Petition — Lincoln American Corp. v. Susman
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FEB 17 1979
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L_Micks —HODAK, JR., CLERK _|
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1978
N. 78-1286
RUDOLPH EBERSTADT, JR. anp MICRODOT, INC.,
Petitioners,
vs.
ANN FLAMM anD ARNOLD FLAMM,
Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE SEVENTH CIRCUIT.
GERALD D. SKONING,
ANDREW R. LAIDLAW,
EDWARD J. KARLIN,
SEYFARTH, SHAW, FAIRWEATHER
& GERALDSON,
55 East Monroe Street,
Chicago, Illinois 60603,
Attorneys for Petitioners.
Gunthorp-Warren Printing Company, Chicago e Financial 6-6565
TABLE OF CONTENTS.
PAGE
IIE SA i eae ia 1
I Naa sated wc ke ec ée'e 2
Eee ee eet ET 2
Constitutional and Statutory Provisions Involved ....... 2
ee ne ee cans eo ce cee eis s 2
Reasons for Granting the Petition for Writ of Certiorari .. 5
I. The Decision of the Seventh Circuit Conflicts
with Recent Decisions of This Court Which
Hold That an Uncertified Class Lacks the
Separate Jurisprudential Existence Necessary to
State a Valid “Case or Controversy” ........ 5
II. The Decision of the Seventh Circuit Conflicts
with Recent Decisions of Other Circuit Courts
I Re £5 5:8 Wie pny ark ops 04 093% 9
Ill. Proper Application of the Article III “Case or
Controversy” Requirement to Class Action
Claims Is an Important Federal Question Which
Should Be Promptly and Definitively Resolved
by This Court Since It Is a Threshold Juris-
I iw eh S.dy aah be bho oe 2 oo 15
IEEE 4 5 Corea ela) a et a 16
TABLE OF AUTHORITIES.
Cases.
Banks v. Multifamily Management, Inc., 554 F. 2d 127
RE MTOR ON Ven bL tak week acde ceri eases 12
Baxter v. Palmigiano, 425 U. S. 308, 96 S. Ct. 1151
EINE GE NMG Ns ara hse G's a0 Slaaual vale blurs. «aha 9
Board of School Commissioners v. Jacobs, 420 U. S. 128,
EPA ae RE iid 50 ou eciekw sk Owe hewn 7,8
Boyd v. Justices of Special Term, 546 F. 2d 526 (2d Cir.
ED AMO e 6s Ma WEA COLE OEE EAS Seen b ev's-¥ ea 11
Bradley v. Housing Authority of Kansas City, 512 F. 2d
ee Ne IN as kas poco acs ood vw Oaraloaiee 4,9, 10
Geraghty v. United States Parole Commission, 579 F. 2d
238 (3d Cir. 1978), pet. for cert. filed, October 5,
See PR A PIPER Ce ei e Pe hha 15
Gerstein v. Pugh, 420 U. S. 103, 95 S. Ct. 854 (1975).. 9
Kremens v. Bartley, 431 U. S. 119, 97S. Ct. 1709 (1977) 9
Pasadena City Board of Education v. Spangler, 427 U. S.
RG Pe Me ET, COMIN, 0 coe bs lun ee oad vere 8
Powers v. Schwartz, 587 F. 2d 783 (5th Cir. 1979) .... 14
Roper v. Consurve, Inc., 578 F. 2d 1106 (5th Cir. 1978),
pet. for cert. filed, November 29, 1978, Docket No. 78-
WR aia Bone ag hiv kkk bode ea EE bk ee he ae 14, 15
(Sth Cir, 1978), pet. for cert. filed, December 21, 1978,
RN, SUIS Seca eo Se 14, 15
Shipp v. Memphis Area Office, Tennessee Department of
Employment Security, 581 F. 2d 1167 (6th Cir. 1978),
pet. for cert. filed, January 24, 1979, Docket No. 78-
ROM PES CARO LH ae Wai beac e wee es ena: . 12, 13,15
ili
Snyder v. Harris, 394 U. S. 332, 89 S. Ct. 1053 (1969) 6
Sosna v. Iowa, 419 U. S. 393, 95 S. Ct. 553 (1975)... .6,7,8
Susman v. Lincoln American Corp., 561 F. 2d 86 (7th
Re SEED he ts ie sive w owe etic eek veer clk wakes 3
Susman v. Lincoln American Corp., 587 F. 2d 866 (7th
8 Pree eo ee Ne ee Leena 4,5, 15
Vun Cannon v. Breed, 565 F. 2d 1096 (9th Cir. 1977). .10, 11
Weinstein v. Bradford, 423 U. S. 147, 96 S. Ct. 347
PRPTIAE \ 5. et rvie a ed eGo ee beau 9,14
Winokur v. Bell Federal Savings & Loan Assoc., 560 F.
2d 271 (7th Cir. 1977), reh. denied, 562 F. 2d 1034
(7th Cir. 1977), cert. den., ............ Ts te: Meee , 98 S. Ct.
EaOe RO chee vai Aen es Sy eek me ne 4
Statutes.
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a
IN THE
Supreme Court of the United States
OCTOBER TERM, 1978
RUDOLPH EBERSTADT, JR. anp MICRODOT, INC.,
Petitioners,
VS,
ANN FLAMM anpd ARNOLD FLAMM,
Respondents.
PETITION FOR WPIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE SEVENTH CIRCUIT.
Petitioners, Rudolph Eberstadt, Jr. and Microdot, Inc., pray
that a writ of certiorari issue to review the judgment and opinion
of the United States Court of Appeals for the Seventh Circuit
entered in this case on October 23, 1978.
OPINIONS BELOW.
The opinion of the Court of Appeals and the denial of re-
hearing and rehearing en banc are reported at 587 F. 2d 866 —
and are reproduced herein as Appendices A and B, respectively.
The Memorandum of Decision of the District Court is unre-
ported, but is printed in its entirety as Appendix C hereto.
JURISDICTION.
The Opinion and Judgment of the Court of Appeals was
entered on October 23, 1978 (Appendix A). A timely filed
petition for rehearing and suggestion for rehearing en banc was
denied on December 5, 1978 (Appendix B). This Court’s juris-
diction is invoked under 28 U. S. C. § 1254(1).
QUESTION PRESENTED.
Whether the Article III “case or controversy” requirement can
be satisfied where all claims of the named plaintiffs have been
rendered moot and no class has been certified. 7
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED.
The provisions involved herein include the following: U. S.
Constitution, Article III, Section 2; Rule 23, Fed. R. Civ. P.;
Rules Enabling Act, 28 U. S. C. § 2072; and Rule 82, Fed. R.
Civ. P., reproduced as Appendix D.
STATEMENT OF THE CASE.
This case presents a clear conflict between a Constitutionally
mandated jurisdictional requirement and a rule of procedure.
The Court of Appeals for the Seventh Circuit has held in this
case that Rule 23 of the Federal Rules of Civil Procedure must
take precedence over the Article III “case or controversy” juris-
dictional requirement.
The Complaint in this case, initially filed on February 6,
1976,’ seeks to recover for certain alleged misstatements and
1. An Amended Complaint was filed on February 13, 1976, and
on March 5, 1976 an Amendment to the Amended Complaint
was filed.
3
omissions of material fact made in connection with the sale of
Microdot common stock during the period beginning on De-
cember 5, 1975 and ending on January 23, 1976, in violation
of the © -urities Exchange Act of 1934, §§ 10(b), and 14(e),
15 U. -. C. §§ 78j(b), and n(e). In their Complaint, Plain-
tiffs-Respondents (“Plaintiffs”) seek damages for themselves as
well as the right to represent a class composed of:
“All sellers of the common stock of Microdot, Inc. during
the period beginning on December 5, 1976 and ending at
the close of business on January 23, 1976, excluding the
defendants and those in concert with them.”
Plaintiffs’ initial motion for class certification, filed on March
30, 1976, was denied by the District Court on October 19,
1976. In the view of the District Court, the existence of a pro-
fessional relationship between one of the named Plaintiffs and
counsel for the purported class presented a sufficient potential
conflict of interest so as to justify denial of class certification.
The decision of the District Court was affirmed by the Seventh
Circuit in Susman v. Lincoln American Corp., 561 F. 2d 86
(7th Cir, 1977).?
On remand, Plaintiffs requested, and were granted, leave to
substitute new counsel. Plaintiffs thereafter filed another motion
for class certification with the District Court. Subsequently, dur-
ing the briefing on this renewed motion, Defendants-Petitioners
(“Defendants”) offered to unconditionally tender to Plaintiffs
their total damages claimed plus all properly chargeable costs.
The offer was made without prejudice, solely to avoid the legal
expenses that would be incurred in defense of the action.* There-
after Defendants moved to dismiss the case on the grounds of
mootness.
