Opposition Brief — Krim v. Abboud

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In The

F THE CLERK

Supreme Court of the United “States—

?

JERRY KRIM, on behalf of himself and all others

similarly situated, and HAROLD L. HARRIS,

individually and as Trustee of Mazel, Inc.

Profit Sharing Plan,

m Petitioners,

A. ROBERT ABBOUD, FRANK C. CIHAK,

ROBERT D. RICHLEY, RICHARD RICE, WILLIAM M.

ARNOLD, DONALDSON, LUFKIN & JENRETTE

SECURITIES CORP., C. IVAN WILSON, ROBERT W.

BROWN, DANIEL C. ARNOLD, ROBERT RICE,

ROBERT H. ALLEN, J. EVANS ATTWELL, WILLIAM

T. BUTLER, M.D., J.A. ELKINS, JR., JAMES H. EVANS,

C. JACKSON GRAYSON, JR.,

ROBERT N. MURRAY, RALPH S. O’CONNOR,

AND MARGARET S. WILSON,

Respondents.

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On Petition For Writ Of Certiorari To The

United States Court Of Appeals For The Fifth Circuit

e

JOINT BRIEF OF RESPONDENTS IN OPPOSITION

TO PETITION FOR A WRIT OF CERTIORARI

Sd

Ropngey ACKER

Counsel of Record

Rosert B. Gi_tBREATH

ELLEN B. Sessions

JENKENS & GILCHRIST,

A Professional Corporation

1445 Ross Avenue, Suite 3200

Dallas, Texas 75202-2799

(214) 855-4500

Counsel for Respondent

Donaldson, Lufkin & Jenrette

Securities Corporation

March 2000

[Additional Counsel Listed On Inside Cover]

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

Douctas M. Kraus

Rita W. Gordon

SKADDEN, ARPS, SLATE,

MEAGHER & From LLP

919 Third Avenue

New York, New York

10022

(212) 735-3000

Counsel for Respondent

Donaldson, Lufkin &

Jenrette Securities

Corporation

CuHar.es G. KING

Kinc & PENNINGTON, L.L.P.

711 Louisiana Street

Suite 3100

Houston, Texas 77002

(713) 225-8400

Counsel for Respondent

A. Robert Abboud

THomas J. BRANDT

SHEINFELD, MALEY &

Kay, P.C.

1001 Fannin, Suite 3700

Houston, Texas 77002-6797

(713) 658-8881

Counsel for Respondent

Daniel C. Arnold

LAWRENCE R. SAMUELS

Ross & Harpies

150 North Michigan

Avenue

Chicago, Illinois

60601-1000

(312) 558-1000

Counsel for Respondent

Frank C. Cihak

MicnHaet K. Swan

ANN M. HEeEsert

AKIN, Gump, STRAUSS,

Hauer & Fetp, L.L.P.

711 Louisiana, Suite 1900

Houston, Texas 77002

(713) 220-5800

Counsel for Respondents

C. Ivan Wilson and

Robert W. Brown

Rosin Gisss

Puiturp T. Bruns

JENNIFER HorAN GREER

Gisss & BruNs

1100 Louisiana, Suite 5300

Houston, Texas 77002

(713) 650-8805

Counsel for Respondents

C. Jackson Grayson, Jr.,

Ralph S. O'Connor, Robert

H. Allen, J. Evans Attwell,

J.A. Elkins, Jr., Robert N.

Murray, William T. Butler,

James H. Evans and

Margaret S. Wilson

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RICHARD N. CARRELL

DanieL M. McCiure

KATHLEEN Rose

FULBRIGHT & JAWORSKI

1301 McKinney, Suite 5100

Houston, Texas 77010

(713) 651-5151

Counsel for Respondents

Richard Rice and

Robert D. Richley

i.

QUESTIONS PRESENTED

May a plaintiff who first files a securities fraud law-

suit and then purchases the defendant's stock cure his

lack of standing by:

claiming de facto standing through an unpleaded,

unproven assertion that before suit was filed, his

wife used his money to purchase stock for their

minor son;

asserting for the first time on appeal that the dis-

trict court should have assumed that he was actu-

ally suing as the guardian of his minor son under

Rule of Civil Procedure 17(a);

arguing for the first time in this Court that

although he himself suffered no injury, he had

third party standing under this Court’s holdings

in a peremptory strike case and an abortion rights

case?

