Samuel PARKINSON, as Custodian for Andrew Parkinson, et al., Plaintiffs-Appellees, v. APRIL INDUSTRIES, INC., et al., Defendants-Appellants, and Alex M. Parker, Defendant.
Nos. 1288, 520, Dockets 74-2058, 74-2214
United States Court of Appeals, Second Circuit
Argued Jan. 17, 1975. Decided June 30, 1975.
520 F.2d 650
Judgment reversed and remanded.
Edward Labaton, Douglas A. Cooper, Shatzkin, Cooper, Labaton, Rudoff & Bandler, New York City, for plaintiffs-appellees.
Wilbur G. Silverman, Jamaica, N. Y., for defendants-appellants.
Before WATERMAN, FRIENDLY and GURFEIN, Circuit Judges.
WATERMAN, Circuit Judge:
The plaintiffs filed a complaint on June 25, 1973 in the United States District Court for the Southern District of New York alleging that the defendants April Industries, Inc. (April), and several of its officers, artificially inflated the earnings and prospects of thе company through the use of false and misleading statements, thereby, in violation of Rule 10b-5 under the Securities Exchange Act of 1934,
Among the statements published were predictions that April would have net profits of $1,890,000 in 1972 and a profit of $2,554,000 in 1973, and also that the earnings in each of the first three quarters of 1972 were substantial. On December 17, 1972 April corrected its report for the first nine months period ending September 30, 1972 and stated a
Two of the named plaintiffs claim that they purchased shares of April stock on or about July 16, 1972 in reliance upon an oral statement by a securities analyst who subsequently published a report on the company in August 1972. Another named plaintiff purchased shares in late November 1972, and the fourth plaintiff purchased shares in early December 1972. These individuals acquired the stock at prices ranging from 9 3/8 to 13 5/16. Two of the nаmed plaintiffs later sold their shares at 4 3/4, and at the commencement of the present action the stock was selling for approximately $2 a share. In their motion for class action status, the plaintiffs proposed to represent all persons who purchased shares of April common stock between June 1, 1972 and December 18, 1972, the period during which the alleged false and misleading statements were made. The plaintiffs infer from the volume of the shares traded during this period that there are at least 500 members of such a class.
Judge Knapp, the district court judge below, in an order dated July 1, 1974, granted the named plaintiffs’ motion to proceed as a class action. The trial judge found that the prerequisites of
Predictably, two issues are raised on this appeal: (1) whether the order granting class action status is an appealable order; and (2) if appealable, whether the order below was properly еntered. As
In this connection, as a preliminary matter to a further exposition of our position, perhaps it may be useful to state the significant general policies contained within the “final judgment” rule which form the backdrop and the guide for us in deciding the specific issue raised on this appeal which we find to be the determinative issue.
The order below is not a final order of a United States District Court,
Appellants recognize that the order below granting the plaintiffs’ motion is not a “final decision,” but they contend that a district court order granting the motion of a plaintiff that his individually initiated action be designated a “class action” results in such a hardship on a defendant that it justifies a further broadening of the exception to the final decision or “final judgment” rule which the Second Circuit has recognized in this area; and justifies the allowance of an immediate appeal. We find this position untenable in this particular case.
The jurisdiction of the Courts of Appeals to review district court orders extends to “all final decisions” of the federal district courts.
By and large, the final judgment rule serves these interests well, and it is only in some exceptional instances that other competing considerations are sufficiently compelling to justify any relaxation of the rule‘s strict operation. In Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 171, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) the Supreme Court noted:
The inquiry requires some evaluation of the competing considerations underlying all questions of finality-“the inconvenience and costs of piecemeal review on the one hand and the danger of denying justice by delay on the
other.” Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511, 70 S.Ct. 322, 324, 94 L.Ed. 299 (1950).
Giving the final judgment rule a “practical rather than a technical construction,” Cohen v. Beneficial Industrial Loan Corp., supra, 337 U.S. at 546, 69 S.Ct. at 1226, has provided the courts with the flexibility necessary to avoid the potential harm which could result from a persistent adherence to the letter of the rule.1
Appellants contend that orders designating a class status for plaintiffs create obvious hardships upon defendants, and these hardships warrant the establishment of the broad exception to the final judgment rule which they advocate, and demand that an immediate appeal of class designation orders be permitted. Appellants argue also that a class designation order has substantial effects beyond the burdens imposed upon defendants. Indeed, separate considerations do surround class designation orders and these considerаtions do present intractable difficulties to the task of providing, on the one hand, full sway to the policies of the final judgment rule, and of providing, on the other hand, just treatment to individual litigants, while a court is progressing a class action.
We note that the nature of class designation orders differs from the nature of other situations in which judicial exceptions to the final judgment rule have been authorized. The granting of a class designation is in no sense an effective termination of any aspect whatever of the litigation, but only directs the form in which the action will proceed. The initial order is strictly provisional and by the terms of
There are, however, countervailing factors tending to support the appellants’ position. An appellate court, in reviewing a final decision on substantive issues, would bе reluctant to upset the class status after the expenditure of the time and effort the parties and the district court expended in reaching that final decision. Thus, deferring review until after the entry of a final judgment may well prevent any effective review at all of the class action designation. Cf. City of New York v. International Pipe and Ceramic Corp., 410 F.2d 295, 301 (2d Cir. 1969) (Hays, J., dissenting).
