Opposition Brief — California Public Employees' Retirement System v. Felzen

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No. 97-1732

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1997

California Public Employees’ Retirement System

and Florida State Board of Administration,

‘3 Petitioners,

Paul Felzen, et al.,

Respondents.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION

ROBERT M. ROSEMAN TERRY ROSE SAUNDERS

SPECTOR & ROSEMAN, P.C. Counsel of Record

2000 Market Street LAW OFFICES OF

12th Floor TERRY ROSE SAUNDERS

Philadelphia, PA 19103 30 North LaSalle Street

(215) 864-2400 Suite 3200

Chicago, IL 60602

(312) 346-4456

Counsel for Respondents

Midwest Law Printing Co., Chicago 60610, (312) 321-0220

i

QUESTIONS PRESENTED

Neither of the questions presented in the petition for

writ of certiorari is an accurate or fair statement of any

issue involved in this case. The proper statement of the

issues presented is:

1. Whether a nonparty shareholder, who objects to

the settlement of a derivative action, but does not move

to intervene in the district court, must be allowed to

appeal the district court’s approval of the settlement.

2. Whether a nonparty who ignores a prior decision

of the court of appeals holding that only parties or those

who seek to intervene have a right to appeal from a

district court’s orders is entitled to relief from that rule

simply because the court of appeals’ prior decision arose

out of a different factual situation.

ii

TABLE OF CONTENTS

PAGE

QUESTIONS PRESENTED ..............-e ees i

TABLE OF AUTHORITIES .............e0200-- iii

STATEMENT OF THE CASE ............++eee0: 1

REASONS FOR DENYING THE PETITION ....... 5

I. The Petition Should Be Denied Because It

Presents An Inaccurate Statement Of

The Decision Below And Asks This Court

To Review Issues Not Presented In This

Cage wicds vecawistiaswiaeleeteweenae 5

Il. The Petition Should Be Denied Because

The Decision Below Does Not Create A

Conflict With Any Circuit Over A Matter

Of Sufficient Importance To Require This

GousCy Hepeh o.6 ocak a seandeawdtosen 8

II]. There Is No Issue Of Retroactivity In

This Case That Justifies Review By This

COE . cc rcccessenvevoscunessapesaueuen 15

CORRCTAIIONN nc ccccpeccvicustencncasnueacee 16

yp ,, |: SPrrrrrirvir er ee infra

iii

TABLE OF AUTHORITIES

Cases PAGE(S)

Bell Atlantic Corp. v. Bolger,

2 F.3d 1904 (Sd Cir. 1993) .................0.. 8

Carlough v. Amchem Products, Inc.,

ES 8

Croyden Associates v. Alleco, Inc..,

969 F.2d 675 (8th Cir. 1992),

cert. denied, 507 U.S. 908 (1993) .............. 8

Daily Income Fund, Inc. v. Fox,

ee i sb eck ewe buews 11

Gottlieb v. Wiles,

11 F.3d 1004 (10th Cir. 1993) ................. 8

Guthrie v. Evans,

815 F.2d 626 (11th Cir. 1987) ................. 8

In re Brand Name Prescription Drugs

Antitrust Litigation, 115 F.3d 456

i ieee ce. BEbeéeaw ews 6 0 passim

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

726 F.2d 1075 (6th Cir.), cert. denied,

EE a 11, 12

In re VMS Limited Partnership Securities

Litigation, 976 F.2d 362 (7th Cir. 1992) ... 3, 12, 15

Layne & Bowler Corp. v. Western Well

Works, Inc., 261 U.S. 387 (1923) .............. 10

a

iv Vv

Loran v. Furr’s/Bishop’s Inc., Court Rules

O68 F.2a GE4 (Gtih Cir. BGBB) 2... cc ccccccccces &

BONN FT SR py Ret EAE 9, 10, 12

Marino v. Ortiz,

Se eh ee EEE i ctkdcesbccbanddenus passim RB RRS as Gr ati ee a ma ane 12

Paine Webber Inc. Ltd. Partnerships Litig., Sn RE ee a eo wo 4,10, 11,12

Sn a ED, BE io o4.c da wet doadduecs i]

Papilsky v. Berndt,

466 F.2d 251 (2d Cir.), cert. denied,

Ge es Se ea edan be eabebeteracetes ll

Research Corp. v. Asgrow Seed Co.,

425 F.2d 1059 (7th Cir. 1970) ................. 7

Rosenbaum v. MacAllister,

64 F.3d 1439 (10th Cir. 1995) ............... 8,9

Sanyo Manufacturing Corp. v.

