# Opposition — Darneille v. Caro

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition
- **Published:** January 1, 1980
- **Citation:** 449 U.S. 825

## Text

| 79-1736 JUN 25 1980

WICHAEL RODAK, JR., CLERM

IN THE

Supreme Court of the United States

OCTOBER TERM, 1979
No. 1736

+
os

Georce J. Darneize et al,

Petitioners,
v.

MicHaen Caro,
Respondent.

—————_————————
BRIEF FOR RESPONDENT IN OPPOSITION
Le

Invincg MaLcHMAN

Attorney for Respondent

41 East 42nd Street

New York, New York 10017
(212) 682-7100

Of Counsel:

Rocer W. Kirsy

KaurMmMan TayLtor KIMMEL
& MiLer

Attorneys for Respondent

June 23, 1980

TABLE OF CONTENTS

PAGE
PRET cceeSeees she eee eee eco esees 3
REASONS FOR DENYING THE WRIT

I-The Time In Which To Review
The Correctness Of The Court
Of Appeals Prior Orders Of
January 17, 1979 and March 7,
1979 (Holding That The
Voluntary Dismissal Of The
Original Plaintiff's Appeal
Would Be Without Prejudice To
The Right Of Another
Plaintiff To Enter The Suit
Within Thirty Days) Has
MAEMO c ca ccecesrecicveccosece 10

II-In The Particular Circumstances,
It Was An Entirely Proper
Exercise Of Discretion For
The Court Of Appeals’ To
Permit Intervention By
Another Member Of The Class.

In Any Event, Such Particular
Exercise Of Discretion In A

Unique And Non-Recurring
Factual Situation Does Not
Warrant Review By This
COUT ee ccc ccc rcccccccecscccoes 13

Che oak 6 oa 06 'b 8 6800 06 6 be 17

ii
TABLE OF CASES

PAGE

Deposit Guaranty National
Bank v. Roper, 100 S.Ct.
A166 (L9GO) .ccccccccess evccecs eee 13, 14

Hamilton-Brown Shoe Co. v.
Wolf Brothers, 240 U.S.
251i, 257-258 @4 20 ) Pee eeeree 13

Hanover Shoe, Inc. v. United
States Shoe Machinery Co.,
392 U.S. 481, 488 n.6
(1968) ..0.. eceseocers TEETETTET 13

Mercer v. Theriot, 377 U.S.
152° 153-154 (1964) eeeeveeveee eeee 13

Philadelphia Electric Co.
v. Anaconda American
Brass Co., 43 F.R.D. 452,
460-61 (E.D. Pa. 1968)...... even 2a

Rothman v. Gould, 52 F.R.D.
Se Cie ts ROEM s Cee hoe KR o4 08 15

Shelton v. Pargo, Inc., 582
F.2d 1298, 1304-16 (4th
op Oo 1978) eeee#es eeeree#ee#egee#ese#ee#e#ee#8e#8##e#*¢ 15

Toledo Scale Co. v. Computing
Scale Co., 261 U.S. 399,
BB. (A923) cccccccvcccs os eee od coer a3

United Airlines, Inc. v.
McDonald, 432 U.S. 385,
0 es oe A ee .a 15

iii

STATUTES AND RULES CITED

Federal Rules of Appellate
Procedure Rule 42(b).......-. cose 15

Federal Rules of Civil

Procedure
DUIS ZSo cvccscovsicreseseveseieens 14
ye a) rere ee rarr ae te yy 10

Securities Exchange Act of 1934
Section 10(D) ..cccccccvccccccces 2
Section 13(d) wcccccccssvescceses 2,
Regulation lOD-5... cece ceececes 2
Regulation 13.....ceeeeeeecesees 2
28 U.S.C. $1292 (BD) -cccccccccccccsecs 3

OTHER AUTHORITIES
Note, "Developments-Class Actions",

89 Harvard Law Review
1318, 21546 (€1976) ci ceccccuccccess Me

IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1979
No. 1736

GEORGE J. DARNEILLE et al.,

Petitioners,
Vv.

MICHAEL CARO,

Respondent.

BRIEF FOR RESPONDENT IN OPPOSITION

Statement

Petitioners herein (hereinafter
"defendants") seek a writ of certiorari
to review an interlocutory order of the
United States Court of Appeals for the
Second Circuit dated January 9, 1980
(la*) holding that the District Court,

* References to "a" are to the
Appendix to the petition for certiorari.

