In re Mut. Fund Market-Timing Litigation, 04-1495.

• Decision Date: 16 October 2006
• Docket Number: No. 05-2911.,No. 04-1495.,No. 04-2162.,No. 05-2981.,No. 04-1608.,No. 05-3585.,No. 04-1660.,No. 05-2912.,No. 04-1650.,No. 05-3548.,No. 05-2895.,No. 04-1661.,No. 04-2687.,No. 04-1496.,No. 05-2896.,No. 04-1628.,No. 05-3389.,No. 04-1651.,No. 05-3011.,04-1495.,04-1496.,04-1608.,04-1628.,04-1650.,04-1651.,04-1660.,04-1661.,04-2162.,04-2687.,05-2895.,05-2896.,05-2911.,05-2912.,05-2981.,05-3011.,05-3389.,05-3548.,05-3585.
• Parties: In the Matter of MUTUAL FUND MARKET-TIMING LITIGATION.
• Court: U.S. Court of Appeals — Seventh Circuit

468 F.3d 439

In the Matter of MUTUAL FUND MARKET-TIMING LITIGATION.

No. 04-1495.

No. 04-1496.

No. 04-1608.

No. 04-1628.

No. 04-1650.

No. 04-1651.

No. 04-1660.

No. 04-1661.

No. 04-2162.

No. 04-2687.

No. 05-2895.

No. 05-2896.

No. 05-2911.

No. 05-2912.

No. 05-2981.

No. 05-3011.

No. 05-3389.

No. 05-3548.

No. 05-3585.

United States Court of Appeals, Seventh Circuit.

Submitted July 25, 2006.

Decided October 16, 2006.

As Amended October 23, 2006.

George A. Zelcs, Korein Tillery, Chicago, IL, Robert L. King, Korein Tillery, St. Louis, MO, Sanford Svetcov, Lerach Coughlin Stoia Geller Rudman & Robbins, San Francisco, CA, for Plaintiffs-Appellants.

Rebecca R. Jackson, Bryan Cave, St. Louis, MO, Matthew R. Kipp, Skadden, Arps, Slate, Chicago, IL, Robert H. Shultz, Heyl, Royster, Voelker & Allen, Edwardsville, John W. Rotunno, Bell, Boyd & Lloyd, Chicago, IL, Dale Harris, Davis Graham & Stubbs, Denver, CO, Mark A. Perry, Gibson, Dunn & Crutcher, Washington, DC, Jon A. Santangelo, Stinson, Morrison & Hecker, St. Louis, MO, Meagher & Flom, Kenneth E. Rechtoris, Bell, Boyd & Lloyd, Chicago, IL, Charles F. Smith, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, Robert Y. Sperling, Winston & Strawn, Chicago, IL, Steven B. Feirson, Dechert, Philadelphia, PA, Gordon R. Broom, Edwardsville, IL, John D. Donovan, Jr., Ropes & Gray, Boston, MA, Ann C. Barron, Bryan Cave, St. Louis, MO, Mark A. Rabinowitz, Neal, Gerber & Eisenberg, Chicago, IL, David E. Foropp, Winston & Strawn, Chicago, IL, Frank N. Gundlach, Armstrong Teasdale, St. Louis, MO, Daniel A. Pollack, Pollack & Kamnisky, New York, NY, John W. Rotunno, Bell, Boyd & Lloyd, Chicago, IL, Thomas B. Smith, Ropes & Gray, Washington, DC, for Defendants-Appellants.

Before EASTERBROOK, RIPPLE, and DIANE P. WOOD, Circuit Judges.

EASTERBROOK, Circuit Judge.

Our opinion in Kircher v. Putnam Funds Trust, 403 F.3d 478 (7th Cir.2005) (Kircher II), explains the nature of these suits against mutual funds. Plaintiffs maintain that the funds are liable because they were vulnerable to arbitrageurs who exploited the fact that, when the mutual funds' shares were priced (at 4 P.M. New York time every business day), the funds valued securities of foreign issuers at their closing prices in the issuers' home markets rather than the latest trading price in any liquid market. If prices move after the issuers' home-market close, but before 4 P.M. in New York, the difference creates arbitrage opportunities at the expense of investors who follow a buy-and-hold strategy. Plaintiffs contend that the funds should have made arbitrage unprofitable by changing the rules for valuing the securities in the funds' portfolios or imposing fees on short-swing trades.

Kircher II held that claims of this kind arise under federal securities law because disclosure of the funds' practices and vulnerabilities would preclude recovery, and that, because plaintiffs have not taken advantage of the exception for derivative litigation, the state-law claims are preempted by the Securities Litigation Uniform Standards Act of 1998 (SLUSA) even though at least some of the investors held their shares throughout the class periods. Although the Supreme Court has agreed with that substantive approach, see Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, ___ U.S. ___, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006), it has also concluded that we lacked appellate jurisdiction and vacated our judgment accordingly. Kircher v. Putnam Funds Trust, ___ U.S. ___, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006) (Kircher III). (Kircher I, in which we had asserted appellate jurisdiction, appears at 373 F.3d 847 (7th Cir.2004). That makes the current opinion Kircher IV, though we have used a generic caption to reflect the presence of many related appeals.)

