Individual Investor’s Appeal Dismissed for Lack of Standing
The U.S. Court of Appeals for the Ninth Circuit dismissed the investor’s appeal, finding that he lacked standing for two reasons. First, the court found that the investor was not a party to the action because after he filed the complaint, he did not participate significantly in the district court. Second, the amended complaint, which did not specifically name him in any of its allegations, superseded the original. The majority also found that the equities did not favor allowing him to appeal as a non-party.
Although the investor was listed in the caption, the body of the complaint made clear that the retirement system was the plaintiff, and the class had not been certified. Thus, despite the investor being a part of the putative class, for purposes of appealing an adverse judgment, the term “party” did not include unnamed class members.
The dissent would have held that investor was a “party” and, therefore, had a right to appeal. It reasoned that “[p]arty status does not depend on being present in the district court litigation from the moment it began or at the moment it ended.” Moreover, according to the dissent, even if the investor was not a party, exceptional circumstances existed to allow him to appeal. Specifically, the investor initiated the lawsuit and remained in the caption of the amended complaint. His claims were covered by the substantive allegations in the amended complaint, and the investor did not act to remove himself from the litigation, the dissent concluded. Further, the district court never told the investor that he was no longer a party.
Section Leaders Offer Mixed Reviews
The court’s rejection of appellate standing for the original plaintiff drew varied reactions from ABA Litigation Section leaders. “The standing issue is interesting to me,” states Jason K. Kellogg, Miami, FL, cochair of the Litigation Section’s Class Actions & Derivative Suits Committee. “There are so many traps for the unwary in this job. This decision presents a new creative way of falling into a trap that creates litigation,” remarks Kellogg.
“This is a tough one, as evidenced by the split panel,” adds Ian H. Fisher, Chicago, IL, immediate past cochair of the Section’s Class Actions & Derivative Suits Committee. “Once Habelt filed the case, he was a plaintiff and, absent notice that his status would change and an opportunity to contest the change, he should remain a party for the purposes of an appeal,” concludes Fisher.
“The decision seems sound to me. It is a procedural case, one that could be useful to examine in a first year civil procedure class” says Mark E. Rooney, Washington, DC, cochair of the Section’s Consumer Litigation Committee. “Not everyone can appeal every decision, and in this case, Mr. Habelt is not bound by the decision below anyway. While he cannot appeal in this case, he may live to fight another day,” Rooney concludes.
Active involvement in the litigation is the key to avoiding a similar outcome. “If one represents a plaintiff who is not selected to be the lead plaintiff, stay involved and vocal in the proceedings to make clear you are not abdicating the role of plaintiff,” suggests Fisher.