Opposition Brief — Grimes, Trustees Under the Will of Chaplin v. Navigant Consulting, Inc.

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No. 01-1297 APR 25 2002 |

| CR 7+ (RK |

IN THE Pies

Supreme Court of the United States

CHARLES L. GRIMES AND GORDON W. CHAPLIN,

TRUSTEES UNDER THE WILL OF LOUISE C. CHAPLIN;

CHARLES L. GRIMES AND GORDON W. CHAPLIN,

TRUSTEES UNDER THE LOUISE D. CATHERWOOD

TRUST; AND GORDON W. CHAPLIN, INDIVIDUAL

TRUSTEE OF THE JESSICA D. CATHERWOOD TRUST,

Petitioners,

v.

NAVIGANT CONSULTING, INC.;

POLICEMEN AND FIREMEN RETIREMENT

SYSTEM OF THE CITY OF DETROIT; et al.,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF IN OPPOSITION FOR RESPONDENT

PLAINTIFF CLASS

DANIEL L. BERGER Fay CLAYTON

Lisa BUCKSER-SCHULZ Counsel of Record

BERNSTEIN LiITOWITZ BERGER RosBert L. MARGOLIS

& GROSSMANN, L.L.P. RoBINSON CurLeEY & CLAYTON, P.C.

1285 Avenue of the Americas 300 South Wacker Drive

New York, New York 10019 Suite 1700

(212) 554-1400 Chicago, Illinois 60606

Co-Lead Counsel for the (312) 663-3100

Plaintiff Class Lead Counsel for the

Plaintiff Class

1

TABLE OF CONTENTS

Table Of Cited Authorities ....................

Statement 2... ww cece See eee ee rere

fo OT Tee TT CTE eee eS eee CT Eee ee

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The Petition For Certiorari Should Be Denied

@2e @G2 242624 6A GER HRBEA SOA EOD OG OE SDS STE OD HG D6 OS

If This Court In Devlin Requires Intervention

To Preserve Appeal Rights, The Seventh

Circuit’s Decision Would Stand. .........

Even If This Court In Devlin Holds

Intervention Is Not Necessary To Preserve

Appeal Rights, The Petition For Certiorari

Should Be Denied Because Petitioners’

Argument In Support Of Their Objection To

The Settlement Is Precluded By Res Judicata.

Soe @@ 6A O22 GHZCHCEH CH HEHeOEO BEE HEC O@ O44 58 06 6 6 8

If This Court In Devlin Requires Intervention

To Preserve Appeal Rights And Holds It Must

Be Granted Liberally, the Petition For

Certiorari Should Be Denied Because

Petitioners’ Motion to Intervene Failed Under

The Most Liberal Standard. .............

EEG RAS oN A Mo it oh ee ReMANO cs ae

il

TABLE OF CITED AUTHORITIES

Page

Cases:

California Public Employees’ Retirement System v.

Feizen, $25 U.S. 315 (1999) ...cccccccscvecs 4

Crawford v. Equifax Payment Servs., Inc., 201 F.3d

eae Ce EE 6-6 on a 5d eo eee ens ee sees 8

Deposit Bank of Frankfort v. Board of Counciimen

of Frankfort, 191 U.S. 499 (1903) ............ 8

Devlin v. Scardelletti (No. 01-417) ............. 5, 6,8

Federated Dep t Stores, Inc. v. Moitie, 452 U.S. 394

CREE cea eas Aetna eR ese ee ease ee aan 7

Felzen vy. Andreas, 134 F.3d 873 (7th Cir. 1998) ... 4

Grimes v. Camilli, 238 A.D.2d 289 (N.Y. App. Div.

