## Facts

- John Nuveen & Co., a broker-dealer, entered the commercial paper business and sold short-term discount notes issued by Winter & Hirsch, Inc. (W&H).
- Henry T. Sanders and other purchasers bought W&H notes from Nuveen; the notes had maturities not exceeding nine months.
- The notes were marketed to purchasers as investment instruments rather than as ordinary commercial or consumer paper used to finance current business transactions.
- Sanders filed a putative class action alleging that Nuveen and related individuals engaged in misrepresentations and omissions about W&H’s financial condition and the nature of the notes, asserting claims under the Securities Exchange Act of 1934 (§ 10(b) and Rule 10b-5) and other theories.
- Nuveen challenged subject-matter jurisdiction, arguing the short-term notes fell within the Exchange Act’s exclusion for notes with maturities of nine months or less.
- The district court treated the notes as “securities” under the 1934 Act and allowed the case to proceed as a class action.
- Two banks intervened on their own behalf and on behalf of certain W&H creditors; the district court permitted them to assume representation of the purchaser class.
- The appeal focused on (1) the Exchange Act status of the short-term notes and (2) whether an intervenor with potentially conflicting interests could take over class representation without notice to absent class members.

## Issues

1. Whether promissory notes with maturities not exceeding nine months, offered to the public as investments, are “securities” under the Securities Exchange Act of 1934 despite the Act’s short-term note exclusion.
2. Whether an intervenor representing potentially antagonistic interests may assume representation of a plaintiff class without notice and an opportunity for absent class members to be heard, consistent with Rule 23 and due process.

## Decision

- The Seventh Circuit held that the nine-month exclusion does not automatically remove all short-term notes from the Exchange Act when the instruments are marketed to the public as investments.
- The court concluded the W&H notes, as sold, were “securities” under the 1934 Act, and federal jurisdiction over the § 10(b)/Rule 10b-5 claims was proper.
- The court held it was improper to permit an intervenor with potentially conflicting interests to displace the existing class representative without adequate notice and procedural protection for absent class members.
- The case was remanded for class-action proceedings consistent with Rule 23’s adequacy and notice requirements while leaving the jurisdictional ruling intact.

## Legal Principles

- The Exchange Act’s “note” definition and short-term note exclusion are construed functionally in light of statutory purpose, not solely by maturity.
- The nine-month exclusion is aimed at prime, liquid commercial paper used to finance current transactions in institutional money markets, not short-term notes broadly offered to the public as investment products.
- Instruments marketed and sold as investments to public purchasers may be treated as “securities” even if their maturity is nine months or less.
- Rule 23(a) requires class representatives to fairly and adequately protect the class; actual or potential conflicts of interest can defeat adequacy.
- A court may not allow a representative with antagonistic interests to assume control of a class without procedures that protect absent class members, including notice and an opportunity to object.

## Conclusion

The Seventh Circuit sustained federal securities-law jurisdiction by treating publicly marketed short-term investment notes as Exchange Act “securities,” and it required conflict-free, procedurally protected class representation, rejecting substitution of an antagonistic intervenor without notice to the class.


Sanders v. John Nuveen & Co., 463 F.2d 1075 (7th Cir. 1972), cert. denied, 409 U.S. 1009 (1972)