2001, and either sold the stock at a lower price than their purchase cost or still own the stock at this

time.”

CONCLUSION
Based on the foregoing analysis, we grant Alpart’s motion for certification of a class, but

adjust the definition of the class in accordance with this opinion.

Charles P, Kocoras
Chief Judge
United States District Court

Dated: _September 18, 2002

-13-


(1982); Harriston, 922 F.2d at 703; Retired Chicago Police Ass’n v. City of Chicago, 7 F.3d 584,
596 (7th Cir. 1993).

A district court has “broad discretion” in determining whether a class should be certified.
Retired Chicago Police Ass’n, 7 F.3d at 596. The party moving for the class certification bears the
burden of establishing that the certification is appropriate. Jd. A court may not consider the merits
of a case in making a class certification determination. Eisen v. Carlisle & Jacquelin, 417 U.S. 156,
177-78 (1974). The question before the court is not whether the plaintiff has established “a cause
of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.” Jd.
Although ordinarily a court may not delve into the merits of a case in order to determine whether a
class action may be maintained, the line between the class determination and the merits is not always
clear and thus “some discovery may be necessary... .” Retired Chicago Police Ass'n, 7 F.3d at
598-99.

Alpart argues and Defendants do not contest that the potential plaintiffs are numerous. From
August 14 to October 15, 2001 the stock traded over 5 million shares owned by numerous
shareholders located throughout the United States. We therefore find that the numerosity

requirement is satisfied.

L Distinction for Post-September 7 Purchasers
Defendants argue vehemently that in evaluating the requirements for Rule 23(a), and in
determining the class period, that investors purchasing stock on or before September 7 should be

considered a distinct and separate group from post-September 7 purchasers. Defendants claim the


Il. Typicality

The issue of typicality is “closely related to” the issue of commonality. In assessing the
typicality requirement of Rule 23(a)(3) the court needs to:

focus on whether the named representatives’ claims have the same essential

characteristics as the claims at large. ‘A plaintiff's claim is typical if it arises from

the same event or practice or course of conduct that gives rise to the claims of other

class members and his or her claims are based on the same legal theory.’

Retired Chicago Police Ass'n, 7 F.3d at 596-97 (quoting De La Fuente v, Stokely-Van Camp, Inc.,
713 F.2d 225, 232 (7th Cir. 1983)). A plaintiff within the class may have an atypical claim if there
is a "unique reliance defense” available against that plaintiff. In re VMS Securities Litigation, 136
F.R.D. 466, 475 (N.D. Ill. 1991).

Defendants claim that Alpart’s claim is not typical because Alpart bought a large portion of
their shares after September 7 and continued to purchase stock up until October 15 as the price fell.
Defendants claim that Alpart knew of the alleged fraud as of September 7 and made the post-
September 7 purchases with the belief that they would sue for fraud to make up for any losses.
According to Defendants the main reason that Alpart delineated the class period until October 15
rather than September 7 was so that the bulk of their purchases would be included within the class,
Defendants thus argue that Alpart’s state of mind when buying stock after September 7 is a unique
defense that can be asserted against Alpart, Defendants also claim Alpart’s claim is not typical
because Mr. Macklem, who headed a special trading group for Alpart, learned information from
attending court proceedings and from oral assurances made to him in private discussions. Alpart

responded that Macklem testified in a deposition that he didn’t think that he was told anything

different than what was said in the press.

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note that the alleged misrepresentations seem to have been rectified to a large extent on October 1
when Lincoln’s offer to purchase all outstanding stock at $4.50 a share was formally withdrawn.
Although it was possible that the takeover would still happen, it was a remote possibility. One thing
that is clear is that on September 7 Defendants’ statements did not entirely rectify the harm done by
the alleged misrepresentations made on August 13 and it was not until October 15, pursuant to an
order by Judge Shadur, that Defendants admitted that they did not have firm commitments, but only
oral indications of willingness to provide financing. After the August 13 statements and the
tumultuous events that cast doubt on those statements, there was a decline in the stock price which
continued after September 7. Looking at the facts before us we see nothing that leaps out along the

class period time line that would merit dividing up that continuous price decline.

