Blackie v. Barrack

• Decision Date: 25 September 1975
• Docket Number: 74-2341,74-2466 and 74-2648,Nos. 74-2141,74-2167,s. 74-2141
• Parties: Fed. Sec. L. Rep. P 95,312 William BLACKIE et al., Defendants-Appellants, v. Leonard BARRACK et al., Plaintiffs-Appellees. AMPEX CORPORATION, Defendant-Appellant, v. Benjamin L. KUSHNER, Plaintiff-Appellee. William E. ROBERTS and John Buchan, Defendants-Appellants, v. Benjamin L. KUSHNER et al., Plaintiffs-Appellees. TOUCHE ROSS & CO., Defendant-Appellant, v. Leonard BARRACK et al., Plaintiffs-Appellees. William E. ROBERTS et al., Defendants-Appellants, v. Leonard BARRACK et al., Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 891

524 F.2d 891

Fed. Sec. L. Rep. P 95,312

William BLACKIE et al., Defendants-Appellants, v. Leonard BARRACK et al., Plaintiffs-Appellees.

AMPEX CORPORATION, Defendant-Appellant, v. Benjamin L. KUSHNER, Plaintiff-Appellee.

William E. ROBERTS and John Buchan, Defendants-Appellants, v. Benjamin L. KUSHNER et al., Plaintiffs-Appellees.

TOUCHE ROSS & CO., Defendant-Appellant, v. Leonard BARRACK et al., Plaintiffs-Appellees.

William E. ROBERTS et al., Defendants-Appellants, v. Leonard BARRACK et al., Plaintiffs-Appellees.

Nos. 74-2141, 74-2341, 74-2167, 74-2466 and 74-2648.

United States Court of Appeals, Ninth Circuit.

Sept. 25, 1975.

Arthur R. Albrecht (argued), McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for defendants-appellants in No. 74-2141.

David Berger (argued), Philadelphia, Pa., for plaintiffs-appellees in No. 74-2141.

Theodore P. Lambros (argued), San Francisco, Cal., for defendant-appellant in No. 74-2141.

Stephen V. Bomse (argued), Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for defendants-appellants in No. 74-2341.

Thomas Elke (argued), San Francisco, Cal., for plaintiff-appellee in Nos. 74-2341 and 74-2648.

William W. Godward (argued), Cooley, Godward, Castro, Huddleson & Tatum, San Francisco, Cal., for defendant-appellant in No. 74-2466.

Melvyn I. Weiss (argued), Milberg & Weiss, New York City, for plaintiff-appellee in Nos. 74-2466 and 74-2648.

Thomas A. H. Hartwell (argued), Cooley, Godward, Castro, Huddleson & Tatum, San Francisco, Cal., for plaintiff-appellee in No. 74-2648.

OPINION

Before TUTTLE, ^* KOELSCH and BROWNING, Circuit Judges.

KOELSCH, Circuit Judge:

These are appeals from an order conditionally certifying a class in consolidated actions for violation of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10(b)-5.

The litigation is a product of the financial troubles of Ampex Corporation. The annual report issued May 2, 1970, for fiscal 1970, reported a profit of $12 million. By January 1972, the company was predicting an estimated $40 million loss for fiscal 1972 (ending April 30, 1972). Two months later the company disclosed the loss would be much larger, in the $80 to $90 million range; finally, in the annual report for fiscal 1972, filed August 3, 1972, the company reported a loss of $90 million, and the company's independent auditors withdrew certification of the 1971 financial statements, and declined to certify those for 1972, because of doubts that the loss reported for 1972 was in fact suffered in that year.

Several suits were filed following the 1972 disclosures of Ampex's losses. They were consolidated for pre-trial purposes. The named plaintiffs in the various complaints involved in these appeals ¹ purchased Ampex securities during the 27 month period between the release of the 1970 and 1972 annual reports, and seek to represent all purchasers of Ampex securities during the period. The corporation, its principal officers during the period, ² and the company's independent auditor are named as defendants. The gravamen of all the claims is the misrepresentation by reason of annual and interim reports, press releases and SEC filings of the financial condition of Ampex from the date of the 1970 report until the true condition was disclosed by the announcement of losses in August of 1972.

The plaintiffs moved for class certification shortly after filing their complaints in 1972; after extensive briefing and argument the district judge entered an order on April 11, 1974, conditionally certifying as a class all those who purchased Ampex securities during the 27 month period. The defendants filed notices of appeal from the order of certification on May 9 and 10, 1974. ³

Additionally, the district judge, in an order entered July 1, 1974, denying a motion made by defendants Roberts and Buchan, and defendants Blackie, et al., for reconsideration of the class certification, permitted those defendants to seek an interlocutory appeal from that order under 28 U.S.C. § 1292(b). ⁴ We granted the petition for interlocutory review. ⁵ That appeal was designated No. 74-2648, and consolidated with the direct appeals.

