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United States District Court, Northern District of Illinois, E.D

October 22, 1982


The opinion of the court was delivered by: Shadur, District Judge.


In 1973 Michael Susman ("Susman") brought this class and derivative action on behalf of Consumers National Corporation ("Consumers") and its minority stockholders. Susman asserts various violations of the Securities and Exchange Act of 1934 in connection with the "going private" merger of Consumers into Lincoln American Life Insurance Company ("Lincoln Life"), a wholly-owned subsidiary of Lincoln American Corporation ("Lincoln American"). In the latest chapter of this seemingly interminable litigation, defendants have moved for:

    (1) summary judgment on Susman's individual

(2) summary judgment on the derivative claims;

    (3) an order (or other appropriate relief)
  barring Susman from serving as class
  representative; and

    (4) summary judgment against three class
  members (not named plaintiffs).

For the reasons stated in this memorandum opinion and order, defendants' first and second motions are granted, while the third and fourth motions are denied.

Procedural History

Three earlier opinions of this Court*fn1 have provided a more detailed account of the source of this litigation than is needed here. More appropriate for current purposes is a brief account of the complicated procedural history underlying just one fragment of this case — the class certification issue.

At a relatively early date Judge Flaum (to whom the case was then assigned) denied Susman's motion for class certification because his family relationship with class counsel threatened Susman's ability to protect the interests of absent class members. 72 F.R.D. 187. That decision was affirmed at 561 F.2d 86 (7th Cir. 1977) (Susman I).

After retaining new counsel, Susman renewed his motion. In response, defendants tendered the full amount of Susman's individual claim to him. When he rejected the offer, defendants filed a motion to dismiss. Judge Flaum granted defendants' motion on the ground the tender had mooted the controversy between the named parties. This time, however, our Court of Appeals reversed, 587 F.2d 866 (7th Cir. 1978), cert.denied, 445 U.S. 942, 100 S.Ct. 1336, 63 L.Ed.2d 775 (1980) (Susman II).

Inspired by this victory, Susman persevered with his quest for certification. This Court's February 12, 1981 memorandum opinion and order rejected the class designation he had tendered but provided a road map for redefinition of the proposed class. Susman accepted the invitation, and this Court certified the redefined class March 10, 1981.

        Summary Judgment Against Susman on His Individual

Defendants advance two reasons for summary judgment against Susman individually:

    1. Susman could not possibly have relied on
  alleged misrepresentations and omissions in the
  proxy materials at issue — even if there is a
  rebuttable presumption of reliance — because he
  failed to read those materials.

    2. Defendants' tender of the full damages
  allegedly sustained by Susman renders his
  individual claims moot.

This Court is persuaded by defendants' mootness argument and will hence not address the reliance issue.

Under the overwhelming weight of authority, mootness is triggered by such a tender of damages. Indeed, one of Judge Flaum's earlier opinions expressly held defendants' tender extinguished their controversy with Susman.*fn2 Though law of the case doctrines do not technically apply to earlier decisions of a fellow District Judge, this Court will not lightly depart from them. See 1B Moore, Federal Practice ¶ 0.404[4], at 453 (2d ed. 1982).

Moreover, except for two Ninth Circuit cases*fn3 the courts have uniformly espoused the position taken by Judge Flaum. See, e.g., Zeidman v. J. Ray McDermott & Co., Inc., 651 F.2d 1030 (5th Cir. 1981) (reversing trial court's dismissal of entire class action, but leaving intact its dismissal of named plaintiffs' private claims); Goldberg v. Taylor Wine Co., 499 F. Supp. 468 (E.D.N.Y. 1980); Weisman v. Darneille, 79 F.R.D. 389 (S.D.N.Y. 1978). Accordingly, defendants' motion for summary judgment on Susman's individual claims is granted (conditioned, of course, on delivery of the tendered amount to Susman).

Susman's Status as Class Representative

Defendants rely on three arguments to bar Susman's service as class representative:

    1. Because defendants' tender has mooted
  Susman's individual claims, he lacks the
  "personal stake" required by Article III to
  vindicate the interests of absent class members.

    2. Because Susman's claims are moot, he can no
  longer meet the Fed.R.Civ.P. ("Rule") 23(a)(4)
  requirement that he "fairly and adequately
  protect the interests of the class."

    3. Susman's individual claims turn on the issue
  of reliance and are therefore not "typical" of
  those shared by the other class members (Rule

All three of these arguments are without merit.