On December 29, 1977, the District Court issued its ruling
dismissing the cause of action as moot. In an extensive and
2. The decision in Flamm was consolidated on appeal with the
case of Susman v. Lincoln American Corn.
3. Plaintiffs’ Counsel, by letter dated November 3, 1977, rejected
the Defendants’ unconditional offer without explanation.
4
well reasoned opinion, the District Court, following the de-
cision of the Seventh Circuit in Winokur v. Bell Federal Savings
& Loan Assoc., 560 F. 24/271 (7th Cir. 1977), reh. denied,
562 F. 2d 1034 (7th Cir. 1977), cert. den., De Boe as » 98
S. Ct. 1507 (1978)* concluded that:
“It is clear to this court that the facts of this case, al-
though different in minor respects, fall squarely within the
ambit of the Winokur holding. Thus, as in Winokur, plain-
tiffs herein have had their motion for class certification
denied and in fact this denial was affirmed. Defendants
have tendered the named plaintiffs the amount of their
individual claims and there is presently no case or con-
troversy between them. The fact that there is presently
pending a motion for class certification does not make this
case different from Winokur since this is exactly the same
as having an appeal before the court of appeals seeking a
review_of a class action motion denial.”®
On appeal, the Seventh Circuit reversed and remanded the
case for further consideration of the class certification question.®
Expressly acknowledging a conflict between its opinion and the
decision of the Eighth Circuit in Bradley v. Housing Authority
of Kansas City, 512 F, 2d 626 (8th Cir. 1975), the court stated:
“We consider the motion for certification, while pend-
ing, as sufficiently, though provisionally, bringing the in-
terests of class members before the court so that the
4. In Winokur (supra), the Seventh Circuit held that
“Our reading of recent decisions of the Supreme Court,
however, leads to the conclusion that since plaintiffs’ individual
claims are now moot, and plaintiffs have not been authorized to
represent other class members, the action lacks a live contro-
versy. There being no live controversy, the appellate court
cannot exercise jurisdiction, even to reverse the class action
determination and thus instill a live controversy into the action.”
(560 F.2d at 276).
5. Appendix C, at A9-10.
6. The instant case was consolidated on appeal with the case of
Susman Vv. Lincoln American Corp., 587 F. 2d 866 (7th Cir. 1978),
pet. for cert. filed, 1/26/79, Docket No. 78-1169. The Opinion in
Susman included a discussion of certain derivative claims which are
unrelated to this case.
5
apparent conflict between their interests and those of the
defendant will avoid a mootness artificially created by the
defendant by making the named plaintiff whole.’”
The court therefore concluded that an Article III “case or
controversy” existed. Defendants’ petition for rehearing with a
suggestion for rehearing en banc was denied on December 5,
1978. |
REASONS FOR GRANTING THE PETITION
FOR WRIT OF CERTIORARI.
I. The Decision of the Seventh Circuit Conflicts with Recent
Decisions of This Court Which Hold That an Uncertified
Class Lacks the Separate Jurisprudential Existence Neces-
sary to State a Valid “Case or Controversy”.
In reviewing the District Court’s order dismissing this action,
the Seventh Circuit focused its analysis upon the interests and
needs of the yet uncertified class members. The court specifical-
ly noted:
“Courts have consistently recognized that unnamed
class members have an interest in a lawsuit even before a
Rule 23 determination is made that a class action may be
maintained on their behalf. Thus, potential class members
are given the Opportunity to support or oppose class cer-
tification or to challenge the adequacy of representation
by the named plaintiff. . . . The statute of limitations on
their individual causes of action may be tolled’ from the
date of filing of the class action complaint. . . . They may
also have a right to be informed of, or even included in, a
settlement that occurs prior to class certification. . . . Thus,
at least in a limited sense, the interests of the unnamed
class members are before the court during the pendency of
a motion for class certification.®
7. Appendix A at A4-5. The panel specifically noted that while its
opinion did not go so far as to state that the mere filing of a com-
plaint with class action allegations satisfies the Article III ‘case or
controversy” requirement, the opinion does represent a precursor of
that position. Appendix A at AS, n. 2.
8. Appendix A at AS. Citations omitted.
6
The opinion then concluded that even though the named
plaintiffs’ claims had been mooted by Defendants’ tender, the
interests of the unnamed persons continued to present the court
with an Article ITI “case or controversy”. Clearly, in order to
teach that conclusion, the court necessarily imputed some limited
jurisprudential existence to the still uncertified class of plaintiffs.°
Petitioners respectfully submit that the Seventh Circuit’s con-
clusion not only ignores the numerous decisions of this Court
which interpret the Article III standard, but also contradicts
those opinions which limit the separate jurisprudential life of
class plaintiffs to the period of time after entry of a certification
order,
The seminal case with respect to application of the mootness
doctrine in a class action complaint is the decision of this Court
in Sosna v. lowa, 419 U.S. 393, 95 S.Ct. 553 (1975). In
concluding that a properly certified class action continued to
present a valid “case or controversy” in spite of the fact that the
claim of the named plaintiff had become moot, this Court stated:
“When the District Court certified the propriety of the class
action, the class of unnamed persons described in the
certification acquired a legal status separate from the
interest asserted by appellant. We are of the view that this
factor significantly affects the mootness determination.”
(419 U.S. at 399). (Emphasis added).
The Court was careful to note, however, that its decision did
not exempt class actions from the “case or controversy” stand-
ard. To the contrary, the Court emphasized that:
9. The Seventh Circuit’s opinion also evidences an obvious
concern for the continued Vitality of the class action vehicle if
Petitioners’ tender was permitted to moot the instant controversy. In
unprecedented exception to the Article III “case or controversy”
requirement which expanded their jurisdiction to encompass an
otherwise moot controversy. It is respectfully submitted however,
that any effort to expand court jurisdiction in order to accommodate
Rule 23 is expressly prohibited by both the Rules Enabling Act, 28
U.S.C. § 2072, and Rule 82, Fed. R. Civ. P. See Snyder v. Harris,
394 U.S. 332, 89 S.Ct. 1053 (1969).
7
“Our conclusion that this case is not moot in no way
detracts from the firmly established requirement that the
judicial power of Art. III courts extends only to ‘cases and
controversies’ specified in that Article. There must not only
be a named plaintiff who has such a case or controversy at
the time the complaint is filed, and at the time the class
action is certified by the District Court pursuant to Rule 23,
but there must be a live controversy at the time this Court
reviews the case. . . .” (419 U.S. at 402). (Emphasis
added ).’°
The strict manner in which the Sosna ruling must be applied
was demonstrated by this Court in Board of School Commis-
stoners V. Jacobs, 420 U.S. 128, 95 S.Ct. 848 (1975). In
Jacobs, although the action had been filed and treated as a class
action case, a formal certification order had never been entered
by the district court. By the time the case reached the Supreme
Court, the claims of all named plaintiffs had become moot. In
dismissing the cause of action, the Court specifically stated:
“Because the class action was never properly certified nor
the class properly identified by the District Court, the
judgment of the Court of Appeals is vacated and the case
is remanded to that court with instructions to order the
District Court to vacate its judgment and to dismiss the
complaint.” (420 U.S. at 130). (Emphasis added).
The obvious focus of the Jacobs decision was upon the
absence of a class certification order. As stated in both Sosna
and Jacobs, it is that factor alone which imbues the unnamed
class members with a jurisprudential existence separate from
that of the named plaintiff. The unmistakable conclusion which
must be drawn from those cases is that in the absence of a
formal certification ~rder, the unnamed class members do not,
by themselves, present a sufficient “case or controversy” to
10. The opinion of the Seventh Circuit raises the clear implica-
tion that in the view of that Court, the mere act of filing a class
action compiaint raises a sufficient controversy to satisfy the Article
III requirement until such time as a class certification motion is
decided. See Appendix A at AS, n. 2. That theory directly contra-
venes the language and principle of the Sosna decision.
satisfy the Article III standard. As. noted, the Seventh Circuit's
opinion herein imputes a jurisprudential existence to unnamed
class members prior to certification. That conclusion is in direct
conflict with the opinions of this Court in both Sosna and Jacobs.
The import of both Sosna and Jacobs was reaffirmed by this
Court in Pasadena City Board of Education v. Spangler, 427
U.S. 424, 96 S.Ct. 2697 (1976). Once again, this Court
emphasized the act of class certification as the point at which
the interests of unnamed class members assume a life apart from
that of the named representative:
Counsel for the individual named respondents, the
original student plaintiffs and their parents, argue that this
litigation was filed as a class action, that all the parties
have until now treated it as a class action, and that the
failure to obtain the class certification required under
Rule 23 is merely the absence of a meaningless ‘verbal
recital’ which counsel insists should have no effect on the
facts of this case. But these arguments overlook the fact
that the named parties v‘hom counsel originally undertook
to represent in this litigation no longer have any stake in
its outcome. As to them the case is Clearly moot. And while
counsel may wish to represent a class of unnamed indi-
viduals still attending the Pasadena public schools who do
have some substantial interest in the outcome of this litiga-
tion, there has been no certification of any such class which
is or was represented by a named party to this litigation.