International Union Electronic,

fe ¢ bo 0 ere ree 8

Shults v. Champion,

35 F.3d 1056 (6th Cir. 1994) .................. 8

Smith v. Sperling,

ee ee ED web nbede cen savesésvesantes 13

Tryforos v. Icarian Dev. Co.,

518 F.2d 1258 (7th Cir. 1975),

cert. denied, 423 U.S. 1091 (1976) ............. 7

1

STATEMENT OF THE CASE

Respondents Paul Felzen and Sandra Esner are

Archer Daniels Midland Company (“ADM”) shareholders

who brought this derivative action in July 1995 on

behalf of ADM and its shareholders against 17 ADM

directors who had been board members during a period

in which ADM had engaged in illegal price-fixing. In

May 1997, after two years of discovery and extensive

negotiations,’ the parties agreed to settle the case on

the basis of defendants’ commitments, designed to

strengthen the independence of ADM’s Board of Direc-

tors and prevent illegal conduct by the Company in the

future, to restructure ADM’s Board of Directors, to

revise the structure and responsibilities of key Commit-

tees of ADM’s Board and to pay $8 million, part of

which ADM would use to fund an independent oversight

committee for legal compliance.” On July 7, 1997, the

* During the two years this litigation was pending, counsel for

respondents reviewed all the documents ADM produced for

various civil litigations, briefed successive motions to dismiss

and consulted with corporate governance experts and ADM’s

largest institutional! investors, including fy A ah a rn

all to the end of developing measures ADM’s Board

sduitadaaiaieemantndieidammedadinemaneheioen

dence of the Board as part of a settlement of the litigation. On

May 30, 1997, the district court entered an order preliminarily

approving the proposed settlement and directing that notice be

mailed to ADM’s shareholders of the settlement and

hearing to consider whether the settlement was fair,

reasonable and . The notice was mailed to more than

243,000 ADM .

* The $8 million payment is to come from the defendants’

Directors and Officers liability insurance—a $10 million policy

containing exclusions that put in issue whether there would be

any coverage for this action.

2

district court held a hearing to consider the proposed

settlement and the fee petition submitted by respon-

dents’ counsel relating to the services they had per-

formed in the case and the benefits conferred on the

corporation.

Petitioners, two ADM shareholders who represent less

than one percent of the Company’s shareholders, first

appeared in the case at the July 1997 hearing. Although

petitioners did not seek to intervene in this case, they

participated fully in the hearing, objecting to both the

settlement and the fee request filed by respondents’

counsel. After a four-hour hearing, the district court re-

jected the objections, approved the settlement as fair,

reasonable and adequate and, with some modifications

to the fee requested by respondents’ counsel in their fee

petition, awarded counsel fees.

At no time before, during or after the July hearing did

petitioners seek to become parties to the proceedings

before the district court. Instead, one week after the

district court rejected their position, petitioners filed a

notice of appeal to the Court of Appeals for the Seventh

Circuit as nonparties. Petitioners adopted this course of

action notwithstanding the fact that six weeks previ-

ously, on May 30, 1997, the Seventh Circuit issued its

opinion in In re Brand Name Prescription Drugs Anti-

trust Litigation, 115 F.3d 456 (7th Cir. 1997), squarely

holding that nonparties who have not sought to become

parties by moving to intervene may not appeal from dis-

trict court orders. The Brand Name Drugs case was a

class action, but the court of appeals’ decision in that

case was not limited to class actions. Instead, the court

based its decision principally upon this Court’s decision

3

in Marino v. Ortiz, 484 U.S. 301 (1988)—an employment

discrimination case that was not a class action.

The Seventh Circuit acknowledged that its decision in

Brand Name Drugs was somewhat at variance with

some of its previous decisions. It held, however, that

“{ajlthough some cases have allowed nonparties to

appeal without first intervening in the district court,

this bypass is no longer permissible after Marino.” 115

F.3d at 457. Moreover, the Brand Name Drugs court

pointed out that the Seventh Circuit had already

abandoned the practice of condoning appeals by non-

parties several years earlier in its decision in Jn re VMS

Limited Partnership Securities Litigation, 976 F.2d 362

(7th Cir. 1992).

In Brand Name Drugs, the Seventh Circuit clearly

delineated the procedure that nonparty objectors who

wish to appeal from a district court order must follow.

An objector must move to intervene in the district court.

If the district court grants the motion, the objector can,

of course, appeal. If the district court denies the motion

to intervene, the objector may appeal from the denial.

