Hawaii-Pacific Venture Capital Corp. v. Rothbard

Decision Date28 November 1977
Docket NumberNo. 76-1920,HAWAII-PACIFIC,76-1920
Citation564 F.2d 1343
PartiesVENTURE CAPITAL CORP., David M. Sapp and Philip Gillin, on behalf of themselves and all others similarly situated, Plaintiff-Appellees, v. H. B. ROTHBARD, Willard M. P. Wong, Raymond C. Ho, Gary D. Ross and Wong Investment Co., Inc., Defendants, and American Security Bank, Bank of Hawaii, et al., Garnishees, and H. T. Wong, James Morikawa and L. W. Carmody, Applicants for Intervention, Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Edward R. Bendet (argued), Honolulu, Hawaii, for appellants.

Jack C. Morse (argued), Honolulu, Hawaii, for appellees.

Appeal from the United States District Court for the District of Hawaii.

Before ELY, HUFSTEDLER and WRIGHT, Circuit Judges.

HUFSTEDLER, Circuit Judge:

H. T. Wong, James Morikawa, and L. W. Carmody sought to intervene in a class action suit for securities fraud arising out of a 1969 transaction in which Air Hawaii, Inc. ("AH") (a predecessor of Hawaii-Pacific Venture Capital Corp.) exchanged its assets and liabilities for stocks of Union Investments, Inc. ("Union"). The district court denied their motion for intervention except for their participation in a hearing to determine the identity of the AH shareholders of record on November 22, 1968. An amendment of the order limited their participation in the hearing to amicus status and included them in the plaintiff class upon proof of their stock holdings. The would-be intervenors appeal from the order denying intervention.

The class action suit was originally filed on January 6, 1970, alleging that, unknown to the other AH shareholders, H. B. Rothbard and Willard Wong, officers and principal shareholders of AH, made a side deal with Union in the 1969 AH-Union transaction and obtained $500,000 secret profit. The complaint sought recovery of the secret profit. In April, 1972, the class was certified to include all AH shareholders of record on November 22, 1968. Notices were sent by the clerk of the district court to forty shareholders whose names appeared on a shareholder list compiled by the two named plaintiffs who are directors of AH. The list did not contain the names of appellants. In May, 1972, a motion was made to settle the claim against Rothbard, to dismiss him as a defendant, and to join him as a member of the plaintiff class on the ground that Willard Wong had retained the bulk of the secret profit except for $53,500 paid to Rothbard, and that Rothbard could be of considerable help to the plaintiffs because of his inside knowledge of the facts surrounding the transaction in question. After further notice to the then known class members and receiving no objections, the motion was granted in December, 1972. In February, 1973, a shareholders list compiled by Rothbard with 52 names was introduced at trial. The Rothbard list of shareholders contained the names of the appellants. No new notices were sent, however, to the additional shareholders on the Rothbard list. In May, 1973, a judgment was entered against Willard Wong and he appealed to this court. In February, 1975, this court, in an unpublished order, remanded the case to the district court for a further hearing on the computation of damages. The judgment on remand was entered in March, 1975. The present motion to intervene was filed by the appellants in April, 1975, shortly after one of the appellants was subpoenaed for a deposition by counsel for Rothbard. H. T. Wong claimed ownership to 250,000 shares of AH stock; Morikawa 10,000 shares; Carmody 200,000 shares.

The appellants contend that they are entitled to intervene as a matter of right under Federal Rules of Civil Procedure ("FRCP") Rule 24(a)(2). 1 As stockholders of AH, the appellants have an interest in the 1969 AH-Union transaction which is the subject of the class action suit. The appellants have lost their investments in AH and have been damaged by the 1969 AH-Union transaction. The appellants further contend that they are so situated that the disposition of the class action may as a practical matter impair or impede their ability to protect their claims arising from the 1969 AH-Union transaction. The gravamen of their contentions is that from 1970 to 1975 they did not have notice of the class action proceedings, and that their ability to protect their interests has been greatly damaged by the conduct of the class action proceedings in their absence. They complained that the class counsel failed to append to the federal securities claim a state claim seeking payment for unpaid AH stock subscriptions, that the final judgment against Willard Wong may not bar his pro rata participation in the recovery, and that an attorney's fee of $107,000 was awarded to the class counsel. Above all, they attacked the settlement agreement with Rothbard and the resulting realignment of Rothbard as party plaintiff and sought a new trial against both Willard Wong and Rothbard.

To begin with, the appellants' contention that their state claims seeking payment for unpaid AH stock subscriptions are now barred by the statute of limitations alleges harm not related to and not attributable to the disposition of the class action suit. It is the appellants' own negligence and failure to raise the state subscription claims for over seven years that bars them. The conduct of a class action suit that they did not know about could not have lulled them into resting on their rights. If the present class action suit had not been filed, the appellants would have been in precisely the same position as they are now with respect to the subscription claims.

It is evident from their contentions that the appellants do not wish to be bound by the class action judgment and the settlement agreement with Rothbard. A colorable case can be made that they should not be so bound. They were not notified of the class action suit at the outset or...

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    • U.S. Court of Appeals — Fifth Circuit
    • 31 Marzo 1980
    ...53 L.Ed.2d 250 (1977); Hawaii-Pacific Venture Capital Corp. v. Rothbard, 437 F.Supp. 230, 233 (D.Hawaii), appeal dismissed, 564 F.2d 1343, 1347 (9th Cir. 1977); see King v. United States, supra, 576 F.2d at 437. Moreover, in numerous cases since the enactment of Section 455(a) courts have h......
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