Lipsett v. United States

• Decision Date: 29 April 1966
• Docket Number: No. 320,Docket 30064.,320
• Citation: 359 F.2d 956
• Parties: Julius LIPSETT and Betty Lipsett, and Myron L. Chase and Sylvia L. Chase, on Behalf of themselves and all other similarly situated option holding employees of Ogden Corporation or its subsidiaries, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Second Circuit

359 F.2d 956 (1966)

Julius LIPSETT and Betty Lipsett, and Myron L. Chase and Sylvia L. Chase, on Behalf of themselves and all other similarly situated option holding employees of Ogden Corporation or its subsidiaries, Appellants, v. UNITED STATES of America, Appellee.

No. 320, Docket 30064.

United States Court of Appeals Second Circuit.

Argued April 5, 1966.

Decided April 29, 1966.

COPYRIGHT MATERIAL OMITTED

Jerome Kurtz, Philadelphia, Pa. (Judah I. Labovitz, and Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., and Irving S. K. Chin, and Holtzmann, Wise & Shepard, New York City, on the brief), for appellants.

Harvey R. Blau, Asst. U. S. Atty., Southern District of New York (Robert M. Morgenthau, U. S. Atty., and Laurence Vogel, Asst. U. S. Atty., Southern District of New York, on the brief), for appellee.

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

J. JOSEPH SMITH, Circuit Judge:

Julius Lipsett (and Betty Lipsett) and Myron L. Chase (and Sylvia L. Chase), and proposed intervening plaintiffs appeal from an order of the United States District Court for the Southern District of New York, John M. Cannella, Judge, striking allegations in the pleadings designating the action as one brought on behalf of a class, and denying motions to intervene made by eleven persons. We find no abuse of discretion, and dismiss the appeal.

Lipsett and Chase brought this action for a refund of taxes paid. They were among 94 holders of options to purchase shares in the Ogden Corporation. Ogden organized Syntex Corporation to acquire assets recently purchased by it, and issued rights to Syntax stock to its shareholders and to the holders of options, on the basis of one right for each four Ogden shares held or subject to option. The proceeds of the resulting Syntex stock issue were used to purchase the assets.

The Internal Revenue Service claimed the issuance of Syntex rights to option holders created ordinary income; Lipsett and Chase paid the tax, and brought this suit as a class action for themselves and the 92 other option holders. Eleven of them moved to intervene. All had made refund claims and waited the necessary six months before suit. I.R.C. §§ 6532 and 7422. The motions to intervene were denied, and the government's motion to strike the allegations of a class action was granted.

The first issues are jurisdictional. The order striking the allegation of a class action is certainly not appealable. As to the intervenors, they lack standing altogether. As to the original plaintiffs, the matter is not within the collateral order doctrine, Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), because they too lack standing. Striking the allegation merely "prettifies" the pleadings, see All American Airways v. Elderd, 209 F.2d 247, 249 (2 Cir. 1954), and the fact that a matter is a spurious class action, Rule 23(a) (3),¹ does not make such a case any stronger. All American; California Apparel Creators v. Wieder of California, 162 F.2d 893, 897 (2 Cir.), cert. den. 332 U.S. 816, 68 S.Ct. 156, 92 L.Ed. 393 (1947). Hence the removal of that allegation does not prejudice anyone. While, as appellants note citing Nagler v. Admiral Corp., 248 F.2d 319, 327 (2 Cir. 1957), a spurious class action is an "invitation * * * to join the battle," striking the allegation does not ruin the invitation. "Thus the order can have no possible effect as withdrawing an invitation * * * since each will make his plea to intervene under F.R. 24(b)," All American, at 249. See also Rogers v. Alaska S.S. Co., 249 F.2d 646, 648 (9 Cir. 1957).

The order denying intervention is appealable only if there was an abuse of discretion, since the question is one of permissive intervention within Rule 24(b); accordingly the question of appellate jurisdiction as to this order must await the merits. Levin v. Ruby Trading Corp., 333 F.2d 592, 594 (2 Cir. 1964); Fox v. Glickman Corp., 355 F.2d 161 (2 Cir. 1965).

On the merits, the striking of the allegations of a spurious class action ought generally to be improper unless the court knows no intervention is possible. Here the court treated the questions in reverse order. First it struck the allegations, then it denied intervention, and one of the reasons for the denial of intervention was that the allegations had been struck.

Since the spurious class action is a mere device for permissive joinder, the proper procedure is to leave the allegation standing to facilitate (even though the effect is probably minimal anyway) intervention.² "If it shall later appear that the plaintiffs are not able within a reasonable time to obtain others to intervene in the class action it may properly be dismissed as a class action * * *" Oppenheimer v. F. J. Young Co., 144 F.2d 387, 390 (2 Cir. 1944) (emphasis added).

In other words, ordinarily the District Court should leave undisturbed the allegation until it is convinced no motion for intervention will be granted. Thus the pleadings should not be altered, ordinarily, before some intervenors have appeared, and their motion has been ruled on. Under certain circumstances the court will be able to tell after ruling on one motion to intervene, that no others will be treated differently; then the court could strike the allegation of a class suit, though the only reason would be esthetic. That is the case here; this is the type of action where the court...