I. Commonality

The commonality requirement of Rule 23(a)(2) is generally satisfied if the class members’
grievances derive from “a common nucleus of operative fact.” Rosario v. Livaditis, 963 F.2d 1013,
1017-18 (7th Cir. 1992). There is a common nucleus of operative fact where “defendants have
engaged in standardized conduct towards members of the proposed class.” Keele v. Wexler, 149 F.3d
589, 594 (7th Cir. 1998). The fact that there are factual variations among class members claims does
not in itself defeat the certification of aclass. Patterson v. General Motors Corp., 631 F.2d. 476, 481
(7th Cir, 1980).

Defendants argue that there are conflicts within the class and thus there are not common
issues of law and fact. First defendants argue that there is a conflict between investors that sold on

September 7 and post-September 7 purchasers. According to Defendants, September 7 sellers will

-6-


two groups are on a substantially different footing because the September 7 statements clarified the
takeover status and thus subsequent investors bought with “their eyes wide open”.

Defendants first argue that it is not reasonable for an investor to assume that the reference
in the September 7 letter that indicated financing had been “arranged” meant that Defendants
definitely had financing, particularly since the release also indicated that the financing was subject
to due diligence. Also Defendants argue that it is not reasonable for an investor to assume the
reference to the “proposal to provide $200 million in senior debt” included in the September 18 press
release meant that there was a “commitment” to provide financing. We are not persuaded by such
arguments, particularly the second, which engages in meaningless formalism focusing on a single
term in the statement without addressing the substantive meaning expressed by the entire statement.

Defendants also ask this court to consider the large trading volume on September 7 and the
sharp drop in the price on that day and infer that, because of the September 7 press release, the
investing public was aware of or at least suspicious that the August 13 statements contained
misrepresentations and investors were unloading their stock as a result. Alpart counters that after
September 7 the stock price remained above the pre-offer price for approximately 19 days which
indicates that immediately after September 7 the market still had some belief that the takeover would
occur. We will not delve into such matters as it leads us into an analysis of the merits of this case.
At what point in time a reasonable investor would no longer be swayed by the August 13 statement
or what was going on in the investors’ minds on and around September 7 are not within the scope
of our review for this motion.

Defendants’ alleged misrepresentations on August 13 began what was in effect a continuing

and unchanging scheme, the effect of which was not rectified in its entirety until October 15. We

-5-


major steps towards rectifying the effect of the August 13 misstatements and class members’ eyes
were opened wider and wider.

Simply because the alleged misrepresentations of Defendants were not isolated to one
instance and instead involved multiple misrepresentations over a period of time “does not make
individual issues predominant.” Harman v. Lyphomed, Inc., 122 F.R.D. 522, 526 (N.D. Ill. 1988).
In Harman the court found that a series of misrepresentations over a period of time was part of a
“continual unchanging scheme.” Jd. In this case beginning on August 13 there was likewise a
“continual unchanging scheme” on the part of the Defendants. Although, there may be some
variations between class members as to materiality of some facts, those factual variations alone do
not preclude class certification. Patterson, 631 F.2d at 481.

In this case there are issues of fact and law that are common to the proposed class.
Defendants allegedly disseminated misleading statements to the investing public in violation of
Rule 10b. All class members have an interest in addressing the facts surrounding the statements and
determining whether Defendants violated Rule 10b and whether they committed common law fraud.
Although the size of each investor’s investment in the stock may vary, they all have essentially the
same claim. Their claims all arise from the same course of conduct of Defendants during the class
period. The Defendants in disseminating their statements to the investing public “engaged in
standardized conduct towards members of the proposed class.” Keele, 149 F.3d at 594. Thus the
claims of the class members derive from a common nucleus of operative facts and the commonality

requirement of Rule 23(a) is satisfied.

-8-



Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Jud
oer Magra Judge Charles P. Kocoras “than Aasigued Sage
CASE NUMBER 01 C 7832 DATE 9/18/2002
CASE In Re: Hartmarx Securities Litigation
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.