First, United States Parole Comm'n v. Geraghty, 445 U.S. 388, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980) and Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980) dealt with Article III considerations in a closely related context. Both Roper and Geraghty held that named plaintiffs had a sufficient personal stake in the class action to appeal the trial court's denial of class certification, despite the mootness of their substantive claims. That same analysis should extend to Susman's prosecution of the class's substantive claims.

Thus in Roper, a class action much like the present one, the Court found the requisite personal stake in the named plaintiff's "desire to shift part of the costs of litigation to those who will share in its benefits if the class is certified and ultimately prevails" (445 U.S. at 336, 100 S.Ct. at 1173). That aptly characterizes Susman's desire, and if Article III demands no more, it should permit Susman to represent the class on the merits.

Geraghty appears to go even farther down the same road. It said (445 U.S. at 402, 100 S.Ct. at 1211) the "personal stake" requirement must be applied separately to the two claims asserted by the named plaintiff: (1) his own claim on the merits and (2) the claim that he is entitled to represent a class. It then found the named plaintiff's "vigorous advocacy" met Article III's demands on the class certification issue. And at least by implication the Article III requirement, once so met, would carry forward to the litigation of the class claims — else the Supreme Court would not have continued (id. at 405-07, 100 S.Ct. at 1213 — 1214):

  Our conclusion that the controversy here is not
  moot does not automatically establish that the
  named plaintiff is entitled to continue
  litigating the interests of the class. "[I]t does
  shift the focus of examination from the elements
  of justiciability to the ability of the named
  representative to `fairly and adequately protect
  the interests of the class.' Rule 23(a)."
  Sosna v. Iowa, 419 U.S., at 403 [95 S.Ct., at 559].
  We hold only that a case or controversy still
  exists. The question of who is to represent the
  class is a separate issue.

Nor does the mootness of Susman's individual claims establish the inability under Rule 23(a)(4) "fairly and adequately [to] protect the interests of the class" — the second of defendants' arguments. Addressing the identical issue in Sosna v. Iowa, 419 U.S. 393, 403, 95 S.Ct. 553, 559, 42 L.Ed.2d 532 (1975), the Supreme Court held the named plaintiff, whose claim had expired after class certification, an adequate class representative. Rule 23(a)(4) was satisfied because (id.) "it is unlikely that segments of the class appellant represents would have interests conflicting with those she has sought to advance, and . . . the interests of that class have been competently urged at each level of the proceeding. . . ." Absent any assertion of conflicting interests and with no attack on the competency of Susman's representation, Sosna provides compelling support for Susman's continued action as class representative on the substantive claims.

  That conclusion is fortified by two recent decisions holding
a defendant's tender of full damages to the named plaintiff
does not impair his status as class representative. Roper v.
Consurve, Inc., 578 F.2d 1106, 1111 (5th Cir. 1978); Flamm v.
Eberstadt, 76 C 427 (N.D.Ill. July 22, 1981 and Mar. 5, 1982)
(the case previously consolidated with this one for appeal in
Susman II). As Judge Flaum put it in Flamm, slip op. at 6 (Mar.
5, 1982):

   . . but for the defendant's tender of full
  damages, the plaintiff's claims and interest
  would be the same as the remaining members of the
  putative class. Defendants should not be
  permitted to "pick off" proposed class
  representatives before the propriety of
  certification is resolved and thereby frustrate a
  class action otherwise appropriate, just as
  defendants should not be able to render a
  proposed class action moot by tendering full
  damages to the named plaintiff before the issue
  of certification is determined.

Those considerations equally support the notion that defendants' tender does not render Susman an inadequate class representative.*fn4

Defendants' final argument — a Rule 23(a)(3) assault on Susman's individual claims as atypical — also misses the mark.*fn5 Even if a reliance defense had applied to Susman's claim (before the tender), he would not be barred as class representative so long as such individual questions did not obscure the issues common to the class. See Blackie v. Barrack, 524 F.2d 891, 905-06 (9th Cir. 1975); Helfand v. Cenco, Inc., 80 F.R.D. 1, 8 (N.D.Ill. 1977). Here Susman's class allegations far eclipse whatever reliance issues might have lurked beneath his private claims.

          Summary Judgment Against Susman on Derivative

Defendants also urge Susman lacks standing to assert derivative claims on behalf of Consumers, which disappeared in the merger. Their position takes extended syllogistic form:

    1. Susman must be a seller or purchaser of
  securities to sustain the class claims under SEC
  Rule 10b-5.

    2. Toward that end, Susman's Rule 10b-5
  challenge to the Consumers-Lincoln Life merger is
  permitted because he is deemed to have sold his
  shares to surviving entity Lincoln Life.

