Kircher, Carl v. Putnam Funds Trust ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 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, 05-3390,
05-3548, 05-3558, 05-3559, 05-3585 & 05-3586
IN THE MATTER OF:
MUTUAL FUND MARKET-TIMING LITIGATION
____________
Appeals from the United States District Court
for the Southern District of Illinois.
____________
SUBMITTED JULY 25, 2006—DECIDED OCTOBER 16, 2006
____________
Before EASTERBROOK, RIPPLE, and 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
2 Nos. 04-1495 et al.
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,
126 S. Ct. 1503 (2006), it has also concluded that we lacked
appellate jurisdiction and vacated our judgment accord-
ingly. Kircher v. Putnam Funds Trust, 126 S. Ct. 2145(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
Nos. 04-1495 et al. 3
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 imple-
mented and the litigation brought to a close in state court.
The remaining 13 appeals listed in the caption were not
before the Supreme Court in Kircher III. Instead proceed-
ings in this court were stayed after the petition for certio-
rari 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 ten
appeals in this group are Nos. 05-2896, 05-2911, 05-2912,
05-2981, 05-3011, 05-3389, 05-3390, 05-3558, 05-3559 & 05-
3586.) 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 13 appeals have been filed
by plaintiffs from final orders of the district court dismiss-
ing 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 11 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 plain-
tiffs’ claims, they not only sought certiorari but also pro-
posed 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 ap-
pealed. 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 preemp-
4 Nos. 04-1495 et al.
tion 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 deci-
sions 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 jurisdic-
tion—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 deci-
sion 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 point-
less 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.
Nos. 04-1495 et al. 5
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 in the
district court as No. 03-673 before being remanded. Al-
though the Artisan defendants appealed from the remand,
the Price and AIM defendants did not. The Artisan defen-
dants’ appeal was consolidated with the Kircher cases in
this court; meanwhile the litigation proceeded in state court
against the Price and AIM defendants. After Kircher II, the
Price and AIM defendants filed a second notice of removal,
which was assigned a new docket number (No. 05-302) even
though the same suit was still on the district court’s docket
as No. 03-673. When the district court received our mandate
after Kircher II, it ruled on the merits in favor of all six
6 Nos. 04-1495 et al.
defendants in No. 03-673 and dismissed No. 05-302 on the
ground that the disposition in No. 03-673 was preclusive
against plaintiffs. Plaintiffs filed two notices of appeal, one
from each docket number under which the district court
carried the litigation.
The first of these appeals (No. 05-3548), from the origi-
nally removed suit, is part of the Kircher family and must
receive the same treatment as the 11 Potter appeals. The
Price and AIM defendants ask us to affirm on the merits in
the second appeal (No. 05-3585, from the docket spawned by
the second removal in 2005) because it was not before the
Supreme Court in Kircher III, and the fact that the appeal
is from a final decision avoids all questions about appellate
jurisdiction. That is the path we took in a group of four
appeals in cases that had been removed after Kircher II,
dismissed by the district court on the merits, and were
affirmed by unpublished order relying on Dabit. See
Bradfisch v. Templeton Funds, Inc., 2006 U.S. App. LEXIS
12394 (7th Cir. May 19, 2006), rehearing denied (with
additional explanation) (June 15, 2006).
But Parthasarathy was removed in 2003 and remanded as
outside federal jurisdiction in 2004. The Artisan defendants
appealed; the Price and AIM defendants did not. That left
in force the district court’s decision against the non-appeal-
ing defendants. When they removed again in 2005, the
district court should have remanded without regard to the
conclusion of Kircher II—for the Price and AIM defendants
are bound by the district court’s adverse decision, notwith-
standing the fact that both this court (in Kircher II) and the
Supreme Court (in Dabit) have held that the district judge’s
2004 decision was mistaken. Litigants who do not appeal
from an adverse decision are stuck with it, even if some
other party to the same case appeals and wins. See Feder-
ated Department Stores, Inc. v. Moitie, 452 U.S. 394 (1981);
Morley Construction Co. v. Maryland Casualty Co., 300 U.S.
185, 191 (1937).
Nos. 04-1495 et al. 7
Plaintiffs might have been able to say much the same
thing in the Bradfisch suits, for the defendants in those
four cases also had removed in 2003 and failed to appeal
from the remand orders. What led us to resolve Bradfisch
on the merits is that no such argument had been raised (nor
did plaintiffs adequately address the propriety of a second
removal under SLUSA, as our order denying rehearing in
Bradfisch observed). The preclusive effect of a judgment,
such as the 2003 remand, is an affirmative defense. Plain-
tiffs in Bradfisch failed to mount that defense; plaintiffs in
Parthasarathy have done so and are entitled to its benefits.
Although preclusion does not block a successive removal if
facts or law change after the initial remand, see Midlock v.
Apple Vacations West, Inc., 406 F.3d 453 (7th Cir. 2005), the
“change” worked by Kircher II is not one that the Price and
AIM defendants may invoke (and that change has evapo-
rated anyway).
Dabit supplies an intervening change of law and may
or may not justify a successive removal; we reserved
that question above. But a pre-Dabit successive removal
cannot be justified by that later development, and certainly
not by the Price and AIM defendants. Cases are removed,
or not, as units; either all defendants agree to removal or
none does. Hanrick v. Hanrick, 153 U.S. 192 (1894);
Torrence v. Shedd, 144 U.S. 527 (1892). After removal, the
case either stays in federal court or returns to state court as
a unit (subject to the district court’s option under 28 U.S.C.
§1441(c) to remand “a separate and independent
[nonremovable] claim”). What happened to Parthasarathy,
however, is that a single case was broken into two by
defendants’ strategic choices. The district court should not
have allowed that to happen. Because the Price and AIM
defendants re-removed, however, the case came back
together as No. 03-673 on the district court’s docket. As a
result of Kircher III, that entire case must be
remanded—and No. 05-302 should be dismissed as an
8 Nos. 04-1495 et al.
unauthorized attempt to engineer a partial removal of a
single case. That ground is independent of any preclusive
effect of the original remand order.
On remand from the Supreme Court, the ten Kircher
appeals are dismissed for want of appellate jurisdiction. The
other 13 appeals are within our appellate jurisdiction, and
we vacate the district court’s judgments. All of these cases
(except the one discussed immediately above) must be
remanded to state court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-16-06