Brand Name Drugs, 115 F.3d at 458. The rule in the

Seventh Circuit—in effect since that court’s 1992 de-

cision in VMS, 976 F.2d 362, and plain beyond any

doubt since the Brand Name Drugs holding—-has been

and remains that a nonparty who wishes to appeal from

a district court order must seek to become a party by

moving to intervene.’

4

When petitioners filed their objections to the settle-

ment and fee petition in this case, the Brand Name

Drugs decision was the most recent—and most authori-

tative—statement of the procedures that nonparties

seeking to appeal in the Seventh Circuit from an order

of a district court would have to follow. When petition-

ers attempted to proceed without following the proce-

dures laid out in that opinion, respondents moved to

dismiss their appeal. The court of appeals granted re-

spondents’ motion, holding that shareholders in deriva-

tive suits, like other nonparties, were required to follow

the procedures set out in Marino and Brand Name

Drugs.

In their petition for writ of certiorari, petitioners

totally misrepresent the status of the law of the Seventh

Circuit at the time they decided to appeal as nonparties

without seeking to intervene. They do not even mention

the Brand Name Drugs decision. Nor do they mention

the Seventh Circuit’s holding that its previous decisions

permitting nonparty appeals “can no longer be consid-

ered authoritative, in light of VMS.” 115 F.3d at 458.

* (...continued)

ment in favor of the wholesaler defendants and nonparty class

members who had appeared at the fairness hearing to object

to the settlement but who had not intervened. Although the

Brand Name Drugs decision does not on its face distinguish

between the two orders appealed from, the appeal numbers

which the Seventh Circuit’s ruling dismissed include three

appeals by class members from the July 1, 1996 final order of

the district court approving the settlement (Nos. 96-2813, 96-

2878, 96-2904). The court below failed to make this distinction,

but it made no difference because it recognized that the dis-

tinction is “inconsequential.” Appendix to the Petition for a

Writ of Certiorari, hereinafter “__a”, at 4.

en

5

On the basis of their misrepresentation as to the status

of the law, petitioners seek to portray themselves as

victims of a change in the law that they did not and

could not anticipate. And they ask this Court to assist

them by granting them the right to appeal as nonparties

despite their failure, or refusal, to comply with the clear

procedural requirements applicable to all cases in the

Seventh Circuit. There is no reason for this Court to

exercise its discretionary jurisdiction to protect petition-

ers from the consequences of decisions for which they

alone are, and should be, responsible.

REASONS FOR DENYING THE PETITION

I. The Petition Should Be Denied Because It Pre-

sents An Inaccurate Statement Of The Decision

Below And Asks This Court To Review Issues Not

Presented In This Case.

The Petition mischaracterizes the decision of the court

below by representing that it requires that a nonparty

be formally made a party to the litigation as a prerequi-

site to the right to appeal.

That is an erroneous characterization of the decision

of the court below, which simply applied to petitioners

this Court’s decision in Marino and its own holding in

Brand Name Drugs requiring that nonparties move to

intervene:

Only parties may appeal. So too with sharehold-

ers, who have no more right to speak for the

firm or control its litigation decisions than bond-

holders or banks or landlords, all of whom have

contractual interests that may be affected by

6

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 in-

tervene is itself appealable. 3a.

Thus, the issue in this case is not, as petitioners

argue, whether objectors need to be formally made

parties, but rather, whether objectors who wish to

preserve the right to appeal must move to intervene. If

objectors move to intervene and their motion is denied,

they may appeal that denial and argue to the court of

appeals why they should be allowed to intervene, that

is, why their interests are not adequately represented

by the existing parties. To the extent some district

courts have discretion in ruling on motions to intervene,

their discretion is still subject to review. Petitioners,

therefore, are wrong in arguing that the ability to ap-

peal “turns on a purely discretionary decision by the

trial court.” (Petition at 13.) The ability to appeal turns

on the simple procedure of moving to intervene.

The Petition also seeks review by claiming that the

decision of the court below was applied retroactively.