Except for the intervention of the United States, we think
this case would clearly be moot. Sosna v. Iowa, 419 U.S.
393, 95 S. Ct. 553, 42 L. Ed. 2d 432 (1975), Indianapolis
School Comm'rs v. Jacobs, 420 U.S. 128, 95 S. Ct. 848.
43 L. Ed. 2d 74 (1975).” (427 U.S. at 430). (Emphasis
added).
It is respectfully submitted that Article IIT of the Constitution,
as applied by this Court, requires the dismissal of any class action
complaint in which the claim of the named plaintiff becomes
moot prior to district court certification of a properly identified
9
class." The decision of the Seventh Circuit not only disregards
that prohibition, but seeks to alter it. The Circuit Court has
emasculated the Constitutionally mandated “case or controversy”
requirement by ruling that although the named plaintiffs have no
further “stake” or “interest” in this litigation, the unidentified
and uncertified class is entitled to Article III recognition. Such
judicial indifference to the limitations of federal court jurisdic-
tion is clearly inconsistent with the decisions of this Court.
{I. The Decision of the Seventh Circuit Conflicts with Recent
Decisions of Other Circuit Courts of Appeal.
In concluding that the District Court erroneously dismissed
the instant action, the Seventh Circuit conceded that its decision
was in direct conflict with the decision of the Eighth Circuit in
Bradiey v. Housing Authority of Kansas City, Missouri, 512
F, 2d 626 (8th Cir. 1975).
In Bradley, four public housing applicants filed a class action
complaint alleging that the Housing Authority of Kansas City
followed certain illegal tenant selection policies. During the
pendency of plaintiffs’ motion for class certification, the De-
11. See also Baxter v. Palmigiano, 425 U.S. 308, 96 S. Ct. 1551
(1976); and Kremens v. Bartley, 431 U.S. 119, 97 S.Ct. 1709
(1977). This Court has recognized an exception to the certifi-
cation requirement for the narrow class of cases in which the
claims of the putative class are “capable of repetition yet evading
review”. Gerstein v. Pugh, 420 U. S. 103, 95 S. Ct. 854 (1975). As
applied, the so-called “relation back” doctrine permits a court to
assert jurisdiction over an uncertified class action complaint even
though the claims of the named plaintiff have become moot. Applica-
tion of the “relation back” doctrine has been limited, however, to
those circumstances in which:
“(1) the challenged action was in its duration too short to be
fully litigated prior to its cessation or expiration, and (2) there
was a reasonable expectation that the same complaining party
would be subjected to the same action again... .”
Weinstein v. Bradford, 423 U.S. 147, 149, 96 S.Ct. 347
(1975).
The Seventh Circuit specifically noted that the instant case does not
fall within the “relation back” doctrine. Appendix A at A6.
10
fendant Housing Authority voluntarily changed its selection
policies and notified all named plaintiffs that they would imme-
diately be placed in Housing Authority operated apartments. As
recognized by the court, the Housing Authority’s act of imme-
diately placing all plaintiffs in public housing occurred solely in
response to the lawsuit. In spite of the fact that the claims of
all named plaintiffs were rendered moot by a voluntary act of
the defendant while a motion for class certification was pend-
ing, the district court dismissed the action as moot. In affirming
the decision of the district court, the Eighth Circuit specifically
stated:
“In light of the Supreme Court’s recent decisions in
Board of School Comm'rs v. Jacobs, 420 U.S. 128, 95
S.Ct. 848, 43 L.Ed.2d 74 (1975), and Sosna v. lowa,
419 U.S. 393, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975), we
hold that the district court did not err in dismissing this
action as moot. Jacobs and Sosna indicate that dismissal is
required by the case or controversy provisions of Article
III when the claims of all the named plaintiffs become
moot before certification of the class under Fed.R.Civ.P.
23(c)(1).” (512 F.2d at 628).
Faced with virtually identical fact situations, the Eighth Cir-
cuit in Bradley and the Seventh Circuit in this case reached
Opposite conclusions. Petitioners further submit that the de-
cision of the Seventh Circuit not only conflicts with the holding
of the Eighth Circuit in Bradley, but also with decisions of other
Circuits throughout the country. Moreover, a review of the
manner in which many recent decisions have applied the moot-
ness doctrine in a class action setting establishes that the views
of the various Circuits are so skewed that Supreme Court re-
view of this issue is imperative.
In Vun Cannon v. Breed, 565 F. 2d 1096 (9th Cir. 1977),
the Ninth Circuit concluded that a Constitutional challenge to
the California Penal Code did not present an Article III “con-
troversy” after the claim of the putative named plaintiff was
rendered moot:
11
“And a formidable array of post-Sosna-Jacobs decisions
—noted in the margin, together with quotations from their
texts—makes manifest the conclusion that an improperly
or non-certified class cannot succeed to the adversary posi-
tion formerly occupied by a no-longer-aggrieved represen-
tative plaintiff whose own claim has become moot.
* * * * *
“It is equally apparent that the rule is of constitutional
rather than discretionary dimension: in the absence of a
properly certified class, the representative plaintiff whose
claim has become moot is himself without a litigable
grievance, and the person or persons on whose behalf he
seeks to continue the litigation has or have not yet achieved
jurisprudential existence.” (565 F.2d at 1098-1099).
(Citations omitted).
The Second Circuit applied a similar analysis, also at odds
with the reasoning of the Seventh Circuit, in the case of Boyd
v. Justices of Special Term, 546 F. 2d 526 (2d Cir. 1976). The
plaintiffs in Boyd filed a class action complaint which sought
declaratory and injunctive relief to vindicate an alleged consti-
tutional right to court appointed counsel in a state divorce pro-
ceeding. Prior to certification of the matter for class action
treatment, the claims of all named plaintiffs were rendered moot.
In affirming the district court order which dismissed the cause
of action, the Second Circuit stated:
“Since the plaintiffs now have the relief which they sought
in their federal action, counsel for their matrimonial liti-
gation in the state court, we have no jurisdiction. ‘[FJederal
courts are without power to decide questions that cannot
affect the rights of litigants in the case before them.’ North
Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 404,
30 L.Ed.2d 413 (1971). No class action was certified be-
low. Therefore appellants are not within any relaxation of
the mootness doctrine provided by Sosna v. Iowa, 419 U.S.
393, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975). Board of
School Commissioners v. Jacobs, 420 U.S. 128, 95 S.Ct.
848, 43 1..Ed.2d 74 (1975).” (546 F.2d at 527).
12
The decision of the Fourth Circuit in Banks v. Multifamily
Management, Inc., 554 F. 2d 127 (4th Cir. 1977), presents
yet another conflict with the Seventh Circuit’s decision in this
case. The plaintiff in Banks filed a class action complaint alleg-
ing that eviction procedures utilized by a federally funded hous-
ing project did not comport with minimal due process safe-
guards. As in the Bradley case, (supra), the defendant landlord
voluntarily gave the putative named plaintiff all relief she sought
prior to the time of class certification. In affirming the district
court’s order dismissing the action as moot, the Fourth Circuit
stated:
“The district court was well within its discretion in de-
ferring its ruling on the request for a plaintiff class until
the Secretary could respond and voice any opposition that
she might wish to interpose. . . . That opposition was
timely filed; but before the questions that it raised could
be addressed aad any class certified, the landlord’s consent
to a permanent injunction intervened, thereby rendering
plaintiff an inappropriate representative for the class sought
to be certified... .” (554 F. 2d at 128). (Citations
omitted).
The recent decision in Shipp v. Memphis Area Office, Ten-
nessee Department of Employment Security, 581 F. 2d 1167
(6th Cir. 1978), further typifies the conflict between the de-
cision of the Seventh Circuit herein, and the view of the other
Circuits. The plaintiff in Shipp filed a complaint containing
both individual and class allegations of racial discrimination.
After trial on the merits, plaintiff's individual claims were dis-
missed, Without entering a class certification order, the trial
court proceeded to hear evidence on the plaintiffs class claims.
Those claims were also dismissed on the merits.
