Finley v. Parvin/Dohrmann Co., Inc.

• Decision Date: 06 August 1975
• Docket Number: Nos. 1285,D,1286,s. 1285
• Citation: 520 F.2d 386
• Parties: Charles O. FINLEY et al., Plaintiffs-Appellees, v. PARVIN/DOHRMANN COMPANY, INC. et al., Defendants-Appellants. Parvin/Dohrmann Company, Inc., Delbert W. Coleman, William C. Scott, Jesup& Lamont, John J. Dunphy and F. O. F. Proprietary Funds, Limited, Petitioners, v. Honorable Inzer B. WYATT, U. S. D. J., Respondent. ockets 75-7354, 75-3032.
• Court: U.S. Court of Appeals — Second Circuit

Page 386

520 F.2d 386

Charles O. FINLEY et al., Plaintiffs-Appellees, v. PARVIN/DOHRMANN COMPANY, INC. et al., Defendants-Appellants.

Parvin/Dohrmann Company, Inc., Delbert W. Coleman, William

C. Scott, Jesup& Lamont, John J. Dunphy and F. O.

F. Proprietary Funds, Limited, Petitioners, v. Honorable Inzer B. WYATT, U. S. D. J., Respondent.

Nos. 1285, 1286, Dockets 75-7354, 75-3032.

United States Court of Appeals, Second Circuit.

Argued July 18, 1975.

Decided Aug. 6, 1975.

Martin I. Shelton, New York City (Daniel L. Carroll, and Shea, Gould, Climenko Kramer & Casey, New York City, of counsel), for plaintiffs-appellees.

Richard J. Barnes, New York City (Ronald S. Daniels, and Townley, Updike, Carter & Rodgers, New York City, of counsel), for Delbert W. Coleman and William C. Scott.

R. L. Duff, New York City (Carro, Spanbock, Londin, Rodman & Fass, New York City, of counsel), for Jesup & Lamont and John J. Dunphy.

Robert A. Meister, New York City (Milgrim, Thomajan & Jacobs, New York City, of counsel), for F. O. F. Proprietary Funds Ltd.

Rosenman, Colin, Kaye, Petschek, Freund & Emil, New York City (Jenner & Block, Chicago, Ill., and Joel W. Sternman, New York City, of counsel), for Parvin/Dohrmann Company, Inc.

Before MOORE, FRIENDLY and VAN GRAAFEILAND, Circuit Judges.

FRIENDLY, Circuit Judge:

The complaint in this action under the securities laws was filed in the District Court for the Northern District of Illinois on April 8, 1970. Plaintiffs Charles O. Finley, his wife, Shirley M. Finley, and a family corporation, Charles O. Finley & Company, Inc., had purchased thirty-seven thousand shares of defendant Parvin/Dohrmann Company, Inc. in 1969. Thirty thousand of these were shares purchased from defendant F. O. F. Proprietary Funds Limited (FOF) as part of an unregistered distribution by FOF of eighty-one thousand such shares which was allegedly in violation of § 5 of the Securities Act of 1933. The other seven thousand shares were purchased on the open market at prices which allegedly reflected conduct by the other defendants in violation of § 12 of the Securities Act of 1933 and §§ 9(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Plaintiffs sought rescission or, in the alternative, damages of $2,500,000 or more.

Late in August, 1970, the action was transferred to the Southern District of New York at the request of the defendants and over the opposition of the plaintiffs, in part because related actions against the defendants were pending in the Southern District. On October 5, 1971, New York counsel for plaintiffs filed notices to take the depositions of defendants Parvin/Dohrmann, Coleman and Scott at various dates in November, and for the production of documents under F.R.Civ.P. 34. Some documentary material was produced. The date for taking the depositions was extended several times by stipulation, the last such extension being until various dates in April and May, 1972. A related action brought by the SEC was settled in 1972 and plaintiffs allegedly received 833 shares of Parvin/Dohrmann stock valued at $29,779.75. A private class action based on some of the same facts as here alleged was also settled, but by letter dated August 9, 1972, to the clerk of the Southern District Court, plaintiffs opted out of the class, noting that they were pursuing their own remedies in the instant action. In April, 1974, Argent Corporation made a tender offer to all stockholders of Parvin/Dohrmann, as a result of which plaintiffs received $88 per share for the holdings they had retained. Defendants say this eliminated plaintiffs' claim for rescission and reduced the damage claim to $300,000; plaintiffs assert the latter amounts to over $1,000,000 the difference apparently being interest on moneys borrowed to purchase the stock.

