Korn v. Franchard Corporation

• Decision Date: 20 May 1971
• Docket Number: Docket 35578,71-1221.
• Parties: Ruth KORN, individually and as executrix of the Estate of Ben Korn, deceased, on behalf of herself and all other Purchasers and Holders of Limited Partnership Interests in 63 Wall Associates similarly situated, Plaintiff-Appellant, v. FRANCHARD CORPORATION et al., Defendants-Respondents, and Murray Wechsler, et al., Intervening Plaintiffs. Madeline MILBERG, Plaintiff, v. WESTERN PACIFIC RAILROAD COMPANY, and Dow Jones & Company, Inc., trading under the name of Barron's Weekly, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

443 F.2d 1301 (1971)

Ruth KORN, individually and as executrix of the Estate of Ben Korn, deceased, on behalf of herself and all other Purchasers and Holders of Limited Partnership Interests in 63 Wall Associates similarly situated, Plaintiff-Appellant, v. FRANCHARD CORPORATION et al., Defendants-Respondents, and Murray Wechsler, et al., Intervening Plaintiffs.

Madeline MILBERG, Plaintiff, v. WESTERN PACIFIC RAILROAD COMPANY, and Dow Jones & Company, Inc., trading under the name of Barron's Weekly, Defendants.

Docket 35578, 71-1221.

United States Court of Appeals, Second Circuit.

Argued March 29, 1971.

Decided May 20, 1971.

George A. Weissblum, Yonkers, N. Y., for intervening plaintiffs Morris Weissblum, Henrietta Weissblum, Jack Edelman, Flo Edelman, Benjamin Edelman, Sylvia Edelman and Celia Diamond.

Lifshutz & Kahn, Gerald Kahn, New York City, for intervening plaintiff Murray Wechsler.

Avrom S. Fischer, Brooklyn, N. Y., for plaintiff-appellant Madeline Milberg.

Olwine, Connelly, Chase, O'Donnell & Weyher, John Logan O'Donnell, James E. Tolan, New York City, for defendant Western Pacific Railroad Co.

Patterson, Belknap & Webb, Robert D. Sack, New York City, for defendant Dow Jones & Co., Inc.

Herbert Brownell, New York City (Lord, Day & Lord, Wendell Davis, Jr., New York City, on the brief), for plaintiff-appellant Ruth Korn.

George A. Spiegelberg, New York City (Fried, Frank, Harris, Shriver & Jacobson, New York City, on the brief), for defendants-appellees Louis A. Siegel and Seymour Young.

Simpson Thacher & Bartlett, Peter J. Schlesinger, New York City, for defendants Franchard Corp. and Glickman Servicing Corp.

Before LUMBARD, Chief Judge, FRIENDLY and FEINBERG, Circuit Judges.

FEINBERG, Circuit Judge:

In these two cases we have the threshold issue whether an order denying class suit designation is appealable. Accordingly, after hearing argument in each case on a motion to dismiss raising that issue, we consolidated the motions for the purpose of decision. In the first case, Ruth Korn sues individually and as executrix of the estate of Ben Korn, for alleged violations of the federal securities acts, the New York State General Business Law, and the common law.¹ Defendants are Franchard Corporation, several of its officers and directors, and a related corporation. In the second case, Madeline Milberg similarly alleges violation of federal law and common law fraud against Western Pacific Railroad Company and Dow Jones & Company, Inc., as the publisher of Barron's Weekly. For reasons set forth below, in Korn v. Franchard Corp. we hold that the appeal may continue, and in Milberg v. Western Pacific R. R. we dismiss the appeal.

I.

The gravamen of the complaint in Korn is that plaintiff and the members of the purported class purchased interests in 63 Wall Associates, a New York limited partnership, in reliance upon an allegedly misleading prospectus issued by defendants. The average investment of the over 1,000 class members was $5,000. Mrs. Korn and her husband purchased two "units" at a cost of $10,000, which have not been sold.

In March 1970, the United States District Court for the Southern District of New York, Walter R. Mansfield, J., conditionally granted plaintiff's motion for class suit designation under Fed.R.Civ.P. 23(c) (1). Pursuant to the court's ruling, 50 F.R.D. 57, a notice and "Proof of Claim" was mailed to members of the prospective class. On the basis of the returns, defendants moved that the class suit designation be revoked. In October, Judge Mansfield held, CCH Fed.Sec.L. Rep. ¶92,845 at 90,167, that:

Now that we have received the additional information resulting from the notice to investors we do not believe that the number of claimants is sufficiently numerous to render impracticable their joinder as individual plaintiffs. Furthermore, we do not believe that plaintiffs\' interests are typical of the proposed class or that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

The judge also criticized the attorney for plaintiff,^1a concluding that he "would not fairly and adequately protect the interests of the proposed class." Id. at 90,169. Accordingly, on November 4, 1970, an order was entered withdrawing the class suit designation, and directing defendants to notify the investors that they could intervene as individual plaintiffs by filing a notice and pleading, with designation of counsel.² Plaintiff Korn appeals from that order.