On appeal, the court examined the propriety of the district
court’s decision to hear evidence on the merits of the class
allegations. In concluding that the district court lacked jurisdic-
tion to hear those claims, the court noted:
13
“This is not a case where a class was appropriately cer-
tified and it later developed that the named plaintiff was an
inappropriate class representative. In that case, the class
claims would not be mooted or destroyed. Here, the dis-
trict court failed to certify the class even after trial on the
merits of the individual and class claims. As the Supreme
Court said in Board of Commissioners v. Jacobs, supra,
420 U.S. at 130, 95 S.Ct. at 850:
“Because the class action was never properly certified
nor the class properly identified by the District Court,
the judgment of the Court of Appeals is vacated and
the case is remanded to that court with instructions to
order the District Court to vacate its judgment and to
dismiss the complaint.” (581 F. 2d at 1172).
Contrasting each of those decisions with the opinion of the
Seventh Circuit in this case reveals the undeniable existence of
a conflict. The Second, Fourth, Sixth, and Ninth Circuits have
each applied the Sosna-Jacobs rationale as mandated by this
Court; i.e., in the absence of class certification, mooting the
claims of the named plaintiff renders the entire cause of action
moot. In contrast, the Seventh Circuit has not only ignored the
opinion of this Court in Jacobs, but has extended the rationale
in Sosna beyond all reasonable bounds; i.e., the uncertified class
does have a sufficiently separate jurisprudential existence to
satisfy the Article III “case or controversy” standard.
Further, a significant conflict exists among those Circuits
which purport to agree upon the appropriate test of mootness.
The panel opinion in the case at bar premised its finding of an
Article III “controversy” upon the interests of unnamed class
members. The opinion stated:
“We consider the motion for certification, while pending
as sufficiently, though provisionally, bringing the interest
of class members before the court so that the apparent
conflict between their interests and those of the defendant
14
will avoid a mootness artifically created by the defendant
by making the named plaintiff whole.”
In contrast, the Fifth Circuit opinion in Roper v. Consurve,
Inc., 578 F. 2d 1106 (Sth Cir. 1978), based its finding of an
Article III “controversy” upon certain alleged fiduciary duties
which the named plaintiff must assume. That opinion states:
“By the very action of filing a class action, the class repre-
sentatives assume responsibilities to members of the class.
They may not terminate their duties by taking satisfaction;
a cease-fire may not be pressed upon them by paying their
claims.” (578 F.2d at 1110).
It is therefore clear that the issue of mooctness in a class action
setting has generated significant conflict among the Circuits. The
Seventh Circuit opinion in this case is in direct conflict with
decisions of the Second, Fourth, Sixth, Eighth, and Ninth
Circuits. Moreover, the decision of the Fifth Circuit which
appears to be consistent with the Seventh Circuit’s decision is, in
fact, wholly inconsistent in its reasoning. A Writ of Certiorari
should therefore issue to resolve these fundamental conflicts
among the Circuits.
12. Appendix A at A4. It must be noted that the Seventh
Circuit’s conclusion that unnamed class members have a sufficient
stake in the case to satisfy the “case or controversy” requirement is
contrary to the Fifth Circuit’s holding in Satterwhite v. City of
Greenville, Texas, 578 F.2d 987, 996 (Sth Cir. 1978), wherein
the court stated:
“As no other champion has come forward and as the uncertified
class lacks the stake in the controversy that a previously certi-
fied class might possess under Franks and Sosna the class action
must be dismissed.”
13. The reasoning of the Fifth Circuit in Roper is inconsistent
with its own holdings in Satterwhite, supra, footnote 12 and Powers
v. Schwartz, 587 F.2d 783 (Sth Cir. 1979), in which the Fifth
Circuit, without even mentioning its decision in Roper, dismissed an
uncertified class action as moot, based upon the authority in Wein-
stein Vv. Bradford, (supra).
15
Ill. Proper Application of Article III “Case or Controversy
Requirement to Putative Class Action Claims Is an Im-
portant Federal Question Which Should Be Promptly and
Definitively Resolved by This Court Since It Is a Threshold
Jurisdictional Issue Which Will Arise in Other Cases.
The Seventh Circuit’s decision in this case has improperly
extended federal court jurisdiction beyond its Constitutional
limitation. Under this decision, the Article III “case or contro-
versy” limitation is no longer a mandatory limitation upon the
jurisdiction of federal courts in the Seventh Circuit. The Seventh
Circuit has ignored this Court’s decisions in Sosna and Jacobs
which require that a class must be certified before it is invested
with jurisprudential existence. It is submitted that such an exten-
sion of federal court jurisdiction has no basis in either the
Constitution or decisions of this Court.
Petitioners submit that the proper application of the Article
III “case or controversy” requirement to a class action com-
plaint is an important federal question which is now ripe for
decision and which should be definitively resolved by this Court.
The importance and timeliness of this issue is perhaps best
demonstrated by the number of cases presently pending before
this Court in which the issue of mootness has been raised in the
context of a class action. See, Geraghty v. United States Parole
Commission, 579 F. 2d 238 (3d Cir. 1978), pet. for cert. filed,
October 5, 1978, No. 78-572; Roper v. Consurve, Inc., 578
F. 2d 1106 (5th Cir. 1978), pet. for cert. filed, November 29,
1978, No. 78-904; Satterwhite v. City of Greenville, Texas, 578
F. 2d 987 (Sth Cir. 1978), pet. for cert. filed, December 21,
1978, No. 78-1008; Shipp v. Memphis Area Office, Tennessee
Department of Employment Security, 581 F.2d 1167 (6th Cir.
1978), pet. for cert. filed, January 24, 1979, No. 78-1158; and
Susman v. Lincoln American Corp., 587 F.2d 866 (7th Cir.
1978), pet. for cert. filed, January 26, 1979, No. 78-1169.
16
Since the issue raised herein will be a threshold question in
future federal district court cases which will be complex, time-
consuming and expensive, the interests of judicial economy and
fairness to all parties mandate a prompt resolution of the issue
by this Court.
CONCLUSION.
The interpretation of the Constitutional limitation upon
federal court jurisdiction which the Seventh Circuit has adopted
does not and indeed cannot be squared with the decisions of
this Court in Sosna, Jacobs, and their progeny. Indeed, it is
submitted that the Seventh Circuit’s decision erodes the Consti-
tutionally mandated “case of controversy” requirement to the
point of reducing that standard to a mere convenience which
courts may utilize or disregard at will. Furthermore, the issue
presented raises a pure question of Constitutional interpretation
which directly bears upon the threshold issue of federal court
jurisdiction, upon which there is a recognized conflict among
the Circuits.
For all of the foregoing reasons, Petitioners pray that a Writ
of Certiorari issue to review the judgment and opinion of United
States Court of Appeals for the Seventh Circuit in this case.
Respectfully submitted,
GERALD D. SKONING,
ANDREW R. LAIDLAW,
EDWARD J. KARLIN,
SEYFARTH, SHAW, FAIRWEATHER
& GERALDSON,
55 East Monroe Street,
Chicago, Illinois 60603,
Attorneys for Petitioners.
APPENDIX A.
IN THE UNITED STATES OF APPEALS
For the Seventh Circuit
»
No. 78-1293
MICHAEL SUSMAN,
Plaintiff-A ppellant,
VS.
LINCOLN AMERICAN CORP., ET AL.,
Defendants-A ppellees.
No. 78-1310
ANN FLAMM and ARNOLD FLAMM,
Plaintiffs-A ppellants,
vs .
RUDOLPH EBERSTADT, JR. and MICRODOT, INC.,
Defendants-A ppellees.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 73 C 1089 and 76 C 427—Joel M. Flaum, Judge.
ARGUED SEPTEMBER 14, 1978 —DECIDED OCTOBER 23, 1978.
Before FAIRCHILD, Chief Judge, CUMMINGS and WOooD,
Circuit Judges.
FAIRCHILD, Chief Judge. This is the consolidated appeal from
the dismissals of two class action complaints. The district court,
A2
relying on this court’s decision in Winokur v. Bell Federal
Savings and Loan, 560 F. 2d 271 (7th Cir. 1977), dismissed
both actions as moot after the defendants tendered to the named
plaintiffs their full monetary damages. We limit the Winokur
language relied on by the district court and reverse its decision
in both cases. We remand for determination of the motions for
class certification that were pending at the time of the dismissal.
In the Susman case, the district court also dismissed the plain-
tiffs derivative claims. We affirm that decision in part and
reverse it.in part.
In these cases, unlike Winokur, an appeal from the denial of
class certification was effected under 28 U. S. C. § 1292(b).
The facts of both cases were discussed in our decision in that
appeal on the issue of whether plaintiffs’ counsel could fairly
and adequately represent the classes sought to be certified.
Susman Vv. Lincoln American Corp., 561 F. 2d 86 (7th Cir.