Ten of the appeals listed in the caption (Nos. 04-1495, 04-1496, 04-1608, 04-1628, 04-1650, 04-1651, 04-1660, 04-1661, 04-2162 & 04-2687) are before us on remand from Kircher III. Their disposition is straightforward: all ten appeals are dismissed for lack of jurisdiction. This means that the suits will return to Illinois courts under orders that the district court entered in 2004. They stayed in federal court only as a result of our now-vacated decisions in Kircher I and Kircher II. Appellants in two of these appeals (Voegler v. Columbia Wanger Asset Management, L.P., Nos. 04-1660 & 04-1661) have asked us to keep the proceedings on our docket pending a settlement. Because we lack appellate jurisdiction, however, we must dismiss the appeals outright. There is neither authority to retain them longer nor any point in doing so. Whether the settlement is completed or not, the only act we can take is to dismiss the appeals; we could not approve a settlement or do anything in response to it. Any settlement that the parties reach can be implemented and the litigation brought to a close in state court.

The remaining 9 appeals listed in the caption were not before the Supreme Court in Kircher III. Instead proceedings in this court were stayed after the petition for certiorari was granted. This set of appeals comprises two groups. The first we call the Potter group after the lead case Potter v. Janus Investment Fund, No. 05-2895. (The other appeals in this group are Nos. 05-2896, 05-2911, 05-2912, 05-2981, 05-3011 & 05-3389.) The second is Parthasarathy v. T. Rowe Price International Funds, Inc., Nos. 05-3548 & 05-3585. What distinguishes the Potter and Parthasarathy appeals from the Kircher appeals is that these 9 appeals have been filed by plaintiffs from final orders of the district court dismissing the suits on the merits, so the holding in Kircher III that we lack jurisdiction to consider appeals filed by defendants from remand orders is not controlling.

The 7 appeals in the Potter group arise from the same suits that were before this court and the Supreme Court. After we held in Kircher II that SLUSA preempts the plaintiffs' claims, they not only sought certiorari but also proposed to amend their complaints in the district court to eliminate any theory that depends on fraud or non-disclosure. Our mandates had issued, so plaintiffs were entitled to do this. The district court deemed the proposed amendments unavailing, however, and dismissed the suits on the authority of Kircher II. Plaintiffs then appealed. Meanwhile the Supreme Court had granted certiorari—though limited to the jurisdictional question; the petition was denied to the extent it sought review of the merits. 126 S.Ct. 979 (2006). Thus the cases were before two appellate tribunals simultaneously. Seemingly we had to decide whether the amended complaints avoided preemption under SLUSA at the same time as the Supreme Court passed on appellate jurisdiction at an earlier stage of the litigation. To avoid getting the cart before the horse, we stayed proceedings pending the Supreme Court's decision.

Defendants maintain that, because the Potter appeals have been filed by plaintiffs from indisputably final decisions and hence are within our jurisdiction, we should proceed to decide them on the merits. In response to the plaintiffs' observation that the Supreme Court's decision requires us to rewind the litigation to the date in 2004 when Kircher I erroneously asserted appellate jurisdiction—a step that would return each case to state court—defendants maintain that, by attempting to amend their complaints after the district court received our mandates, plaintiffs have "effectively" commenced new federal suits, which the district court was obliged to decide without regard to any influence of the jurisdictional decision in Kircher III.

Defendants' position is inventive but unpersuasive. The Potter appeals are just steps in the Kircher litigation. Each plaintiff filed only one suit, in state court. Proceedings held in federal court after removal do not create new suits. Amendments that delete some legal theories, while leaving the parties' identities untouched, relate back to the original complaint and hence do not commence new litigation. See Phillips v. Ford Motor Co., 435 F.3d 785 (7th Cir.2006); Schorsch v. Hewlett-Packard Co., 417 F.3d 748 (7th Cir.2005). Each of these cases therefore must return to the state court in which it was filed, just as Kircher III concluded.

According to the mutual funds, this would be a pointless step, because they can remove the cases again, the district court will exercise jurisdiction (for Dabit shows that removal is proper) and resolve the cases on the merits yet again, and we will see a new set of appeals in short order.

Defendants invite us to short-circuit this process and resolve the issues now. Yet if defendants follow the strategy they have outlined, plaintiffs will reply that federal law allows only one removal. The mutual funds will argue that a second removal is authorized either by 28 U.S.C. § 1446(b) (a new 30-day period for removal opens once an order first demonstrates that the case is removable) or by SLUSA. Plaintiffs tell us that they will respond that Dabit is not such an "order" (because in their view "order" means "order in a case to which the removing litigant was a party") and that SLUSA does not allow removal after the period specified by § 1446(b). There will be time enough to address these arguments if they become important; their resolution ought not be anticipated before the steps that make them relevant have been taken.

If the 11 Potter appeals handled were not complex enough, the Parthasarathy appeals are tied in additional knots. Parthasarathy and three other plaintiffs (seeking to represent a class) filed suit in state court against six defendants: T. Rowe Price International Funds, Inc., and T. Rowe Price International, Inc. (the Price defendants); AIM International Funds, Inc., and AIM Advisers, Inc. (the AIM defendants); and Artisan Funds, Inc., and Artisan Partners Limited Partnership (the Artisan defendants). Defendants removed this suit in 2003, and it was docketed...