    3. As a precondition for bringing a derivative
  suit on Consumers' behalf, Rule 23.1*fn6
  requires Susman to have been a Consumers'
  stockholder both at the time suit was filed and
  throughout the pendency of the litigation.

    4. Susman "cannot have it both ways by claiming
  to be a seller of securities for purpose of
  standing under 10b-5 and a shareholder for
  purposes of derivative standing." Issen v. GSC
  Enterprises, Inc., 508 F. Supp. 1278, 1295 (N.D.Ill.

Susman counters that Susman II refutes the last proposition, the linchpin of defendants' argument.

Susman II did indeed read Delaware law (more accurately a dictum in Bokat v. Getty Oil Co., 262 A.2d 246 (Del.Sup.Ct. 1970)) as allowing Susman's prosecution of the derivative counts despite his loss of stockholder status in the merger. Ordinarily that would end the discussion, both in precedential terms and — more compellingly — under law of the case concepts. But later Delaware cases (none brought to this Court's attention by the parties) discloses Susman's view of Delaware law to have been mistaken.

Thus the plaintiff in Weinberger v. UOP, Inc., 5 Del.J.Corp.L. 158 (Del. Ch. 1980), having been converted from a stockholder in the merged corporation to a creditor in the surviving one, was held to lack standing to challenge the merger derivatively on behalf of the disappearing corporation. See also Schreiber v. Carney, 447 A.2d 17, 21-22 (Del. Ch. 1982) (confirming the loss of stockholder standing to sue derivatively after a cash-out merger).*fn7 Most recently (just this month) Chancellor Brown reconfirmed that lack of standing in a thoughtful opinion in Lewis v. Anderson (Del. Ch. Oct. 8, 1982), in the course of which Susman II was discussed in detail and held an inaccurate application of Bokat (". . . the courts in Susman and Abrams [on which Susman relied in part] have read something into the Bokat decision that simply is not there," slip op. at 12). Lewis held that although the Bokat dictum indicated the claims against corporate insiders were not mooted by a merger, the standing of the former minority stockholders to assert those claims had been extinguished.*fn8 Defendants' motion for summary judgment on Susman's derivative claims will be granted.

Summary Judgment Against Certain Class Members

Defendants also move for summary judgment against class members Preston W. Grace, R.B. Potasnick and Cape Construction Company, none a named plaintiff. Assertedly those persons, with full knowledge of this action and their status as prospective class members, tendered their shares for the $8.50 merger price more than 11/2 years after this suit was filed.

According to defendants those facts establish the validity of a number of affirmative defenses as a matter of law — release, accord and satisfaction, waiver, estoppel, non-reliance, mootness. Class counsel (1) dispute that argument on the merits and (2) urge consideration of this motion should not be deferred until after issues common to the class have been litigated.

Immediate consideration of this summary judgment motion does not commend itself to this Court. It raises factual issues, including (though not necessarily limited to) the intentions of the individual stockholders when they tendered their shares for the $8.50 merger price. Such issues do not particularly lend themselves to affidavit treatment in any event. And it would be counterproductive in this nine-year-old action to divert class counsel's efforts from preparation for trial to issues affecting only three stockholders (who were, on defendants' own showing, represented by other lawyers at the outset and presumably are still).

More general considerations lead to the same result. Judicial economies afforded by the class action device would be largely eroded if courts had to adjudicate issues personal to the various class members before the common class issues are reached. Here, for example, a decision for defendants on common issues (such as liability) would obviate the need to address the individual issues raised in defendants' motion. By contrast, current consideration of the summary judgment motion precludes any saving of lawyers' or judicial resources. See, as representative of the more usual approach, Seiden v. Nicholson, 69 F.R.D. 681, 686 (N.D.Ill. 1976).

While Rule 56(b) authorizes a defendant to move "at any time" for summary judgment, the trial court has considerable discretion in determining timeliness of the motion. See 6 Moore, Federal Practice ¶¶ 56.07, 56.08, at 56-117, 56-132 to 56-134 (1982). Drawing on such discretion, this Court denies defendants' current motion, without prejudice to its renewal after the issues common to the class have been resolved.*fn9


There is no genuine issue of material fact, and defendants are entitled to a judgment as a matter of law, on (1) Susman's individual claims and (2) Susman's derivative claims. Defendants' motion for (3) an order barring Susman from serving as class representative and (4) summary judgment against certain class members is denied.

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