Susman v. LINCOLN AMERICAN CORPORATION

• Decision Date: 22 October 1982
• Docket Number: No. 73 C 1089.,73 C 1089.
• Citation: 550 F. Supp. 442
• Parties: Michael SUSMAN, Plaintiff, v. LINCOLN AMERICAN CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

550 F. Supp. 442

Michael SUSMAN, Plaintiff, v. LINCOLN AMERICAN CORPORATION, et al., Defendants.

No. 73 C 1089.

United States District Court, N.D. Illinois, E.D.

October 22, 1982.

Thomas R. Meites and Lee H. Weiner, Meites & Frackman, Chicago, Ill., for plaintiff.

Randall L. Mitchell, Adams, Fox, Marcus, Adelstein & Gerding, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

In 1973 Michael Susman ("Susman") brought this class and derivative action on behalf of Consumers National Corporation ("Consumers") and its minority stockholders. Susman asserts various violations of the Securities and Exchange Act of 1934 in connection with the "going private" merger of Consumers into Lincoln American Life Insurance Company ("Lincoln Life"), a wholly-owned subsidiary of Lincoln American Corporation ("Lincoln American"). In the latest chapter of this seemingly interminable litigation, defendants have moved for:

(1) summary judgment on Susman's individual claims (2) summary judgment on the derivative claims;

(3) an order (or other appropriate relief) barring Susman from serving as class representative; and

(4) summary judgment against three class members (not named plaintiffs).

For the reasons stated in this memorandum opinion and order, defendants' first and second motions are granted, while the third and fourth motions are denied.

Procedural History

Three earlier opinions of this Court¹ have provided a more detailed account of the source of this litigation than is needed here. More appropriate for current purposes is a brief account of the complicated procedural history underlying just one fragment of this case — the class certification issue.

At a relatively early date Judge Flaum (to whom the case was then assigned) denied Susman's motion for class certification because his family relationship with class counsel threatened Susman's ability to protect the interests of absent class members. 72 F.R.D. 187. That decision was affirmed at 561 F.2d 86 (7th Cir.1977) (Susman I).

After retaining new counsel, Susman renewed his motion. In response, defendants tendered the full amount of Susman's individual claim to him. When he rejected the offer, defendants filed a motion to dismiss. Judge Flaum granted defendants' motion on the ground the tender had mooted the controversy between the named parties. This time, however, our Court of Appeals reversed, 587 F.2d 866 (7th Cir.1978), cert. denied, 445 U.S. 942, 100 S.Ct. 1336, 63 L.Ed.2d 775 (1980) (Susman II).

Inspired by this victory, Susman persevered with his quest for certification. This Court's February 12, 1981 memorandum opinion and order rejected the class designation he had tendered but provided a road map for redefinition of the proposed class. Susman accepted the invitation, and this Court certified the redefined class March 10, 1981.

Summary Judgment Against Susman on His Individual Claims

Defendants advance two reasons for summary judgment against Susman individually:

1. Susman could not possibly have relied on alleged misrepresentations and omissions in the proxy materials at issue — even if there is a rebuttable presumption of reliance — because he failed to read those materials.

2. Defendants' tender of the full damages allegedly sustained by Susman renders his individual claims moot.

This Court is persuaded by defendants' mootness argument and will hence not address the reliance issue.

Under the overwhelming weight of authority, mootness is triggered by such a tender of damages. Indeed, one of Judge Flaum's earlier opinions expressly held defendants' tender extinguished their controversy with Susman.² Though law of the case doctrines do not technically apply to earlier decisions of a fellow District Judge, this Court will not lightly depart from them. See 1B Moore, Federal Practice ¶ 0.4044, at 453 (2d ed. 1982).

Moreover, except for two Ninth Circuit cases³ the courts have uniformly espoused the position taken by Judge Flaum. See, e.g., Zeidman v. J. Ray McDermott & Co., Inc., 651 F.2d 1030 (5th Cir.1981) (reversing trial court's dismissal of entire class action, but leaving intact its dismissal of named plaintiffs' private claims); Goldberg v. Taylor Wine Co., 499 F.Supp. 468 (E.D.N.Y. 1980); Weisman v. Darneille, 79 F.R.D. 389 (S.D.N.Y.1978). Accordingly, defendants' motion for summary judgment on Susman's individual claims is granted (conditioned, of course, on delivery of the tendered amount to Susman).

Susman's Status as Class Representative

Defendants rely on three arguments to bar Susman's service as class representative:

1. Because defendants' tender has mooted Susman's individual claims, he lacks the "personal stake" required by Article III to vindicate the interests of absent class members.

