Parkinson v. April Industries, Inc.

• Decision Date: 30 June 1975
• Docket Number: Nos. 1288,520,D,s. 1288
• Citation: 520 F.2d 650
• Parties: , Fed. Sec. L. Rep. P 95,227 Samuel PARKINSON, as Custodian for Andrew Parkinson, et al., Plaintiffs-Appellees, v. APRIL INDUSTRIES, INC., et al., Defendants-Appellants, and Alex M. Parker, Defendant. ockets 74-2058, 74-2214.
• Court: U.S. Court of Appeals — Second Circuit

Page 650

520 F.2d 650

32 A.L.R.Fed. 657, Fed. Sec. L. Rep. P 95,227

Samuel PARKINSON, as Custodian for Andrew Parkinson, et al Plaintiffs-Appellees, v. APRIL INDUSTRIES, INC., et al., Defendants-Appellants, and Alex M. Parker, Defendant.

Nos. 1288, 520, Dockets 74-2058, 74-2214.

United States Court of Appeals Second Circuit.

Argued Jan. 17, 1975.

Decided June 30, 1975.

Edward Labaton, Douglas A. Cooper, Shatzkin, Cooper, Labaton, Rudoff & Bandler, New York City, for plaintiffs-appellees.

Wilbur G. Silverman, Jamaica, N. Y., for defendants-appellants.

Before WATERMAN, FRIENDLY and GURFEIN, Circuit Judges.

WATERMAN, Circuit Judge:

The plaintiffs filed a complaint on June 25, 1973 in the United States District Court for the Southern District of New York alleging that the defendants April Industries, Inc. (April), and several of its officers, artificially inflated the earnings and prospects of the company through the use of false and misleading statements, thereby, in violation of Rule 10b-5 under the Securities Exchange Act of 1934, 17 CFR 240.10b-5, manipulating the market price of the company's stock. In general the alleged misrepresentations concern April's third quarter earnings statement, its predictions of earnings for 1972, and its ability to obtain long-term financing. The complaint asserts that beginning in June 1972 and continuing through December 18, 1972, April issued financial reports, predictions and releases directly, and also through securities analysts, intending that the statements would be disseminated to the investing public and with the knowledge that the investing public would rely upon such information.

Among the statements published were predictions that April would have net profits of $1,890,000 in 1972 and a profit of $2,554,000 in 1973, and also that the earnings in each of the first three quarters of 1972 were substantial. On December 17, 1972 April corrected its report for the first nine months period ending September 30, 1972 and stated a loss for the three months period ending September 30, 1972. On April 11, 1973 April announced that it had sustained a net loss of $250,270 for the year ending December 31, 1972.

Two of the named plaintiffs claim that they purchased shares of April stock on or about July 16, 1972 in reliance upon an oral statement by a securities analyst who subsequently published a report on the company in August 1972. Another named plaintiff purchased shares in late November 1972, and the fourth plaintiff purchased shares in early December 1972. These individuals acquired the stock at prices ranging from 91/8 to 135/16. Two of the named plaintiffs later sold their shares at 43/4, and at the commencement of the present action the stock was selling for approximately $2 a share. In their motion for class action status, the plaintiffs proposed to represent all persons who purchased shares of April common stock between June 1, 1972 and December 18, 1972, the period during which the alleged false and misleading statements were made. The plaintiffs infer from the volume of the shares traded during this period that there are at least 500 members of such a class.

Judge Knapp, the district court judge below, in an order dated July 1, 1974, granted the named plaintiffs' motion to proceed as a class action. The trial judge found that the prerequisites of Fed.R.Civ.P. 23(a) were met: the class is so numerous that joinder of all members is impracticable; there appear to be questions of law or fact common to the class; the plaintiffs' claims are typical of the class; and the interests of the proposed class will be adequately protected. He found that common questions would predominate over individual questions and that a class action would be superior to other available adjudicative methods, and held that the action was properly a class action under Rule 23(b)(3).

Predictably, two issues are raised on this appeal: (1) whether the order granting class action status is an appealable order; and (2) if appealable, whether the order below was properly entered. As we hold that the order is nonappealable and accordingly dismiss the appeal, we do not reach the second issue.

In this connection, as a preliminary matter to a further exposition of our position, perhaps it may be useful to state the significant general policies contained within the "final judgment" rule which form the backdrop and the guide for us in deciding the specific issue raised on this appeal which we find to be the determinative issue.

