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Katz v. Realty Equities Corp.

decided: June 30, 1975; As Amended July 23, 1975.

GEORGE KATZ, PLAINTIFF-APPELLEE,
v.
REALTY EQUITIES CORPORATION OF NEW YORK ET AL., DEFENDANTS-APPELLEES, AND KLEIN, HINDS & FINKE AND ALEXANDER GRANT & COMPANY, DEFENDANTS-APPELLANTS. KENNETH I. HERMAN, TRUSTEE F/B/O SHERIL ESTA KUPFER, PLAINTIFF-APPELLEE, V. REPUBLIC NATIONAL LIFE INSURANCE COMPANY ET AL., DEFENDANTS-APPELLEES, AND KLEIN, HINDS & FINKE AND ALEXANDER GRANT & COMPANY, DEFENDANTS-APPELLANTS



Appeal from an order of the United States District Court for the Southern District of New York, Pollack, J., which, inter alia, consolidated various private securities cases for pretrial purposes, and which required the filing and service of a single consolidated complaint.

Waterman, Friendly and Gurfein, Circuit Judges. Friendly, Circuit Judge, concurring.

Author: Waterman

WATERMAN, Circuit Judge:

This appeal concerns an order of a district judge requiring the filing and service of a single consolidated complaint for pretrial purposes upon defendants in a number of related securities cases. We affirm the order which, under the circumstances present, was a proper exercise of the trial judge's authority in the management of the preliminary stages of complex multiparty litigation.

On March 8, 1974 the Securities and Exchange Commission commenced an enforcement action in the United States District Court for the Southern District of New York against Republic National Life Insurance Company ("Republic"), seven of its officers and directors, its auditor Peat Marwick Mitchell & Co., Realty Equities Corporation of New York ("Realty"), two of its officials, its auditor Westheimer, Fine, Berger & Co., and two other individuals. The SEC complaint alleges that the defendants participated in a scheme to defraud the investing public by concealing the actual facts of Realty's financial condition. Republic, which had large investments in Realty, advanced large sums of money, the SEC complaint alleges, through a series of intricate transactions to Realty or related companies, so that Realty could repay existing indebtedness to Republic.

Patterned on the SEC complaint, twelve private actions were filed in the Southern District of New York*fn1 based on the Realty-Republic transactions. In addition, four actions were filed in the Northern District of Texas and one action in the Middle District of Tennessee;*fn2 these five actions were transferred to the Southern District of New York for pretrial purposes by the Judicial Panel on Multidistrict Litigation by order of August 22, 1974, and on August 26, 1974 the district court ordered them consolidated with the pending actions in the Southern District of New York which had been ordered consolidated two months previously.

On June 12, 1974 the district court sua sponte held a hearing to determine whether the actions then pending before it should be consolidated. On June 24, 1974 the district court filed an order of consolidation which provided in part:

Ordered:

(1) The above designated actions (sometimes herein "constituent actions") are hereby consolidated for all pretrial purposes to be had during the pendency of these actions in this District in accordance with the following terms which the Court in the exercise of discretion makes applicable to foster the efficient and proper conduct of the claims asserted in the individual complaints in the said actions.

(2) A single consolidated complaint, supplemented and amended, shall be prepared and served herein by liaison counsel which shall set forth the claims for relief asserted in the constituent actions, collated into separately stated counts by class and derivative categories as to each kind of securities holders and at the head of each count shall specifically designate by name or other convenient reference the defendants against whom such count is asserted.

(11) At the conclusion of the pretrial proceedings, the Court will give consideration to a consolidated trial of the issues herein.

The order of the district court provided for the appointment of lead and liaison counsel for all plaintiffs. The order also stated that the answer of each defendant to the consolidated complaint "shall be deemed" to have asserted cross-claims in the nature of contribution and indemnification against all other defendants.

At the June 12 hearing, the appellants Klein, Hinds & Finke ("KHF") and Alexander Grant & Company ("Grant"), favored the use of consolidated discovery proceedings, but they objected to proceeding under a single consolidated complaint. After the consolidation order was entered the appellants filed a timely notice of appeal which was limited to the portion of the order providing for the consolidation for all pretrial purposes and for the filing of a single consolidated complaint. The sole objection pressed on appeal is to the use of a consolidated complaint.

KHF and Grant had been named as defendants in two of the private complaints, the Herman complaint, a class action brought on behalf of the holders of common stock of Republic, and the Katz complaint, a class action brought on behalf of the holders of common stock in Realty.*fn3 They had not been named as defendants in the SEC action. In nearly identical language the complaints allege that the appellants violated ...


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