Erb v. Alliance Capital Management, L.P.

In the

United States Court of Appeals

For the Seventh Circuit

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No. 04-3426

BARBARA ERB and ALADDIN INDUSTRIES, LLC MASTER

RETIREMENT TRUST, on behalf of themselves and all others

similarly situated,

Plaintiffs-Appellees,

v.

ALLIANCE CAPITAL MANAGEMENT, L.P.,

Defendant-Appellant.

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Appeal from the United States District Court

for the Southern District of Illinois.

No. 04 C 485—G. Patrick Murphy, Chief Judge.

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ARGUED JUNE 2, 2005—DECIDED SEPTEMBER 2, 2005

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Before FLAUM, Chief Judge, and BAUER and EVANS,

Circuit Judges.

FLAUM, Chief Judge. Barbara Erb brought a class action

in state court against Alliance Capital Management, L.P.

(“Alliance”), a mutual fund manager, asserting that Alliance

had breached a contract with her and other investors in one

of Alliance’s funds by buying poorly rated securities.

Alliance removed the suit to federal court under the

Securities Litigation Uniform Standards Act of 1998, Pub.

L. No. 105-353, 112 Stat. 3227 (“SLUSA”). SLUSA preempts

certain class actions based on state law alleging that a

defendant made “an untrue statement or omission of a

material fact in connection with the purchase or sale of”

2 No. 04-3426

federally-regulated securities. 15 U.S.C. § 77p(b). Alliance

argued that Erb’s alleged breach of contract claim was

really a claim of misrepresentation in disguise, and thus

preempted by SLUSA. The district court held that SLUSA

did not preempt Erb’s claim and remanded the case to state

court. Alliance failed to appeal that remand order.

Erb then filed an amended complaint in state court

adding Aladdin Industries, LLC Master Retirement Trust

(“Aladdin”) as a plaintiff and class representative. Like the

original, the amended complaint purports to state a claim

for breach of contract only. Alliance removed the case a

second time to federal court, arguing that the amendments

to the complaint make even more transparent that plain-

tiffs’ claim is for misrepresentation, not breach of contract.

Again, the district court held the claim not preempted by

SLUSA and remanded to state court. Alliance now appeals.

We find Alliance’s notice of appeal untimely and dismiss the

appeal for want of jurisdiction.

I. Background

On October 1, 2003, Erb filed a class action against

Alliance in Illinois circuit court. The original complaint

alleged that defendant managed the Alliance Premier

Growth Fund, a mutual fund formed to invest in large

capitalization growth stocks. The complaint asserted that

Alliance offered to sell shares of the fund through a prospec-

tus, and confirmed purchases of fund shares through

subscription and confirmation agreements. The complaint

claimed that the prospectus, subscription agreements, and

confirmation agreements collectively established the terms

of a contract with investors in the fund. Erb asserted that

she had invested in the fund and, by doing so, accepted the

terms of the alleged contract. The terms of that contract,

moreover, allegedly bound Alliance to purchase only “1-

rated securities,” stocks identified by Alliance’s proprietary

No. 04-3426 3

research as the best of the best investments. The complaint

claimed that Alliance breached that contract by “purchasing

shares of stock that, at the time of purchase, were not” 1-

rated. (Compl. ¶ 16.) The initial complaint sought to certify

as a class “[a]ll persons owning shares in the Alliance

Premier Growth Fund within the last 10 years who were

damaged by Alliance Capital’s purchase of stocks that were

not [1-rated] at the time of purchase.” (Id. ¶ 19.) The

complaint did not expressly accuse Alliance of making an

untrue statement or misrepresentation of material fact.

Alliance removed the case to federal court, asserting that

plaintiff’s claim, though in form alleged a breach of con-

tract, in substance asserted misrepresentation. On Febru-

ary 25, 2004, the district court held that SLUSA did not

preempt Erb’s claim and remanded the case to state court.

Aladdin did not appeal that order.

