Phillips v. Sherman

• Decision Date: 22 September 1961
• Docket Number: Civ. A. No. 8494.
• Citation: 197 F. Supp. 866
• Parties: Henry PHILLIPS, on behalf of himself and all others similarly situated, Plaintiff, v. Fred SHERMAN and Adirondack Properties, Inc., Defendants.
• Court: U.S. District Court — Northern District of New York

197 F. Supp. 866

Henry PHILLIPS, on behalf of himself and all others similarly situated, Plaintiff, v. Fred SHERMAN and Adirondack Properties, Inc., Defendants.

Civ. A. No. 8494.

United States District Court N. D. New York.

September 22, 1961.

Bond, Schoeneck & King, Syracuse, N. Y., for plaintiff, George H. Bond, Jr., Syracuse, N. Y., of counsel.

Taylor, White & Wilkinson, Amsterdam, N. Y., for defendants, James W. White, Amsterdam, N. Y., of counsel.

JAMES T. FOLEY, District Judge.

This class action is challenged in a motion to dismiss for lack of jurisdiction by both defendants. The several stated reasons in support of the motion may be generalized: incompatibility and antagonism of the named plaintiff's interest with that of the members of the particular Fund involved to such degree that would not fairly insure the adequate representation in this type action by the individual plaintiff as the sole representative for the group; such small number of the members of the class involved as beneficiaries of the Fund and the fact of their citizenship and presence in New York in overwhelming number that such facts do not meet the numerosity and impracticability terms of Federal Rule of Civil Procedure 23(a), 28 U.S.C.A., necessary for such unusual form of action; insufficiency of the amount in controversy for federal diversity jurisdiction. Assured legal reliance by the defendants in addition to these reasons for dismissal is based upon a recent and noted ruling in the Court of Appeals, Second Circuit, in a situation the defendants argue is indistinguishable from the one presented. Matthies v. Seymour Manufacturing Company, 2 Cir., 270 F.2d 365; reconsideration en banc and rehearing denied 2 Cir., 271 F.2d 740, reversing id. D.C., 23 F.R.D. 64, certiorari denied 361 U.S. 962, 80 S.Ct. 591, 4 L.Ed.2d 544. This class litigation caused extensive writing in the District Court and Court of Appeals, and the opinion by Chief Judge Lumbard for the Court of Appeals that prevailed needs deep study and intense concentration to comprehend the import as to the use of the class action form in trust litigation. If such authority and its holding is indistinguishable as to the trust action here, the confidence of the defendants that such ruling would be decisive is not misplaced because the law promulgated by the Court of Appeals, Second Circuit, must be followed when clearly applicable. 1 Moore's Federal Practice, 2nd Ed. pgs. 4059-4063; Abbott v. United States, D.C., 61 F.Supp. 989. It is not correct, of course, that the denial of certiorari by the Supreme Court indicates affirmance. Although it gives little comfort to the vanquished, such denial, it is said, is not to signify approval or disapproval on the merits. United States v. Carver, 260 U.S. 482, 43 S.Ct. 181, 67 L.Ed. 361; House v. Mayo, 324 U.S. 42, 48, 65 S.Ct. 517, 89 L.Ed. 739; Sunal v. Large, 332 U.S. 174, 181, 67 S.Ct. 1588, 91 L.Ed. 1982. The position of the Plaintiff herein is that he is a proper fellow-beneficiary of the trust fund involved with the same interest at stake; that he will fairly represent all the others and is so entitled by reason of the factual background to seek the relief demanded in the complaint as their representative as one in a true class action pursuant to the combined requirements and provisions of Federal Rule 23(a) (1). The answer by the plaintiff to the Matthies ruling is that the defendants interpret it too broadly and its narrow scope of holding does not invalidate this class action.

It does seem incongruous that this simply stated federal rule allowing class action has provoked such a superabundance of text and judicial writing. 3 Moore's Federal Practice, 2nd Ed. pgs. 3404-3560. I intend to minimize my addition as much as possible, but it is necessary to summarize the factual background which, although somewhat complicated, does not need the great detail outlined in the affidavits and briefs submitted for the purposes of this decision. A settled and good sense approach requires that the integrity of the class action within the rule be determined by an analysis of the action and its factual background and the interrelation of the parties. Citizens Banking Co. v. Monticello State Bank, 8 Cir., 143 F.2d 261, 263. Further, Judge Smith, now an active Judge of the Court of Appeals, Second Circuit, emphasized in his elaborate and careful District Court opinion in the Matthies case that the nature of the relief sought in a given proceeding thus has a definite bearing on indispensability or lack of it of the beneficiaries of the trust. Matthies v. Seymour, D.C., 23 F.R.D. 64, at page 70.

The named defendant, Adirondack Properties, Inc., was a name change made November 22, 1957, from Adirondack Foundries and Steel, Inc., for reasons hereinafter stated. Both are New York corporations. The original company was organized in 1924 and engaged until November 1, 1957, in the manufacture of castings and other steel products, owning land, foundry and machinery for the conduct of such business in Albany County, near Watervliet, New York. The named defendant, Fred Sherman, was the President of the original company when it was organized, was its President on November 1, 1957 and apparently is still acting as such President of the newly named Company. Business reverses occured for several years prior to 1957. Negotiations during the months of September, October and November, 1957, culminated in an agreement with Consolidated Foundries and Manufacturing Corp., thereafter approved by the stockholders and directors whereby the inventory and certain machinery were sold to Consolidated, and the plant and certain equipment leased to it for fixed rental, with an option to Consolidated to purchase the property at a specified price on or after November 1, 1962.

Important only to this litigation is the impact of these business developments and changes as they affected a praiseworthy Employees Savings, Profit Sharing and Retirement Plan formed November 1, 1949. Such plan is attached as Exhibit D to a factual, illuminating and comprehensive supplemental affidavit filed in this motion by the defense. Under the terms of the plan Adirondack was to make contributions from its profits not to exceed 15% of the total compensation of the...