# Petition — Darneille v. Caro > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2327%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 - **Citation:** 449 U.S. 825 ## Text - wema Court, U. My; < i EILED In THE ih =OMAY 2 Supreme Court of the United Miy >> 1980 PF oak JR., CLERR Ocrosger Term, 1979 “79-1736 Grorce J. DaRNEILLE ef al., Petitioners, v. MicHaEL Cano, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT = —————— Tomas F. Curnin . Attorney for Petitioners George J. Darneille and F. Arnold Daum 80 Pine Street New York, New York 10005 (212) 825-0100 Of Counsel: Tuomas J. KavauEr Cann Gorpon & Rermnpzi Attorneys for Petitioners George J. Darneille , and F. Arnold Dawm Tomas C. Morrison Gens M. Baver PatrersoN BetKNaP Wess & TYLER Attorneys for Petitioner Webster Securities Limited Peter FE. CauamMari HertTzoc Cauamari & GLEASON Attorneys for Petitioner Alex W. Head Geratp EK. Bove. Attorney for Petitioner Beaumont Development Corporation May 2, 1980 TABLE OF CONTENTS PAGE Prelimminncy Dem teeah | siccccssiccsccinnecncetnimeneearcaoanan 1 Opinions and SorGere Tk .ocsciniccincccsctnenaae 2 SUT, oinicseni cisinnscsinitnachinct bined 2 Question Presented ~wccstcbuand lh eee en abies 2 ‘Constitutions and Statutory Provisions Involved ........ 2 Btatement oF th GM nocicwencisinsisectenmeeeein 3 REASONS FOR GRANTING THE WRIT The Decision Below Conflicts With Prior Supreme Court Authority by Sanctioning “Client-Less Liti- gation” and Disregards the Constitutional Re- quirement of a Live Controversy Throughout the Entirety of the Litigation Because Mr. Weisman, Who Abandoned His Action (Unlike the Plaintiffs in Roper and Geraghty), No Longer Had a Per- sonal Stake in the Outcome of the Litigation and Mr. Caro (Unlike the Intervenor in United Air- lines) Did Not Seek to Intervene to Appeal the Denial of Class Certification, Thus Leaving No One Before the Court With Any Claimed Interest Adverse te Amy EReRORGOR once 6 The Decision Below Is Not Governed by Roper and Geraghty or by United Airlines ................ 6 The Decision Below Conflicts With Prior De- Cisioms Of: Tite COGRR a ccmpcictsamsnteanene 10 CoNcoLUSION ....... : : 14 ii APPENDIX: PAGE A—Order of the Court of Appeals, dated January 9, 1980, reversing and remanding the Order of the TE ENO bisciniitncicccmsonchciieiaredeteaubeasan la B—Orders of the Court of Appeals, dated February 27, 1980, denying petition for rehearing and rehearing © DOME. nsannneannnscovencnennnnvonssonseonsesnnscnns 6a C—Order of the District Court, dated March 14, 1979, I TOI. a caienccitcciuncicssinandaceenanie 9a D—Order of the Court of Appeals, dated June 8, 1979, denying Putative Intervenor Caro’s petition for mandamus and reinstating appeal ...................-.... 10a K—Order of the Court of Appeals, dated May 14, 1979, dismissing Putative Intervenor Caro’s: appeal for failure to perfect property ............200.00...c0000--- 12a F—Order of the Court of Appeals, dated January 17, 1979, dismissing Original Plaintiff Weisman’s IOI acescehickaniscaciiguntemicaenastearnmeinsia tibiigsniiaeh ten 14a G—Order of the Court of Appeals, dated March 7, 1979, denying defendants’ motion to modify the January 17, 1979 order .. 16a H—Judgment, dated July 25, 1978, dismissing the ac- Be TT ciciscttieccomeseonens : panaenidhsxaakiitit 18a I—Opinion and Order of the District Court, dated July 14, 1978, dismissing Original Plaintiff Weisman’s action as MOOt oon... eeeeeeeeeeeeeeee 19a J—Opinion and Order of the District Court, dated May 25, 1978, denying various motions made by Original Plaintiff Weisman 22.0... ee 25a PAGE K—Opinion and Order of the District Court, dated April 19, 1978, denying Original Plaintiff Weis- man’s motion for class certification ................... 32a L—Opinion and Order of the District Court, dated March 22, 1978, granting defendants’ motion for reargument and dismissing complaint in part .... 37a M—Opinion and Order of the District Court, dated January 6, 1978, denying defendants’ motion to dismiss the complaint . eae i 48a TasLe or AUTHORITIES Cases: Baxter v. Palmigiano, 425 U.S. 308 (1976) o.oo 12 Board of School Commissioners v. Jacobs, 420 U.S. 128 (1975) .. i ae California v. San Pablo & T.R.R., 149 U.S. 308 (1893) 13n DeFumis v. Odegaard, 416 U.S. 312 (1974) oo... . a Deposit Guaranty National Bank v. Roper, 445 U.S. , 100 S.Ct. 1166 (1980) ow .. 6, 6n, 7, 7n, 8, 8n, 9, 9n, 10, 13, 13n East Texas Motor Freight System, Inc. v. Rodriguez, Re Sey Se AND eit icaeconaicdmiien le. 11 Franks v. Bowman Transportation Co., 424 U.S. 747 (1976) ..... a Kremens v. Bartley, 431 U.S. IF REID sitieisietsssccesanns 11 Pasadena City Board of Education v. Spangler, 427 Spe I shee seckanicsadeek pitbiatibosantabieatend 12 iv PAGE SEC v. Medical Committee for Human Rights, 404 U.S. 7 >, sped circ dA 2 Nance ne OOOO 10 Sibron v. New York, 392 U.S. 40 (1968) .................--.... 10 Steffel v. Thompson, 415 U.S. 452 (1974) .........-.------------ 10n Sosna v. Iowa, 419 U.S. 393 (1975) 20.22... eeeceeeeeseees 10, 11 United Airlines, Inc. v. McDonald, 432 U.S. 385 (1977) 7, 10, 11 United States v. Alaska S.S. Co., 253 U.S. 113 (1920).... 12n United States v. Sherwood, 312 U.S. 584 (1941) .......... lin United States Parole Commission v. Geraghty, 445 U.S. ——, 100 8.Ct. 1202 (1980) .................... 6, 6n, 7, 7n, 8, 9, 10 Weinstein v. Bradford, 423 U.S. 147 (1975) ...................- 12 Statutes: United States Constitution, Article ITT .............. 3, 8,10 Securities Exchange Act of 1934 -..00000.2.0.....--- 2, 3,7 Rules: ie INE 6 ccerscttintetiesiepinncioeineneniepenepmnantibain 11 ) eR BAG | | SRE eaneeeo 3, 11, 11n 8 FS Ri Dare ed oN nO 5n IN THE Supreme Court of the United States OctosperR Term, 1979 MIS aestaocedecs Gzorce J. DaRnerze et al., Petitioners, V. Micuagt Cano, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Preliminary Statement Petitioners George J. Darneille, F. Arnold Daum, Alex W. Head, Beaumont Development Corporation and Web- ster Securities Limited respectfully pray that a writ of certiorari issue to review an order of the Court of Ap- peals which reversed and remanded the District Court’s order denying Respondent’s motion to intervene in an action which had previously been dismissed as moot and from which no appeal was then pending because the orig- inal plaintiff had abandoned his appeal. Petitioners, to- gether with John P. Ohl and I. L. Vosko, were the de- fendants in the District Court and petitioners were the appellees in the Court of Appeals. Respondent Michael Caro was the putative intervenor in the District Court and the appellant in the Court of Appeals. 2 Opinions and Orders Below The order of the Court of Appeals (App.A, ifra, pp. la to 5a) is unreported. It was rendered on January 9, 1980 and a timely petition for rehearing was denied on February 27, 1980 (App.B., infra, pp. 6-7a). Of the several prior orders of the Court of Appeals and the opinions and orders of the District Court which are reprinted in appen- dices C through M, infra, only four of the decisions of the District Court have been published. These are re- ported at 79 F.R.D. 389, appeal dismissed, 595 F.2d 1210; 78 F.R.D. 671; 78 F.R.D. 669; and [1977-78 Transfer Binder] CCH Fed.Sec.L.Rep. { 96,278. Jurisdiction The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). Question Presented For jurisdictional purposes, does a complaint seeking money damages (for a violation of the securities laws), when coupled with a class action request, survive the abandonment of the entire action by the only named plain- tiff during the pendency of his appeal from the District Court’s denial of class action certification, so as to sup- port intervention in the District Court by a new plaintiff who seeks not to pursue the appeal from the denial of class certification but to litigate his own claim on the merits? Constitutional and Statutory Provisions Involved Constitutional and statutory provisions involved in- elude the following: United States Constitution, Article ITI, Federal Rules of Civil Procedure, Rule 23, and < 3 United States Code, Title 15, Section 78j(b) (Securi- ties Exchange Act of 1934, Section 10(b)). Statement of the Case Original Plaintiff Weisman brought this action both “on behalf of himself and all others similarly situated”, pur- porting to state a claim under the Securities Exchange Act of 1934 (“1934 Act”). After the District Court sustained | the sufficiency of part of his complaint (37a; 48a),* Mr. Weisman sought and the District Court denied class cer- tification (32a). The denial was based on Mr. Weisman’s gross unfitness to serve as an adequate class representa- tive (34a) and the District Court expressly declined to reach any of his other arguments, viz., numerosity, com- monality, typicality, favorability, manageability, superi- ority, desirability, predominance or any of the other requi- sites of a class action under Rule 23, Fed.R.Civ.P. (id.). After the District Court, making it clear that Mr. Weis- man was pursuing his claim on his own behalf alone, denied Mr. Weisman’s several subsequent requests for various kinds of inappropriate relief (25a), the defendants—al- though unwilling to concede any wrongdoing or liability— decided it was not economical to commit significant re- sources to the defense of a claim which the complaint revealed to be $221.40. Accordingly, they tendered to Mr. Weisman a bank check in the sum of his own individual claim plus court costs. Mr. Weisman never returned or refused this payment. On motion of the defendants, the District Court dis- missed Mr, Weisman’s individual complaint (which it had declined to certify as a class action) as moot on July 14, 1978 (19a), and Mr. Weisman appealed to the Court of * While we do not agree with the District Court’s conclusion that the complaint states any claim upon which relief can be granted, that question was not before the Court of Appeals and thus is not before this Court. 4 Appeals for the Second Circuit. The appeal was fully briefed and argued on December 8, 1978. On January 15, 1979—prior to any decision by the Court of Appeals—Mr. Weisman requested that the appeal be dismissed; he wrote a letter which his attorneys delivered to the Court of Ap- peals stating “that, due to personal reasons, J wish to withdraw as plaintiff in the [instant] lawsuit” (emphasis added). On January 17, 1979, the Court of Appeals dis- missed the appeal by an Order which read in pertinent part: “[T]t is now hereby ordered . . . that, because the ap- pellant, who has been found by the District Court to be an inadequate class representative, has indicated that he no longer wishes to be a plaintiff in this lawsuit, the appeal be dismissed. This order shall not prej- udice the right of another plaintiff to enter the suit within 30 days” (15a) (emphasis added).* On February 2, 1979, Putative Intervenor Caro filed a motion to intervene in the District Court—not for pur- poses of pursuing the appeal of the denial of class cer- tification but to litigate his own claim—and on March 16, 1979, the District Court denied intervention in an order which, in its entirety, read as follows: “The motion of Michael Caro to intervene in this action as a party plaintiff is denied without prejudice to his right to commence a new action based on the acts alleged in this action. Our dismissal of Weis- man’s action has not been appealed, and there is, therefore, no action pending in which Caro can inter- vene. Tilley Lamp Co. v. Thacker, 454 F.2d 805 (5th Cir. 1972). Additionally, Caro does not seek to inter- vene to appeal the denial of Weisman’s motion for class certification, and, thus, the Supreme Court’s deci- * Defendants sought modification of this order and on March 7, 1979, the Court of Appeals denied their motion (16a). 