The opinion of the court was delivered by: Mihm, Chief Judge.
Before the Court are Motions by the Plaintiffs Kas and
Margolis to certify a class action (# 26 in Case No. 90-1238
and # 20 in Case No. 90-1242). The Court grants Margolis's
Motion to Certify a Class (# 26 in Case No. 90-1238). Kas's
Motion to Certify a Class (# 20 in Case No. 90-1242) is granted
in part and denied in part.
The Plaintiffs have brought this action pursuant to § 10(b)
of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)),
Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5), and
§ 20 of the Securities Exchange Act of 1934 (15 U.S.C. § 78t)
and state law. This Court has jurisdiction of this action
pursuant to § 27 of the Exchange Act (15 U.S.C. § 78aa). The
Court has jurisdiction
over the state fraud and deceit claims based on this Court's
The actions brought by Margolis and Kas are shareholder class
actions brought on behalf of all persons, other than the
Defendants, who purchased or otherwise acquired the common
stock of Caterpillar during the class period when Caterpillar's
stock allegedly lost $11 in two days (20% of its market value)
for an allegedly aggregate market loss of over $1 billion upon
the disclosure of news that the Plaintiffs assert the
Defendants should have released earlier. Margolis has brought
a class action for the period between January 19, 1990 and June
26, 1990. Kas has brought a class action for the same period.
The Plaintiffs allege that Caterpillar disclosed the
following information and that the disclosure of said
information caused the decline in the value of the Caterpillar
. . that its plant renovation program had not
been proceeding on schedule, thereby increasing
costs over and above the expected benefits
associated with the program; that its
reorganization was also causing the company to
experience costly inefficiencies and, contributing
to more than half of the expected decrease in
Cat's 1990 profits, that its Brazilian earnings,
which had previously generated an undisclosed 20%
of Cat's profits, was experiencing a dramatic
decline due to a significant slow down in the
(See Class Action Complaint in Kas v. Caterpillar, Case No.
90-1238 and in Margolis v. Caterpillar, Case No. 90-1242 at ¶
The Plaintiffs allege that, during the class period, the
Defendants issued a series of false public statements in
Caterpillar's press releases, its interviews, its filings with
the Securities and Exchange Commission, and in its annual and
quarterly reports to the shareholders. The statements were
allegedly regarding Caterpillar's finances, business projects,
operations, renovation, restructuring, cost savings programs,
and overseas operations, including its Brazilian operations,
and the contributions to earnings of these operations. The
Plaintiffs assert that these statements were materially false
and misleading for failing to disclose material adverse facts.
The Plaintiffs contend that the failure to disclose these facts
artificially inflated the market price of Caterpillar's common
stock throughout the class period until Caterpillar finally
made the announcements regarding the problems at Caterpillar.
Plaintiffs who seek to certify a claim for class treatment
must satisfy the requirements of Federal Rule of Civil
Procedure 23(a) and one of the subsections of Rule 23(b). Rule
One or more members of a class may sue or be sued
as representative parties on behalf of all only if
(1) the class is so numerous that joinder of all
members is impracticable, (2) there are questions
of law or fact common to the class, (3) the claims
or defenses of the representative parties are
typical of the claims or defenses of the class,
and (4) the representative parties will fairly and
adequately protect the interests of the class.
In addition to satisfying the requirements of Rule 23(a), the
Plaintiffs in this action must satisfy the requirements of Rule
23(b)(3). Rule 23(b)(3) requires the Court to find:
That the questions of law or fact common to the
members of the class predominate over any
questions affecting only individual members, and
that a class action is superior to other available
methods for the fair and efficient adjudication of
the controversy. . . .
The burden is on the Plaintiffs to demonstrate that each of the
requirements of Rule 23 have been satisfied. See, Valentino v.
Howlett, 528 F.2d 975, 978 (7th Cir. 1976).
In this case, Caterpillar generally does not oppose the
certification of a class by Margolis. However, Caterpillar does
assert that the common law claims of fraud should not be
certified as to either Margolis or Kas. Further, Caterpillar
asserts that the length of the class period should be shortened
in both cases.
Regarding Mrs. Kas, who did not sell stock during the class
period, but only sold options, Caterpillar argues that she does
not have standing to represent a class of shareholders.
Further, Caterpillar contends that her lack of knowledge and
her refusal to assume the pro rata costs of the litigation make
Kas an unfit class representative. Finally, Caterpillar
contends that Mrs. Kas cannot prove that she relied on the
integrity of the market in making her investment decision;
therefore, Caterpillar asserts that there is a unique defense
which it can assert against Mrs. Kas which would make her an
unfit representative for the class.
Caterpillar asserts that, with regard to the common law
claims, the questions of law and fact common to the members of
the proposed classes do not predominate over any questions
affecting only individual members and that a class action is
not superior to other available methods for the fair and
efficient adjudication of these claims under Rule 23(b)(3).
This Court agrees. (See record of the oral argument and ruling
on the certification of the common law claims at pp. 68-78 of
the transcript of the hearing held on April 2, 1991).
In deciding whether common issues predominate, the Court
considers the substantive elements of the Plaintiffs' cause of
action, the proof necessary for the various elements, and the
manageability of the trial on these issues. Liability for
common law fraud in Illinois requires a showing by each
Plaintiff of reasonable and individual reliance upon alleged
misrepresentation. West v. Western Casualty and Surety Company,
846 F.2d 387, 393 (7th Cir. 1988); Good v. Zenith Electronics
Corp., 751 F. Supp. 1320, 1323 (N.D.Ill. 1990); Katz v.
Comdisco, Inc., 117 F.R.D. 403, 412 (N.D.Ill. 1987). Illinois
law also precludes reliance upon allegedly misleading
statements that were made after an investor has purchased stock
in order to support a common law fraud claim. Good, 751 F. Supp. 1323;
Coe v. Circle Express, No. 89-C-884, 1990 WL 37260, 1990
U.S. Dist. Lexis 2322 (N.D.Ill., March 5, 1990). Because the
Plaintiffs, common law claims in this action are based upon ...