Petition for Writ of Certiorari — California Public Employees' Retirement System v. Felzen

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1997 po

CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM

and FLORIDA STATE BOARD OF ADMINISTRATION,

Petitioners,

Vv.

PAUL FELZEN, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

MARK C. HANSEN

Counsel of Record

NEIL M. GORSUCH

KELLOGG, HUBER, HANSEN,

Topp & Evans, P.L.L.C.

1301 K Street, N.W.

Suite 1000 West

Washington, D.C. 20005

(202) 326-7900

Counsel for Petitioners

WILSON - Erzs Printinc Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether a nonparty shareholder who appears, in re-

sponse to notice provided under Federal Rule of Civil

Procedure 23.1, to present objections to a proposed dis-

missal or settlement of a derivative action may appeal an

adverse decision even though the shareholder has not been

formally made a party to the action.

2. Whether « court of appeals may apply only prospec-

tively a decision reversing settled precedents concerning

its jurisdiction, where retroactive application would per-

manently foreclose appeal by a party who had reasonably

relied on the prior precedents.

(i)

PARTIES TO THE PROCEEDINGS BELOW

TABLE OF CONTENTS

Page

Tho SoBaping Sunes ie SERINE SD SHEEN WSN QUESTIONS PRESENTED 222 eeoneooen i

of a S:

wee nae ’ 2 wr a so ’ Retirement System PARTIES TO THE PROCEEDINGS BELOW .......... ii

ifornia ic Employees’ Retir

Florida State Board of Administration PARENT COMPANIES AND NONWHOLLY OWNED

Paul Felzen EE ii

Louise Laskin Trust TABLE OF AUTHORITIES .....c.....cccccccccccccceeeesecees-s iv

Sandra Esner

Dwayne O. Andreas EE LE Re 1

Ralph Bruce da te 1

John H. er ts 2

ryt cg se: ston STATEMENT OF THE CASE... 2

James R. Randall A. Background and Prior Proceedings... 4

ee Andreas B. The Decision Below 00000000 oe eeeeeeeeeesee 8

O. Glenn Webb REASONS FOR GRANTING THE PETITION ... i

Martin Andreas I. THE SEVENTH CIRCUIT’S DECISION CE-

Margaretta Rockefeller MENTS A CIRCUIT SPLIT OF SIGNIFICANT

F. Ross Johnson IMPORTANCE TO ALL SHAREHOLDER DE-

Ray A. Goldberg RIVATIVE SUITS, REFLECTS CONFUSION

Gaylord O. Coan AMONG THE LOWER COURTS OVER THIS

John K Venter COURT'S DECISION IN MARINO v. ORTIZ,

Shreve M. Archer, Jr. Sat GF ULB S21 FO EnccUnsoe

M. Brian Mulroney : AGE

: SHAREHOLDER PARTICIPATION, AND

Robert S. Strauss _ IGNORES TRADITIONAL COMMON LAW

Archer Daniels Midland Company AND FEDERAL PRACTICE... 11

PARENT COMPANIES AND Il. THE seventE CIRCUIT’S DECISION TO

NWHOLLY OWNED SUBSIDIARIES APPL RULING RETROACTIVELY

Hee CREATES ANOTHER CIRCUIT SPLIT,

California Public Employees’ Retirement System and RAISES SIGNIFICANT QUESTIONS OF

Florida State Board of Administration are governmental FEDERAL LAW, AND IS BASED ON A MIS-

pension funds that have no parent companies or subsidi- TAKEN PREMISE THAT WRONGLY IN-

aries that have issued shares to the public. SULATES FROM APPELLATE SCRUTINY

A PLAINLY COLLUSIVE SETTLEMENT IN

ONE OF THE MOST SIGNIFICANT SHARE-

HOLDER DERIVATIVE SUITS... 23

CONCLUSION 30

(iii)

TABLE OF AUTHORITIES

Cases Page

Ace Heating & Plumbing Co. v. Crane Co., 453

¢ f Sf Ss REPS peers 12

Allen v. Wright, 468 U.S. 737 (1984) —..... 28

Angoff v. Goldfine, 270 F.2d 185 (1st Cir. 1959)... 21

Baldwin-United Corp., In re, 770 F.2d 328 (2d Cir.

PSA ae ae RRR Ma ta! tae ANA 20

Baylor v. United States Dep't of Hous. & Urban

Dev., 913 F.2d 223 (5th Cir. 1990) . 12

Bell Atlantic Corp. v. Bolger, 2 F.3d 1304 (8d Cir.

ES ae ean EL eT passim

Bennett v. Spear, 117 S. Ct. 1154 (1997) ....... patina 27

Budinich v. Becton Dickinson & Co., 486 U.S. 196

SS aes a eae ee 3, 10, 29, 30

Carlough v. Amchem Prods., Inc., 5 F.3d 707 (3d

es I aie te tenatitatintinininina tinal atti dla 12

Cement Antitrust Litig., In re, 688 F.2d 1297 (9th

Cir. 1982), aff'd sub nom. Arizona v. United

States District Court, 459 U.S. 1191 (1983)... 12

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) ....28, 29, 30

Christianson v. Colt Indus. Operating Corp., 486

U.S. 800 (1988) ........ suvsitintiecbtapansctitieatantntaiinianatidinadins 10

Class Plaintiffs v. City of Seattle, 955 F.2d 1268

(9th Cir.), cert. denied, 506 U.S. 953 (1992)... 20

Cohen v. Young, 127 F.2d 721 (6th Cir. 1942)... 15

Commercial Sec. Bank v. Walker Bank & Trust

Co., 456 F.2d 1352 (10th Cir. 1972) 0... 20

Craftsman Fin. & Mortgage Co. v. Brown, 64

F. Supp. 168 (S.D.N.Y. 1945) . 15

Croyden Assocs. v. Alleco, Inc., 969 F.2d 675 (8th

Cir. 1992), cert. denied, 507 U.S. 908 (1993)...... 12

Daily Income Fund, Inc. v. Foz, 464 U.S. 523

6 Se ET Ee NETS SE, SN 14

Dietrich Corp. v. King Resources Co., 596 F.2d 422

RN na ES 0 sli Pa rR Ot 21

Dosier v. Miami Valley Broadcasting Corp., 656

F.2d 1295 (9th Cir. 1981) ...............cccccccccccccccceeeeee 12

EEOC v. Pan American World Airways, Inc., 897

F.2d 1499 (9th went cert. denied, 498 U.S. 815

(1990) .. fie susenstenepedialidaabicis 20

TABLE OF AUTHORITIES—Continued

Page

Farmland Dairies v. Commissioner of New York

State Dep't of Agric. & Markets, 847 F.2d 1038

(2d Cir. 1988) _.... 16

Fields v. Blum, 629 F.2d 825 (2d Cir. 1980) fe le 21

Firestone Tire & Rubber Co. v. Risjord, 449 U.S.

«EERE REISS ae SSN AP ETE SO 3, 10, 24, 25

General Ins. Co. of Am. v. Eastern Consolidated

Utils., Inc., 126 F.3d 215 (3d Cir. 1997) —........... 21

General Tire & Rubber Co. Sec. Litig., In re, 726

F.2d 1075 (6th Cir.), cert. denied, 469 U.S. 858

AP Bi sag cme eA Le Ny AS 0 TT 14

George v. Camacho, 119 F.3d 1393 (9th Cir.

AE A RIE Rect ate TN el AEE ES passim

Gottlieb v. Wiles, 11 F.3d 1004 (10th Cir. 1993)... 8,12

Grand Jury Proceedings, In re, 654 F.2d 268 (3d

Cir.), cert. denied, 454 U.S. 1098 (1981)... 20

Guthrie v. Evans, 815 F.2d 626 (11th Cir. 1987)... 12

Hal Roach Studios, Inc. v. Richard Feiner & Co.,

896 F.2d 1542 (9th Cir. 1989) 20

Harper v. Virginia Dep’t of Taxation, 509 U.S. 86

(Ra aa ED ala Ie RE SN eas SPR, 23, 28, 29

Hozworth v. Blinder, Robinson & Co., 903 F.2d 186

RISER ele A i ek a 20

James v. Home Constr. Co. of Mobile, Inc., 689

TD RU SO es 21

James B. Beam Distilling Co. v. Georgia, 501 U.S.

set Bee ES Sie lee ee ie ee 28

Jones v. Caddo Parish Sch. Bd., 735 F.2d 923 (9th

TR Hae ag al te AEE a tL 16

Lipscomb v. Wise, 643 F.2d 319 (5th Cir. 1981). 21

Loran v. Furr’s/Bishop’s Inc., 988 F.2d 554 (5th

tye A tea ance EE RR a IS te 12

Marino v. Ortiz, 484 U.S. 301 (1988) ... passim

Marshall v. Holiday Magic, Inc., 550 F.2d 1173

gee a cama oe A a Rael ie 12

Northern Pipeline Constr. Co. v. Marathon Pipe

Line Co., 468 U.S. 50 (1982) _............................... 27

Norwood v. Slammons, 788 F. Supp. 1020 (W.D.

Ark. 1991) 21

TABLE OF AUTHORITIES—Continued

Page

PaineWebber Inc. Ltd. Partnerships Litig., In re,

94 F.3d 49 (2d Cir. 1996) 20 12

Papilsky v. Berndt, 466 F.2d 251 (2d Cir.), cert

denied, 409 U.S. 1977 (1972) 00... 2,14

Petersen v. Douglas County Bank & Trust Co., 967

F.2d 1186 (8th Cir. 1992) 00 21

Pettyjohn v. Shalala, 23 F.3d 1572 (10th Cir.

RR RA el Raid ly a ST lat aCe 25

Pittsburgh & Lake Erie R.R. Co. Sec. & Antitrust

Litig., In re, 543 F.2d 1058 (3d Cir. 1976) .......... 15

Port Drum Co. v. Umphrey, 852 F.2d 148 (5th Cir.

RRR age Ser ee iat, A nh OR 21

Preston v. United States, 284 F.2d 514 (9th Cir.

RRR tithe Pe om SN NO ei 21

Price v. Pelka, 690 F.2d 98 (6th Cir. 1982) _........... 21

Ragsdale v. Turnock, 941 F.2d 501 (7th Cir. 1991),

cert. denied, 502 U.S. 1035 (1992) — 0. 16

Rosenbaum v. MacAllister, 64 F.3d 1439 (10th Cir.

RIE 6 PS SE AP Ae ti Gil cA 12

SEC v. Wencke, 783 F.2d 829 (9th Cir.), cert.

denied, 479 U.S. 818 (1986) ..... 20

Security Ins. Co. v. Schipporeit, Inc., 69 F.3d 1377

FRR as tan ie te cate Pil ileal 14

Sertic v. Cuyahoga, Lake, Geauga & Ashtabula

Counties Carpenters Dist. Council of United

Bhd. of Carpenters & Joiners, 459 F.2d 579 (6th

RR PRS a a at ogc h OF 12

Shores v. Sklar, 844 F.2d 1485, vacated on other

grounds, 855 F.2d 722 (11th Cir. 1988) 12

Shults v. Champion Int’l Corp., 35 F.3d 1056 (6th

ARBRE AS a cl FERS fe AD 12

Snyder v. Smith, 736 F.2d 409 (7th Cir.), cert. de-

nied, 469 U.S. 1087 (1984) — 2. 10, 26

Stepak v. Tracinda Corp., Civil Action No. 8457,

1989 WL 100884 (Del. Ch. Aug. 18, 1989), ap-

peal refused, 567 A.2d 424 (Del. 1989) .. 15

Thompson v. Freeman, 648 F.2d 1144 (8th ‘Cir.

SEEEEEDD aucuuteinatuicsasinenciaiaatieisninad teamaiaeetaieidieliaattahttinineentaine 20

Tryforos v. Icarian Dev. Co., 518 F.2d 1258 (7th

Cir. 1975), cert. denied, 423 U.S. 1091 (1976) ....8, 9, 12

vii

TABLE OF AUTHORITIES—Continued

Page

United Airlines, Inc. v. McDonald, 432 U.S. 385

| 22

United States v. Bertoli, 994 F.2d 1002 (3d Cir.

en 21

United States v. International Bhd. of Teamsters,

981 F.2d 177 (2d Cir. 1991) ...............-------------- 20

United States v. Tippett, 975 F.2d 713 (10th Cir.

| TA 21

United States Catholic Conference v. Abortion

Rights Mobilization, Inc., 487 U.S. 72 (1988)... 21

United States ex rel. Lowiiana ». Jack, 244 US.

OO yE————————————EE 19

Walker v. City of Mesquite, 858 F.2d 1071 (5th

| as 12, 13

Webcor Elecs. v. Whiting, 101 F.R.D. 461 (D. Del.