3: es EPP E TEE PS eCETTETCrY TTT re 2

Grimes v. John P. McCarthy Profit Sharing Plan, 506

Se cia sdce pac ueaen es enanee kes 2

Grimes v. Navigant Consulting, Inc.; 185 F. Supp.

ps eer rer rr err 4, 6,7

Grimes v. Navigant Consulting, Inc., No. 00 C 7609

erie inns s bUes bed cna weg eben ons 3

ase Perey s

lil

Cited Authorities

Grimes v. Northwest Airlines, Inc., No. Civ. A. 98-

CV-4794, 1999 WL 562244 (E.D. Pa., Jul. 30.

a Sree e aks Vie tan knoe eae

Grimes v. Northwest Airlines, Inc., 531 U.S. 879

DERG NW Dl aus sad shaw eh ein tkh oak EO

Grimes v. Vitalink Comm. Corp., 525 U.S. 867 (1998)

Ste eese eee es 649042802 2 2 6E 2 OCS CEE COO 42 OA EE OAS SE O

Grimes v. Wetzler, 749 A.2d 535 (Pa. Super. Ct.

2000), appeal denied, 766 A.2d 1249 (Pa.), and

cert. denied, 533 U.S. 924(2001) ............

In re Synthroid Marketing Litig., 264 F.3d 712

SE ON St bccc accede cbesteveswcusss

Smith v. SEC, 129 F.3d 356 (6th Cir. 1997) .......

Stutson v. United States, 516 U.S. 163 (1996) .....

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

re eee eee eee ee

Vollmer v. Publishers Clearing House, 248 F.3d 698

ED ah o-deos wah 6s had Cakes Ades

Wade v. Hopper, 993 F.2d 1246 (7th Cir. 1993) ...

Winfield v. Kaplan, 512 U.S. 1253 (1994) ........

Page

7

iv

Cited Authorities

Page

Rules:

POR. Te TI ak ss is anche, ee ye

. § Re | Bs Peer rrr rrr Tre rie. 6

ee es dv cs hn cen a bch awd wee as 10, 11

1

STATEMENT

Petitioners are objectors to a securities class action

settlement that was approved by the trial court over their

objections. The claims in the class action stem from Navigant

Consulting, Inc.’s (“Navigant”) improper use of the pooling of

interests method of accounting to account for four companies it

acquired during the first quarter of 1999. As a result of that

improper accounting, Navigant reported earnings that were

wrongfully inflated. Investors were alerted to the alleged

improprieties before the stock market opened on November 22,

1999, when Navigant publicly disclosed that its accountants

had questioned the Company’s use of the pooling method and

that it might have to restate its prior financial statements.

The market’s reaction to this disclosure was swift and dramatic.

Navigant’s common stock dropped 45% on November 22,

falling from $26.00 to $14.25 per share. Pet. App. 4a.

Subsequently, on January 24, 2000, Navigant confirmed that it

had restated its financial statements for the first three quarters

of 1999. After the January 24, 2000, disclosure, the price of

Navigant common stock rose 13.8%, from $9.9375 to $11.5125.

See Lead Plaintiff’s Reply Memorandum in Support of Final

Approval of Settlement, Plan of Distribution and Attorney’s

Fees, at 8.

The class action settlement resolved the claims of all those

who purchased Navigant securities during a class period from

January 1, 1999, through and including November 19, 1999

(the last trading day prior to Navigant’s disclosure). The

settlement provided that in exchange for $23 million in cash

(plus 50% of any recovery obtained by Navigant as a result of

its litigation with one of its insurance carriers), class members

released all claims for damages arising from statements

defendants made during the class period, including any damages

2

with respect to purchases of Navigant stock after the class

period based on these class-period statements that Plaintiffs

challenged as being false and misleading. See Stipulation of

Settlement (Sept. 22, 2001), at 8-9.

Petitioner Charles L. Grimes (“Grimes”) represents

certain trusts (the “Trusts”’) that allegedly purchased Navigant

stock in both November and December 1999.' No later than

August 2000, Grimes was informed that the class period

would conclude on November 19, 1999, and that there would

be no recovery in this case with respect to purchases of

Navigant securities after that date.’ Pet. App. 4a. Grimes did

1. Grimes, a lawyer, is a serial plaintiff who has filed no

fewer than eight cases, all of which were ultimately dismissed.

