Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 84 C 1222, Milton I. Shadur, Judge.
Cummings, Easterbrook, and Manion, Circuit Judges.
EASTERBROOK, Circuit Judge.
Registration Form S-3 under the Securities Act of 1933 is reserved for firms with a substantial following among analysts and professional investors. The Securities and Exchange Commission believes that markets correctly value the securities of well-followed firms, so that new sales may rely on information that has been digested and expressed in the security's price. Securities Act Release No. 6383, 47 Fed. Reg. 11380 (1982). Registration on Form S-3 principally entails incorporation by reference of the firm's other filings, such as its comprehensive annual Form 10-K and its quarterly supplements. Firms eligible to use Form S-3 also may register equity securities "for the shelf" under Rule 415(a)(1)(x), 17 C.F.R. § 230.415(a)(1)(x). Shelf registration allows the firm to hold stock for deferred sale. Information in the registration statement will be dated by the time of sale, but again the SEC believes that the market price of large firms accurately reflects current information despite the gap between registration and selling dates. Securities Act Release No. 6499, 48 Fed. Reg. 52889 (1983), accompanying the permanent adoption of Rule 415. See also Basic, Inc. v. Levinson, 485 U.S. 224, 241-45, 99 L. Ed. 2d 194, 108 S. Ct. 978 (1988), adopting the fraud-on-the-market approach to damages because capital markets efficiently establish prices that embed available information.
Commonwealth Edison Company, an electric utility in Illinois, is eligible to register its securities on Form S-3. In September 1983 the firm put three million shares of common stock on the shelf, using Rule 415. The succinct registration statement incorporated 176 pages of other filings, as Form S-3 permits. Commonwealth Edison sold the shares to the public on December 5, 1983, for the market price of $27.625. Stanley C. Wielgos bought 500 of these shares.
Commonwealth Edison operates several nuclear reactors, and at the time of the shelf registration it had five more under construction-LaSalle 2, Byron 1 and 2, and Braidwood 1 and 2. None could operate without a license, which the Nuclear Regulatory Commission does not issue unless satisfied that the reactor is safe. Problems at Three Mile Island and Chernobyl, coupled with increasing sophistication in reactor engineering and testing that has revealed shortcomings in old designs, have led the NRC to be more and more demanding in recent years, which postpones the operation of reactors under construction and increases their cost. Delay alone substantially increases cost, because utilities must pay for the capital they have used; re-inspections and additional work come on top of the expenses of delay. Like other firms' reactors, Commonwealth Edison's have been afflicted with delay and cost overruns-some attributable to the benefit of hindsight (leading to more demanding regulations), some to bureaucratic error and delay, and some to shortcomings by Commonwealth Edison and its contractors in finishing the work to meet regulatory requirements.
Of the five reactors under construction in December 1983, Byron 1 was the closest to receiving an operating license. An arm of the NRC, the Atomic Safety and Licensing Board, was considering Commonwealth Edison's request for a license. On January 13, 1984, the ASLB did something it had never done before (and has not done since): it denied the application outright, implying that Byron 1 must be dismantled. Commonwealth Edison Co., 19 N.R.C. 36 (1984). The next market day Commonwealth Edison's stock dropped to $21.50, a loss to equity investors of about $1 billion-which reflected not only the write-off of Byron 1 (discounted by the probability that the NRC would affirm the ASLB's decision) but also the likely increase in the costs of completing the other four reactors. The NRC's Atomic Safety and Licensing Appeal Board reversed the ASLB in May 1984, Commonwealth Edison Co., 19 N.R.C. 1163 (1984), and five months later the ASLB recommended that the NRC issue a license for Byron 1, Commonwealth Edison Co., 20 N.R.C. 1203 (1984), which it did. Stock prices rebounded. Delay in starting Byron 1, plus the expense of re-inspections during that period, cost Commonwealth Edison more than $200 million. The Illinois Commerce Commission allowed Commonwealth Edison to add the outlay to its rate base, but the Supreme Court of Illinois disagreed, People ex rel. Hartigan v. Illinois Commerce Commission, 117 Ill. 2d 120, 510 N.E.2d 865, 109 Ill. Dec. 797 (1987). State officials later excluded the costs, and Commonwealth Edison is in the process of refunding about $200 million to its customers.