2

had violated the mandate of the Court of
Appeals (4a) as embodied in the Court of
Appeals prior interlocutory orders of
January 17, 1979 (14a) and March 7, 1979
(16a) in denying respondent's motion for
intervention in this federal securities
class action, . Defendants seek to
review the correctness of the Court of
Appeals' orders of January 17, 1979 and
March 7, 1979, though the time in which
to file a petition for certiorari to
review those orders has long. since
expired.

This action is brought as a class
action upon behalf of all persons who
owned the common. stock of Westates
Petroleum Corporation ("Westates") on
February 1, 1977, the record date for
determining the shareholders of
Westates who were entitled to share in
the proceeds of the liquidation of
Westates. The common stock of Westates
had been listed and traded on the
American Stock Exchange. The complaint
alleges violations of Sections 10(b)
and 13(d) of the Securities Exchange
Act of 1934 and Regulations 10b-5 and 13
thereunder, as well as a pendent claim
for common law breach of fiduciary
duty.

In essence, the complaint alleges a
scheme by the defendants (officers and
directors of Westates and tippees
acting in concert with them) to
purchase the common stock of Westates
upon the open market with the inside
information that Westates would be
liquidated at a much higher price per
Share of common stock. A mere seven

3

weeks after defendants had completed
purchasing 293,000 shares of Westates
stock at an average price of $3.24 per
share, Westates publicly invited offers
to buy substantially all of its assets
and thereafter Westates liquidated at
between $10.70 and $11.10 per share.
The profits realized by the defendants
through this fraudulent scheme were at
least $2,251,735.

The complaint’ seeks, in effect,
disgorgement by defendants of their
illegal profits to the thousands of
other persons who, exclusive of
defendants, owned Westates common stock
as of the record date for sharing in the
proceeds of Westates' liquidation.
Since all such stockholders of Westates
are similarly situated and since all
question of law and fact are common to
them, this iS a paradigmatic class
action.

In an opinion dated January 6, 1978
(48a), the District Court found that
the complaint stated a cause of action
under Sections 10(b) and 13(d) of the
1934 Act and denied the motion to
dismiss the complaint. Respecting
Section 10b, the District Court
determined that plaintiff and the other
members of the class were "forced
sellers". -

Thereafter, certain of the
defendants moved for reargument or,
alternatively, for certification,

pursuant to 28 U.S.C. §1292(b), of the
Order denying the motion to dismiss. In
an opinion dated March 22, 1978 (37a),
the District Court denied certification

4

Or reargument, except that the District
Court dismissed the Section 13(d)
claim.

However, the motion of plaintiff,
Samuel Weisman, for class certification
was denied by the District Court by
opinion dated April 19, 1978 (32a) upon
the ground that plaintiff was an
inadequate class representative.
Defendants thereafter tendered
plaintiff Weisman his individual
damages of $271.40 (inclusive of costs)
which tender was not accepted by
plaintiff. Instead, plaintiff continued
to litigate the action and sought to
commence discovery by moving for the
production of documents (23a-24a, 30a-
3la). Defendants then moved to dismiss
the action as moot. By opinion dated
July 14, 1978 (19a), the District Court
held that the action and also
Plaintiff's motion for production of
documents were moot- and judgment
dismissing the action as moot’ was
entered on July 27, 1978 (18a).

Plaintiff Weisman then appealed to
the Court of Appeals and briefs were
filed and oral argument duly had. The
question whether defendants’ could,
after denial of class certification,
moot this action by tendering Weisman
his individual damages of $271.40
(inclusive of costs) was fully briefed
and argued before the Court of Appeals
upon plaint: ff Weisman's appeal (Docket
No. 78-7422) from the judgment of the
District Court dismissing this action
as moot.

2

In addition to arguing that
defendants could not moot this class
action by tendering plaintiff Weisman
his individual damages, plaintiff
further argued in his briefs that the
decision of the District Court denying
class certification upon the ground
that plaintiff was an inadequate class
representative was erroneous and that,
in any event, provision should be made
for protection of the class by notice to
the class members (pl's brief, pp. 52-
54; pl's reply brief, pp. 25-27). In
this connection, plaintiff emphasized
that defendants' answers in this action
pleaded the defense of the statute of
limitations (pl's reply brief, pp. 8-9,
26). Defendants' brief (pp. 41-44)
opposed the giving of any notice to the
members of the class.

