

8

from hearing such objections in its discretion.3
Based on the principles underlying the right of objection to
settlement, the Christensons’ Objection is not properly before
the Court and it is disallowed.

The basis of a class member’s

right to object to or appeal from a settlement is the fact that
he will be bound by it.
(6th Cir. 2008).
or

parties

to

See Fidel v. Farley, 534 F.3d 508, 512

The Christensons are not members of the class
the

litigation,

they

are

not

bound

by

the

settlement, and it has no impact on their rights.
Certain kinds of consent decrees “‘affect more than the rights
of the immediate litigants’” because they impact institutions or
public services.

Lorain NAACP v. Lorain Bd. of Educ., 979 F.2d

1141, 1148 (6th Cir. 1992) (quoting Heath v. DeCourcy, 888 F.2d
1105, 1109 (6th Cir. 1989).

In such cases, courts in this

Circuit have at times allowed objections and comments by nonparties, either by statute or in their discretion. See, e.g.,
Tennessee Ass’n of Health Maintenance Orgs., Inc. v. Grier, 262
F.3d

559,

Loveland,

566-67
621

(6th

F.3d

Cir.

465,

2001);

468

(6th

United
Cir.

States
2010);

v.

City

of

Williams

v.

Vukovich, 720 F.2d 909, 921 (6th Cir. 1983) (when parties seek
to implement a consent decree, “[t]he reasonableness hearing is

3

The Lead Plaintiffs’ reliance on Tennessee Ass’n of Health Maintenance
Orgs., Inc. v. Grier, 262 F.3d 559, 566-67 (6th Cir. 2001), is misplaced.
The court in that case limited its bar on non-class member objections to
cases in which a non-member claimed that the class members had not received
sufficient notice.

9

a forum for all interested parties to comment on the proposed
decree.”)

The Christensons do not allege any facts that would

lead the Court to conclude that the proposed private settlement
should be equated with an institutional consent decree.

They do

not argue that the settlement will affect the broader public
interest.

To the extent that the Defendants’ alleged wrongdoing

implicates

the

rights

and

interests

of

the

public,

it

is

reasonable to assume that the public is sufficiently protected
by the actions brought by the Securities and Exchange Commission
and the State Attorneys General without the addition of the
Christensons’ Objection.
The

Christensons’

Objection

to

the

proposed

class

settlement is not properly before the court, and it is therefore
disallowed.
B. Christenson Motion to Intervene
Although the Christensons are not class members and are not
entitled

to

objections

object

to

the

as

class

settlement

litigation by intervention.

members,
if

they

they
become

may

raise

parties

their
to

the

It is undisputed that intervenors

may object to the terms of a settlement reached among fewer than
all of the parties to an action. See Midwest Realty Mgmt. Co. v.
City

of

Beavercreek,

93

F.

App’x

782,

789

(6th

Cir.

2004)

(“While we express no opinion on the merits of the intervenors’
objections to the proposed settlement agreement, it is clear
10

they are entitled to assert their interests in this litigation
and are entitled to an adjudication thereof by the district
court in the first instance.”); see also, e.g., Grier, 262 F.3d
at 566-567.
The Lead Plaintiffs do not address the Christensons’ Motion to
Intervene directly, but it is in the discretion of the Court to
determine
unopposed.

whether

intervention

should

be

allowed,

even

if

Applying the five-part test articulated by the Sixth

Circuit, it is clear that the Christensons’ motion is untimely
and must be denied.

City of Detroit, 2012 U.S. Dist. LEXIS

172926, at *37.
First, “a party is required to seek to intervene as soon as
they

know,

or

reasonably

should

know,

that

interests may be affected by the litigation.”

its

rights

Id. at *42.

or
The

party “need not have knowledge of the precise manner in which
its interests will be affected; it need only be aware of the
risk that its interest may be affected by the litigation and
that its interests may not be fully protected by the existing
litigants.”

Id.

(internal

quotations

omitted).

Christensons’ interest in this case is not new.

The original

class action complaint was filed on December 21, 2007.
1.)

The

(ECF No.

Even giving the Christensons the benefit of the doubt,

their own action in withdrawing their first FINRA complaint to
participate in the class action in September of 2009 shows that
11

they were aware then that their interests might be affected by
the litigation.

(FINRA Award.)

The Christensons cannot argue

that they were unaware of the possible impact of the litigation
on their rights after their second FINRA complaint was dismissed
on May 11, 2010, nearly three years before they filed their
Motion to Intervene.

(Id.)

The Christensons’ extended delay in

filing weighs heavily against their Motion to Intervene.
of

Detroit,

2012

U.S.

Dist.

LEXIS

172926,

at

*43

City

(allowing

intervention after an extended delay “condone[s] the very waitand-see

approach

that

the

Sixth

Circuit

has

condemned.”