I os ccecrcetegneanstanecenenmpenantdampnramnstanasentet een 8, 16

Wolf v. Barkes, 348 F.2d 994 (2d Cir.), cert. de-

nied, 382 U.S. 941 (1965) ...........---------ne ene 15

Constitution, Statutes and Rules

fe eae ee 27

| fle Ue) | l) ) 1

Ol) 4) 22

Fed. R. App. P.:

I i eral litera enatideienimninnnlietndan 2

0) | en 21, 22

Fed. R. Civ. P.:

7 Pe es Se re ea 19

i |) xz passim

LE) ETE ee Se 13, 14

ID ss csociantenonestnnsitanemenntennatitenmmncctsnmantietss 13

a 9

Other Materials

Frederic Calvert, Observations on Suits in Equity

(William Benning, 2d ed. 1846) .~....................... 18

John C. Coffee, Jr., Understanding the Plaintiff's

Attorney: The Implications of Economic Theory

for Private Enforcement of Law Through Class

and Derivative Actions, 86 Colum. L. Rev. 669

(1986) .... 5,14

viii

TABLE OF AUTHORITIES—Continued

Page

Timothy A. Duffy, The Appealability of Class Ac-

tion Settlements by Unnamed Parties, 60 U. Chi.

aa ie ee cael 13, 18

10 Federal Procedure, Lawyers Edition (1994)... 8

5 James W. Moore, Moore’s Federal Practice (3d

IR Re eR A ibe I ee x

Note, Control Over Settlement of Shareholder’s

Suit, 54 Harv. L. Rev. 833 (1941)... 15

Richard A. Posner, Economic Analysis of Law (4th

RS Ae tebe RS, eA TSC 14

Roberta Romano, The Shareholder Suit: Litigation

Without Foundation?, 7 J.L. Econ. & Org. 55

SED wdtaindnentednintediinciniacitedintantie cette ah ae 6,14

Joseph Story, Commentaries on Equity Pleadings

(Little, Brown, 2d ed. 1840) 000 18

Charles A. Wright, et al., Federal Practice and

Procedure:

Vol. 7C (2d ed. 1986 & Supp. 1997) 2, 8, 15

\. ) '. 0 & Secu eeee. 18, 20, 21

IN THE

Supreme Court of the United States

OcToBER TERM, 1997

No.

CALIFORNIA PuBLIC EMPLOYEES’ RETIREMENT SYSTEM

and FLoRIDA STATE BOARD OF ADMINISTRATION,

- Petitioners,

PAUL FELZEN, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

California Public Employees’ Retirement System (“Cal-

PERS”) and Florida State Board of Administration

(“SBA”) petition for a writ of certiorari to review the

judgment of the United States Court of Appeals for the

Seventh Circuit.

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-10a)

is reported at 134 F.3d 873. The trial court’s judgment

and order approving the derivative suit settlement (Pet.

App. 11la-15a) is not reported.

JURISDICTION

The judgment of the court of appeals was entered on

January 21, 1998. The jurisdiction of this Court is in-

voked pursuant to 28 U.S.C. § 1254(1).

RULES INVOLVED

The judgment of the court of appeals involves Federal

Rule of Civil Procedure 23.1 and Federal Rule of Appel-

late Procedure 3. These provisions are set forth at Pet.

App. 18a-21a.

STATEMENT OF THE CASE

This case presents two distinct circuit splits, both of

which were expressly acknowledged by the Seventh Cir-

cuit. As Judge Easterbrook wrote for the panel, “[cJourts

have disagreed for several decades” over whether nonparty

shareholders must formally intervene in order to appeal a

derivative suit settlement. Pet. App. 2a. Reversing prior

Seventh Circuit decisions on point, and disagreeing with

the Third and Tenth Circuits, the panel held that formal

intervention is an indispensable prerequisite to appeal.

The panel also noted courts are in open “disagree[ment]”

over whether decisions overruling jurisdictional precedents

must always be applied retroactively. Jd. at 10a. Again

departing from prior Seventh Circuit law and contradict-

ing the holdings of other circuits, the panel held that such

decisions must be applied retroactively.

The Seventh Circuit’s prohibition of appeals by non-

party shareholders eliminates a critical safeguard against

collusive derivative suit settlements that benefit only plain-

tiffs’ attorneys and defendant.’ The court’s view that it

1 See 7C Charles A. Wright, et al., Federal Practice and Proce-

dure § 1839, at 175 (2d ed. 1986) (nonparty shareholder participa-

tion “is intended to discourage the private settlement of a derivative

claim under which a shareholder-plaintiff and his attorney person-

ally profit to the exclusion of the corporation and the other share-

holders”) ; Papilsky v. Berndt, 466 F.2d 251, 258 (2d Cir.) (Non-

party shareholder participation “is essential in these situations to

ensure that the [resolution] of the derivative suit is in the best

interests of the corporation and the absent stockholders. More spe-

cifically, notice and court approval of settlements under Rule 23.1

discourage private settlements under which the plaintiff-stockholder

and his attorney profit to the exclusion of the corporation and non-

party stockholders.”) (citations omitted), cert. denied, 409 U.S.

1077 (1972) ; see additional authorities cited at note 14, infra.

was required to apply its decision retroactively ignored

the important policies that encourage litigants to rely on

settled law. Here, petitioners conformed their conduct to

settled Seventh Circuit precedents only to have their ap-

peal dismissed because the panel decided thereafter to

change the law.”

These two holdings are also wrong as a matter of law.

The Seventh Circuit reasoned that Marino v. Ortiz, 484

U.S. 301 (1988) (per curiam), requires nonparty share-

holder intervention. But this Court in Marino suggested

only that complete strangers to a class action should inter-

vene before being permitted to appeal; it nowhere indi-

cated that persons who are already privies to the proceed-

ings—such as class members under Rule 23 or share-

holders under Rule 23.1—need do so. In fact, nonparty

privies are routinely permitted to appeal adverse decisions

affecting their interests.

The court of appeals suggested that Firestone Tire &

Rubber Co. v_ Risjord, 449 U.S. 368, 379 (1981), and

Budinich v. Becton Dickinson & Co., 486 U.S. 196, 203

(1988), require retroactive application of its decision to

limit its appellate jurisdiction because “a court may not

in any case, even in the interest of justice, extend its juris-

diction where none exists.” Pet. App. 9a (citation omit-

ted). But those decisions involve statutory limits on judi-

cial authority. The Court did not decide that purely dis-

cretionary, self-imposed restrictions on jurisdiction, such

as the one imposed by the panel below, must be applied

retroactively. Indeed, courts creating new and purely pru-

dential rules narrowing their jurisdiction can and should

apply such rules in a manner that is equitable.

2 See, e.g., George v. Camacho, 119 F.3d 1393, 1397 (9th Cir.

1997) (en banc) (“The consequence of such a holding would be that

litigants who complied with our rules . . . would lose their rights

to appeal, . . . a result that would appear to be unconscionable to

most reasoning persons whether learned in the law or not.’’).

A. Background and Prior Proceedings

At midnight on June 27, 1995, more than a hundred

Federal Bureau of Investigation (“FBI”) agents raided

ADM corporate headquarters and the homes of ADM top

executives. The next day, ADM issued a press release

announcing that three separate federal grand juries were

investigating whether the company’s officers had conspired

with rivals to fix artificially high prices for citric acid, high

fructose corn syrup, and lysine. The evidence the govern-

ment amassed proved overwhelming: the FBI had obtained

audio tapes, video tapes, and documents establishing that

ADM executives had conspired with at least three foreign

companies to set prices and production quotas. On Octo-

ber 15, 1996, ADM pleaded guilty to criminal antitrust

charges and paid a $100 million criminal fine, the largest

criminal antitrust fine ever imposed and the subject of

national media attention. Settling three civil antitrust law-

suits filed by ADM competitors cost the company another

$90 million.

Petitioners CalPERS and SBA are two of the largest

public pension funds in the United States. They have com-

bined assets of nearly $200 billion and are among the

largest shareholders of ADM stock. SBA owns over 1.7

million ADM shares; CalPERS owns over 2.9 million

shares.

In response to the demands of institutional shareholders

like CalPERS and SBA and waves of negative publicity,

ADM commissioned a report to propose new, more strin-

gent corporate governance measures. Much of ADM’s

troubles, in the view of shareholders and the public, lay

in the personal, professional, familial, and financial connec-

tions between the members of the company’s board charged

with management oversight. Indeed, in October 1995,

CalPERS awarded ADM a grade of “F” for its lack of

corporate governance principles.

The report ADM eventually issued and adopted in

January 1996, however, did little to alleviate shareholder

concern. For instance, while it required (for the first

time) that ADM’s board include at least a majority of

independent members, even persons having obvious and

substantial financial ties to ADM could qualify under the

new rules as “independent.” To remedy that defect and

avoid a return to the corporate cronyism that resulted in

ADM’s criminal plea, CalPERS and SBA submitted a

shareholder proposal that no one with personal or finan-

cial ties to the company could serve as an “independent”

director. They modeled their proposal on accepted stand-

ards for corporate independence developed by the Council

of Institutional Investors (the “Council”).’ The Council

is an association of more than one hundred corporate,

public, and union pension funds devoted to addressing

their members’ investment concerns and promoting respon-

sible corporate governance rules and procedures. Al-

though vehemently opposed by management, the share-

holders’ proposal still won 41.6 percent of the vote at the

1996 shareholder meeting.

Unsurprisingly, in the wake of the federal criminal probe

and continuing publicity, plaintiffs’ lawyers dashed to the

courthouse to file shareholder derivative actions against

ADM directors.* Various actions were filed in two states,

and all were eventually consolidated in the Central District

of Illinois. The consolidated suit alleged that ADM direc-

tors had breached their fiduciary duties to stockholders by

failing to supervise company employees properly, and

sought recovery of the $190 million the company had

’ The Council’s independence standards have been adopted by most

or many of the nation’s largest companies. The Council is a de-

liberative organization that adopts policies only based on essentially

unanimous votes among its institutional shareholder members.

*“(A]vailable empirical evidence suggests that [derivative] ac-

tions regularly follow in the wake of prior proceedings by the SEC

or other governmental agencies.” John C. Coffee, Jr., Understanding ©

the Plaintiff's Attorney: The Implications of Economic Theory for

Private Enforcement of Law Through Class and Derivative Actions,

86 Colum. L. Rev. 669, 673 n.9 (1986).

been forced to pay in criminal fines and civil settlements.

Indeed, plaintiffs’ attorneys touted in writing to the Coun-

cil that “a primary goal of our litigation is to recover for

ADM as much of the wasted $190 million as is realisti-

cally and reasonably possible.” Objections of CalPERS

and SBA to Proposed Settlement of Derivative Action

(July 2, 1997), Exh. A at 2 (attaching letter).

Plaintiffs’ counsel, however, did almost nothing to prose-

cute the case. Nearly two years after filing, they still had

not fully litigated defendants’ motion to dismiss. By their

own admission, they had also neglected to seek any mean-

ingful discovery. In fact, plaintiffs’ lawyers focused what

little energy they expended on settlement with the insur-

ance company for ADM’s executives. In the resulting

agreement (“Settlement”), reached on May 29, 1997,

plaintiffs’ attorneys agreed to release “any and all causes

of action” against ADM and the director defendants in

return for a mere $8 million settlement fund—less than

4.3 percent of the sought-after $190 million.

The parties then went on to allocate the fund exclu-

sively to pay attorneys’ fees. Half was earmarked for pay-

ing the attorneys bringing suit.° The other half was desig-

nated for payment of future legal fees incurred by ADM

in attempting to reform itself.° Not one dime was returned

to the corporation for shareholders who lost $190 million

in value as a result of their fiduciaries’ misconduct.

5 The parties signed a so-called “free sailing provision” under

which defendants agreed not to oppose a fee petition seeking to

direct $3.92 million, or 49 percent of the fund, to plaintiffs’ counsel

(plus interest, coming out of the remaining 51 percent). The aver-

age fee award in shareholder derivative suits where no monetary

settlement is made (effectively the case here) is $287,000. Roberta

Romano, The Shareholder Suit: Litigation Without Foundation?,

7 J.L. Econ. & Org. 55, 63 (1991). Even in cases where monetary

settlements are made to shareholders, fee awards average no more

than 24 percent of the settlement amount. /d.

® Adding to the conflict of interest, plaintiffs’ attorneys remained

eligible under the settlement to earn these fees as well.

The Settlement also endorsed the “reform” measures

voluntarily adopted by ADM a year earlier. Though plain-

tiffs crowed that they had “extracted” concessions beyond

ADM’s self-imposed reforms, fine-print details revealed

the opposite; for instance, plaintiffs did almost nothing to

address the question of director independence, the single

most important reform measure and the one that had

nearly passed at the previous shareholder meeting over

management opposition.

After executing the Settlement, and without notice to

shareholders, the parties appeared before the district court

and obtained an order on May 30, 1997, tentatively ap-

proving their agreement. Pursuant to the last sentence in

Rule 23.1, the district court at that point invited “[a]ny

shareholder of record of ADM” to “appear and show

cause, if he, she or it has any [reason] why the proposed

settlement of the derivative claims . . . should or should

not be entered thereon.” Order Preliminarily Approving

Settlement and Providing for Notice at 3 (May 30, 1997).?