Subsequent to oral argument,
plaintiff Weisman, aged 77, requested
that the appeal be dismissed because of
the critical illness of himself and his
wife.* By order dated January 17, 1979
(14a) which was subsequently filed in
the District Court as the mandate, the
Court of Appeals dismissed the appeal,
with, however, the express proviso that
the “order [of dismissal] shall not
prejudice the right of another
plaintiff to enter the suit within 30
days." The Court of Appeals' order of
January 17, 1979 reads as follows:

*The letter of plaintiff's counsel
to the Court of Appeals (which enclosed
letters from plaintiff and plaintiff's
son) are set forth at pp. 57-59 of the
Joint Appendix in the Court of Appeal~.

6

"Appeal from the United
States District Court for the
Southern District of New York.

This cause came on to be
heard on the transcript of
record from the United States
District Court for the Southern
District of New York, and was
argued by counsel.

ON CONSIDERATION WHEREOF, 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”
(emphasis supplied).

On February 2, 1979 respondent,
Michael Caro, a mémber of the class,
moved to intervene in this’ action
pursuant to the leave’ specifically
granted in the Court of Appeals order of
January 17, 1979 (3a). Certain
defendants then moved in the Court of
Appeals on February 15, 1979 (3a, 16a)
for "modification of panel order" upon
the ground that, upon the withdrawal of
Weisman, the sole plaintiff-appellant,
no case or controversy existed which
would support intervention and that
accordingly the Court of Appeals order
of January 17, 1979 should be modified

7

to provide that the order was without
prejudice to the right of another
plaintiff to file suit based upon the
same facts.

By letter dated February 20, 1979,
plaintiff's counsel advised the Court
of Appeals that it was not filing an
answer to defendants' motion for
"modification" because it was in
reality an untimely petition for
rehearing. Defendants then moved the
Court of Appeals by motion dated
February 21, 1979 to have its motion for
"modification" be "deemed to be a
timely motion- for reconsideration,
should the Court deem that to be
appropriate". By order dated March 7,
1979, the Court of Appeals’ granted
defendants' motion to have its motion
for “modification" be deemed to be a
timely motion for reconsideration. By
separate order also dated March 7, 1979
(16a), the Court of Appeals denied
defendants’ motion to modify its order
of January 17, 1979 permitting
intervention by another member of the
class within 30 days, stating as
follows:

"It is hereby ordered that the
motion made herein by counsel
for the appellees Darneille and
Daum 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, ' 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) ."

Notwithstanding the Court of Appeals
express decisions (set forth in its
orders of January 17, 1979 and March 7,
1979) specifically rejecting defendants'
contentions that no case or controvery
existed because of plaintiff Weisman's
withdrawal of his appeal and
specifically permitting intervention by
another member of the class, the
District Court denied the motion by
respondent, Michael Caro, a member of
the class, for intervention upon the
ground that there is "no action
pending". The memo endorsement of the
District Court, dated March 14, 1979
(9a), denying intervention reads 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
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

9

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. Vv.
McDonald, 432 U.S., 385 (1977),
1s not applicable.

So ordered."

By petition dated April 10, 1979,
respondent Caro filed in the Court of
Appeals an application for a writ of
mandamus to compel obedience to the
mandate of the Court permitting timely
intervention in this class action by
another member of the class. Caro also
filed a notice of appeal from the order
of the District Court denying
intervention out of an abundance of
caution as a safeguard against’ the
contingency that the petition for
mandamus might fail. Defendants
opposed appellant's petition for
mandamus upon the ground, inter alia,
that mandamus will not issue where an
appeal lies. By order dated June 8,
1979, the Court denied appellant Caro's
petition for mandamus and_— granted
Caro's motion to reinstate this appeal
which had been dismissed for failure to
perfect it.

After oral argument was duly had
upon respondent Caro's appeal from the
order of the District Court denying his
motion for intervention, the Court of
Appeals, by order dated January 9, 1980
(la), reversed the District Court's
order of denial and remanded the matter
to the District Court with instructions
to consider the application of Caro for

10

intervention in accordance with the
provisions of Rule 24 of the Federal
Rules of Civil Procedure. The express
ground for the Court of Appeals
reversal of the District Court was that
"the district court has’ failed to
comply with the mandate of this Court",
as embodied in the Court of Appeals
prior orders of January 17, 1979
(dismissing plaintiff Weisman's appeal
without prejudice to the right of
another plaintiff to enter the suit
within thirty days) and of March 7, 1979
(denying defendants' motion for
modification of such order of January
Av, &979) Finally, by order dated
February 27, 1980 (6a, 8a), the Court of
Appeals denied defendants' petition for
rehearing and rehearing in banc.

