In Re Navigant Consulting, Inc., Securities Litigation , 275 F.3d 616 ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-2311
In the Matter of:
Navigant Consulting, Inc., Securities
Litigation
Appeal of:
Charles L. Grimes and Gordon W. Chaplin, as
Trustees under the Will of Louise C.
Chaplin, et al.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 7617--Ruben Castillo, Judge.
Argued December 6, 2001--Decided December 26, 2001
Before Cudahy, Easterbrook, and Evans,
Circuit Judges.
Easterbrook, Circuit Judge. Only parties
may appeal from judgments entered in
federal litigation. See Fed. R. App. P.
3; Marino v. Ortiz, 484 U.S. 301 (1988).
Because members of a class (other than
the named representatives) are not
automatically parties, they must
intervene and acquire party status if
they wish to appeal. See Felzen v.
Andreas, 134 F.3d 873 (7th Cir. 1998),
affirmed by an equally divided Court
under the name California Public
Employees’ Retirement System v. Felzen,
525 U.S. 315 (1999). In this case class
members who objected to approval of the
settlement in a class action ignored that
rule and attempted to appeal without
becoming parties. After receiving a
notice from our staff that there appeared
to be a jurisdictional problem, the
objectors returned to the district court
with a motion to intervene. That motion
was denied as untimely, precipitating
this appeal from the denial of the motion
to intervene--with a conditional appeal
from the order approving the settlement.
See In re Synthroid Marketing Litigation,
264 F.3d 712, 715-16 (7th Cir. 2001).
Intervention is possible only on "timely
application". Fed. R. Civ. P. 24(a), (b).
Like the district court, we find it hard
to see how a post-judgment motion could
be timely. "Hard" differs from
"impossible"; United Airlines, Inc. v.
McDonald, 432 U.S. 385 (1977), holds that
class members are entitled to intervene
even after judgment, in order to pursue
an appeal, if they do not learn until
after judgment of the circumstance (the
representative’s abandonment of the
class) that calls for intervention.
Everything depends on the gap between the
need for action and the taking of action.
Thus, we held in Crawford v. Equifax
Payment Services, Inc., 201 F.3d 877, 880
(7th Cir. 2000), that "delay must be
measured from the time the would-be
intervenors learned (or should have
known) of the representative’s
shortcomings." Crawford added, as did
Synthroid, that intervention should be
freely allowed, if limited to the purpose
of taking an appeal. But this attitude
cannot abolish the requirement in Rule 24
that intervention be timely.
The objectors’ appellate brief in this
case gives no reason for their delay in
moving to intervene. Pressed at oral
argument, counsel supplied one: His
ignorance of Felzen and its predecessors.
This may be the explanation but is not a
justification. Many deadlines confront
counsel, from the statute of limitations
to the 30-day period for taking an
appeal, and failure to inform oneself of
the procedural requirements is no excuse
for ignoring them. Although the district
judge might have deemed the explanation
sufficient, cf. Pioneer Investment
Services Co. v. Brunswick Associates
Limited Partnership, 507 U.S. 380 (1993),
the judge was not required to do this,
and deferential appellate review of this
discretionary decision can have only one
outcome.
Indeed, these objectors probably should
have intervened before the settlement was
negotiated. The class representatives in
these 21 consolidated actions alleged
that Navigant Consulting violated the
federal securities laws by making false
statements, injuring investors in
aftermarket trading. Like other actions
of this sort, identifying injured traders
required specifying the date when the
price first was affected by the deceit
and the date when the truth reached the
market and the price adjusted to that
news. The asserted fraud in this case was
the use of pooling to account for four of
Navigant’s acquisitions, although
generally accepted accounting principles
prohibited the use of that method under
the circumstances. (Pooling has since
been abolished by the accounting
profession for all transactions after
June 29, 2001. See Financial Accounting
Standards Board, Statements 141 and 142.)
Navigant first released earnings using
pooling early in 1999, and before the
opening of the markets on November 22 of
that year it announced that its
accountants had questioned this
treatment, that earnings might have to be
restated, and that its senior officers
had resigned or been discharged. The
price of Navigant’s stock dropped 45%
(from $26.00 to $14.25 per share) that
day. The class representatives sought
recovery for investors who bought stock
during 1999 before this disclosure and
the precipitous decline. The objectors
believe, however, that purchasers through
January 24, 2000, when Navigant released
its restated earnings, should be included
in the class--even though the market rose
when the restated earnings were
announced. (The announcement on November
22 did not reveal the extent of the loss,
and traders may well have assumed that if
there were any good news this would have
been stated. See Sanford J. Grossman, The
Informational Role of Warranties and
Private Disclosure About Product Quality,
24 Johns. L. & Econ. 461 (1981); Paul Milgrom
& John Roberts, Relying on the
Information of Interested Parties, 17
Rand J. Econ. 18 (1986). Not until
January 2000 was the loss quantified, and
because the worst had not come to pass
the price rose.)