The issue petitioners pose is premised solely on a

statement of the status of Seventh Circuit law at the

time the district court issued its orders in this case that

completely ignores the recent holding in Jn re Brand

Name Prescription Drugs, 115 F.3d 456. In Brand Name

Drugs, the court of appeals removed any doubt that the

Seventh Circuit would follow this Court’s opinion in

Marino requiring that nonparties who wish to preserve

the right to appeal must first seek to intervene. In

Brand Name Drugs, the Seventh Circuit also plainly

NE eeeeeeeEeEeEeEeEeEeEEEyEE———EEE—E

7

stated that “any contrary implication” of pre-: arino

decisions, such as Research Corp. v. Asgrow Seea ©o.,

425 F.2d 1059 (7th Cir. 1970), “can no longer be consid-

ered authoritative.” Jd. at 458. In the face of this plain

statement of the law, petitioners sought to excuse their

failure to make a motion to intervene by claiming that

they relied on Research Corp. v. Asgrow Seed Co. 7a.‘ If

petitioners relied on a decision that was “no longer

authoritative” they have only themselves to blame. They

certainly have no basis to argue that, in dismissing the

appeal, the court below applied a new jurisdictional rule

to them when the court of appeals simply applied pre-

existing Seventh Circuit law.

* Petitioners also claim to have relied on a 22-year-old foot-

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

1975), cert. denied, 423 U.S. 1091 (1976). However, in the

docketing statement they filed with the Seventh Circuit in

July 1997 they did not cite Tryforos. In any event, as the court

below pointed out, the Tryforos footnote was not reliable auth-

ority—it did not analyze the question of whether nonparty

shareholders to a Rule 23.1 action may appeal—and was not

settled precedent in light of the intervening decision of this

Court in Marino v. Ortiz:

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 district court opinion from

the 1960s, an odd reference for a rule of appellate jurisdic-

tion.) An unexplained practice does not offer shelter from

a later opinion of the Supreme Court holding that only

parties may appeal, and withdrawing from the appellate

courts any exception-making power. 3a.

Although noting that petitioners “tell us” they relied on

Asgrow Seed and Tryforos (7a), the court below did not, as

petitioners represent, “acknowledge” that, in failing to seek to

intervene, petitioners had followed all proper procedures

under settled Seventh Circuit law at the time they appealed.

(Petition at 9.)

8

Il. The Petition Should Be Denied Because The

Decision Below Does Not Create A Conflict With

Any Circuit Over A Matter Of Sufficient Im-

portance To Require This Court’s Resolution.

Petitioners seek review of the Seventh Circuit’s

requirement that a nonparty file a petition for leave to

intervene as a condition to the right to appeal, princi-

pally on the ground that the Third Circuit follows a

different rule. See Bell Atlantic Corp. v. Bolger, 2 F.3d

1304 (3d Cir. 1993); Carlough v. Amchem Products, Inc.,

5 F.3d 707 (3d Cir. 1993). These decisions do not re-

motely justify this Court’s review of this case.°

° All other circuits that have squarely addressed the issue

since Marino have held that nonparties in class actions must

seek to intervene if they want to appeal from an order ap-

proving a settlement. Guthrie v. Evans, 815 F.2d 626 (11th

Cir. 1987); Croyden Associates v. Alleco, Inc., 969 F.2d 675

(8th Cir. 1992), cert. denied, 507 U.S. 908 (1993); Sanyo Manu-

facturing Corp. v. International Union Electronic, 69 F.3d 541

(8th Cir. 1995); Loran v. Furr’s/Bishop’s Inc., 988 F.2d 554

(5th Cir. 1993); Shults v. Champion, 35 F.3d 1056 (6th Cir.

1994); Gottlieb v. Wiles, 11 F.3d 1004 (10th Cir. 1993). As the

citations indicate, this Court previously denied certiorari in

one case, Croyden Associates v. Alleco, Inc., supra, in which

the court of appeals reached the same conclusion as the Sev-

enth Circuit in this case. No circuit, other than the Third, has

held that nonparties in derivative actions may appeal orders

approving settlements without seeking to intervene. The

Tenth Circuit did not, as petitioners state, “adopt” Bell Atlan-

tic. (Petition at 13.) To the contrary, in Gottlieb v. Wiles,

supra, the court held that unnamed class members who had

not intervened could not appeal. In dicta, the court noted that

Bell Atlantic was inapposite to a class action settlement be-

cause it involved a derivative settlement. Other cases that

petitioners cite as having held that nonparties need not seek

to intervene in these circumstances do not squarely address

the issue or pre-date Marino. In Rosenbaum v. MacAllister, 64

(continued...)