Appellants argue that an order granting plaintiffs the class action status imposes such staggering burdens on a defendant that a prompt appeal should lie lest an erroneously entered order force a
Another ground advanced in support of a general right to an immediate review of class designation orders involves the resultant benefits to sound judicial administration. See Herbst v. International Telephone and Telegraph Corp., supra; General Motors Corporation v. City of New York, 501 F.2d 639, 656 (2d Cir. 1974) (Mansfield, J., concurring). The considerations underlying this ground are twofold: (1) the burdens imposed on district judges; and (2) the responsibilities of appellate courts to give guidance in the developing sphere of class litigation.
Doubtlessly the district judge shoulders unenviable tasks in the conduct of class litigation. The actual and potential burdens of the trial judge in the maintenance and supervision of large class actions are colossal, and immediate review of class designations would relieve the trial judge of these responsibilities in cases found to be inappropriate upon interlocutory appeal. However, trial judges are constantly confronted with interlocutory decisions, which, if erroneous, may create unnecessary and time-consuming consequences.3 An appellate cоurt‘s solicitude to prevent the unproductive effort which an erroneous order may create ought not to warrant an out-of-time intrusion by the appellate court into the proper sphere of the trial judge. The line between helpful guidance and noxious interference is a narrow one, and one goal of the final judgment rule is that of maintaining the appropriate relationship between the respective courts. Note, 75 Harv.L.Rev. 351 (1962). This goal, in the absence of most compelling reasons to the contrary, is very much worth preserving.
Another related competing consideration is that an immediate interlocutory review of a class designation order would provide a mechanism which would enable the appellate courts in the exercise of their supervisory powers to fashion class designation guidelines for the
If it is desirable to hand down supervisory guidance standards in other class action issues, other avenues of appeal are available. The Supreme Court in Eisen recognizes the vitality of the collateral order doctrine when such issues are involved, and also recognizes that significant and unsettled questions unrelated to the main issue in a class action case may be subject to interlocutory appellate review. This doctrine, coupled with the certification procedure of
The competing considerations above set forth have, as indicated, bedevilled this court in its efforts to formulate appropriate standards by which to test the appealability of class action des-
(1) whether the class action determination is “fundamental to the further conduct of the case“;
(2) whether review of that order is “separable from the merits“;
(3) whether the order will cause “irreparable harm to the defendant in terms of time and money spent in defending a huge class action“.
General Motors Corporation v. City of New York, supra, 501 F.2d at 644; Kohn v. Royall, Koegel & Wells, 496 F.2d 1094, 1098 (2d Cir. 1974). See, also, Herbst v. International Telephone and Telegraph Corp., supra; Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973) (Eisen III). In applying this “three-pronged”
In Kohn v. Royall, Koegel & Wells, supra, an order granting class status involved a 23(b)(2) suit alleging sex discrimination in the hiring practices of a law firm and seeking injunctive relief. The three factors which had been advanced in Eisen III and Herbst for justifying review of all class determinations became factors to be analyzed under the circumstances of the particular case. The standard to apply in the first inquiry, the fundamentality of the order, was, the court in Kohn stated, “whether the action‘s viability turns on the class action determination.” Supra, 496 F.2d at 1099. Our court in applying this standard found that none of the requirements had been met. The plaintiff would continue the suit without reference to the class determination, and therefore the order was not fundamental to the further conduct of the case; review of the order would require that the appellate court inquire about the presence of common questions and the ability of the plaintiff to represent the class, which inquiries would take the court into the merits of the case, i. e., the challenged internal hiring practices of the defendant, and therefore the order was not separable from the merits; and finally the incremental cost of the defense of the suit as a class action would be an insignificant increment over the cost of defending the individual‘s suit.
In General Motors Corporation v. City of New York, supra, New York sued Genеral Motors alleging that the company had violated the antitrust laws by monopolizing the market for city buses. New York had a claim in excess of $12 million, enough to sustain its individual action, but it also sought to represent a class of 177 members, whose inclusion would not cause significant incremental hardship to the defendant. General Motors argued that the requirements of
Accordingly, we would review here not a finite and conclusive determination of judicial power-e. g., the power to shift notice costs and forego individualized notice, as in Eisen, or the power to dispense with security, as in Cohen-but a discretionary decision, the propriety of which will necessarily vary from case to case. That this distinction is of fundamental importance in the calculus of appealability was plainly acknowledged in Cohen itself.