We shall never know what would have happened if the case had not been reassigned to Judge Wyatt in March, 1975, ¹ as part of a program to expedite the disposition of civil cases which had been pending in the Southern District for more than three years. He promptly directed that a pretrial conference be held on April 3 before Magistrate Schreiber. Apparently he had advised the magistrate that he would try the case between May and July and that consequently only very limited further discovery should be allowed. The magistrate requested the submission of a pretrial order fixing a schedule. While plaintiffs' counsel served some notices for discovery and production of documents on April 14, apparently believing that defendants were also going to do so, defense counsel were more intrigued by a remark of the magistrate to the effect "that the plaintiff seemed lucky that no one had made a motion to dismiss for lack of prosecution or that the Court had not on its own motion dismissed the case for lack of prosecution in light of the five years of inactivity." This possibility became the main subject of discussion at a second pretrial hearing before Magistrate Schreiber on April 18. He gave leave to the defendants to move for dismissal for lack of prosecution under F.R.Civ.P. 41(b), provided that the motion was returnable sufficiently soon as not to interfere with Judge Wyatt's plan to commence the trial early in May. On April 29 defendants served appropriate motion papers, accompanied by affidavits, returnable May 2; plaintiffs filed an answering affidavit.

The argument took a rather unexpected turn. At the outset Judge Wyatt remarked to counsel for certain defendants that "the trouble is that under the system which has obtained in this court for certainly the last two years," referring to the Individual Assignment System, "what could the plaintiff have done to get this case tried?" The judge's reference was to the fact that under IAS, each case is assigned to a specific judge from its inception, whereas the former Master Calendar System placed a definite burden on the plaintiff to see to it that his case was put on the calendar for assignment to a judge just before trial. When counsel responded that the lack of prosecution lay not only in failure to bring the case on for trial but in failure to conduct discovery, the judge accurately predicted the position of plaintiffs' counsel by hypothesizing that the latter would say "I don't want any discovery. I just want to try it." Considerably later, in response to a suggestion by counsel for another defendant that the judge was taking the position that IAS had created an "inability to determine when for purposes of 41(b) there is non-prosecution, which is an implied repeal of the rule or a belief that the Court lacks power to dismiss under 41(b) in the circumstances of the individual calendar system," Judge Wyatt refused to be thus pinioned, saying:

No; it is not lack of power. It is that I don't think I can fairly deny the plaintiff a trial. Suppose he had no machinery to urge a trial other than, as has been suggested, harassing and bedeviling the judge to get a trial. I don't think plaintiffs ought to be required to do that.

On this ground the judge, although ordering that there would be no discovery on either side, denied the motion to dismiss, but agreed to and did certify the case for an interlocutory appeal under 28 U.S.C. § 1292(b). ² We granted leave to appeal. Prior to our doing so, defendants also filed a precautionary petition for a writ of mandamus. We are advised that the trial date has been adjourned to October 6.

The main argument of defendants' counsel on appeal takes a form quite similar to what we have just described. They present the case as if the district judge had ruled that the failure of IAS to provide a formal method for noticing a case for trial prevented him from exercising a discretion which he would otherwise have exercised, or indeed did exercise, in their favor. If that were a proper characterization, we would be obliged to rule with defendants, although we would have to consider whether the proper disposition would be a direction to grant the motion or a remand for further consideration. Defendants point to Rule 15 of the Civil Rules for the Southern and Eastern Districts of New York which provides that, in the absence of a pertinent federal statute or rule or parallels or analogies furnished thereby, "the procedure heretofore prevailing in courts of equity of the United States shall be applied, or in default thereof, in the discretion of the court, the procedure which shall then prevail in the Supreme Court or the Surrogate Court as the case may be of the State of New York may be applied." This, they say, would have allowed plaintiffs to file a note of issue, as was the District Court's former practice and as Rule 3402 of New York CPLR provides. ³ Further, they claim that the chief reason why prior district court practice provided for a note of issue was that counsel could not know which judge would try the case; under IAS, they say, any plaintiff desiring a trial can make his wishes known simply by writing a letter or making a telephone call to the judge to whom the case has been assigned. Indeed, they report that "an informal poll of the Chambers of all of the other District Judges in the Southern District (including those Judges to whom this case had earlier been assigned) conducted by Appellants discloses that a telephone call to Chambers or a letter to the Judge typically results at least in a pre-trial conference to consider a trial date." ⁴ For these and other reasons, some of which will appear below, we would not have reversed if Judge Wyatt had granted the motion to dismiss. Cf. S & K Airport Drive-In, Inc. v. Paramount Film Dist. Corp., 58 F.R.D. 4 (E.D.Pa.), aff'd without opinion, 491 F.2d 751 (3 Cir. 1973).

However, as already indicated, Judge Wyatt's reasoning was not what the defendants contend. Recognizing that he had power to dismiss the action under F.R.Civ.P. 41(b), he declined to do so because he thought it would be unfair in view of what he considered to be confusion...