5 sion in United Airlines, Inc. v. McDonald, 4382 U.S. 385 (1977), is not applicable. “So ordered.” (9a). Mr. Caro’s petition for a writ of mandamus compelling the District Court to allow intervention was denied by the Court of Appeals on June 8, 1979, but his appeal (which had been dismissed on May 14, 1979 for failure to perfect properly, 12a) was reinstated (10a). On January 9, 1980, the Court of Appeals issued the order sought to be reviewed (la). The order of the Court of Appeals reversed and re- manded the District Court’s order denying intervention into an action previously dismissed for mootness and never certified as a class action by the District Court where the only original named plaintiff not only no longer had a claim against any defendant, but had voluntarily with- drawn from any further participation in the case after the District Court had denied certification and, in fact, had abandoned his appeal wherein he sought to challenge the denial of class certification. Nowhere in its four page order did the Court of Appeals address the constitutional requirement of case or controversy, which the District Court had held was not satisfied at the time the Intervenor sought to intervene to assert his own claim (and not to appeal the denial of class certification) ; instead, the Court of Appeals invoked its “broad powers to make such dis- position of the case before it as justice requires” (4a).* A timely petition for rehearing was denied on February 27, 1980 (6a). * Invoking Rule 42, Fed.R.App.P. (4a), the Court of Appeals said that it was “empowered to impose terms upon the parties seeking to avoid that adjudication [of mootness and the correct- ness of the denial of class certification]” (5a) (emphasis added). Of course, it was Mr. Weisman who sought to avoid that (or any other) adjudication by withdrawing from his appeal, but the defendants upon whom the Court of Appeals in effect “Imposed terms”. REASONS FOR GRANTING THE WRIT The Decision Below Conflicts With Prior Supreme Court Authority by Sanctioning ‘“Client-Less Litiga- tion” * and Disregards the Constitutional Requirement of a Live Controversy Throughout the Entirety of the Litigation Because Mr. Weisman, Who Abandoned His Action (Unlike the Plaintiffs in Roper and Geraghty), No Longer Had a Personal Stake in the Outcome of the Litigation and Mr. Caro (Unlike the Intervenor in United Airlines) Did Not Seek to Intervene to Appeal the Denial of Class Certification, Thus Leaving No One Before the Court With Any Claimed Interest Adverse to Any Defendant The Decision Below Is Not Governed by Roper and Geraghty or by United Airlines In two decisions earlier this Term the Court confronted the question of the mootness, vel non, of a non-certified class action wherein the individual plaintiff who no longer has a claim himself seeks to prosecute an appeal from the denial of class action certification and determined that such a plaintiff has a sufficient “personal stake” in the outcome of class certification to satisfy the requirements of Article IIT of the Constitution. Deposit Guaranty Na- tional Bank v. Roper, 445 U.S. , 100 S.Ct. 1166 (1980) ; United States Parole Commission v. Geraghty, 445 U.S. , 100 S.Ct. 1202 (1980).** Crucial to this Court’s deci- * Deposit Guaranty National Bank v. Roper, 445 U.S. —, 100 S.Ct. 1116, 1181 jn. 13 (1980) (Mr. Justice Powell, dissenting). ** In both Roper and Geraghty it was ultimately determined by the Courts of Appeals that the District Court’s denial of class cer- tification was erroneous and that such error “related back” to the original denial and thus preserved jurisdiction. No such determi- 7 sions was the ongoing “personal stake in the outcome” of the named plaintiffs in these cases (Geraghty, 100 S.Ct. at 1212: “Respondent here continues vigorously to advocate his right. to have a class certified”; Roper, 100 S.Ct. at 1173: “Respondents have maintained throughout this ap- pellate litigation that they retain a continuing individual interest in the resolution of the class certification ques- tion”).* Here, however, Original Plaintiff Weisman abandoned his appeal from the denial of class certification and ex- pressed his desire “to withdraw as plaintiff” in the action. The Court of Appeals recognized his withdrawal and dis- missed the appeal (14a), but allowed 30 days for “another plaintiff to enter the suit” (15a). Query, what suit? Mr. Weisman’s substantive claim had been extinguished by the tender, and he abandoned his personal stake in the out- come of the class certification question in the midst of the pendency of that very appeal. Perhaps the Court of Appeals contemplated intervention by another plaintiff to prosecute the appeal from the denial of class certification, as its citation of United Airlines, Inc. v. McDonald, 432 U.S. 385 (1977), might suggest (17a). nation was ever made here and, we submit, it is most unlikely that an appellate court would conclude that the District Court abused its discretion by refusing to certify a convicted securities fraud felon as a class representative in a 10b-5 action under the 1934 Act, pretermitting his various other character deficiencies (32-36a; see 27-29a). See Geraghty, supra, 100 S.Ct. at 1212 (“If, on appeal, it is determined that class certification prop:rly was denied, the claim on the merits must be dismissed as mot”). * In Roper this Court expressly limited its consideration to only “the private interest of the named plaintiffs” (100 S.Ct. at 1170) which, after the tender of damages, continued only “so long as they retained an economic interest in class certification” (td. at 1171). Contrast Mr. Weisman’s total abandonment of his “pri- vate interests” here. 8 Roper and Geraghty would support such a result. But that is not what happened here. Putative Intervenor Caro (represented by Weisman’s counsel) chose to intervene in the District Court to prosecute the action on the merits, and not in the Court of Appeals to prosecute the appeal! from the denial of class certification. The District Court correctly perceived the difference between the two (9a) as later noted by this Court in Geraghty, 100 S.Ct. at 1207, and Roper, 100 S.Ct. at 1169 & 1171 n.5. Finding “no action pending in which Caro can intervene” (9a), the District Court necessarily dismissed. What the Court of Appeals reversal did was to direct the District Court to “consider the application . . . of Caro [to intervene]” (5a) without explaining what it was that Caro might intervene into. What it was not is clear: it was not any action in which Mr. Weisman had a “personal stake” in either the substantive merits or the procedural outcome of class certification; Mr. Weisman had abandoned the action in all respects. As this Court said in Roper, supra, 100 S.Ct. at 1170: “[T]he right of a litigant to employ Rule 23 is a pro- cedural right only, ancillary to the litigation of sub- stantive claims. Should these substantive claims become moot in the Art. III sense, by settlement of all personal claims for example, the court retains no jurisdiction over the controversy of the individual plaintiffs” (emphasis added). That is precisely what happened here: the substantive (and all other) claims became moot in the Art. ITT sense by their abandonment by Mr. Weisman. and the court re- tained no jurisdiction over anything.* All that was left *In Roper, although this Court was willing to assume that the District Court’s final judgment of mootness precluded appeal on 9 was “the definitive mootness of a case or controversy, which ousts the jurisdiction of the federal courts and re- quires dismissal of the case” (Roper, supra, 100 S.Ct. at 1172). This case—unlike Roper or Geraghty—is the very “lawsuit that has no plaintiff’ which the Chief Justice and Justices Powell, Stewart and Rehnquist, dissenting in Geraghty (100 S.Ct. at 1218), feared. Mr. Weisman was no longer the client—he had withdrawn. Mr. Caro was not yet the client, for he had not yet entered the suit. Who, then, was the client at the time intervention was sought, viz., after Mr. Weisman withdrew and before the advent of Mr. Caro? The answer is inescapable: no one! The Second Circuit’s unwillingness to recognize this extreme ease of mootness as demonstrating the absence of “self- interested parties vigorously advocating opposing posi- tions” (Geraghty, 100 S.Ct. at 1212) is tantamount to aban- doning entirely Article ITI’s requirement of a case or con- troversy in favor of litigation by “concerned bystanders” (Mr. Justice Powell, joined by-the Chief Justice and Jus- tices Stewart and Rehnquist dissenting in Geraghty, 100 S.Ct. at 1217) at best or self-interested lawyers seeking fees at worst. Roper and Geraghty simply stand for the proposition that Mr. Weisman could have pursued his appeal from the that aspect, it noted that “it does not follow that this cireum- stance would terminate the named plaintiffs’ right to take an appeal on the issue of class certification” (100 S.Ct. at 1171) (emphasis added), “so long as that party retains a stake in the appeal satisfying the requirements of Art. IIT” (id.) (emphasis added). In Roper, the named piaintiffs retained such a stake be- cause of their stated “desire to shift part of the costs of litigation to those who will share in its benefits if the ciass is certified and ultimately prevails” (id. at 1173 & 1171 n. 6). Here, Mr. Weisman never articulated such a desire and, on the contrary, abandoned his appeal. 10 denial of class certification. Of course, he elected to do otherwise. United Airlines simply stands for the proposi- tion that Mr. Caro could have pursued Mr. Weisman’s abandoned appeal from the denial of class certification. Of course, he too elected to do otherwise. Thus, as neither Roper nor Geraghty nor United Airlines applies, it must be the other relevant decisions of this Court which con- trol. These decisions were simply ignored by the Court of Appeals, which thus entered an order in irreconcilable con- flict with such decisions of this Court and with Article ITI of the Constitution. The Decision Below Conflicts With - Prior Decisions of This Court It was well settled prior to the order below that federal courts may only entertain actions presenting a live case or controversy, U.S. Const., Art. ITI, §2; e.9., DeFunis v. Odegaard, 416 U.S. 312, 317 (1974); Sibron v. New Y ork, 392 U.S. 40, 50 n.8 (1968), and appellate courts are like- wise constrained. E.g., Sosna v. Iowa, 419 U.S. 393, 402 (1975) ; SEC v. Medical Committee for Human Rights, 404 U.S. 403 (1972).* In the absence of such a case or con- * It was equally well settled prior to the order below that where a case has become moot while in the District Court, no such live controversy exists and, accordingly, appellate jurisdiction is lack- ing, Steffel v. Thompson, 415 U.S. 452, 459 n.10 (1974) (“an actual controversy must be extant at all stages of review, not merely at the time the complaint is filed”). That was precisely the situation here. Here, Mr. Weisman’s substantive claim became moot in the District Court long before Mr. Caro sought to intervene. Mr. Weisman’s controversy with the various defendants arose out of his belief that they ought to pay him a sum of money which was at most $221.40 and the defendants, although maintaining they were not obligated to do so, paid Mr. Weisman this sum of money. Accordingly, there was no live controversy between Mr. Weisman and any defendant over his substantive claim as of a date well prior to Mr. Caro’s motion to intervene. Similarly, there was no live controversy between Mr. Weisman and any defendant over 11 troversy, subject matter jurisdiction is lacking and dis- missal of the action is mandated, regardless of its pro- cedural posture at the time. Fed.R.Civ.P. 12(h)(3). A fortiori, where subject matter jurisdiction is lacking, in- tervention is precluded because there is no action (over which the Court has *1risdiction) to intervene into. The Court of Appeals’ reference to “the intended class” (3a) was inappropriate, for “the case was ‘stripped of its character as a class action’ upon denial of certification by the District Court”, United Airlines, Inc. v. McDonald, 432 U.S. 385, 393 (1977), citing Advisery Committee’s Note on 1966 Amendments to Rule 23.