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VALUE LINE FUND, INC. v. MARCUS

January 8, 1958

The VALUE LINE FUND, Inc., The Value Line Income Fund, Inc., and The Value Line Special Situations Fund, Inc., Plaintiffs,
v.
Hyman MARCUS and Van Alstyne, Noel & Co., a Copartnership, composed of David Van Alstyne, Jr., John E. Arrowsmith, Harold K. Young, F. Donald Arrowsmith, James A. Russell, William H. McElnea, Jr., General Partners, and Hyman Marcus, Limited Partner, Defendants



The opinion of the court was delivered by: HERLANDS

Plaintiffs seek rescission, restitution and damages under common law and under the Securities Act of 1933 (15 U.S.C.A. section 77a et seq.), with respect to a $ 3,247,000 purchase by plaintiffs of 191,000 shares of the common stock of United States Hoffman Machinery Corporation (called 'Hoffman' herein) from the defendant Marcus, through the defendant Van Alstyne, Noel & Co. The sale was negotiated in behalf of the plaintiffs by Arnold Bernhard, president of plaintiffs, and Arnold Bernhard & Co., Inc., plaintiffs' investment manager and adviser.

Plaintiffs allege inter alia that, during certain negotiations between defendant Marcus and plaintiffs' representatives, 'Marcus made, or caused to be made, to plaintiffs * * * deceptive, misleading, erroneous, and untrue statements concerning the value and condition of the assets, liabilities, affairs, business and earnings of Hoffman, intending and well knowing that plaintiffs would consider the same material to any decision with respect to the purchase of the common stock of Hoffman and would rely thereon * * *' (amended complaint, paragraph 8). Plaintiffs further allege that Marcus 'purported to disclose to the plaintiffs the full truth concerning the business and affairs of Hoffman,' but at no time informed plaintiffs of certain facts that he should have disclosed (amended complaint, paragraph 9).

The answer denies the material allegations of the amended complaint, except for the specific purchase transaction. The answer sets up three affirmative defenses: insufficiency of the amended complaint, laches, and accord and satisfaction. The answer also contains two counterclaims against plaintiffs and against Arnold Bernhard & Co., Inc., Arnold Bernhard and Value Line Fund Distributors, Inc. The counterclaims (demanding $ 2,000,000 damages) are based upon allegedly defamatory statements appearing in a letter written and published by Arnold Bernhard on July 12, 1957 and certain oral statements made and published by Bernhard on or about March 29, 1957. Plaintiffs have filed a reply to the counterclaims.

 Two motions are before the Court:

 (1) a motion by defendant Marcus, pursuant to F.R.C.P. rule 13(h), 28 U.S.C.A., to bring in Value Line Fund Distributors, Inc. and Arnold Bernhard as additional parties defendant to the counterclaims of defendant Marcus. This motion does not purport to cover Arnold Bernhard & Co., Inc., apparently in order to preserve diversity jurisdiction.

 (2) a cross-motion by plaintiffs, pursuant to F.R.C.P., rule 42(b), for a separate trial of defendant Marcus's counterclaims.

 Both motions are hereby granted, for the reasons expressed in this opinion.

 I

 Rule 13(h) pertinently provides: 'When the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants * * *.' (Emphasis supplied.) The issue raised by this motion is whether the two additional parties whom the defendant Marcus is attempting to join are 'required for the granting of complete relief' in the determination of the counterclaim.

 Much of the argument concerning this issue has revolved around the distinctions between, and the definitions of 'indispensable' and 'necessary' parties, notwithstanding that rule 13(h) neither mentions nor refers to such parties.

 The distinction between these party-concepts is important for purposes of Rule 19, 'Necessary Joinder of Parties.' Under Rule 19, it is clear that joint tortfeasors are neither indispensable nor necessary in an action against one of their number because they are jointly and severally liable. See 3 Moore, Federal Practice, para. 19.07 and cases cited therein. These party-concepts are inapplicable to Rule 13(h). The objectives of Rule 19 differ from those of Rule 13. Rule 19 contemplates situations where certain persons, not presently before the court, must be made parties in order for the court to grant any relief (Rule 19(a)); or, if 'not indispensable,' certain persons 'ought to be' made parties 'if complete relief is to be accorded between those already parties' (Rule 19(b)).

 Rule 13, on the other hand, involves the different concepts of counterclaims and cross-claims. The objective of Rule 13 is to compel certain counterclaims ('Compulsory Counterclaims,' Rule 13(a)) and encourage other types of counterclaims ('Permissive Counterclaims,' Rule 13(b)). In furtherance of the Rule 13 objective of encouraging all disputes between the parties to be settleed in a single lawsuit, Rule 13(h) allows additional parties to be brought in in order to accomplish a complete determination of the counterclaim. Analytically, it would be unsound to engraft the objectives and language of Rule 19 on Rule 13.

 The condition of Rule 13(h) -- that the additional party be 'required for the granting of complete relief in the determination of a counterclaim' -- should be construed liberally. 'Required' need not mean only 'indispensable' or 'necessary.' 'Required' may properly be interpreted, in the context of Rule 13(h), to mean 'appropriate' or 'interested.' That interpretation accords with the basic canon of construction of the Federal Rules of Civil Procedure, Rule ...


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