Cannaday et al v. Sullivan et al

Filing 32

ORDER GRANTING PLAINTIFFS' MOTION FOR CONSOLIDATION 29 . Signed by Judge Samuel H. Mays, Jr., on November 5, 2010. (Mays, Samuel)

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION CECIL CANNADAY, derivatively on behalf of nominal defendant HELIOS HIGH INCOME FUND, INC., Plaintiff, v. BRIAN B. SULLIVAN, et al., Defendants. CECIL CANNADAY and RONALD GODFREY, derivatively on behalf of nominal defendant HELIOS STRATEGIC INCOME FUND, INC., Plaintiffs, v. BRIAN B. SULLIVAN, et al., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. 10-2188

No. 10-2190

CECIL CANNADAY and RONALD GODFREY, derivatively on behalf of nominal defendant HELIOS ADVANTAGE INCOME FUND, INC., Plaintiffs, v. BRIAN B. SULLIVAN, et al., Defendants.

No. 10-2191

RONALD GODFREY, derivatively on behalf of nominal defendant HELIOS MULTI-SECTOR HIGH INCOME FUND, INC., Plaintiff, v. BRIAN B. SULLIVAN, et al., Defendants.

) ) ) ) ) ) ) ) ) ) )

No. 10-2192

ORDER GRANTING PLAINTIFFS' MOTION FOR CONSOLIDATION

Before the Court is Plaintiffs' August 3, 2010, Motion to Consolidate. Court (See ECF No. 29.)1 the and above four a Plaintiffs request that the actions, schedule. appoint (Pls.' lead Mem. and in

consolidate counsel,

liaison

establish

Support of Their Mot. for Consolidation at 1, ECF No. 29-2.) ("Pls.' Mem.") The Defendants in all four actions do not oppose

consolidation and take no position on the appointment of lead or liaison counsel. (Id.) For the following reasons, the Court

GRANTS the unopposed Motion for Consolidation and ADOPTS the jointly proposed schedule. Because Barroway Topaz Kessler

Meltzer & Check, LLP ("Barroway Topaz") and Bramlett Law Offices ("Bramlett Law") are counsel to Plaintiffs in all four actions, the Court GRANTS their request to continue in their present roles in the consolidated action.

1

All ECF references are to the filings in Cannaday v. Sullivan, No. 10-2188.

2

I.

FACTUAL BACKGROUND is a resident of Arkansas who

Plaintiff Cecil Cannaday2

purchased shares in Nominal Defendant Helios High Income Fund, Inc. (the "Fund"). a closed-end (Compl. ¶ 8.) The Fund advertised itself as company that invested "a

management

investment

majority of its total assets in a diversified portfolio of below investment grade debt securities offering attractive yield and capital appreciation potential." (Id. ¶ 3.) Cannaday alleges

that the Fund instead invested heavily in illiquid asset-backed securities, such as mortgage-backed securities and

collateralized debt obligations ("CDOs").

(Id. ¶ 4.)

From June

30, 2006, to June 30, 2007, the Fund's total investment in CDOs increased from 12.9% of its total assets to 37.8%. (Id. ¶ 40.)

Plaintiff has sued Brian B. Sullivan; J. Kenneth Alderman; Carter E. Anthony; Jack R. Blair; Thomas R. Gamble; Albert C. Johnson; Charles D. Maxwell; James S. R. McFadden; Allen B. Morgan, Jr.; W. Randall Pittman; Mary S. Stone; Joseph C.

Weller; J. Thompson Weller; Archie W. Willis, III; and Michele F. Wood, all of whom served as the Fund's officers and directors during the period of alleged wrongdoing. 23-26.) (Id. ¶¶ 10-15, 17-21,

Cannaday also states causes of action against James C.

Kelsoe, Jr. and David H. Tannehill, who served as the Fund's
2

The Complaint in No. 10-2188 is representative of the allegations made in the remaining three suits. All suits assert the same causes of action. The primary differences are the named Plaintiffs and the funds on whose behalf they are filed.

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portfolio and assistant portfolio managers respectively. ¶¶ 16, 22.)

(Id.

The suit also names Morgan Asset Management, Inc. (Id. ¶

("MAM"), the Fund's investment advisor, as a Defendant. 27.)

Cannaday alleges that the Defendants knowingly caused the Fund to overinvest in CDOs although contemporary business news reports revealed growing concern in the investment community

about the stability and underlying value of those investments. (Id. ¶¶ 43-45.) Stearns that Two Funds run by investment banking firm Bear in in the 2007. same subprime ¶ mortgage-backed Defendants

invested collapsed

investments

(Id.

