J. H. Cohn & Co. v. American Appraisal Associates, Inc.

• Decision Date: 01 August 1980
• Docket Number: Nos. 79-2525,79-2539,s. 79-2525
• Citation: 628 F.2d 994
• Parties: Fed. Sec. L. Rep. P 97,601 J. H. COHN & CO. Self-Employment Retirement Trust, et al., Plaintiffs- Appellants, v. AMERICAN APPRAISAL ASSOCIATES, INC., et al., Defendants-Appellees. The EVERGREEN FUND INC., on its own behalf and on behalf of all other persons similarly situated, Petitioner, v. Hon. Robert W. WARREN, United States District Judge for the Eastern District of Wisconsin, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 994

628 F.2d 994

Fed. Sec. L. Rep. P 97,601

J. H. COHN & CO. Self-Employment Retirement Trust, et al., Plaintiffs- Appellants, v. AMERICAN APPRAISAL ASSOCIATES, INC., et al., Defendants-Appellees.

The EVERGREEN FUND INC., on its own behalf and on behalf of all other persons similarly situated, Petitioner, v. Hon. Robert W. WARREN, United States District Judge for the

Eastern District of Wisconsin, Respondent.

Nos. 79-2525, 79-2539.

United States Court of Appeals Seventh Circuit.

Argued April 29, 1980.

Decided Aug. 1, 1980.

Robert S. Warshaw, P. C., New York City, for plaintiffs-appellants.

W. Stuart Parsons, Quarles & Brady, David J. Hase, Foley & Lardner, David J. Cannon, Milwaukee, Wis., for defendants-appellees.

Before SPRECHER, Circuit Judge, MARKEY, Chief Judge, ^* and WOOD, Circuit Judge.

HARLINGTON WOOD, Jr., Circuit Judge.

This case is a consolidation of two separate proceedings. In the first, No. 79-2539, The Evergreen Fund v. The Honorable Robert W. Warren, the petitioner asks this court to issue a writ of mandamus directing Judge Warren to certify the case as a class action. The second, No. 79-2525, J. H. Cohn & Co. Self-Employment Retirement Trust v. American Appraisal Associates, is an appeal from the district court's order dismissing the complaint because the action was barred by the applicable statute of limitations.

I. Background

In 1975 petitioner, The Evergreen Fund, Inc., an open-end diversified mutual fund, filed a class action complaint in the United States District Court for the Southern District of New York. The complaint identified as the class of plaintiffs all persons who purchased securities of American Appraisal Associates, Inc. from June 9, 1971 to February 7, 1974. It named as defendants American Appraisal; its subsidiary Cole-Layer-Trumble Company (CLT); Arthur Andersen & Co., American Appraisal's certified public accountants; Smith Barney & Co., Inc., the principal underwriter of American Appraisal's stock sold pursuant to a prospectus dated June 9, 1971; and various individuals who were officers and/or directors of American Appraisal or CLT during the period from June 9, 1971 to February 7, 1974. The complaint alleges that in the June 9, 1971 prospectus, as well as in a variety of annual and interim documents filed with the Securities and Exchange Commission concerning the financial condition of American Appraisal, press releases, letters to shareholders, and other oral and written communications to the financial community issued between March 1971 and March 1974, the individual defendants and American Appraisal willfully or recklessly made material misrepresentations or omitted to state material facts. Defendant Arthur Andersen allegedly aided and abetted American Appraisal by contributing to the misleading nature of the prospectus and other financial documents issued during the relevant period. Defendant Smith Barney allegedly contributed to the material misrepresentations and omissions of material facts contained in the prospectus. The complaint further alleged that The Evergreen Fund and other class members were unaware that the various documents and communications contained untrue facts and also were unaware of the nature of the material facts omitted. In reliance on the misrepresentations and because of the material omissions the plaintiffs, throughout the relevant period, allegedly purchased the securities of American Appraisal at a market price which was inflated due to the omissions and misrepresentations. The complaint charged that this conduct by the defendants was in violation of Sections 10(b), 18(a), and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78r(a), 78t (1976); rule 10b-5 promulgated pursuant to Section 10(b), 17 C.F.R. § 240.10b-5; and common law fraud.

Prior to filing an answer to the complaint, American Appraisal moved the district court for a change in venue pursuant to 28 U.S.C. § 1404(a). The court, after receiving certain assurances from the defendants, transferred the case to the Eastern District of Wisconsin. At that point The Evergreen Fund requested Judge Warren to certify the case as a class action. In an order dated June 21, 1977, Judge Warren refused to certify the class. Approximately two and one-half weeks later some seventy-five purchasers of American Appraisal stock, all of whom, like The Evergreen Fund, were investment advisory clients of Lieber & Company, a registered broker-dealer and investment advisor, filed a motion to intervene in the case. Judge Warren denied the motion. Thereafter, the plaintiffs sought reconsideration of Judge Warren's order refusing to certify the class or to permit intervention.

