I. FACTS and ISSUES.
In July, 1973, Willie R. Barnes, Commissioner of Corporations of the State of California (“Commissioner”), brought an action in the State Superior Court (“State Action”) alleging violations of California Corporate Securities Laws by certain individuals and corporations involved in selling interests in limited partnerships formed ostensibly for the purpose of acquiring and developing land near three small airports in California. 1 In February, 1974, another action 2 was filed against the same defendants by persons purporting to represent a class of some 1,000 investors.
On December 16,1974, the present action was filed in the United States District Court, Northern District of California as a class action on behalf of the investors. The complaint alleged two causes of action grounded on Federal Securities Law violations and three pendent counts based on California State Securities and Civil Fraud Laws. Six promoter defendants and fifty-two salesmen defendants were named. The district court denied the plaintiff’s motion *951 to designate a class on September 16, 1975. A second amended complaint was filed on December 10, 1975 in which over 100 individuals were added as plaintiffs and certain defendants were dropped.
On November 28, 1975, the Commissioner moved to intervene as a party plaintiff pursuant to Rule 24(a) and (b) of the Federal Rules of Civil Procedure (“FRCP”) and a proposed complaint was filed. After written and oral argument on the issue, the district court granted the motion on January 29, 1976. The Commissioner filed his complaint-in-intervention 3 which contained three-new_-causes of action, all based on California Securities Law. Thereafter, one of the defendants, Pheffer, moved to dismiss said complaint-in-intervention and was subsequently joined by certain, but not all, of the other defendants. On May 26, 1976, after written and oral argument, the district court, pursuant to Rule 60(a) of the FRCP, corrected its Order Granting Motion to Intervene as Party Plaintiff to reflect that such intervention had been granted solely under Rule 24(b) of the FRCP (“permissive intervention”). It further ordered that the motion of the Commissioner to intervene under Rule 24(a) of the FRCP (“intervention of right”) was denied, and that the complaint-in-intervention was thereupon dismissed for lack of jurisdiction. The Commissioner appeals from that judgment.
After the notice of this appeal had been filed, defendant-appellee Pheffer reached a settlement with the investor-plaintiffs and was dismissed from the suit except for this appeal. 4
Two issues arise on appeal:
(1) Did the Commissioner have a right to intervene pursuant to Rule 24(a)(2) of the FRCP? 5
(2) Given that the Commissioner was permitted to intervene under Rule 24(b) of the FRCP, was the dismissal of his complaint-in-intervention justified due to a lack of an independent basis for federal jurisdiction?
II. INTERVENTION OF RIGHT.
Rule 24(a)(2) establishes a four-fold test for intervention of right in those situations not covered by an unconditional statutory right to intervene under Rule 24(a)(1).
Stockton v. United States,
A. Timeliness
No objection based on timeliness has been raised. It is generally noted that the con
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cept of timeliness is a flexible one.
McDonald v. E. J. Lavino Co.,
B. The Commissioner’s Interest
No clear definition has been established by the Supreme Court or the lower courts for the “interest relating to the property or transaction which is the subject of the action” that is required for intervention of right. 7A Wright & Miller § 1908, p. 496. However, several courts, including this one, have, implicitly at least, rejected the notion that Rule 24(a)(2) requires “a specific legal or equitable interest.”
Cascade Natural Gas Corp. v. El Paso Natural Gas Co.,
Two cases are of particular relevance here. In
Cascade, supra,
In the present case, the Commissioner asserts four grounds to support his argument of adequate interest for Rule 24(a)(2). First, he contends that because the California Securities Laws are drawn in large part from the Federal Securities Laws, an interest arises as the district court’s interpretation of the federal law will affect the nature and course of the administration and enforcement of the California law. Such contention is faulty as it misconstrues the rule in
Nuesse.
Despite the fact that some of the California Securities Laws are modeled to some degree after the Federal Securities Laws and references in the former are made to the latter,
6
there is nothing to suggest that the two statutory schemes are to be interdependent rather than separate, autonomous systems.
