Papilsky v. Berndt
| Decision Date | 17 November 1971 |
| Docket Number | No. 71 Civ. 2534.,71 Civ. 2534. |
| Citation | 333 F. Supp. 1084 |
| Parties | Paulette PAPILSKY, Plaintiff, v. Alvin H. BERNDT et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Mordecai Rosenfeld, Pomerantz, Levy, Haudek & Block, New York City, for plaintiff; Abraham L. Pomerantz, Mordecai Rosenfeld, Daniel W. Krasher, New York City, of counsel.
Dewey, Ballantine, Bushby, Palmer & Wood, New York City, for defendants Lord, Abbett & Co., Alvin H. Berndt and Robert S. Driscoll; Judson A. Parsons, Jr., Gerald E. Ross, New York City, of counsel.
This is a motion by three of the named defendants—Lord, Abbett & Co., Alvin H. Berndt and Robert S. Driscoll —for summary judgment in their favor. Fed.R.Civ.P. 56(c).
The action was commenced on June 7, 1971. Plaintiff brings the action as the owner of stock of defendant Affiliated Fund, Inc. (Fund), a Delaware corporation, and the action is a derivative one to enforce a right of Fund. Fed.R. Civ.P. 23.1
Fund is an open-end diversified investment company, said to be registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 and following). Lord, Abbett & Co. (Lord) is a partnership. Berndt and Driscoll are partners of Lord and are officers and directors of Fund. Lord is employed by Fund as investment manager of Fund under an agreement.
The claim asserted in the case at bar is that Lord, in connection with transactions for Fund, uses "reciprocal brokerage, give-ups and interpositioning" and has received additional compensation by so doing. It is moreover charged that Lord, by its use of such techniques, has paid dealers which sell shares of Fund to the public and that Lord has been thus relieved of the necessity to compensate such dealers.
Fund, it is claimed, has been damaged because the use of reciprocal brokerage, give-ups and interpositioning has resulted in excessive compensation to Lord. Demand is made that Lord and the individual defendants pay $6,000,000 in damages to Fund.
On January 10, 1967, Vera G. White commenced an action in this Court (67 Civ. 98) against all the defendants in the case at bar and other defendants not named in the case at bar.
On March 28, 1968, Anne Bernstein commenced an action in this Court (68 Civ. 1252) against all the defendants in the case at bar and other defendants not named in the case at bar.
By order filed August 30, 1968, the White and Bernstein actions were consolidated. Plaintiffs thereafter served a "consolidated complaint" which was filed on September 26, 1968. The consolidated action will be referred to as the "White action".
Fund was a defendant in the White action but was the nominal defendant for whose benefit the action was brought. Fund was represented by separate counsel who represented only Fund in the White action.
It is undisputed that the claims in the White action are the same as those now asserted in the case at bar.
By order in the White action filed on January 14, 1969, plaintiffs were directed to answer certain interrogatories served by defendants. Plaintiffs White and Bernstein did not answer the interrogatories.
In the White action and on February 3, 1971, defendants Lord, Driscoll and Trevor obtained an order that "the plaintiffs show cause" (emphasis supplied) why the action should not be dismissed for failure to answer the interrogatories. The order to show cause was returnable on February 11, 1971, and it is assumed that a copy of the order was served on counsel for Fund.
In the White action, defendants Johnston, Knobloch, and James H. Potter by notice of motion brought on a motion to dismiss the action for the same reason, failure of plaintiffs to answer the interrogatories. The notice of motion was addressed, among others, to counsel for Fund.
The two motions—one made by order and one by notice—were heard by me on February 11, 1971. Fund took no position on these motions and submitted no papers.
The two motions were referred to Honorable Gregory J. Potter as Special Master. The report of the Special Master was dated March 4, 1971, and advised that the White action be dismissed for failure to answer the interrogatories. The Special Master concluded that plaintiffs "are not serious in prosecuting this action".
The motions were then granted by me and the Clerk was directed to enter judgment dismissing the White action as to the moving defendants. Judgment, filed on March 22, 1971, was that the moving defendants "have judgment against plaintiff Anne Bernstein dismissing the complaint as to the said defendants only". By order filed March 31, 1971, the decretal paragraph of the judgment was amended "to include plaintiff Vera G. White".
It appears that outside of the moving defendants, the only defendant served in the White action was Fund, the nominal defendant for whose benefit the action was brought.
The White action remained pending against Fund, the nominal defendant, and no other defendants were served after the judgment of dismissal as to the moving defendants.
The White action was called by the Chief Judge on the Review Calendar on December 8, 1970 and plaintiffs were given until May 14, 1971 to file a note of issue for trial, etc. By order filed June 14, 1971, the Chief Judge dismissed the action "for lack of prosecution, without prejudice and without costs".
The question on the present motion in the case at bar is whether the judgment in the White action was an "adjudication on the merits" (Fed.R.Civ.P. 41(b) ) so as to bar the present claim. This question is not without difficulty. No decision on the precise point has been cited by counsel and none has been turned up by independent research.
The conclusion I reach is that dismissal of the White action was not an "adjudication on the merits" of the claim of Fund and that the present motion must be denied. On the other hand, granting the motion would end the litigation. The situation thus seems appropriate for review by the Court of Appeals under 28 U.S.C. § 1292(b).
Preliminarily it should be noted that in the White action there was no "notice of the proposed dismissal" to shareholders. Fed.R.Civ.P. 23.1. Probably this was because counsel then concerned believed that the cited Rule was not applicable; possibly it was due to inadvertence.
By its wording, Rule 23.1 requires notice of any dismissal. There are no exceptions.
Able counsel for movants argue that notice is required only for "voluntary" dismissals. There is language in at least one case which gives some support to this view. Some support is found in Hutchinson v. Fidelity Inv. Ass'n, 106 F.2d 431, 436 (4th Cir. 1939) but in that case the action was dismissed "after hearing on the merits" (106 F.2d at 436). A law review author has flatly stated that the notice requirement "applies only to voluntary, not to involuntary dismissals". Simeone, Procedural Problems of Class Suits, 60 Mich.L.Rev. 905, 934 (1962) Judge Tenney has held that notice is not required where dismissal is for lack of jurisdiction over the person. Marcus v. Textile Banking Corp., 38 F.R.D. 185 (S.D.N.Y.1965) In Daugherty v. Ball, 43 F.R.D. 329, 334-336 (C.D.Cal.1967) the question is discussed in respect of...
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Papilsky v. Berndt, 759
...been dismissed for failure to answer interrogatories. Judge Wyatt on November 17, 1971 denied defendants' motion for summary judgment, 333 F. Supp. 1084, but granted the necessary certification to appeal pursuant to 28 U.S.C. § 1292(b) (1970), as did we on December 6, 1971. For the reasons ......