Harry Larson v. JPMorgan Chase & Company

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 08-1045, 08-1064, 08-1170
HARRY A. LARSON, FRANK F. VILLANO, and
ROBERT J. MURPHY, individually and
on behalf all others similarly situated,
Plaintiffs,
v.
JPMORGAN CHASE & CO.,
Defendant-Appellee/Cross-Appellant.
APPEAL OF:
COLORADO PUBLIC EMPLOYEES’
RETIREMENT ASSOCIATION.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 00 C 2100—Wayne R. Andersen, Judge.
____________
ARGUED MAY 29, 2008—DECIDED JUNE 23, 2008
____________
Before CUDAHY, POSNER, and TINDER, Circuit Judges.
POSNER, Circuit Judge. The Colorado Public Employees’
Retirement Association (CoPERA) appeals from the dis-
trict judge’s refusal to allow it to intervene as a plaintiff
in this class action for the purpose of appealing a three-
2 Nos. 08-1045, 08-1064, 08-1170
and-a-half-year-old order granting summary judgment
against the original representatives of the class. The
question is whether CoPERA was entitled to wait so
long before trying to become a party.
In 2000 the three plaintiffs brought this federal
securities suit on behalf of themselves and all other stock-
holders who two years earlier had acquired stock in Bank
One (now JPMorgan, but we’ll continue to refer to the
defendant as Bank One) when Bank One was created by
the merger of Old Banc One and First Chicago NBD Corp.
The suit charged that the prospectus for the merger
transaction contained misrepresentations. The plaintiffs,
along with a number of other members of the proposed
class, had acquired stock in Old Banc One, converted to
stock in Bank One in the merger, before the prospectus had
been issued; they are called the “early purchasers” (of Bank
One Stock). Other class members, the “late purchasers,”
had acquired stock in Bank One after the prospectus was
issued; and some class members, including CoPERA,
were both early and late purchasers.
In April 2004, the district judge, before certifying any
class, granted summary judgment in favor of Bank One
with respect to the named plaintiffs, on the ground that
early purchasers could not have been harmed by misrepre-
sentations in the prospectus. On the contrary, they had
benefited, because by exaggerating the value of Old Banc
One stock the misrepresentations had given the early
purchasers (those investors in Bank One who paid for
their Bank One stock with stock in Old Banc One) more
Bank One stock than they would have gotten had it not
been for the misrepresentations.
Having disposed of the early purchasers, the judge in
November 2004 certified a class limited to the late pur-
Nos. 08-1045, 08-1064, 08-1170 3
chasers and appointed a member of that class to be the
class representative. Villano, one of the original class
representatives, invoking Fed. R. Civ. P. 23(f), asked us to
review the district judge’s refusal to retain him as a repre-
sentative of the newly defined class, but we declined to
entertain the appeal.
CoPERA had an early-purchaser claim that it tells us
is worth $6 million. (It must be worth plenty, or CoPERA
wouldn’t have bothered with moving to intervene and
appealing from the denial of the motion; it’s not a pro-
fessional class action plaintiff.) But it made no effort to
become a party to the lawsuit until it filed the motion to
intervene that is at issue in this appeal.
The class action, now limited to the late purchasers—not
only had no class that included early purchasers been
certified but the early purchasers’ claim had been re-
jected on the merits by the grant of summary judgment—
proceeded to pretrial discovery and settlement negotia-
tions. In January 2007 the district judge formally notified
the late purchasers of the class action and in September
the parties asked the district judge to approve a $28 mil-
lion settlement. He did so in December, entering a final
judgment that terminated the suit. The settlement in-
cluded a release of the named plaintiffs’ claims, and of
the late-purchaser claims of the unnamed members of
the certified class, but not of the early-purchaser claims of
the unnamed members of the shadow class. It was
shortly after the entry of the final judgment that CoPERA
moved unsuccessfully to intervene for the purpose of
appealing any orders affecting the early purchasers,
mainly the partial summary judgment that had been
issued in 2004.
As both an early and a late purchaser, and an early
purchaser with a substantial stake, CoPERA almost cer-
4 Nos. 08-1045, 08-1064, 08-1170
tainly either knew—and if it did not know it was
negligent in failing to learn—back in 2004 that sum-
mary judgment had been entered dismissing the early-
purchaser claims on the merits and therefore with preju-
dice. All doubts would have been dispelled had the dis-
trict judge certified an early-purchaser class before granting
summary judgment, as he should have done anyway, Fed.
R. Civ. P. 23(c)(1); Wiesmueller v. Kosobucki, 513 F.3d 784,
787 (7th Cir. 2008); Bertrand ex. rel. Bertrand v. Maram, 495
F.3d 452, 455 (7th Cir. 2007); Bieneman v. City of Chicago, 838
F.2d 962, 964 (7th Cir. 1988) (“it is . . . difficult to imagine
cases in which it is appropriate to defer class certification
until after decision on the merits”), and gave no reason for
not doing. Had he complied with the rule, there would
have been no need for him and for us to determine whether
a would-be class member may intervene, after final judg-
ment, to appeal an adverse interlocutory decision that the
named plaintiffs had abandoned.