A plaintiff who lacks standing at the outset of a

lawsuit cannot breathe life into the “nonexistent”

lawsuit by joining new plaintiffs.

Were the courts below required to treat the consti-

tutional requirement of standing as a mere techni-

cality?

Was the district court required, on its own motion,

to order a plaintiff who had already attempted to

add another plaintiff with no standing to try yet

again?

The American Pipe doctrine tolls limitations for the

claims of putative class members until certification is

denied. They may then avoid the bar of limitations by

filing a separate lawsuit. Should this Court entertain

il

QUESTIONS PRESENTED - Continued

the argument — not raised below - that the district

court, though it did nothing to prevent putative class

members from filing separate lawsuits after it denied

class certification, somehow deprived them of the

American Pipe tolling period?

iii

RULE 29.6 STATEMENT

The caption of the case contains the names of all the

parties. Respondent Donaldson, Lufkin & Jenrette Securi-

ties Corporation has the following parents and non-

wholly-owned subsidiaries:

r - PS

PP Pe

Parents

AXA

AXA Financial, Inc.

Donaldson, Lufkin, & Jenrette, Inc.

The Equitable Life Assurance Society of the

United States

Equitable Holdings, L.L.C.

Non-wholly Owned Subsidiaries

DLJ International Group Holdings

DLJ International Group Limited

DLJ Long Term Investment Corporation

Pershing Trading Company, L.P.

iv

TABLE OF CONTENTS

Page

Ceionid FI ogo ce eh co osk e i

Ee me as os akninn Wa seiieh ondn baronet cd ii

ee Me Rs og PEs Hn 4s chi ev ben denees eS iii

WE en IONE bo oc ce weWh rn Roeecie tre wieeee wie v

NN Te TE is cca swanevide biweebeceseen 1

Oi IIIs fe his do red Fasu hue eee naa es ee 1

(ie I RS oo Sisco 2

3. The district court denies class certification...... 2

4. Krim violates the district court’s scheduling order

by adding a new plaintiff in his sixth amended

Os 3 xk vie vesies ys te cen ekki ce hees caus 3

5. The aborted settlement and First City’s bank-

cg SET EURT LEE TET L e e ee She ARE ee OE 4

6. Krim attempts to add new parties and class action

allegations in a seventh amended petition ........ 4

7. The district court dismisses the case for lack of

subject matter jurisdiction, and the Fifth Circuit

IN Nh so ne OKA Cans nae ee Oe ny. >

Reasons Why the Petition Should Be Denied....... 7

1. The courts below correctly held that Krim could not

establish standing through his wife or. son........ 7

A. Krim could not establish standing as a “de

facto” purchaser of stock................... 7

Vv

TABLE OF CONTENTS - Continued

Page

B. Krim never attempted to sue as his son’s

ce ap caged PEE POL PE OT OTT nT ee em 8

C. Krim’s third party standing argument -

asserted for the first time in this Court — is

Se A ie Foe er oe ee ene Gy

2. The district court correctly held that Krim could _

not establish standing on the basis of his stock

purchases after filing suit...................... 10

A. Standing is not a mere technicality ........ 11

B. A plaintiff lacking standing cannot breathe

life into a nonexistent lawsuit by substituting

Pe is 8 6605s 5 a oo sccrs cone ah ear 12

C. Baffa is distinguishable..................... 12

3. The district court did not deprive putative class

members of the American Pipe tolling rule...... 14

PES Behe a eh tarne sade nd ees be bhatoedik ckein: 15

vi

TABLE OF AUTHORITIES

Page

FEDERAL CAsEs

7547 Corp. v. Parker & Parsley Development Partners,

9G FSG 211 (Gth Cir. 1994)... occ e ccc cc cccsce 7

American Pipe & Const. Co. v. Utah, 414 U.S. 538

| CE are re peer araain pmol na Nahe cc ctler aoe if

Baffa v. Donaldson, Lufkin & Jenrette Securities Cor a

185 F.R.D. 172 (S.D.N.Y. 1999) ............. 10, 12, 13

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

OPM Pasa Whee vhes s ceceet ek Lorde he a 7

Conway School District v. Wilhoit, 854 F. Supp. 1430

ee WOON ss cens cee ks steiner Os 11

In re Crazy Eddie Securities Litigation, 792 F. Supp.