* Conversely, because the class was never certified, it never acquired a legal status separate from that of then-plaintiff Weisman. See Sosna v. Iowa, supra, 419 U.S. 393, 399 (1975). Thus, the class contemplated in Mr. Weisman’s original complaint never achieved jurisprudential existence and, therefore, could not succeed to Mr. Weisman’s adversary position upon Mr. Weisman’s withdrawal. See, e.g., Kremens v. Bartley, 431 U.S. 119, 132-33 (1977) (“it is only a ‘properly certified’ class that may succeed to the adversary position of a named representative whose claim becomes moot”); East Texas Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 406 n.12 (1977) (“Obviously, a different case would be pre- his procedural claim to be entitled to prosecute his action as a class action as of the date of his withdrawal as plaintiff during the pendency of his own appeal. Ignoring the obvious import of this total lack of a live controversy, the Court of Appeals simply referred to “the intended class” (3a) and “the class which Weis- man purported to represent” (4a). This formulation, however, wholly ignores the fact that there can be no “class” and no “class members” unless and until a District Court certifies that all the requirements of Rule 23 have been met. Here, there was no such certification and, in fact, none of the requirements of Rule 23 had been met. * Since Rule 23 is a rule of procedure only, it cannot serve to enlarge the jurisdiction of federal courts. See United States v. Sherwood, 312 U.S. 584, 589-90 (1941). 12 sented if the District Court had certified a class and only later had it appeared that the named plaintiffs were not class members or were otherwise inappropriate class rep- resentatives. In such a case, the class claims would have already been tried, and, provided the initial certification was proper and decertification not appropriate, the claims of the class members would not need to be mooted or destroyed because subsequent events or the proof at trial had undermined the named plaintiffs’ individual claims”) ; Franks v. Bowman Transportation Co., 424 U.S. 747 (1976) ; see, e.g., Board of School Commissioners v. Jacobs, 420 U.S. 128 (1975) (this Court instructed the lower court to dismiss the complaint as moot because no class action determination had been adequately made and the named plaintiffs no longer had any interest in the matter in con- troversy) ; Weinstein v. Bradford, 423 U.S. 147 (1975) (this Court vacated the judgment below and directed the lower court to dismiss the complaint because the case had become moot as to the named plaintiff and class certification had been denied) ; Baxter v. Palmigiano, 425 U.S. 308, 311 n.1 (1976) (“[w]ithout such certification and identification of the class, the action is not properly a class action”). In Pasadena City Board of Education v. Spangler, 427 U.S. 424 (1976), this Court again emphasized that absent a for- mal certification of a class, the case becomes moot when the named plaintiff no longer has a personal stake in the case, and this is so despite the fact that the parties infor- mally treated it as a class action and the potential class members continued to have an interest in the outcome.* *It is the fact of mootness and not the cause of it that counts on the jurisdictional issue. The mootness may arise by act of the parties or otherwise. In United States v. Alaska 8.8. Co., 253 U.S. 113, 116 (1920), this Court said: “Where by an act of the parties, or a subsequent law, the exist- ing controversy has come to an end, the case becomes moot and should be treated accordingly.” (Footnote continued on next page) 13 Accord, Deposit Guaranty National Bank v. Roper, supra, 100 S.Ct. at 1171. Although all of the foregoing decisions of this Court have a direct bearing on the question of just what it was that Mr. Caro sought to intervene into, none of them was even cited by the Court of Appeals. To summarize, this Court is committed to these prin- ciples: (1) a continuing live controversy is essential as a jurisdictional base; (2) the live controversy must be one between parties having a legal status before the Court; (3) the mere filing of a complaint seeking class certifica- tion does not confer legal party status on the class or on its members; (4) without proper certification by the trial court, the “class” does not attain legal status unless the ease falls into the very narrow exception (not relevant here) where the asserted wrong to the plaintiff is “cap- able of repetition, yet evading review”, and (5) a named plaintiff in a purported class action retains a sufficient stake in the outcome to pursue an appeal from the denial of class certification even when his own individual claim has become moot. Here, the order below violated each of these principles of this Court’s decisions by sanctioning the possibility of intervention into a dead litigation wherein—at the time in- tervention was sought—no plaintiff eyisted and thus no case or controversy was presented. (Footnote continued from preceding page) In California v. San Pablo & T.R.R., 149 U.S. 308 (1893), this Court held that an action was mooted by tender of all sums which could be recovered, despite the refusal of the plaintiff to accept the tender. Accord, Deposit Guaranty National Bank v. Roper, supra, 100 S.Ct. at 1171. 14 CONCLUSION For the reasons set forth above, it is respectfully sub- mitted that a writ of certiorari should issue to review the order of the Court of Appeals. Dated: New York, New York May 2, 1980 Respectfully submitted, THomas F.. Curnin Attorney for Petitioners George J. Darneille and F. Arnold Daum 80 Pine Street New York, New York 10005 (212) 825-0100 Of Counsel: Tomas J. Kavaer Canttt Gorpvon & Rernveu Attorneys for Petitioners George J. Darneille and F. Arnold Daum ‘THomas C. Morrison Gene M. Baver Patrerson Betknar Wess & TYLER Attorneys for Petitioner Webster Securities Limited Perer BE. Cauamart Hertzoc Cautamari & Gizason Attorneys for Petitioner Alex W. Head Greratp E. Boveri Attorney for Petitioner Beaumont Development Corporation APPENDIX Appendix A UNITED STATES COURT OF APPEALS For tHe Seconp Circuit 79-7408 At a Stated Term of the United States Court of Appeals for the Second Circuit, held at the United States Courthouse in the City of New York, on the ninth day of January, one thousand nine hundred and eighty. PRESENT: Hon. Exvisworth A. VAN GRAAFEILAND, Hon. Amatya L. Kearse, Circuit Judges. Hon. Joun F. Dootrne, Jr.,* U.S. District Judge. MicHaEL Caro, Intervenor-Appellant, Vv. Grorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, BEAUMONT DEVELOPMENT CORPORATION and WEBSTER Securities LimirTep, Defendants-A ppellees, and Joun P. Ont and I. L. Vosxo, Defendants. * Hon. John F. Dooling, Jr., U.S. District Court, Eastern Dis- trict of New York, sitting by designation. la 2a Appendix A ORDER On May 2, 1977, Samuel Weisman brought an action against the above named defendants on behalf of all share- holders of Westates Petroleum Corporation as of February 1, 1977. The complaint alleged violations of sections 10(b) and 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78m(d), Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, and Commission Regulation 13D, 17 O.F.R. § 240.13d-1 et seq. In essence, the complaint alleged a scheme by the defendants to purchase the common stock of Westates while they were in possession of inside informa- tion that Westates would be liquidated at a much higher price per share than they were paying. On defendants’ motion, the district court dismissed the section 13(d) claim but held that the section 10(b) claim stated a cause of action. On April 19, 1978, the district court denied Weisman’s motion for class certification on the ground that Weisman could not thoroughly and adequately protect the interest of the class. See Weisman v. Darneille, 78 F.R.D. 669, 670 (S.D.N.Y. 1978). Although the district court refused there- after to certify the class certification question for inter- locutory appeal, plaintiff, on May 16, 1978, filed a notice of appeal to this Court from the district court’s April 19 order. On May 18, 1978, two days after the notice of appeal was filed, defendants moved in district court to dismiss the action as moot on the ground that they had tendered Weis- man a check for $271.40, the amount of his claimed indi- vidual damages plus $50 court costs. By opinion dated July 14, 1978, the district court held that the action was moot, and judgment of dismissal was entered on July 27, 1978, On August 17, 1978, Weisman appealed from that judgment. 3a Appendia A The appeal was heard by this Court on December 8, 1978. Appellant’s arguments were addressed to both the denial of class certification and the dismissal of the complaint. Before a decision was handed down, appellant Weisman advised the Court that for reasons of health he wished to withdraw as plaintiff in the litigation. On January 17, 1979, this Court entered an order dis- missing the appeal without prejudice to the right of another plaintiff to enter the suit within thirty days. On February 2, 1979, Michael Caro, another member of the intended class, moved to intervene pursuant to the leave granted in this Court’s January 17, 1979 order. Several defendants then moved in this Court for a modification of the January 17 order to provide that the order was with- out prejudice to the right of another plaintiff to file suit based upon the facts alleged in the amended complaint. By order dated March 7, 1979, this Court denied defen- dants’ motion stating: “Because class certification has been denied, ‘it does not .. . follow that the case must be treated as if there never was an action brought on behalf of absent class members.’” (Citations omitted). Despite this Court’s reiteration of its position in the March 7, 1979 order, the district court, on March 14, 1979, denied Caro’s motion to intervene by memorandum endorse- ment which read as follows: “The motion of Michael Caro to intervene in this action as a party plaintiff is denied without prejudice to his right to commence a new action based on the acts al- leged in this action. Our dismissal of Weisman’s ac- tion has not been appealed, and there is, therefore, no action pending in which Caro can intervene. Tilley 4a Appendix A Lamp Co. v. Thacker, 454 F.2d 805 (5th Cir. 1972). Additionally, Caro does not seek to intervene to appeal the denial of Weisman’s motion for class certification, and, thus, the Supreme Court’s decision in United Air Lines, Inc. v. McDonald, 432 U.S. 385 (1977), is not applicable.” Because the district court has failed to comply with the mandate of this Court, we reverse. In exercising its appellate jurisdiction, this Court has broad powers to make such disposition of the case before it as justice requires. In re Barnett, 124 F.2d 1005, 1009 (2d Cir. 1942). It may, pursuant to Rule 42 of the Federal Rules of Appellate Procedure, fix terms or conditions for voluntary dismissal by an appellant. This rule is similar to Rule 41(a)(2) of the Federal Rules of Civil Procedure, and many of the same considerations should apply. See In re Barnett, supra, 124 F.2d at 1013. Included among those considerations should be the nature of the action as one brought on behalf of an intended class, particularly where, as here, statute of limitations problems are in- volved. See United Airlines, Inc. v. McDonald, 432 U.S. 385, 392 (1977); Shelton v. Pargo, Inc., 582 F.2d 1298, 1304-16 (4th Cir. 1978) ; Rothman v. Gould, 52 F.R.D. 494 (S.D.N.Y. 1971); Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452, 460-61 (E.D. Pa. 1968). Where class certification is denied because of inadequacy of repre- sentation, courts should not be unmindful of the interests of absent members of the intended class, who may have relied upon the ongoing litigation. See Smith v. Josten’s American Yearbook Co., 78 F.R.D. 154, 175 (D. Kan. 1978). It was this Court’s concern for the class which Weisman purported to represent that prompted us to condition the da Appendia A dismissal of the appeal with the proviso that the dismissal would be without prejudice to the right of another plaintiff to enter the suit within thirty days. At the time the order of dismissal was entered, the issue of mootness was before this Court on appeal together with the order denying class certification, upon which the claim of mootness was based, and adjudication of those issues was pending. This Court was empowered to impose terms upon the parties seeking to avoid that adjudication. The order appealed from is reversed and the matter is remanded to the district court with instructions to con- sider the application of appellant Caro in accordance with the provisions of Rule 24 of the Federal Rules of Civil Procedure. Because appellees have now raised an issue as to the adequacy of appellant’s motion papers on his application for intervention, appellant may have leave to file an amended and more detailed set of papers in sup- port of his application. Orpver dated this 9th day of January, 1980. /s/ E.isworth A. Van GRAAFEILAND /s/ Amatya L. Kearse Circuit Judges. /s/ Joun F. Doone, Jr. District Judge. 