In the first place, even if the different procedure

adopted by the Third Circuit were viewed as creating

the kind of conflict among the circuits that might merit

resolution by this Court, review of this case is not

warranted. The decision in this case is plainly correct

and is supported by a well-reasoned opinion. Indeed, as

this Court held in Marino, the rule requiring a petition

to intervene as a condition to any appeal is fully justi-

fied by the language of Rule 3(c) of the Federal Rules of

Appellate Procedure. Review here would only further

delay full implementation of the structural changes in

ADM’s Board of Directors and legal compliance that the

settlement was designed to effectuate.®

> (...continued)

F.3d 1439, 1442 (10th Cir. 1995), the court concluded that in-

tervention was not required because the appeal sought review

of the award of attorneys’ fees and expenses, not the settle-

ment between the parties. In PaineWebber Inc. Ltd. Partner-

ships Litig., 94 F.3d 49 (2d Cir. 1996), the court dismissed an

interlocutory appeal from the district court’s order denying a

motion to intervene on the grounds that the motion was solely

in aid of a motion that was both interlocutory and outside the

collateral order exception.

* Respondents’ expert Professor John C. Coffee of Columbia

University School of Law described the corporate governance

measures ADM had agreed to implement as “state of the art”

and the new legal compliance provisions as being “of special

value” to ADM. Respondents’ financial expert R. Alan Miller

of Philadelphia Investment Banking Company opined that

ADM shareholders stand to gain $158 million or more from

implementation of the settlement. Although petitioners now

complain that the settlement did not involve a greater cash

payment, during the settlement negotiations, they, and other

institutional investors, emphasized that they sought corporate

governance reforms, not a monetary recovery, for ADM’s

shareholders.

10

Secondly, and perhaps more fundamentally, the sug-

gestion that a conflict requiring the attention of this

Court arises every time that there is a difference among

the circuits in what is essentially a procedure is clearly

unsound. Petitioners have not offered any valid reason

why it is essential or urgent that this Court resolve the

difference. See, e.g., Layne & Bowler Corp. v. Western

Well Works, Inc., 261 U.S. 387, 393 (1923) (Court will

not grant writ of certiorari except in cases where the

conflict “is a real and embarrassing conflict of opinion

and authority between the circuit courts of appeal.”) As

with other procedural rules that ultimately affect a

court’s jurisdiction (these may be as basic as due dates

and filing fees), parties or those who wish to be parties

are on notice—or have a responsibility to know—of

appellate court rules, and can adjust their conduct

accordingly.

Petitioners argue that some courts have allowed non-

parties to appeal in other circumstances and criticize

the court below for its “single-minded reliance on

Marino.” (Petition at 19.) This argument ignores that

Marino is the applicable law and that the court below

explained at great length the reasons for adhering to

Marino and Fed. R. App. P. 3(c) in this case. It also begs

the issue because petitioners provide no sound reason

for carving out an exception to Marino and Rule 3(c) for

nonparties in derivative actions. The intervention re-

quirement does not eliminate any procedural right. It

does not undermine the purposes of Fed. R. Civ. P. 23.1.

The fact that Rule 23.1 requires that every sharehold-

er receive a court-approved notice of a dismissal or

proposed settlement of a derivative action does not re-

motely suggest that they have an automatic right to

11

appeal. To the contrary, Rule 23.1 recognizes that share-

holders should be afforded the opportunity to make their

case to the district court, which is entrusted with the

task of approving a settlement.’ The Seventh Circuit's

procedure in no way reduces a shareholder’s ability to

participate in the settlement approval process under

Rule 23.1 or increases the burden on shareholders who

wish to do so. These shareholders still have the option

to object without seeking to intervene. They simply may

not appeal if they fail to move to intervene. Other than

their disagreement with the result the district court

reached in this case, petitioners do not suggest, nor

could they, that they were not afforded a full and fair

hearing in the district ourt.

Petitioners’ suggestion that parties will choose to sue

in circuits that require an objector to intervene to

achieve a collusive settlement is nonsensical and insult-

ing to the federal judiciary. This assumes that a district

court judge will rubber-stamp a “collusive settlement” in

the face of cogent, well-founded objections and deny a

well-founded motion to intervene by an objector who

wishes to appeal and further that a court of appeals will

not carefully review the district court’s denial. If this is

truly the situation, then it would make no difference if

a nonparty could appeal without seeking to intervene. In

either case, its appeal would be futile."

" The cases petitioners cite make this clear. See, e.g., Daily

Income Fund, Inc. v. Fox, 464 U.S. 523 (1984); Papilsky v.

Berndt, 466 F.2d 251 (2d Cir.), cert. denied, 409 U.S. 1977

(1972), and cases cited, Petition at 14-15 n. 18.

. suaeennins shape Gat a count of eypents WER ust soviow 0

district court’s denial of a motion to intervene, citing Jn re

(continued...)