On June 24, 2004, Erb filed an amended complaint in

state court. The amended complaint adds Aladdin, an

institutional investor, as a plaintiff and class representa-

tive. The pleading asserts that Alliance distributed a fund

prospectus, marketing materials, and advertising materials

specifying that it would purchase only 1-rated securities for

the Premier Growth Fund. As alleged, the fund prospectus

and marketing and advertising materials proposed the

terms of a contract that, when accepted by fund investors,

bound Alliance to purchase only these highly rated securi-

ties for the fund. Allegedly, these materials also obligated

Alliance contractually to purchase only 1-rated securities

for other portfolios that, while not a part of the fund, had

the same investment strategy and objectives. The amended

complaint claims that Alliance breached this contract by

purchasing stocks that were not 1-rated. It seeks to certify

the following class:

All persons or entities holding an interest in the Portfo-

lios (including all persons or entities owning and

4 No. 04-3426

holding shares in the Alliance Premier Growth Fund)

between the date on which Alliance Capital’s . . .

portfolio managers no longer had discretion to purchase

any stock that was not [1-rated] by Alliance Capital

(believed to be late 1996) who were damaged by Alliance

Capital’s . . . portfolio management in breach of the

[prospectus, marketing materials, and advertising

materials] . . . .

(Am. Compl. ¶ 19.) Like the original complaint, the

amended complaint does not expressly accuse Alliance of

making an untrue statement or misrepresentation of

material fact.

On July 13, 2004, Alliance removed the case a second

time to federal court. It argued that the amended complaint

fundamentally changed the nature of the action and made

even more apparent that plaintiffs’ claims, though styled as

a breach of contract, were for misrepresentation and

therefore preempted by SLUSA. The district court again

disagreed and, on August 30, 2004, ordered the case

remanded to state court. On September 15, 2004, Alliance

filed a notice of appeal designating the August 30th remand

order as the order being appealed.

II. Discussion

Alliance argues that plaintiffs’ amended complaint states

a securities fraud claim in disguise, and that the district

court therefore should have dismissed it as preempted by

SLUSA. Plaintiffs contend that Alliance’s notice of appeal

is untimely. Erb and Aladdin assert that Alliance is at-

tempting to revisit the issues decided by the district court

in its February 25, 2004 remand order, an order that

Alliance did not appeal.

Assuming that 28 U.S.C. § 1447(d) does not block appel-

late jurisdiction, an order remanding a case to state court

No. 04-3426 5

is appealable immediately. Quackenbush v. Allstate Ins. Co.,

517 U.S. 706, 715 (1996). Where an order is immediately

appealable, usually a party may elect either to appeal right

away or wait until after the final judgment has been

entered. See Pearson v. Ramos, 237 F.3d 881, 883 (7th Cir.

2001) (“Even when there is a right of interlocutory appeal,

a party can wait till the case is over and then appeal,

bringing before us all nonmoot interlocutory rulings adverse

to him.”). Waiting to appeal from the final judgment would

be of little help to Alliance here because it seeks to dismiss

the suit on preemption grounds and avoid the costs of the

litigation. Cf. SEC v. Quinn, 997 F.2d 287, 290 (7th Cir.

1993) (noting that although a party may appeal from the

denial of qualified immunity either immediately or after

entry of final judgment, only an immediate appeal can

vindicate the right not to be tried at all). Moreover, SLUSA

directs that the preemption “decision in securities litigation

must be made by the federal rather than the state judi-

ciary.” Kircher v. Putnam Funds Trust, 373 F.3d 847, 850

(7th Cir. 2004) (“Kircher I”). Alliance therefore must appeal

right away.

If a party elects to appeal an interlocutory order immedi-

ately, it must do so within the time limits prescribed by

Federal Rule of Appellate Procedure 4. Otis v. City of

Chicago, 29 F.3d 1159, 1167 (7th Cir. 1994) (en banc). Rule

4 demands, subject to exceptions not relevant here, that a

party to a civil suit file a notice of appeal “within 30 days

after the judgment or order appealed from is entered.” Fed.

R. App. P. 4(a)(1)(A). “[A] timely notice of appeal is essential

to appellate jurisdiction.” United States v. Hirsch, 207 F.3d

928, 930 (7th Cir. 2000); see also Browder v. Director, Dep’t

of Corr., 434 U.S. 257, 264 (1978). The time limit would be

meaningless if, after the 30 days had elapsed, a party could

file a new motion and appeal from the order denying the

second motion. We therefore have held that a party seeking

review of an interlocutory order cannot enlarge the time for

6 No. 04-3426

noticing an appeal by filing a successive motion and

appealing the denial of the latter motion. See B.H. ex rel.