The second case before us, Milberg v. Western Pacific, is based upon a May 19, 1969 article in Barron's Weekly, published by defendant Dow Jones, which contained what proved to be an overly optimistic prediction of what the current quarter net earnings of defendant Western Pacific would be. According to plaintiff Madeline Milberg: This false information influenced the general market climate; she purchased 65 shares of Western Pacific common stock at a cost of $2,299.38; and the value of her stock dropped precipitously when the actual earnings of Western Pacific turned out to be far below the estimate. Plaintiff's theory is that either Barron's or Western Pacific made the statement "with careless, reckless, and wanton disregard as to * * * truth or falsity." Plaintiff still owns her stock.³ In March 1970, plaintiff commenced her action in the United States District Court for the Southern District of New York. In November, plaintiff moved for an order of class action designation, with the class defined as all persons who bought common stock of Western Pacific between May 19, 1969 and July 31, 1969 in reliance upon the Barron's article or the market climate induced thereby. Citing Dolgow v. Anderson, 43 F.R.D. 472 (E. D.N.Y.1968), Judge Croake denied the motion because plaintiff failed to "make a preliminary showing that there is a substantial possibility of success." 51 F.R.D. 280, 282. He viewed plaintiff's claim as

attempting to * * * establish a new rule of law to the effect that, when a financial publication prints an estimate of a company\'s earnings, the company must earn at least that amount or both the publication and the company will be held strictly liable for any loss in market value of the stock after the date when the estimate is printed. This would be a most unusual rule of law to say the least. * * *

Id. From the order denying class suit designation this appeal followed.

II.

If the district judges in these cases had dismissed both the class suit allegations and the complaint itself, each judgment would clearly have been final and appealable as of right under 28 U. S.C. § 1291. However, in each case the order under attack affected only the class suit aspect of the complaint and allowed the named plaintiff to continue to press her individual claim. The question whether an appeal may nevertheless be taken from such an order has been the subject of a number of opinions in this court. In Eisen v. Carlisle & Jacquelin, 370 F.2d 119 (2d Cir. 1966), cert. denied, 386 U.S. 1035, 87 S.Ct. 1487, 18 L.Ed.2d 598 (1967), we denied a motion to dismiss an appeal from a district court order dismissing a class action, which alleged antitrust and securities act violations. In that case, plaintiff Eisen sued both for himself and on behalf of all odd-lot purchasers and sellers on the Exchange. Eisen's individual claim for damages amounted to only $70, and we noted, 370 F.2d at 120-21:

We can safely assume that no lawyer of competence is going to undertake this complex and costly case to recover $70 for Mr. Eisen.

* * * * * *

Dismissal of the class action in the present case, however, will irreparably harm Eisen and all others similarly situated, for, as we have already noted, it will for all practical purposes terminate the litigation. Where the effect of a district court\'s order, if not reviewed, is the death knell of the action, review should be allowed.

The appeal was allowed to continue, and we eventually reversed the district court order and directed an evidentiary hearing on the advisability of a class action. Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir. 1968).⁴

In Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968), cert. denied, 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766 (1969), the issue again arose in the context of a claimed federal securities act violation, which allegedly caused plaintiff Green and the members of the supposed class to pay too much for publicly traded securities. Green himself had purchased only 100 shares of stock at $10¼ a share for a total price of $1,042.27 (including commissions). He alleged that the "unmanipulated value" of the stock was between $1 and $2½. We assumed that "the total damage to Green is thus less than $1,000." 406 F.2d at 295. On the issue of appealability we then held:

The order striking the class action aspects of the complaint is appealable at this time, since if a class action is not permitted the litigation will very likely terminate without reaching the merits. * * * Green obviously does not intend to press what will probably be an enormously complex and expensive action to recover less than $1,000. Citation omitted.

Since the question of appealability first arose during consideration of the full appeal on the merits, we went on to consider the propriety of the district court order striking the class action allegations. On that issue, we reversed the district court and held the case a proper one for class action.

In two more recent decisions, however, we dismissed appeals from orders refusing class suit designation. City of New York v. International Pipe & Ceramics Corp., 410 F.2d 295 (2d Cir. 1969), was an antitrust action in which New York City alone alleged treble damages of over $1,560,000. Upon a motion to dismiss, we held that the "death knell" rule did not apply because the City and various intervenors had "adequate resources to continue the action and with substantial amounts at stake will undoubtedly...