The court set a deadline of July 3, 1997, for written ob-

ean and scheduled a final settlement hearing for July

In response to the court’s invitation, petitioners filed

written objections, accepted by the district court, and

appeared at the July 7 hearing. Petitioners asked the

court to reject the Settlement on the ground that the cash

benefit to plaintiffs’ lawyers was disproportionately high

and the corporate governance “concessions” provided no

material benefit to shareholders beyond what ADM had

itself adopted a year earlier. Alternatively, petitioners

asked the court to order the parties to show cause why

corporate governance provisions should not be revised to

require truly independent directors. Nevertheless, at the

7 Rule 23.1 provides in pertinent part that “[t]he 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

shareholders or members in such manner as the court directs.”

conclusion of the hearing the district court approved the

Settlement. Petitioners appealed to the Seventh Circuit.

B. The Decision Below

The panel refused to hear petitioners’ appeal, left them

unable ever to appeal the collusive ADM settlement, over-

ruled several circuit cases in the process, and expressly

recognized that its decision created two direct conflicts

with the considered decisions of other circuits.

1. In Tryforos v. Icarian Development Co., 518 F.2d

1258 (7th Cir. 1975), cert. denied, 423 U.S. 1091 (1976),

then-Judge Stevens held that “(t]he law is clear that a

non-party shareholder who appears, pursuant to a Rule

23.1 notice, to present objections to a proposed dismissal

or settlement of a derivative action may appeal an adverse

decision even though he has not been formally made a

party to the action.” Jd. at 1263 n.22. This view has been

endorsed by other circuits. See, e.g., Bell Atlantic Corp.

v. Bolger, 2 F.3d 1304 (3d Cir. 1993) (Scirica, J.);

Gottlieb v. Wiles, 11 F.3d 1004, 1011 (10th Cir. 1993)

(McKay, C.J.). It has been approved by leading com-

mentators.2 And some courts have even expressed dis-

pleasure at shareholder motions to intervene. See, @.g.,

Webcor Elecs. v. Whiting, 101 F.R.D. 461, 463 (D. Del.

1984) (complaining that motion to intervene was “super-

fluous procedural question” since nonparty objector al-

ready had standing to appeal).

With Tryforos as direct on-point authority guarantee-

ing nonparty objectors’ right to appeal, and with so many

other authorities in concurrence, petitioners did not seek

8 See, e.g., TC Wright, supra, § 1839, at 182 (2d ed. 1986 & Supp.

1997) (“objector to the settlement may appeal the court’s approval

of the compromise”) ; 5 James W. Moore, Moore’s Federal Practice

€ 23.1.10[3] (3d ed. 1997) (same); 10 Federal Procedure, Lawyers

Edition § 25:184, at 260 (1994) (“nonparty shareholder who ap-

pears, pursuant to an FRCP 23.1 notice, to present objections to a

proposed dismissal or settlement of a derivative action may appeal

an adverse decision without having been formally made a party to

the action’).

leave to intervene in the trial court. The Seventh Circuit

panel, however, expressly overruled Tryforos, disagreed

oa the Third ro decision in Bell Atlantic, and held

ormal interven to be an absolute uisite t

peal. Pet. App. la-4a.° ners

The panel based its ruling almost entirely on a gloss

of inessential language from this Court's intervening per

curiam opinion in Marino, There the Court commented

that it is “better practice” to require nonparties to inter-

vene formally before allowing them to appeal. 484 U.S.

at 304. From that single aside, the court of appeals in-

ferred that both nonparty class members under Rule 23

and nonparty shareholders under Rule 23.1 must always

intervene in order to appeal.

The panel stated that its conclusion required it to over-

rule Tryforos and split with other salem osouar decisions.

Pet. App. 6a-7a (acknowledging that Third Circuit “has

held, despite Marino, that a shareholder need not become

a party in order to appeal from the final decision in

derivative litigation”); id. at 2a (“{cJourts have disagreed

for several decades about whether class members (and

shareholders, their counterparts in derivative actions under

Rule 23.1) must intervene”); id. at 4a (“we now for-

mally overrule... any .. . case in this circuit...

that permits non-parties to appeal”).

2. The court of appeals next turned to the question

whether to apply its decision retroactively to = s

The court acknowledged that retroactive application of

its intervention requirement would preclude petitioners

from ever appealing the ADM settlement—and would do

so despite the fact that they had followed all proper pro-

cedures under settled Seventh Circuit law at the time they

appealed. /d. at 7a-10a.

* Pursuant to Seventh Circuit Rule 40(e), the panel

: overruled -

prior precedent by circulating its opinion to all circuit judges in

active service prior to its release. Pet. App. 10a.

The court concluded that it was bound to apply its

new intervention requ-ement to CalPERS and SBA, un-

fairness notwithstanding, because of language in Fire-

stone (and subsequently reiterated in Budinich and Chris-

tianson v. Colt Industries Operating Corp., 486 U.S. 800,

818 (1988)): “A court lacks discretion to consider the

merits of a case over which it is without i: isdiction, and

thus, by definition, a jurisdictional ruling may never be

made prospective only.” Firestone, 449 U.S. at 379. Be-

cause this case “concern{ed] jurisdiction[al]” prerequi-

sites to appeal, Judge Easterbrook reasoned, the court's

new rule had to be applied retroactively to bar the appeal

of CalPERS and SBA. Pet. App. 8a-9a.

The panel acknowledged that this second holding also

overruled a Seventh Circuit precedent (Snyder v. Smith,

736 F.2d 409 (7th Cir.), cert. denied, 469 U.S. 1037

(1984)) and created another direct circuit split—this

time with the Ninth Circuit’s decision in George v. Ca-

macho, 119 F.3d at 1399. Pet. App. 10a (“overrul[ing]

Snyder and disagree[ing] with George”). Just last year

the Ninth Circuit, sitting en banc, held that nothing in

Firestone or its progeny required retroactive application

of new jurisdictional rules where such application would

bar appellants from ever raising their issues on appeal.

George, 119 F.3d at 1399. Until this case, the Seventh

Circuit had taken the same view, stating that Firestone

“did not address the issue of whether an appellate court

must dismiss the appeal where a party who relies on a

jurisdictional ruling is, under a subsequent decision, fore-

closed from ever raising his issues in the appellate court.”

Snyder, 736 F.2d at 415.

REASONS FOR GRANTING THE PETITION

I. THE SEVENTH CIRCUIT'S DECISION CEMENTS

A CIRCUIT SPLIT OF SIGNIFICANT IMPOR-

TANCE TO ALL SHAREHOLDER DERIVATIVE

SUITS, REFLECTS CONFUSION AMONG THE

LOWER COURTS OVER THIS COURT'S DECISION

IN MARINO v, ORTIZ, UNDERMINES THE PUR-

POSE AND DESIGN OF RULE 231 TO ENCOUR-

AGE SHAREHOLDER PARTICIPATION, AND

IGNORES TRADITIONAL COMMON LAW AND

FEDERAL PRACTICE

As Judge Easterbrook noted, the lower federal courts

are irreconcilably split over whether nonparty shareholders

must intervene as parties in order to appeal adverse judg-

ments. Pet. App. 2a. This split has substantial conse-

quences for all nonparty shareholders and the vitality of

the shareholder derivative suit process itself. It leaves

objecting shareholders uncertain of their rights, effectively

prevents any shareholder appeals in the Seventh Circuit,

and invites forum shopping.

The Seventh Circuit reasoned that its ruling was com-

pelled by this Court’s per curiam decision in Marino v.

Ortiz, 484 U.S. 301 (1988). But Judge Easterbrook

acknowledged that the Third Circuit disagrees. Pet. App.

6a-7a (conceding disagreement with Third Circuit's view

of Marino). The Third Circuit’s view is correct. The

court’s decision below undermines the purposes of Rule

23.1, diverges from traditional common law and federal

practice, and finds no support in Marino, which dealt only

with the right of complete outsiders to contest a class

action settlement between willing class members and the

defendants.

A. The panel below virtually invited certiorari, noting

at the outset of its opinion that “[cJourts have disagreed

for several decades about whether class members (and

shareholders, their counterparts in derivative actions under

Rule 23.1) must intervene as parties in order to appeal

from adverse decisions.” Pet. App. 2a. Resolution of

lower court disputes over questions of federal law is a

central function of this Court's certiorari jurisdiction.

Nor can the split of authority be reconciled. The Third,

Tenth, and (until now) Seventh Circuits have all ap-

proved nonparty shareholder appeals. See, e.g., Bell At-

lantic Corp. v. Bolger, 2 F.3d 1304; Gottlieb v. Wiles, 11

F.3d 1004; Rosenbaum v. MacAllister, 64 F.3d 1439

(10th Cir. 1985); Tryforos v. Icarian Dev. Co., 518

F.2d 1258. The Seventh Circuit now demands formal

intervention, in express “disagree[ment]” with these courts.

Pet. App. 7a.”

The fracture has been compounded by a lone para-

graph in Marino. See Pet. App. la-2a. Some courts, like

‘© This same split is mirrored in the context of Federal Rule of

Civil Procedure 23 class actions. Several circuits hold that nonparty

class members need not intervene before appealing. See, e.g., In re

PaineWebber Inc. Ltd. Partnerships Litig., 94 F.3d 49 (2d Cir.

1996); Carlough v. Amchem Prods., Inc., 56 F.3d 707, 713-14 (3d

Cir. 1993); Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d

30, 32 (3d Cir. 1971) ; Shults v. Champion Int'l Corp., 35 F.3d 1056

(6th Cir. 1994); Sertic v. Cuyahoga, Lake, Geauga & Ashtabula

Counties Carpenters Dist. Council of United Bhd. of Carpenters

& Joiners, 459 F.2d 579 (6th Cir. 1972); In re Cement Antitrust

Litig., 688 F.2d 1297, 1809 (9th Cir. 1982), aff'd sub nom. Arizona

v. United States District Court, 459 U.S. 1191 (1983); Dosier v.

Miami Valley Broadcasting Corp., 656 F.2d 1295, 1299 (9th Cir.

1981) ; Marshall v. Holiday Magic, Inc., 560 F.2d 1173, 1176 (9th

Cir. 1977).

Others hold that intervention is required. See, e.g., Loran v.

Furr’s/Bishop's Inc., 988 F.2d 554, 554 (5th Cir. 1993) (“[Wle

have no jurisdiction to consider an appeal by a class member who

has not attempted to intervene as a named party.”); Baylor v.

United States Dep't of Hous. & Urban Dev., 913 F.2d 223, 225 (5th

Cir. 1990); Walker v. City of Mesquite, 868 F.2d 1071, 1073-74

(5th Cir. 1988) ; Croyden Assocs. v. Alleco, Inc., 969 F.2d 675 (8th

Cir. 1992), cert. denied, 507 U.S. 908 (1993); Shores v. Sklar, 844

F.2d 1485, 1491, vacated on other grounds, 855 F.2d 722 (11th Cir.

1988); Guthrie v. Evans, 815 F.2d 626, 628 (11th Cir. 1987).

Whatever result the Court reaches in this case in the context

of Rule 23.1 shareholder derivative suits will also provide much-

needed guidance to the lower courts in the context of Rule 23 class

actions.

;

affected class); Gottlieb, 11 F.3d at 1011 (adopting Bell

Atlantic)." The intercircuit dispute over the effect of

dous practical consequences for all nonparty shareholders

and the integrity of the shareholder derivative suit process.

In some courts, nonparty shareholders have an absolute

right to appeal any collusive settlement. In others, like

the Seventh Circuit, their ability to appeal now turns on

a purely discretionary decision by the trial court.” The

1! See also 15A Wright, supra, § 3902.1, at 122 (2d ed. 1992)

(“The justification for recognizing appeal standing in some of these

[nonparty] cases is so compelling as to justify putting aside any

formal requirement of intervention, though the ‘better practice’ is

to seek intervention in the district court.”) (quoting Marino) ;

Timothy A. Duffy, The Appealability of Class Action Settlements by

Unnamed Parties, 60 U. Chi. L. Rev. 933, 946 (1993) (“[Llower

courts have not taken Marino as proffering an unqualified command ;

they have decided that a non-party may sometimes appeal without

prior intervention.”).

‘2 Disagreement over Marino has also contributed to the split of

authority over intervention in the Rule 23 class action context. See,

e.g., Walker, 868 F.2d at 1074 (Fifth Circuit refusing nonparity

class member appeal because of Marino); Croyden, 969 F.2d at

679-80 (same holding in Eighth Circuit). Thus, clarifying Marino’s

meaning here will also contribute to resolving the class action split.

Under Rule 24(b), “permissive intervention” is expressly left

to the “discretion” of the trial court. Fed. R. Civ. P. 24(b). Even

if intervention here is considered “of right” under Rule 24(a) (2),

the district court is still granted wide discretionary power to

determine whether “the applicant is so situated that the disposi-

tion of the action may as a practical matter impair or impede”

its rights, and whether the applicant’s interests are already

federal courts rarely disagree over a question so central

to the administration of justice as the right to appellate

review for an entire class of persons.