12

As the Seventh Circuit explained in Brand Name

Drugs, 115 F.3d at 457-58, there are sound reasons for

a court of appeals to require nonparties to intervene:

[AJjs for the class members .. . who want to

appeal even though they are not named plain-

tiffs, to allow them to appeal would be an even

worse affront to intelligent judicial administra-

tion because it would fragment the control of the

class action. . . . If class members can file their

own appeals, the coherence of the class is de-

stroyed, the scope of the class action becomes

unclear, and the control over the action becomes

divided and confused. So they may not appeal.

In re VMS Limited Partnership Securities Liti-

gation, 976 F.2d 362 (7th Cir. 1992).

The court below recognized that these reasons apply as

well to shareholder derivative actions, and that neither

Marino nor Rule 3(c) provides any basis for distinguish-

ing between Rule 23 and 23.1 nonparties. 4a. Indeed,

the court below reasoned that there are stronger rea-

sons for requiring shareholders to become parties if they

want to appeal an order because, in a derivative action,

* (...continued)

General Tire & Rubber Co. Sec. Litig., 726 F.2d 1075, 1087

(6th Cir.), cert. denied, 469 U.S. 858 (1984). Petition at 14

n. 13. In that case, the court affirmed the district court's de-

nial of the objectors’ motion to intervene because they sought

solely to oppose the district court’s approval of a derivative

settlement and the court of appeals affirmed the approval of

the settlement over the objectors’ arguments. There is certain-

ly nothing untoward in the court’s conclusion that the object-

ing shareholders’ interests, that is the interests of the corpora-

tion and all the shareholders, were “adequately protected” by

. fair, reasonable and adequate settlement.

13

an individual investor is not an injured party and has

no individual right to sue:

A derivative suit is brought by an investor in the

corporation’s (not the investor’s) right to recover

for injury to the corporation. . . . Stockholders

may replace the board if dissatisfied with its

performance, but they may not displace the

board in litigation. So it cannot be surprising

that stockholders other than the named plain-

tiffs are not treated as parties in derivative liti-

gation—their citizenship is ignored when deter-

mining diversity, see Smith v. Sperling, 354 U.S.

91, 77 S.Ct. 1112, 1 L.E.2d 1205 (1957), and

they are not allowed to opt out. Corporate man-

agement may affect the interests of stockholders

without notifying them or obtaining their con-

sent; by investing in stock, they placed their

funds at the management’s disposal and ob-

tained, in exchange, the right to choose future

managers. Shareholders have no more the at-

tributes of parties when managers settle deriva-

tive litigation than when managers settle anti-

trust litigation.

5a. (Emphasis in original)

The decision of the court below necessarily follows

from the fact that a shareholder in a derivative suit is

pursuing corporate, not individual, rights. If a share-

holder wants to proceed on behalf of the corporation in

court, it must become a party and must adequately and

fairly represent the interests of all shareholders in

enforcing the corporation’s rights. If a shareholder seeks

only to appeal from a district court order, as in the case

of an objector, it must at least seek to intervene.

Intervention is not a complex procedure or one that

unduly burdens a shareholder who wishes to appeal

14

from a district court’s order approving a settlement or

dismissing a case.’ Certainly in this case the filing of a

motion to intervene presented no obstacle to petitioners,

whose lawyers traveled to Illinois to participate in a

lengthy hearing. On the other hand, if an objector is

unwilling to intervene to become a party with some

stake in the litigation and some responsibility to the

corporation—even if only as a party objector—it is

unfair to allow this individual shareholder to “hold up”

the corporation and its remaining shareholders.

Petitioners’ overblown rhetoric that requiring a share-

holder to seek to intervene has serious implications

rests on faulty premises. It falsely assumes that inter-

vention imposes any real burden and interferes with

any existing rights of a shareholder. It does not. Share-

holders have no right to sue individually on claims of

injury to the corporation. They may be allowed to do so

on behalf of a corporation only if the corporation’s man-

agers agree or the court permits them to bring a deriva-

tive action. Requiring them to move to intervene is con-

sistent with that scheme.

* Petitioners argue that objectors who intervene to appeal the

approval of a settlement face discovery (Petition at 16), but the

court below never suggested that an objector had to become

the representative party in the litigation. To the contrary,

Marino and the court below make clear that the objector may,

hg? asa intervene solely for the limited purpose of appeal.

15

Ill. There Is No Issue Of Retroactivity In This Case

That Justifies Review By This Court.