See, e.g., Grimes v. Wetzler, 749 A.2d 535 (Pa. Super. Ct. 2000) (suing

New York Tax Commissioner for constitutional violations); appeal

denied, 766 A.2d 1249 (Pa.), and cert. denied, 533 U.S. 924 (2001);

Grimes v. Northwest Airlines, Inc., No. Civ. A. 98-CV-4794, 1999

WL 562244 (E.D. Pa., Jul. 30, 1999) (suing for damages relating to

injuries he allegedly sustained after being arrested on an airplane for

disorderly conduct); Grimes v. Camilli, 238 A.D.2d 289 (N.Y. App.

Div. Ist Dept. 1997) (action to recover legal fee notwithstanding

Grimes’ admission that “he was never the counsel of record and never

took part in any court proceeding related to the probate matter in

which defendant was involved, did not prepare any documents in

their final form, did not maintain any time records and did not conduct

depositions”). This Petition for Certiorari is Grimes’ fifth attempt to

seek this Court’s review. His four prior petitions were denied.—

See Grimes v. Wetzler, 533 U.S. 924 (2001); Grimes v. Northwest

Airlines, Inc., 531 U.S. 879 (2000); Grimes v. Vitalink Comm. Corp.,

525 U.S. 867 (1998); Grimes v. John P. McCarthy Profit Sharing

Plan, 506 U.S. 861 (1992).

2. Separately, in his personal capacity, Grimes claims to be the

largest individual holder of Navigant common stock, but he purchased

(Cont'd)

3

not then seek to intervene on behalf of the Trusts. Instead, in

September 2000, after the settlement of this case was

announced, Grimes filed his own separate class action

against Navigant. That action, Grimes v. Navigant

Consulting, Inc., No. 00 C 7609 (N.D. IIl.), is based on

identical misrepresentations but alleged a class period that

extended through January 24, 2000, to provide a recovery

for purchases of Navigant securities after November 19, 1999.

Grimes unsuccessfully sought to have Grimes v. Navigant

consolidated with this case, and the case was assigned to a

different judge (Honorable Elaine Bucklo). Rather than

having the Trusts opt out of this class action to pursue their

claims in Grimes v. Navigant, Grimes chose to keep the Trusts

as class members and object to the settlement. See Objection

to Approval of Settlement by Charles L. Grimes and Gordon

W. Chaplin (“Objection”), at 11-12.° Despite many

(Cont’d)

none of his shares during the class period; he purchased 513,000 shares

between November 26, 1999, and January 24, 2000. See Certification

of Charles L. Grimes to Complaint in Grimes v. Navigant Consulting,

Inc., No. 00 C 7609 (N.D. II1.).

3. Unlike most objectors to class action settlements, Grimes did

not challenge the amount of the settlement. On the contrary, he thought

the recovery it provided was so good that he wanted class members to

share it with non-class members: post-November 19 purchasers,

including himself. See Objection at 11-12. Grimes also objected to one

aspect of the Notice of Class Action Settlement, regarding disclosure of

counsel fees. Because the precise amount of the portion of the settlement

related to the pending litigation with Navigant’s insurer was not known

when the Notice was sent, the Notice stated that counsel would seek

20% of the Settlement Fund. The District Court found that the Notice

adequately informed the class that attorneys’ fees would be calculated

on the total Settlement Fund, including both the fixed and as-of-yet

undetermined portions. Tr. of Proceedings, Mar. 22, 2001. Notably,

Grimes did not object to the fee percentage sought by class counsel.

4

opportunities (see Pet. App. 4a-5Sa, 13a-14a), Grimes did not

seek to intervene the Trusts as parties to the action while the

case was pending in the District Court.

After the Trusts’ objection was denied and the settlement

was approved by the District Court, Grimes filed a Notice of

Appeal to the Seventh Circuit. However, that appeal was

voluntarily dismissed after the Seventh Circuit questioned

Petitioners’ standing due to their failure to intervene.