A key procedural safeguard against collusion and abuse

is also at stake in the lower court's split. In all derivative

litigation, strong economic incentives tempt plaintiffs’ coun-

sel and defendants to “structure a settlement such that the

plaintiffs’ attorneys’ fees are disproportionate to any re-

lief obtained for the corporation.” Bell Atlantic, 2 F.3d

at 1310. Courts and commentators have long considered

participation by nonparty shareholders in the judicial set-

tlement review process to be a key procedural counter-

measure for exposing and preventing such corruption.”

“adequately represented” by the parties. Fed. R. Civ. P. 24(a)(2).

See also Security Ins. Co. v. Schipporeit, Inc., 69 F.3d 1377, 1380

(7th Cir. 1995) (deciding whether to permit intervention “of right”

requires trial court to apply four-part balancing test). Worse still,

some courts have suggested that objecting shareholders’ interests

are necessarily “adequately protected” by party shareholders in

Rule 23.1 suits. See, e.g., In re General Tire & Rubber Co. Sec.

Litig., 726 F.2d 1075, 1087 (6th Cir.), cert. denied, 469 U.S. 858

(1984).

4 See also id. at 1309 n.8 & 1310 n.10 (citing, inter alia, Richard

A. Posner, Economic Analysis of Law § 21.9, at 570 (4th ed.

1992) (plaintiffs’ attorney “will be tempted to offer to settle with

defendant for a small judgment and a large legal fee, and such

an offer will be attractive to the defendant provided the sum

of the two figures is less than the defendant’s net expected loss

from going to trial”); Romano, 7 J.L. Econ. & Org. at 57 (combina-

tion of differential indemnification rights, insurance policy exclu-

sions, plaintiffs’ counsel’s interest in fees, and individual defend-

ants’ risk aversion creates powerful and potentially perverse incen-

tives to settle) ; Coffee, 86 Colum. L. Rev. at 677 (derivative suits

“are uniquely vulnerable to collusive settlements that benefit plain-

tiff’s attorneys rather than their clients’) ).

5 See, e.g., Daily Income Fund, Inc. v. For, 464 U.S. 523, 532

n.7 (1984) (“[T]he provision requiring notice and court approval

of settlements [is] also intended to prevent shareholders from suing

in place of the corporation in circumstances where the action would

disserve the legitimate interests of the company or its sharehold-

ers.”); Papilsky, 466 F.2d at 258 (“[n]lotice is essential in these

situations to ensure that the [resolution] of the derivative suit is

Replacing nonparty shareholders’ longstanding right to ap-

peal a settlement on the merits with a discretionary chance

to appeal reduces their ability to serve that monitoring

function. It also raises the costs (and thus reduces the

likelihood) of their participation. Simply to provide their

views on the fairness of a settlement, nonparty sharehold-

ers are faced with the substantial added financial burden

of litigating an intervention motion (and possibly an ap-

peal of the district court’s denial of leave to intervene).

in the best interests of the corporation and the absent stockhold-

ers”) (citations omitted); Wolf v. Barkes, 348 F.2d 994, 996 n.2

(2d Cir.) (Friendly, J.) (that ensuring nonparty oversight and

participation “was the objective” of the Rule “is indicated by the

[1937] Advisory Committee’s citation of McLaughlin, Capacity of

a Plaintiff-Stockholder to Terminate a Stockholder’s Suit, 46 Yale

L.J. 421, 430 (1936),” in its commentary to what was then Rule

23(c), now Rule 23(e)), cert. denied, 382 U.S. 941 (1965); Bell

Atlantic, 2 F.3d at 1310 (“objectors play an important role by

giving courts access to information on the settlement’s merits’’) ;

In re Pittsburgh & Lake Erie R.R. Co. Sec. & Antitrust Litig.,

543 F.2d 1058, 1069-70 (3d Cir. 1976) (holding that nonparties

may appeal where their “equity is being diluted,” since their “dis-

tinctive interests are as worthy of consideration and protection as

[party] shareholders”); Cohen v. Young, 127 F.2d 721 (6th Cir.

1942) (nonparty shareholder participation key “in order that the

court may have the benefit of that broader information which

comes from receiving advice as to the views of all parties con-

cerned”); Craftsman Fin. & Mortgage Co. v. Brown, 64 F. Supp.

168, 178 (S.D.N.Y. 1945) (nonparty shareholder participation key

to remedy the “evil” of “private settlements under which the plain-

tiff stockholder and his attorney got the sum paid in settlement,

and the corporation got nothing”); Stepak v. Tracinda Corp., Civil

Action No, 8457, 1989 WL 100884, at *1 (Del. Ch. Aug. 18, 1989)

(objectors’ “ardent[] resist{ance] [to] the settlement” persuaded

court “to look more closely at the proposal than would ordinarily

be the case”; as a result of objector participation, court concluded

there was “no reasonable likelihood that the proposed settlement

would be approved as fair and reasonable”), appeal refused, 567

A.2d 424 (Del. 1989) (Table); 7C Wright, supra, § 1839, at 175

(nonparty shareholder participation “is intended to discourage the

private settlement of a derivative claim under which a shareholder-

plaintiff and his attorney personally profit to the exclusion of the

corporation and the other shareholders”) ; Note, Control Over Set-

tlement of Shareholder’s Suit, 54 Harv. L. Rev. 888 (1941).

They are faced, too, with all the costs and inconveniences

associated with party status, including wide-ranging auto-

matic disclosure obligations and the obligation to respond

to interrogatories, appear for deposition, and answer vir-

tually unlimited demands for documents. Increasing bar-

riers to (and costs of) nonparty participation concomi-

tantly increases the parties’ incentives to collude—as well

as the likelihood that flawed settlements will survive judi-

cial scrutiny.”

Resolution of this split is important for other reasons.

Under current law, whether intervention is required differs

from jurisdiction to jurisdiction, leaving shareholder liti-

gants uncertain of their appellate rights and the procedures

they need to follow to preserve those rights. Failing to

bring a formal motion to intervene is a fatal error in

some courts; in others, such a motion is treated as an

unwelcome and wasteful formalism. Cf. Webcor Elecs.,

101 F.R.D. at 463; see p. 8, supra. Further, in cir-

cuits where nonparties can appeal only after intervening,

they are typically notified of their right to object and

participate only after the parties have reached a tentative

settlement. See note 7, supra. Yet, settled law in the

Seventh Circuit and elsewhere strongly disfavors interven-

tion after a tentative settlement is reached.” As a prac-

tical matter, the intervention requirement makes appeal of

'® Many commentators have already called on Congress for aboli-

tion of derivative suits as too prone to collusion. See Pet. App. 6a

(citing articles). This view is also expressed in the panel's decision

below. Jd.

'T Worse still, even when shareholders carefully follow all applica-

ble law in jurisdictions that do not require intervention, they risk

being whipsawed (like petitioners here) by the court of appeals

reversing itself, changing sides in the ongoing split, and foreclos-

ing a shareholder appeal that was proper under prior law.

18 See, e.g., Farmland Dairies v. Commissioner of New York State

Dep't of Agric. & Markets, 847 F.2d 1038, 1043-44 (2d Cir. 1988);

Jones v. Caddo Parish Sch. Bd., 735 F.2d 923 (5th Cir. 1984);

Ragsdale v. Turnock, 941 F.2d 501, 504 (7th Cir. 1991), cert. denied,

502 U.S. 1035 (1992).

a flawed derivative settlement highly unlikely, if not im-

possible.

Finally, shareholder derivative suits are amenable to

jurisdiction almost anywhere in the United States (plain-

tiffs’ attorneys can usually find a shareholder willing to

serve as plaintiff in the jurisdiction of choice). The cur-

rent, chaotic state of the law encourages a perverse form

of forum shopping. Those seeking quick, quiet (and collu-

sive) derivative settlements that benefit them—and not the

company—will have a strong incentive to file where inter-

vention is required and where appellate review of any

collusive settlement is therefore unlikely.

C. The Seventh Circuit’s shareholder intervention man-

date is wrong as a matter of law. Its error directly affects

the quality of the judicial oversight and review process in

the many derivative actions handled by the federal courts.

Under Rule 23.1, nonparty shareholders are entitled to

appear and contest any proposed settlement; unlike purely

private suits, intervention is not required for nonparties

to participate in the trial court. Rule 23.1 was deliber-

ately drafted in this manner to encourage maximum non-

party shareholder participation. “[O]bjectors play an im-

portant role by giving courts access to information on the

settlement’s merits.” Bell Atlantic, 2 F.3d at 1310; Papil-

sky, 466 F.2d at 258 (shareholder participation is “essen-

tial in these situations to ensure that the [resolution] of

the derivative suit is in the best interests of the corpora-

tion and the absent stockholders”); see also authorities

cited at note 15, supra.

The Seventh Circuit’s newly fashioned rule is incon-

sistent with the purposes of Rule 23.1. It raises the costs

for nonparties to participate, reduces their ability to ap-

peal, and creates new incentives to collude. It also reduces

the likelihood that the court of appeals will have all the

information necessary to assess the fairness of a settle-

ment. The Third Circuit expressly refused to mandate

intervention for just these reasons. Bell Atlantic, 2 F.3d

at 1310 (Rule’s goal of preventing collusive settlements

“cautions against creating obstacles to challenging deriva-

tive action settlement agreements”). See also Gottlieb,

11 F.3d at 1011 (same); Duffy, 60 U. Chi. L. Rev. at

951 (requiring intervention is inconsistent with “the rule

that encourages settlement to a reasonable degree, and

also encourages fair settlements”).

The Seventh Circuit's decision is also in tension with

common law practice. See generally Duffy, 60 U. Chi. L.

Rev. at 942. English legal scholar Fredric Calvert argued

as early as 1846 that the British common law had already

provided unnamed class members the right to appeal for

over a hundred years. See id. at 940-41 (discussing

Frederic Calvert, Observations on Suits in Equity 38 (Wil-

liam Benning, 2d ed. 1846)). And Calvert himself de-

fended this right at length: “[T]he privilege of appeal [in

class action suits] ought to be given in such a manner

as to induce the readiest acquiescence in the system of

representation during the earlier part of the suit; for which

reason every individual ought, as it appears to me, to...

have the power of appealing, whether he has been a suitor

. or by some other person as his representative.” I/d.

In America, Joseph Story reiterated Calvert’s position in

his Commentaries on Equity Pleadings, arguing that, where

affected individuals are too numerous to appear in court,

“they may come in under the decree, and take the benefit

of it, or show it to be erroneous, or entitle themselves to a

rehearing.” /d. at 941 (quoting Joseph Story, Commen-

taries on Equity Pleadings 96 ‘Little, Brown, 2d ed.

1840)).

The Seventh Circuit rested its ¢ cision not on any dis-

agreement over the importance of nonparty oversight, any

different view about Rule 23.1’s purpose, or any contrary

understanding of common law practice. Instead, it con-

cluded that three sentences from Marino controlled:

The rule that only parties to a lawsuit, or those that

properly become parties, may appeal an adverse judg-

ment, is well settled. The Court of Appeals suggested

that there may be exceptions to this general rule, pri-

marily “when the nonparty has an interest that is

affected by the trial court’s judgment.” We think the

better practice is for such a nonparty to seek inter-

vention for purposes of appeal... .

484 U.S. at 304 (citations omitted).

The Seventh Circuit’s single-minded reliance on Marino

is misplaced.

First, the quoted language is unnecessary to Marino’s

per curiam holding. It discusses only “better practice,”

and does not set out an exceptionless rule for all cases.

Other courts and leading commentators have recognized

this point. See, e.g., Bell Atlantic, 2 F.3d at 1307; note

11, supra.

Second, the nonparties seeking to appeal in Marino

were not even members of the class at issue, but outsiders

with no right to participate in trial court proceedings under

Rule 23. They were white police officers seeking to chal-

lenge a class action settlement between black officers and

the police authorities. Nothing in Marino addressed the

appellate rights of nonparties who are members of the

class whose rights are directly affected by any judgment

entered in the case, and who have an express right under

the federal rules to participate in trial court proceedings

without intervention. Bell Atlantic, 2 F.3d at 1308 n.6.

The lone case cited in the pertinent passage in Marino

confirms this conclusion. United States ex rel. Louisiana

v. Jack, 244 U.S. 397 (1917), cited in Marino, 484 U.S.

at 304, involved a land dispute between a state agency

and a landowner; the State of Louisiana sought to partici-

pate in the proceedings. The Court held the State not a

proper party and explained that “it has long been the

law” that “partlies] and priv[ies] to the record” may ap-

peal an adverse decision, though even to this rule the

Court acknowledged some “exceptions.” 244 U.S. at 402

(emphasis added). There is no doubt that nonparty share-

holders are at least “privy to the record” in derivative

suits.””

Third, if Marino held that “only parties to a lawsuit,

or those that properly become parties, may appeal” (484

U.S. at 304), much settled law would have to be over-

turned. Nonparties affected by trial court judgments are

treated by the federal courts as “de facto” parties and

permitted to appeal without intervention in a “surprising

range” of circumstances. ISA Wright, supra, § 3902.1,

at 102." For instance, federal courts routinely permit

nonparty appeals from judgments that bind the nonparty

by name. /d. at 122 (citing cases).**" They permit non-

party witnesses held in contempt for refusing discovery to

appeal on claims of privilege, lack of personal jurisdic-

tion, and other matters. See 154. Wright, § 3902.1, at

' The Seventh Circuit virtually conceded as much, Pet. App. 7a

(“The third circuit conceived of the question as whether the share-

holder has standing, which is misleading. Standing means injury

in fact, and a reduction in the market price of one’s stock is

injury.”).