Ree AT PN Ka & ask Rad Kilkee Cela ee uke. 2

Crown, Cork & Seal Co. v. Parker, 462 U.S. 345

i: UEC Weed Sy oe Piette eho he Sie Gehan a, 14

Federal Recovery Services, Inc. v United States, 72

inci ells oie Bh, ee ee eee 10

Fuchs v. Swanton Corp., 482 F. Supp. 83 (S.D.N.Y.

POOP THs PERS NEGRINT ADE DN AR NEC hee Boos ok 8

Heckler v. Campbell, 461 U.S. 458 en 9,15

Krim v. BancTexas Group, Inc., 989 F.2d 1435 (5th

Wh MN Sadana hea ss det eke ec 2

Lang v. French, 154 F.3d 217 (Oth Cir. 1998).......... 12

McLune v. Shamah, 593 F.2d 482 (3rd Cir. 1979)...... 12

Platoro Ltd., Inc. v. Unidentified Remains of a Vessel,

OPS BOG OFF CO BGG ooo vo oven. 8

Vii

TABLE OF AUTHORITIES - Continued

Page

Powers v. Ohio, 499 U.S. 400 | SEGA Lie See 9

Reid v. Hughes, 578 F.2d 634 (5th Cir. i See 7

Roberts v. United New Mexico Bank at Roswell, 14

Rue WOW COM OE POD cee ks vb cccvedenss ne 10

Salazar-Calderon v. Presidio Valley Farmers Associate,

765 F.2d 1334 (5th Cir. 1985), cert. denied, 475

AN OTROS Sink ae Fi ba Rea orc badd Ls 15

In re Silicon Graphics, Inc. Securities Litigation, 183

sialic tices $e hn, TERRE en Te 2

Singleton v. Wulff, 428 U.S. 106 (1976)................ 9

In re Southmark Corp., 88 F.3d 311 (5th Cir. 1996),

cert. denied, 519 U.S. 1057 BO ge are i 14

Steel Co. v. Citizens for a Better Environment, 523

Wy PI c ele nthe tes cock 12

Summit Office Park, Inc. v. United States Steel Corp.,

639 F.2d 1278 (5th Cir. 1981)............... 10, 11, 12

Superintendent of Insurance v. Bankers Life & Casu-

alty Co., 300 F. Supp. 1083 (S.D.N.Y. 1969), aff'd,

430 F.2d 355 (2d Cir. 1970), rev’d on other

grounds, 404 US. 6 (1971)... 6... cce ccc cc cc ccece 8

Tacon v. Arizona, 410 U.S. 351 SRR ee ay 9, 15

United States v» Bleznak, 153 F.2d 16 (2nd Cir. 1998) ..... 2

United States v. Loruntffy Care Center, 999 F. Supp.

Pe ED CO MU ail a Ve viene cvecekc, 11

Warth v. Seldin, 422 U.S. 490 (1975) .................. 9

Vill

TABLE OF AUTHORITIES - Continued

Page

State Cases

Krim v. Pronet, Inc., 744 A.2d 523 (Del. Ch. 1999) ..... 2

FEDERAL STATUTES AND RULES

Securities Act of 1933 15 U.S.C. i, SE ing 3, 14

Securities Exchange Act of 1934...................... 3

Rule of Civil Procedure 17(a)........................ 8

SECONDARY SOURCES

CHARLES ALAN WriGHT & ARTHUR R. MILLER, FEDERAL

PRACTICE AND PRoceDuRE § 1357, at 206 (Supp.

STATEMENT OF THE CASE

1. Introduction

Reeling from the effects of the recession that gripped

Texas in the late 1980’s, First City Bancorporation of

Texas, Inc. set about restructuring its operations.

Together, First City and the Federal Deposit Insurance

Corporation developed a complex recapitalization and

reorganization plan.

As described in a proxy statement mailed to First

City shareholders in January of 1988, the plan’s center-

piece was an exchange offer. (Doc. 156, Ex. B). The

exchange offer would give shareholders the opportunity

to exchange First City common stock — which had become

worthless — for new common stock in an entity called

New First City and an interest in a new entity called the

Collecting Bank. The Collecting Bank would hold and

attempt to realize upon First City’s non-performing loans.

The exchange offer was completed in April of 1988.

Though initially successful, the plan ultimately failed

when Texas real estate prices again plummeted. First

City’s ensuing financial distress resulted in increasingly

negative news for its shareholders in the months leading

up to this lawsuit.

