Gavin v. At&T Corp., No. 07 C 3078.

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Writing for the CourtRuben Castillo
Citation543 F.Supp.2d 885
PartiesLila T. GAVIN, on behalf of herself and all others similarly situated, Plaintiff, v. AT&T CORP., a New York Corporation, Georgeson Shareholder Communications, Inc., a Delaware Corporation, and Doe Corporations 1 to 1,000 Defendants.
Docket NumberNo. 07 C 3078.
Decision Date12 February 2008

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543 F.Supp.2d 885
Lila T. GAVIN, on behalf of herself and all others similarly situated, Plaintiff,
AT&T CORP., a New York Corporation, Georgeson Shareholder Communications, Inc., a Delaware Corporation, and Doe Corporations 1 to 1,000 Defendants.
No. 07 C 3078.
United States District Court, N.D. Illinois, Eastern Division.
February 12, 2008.

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Matthew Reasor Bowman, Clinton A. Krislov, Krislov & Associates, Ltd., Chicago, IL, for Plaintiff.

M. Norman Goldberger, Jennifer E. Biderman, Wolf Block Schorr and Solis-Cohen LLP, Philadelphia, PA, Daniel Steven Ryan, Rachel B. Niewoehner, Sidley Austin LLP, Bethany Kaye Biesenthal, United States Attorney's Office, R. Douglas Rees, Andrew Francis Merrick, Ross Benjamin Bricker, Jenner & Block LLP, Chicago, IL, for Defendants.

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RUBEN CASTILLO, District Judge.

Lila T. Gavin ("Plaintiff) brought this long-running putative class action against Defendants AT&T Corp. ("AT&T") and Georgeson Shareholder Communications, Inc. ("Georgeson") (collectively "Defendants"), alleging fraud claims in connection with a notice sent to AT&T's shareholders following a merger. (R. 1, Not. of Removal, Ex. 5, First Amend. Compl. ("FAC").) The case was originally filed in Illinois state court in 2001 and was removed by Defendants to the Northern District of Illinois shortly thereafter under the Securities Litigation Uniform Standards Act ("SLUSA"), 15 U.S.C. § 77p(b). Gavin v. AT & T, 01cv2721 (N.D. Ill. filed Apr. 17, 2001) ("Gavin I"). After nearly five years of litigation, summary judgment was awarded in favor of Defendants, and Plaintiff appealed. See Gavin v. AT & T Corp., 464 F.3d 634, 640-41 (7th Cir.2006), cert. denied, ___ U.S. ___, 127 S.Ct. 1492, 167 L.Ed.2d 244 (2007).

On appeal, the Seventh Circuit determined that the case had been improperly removed under SLUSA, and that, because the case essentially involved "garden-variety" consumer fraud claims, it belonged in state court. Id. After the case was remanded to state court, Plaintiff filed an amended complaint which raised — for the first time — a federal claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and added new claims against up to 1,000 unnamed Defendant Corporations ("the Doe Defendants"), to which Georgeson allegedly provided similar services during unidentified merger transactions ("the Doe transactions"). Defendants again removed the case, this time claiming federal question jurisdiction based on the RICO claim, and alternatively, diversity jurisdiction under the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1452(b). Gavin v. AT & T, No. 07cv3078 (N.D. Ill. filed June 1, 2007) (Gavin II).

There are several motions pending before the Court: AT&T's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) (R. 20); Georgeson's motion to dismiss under Rule 12(b)(6) (R. 22); motions by both Defendants asking the Court to take judicial notice of various documents submitted in support of their motions (R. 24, 28); Plaintiffs motion for class certification (R. 38); and Plaintiffs motion to take judicial notice of the oral argument before the Seventh Circuit in Gavin I. (R. 50.) For the following reasons, AT&T's motion to dismiss is granted in part and denied in part; Georgeson's motion to dismiss is granted in part and denied in part; Plaintiffs motion for class certification is denied without prejudice; and all three motions to take judicial notice are granted.


In 1998, U.S. West Media Group split off from its parent corporation U.S. West, a so-called "Baby Bell" that came into existence after the 1984 "Big Bang" breakup of AT&T. (R. 1, Not. of Removal, Ex. 5, FAC ¶¶ 6, 15.) After the split, certificates for U.S. West common stock were exchangeable for MediaOne Group, Inc. ("MediaOne") shares on a one-for-one basis. (Id. 15.) In June 2000, MediaOne merged with AT&T (the "AT&T/MediaOne merger"). (Id. ¶ 16.) The terms of the merger entitled MediaOne shareholders to obtain in exchange for each of their shares 95 shares of AT&T stock plus $36.27 and

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any accrued dividends. (Id.) At the time of the AT&T/MediaOne merger. Plaintiff, a resident of Illinois, held certificates for 235 U.S. West Media Group unexchanged shares. (Id. ¶ 6.)

