Edwards v. McDermott Int'l

1

MIRIAM EDWARDS, Plaintiff. v. MCDERMOTT INTERNATIONAL, INC., et al., Defendants.

Civil Action No. 4:18-cv-04330

United States District Court, S.D. Texas, Houston Division

September 11, 2023

MEMORANDUM AND RECOMMENDATION

ANDREW M. EDISON UNITED STATES MAGISTRATE JUDGE

Pending before me in this putative securities class action is the Section 14(a) Lead Plaintiff's Amended Motion for Class Certification, Appointment of Class Representatives, and Appointment of Class Counsel (“Motion for Class Certification”). Dkt. 303. On May 24, 2023, I held a hearing on the Motion for Class Certification during which both sides presented expert testimony and voluminous exhibits. At the hearing, I requested supplemental briefing which the parties provided via letters to the Court. See Dkts. 369-70. Having considered the parties' briefing, oral arguments, the record, and the applicable law I recommend that the Motion for Class Certification be DENIED.

BACKGROUND

The Court has already summarized the “pertinent factual allegations” in this litigation. See Edwards v McDermott Int'l, Inc., No. 4:18-cv-4330, 2021 WL 1421603, at *1-5 (S.D. Tex. Apr. 13, 2021). So, for efficiency's sake, I will be brief. This litigation concerns the 2018 merger of McDermott International, Inc. (“McDermott”) with Chicago Bridge & Iron Company, N.V. (“CB&I”). Lead Plaintiff Public Employees' Retirement System of Mississippi (“Plaintiff”) alleges that Defendants^[1] made material misrepresentations and omissions in the Proxy and Proxy Solicitations that were provided to McDermott's shareholders, which “misled McDermott's shareholders and deprived them of an informed vote.” Dkt. 303 at 7-8. These misrepresentations and omissions concern four of CB&I's construction projects known at the “Focus Projects.” Specifically, Plaintiff alleges that “the Focus Projects were expected to incur substantially higher costs than publicly represented”; that “CB&I overstated the fair value of these projects, and McDermott improperly assumed that the fair value of the Focus Projects as of the Merger Date was equal to their respective carrying values”; and that “McDermott's representations that they had conducted substantial due diligence on CB&I prior to the date of the Proxy Statement were false or misleading because even minimal due diligence did, or should have, revealed the true risks posed by the Focus Projects.” Dkt. 98 at 11 (internal quotation marks omitted).

Judge George C. Hanks, Jr. denied Defendants' motion to dismiss back in April 2021. See Dkts. 162, 167. Discovery is ongoing, having been underway for the past two years. Plaintiff timely filed its Motion for Class Certification, seeking certification of the following class pursuant to Federal Rule of Civil Procedure 23(b)(3):

All persons and entities that were McDermott shareholders (including beneficial owners) as of April 4, 2018, the record date for McDermott shareholders to be eligible to vote on the Merger of McDermott and CB&I, and who were damaged thereby (the “Class”). Excluded from the Class are Defendants herein, the officers and directors of McDermott and CB&I at relevant times, members of their immediate families and their legal representatives, heirs, successors, or assigns, and any entity in which Defendants have or had a controlling interest.

Dkt. 303 at 8. Plaintiff seeks the appointment of itself and Teamsters Local 813 Insurance Trust Fund, Local 813 Pension Trust Fund, and Local 1034 Pension Trust Fund (the “Funds”) as Class Representatives; and the appointment of Wolf Popper LLP and Bernstein Litowitz Berger & Grossmann LLP as Class Counsel. See id. at 7. Defendants oppose class certification, though several issues-numerosity, commonality, typicality, the adequacy of Local 813 as Class Representative, superiority, and the adequacy of co-class counsel-are uncontested by the parties.

LEGAL STANDARD

Rule 23 governs the inquiry of whether a proposed class should be certified. “[T]he Rule 23 class-action device was designed to allow an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Califano v. Yamasaki, 442 U.S. 682, 700-01 (1979). “To come within the exception, a party seeking to maintain a class action must affirmatively demonstrate [its] compliance with Rule 23.” Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (quotation omitted).