*” See id. at 122 (collecting examples and commenting that “Non-

parties need not always go through a formal intervention procedure

to achieve standing to appeal. Appeals have been permitted on

showings that range from easy cases in which a nonparty is for-

mally addressed by a court order through less clear cases in which

a nonparty is significantly affected.” ).

2! See also United States v. International Bhd. of Teamsters, 931

F.2d 177, 183-84 (2d Cir. 1991); Im re Baldwin-United Corp., 770

F.2d 328, 335 (2d Cir. 1985); Horworth v. Blinder, Robinson &

Co., 903 F.2d 186, 194 n.12 (3d Cir. 1990); In re Grand Jury Pro-

ceedings, 654 F.2d 268, 270-71 (3d Cir.), cert. denied, 454 U.S, 1098

(1981); Thompson v. Freeman, 648 F.2d 1144, 1147 n.5 (8th Cir.

1981); Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1277-78

(9th Cir.), cert. denied, 506 U.S. 953 (1992) ; EEOC v. Pan American

World Airways, Inc., 897 F.2d 1499, 1504 (9th Cir.), cert. denied,

498 U.S. 815 (1990); Hal Roach Studios, Inc. v. Richard Feiner

& Co., 896 F.2d 1542, 1546-47 (9th Cir. 1989); SEC v. Wencke,

783 F.2d 829, 834 (9th Cir.), cert. denied, 479 U.S. 818 (1986):

Commercial Sec. Bank v. Walker Bank & Trust Co., 456 F.2d 1352.

1364 (10th Cir. 1972).

124." They regularly allow attorneys and expert wit-

nesses to appeal district court denials of fees. See 15A

Wright, § 3902.1, at 126 & n.45.* And nonparties obli-

gated to reimburse the defendant for amounts paid under

the trial court’s judgment are also heard on a routine

basis. See 1SA Wright, § 3902.1, at 127 & n.47.* There

is nothing in Marino to suggest that its reference to “better

practice” was intended to sweep away such a vast body

of federal law. Nor is there any basis in Marino or the

Seventh Circuit's decision to justify denying injured non-

party shareholders the right to appeal when these other

nonparties are routinely heard.

Beyond Marino, the only other authority the Seventh

Circuit cited for terminating nonparty shareholder appeals

is Federal Rule of Appellate Procedure 3(c). Pet. App.

2a. Rule 3(c), the panel emphasized, provides that “[a]

notice of appeal must specify the party or parties taking

the appeal by naming each appellant in either the caption

or the body of the notice of appeal.” (emphasis added).

= See also United States Catholic Conference v. Abortion Rights

Mobilization, Inc., 487 U.S. 72, 76 (1988) ; General Ins. Co. of Am.

v. Eastern Consolidated Utils., Inc., 126 F.3d 215, 218 (3d Cir.

1997); United States v. Bertoli, 994 F.2d 1002, 1012 (3d Cir.

1993) ; Port Drum Co. v. Umphrey, 852 F.2d 148, 150 n.2 (5th Cir.

1988); Petersen v. Douglas County Bank & Trust Co., 967 F.2d

1186, 1188 (8th Cir. 1992); Norwood v. Slammons, 788 F. Supp.

1020, 1024 (W.D. Ark. 1991).

33 See also Angoff v. Goldfine, 270 F.2d 185, 186 (1st Cir. 1959) ;

Lipscomb v. Wise, 643 F.2d 319, 320-21 (5th Cir. 1981); Price v.

Peika, 690 F.2d 98, 102 (6th Cir. 1982); Preston v. United States,

284 F.2d 514, 515 n.1 (9th Cir. 1960); United States v. Tippett,

975 F.2d 713, 718 (10th Cir. 1992); Dietrich Corp. v. King Re-

sources Co., 596 F.2d 422, 424 (10th Cir. 1979); James v. Home

Constr. Co. of Mobile, Inc., 689 F.2d 1357, 1359 (11th Cir. 1982).

See also Fields v. Blum, 629 F.2d 825, 827 (2d Cir. 1980)

(order enjoining reduction of welfare benefits by city official could

be appealed by state, since state was legally required to reimburse

city for payments and controlled both the activities complained of

and the conduct of local officials).

Because no party is taking the appeal here, the Seventh

Circuit reasoned, it must be improper under Rule 3(c). Jd.

This is far too thin a reed on which to rest such a

weighty result. The Seventh Circuit's reading of Rule

3(c) would bar not just nonparty shareholder appeals, but

all nonparty appeals, a distinctly unlikely result given

longstanding acceptance of such appeals. See notes 21-24,

supra. Besides, Rule 3(c) hardly purports to delineate

what matters are inherently eligible or ineligible for ap-

peal. That is the domain of Article III jurisprudence and

28 U.S.C. § 1291, neither of which purports to restrict

appellate jurisdiction to parties alone.” On its face, Rule

3(c) is concerned only with the formal “content[s] of the

notice of appeal.” It simply ensures that sufficient infor-

mation appears on the face of the notice for the court of

appeals to discern the issues and litigants before it.”

The Seventh Circuit also ignored further language in

Rule 3(c), which provides that

[ijn a class action, whether or not the class has been

certified, it is sufficient for the notice to name one

person qualified to bring the appeal as the representa-

tive of the class.

Fed. R. App. P. 3(c). This Court has itself held that

Rule 3(c) permits Federal Rule of Civil Procedure 23

class members to appeal if the named plaintiff chooses not

to do so. United Airlines, Inc. v. McDonald, 432 U.S.

385 (1977). Intervention is nowhere discussed in the

Rule as a prerequisite to such appeals.

Finally, there is no indication that Rule 3(c)’s drafters

ever intended it to preclude any nonparty appeals. To the

*5In fact, section 1291 never mentions the words “party” or

“parties” anywhere in its text. See Pet. App. 22a.

26“(c) Content of the Notice of Appeal.—aA notice of appeal

must specify the party or parties taking the appeal by naming each

appellant in either the caption or the body of the notice of appeal.

An attorney representing more than one party may fulfill this

requirement by describing those parties with such terms as ‘all

plaintiffs,’ ‘the defendants,’ ‘the plaintiffs A, B, et al.,’ or ‘all

defendants except X.’...” Fed, R. App. P. 3(c).

contrary, the 1967 Advisory Committee Notes indicate

that the Rule “merely restate[s], in modified form, provi-

sions now found in the civil and criminal rules . . . and

decisions under the present rules which dispense with

literal compliance in cases in which it cannot fairly be

exacted should control interpretation of these rules.” 28

U.S.C. App. at 589 (emphasis added). The 1979 Ad-

visory Committee Notes reemphasize the same point. /d.

at 590 (“so long as the function of notice is met by the _

filing of a paper indicating an intention to appeal, the

substance of the rule has been complied with”). In all

events, contrary to the Seventh Circuit’s opinion, a non-

party shareholder can strictly comply with the Rule’s lan-

guage simply by “specify[ing]” that no party is taking the

appeal, and “naming each [nonparty] appellant in either

the caption or the body of the notice of appeal.”

Il. THE SEVENTH CIRCUIT'S DECISION TO APPLY

ITS RULING RETROACTIVELY CREATES AN-

OTHER CIRCUIT SPLIT, RAISES SIGNIFICANT

QUESTIONS OF FEDERAL LAW, AND IS BASED

ON A MISTAKEN PREMISE THAT WRONGLY IN-

SULATES FROM APPELLATE SCRUTINY A

PLAINLY COLLUSIVE SETTLEMENT IN ONE OF

THE MOST SIGNIFICANT SHAREHOLDER DE-

RIVATIVE SUITS

In Harper v. Virginia Department of Taxation, 509

U.S. 86 (1993), Chief Justice Rehnquist and Justice

O'Connor commented that “[t]his Court's retroactivity

jurisprudence has become somewhat chaotic in recent

years.” Id. at 113 (O'Connor, J., & Rehnquist, C.J., dis-

senting). This case raises a question arising from the

Court’s “somewhat chaotic” retroactivity jurisprudence

that has split the courts of appeals. It is a question, as

well, that the Seventh Circuit wrongly resolved in a man-

ner that permanently insulates from appellate scrutiny a

derivative settlement affecting millions of shareholders

nationwide in an egregious case of criminal corporate

behavior. All of these factors further compel this Court's

review.

A. In the decision below, the Seventh Circuit took the

position that Firestone Tire & Rubber Co. v. Risjord, 449

U.S. at 379, and its progeny forbid courts from giving

purely prospective effect to any new rule “concern{ing]

jurisdiction.” Pet. App. 8a-9a. Accordingly, the court

applied its new rule retroactively against petitioners, dis-

missing their appeal on the ground that they had not

complied with the court’s newly formulated intervention

requirement. The court did so after acknowledging that

petitioners had fully complied with settled Seventh Circuit

appellate procedures at the time they appealed, and that

retroactive application meant they would never be able to

obtain appellate review of the ADM settlement. /d. at

7a-10a.

Judge Easterbrook noted that the panel's holding is in

direct conflict with the Ninth Circuit’s recent en banc

decision in George v. Camacho, 119 F.3d 1393. Pet.

App. 10a (conceding “disagree{ment] with George”).”

Like petitioners here, the appellant in George had relied

on settled circuit authority (namely, precedent holding

that litigants in the Northern Mariana Islands are afforded

a seven-day extension for filing notices of appeal). 119

F.3d at 1395-96. As here, the Ninth Circuit concluded

that its prior holding was erroneous. /d. But, unlike here,

the Ninth Circuit refused to apply its new jurisdictional

ruling retroactively to an appellant who had faithfully

followed existing circuit law at the time of her appeal. /d.

The Ninth Circuit considered Firestone but, unlike the

Seventh Circuit, found nothing in it mandating retro-

activity:

What underlay the Court’s decision in Firestone was

the need to ensure that litigants would not engage in

piecemeal litigation, clogging the circuit courts with

interlocutory appeals. .. . Applying the rule retro-

actively clearly advanced that objective by postponing

consideration of pending interlocutory appeals until

27 The majority in George included Chief Judge Hug and Judges

Browning, Fletcher, Pregerson, Reinhardt, Thompson, and Hawkins.

are

Id. at 1397-98. The majority was joined in this

case

The Tenth Circuit in Pettyjohn v. Shalala, 23 F.3d

1572 (1994), has also held, in conflict with the decision

here, that nothing in Firestone requires retroactivity in

of whether an appellate court must dismiss the appeal

where a party who relies on a jurisdictional ruling is,

under a subsequent decision, foreclosed from ever raising

his issues in the appellate court,” 736 F.2d at 415).

B. Though the courts of appeals sharply differ over

Firestone’s scope, they agree that the issue dividing them

raises important questions for the administration of justice

and access to the federal courts.

If the Ninth and Tenth Circuits (and the Seventh Cir-

cuit in Snyder) are correct and courts may apply juris-

dictional rulings only prospectively, the Seventh Circuit

has set itself on a course that will systematically deny

28 These dissenters simply took issue with whether the appellant

in George had in fact relied on the court’s prior decision or had

simply been neglectful. 119 F.3d at 1410. There is no question in

this case, and no suggestion in the record, that petitioners have

acted in any neglectful fashion.

substantive review to valid appeals; litigants relying on

settled law overturned in their own cases will be barred

from ever arguing their issues on appeal. This result is

obviously inequitable to an entire class of litigants, and it

directly undercuts the judiciary’s strong interest in pro-

moting reliance on settled law. som 119 F.3d at 1397

(“The consequence of such a holding would be that liti-

gants who complied with our rules . . . would lose their

rights to appeal, . . . a result that would appear to be

in the law or not.”); Snyder, 736 F.2d at 415 (such a

holding would be “obviously unfair”; “‘it would be in-

equitable for an appellate court to decline to hear the

appeal’”) (citation omitted).

This result also creates a bizarre incentive for litigants

to file every conceivable paper and motion—even those

already expressly ruled wasteful and superfluous—-solely

as an insurance policy against a possible change in law.

George, 119 F.3d at 1404 (“Rules are intended to provide

certainty and to guide parties’ actions. Making a [juris-

dictional] rule . . . retroactive [in all cases] is inconsistent

with both of these objectives.”) (footnote omitted).

By contrast, if the Seventh Circuit is right and Firestone

mandates retroactive application of all new jurisdictional

rules, the Ninth Circuit has lawlessly arrogated power to

hear appeals over which it has no valid jurisdiction. Indeed,

the Seventh Circuit below chided the Ninth Circuit on

precisely these grounds.”

