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NICHOLS v. MERRILL

November 25, 1992

DONALD NICHOLS, et al.
v.
MERRILL, LYNCH, PIERCE, FENNER & SMITH, INC., et al.



The opinion of the court was delivered by: THOMAS A. HIGGINS

 The Court has before it the defendant Merrill, Lynch, Pierce, Fenner & Smith's motion (filed August 24, 1992; Docket Entry No. 539) for summary judgment; Merrill, Lynch's supplemental motion (filed September 18, 1992; Docket Entry No. 544) for summary judgment; the motion (filed September 21, 1992; Docket Entry No. 546) for summary judgment filed on behalf of the defendants Sandestin Beach Hotel, Inc., Sandcastle Resort of Sandestin, Inc., Frank L. Flautt, Jr., William Jefferies Mann, Wilton D. Hill, Morton Olshan, Fred V. Alias, William Alias, Jr. and Robert Kamm (collectively the SBH defendants); the plaintiffs' response (filed October 13, 1992; Docket Entry No. 550) to defendants' motions for summary judgment; Merrill, Lynch's reply (filed October 28, 1992; Docket Entry No. 552) to plaintiffs' response to their motion for summary judgment; the reply (filed October 29, 1992; Docket Entry No. 553) of the SBH defendants to the plaintiffs' response to their motion for summary judgment; and the briefs, statements of uncontested facts and memorandum in support thereof.

 For the reasons discussed below, the Court grants the defendants' motions for summary judgment. *fn1"

 I. BACKGROUND *fn2"

 This action was filed on May 30, 1986. It was consolidated for all pretrial matters, including discovery, with McInnis v. Merrill, Lynch, Pierce, Fenner & Smith, Civil Action No. 3-87-0062, a class action. All of the individual plaintiffs in this action are members of the class of plaintiffs in McInnis. All of the defendants are either defendants in McInnis or "are affiliated with the common defendants and have interests that are essentially the came as those of the common defendants." Plaintiffs' Local Rule 8(b)(7)(c) statement (filed October 13, 1992; Docket Entry No. 551) in response to defendants' motions for summary judgment at 1-2. Pursuant to a joint motion by plaintiffs' counsel for both the McInnis and Nichols plaintiffs, the Court postponed the trial of Nichols until after the trial of McInnis because of the similarity of the issues in the two cases. See plaintiffs' response at 2; transcript of July 8, 1991, pretrial conference at 62-63, filed as exhibit 3 to Merrill, Lynch's reply.

 McInnis was tried before the Court from September 23, 1991, through the close of the plaintiffs' proof on October 28, 1991. The defendants moved orally to dismiss pursuant to Rule 41(b) of the Federal Rules of Civil Procedure at the close of the plaintiffs' proof. The Court granted the defendants' motions by order (Docket Entry No. 462) entered on July 17, 1992. *fn3" The Court dismissed the McInnis plaintiffs' federal and state securities claims, state fraud claims, and breach of fiduciary duty claims on statute of limitations grounds. The Court dismissed their breach of contract claim having found no material breach. Id.

 Nichols is currently before the Court on the defendants' motions for summary judgment. The defendants argue primarily that the principles of res judicata apply to bar the plaintiffs' claims. In the alternative, the defendants also argue that the applicable statutes of limitations have run, that there is no basis in law for certain of the plaintiffs' claims, and that the plaintiffs' RICO claim has already been found by this Court to be without merit. See, e.g., Merrill Lynch's supplemental motion at 1.

 II. DISCUSSION

 The plaintiffs acknowledge the general rule that the pendency of an appeal does not preclude a judgment from being given res judicata effect. Plaintiffs' response at 4; see Deposit Bank of Frankfort v. Board of Councilmen, 191 U.S. 499, 24 S. Ct. 154, 48 L. Ed. 276 (1903). However, they argue that because McInnis is a class action, and the Nichols plaintiffs are only passive members of the class, res judicata effect can be given to McInnis only after the interests of the passive members have been determined to have been represented adequately throughout the entire litigation, including the appeal. Plaintiffs' response at 4-5. The Court does not agree.

 It is true that "the judgment in a class action will bind only those members of the class whose interests have been adequately represented by existing parties to the litigation." Sam Fox Pub. Co. v. United States, 366 U.S. 683, 691, 81 S. Ct. 1309, 1314, 6 L. Ed. 2d 604, 610-11 (1961) (citing Hansberry v. Lee, 311 U.S. 32, 61 S. Ct. 115, 85 L. Ed. 22 (1940)). The plaintiffs' argument that this duty necessarily extends through the appeal of the case (and therefore that no class action can be given res judicata effect until the final appellate court has rendered its decision) relies primarily on Gonzales v. Cassidy, 474 F.2d 67 (5th Cir. 1973).

 In Gonzales, the Fifth Circuit held that the class representative in a prior litigation did not represent the class adequately when he failed to appeal the district court's order denying retroactive relief to all members of the class except himself. Id. at 75. According to the Court,

 
the primary criterion for determining whether the class representative has adequately represented his class for purposes of res judicata is whether the representative, through qualified counsel, vigorously and tenaciously protected the interests of the class. A court must view the representative's conduct of the entire litigation with this criterion in mind.

 Id. The plaintiffs' reading of Gonzales is too broad. *fn4" Nowhere does the Court even attempt to disturb the general rule that the pendency of an appeal will not ...


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