Pet. App. 10a, 12a. Only then did Grimes move on behalf of

the Trusts to intervene as a party. The District Court denied

Petitioners’ motion to intervene, finding it “as untimely as it

gets,” because Petitioners did not move until nearly nine

months after their disagreement with certain terms of the

settlement became clear and nearly two months after their

objections had been overruled. Pet. App. 14a. The Seventh

Circuit affirmed. Pet. App. 7a. The Seventh Circuit also

dismissed Petitioners’ conditional appeal from the trial

court’s order approving the class action settlement, due to

lack of jurisdiction, citing Felzen v. Andreas, 134 F.3d 873

(7th Cir. 1998), affirmed by an equally divided court under

the name California Public Employees’ Retirement System

v. Felzen, 525 U.S. 315 (1999). Pet. App. 7a.

Since the Seventh Circuit’s decision, Judge Bucklo has

dismissed Grimes v. Navigant Consulting, Inc. in its entirety

for failure to state a claim. 185 F. Supp. 2d 906 (N.D. Il.

2002). Thus, the very claims that Grimes contends should

have been included in the resoiution of this case have been

found meritless as a matter of law.

5

ARGUMENT

THE PETITION FOR CERTIORARI

SHOULD BE DENIED

There is no reason to grant certiorari in this case.

As Petitioners concede, the issue presented by the petition is

the same issue now before the Court in Devlin v. Scardelletti

(No. 01-417), in which this Court heard argument on March

26, 2002. Pet. 9. This Court routinely holds or defers

consideration of petitions for certiorari pending the outcome of

another case that raises the same issues for which review is

sought. See, e.g., Stutson v. United States, 516 U.S. 163 (1996)

(Scalia, J. dissenting) (“We regularly hold cases that involve

the same issue as a case on which certiorari has been granted

and plenary review is being conducted”); Winfield v. Kaplan,

512 U.S. 1253 (1994) (Scalia, J. dissenting) (noting that

disposition on petition for certiorari was deferred pending

announcement of judgment in a case that presented similar

issues).* In this case, however, certiorari should be denied

immediately because Petitioners cannot prevail no matter how

this Court rules in Deviin.

I. If This Court In Devlin Requires Intervention To

Preserve Appeal Rights, The Seventh Circuit’s

Decision Would Stand.

- Should this Court rule in Devlin that party status is necessary

to appeal the denial of objections to a settlement, the Seventh

Circuit’s decision would stand and certiorari should be denied.

4. The fact that Grimes formulated a second question in his

petition —- if intervention is required, should it be pro forma?

(Pet. 10) — does not make this case any more worthy of certiorari,

since Grimes already presented that very argument to the Court as

an amicus in Devlin. See No. 01-417, Brief of Charles L. Grimes,

et al. as Amici Curiae in Support of Petitioner, at 24-25.

6

II. Even If This Court In Devlin Holds Intervention

Is Not Necessary To Preserve Appeal Rights,

The Petition For Certiorari Should Be Denied

Because Petitioners’ Argument In Support Of

Their Objection To The Settlement Is Precluded By

Res Judicata.

In their Statement of the Case, Petitioners failed to

disclose two key facts: (1) Grimes has instituted a separate

class action in which he sought to recover on the very same

claims Petitioners contend were improperly excluded by the

settlement here; and (2) that action was dismissed under

Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which

relief can be granted. Grimes v. Navigant, 185 F. Supp. 2d

906. Therefore, the Petition should be denied because the

post-November 19 claims that Petitioners contend were

improperly excluded from the settlement are precluded by

res judicata.

Petitioners objected to the settlement because it released

all claims of class members arising from alleged

misrepresentations made during the class period. Petitioners

contended that it was unjust to release any such claims

relating to post-class period purchases allegedly made in

reliance upon misrepresentations made during the class

period because the settlement did not provide a recovery for

those purchases.° See Objection at 8. The premise of Grimes’

5. Importantly, this was a Rule 23(b)(3) class with full opt out

rights. At the point when class members had to decide whether

to opt out of the class, they knew the value of the settlement.

Thus, each class member, including the Trusts, was able to evaluate

whether the consideration being offered was adequate to warrant the

release of all claims based on statements made during the class period,

which was required to participate in the settlement.

7

objection is that these claims, based on the impact of class

period statements on post-class-period purchases, have value.

However, in Grimes v. Navigant, the court held as matter of

law that those very claims have no value.