1977). The facts will not be repeated here. In the prior de-
cision we affirmed the district court’s denials of class certifica-
tion on the grounds that the relationship between the named
plaintiffs and their counsel could lead to a conflict of interest
and noted
“[P]laintiffs are free to seek different counsel and thereby
dispel any possibility of a conflict of interest. In lieu of a
change of counsel which might result in a certification of
the class actions, plaintiffs are not barred from continuing
their lawsuits on their own behalf.”
561 F. 2d 96
Clearly we recognized potential further consideration of repre-
sentation of the interests of class members by the named plain-
tiffs.
The plaintiffs in both cases sought and obtained new counsel.
Renewed motions for class certification were then filed. While
the renewed motions were pending the defendants tendered to
the plaintiffs the amount of money they claimed to have lost
A3
as a result of the defendants’ actions plus properly chargeable
costs. The offers, which were made without admissions of liabil-
ity by the defendants, and which were clearly made in an attempt
to render the cases moot, were refused by the plaintiffs. Never-
th ‘ess, the district court held that the defendants’ offers ex-
tinguished the controversies between the parties and that as a
result the court no longer had jurisdiction to decide the motions
for class certification. In the Susman case, the district court also
dismissed the plaintiff's derivative claims.
THE CLASS ACTION.
The Article III requirement that the federal courts decide
only issues where there is an actual case or controversy be-
tween the parties is fundamental to our judicial system. North
Carolina v. Rice, 404 U. S. 244, 246 (1971). The jurisdic-
tional ban on making any decisions in moot cases (or, for
that matter, in reviewing decisions already made) arises from
this constitutional requirement. Liner v. Jafco, Inc., 375 U. S.
301, 306 n. 3 (1964); Powell v. McCormack, 395 U. S. 486,
496 n. 7 (1969). Yet a number of cases have been decided on
the merits despite assertions that the original wrong complained
of had been corrected, that the original plaintiff would no longer
be affected by the outcome of the lawsuit, or that other changes
in the underlying factual situation rendered the case moot. See,
e.g., United States v. W. T. Grant Co., 345 U. S. 629 (1953)
(corporate director resigned from interlocking directorates which
were subject to the complaint); Carroll v. President and Com-
m’rs of Princess Anne, 393 U. S. 175 (1968) (ten day injunc-
tion complained of had expired two years previously) ; Southern
Pacific Terminal Co. v. I. C. C., 219 U. S. 498 (1911) (ICC
order under attack had expired by its own terms); Sosna v.
Iowa, 419 U. S. 393 (1975) (plaintiff had obtained the divorce
she was seeking in another state). It is not necessary in this
decision to discuss the variety of exceptions to the mootness
A4
doctrine that may be available in various cases.' What are im-
portant, here, however, as in Winokur are those cases which
involve class action complaints.
In Winokur we were directly concerned with the question
whether the right to appellate review of a denial of class cer-
tification could survive the death of the controversy. We held it
could not. Our present case is different, and does not present
that question. In Winokur, however, we set forth several gen-
eralizations, including
2. When there is no determination that an action be
maintained as a class action and the controversy between
the named party in his own interest and his opponent dies,
court adjudication is not appropriate because there is no
controversy between parties who are present or represented
before the court in the action.
560 F. 2d 277
This generalization literally applies to our instant case be-
cause at the critical moment there had been no determination
that the action be maintained as a class action. We think, how-
ever, that our instant case differs significantly from Winokur
and from Board of School Comm'rs v. Jacobs, 420 U. S. 129
(1975), on which we relied in Winokur. Here, at the critical
moment, the question of maintaining the class action had been
freshly raised, consistently with the suggestion of the appellate
court that it could be reopened after a change in counsel.
We consider the motion for certification, while pending, as
sufficiently, though provisionally, bringing the interests of class
members before the court so that the apparent conflict between
their interests and those of the defendant will avoid a mootness
artificially created by the defendant by making the named plain-
1. There is an extensive discussion of the current state of the
mootness doctrine in Geraghty v. U. S. Parole Commission, 579 F. 2d
238 (3rd Cir. 1978).
AS
tiff whole. We limit the language of generalization No. 2 in
Winokur accordingly.?
Courts have consistently recognized the unnamed class mem-
bers have an interest in a lawsuit even before a Rule 23 deter-
mination is made that a class action may be maintained on
their behalf. Thus, potential class members are given the op-
portunity to support or oppose class certification or to challenge
the adequacy of representation by the named plaintiff. Knuth v.
Erie-Crawford Dairy Coop. Ass'n, 395 F. 2d 420 (3rd Cir.
1968). The statute of limitations on their individual causes of
action may be tolled from the date of filing of the class action
complaint. American Pipe & Construction Co. v. Utah, 416
U. S. 538 (1974). They may also have a right to be informed
of, or even included in, a settlement that occurs prior to class
certification. Kahan v. Rosensteil, 424 F. 2d 161, 169 (3rd
Cir.), cert. denied, 398 U. S. 950 (1970). Thus, at least in a
limited sense, the interests of the unnamed class members are
before the court during the pendency of a motion for class cer-
tification.
Normally, however, a class action must be certified as such
in order for it to escape dismissal once the claims of the named
plaintiff become moot. Franks v. Bowman Transportation, 424
U. S. 747 (1976); Sosna v. Iowa, 419 U. S. 393, 402 (1975).
But the courts have recognized that an absolute requirement
would prevent some otherwise justiciable claims from ever being
subject to judicial review. Thus, in Sosna, the Supreme Court
said
“There may be cases in which the controversy involv-
ing the named plaintiffs is such that it becomes moot as
to them before the district court can reasonably be expected
to rule on a certification motion. In such instances, whether
the certification can be said to ‘relate back’ to the filing of
2. It would be arguable, on the same theory, that a complaint
with class action allegations sufficiently brings the interests of the
class members before the court, at least where the court proceeds
with reasonable promptness to reach the issue of class action main-
tenance. We do not need to reach that question. See footnote 4 infra.
A6
the complaint may depend upon the circumstances of the
particular case and the reality of the claim that otherwise
the issue would evade review.” ,
419 U.S. 393, 402 n. 11
Clearly the Court had in mind situations where the nature
of the complaint was such that the mere passage of time would
usually make the individual plaintiff's complaint moot before a
court could reasonably be expected to rule on a certification
motion. And in practice that is how the “relation back” doctrine
has been applied. Gerstein v. Pugh, 420 U. S. 103 (1975). We
do not have such a situation here. But, just as necessity required
the development of the relation back doctrine in cases where
the underlying factual situation naturally changes so rapidly
that the courts cannot keep up, so necessity compels a similar
result here. If the class action device is to work, the courts
must have a reasonable opportunity to consider and decide a
motion for certification. If a tender made to the individual
plaintiff while the motion for certification is pending could
prevent the courts from ever reaching the class action issues,
that opportunity is at the mercy of a defendant, even in cases
where a class action would be most clearly appropriate.
We hold, therefore, that when a motion for class certification
has been pursued with reasonable diiigence and is then pending
before the district court, a case does not become moot merely
because of the tender to the named plaintiffs of their individual
money damages. The district court has jurisdiction to consider
the motion for class certification and should hear and decide
that motion prior to deciding whether or not the case is mooted
by the tender. This does not mean that the district court should
ignore the fact that a tender has been made. The tender may
raise a question, on which we now express no opinion, as to
the named plaintiffs’ ability to fairly and adequately represent
the class.* But the class certification issues should be addressed
3. See Kuahula v. Employers Insurance of Wausau, 557 F. 2d
1334 (9th Cir. 1977); Roper v. Conserve, 578 F. 2d 1106 (5th Cir.
(Footnote continued on next page.)
A7
by the district court prior to dismissals of the lawsuits. We ex-
press no opinion on the appropriate decision on the issues.
We acknowledge the conflict between this decision and that
of the Eighth Circuit in Bradley v. Housing Authority of Kansas
City, Missouri, 512 F. 2d 626 (8th Cir. 1975). We believe,
however, that the result we have reached here is consistent with
Article III, since in fact there will be no adjudication of the
merits of the lawsuit unless there is first a determination that
there are adversary parties and that the requirements of justi-
ciability are present. Geraghty v. U. S. Parole Commission, 579
F, 2d 238 (3rd Cir. 1978). Our decision in these cases is also
consistent with the recent decision of the Court of Appeals for
the Fifth Circuit in Roper v. Conserve, Inc., 578 F. 2d 1106
(Sth Cir. 1978), which contained this language
The notion that a defendant may short-circuit a class
action by paying off the class representatives either with
their acquiescence or, as here, against their will, deserves
short shrift. Indeed, were it so easy to end class actions,
few would survive. . . . By the very act of filing a class
action, the class representatives assume responsibilities to
members of the class. They may not terminate their duties
by taking satisfaction; a cease-fire may not be pressed upon
them by paying their claims.