MOTION:

DOCKET ENTRY:

(1) oO Filed motion of [ use listing in “Motion” box above.]

(2) im Brief in support of motion due

(3) oO Answer brief to motion due___. Reply to answer briefdue__.

(4) Oo Ruling/Hearingon___—setfor__—sat__.

(5) 1 | Status hearing set for 1/16/2003 at 9:30 A.M..

(6) o Pretrial conference[held/continued to] (set for/re-set for]on_____setfor___—sat_—
(0) Oo Trial[set for/re-set for]on___—saat

(8) a [Bench/Jury trial] [Hearing] held/continued to__at

(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) OLocal Rule 41.1 OFRCP4i(a)(1) OFRCP41(a){2).
(10) MJ [Other docket entry} Ruling held. ENTER MEMORANDUM OPINION: We grant Alpart’s

motion (Doc 27-1) for certification of a class, but adjust the definition of the class accordance with this
opinion. All fact discovery to be completed by January 16, 2003.

(il) ff [For further detail see order attached to the original minute order.]

No notices required, advised in open court,
No notices required. umber of notices
Notices mailed by judge’s staff. SEP 19 2002
Notified counsel by telephone. date docketed

a | Docketing to mait notices.

Mail AO 450 form. te ,
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Copy +0 judbie/magistray judge. ‘

courtroom HE r2l iid 81 das 20 aiematat ants

SCT deputy’s
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Fund, Inc., 463 F.2d 495, 498-99 (7th Cir. 1972). As discussed above, Alpart does not have
conflicting interests with the other members of the class. Both seek to recover from Defendants for
their alleged violation of federal securities law and for common law fraud. We have no reason to
presume that Alpart’s claim is particularly weak, and Alpart has standing to sue in its own right for
the damages it incurred as a result of the alleged misrepresentations. Alpart has also indicated that
the counsel handling its case has experience with class action litigation. Therefore, we find that

Alpart will fairly and adequately represent the class.

V. Predominance of Common Questions and Superior Method

Under Rule 23(b)(3) the court must find that “questions of law or fact common to the class
predominate over any questions affecting only individual members , and that a class action is
superior to other available methods for the fair and efficient adjudication of the controversy... .”
Fed. R. Civ. P. 23(b)(3). As discussed above there are questions of law and fact that are common
to the class. Those common questions concerning whether Defendants violated Rule 10b and the
facts surrounding their statements after August 13 are central to the claims of all members of the
class. The factual variations in the claims do not predominate over the issues common to the class.
Also, there do not appear to be any unique defenses that can be presented against Alpart that would
become the central aspect of this case and predominate issues common to the class.

Weare also satisfied that a class action is superior to other available methods for the fair and
efficient adjudication of the controversy. There are no facts to indicate that individual members of

the class have any unique interest in pursuing this matter individually. As Alpart points out such an

action may be cost prohibitive for many investors. There is no indication that any other members

-ll-


In terms of the state of mind defense against Alpart, we will not address whether Alpart knew
or suspected the alleged fraud as of September 7 or whether it was reasonable for them to continue
to purchase after September 7. Defendants ask us to “peek at the merits” of the case but as stated
above will not do so. We will not consider what Alpart’s motives were for purchasing stock after
September 7. In terms of the information Alpart obtained separate from other investors, looking at
the conflicting facts before us we are not convinced that Alpart obtained any private information
during the class period that would render their claim atypical. Alpart’s claim arises from the same
course of conduct as the other class members claims which was the alleged misrepresentations on
August 13, and the continuation of the effect of those misstatements through additional statements,
and a failure to cure them until October 15. Alpart’s claim is also based on the same legal theory
as the claims of other class members. The complaint alleges a violation of Rule 10b of the Securities

and Exchange Act of 1934 and common law fraud.