C. As a result of the Seventh Circuit's decision, law-

yers will keep all of the meager $8 million ADM settle-

ment; the company and its millions of shareholders will

receive no meaningful reforms and not one dime from

2% “The proposition that ‘a court may not in any case, even in

the interest of justice, extend its jurisdiction where none exists’

requires us to overrule Snyder and disagree with George. Jurisdic-

tion means adjudicatory power. Equitable considerations are alto-

gether irrelevant when a court lacks adjudicatory power.” Pet.

App. 10a (citation omitted).

fiduciaries guilty of gross abuses of trust. All of this will

take place, moreover, without any appellate review and as

a result of a clear error of law.

The Seventh Circuit rested its decision on the premise

that, once a court has determined that it lacks jurisdiction,

it is powerless to reach the merits of the case no matter

how inequitable that may be. “[A] court may not in any

case, even in the interest of justice, extend its jurisdiction

where none exists.” Pet. App. 10a (internal quotation

marks omitted ).

That premise, however, is unsupported. The Seventh

Circuit plainly did have “adjudicatory power” to hear peti-

tioners’ appeal. The panel never suggested that it lacked

Statutory or constitutional authority to entertain nonparty

shareholder appeals. Nothing in the language of 28 U.S.C.

§ 1291 or practice under that section even hints that ap-

peals are limited to formal parties. See Pet. App. 22a

(text of section 1291); notes 21-24, supra (documenting

longstanding practice of permitting nonparty appeals in

federal appellate courts). Nothing in the Federal Rules of

Appellate Procedure precludes nonparty shareholder ap-

peals. See Point LC, supra. And it is beyond dispute that

petitioners, among ADM’s largest shareholders, have stand-

ing under Article III.”

Given the undisputed presence of constitutional and

Statutory “adjudicatory authority,” the Seventh Circuit's

ruling below can most generously be described as a pru-

dential decision. It reflects a policy decision akin to the

judicially created prudential standing doctrine,” not any

% Judge Easterbrook himself conceded that petitioners have con-

stitutional standing in the course of criticizing the Third Circuit's

decision in Bell Atlantic. See note 19, supra (quoting Pet. App.

6a-7a).

™ See, e.g., Bennett v. Spear, 117 S. Ct. 1154, 1161 (1997) (“In

addition to the immutable requirements of Article ITI, ‘the federal

judiciary has also adhered to a set of prudential principles that bear

on the question of standing.’ Like their constitutional counterparts,

these ‘judicially self-imposed limits on the exercise of federal juris-

outside constraint on the courts’ authority. There was no

reason why the court of appeals could not have at least

considered whether to apply this purely prudential rule

prospectively. The court’s suggestion that it lacked “ad-

judicatory power” to weigh such an option lacks any basis

in law or common sense.

In any event, even if the court of appeals’ “jurisdic-

tional” ruling had affected the power of the court under

statutory or constitutional law, its decision still could not

be squared with Northern Pipeline Construction Co. v.

Marathon Pipe Line Co., 458 U.S. 50 (1982). There the

Court held Congress's grant of jurisdiction to bankruptcy

courts unconstitutional. Nonetheless, the Court applied

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). The

Court concluded that, because its ruling “could produce

substantial inequitable results,” id. at 106-07, it should

apply its decision only prospectively; the bankruptcy

courts—though determined to lack any constitutional

power—were thus allowed to retain cases already pending

before them. 458 U.S. at 88-89 (plurality opinion); id.

at 91-92 (Rehnquist, J., concurring in the judgment). If

the bankruptcy courts could properly hear pending cases

over which they had no constitutional authority, the Sev-

enth Circuit’s conclusion that it is “powerless” to apply

Chevron Oil's balancing test is hardly convincing. The

Seventh Circuit did not address Northern Pipeline in its

opinion.”

diction’ are ‘founded in concern about the proper—and properly

limited—role of the courts in a democratic society,’ but unlike their

constitutional counterparts, they can be modified or abrogated by

Congress.”) (citations omitted); Allen v. Wright, 468 U.S. 737,

750-51 (1984) (same).

% The Seventh Circuit also suggested that Chevron Oil, 404 U.S.

97, had itself been “overruled” by Harper, 509 U.S. 86, and James

B. Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991). Pet. App.

8a. But this is simply not so. The splintered decisions in Harper

and Beam held only that when a court decides to apply a new rule

of law retroactively to the parties before it, it must also apply that

same rule retroactively to all cases still open on direct review; selec-

tively applying the new rule only to litigants at hand while retain-

The Seventh Circuit rested instead on one of Firestone’s

recent progeny, Budinich v. Becton Dickinson & Co., 486

U.S. at 203. There the Court did apply a new rule of law

retroactively even though doing so meant, as here, “that

the losing party could never appeal.” Pet. App. 9a. Be-

cause the Supreme Court there applied a jurisdictional

ruling retroactively in the face of potentially inequitable

consequences, the court of appeals reasoned that “Budi-

nich . . . washes away the distinction we drew in Snyder”

and any suggestion that the court of appeals remains em-

powered to consider prospective decisionmaking in cases

“concern[ing] jurisdiction.” /d.

The Seventh Circuit's reliance on Budinich is mistaken

for three reasons. First, and most significantly, the Court

in Budinich was called upon to render a decision concern-

ing the court of appeals’ statutory authority under 28

U.S.C, § 1291." Its decision to apply its ruling i

the courts’ statutory jurisdiction retroactively has no bear-

ing on the question whether the panel below was bound

to apply its prudential decision retroactively.

Second, because Budinich announced no new rule of

aw, it was not eligible for purely prospective application.

See Harper, 509 U.S. at 111 (Kennedy, J., concurring)

(a decision cannot be made nonretroactive unless it “over-

rulfes] clear past precedent on which litigants may have

relied” or “decid{es] an issue of first impression whose

resolution was not clearly foreshadowed”). Instead, as the

Ninth Circuit has pointed out, Budinich merely reaffirmed

what “should have been apparent from the Court's previ-

ous decisions”—namely that a judgment is final and ap-

pealable under section 1291 after adjudication on the

ing the old rule for all other pending cases is not permitted. Noth-

ing in these decisions “overruled” a court's ability to consider under

eS ee AOR ee a ee

*§ 486 U.S. at 199 (“The question before us . . . is whether a

decision on the merits is a ‘final decision’ as a matter of federal

law under § 1291 when the recoverability or amount of attorney’s

fees for the litigation remains to be determined.”).

merits and does not await determination of attorneys’ fees.

George, 119 F.3d at 1398; id. (Budinich “did not change

the applicable law”; it “did not conflict with or overrule

any previously established law; nor did it subject Budinich

to a rule that was different from the rule in effect at the

time he acted”).

Third, even supposing Budinich had effected a change

in law, the petitioner in Budinich relied on no existing

authority and ignored multiple warning signals from the

Supreme Court that her position was wrong. Whatever

“inequitable results” under a Chevron Oil analysis might

conceivably flow from retroactive application against the

petitioner in Budinich simply cannot be compared to those

in this case. See George, 119 F.3d at 1398 (applying rule

prospectively after Chevron Oil test and distinguishing

Budinich because, as here, “the new rule [in Budinich]

did not wipe out any rights [the petitioner] had estab-

lished under a former version of the rule” ).™*

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

MARK C, HANSEN

Counsel of Record

NEIL M. GoRSUCH

KELLOGG, HUBER, HANSEN,

Topp & EVANS, P.L.L.C.

1301 K Street, N.W.

Suite 1000 West

Washington, D.C. 20005

(202) 326-7900

April 21, 1998 Counsel for Petitioners

*% See also id, at 1410 (Kozinski & O’Scannlain, JJ., dissenting)

(“A fair and sensible solution would be to give the benefit of the

error to anyone who actually relied on it. .. . This would balance

appellees’ interest in finality with the reliance interest of those

appellants who followed our misstatement in [the prior case].”).

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

SEVENTH CIRCUIT

No. 97-2829

PAUL FELZEN, Trustee of Louise Laskin

Trust—1991, and SANDRA ESNER,

Plaintiffs-A ppellees,

Vv.

DwayNeE O. ANDREAS, ef al.,

Defendants,

CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM

and FLORIDA STATE BOARD OF ADMINISTRATION,

Objectors-A ppellants.

Submitted Sept. 19, 1997

Decided Jan. 21, 1998

Before POSNER, Chief Judge, and FLAUM and EAS-

TERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

“The rule that only parties to a lawsuit, or those that

properly become parties, may appeal an adverse judgment,

is well settled. The Court of Appeals suggested that there

may be exceptions to this general rule, primarily ‘when the

nonparty has an interest that is affected by the trial court’s

judgment.’ We think the better practice is for such a non-

party to seek intervention for purposes of appeal; denials

of such motions are, of course, appealable.” Marino v.

Ortiz, 484 U.S. 301, 304, 108 S.Ct. 586, 587-88, 98

L.Ed.2d 629 (1988) (citations omitted). With these

words the Supreme Court held that a person adversely af-

fected by the settlement of a class action may appeal from

the consent decree based on that settlement only if he has

intervened as a party. See also Fed. R.App. P. 3(c): “A

notice of appeal must specify the party or parties taking

the appeal by naming each appellant in either the caption

or the body of the notice of appeal.” (Emphasis added. )

Following Marino we held that a class member in an ac-

tion under Fed. R. Civ. P. 23 who has not become a party

may not appeal from an order granting summary judg-

ment to the defendant. Jn re Brand Name Prescription

Drugs Antitrust Litigation, 115 F.3d 456 (7th Cir.1997).

Today we consider another proposed exception to the rule

stated in Marino.

Courts have disagreed for several decades about whether

class members (and shareholders, their counterparts in

derivative actions under Rule 23.1) must intervene as par-

ties in order to appeal from adverse decisions. See Com-

ment, The Appealability of Class Action Settlements by

Unnamed Parties, 60 U.Chi.L.Rev. 933 (1993). Until

Marino this circuit permitted class members and stock-

holders to appeal, whether or not they had intervened, pro-

vided they had informed the district court of their objec-

tions to the decision that disadvantaged them. See Re-

search Corp. v. Asgrow Seed Co., 425 F.2d 1059 (7th

Cir.1970) (class action); Tryforos v. Icarian Development

Co., 518 F.2d 1258, 1263 n. 22 (7th Cir.1975) (share-

holders’ derivative suit). We held in Brand Name Pre-

scription Drugs that in light of Marino and In re VMS

Limited Partnership Securities Litigation, 976 F.2d 362

(7th Cir.1992), Asgrow Seed is no longer authoritative.

115 F.3d at 458. But two shareholders who have appealed

from the district court’s approval of a settlement in this

derivative action ask us to apply Tryforos notwithstanding

intervening precedent and the language of Rule 3(c).

Tryforos did not analyze the question now before us—

whether shareholders who are not parties to a Rule 23.1 -

action nonetheless may appeal—but stated that their right

to so do is “clear”. Footnote 22 in Tryforos cites one

case from the 1940s that permits such appeals, but that

opinion did not give reasons. (7ryforos also cites one dis-

trict court opinion from the 1960s, an odd reference for a

rule of appellate jurisdiction.) An unexplained practice

does not offer shelter from a later opinion of the Supreme

Court holding that only parties may appeal, and withdraw-

ing from the appellate courts any exception-making power.

The two shareholder-appellants offer a number of argu-

ments in support of appeal without intervention that boil

down to a claim that erroneous decisions should be re-

versed, but arguments of this stripe do not justify omitting

the step of intervening as a party. A court of appeals is

not an ombudsman. Suppose the settlement of a deriva-

tive action induces the corporation to fire its CEO, or to

curtail its purchases of fax machines, or to choose a differ-

ent law firm. The affected employees, vendors, and law-

yers could not appeal just because they believed the settle-

ment improvident or the judge’s action in approving it

legally erroneous. Only parties may appeal. So too with

shareholders, who have no more right to speak for the

firm or control its litigation decisions than bondholders or

banks or landlords, all of whom have contractual interests

that may be affected by litigation. It may be, as appellants

stress, that some district judges would not be receptive to

attempts to intervene for the purpose of appeal, but the

Supreme Court spoke to this in Marino when observing

that a denial of a motion to intervene is itself appealable.

According to appellants, Brand Name Prescription

Drugs did not actually jettison the approach of Asgrow

Seed even for class actions. The question at issue in

Brand Name Prescription Drugs was whether class mem-

bers (other than the named representatives) could appeal

from an order granting summary judgment, while Asgrow

Seed and today’s case involve an appeal from an order

approving a settlement. VMS Limited Partnership, while

dismissing the appeal at hand, remarked in a footnote that

the decision did not disturb Asgrow Seed. 976 F.2d at

368 n. 8. That is technically so; neither VMS Limited

Partnership nor Brand Name Prescription Drugs involved

an appeal from an order approving a settlement. But the

distinction is inconsequential for purposes of Rule 3(c),

the rationale of Marino, and the rationale of Brand Name

Prescription Drugs: that the court should not “fragment

the control of the class action” (115 F.3d at 457) by

allowing class members to usurp the role of the class rep-

resentative without persuading the district judge that the

representative is unfit or unfaithful, or that subclasses

should be created. See also Shults v. Champion Interna-

tional Corp., 35 F.3d 1056, 1060-61 (6th Cir.1994);

Gottlieb v. Wiles, 11 F.3d 1004, 1010-12 (10th Cir.