578 F. 2d 1106, 1110+
Finally, although the recent decisions of the Ninth Circuit in
Kuahula v. Employers Insurance of Wausau, 557 F. 2d 1334
(1977) and the Third Circuit in Geraghty v. U. S. Parole Com-
(Footnote continued from preceding page.)
1978); Banks v. Multi-Family Management, Inc., 554 F.2d 127
(4th Cir. 1977); and generally, H. Newberg, NEWBERG ON CLASS
AcTions §§ 1085-1092.
4. The Fifth Circuit has held that the very filing of a class action
complaint places the plaintiff in a representative capacity, even if no
motion for certification has been filed or even if class certification has
been denied. (See cases cited in Roper.) Our decision today is
limited to the fairly narrow situation where a motion for certification
has been pursued with reasonable diligence and is pending when a
tender is made.
A8 |
mission, 579 F. 2d 238 (1978) both involved factually distinct
situations, their emphasis, like that in Sosna, on evaluating
claims of mootness in light of the idiosyncrasies of each individ-
ual case is consistent with the approach we have used here.
THE DERIVATIVE CLAIMS.
The district court dismissed the plaintiff Susman’s derivative
claims against Lincoln American and the individual defendants
on the grounds that
“Since plaintiff does not seek recession [sic] of the alleged
illegal merger, once the merger took place plaintiffs lost
the ability to sue derivatively. See Voege v. Ackerman,
364 F.Supp. 72, 74 (S.D. N.Y. 1973); Basch v. Talley
Indus., Inc., 53 F.R.D.9, 11-12 (S.D. N.Y. 1971); Heit v.
Tenneco, Inc., 319 F.Supp. 884, 887-88 (D. Del. 1970).
No. 73 C 1089 (N.D. Ill, Filed January 27, 1978)
The plaintiff contends that this ruling is in error since it in-
volved the application of state rather than federal law and that
even if state law is controlling, it was misapplied on the facts
of the plaintiff's case. All of the parties have referred to Dela-
ware law as the law to be applied to the extent that state law
is controlling.
We do not need to address the plaintiff's assertion that federal
rather than state law should apply in determining the capacity
of a shareholder to bring a suit under the federal securities laws
on behalf of a corporation that has been merged with a de-
fendant corporation subsequent to the filing of the complaint
since it is clear that the derivative claims asserted by the plaintiff
are founded solely on state law.® Nor do federal equitable con-
5. Paragraph 10 of the plaintiff's amended complaint sets forth i
specific allegations of improper activity by the defendants. Para-
graph 11 recites that “The foregoing acts of defendants constitute
deceptive devices, a scheme to defraud and misstatements and
omissions to state material facts in connection with the purchase and
sale of securities and in connection with the solicitation of proxies to
(Footnote continued on next page.)
Se
A9
siderations come into play, since the plaintiff did not attempt
to enjoin the merger and is not now seeking rescission—in con-
trast to the situation we were presented with in Ramsburg v.
American Investment Co. of Ill., 231 F. 2d 333 (7th Cir. 1956).
The only question, then, is whether under Delaware law the
plaintiff may maintain this derivative suit.
Delaware law is quite clear in stating that a derivative suit
seeking only money damages brought on behalf of one corpora-
tion and against another cannot survive the merger of those
two corporations regardless of whether the suit was filed before
or after the merger took place. Bokat v. Getty Oil Co., 262 A.
2d 246 (Del. Sup. Ct. 1970). The dismissal of the derivative
suit against Lincoln American, the surviving corporation, must
therefore be affirmed.
Slightly more difficult is the question of whether the deriva-
tive suit can be maintained against third parties, even if it must
be dismissed as against the surviving corporation. The Lincoln
American defendants urge us to adopt the “common sense” ap-
proach of Vine v. Beneficial Finance Co., 374 F. 2d 627 (2nd
Cir. 1967) which noted the meaninglessness of a derivative
action brought on behalf of a non-existent corporation. But in
Bokat the Delaware Supreme Court, after dismissing the deriva-
tive claim against the surviving corporation, explicitly said
“This conclusion, however, does not mean that the
claims asserted against the individual defendants, among
them J. Paul Getty, have likewise been made moot. Such
is not the case.” A. 2d at 250.
(Footnote continued from preceding page.)
brought both on behalf of the minority shareholders, and, deriva-
tively on behalf of Consumers National.
Al10
Although this statement in Bokat was dictum (the individual
claims were barred by the statute of limitations) it was made
by the Delaware Supreme Court in a case subsequent to, and
indeed citing the Vine case relied on by Lincoln American. It
must, therefore, carry more weight in this case where we must
apply Delaware law.
The cited language in Bokat has been analyzed at some length
in a decision of the United States District Court for the Southern
District of New York. Abrams v. Occidental Petroleum Corp.,
20 Fed. Rules Serv. 2d 170 (S. D. N. Y. 1975) (interpreting
California and Delaware law). Judge Palmieri concluded that
the Bokat language was an attempt to reconcile the savings
clause of 8 Del. Code § 261 with the anomalous situation of a
corporation suing itself. Therefore, he reasoned, a derivative
suit begun by a shareholder against third parties prior to a
merger could be continued after the merger (because of § 261)
but that a similar suit brought against what was to become the
surviving corporation must be dismissed after the merger to pre-
vent the incongruous situation of a corporation suing itself. 20
Fed. Rules Serv. 2d at 175.
We cannot disregard the clear language of the Delaware
Supreme Court. We hold, therefore, that while the dismissal of
the derivative claims against Lincoln American must be af-
firmed, the dismissal of those same claims against the individual
defendants must be reversed.
Insofar as the judgments appealed from dismissed the actions
as moot without considering the questions of certification, and
insofar as the judgment in No. 78-1293 dismissed the derivative
action against parties other than Lincoln American, they are
reversed and the causes remanded for further proceedings con-
sistent with this opinion. In all other respects they are affirmed.
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
eas
All
APPENDIX B.
UNITED STATES CourRT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
December 5, 1978
Before
Hon. THomas E, FAIRCHILD, Chief Judge
Hon. WALTER J. CUMMINGS, Circuit Judge
Hon. HARLINGTON Woop, Jr.,
MICHAEL SUSMAN, >
Plaintiff-A ppellant,
No. 78-1293 VS.
LINCOLN AMERICAN Corp., et al.,
Defendants-A ppellees,
and
‘
ANN FLAMM and ARNOLD FLAMM,
Plaintiffs-A ppellants,
No. 78-1310 VS.
RUDOLPH EBERSTADT, JR. and
Microport, INC.,
Defendants-Appellees. }
ORDER.
On consideration of the petitions for
Circuit Judge
Appeals from the
United States Dis-
trict Court for the
Northern __ District
of Illinois, Eastern
Division.
Nos. 73 C 1089 and
76 C 427
Joel M. Flaum,
Judge.
rehearing and sugges-
tions for rehearing in banc filed in the above-entitled causes by
Al2
defendants-appellees, no judge* in regular active service has
requested a vote thereon, and all of the judges on the original
panel have voted to deny a rehearing. Accordingly,
It Is ORDERED that the aforesaid petitions for rehearing be,
and the same are hereby, DENIED.
* Circuit Judge Philip W. Tone disqualified himself from any
consideration of the petitions for rehearing and suggestions for
rehearing in banc.
Al3
APPENDIX C.
UNITED STATES District Court
Northern District of Illinois
Eastern Division
ANN FLAMM and ARNOLD M. :
FLAMM,
Plaintiffs,
vs.
r 76 C 427
RUDOLPH EBERSTADT, JR. and
Micropot, INC.,
Defendants. }
MEMORANDUM OPINION.
JOEL M. FLauo, District Judge:
This case was filed as a class action asserting claims under the
Securities Exchange Act of 1934, §§ 10(b), 14(e), 15 U. S.C.
§§ 78j}(b), n(e). In an opinion dated October 19, 1976, this
court issued a ruling denying plaintiffs’ motion for class certifi-
cation because of plaintiffs’ failure to meet the requirements of
Fed. R. Civ. P. 23(a)(4). Flamm vy. Eberstadt, 72 F. R. D.
187 (N. D. Ill. 1976). Thereupon, this court, pursuant to 28
U. S. C. § 1292(b), certified the issue of whether plaintiffs’
were adequate representatives of the class they sought to repre-
sent to the court of appeals, and on January 25, 1977 that court
granted plaintiffs’ permission to appeal. In an opinion dated
August 31, 1977, the Seventh Circuit affirmed this court’s ruling
denying plaintiffs’ motion for class certification. Susman Vv.
Lincoln American Corp., No. 77-1145 (7th Cir. August 31,
1977).?
