Appeal from the United States District Court for the Southern District of New York, Constance Baker Motley, Judge. David Becker and Margaret B. Ledder appeal from the district court's denial of class action certification pursuant to Federal Rule of Civil Procedure 23. Affirmed.
Van Graafeiland, Circuit Judge, and Mehrtens*fn* and Pierce,*fn** District Judges.
MEHRTENS, District Judge:
Plaintiffs appeal, alleging abuse of judicial discretion in the denial of their motion for class action certification. We affirm the decision of the district judge.
The plaintiffs are former minority shareholders of BHM Industries, Inc., and instituted this action under the federal securities laws with respect to a December 1969 merger of BHM and its controlling shareholder, Schenley Industries, Inc., by which plaintiffs' BHM stock was converted into Schenley preferred stock. The defendants are Schenley, its then parent, Glen Alden Corporation, and Glen Alden's then parent, Rapid-American Corporation. The claim was that the merger proxy statement was false and misleading and was utilized by defendants to acquire BHM minority stock at less than its true value.
Prior to the institution of this action, a series of actions had been commenced in the United States District Court for the Southern District of New York and had been consolidated under the title of Dorothy L. Cole, et al. v. Schenley Industries, Inc., et al. The Cole complaint named as defendants, inter alia, Schenley, Glen Alden and Rapid. It dealt in large part with a 1971 merger involving Schenley and Glen Alden, but also contained substantial claims relating to the prior 1969 BHM-Schenley merger, including particularly the claim that the 1969 merger proxy statement was false and misleading.
This claim - that the proxy statement failed to disclose "that a ready market existed for the sale of the shares at a price substantially higher than their book value as reflected on the books of Schenley and Buckingham" (BHM) - was virtually identical to the basic claim made in the present case, that the same proxy statement was false and misleading in that it misrepresented the true value of BHM and therefore the value of the stock owned by its minority shareholders.
In May of 1973, the Cole case was declared to be a class action on behalf of all persons who held Schenley stock at the time of the announcement of the 1971 merger. This class necessarily included the plaintiffs in this case, who had received Schenley preferred stock in the 1969 merger and retained such stock until the 1971 merger.
The case sub judice was initiated in the United States District Court for the Northern District of Illinois in December, 1971, after both the 1969 and 1971 mergers were consummated. On motion of defendants, it was transferred to the United States District Court for the Southern District of New York in part "because there are pending cases [the Cole cases] in that district involving similar issues of fact and law. . . ." The record does not reveal any attempt by the plaintiffs to seek mandamus or to obtain a certification under 28 USC § 1292(b) for purposes of appealing the transfer.
When, after the transfer, the initial application was made in 1972 to have the action declared a class action, plaintiffs were advised that the same claims about the 1969 proxy statement were being made in the Cole case. In 1974, when the plaintiffs renewed their class action application - after the Cole case had been designated as a class action - the court suggested that they intervene in Cole. The plaintiffs declined to do so.
In October, 1975, plaintiffs' renewed class action application was denied (20 F.R. Serv.2d 1255 [S.D.N.Y. 1975]), the court finding that "paragraphs 22(b) and 32(b) of the amended complaint in Cole make clear that, as here, the BHM-Schenley merger and proxy statement are in issue in Cole." Thus, she held that "Since class action status has already been granted in Cole (60 F.R.D. 81 [S.D.N.Y.]), the court concludes that the maintenance of the instant case as a class action would be duplicative and inconsistent with the objectives of Fed.R.Civ.P. 23(b)(3)."
The court noted further that under Rule 23(b)(3), a class action can be maintained only "when the court is satisfied that 'a class action is superior to other available methods for the fair and efficient adjudication of the controversy'", and that the Rule specifically enumerated, as one of the factors to be considered in this regard, "the extent and nature of any litigation concerning the controversy already commenced by or against members of the class." The court, considering this factor, concluded that "a class action would not be the superior method of resolving the instant case."
Despite an explicit invitation by the court, plaintiffs again declined to seek intervention in Cole, and that case proceeded to trial without them in October, 1975. After a two-week trial, a decision in favor of the defendants was rendered in the Cole case in November 1976. In that decision, Count I of the Cole complaint, which included the aforementioned claims relating to the 1969 merger and proxy statement, was "dismissed for failure of proof."
In January 1977, the defendants here were granted summary judgment after having tendered to ...