2. Krim files suit.

In July 1990, Petitioner Jerry Krim sued First City,

various of its officers and directors, and Donaldson,

Lufkin & Jenrette Securities Corporation - First City’s

financial advisor for the 1988 reorganization. (Doc. 1). As

the district court observed, Krim has an established track

record of claiming securities fraud. Over the years, he has

filed a number of similar lawsuits.!

Krim purported to represent a class consisting of all

persons or entities that bought First City stock between

April 20, 1988 (the day after the exchange offer was

consummated) and July 3, 1990 (the date Krim filed suit).

The lawsuit charged the defendants with making material

misrepresentations and omissions in various public state-

ments and documents filed with the Securities and

Exchange Commission between 1988 and 1990.

3. The district court denies class certification.

In January of 1991, Krim — who by that time had

amended his complaint five times - moved the district

court to certify the class. (Doc. 34, 35). During a deposi-

tion related to that motion, however, Krim revealed for

the first time that he had not purchased First City stock

until three days after he filed this lawsuit. (Doc. 156, Ex. A

at 35). In other words, Krim bought First City stock even

though he was fully aware of the alleged fraud made the

basis of his lawsuit.

The district court subsequently denied Krim’s motion

to certify the class because common questions of fact did

1 See, e.g., In re Silicon Graphics, Inc. Securities Litigation, 183

F.3d 970 (9th Cir. 1999); Krim v. Pronet, Inc., 744 A.2d 523 (Del.

Ch. 1999); United States v. Bleznak, 153 F.2d 16 (2nd Cir. 1998);

Krim v. BancTexas Group, Inc., 989 F.2d 1435 (5th Cir. 1993); In re

Crazy Eddie Securities Litigation, 792 F. Supp. 197 (E.D.N.Y. 1992).

not predominate over individual issues relating to Krim.

(Doc. 52). Later, the district court also denied Krim’s

motion to reconsider. (Doc. 59 at 1-2).

4. Krim violates the district court’s scheduling order

by adding a new plaintiff in his sixth amended

complaint.

In the same order denying class certification, the

district court denied the defendants’ motions to dismiss

Krim’s fifth amended complaint and ordered Krim to file

a sixth amended complaint “satisfying the particularities

required to establish a claim for securities fraud and for

claims under the Securities Act of 1933 or the Securities

Exchange Act of 1934.” (Doc. 52 at 2). As Judge Edith

Jones pointedly observed during oral argument in the

court of appeals, the district court’s order did not autho-

rize Krim to add new parties. Moreover, the time period

for adding new parties in the agreed pretrial order had

already expired. (Doc. 5 at 6; Doc. 3 at 1). Nonetheless,

without seeking or obtaining leave to do so, Krim filed a

sixth amended complaint that purported to add a new

plaintiff - Harold L. Harris. (Doc. 62).

The sixth amended complaint alleged that Harris

bought his First City stock in October of 1990 — some two

and a half months after Krim filed suit. (Doc. 62 ¥ 8).

Thus, Harris — like Krim before him — was attempting to

prosecute a fraud action based on his purchase of stock

months after suit was filed and months after the pur-

ported fraud was a matter of public knowledge. Harris

was therefore no more qualified to assert securities fraud

claims, or to serve as class representative, than Krim. The

defendants promptly moved to dismiss, but the district

court denied their motions without prejudice and ordered

discovery to proceed. (Doc. 66).

5. The aborted settlement and First City’s bankruptcy.

During the summer of 1992, Krim, Harris, and some

of the defendants agreed *o a conditional settlement,

subject to court approval after notice to all members of

the putative class. The settlement was aborted, however,

when the FDIC abruptly seized First City’s principal sub-

sidiaries on the ground that they were allegedly insolvent

and First City’s creditors petitioned it into Chapter 11

bankruptcy. In light of the bankruptcy, the district court

stayed the case. (Doc. 104).

6. Krim attempts to add new parties and class action

allegations in a seventh amended petition.

The bankruptcy court eventually confirmed a reor-

ganization plan for First City, which included the settle-

ment and discharge of the claims asserted in this case.

(Doc. 147, Exs. 1-2). In June of 1997 - after the bankruptcy

proceedings were completed - the district court held a

status conference. During the conference, the court lifted

the stay and issued a scheduling order that: 1) gave Krim

permission to file yet another amended complaint — his

seventh; 2) provided a briefing schedule for motions to

dismiss; and 3) stayed discovery pending resolution of

the motions to dismiss. (Doc. 124).

