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Larson v. JPMorgan Chase & Co.

June 23, 2008


Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 C 2100-Wayne R. Andersen, Judge.

The opinion of the court was delivered by: Posner, Circuit Judge.

ARGUED MAY 29, 2008

Before CUDAHY, POSNER, and TINDER, Circuit Judges.

The Colorado Public Employees' Retirement Association (CoPERA) appeals from the district judge's refusal to allow it to intervene as a plaintiff in this class action for the purpose of appealing a three- 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 stockholders 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 misrepresentations 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 purchasers 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 representative 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 professional 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 rejected on the merits by the grant of summary judgment- proceeded to pretrial discovery and settlement negotiations. 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 million settlement. He did so in December, entering a final judgment that terminated the suit. The settlement included 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 certainly either knew-and if it did not know it was negligent in failing to learn-back in 2004 that summary judgment had been entered dismissing the early-purchaser claims on the merits and therefore with prejudice. All doubts would have been dispelled had the district 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 judgment, 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 unlikely. 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 sophisticated member of the late-purchaser class, CoPERA would also have known that the original named plaintiffs, 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 knowing it because the class had not been certified and the class members therefore formally notified. Large pension 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,, 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 matter of right. 28 U.S.C. § 1291.

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 settlement. In fact, its attempt to ...

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