In Grimes v. Navigant, Petitioner Grimes, individually

and on behalf of a class of persons who purchased Navigant

stock from May 6, 1999, through January 24, 2000, asserted

10b-5 claims identical to those asserted in this class action

— that the accounting for Navigant’s first quarter acquisitions

was improper — but with a different class period. 185

F. Supp. 2d at 908-09. Grimes v. Navigant alleged that the

misrepresentations concerning the pooling method of

accounting were not corrected until the Company announced

the restatement of its financial statements on January 24,

2000. The District Court dismissed that action in its entirety,

holding that shareholders could not recover for purchases of

stock made after the November 22 disclosures.° Because the

price of Navigant stock actually rose on January 24, 2000

(Grimes’ purported cure date), the court held that any

misrepresentations not cured by the November 22

disclosures, as a matter of law, were not material. Jd. at 914.

The court’s dismissal of Grimes v. Navigant pursuant to

Rule 12(b)(6) “constitutes a final adjudication on the merits”

for res judicata purposes. Wade v. Hopper, 993 F.2d 1246,

1252 (7th Cir. 1993). See also Federated Dept Stores, Inc.

v. Moitie, 452 U.S. 394, 399 n.3 (1981) (“The dismissal for

failure to state a claim under Federal Rule of Civil Procedure

6. The court dismissed claims asserted for pre-November 22

misrepresentations because Grimes purchased his shares on

November 26, 1999, and as a matter of law he could not recover for

frauds disclosed before he bought his stock. Grimes v. Navigant,

185 F. Supp. 2d at 912. ;

8

12(b)(6) is a ‘judgment on the merits” with full res judicata

effect). That Grimes has appealed the dismissal of his claims

does not deprive the judgment of its res judicata effect. Deposit

Bank of Frankfort v. Board of Councilmen of Frankfort, 191

U.S. 499 (1903) (original state court judgment entitled to res

judicata effect in subsequent federal action so long as state case

remained pending without decision on appeal); Smith v. SEC,

129 F.3d 356, 362 n.7 (6th Cir. 1997) (pending appeal of

judgment does not deprive the judgment of res judicata effect).

Thus, even if Grimes (on behalf of the Trusts) could appeal

the denial of his objection, such an appeal would be futile: the

issue of whether there can be a recovery for purchases of

Navigant securities after November 19, 1999, based on

statements made before that date has been determined and is

res judicata. Accordingly, the issue underlying Grimes’ objection

has been resolved against him in his subsequent action.

Ill. If This Court in Devlin Requires Intervention To

Preserve Appeal Rights And Holds It Must Be Granted

Liberally, the Petition For Certiorari Should Be Denied

Because Petitioners’ Motion to Intervene Failed Under

The Most Liberal Standard.

The Seventh Circuit liberally grants class members’ motions

to intervene to preserve appeal rights. See Jn re Synthroid

Morketing Litig., 264 F.3d 712, 715 (7th Cir. 2001); Crawford

v. Equifax Payment Servs., Inc., 201 F.3d 877, 881 (7th Cir.

2000). Though it applied that standard in this case, Pet. App.

3a, the intervention motion did not succeed, given Grimes’

lengthy and prejudicial delay. Thus, even if the Court were

inclined in Devlin to liberalize the granting of intervention

motions by objecting class members solely to preserve appeal

rights, certiorari still should be denied in this case.

9

In affirming the District Court, the Seventh Circuit noted

“that intervention should be freely allowed, if limited to the

purpose of taking an appeal. But this attitude cannot abolish

the requirement in Rule 24 that intervention be timely.”

