Oppenheimer v. FJ Young & Co.

• Decision Date: 01 August 1944
• Docket Number: No. 331.,331.
• Citation: 144 F.2d 387
• Parties: OPPENHEIMER et al. v. F. J. YOUNG & CO., Inc., et al.
• Court: U.S. Court of Appeals — Second Circuit

144 F.2d 387 (1944)

OPPENHEIMER et al. v. F. J. YOUNG & CO., Inc., et al.

No. 331.

Circuit Court of Appeals, Second Circuit.

August 1, 1944.

Davidson & Mann, of New York City (Gustave B. Garfield, of New York City, of counsel), for plaintiffs-appellants.

Willkie, Owen, Otis, Farr & Gallagher, of New York City (Mark F. Hughes and Alfred J. Callahan, both of New York City, of counsel), for F. J. Young & Co., Inc. and Fred J. Young, defendants-appellees.

Wright, Gordon, Zachry, Parlin & Cahill, of New York City (William W. Dulles, Fred J. Knauer, and Lawrence J. McKay, all of New York City, of counsel), for White, Weld & Co., defendant-appellee.

Roger S. Foster, Sol., Milton V. Freeman, Asst. Sol., Louis Loss, Sp. Counsel, and David Ferber, Atty., for Securities and Exchange Commission, all of Philadelphia, Pa., appearing as amicus curiae.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This suit was brought as a spurious class action and is sought to be sustained under Federal Rule 23(a) (3) 28 U.S.C.A. following section 723c.¹ The plaintiffs, after two unsuccessful attempts to set forth their claim in the form of a spurious class action, filed a second amended complaint which was dismissed by the District Court on the ground that the plaintiffs and the parties whom they sought to represent had divergent interests, with leave, however, to serve a further amended complaint in their own behalf; but, because of failure to amend, as permitted, a judgment was entered dismissing the second amended complaint in its entirety. The plaintiffs have appealed from both the order and the judgment. Inasmuch, however, as the order provided for an amendment, it did not dispose of the litigation and it was not final. The individual claims of the two plaintiffs asserted in the second amended complaint, and sustained by the interlocutory order, arose out of the same matters as those upon which the class action was founded, and there must be finality in the disposition of both in order that an appeal may lie. Audi Vision, Inc. v. RCA Mfg. Co., 2 Cir., 136 F.2d 621, 147 A.L.R. 574; Western Elec. Co. v. Pacent Reproducer Corp., 2 Cir., 37 F.2d 14. The appeal from the interlocutory order must, therefore, be dismissed.

The complaint charged that the defendants-appellees entered into a conspiracy to defraud the plaintiffs. The conspiracy alleged seems to have been that the defendants induced the plaintiffs and those whom the latter seek to represent to sell certain bonds of the City of Cordoba, Argentina, by deceptive and fraudulent devices in violation of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78a et seq. The pleading, while somewhat vague, defines in Article Tenth the class on behalf of which the action is brought in a representative capacity and says that it consists of all the former holders of the 7% External Sinking Fund Gold Bonds of 1927 of the City of Cordoba, due August 1, 1957, stamped as of July 3, 1934, pursuant to an agreement made by the City on or about that date, in which it was provided as follows:

"The City agrees that it will not at any time either during the agreed period or after, offer the holders of any non-assenting bonds a greater amount than they would have received had they deposited their bonds under the plan without permitting the holders of any bonds then outstanding which shall have been deposited under the plan to receive additional payment or payments equal to the difference between the aggregate amounts paid to their bonds under the plan and the amount then offered to non-assenting bondholders."

The complaint further alleges that the number of persons included in the above class consists of upwards of one thousand persons, firms and corporations scattered throughout the United States, that in most instances the parties constituting the class are unaware of the fact that a cause of action on their behalf exists or has been brought, or are unaware of the facts giving rise to such a cause of action, which if not maintained on their behalf will become barred by the statute of limitations. The fraudulent devices alleged were that F. J. Young & Co. was an over-the-counter securities broker registered with the Securities & Exchange Commission, that White, Weld & Co. was a registered licensed broker, a member of the New York Stock Exchange, that Fred J. Young, from 1939 to 1942, was chairman of a bondholders committee of the foregoing bonds and caused certificates of deposit to bondholders to the face value of $2,600,000 out of the total issue of $4,000,000 to be issued to some but not all of the bondholders, that in 1941 or 1942 the defendants induced the plaintiffs and those similarly situated to sell their bonds at the price of $872.27 per bond, knowing well, or having reason to believe (but concealing the fact), that the actual or ultimate purchasers of the bonds were persons acting on behalf of the City of Cordoba and that the City of Cordoba would immediately after acquiring the bonds from the plaintiffs, and those similarly situated, redeem all other outstanding bonds at the redemption price, plus accumulated and unpaid interest, thereby depriving the plaintiffs and all other bondholders similarly situated of the right to demand additional payment or payment equal to the difference between the aggregate amount paid to the plaintiffs and such other bondholders, and the amount to be paid to non-assenting bondholders, knowing that thousands of the same class who did not sell their bonds would be paid the redemption price, plus accumulated interest, to wit, the sum of $1,130.94.

The complaint goes on to state that pursuant to the foregoing scheme, the defendant White, Weld & Co. caused a circular letter issued by F. J. Young & Co., to be sent through the mails containing the latter's offer. It further alleges that the defendants were guilty of a manipulative and fraudulent device in failing to disclose whether F. J. Young & Co. was acting as a broker for the plaintiffs and other bondholders or holders of certificates of deposit, or...