6a Appendix B UNITED STATES COURT OF APPEALS Seconp Crmovir 79-7408 At a Stated Term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court House, in the City of New York, on the twenty-seventh day of February, one thousand nine hundred and eighty. Present: Hon. Exitsworta A. Van GRAAFEILAND, Hon. Amatya L. Kearsz, Circuit Judges, Hon. Joun F. Dootrne, Jr., District Judge. SamueL Weisman, on behalf of himself and all others similarly situated, Plaintiff, MicHaEu Caro, Appellant, v. Georce J. Darnemiz, F. Arnotp Daum, Joun P. Ox, I. L. Vosxo, Bzaumonr Devetopment Corp., and Wesster Securities Limirep, Defendants-A ppellees. Ta Appendiz B A petition for a rehearing having been filed herein by counsel for the appellees George J. Darneille and F. Arnold Daum Upon consideration thereof, it is Ordered that said petition be and hereby is Dentep. /s/ A. Dantex Fussro A. Daniel Fusaro, Clerk 8a Appendix B UNITED STATES COURT OF APPEALS Sreconp Crrovurr 79-7408 At a Stated Term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court House, in the City of New York, on the twenty-seventh day of February, one thousand nine hundred and eighty. Samvue, WEIsMan, on behalf of himself and all others similarly situated, Plaintiff, MicHazeL Caro, Appellant, v. Grorcz J. Darnemiz, F, Arnotp Daum, Joun P. Ont, I. L. Vosxo, Beaumont DerveLopMent Corp., and Wesster Securities Limirtep, Defendants-A ppellees. A petition for rehearing containing a suggestion that the action be reheard in banc having been filed herein by coun- sel for the appellees George J. Darneille and F. Arnold Daum, and no active judge or judge who was a member of the panel having requested that a vote be taken on said suggestion, Upon consideration thereof, it is Ordered that said petition be and it hereby is Denmp. /s/ Irvine R. KavrmMan Irving R. Kaufman, Chief Judge 9a Appendix C Weisman v. Darneille ENDORSEMENT 77 Civ 2110 (LFM) The motion of Michael Caro to intervene in this action as a party plaintiff is denied wthout prejudice to his right to commence a new action based on the acts alleged in this action. Our dismissal of Weisman’s. action has not been appealed, and there is, therefore, no action pending in which Caro can intervene. Tilley Lamp Co. v. Thacker, 454 F.2d 805 (5th Cir. 1972). Additionally, Caro does not seek to intervene to appeal the denial of Weisman’s motion for class certification, and, thus, the Supreme Court’s decision in United Air Lines, Inc. v. McDonald, 432 U.S. 385 (1977), is not applicable. So ordered. Dated: New York, N. Y. March 14, 1979 /s/ Luoyp F. MacManon Lloyd F. MacMahon United States District Judge 10a Appendix D UNITED STATES COURT OF APPEALS Seconp Crrcuir 79-8258 At a Stated Term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court House, in the City of New York, on the eighth day of June, one thousand nine hundred and seventy-nine. SaAMvuEL WEIsMAN, on behalf of himself and all others similarly situated, Plaintiff, MicHaEL Caro, Appellant, v. Grorcz J. Darnemie, F. Arnotp Daum, Jonn P. Ont, I. L. Vosxo, Beaumont Devetopment Corp., and Wesster Securities Limite, Defendants-A ppellees. It is hereby ordered that the motion made herein by counsel for the appellant by notice of motion dated May 23, 1979 to reinstate the appeal herein be and it hereby is granted. lla Appendix D It is further ordered that the petition for mandamus is denied. /s/ Irvine R. KaurmMan Irving R. Kaufman, Chief Judge. /s/ J. JosepH SmirxH (Per IRK) J. Joseph Smith /8/ EvutswortH Van GrRaAaFEILAND (Per IRK) Ellsworth Van Graafeiland Circuit Judges. 12a Appendix E UNITED STATES COURT OF APPEALS Seconp Circuit Temporary Docket No. 79-8258 At a Stated Term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court House, in the City of New York, on the 14th day of May, one thousand nine hundred and seventy-nin[e]. SAMUEL WEIsMAN, on behalf of himself and all others similarly situated, Plaintiff, MicHaEt Caro, Appellant, V. Grorce J. Darneriie, F. Arnotp Daum, Jonn P. Ont, I. L. Vosko, BEauMont DEVELOPMENT CORPORATION and Wesster Securities Limirten, Defendants-A ppellees. The Civil Appeals Management Plan of this court having been promulgated on April 9, 1974 providing that within ten (10) days after filing a notice of appeal the appellant shall docket an appeal, by filing and serving a pre-argu- ment statement (Form C), by ordering from the court reporter a transcript of the proceedings and filing and 13a Appendia E serving a statement concerning same (Form D) and by paying the docket fee and that in default of either of which the Clerk may dismiss the appeal without further notice, And the appeal herein not having been so docketed, Upon consideration thereof, it is Ordered that the appeal from the judgment dated: 3-16-79 of the United States District Court for the Southern (7702110) District of New York be and it hereby is dis- missed. A. Danret Fvusaro Clerk /s/ Sara Piovia By: Sara Piovia Deputy Clerk l4a Appendix F UNITED STATES COURT OF APPEALS Seconp Circuit 78-7422 At a Stated Term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court House, in the City of New York, on the seventeenth day of January, one thousand nine hundred and seventy-nine. Present: HonorasB_e Irvine R. KaurMan, Chief Judge. HonoraB_e J. JOSEPH SMITH, HonoraBLeE ELtswortH VAN GRAAFEILAND, Circuit Judges. SaMvuEL WEISMAN, Plaintiff-Appellant, v. Grorce J. Darneme, F. Arnotp Daum, Atex W. Heap, BeauMont DEVELOPMENT CORPORATION and WEBSTER Securities LimitTep, Defendants-A ppellees, and Joun P. Out and I.L. Vosxo, Defendants. lida Appendix F Appeal from the United States District Court for the Southern District of New Xork. This cause came on te-be heard on the transcript of record from the United States District Court for the South- ern District of New York, and was argued by counsel. On Consiperation Wuenreor, it is now hereby ordered, adjudged, and decreed that, because the appellant, who has been found by the District Court to be an inadequate class representative, has indicated that he no longer wishes to be a plaintiff in this lawsuit, the appeal be dismissed. This order shall not prejudice the right of another plaintiff to enter the suit within 30 days. /8/ Irvine R. KaurmMan Irving R. Kaufman, Chief Judge. /8/ J. JosepH Smiru (Per IRK) J. Joseph Smith /s/ E.uswortnH Van GRraaFEILAND Ellsworth Van Graafeiland, Circuit Judges. 16a Appendix G UNITED STATES COURT OF APPEALS Sreconp CircvulirT 78-7422 At a Stated Term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court House, in the City of New York, on the 7th day of March, one thousand nine hundred and seventy-nine. Samvuet WetsMan, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. Grorce J. Darnemiz, F. Arnotp Daum, Atex W. HeEap, Joun P. Ont, I.L. Vosxo, Beaumont DEVELOPMENT Corporation, a Delaware Corporation, and WerssTER Srourities Limirep, a Bahamas Corporation, Defendants-Appellees. It is hereby ordered that the motion made herein by counsel for the Darneille and Daum appellees by notice of motion dated February 15, 1979 to modify the Court’s decision of January 16, 1979 be and it hereby is denied. Because class certification has been denied, “it does not ... follow that the case must be treated as if there never was an action brought on behalf of absent class members,’ ” 17a Appendia G United Airlines, Inc. v. McDonald, 432 U.S. 385, 393 (1977), quoting Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452, 461 (E.D. Pa. 1968). /s/ Irvine R. KaurmMan Irving R. Kaufman, Chief Judge. /s/ J. JosepH SmitH J. Joseph Smith /s/ ExiswortH Van GRAAFEILAND (Per IRK) Ellsworth Van Graafeiland Circuit Judges 18a Appendix H UNITED STATES DISTRICT COURT SoutHern District or New York 77 Civ. 2110 (LFM) SaMvEL Weisman, on behalf of himself and all others similarly situated, Plaintiff, —against— Grorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, Joun P. Ont, I. L. Vosxo, Beaumont DeveLopMENntT Corporation, a Delaware Corporation, and Wesster Securities Limrrep, a Bahamas Corporation, Defendants. JUDGMENT This action came on for hearing before the Court, Hon- orable Lloyd F. MacMahon, District Judge, presiding, and the motion to dismiss as moot having been duly heard and a decision having been duly rendered, It is Ordered and Adjudged that the plaintiff take nothing and that the action be dismissed as moot. Dated: New York, New York July 25, 1978 /8/ Luoyp F. MacManon U.S.D.J. JUDGMENT ENTERED 7/27/78 /8/ Raymonp F, Burcuarptr Clerk 19a Appendix I UNITED STATES DISTRICT COURT ScutHern District or New York 77 Civ. 2110 (LFM) SAmvueEL WEIsMAN, on behalf of himself and all others similarly situated, Plaintiff, —against— Gzrorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, JoHn P. Ont, I. L. Vosxko, Beaumont DEVELOPMENT Corporation and WesstER Securities LimirTep, Defendants. OPINION APPEARANCES: Kaufman Taylor Kimmel & Miller By: Stanley L. Kaufman and Irving Malchman, Esqs. 41 Hast 42 Street New York, N. Y. 10017 —and— Bernstein & Kirby By: Roger W. Kirby, Esq. 41 Hast 42nd Street New York, N. Y. 10017 Attorneys for Plaintiff 20a Appendia I Cahill Gordon & Reindel By: Thomas F. Curnin and Thomas J. Kavaler, Esqs. 80 Pine Street New York, N. Y. 10005 Attorneys for defendants Darneille and Daum. Hertzog And Calamari By: Peter E. Calamari, Esq. 99 Park Avenue New York, N. Y. 10016 Attorneys for defendant Head. Bodell & Magovern By: Gerald E. Bodell, Esq. 102 East 35th Street New York, N. Y. 10016 Attorneys for defendant Beaumont Development Corporation. Patterson, Belknap, Webb & Tyler By: Thomas C. Morrison, Esq. 30 Rockefeller Plaza New York, N. Y. 10020 Attorneys for defendant Webster Securities Limited. MacManon, District Judge. Defendants move to dismiss the complaint for lack of jurisdiction over the subject matter. Rule 12(b)(1), Fed. R.Civ.P. Plaintiff moves for an order compelling produc- tion of documents. Rules 34 and 37, Fed.R.Civ.P. This is an action for securities fraud which was brought as a class action, seeking damages for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 21a Appendia I and Rule 10b-5 thereunder. On April 19, 1978, we denied plaintiff's motion to certify the action as a class action, holding, inter alia, that plaintiffs status as a convicted felon, and his reticence in disclosing this fact to his counsel and his adversaries, demonstrated a lack of “honesty, con- scientiousness, and other affirmative personal qualities re- quired of a class representative.” Weisman v. Darneille, 77 Civ. 2110 (S.D.N.Y. Apr. 19, 1978), opinion at 4. There- after, we refused to certify the class certification question for an interlocutory appeal pursuant to 28 U.S.C. § 1292(b). See Wetsman v. Darneille, 77 Civ. 2110 (S.D.N.Y. May 25, 1978). Undaunted, plaintiff, nevertheless, filed a notice of appeal from our order refusing to certify the class, basing appellate jurisdiction upon 28 U.S.C. § 1291. Subsequently, defendants tendered to plaintiff the full amount of plaintiff’s individual damages sought in the com- plaint. The instant motion to dismiss the complaint fol- lowed, defendants contending that the action has been mooted and that we, consequently, lack jurisdiction over the subject matter. Before turning to the merits of defendants’ motion, we must examine our jurisdiction. Plaintiff contends that his filing of a notice of appeal from our order denying class certification deprives us of jurisdiction to decide the instant motion. Generally, the taking of an appeal does indeed deprive the district court of jurisdiction to take any further action in the case, except in aid of the appeal or to correct clerical 1 Claims alleging violations of Section 13 of the Securities Ex- change Act of 1934 and of Regulation 13D, 17 C.F.R. §§ 240.13d-1 —240.13d-4, were dismissed in a memorandum and order on March _ 178) See Weisman v. Darneille, 77 Civ. 2110 (S.D.N.Y. Mar. ,1 . 