Pierce v. Murphy, 984 F.2d 196, 199 (7th Cir. 1993);

Buckhanon v. Percy, 708 F.2d 1209, 1212 (7th Cir. 1983);

United States v. City of Chicago, 534 F.2d 708, 711 (7th Cir.

1976). Unless the circumstances have changed significantly

since the entry of the original order, we will deem the notice

an appeal from that order, even though it may designate a

later order as the order being appealed. See SEC v. Suter,

832 F.2d 988, 990 (7th Cir. 1987). In such a case, the notice

of appeal will be timely only if filed within 30 days of the

entry of the original order. See id.; Gill v. Monroe County

Dep’t of Soc. Servs., 873 F.2d 647, 648 (2d Cir. 1989).

Alliance filed its notice of appeal more than 30 days after

the entry of the district court’s first remand order. Thus,

the timeliness of Alliance’s appeal turns on whether the

circumstances have changed sufficiently since the entry of

the first order.

Our caselaw does not define clearly how much or what

type of change will restart the time for filing an interlocu-

tory appeal. Common sense suggests that not any change in

circumstance will suffice. Cf. FTC v. Minneapolis-Honeywell

Regulator Co., 344 U.S. 206, 213 (1952) (statutes limiting

time for filing petition for writ of certiorari “are not to be

applied so as to permit a tolling of their time limitations

because some event occurred in the lower court after

judgment was rendered which is of no import to the matters

to be dealt with on review”). Rather, we conclude that the

change must bear on the issues sought to be argued on

appeal. Cf. Suter, 832 F.2d at 990; City of Chicago, 534 F.2d

at 710-11.

In this case, Alliance challenges the district court’s

holding that SLUSA does not preempt plaintiffs’ claim.

Defendant therefore must point to changes occurring since

the entry of the first remand order that bear on the preemp-

tion issue. SLUSA’s preemption clause states:

No. 04-3426 7

No covered class action based upon the statutory or

common law of any State or subdivision thereof may be

maintained in any State or Federal court by any private

party alleging—

(1) an untrue statement or omission of a material fact

in connection with the purchase or sale of a covered

security; or

(2) that the defendant used or employed any manipu-

lative or deceptive device or contrivance in connection

with the purchase or sale of a covered security.

15 U.S.C. § 77p. Thus, SLUSA preempts a claim only if it:

(i) is brought by a private party: (ii) is brought as a covered

class action; (iii) is based on state law; (iv) alleges that the

defendant misrepresented or omitted a material fact (or

employed a manipulative device or contrivance); and (v)

asserts that defendant did so in connection with the

purchase or sale of a covered security. See Disher v.

Citigroup Global Mkts. Inc., ___ F.3d ___, ___, 2005 WL

1962942, *4 (7th Cir. Aug. 17, 2005).

Alliance contends that changes between the original and

amended complaints give it new grounds to argue for

SLUSA preemption, and therefore a new chance to seek

appellate review. Before considering this contention, we

note that aspects of plaintiffs’ first and second pleadings

clearly do not differ in any way relevant to preemption.

Both complaints are brought by a private party or parties,

state claims based on state law, seek to certify a “covered

class action,” and involve “covered securit[ies]” as those

terms are defined by SLUSA. Neither complaint suggests

that Alliance employed a “manipulative or deceptive device

or contrivance.” Thus, Alliance has new grounds to argue

for preemption only if the amended complaint alleges,

where the original did not, that defendant: (i) made an

untrue statement or omission of material fact; or (ii) did so

in connection with the purchase or sale of a security.

8 No. 04-3426

Alliance highlights two changes between the original and

amended complaints that, it asserts, provide new grounds

to argue for preemption. First, it submits that the original

complaint alleged that it harmed investors only by holding

non-1-rated stocks, while the amended complaint asserts

that it purchased these lower rated securities. This change

between the pleadings, Alliance contends, gives it a stron-

ger argument that the claim is “in connection with the

purchase or sale of” a covered security. 15 U.S.C. § 77p(b).