Rule 23(a) requires that any purported class meet four “prerequisites”: numerosity, commonality, typicality, and adequacy of representation. See Madison v. Chalmette Refining L.L.C., 637 F.3d 551, 554 (5th Cir. 2011). These prerequisites are necessary but not sufficient conditions for class certification. See id.

Rule 23(b) specifies three class types and sets out requirements-beyond those articulated in Rule 23(a)-for each. The putative class here seeks certification under Rule 23(b)(3), which permits class certification where “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).

In considering a motion for class certification, I must “must rigorously consider both Rule 23(a)'s prerequisites and the Rule 23(b) class type.” Chavez v. Plan Benefit Servs. Inc., 957 F.3d 542, 546 (5th Cir. 2020). This rigorous analysis requires me “to go beyond the pleadings to determine whether the requirements of Rule 23 have been met: a court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.” Cole v. Gen. Motors Corp., 484 F.3d 717, 724 (5th Cir. 2007) (quotation omitted). “Merits questions may be considered to the extent- but only to the extent-that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013).

As part of this “rigorous analysis,” I must ask whether the proposed class's damages model “measure[s] only those damages attributable to [its] theory [of liability].” Comcast, 569 U.S. at 35. “Calculations need not be exact, but at the class-certification stage (as at trial), any model supporting a plaintiff's damages case must be consistent with its liability case, particularly with respect to the alleged effect of the violation.” Ludlow v. BP, P.L.C., 800 F.3d 674, 683 (5th Cir. 2015) (cleaned up) (applying Comcast's rationale to a putative securities class action); see also Slade v. Progressive Sec. Ins. Co., 856 F.3d 408, 410-11 (5th Cir. 2017) (“Comcast held that when plaintiffs argue that damages can be decided on a class-wide basis, plaintiffs must put forward a damages methodology that maps onto plaintiffs' liability theory. Our cases interpreting Comcast confirm that what Comcast demands is fit between plaintiffs' class-wide liability theory and plaintiffs' class-wide damages theory.”). “Such an analysis will frequently entail overlap with the merits of the plaintiff's underlying claim. That is so because the class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action.” Comcast, 569 U.S. at 33-34 (quotations omitted).

With these principles in mind, I turn to Plaintiff's Motion for Class Certification.

ANALYSIS

A. Whether Plaintiff Has Standing to Bring Its Claims

Before I analyze Rule 23's requirements, I must confront the antecedent question of whether Plaintiff is bringing a direct or derivative claim. The nature of Plaintiff's claim is relevant because, if Plaintiff's claim is derivative, Plaintiff must satisfy certain requirements before it can “step into the corporation's shoes.” Lewis v. Knutson, 699 F.2d 230, 238 (5th Cir. 1983) (discussing Rule 23.1's shareholder derivative standing requirements as a prudential aspect of standing). Specifically, Rule 23.1 requires that shareholders to a derivative action “state with particularity: (A) any effort by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members; and (B) the reasons for not obtaining the action or not making the effort.” FED. R. CIV. P. 23.1(b)(3). It is undisputed that Plaintiff has not satisfied Rule 23.1's procedural hurdles and thus cannot bring a derivative claim. Indeed, Plaintiff has consistently maintained that it is bringing only a direct claim. See Dkt. 142 at 34 (acknowledging that although “Section 14(a) claims sometimes may be properly plead[ed] derivatively on behalf of the corporation, here, Plaintiff alleges direct claims”); Dkt. 329 at 8 (“Plaintiffs Assert a Direct Section 14(a) Claim”).

When the Court denied Defendants' motion to dismiss, it held that Plaintiff “is entitled to bring, and has pled, a direct claim.” Edwards, 2021 WL 1421603, at *6. Defendants ask me to revisit this standing issue, arguing that “Plaintiff faces a threshold barrier to class certification because its only theory of class-wide damages confirms the derivative nature of its claim and its concomitant lack of standing to recover for such derivative harm.” Dkt. 311 at 11. Plaintiff responds that (1) the Court already rejected this argument in denying Defendants' motion to dismiss; (2) the Court's motion to dismiss ruling constitutes the law of the case and cannot be revisited at class certification unless it was clearly erroneous; and (3) even if the issue is revisited, the Court's motion to dismiss ruling “was absolutely correct.” Dkt. 370 at 2.

Thus, I must first determine whether it is procedurally proper to even consider the nature...