Green v. Occidental Petroleum Corp.

• Decision Date: 24 August 1976
• Docket Number: Nos. 74-2895,75-2211,s. 74-2895
• Citation: 541 F.2d 1335
• Parties: Fed. Sec. L. Rep. P 95,729 Mary GREEN et al., Plaintiffs-Appellees, v. OCCIDENTAL PETROLEUM CORPORATION and Arthur Andersen & Company et al., Defendants-Appellants. OCCIDENTAL PETROLEUM CORPORATION and Arthur Andersen & Company et al., Petitioners, v. UNITED STATES DISTRICT COURT FOR the CENTRAL DISTRICT OF CALIFORNIA, Respondent, Mary GREEN et al., Real Parties in Interest.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1335

541 F.2d 1335

Fed. Sec. L. Rep. P 95,729

Mary GREEN et al., Plaintiffs-Appellees, v. OCCIDENTAL PETROLEUM CORPORATION and Arthur Andersen &

Company et al., Defendants-Appellants.

OCCIDENTAL PETROLEUM CORPORATION and Arthur Andersen &

Company et al., Petitioners, v. UNITED STATES DISTRICT COURT FOR the CENTRAL DISTRICT OF

CALIFORNIA, Respondent,

Mary GREEN et al., Real Parties in Interest.

Nos. 74-2895, 75-2211.

United States Court of Appeals Ninth Circuit.

Aug. 24, 1976.

Philip F. Westbrook, Jr. (argued), of O'Melvany & Myers, Los Angeles, Cal., for defendants-appellants.

David B. Gold, San Francisco, Cal. (argued), Jack Corinblit (argued), both of Corinblit & Shapero, Stuart L. Kadison (argued), of Kadison, Pfaelzer, Woodard, Quinn & Rossi, Los Angeles, Cal., for plaintiffs-appellees.

OPINION

Before DUNIWAY, KILKENNY and SNEED, Circuit Judges.

PER CURIAM.

Plaintiffs filed several lawsuits, which were transferred to the district court below, against defendant Occidental Petroleum ("Occidental") and other defendants alleging violations of the federal securities laws due to allegedly misleading financial statements and other reports. The district judge certified the case as a class action under Fed.R.Civ.P. 23(b)(1) and (b)(3), and defendants seek to appeal therefrom. Defendants also seek a writ of mandamus. We hold that the defendants may not appeal under 28 U.S.C. § 1291, that mandamus is inappropriate with respect to the district judge's refusal to certify the question under 28 U.S.C. § 1292(b), and that mandamus does not lie with respect to class certification under rule 23(b)(3). However, we do direct the district judge to vacate the class certification order insofar as that order certified the class under rule 23(b)(1) and remand for further proceedings consistent with this opinion.

I. Statements of Facts.

On March 4, 1971, the Securities and Exchange Commission filed a complaint for injunctive relief in the Southern District of New York against Occidental Petroleum Corporation and Armand Hammer, Chairman of the Board of Directors and Chief Executive Officer. The complaint alleged that since January 1, 1966, Occidental and Hammer had engaged in an unlawful scheme and course of conduct that violated and was continuing to violate Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. The specific allegations of the complaint were limited to particular matters in which press releases or reports to shareholders, or both, were issued on or after July 31, 1969. The transactions and accounting treatments ¹ challenged by the SEC allegedly caused a material change in Occidental's reported profits for the quarters June 30, 1969 through June 30, 1970, inclusive.

Subsequent thereto, numerous private civil actions were filed in federal and state courts, based upon the allegations of the SEC complaint. The twenty-two actions consolidated in the district court below were originally filed in the courts of some six different federal districts. All cases pending in other districts were transferred to the district court under orders pursuant to 28 U.S.C. § 1404(a). As the district judge found:

The gravamen of each complaint appears to be that the principal defendants violated Section 10(b) of the 1934 Act by utilizing improper accounting practices and issuing press releases and quarterly reports to shareholders in which the profits of Occidental were overstated, or that other misleading information was given, with the result that the market price of Occidental securities was artificially inflated. Plaintiffs alleged that persons who were parties to transactions in Occidental securities during the approximate five-and-one-half-year period specified in the SEC complaint and who relied on the information contained in the press releases and quarterly reports, were damaged. With the exception of the plaintiffs in Weinberger, et al. v. Occidental Petroleum Corporation, et al., 71-1841-RJK, each plaintiff seeks to recover damages incurred in connection with transactions he entered into in reliance on false or misleading information. Memorandum of Decision and Order Certifying Class, June 28, 1974.

After extensive briefing, on June 28, 1974, the district judge entered an order certifying a class consisting of all purchasers of Occidental common stock between the dates of July 31, 1969 and March 5, 1971. The class was certified under subsections (b)(1) and (b)(3) of Fed.R.Civ.P. 23. The district judge also refused to certify the ruling on the class certification for appeal under 28 U.S.C. § 1292(b).