It is possible that a large, sophisticated investor with a
$6 million claim would not know that it was a member
of a class in a class action suit, but it is exceedingly un-
likely. The statute of limitations for the kind of securities
claims involved in this case is only one year, 15 U.S.C.
§ 77m, so someone having such a claim would have
to ascertain promptly whether he was a member of a
class since if he were not he would have to file his own
suit post haste to avoid being time-barred. As a sophisti-
cated member of the late-purchaser class, CoPERA
would also have known that the original named plain-
tiffs, at least one of whom had had an early-purchaser
claim, had been dismissed as class representatives.
CoPERA is not some hapless individual who might be
a member of a class in a class action suit without
Nos. 08-1045, 08-1064, 08-1170 5
knowing it because the class had not been certified and
the class members therefore formally notified. Large pen-
sion funds have securities lawyers on retainer, and their
lawyers would have known about and monitored the
progress of the class action whether or not the fund’s
trustees did. CoPERA is the 23rd largest pension fund in
the United States, with $38 billion in assets in 2006,
www.copera.org/PERA/about/overview.stm, visited June
10, 2008. And obviously CoPERA had to have learned
about the class action when it received the formal notice
in January 2007, yet still it waited almost a year before
moving to intervene.
Assuming as realism requires us to do that CoPERA
knew or should have known about the class action and the
summary judgment order, it could back in 2004 have
moved to intervene in the district court. The motion
would doubtless have been granted, as there was no
longer a party pressing the early purchasers’ claims; and
having been allowed to intervene CoPERA could have
filed a motion asking the district judge to certify his
summary judgment order for an immediate appeal under
Fed. R. Civ. P. 54(b). The motion would almost certainly
have been granted, because there were separate parties,
separate claims, and no “just reason for delay.” If it
hadn’t been granted, or the motion to intervene had
been denied, CoPERA could have filed its own early-
purchaser suit; the statute of limitations had not yet run,
having been tolled by the filing of this suit. The district
judge would have dismissed CoPERA’s suit, since he
had already decided that the early-purchaser claims had
no merit; and that dismissal would have opened the way
to an appeal by CoPERA from a final judgment as a mat-
ter of right. 28 U.S.C. § 1291.
6 Nos. 08-1045, 08-1064, 08-1170
CoPERA’s delay in seeking relief from the summary
judgment probably was strategic. As a member of the late-
purchaser class, as well as of the early-purchaser
shadow class, it would have wanted to obtain its share
of a late-purchaser judgment or settlement before bringing
the early purchasers, including itself, back into the case,
since their presence might delay or even derail a settle-
ment. In fact, its attempt to intervene and its appeal
from the denial of its motion have delayed the execution
of the $28 million settlement.
The suit was filed within five months of the accrual of
the claims, and its filing, as we mentioned, tolled the
statute of limitations for unnamed class members like
CoPERA, American Pipe & Construction Co. v. Utah, 414
U.S. 538, 550-54 (1974); Crown, Cork & Seal Co. v. Parker,
462 U.S. 345, 352-54 (1983); otherwise, unnamed class
members, to protect their rights, would have to intervene
or bring separate suits, and the economies of the class
action procedure would be lost. But the limitations
clock resumed ticking for the early purchasers—with only
seven months remaining on the clock—when after the
grant of partial summary judgment a class that excluded
the early purchasers was certified, since by then it was
certain that the suit would not proceed as a class action
on behalf of those purchasers. See id. at 354; In re Rhone-
Poulenc Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir. 1995); Bridges
v. Department of Maryland State Police, 441 F.3d 197, 210-12
(4th Cir. 2006). That was in November 2004, so that the
statute of limitations applicable to a suit by CoPERA
would have expired in June 2005, three years ago.
A motion to intervene in order to appeal the termina-
tion of a class action (in this case, so much of the class
action as sought relief for the early purchasers) is not
Nos. 08-1045, 08-1064, 08-1170 7
governed by the statute of limitations applicable to the
original suit. The motion is timely if filed promptly after
the entry of the final judgment in the class action—at
least in a case in which, because “the named plaintiffs
had attempted to take an interlocutory appeal from the
order of denial at the time the order was entered, there
was no reason for the respondent to suppose that they
would not later take an appeal until she was advised to
the contrary after the trial court had entered its final
judgment.” United Airlines, Inc. v. McDonald, 432 U.S.