1. This court had certified the Flamm case and the Susman case
for purposes of an interlocutory appeal since they both involved the
same class action issue.
Al4
Plaintiffs’ have again moved for class certification stating that
the reason this court found them to be inadequate class repre-
sentatives no longer exists and class certification is appropriate
at this time. However, before the briefing on this question was
completed and this court could rule on plaintiffs’ motion, de-
fendants, in a letter dated November 1, 1977, tendered? to
plaintiffs the amount of money they claimed they had been
individually deprived of by defendants’ actions as alleged in the
instant complaint. Defendants have now moved to dismiss plain-
tiffs’ complaint on the ground of mootness arguing that there
does not exist at this time a justicable, Article III of the Consti-
tution “case or controversy” between plaintiffs and defendants.
Thus, defendants argue that since plaintiffs have obtained all the
relief they seek to obtain from this lawsuit it would be a waste
of judicial energy, as well as a violation of the constitutional
prohibition against courts rendering advisory opinions, to allow
this case to continue. For this proposition defendants primarily
rely on the recent decision in Winokur v. Bell Federal Sav. &
Loan Ass’n., 560 F. 2d 271 (7th Cir. 1977). After reviewing
the briefs submitted by the parties, this court is compelled to
grant defendants’ motion because of the Seventh Circuit’s ruling
in Winokur, and accordingly, this cause is dismissed.
In opposition to defendants’ motion, plaintiffs present two
arguments. First, plaintiffs rely on a line of cases starting with
United States v. W. T. Grant Co., 345 U. S. 629 (1953), which
hold that the “mere voluntary cessation of allegedly illegal con-
duct does not moot a case.” Burbank v. Twomey, 520 F. 2d
744, 747 (7th Cir. 1975). Plaintiffs argue from this proposi-
tion that defendants, by tendering to plaintiffs the amount of
their individual claims, cannot moot this action by their own
2. Although the plaintiffs challenge the adequacy of defendants’
tender for several reasons, this court finds the letter to plaintiffs to
constitute a valid tender to end the controversy between the named
plaintiffs and defendants. See, e.g., Guthrie v. Curnutt, 417 F. 2d
764 (10th Cir. 1969); Martindell v. Lake Shore Nat'l Bank, 15 Il.
App. 2d 217, 145 N. E. 2d 784 (1957), rev’d on other grounds,
15 Ill. 2d 272, 154 N.E. 2d 683 (1958).
Al5
voluntary acts. This analysis, however, is incorrect. As was
recognized in Winokur, the doctrine as enunciated in W. T.
Grant only applies if there is the possibility that the defendant
will continue in the future to infringe upon plaintiff's rights.
Winokur v. Bell Federal Sav, & Loan Ass'n, 560 F. 2d 271, 274
(7th Cir. 1977). Since plaintiffs do not seek injunctive relief
in this cause, and since plaintiffs have not indicated that they
fear that defendants will again injure them by way of further
violations of the federal securities laws, plaintiffs’ first argument
based upon W. T. Grant and its progeny is without merit.
Plaintiffs’ second argument, although more substantial in this
court’s view is likewise without merit in light of Winokur. Plain-
tiffs argue that because they presently have pending a motion
for class certification the mere fact that their individual claims
may be moot does not render this action, as a class action, moot.
Thus, plaintiffs rely on the limited exception to the mootness
doctrine as applied to class actions delineated in Gerstein v.
Pugh, 420 U. S. 103, 110-11 n. 11 (1975), and as applied by
this and other courts. See, e.g., Langson v. Simon, 74 F. R. D.
456 (N. D. Ill. 1977) (Flaum, J.); Custom v. Trainor, 74
F. R. D. 413 (N. D. Ill. 1977) (Marshall, J.); Robinson v.
Leahy, 73 F. R. D. 109 (N. D. Ill. 1977) (Flaum, J.).
In Gerstein, the Supreme Court was faced with an action by
individuals who were in police custody for pretrial detention.
The plaintiffs, seeking to represent a class of all persons subject
to such pretrial detention who were not afforded preliminary
hearings as to the charges levied against them, challenged their
confinement as violative of due process of law. The Supreme
Court, in reviewing the record before it, noted that the named
plaintiffs had been convicted of the charges against them and
were no longer in pretrial custody. Moreover, the court noted
that the record was not clear as to whether at the time the trial
court granted plaintiffs’ motion for class certification the named
plaintiffs were still in pretrial detention and had a viable case or
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controversy with the defendants. Gerstein v. Pugh, 420 U. S.
110-11 n. 11.
In considering whether the action was moot because the
named plaintiffs’ claims had been resolved, the Supreme Court
stated that even if there had not been a live controversy between
the named plaintiffs and defendants at the time the class certi-
fication motion was granted, the plantiffs’ action could continue
to vindicate the rights of those the named plaintiffs sought to
represent, Thus, the court staved that although as a general rule
a named plaintiff must be a member of the class he seeks to
represent at the time the class is certified, and must at that
time have a live controversy with the defendant, in order for a
class action to continue in light of the subsequent mootness of
the named plaintiffs claim, see Sosna v. Iowa, 419 U. S. 393
(1975), an exception to this rule existed when: (1) the nature
of the plaintiffs and the class’ claims were such that the plain-
tiff would have suffered his injury before the court could rule
on his motion for class certification; (2) it was certain that a
constant class of persons suffering the deprivation existed; and
(3) the attorney representing the named representative has
other clients with a continuing live interest in the case, i.e., a
public defender. Gerstein v. Pugh, 420 U. S. at 111 n. 11.
In the case at bar, plaintiffs argue that this action falls within
the ambit of the Gerstein exception to the mootness doctrine
and this court should rule that although the named plaintiffs’
claims are moot this case should continue so as to vindicate the
rights of the class the named plaintiffs seek to represent. Thus,
riaintiffs argue that the unilateral action of defendants in tender-
ing to the named plaintiffs the amount of their individual claims
cannot be held to moot the class allegations because defendants
will thereupon be able to prevent a class from ever having its
claims vindicated.
While this court recognizes the rule as delineated in Gerstein,
and as noted previously has applied that rule under different
circumstances, this court is bound by the holding of the Seventh
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Circuit in Winokur. In Winokur, plaintiffs’ filed a federal securi-
ties class action in which they sought injunctive and monetary
relief. Plaintiffs sought to have a class certified but the district
court found that plaintiffs had not established the propriety of
maintaining their action on a class-wide basis. Plaintiffs’ re-
quest to have the issue certified to the court of appeals pursuant
to 28 U. S. C. § 1292(b) was denied and plaintiffs were barred
from appealing the denial of class status since such orders are
not appealable in this circuit. See Thill Securities Corp. v. New
York Stock Exchange, 469 F. 2d 14 (7th Cir. 1972). There-
after, defendant tendered to the named plaintiffs the amount of
their individual claim and changed its policies to avoid creating
the same difficulties from arising again. This court® thereupon
dismissed the action as moot stating that no case or controversy
existed between the named plaintiffs and defendant in light of
the fact that class certification had been denied.
The court of appeals affirmed the order of dismissal. Winokur
v. Bell Federal Savings & Loan Ass'n, 560 F, 2d 271 (7th Cir.
1977). However, more importantly for the issues before the
court in the case at bar, the court of appeals also held that it
lacked jurisdiction to consider whether the district court had
erred in denying class certification. Thus, plaintiffs’ in Winokur
argued that had the district court certified the class they sought
to represent their action would not be moot even in light of
defendant’s tender. The court of appeals, plaintiffs argued, was
therefore required to consider plaintiffs’ request for class certi-
fiction since plaintiffs’ were not allowed to appeal the denial of
their class motion previously. The Seventh Circuit rejected this
argument stating the rule of law applicable to the case at bar as:
When there is no determination that an action be main-
tained as a class action and the controversy between the
named party in his own interest and his opponent dies,
court adjudication is not appropriate because there is no
controversy between parties who are present or represented
before the court in the action.
2. This court was transferred the Winokur case after the denial
of class certification.
Al8
It is clear to this court that the facts of this case, although
different in minor respects, falls squarely within the ambit of
the Winokur holding. Thus, as in Winckur, plaintiffs herein
have had their motion for class certification denied and in fact
this denial was affirmed. Defendants have tendered the named
plaintiffs the amount of their individual claims and there is
presently no case or controversy between them. The fact that
their is presently pending a motion for class certification does
not make this case ditiezont from Winokur since this is exactly
the same as having an appeal before the court of appeals seek-
ing a review of a class action motion denial.
Plaintiffs argue, however, that this court should not apply
the Winokur case to their class action claims for several reasons.
