Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-00179/USCOURTS-casd-3_05-cv-00179-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA)

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

MICHAEL MCPHAIL; ROBERT BARR 

KIMNACH III; SCOTT and KRYSTIN 

WAGNER; CANDACE and NEIL 

HURLEY; On Behalf of Themselves and 

All Other Similarly Situated, 

 Plaintiffs, 

 v. 

FIRST COMMAND FINANCIAL 

PLANNING, INC., a Texas Corporation; 

FIRST COMMAND FINANCIAL 

SERVICES, INC., a Texas Corporation; 

LAMAR C. SMITH and HOWARD M. 

CRUMP, 

 

 Defendants. 

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Case No. 05cv0179 IEG (JMA) 

CLASS CERTIFICATION ORDER 

DEPT: 1, 4TH Floor 

JUDGE: Hon. Irma E. Gonzalez 

Case 3:05-cv-00179-IEG-JMA Document 184 Filed 09/19/07 Page 1 of 10
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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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CLASS CERTIFICATION ORDER 

It is hereby ORDERED that: 

1. Plaintiffs’ motion for class certification is GRANTED. This matter shall proceed as a 

class action, under Federal Rule of Civil Procedure 23(b)(3), on behalf of the following Class: 

All persons who, during the period from January 31, 2000 through 

December 31, 2004, made a Systematic Investment Plan (SIP) 

payment so as to be charged a 50% sales charge on the money 

placed at that time into the SIP through First Command and still 

owned the SIP on December 15, 2004, and who did not terminate 

within forty-five (45) days of purchasing the SIP so as to receive a 

full refund of the sales charge.

2. This Class is certified for the resolution of all issues regarding the injury suffered by 

the Plaintiffs as a result of the Defendants’ conduct, alleged in the complaint, including: 

(a) Making false statements and material omissions about the effectiveness, benefits and 

opportunity costs in the 50% first year sales load in connection with the sale of Systematic 

Investment Plans. 

(b) Making false statements and material omissions with respect to other mutual fund investments 

in connection with the sale of Systematic Investment Plans. 

(c) Making false statements and material omissions in First Command’s “Holding Period Chart” 

and the “Stable Cash Flow Chart,” used in the sale of Systematic Investment Plans. 

(d) Engaging in the fraudulent sales practice of making the Systematic Investment Plan appear to 

be the only suitable investment vehicle for each individual. 

3. The Class is CERTIFIED for the resolution of all claims contained in the Consolidated 

Third Amended Complaint, filed in accordance with the Court’s Order, and defenses alleged in 

the Defendants’ Answer to the Consolidated Third Amended Complaint, dated August 22, 2007, 

including: 

(a) Claims: 

Case 3:05-cv-00179-IEG-JMA Document 184 Filed 09/19/07 Page 2 of 10
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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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• That the Defendants First Command Financial Services, Inc., First Command 

Financial Planning Inc., Lamar Smith (“Smith”) and Howard Crump (“Crump”) 

jointly and severally violated section 10(b) of the Securities Exchange Act of 1934 

and Rule 10b-5 by making false and misleading statements, omitting materially 

adverse facts necessary to prevent statements from being misleading, employing 

devices, schemes and artifices designed to defraud, and engaging in business practices 

that operated as fraud or deceit, in connection with the sale and marketing of First 

Command Systematic Investment Plans; and 

• That First Command Financial Services, Inc., the parent corporation of First 

Command Financial Planning, Inc., and the individual Defendants, Smith and Crump, 

and each of them, jointly and severally violated section 20(a) of the Securities 

Exchange Act of 1934 as culpable participants in the scheme to defraud Class 

Members. By means of their actual power, influence, ability to control and control 

over First Command Financial Planning, Inc., First Command Financial Services, Inc., 

Smith and Crump induced a violation of the securities laws through their 

participation in and influence over the operations of First Command Financial 

Planning, Inc. that led to the omission of materially adverse facts necessary to prevent 

statements from being misleading, employment of devices, schemes and artifices 

designed to defraud, and participation in business practices that operated as fraud or 

deceit, in connection with the sale and marketing of the Systematic Investment Plans 

(“SIPs”) with the full knowledge of the existence of the facts for which liability of 

First Command Financial Planning, Inc. is being sought. As a result of the above, 

First Command Financial Planning, Inc. was a mere agency and instrumentality of 

First Command Financial Services, Inc., Smith and Crump, and each of them, pursuant 

Case 3:05-cv-00179-IEG-JMA Document 184 Filed 09/19/07 Page 3 of 10
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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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to which the single business enterprise of SIP sales was being conducted. As a result 

of the above, First Command Financial Planning, Inc., First Command Financial 

Services, Inc., Smith and Crump functioned as a single business enterprise with regard 

to SIP sales. 

