The Fifth District Appellate Court has ordered that a Madison County mutual funds class action be dismissed.
In a ruling handed down Wednesday, the court reversed Circuit Judge Barbara Crowder who in 2007 denied a defense motion for judgment on the pleadings in a case against international mutual fund defendants Putnam Funds Trust, Putnam Investment, Evergreen International Trust and Evergreen Investment Management. The defendants had argued that the plaintiffs' claims were barred by the Securities Litigation Act.
The appellate court remanded the case with directions to dismiss.
Justices considered five certified questions on appeal, but they answered only the first -- whether the case was precluded by the Securities Litigation Act – in the affirmative.
"We decline to answer the remaining certified questions because to answer them would have no practical effect on this litigation," wrote Justice Stephen Spomer. Justices Melissa Chapman and Bruce Stewart concurred.
Plaintiffs Carl Kircher and Robert Brockway as investors sued in 2003, claiming in part that the defendants exposed them, as long-term shareholders, to market timing traders who regularly purchased and redeemed the defendants' shares as a part of profitable trading strategy.
Korein Tillery represented the class.
Kircher and Brockway claimed that excess profits that are obtained by market-timing traders who take advantage of "stale" pricing of the defendants' shares come at the expense of fellow shareholders such as the plaintiffs, who are non-trading, long-term, "buy and hold" investors.
"Although the plaintiffs argue, and the circuit court ruled, that the complaint is outside the scope of the Securities Litigation Act because it alleges the negligent and willful and wanton mismanagement of the funds, we find that the plaintiffs' allegations of stale pricing are, in essence, allegations of a negligent or willful and wanton misrepresentation of value," Spomer wrote. "We note that this holding is in line with the federal multidistrict litigation court, which also dismissed, as precluded by the Securities Litigation Act, the same type of complaint of common law negligence based on stale pricing."