IV. Adequate Representation

Under Rule 23(a)(4) the representative parties must adequately represent and protect the
interest of the class. To make this determination there is a two-part inquiry: 1) “the adequacy of the
named plaintiff's counsel,” and 2) “the adequacy of the representation provided in protecting the
different separate, and distinct interest of the class members.” Retired Chicago Police Assoc., 7 F.3d
at 598 (citing Secretary of Labor v. Fitzsimmons, 805 F.2d 682, 697 (7th Cir. 1986)). A class is not
fairly and adequately represented if: 1) “class members have antagonistic or conflicting claims,”
Rosario, 963 F.2d at 1018; 2) the representative’s claim is extremely weak, Robinson, 167 F.3d at

1155; or 3) the class representative does not have standing to sue in his own right, Mintz v. Mathers

-10-


want to argue that the rapid drop in price on September 7 was the result of the investing public’s
realization that the August 13 statements were not accurate. On the other hand, the post-September 7
purchasers will have an incentive to argue that whether or not the takeover was viable and whether
Defendants had been forthcoming was still unclear on September 7 and thus it was not until
October 15 when a reasonable investor would have discovered the alleged fraud.

This argument is without merit. The September 7 sellers do not necessarily have to argue
that September 7 was the day that the market reacted to the discovery of the alleged fraud. On
September 7 Defendants were still not entirely forthcoming regarding the takeover. It was a gradual
process by which the truth was exposed, and it was not until the October 15 statement that there was
complete clarification regarding the takeover. Different sellers could have become uncomfortable
with the situation at different points in time. Looking at the facts before us it is conceivable that the
different points at which investors sold their stock could all fall within the spectrum of what the
reasonable investor would do. Thus the September 7 sellers need not argue that the August 15
misrepresentations were completely clarified on September 7. They can argue that September 7 was
when they became uncomfortable with the situation and so sold their stock and still recover for their
damages.

Defendants also argue that there were multiple statements and disclosures made by
Defendants between August 13 and October 15. Thus, according to Defendants, depending on when
class members bought and sold stock, the materiality of each of Defendants’ statements and issues
such as reliance and scienter would be different for many class members. Defendants argue that the

differences between class members would exist particularly after September 7 as Defendants took


The price dropped on September 7 from $3.53 to $2.60 in the largest volume traded since August 14.
Then, on September 25, Lincoln released the commitment letters it had received from the listed
backers, which indicated that the financing agreements had not been finalized until August 31 for
Bank of America and September 14 for the Stephens Group. On October 1 Lincoln’s offer to
purchase all outstanding stock at $4.50 a share was formally withdrawn. Finally, on October 15,
pursuant to an order by Judge Shadur in the suit filed by Hartmarx, Lincoln issued a release stating
that the financing arrangements addressed in the August 13 letter were not firm commitments but
only oral indications of willingness. With respect to the largest chunk of financing from the Bank
of America, the press release stated that, as of August 13, Lincoln had only been "in touch" with the
potential backer. The common stock price decreased steadily after September 7 up until October 15,

falling below the pre-offer price on September 26.

DISCUSSION
Alpart seeks certification of a proposed class pursuant to Federal Rule of Civil Procedure
Rule 23. There are four threshold requirements for federal class actions: 1)numerosity,
2) commonality, 3) typicality, and 4) adequacy of representation. Fed. R. Civ. P. 23(a); Harriston
v. Chicago Tribune Co., 992 F.2d 697, 703 (7th Cir. 1993). In addition, at least one of the factors
of Rule 23(b) must be satisfied. Fed. R. Civ. P. 23(b); Amchem Products, Inc. v. Windsor, 521 U.S.
591, 613-14 (1997). Failure to meet the threshold requirements in Rule 23(a) and 23(b) precludes

the Court from certifying the class. General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 161


up of The Tom James Company and other investors, who have committed $70

million in cash equity for this transaction. In addition, we have arranged financing

to cover the purchase, refinance the existing Hartmarx debt and provide for the

working capital needs of the Company.