On June 15, 2000, AT&T sent a notice to all MediaOne shareholders who had yet to exchange their shares, advising them that they were entitled to exchange their shares at no charge through AT&T's exchange agent, EquiServe Trust Co. ("EquiServe"). Gavin, 464 F.3d at 637. On August 1, 2000, AT&T sent a follow-up notice to those shareholders who had not responded to the first notice, again advising them of the exchange option available through EquiServe. Id. In December 2000, AT&T retained Georgeson to perform "post-merger cleanup" of the outstanding MediaOne certificates. (R. 1, Not. of Removal, Ex. 5, FAC ¶ 17.) Georgeson provides post-merger cleanup services, whereby companies like AT&T with outstanding certificates of pre-merger stock shares can "clean" those shares off their books. (Id. ¶ 8.) In essence. Georgeson's job is to find holders of pre-merger certificates, contact them by mail, and induce them to turn in their certificates for new stock certificates in the post-merger issuing company. (Id. ¶ 10.)

On December 15, 2000, Georgeson mailed notices on AT&T's letterhead ("the December 2000 Notice") to Plaintiff and other certificate holders who still held U.S. West or MediaOne certificates. (Id. ¶ 17.) The Notice stated in part:

In 1998, Media Group was split off from U.S. West, Inc. and exchanged into MediaOne on a one-for-one basis. Subsequently, in June 2000, AT&T Corp. acquired MediaOne. As a result, your shares are no longer traded. You now need to send your `old' Media Group certificate(s) for the AT&T shares due you, plus cash payment and back dividends. If you do not claim your AT&T stock and cash, eventually they will be turned over to the state authorities under the abandoned property laws.

(Id. ¶ 19, Ex. A.) The Notice also informed certificate-holders that they could exchange their certificates through Georgeson, and that Georgeson would charge a $7 per-share fee for exchanging the certificates:

We have retained Georgeson Shareholder Communications Inc. to assist you in claiming your shares and cash. We urge you to claim your shares now. You may choose to have the AT&T shares due you sold on the open market or have them sent to you. To defray the cost of providing you with this service, a processing fee of $7 per AT&T share due you will be deducted from the additional cash payment of $36.27 per U.S. West Media Group share you are due, and paid to Georgeson Shareholder Securities Corporation, member of [the National Association of Securities Dealers] and [Securities Investor Protection Corporation].

(Id. ¶ 22, Ex. A.) Plaintiff and other certificate-holders thereafter exchanged their certificates through Georgeson, incurring the $7 per-share fee, which in Plaintiffs case amounted to $1,645. (Id. ¶ 3, 6, 24, 27.)

1. Proceedings in Gavin 12

On February 9, 2001, Plaintiff filed suit against AT&T and Georgeson in the

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Circuit Court of Cook County, raising consumer fraud claims under Illinois law. (Gavin I, R. 1, Not. of Removal, Ex. A, Compl.) Plaintiff alleged that the December 2000 Notice was false and misleading because certificate-holders were not informed that they could avoid the $7 per-share fee by exchanging their certificates through AT&T's regular transfer agent, EquiServe. (Id. ¶¶ 1-24.) Defendants removed the case to federal court, claiming that federal jurisdiction existed under SLUSA.3 (Id., Not. of Removal.) Judge Nordberg denied Plaintiffs motion to remand the case to state court. (Id., R. 12, Minute Ord.) Plaintiff twice sought interlocutory review of Judge Nordberg's order concluding that removal was proper under SLUSA, but the Seventh Circuit denied these requests. (Id., R. 26, 7th Cir. Ord. 5/29/02; R. 29, 7th Cir. Ord. 7/15/02; R. 35, 7th Cir. Ord. 1/21/03.)

In April 2003, Plaintiff filed a First Amended Complaint raising both Illinois consumer fraud claims and claims under Section 10(b) of the Securities and Exchange Act. (Id., R. 41, Am. Compl. ¶¶ 27-68.) The case was thereafter transferred to Judge Grady, who granted the Defendants' motion to dismiss Plaintiffs state law consumer fraud claims, finding that they were preempted, but denied the Defendants' motion to dismiss as to Plaintiffs federal securities claims. (Id., R. 72, Mem. Opinion & Order.) In December 2003, Plaintiff filed a Second Amended Complaint, which included state law breach of fiduciary duty and constructive fraud claims under New York law, as well as the federal securities claims. (Id., R. 73, Second Am. Compl.)

In June 2005, Judge Grady granted summary judgment for AT&T and partial summary judgment for Georgeson, finding that the December 2000 Notice was not actionable under Section 10(b) because AT&T had twice disclosed the free-exchange alternative and, thus, the omission of this option from the December 2000 Notice was not material. (Id., R. 115, Mem. Opinion & Ord.) Judge Grady also dismissed Plaintiffs New York state law claims, finding that previous orders had already concluded that all state law claims alleging fraud in connection with the December 2000 Notice were preempted by SLUSA. (Id. at 39-42.) The only claim that remained was Plaintiffs claim under Section 10(b) alleging that Georgeson's telephone agents failed to advise shareholders who contacted them that a fee-free exchange option was available through EquiServe. (Id. at 30-42.) Plaintiff, however, was not one of the class members who had contacted Georgeson by telephone, so following Judge Grady's ruling Plaintiffs counsel filed a motion for leave to contact class members to find...

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