While the motion for reconsideration was pending, sixty-four Lieber & Company investment advisory clients, all of whom had sought to intervene in the first action, commenced a lawsuit in the District Court for the Eastern District of Wisconsin. Their complaint was nearly identical to the first class action complaint filed by The Evergreen Fund. The defendants moved to dismiss this complaint on the grounds that the applicable Wisconsin statute of limitations barred the action. On November 16, 1979 the district court entered separate orders in the two proceedings. In the first, it denied the plaintiffs' requests for reconsideration. In the second, Judge Warren dismissed the complaint because it was barred by the statute of limitations.

As to the first complaint The Evergreen Fund petitioned this court for a writ of mandamus to require Judge Warren to certify the case as a class action. The plaintiffs in the second case filed a notice of appeal seeking review of the dismissal. This court ordered the cases consolidated for the purposes of briefing and oral argument.

II. Mandamus Relief

The Evergreen Fund could not appeal Judge Warren's decision not to certify the case as a class action because of the Supreme Court's decision in Coopers & Lybrand v. Livesay, 437 U.S. 463, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978), which held that an order refusing to certify a class action was not appealable. See also Anschul v. Sitmar Cruises, Inc., 544 F.2d 1364 (7th Cir.) (in banc), cert. denied, 429 U.S. 907, 97 S.Ct. 272, 50 L.Ed.2d 189 (1976). As an alternative means of obtaining review from this court, Evergreen filed a petition for a writ of mandamus pursuant to the All Writs Act, 28 U.S.C. § 1651. In the petition Evergreen asks us to compel the district court to certify the class.

Mandamus relief is reserved for extreme situations. It does not serve as a substitute for appeal even though delay may result in inconvenience and added expense. Schlagenhauf v. Holder, 379 U.S. 104, 110, 85 S.Ct. 234, 238, 13 L.Ed.2d 152 (1964); Bankers Life & Casualty Co. v. Holland, 346 U.S. 379, 382-84, 74 S.Ct. 145, 147-49, 98 L.Ed. 106 (1953). Nor does mandamus relief run the spectrum of appealable error. Will v. Calvert Fire Insurance Co., 437 U.S. 655, 661, 98 S.Ct. 2552, 2557, 57 L.Ed.2d 504 (1978); Will v. United States, 389 U.S. 90, 88 S.Ct. 269, 19 L.Ed.2d 305 (1967). A writ of mandamus is reserved for extraordinary situations because of the interest in discouraging piecemeal appeals, which is in line with the congressional judgment that, as a general rule, appellate review should await the entry of final judgment by the trial court. Kerr v. United States District Court, 426 U.S. 394, 403, 96 S.Ct. 2119, 2124, 48 L.Ed.2d 725 (1976).

Traditionally, the federal courts employed the writ only "to confine an inferior court to a lawful exercise of its prescribed jurisdiction or to compel it to exercise its authority when it is its duty to do so." Roche v. Evaporated Milk Association, 319 U.S. 21, 26, 63 S.Ct. 938, 941, 87 L.Ed. 1185 (1943). More recently the Supreme Court has indicated that a court of appeals may issue a writ of mandamus as part of its advisory or supervisory authority over the district courts. For instance, the writ is appropriate where a district court persists in disregarding an admonition of the court of appeals in a manner that disrupts the administration of justice. Will v. United States, 389 U.S. at 105-06, 88 S.Ct. at 279; La Buy v. Howes Leather Co., 352 U.S. 249, 258, 77 S.Ct. 309, 314, 1 L.Ed.2d 290 (1957). The writ also is properly used to avoid numerous later appeals by formulating necessary guidelines which will settle a new and important question. Schlagenhauf v. Holder, 379 U.S. at 111-12, 85 S.Ct. at 238-40. See also Wright, Miller, Cooper & Gressman, Federal Practice and Procedure: Jurisdiction § 3934 (1977). Even then, the petitioner, in order to secure a writ, must have no other adequate means of attaining the relief desired, Kerr v. United States District Court, 426 U.S. 394, 96 S.Ct. 2119, 48 L.Ed.2d 725, and must establish that the right to issuance of the writ is "clear and indisputable." Will v. Calvert Fire Insurance Co., 437 U.S. at 662, 98 S.Ct. at 2557; Bankers Life & Casualty Co. v. Holland, 346 U.S. at 384, 74 S.Ct. at 148; Chicago Housing Authority v. Austin, 511 F.2d 82, 83 (7th Cir. 1975).

The record before us fails to demonstrate a clear and indisputable right for the drastic remedy of mandamus. The district court ruled that issues of materiality, scienter, damages, and the statute of limitations were individual issues with respect to each member of the class and that there were individual questions of reliance and due diligence which were peculiar to the named plaintiff. The court therefore concluded that class certification would be inappropriate because serious questions were presented concerning the predominance of the issues common to the class over individual issues, the typicality of the named party's claims and defenses, and the adequacy of the named plaintiff's representation. ¹

An in-depth examination of the propriety of Judge Warren's ruling on the class certification question is not required. Since all that is at issue is mandamus relief it is sufficient to note...