2. Because Susman's claims are moot, he can no longer meet the Fed.R.Civ.P. ("Rule") 23(a)(4) requirement that he "fairly and adequately protect the interests of the class."

3. Susman's individual claims turn on the issue of reliance and are therefore not "typical" of those shared by the other class members (Rule 23(a)(3)).

All three of these arguments are without merit.

First, United States Parole Comm'n v. Geraghty, 445 U.S. 388, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980) and Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980) dealt with Article III considerations in a closely related context. Both Roper and Geraghty held that named plaintiffs had a sufficient personal stake in the class action to appeal the trial court's denial of class certification, despite the mootness of their substantive claims. That same analysis should extend to Susman's prosecution of the class's substantive claims.

Thus in Roper, a class action much like the present one, the Court found the requisite personal stake in the named plaintiff's "desire to shift part of the costs of litigation to those who will share in its benefits if the class is certified and ultimately prevails" (445 U.S. at 336, 100 S.Ct. at 1173). That aptly characterizes Susman's desire, and if Article III demands no more, it should permit Susman to represent the class on the merits.

Geraghty appears to go even farther down the same road. It said (445 U.S. at 402, 100 S.Ct. at 1211) the "personal stake" requirement must be applied separately to the two claims asserted by the named plaintiff: (1) his own claim on the merits and (2) the claim that he is entitled to represent a class. It then found the named plaintiff's "vigorous advocacy" met Article III's demands on the class certification issue. And at least by implication the Article III requirement, once so met, would carry forward to the litigation of the class claims — else the Supreme Court would not have continued (id. at 405-07, 100 S.Ct. at 1213-1214):

Our conclusion that the controversy here is not moot does not automatically establish that the named plaintiff is entitled to continue litigating the interests of the class. "It does shift the focus of examination from the elements of justiciability to the ability of the named representative to `fairly and adequately protect the interests of the class.' Rule 23(a)." Sosna v. Iowa, 419 U.S., at 403 95 S.Ct., at 559. We hold only that a case or controversy still exists. The question of who is to represent the class is a separate issue.

Nor does the mootness of Susman's individual claims establish the inability under Rule 23(a)(4) "fairly and adequately to protect the interests of the class" — the second of defendants' arguments. Addressing the identical issue in Sosna v. Iowa, 419 U.S. 393, 403, 95 S.Ct. 553, 559, 42 L.Ed.2d 532 (1975), the Supreme Court held the named plaintiff, whose claim had expired after class certification, an adequate class representative. Rule 23(a)(4) was satisfied because (id.) "it is unlikely that segments of the class appellant represents would have interests conflicting with those she has sought to advance, and ... the interests of that class have been competently urged at each level of the proceeding...." Absent any assertion of conflicting interests and with no attack on the competency of Susman's representation, Sosna provides compelling support for Susman's continued action as class representative on the substantive claims.

That conclusion is fortified by two recent decisions holding a defendant's tender of full damages to the named plaintiff does not impair his status as class representative. Roper v. Consurve, Inc., 578 F.2d 1106, 1111 (5th Cir.1978); Flamm v. Eberstadt, 76 C 427 (N.D.Ill. July 22, 1981 and Mar. 5, 1982) (the case previously consolidated with this one for appeal in Susman II). As Judge Flaum put it in Flamm, slip op. at 6 (Mar. 5, 1982):

... but for the defendant's tender of full damages, the plaintiff's claims and interest would be the same as the remaining members of the putative class. Defendants should not be permitted to "pick off" proposed class representatives before the propriety of certification is resolved and thereby frustrate a class action otherwise appropriate, just as defendants should not be able to render a proposed class action moot by tendering full damages to the named plaintiff before the issue of certification is determined.

Those considerations equally support the notion that defendants' tender does not render Susman an inadequate class representative.⁴

Defendants' final argument — a Rule 23(a)(3) assault on Susman's individual claims as atypical — also misses the mark.⁵ Even if a reliance defense had applied to Susman's claim (before the tender), he would not be barred as class representative so long as such individual questions did not obscure the issues common to the class. See Blackie v. Barrack, 524 F.2d 891, 905-06 (9th Cir.1975); Helfand v. Cenco, Inc., 80 F.R.D. 1, 8 (N.D.Ill.1977). Here Susman's class allegations far eclipse whatever reliance issues might have lurked beneath his private claims.

Summary Judgment Against Susman on...