7
Unlike
Nuesse,
the district court here need not interpret or even make reference to the state law in order to apply the federal law. As noted by
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the appellee, this point was recently decided in
Brewer v. Republic Steel Corp.,
The second ground for a finding of interest asserted by the Commissioner is based on the fact that the present suit includes three causes of action founded upon state securities laws. A state official has a sufficient interest in adjudications which will directly affect his own duties and powers under the state laws.
Hines
v.
D’Artois,
Thirdly, the Commissioner contends that he has an economic interest in the suit as § 25530(b) of the California Corporations Code permits him to seek restitution on “behalf of the persons injured by the act or practice constituting the subject matter of the action”. However, § 25530(b) specifically provides that “the court shall have jurisdiction to award appropriate relief to such persons, if the court finds that enforcement of the rights of such persons by private civil action, whether by class action or otherwise, would be sb burdensome or expensive as to be impractical.” It is doubtful that the Commissioner qualifies under § 25530(b) as there is presently a class action suit pending in the state court and the very suit into which the Commissioner seeks to intervene is a private civil action by a group of the investors which does not appear to be “so burdensome or expensive as to be impractical.” In addition, the Commissioner can seek restitution in the State Action and need not intervene in the present suit.
Lastly, the Commissioner contends that there should be government intervention to represent the public interest. While the idea is appealing and has been proposed by some commentators, see, e.
g.,
Shapiro, Some Thoughts on the Intervention Before Courts, Agencies and Arbitrators, 81 Harv. L.Rev. 721, 734-736 (1968) (“Shapiro”), it would be impractical to base a finding of sufficient interest for purposes bf establishing intervention of right solely on public interest grounds. Here, the protection of the public interest has already been commenced through the separate action filed by the Commissioner in the state court. While the
Cascade
opinion does seem to support the view that a government body’s concern for the public good is sufficient to satisfy the interest requisite, it has repeatedly been noted that the Supreme Court in
Cascade
was reacting to what it felt was inadequate representation by the federal government.
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7A Wright & Miller § 1908, p. 498; Shapiro,
supra,
81 Harv.L.Rev. at 730; Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure, 81 Harv.L.Rev. 356, 406 (1967). Indeed, this court has stated it feels that the holding in
Cascade
should be limited to the specific facts of that case.
Spangler v. Pasadena City Board of Education,
C. Impairment of Interest
Given the limited nature of the interests asserted by the Commissioner, only two forms of impairment are asserted by him. The first of these is the stare decisis effect of the federal court decision on the issues. Several courts have stated that stare decisis by itself may, in the proper case, furnish the practical disadvantage required for the petitioner to be entitled to intervention as of right.
Francis v. Chamber of Commerce of United States,
The Commissioner also states that he will somehow be impaired unless all the issues, factual and legal, are resolved before one tribunal. The logic of that argument is doubtful. Mere inconvenience to the Commissioner caused by requiring him to litigate separately is not the sort of adverse practical effect contemplated by Rule 24(a)(2).
Cf., SEC v. Everest Management Corp.,
D. Adequacy of Representation
Initially is is noted that the Commissioner’s argument that the 1966 Amendment to Rule 24 shifted the burden of showing adequate representation to those Opposing intervention has not been adopted by most courts.
See Reedsburg Bank v. Apollo,
While the Commissioner points to the facts that his purpose in pursuing the litigation and the relief he seeks are different from those of the plaintiffs, those differences do not demonstrate a lack of adequate representation. Three factors should be considered in this regard: (1) Are the interests of ' a present party in the suit *955 sufficiently similar to that of the absentee such that the legal arguments of the latter will undoubtedly be made by the former; (2) is that present party capable and willing to make such arguments; and (3) if permitted to intervene, would the intervenor add some necessary element to the proceedings which would not be covered by the parties in the suit?
The present plaintiffs to the federal action and the Commissioner both have the same interests in establishing violations of the California Securities Laws by the defendants. At the present time, the Commissioner has not explained what legal argument or tactical decisions he would employ that the plaintiffs are not utilizing or would not also employ. Because the Commissioner seeks injunctive relief while the plaintiffs seek recovery of damages does not alter the fact that before either forms of relief are granted the initial violations by the defendants must first be proven.
There is no evidence that the plaintiffs are incapable of adequately representing the Commissioner’s interests or that they are unwilling to do so. Indeed, the Commissioner’s brief states that much of the plaintiffs’ complaint in state court and their complaints in federal court were based on identical factual allegations and claims as alleged by the Commissioner in his complaints. (See Appellant’s Brief, p. 2.)
