Blake v. Pallan

• Decision Date: 26 May 1977
• Docket Number: No. 76-2437,76-2437
• Citation: 554 F.2d 947
• Parties: Robert BLAKE et al., Plaintiffs, v. Sant PALLAN et al., Defendants-Appellees, v. Willie R. BARNES, Commissioner of Corporations of the State of California, Plaintiff-In-Intervention/Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 947

554 F.2d 947

Robert BLAKE et al., Plaintiffs, v. Sant PALLAN et al., Defendants-Appellees, v. Willie R. BARNES, Commissioner of Corporations of the State

of California, Plaintiff-In-Intervention/Appellant.

No. 76-2437.

United States Court of Appeals, Ninth Circuit.

May 26, 1977.

Bruce S. Flushman, Deputy Atty. Gen., San Francisco, Cal., argued for plaintiff-in-intervention/appellant.

Gerhard Stoll, San Francisco, Cal., argued for defendants-appellees.

On Appeal from the United States District Court For the Northern District of California.

Before BARNES and WALLACE, Circuit Judges, and KELLEHER, District Judge. ^*

BARNES, Senior Circuit Judge:

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 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, 493 F.2d 1021, 1022-23 (9th Cir. 1974); cf., 7A Wright & Miller, Federal Practice and Procedure: Civil § 1908, p. 495 (1972) ("Wright and Miller"). "Upon (one) timely application, anyone shall be permitted to intervene in an action: . . . (two) when the applicant claims an interest relating to the property or transaction which is the subject of the action and (three) he is so situated that the disposition of the action (without his intervention) may as a practical matter impair or impede his ability to protect that interest, (and four) unless the applicant's interest is adequately represented by existing parties." Rule 24(a)(2) of the FRCP.

A. Timeliness

No objection based on timeliness has been raised. It is generally noted that the concept of timeliness is a flexible one. McDonald v. E. J. Lavino Co., 430 F.2d 1065, 1074 (5th Cir. 1970). Timeliness has clearly been satisfied in this case.

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., 386 U.S. 129, 132-136, 87 S.Ct. 932, 17 L.Ed.2d 814 (1967); Johnson v. San Francisco Unified School District, 500 F.2d 349, 352-353 (9th Cir. 1974); Smuck v. Hobson, 132 U.S.App.D.C. 372, 408 F.2d 175, 179-80 (1969); cf., Rios v. Enterprise Ass'n Steamfitters Loc. U. # 638 of U. A., 520 F.2d 352, 357 (2d Cir. 1975).

Two cases are of particular relevance here. In Cascade, supra, 386 U.S. at 132-136, 87 S.Ct. 932, the Supreme Court found that the State of California had sufficient interest under the Old Rule 24(a)(3) to intervene in divestiture hearings resulting from a civil antitrust suit brought by the federal government against a private gas company. California's interest was founded on a general "public interest" that the acquired company, which was "a substantial factor in the California market at the time it was acquired", be restored as an effective competitor in the state an element which the Court did not feel was adequately handled by the federal government. Id. Likewise, in Nuesse v. Camp, 128 U.S.App.D.C. 172, 385 F.2d 694 (1967), the District of Columbia Court of Appeals granted intervention of right to the Wisconsin Banking Commissioner, as plaintiff, in a suit brought by a state bank against the United States Comptroller of Currency to enjoin the latter from authorizing a national bank to open a branch bank in Wisconsin where the state law did not permit branch banking. Two reasons were given to support the finding of interest. First, it was noted that the requirements of Rule 24 were tailored for ordinary civil litigation and should receive "other than literal application in atypical cases", particularly in administrative cases. Nuesse, supra, 385 F.2d at 700. Second, given that the issue involved "overlapping fact and intertwined (federal and state) law" in an area where Congress decided to "adopt and incorporate state law on issues of common concern", the Commissioner had an adequate interest in the construction of the federal act, as that construction rested upon a determination of state banking law.Id.

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 the appellee, this point was recently decided in Brewer v. Republic Steel Corp., 513 F.2d 1222, 1224-1225 (6th Cir. 1975). In Brewer, a Title VII suit was brought while similar discrimination charges were pending before the Ohio Civil Rights Commission (which was charged under state law with enforcing essentially the same rights as those under the federal law statute). The Sixth Circuit affirmed the denial of intervention on the grounds that, while the Commission would find it convenient if the result reached the federal suit was consistent with the Commission's assessment of the defendant's liability under the Ohio statutes, the state and federal laws provided separate and independent avenues for relief.

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, 531 F.2d 726, 738 (5th Cir. 1976). However, the question here is whether the fact that the federal court will of necessity interpret the state securities law is enough to create an interest in the litigation on the part of the Commissioner. We cannot say that the Commissioner automatically has an interest in every case arising under state securities laws. The appellant, nevertheless, argues that the issues involved in the suit are novel and of first impression. ⁸ In addition, he points out that under § 25530 of the California Corporations Code he is empowered to bring suits to prevent violations and to enforce the state securities law. Such arguments do not support any finding of interest for...