The decision of the court below discusses at length the

issue of whether a new appellate ruling involving the

jurisdiction of the appellate court should be applied

retroactively. As already noted, this entire discussion is

gratuitous in this case because the rule applied here

had already been announced by the Seventh Circuit in

VMS and had been forcefully reiterated and again ap-

plied six weeks prior to the filing of the notice of appeal

in this case in Brand Name Drugs. Petitioners nonethe-

less attempt to justify issuance of a writ of certiorari on

this additional ground, arguing that the discussion of

the court below creates a conflict among the circuits and

that the decision to apply the ruling here retroactively

“wrongly insulates from appellate scrutiny a plainly col-

lusive settlement in one of the most significant share-

holder derivative suits.” (Petition at 23.)

This entire argument is beside the point because this

case involves no new jurisdictional requirement. The

conflict among the circuits to which the court below

refers exists in this case only at the level of dictum

because it pertains to a situation inapplicable to this

case. And the suggestion of a collusive settlement is a

fabrication—raised in and flatly rejected by the district

court—for which there is not the slightest basis in the

record.”®

Indeed, petitioners’ counsel admitted at the July 7, 1997

hearing in the district court that he had no evidence of any

collusion (Transcript of Proceedings (“Tr.”) at 62) and the

district court made an express that there was no basis

for any claim of collusion: “I find no basis for claims of collu-

(continued...)

16

What appears to be involved here is an effort by peti-

tioners’ counsel to divert attention from, and to avoid

the consequences of, their own mishandling of this case

in the district court. They could and should have filed a

petition for leave to intervene. Indeed, in light of the

Brand Name Drugs decision, their failure to do so is

incomprehensible; but it is certainly not reason for this

Court to involve itself in a matter that is a non-issue in

this case.

CONCLUSION

For the foregoing reasons, this Court should deny the

Petition for Writ of Certiorari.

May 22, 1998 Respectfully submitted,

ROBERT M. ROSEMAN TERRY ROSE SAUNDERS

SPECTOR & ROSEMAN, P.C. Counsel of Record

2000 Market Street LAW OFFICES OF

12th Floor TERRY ROSE SAUNDERS

Philadelphia, PA 19103 30 North LaSalle Street

(215) 864-2400 Suite 3200

Chicago, IL 60602

(312) 346-4456

Counsel for Respondents

(continued)

sion. Just none. These people have dealt with each other pro-

fessionally and at arm’s length. . . .” (Tr. at 82). The relevant

SS ee ay ee

to this Brief.

App. 1

APPENDIX

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF ILLINOIS

URBANA DIVISION

PAUL FELZEN, et al., )

)

Plaintiffs, )

) Case No.: 95-2279

)

)

DWAYNE O. ANDREAS, et al., )

)

Defendants. )

REPORT OF PROCEEDINGS

DATE: July 7, 1997

FAIRNESS HEARING

BEFORE: HAROLD A. BAKER

Judge Presiding

APPEARANCES:

For the Plaintiff: (NOTE APPEARANCES ON PAGE 2)

For the Defendants: (NOTE APPEARANCES ON PAGE 2)

Toni M. Judd

U.S. Court Reporter

201 South Vine

Urbana, IL 61801

(217) 373-5830

App. 2

62

significance of the largest corporate fiasco in recent

memory with, according to their own experts, Mr. Miller,

250 million in losses to the company wrapped up.

Eight million, Your Honor, means this. Lawyers get

money. I don’t believe I am misstating that, Your Honor.

Because under the terms of the settlement, which is what

I am focusing on for a moment, here is what was pro-

vided. There will be an eight million dollar pot, but half of

it plus interest is agreed to go to the lawyers. Now they

have asked for less in their fee petition, but the agree-

ment itself talks about half of the eight million dollars

being set aside for the plaintiffs’ lawyers.

Which, Your Honor, when we spoke of collusion earlier

I realize that’s an ugly word and I realize that sounds

very pejorative. | make no pejorative aspersions. I don’t

know what happened in the settlement process. I don’t

mean to say that I did.

But I can tell your honor that what we cited to the court

and the cases says the following. Where there is a cash

settlement and a large percentage of the cash is ear-

marked for lawyers, that by itself raises an inference of

collusion.

In fact, their opening commentator, Mr. Coffee says as

much in some of his law review work. Now as I say, I

wasn’t there. I don’t know. But where you see a

App. 3

79

of cumulative voting was Joseph Medell, the publisher of

the “Chicago Tribune,” and had Mr. Joseph Medell been

alive today, I would have had his affidavit saying he

would like to see that cumulative voting be part of the

bylaws of Archer Daniels, as part of the governance.