1993). Lest doubt linger, we now formally overrule As-

grow Seed and any other case in this circuit (including

Armstrong v. Board of School Directors, 616 F.2d 305,

327-28 (7th Cir.1980), and Patterson v. Stovall, 528 F.2d

108, 109_n. 1 (7th Cir.1976)) that permits non-parties to

appeal from a decision of any kind in a class action.

Well, then, is a shareholders’ derivative action under

Rule 23.1 different from a class action under Rule 23 in a

way that permits appeal by nonparties? Not so far as Rule

3(c) or Marino is concerned. Although there are differ-

ences between class actions and derivative suits, these cut

against the appellants’ position. All class members are

identical in entitlement to litigate; which injured persons

become the representatives, and which the “mere” class

members, is to a degree fortuitous and to a degree depend-

ent on the entrepreneurial activity of the class counsel. It

is the fact that each class member has a real grievance

with the defendant that sets up at least an equitable argu-

ment for a class member who wants to appeal. But in a

shareholders’ derivative action, the individual investor is

not an injured party and is not entitled to litigate. A de-

rivative suit is brought by an investor in the corporation's

(not the investor’s) right to recover for injury to the cor-

poration. Frank v. Hadesman & Frank, Inc., 83 F.3d 158

(7th Cir.1996); Kagan v. Edison Brothers Stores, Inc.,

907 F.2d 690 (7th Cir.1990). The corporation obtains

the damages; the investor-plaintiffs just get the ball rolling

after the fashion of a qui tam action. Only when the cor-

poration’s board defaults in its duty to protect the inter-

ests of the investors is this step permitted, and even then

many states permit the board to regain control of the liti-

gation following a special investigation. See Kamen v.

Kemper Financial Services, Inc., 500 U.S. 90, 111 S.Ct.

1711, 114 L.Ed.2d 152 (1991); American Law Institute,

Principles of Corporate Governance: Analysis and Rec-

ommendations §§7.01, 7.03, 7.05 (1992). If in the

course of managing or settling derivative litigation inves-

tors receive new injury, they do so only because the cor-

poration becomes worse off—but loss to the corporation

does not permit stockholders to sue directly. See Mid-State

Fertilizer Co. v. Exchange National Bank, 877 F.2d 1333

(7th Cir.1989). Once again the corporation holds the

legal claim, and it acts through the board of directors.

Stockholders may replace the board if dissatisfied with its

performance, but they may not displace the board in liti-

gation. So it cannot be surprising that stockholders other

than the named plaintiffs are not treated as parties in de-

rivative litigation—their citizenship is ignored when de-

termining diversity, see Smith v. Sperling, 354 U.S. 91, 77

S.Ct. 1112, 1 L.Ed.2d 1205 (1957), and they are not

allowed to opt out. Corporate management may affect the

interests of stockholders without notifying them or obtain-

ing their consent; by investing in stock, they placed their

funds at the management's disposal and obtained, in ex-

change, the right to choose future managers. Shareholders

have no more the attributes of parties when managers set-

tle derivative litigation than when managers settle antitrust

litigation. (This particular derivative suit arose out of

claims that managers of Archer Daniels Midland Co. con-

spired with rival sellers and thus exposed the firm to crim-

inal and treble-damages liability for conspiracy in restraint

of trade.)

Rule 23.1 provides for notice to shareholders only in

the event of dismissal or settlement, so that other investors

may contest the faithfulness or honesty of the self-

appointed plaintiffs; we do not doubt that this monitoring

is often useful and that intervention to facilitate an appeal

could be justified. Many thoughtful students of the subject

conclude, with empirical support, that derivative actions

do little to promote sound management and often hurt the

firm by diverting the managers’ time from running the

business while diverting the firm’s resources to the plain-

tiffs’ lawyers without providing a corresponding benefit.

Janet Cooper Alexander, Do the Merits Matter? A Study

of Settlements in Securities Class Actions, 43 Stan. L.Rev.

497 (1991); Reinier Kraakman, Hyun Park & Steven

Shavell, When are Shareholder Suits in Shareholder Inter-

ests?, 82 Geo. L.J. 1733 (1994); Roberta Romano, The

Shareholder Suit: Litigation Without Foundation?, 7 J.L.

Econ. & Org. 55 (1991); Mark L. Cross, Wallace N.

Davidson & John H. Thornton, The Impact of Directors’

and Officers’ Liability Suits on Firm Value, 56 J. Risk &

Insurance 128 (1989); Daniel R. Fischel & Michael Brad-

ley, The Role of Liability Rules and the Derivative Suit

in Corporate Law: A Theoretical and Empirical Analysis,

71 Cornell L.Rev. 261 (1986). The two shareholder-

appellants in this case believe that the modest settlement,

half of which will be paid to counsel, exemplifies this prob-

lem. Their failure to become parties prevents us from

considering this contention, for the possibility that a dis-

trict court’s judgment is erroneous does not dispense with

the need for an appeal by a party.

One court of appeals has held, despite Marino, that a

shareholder need not become a party in order to appeal

from the final decision in derivative litigation. Bell Atlan-

tic Corp. v. Bolger, 2 F.3d 1304, 1307-10 (3d Cir.1993).

The third circuit conceived of the question as whether the

shareholder has standing, which is misleading. Standing

means injury in fact, and a reduction in the market price

of one’s stock is injury. Parties are a subset of injured

persons. Equating injury with party status is exactly the

approach disapproved by Marino. The third circuit

thought that shareholders in derivative actions should be

treated like class members in class actions, and it per-

mitted the shareholders to appeal because it permits class

members to appeal. 2 F.3d at 1309-10; see also Carlough

v. Amchem Products, Inc., 5 F.3d 707, 714 (3d Cir.

1993). One does not follow from the other; for reasons

we have discussed, shareholders have the weaker claim.

But in this circuit, which requires class members to inter-

vene if they want to appeal, similar treatment of share-

holders is ordained. We overrule Tryforos to the extent

it permits non-party shareholders to appeal in actions

under Rule 23.1, and we disagree with the conclusion of

Beli Atlantic.

Appellants tell us that they relied on Asgrow Seed and

Tryforos when deciding not to intervene as parties and

implicitly ask us to defer the effect of any decision to over-

rule their holdings. But “[a] court lacks discretion to con-

sider the merits of a case over which it is without jurisdic-

tion, and thus, by definition, a jurisdictional ruling may

never be made prospective only.” Firestone Tire & Rubber

Co. v. Risjord, 449 U.S. 368, 379, 101 S.Ct. 669, 676, 66

L.Ed.2d 571 (1981).

Notwithstanding Firestone, the ninth circuit recently

refused, on equitable grounds, to apply to pending cases

a decision overruling a jurisdictional precedent. George v.

Camacho, 119 F.3d 1393 (9th Cir.1997) (en banc).

George stated that despite the sweep of its language Fire-

stone should be confined to situations in which the disap-

pointed appellant has some later opportunity to present

the claims to the court of appeals. A panel of this court

reached the same conclusion in Snyder v. Smith, 736 F.2d

409, 415 (7th Cir.1984): “In [Firestone], the court of

appeals held that an order denying a motion to disqualify

counsel was not appealable prior to final judgment but,

because its holding was contrary to precedent, it deter-

mined the merits of the order. The Supreme Court held

that when an appellate court finds an order interlocutory

and nonappealable, the court must dismiss the appeal. The

Court did not address the issue of whether an appellate

court must dismiss the appeal where a party who relies on

a jurisdictional ruling is, under a subsequent decision,

foreclosed from ever raising his issues in the appellate

court. Thus, Firestone does not require this couit to dis-

miss the appeal.” When deciding whether to dismiss an

appeal in light of new precedent, we concluded in Snyder,

a court of appeals should look not to Firestone but to

Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349,

30 L.Ed.2d 296 (1971), which gives a dominant role to

equitable interests such as reliance on precedent.

Cases decided by the Supreme Court since Snyder re-

quire us to proceed differently. Chevron has been over-

ruled. Harper v. Virginia Department of Taxation, 509

U.S. 86, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993); James

B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 111

S.Ct. 2439, 115 L.Ed.2d 481 (1991). The second court

no longer considers whether application of the new rule

would be inequitable or undermine reliance interests. In-

stead, when a court “applies a rule of federal law to the

parties before it, that rule is the controlling interpretation

of federal law and must be given full retroactive effect in

all cases still open on direct review and as to all events,

regardless of whether such events predate or postdate

[the] announcement of the rule.” Harper, 509 U.S. at 97,

113 S.Ct. at 2517. This language holds out the option

of announcing a rule with wholly prospective force, inap-

plicable to the parties in the case that announces the rule.

But a second line of cases, including Firestone, withholds

the option of complete prospectivity when the rule con-

cerns jurisdiction. Seven years after Firestone (and four

years after Snyder) a litigant asked the Supreme Court

to make a ruling prospective in order to prevent a “sig-

nificant change in the law” from knocking out appellate

jurisdiction. The Court declined. Budinich v. Becton

Dickinson & Co., 486 U.S. 196, 203, 108 S.Ct. 1717,

1722, 100 L.Ed.2d 178 (1988) (citing and quoting from

Firestone). Budinich, like Snyder, George, and the case

now at hand, involved an appeal from a final judgment;

the holding in Budinich meant that the losing party could

never appeal, a conclusion that washes away the distinc-

tion we drew in Snyder. Later the same Term, the Court

reiterated the point in language equally pertinent today:

Our agreement with the [court of appeals’) conclu-

sion that it lacked jurisdiction, compels us to disap-

prove of its decision to reach the merits anyway “in

the interest of justice.” 822 F.2d at 1559. “Courts

created by statute can have no jurisdiction but such

as the statute confers.” Sheldon v. Sill, 49 U.S. (8

How.) 441, 449, 12 L.Ed. 1147 (1850). See also

Firestone Tire & Rubber Co. v. Risjord, 449 U.S.

368, 379-380, 101 S.Ct. 669, 676, 66 L.Ed.2d 571

(1981). ... The age-old rule that a court may not

in any case, even in the interest of justice, extend its

jurisdiction where none exists has always worked in-

justice in particular cases. Parties often spend years

litigating claims only to learn that their efforts and

expense were wasted in a court that lacked juris-

diction. . .. Such situations inhere in the very nature

of jurisdictional lines, for as our cases aptly illustrate,

few jurisdictional lines can be so finely drawn as to

leave no room for disagreement on close cases. See,

e.g., K Mart Corp. v. Cartier, Inc., 485 U.S. 176,

108 S.Ct. 950, 99 L.Ed.2d 151 (1988); United

States v. Hohri, 482 U.S. 64, 107 S.Ct. 2246, 96

L.Ed.2d 51 (1987).

10a

Christianson v. Colt Industries Operating Corp., 486

U.S. 800, 818, 108 S.Ct. 2166, 2178, 100 L.Ed.2d 811

(1988). The proposition that “a court may not in any

case, even in the interest of justice, extend its jurisdic-

tion where none exists” requires us to overrule Snyder and

disagree with George. Jurisdiction means adjudicatory

power. Equitable considerations are altogether irrelevant

when a court lacks adjudicatory power. Cf. Landgraf v.

USI Film Products, 511 U.S. 244, 274, 114 S.Ct. 1483,

1501-02, 128 L.Ed.2d 229 (1994) (pointing out that

statutes repealing grants of jurisdiction apply to pending

cases, notwithstanding reliance interests); Yang v. INS,

109 F.3d 1185 (7th Cir.1997). If the shareholders had

appealed to the House of Lords, that tribunal would have

dismissed the appeal out of hand. An appeal by non-

parties is no different in effect.

Because this opinion overrules some of our decisions

and creates a conflict among the circuits, it was circulated

before release to all judges in active service. See Circuit

Rule 40(e). No judge favored hearing the case en banc.

The appeal is dismissed for want of jurisdiction.

lla

APPENDIX B

[Filed July 7, 1997]

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF ILLINOIS

No. 95-2279

PAUL FELZEN, TRUSTEE OF Louise LASKIN TRrusT—1991

AND SANDRA ESNER,

we. Plaintiff,

DwayNE O. ANDREAS, RALPH BRUCE, JOHN H. DANIELS,

Howarp G. BuFFETT, LOwELL W. ANDREAS, JAMES

R. RANDALL, MicHaget D. ANnpreas, H.D. HALE, O.

GLENN WEBB, MARTIN ANDREAS, MARGARETTA ROCKE-

FELLER, F. Ross JOHNSON, Ray A. GOLDBERG, JOHN

K. VANIER, SHREVE M. ARCHER, Jr., M. BRIAN MUL-

RONEY. AND ROBERT S. STRAUSS,

Defendant.

and

ARCHER DANIELS MIDLAND COMPANY,

a Delaware corporation,

Nominal Defendant.