Likewise, the Commissioner has not pointed to any necessary element which would be added to the suit because of his intervention. While he does claim that the litigation would be substantially benefitted by his knowledge of the state securities law and the facts of the case, such benefits might be obtained by an amicus brief rather than bought with the price of intervention.
In conclusion, the Commissioner has failed to demonstrate that he satisfies the latter three conditions of Rule 24(a)(2) so as to warrant a finding that the denial of intervention of right was in error.
Reich v. Webb,
III. JURISDICTION OVER THE PERMISSIVE COMPLAINT-IN-INTERVENTION.
After having been granted permissive intervention, the Commissioner filed a complaint-in-intervention in which he did not join in any of the investor-plaintiffs’ federal or state claims but instead raised three new state securities law claims. The Commissioner asserted that the district court had jurisdiction over his complaint as it was “ancillary and pendent to [the district court’s] jurisdiction over Count Three and Count Four [the state securities law claims] of Plaintiffs’ complaint.” It should be noted that the investor-plaintiffs state securities law claims were, in turn, pendent to their federal securities law causes of action. Pursuant to a motion by several of the defendants, the district court dismissed the complaint-in-intervention on the ground that the complaint failed to allege any independent basis for federal jurisdiction, and consequently the court lacked subject matter jurisdiction over it. The Commissioner urges reversal of the dismissal on the ground that no independent jurisdictional showing need have been made.
As stated in 3B Moore’s Federal Practice H 24.18[1], 24-753:
“Intervention under an absolute right, or under a discretionary right in an in rem proceeding, need not be supported by grounds of jurisdiction independent of those supporting the original action. Intervention in an in personam action under a discretionary right must be supported by independent grounds of jurisdiction except when the action is a class action.” (Emphasis added.)
Accord,
7A Wright & Miller § 1917, pp. 590-595. The prevailing view of the federal courts is that the claims of permissive Rule 24(b) intervenors must be supported by independent jurisdictional grounds.
See e. g., Reedsburg Bank, supra,
508 F.2d at
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1000 (7th Cir.);
Beach v. KDI Corp.,
We have previously determined that the Commissioner does not have any intervention of right in this case. Thus, it was incumbent upon the Commissioner to demonstrate that he had met the requirement of an independent jurisdictional basis for his claims. That requisite showing arises in two separate instances where the intervenor also seeks to add his own causes of action, First, jurisdictional grounds must be established for the permissive intervention in the first instance, and second, they must be shown to support any newly raised causes of action. Cf., 7A Wright & Miller § 1921, p. 621.
The investor-plaintiffs initiated the present suit in federal court pursuant to federal question jurisdiction under 2$^ U.S.C. § 1331 as two of their five causes of action arose under federal securities laws. The Commissioner clearly cannot establish independent grounds of jurisdiction for intervention under the federal securities statutes cited by the investor-plaintiffs as he was neither a purchaser or seller of the alleged securities involved. However, the plaintiffs’ third and fourth counts were based upon state securities laws which the Commissioner is empowered to enforce. See § 25530 California Corporations Code. The question therefore arises as to whether, once permitted to intervene, the Commissioner could have pursued the enforcement of the state securities statutes which were involved in the plaintiffs’ pendent claims. On the one hand it may be argued that jurisdiction would have been based on the fact that the state claims in which the Commissioner would have intervened were already properly before the district court. Conversely, this circuit has consistently rejected arguments to accept jurisdiction over a new party not then involved in the litigation in federal court where jurisdiction over that party is based solely upon a state law claim over which there is no independent ground of federal jurisdiction. (See discussion infra.) The question need not be resolved here as the Commissioner, once permitted to intervene, did not seek to pursue the plaintiffs’ pendent claims but rather sought to interject his own state law causes of action. It is the dismissal of those causes of action in his complaint-in-intervention which the Commissioner appeals.
The Commissioner attempts to avoid the problem of establishing independent grounds of jurisdiction for the causes of action in his complaint-in-intervention by arguing that he did not have to state an independent ground of federal jurisdiction in order to be a proper pendent party plaintiff. 10 His contention is incorrect for several reasons.
