Commercial Litigation and Arbitration

Putative Class Representative Lacks Standing to Appeal Denial of Motion to Add New Plaintiff Who Would Have Standing to Bring Certain Claim — Only Prospective New Plaintiff Has Standing

From Thomas v. Metropolitan Life Ins. Co., 2011 U.S. App. LEXIS 2024 (10th Cir. Feb. 2, 2011):

Plaintiffs-Appellants Robert and Amanda Thomas appeal from the district court's grant of summary judgment in favor of Defendants-Appellees Metropolitan Life Insurance Companies, Inc. and Metlife Securities, Inc. (sometimes collectively referred to as "Met"). Plaintiffs filed a putative class action on behalf of class members who bought life insurance products from Met. Two issues are before us: (1) whether the district court abused its discretion by refusing to grant leave to amend the Second Amended Complaint ("SAC") to add named plaintiffs who had standing to assert securities fraud claims***. We hold that Robert and Amanda Thomas--the only plaintiffs in this proceeding--do not have standing to appeal the first issue. Therefore, we dismiss that part of the appeal without considering the merits.***

On January 31, 2007, Robert Thomas filed a complaint on behalf of himself and others who had bought proprietary Met products. *** The complaint alleged claims under section 10(b) of the Securities Exchange Act of 1934, the IAA, several state statutes, and state common law. *** In September 2007 Mr. Thomas—along with two additional named plaintiffs, Jay Stout and Carolyn Ising, who had purchased securities and a financial plan from Met—filed the SAC, which alleged essentially the same claims. *** Met moved to dismiss. The district court dismissed the state law claims, and Plaintiffs do not contest that ruling. *** The district court also dismissed the federal securities fraud claims but allowed a period for discovery to resolve issues surrounding the plaintiffs' standing--specifically, whether any of the named plaintiffs had purchased mutual funds or securities during the relevant period. ***

Discovery revealed that the named Plaintiffs had purchased only life insurance products—not securities or mutual funds—from Met during the class period. *** Thus, no named Plaintiffs had standing to bring securities fraud claims. Plaintiffs moved for leave to amend the complaint to add as named plaintiffs persons who did purchase securities or mutual funds during the relevant time frame and who could therefore bring securities fraud claims. *** In a two-page minute order, the district court partially denied Plaintiffs' motion. *** Although it denied the majority of Plaintiffs' requests in their motion for leave to amend the SAC, the district court did grant leave to file a Third Amended Complaint ("TAC") to add Amanda Thomas, Robert Thomas's wife, as an additional named plaintiff. *** Plaintiffs Robert and Amanda Thomas filed the TAC, which brought the only claims the Thomases had standing to assert—the IAA claims discussed above. *** Although the TAC is styled as a class action, the district court has neither certified nor denied certification of a class. Robert and Amanda Thomas—the only Plaintiffs-Appellants in this appeal—argue that the district court abused its discretion in refusing to allow as named plaintiffs persons who had standing to assert securities fraud claims. ***

"The standing Article III requires must be met by persons seeking appellate review, just as it must be met by persons appearing in courts of first instance." Arizonans for Official Engl. v. Arizona, 520 U.S. 43, 64 (1997) (citing Diamond v. Charles, 476 U.S. 54, 62 (1986)). Therefore, "[t]o have standing [on appeal], one must be aggrieved by the order from which appeal is taken." Uselton v. Commercial Lovelace Motor Freight, Inc., 9 F.3d 849, 854 (10th Cir. 1993) (citation omitted); Sabido Valdivia v. Gonzales, 423 F.3d 1144, 1147 (10th Cir. 2005); accord Tachiona v. United States, 386 F.3d 205, 211 (2d Cir. 2004). Just like litigants generally cannot bring suit to vindicate the rights of others, see RMA Venture Cal. v. SunAmerica Life Ins. Co., 576 F.3d 1070, 1073 (10th Cir. 2009), parties generally do not have standing to appeal in order to protect the rights of third parties. See Howard v. Mail-Well Envelope Co., 150 F.3d 1227, 1230 (10th Cir. 1998) (citation omitted).

Machella v. Cardenas, 653 F.2d 923 (5th Cir. 1981), is particularly relevant here. In that case, Mr. Machella brought a putative class action against the Small Business Administration concerning loan forgiveness in a federal disaster relief program. Machella, 653 F.2d at 925. Before a class was certified, Mr. Machella attempted to amend his complaint to add a third party, Shirley Shaw, as a party plaintiff. Id. at 927. The district court denied leave to amend and eventually dismissed the case. Id. On appeal, Mr. Machella sought review of both the district court's decision on the merits and its refusal to grant leave to amend the complaint. Id. at 925, 927. The Fifth Circuit dismissed the second issue for lack of jurisdiction. Id. at 927. The court held that Mr. Machella was not aggrieved by the court's denial of leave to amend--the only person aggrieved was the potential new plaintiff, who did not appeal the order. Id. Therefore, Mr. Machella did not have standing to appeal the issue, and the court did not have jurisdiction to consider it. Id.

Our case is indistinguishable. Robert Thomas, Carolyn Ising, and Jay Stout sought leave to amend the class-action complaint in order to add named plaintiffs who had standing to assert securities fraud claims. JA 33. It is undisputed that neither Amanda nor Robert Thomas—the only Plaintiffs-Appellants before us—have standing to bring securities fraud claims. The district court denied the motion, but permitted Amanda Thomas to be added as a plaintiff to assert her IAA claims. Id. at 133-34. Amanda and Robert Thomas then filed the TAC, in which they asserted all the claims they had standing to assert—the IAA claims that form the basis of the second issue on appeal. Accordingly, Robert and Amanda Thomas were not aggrieved by the district court's order and do not have standing to challenge it on appeal.

It makes no difference that this lawsuit is styled as a putative class action. Prior to class certification, the named plaintiffs' failure to maintain a live case or controversy is fatal to the case as a whole—that unnamed plaintiffs might have a case or controversy is irrelevant. See Clark v. State Farm Mut. Auto. Ins. Co., 590 F.3d 1134, 1138 (10th Cir. 2009); accord Machella, 653 F.2d at 927. As discussed above, the Thomases were not aggrieved by the district court order and their appeal constitutes an attempt to protect the rights of third parties. They have no standing to do so, see Uselton, 9 F.3d at 854, and we dismiss that part of the appeal without considering the merits. We do have jurisdiction over Plaintiffs' appeal from the grant of summary judgment under 28 U.S.C. § 1291 and consider that next.

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