In Re Navigant Consulting, Inc., Securities Litigation
275 F.3d 616 (2001)
Rule of Law:
Class members must formally intervene and acquire party status in a class action with a timely application under Federal Rule of Civil Procedure 24(a) and (b) to appeal a judgment, and ignorance of the legal requirement to intervene is not a justification for untimeliness.
Facts:
- Navigant Consulting, Inc. (Navigant) allegedly violated federal securities laws by making false statements and using an impermissible 'pooling' accounting method for four acquisitions.
- Navigant first released earnings using pooling early in 1999.
- On November 22, 1999, Navigant announced that its accountants questioned the pooling treatment, earnings might be restated, and senior officers had resigned or been discharged.
- The price of Navigant’s stock dropped 45% (from $26.00 to $14.25 per share) on November 22, 1999.
- The class representatives sought recovery for investors who bought stock during 1999 before the November 22, 1999 disclosure.
- Charles L. Grimes and Gordon W. Chaplin, as Trustees (the objectors), believed that purchasers through January 24, 2000, when Navigant released its restated earnings, should be included in the class.
- By August 2000, the objectors knew that the damages period proposed by the class representatives would close in November 1999, thereby omitting some of their trades.
- The objectors’ counsel later explained their delay in seeking intervention was due to ignorance of the precedent requiring intervention for appeal.
Procedural Posture:
- Twenty-one class actions were consolidated in the United States District Court for the Northern District of Illinois, Eastern Division, alleging securities law violations against Navigant Consulting, Inc.
- The class representatives and Navigant Consulting reached a proposed settlement agreement.
- Charles L. Grimes and Gordon W. Chaplin, as Trustees, and other class members (objectors) filed objections to the district court’s approval of the settlement.
- The district court approved the settlement over the objections.
- The objectors attempted to appeal the approval of the settlement to the United States Court of Appeals for the Seventh Circuit without having formally intervened.
- After receiving a notice from Seventh Circuit staff regarding a potential jurisdictional problem, the objectors filed a motion to intervene in the district court.
- In September 2000, the objectors filed a separate, twenty-second class action, naming themselves as representatives, and sought to have it consolidated with the ongoing actions.
- The district court denied the objectors' motion to consolidate their separate class action.
- The district court denied the objectors’ motion to intervene as untimely.
- The objectors appealed the denial of their motion to intervene to the United States Court of Appeals for the Seventh Circuit, with a conditional appeal from the order approving the settlement.
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Issue:
Is a motion to intervene by a class member for the purpose of appealing a class action settlement timely under Federal Rule of Civil Procedure 24(a) and (b) when the class member waited several months after becoming aware of their objections to the settlement to seek intervention, citing ignorance of the legal requirement for party status on appeal?
Opinions:
Majority - Easterbrook
No, a motion to intervene by a class member for the purpose of appealing a class action settlement is not timely under Federal Rule of Civil Procedure 24(a) and (b) when the class member waited several months after becoming aware of their objections to the settlement to seek intervention, citing ignorance of the legal requirement for party status on appeal. Federal Rule of Appellate Procedure 3 limits appeals to parties, and class members (other than named representatives) are not automatically parties; they must intervene to acquire party status for an appeal, as established in Felzen v. Andreas. While intervention after judgment is sometimes permitted under United Airlines, Inc. v. McDonald if class members learn only after judgment of circumstances calling for intervention, this depends on the promptness of action once the need is known. The objectors knew by August 2000 that their trades would be omitted but did not seek intervention until May 2001. Ignorance of procedural requirements or binding precedent, such as Felzen, is not a valid justification for failing to meet deadlines, including the 'timely application' requirement of Rule 24. The district court was within its discretion to find the motion untimely given the objectors' prolonged delay and prior attempts at self-help through separate litigation, demonstrating their awareness of the need for action. The court further clarified that while class members may have 'standing' to appeal due to injury, standing is distinct from 'party status,' which requires taking formal procedural steps like timely intervention. Insisting on party status facilitates adjudication in district courts by allowing discovery and expert views to be obtained before appeal, ensuring a more informed decision on the merits.
Analysis:
This case reinforces the strict procedural requirement for class members to formally intervene to appeal a class action settlement. It clarifies that merely having 'standing' to appeal is insufficient; one must acquire 'party status' through timely intervention. The ruling emphasizes that ignorance of established legal precedent (like Felzen v. Andreas) is not an excuse for procedural delay, setting a high bar for post-judgment intervention. This decision encourages class members with objections to engage early in the litigation process, ensuring district courts have the opportunity to fully explore objections before a settlement is finalized, thus reducing the likelihood of speculative appeals.