22a Appendia I errors. See, e.g., Hast Hampton Dewitt Corp. v. State Farm Mut. Auto. Ins. Co., 490 F.2d 1234, 1246 (2d Cir. 1974) ; Segal v. Gordon, 467 F.2d 602, 608 n.12 (2d Cir. 1972). This rule, however, presupposes the existence of a valid appeal from an appealable order. Lowenschuss v. Kame, 392 F. Supp. 59, 60 (S.D.N.Y. 1974). Where a notice of appeal refers to an order which is clearly non-appealable, the mere taking of the appeal is insufficient to divest the dis- trict court of jurisdiction. In such circumstance, the dis- trict court may ignore the notice of appeal and may proceed with the case. See, e.g., Arthur Andersen & Co. v. Fine- silver, 546 F.2d 338, 340-41 (10th Cir. 1976), cert. denied sub nom. Arthur Andersen & Co, v. Ohio, 429 U.S. 1096 (1977). In the absence of certification under § 1292(b), our order refusing to certify this action as a class action is clearly unappealable. See Coopers & Lybrand v. Livesay, 46 U.S. L.W. 4757 (U.S. June 21, 1978). Thus, plaintiffs pur- ported appeal in this case does not divest us of jurisdiction to adjudicate the instant motion to dismiss the complaint.? Turning to the merits of the motion, we can only con- clude that the instant case has been mooted. Defendants have chosen not to contest plaintiff’s claims and have ten- dered the full measure of plaintiff’s damages. Plaintiff’s claim is, therefore, satisfied, and he no longer has a stake in the resolution of the issues raised in the complaint. Thus, no live controversy exists between the parties, and the case is moot. A moot case presents no “e~%e or con- troversy” cognizable under Article III of the Constitution, 2 Subsequent to the drafting of this opinion, we were informed by counsel for plantiff that, in light of Iivesay, plaintiff intended to consent to defendants’ motion to dismiss the appeal. Such con- sent by plaintiff in no way alters our decision here, since, at the moment, the appeal remains pending in the Court of Appeals. 23a Appendia I and we, therefore, lack jurisdiction over the subject mat- ter.2 See Winokur v. Bell Fed. Sav, & Loan Ass’n, 560 F.2d 271, 276-77 (7th Cir. 1977), cert. denied, 46 U.S.L.W. 3586 (U.S. Mar. 21, 1978). See also Lasky v. Quinlan, 558 F.2d 1133, 1136-37 (2d Cir. 1977) ; Vun Cannon v. Breed, 565 F.2d 1096, 1099 (9th Cir. 1977). There is no merit to plaintiff’s argument that a dismissal here would undermine the policies behind Rule 23, Fed.R. Civ.P. To be sure, our decision may well obviate review of our refusal to certify the class. See Winokur v. Bell Fed. Sav. & Loan Ass’n, supra, 5€0 F.2d at 276-77, on re- hearing, 562 F.2d 1034, 1034 & n.* (7th Cir. 1977) (Swy- gert, J., dissenting from denial of petition for rehearing en banc). Nevertheless, a dismissal for mootness does no real damage to the members of the putative class. Any putative class member may now institute an action, on his own behalf or on behalf of a class, seeking recovery for the seme transactions and occurrences sued upon here. The availability of such an action is certainly sufficient to protect the interests of the absent putative class members, and we find nothing in Rule 23 which demands more than this, Accordingly, defendants’ motion to dismiss the complaint is granted. In view of this disposition, plaintiff’s motion We do not understand plaintiff to argue that he cannot be “forced” to accept “involuntarily” the tender of damages. How- ever, to the extent plaintiff challenges the propriety and the efficacy of such practice, his challenge is without merit. Whether or not plaintiff “accepts” a tender of damages, the case becomes moot upon tender. At that point, full-blown litigation would yield no recovery greater than that voluntarily offered by defendants, and a live controversy no longer exists between the parties. The authorities cited by plaintiff are not to the contrary. See Williams v. Sinclair, 529 F.2d 1383 (9th Cir.), cert. denied, 426 U.S. 936 (1976) ; Cam- eron v. E.M. Adams & Co., 547 F.2d 473 (9th Cir. 1976). 24a Appendia I for an order compelling production of documents is denied as moot. Settle judgment within ten (10) days. Dated: New York, N. Y. July 14, 1978 /s/ Luoyp F. MacManon Lloyd F. MacMahon United States District Judge 25a Appendix J UNITED STATES DISTRICT COURT SoutHERN District or New Yorxk 77 Civ. 2110 (LFM) SamvueL WEIsMAN, on behalf of himself and all others similarly situated, Plaintiff, —against— Grorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, JoHn P. Ont, I.L. Vosko, Beaumont DrveLopMEeNntT Corporation and Wesster Securities Limirtep, Defendants. APPEARANCES: Bernstein & Kirby By: Roger W. Kirby, Esq. 41 East 42nd Street New York, N. Y. 10017 —~angd— Kaufman Taylor Kimmel & Miller By: Stanley L. Kaufman and Irving Malchman, Esqs. 41 Hast 42nd Street New York, N. Y. 10017 Attorneys for Plaintiff 26a Appendix J Cahill Gordon & Reindel By: Thomas F. Curnin, Thomas J. Kavaler and John C. Koutsos, Esqs. 80 Pine Street New York, N. Y. 10005 Attorneys for defendants Daum and Darneille Hertzog And Calamari By: Peter E. Calamari, Esq. 99 Park Avenue New York, N. Y. 10016 Attorney for defendant Head Bodell & Magovern, P.C. By: Gerald E. Bodell, Esq. 102 East 35th Street New York, N. Y. 10016 Attorneys for defendant Beaumont Development Corporation OPINION MacManon, District Judge. Plaintiff moves for (1) the appointment of a guardian ad litem for the putative class, or (2) certification pursu- ant to 28 U.S.C. § 1292(b) of our opinion and order dated April 19, 1978. He also moves, in a separate motion, for (1) a list of the “class” members and (2) an order com- pelling the production of certain documents. Plaintiff brought this direct action under Section 10(b) of the Securities Exchange Act of 1934' and Rule 10b-5? to recover the allegedly illegal profits defendants gained 115 U.S.C. § 78j(b). 217 C.F.R. § 240.10b-5. 27a Appendix J from the liquidation of Westates Petroleum Company.’* In our opinion and order dated April 19, 1978, we denied plaintiff's motion for class certification on the sole ground that he did not meet the requirements of Rule 23(a) (4), Fed.R.Civ.P. We found that plaintiff was not an adequate class representative because he had a prior felony convic- tion under Section 10(b), his conduct in this action did not comport with the high standards of honesty and in- tegrity required of a fiduciary, and his knowledge of, and participation in, this litigation was not that required of a proper representative. See Weisman v. Darneille, No. 77 Civ. 2110 (S.D.N.Y. Apr. 19, 1978) (denial of motion for class certification). Guardian Ad Litem Plaintiff’s motion for the appointment of a guardian ad litem is grounded on the premise that the guardian could “oversee plaintiff's conduct as a class representative and . insure that plaintiff does in fact adhere to the high- est standards of honesty and integrity in this case.” He further argues that defendants will escape liability for their alleged wrongdoing unless a guardian is appointed. The arguments are frivolous. Plaintiff has cited no authority, and our research has disclosed none, supporting the proposition that a guardian may be appointed to protect the interests of a putative class. In every instance in which a guardian has been appointed, the interests of a certified class were incon- 3 Plaintiff also sought recovery under Section 13 of the Securities Exchange Act of 1934, 15 U.S.C. § 78m, and under Regulation 13D thereunder, 17 C.F .R. §§ 240.13d-1—240.13d-4. We dismissed those claims pursuant to Rule 12(b)(6), Fed.R.Civ.P., on March 22, 1978, however. 28a Appendix J sistent with those of its representative or his counsel. Our prior denial of certification here is thus a critical distine- tion between this case and those cited by plaintiff. In the absence of certification, there is no “class” whose inter- ests need to be protected by a guardian ad litem. Plaintiff’s argument that denial of this motion vill allow defendants to escape liability for their allegedly illegal acts is also unpersuasive. Rejection of one plaintiff as an adequate class representative does not preclude our grant- ing class certification to another representative plaintiff.‘ Rule 23(a)(4), moreover, requires that the class repre- sentative himself be an adequate fiduciary for the class. That requirement cannot be satisfied by a patently inade- quate representative supervised by an individual with no stake in the litigation. What plaintiff attempts in this motion is an end-run around Rule 23. We refuse to per- mit that circumvention of the rule’s principles and deny the motion insofar as it seeks the appointment of a guardian ad litem for the putative class. § 1292(b) Certification Certification of an interlocutory order to the Court of Appeals cannot be granted unless the “district judge... shall be of the opinion that such order involves a con- trolling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ulti- mate termination of the litigation.”* Plaintiff has not specified the question of law which he considers control- *See Brick v. CPC International, Inc., 547 F.2d 185 (2d Cir. 1976). § 28 U.S.C. § 1292(b). 29a Appendix J ling. His memoranda, however, attack both of the grounds on which our order of April 19 rested: that plaintiff had not demonstrated the personal integrity required in the fiduciary role he sought and that his knowledge of, and participation in, this litigation were insufficient to satisfy Rule 23(a) (4). Neither of those grounds, however, can serve as the basis for the certification of our order. Both involve mixed questions of law and fact and therefore cannot give the Court of Appeals jurisdiction to hear an interlocutory appeal.® Moreover, there is not “substantial ground for difference of opinion” regarding either of those grounds. Plaintiff has cited no authority directly supporting his contention that a felon can be a proper class representative when he has been convicted under the very statute invoked in the purported class action.’ Nor has he cited any decisions by our Court of Appeals or by courts in the Southern Dis- trict of New York rejecting our second ground for deny- ing certification. Indeed, that ground is supported by sub- stantial preceden' in this district. We therefore deny plaintiff’s motion insofar as it seeks § 1292(b) certification of our April 19 order. 6 See Link v. Mercedes-Benz of North America, Inc., 550 F.2d 860 (3d Cir.), cert. denied, 431 U.S. 933 (1977); Johnson vy. All- redge, 488 F.2d 820 (3d Cir. 1973), cert. denied, 419 U.S. 882 (1974). 7 Plaintiff's argument that the courts allow prisoners to maintain class actions on behalf of other prisoners is specious. No one but a prisoner could be a proper class representative in such a case. 8 See Weisman v. Darneille, supra, and cases there cited; Green- span v. Brassler, 77 Civ. 1573 (S.D.N.Y. Feb. 14, 1978), and cases there cited. 30a Appendix J Class List Plaintiff also seeks a list of the “class members” in this action so that he can “alert the class to its rights and to the fact that these rights are in serious jeopardy.” The simple and dispositive answer to this request, how- ever, is that class certification has been denied in this action. There are therefore no class members and no class rights to be protected.’ Plaintiff’s attempt to communi- cate with non-parties to induce them to intervene here, moreover, poses serious ethical problems for his counsel. We therefore deny this motion insofar as it seeks a class list. Document Production Plaintiff finally seeks an order compelling defendants and others to produce documents sought in prior discov- ery requests.’° Rule 9(f), General Rules for United States District Courts for the Southern and Hastern Districts of New York, requires, however, that every motion for an order compelling production must be accompanied by the mov- ® Plaintiffs authorities cited in support of this aspect of his mo- tion are inapposite. In Lowenschuss v. Bluhdorn, 73 Civ. 2021 (S.D.N.Y. Apr. 20, 1978), Judge Bonsal ordered that the disquali- fied class representative in a certified class action be given a class list to seek substitute representation. N.Y. Business Corporation ~ Law § 624(b) (McKinney 1963) deals with the rights of certain shareholders to inspect the books of a corporation and to seek in the state courts an order allowing such inspection. Section 627 of that law and Weisfeld v. Spartan Industries, Inc., 58 F.R.D. 570, 578-79 (S.D.N.Y. 1972), allow a plaintiff in a derivative action to inspect the corporation’s shareholder list to find other shareholders willing to intervene and thereby obviate the uecessity of his posting secu- rity for his state law claims. 