II. Jurisdictional Posture.

At the outset, some comments upon the jurisdictional posture of the case are necessary. In this circuit, class certification is not normally appealable as a final order under 28 U.S.C. § 1291. Blackie v. Barrack,524 F.2d 891 (9th Cir. 1975). Section 1292(b) of Title 28, United States Code, on the other hand, provides a method for appellate review of nonfinal orders in civil actions. ² However, Section 1292(b) requires that the district judge be "of the opinion" that the criteria for section 1292(b) appeal are met, and vests the Court of Appeals with discretion to permit the appeal. See D'Ippolito v. Cities Service Co., 374 F.2d 643 (2nd Cir. 1967). Concurrence of both the district court and the appellate court is necessary and we are without power to assume unilaterally an appeal under section 1292(b). See United States v. 687.30 Acres of Land, 451 F.2d 667 (8th Cir. 1971). Nor is mandamus to direct the district judge to exercise his discretion to certify the question an appropriate remedy. See Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1344 (2nd Cir. 1972) (Friendly, J.); D'Ippolito v. Cities Service Co., supra.

What remains is the defendant's petition for mandamus regarding the underlying question of the class certification. ³ The issuance of the writ is within our power under the All Writs Statute, 28 U.S.C. § 1651, ⁴ particularly since we could later entertain appeals on these issues. La Buy v. Howes Leather Co., 352 U.S. 249, 255, 77 S.Ct. 309, 1 L.Ed.2d 290 (1957). The granting or denying of the writ rests in our sound discretion. Id.

We recognize that the issuance of this writ should be limited to exceptional circumstances, and share the Second Circuit's view that orders granting class certification are the proper subject for mandamus in only the most extraordinary circumstances. General Motors Corp. v. City of New York, 501 F.2d 639, 648 (2nd Cir. 1974). However, we also note the utility of mandamus as a tool to supervise the proper judicial administration in the district courts. See La Buy v. Howes Leather Co., supra, 352 U.S. at 259-60, 77 S.Ct. 309, 1 L.Ed.2d 290; Schlagenhauf v. Holder, 379 U.S. 104, 110-11, 85 S.Ct. 234, 13 L.Ed.2d 152 (1964). See also 9 Moore, Federal Practice § 110.28 at 312-13.

For reasons discussed below, we issue the writ with respect to class certification under rule 23(b)(1). See McDonnell Douglas Corp. v. United States Dist. Ct., 523 F.2d 1083 (9th Cir. 1975). With respect to the rule 23(b)(3) certification, after balancing various factors, ⁵ we conclude not to issue the writ.

To reach these conclusions, it was necessary to analyze several 10b-5 issues as they relate to rule 23(b)(3). We believe a description of the road we traveled will be useful to the furtherance of this litigation in an expeditious and just manner. The reasons for this belief will become clear as our description unfolds.

III. Class Certification Under Rule 23(b)(1).

In order for an action to be maintained as a class action under Fed.R.Civ.P. 23, the four requirements of rule 23(a) ⁶ must be met, as well as the requirements of at least one of the subdivisions of rule 23(b). However, certification under 23(b)(3) does not render a certification under 23(b)(1) immaterial and of no consequence. Independent significance attaches to certification under (b)(1). ⁷ Notice must be given only in the (b)(3) case, and members of a (b)(3) class, but not of a (b)(1) class, may choose to opt out and not be bound by the judgment. ⁸ In cases where both (b)(1) and (b)(3) apply, (b)(1) is held to govern to avoid the multiplicity of suits. See, e. g., Mungin v. Florida E. Coast Ry., 318 F.Supp. 720, 730 (M.D.Fla.1970), aff'd per curiam, 441 F.2d 728 (5th Cir. 1971); 7A Wright & Miller, Federal Practice and Procedure, § 1771 at 7-8 and cases cited at Supp. (1976) at 1.

The instant case is an action for damages. In such cases ordinarily there is neither the risk under rule 23(b)(1)(A) of "inconsistent or varying adjudications" which would "establish incompatible standards of conduct for the party opposing the class," nor of adjudications impairing the rights of class members to protect their interests under (b)(1)(B) of Rule 23. ⁹ No circumstances exist here that render these principles inapposite. These conclusions are supported by LaMar v. H & B Novelty & Loan Co., 489 F.2d 461 (9th Cir. 1973) ¹⁰ as well as McDonnell Douglas Corp. v. United States Dist. Ct., 523 F.2d 1083 (9th Cir. 1975). Certification under Rule 23(b)(1), therefore, was improper. Correction can be achieved through mandamus. Id. Judicial efficiency requires that we order the district court to vacate the (b) (1) certification so that erroneous notice and opt-out procedures are not employed.

IV. Class Certification Under Rule 23(b)(3).

After a thorough review of the opinion of the district judge, it is apparent to us that he analyzed the allegations of the complaint and the other material before him which we believe are sufficient to form a reasonable judgment on each requirement, contemplated the type of proof necessary to establish those allegations, determined to the best of his ability the course the litigation would follow, and then decided that the requirements were met at that time. His certification under Rule 23(b)(3)...