The opinion of the court was delivered by: LORD
The defendants presently before the Court comprise all captioned defendants except Vivian Holden. As to the latter, there has been no entry of appearance nor, apparently, service of process.
The thirteen defendants who have made the various motions at hand consist of four groups to be described below.
Lucid exposition of the several motions of defendants requires a preliminary outline of plaintiffs' complaint. Filed September 16, 1960, this unverified complaint consists of 18 numbered paragraphs and a prayer for judgment, as follows:
'1. Herman Newberg and Yetta Newberg, plaintiffs, are shareholders of American Dryer Corporation, having purchased 50 shares of the capital stock of the corporation on or about November 13, 1959.
In paragraphs 3 through 12, ten of the defendants are briefly identified as follows (for this purpose, corporations described in the complaint as 'organized under the laws of the Commonwealth of Pennsylvania' are here called simply 'Pennsylvania corporations'):
American Dryer Corporation is a Pennsylvania corporation; William F. Kane is its president and is a controlling stockholder; Jacob Corson is sales manager; and Vivian Holden is a major stockholder.
Delaware Valley Financial Corporation is a Pennsylvania corporation, and J. Myron Honigman is its president.
Citizens & Southern Bank is a Pennsylvania state banking corporation, and Myron Freudberg is president.
Robinson & Co., Inc. is a Pennsylvania corporation engaged in business as a security broker and dealer, and Frank Brodsky is employed by it as a salesman.
Further (the complaint continues):
'13. The other defendants are officers, directors or persons in control of American Dryer Corporation, or persons who are nominees of or under control of the defendants specified in paragraphs 3 to 10 hereof.
'14. From and after May 18, 1959, the defendants, directly and indirectly, individually, through controlled persons and in concert as members of a conspiracy, sold securities, namely, shares of common stock 50 cents par value of American Dryer Corporation, a Pennsylvania corporation, by using the United States mails and means or instruments of transportation or communication in interstate commerce.
'15. No registration statement with respect to such securities has been filed or is in effect with the Securities and Exchange Commission.
'16. Plaintiffs and other stockholders or American Dryer Corporation similarly situated have purchased from the defendants, acting as specified in paragraph 14 hereof, the aforesaid unregistered securities of American Dryer Corporation.
'17. Plaintiffs have made tender and by this action make tender of their securities to defendants.
'18. Defendants' actions as aforesaid violated (a) Sections 5(a), 12 and 15 of the Securities Act of 1933, as amended, and (b) Rule X-10-B5 under the Securities Exchange Act of 1934, as amended.
'Wherefore, plaintiffs pray that the Court enter a judgment against the defendants in favor of the plaintiffs and all other stockholders similarly situated for the consideration which each paid for such securities with interest thereon less the amount of any income received thereon upon the renewed tender of such securities, or for damages to such plaintiffs who no longer own the securities.'
The defendants have aligned themselves in four groups, each of which has filed at least one motion attacking the foregoing complaint or asking judgment. Those motions will be taken up in order by groups.
These six parties comprise the defendant American Dryer Corporation and the following who are said to be persons in control: William F. Kane, Bernard F. Lieberman, Jacob J. Holtzman, Jason M. Keiner and Jacob Corson.
Group I did not answer the complaint, but has before the court its two-part motion which, as will be seen below, must be treated as two separate motions under the applicable Federal Rules of Civil Procedure, 28 U.S.C.: Rule 12(b) as amended, and Rule 56(b).
This motion to dismiss the complaint asserts that 'The complaint fails to set forth a material issue of fact' in certain particulars. Those circumstances, however, go far beyond the pleadings, and necessarily bring into play the provisions of the last sentence of Rule 12(b) Fed.R.Civ.P. which was added by the amendment of 1946:
'* * * If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given opportunity to present all material made pertinent to such motion by Rule 56.' 6 Moore's Federal Practice § 56.02(3), p. 2014 (2d ed. 1953).
Since all parties have had opportunities to present pertinent materials, the question of whether a genuine issue as to any material fact remains is ripe for disposition.
The Group I defendants' first motion points out that although the complaint purports to be a class action, it is neither a derivative nor a 'true' class action by stockholders of the said corporation, and therefore can seek a remedy only for the Newbergs individually and other similarly situated stockholders who may actually intervene.
So far, defendants' position seems correct. It is amply clear to this Court that the present action purports to be a spurious class suit under the provisions of Rule 23(a)(3), Fed.R.Civ.P., and affects only such parties as in fact intervene. York v. Guaranty Trust Co., 2 Cir., 1944, 143 F.2d 503; Weeks v. Bareco Oil Co., 7 Cir., 1941, 125 F.2d 84. It is also a fact that to date no additional parties plaintiff have intervened under the permissive joinder provisions of Rule 23(a)(3).
These defendants, however, carry the proposition considerably beyond that point when they assert:
'(c) No other stockholders have intervened or attempted to intervene in the action, and in fact such intervention is now barred by operation of Section 9 of a certain Decree issued November 1, 1960 by the Court of Common Pleas No. 5 of Philadelphia County in an action entitled William Brody vs. American Dryer Corporation, et al., as of December Term, 1959, No. 3262, therefore the action remains an individual claim by the Newbergs. The said Section 9 provides, in reference to the instant action:
"That any stockholders or persons who were not, as of September 26, 1960, specifically named as parties plaintiff in the said actions shall be barred from bringing and/or joining in any actions."
We have chosen not to make a point of the very serious question of whether a statutory action in a Court of the United States could be affected in the asserted fashion by a state court decree. Instead, the exhibited copy of the Decree in the aforesaid cause No. 3262 in Common Pleas No. 5 has been carefully examined. It has been found that by its own terms it is clearly the result of stipulation between the parties to a stockholders' derivative action. The purpose of the action was to require certain officers of the defendant corporation to return numerous shares of its stock to its treasury. There further appears the purpose of protecting the stockholders against recurrence of manipulations for private gain by the controlling officers.
That consent decree in the stockholders' suit has no bearing on the present action. It could not have been intended to prevent joinder of additional parties plaintiff in the present and unrelated statutory action. Nor could it prevent other stockholders, not parties in that suit -- for that matter -- from bringing any such unrelated statutory action or actions.
These defendants argue that time has or will have run out on the possible claims of other potential plaintiffs. It has often been held, however, that the bringing of a spurious class action tolls the statute of limitations while other potential plaintiffs decide whether or not to join in the action. Mutation Mink Breeders Ass'n v. Lou Nierenberg Corp., D.C.S.D.N.Y. 1959, 23 F.R.D. 155; York v. Guaranty Trust Co., 2 Cir., 1944, 143 F.2d 503; 3 Moore's Federal Practice P23.12, p. 3476 (2d ed. 1948).
Therefore there is no certainty, as a matter of law or of fact, that no others may intervene as parties plaintiff in this action.
On a further ground, however, these defendants say that the present action must fail, leaving nothing to support joinder by other parties, since:
'(d) On September 28, 1960, the within named defendants tendered in writing to the Newbergs the full recovery demanded in their complaint upon condition that the action be appropriately dismissed. A true copy of ...