Waldo v. Lakeshore Estates, Inc.

• Decision Date: 15 February 1977
• Docket Number: Civ. A. No. 76-1082.
• Citation: 433 F. Supp. 782
• Parties: John S. WALDO, et al. v. LAKESHORE ESTATES, INC., et al.
• Court: U.S. District Court — Eastern District of Louisiana

433 F. Supp. 782

John S. WALDO, et al. v. LAKESHORE ESTATES, INC., et al.

Civ. A. No. 76-1082.

United States District Court, E. D. Louisiana.

February 15, 1977.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Winston W. Riddick, Sr., Marion Weimer, Woodrow W. Wyatt, Baton Rouge, La., for plaintiffs.

W. Eric Lundin, III, Duke & Porterie, New Orleans, La., for Charles Caplinger & Associates.

Malvern F. Driscoll, New Orleans, La., for Luke A. Petrovich and Ralph V. Pausina.

Melvin J. Giepert, New Orleans, La., for Anthony S. Latino.

Edward J. Gaidry, Gaidry & Sundbery, Houma, La., for Terrebonne Bank & Trust Co.

Donald A. Meyer, Shushan, Meyer, Jackson, McPherson & Herzog, New Orleans, La., for Thomas Smith and Bank of St. John.

John D. Lambert, Jr., Delbert G. Talley, Lambert, Nowalsky, Lambert, New Orleans, La., for Project One Development Corp., Harold J. Smith, Gasper Schiro and Frank J. Bertucci.

Michael J. Power, B. J. Trombatore, Trombatore & Vondenstein, Kenner, La., for Delta Sav. & Loan Assn.

Danny J. Lirette, St. Martin & Ellender, Houma, La., for Progressive Bank & Trust.

Frans J. LaBranche, Jr., New Orleans, La., for Century National Bank.

Charles R. Maloney, New Orleans, La., for intervenors, Charles R. Maloney and Catherine Maloney.

MEMORANDUM OPINION AND ORDER

BOYLE, District Judge:

This litigation stems from the purchase of a number of lots of real estate in the Lac Des Allemands Recreational Community of St. John's Parish, Louisiana, and, specifically, from factual misrepresentations and other irregularities said to have occurred in connection therewith. The named plaintiffs are six individual lot-purchasers and the Lac Des Allemands Property Owners Association, a non-profit corporation purporting to represent some 150 other persons who bought lots.

Plaintiffs proceed against various financing institutions as well as real estate agencies and agents alleged to have participated in the purchase transactions. Two of the six causes of action urged arise under federal statutory law, i. e., the Interstate Land Sales Full Disclosure Act (15 U.S.C. § 1701 et seq.) and the Securities Act of 1933 (15 U.S.C. § 77a et seq.). The remaining causes are state claims of securities law violations, recission based on fraud and/or mistake and redhibition.¹ The suit is brought as a class action, and the named plaintiffs have moved to maintain it as such on behalf of all persons who bought lots in the development under circumstances enabling them to pursue the causes of action set forth in the complaint, and specifically including those who made purchases relying in good faith upon the defendants' alleged misrepresentations. See Plaintiffs' Motion to Maintain Class Action Rec.Doc. # 38.

Prior to the filing of the motion to certify, one of the defendants, Century National Bank, moved to dismiss the suit on the grounds of an alleged violation by plaintiffs and/or their counsel of Rule 2.12e of the rules of this court. The rule provides as follows:

2.12 Class Actions

. . . . .

e. In every potential and actual class action under Rule 23, F.R.Civ.P., all parties thereto and their counsel are hereby forbidden, directly or indirectly, orally or in writing, to communicate concerning such action with any potential or actual class member not a formal party to the action without the consent of and approval of the communication by order of the court. Any such proposed communication shall be presented to the court in writing with a designation of or description of all addresses and with a motion and proposed order for prior approval by the court of the proposed communication and proposed addresses. The communications forbidden by this rule, include, but are not limited to, (a) solicitation directly or indirectly of legal representation of potential and actual class members who are not formal parties to the class action; (b) solicitation of fees and expenses and agreements to pay fees and expenses from potential and actual class members who are not formal parties to the class action; (c) solicitation by formal parties to the class action of requests by class members to opt out in class actions under subparagraph (b)(3) of Rule 23, F.R. Civ.P.; and (d) communications from counsel or a party which may tend to misrepresent the status, purposes and effects of the action, and of actual or potential court orders therein, or may create impressions tending, without cause, to reflect adversely on any party, any counsel, the court, or the administration of justice. The obligations and prohibitions of this rule are not exclusive. All other ethical, legal and equitable obligations are unaffected by this rule.