During the status conference, Krim’s counsel com-

mented that he might add additional defendants in the

seventh amended complaint, but he never mentioned

adding new plaintiffs. (Doc. 124 at 25-36). Nevertheless,

the subsequently filed seventh amended complaint pur-

ported to add five new plaintiffs. (Doc. 132). Recognizing

that leave is required to add new parties — a requirement

Krim blatantly ignored when he purported to add Harris

~ Krim also filed a formal motion for leave. (Doc. 131).

And despite the district court’s denial of class certifica-

tion years earlier, the seventh amended complaint also

purported to assert a class action on behalf of a substan-

tially expanded class of persons. (Doc. 132).

The seventh amended complaint also added new

defendants. The claims asserted against them, however,

had nothing to do with the purported securities fraud

arising out of the 1988 First City reorganization and

recapitalization plan.

7. The district court dismisses the case for lack of

subject matter jurisdiction, and the Fifth Circuit

affirms.

In January of 1998, the defendants jointly moved to

dismiss the seventh amended complaint based on the

plaintiffs’ lack of standing and separately moved to dis-

miss the plaintiffs’ claims on 12(b)(1) and 12(b)(6)

grounds.? (Doc. 154, 155, 156). The defendants also

opposed the motion to add the five new plaintiffs and

moved to strike the class action allegations in the seventh

amended complaint. (Doc. 157). Six months later, the

district court denied the motion to add new plaintiffs and

granted the motion to strike the class action allegations.

(Doc. 200).

Subsequently, the district court dismissed the seventh

amended complaint and rendered judgment dismissing

the case. (Doc. 203, 204). The court concluded that Krim

lacked standing because he purchased First City stock

after filing suit and did so with full knowledge of the

alleged fraud.

The court also found that Krim’s attempt to rely on

his wife’s purchase of First City stock before suit was

filed did not give him standing because Krim was not the

actual purchaser or owner of those shares. Finally, the

district court held that Harris was not a proper party

because Krim never had standing and the court therefore

never had subject-matter jurisdiction, which meant that

Krim had no authority to amend his complaint and add

Harris as a new plaintiff. (Doc. 203). Krim appealed the

ruling, and the Fifth Circuit affirmed.

*

? Neither the district court nor the court of appeals

addressed the alternative 12(b)(1) grounds asserted by some

defendants in the individual motions to dismiss the newly-

added state law claims. Moreover, neither of the courts

addressed the 12(b)(6) grounds for dismissal.

REASONS WHY THE PETITION SHOULD BE DENIED

1. The courts below correctly held that Krim could not

establish standing through his wife or son.

Underscoring that he lacked standing in his own

right, Krim first argues he had standing based on his

wife’s purchase of First City stock for their son in 1988.

Alternatively, Krim contends he was entitled to sue on his

minor son’s behalf as guardian or that he had third party

standing to sue on his son’s behalf. The court of appeals

properly rejected each of those arguments.

A. Krim could not establish standing as a “de

facto” purchaser of stock.

Krim is forced to seek standing as a “de facto” pur-

chaser based on his wife’s purchase of stock - a theory

unsupported by the case law. He must do so because a

plaintiff lacks standing to maintain a federal securities

claim in the absence of a loss in connection with an actual

“purchase or sale” of a security. See Blue Chip Stamps v.

Manor Drug Stores, 421 U.S. 723, 731-33 (1975); 7547 Corp.

v. Parker & Parsley Dev. Partners, 38 F.3d 211, 226 (5th Cir.

1994). Krim —- who did not purchase stock until after he

filed suit - had no standing in his own right.

According to Krim, his wife used his money to buy

First City stock in 1988. The seventh amended complaint,

however, was devoid of any such allegation, an omission

that fully justified the courts below in rejecting Krim’s de

facto purchaser argument. See Reid v. Hughes, 578 F.2d 634,

639 (Sth Cir. 1978) (plaintiff must plead status as pur-

chaser to establish jurisdiction and failure to do so justi-

fies dismissal). Moreover, Krim never produced any

evidence to support his belated contention that his wife

bought First City stock with Krim’s money.