I brought along a book out of my library to show you

that cumulative voting isn’t just up in Mars with the

Pathfinder. A book entitled, “Cumulative Voting for Di-

rectors,” written by Charles M. Williams, published by the

Harvard Business School, it’s 200 pages talking about

cumulative voting for directors. And to say that in part of

their negotiations this shouting and all of this didn’t take

into the fact cumulative voting, I fail to see that they

should receive the severance, the compensation that they

are asking for. And actually what I believe the basis is for

my discussion, my objection on the fees paid. Thank you.

THE COURT: All right. The court’s ready to rule. Hav-

ing heard the remarks of the proponents of the settlement

and the remarks of those in opposition, the court con-

cludes that the settlement, which is before the court is

fair, reasonable, and adequate. The court considers the

strength of the plaintiffs’ claims in the case as balanced

against what was obtained in the settlement.

App. 4

80

The case the plaintiffs had was not, as one of my

colleagues described, “another case as a dead bang win-

ner.” Far from it. There were serious questions raised in

the motion to dismiss, and I tried to look back through the

record to see what discovery wasn’t afforded and I| think

that pool of documents was available, and I can remember

discussions with counsel in this case and in the other civil

ADM cases that were pending about the availability of

the document pool that had been created by Judges,

Shadur, Mihm, and | don’t know about the Judge in

California participating in that, but | believe all of that

information was available to the plaintiffs in the case.

So that the record really is slightly misleading as far as

discovery is concerned because the plaintiffs did have all

of that information available to them.

In addition, the parties, as you see from the docket, got

to the point where they were squabbling about compelling

discovery and having a hearing on the motion to dismiss,

and the defendants kept asking to advance the hearing on

the motion to dismiss, and then they began negotiations

in the case and the court abstained from hearing or ruling

on the motion at the request of the parties so that they

could talk to each other.

Well, because lawyers talk to each other doesn’t mean

that the lawyers are in collusion. Far from it. Of

App. 5

81

course, quite obviously they have to communicate and

talk if they are going to find some alternative means of

settling their disputes other than going to judgment in a

court of law.

The defendants’ ability to pay. There is a ten million

dollar cap on the insurance. Mr. Hansen suggests that the

directors had deep pockets. I have been in the legal

profession and the litigation end of it for over forty years,

I am sorry to say, and | wonder if he has ever tried to

pursue a suit for transferring assets in fraud of creditors.

That needs a good deal of luck.

And to assume that those directors are holding all of

their assets, I think is an unwarranted assumption, so

that the ten million dollars is a realistic sum to think was

available; at least it was readily available—obviously

available.

The complexity, length, and expense of further litigation

also has to be considered. This case would have gone on

for years. I wouldn’t have had to suffer through it, being

a senior judge somebody else could have taken it over, by

my guess would be five years of further litigation.

The amount of opposition to the settlement. That’s been

commented upon by the proponents of the settlement.

While the objections I am sure are heartfelt

App. 6

82

and sincere, they really represent a very very small

percentage of the shareholders of the corporation. The

[sic] Not that the objections aren’t to be discounted just

because they are small—from a small number, relatively

small number of shareholders, but still the overwhelming

reaction to the proposed settlement has been acceptance.

I had no idea Edward Dessen was going to appear. |

have known him for years. He is a businessman. He owns

property. He is a very outspoken person, and, true, with

faint praise, he approved the settlement. He may be

reflective of the way a large percentage of shareholders

feel. Well, it’s a start. It’s a beginning.

I find no basis for claims of collusion. Just none. These

people have dealt with each other professionally and at

arm’s length as far as the progress of the case has been

concerned.

Certainly competent counsel with experience has ex-

pressed support for the settlement. I have to respect that.

And I have already spoken a little bit about the stage of

the proceedings and the amount of discovery. The case

has goon on for two years. A great deal—a substantial

portion of which has been devoted to attempting to find-

ing an alternative to the settlement of the dispute.

And, the document pool that was created through Judge

Mihm, and I have blocked his name, Milt Shadur was

App. 7

83

available to the parties of the plaintiff.

I rely on what Professor Coffee has said and what Alan

Miller, the statements made by Miller in support. |

respect them as experts. As Professor Coffee observed, it’s

a state of the art far from perfect, far from being ideal,

but still represents a great step forward in corporate

governance.

So, in conclusion, I find that the settlement is fair,

reasonable, and adequate and | will proceed to hearing

this afternoon at 1:30 on the question of fees and alloca-

tion of the funds that are sought there.