This rule does not forbid (1) communications between an attorney and his client or a prospective client, who has on the initiative of the client or prospective client consulted with, employed or proposed to employ the attorney, or (2) communications occurring in the regular course of business or in the performance of the duties of a public office or agency (such as the Justice Department) which do not have the effect of soliciting representation by counsel or misrepresenting the status, purposes or effect of the action and orders therein. Nor does the rule forbid communications protected by a constitutional right. However, in such instances the person making the communication shall within five days after such communication file with the court a copy of such communication, if in writing, or an accurate and substantially complete summary of the communication if oral.

Century National contends that the minutes of a meeting conducted by the plaintiff organization on April 3, 1976, along with a written summarization of this lawsuit, were mailed to both members of the organization and non-members. See Minutes/Summary, attached as Appendix hereto. It argues that this mailing constituted an attempt to solicit and promote participation in the suit, contravening the directive of the local rule against any unapproved communication concerning an actual or intended class action by all parties thereto or counsel with actual or potential class members.

We referred the matter for hearing and report to United States Magistrate James D. Carriere as a Special Master pursuant to Rule 53 of the Federal Rules of Civil Procedure, instructing him to also make recommendations regarding what sanctions should be imposed in the event the rule was found to have been violated. See Order of Reference of July 22, 1976 Rec.Doc. # 43.² In a preliminary conference with the Magistrate, all parties agreed that further proceedings in this court — including, of course, our consideration of the certification question — should be stayed pending the Master's report and recommendations. See Magistrate Carriere's Minute Entry of August 10, 1976 Rec.Doc. # 52. Nonetheless, it has now become necessary for us to decide an issue raised herein without awaiting the outcome of the Special Master's investigation, for the plaintiffs have filed a motion to have Local Rule 2.12e declared invalid as violative of the First and Fifth Amendments to the Constitution and/or exceeding the court's statutory rule-making authority, and to have all proceedings relative to the alleged violations of the rule stayed pending a disposition of their motion.

Since the instant motion was filed, no further proceedings have been scheduled before the Special Master. Considering the prayer for a stay thus mooted, we proceed to the issue of the local rule's validity. In so doing, the justiciability of that issue necessarily is acknowledged. A court acting in its adjudicative capacity may hear a challenge to the legitimacy of a rule it has promulgated pursuant to the quasi-legislative function of regulating the practice of law at bar. Moreover, such a challenge may be brought by one assertedly having violated the rule, and the rule may not stand if found to violate the constitutional or other substantive rights of the challenging party. See In re Oliver, 452 F.2d 111 (7 Cir. 1971).

In this regard, it also should be noted that Local Rule 2.12e does operate to limit the exercise of certain rights otherwise guaranteed by the First Amendment. Its application to the proceeding at hand restricts not only certain expressions by parties and counsel, but also impinges upon the constitutionally-derived interest of the recipient(s) to secure the communication. See Procunier v. Martinez, 416 U.S. 396, 408, 94 S.Ct. 1800, 1809, 40 L.Ed.2d 224 (1974).³ Likewise limited by the rule's operation is the opportunity of the plaintiff organization to communicate concerning legal redress with those members who are not formal parties to the suit, which activity ordinarily would be entailed in the freedom of association and the collective right of an organizational membership to achieve effective judicial access. See Brotherhood of Railroad Trainmen v. Virginia, 377 U.S. 1, 84 S.Ct. 1113, 12 L.Ed.2d 89 (1969). Inasmuch as the rule's prohibition herein affects non-member recipients of communications as well, it also has an impact upon their own individual rights to assemble and petition for redress of grievances.

But it is beyond peradventure that First Amendment freedoms are not absolute, and are properly limited pursuant to sufficiently important governmental interests. See Theriault v. Carlson, 495 F.2d 390, 394 (5 Cir.), cert. denied, 419 U.S. 1003, 95 S.Ct. 323, 42 L.Ed.2d 279 (1974). Constitutionally protected freedom of speech is "narrower than an unlimited license to talk," the jurisprudence on the one hand placing certain speech beyond the scope of the First Amendment and, on the other, regulating the unfettered exercise (as opposed to the actual content) of speech where justified by valid governmental policy. See Konigsberg v. State Bar of California, 366 U.S. 36, 50-51, 81 S.Ct. 997, 1006-07, 6 L.Ed.2d 105 (1961). In the latter category of cases, the authority of the Government to impose...