Finally, even if Krim did pay for his wife’s purchase

of First City stock in 1988, he still would not have stand-

ing. The cases confirm that supplying funds to purchase

securities in someone else’s name or for someone else’s

benefit does not confer standing. See, e.g., Fuchs v. Swan-

ton Corp., 482 F. Supp. 83, 88-89 (S.D.N.Y. 1979); Superin-

tendent of Ins. v. Bankers Life & Cas. Co., 300 F. Supp. 1083,

1098 (S.D.N.Y. 1969), aff'd, 430 F.2d 355 (2d Cir. 1970),

rev'd on other grounds, 404 U.S. 6 (1971). Thus, Krim’s

unproven assertion that he supplied the money for his

wife’s purchase of First City stock could not overcome

the fact that he was neither the legal purchaser nor the

beneficial owner of the shares acquired in 1988.

B. Krim never attempted to sue as his son’s guard-

ian.

For the first time in his reply brief in the court of

appeals, Krim argued he should have been permitted to

maintain the lawsuit as guardian of his minor son. Krim

relies on Rule of Civil Procedure 17(a). The Court need

not tarry long with this argument - Krim never raised it

in the district court, never invoked Rule 17, and never

alleged he was asserting a claim as guardian of or on

behalf of his son. See Platoro Ltd., Inc. v. Unidentified

Remains of a Vessel, 695 F.2d 893, 903 (Sth Cir. 1983) (“We

find that Platoro was not suing in a representative capac-

ity, since it nowhere raised the point in its pleadings.”);

Sa CHARLES ALAN WricHT & ARTHUR R. MILLer, FEDERAL

PRACTICE AND ProcepurE § 1357, at 206 (Supp. 1999)

(appellate court has no obligation to conjure up

unpleaded allegations and will not accept arguments

raised for the first time on appeal).

C. Krim’s third party standing argument - asserted

for the first time in this Court - is without

merit.

Krim asserts for the first time in this Court that he

had third party standing under a peremptory strike case —

Powers v. Ohio, 499 U.S. 400 (1991) — and an abortion

rights case — Singleton v. Wulff, 428 U.S. 106 (1976). The

argument fails for at least two reasons.

First, Krim did not assert third party standing under

Powers and Singleton in the courts below. Absent excep-

tional circumstances, this Court will not consider issues

not pressed or passed upon in the courts below. See

Heckler v. Campbell, 461 U.S. 458, 468-69 n.12 (1983); Tacon

v. Arizona, 410 U.S. 351, 352 (1973) (“We cannot decide

issues raised for the first time here.”)

Second, the Court has held that even a litigant claim-

ing third party standing must have suffered an injury in

fact: “Of course, Art. III’s requirement remains: the plain-

tiff must still allege a distinct and palpable injury to

himself, even if it is an injury shared by a large class of

other possible litigants.” Warth v. Seldin, 422 U.S. 490, 501

(1975); see also Powers, 499 U.S. at 410-11. Krim did not

suffer an injury in fact because he bought First City stock

10

after filing suit. To quote the district court, “[t]here can be

no traceable connection between Krim’s injury in connec-

tion with the purchase of his stock and the alleged fraud.

One cannot be defrauded when he knows the representa-

tions or omissions are fraudulent. Roberts v. United New

Mexico Bank at Roswell, 14 F.3d 1076, 1081 (5th Cir. 1994).”

2. The district court correctly held that Krim could not

establish standing on the basis of his stock pur-

chases after filing suit.

Next, Krim contends he had standing because the

defendants allegedly committed wrongful acts after he

purchased his shares of stock. According to Krim, the

wrongdoing continued after he filed suit, and he learned

of additional wrongful acts during the pendency of the

suit. Thus, the argument goes, Krim had standing for

purposes of every amended complaint he filed after July

19, 1990 — the date he first purchased stock in First City.

Perhaps recognizing that a party cannot amend to =

create jurisdiction where it did not exist in the first

place, Krim offers no cases to support the notion that he

gained ex post facto standing. Instead, he seems to argue —

based on the dissenting opinion in Summit Office Park,

Inc. v. United States Steel Corp.* and the recent decision in

Baffa v. Donaldson, Lufkin & Jenrette Securities Corp.5 — that

3 See Federal Recovery Services, Inc. v United States, 72 F.3d

447, 453 (Sth Cir. 1995).

4 639 F.2d 1278 (5th Cir. 1981).

5 185 F.R.D. 172 (S.D.N.Y. 1999).

alll

11

the district court should have, on its own motion,

replaced him with a different plaintiff.