Between the ASLB's decision and its reversal, Wielgos filed this suit on behalf of all who purchased in the shelf offering, naming as defendants the issuer and its underwriters. The complaint demanded $6.125 per share, the amount equity securities declined between purchase and suit. Judge McMillan certified the case as a class action; after his resignation the case was transferred to Judge Shadur, who granted summary judgment for the defendants. 688 F. Supp. 331 (N.D.Ill. 1988). Wielgos's initial complaint, and its first amended version, presented simple claims under § 11 of the '33 Act, 15 U.S.C. § 77k. Ten months after starting the action, having had the opportunity for discovery, Wielgos filed a second amended complaint adding numerous claims under other portions of the securities laws. Commonwealth Edison then filed a counterclaim, contending that the additions were frivolous and that plaintiff's counsel, A. Denison Weaver, had acted without either legal or factual investigation. Weaver retreated to a third amended complaint, streamlining the case once again. In the interim, however, defendants had incurred substantial legal fees. Judge Shadur held that a counterclaim is the wrong way to seek sanctions but invited the defendants to file appropriate motions. 688 F. Supp. at 344-45. They did, and the judge found that the claims in the second amended complaint violated both 28 U.S.C. § 1927 and Fed.R.Civ.P. 11, leading to an award of approximately $300,000 to compensate the defendants for 40% of the incremental legal fees and 75% of the incremental costs they bore responding to the second amended complaint, plus interest. 123 F.R.D. 299 (1988); 127 F.R.D. 135 (1989);,. We shall hear the appeal from this award presently; for now, however, we have two appeals: one from summary judgment on the third amended complaint, and the other from the award of costs.
Costs need not detain us because Wielgos did not file a timely notice of appeal. The district court quantified the costs on July 8, 1988, but did not enter an order to that effect. On August 4 Wielgos filed a notice of appeal directed to the award. On September 19, 1988, the clerk entered a judgment specifying the award of costs. Wielgos promptly served a motion to reconsider the award, which the judge denied on October 4. Wielgos did not file another notice of appeal. Although the notice of August 4 would have sufficed under Fed. R. App. P. 4(a)(2) as one filed after announcement of the judgment but before its entry, a motion to reconsider nullifies all earlier notices of appeal and requires a fresh notice after the denial. Fed. R. App. P. 4(a)(4); Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 74 L. Ed. 2d 225, 103 S. Ct. 400 (1982).
Weaver insists that the notice of August 4 is effective because the award of costs merges with the original Rule 58 judgment on the merits. If that were so, however, then the motion for reconsideration filed in September would have suspended the entire judgment (including the decision on the merits), and Rule 4(a)(4) would require us to dismiss both notices of appeal. Although the clerk must enter a Rule 58 judgment specifying costs, the decision on the merits is independently appealable, Budinich v. Becton Dickinson & Co., 486 U.S. 196, 108 S. Ct. 1717, 1720, 100 L. Ed. 2d 178 (1988); Brown Shoe Co. v. United States, 370 U.S. 294, 308-09, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962); Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 513-16, 94 L. Ed. 299, 70 S. Ct. 322 (1950), and a separate notice of appeal is necessary if any party wishes to contest an award of costs made later. So we have jurisdiction of the appeal on the merits, but appeal No. 88-2527, challenging the quantification of costs, must be dismissed for want of jurisdiction.
In its final form the complaint contained two claims. Wielgos contended that the issuer and its underwriters violated § 11 first by underestimating the completion costs of the reactors and second by failing to reveal that the application for Byron 1's license was before the ASLB. Judge Shadur held the first claim precluded by Rule 175, 17 C.F.R. § 230.175. The second failed because the chance of a flat turndown was so slim that the proceeding was not "material".
Documents incorporated by reference into the registration statement estimated the total costs of building Byron and Braidwood and the years these reactors would begin making power. Commonwealth Edison gave 1984 as the service date for Byron 1, 1985 for Byron 2 and Braidwood 1, and 1986 for Braidwood 2. It estimated the total costs of the two Byron reactors at $3.34 billion and ...