Reasons for Denying the Writ
I

The Time In Which To File A
Petition For Certiorari To
Review The Correctness Of
The Court Of Appeals Prior
Orders Of January 17, 1979
And March 7, 1979 (Holding
That The Voluntary Dismissal
Of The Original Plaintiff's
Appeal Would Be Without
Prejudice To The Right Of.
Another Plaintiff To Enter.
The Suit Within Thirty Days)
Has Expired.

It is clear beyond cavil that, in
denying respondent Caro's motion for
intervention upon the ground that there
is "no action’ pending" (9a), the
District Court had not followed the
mandate of the Court of Appeals as

1l

embodied in the Court of Appeals'
orders of January 17, 1979 and March 7,
1979. The Court of Appeals prior order
of Janua 17, 1979 specifically stated
that thé “order [of dismissal] shall
not prejudice the right of another
Plaintiff to enter the suit within 30
days" (15a); and in its order of March
7, 1979 denying defendants motion for
reargument, the Court’ of Appeals
further specifically stated that,
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 (16a-17a).

These orders of the Court of Appeals
Clearly ruled that this action is
sufficiently alive to permit timely
intervention by another member of the
Class and the District Court in effect
purported to overrule these orders by

denying a timely motion for
intervention upon the ground there is
"no action pending". The District

Court was obliged to obey the mandate of
the Court of Appeals whether it was
right or wrong.

The Court of Appeals' order dated
January 9, 1980 did not decide to permit
intervention by another member of the
class. That decision had already been
made in the Court of Appeals prior
orders of January 17, 1979 and March 7,
1979 (which defendants did not seek a
writ of certiorari to review).

Instead, the order of January 9,
1980 explicitly reversed the District
Court for failure to comply with the

12

Court of Appeals' mandate. "Because
the district court has failed to comply
with the mandate of this Court, we
reverse." (4a) The remainder of the
Court of Appeals order of January 9,
1980 (4a-5a) merely explains the
rationale of its prior orders’ of
January 17, 1979 and March 7, 1979
permitting intervention.

The only person with standing to
appeal the District Court's’ order
denying class certification upon the
ground that plaintiff Weisman was, for
reasons personal to Weisman, an
inadequate class representative was
Weisman himself. For this reason, the
Court of Appeals prior orders of
January 17, 1979 and March 7, 1979 did
not permit intervention for the purpose
of prosecuting plaintiff Weisman's
appeal but instead dismissed the appeal
without prejudice to the right of
another plaintiff to enter the suit
within thirty days.

Since the order of January 9, 1980,
holding that the District Court had
violated the Court of Appeals' mandate
is manifestly correct and since the
time in which petition for certiorari
to review the prior orders of January
17, 1979 and March 7, 1979 has long
Since expired, no basis whatsoever
exists for the issuance of a writ of
certiorari by this Court. When and if a
final judgment adverse to defendants is
entered in the District Court and is
affirmed by the Court of Appeals,
defendants may, if they are then so
advised, challenge the correctness of
the Court of Appeals prior

13

interlocutory orders of January 17,
1979 and March 7, 1979 (permitting
intervention by another member of the
class) upon petition for certiorari to
this Court for review of such final
judgment. Hanover Shoe, Inc. v. United
States Shoe Machinery Co., 392 U.S.
481, 488, n.6 (1968); Mercer v.
Theriot, 377 U.S. 152, 153-154 (1964);
Toledo Scale Co. v. Computing Scale
Co., 261 U.S. 399, 418 (1923);
Hamilton-Brown Shoe Co. Vv. wolf
Brothers, 240 U.S. 251, 257-258 (1916).

II
In The Particular Circumstances, It
Was An Entirely Proper Exercise Of
Discretion For The Court Of Appeals
To Permit Intervention By Another
Member Of The Class. In Any Event,
Such Particular Exercise Of Discretion
In A Unique And Non-Recurring Factual
Situation Does Not Warrant Review
By This Court

The Court of Appeals orders of
January 17, 1979 and March 7, 1979,
permitting intervention by another
member of the class, represents, in the
particular circumstances in which they
were entered, an entirely proper
exercise of discretion.