As noted above, an independent basis for jurisdiction is required for claims by permissive intervenors. Here, the Commissioner’s claims contained in his complaint-in-intervention were ancillary.
11
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They did not have any independent basis for jurisdiction, but rather, were supposedly founded on the pendent state claims raised by the investor-plaintiffs. As at least two courts have stated, while ancillary jurisdiction can support the presence of claims by intervenors of right, it cannot support the claims by permissive intervenors.
Warren G. Kleban Engineering Corp., supra,
Likewise, the Commissioner’s attempt to categorize himself as a pendent party plaintiff does not help his case. First, by definition, a pendent party is not connected with “any claim as to which there is an independent basis of federal jurisdiction.” 12 Second, the fact that the Commissioner is a pendent party plaintiff is not, by itself, a determinative factor. Rather, the question is whether a pendent party plaintiff may in turn raise ancillary claims which do not have any independent grounds to support federal jurisdiction.
This circuit does not recognize pendent party jurisdiction having consistently held that there is no judicial power to entertain a non-federal claim by a pendent party who is unable to establish independent grounds of federal jurisdiction.
See, Ayala v. United States,
While reconsideration of this circuit’s policy towards pendent party jurisdiction may be warranted, the present case does not suggest any strong reason for doing so.
See, Ayala, supra,
The decision of the district court is affirmed in all respects.
Notes
. The Appellant’s Brief states that, while substantial preliminary relief was ordered by the state court (a preliminary injunction and the appointment of a receiver), the State Action is dormant pending the determination of this appeal.
. The investor-plaintiffs’ class action in state court has been consolidated with the Commissioner’s State Action.
. Certain of the defendants named in the complaint-in-intervention were not named in the plaintiffs’ second amended complaint. See Appellant’s Reply Brief, p. 1.
. If the judgment below is reversed, appelleePheffer and those defendants named in the complaint-in-intervention but not in the plaintiffs’ second amended complaint would be litigating in federal court solely on state law claims.
. The majority rule, followed by this circuit, is that where a party is entitled to intervene as a matter of right, an order denying intervention is appealable; but where allowance of intervention is permissive under the court’s discretion, a denial of leave to intervene is not appealable.
Brennan v. Silver Dis. Lodge No. 50, Int. A. of M. & A. W.,
. See, e. g., California Corporations Code §§ 25111 and 25112.
. Indeed, the interest of the California Commissioner of Corporations in the decision of the district court would be approximately the same as other state commissioners whose statutes are modeled after and/or refer to Federal Securities Laws. It is doubtful that other state commissioners would be deemed to have sufficient interest to intervene in the present case on the grounds that the holdings by the district court here could influence the interpretation of their respective state statutes.
.
E. g.,
whether the interests of the limited partnerships sold by the defendants were “securities” as defined in § 25019 of the California Corporations Code. However, as to the novelty of that issue, see
Solomont v. Polk Development Co.,
. See, Appellant’s Brief, p. 2.
. As defined in
Moor v. County of Alameda,
. A distinction should be drawn between pendent and ancillary jurisdiction. Both doctrines expand the scope of federal courts by permitting parties to obtain a federal forum for claims which, by themselves, are not within the statutory jurisdiction of the federal courts. Pendent claims are state claims which arise from the
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same “nucleus of operative facts” as that of a federal claim and which are joined in the same complaint with the federally cognizable claim by the original plaintiffs against the original defendants. Ancillary claims are claims which also arise out of the same transactions that are the subject of the federal causes of action but which are asserted after the original complaint is filed, usually by one other than the original plaintiff. See
in this regard,
Note, Federal Pendent Party Jurisdiction and
United Mine Workers v. Gibbs
—Federal Question and Diversity Cases, 62 U.Va.L.Rev. 194, n. 2 (1976); Comment, Pendent and Ancillary Jurisdiction: Towards a Synthesis of Two Doctrines, 22 U.C.L.A.L.Rev. 1263 (1975). However, as noted in 7 Wright & Miller § 1659, p. 314, “Pendent jurisdiction is a specialized application of the ancillary jurisdiction concept. . .”
See, Jacobs v. United States,
. See footnote 10, supra.