First, plaintiffs argue Winokur involved appellate review and
the case at bar is still in the district court. While this is a dif-
ference, as stated above, it is not material. When an action be-
comes moot it ousts the court in which it is pending of jurisdic-
tion to consider any other matters in that case. If the court of
appeals felt itself barred by Article III to consider the propriety
of class certification in Winokur, this court is no less barred
from considering plaintiffs’ renewed motion for class certifica-
tion.
Second, plaintiffs argue that this court should treat its renewed
motion for class certification as a motion to “reconsider” the
prior denial of class certification. This, plaintiffs argue, would
allow this court to make the granting of the class motion now
“relate back” to the previous denial and would prevent any
mooting of plaintiffs’ class claims. However, this argument is
simply a restatement of the plaintiffs’ first argument and for the
same reasons as previously mentioned must be rejected.
Finally, plaintiffs argue that, Winokur is wrongly decided.
Thus, plaintiffs argue that the rule stated in Winokur and pre-
viously quoted in this opinion is directly in conflict with the
holding in Gerstein that class actions can be certified in certain
cases where the named plaintiffs’ claims are mooted prior to
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certification. However, whatever the merits of this argument,
plaintiffs position must fail in this district court which is bound
by the pronouncements of its court of appeals. This court recog-
nizes that other courts, unlike the Seventh Circuit, have reviewed
denials of class certification after plaintiff's claims have been
mooted, see, e.g., Cameron v. E. M. Adams & Co., 547 F. 2d
473 (9th Cir. 1976); but see Napier v. Gertrude, 542 F. 2d
825 (10th Cir. 1976), cert. denied, 97 S. Ct. 759 (1977).
Moreover, this court notes that the Seventh Circuit did not cite
Gerstein in its opinion in Winokur although it did cite cases
decided after that decision.* Nevertheless, this court cannot say
that the court of appeals did not consider Gerstein and find its
principles inapplicable to the case at bar. It is possible that the
court of appeals was of the opinion that the Gerstein exception
did not apply in class actions to be certified under Fed. R. Civ. P.
23(b)(3) since it is not likely that defendants would repeat
their illegal activity. Or perhaps the court decided that private
class action attorneys did not meet the Gerstein requirement of
class action counsel who had clients like the named plaintiffs
interested in the vindication of the class’ rights. Hence, what-
ever the court of appeals’ reasons, Winokur is decided and its
mandate must be obeyed.
Accordingly, this court must declare plaintiffs’ action moot.
The issues raised by plaintiffs concerning the problems of
maintaining a class action when the defendants have the ability
to moot the case must be resolved by the court of appeals in
light of Winokur. On its facts this action is identical to Winokur
and it must be dismissed.
It is so ordered.
/S/ JOEL M. FLaum,
United States District Judge
Dated: December 30, 1977.
4. In fact, the court in Winokur cited Board of School Comm'rs
Vv. Jacobs, 420 U.S. 128 (1975), the decision in volume 420 of the
United States Supreme Court Reports which immediately follows
Gerstein.
A20
APPENDIX D.
I. Constitution—Article III, Section 2, cl. 1:
The judicial Power shall extend to all Cases, in Law
and Equity, arising under this Constitution, the Laws of
the United States, and Treaties made, or which shall be
made, under their Authority;—to all Cases affecting Am-
bassadors, other public Ministers and consuls;—to all Cases
of admiralty and maritime Jurisdiction;—to Controversies
to which the United States shall be a Party;—to Con-
troversies between two or more States;—between a State
and Citizens of another State;—between Citizens of dif-
ferent States;—between Citizens of the same State claiming
Lands under Grants of different States, and between a
State, or the Citizens thereof, and foreign States, Citizens or
Subjects.
II. Rules Enabling Act—28 U. S. C. § 2072:
The Supreme Court shall have the power to prescribe
by general rules, the forms of process, writs, pleadings,
and motions, and the practice and procedure of the district
courts and courts of appeals of the United States in civil
actions, including admiralty and maritime cases, and ap-
peals therein, and the practice and procedure in proceed-
ings for the review by the courts of appeals of decisions of
the Tax Court of the United States and for the judicial re-
view or enforcement of orders of administrative agencies,
boards, commissions, and officers. ,
Such rules shall not abridge, enlarge or modify any sub-
stantive right and shall preserve the right of trail by jury
as at common law and as declared by the Seventh Amend-
ment to the Constitution.
Such rules shall not take effect until they have been re-
ported to Congress by the Chief Justice at or after the
beginning of a regular session thereof but not later than
the first day of May, and until the expiration of ninety
days after they have been thus reported.
a
Pepper
IIT.
IV.
A21
All laws in conflict with such rules shall be of no further
force or effect after such rules have taken effect, Nothing
in this title, anything therein to the contrary notwithstand-
ing, shall in any way limit, supersede, or repeal any such
rules heretofore prescribed by the Supreme Court.
Rule 82—Federal Rules of Civil Procedure:
These riles shall not be construed to extend or limit the
jurisdiction of the United States district courts or the venue
of actions therein, An admiralty or maritime claim within
the meaning of Rule 9(h) shall not be treated as a civil
action for the purposes of Title 28, U.S.C. §§ 1391-93.
Rule 23—Federal Rules of Civil Procedure:
(a) Prerequisites to a Class Action. One or more mem-
bers 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 impraticable, (2) there are ques-
tions 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.
(b) Class Actions Maintainable. An action may be
maintained as a class action if the prerequisites of sub-
division (a) are satisfied, and in addition:
(1) the prosecution of separate actions by or against
individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect
to individual members of the class which would establish
incompatible standards of conduct for the party opposing
the class, or
(B) adjudications with respect to individual members
of the class which would as a practical matter be disposi-
tive of the interests of the other members not parties to
the adjudications or substantially impair or impede their
ability to protect their interests; or
(2) the party opposing the class has acted or refused to
act on grounds generally applicable to the class, thereby
A22
making appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole; or
(3) the court finds 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 mat-
ters pertinent to the findings include: (A) the interest of
members of the class in individually controlling the pros-
ecution or defense of separate actions; (B) the extent and
nature of any litigation concerning the controversy already
commenced by or against members of the class; (C) the
desirability or undesirability of concentrating the litigation
of the claims in the particular forum; (D) the difficulties
likely to be encountered in the management of a class
action.
(c) Determination by Order Whether Class Action to
be Maintained; Notice; Judgment; Actions Conducted
Partially as Class Actions.
(1) As soon as practicable after the commencement of
an action brought as a class action, the court shall deter-
mine by order whether it is to be so maintained. An order
under this subdivision may be conditional, and may be
altered or amended before the decision on the merits.
(2) In any class action maintained under subdivision
(b) (3), the court shall direct to the members of the class
the best notice practicable under the circumstances, in-
cluding individual notice to all members who can be identi-
fied through reasonable effort. The notice shall advise each
member that (A) the court will exclude him from the
class if he so requests by a specified date; (B) the judg-
ment, whether favorable or not, will include all members
who do not request exclusion; and (C) any member whe
does not request exclusion may, if he desires, enter an
appearance through his counsel.
(3) The judgment in an action maintained as a class
action under subdivision (b) (1) or (b) (2), whether or
not favorable to the class, shall include and describe those
whom the court finds to be members of the class. The judg-
ment in an action maintained as a class action under sub-
i a a re oe
A23
division (b) (3), whether or not favorable to the class,
shall include and specify or describe those to whom the
notice provided in subdivision (c) (2) was directed, and
who have not requested exclusion, and whom the court
finds to be members of the class.
(4) When appropriate (A) an action may be brought
or -naintained as a class action with respect to particular
issues, or (B) a class may be divided into subclasses and
each subclass treated as a class, and the provision of this
rule shall then be construed and applied accordingly.
(d) Orders in Conduct of Actions, In the conduct of
actions to which this rule applies, the court may make
appropriate orders: (1) determining the course of proceed-
ings or prescribing measures to prevent undue repetition or
complication in the presentation of evidence or argument;
(2) requiring, for the protection of the members of the
class or otherwise for the fair conduct of the action, that
notice be given in such manner as the court may direct
to some or all of the members of any step in the action,
or of the proposed extent of the judgment, or of the op-
portunity of members to signify whether they consider the
representation fair and adequate, to intervene and present
claims or defenses, or otherwise to come into the action;
(3) imposing conditions on the representative parties or
on intervenors; (4) requiring that the pleadings be
amended to eliminate therefrom allegations as to repre-
sentation of absent persons, and that the action proceed
accordingly; (5) dealing with similar procedural matters.
The orders may be combined with an order under Rule
16, and may be altered or amended as may be desirable
from time to time.
(e) Dismissal or Compromise. A class action shall not
be dismissed or compromised without the approval of the
court, and notice of the proposed dismissal or compromise
shall be given to all members of the class in such manner
as the court directs.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.