United States District Court, Northern District of Illinois, E.D
October 22, 1982
MICHAEL SUSMAN, PLAINTIFF,
LINCOLN AMERICAN CORPORATION, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
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
(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.
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
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, 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'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
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.
. . 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
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
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
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
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
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.