In December of 1974, plaintiffs filed a motion to dismiss the various appeals the purportedly direct appeals on the ground that the certification order is not appealable under 28 U.S.C. § 1291, and the § 1292(b) appeal on the ground that it has been prosecuted in a dilatory manner.

The appeals having now been heard and submitted, we face three issues: 1) whether the order certifying the class is a final order appealable under § 1291; 2) whether the interlocutory appeal should be dismissed; and (if any of the appeals are properly before us) 3) whether the district court order certifying the class was proper under the standards set out in Fed.R.Civ.P. 23(a) and (b)(3). To summarize our decision, we hold the certification order non-appealable and dismiss the direct appeals; we deny the motion to dismiss the § 1292(b) certified appeals; and, on the merits, hold that the suit may properly be maintained as a class action.

I. Appealability under § 1291 of an order granting class action status.

The courts of appeals have jurisdiction over appeals of right under28 U.S.C. § 1291 only from "final decisions" of the district courts. The statutory limitation is the product of a two-fold policy judgment about judicial administration which was written into the first Judiciary Act and adhered to ever since. See Cobbledick v. United States, 309 U.S. 323, 324-325, 60 S.Ct. 540, 84 L.Ed. 783 (1940). The requirement saves judicial time by eliminating review of rulings adverse to an eventually successful litigant. But more importantly, the uniform imposition of finality as a condition of review improves the quality of justice administered by the judicial system. On balance, the rule shortens the time needed for resolution of controversies, saving litigants both time and money; "(requiring finality avoids) the obstruction to just claims that would come from permitting the harassment and cost of a succession of separate appeals from the various rulings to which a litigation may give rise, from its initiation to entry of judgment." Cobbledick, supra, at 325, 60 S.Ct. at 541. In short, the rule is one of the primary bars against Bleak House Judicial administration; ⁶ as such, its rationale applies equally to an order certifying a class.

Nevertheless, in some circumstances deferring an appeal practically operates to deny effective review, as the right threatened by an adverse ruling will have been lost in the interim before final disposition of the other aspects of the controversy. The Court therefore has given the § 1291 final decision requirement a "practical rather than a technical construction," Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 548, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528 (1949), and allowed interlocutory appeal from a "small class (of orders) which finally determine claims of right separable from and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." Cohen, at 546, 69 S.Ct. at 1225. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 170-172, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) (Eisen IV); Note, Class Action Certification Orders: An Argument for the Defendant's Right to Appeal, 42 Geo.Wash.L.Rev. 621, 625-628 (1974). Two of the three circuits which have faced the issue have nevertheless held a class certification order non-appealable under Cohen. Thill Securities Corp. v. New York Stock Exchange, 469 F.2d 14 (7th Cir. 1972); Walsh v. City of Detroit, 412 F.2d 226 (6th Cir. 1969). Accord, 9 J. Moore, Federal Practice P 110.13(9), at 184-187 (2d ed. 1970).

The Second Circuit, however, has permitted appeal in certain limited circumstances. In Eisen v. Carlisle & Jacquelin, 370 F.2d 119 (2d Cir. 1966), cert. denied, 386 U.S. 1035, 87 S.Ct. 1487, 18 L.Ed.2d 598 (1967) (Eisen I), that court recognized that an order denying class action status effectively sounded the "death knell" of the plaintiff's suit. As "no lawyer of competence is going to undertake this complex and costly case to recover $70 for Mr. Eisen," the individual claim could not be adjudicated, and as a practical matter the class question could never be appealed. The court therefore concluded the order was appealable under Cohen. We have adopted the death knell doctrine. Falk v. Dempsey-Tegeler & Co., Inc., 472 F.2d 142 (9th Cir. 1972); Weingartner v. Union Oil Company of California, 431 F.2d 26 (9th Cir. 1970).

From that springboard the Second Circuit developed a "reverse death knell" doctrine with respect to a defendant and his rights to foreclose an ostensible class suit against him. Influenced by the suggestion that it consider a rule which would "afford equality of treatment as between plaintiffs and defendants" (Korn v. Franchard Corp., 443 F.2d 1301, 1307 (2d Cir. 1971) (Friendly, J., concurring)), a panel of the circuit held in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1007 n. 1 (2d Cir. 1973) (Eisen III), that defendants could appeal an order granting class status under three specified conditions. As explicated in Herbst v. International Telephone and Telegraph Corp., 495 F.2d 1308, 1312 (2d Cir. 1974), such an order is appealable when the class determination is " 'fundamental to the further conduct of the case' " (i. e., when, were the class determination reversed, the individual claims presented would be too small to continue the suit, thus effectively terminating it the reverse death knell situation); ⁷ when the order is " 'separable from the merits; ' " and when it will result in " 'irreparable harm to the defendant in terms of time and money spent in defending a huge class action.' " Herbst, at 1312, quoting from ...