(b) Defenses:1

• That the Defendants were justified in all conduct alleged in the Consolidated Third 

Amended Complaint; 

• That the Plaintiffs are barred from recovery based on the truth of the Defendants’ 

statements; 

• That the statements were not false because they were based on projections; 

• That the Defendants made the alleged misstatements in good faith and with a 

reasonable belief in their factual basis; 

• That the Defendants did not employ any devices, schemes or artifices to defraud, 

engage in any acts or practices which operated as fraud upon the Plaintiffs; 

• That members of the Plaintiffs’ Class are barred from recovery because the allegedly 

excessive sales loads were disclosed to them; 

• That members of the Plaintiffs’ Class are barred from recovery because they 

independently made the decision to terminate SIPs at an early date; 

 

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 Plaintiff’s proposed order simply set forth most of the defenses enumerated in the Defendant’s 

Answer to the Second Amended Complaint. (See Pl’s Submission of Proposed Class Cert. 

Order, at 4-6.) The Plaintiff’s subsequently indicated in their reply to the Defendant’s 

Objections to the Proposed Order that they did not contest the addition other defenses 

included in the Defendant’s Answer to the Second Amended Complaint which were omitted 

from the Plaintiff’s proposed order. (Reply to Def. Obj. to Pl.’s Proposed Class Cert. Order, 

at 4.) Since submission of the proposed order, Plaintiff’s have filed a Consolidated Third 

Amended Complaint and the Defendant’s have filed an Answer. Based on the foregoing, the 

Court’s Order includes all defenses asserted by the Defendants in their Answer to the Third 

Amended Complaint. 

Case 3:05-cv-00179-IEG-JMA Document 184 Filed 09/19/07 Page 4 of 10
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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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• That members of the Plaintiffs’ Class are barred from recovery because any false or 

misleading statements fell within the safe harbor provision of the Private Securities 

Litigation Reform Act of 1995, as codified at 15 U.S.C. § 77z-c(2); 

• That members of the Plaintiffs’ Class are barred from recovery because any false or 

misleading statements were accompanied with sufficient cautionary material to invoke 

the “bespeaks caution” doctrine; 

• That members of the Plaintiffs’ Class are barred from recovery because they lack 

standing; 

• That members of the Plaintiffs’ Class are estopped from recovery because Plaintiffs 

assumed the risk of any loss, based on advisory documents provided to them; 

• That members of the Plaintiffs’ Class are barred from recovery because the allegedly 

misleading statements were rebutted by publicly available information; 

• That members of the Plaintiffs’ Class are barred from recovery because there is no 

underlying violation of securities law or, in the event there is, the individual 

defendants did not have the power to direct the individual(s) responsible for such 

violations; 

• That Defendants are entitled to have any relief reduced by virtue of the doctrine of 

recoupment; 

• That members of the Plaintiffs’ Class are barred from recovery because the misleading 

statements were non-actionable vague or indefinite opinions; 

• That members of the Plaintiffs’ Class are barred from recovery because they did not 

rely on any misstatements and in any event, knew or should have known through due 

diligence that statements were false or misleading; 

Case 3:05-cv-00179-IEG-JMA Document 184 Filed 09/19/07 Page 5 of 10
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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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• That members of the Plaintiffs’ Class are barred from recovery because they had 

actual or constructive knowledge of the misleading statements at the time they 

purchased the securities; 

• That members of the Plaintiff’s Class are barred from recovery because damages that 

plaintiffs seek represent damages other than damages resulting from such statements 

or omissions (with respect to which the liability of defendants is asserted) not being 

true or omitting to state a material fact required to be stated therein or necessary to 

make the statement therein not misleading. 

• That members of the Plaintiff’s Class are barred from recovery because the damages 

that plaintiffs seek were not caused by any statement, omission, or other action by any 

defendant, and therefore plaintiff’s cannot establish loss causation. 

• That members of the Plaintiffs’ Class are barred from certain aspects of recovery 

because they failed to mitigate damages; 

• That members of the Plaintiff’s Class are barred from recovery because the conduct 

alleged as wrongful or illegal did not occur in the connection with the offer, purchase, 

or sale of a security. 

• That members of the Plaintiffs’ Class are barred from recovery because the statute of 

limitations had run; 

• That the Defendants have no knowledge of or reasonable ground to know of the 

existence of any Defendant as a purported control person; 

• That members of the Plaintiffs’ Class are barred from recovery because the 

Defendants did not have scienter with respect to false or misleading statements or with 

respect to the material omissions; 

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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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• That members of the Plaintiffs’ Class are barred from recovery because their beliefs 

are unreasonable; 

• That members of the Plaintiffs’ Class are barred from recovery by means of waiver 

and estoppel. 

• That members of the Plaintiff’s Class are barred from recovery because this action is 

not maintainable as a class action. 

• That members of the Plaintiff’s Class are barred from recovery because plaintiff’s 

cannot prove facts necessary to satisfy the numerosity requirement of Fed. R. Civ. P. 

23(a)(1); 

• That members of the Plaintiff’s Class are barred from recovery because plaintiffs have 

failed to allege and cannot prove facts necessary to satisfy the commonality 

requirement of FED. R. CIV. P. 23(a)(2). 

• That members of the Plaintiff’s Class are barred from recovery because plaintiffs have 

failed to allege and cannot prove facts necessary to satisfy the typicality requirement 

of FED. R. CIV. P. 23(a)(3). 