385, 393-94 (1977). That is a significant qualification, as
recognized in Jones v. Caddo Parish School Board, 735
F.2d 923, 933-35 (5th Cir. 1984); Garrity v. Gallen, 697 F.2d
452, 458 (1st Cir. 1983); and In re Fine Paper Antitrust
Litigation, 695 F.2d 494, 501 (3d Cir. 1982); see also Associ-
ated Builders & Contractors, Inc. v. Herman, 166 F.3d 1248,
1256!57 (D.C. Cir. 1999)—and United Airlines is the
principal case on which CoPERA relies. It was indeed a
case much like this but with the critical difference that
the class representative had filed an interlocutory ap-
peal (under 28 U.S.C. § 1292(b)) from the order ex-
cluding the subclass to which the would-be intervenor
(McDonald) belonged, and the court of appeals had
exercised its discretion to refuse to accept the appeal. The
members of the subclass had every reason to expect that
when the class action was concluded in the district court
the named plaintiff would exercise her right to appeal as
a matter of right (since the judgment in the district court
would then be final) from the order of exclusion, pro-
vided of course that certifying the class could be expected
to result eventually in a favorable settlement or judg-
ment. When the named plaintiff did not appeal, McDonald
sought to intervene. Her motion was timely because it
would not have made sense for her to go to the bother
8 Nos. 08-1045, 08-1064, 08-1170
of bringing her own suit (and clogging up the
courts with another suit that they don’t need) on the off-
chance that the class representative had abandoned
McDonald’s claim.
In light of other language in United Airlines and subse-
quent cases such as Champ v. Siegel Trading Co., 55 F.3d 269,
272!73 (7th Cir. 1995); Roe v. Town of Highland, 909 F.2d
1097, 1099 (7th Cir. 1990), and Alaska v. Suburban Propane
Gas Corp., 123 F.3d 1317, 1319-20 (9th Cir. 1997), we
can assume that the general rule is that the member of a
shadow class can delay filing his motion to intervene to
appeal the denial of certification of his class until the
final judgment is entered. Even so, this case is different
from all those cases because CoPERA’s goal in seeking
to intervene was not to obtain class certification (what
good would that do it?) but to obtain the reversal of
the summary judgment order that had wiped out its
$6 million claim. The fact that the named plaintiff in a
class action suit does not try to take an immediate appeal
from the denial of class certification does not alert mem-
bers of the shadow class that he is abandoning them; he
may want to wait and see how he does on the merits of
the suit before deciding whether to challenge the denial of
certification, since if he loses on the merits and does not
have a good shot at getting a reversal he will have
nothing to gain from seeking to certify a class. (A mem-
ber of the class may disagree about the likelihood of a
reversal on the merits, however, and therefore want to
intervene both to challenge the final judgment and to
obtain class certification.) But when the named plaintiff
has lost on the merits at an early stage in the litigation
and could but does not seek an immediate appeal, the
likelihood that he will abandon the class members’ claims
Nos. 08-1045, 08-1064, 08-1170 9
soars, as he has signaled pessimism about the merits. And
since the litigation is continuing, the plaintiff may
decide that he doesn’t need a reversal of the partial sum-
mary judgment to assure an overall positive outcome.
A motion to intervene may be granted only if it is
“timely,” Fed. R. Civ. P. 24(a), (b), and appellate review
of a district court’s determination of timeliness is deferen-
tial because of the variety of considerations (akin to
those that inform decisions whether to toll statutes of
limitations) bearing on whether a late filing should be
considered timely. E.g., Ligas ex rel. Foster v. Maram, 478
F.3d 771, 773 (7th Cir. 2007); United States v. British Ameri-
can Tobacco Australia Services, Ltd., 437 F.3d 1235, 1238
(D.C. Cir. 2006). We do not read United Airlines as estab-
lishing an inflexible rule that a motion to intervene in a
class action to appeal an earlier order in that action is
always timely provided it is filed shortly after the final
judgment in the class action. A district judge has discre-
tion in deciding whether a motion to intervene is timely,
and he did not abuse that discretion in this case when he
refused to allow belated intervention by a sophisticated
litigant with a large stake who had no good excuse for
failing to seek intervention (or bringing its own suit) years
ago, who violated the spirit albeit not the letter of the
statute of limitations, who appears to have acted for
strategic reasons, and whose attempt to intervene de-
layed a settlement, thus further delaying the conclusion
of an already protracted litigation growing out of a
decade-old merger. The appeal from the denial of the
motion to intervene precipitated a cross-appeal by Bank
One (No. 08-1170 in this court), as well as an appeal in
which the plaintiffs in the class action ask us to direct the
district court to order Bank One to pay the $28 million
10 Nos. 08-1045, 08-1064, 08-1170
settlement. In re Old Banc One Shareholders Securities Litiga-
tion (No. 08-1376).
As the Third Circuit stated in In re Fine Paper Antitrust
Litigation, supra, 695 F.2d at 501, “By contrast [with United
Airlines], appellants here did not seek intervention [to
appeal an earlier order] until long after they should
have realized that they were not members of the certified
class.” United Airlines “involved a sudden, complete
reversal of position by the [class] representative.” Jones v.
Caddo Parish School Board, supra, 735 F.2d at 934. All the
equities line up the other way in this case.
The cross-appeal (No. 08-1170) is contingent on the
reversal of the judgment, and is therefore DISMISSED. The
judgment is AFFIRMED. The appeal in No. 08-1376 is
likely to become moot, now that we have cleared the last
obstacle to settlement, so rather than proceeding to ad-
judicate the appeal we ask the parties to submit a
status report to us in thirty days.
USCA-02-C-0072—6-23-08