FINAL JUDGMENT AND ORDER OF DISMISSAL

This matter having come before the court for hearing,

pursuant to the order of this court, dated May 30, 1997,

on the application of the parties for approval of the settle-

ment set forth in the stipulation of settlement, dated as of

May 29, 1997 (the “stipulation”) and due and adequate

notice having been given to the shareholders of Archer

12a

Daniels Midland Company, and the court having consid-

ered all papers filed and proceedings had herein and other-

wise being fully informed in the premises and good cause

appearing therefore, IT IS HEREBY ORDERED, AD-

JUDGED AND DECREED that:

1. This court has jurisdiction over the subject matter

of this action and over all parties to this action.

2. The definitions of terms in the stipulation are incor-

porated herein as though fully set forth in this judgment.

3. The notice given to the shareholders of Archer Dan-

iels Midland Company, including the individual notice to

current shareholders who could be identified through rea-

sonable effort, of the settlement and other matters set forth

in the stipulation was the best notice practicable under the

circumstances. The notice provided due and adequate no-

tice of the proceedings and of the matters set forth therein,

including the proposed settlement, to all persons entitled

to notice, and the notice fully satisfied the requirements of

Rule 23.1 of the Federal Rules of Civil Procedure and the

requirements of due process.

4. Pursuant to Rule 23.1 of the Federal Rules of Civil

Procedure, this court hereby approves the settlement set

forth in the stipulation and finds that the settlement is, in

all respects, fair, reasonable and adequate to Archer Dan-

iels Midland company (“ADM”) and its shareholders.

5. The court hereby dismisses this action against the

company (as defined in the stipulation) and the individual

defendants (as defined in the stipulation) with prejudice

and without costs (except as otherwise provided in the

Stipulation).

6. The court hereby dismisses without prejudice all

claims in this action directed against Michael D. Andreas

(as defined in the stipulation), which claims shall become

the sole property of the company.

7. Upon the effective date, each and every settled claim

is and shall be deemed to be conclusively released. “Set-

13a

tled claims” shall mean any and all causes of action, suits,

demands, claims, matters and issues, whether known or

unknown, which have been, could have been, or in the

future might be asserted, advanced or alleged in this ac-

tion or in the action pending in the Delaware Court of

Chancery captioned Jn re Archer Daniels Midland Com-

pany Derivative Litigation, Consolidated No. 14403 (the

Delaware Action) or in any court or arbitration proceed-

ing (including, without limitation, any claims, actions or

demands arising under any federal or state law relating to

alleged fraud, breach of any duty, negligence, recklessness,

violations of federal or state securities laws, violations of

federal or state antitrust laws or otherwise) by or on be-

half of the company (as defined in the stipulation), by any

shareholder of said company derivatively on its behalf, or

by any named plaintiff in this action or the Delaware

Action (as defined in the stipulation) on their own behalf

or on behalf of any record or beneficial holder of the stock

of the company (as defined in the stipulation), whether

individual, class, derivative, representative, legal, equitable,

or any other type in any other capacity, which claims have

arisen, could have arisen, arise now or hereafter arise out

of, or relate in any manner to the allegations, transactions,

matters or occurrences, representations, acts or omissions,

or any series thereof, involved, set forth, referred to, or

related to any of the pleadings in this action or the Dela-

ware action (as defined in the stipulation) against the com-

pany (as defined in the stipulation) and/or any of the in-

dividual defendants (as defined in the stipulation), pro-

vided, however, that settled claims shall not include any

claims which the company may have against Andreas (as

defined in the stipulation) or Wilson (as defined in the

stipulation), which claims shall be reserved to the com-

pany in the sole discretion of the company’s board of di-

rectors.

8. Upon the effective date, the company (as defined in

the stipulation) and each of the director defendants (as

l4a

defined in the stipulation) shall be deemed to have, and

by operation of this judgment shall have, fully, finally, and

forever released, relinquished and discharged the plaintiffs

and counsel to the plaintiffs, each only in his or her ca-

pacity as such, from all claims arising out of, relating to,

or in connection with the institution, prosecution, assertion

or resolution of this action or the settled claims.

9. Upon the effective date, ADM shall be deemed to

have, and by operation of this judgment shall have, fully,

finally and forever discharged all settled claims. Any

claims which ADM has against the excluded persons, or

which ADM may have against Andreas or Wilson are ex-

pressly reserved to the company in the sole discretion of

the company’s board of directors.

10. Upon the effective date, ADM shall be deemed to

have, and by operation of this judgment shall have, fully,

finally, and forever discharged any elaims which it may

have against the individual defendants for reimbursement

of any costs or fees advanced for them (or on their be-

half) for defense of the settled claims.

11. Without affecting the finality of this judgment in

any way, this court retains continuing jurisdiction over

(a) implementation of this settlement; (b) the claims

against the defendants in this action until the effective date

(as defined in the stipulation) and until each and every

act agreed to be performed by the parties to the stipulation

shall have been performed pursuant to the stipulation; (c)

all parties to this action for the purpose of enforcing and

administering the stipulation and the releases contained

therein; and (d) any other matter related or ancillary

thereto.

12. In the event that the settlement does not become

effective in accordance with the terms of the stipulation,

then this judgment shall be rendered null and void and

shall be vacated and, in such event, subject to Section F,

15a

paragraph 2 of the stipulation, all orders entered and re-

— delivered in connection therewith shall be null and

void.

ENTER this 7th day of July, 1997.

/s/ Harold A. Baker

HAROLD A. BAKER

United States District J udge

16a

APPENDIX C

[Filed July 7, 1997]

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF ILLINOIS

No. 95-2279

PAUL FELZEN, TRUSTEE OF

Louis LAskKIn Trust 1991, et al.,

Plaintiff,

vs.

DWAYNE O. ANDREAS, ef al.,

Defendants.

ORDER AWARDING ATTORNEYS’ FEES

AND REIMBURSEMENT OF EXPENSES

This matter coming to be heard before the United States

District Court for the Central District of Illinois (the

“district court”), on the 7th day of July, 1997, and the

court having considered all papers filed herein and the

proceedings conducted herein, having found the settlement

of the present litigation to be fair, reasonable and ade-

quate, and otherwise being fully informed in the premises

hereof, it is hereby ordered, adjudged and decreed as

follows:

1. The court finds that it has jurisdiction over the sub-

ject matter hereof, all parties hereto, and all matters relat-

ing to the present litigation.

2. All of the capitalized terms used herein shall have

the same meaning as set forth in the stipulation of settle-

ment dated May 29, 1997, (the “stipulation”), which was

17a

filed herein on May 30, 1997, as part of an agreed motion

for preliminary approval of the settlement (Dkt. #60).

3. The fees, expenses, and interest thereon, as awarded

herein, shall be paid as directed herein from the settlement

proceeds, and subject to the terms, conditions, and obliga-

tions of the stipulation, and in particular paragraph V.C.

of said stipulation.

4. Considering: the results accomplished; the contri-

bution of the various plaintiff attorneys; the complexity of

the actions; the fee arrangements in similar litigation; a

lodestar analysis; and the cap on fees and expenses nego-

tiated between the parties plaintiff and defendant; the

court hereby awards gross fees and expenses to the plain-

tiffs’ attorneys in the amount of 49 percent of the settle-

ment proceeds ($3,920,000.00).* These fees and expenses

shall be divided 60 percent to the federal action or

$2,352,000, and 40 percent or $1,568,000 to the Dela-

ware actions. These awards shall include pro-rata interest

earned thereon, which interest shall continue to accrue

until said award from the Settlement Proceeds is paid to

the attorneys representing the various plaintiffs in the fed-

eral and Delaware actions.

ENTER this 7th day of July, 1997.

/s/ Harold A. Baker

HAROLD A. BAKER

United States District Judge

1 Cf. Florin v. Nationsbank of Georgia, 34 F.3d 560, passim (7th

Cir. 1994); In Re Matter of Continental Illinois Securities Litiga-

tion, 962 F.2d 566, passim (7th Cir. 1992). (setting fees from a

common fund).

18a

APPENDIX D

Federal Rule of Civil Procedure 23.1. Derivative Actions

by Shareholders

In a derivative action brought by one or more share-

holders or members to enforce a right of a corporation or

of an unincorporated association, the corporation or asso-

ciation having failed to enforce a right which may prop-

erly be asserted by it, the complaint shall be verified and

shall allege (1) that the plaintiff was a shareholder or

member at the time of the transaction of which the plain-

tiff complains or that the plaintiff's share or membership

thereafter devolved on the plaintiff by operation of law,

and (2) that the action is not a collusive one to confer

jurisdiction on a court of the United States which it would

not ctnerwise have. The complaint shall also allege with

particularity the efforts, if amy, made by the plaintiff to

obtain the action the plaintiff desires from the directors or

comparable authority and, if necessary, from the share-

holders or members, and the reasons for the plaintiff's

failure to obtain the action or for not making the effort.

The derivative action may not be maintained if it appears

that the plaintiff does not fairly and adequately represent

the interests of the shareholders or members similarly sit-

uated in enforcing the right of the corporation or associa-

tion. The action shall not be dismissed or compromised

without the approval of the court, and notice of the pro-

posed dismissal or compromise shall be given to share-

holders or members in such manner as the court directs.

19a

APPENDIX E

Federal Rule of Appellate Procedure 3. Appeal as of

Right—How Taken

(a) Filing the Notice of Appeal. An appeal permitted

by law as of right from a district court to a court of ap-

peals must be taken by filing a notice of appeal with the

clerk of the district court within the time allowed by

Rule 4. At the time of filing, the appellant must furnish

the clerk with sufficient copies of the notice of appeal to

enable the clerk to comply promptly with the requirements

of subdivision (d) of this Rule 3. Failure of an appellant

to take any step other than the timely filing of a notice

of appeal does not affect the validity of the appeal, but is

ground only for such action as the court of appeals deems

appropriate, which may include dismissal of the appeal.

Appeals by permission under 28 U.S.C. § 1292(b) and

appeals in bankruptcy must be taken in the manner pre-

scribed by Rule 5 and Rule 6 respectively.

(b) Joint or Consolidated Appeals. If two or more

persons are entitled to appeal from a judgment or order

of a district court and their interests are such as to make

joinder practicable, they may file a joint notice of appeal,

Or may join in appeal after filing separate timely notices

of appeal, and they may thereafter proceed on appeal as a

single appellant. Appeals may be consolidated by order

of the court of appeals upon its own motion or upon mo-

tion of a party, or by stipulation of the parties to the

several appeals.

peal must specify the party or parties taking the appeal by

naming each appellant in either the caption or the body

of the notice of appeal. An attorney representing more

than one party may fulfill this requirement by describing

those parties with such terms as “all plaintiffs,” “the de-

fendants,” “the plaintiffs A, B, et al.,” or “all defendants

except X.” A notice of appeal filed pro se is filed on

Sus eeibee aiaher 06 can tea dears tata

it is sufficient for the notice to name one person qualified

to bring the appeal as representative of the class. A no-

tice of appeal also must designate the judgment, order, or

part thereof appealed from, and must name the court to

which the appeal is taken. An appeal will not be dis-

missed for informality of form or title of the notice of

appeal, or for failure to name a party whose intent to

appeal is otherwise clear from the notice. Form 1 in the

Appendix of Forms is a suggested form for a notice of

appeal.

(d) Serving the Notice of Appeal.—The clerk of the

district court shall serve notice of the filing of a notice of

appeal by mailing a copy to each party’s counsel of record

(apart from the appellant’s), or, if a party is not repre-

sented by counsel, to the party’s last known address. The

clerk of the district court shall forthwith send a copy of

the notice and of the docket entries to the clerk of the

court of appeals named in the notice. The clerk of the

district court shall likewise send a copy of any later doc-

ket entry in the case to the clerk of the court of appeals.

When a defendant appeals in a criminal case, the clerk of

the district court shall also serve a copy of the notice of

appeal upon the defendant, either by personal service or

by mail addressed to the defendant. The clerk shall note

on each copy served the date when the notice of appeal

was filed and, if the notice of appeal was filed in the man-

ner provided in Rule 4(c) by an inmate confined in an

institution, the date when the clerk received the notice of

appeal. The clerk’s failure to serve notice does not affect

the validity of the appeal. Service is sufficient notwith-

standing the death of a party or the party’s counsel. The

clerk shall note in the docket the names of the parties to

whom the clerk mails copies, with the date of mailing.

21a

(e) Payment of Fees,—Upon the filing of any separate

or joint notice of appeal from the district court, the appel-

lant shall pay to the clerk of the district court such fees

as are established by statute, and also the docket fee pre-

scribed by the Judicial Conference of the United States,

the latter to be received by the clerk of the district court

on behalf of the court of appeals.

22a

APPENDIX F

28 U.S.C. § 1291. Final decisions of district courts

The courts of appeals (other than the United States

Court of Appeals for the Federal Circuit) shall have ju-

risdiction of appeals from all final decisions of the district

courts of the United States, the United States District

Court for the District of the Canal Zone, the District

Court of Guam, and the District Court of the Virgin Is-

lands, except where a direct review may be had in the

Supreme Court. The jurisdiction of the United States

Court of Appeals for the Federal Circuit shall be limited

to the jurisdiction described in sections 1292(c) and (d)

and 1295 of this title.

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.