• That members of the Plaintiff’s Class are barred from recovery because plaintiffs have 

failed to allege and cannot prove facts necessary to demonstrate that the named 

plaintiffs and class counsel are adequate class representatives under FED. R. CIV. P. 

23(a)(4). 

• That members of the Plaintiff’s Class are barred from recovery because plaintiffs have 

failed to allege and cannot prove facts necessary to demonstrate that common 

questions of fact or law predominate over individual issues under FED. R. CIV. P. 

23(b)(3). 

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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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• That members of the Plaintiff’s Class are barred from recovery because plaintiffs have 

failed to allege and cannot prove facts necessary to demonstrate that a class action suit 

would be the superior method of adjudication under FED. R. CIV. P. 23(b)(3). 

• That members of the Plaintiff’s Class are barred from recovery because maintenance 

of this suit as a class action would violate the Rules Enabling Act, 28 U.S.C. § 2072. 

• That members of the Plaintiff’s Class are barred from recovery because maintenance 

of this suit a class action would violate defendants’ due process rights under the Fifth 

Amendment. 

• That members of the Plaintiff’s Class are barred from recovery because maintenance 

of this suit as a class action would violate defendants’ Seventh Amendment right to a 

jury trial. 

 4. For reasons more fully stated in the Memorandum Opinion this Court entered on July 

30, 2007, and incorporated by reference into this Order, the Court finds: 

(a) The Class is so numerous that joinder is impracticable. 

(b) The following questions of fact and law are common to all the Class Members as defined 

above: 

• Whether the Defendants jointly or severally engaged in a course of action and 

pattern of activities, omissions and knowing misrepresentations which violated 

their duties under Section 10(b) of the 1934 Act and Rule 10b-5 to honestly 

disclose all material information concerning the Systematic Investment Plan 

(“SIP”)? 

• Whether the Defendants conduct caused the Plaintiffs and the Members of the 

Class to suffer damages in the form of the 50% front-end sales load in connection 

with the purchase of a SIP? 

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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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• Whether the Defendants are jointly and severally liable under Section 20(a) of the 

1934 Act as culpable participants in the scheme to defraud Class Members by reason 

of their actual power, influence, ability to control and control over First Command 

Financial Planning, Inc., their direction of the management and policies of First 

Command Financial Planning, Inc. that resulted in the omission of materially adverse 

facts necessary to prevent statements from being misleading, the employment of 

devices, schemes and artifices designed to defraud, and participation in business 

practices that operated as fraud or deceit, in connection with the sale and marketing of 

the Systematic Investment Plans (“SIPs”) with the full knowledge of the existence of 

the facts for which liability of First Command Financial Planning, Inc. is being 

sought? 

• Whether, as the result of the above, First Command Financial Planning, Inc. was an 

agency and instrumentality of First Command Financial Services, Inc., Smith and 

Crump, and each of them? 

• Whether, as a result of the above, First Command Financial Planning, Inc., First 

Command Financial Services, Inc., Smith and Crump functioned as a single business 

enterprise with regard to SIP sales? 

(c) Plaintiffs Michael McPhail; Robert Barr Kimnach III; Scott and Krystin Wagner; and 

Candace and Neil Hurley shall serve as Class Representatives. 

(d) The Class Representatives’ common questions of fact and law described in paragraph 4(b) are 

typical of each Class Member. 

(e) The Class Representatives will adequately represent the Class, since they are represented by 

qualified counsel, and since they do not have antagonistic or conflicting interest with other 

members of the Class. 

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CLASS CERTIFICATION ORDER 05cv0179 IEG (JMA) 

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(f) The common question of fact and law set forth in paragraph 4(b) predominate over any 

individual issues that Class Members may have. These common questions of fact and law can 

be tried on a class basis, using common proof. 

(g) A class action is the superior method to the adjudication of this controversy. 

 5. Plaintiffs were previously granted leave to file a Third Amended Complaint pursuant to 

the Court’s July 30, 2007 Order. 

 6. The law firms of Blumenthal & Nordrehaug, Greco & Traficante, Whatley Drake & 

Kallas, LLC, Gray & White, and Brewer & Carlson, LLC can fairly and adequately represent this 

Class, and shall serve as co-counsel for the Class. 

 7. The parties shall confer within 20 days of the date of this Order, regarding the form and 

content of the notice to be disseminated by this Court. If the parties agree on the form and 

content of a proposed notice, Plaintiffs shall submit a proposed form of notice to this court within 

30 days of the date of this Order. If the parties cannot reach an agreement, within 30 days of the 

entry of this Order, Plaintiffs shall submit a proposed order to this Court and Defendants shall 

submit their objections to the proposed form of notice. In addition, within 30 days of this order, 

Defendants shall provide Plaintiffs with a complete list of Class Members in order to facilitate 

dissemination of personal notice. 

IT IS SO ORDERED. 

Dated: September 19, 2007 _________________________

 Irma E. Gonzalez, Chief Judge 

 United States District Court 

 Southern District of California 

Case 3:05-cv-00179-IEG-JMA Document 184 Filed 09/19/07 Page 10 of 10