A. . Standing is not a mere technicality.

The essence of Krim’s argument - drawn principally

from the dissenting opinion in Summit Office Park - is

that “technicalities” like standing should not “deny the

progress of a valid case.” (Petition at pgs. 8-9). In other

words, Krim “regard[s] standing as a technicality that the

Court should create a way to dispense with... .” Conway

Sch. Dist. v. Wilhoit, 854 F. Supp. 1430, 1436 (E.D. Ark.

1994). The Wilhoit court promptly rejected the plaintiff’s

technicality argument: “the Supreme Court has estab-

lished the principle that standing provides the ‘personal

stake in the outcome,’ the ‘concrete injury,’ and the ‘spec-

ificity’ that are crucial to the judicial process... . ” Id.

As another court observed, “standing is not a mere

technicality or procedural hurdle. It is a basic question of

constitutional law. The Constitution requires that federal

judicial power extend only to live ‘cases or controversies.’

Absent standing there is no such case or controversy

because the plaintiff has no right even to present his

claims to the court.” United States v. Lorantffy Care Ctr.,

999 F. Supp. 1037, 1042 (N.D. Ohio 1998) (citations omit-

ted).

12

B. A plaintiff lacking standing cannot breathe life

into a nonexistent lawsuit by substituting new

plaintiffs.

If indeed Krim is arguing the district court should

have replaced him, he has no viable complaint. “Interven-

tion will not be permitted to breathe life into a ‘nonexis-

tent’ lawsuit.” McLune v. Shamah, 593 F.2d 482, 486 (3rd

Cir. 1979). The McLune court recognized that new plain-

tiffs cannot be permitted to intervene “to cure a situation

in which plaintiffs may have stated causes of action that

they have no standing to litigate.” Id. Similarly, the court

in Summit Office Park held that “where a plaintiff never

had standing to assert a claim against the defendants, it

does not have standing to amend the complaint and

- control the litigation by substituting new plaintiffs, a new

class, and a new cause of action.” 639 F.2d at 1282.

Where - as here - the plaintiff cannot establish injury

in fact at the outset of the lawsuit and therefore lacks

standing, the court is simply without constitutional

power to hear the case. See Lang v. French, 154 F.3d 217,

222 n.28 (Sth Cir. 1998). When the court lacks subject-

matter jurisdiction for want of the plaintiff’s standing, the

action must be dismissed and no other issues may prop-

erly be reached. See Steel Co. v. Citizens for a Better Envi-

ronment, 523 U.S. 83, 93-109 (1998). In short, the district

court acted properly by not replacing Krim.

C. Baffa is distinguishable.

Krim’s reliance on Baffa v. Donaldson, Lufkin & Jenrette

Securities Corp. is equally unavailing. First, Baffa lends no

support to Krim’s assertion that he himself had standing.

13

Second, Baffa is distinguishable because there the court

determined the plaintiff lost standing after filing suit. 185

F.R.D. at 174. Here, Krim never had standing.

Finally, even if it were not distinguishable, Baffa

teaches that the interests of the putative class are not

necessarily served by ordering a named plaintiff with no

standing to find a substitute after the district court denies

certification. After determining that Baffa lacked standing

and was not a proper class representative because his son

owned the stock, the district court denied certification

and ordered plaintiff’s counsel to substitute another class

member. Id. Baffa’s son and another member of the puta-

tive class moved to intervene and sought class certifica-

tion. Id.

Like Baffa, however, his son and the other putative

class member were utterly unqualified to serve as class

representatives — leaving the district court with no choice

but to again deny class certification. Id. at 176-77. Thus,

the Baffa court’s willingness to entertain further attempts

at producing a suitable class representative proved fruit-

less and merely prolonged the inevitable.

Here, the district court was all too familiar with

Krim’s concept of a suitable class representative. After

the district court denied class certification in May of 1991,

Krim purported to add a new plaintiff — Harold Harris —

without seeking or obtaining leave of court and in viola-

tion of the scheduling order. Like Krim, however, Harris

lacked standing because he purchased his shares of stock

almost three months after suit was filed. (Doc. 132 J 11).

Even Harris’s belated allegation - appearing more

than six years later in the seventh amended complaint -

14

that he purchased First City stock in 1987 and exchanged

it in the 1988 exchange offer - failed to cure his lack of

standing. Among other things, Harris offered no reason-

able explanation for omitting that allegation from the

sixth amended complaint,6 and his claims based on the

1988 exchange were barred by the statute of repose in the

Securities Act of 1933. See 15 U.S.C. § 77m.