The prior orders of January 17, 1979
and March 7, 1979 correctly anticipated
this Court's subsequent decision in
Deposit Guaranty National Bank vv.
Roper, 100 S.Ct. 1166 (1980), holding
that defendants could not moot a class
action, after denial of class
certification by the District Court, by
tendering the named class

14

representative (Weisman) his individual
damages where, as here, the named class
representative refused to accept such
tender of individual damages. Instead,
plaintiff Weisman continued to litigate
this action, making, for example, a
motion for production of documents and
arguing strenuously that a dismissal
for mootness would undermine the
policies behind Rule 23 Fed. R. Civ. P.
(23a-24a); and when the District Court
dismissed the action for mootness,
Weisman appealed such dismissal to the
Court of Appeals.

However, after oral argument,
Weisman, aged 77, requested that the
appeal be dismissed because of the
Critical illness of himself and his
wife. At that point, the Court of
Appeals was confronted with the
question of what, if anything, should
be done to protect the interests of
absent class members, particularly in
view of the statute of limitations
problems involved (4a). The action was
not mooted by defendants' tender of
individual damages because, as stated,
plaintiff Weisman had not, and has
never, accepted such tender. Plaintiff
Weisman desired to discontinue as the
representative of the class because of
the critical illness of himself and his
wife. Plaintiff Weisman's desire to
discontinue was thus completely
unrelated to defendants' tender of
individual damages and therefore this
action is controlled by this Court's
decision in Deposit Guaranty National
Bank v. Roper, supra.

15

In these circumstances, it was not
an abuse of discretion for the Court of
Appeals to condition the voluntary
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. Rule 42(b) of the
Federal Rules of Appellate. Procedure
specifically provides that the..Court
may fix terms or conditions’ for
voluntary dismissal by an appellant.
See, in this connection, the decisions
cited by the Court of Appeals in its
Order of Janaury 9, 1980, namely,
United Airlines, Inc. v. McDonald, 432
U.s. 385, 392 (1977) (permitting
intervention by another class member

where, after Genial of €lass
certification, the named class represen-
tatives settled their individual

Claims, after which a judgment of
dismissal was entered); Shelton v.
Pargo, Inc., 582 F.2d 1298, 1304-16
(4th Cir. 1978) (district court may, in
its discretion, require notice to
absent putative class members if it
determines proposed settlement of
individual claims of named class
representatives prior to class
certification is collusive Or
prejudicial); Rothman v. Gould, 52
P.B.0; 494 (8.0.8s3. 1972) (notice
required to be given to absent members
of putative class where named class
representative settled his individual
Claim before class’ certification) ;
Philadelphia Electric Co. v. Anaconda
American Brass Co., 43 F.R.D. 452, 460-
61 (E.D. Pa. 1968) (because class
certification has been denied "it does
»- « »« not follow that the case must

16

be treated as if there never was an
action brought on behalf of absent
Class members"). See, additionally,
Note, "Developments - Class Actions",
89 Harvard Law Review 1318, 1546 (1976)
("where dismissal is based on a problem
of inadequacy of representation which a
different plaintiff might be able to
correct, notice should normally be
Ordered to protect possible reliance.")
(emphasis supplied).

Here, the Court of Appeals did not
require, or even permit, notice to
absent class members. Instead, the
Court of Appeals took the more modest
step of merely permitting timely
intervention by another class member.
Such exercise of discretion, in the
particular circumstances, certainly was
not arbitrary or capricious. In any
event, such an exercise of discretion
in a unique and non-recurring factual
Situation plainly does not’ warrant
review by this Court.

17

CONCLUSION

For the foregoing reasons, it is respect-
fully submitted that the petition for certiorari
should be denied.

~Dated: June 23, 1980
Respectfully submitted,

IRVING MALCHMAN

Attorney for Respondent
41 East 42nd Street

New York, New York 10017

(212) 682-7100

Dated: June 23, 1980

Of Counsel:

ROGER W. KIRBY
KAUFMAN TAYLOR KIMMEL & MILLER

Attorneys for Respondent

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2327%3A2. Public record. Not legal advice.