The pleadings do not reflect this change. The original

complaint asserts that Alliance breached the alleged

contract “by purchasing shares of stock that, at the time of

purchase, were not” 1-rated. (Compl. ¶ 16.) Had Alliance

appealed the original remand order, it could have made the

same argument on appeal then that it seeks to make now.

See Gill, 873 F.2d at 649 (finding appeal from denial of a

successive motion untimely where, although the plaintiffs

presented additional material with the latter motion, the

“material was available to the plaintiffs when they made

the two previous motions,” and therefore “could not consti-

tute changed facts or circumstances”).

Second, Alliance points out that the original and amended

complaints rely on different documents as the basis for the

alleged contract. The original complaint asserted that the

fund prospectus, subscription agreements, and confirmation

agreements collectively established the terms of the

contract, while the amended complaint relies on the

prospectus, marketing materials, and advertising materials.

Defendant asserts that because marketing and advertising

materials rarely if ever give rise to a contract, the substance

of plaintiffs’ claim must be for misrepresentation or omis-

sion.

We do not find this change significant enough to enlarge

the time for filing an appeal. While the amended com-

plaint’s redefinition of the contract may weaken plaintiffs’

No. 04-3426 9

breach of contract claim, it does not strengthen Alliance’s

preemption argument. The amendment does not make

clear, in a way that was not apparent before, that plaintiffs

have artfully pleaded a misrepresentation claim under the

guise of breach of contract. We do not comment upon

whether SLUSA preempts either complaint, but conclude

only that the arguments Alliance presses now could have

been made in an appeal from the original remand order.

Since the changes embodied in the amended complaint do

not give Alliance new grounds to argue for SLUSA preemp-

tion, they do not enlarge the time for noticing an appeal.

As a final matter, Alliance suggests that our opinion in

Kircher I, decided after the district court’s first remand

order, worked a change in the law that entitles defendant

to a second chance to appeal. Kircher I held that, where a

case is removed to federal court under SLUSA, 28 U.S.C. §

1447(d) does not bar appellate jurisdiction over certain

orders remanding to state court. 373 F.3d at 849-50.

Alliance informs us that it “did not appeal the District

Court’s original remand order because, prior to this Court’s

decision in [Kircher I], it appeared that 28 U.S.C. § 1447(d)

precluded such an appeal.”

We assume without deciding that a change in the law

might reopen the time for filing an interlocutory appeal. We

also assume, solely for the purposes of argument, that a

change in the law relating only to appealability, but not to

the merits of the issues to be argued on appeal, could

restart the clock.1 Even on these assumptions, Alliance’s

argument fails because Kircher I did not change the law.

1

Kircher I did not address preemption—the issue Alliance asks

us to resolve on the merits. Our later opinion in Kircher v. Putnam

Funds Trust, 403 F.3d 478 (7th Cir. 2005) (“Kircher II”), discusses

preemption, but Alliance does not argue that Kircher II changed

the law.

10 No. 04-3426

See id. at 851 (“[O]ur disposition reflects nothing more than

application of settled circuit law to a different substantive

statute.”).

Because nothing of significance has changed since the

entry of the district court’s first remand order, we deem

Alliance’s notice of appeal a belated attempt to seek review

of that order. Accordingly, we must dismiss the appeal for

lack of jurisdiction. Our holding today does not, however,

insulate plaintiffs from the possibility of future appellate

review. Should plaintiffs amend their pleading yet again,

and that amendment gives Alliance new grounds to argue

for preemption, defendant could remove to federal court and

appeal an unfavorable district court order. See Benson v. SI

Handling Sys., Inc., 188 F.3d 780, 783 (7th Cir. 1999)

(permitting multiple removal petitions if changed circum-

stances give rise to additional grounds for removal); City of

Chicago, 534 F.3d at 710-11 (finding appeal from successive

motion timely where changed circumstances justified

revisiting issue decided by original order).

III. Conclusion

For the reasons stated herein, we DISMISS the appeal for

want of appellate jurisdiction.

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—9-2-05