Daniels, John v. Bursey, Wayne

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-4316
JOHN DANIELS, MANUEL SANCHEZ,
TIMOTHY HOFFMAN, et al.,
Plaintiffs-Appellees,
v.
WAYNE BURSEY, MELLON TRUST OF
NEW YORK, PRUDENTIAL INSURANCE
COMPANY OF AMERICA, et al.,
Defendants-Appellees.
APPEAL OF:
JOHN J. KORESKO, V.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 C 1550—Matthew F. Kennelly, Judge.
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ARGUED SEPTEMBER 28, 2005—DECIDED NOVEMBER 29, 2005
____________
Before FLAUM, Chief Judge, and MANION and EVANS, Circuit
Judges.
MANION, Circuit Judge. Sanchez & Daniels, a Chicago
law firm, along with several of its partners and employ-
ees filed a putative class action suit against administra-
tors and insurers of a benefit fund, alleging that defen-
2 No. 04-4316
dants fraudulently marketed and administered the fund.
Before a class was certified, the parties agreed to a set-
tlement. John J. Koresko, an attorney for plaintiffs, filed
an appeal on his own behalf and on behalf of putative
class members, objecting to the settlement and challeng-
ing certain rulings by the district court. Because we con-
clude that Koresko and the putative class members are
not parties to this litigation, thus lacking the capacity to
appeal, we dismiss the appeal.
I.
Sanchez & Daniels enrolled in a “severance trust executive
program” (“STEP”) in 1995 to provide benefits for its
employees. In the complaint, Sanchez & Daniels named
more than twenty defendants that were involved in market-
ing, administering, or insuring the STEP plan. Various
defendants allegedly promoted the STEP plan as a tax
deductible program, which would provide participants with
death, disability, and severance benefits, while keeping the
funds safe from creditors. These attributes were designed to
attract and benefit high income owner-employees.
In 1997, the Internal Revenue Service audited another
STEP plan participant, Costal Neurological Surgery Medical
Group, that had taken deductions for its contributions to the
plan. The audit resulted in proceedings before the United
States Tax Court. On February 6, 2001, contrary to the
marketing of the plan, the Tax Court accepted a stipulation
by Costal admitting that the plan was not tax deductible
and disallowing approximately 75 percent of the deduc-
tions.
After the Tax Court’s ruling, on March 28, 2001, Sanchez
& Daniels attempted to withdraw from the plan. Respond-
ing to concerns from a number of plan participants, includ-
No. 04-4316 3
ing Sanchez & Daniels, the STEP plan administrator wrote
to all the employers who were participating in 2002. The
letter described the only two options for withdrawal from
the plan: participants could terminate affiliation with the
plan by forfeiting twenty percent of the plan assets, or
participants could forfeit ten percent of the plan assets if
they transferred the assets into a particular new plan that
provided only death benefits. Sanchez & Daniels rejected
both options. Instead, the firm’s attorney, John J. Koresko,
demanded that the firm’s plan assets be transferred to a
new, independent plan.
Litigation soon commenced, culminating in proceedings
in the Northern District of Illinois.1 In this case, Sanchez &
Daniels alleged that defendants, through the financial
structuring, marketing, and administration of the STEP
plan, violated the Employee Retirement Income Security
Act, the Racketeer Influenced and Corrupt Organizations
Act, as well as various state statutes and common law.
Koresko filed a motion for leave to appear pro hac vice in
the Northern District of Illinois on behalf of plaintiffs, which
the plan administrative defendants opposed. Defendants
1
Before this case was filed, the plan administrators sued Sanchez
& Daniels and Koresko, as an individual, in the District of
Connecticut, claiming that the firm had forfeited its plan assets
and that Koresko had defamed the plan. Sanchez & Daniels,
individually and on behalf of similarly situated participants, filed
complaints against plan administrators and plan insurers in
Pennsylvania state court, which was removed to the Eastern
District of Pennsylvania before being voluntarily dismissed so the
parties could proceed in Chicago. This case was then filed in
Circuit Court of Cook County, and then removed to the Northern
District of Illinois.
4 No. 04-4316
claimed that because Koresko served as the Chief Executive
Officer of Penn-Mont Benefit Services, Incorporated, he was
a competitor of the plans. As a competitor, defendants
argued, Koresko should not be given access to records
through the litigation that Koresko could use to his advan-
tage in the marketplace. The district court permitted
Koresko’s appearance, although the court noted that
Koresko’s “status as a competitor” may warrant limiting his
access to discovery materials. Along with Koresko, plaintiffs
were also represented by other counsel.
As the case developed, plaintiffs and defendants began to
discuss settlement with the assistance of a magistrate judge.
While settlement negotiations were proceeding, Koresko
filed a motion to withdraw, claiming a conflict of interest
with plaintiffs. Plaintiffs opposed his withdrawal. Because
of his pending motion to withdraw, Koresko chose not to
participate in the settlement discussions and endeavored
unsuccessfully to delay the negotiations until after the
resolution of his motion.
On September 8, 2004, the named plaintiffs and defen-
dants reached a settlement. As part of the settlement,
plaintiffs moved to amend their complaint to eliminate
all class claims. Koresko, apparently representing the uncer-
tified class members and his own interests, objected to the
withdrawal of the class claims and to the settlement. He also
moved for a preliminary injunction, appointment of a
receiver, and expedited discovery, and filed an appearance
on behalf of putative class members, Robert Schmier and
Schmier and Feurring Properties, Incorporated (collectively
“Schmier”). Plaintiffs disavowed Koresko’s motions. After
a hearing, the district court permitted the amendment to
eliminate the class claims and denied as moot the motion for
class certification. Since the settlement did not encompass
No. 04-4316 5
any class claim, the district court determined that court
approval of the settlement was not necessary. The district
court therefore granted the motions by both parties to
voluntarily dismiss their claims and entered judgment on
October 26, 2004. Koresko filed this appeal on his own
behalf and on behalf of the putative class, including
Schmier.