The order below is not a final order of a United States District Court, 28 U.S.C. § 1291, and unless the order falls within exceptions to this long-time statutory limitation Congress has placed upon the appellate jurisdiction of the Courts of Appeals, we are not authorized to take jurisdiction of the present appeal.

Appellants recognize that the order below granting the plaintiffs' motion is not a "final decision," but they contend that a district court order granting the motion of a plaintiff that his individually initiated action be designated a "class action" results in such a hardship on a defendant that it justifies a further broadening of the exception to the final decision or "final judgment" rule which the Second Circuit has recognized in this area; and justifies the allowance of an immediate appeal. We find this position untenable in this particular case.

The jurisdiction of the Courts of Appeals to review district court orders extends to "all final decisions" of the federal district courts. 28 U.S.C. § 1291. This requirement that an order not be reviewable unless it is a final judgment order serves a variety of goals. A consistently articulated concern by courts is that adherence to it avoids the unnecessary delays piecemeal litigation creates, Catlin v. United States, 324 U.S. 229, 65 S.Ct. 631, 89 L.Ed. 911 (1945); Cobbledick v. United States, 309 U.S. 323, 60 S.Ct. 540, 84 L.Ed. 783 (1940); Note, 75 Harv.L.Rev. 351 (1961), and that the delaying of any appeal until entry of a final judgment order combines in that one appeal all stages of the case's proceedings that may effectively be reviewed. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). Moreover, the finality rule serves goals other than the elimination of delays and the conservation of judicial energy; it also serves to protect "the effective conduct of litigation" by providing a "means for achieving a healthy legal system," Cobbledick v. United States, supra, 309 U.S. at 326, 60 S.Ct. at 541, and it is an important tool in maintaining the appropriate relationship between appellate and district courts and in preserving the respective functions of each. The opportunity given the reviewing court to view the entire controversy with the perspective the completed proceedings provides enhances the likelihood of sound review. The district courts are permitted to control the progress of the litigation in their courts without frequent step-by-step intrusions by the appellate courts, intrusions which it has been suggested might engender a debilitating lessening of respect for the capabilities of district judges. Note, 75 Harv.L.Rev. 351 (1961); Note, 70 Colum.L.Rev. 1292 (1970). Also, the rule operates to limit the absolute number of appeals, a consequence of ever-increasing importance to the proper functioning of the federal judiciary. Cf. Donlon Industries, Inc. v. Forte, 402 F.2d 935 (2 Cir. 1968); see, generally, Carrington, Crowded Dockets and the Court of Appeals: The Threat to the Function of Review and the National Law, 82 Harv.L.Rev. 542 (1969).

By and large, the final judgment rule serves these interests well, and it is only in some exceptional instances that other competing considerations are sufficiently compelling to justify any relaxation of the rule's strict operation. In Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 171, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) the Supreme Court noted:

The inquiry requires some evaluation of the competing considerations underlying all questions of finality "the inconvenience and costs of piecemeal review on the one hand and the danger of denying justice by delay on the other."

Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511, 70 S.Ct. 322, 324, 94 L.Ed. 299 (1950).

Giving the final judgment rule a "practical rather than a technical construction," Cohen v. Beneficial Industrial Loan Corp., supra, 337 U.S. at 546, 69 S.Ct. at 1226, has provided the courts with the flexibility necessary to avoid the potential harm which could result from a persistent adherence to the letter of the rule. ¹

Appellants contend that orders designating a class status for plaintiffs create obvious hardships upon defendants, and these hardships warrant the establishment of the broad exception to the final judgment rule which they advocate, and demand that an immediate appeal of class designation orders be permitted. Appellants argue also that a class designation order has substantial effects beyond the burdens imposed upon defendants. Indeed, separate considerations do surround class designation orders and these considerations do present intractable difficulties to the task of providing, on the one hand, full sway to the policies of the final judgment rule, and of providing, on the other hand, just treatment to individual litigants, while a court is progressing a class action.

We note that the nature of class designation orders differs from the nature of other situations in which judicial exceptions to the final judgment rule have been authorized. The granting of a class designation is in no sense an effective termination of any aspect whatever of the litigation, but only directs the form in which the action will proceed. The initial order is strictly provisional and by the terms of Rule 23(c)(1) "may be altered or amended before the decision on the merits." An order granted prior to discovery may be reevaluated on the basis of...