46.)

allegedly wrongly delayed the Fund's writing down the value of its investments in CDOs during the period from 2006-07. 47.) (Id. ¶

That delay caused the Fund to report a misleading net-

asset value to shareholders and allowed Defendant MAM to collect excessive and unearned fees because the value of the assets held by the Fund determined the amount of fees MAM earned. 55.) (Id. ¶

When the collapse of the subprime mortgage market forced

the Fund to write down the value of its CDO investments, the Fund's share price dropped from more than $80 a share to less than $10. (Id. ¶ 54.)

On November 23, 2009, Cannaday made a demand on the Fund's board of directors to file suit against Defendants to seek

compensation for the Defendants' alleged breaches of fiduciary 4

duties.

(Id. ¶ 62.)

The Fund responded by letter on January

12, 2010, stating that it was investigating similar allegations and would determine at an unspecified later date what action, if any, it would take. (Id. ¶ 63.) Cannaday filed suit against

the Defendants after allowing an additional month to pass after his receipt of the Fund's response without hearing anything

more.

He states causes of action against all Defendants for their fiduciary duties of good faith and loyalty.

breaching

(Id. ¶¶ 66-69.)

Plaintiff also states causes of action against

Defendant MAM for violating § 36(b) of the Investment Company Act of 1940, 15 U.S.C. § 80a-35(b), and unjust enrichment. ¶¶ 70-77.) (Id.

He seeks monetary damages for Defendants' breach of

their fiduciary duties, disgorgement from MAM of the excessive fees it allegedly received, "appropriate equitable relief,"

costs, and attorneys' fees. II. JURISDICTION

(Id. ¶ 77.)

The Court has federal question jurisdiction over all four actions. 28 U.S.C. § 1331. Under the supplemental jurisdiction

conferred by 28 U.S.C. § 1367(a), the Court may hear Plaintiffs' state-law claims for breach of fiduciary duties and unjust

enrichment.

The Complaint does not state under which state's

law it brings these common law actions; however, the Fund is a Maryland corporation. (Compl. ¶ 9.)

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III.

ANALYSIS

Plaintiffs first seek to consolidate their four lawsuits into one. Federal with Rule broad of Civil Procedure to 42(a) provides similar

district

courts

discretion

consolidate

actions pending before them. 1007, 1011 (6th Cir. 1993).

Cantrell v. GAF Corp., 999 F.2d District courts may consolidate

related actions sua sponte and despite the objections of the parties. Id. When considering whether to consolidate actions

under Rule 42, district courts evaluate a number of factors, including: [W]hether the specific risks of prejudice and possible confusion [are] overborne by the risk of inconsistent adjudications of common factual and legal issues, the burden on parties, witnesses and available judicial resources posed by multiple lawsuits, the length of time required to conclude multiple suits as against a single one, and the relative expense to all concerned of the single-trial, multiple-trial alternatives. Id. (quoting Hendrix v. Raybestos-Manhattan, Inc., 776 F.2d

1492, 1495 (6th Cir. 1985)) (alterations in original). Here, legal and the four separate lawsuits The raise almost seek identical for

factual

issues.

Complaints

damages

breach of fiduciary duties, unjust enrichment, and violation of § 36(b) of the Investment Company Act. conserve judicial resources and allow Consolidation would a more expeditious

adjudication of Plaintiffs' claims. Plaintiffs' Motion, and no issues

Defendants do not oppose of prejudice or confusion

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exist.

(Pls.' Mem. at 7.)

Because all relevant factors support

consolidation of these actions and no prejudice or threat of confusion is present, the Court GRANTS Plaintiffs' Motion to Consolidate. The parties should coordinate all discovery and

pretrial matters with the multidistrict litigation now pending in this Court.3 The schedule. Court also ADOPTS shall the parties' on jointly proposed their

Plaintiffs

serve

Defendants

Consolidated Complaint no later than thirty days from the date of this Order. Defendants shall have forty-five days from the

date they receive service of the Consolidated Complaint to file any motions to dismiss. Plaintiffs may file a response to any

motion to dismiss within forty-five days of the motion's filing. Any reply brief by the Defendants would be due thirty days

thereafter. The law firm of Barroway Topaz, with its liaison counsel Bramlett Law, have filed all four suits. They may continue to

proceed as lead and liaison counsel for the consolidated action. IV. CONCLUSION The Court

Plaintiffs' Motion to Consolidate is GRANTED. ADPOTS the parties' jointly proposed schedule.

Because Barroway

Topaz and Bramlett Law are the only two law firms representing

3

The present Order does not prohibit Defendants from filing a later motion to consolidate these four suits with the Closed-End Fund Litigation.

7

Plaintiffs in these four consolidated suits, they may continue in their present roles. The Clerk is DIRECTED to consolidate

the above four cases under case number 10-2188. So ordered this 5th day of November, 2010.

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

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