3. The district court did not deprive putative class

members of the American Pipe tolling rule.

Krim’s final argument is that instead of giving Krim

the opportunity to amend his fifth amended complaint,

conduct discovery, and attempt settlement, the district

court) should have dismissed for lack of standing in

March of 1991. According to Krim, the court’s failure to

dismiss at that time somehow deprived putative class

members of the American Pipe tolling rule - the rule that

tolls limitations during the period between the filing of a

class action and denial of certification. See American Pipe

& Const. Co. v. Utah, 414 U.S. 538 (1974); see also Crown,

Cork & Seal Co. v. Parker, 462 U.S. 345 (1983).

Krim’s position represents a profound misconception

of American Pipe tolling rule. Under that rule, limitations

was tolled for the claims of putative class members from

the date Krim filed suit in July of 1990 until the district

© See In re Southmark Corp., 88 F.3d 311, 316 (Sth Cir. 1996),

cert. denied, 519 U.S. 1057 (1997) (district court properly denied

leave to amend where plaintiff attempted to add fact known

when plaintiff filed original complaint 13 months earlier and

offered no reasonable explanation for omission).

ee

15

—

court denied certification in May of 1991. See Salazar-

Calderon v. Presidio Valley Farmers Assoc., 765 F.2d 1334,

1351 (5th Cir. 1985), cert. denied, 475 U.S. 1035 (1986).

Once the court denied certification, limitations began to

run, and any putative class member could have then filed

an individual claim in a separate lawsuit. Nothing the

court did after denying class certification prevented puta-

tive class members from doing so.

In any event, Krim did not raise this argument in the

courts below. Accordingly, the Court need not now con-

sider it. See Campbell, 461 U.S. at 468-69 n.12; Tacon, 410

U.S. at 352.

CONCLUSION

For these reasons, the petition for a writ of certiorari

should be denied.

Respectfully submitted,

RODNEY ACKER

Counsel of Record

Rosert B. GILBREATH

ELLEN B. Sessions

JenkeNs & GILCHRIST,

A Professional Corporation

1445 Ross Avenue, Suite 3200

Dallas, Texas 75202-2799

(214) 855-4500

Counsel for Respondent

Donaldson, Lufkin & Jenrette

Securities Corporation

March 2000

Douctas M. Kraus

Rita W. Gordon

SKADDEN, ARPS, SLATE,

MEAGHER & FLtom LLP

919 Third Avenue

New York, New York

10022

(212) 735-3000

Counsel for Respondent

Donaldson, Lufkin &

Jenrette Securities

Corporation

CuHarces G. KING

Kinc & PENNINGTON, L.L.P.

711 Louisiana Street

Suite 3100

Houston, Texas 77002

(713) 225-8400

Counsel for Respondent

A. Robert Abboud

THomas J. BRANDT

SHEINFELD, MALEY &

Kay, P.C.

1001 Fannin, Suite 3700

Houston, Texas 77002-6797

(713) 658-8881

Counsel for Respondent

Daniel C. Arnold

16

LAwRENCE R. SAMUELS

Ross & Harpies

150 North Michigan

Avenue

Chicago, Illinois

60601-1000

(312) 558-1000

Counsel for Respondent

Frank C. Cihak

MICHAEL K. SWAN

ANN M. HeEsert

AKIN, Gump, STRAUSS,

Hauer & Fe tp, L.L.P.

711 Louisiana, Suite 1900

Houston, Texas 77002

(713) 220-5800

Counsel for Respondents

C. Ivan Wilson and

Robert W. Brown

Rosin GIsBBs

Puiturp T. Bruns

JENNIFER HorAN GREER

Gisss & BrRuNs

1100 Louisiana, Suite 5300

Houston, Texas 77002

(713) 650-8805

Counsel for Respondents

C. Jackson Grayson, Jr.,

Ralph S. O'Connor, Robert

H. Allen, J. Evans Attwell,

J.A. Elkins, Jr., Robert N.

Murray, William T. Butler,

James H. Evans and

Margaret S. Wilson

17

RicHARD N. CARRELL

DanteL M. McCiure

KATHLEEN Rose

FULBRIGHT & JAWORSKI

1301 McKinney, Suite 5100

Houston, Texas 77010

(713) 651-5151

Counsel for Respondents

Richard Rice and

Robert D. Richley