10 Rule 37(a), Fed.R.Civ.P. 3la Appendix J ant’s affidavit that he has conferred with opposing counsel in an attempt to resolve the dispute informally. Plaintiff has not submitted such an affidavit, and this failure ap- pears especially significant here, in light of defendants’ representations that they are ready to comply with any proper discovery request. We therefore deny plaintiff’s request for a production order without prejudice to re- newal upon his compliance with General Rule 9(f). One final matter must be resolved. On January 6, 1978, we stayed all discovery in this action pending the deter- mination of the class certification motion. There may have been some confusion among the parties as to whether plaintiff’s motion for § 1292(b) certification extended that stay. To eliminate that confusion, we hold that the stay is vacated as of this date. « Accordingly, our prior stay of discovery in this action is vacated as of this date. Plaintiff’s motion for an order compelling production of documents is denied without prejudice to renewal after compliance with General Rule 9(f). Plaintiff's motions are otherwise denied in all re- spects. So ordered. Dated: New York, N. Y. May 25, 1978 /8/ Lioyp F, MacManon Lloyd F. MacMahon United States District Judge 32a Appendix K UNITED STATES DISTRICT COURT SouTHERN District or New York 77 Civ. 2110 (LFM) SaMvuEL WEIsMAN, on behalf of himself and all others similarly situated, Plaintiff, —against—- Grorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, JoHn P. Ont, I. L. Vosxo, Beaumont DrvELOPMENT Corporation and Wesster Securities Limirep, Defendants. OPINION APPEARANCES: Bernstein & Kirby By: Roger W. Kirby, Esq. 41 East 42nd Street New York, N. Y. 10017 —and— Kaufman Taylor Kimmel & Miller By: Stanley L. Kaufman, Esq. 41 East 42nd Street _New York, N. Y. 10017 Attorneys for Plaintiff 33a Appendia K Cahill Gordon & Reindel By: Thomas F. Curnin, Thomas J. Kavaler and George Wailand, Esqs. 80 Pine Street New York, N. Y. 10005 Attorneys for defendants Daum and Darneille Patterson, Belknap, Webb & Tyler By: Thomas C. Morrison and Gene M. Bauer, Esqs. 30 Rockefeller Plaza New York, N. Y. 10020 Attorneys for defendant Webster Securities Limited MacManon, District Judge. Plaintiff moves, pursuant to Rule 23(c), Fed.R.Civ.P., for class certification in this action. The complaint alleges that certain officers and directors of Westates Petroleum Company (Westates) and other in- dividuals used their inside knowledge and made false S.E.C. filings to profit illegally from Westates’ liquidation. Plain- tiff, a Westates shareholder, brought this direct action under Section 10(b)' of the Securities Exchange Act of 1934 and Rule 10b-5? to recover the wrongful profits.* He 115 U.S.C. § 778j(b). 217 C.F.R. § 240.10b-5. ’The complaint also alleged violations of Section 13, 15 U.S.C. § 78m, and of Regulation 13D, 17 C.F.R. §§ 240.13d-1—240.13d-4. In a memorandum and order dated March 22, 1978, however, we dismissed those claims under Rule 12(b) (6), Fed.R.Civ.P., with leave to replead. Plaintiff has informed us py letter dated March 29, 1978 that he will not file an amended complaint. 34a Appendix K now seeks to represent “all persons, exclusive of defen- dants, who owned shares of Westates ... on February 1, 1977, the record date for determining the shareholders of Westates who are entitled to share in the proceeds of the liquidation of Westates.” Certification is dependent on plaintiff’s proof that each of the requirements of Rule 23(a), Fed.R.Civ.P., has been met. Fruchthandler v. Blakely, 73 F.R.D. 318 (S.D.N.Y. 1976). We conclude that plaintiff cannot “fairly and ade- quately protect the interests of the class,” Rule 23(a) (4), Fed.R.Civ.P., and therefore do not consider his other arguments. Plaintiff is a felon convicted of violating Section 10(b), the very statute he invokes here. On November 27, 1974, a Southern District of New York jury found him guilty of stock fraud (in violation of 15 U.S.C. §§ 78j(b) and 78f(‘)), mail fraud (in violation of 18 U.S.C. §§2 and 1341), and conspiracy (in violation of 18 U.S.C. § 371), in connection with the sale of stock in Automated Information Systems, Ine. (Automated). He subsequently was fined $5,000 by Hon. Charles M. Metzner, who departed from his “normal practice in such cases [of imposing] a sentence of incar- ceration” only because plaintiff was aged and in poor health. Plaintiff, an attorney, was also censured by the Appellate Division as a result of his felony conviction. Under ecur- rent standards, however, he would have been disbarred automatically. In re Chu, 42 N.Y.2d 490, 369 N.E.2d 1, 398 N.Y.S.2d 1001 (1977). Plaintiff, moreover, did not reveal the fact of his con- viction to counsel here until the day before his deposition. During the deposition, he expressed an inability to under- stand a question concerning his experience as a litigant and then testified falsely that his conviction was for a mis- 35a Appendiz K demeanor. His testimony regarding an unrelated S.E.C. inquiry and other litigation was similarly evasive. Plaintiff's conviction and subsequent conduct here con- vince us that he lacks the “ ‘honesty, conscientiousness, and other affirmative personal qualities’” required of a class representative. Ash v. Brunswick Corp., 1974-75 Fed. Sec. L. Rep. (CCH) 95,109 at 97,950-51 (D. Del. 1975), quoting 7 C. Wright & A. Miller, Federal Practice and Procedure § 1766. As a fiduciary for the class, he would be required to adhere to the highest standards of honesty and integrity. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 549-550 (1949). He clearly failed to meet those stan- dards in the Automated transaction and has similarly failed to do so in this suit. That conduct is sufficient to dictate the denial of class certification here. Amswiss Int’l Corp. v. Heublein, Inc., 69 F.R.D. 663 (N.D. Ga. 1975); Ash v. Brunswick Corp., supra.* Plaintiff's unfamiliarity with this suit also requires the denial of certification. Greenspan v. Brassler, No. 77 Civ. 1573 (LFM) (S8.D.N.Y. Feb. 14, 1978). Plaintiff did not meet with his counsel in the ten months between the filing of the complaint and the day preceding his deposition. He cannot describe his claim or name the defendants. He was not even certain that he had seen a copy of the complaint before his deposition. Apart from his awareness that he must bear the costs of the suit, plaintiff knows none of the duties and responsibilities of a class representative. In- deed, he has done little more in this action than write an * Plaintiff's conviction and deposition testimony also may subject him to discrediting cross-examination at trial that could prejudice the claims of the class. Cf. Koos v. First Nat’l Bank, 496 F.2d 1162 (7th Cir. 1974) (certification should be denied when the putative representative is subject to an unique defense). 36a Appendia K initial letter to his counsel, sign a retainer and submit to a deposition. Plaintiff's superfluous role here does not meet the re- quirements of Rule 23(a)(4). The class is entitled under ’ that rule to more than competent counsel. It must also be assured that it will have an adequate representative, one who will check the otherwise unfettered discretion of coun- sel in prosecuting the suit and who will provide his per- sonal knowledge of the facts underlying the complaint. Greenspan v. Brassler, supra. The class is entitled to a representative who is more than “a key to the courthouse door dispensable once entry has been effected.” Saylor v. Lindsley, 456 F.2d 896, 900 (2d Cir. 1972). Plaintiff’s evi- dent willingness to rely on counsel’s ability to protect the interests of the class is inconsistent with the participation required of an adequate class representative. Greenspan v. Brassler, supra, and cases cited at pp. 8-9. See also Citron v. Marine Midland Banks, Inc., No. 77 Civ. 2557 (CMM) (S.D.N.Y. Mar. 27, 1978). Accordingly, plaintiff’s motion for class certification is denied. So ordered. Dated: New York, N. Y. April 19, 1978 /s/ Luoyp F. MacManon Lloyd F. MacMahon United States District Judge 37a Appendix L UNITED STATES DISTRICT COURT SouTtTHERN District or New York 77 Civ. 2110 (LFM) SAMUEL WEIsMAN, on behalf of himself and all others similarly situated, Plaintiff, —against— Grorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, Joun P. Ont, I. L. Vosxo, Beaumont DEVELOPMENT Corporation and WessteR Securities LimirTep, Defendants. MEMORANDUM MacManon, District Judge. Defendants move for 28 U.S.C. §1292(b) certification of our order dated January 6, 1978, or, alternatively, for reargument under Local Rule 9(m) of their motion to dismiss the complaint. Plaintiff brought this direct action on behalf of himself and all other shareholders (excluding defendants) of Westates Petroleum Company (‘“‘Westates”) at the time of its liquidation. The complaint seeks damages for al- leged violations of Sections 10(b)? and 13? of the Securi- 115 U.S.C. § 78j(b), which states: “Tt shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate com- merce or of the mails, or of any facility of any national securi- ties exchange— 38a Appendia L (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities ex- change or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 215 U.S.C. § 78m, which states : “(d)(1) Any person who, after acquiring directly or in- directly the beneficial ownership of any equity security of a class which is registered pursuant to section 781 of this title .. . is directly or indirectly the beneficial owner of more than 5 per centum of such class shall, within ten days after such acquisition, send to the issuer of the security at its principal executive office, by registered or certified mail, send to each exchange where the security is traded, and file with the Com- mission, a statement containing such of the following informa- tion, and such additional information, as the Commission may by rules and regulations prescribe as necessary or ap- propriate in the public interest or for the protection of investors— (A) the background and identity of all persons by whom or on whose behalf the purchases have been or are to be effected ; (B) the source and amount of the funds or other con- sideration used or to be used in making the purchases... ; (C) if the purpose of the purchases or prospective pur- chases is to acquire control of the business of the issuer of the securities, any plans or proposals which such persons may have to liquidate such issuer, to sell its assets to or merge it with any other persons; or to make any other major change in its business or corporate structure ; (D) the number of shares of such security which are beneficially owned, and the number of shares concerning which there is a right to acquire, directly or indirectly, by (i) such person, and (ii) by each associate of such person, giving the name and address of each such associate ; and (E) information as to any contracts, arrangements, or understandings with any person with respect to any secu- rities of the issuer .. . naming the persons with whom such contracts, arrangements, or understandings have been en- tered intd, and giving the details thereof.” 