By August 2000 the objectors knew that
the damages period proposed by the class
representatives would close in November
1999, omitting some of their trades. That
was the time to seek intervention, but
the objectors did not. Instead they filed
another class action in September 2000,
naming themselves as representatives, and
sought to have this twenty-second suit
consolidated with those already under
way. The district court denied this
motion. Denied this self-help role, the
objectors then could have sought
intervention or opted out and relied on
their own class suit. But they did
neither, waiting until May 4, 2001, to
get the intervention process started. The
district judge acted within his
discretion in finding that this was too
late for persons who had known for at
least eight months about the aspects of
the representatives’ position to which
they objected.
Anticipating that we might reach this
conclusion, the objectors ask us to
overrule Felzen and permit appeals by
class members that have not become formal
parties. That decision is not a candidate
for reconsideration. The circuits are in
conflict and will be no matter what we
do. The ball is in another Court, which
has indicated an inclination to take a
new look at the subject. See Scardelletti
v. Debarr, 265 F.3d 195 (4th Cir.), cert.
granted under the name Devlin v.
Scardelletti, No. 01-417 (2001 U.S. Lexis
10959 Dec. 10, 2001). That is the right
forum for further debate.
Still, we cannot resist a few comments.
Although other circuits see the question
as one for policymaking by judges--the
divided opinion in Scardelletti is a good
example, with both the majority and the
separate opinion explaining why in their
view sound practice calls for one or
another outcome--this court in Felzen
took a more formal position. Appellate
Rule 3 limits appeals to parties, and in
Marino the Supreme Court enforced that
requirement. Class members (other than
the representatives) are not parties; if
they were, their citizenship would count
for purposes of the complete-
diversityrequirement in suits under 28
U.S.C. sec.1332, yet it is established
that class members’ citizenship is
disregarded. See Smith v. Sperling, 354
U.S. 91 (1957). Class members cannot have
it both ways, being non-parties (so that
more cases can come to federal court) but
still having a party’s ability to
litigate independently.
Although several decisions (again
Scardelletti is a good example) discuss
the problem as if the question were
whether class members have "standing" to
appeal, we do not think that this is apt.
Class members suffer injury in fact if a
faulty settlement is approved, and that
injury may be redressed if the court of
appeals reverses. What more is needed for
standing? See Lujan v. Defenders of
Wildlife, 504 U.S. 555, 561 (1992). Our
point in Felzen was that parties are a
subset of persons with standing. It is
not enough to suffer injury; one must
become a litigant by taking the necessary
formal steps (such as filing a timely
complaint, or here filing a timely motion
to intervene and then a timely notice of
appeal).
Observance of form has benefits, such as
a reduction in uncertainty and the costs
that uncertainty breeds. Intervention
identifies with precision who is entitled
to take what procedural steps, and when.
It also may facilitate accurate decision
on the merits. Our case shows how. The
objectors say that because of fraud the
price of Navigant’s stock remained too
high in the period between November 22,
1999, and January 24, 2000, and that
investors who bought during these months
should be entitled to a portion of the
recovery. Intervention would have allowed
the court to explore that question: the
class representatives and Navigant could
have taken discovery from the objectors
to learn just what trades they made, how
these may have been influenced by lack of
information in the market, and so on.
Intervention and extra discovery might
have led the judge to obtain the views of
an expert in financial economics. But by
remaining on the sidelines until after
final decision in the district court,
these objectors hobbled that inquiry and
made the appeal a needlessly speculative
venture.
By insisting on party status of
appellants, then, we facilitate
adjudication in district courts too. As
we stressed in Crawford and Synthroid, it
is vital that district courts use this
formal rule to promote vindication of the
class members’ rights; that’s why we
insist that timely requests to intervene
be freely granted. But these objectors
tarried when their own deeds (especially
their separate lawsuit) demonstrate that
they understood the need for action.
The order denying the motion to
intervene is affirmed, and the
conditional appeal from the order
approving the settlement is dismissed for
want of jurisdiction.