(internal quotations omitted)).
Second, if the suit has progressed significantly at the
time

a

party

seeks

to

granting its motion.

intervene,

this

fact

weighs

against

A motion to intervene “filed during the

final stages of a proceeding is not favorably viewed.”

United

States v. BASF-Inmont Corp., No. 93-1807, 1995 U.S. App. LEXIS
9158, at *7-8 (6th Cir. Apr. 18, 1995).

When the Christensons

filed their motion, “only one step in the litigation remained:
the...court’s approval of the proposed [settlement].”
*8.

Id. at

Because “[t]his is the final stage of the proceeding” it

weighs

against

the

Christensons’

Motion

to

Intervene.

Id.

(emphasis in original).
Third,

a

motion

to

intervene

is

required

permissible purpose for the proposed intervention.
12

to

state

a

A motion to

intervene

must

“state

the

grounds

for

intervention

and

be

accompanied by a pleading that sets out the claim or defense for
which intervention is sought.”

Fed. R. Civ. P. 24(c).

pleadings

that

in

complaint;

2)

may
an

be

filed

answer

to

a

a

civil

complaint;

action
3)

an

The only

are

“1)

a

to

a

answer

counterclaim designated as a counterclaim; 4) an answer to a
crossclaim; 5) a third-party complaint; 6) an answer to a thirdparty complaint; and 7) if the court orders one, a reply to an
answer.”

City of Detroit, 2012 U.S. Dist. LEXIS 172926, at *44;

Fed. R. Civ. P. 7(a).

The Christensons’ Motion to Intervene

states only that they move “to intervene to preserve their right
to

appeal

accompanied
Intervene.)

from
by

approval
any

of

the

of

the

settlement,”

permissible

and

pleadings.

is

not

(Mot.

to

Because “this failure is not simply a technical

oversight,”

it

weighs

against

the

Christensons’

motion

to

intervene.

City of Detroit, 2012 U.S. Dist. LEXIS 172926, at

*45.
Fourth, a motion to intervene should not be granted if
prejudice will result to the original parties because of the
proposed intervenors’ failure to promptly intervene after they
knew or should have known of their interest in the case.

As

discussed above, the Christensons became aware of their interest
in this litigation no later than, and arguably much earlier
than, May 11, 2010.

Between May 11, 2010, and January 4, 2013,
13

Lead Plaintiffs and Defendants engaged in extensive litigation
and negotiation, and reached a proposed settlement agreement.
The Christensons seek to intervene only three weeks before the
final settlement hearing so that their concerns may be taken
into consideration in the final formation of the settlement.
Because the Christensons did not intervene promptly, substantial
prejudice

would

result

to

the

original

parties

if

the

Christensons were allowed to intervene now.
Fifth,

the

Christensons

have

not

alleged

any

facts

demonstrating that unusual circumstances favor allowing them to
intervene at this time.
The Christensons’ motion to intervene is untimely.

Because

the Christensons have failed to meet this threshold condition,
the Court need not address the other factors of the Rule 24(b)
test.

The Christensons’ motion to intervene is DENIED.
C. Other Objections

The Lead Plaintiffs’ Response asks the Court to overrule the
Objections of the other four Objectors in their entirety.
Pls.’ Resp.)

(Lead

Both Rule 23(e) and the Court’s Preliminary Order

state that any class member may object.

The Preliminary Order

also states that any class member who files a proper objection
in conformity with the terms of the Order may appear at the
hearing.

(Preliminary Order.)

The Lead Plaintiffs do not argue

that the Objectors are not members of the class or that their
14

Objections violate the terms of the Preliminary Order.
Plaintiffs’

Response

addresses

the

content

of

the

The Lead
Objections

instead of whether they are properly before the Court.

Because

the Objectors are entitled to present their claims, and because
the

Lead

Objectors’

Plaintiffs’
arguments

responses
rather

go

than

to

their

the
right

merits
to

of

the

object,

the

content of the Objections is more appropriately considered at
the Final Approval Hearing.
D. Requests for Exclusion
The Lead Plaintiffs ask the Court to declare the allegedly
improper requests for exclusion invalid or moot.
Resp.)

(Lead Pls.’

Because the Lead Plaintiffs have not properly moved the

Court to consider the requests for exclusion, the Court need not
decide whether they should be denied at this time.
IV.

Conclusion

For

the

foregoing

Intervene is DENIED.

reasons

the

Christensons’

Motion

to

The Christensons’ Objection is disallowed.

The Objections of Burns, McDonald, Shaffer, and Shattuck are
allowed.

So ordered this 10th day of April, 2013.

s/ Samuel H. Mays, Jr.______
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT JUDGE

15