II.
As a threshold issue, we must determine whether Koresko
and the putative class have the capacity to bring this appeal.
Although the parties have framed this issue as one of
standing, the preliminary question is whether appellants
Koresko and Schmier are parties to the litigation. Devlin v.
Scardelletti, 536 U.S. 1, 7 (2002) (“What is at issue, instead [of
standing], is whether petitioner should be considered a
‘party’ for the purposes of appealing the approval of the
settlement.”); see also Korczak v. Sedeman, 427 F.3d 419, 422
(7th Cir. 2005); Churchill Vill. v. Gen. Elec., 361 F.3d 566, 572
(9th Cir. 2004) (“the issue is not precisely one of stand-
ing. . . . Instead, the inquiry is best characterized as concern-
ing the definition of a ‘party’ for purposes of appeal.” (citing
Devlin, 536 U.S. at 7)). A party has the capacity to bring an
appeal, but a nonparty does not. Marino v. Ortiz, 484 U.S.
301, 304 (1988) (“[t]he rule that only parties to a lawsuit, or
those that properly become parties, may appeal an adverse
judgment, is well settled.”) (citation omitted); Fed. R. App.
P. 3(c) (“The notice of appeal must [ ] specify the party or
parties taking the appeal . . .”)). Neither Koresko nor
Schmier was named as a party in the litigation, nor did
either move to intervene before the district court. Further-
more, the district court never certified a class, so they are
not members of a certified class. Thus, at least in the
traditional sense, appellants are not parties.
6 No. 04-4316
Nonetheless, in limited circumstance Koresko and
Schmier may be treated as “parties,” and therefore have
the capacity to appeal, even if they are not formally recog-
nized as such. Devlin, 536 U.S. at 7 (noting that the Supreme
Court has “never . . . restricted the right to appeal to named
parties to the litigation” (emphasis added)). The Supreme
Court instructed that “[w]hat is most important” to deter-
mining whether individuals are “parties” to an action is
“the sense of being bound by the settlement.” Id. at 10.
Because the class was not certified, Koresko and Schmier
have no capacity to appeal just because they are members of
a putative class. They may, however, still have the capacity
to appeal if the settlement agreement binds them. To
determine that possibility, we consider the settlement
agreement, which has been filed under seal. See Karaha Bodas
Co. v. Perusahaan Pertambangan Minyak, 313 F.3d 70, 81-82
(2d Cir. 2002) (“To determine who may appeal, courts must
ascertain whether putative appellants are ‘bound by the
order from which they were seeking to appeal.’ ” (citing
Devlin, 536 U.S. at 8)). Without disturbing the confidentiality
of the settlement, we note the following. The settlement
agreement is between only the named plaintiffs and defen-
dants. No class claims are resolved by the settlement. While
the language suggests that the parties considered and
anticipated actions that Koresko might take, Koresko is not
bound by the agreement. Addressing contingencies is
distinct from binding a third party. Koresko remains free to
file a class action or his own claim. In fact, Koresko is
currently litigating a fee dispute in a separate action that is
pending before the district court. See Sanchez & Daniels v.
Koresko, No. 04-5183 (N.D. Ill. filed Aug. 5, 2004).
Because no settlement agreement binds Koresko or the
putative class, Koresko and Schmier are not in the same
No. 04-4316 7
circumstances as the unnamed certified class member
who was permitted to appeal in Devlin. Since a class
was never certified, appellants were not members of a class,
and therefore could not be bound. See AAL High Yield Bond
Fund v. Deloitte & Touche LLP, 361 F.3d 1305, 1310 (11th Cir.
2004) (“Persons who are not class members are not bound
at all.”). Even the dissent in Devlin noted that, “[n]ot even
petitioner, however, is willing to advance the novel and
surely erroneous argument that a nonnamed class member
is a party to the class-action litigation before the class is
certified.” Id. at 16 n.1 (Scalia, J. dissenting). Thus, Devlin
does not extend to the appellants in this case.
Koresko attempts to create a theory under ERISA by
inviting this court to determine that an attorney for a
putative class has a fiduciary duty that elevates his status to
that of a party. Koresko cites to Culver v. City of Milwaukee,
277 F.3d 908, 910 (7th Cir. 2002), for the proposition that a
class action lawyer is the “real plaintiff in interest.” In
Culver, however, this statement was made in the context of
illustrating “the danger that the lawyer will sell out the class
in exchange for the defendant’s tacit agreement not to
challenge the lawyer’s fee request.” Culver, 277 F.3d at 910
(citations omitted). The Culver case does not hold that a
class action attorney is a party; rather, Culver suggests the
precarious nature of such a proposition and notes that “the
courts and Congress have balked” at considering a class
lawyer as “the true plaintiff.” Id. at 913. Accordingly, we
decline to equate an attorney’s role as a fiduciary of a class
to that of a party.
III.
Since Koresko and Schmier are not bound by the settle-
ment agreement, they do not qualify as parties to the
8 No. 04-4316
litigation. Accordingly, appellants lack the capacity to
appeal, and we therefore DISMISS the appeal.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—11-29-05