39a Appendix L ties Exchange Act of 1934 and of Rule 10b-5* and Regula- tion 13D‘ promulgated thereunder. Our January 6 opinion and order denied defendants’ motion to dismiss the complaint under Rule 12(b) (6), Fed.R.Civ.P. That motion attacked the complaint’s alle- gations of damages, causation and scienter, as well as 217 C.F.R. § 240.10b-5, which states: “Tt shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate com- merce, or of the mails, or of any facility of any national secu- rities exchange, (1) to employ any device, scheme, or artifice to defraud, (2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (3) to engage in any fact, practice, or course of business which operates or would operate as a fraud or deceipt upon any person, in connection with the purchase or sale of any security.” £17 C.F.R. §§ 240.13d-1—240.13d:4, the relevant portion of which states : “Any person who, after acquiring directly or indirectly the beneficial ownership of any security of a class which is regis- tered pursuant to section 12 of the Act, .. . is directly or in- directly the beneficial owner of more than 5 per-centum of such class shall, within 10 days after such acquisition, send to the issuer of the security at its principal executive office, by registered or certified mail, send to each exchange where the security is traded, and file with the Commission, a statement containing the information required by Schedule 13D (§ 240.13d-101). Eight copies of the statement shall be filed with the Commission. Where an acquisition, not heretofore subject to this rule, was made subsequent to December 22, 1970, but prior to January 18, 1971, the specified statement shall be sent to the issuer and any exchange and filed with the Commission not later than January 28, 1971. ** * At the time of filing the statement, the person making the filing shall pay to the Commission a fee of $100, no part of which shall be refunded.” A 40a Appendia L plaintiff’s standing to bring the action. We construed the complaint favorably to plaintiff’ and accepted as true‘ the following allegations: Samuel Weisman owned 100 shares of Westates from sometime prior to August 9, 1974 continuously to the com- pany’s liquidation. Defendants (certain officers and direc- tors of Westates and other individuals) had learned that Westates’ stock was substantially undervalued in the open market and that it would bring a higher price upon the company’s liquidation. They also had learned, through the use of inside and non-public information, that Westates might seek liquidation. Pursuant to a conspiracy to influence the company to sell its assets and dissolve, defendants purchased approxi- mately 293,900 Westates shares’ in the open market at an average price of $3.24 per share from August 9, 1974 through January 1, 1975. The Schedules 13D filed by de- fendants pursuant to Regulation 13D were false or mis- leading in that they failed to disclose defendants’ inside knowledge, their conspiracy and their intent to benefit from Westates’ dissolution. Seven weeks after defendants’ purchases had been made, Westates publicly invited offers to purchase its assets. A sale of substantially all of the company’s assets, with the approval of the stockholders, was consummated on January 21, 1977. As a concomitant of the sale, Westates will redeem all of its stock for ap- proximately $10.70 to $11.10 per share. Defendants will thus net a wrongful profit of $2,251,735.00 as a result of 5 Scheur v. Rhodes, 416 U.S. 232 (1974). ® Cruz v. Beto, 405 U.S. 319, 322 (1972). 7™These purchases gave defendants ownership of approximately 6% of Westates’ stock. 4la Appendia L the differential between the market and redemption values of their August 9, 1974 through January 1, 1975 stock purchases. Motions for Reargument In their original motion to dismiss, defendants argued that plaintiff lacked standing to bring this action because he had not purchased or sold stock in connection with their alleged fraud. We held, however, that plaintiff might be able to prove that the Westates redemption constituted a “forced sale” of his stock under Vine v. Beneficial Finance Co., 374 F.2d 627 (2d Cir.), cert. denied, 389 U.S. 970 (1967), and Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir. 1969), cert. denied, 400 U.S. 822 (1970), and therefore refused to dismiss his Section 10(b) and Rule 10b-5 claims.* We grant defendants’ motion for re- argument of that portion of our order, and, upon reargu- ment, adhere to our prior decision. Our January 6 order also denied defendants’ motion to dismiss plaintiff’s Section 13 and Regulation 13D claims under Rule 12(b)(6). We held that plaintiff’s status as a forced seller might enable him to maintain those claims under Section 18 of the Securities Exchange Act of 1934.” 8 See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) (plaintiff must purchase or sell stock in connection with the alleged fraud to have standing under Section 10(b) or Rule 10b-5). ® See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). 1015 U.S.C. § 78r, which states: “(a) Any person who shall make or cause to be made any statement in any application, report, or document filed pur- suant to this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as pro- vided in subsection (d) of section 780 of this title, which state- ment was at the time and in the light of the circumstances under which it was made false or misleading with respect to any 42a Appendix L It appears now that we were misled on this point. While defendants superficially briefed plaintiff’s standing under Section 18, they failed completely to mention that section’s pleading requirements. As a result, we did not consider those requirements and must now waste time considering issues that should have been raised and_resolved weeks ago. We grant the motion for reargument of this portion of our order, and, upon reargument, reverse our order of January 6, 1978 to the extent that we grant defendants’ motion to dismiss plaintiff’s Section 13 and Regulation 13D claims. Section 13(d) requires any person" acquiring more than a 5% beneficial ownership of a securities class to file with the SEC a statement disclosing certain background infor- mation. Section 13(d) does not imply or expressly grant a right to bring a private damage action for its violation.” material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such state- ment was false or misleading. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. * * * (ce) No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued.” 11 “Person” includes “two or more persons act[ing] as a . group for the purpose of acquiring, holding, or disposing of secu- rities... .” Section 13(d) (3). 12 Myers v. American Leisure Time Enterprises, Inc., 402 F. Supp. 213 (S.D.N.Y. 1975), aff'd without opinion, 538 F.2d 312 (2d Cir. 1976) ; In re Penn Central Securities Litigation, 494 F.2d 528 (3d Cir. 1974). Cf., GAF v. Milstein, 453 F.2d 709 (2d Cir. 1971), cert. denied, 406 U.S. 910 (1972) (action seeking only in- junctive relief). 43a Appendix L Such an action, however, may be brought under Section 18, which permits certain individuals to maintain a dam- ages action against any person who has made a false or misleading filing under, inter alia, Section 13(d). Plaintiff, however, has not met the pleading require- ments of Section 18. Essential elements of a sufficient claim for relief under that section are allegations that the plaintiff actually read and relied on defendants’ fraudulent 13D schedules; that those schedules affected the sale price of his stock; and that he has commenced the action within one year after discovery of the fraud, in compliance with Section 18’s statute of limitations.’® Plaintiff has failed to allege any of these essential facts, and his claims under Section 13 and Regulation 13D must be dismissed. Motions for § 1292(b) Certification Defendants’ certification motions are now moot insofar as they seek review of our January 6 order’s denial of the motion to dismiss plaintiff’s Section 13 and Regulation 13D claims. The motions require further discussion, how- ever, to the extent that they seek certification of the re- mainder of the order. Defendants assert that two aspects of the January 6 order merit interlocutory review: (1) our conclusion that the forced seller doctrine has survived Blue Chip Stamps v. Manor Drug Stores, 42Y U.S. 723 (1975), and (2) our alleged abandonment of the “in connection with” require- ment of Section 10(b) and Rule 10b-5." 18 Gross v. Diversified Mortgage Investors, 4388 F. Supp. 190 (S.D.N.Y. 1977); Rich v. Touche Ross & Co., 415 F. Supp. 95 (S.D.N.Y. 1976). 14'Webster Securities Limited also renews defendants’ attack on the sufficiency of plaintiff's allegations of damages. Plaintiff has 44a Appendia L It was established in Vine v. Beneficial Finance Co., su- pra, and Crane Co. v. Westinghouse Air Brake Co., supra, that a stockholder has standing to maintain a Section 10(b) action if the defendant’s fraud or illegal manipula- tion indirectly compels the divestiture of his stock. We concluded in our January 6 opinion that those cases re- main viable interpretations of the purchaser/seller require- ment of Section 10(b) announced in Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956 (1952), and adopted in Blue Chip Stamps v. Manor Drug Stores, supra. Defendants argue that this conclusion conflicts with recent Supreme Court decisions strictly interpreting the federal securities laws. Those decisions, however, do not dictate the restrictive interpretation of Section 10(b) urged by defendants. Blue Chip Stamps left open the boundaries of the purchaser/seller requirement but indi- cated possible approval of a flexible construction of the ‘requirement.’® Indeed, the Court has said that Section 10(b) “ ‘must be read flexibly, not technically and restric- tively.’” 1® And although a private cause of action under the securities laws should not be implied “where it is ‘un- necessary to ensure the fulfillment of Congress’ pur- alleged that defendants reaped wrongful profits of some $214 mil- lion. These wrongful profits are recoverable in a Rule 10b-5 action upon proper proof. Affiliated Ute Citizens v. United States, 406 U.S. 128, 155 (1972). See Gould v. American-Hawaitian 8.8. Co., 535 F.2d 761 (3d Cir. 1976) ; Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1304-05 (2d Cir. 1973). 18 Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 751. 16 Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 475-76 (1977), quoting Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 12-13 (1971). 45a Appendia L poses,’”?7 Section 10(b) was intended to protect pur- chasers and sellers of securities’® by ensuring “full dis- closure” of relevant information.’® Lower court decisions similarly provide no direct sup- port for defendants’ argument. The Second Circuit has refused to adopt a restrictive reading of the purchase/sale requirement of Blue Chip Stamps” or of Section 10(b) in general.” Moreover, the only other court to consider the question has approved the forced seller doctrine in light of Blue Chip Stamps.** These decisions and defendants’ inability to cite authority directly supporting their inter- pretation of Section 10(b)** convince us that there is not 17 Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 477, quoting Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 41 (1977). 18 Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 733-736. 19 Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 477. 20See Mallis v. F.DI.C., 1976-77 Fed. Sec. L. Rep. (CCH) 7 95,823 (2d Cir.), cert. granted sub nom. Bankers Trust Co. v. Mallis, 431 U.S. 928 (1977); Arthur Lipper Corp. v. S.E.C., 547 F.2d 171 (2d Cir. 1976), cert. denied, 46 U.S.L.W. 3436 (U.S. Jan. aac See also United States v. Brown, 555 F.2d 336 (2d Cir. 1977). 21 See Rolf v. Blyth, Eastman Dillon & Co., Current Fed. See. L. Rep. (CCH) {[ 96,275 (2d Cir. 1978). See also Gross v. Diversified Mortgage Investors, 431 F. Supp. 1080, 1093 (S.D.N.Y. 1977). 22 Houlihan v. Anderson-Stokes, Inc., 434 F. Supp. 1330 (D.D.C. 1977). 28 The two Southern District of New York cases cited by defen- dants on this point are inapposite. Bio-Medical Sciences, Inc. v. Weinstein, 407 F. Supp. 970 (S.D.N.Y. 19776), did not involve a forced sale of stock. Judge Ward’s denial of standing to the plain- tiff in Crane Co. v. American Standard, Inc., 439 F. Supp. 945 (S.D.N.Y. 1977), was based on his conclusion that the expressly limited holding of Piper v. Chris-Craft Industries, Inc., supra, 480 U.S. at 42, n.28, precluded the maintenance of a Rule 10b-5 action 46a Appendia L “substantial ground for difference of opinion,” 28 U.S.C. § 1292(b), concerning our adherence to the forced seller doctrine. We also reject defendants’ argument that our opinion abandons the “in connection with” requirement of Section 10(b) and Rule 10b-5. That argument rests on the premise that the Westates redemption could not have been accom- plished without board and shareholder approval and the negotiation of a purchase agreement. Fraud may be “in connection with” a forced sale of securities, however, even though the two are separated by intermediate steps.** The connection requirement is satisfied if the fraud “touches” the sale.*® Plaintiff here has alleged that defendants’ fraud was in furtherance of their conspiracy to effect Westates’ dissolution and wrongfully to profit from the resulting stock redemption. The fraud thus may be “intrinsic to the securities transaction itself.”