The following day, trading on Hartmarx stock was particularly heavy, with over a million
shares traded and a closing value of $3.75 per share, up 81% from the previous day's closing. Also
on the 14th, the board of Hartmarx requested that Lincoln provide it with certain information
regarding the proposed acquisition, including a detailed description of the financing to which Lincoln
had referred in the August 13th letter. On the 15th, Lincoln added to the mix another press release
and letter, which again indicated that the equity and financing outlined in the August 13 letter would
allow Lincoln to back up its $4.50 per share cash offer. The letter stated that the financing was
subject to due diligence that would take as little as three weeks and that any negotiations could take
place simultaneous with the completion of that due diligence. Other releases followed, until
September 7, when it was announced that Hartmarx was terminating discussions with Lincoln
because of Lincoln’s alleged misrepresentations about its offer and failure to provide information
about its purported debt and equity financing. On September 7, Hartmarx filed suit against Lincoln
and its members, alleging violation of federal securities laws. Lincoln then responded on
September 7 with another press release which stated:

The Lincoln Company has arranged for a $175 million senior secured asset based

revolving credit facility through Bank of America. In addition, Stephens Group, Inc.

of Little Rock, Arkansas, has agreed to provide $35 million of equity and $45 million

of subordinated debt. The Tom James Company and A. Robert Abboud have

committed to an additional $35 million of equity. Such financing arrangements are

subject to due diligence, a concern which has been exacerbated by the appalling
behavior of Hartmarx’s management.


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

IN RE: HARTMARX SECURITIES LITIGATION,

01 C 7832 yuurer?
geo

weer

MEMO) (D' INI
CHARLES P. KOCORAS, District Judge:
This matter comes before the court on a motion for class certification brought by Lead
Plaintiff, Alpart Trading Company (“Alpart”). We grant Alpart’s motion for class certification, but

adjust the definition of the class as stated below.

BACKGROUND
Defendant Lincoln Company, LLC, is a limited liability company formed by a group of
investors including Defendants The Tom James Company, Spencer Hays, and A. Robert Abboud
(collectively referred to as "Lincoln") for the sole purpose of acquiring a company called Hartmarx.
Lincoln, and its investors own approximately 5% of the outstanding shares of common stock in
Hartmarx. On August 13, 2001, Lincoin issued a press release that included a letter sent to Hartmarx

the same day. The letter stated, in pertinent part:

[W]e offer to acquire for $4.50 per share cash all of the Hartmarx common stock
outstanding, other than the nearly 5% of Hartmarx shares that we already own. This
price represents a 137% premium above Friday's Hartmarx closing price of $1.90 per
share, or approximately a $77 million premium to Hartmarx stockholders . . ..

The Lincoln Company LLC, which is the investor group we have assembled, is made



of the class have commenced an action against Defendants at this point. Therefore we find that Rule

23(b)(3) is satisfied.

VI. Definition of Class

Defendants also complain of the broad language of the class definition that includes all
sellers within the class period. Alpart defines the proposed class as: “All individuals or entities who
purchased or sold stock in Hartmarx Corporation during the period of time commencing with the
opening of trading on August 14, 2001 through and including the close of trading on October 15,
2001.” First, we will limit the class period to October 1 when Lincoln’s offer to purchase all
outstanding stock at $4.50 a share was formally withdrawn. Although the takeover could in theory
still have proceeded afterwards the possibility was sufficiently remote that the class period should
be adjusted accordingly. Defendants correctly point out that some investors may have bought within
the class period and sold for a higher price if they sold early on in the price decline after August 13.
Those investors suffered no real damages. Also, only investors that purchased stock in the class
period could have relied on the alleged misrepresentations. Thus investors that did not purchase
stock prior to August 13 but sold within the class period should not be included in the class. The
alleged misrepresentations on August 13 regarding the takeover meant that the stock price would
likely rise in the future and thus it would be inconsistent for an investor to rely on Defendants’
statements as a basis to sell. Therefore the class definition will read as follows: “All individuals or
entities who purchased stock in Hartmarx Corporation during the period of time commencing with

the opening of trading on August 14, 2001 through and including the close of trading on October 1,

-12-