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Securities and Exchange Commission v. Everest Management Corp.

decided: December 18, 1972.

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF-APPELLEE,
v.
EVEREST MANAGEMENT CORPORATION ET AL., DEFENDANTS-APPELLEES, COMPETITIVE ASSOCIATES, INC. AND COMPETITIVE CAPITAL CORPORATION, APPLICANTS FOR INTERVENTION-APPELLANTS



Moore, Mulligan and Timbers, Circuit Judges.

Author: Timbers

TIMBERS, Circuit Judge:

This appeal presents the question whether victims of alleged securities fraud are entitled to intervene in an SEC enforcement action as of right under Fed.R.Civ.P. 24(a)(2) or, alternatively, whether the district court abused its discretion in denying permissive intervention under Fed.R.Civ.P. 24(b)(2). We hold that appellants were not entitled to intervene as of right and the district court did not abuse its discretion in denying permissive intervention. We affirm.*fn1

I.

On November 11, 1971, the SEC brought an action in the Southern District of New York to enjoin 44 defendants from violating, inter alia, the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940 and certain provisions of the Investment Company Act of 1940 designed to prevent self-dealing and gross abuse of trust. The complaint contained 45 counts which charged defendants with a broad scheme of stock manipulation, bribery, and fraud involving many investors.

On January 5, 1972, appellants -- Competitive Associates, Inc., an open-end investment company, and Competitive Capital Corp., the investment adviser of Competitive Associates -- filed a motion to intervene as plaintiffs in certain counts against certain defendants in order to assert claims for money damages. They sought to intervene in 3 of the 45 counts in order to assert claims against 7 of the 44 named defendants. The proposed intervenors' complaint sought money damages of $6,000,000 based on alleged violations of various antifraud provisions of the federal securities laws and based also on what the proposed intervenors' complaint described as "Breach of Fiduciary Obligations and Fraud."

After hearing oral argument on the motion to intervene on February 22, 1972, at which time the motion was opposed by counsel for the SEC and by counsel for various defendants, the district court, David N. Edelstein, Chief Judge, entered an order on March 22, 1972 denying the motion. We affirm.

II.

Appellants' first contention on appeal is that they were entitled to intervene as of right pursuant to Rule 24(a)(2).*fn2

This claim, although originally asserted in the district court, was withdrawn at the time of argument below and before the court decided the intervention motion. Under these circumstances, appellants are foreclosed from raising this claim on appeal. See United States v. Lipton, 467 F.2d 1161, 1168 (2 Cir. 1972); Winnick v. Manning, 460 F.2d 545, 550 (2 Cir. 1972); United States v. Deutsch, 451 F.2d 98, 117 (2 Cir. 1971), cert. denied, 404 U.S. 1019, 30 L. Ed. 2d 667, 92 S. Ct. 682 (1972); United States v. L. N. White and Co., 359 F.2d 703, 710-11 (2 Cir. 1966).*fn3

Aside from the lack of timeliness, there is no merit to the claim. Rule 24(a)(2) provides:

"Upon timely application anyone shall be permitted to intervene in an action: . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties."

It is true that appellants have "an interest relating to [a] . . . transaction which is [a] subject of the action" and that their interest is not adequately represented by existing parties because only appellants claim damages. The remaining issue, therefore, is whether appellants are "so situated that the disposition of the action may as a practical matter impair or impede [their] ability to protect that interest." We hold they are not.

Appellants concede that they will not be precluded by res judicata or collateral estoppel from bringing their own action for money damages regardless of the disposition of the SEC action.*fn4 Appellants' essential argument is that if intervention is denied they will be required to bear the financial burden of duplicating the SEC's efforts; and, not having the SEC's investigative staff and resources available to them, they may be unable to develop as complete and reliable a record as they might if intervention were allowed. This is not the sort of adverse practical effect contemplated by Rule 24(a)(2). Whatever bearing such considerations might have ...


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