Pet. App. 3a. In light of this liberal allowance of intervention,

and applying the timeliness standard derived from this

Court’s decision in United Airlines, Inc. v. McDonald, 432

U.S. 385 (1977),’ the Seventh Circuit concluded that the

District Court properly exercised its discretion as gatekeeper

in denying the motion to intervene. Nearly nine months before

moving to intervene, Petitioners knew that the settlement

provided no recovery for post-class period purchasers yet

waited without justification to seek intervention until final

judgment had been entered and their first attempt to appeal

had been questioned. Pet. App. 4a-5a. Indeed, Petitioners did

not lose on the motion to intervene simply because it was

made post-judgment. While noting that it is “hard to see how

a post-judgment motion could be timely,” the Seventh Circuit

stated “‘hard’ differs from ‘impossible’” and cited United

7. The rulings below are wholly consistent with this Court’s

holding in United Airlines. In United Airlines, this Court held that a

putative class member’s motion to intervene for the purpose of

appealing the District Court’s denial of class certification should have

been granted as timely when that motion was made as soon as it was

clear that the named plaintiffs would not appeal that denial, which

did not become apparent until after judgment. Notably, the standard

this Court applied is the very standard applied below: intervention is

required “as soon as it became clear to the respondent that the interests

of the unnamed class members would no longer be protected by the

named class representatives.” 432 U.S. at 394. Far from the blanket

approval of post-judgment intervention motions that Petitioners

erroneously characterize it to be, United Airlines is further support

for the need of unnamed class members to move timely for

intervention to preserve appeal rights once they conclude that the

class representative will not protect their interests.

10

Airlines as an example of a circumstance where post-

judgment intervention motions are properly allowed.

-Pet. App. 2a. The plain fact is that Grimes knew his claims

were not being represented in this case at least seven months

before judgment and did not seek to intervene.

This case illustrates the prejudice that can occur when

there is no gatekeeper to screen out persons who lack bona

fides. Although Rule 24(a) sets a liberal standard for

intervention by a class member, it requires the trial court to

screen out those who fail to satisfy the requirements of the

rule, including the plain requirement to maké a timely motion.

See Vollmer v. Publishers Clearing House, 248 F.3d 698, 705

(7th Cir. 2001). As the Seventh Circuit noted, Petitioners’

failure to intervene timely prejudiced the Respondents by

depriving them of the opportunity to develop a factual record

concerning the circumstances surrounding Petitioners’ stock

purchases and whether the objection was being pursued in

good faith. Pet. App. 7a. Grimes claims to be the largest

individual shareholder of Navigant but he is not a class

member. See Affidavit of Charles L. Grimes (Feb. 23, 2001)

at {{ 6, 8. In August 2000 (seven months before the settlement

approval hearing), Grimes learned of the settlement and

expressed to Lead Counsel his intention to object on his own

behalf, only to be told that, as a non-class member, he lacked

standing. See Lead Plaintiff’s Position on Reassignment of

the Grimes Action, at J 6. Even though Grimes could have

excluded the Trusts from the class and preserved all of the

claims he contended had value, he chose not to opt out and

instead filed objections on the Trusts’ behalf which, if

successful, would have had the effect of benefitting himself

personally far more than the Trusts for which he is a fiduciary.

Had the Trusts timely moved to intervene, they would have.

subjected Grimes to discovery concerning the true party in

11

interest behind the objection and whether Grimes was

elevating his personal interests over those of the Trusts.

By failing to seek intervention, as the Seventh Circuit

observed, “these objectors hobbled that inquiry.” Pet. App.

7a. Given that intervention requirements under Rule 24(a)

are easily met by class members with legitimate objections,

there was no justification for sidestepping the Rule’s

gatekeeping function in this case.

Thus, even under the very liberal standards the Seventh

Circuit has formulated for class member intervention under

Rule 24(a), Petitioners’ motion was properly denied.

12

CONCLUSION

The petition for writ of certiorari should be denied.

Respectfully submitted,

Fay CLAYTON

Counsel of Record

Rosert L. MARGOLIS

ROBINSON CuRLEY & CLayTon, P.C.

300 South Wacker Drive :

Suite 1700

Chicago, Illinois 60606

(312) 663-3100

Lead Counsel for the

Plaintiff Class

DANIEL L. BERGER

LisA BUCKSER-SCHULZ

BERNSTEIN LiTow!Tz BERGER

& GROSSMANN, L.L.P.

1285 Avenue of the Americas

New York, New York 10019

(212) 554-1400

Co-Lead Counsel for the

Plaintiff Class