Investment Properties International, Ltd. v. Ios, Ltd.

• Decision Date: 21 April 1972
• Docket Number: Docket 72-1060.
• Citation: 459 F.2d 705
• Parties: INVESTMENT PROPERTIES INTERNATIONAL, LTD., et al., Plaintiffs-Petitioners, v. IOS, LTD., et al., Defendants-Respondents, and Hon. Dudley B. Bonsal, United States District Judge for the Southern District of New York, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

459 F.2d 705 (1972)

INVESTMENT PROPERTIES INTERNATIONAL, LTD., et al., Plaintiffs-Petitioners, v. IOS, LTD., et al., Defendants-Respondents, and Hon. Dudley B. Bonsal, United States District Judge for the Southern District of New York, Respondent.

Docket 72-1060.

United States Court of Appeals, Second Circuit.

Submitted January 28, 1972.

Decided April 21, 1972.

Kronish, Lieb, Shainswit, Weiner & Heliman, New York City, for plaintiffs-petitioners.

Willkie, Farr & Gallagher, and Owen & Turchin, New York City, for defendants-respondents.

Before HAYS and OAKES, Circuit Judges, and CLARIE,^* District Judge.

OAKES, Circuit Judge:

The posture of this case is procedural, and, contrary to the underlying facts involved,¹ the issue before us is clearly defined. Plaintiffs-petitioners seek a writ of mandamus directing the Honorable Dudley B. Bonsal, United States District Judge of the Southern District of New York, to reverse a decision and order signed January 6, 1972. That order denied to plaintiffs-petitioners the right to depose certain of defendants-respondents' officers in order to establish standing and subject matter jurisdiction in federal district court. For the reasons set forth below and subject to the limitations herein, the petition for mandamus is granted.

Plaintiffs-petitioners brought this action for damages for violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j (b), and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and for violations of the Sherman Anti-Trust Act, 15 U.S.C. § 1. A request for a preliminary injunction was denied by Judge Marvin E. Frankel on the basis that the "drastic remedy . . . of interim restraint" was improper, since it appeared likely that the individual prosecuting the suit lacked capacity to bring it in the name of the corporate plaintiff, and since "very substantial doubts" existed as to whether plaintiffs could succeed in establishing federal subject matter jurisdiction.

Thereupon plaintiffs-petitioners served a notice of taking depositions of certain named officers of defendant and its subsidiaries, the examination to be limited to the threshold issues of standing and jurisdiction. Defendants-respondents subsequently moved under Fed.R.Civ.P. 26(c) (1), before Judge Dudley B. Bonsal, for an order vacating plaintiffs-petitioners' notice of taking.² Judge Bonsal granted the motion "without prejudice to further discovery if it is determined that this Court has jurisdiction of the subject matter of this action."

The writ of mandamus³ is in general "`reserved for really extraordinary causes,'" Platt v. Minnesota Mining & Manufacturing Co., 376 U.S. 240, 245, 84 S. Ct. 769, 11 L.Ed.2d 674 (1964), quoting Ex parte Fahey, 332 U.S. 258, 260, 67 S. Ct. 1558, 91 L.Ed. 2041 (1947), and is employed only "to confine an inferior court to a lawful exercise of its prescribed jurisdiction or to compel it to exercise its authority when it is its duty to do so." Will v. United States, 389 U. S. 90, 95, 88 S.Ct. 269, 273, 19 L.Ed.2d 305 (1967), quoting Roche v. Evaporated Milk Association, 319 U.S. 21, 26, 63 S. Ct. 938, 87 L.Ed. 1185 (1943); see Allied Air Freight, Inc. v. Pan American World Airways, Inc., 340 F.2d 160, 161 (2d Cir.), cert. denied, 381 U.S. 924, 85 S.Ct. 1560, 14 L.Ed.2d 683 (1965). Thus mandamus "serves a vital corrective and didactic function," Will v. United States, supra, 389 U.S. at 107, 88 S.Ct. at 280, in those exceptional cases where a "`usurpation of judicial power' or a clear abuse of discretion," Schlagenhauf v. Holder, 379 U.S. 104, 110, 85 S.Ct. 234, 238, 13 L.Ed.2d 152 (1964), quoting Bankers Life & Casualty Co. v. Holland, 346 U.S. 379, 383, 74 S.Ct. 145, 98 L.Ed. 106 (1953), compels—contrary to the traditional jurisprudential notion of review, Will v. United States, supra, 389 U.S. at 96, 88 S.Ct. 269—appellate review prior to a rendering of a final judgment by the trial court.

The narrow restraints on the general use of mandamus are all the more difficult to apply vis-a-vis the Federal Rules of Civil Procedure discovery provisions, which to a large extent rely for their effectiveness on the discretion of the trial judge. It is settled in this circuit, however, that "when a discovery question is of extraordinary significance or there is extreme need for reversal of the district court's mandate before the case goes to judgment, there are escape hatches from the finality rule: . . . one being . . . an extraordinary writ." American Express Warehousing, Ltd. v. Transamerica Insurance Co., 380 F.2d 277, 282 (2d Cir. 1967). "Extraordinary significance" and "extreme need for reversal" are standards that are not self-executing. They are to be defined and measured—in deciding whether to entertain a mandamus proceeding—by the touchstones of "usurpation of power, clear abuse of discretion and presence of an issue of first impression." Id. at 283 interpreting and applying Schlagenhauf v. Holder, 379 U.S. 104, 85 S.Ct. 234, 13 L.Ed.2d 152 (1964).

Judge Bonsal clearly had the power to vacate plaintiffs-petitioners' notices of deposition. Fed.R.Civ.P. 26 (c) (1). Nevertheless, the issue here is one of first impression, and the vacation reveals, through its consequences, an abuse of discretion. Discovery here, furthermore, is not a matter of mere "housekeeping," see American Express Warehousing, Ltd. v. Transamerica Insurance Co., supra, 380 F.2d at 284, but is the heart of the controversy, for on it turns plaintiffs-petitioners' right to be in court. The order below makes it virtually impossible to discover the facts on which jurisdiction and standing turn, and thus puts the plaintiffs-petitioners in a cul-de-sac which the Federal Rules never contemplated.

While Judge Bonsal did not give the rationale for this portion of his order, Judge Frankel in denying the earlier request for preliminary relief had stated that there were "sharp disputes" concerning the dates and places of the transactions alleged to form the basis of jurisdiction, see CCH Fed.Sec.L.Rep. ¶ 93,011, at 90,736 (1971). Furthermore, Judge Frankel noted, id. at 90,733:

With respect to some of the involved stock transactions, plaintiffs say they need an evidentiary hearing or state that they need time to inspect certain records. The court has no desire to foreclose their inquiries. The case may be an appropriate one for trial, and perhaps plaintiffs could profit from discovery. But that is another story for another day. The existence of substantial factual disputes may itself weigh against granting preliminary relief.

Plaintiffs-petitioners essentially argue that Arthur Adelson, who is prosecuting this action, became its president after the transactions purportedly supporting jurisdiction had taken place, and that the truth of those matters lies only within the knowledge and control of defendants-respondents' officers. Defendants-respondents answer that Adelson did have "access to information which should have enabled him to make at least a minimal showing of a basis of jurisdiction."

Which allegation is true is unknown to us, yet it seems to us that Judge Bonsal's order—which limits all further discovery, not just depositions, until jurisdiction is established—places plaintiffs-petitioners' case in limbo, from which there is no appeal.⁴ To move forward at all with the case, plaintiffs-petitioners must prove jurisdictional facts at trial; to accomplish that, however,...