** Defendants, therefore, by a “defeated contestant in a takeover battle.” Crane Co. v. American Standard, Inc., supra, 439 F. Supp. at 953. Plaintiff, here, however, is a shareholder who might be able to prove himself a “hoodwinked investor” with standing under Section 10(b). Piper v. Chris-Craft Industries, Inc., supra, 430 U.S. at 45. Moreover, Westates’ stock redemption is an “objectively demonstrable fact,” Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 747, that allows plaintiff to avoid the proof of causation problems faced by Crane Co. See Crane Co. v. American Standard, Inc., supra, 439 F. Supp. at 955. 24 Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 795- 798 (2d Cir. 1969), cert. denied, 400 U.S. 822 (1970); Vine v. Beneficial Finance Co., 374 F.2d 627, 635 (2d Cir.), cert. denied, 389 U.S. 970 (1967). 25 Superintendent of Insurance v. Bankers Life & Cas. Co., supra, 404 U.S. at 12-13. 26 Rich v. Touche Ross & Co., supra, 415 F. Supp. at 100. See also Drachman v. Harvey, 453 F.2d 722 (2d Cir. 1972) (en banc) ; Houlihan v. Anderson-Stokes, Inc., supra. Cf. Ketchum v. Green, 47a Appendix L have not shown that there is “substantial ground for differ- ence of opinion” concerning our conclusion that the alleged fraud may be proved to be “in connection with” the West- ates redemption. Accordingly, defendants’ motions for certification pursu- ant to 28 U.S.C. § 1292(b) are denied. Defendants’ motions for reargument of their motion to dismiss the complaint are granted. Upon reargument, we grant the motion to dismiss plaintiff’s Section 13 and Regulation 13) claims pursuant to Rule 12(b)(6), Fed.R.Civ.P., but otherwise adhere to our opinion and order dated January 6, 1978. Plaintiff is granted leave to file and serve within twenty (20) days an amended complaint alleging a claim under Section 18," if plaintiff is so advised. So ordered. Dated: New York, N. Y. March 22, 1978 /s/ Luoyp F. MacManon Lloyd F. MacMahon United States District Judge 557 F.2d 1022 (3d Cir.), cert. denied, 46 U.S.L.W. 3306 (U.S. Nov. 8, 1977) (fraud was in connection with internal management dispute rather than securities transaction). 27 We doubt that plaintiff can meet Section 18’s requirements. He stated in his deposition that he had not read the disputed Schedules 13D. Moreover, his assertion that defendants’ wrongful profits would have gone to the Westates shareholders absent de- fendants’ fraud does not satisfy Section 18’s requirement that defendants’ fraud have affected the sale price of plaintiff's stock. See Rich v. Touche Ross & Co., supra, 415 F. Supp. at 102-104. Leave to amend is granted, however, because we cannot conclude as a matter of law that plaintiff is unable to allege a valid Section 18 claim. 48a Appendix M UNITED STATES DISTRICT COURT SoutHERN District or New YorK 77 Civ. 2110 (LFM) SAMUEL WEISMAN, on behalf of himself and all others similarly situated, Plaintiff, —against— Grorce J. Darnemiz, F. Arnotp Daum, Atex W. Heap, Joun. P. Ont, I. L. Vosko, Beaumont DEVELOPMENT Corporation and Wesster Securities LIMitTeD, Defendants. APPEARANCES: Cahill Gordon & Reindel Attorneys for defendants Darneille, Daum, Head and Beaumont Development Corporation 80 Pine Street New York, N. Y. 10005 Se By: Thomas F. Curnin, Esq. Bernstein & Kirby Attorneys for Plaintiff 41 East 42nd Street New York, N. Y. 10017 By: Roger W. Kirby, Esq. 49a Appendix M MacManon, District Judge. Defendants move to dismiss this action for lack of sub- ject matter jurisdiction, Rule 12(b)(1), Fed.R.Civ.P., and for failure to state a claim upon which relief ean be granted, Rule 12(b)(6), Fed.R.Civ.P. Construing the complaint favorably to plaintiff,’ we ac- cept as true the following allegations :? Samuel Weisman owned 100 shares of Westates Pe- troleum Company (“Westates”) from sometime prior to August 9, 1974, continuously to the company’s liquidation. Defendants (c2rtain officers and directors of Westates and other individuals) had learned that Westates’ stock was substantially undervalued in the dfen market and that it would bring a higher price upon the company’s liquidation. They also had learned, through the use of inside and non- public information, that Westates might seek liquidation. Pursuant to a conspiracy to influence the company to sell its assets and dissolve, defendants purchased Westates stock in the open market at an average price of $3.24 per share from August 9, 1974 through January 1, 1975. Seven weeks after these purchases had been made, Westates pub- licly invited offers to purchase its assets. With the ap- proval of the stockholders, a sale of substantially all of the company’s assets was consummated on January 21, 1977. As a concomitant of the sale, Westates would re- deem all of its stock for approximately $10.70 to $11.10 per share. Defendants would thus net a wrongful profit of $2,251,735.00 as a result of the differential between the 1 Scheur v. Rhodes, 416 U.S. 232 (1974). 2 Murray v. City of Milford, 380 F.2d 468 (2d Cir. 1967); Sha- piro v. Merrill Lynch, Pierce, Fenner & Smith Inc., 353 F. Supp. 264 (S.D.N.Y. 1972). 50a Appendix M market and redemption values of their August 9, 1974 through January 1, 1975 stock purchases. Plaintiff brought this direct action on behalf of himself and all other Westates shareholders (excluding defendants) entitled to share in the proceeds of the company’s liquida- tion.? The complaint seeks damages for alleged violations of Sections 10(b)* and 13° of the Securities Exchange Act of 1934 and of Rule 10b-5*° and Regulation 13D’ promul- gated thereunder. Plaintiff also asserts claims for breach of fiduciary duty by the Westates directors and officers and for fraud. Defendants’ challenge to our subject matter jurisdiction is unpersuasive. Plaintiff alleges violations of the federal securities laws, and the allegations are not “insubstantial, implausible . . . or otherwise devoid of merit.” * We there- fore have jurisdiction to determine whether those allega- tions state a claim upon which relief can be granted.* More- over, the federal and state law claims are so closely related to a “common nucleus of operative fact” that plaintiff “would ordinarily be expected to try them all in one judi- cial proceeding.” ’° We may therefore exercise our pendent * The suit has not been certified as a class action. See Rule 23(c), Fed.R.Civ.P. 415 U.S.C. § 78j(b). 515 U.S.C. § 78m. 617 C.F.R. § 240.10b-5. 717 C.FR. §§ 240.13d-1—240.13d-4. 8 Hagans v. Lavine, 415 U.S. 528, 543 (1974). * Levin v. Great Western Sugar Co., 406 F.2d 1112 (3d Cir. 1969) ; Rosen v. Albern Color Research, Inc., 218 F. Supp. 473 (E.D. Pa. 1963). See Romero v. International Terminal Operating Co., 358 U.S. 354, 359 (1959). 1° United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). ola Appendix M jurisdiction over plaintiff’s common law fraud and fidu- ciary claims. Reaching this conclusion, we address defendants’ Rule 12(b)(6) motion. We reject the motion outright insofar as it attacks the complaint’s allegations of damages, causation and scienter. The allegations of each are sufficient to allow proof of facts entitling plaintiff to relief.‘ Defendants’ attacks on plaintiff’s standing, however, are substantial and merit discussion. Defendants argue that plaintiff did not sell or purchase Westates stock “in connection with” their alleged decep- tion, and that he consequently lacks standing to bring a damages action under Section 10(b) or Rule 10b-5," or under Section 13(d) or Regulation 13D."* Plaintiff admits that he owned his Westates stock “prior to August 9, 1974 continuously to the date of dissolution and liquidation of Westates,” ** but advances numerous arguments in support of his standing. We conclude that plaintiff may be able to prove himself a “forced seller” within the meaning of Vine v. Beneficial Finance Co., 374 F.2d 627 (2d Cir.), cert. de- mied, 389 U.S. 970 (1967), and Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir. 1969), cert. denied, 400 U.S. 822 (1970), and therefore do not discuss his other contentions. 11 See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). 12 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). 13 Myers v. American Leisure Time Enterprise, Inc., 402 F. Supp. 213 (S.D.N.Y. 1975), aff'd without opinion, 538 F.2d 312 (2d Cir. 1976) ; In re Penn Central Securities Litigation, 494 F.2d 528 (3d Cir. 1974). Cf., GAF v. Milstein, 453 F.2d 709 (2d Cir. 1971), cert. denied, 406 U.S. 910 (1972) (purchaser/seller status not required in an action seeking only injunctive relief). 14 Complaint f 8. 52a Appendix M Defendants argue that Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), has vitiated the holdings of Vime and Crane. Vine and Crane established that stock- holders forced to sell their shares as an indirect result of the defendant’s fraud or illegal manipulation have stand- ing to maintain a Section 10(b) action. Those forced seller cases accordingly define, rather than reject, the purchaser/ seller requirement announced in Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956 (1952), and adopted in Blue Chip Stamps.* Indeed, language in Blue Chips Stamps suggests approval of the forced seller doctrine.’* Vine and Crane thus remain viable interpretations of the purchaser/seller requirement.”” Defendants attempt to distinguish the forced seller cases from the present action by arguing that their ownership of only 6% of Westates stock at the time of the sale dem- onstrates that they could not have compelled the sale and stock exchange."* Plaintiff, however, may be able to show that defendants’ control of other stock made approval of the merger a certainty or that defendants fraud precluded plaintiff’s ability effectively to oppose the sale. A show- ing of either would be sufficient to establish plaintiff’s | 165See Judge Hufstedler’s dissent in Manor Drug Stores v. Blue Chip Stamps, 492 F.2d 136, 144-45 n.4 (9th Cir. 1973). 16 See Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 733. 17 See Note, Standing Under Rule 10b-5 After Blue Chip Stamps, 75 Michigan L. Rev. 413 (1976). 18 We note that the Crane defendant owned approximately 10% of the stock there. Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 792-93 (2d Cir. 1969), cert. denied, 400 U.S. 822 (1970). 53a Appendix M standing to maintain his Section 10(b) or Rule 10b-5 claims.’® Plaintiff also may be able to prove facts sufficient to support his standing under Section 13(d) and Regulation 13D. Section 13(d) implies no private cause of action for damages.” Plaintiff must therefore meet the pur- chaser/seller requirement of Section 18.21 Our research has disclosed no decision applying the forced seller doc- trine to a Section 18 damages action. However, the intent of Congress to afford broad disclosure of material infor- mation to investors through Section 13(d) filings*® is best served by applying to Section 18 the broad definition of “sale” and “purchase” applicablz to a Section 10(b) action. Stockholders forced to sell their holdings pursuant to a corporate merger obtained through the filing of a fraudu- lent Schedule 13D suffer harm within the contemplation of Section 18. Such stockholders should have standing to invoke the protection of that section. Plaintiff may be able to prove that stockholder approval of the Westates sale was obtained by defendants’ deception, and that the deception affected the price of the stock. Such proof, coupled with the forced sale of his stock, will be sufficient to give him standing to maintain his Section 13(d) and Regulation 13D claims. The possibility of plaintiff’s prov- ing himself a “forced seller,” thus, precludes our dismiss- 19 See Vine v. Beneficial Finance Co., 374 F.2d 627, 635 (2d Cir.), cert. denied, 389 U.S. 970 (1967), and Crane Co. v. Westinghouse Air Brake Co., supra, 419 F.2d at 795-98. 20 Myers v. American Leisure Time Enterprise, Inc., supva. 2115 U.S.C. § 78r. 22 See, e.g., H.R. Rep. No. 1711, 90th Cong., 2d Sess., reprinted in 1968 U.S. Code Cong. & Admin. News 2811-2819. o4a Appendix M ing any of his federal securities laws claims for lack of standing. Accordingly, defendants’ motion under Rules 12(b) (1) and 12(b)(6), Fed.R.Civ.P., is denied. So ordered. Dated: New York, N. Y. January 6, 1978 /s/ Liuoyp F. MacManon Lloyd F. MacMahon United States District Judge --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2327%3A1. Public record. Not legal advice.