In Kohn and General Motors the application of the three-pronged test marks a renewed emphasis on the policies of finality. As General Motors recognized, this result is encouraged, at least inferentially, by the Supreme Court‘s treatment of the jurisdictional questions presented in Eisen v. Carlisle & Jacquelin (Eisen III), rev‘d on other grounds,
This test has attempted to promote the policies of the final judgment rule while recognizing that extraordinary circumstances occasionally present issues in class litigation which require prompt appellate attention. The court, while creating the three-pronged test, has interpreted its elements most restrictively, an approach which upon analysis, we find to be appropriate in light of the sound policies of finality. Indeed, the three-pronged test, narrowly interpreted, does not mark a departure from the final judgment rule, nor does it create a new exception to that general rule, but, rather, it is a corollary to the collateral order doctrine tailored to the particular circumstances of class litigation. The previously recognized judicial exceptions to finality indicate that in extraordinary situations the resolution of an interlocutory order which has sufficient indicia of finality, which is collateral or separable from the main issues, and which is insusceptible to merger in a final decision, may be sufficiently important to warrant an immediate interlocutory review.
Our court in General Motors recognized that an appellant would not be able to satisfy the three-pronged test for an immediate interlocutory appeal if he only questioned the propriety of the discretionary ruling of a trial judge that the requirements of
We therefore dismiss the appeal.
FRIENDLY, Circuit Judge (concurring):
I agree that, for the reasons developed in Judge Waterman‘s admirable opinion, our decisions demand dismissal of this appeal for want of appellate jurisdiction. But I would go further and hold that orders simply granting or denying class action status, as distinguished from a class action designation order, like that in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 170-72, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), which also contains provisions requiring defendants to pay money or take other action not remediable on a review of the final judgment, are appealable only under the procedure for the review of interlocutory orders provided in
Our court‘s first important response to the difficult problem of the appealability of class action orders under revised F.R. Civ.P. 23 was in a case involving denial of class action status and took the form of the “death-knell” doctrine, Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 121 (2 Cir. 1966), cert. denied, 386 U.S. 1035, 87 S.Ct. 1487, 18 L.Ed.2d 598 (1967). This
Despite its initial appeal, application of the “death-knell” doctrine began to reveal weaknesses. One was the point, raised by Judge Hays’ dissent in City of New York v. International Pipe & Ceramics Corp., 410 F.2d 295, 300-01 (2 Cir. 1969), that, in looking only at the named plaintiff, the claim of which was clearly large enough to justify continuation of the action without class action status, the doctrine ignored the death-knell sounded by the denial of such status for other members of the class having only small claims, since the remaining individual plaintiff would not, at a later point, have reason to take an appeal from the adverse class action determination. Another was the difficulty, often the impossibility, of determining when a denial of class action designation truly rang the death-knell. Although I joined in dismissing the appeal in Milberg v. Western Pacific Railroad, 443 F.2d 1301 (2 Cir. 1971), as not meeting the death-knell standard, I have later wondered whether it was realistic to expect that a stake of $8,500 (achieved only by adding to Mrs. Milberg‘s claim of some $1,000 her lawyer husband‘s claim of some $7,500) would as a practical matter justify their pressing an action under the securities laws against two well-financed corporate defendants. See also Shayne v. Madison Square Garden Corp., 491 F.2d 397, 402 (2 Cir. 1974) (appeal from denial of class action status dismissed where individual claim was for $7,482). Finally there was the point, mentioned in my concurrence in Korn v. Franchard Corp., 443 F.2d at 1307, that the death-knell doctrine worked only in favor of plaintiffs. Apart from the apparent inequity of this, it would seem odd that appellate courts should sometimes be able to control too grudging a reading of
Our court has now sought to meet this last point by the trilogy of Herbst v. International Telephone & Telegraph Corp., 495 F.2d 1308 (2 Cir. 1974); Kohn v. Royall, Koegel & Wells, 496 F.2d 1094 (2 Cir. 1974); and General Motors Corp. v. City of New York, 501 F.2d 639, 644 (2 Cir. 1974). However, the cure may be worse than the disease. The answer to the second prong of the “three-pronged” test laid out in Judge Waterman‘s opinion would seem almost always to be “yes“. As to the first prong, I am not sure what is meant by the class action determination being “fundamental to the further conduct of the case“; this sounds like the “death-knell” doctrine in different dress. See General Motors Corp. v. City of New York, supra, 501 F.2d at 644; Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1099 (speaking of this prong, the court said that “a necessary though not sufficient element in the appealability equation is whether the action‘s viability turns on the class action determination“). The third prong, whether the order will cause “irreparable hаrm to the defendant in terms of time and money spent in defending a huge class action“, seems to mean that there can be no appeal from the grant of class action designation unless the class is very large-a rule which, among other things, would exclude appeals on the ground that the class was not so numerous as to make joinder of all members impracticable,
Admittedly the problem is not an easy one. But experience has led me to the conclusion, expressed by Judge Gibbons for the Third Circuit in Hackett v. General Host Corp., 455 F.2d 618, 621-23, cert. denied, 407 U.S. 925, 92 S.Ct. 2460, 32 L.Ed.2d 812 (1972), that except when, as in Eisen, an order is appealable as of right on some other ground, the best solution is to hold that appeals from the grant or denial of class action designation can be taken only under the procedure for interloсutory appeals provided by
Since the attempts to imprison the appealability of orders granting or denying class action designation within judicially-created formulae have proved to be failures and, in my judgment, will continue to be so, we should return to the earlier wisdom.