Civil Procedure – intervention — derivative shareholder litigation

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United States Court of Appeals For the Seventh Circuit

Civil

Civil Procedure – intervention — derivative shareholder litigation

Where a shareholder brought a derivative action, challenging a merger on antitrust grounds, it was error to deny another shareholder’s motion to intervene and defend the merger.

“The district judge’s reason for denying Frank’s motion to intervene—that Booth Trust and Gross adequately represent his interests—is unsound. Frank’s position is entirely incompatible with the stance taken by Booth Trust and Gross. Rule 23.1(c) requires judicial approval of settlements in derivative suits precisely because the self-appointed investors may be poor champions of corporate interests and thus injure fellow shareholders. That the plaintiffs say they have other investors’ interests at heart does not make it so. The district judge did not find that plaintiffs are right, and Frank wrong, about where the corporate interest lies. And even if the judge had concluded that the plaintiffs have the better of their dispute with Frank, still the judge should have granted his motion to intervene—for given Felzen the only way he can get appellate review is to become a party. A district judge ought not try to insulate his decisions from appellate review by preventing a person from acquiring a status essential to that review. In Crawford v. Equifax Payment Services, Inc., 201 F.3d 877, 881 (7th Cir. 2000), we told district judges to grant intervention freely to persons who want to contest settlements in class actions under Fed. R. Civ. P. 23; that is no less true of derivative actions under Rule 23.1.”

Reversed and Remanded.

10-3285 Robert F. Booth Trust v. Crowley

Appeal from the United States District Court for the Northern District of Illinois, Guzmán, J., Easterbrook, J.