Morin v. Trupin, 823 F. Supp. 201, 205 (S.D.N.Y. 1993); East Coast Novelty Co. v. City of New York, 141 F.R.D. 245, 245 (S.D.N.Y. 1992).
Local Rule 3(j) is to be narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been considered fully by the court. See Caleb & Co. v. E.I. Du Pont De Nemours & Co., 624 F. Supp. 747, 748 (S.D.N.Y. 1985). In deciding a Local Rule 3(j) motion, the court must not allow a party to use the motion to reargue as a substitute for appealing from a final judgment. See Morser, 715 F. Supp. at 517.
D&T's third party complaint alleges that, if D&T is found liable under Rule 10b-5, Eastlake is liable to D&T for contribution for Rule 10b-5 violations in connection with its failure as placement agent to discover that three major accounts receivables were recorded improperly in Qmax's financial statements. Eastlake moved for dismissal of the Rule 10b-5 claims on the grounds that D&T did not allege facts sufficient to satisfy the scienter requirement of a Rule 10b-5 claim. In opposition to Eastlake's motion to dismiss, D&T asserted that Eastlake had acted recklessly in failing to discover the flaws in Qmax's financial statements.
Eastlake claims in the present motion to reargue that "the Court erroneously applied a negligence standard to Eastlake's claims that D&T did not plead or demonstrate facts from which the requisite rule 10b-5 scienter could be inferred." Eastlake asserts that, rather than mere negligence, the scienter required to show a violation of Rule 10b-5 must be at least recklessness, which is defined as an "extreme departure from standards of ordinary care." (Eastlake Mem. at 3 (quoting Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38, 47 (2d Cir.), cert. denied, 439 U.S. 1039, 58 L. Ed. 2d 698, 99 S. Ct. 642 (1978))).
The cases that Eastlake cites in support of this proposition are Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38 (2d Cir.), cert. denied, 439 U.S. 1039, 58 L. Ed. 2d 698, 99 S. Ct. 642 (1978); Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990), cert. denied, 499 U.S. 976, 113 L. Ed. 2d 719, 111 S. Ct. 1621 (1991); Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875, 54 L. Ed. 2d 155, 98 S. Ct. 224, 98 S. Ct. 225 (1977); Modern Settings, Inc. v. Prudential-Bache Sec., Inc., 602 F. Supp. 511 (S.D.N.Y. 1984); and Limited, Inc. v. McCrory Corp., 683 F. Supp. 387 (S.D.N.Y. 1988).
Two of these, Hollinger and Sundstrand, are not in this circuit, and of the remaining three, Modern Settings and The Limited are lower court decisions and are, therefore, not "controlling" within the terms of Local Rule 3(j).
The one case which is "controlling" within the terms of Local Rule 3(j), Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38 (2d Cir.), cert. denied, 439 U.S. 1039, 58 L. Ed. 2d 698, 99 S. Ct. 642 (1978), was clearly not overlooked by the Court, having been cited in the September 16 Opinion. See Ades v. Deloitte & Touche, 1993 U.S. Dist. LEXIS 12901, at *46-*47 (S.D.N.Y. Sept. 16, 1993). This fact alone makes Eastlake's motion to reargue untenable.
The authority cited from other jurisdictions or from lower courts within this jurisdiction stand for the proposition that negligence, as opposed to extreme recklessness, will not satisfy the scienter requirement under Rule 10b-5. In addition to the fact that these opinions are not "controlling" within the terms of Local Rule (j), Eastlake can not claim that the September 16 Opinion overlooked these opinions unless that Opinion failed to apply a recklessness standard in evaluating D&T's claims.
The September 16 Opinion noted that, in its "due diligence" defense, Eastlake relied on In re Software Toolworks, Inc., 789 F. Supp. 1489 (N.D. Cal. 1992), where summary judgment was granted to the underwriters of a public offering of a software company which designed products for the computer game market created by Nintendo of America. The September 16 Opinion stated that the plaintiffs in Software Toolworks had "failed to establish recklessness on the part of [the Defendants]." Ades, 1993 U.S. Dist. LEXIS 12901, at *63. Furthermore, the September 16 Opinion noted that "Eastlake . . . alleges that any recklessness on the part of D&T was not mirrored in its own behavior." Id. at *65.
In rejecting Eastlake's argument that the Third Party Complaint fails to plead scienter on the part of Eastlake with the particularity required by Rule 9(b), F. R. Civ. P., the September 16 Opinion stated that "D&T has alleged factual issues which preclude dismissal for lack of particularity about Eastlake's scienter or recklessness." Id. at *68. The standard applied in reaching this conclusion was that "an inference of "recklessness" satisfying the scienter requirement may be drawn from facts demonstrating conduct that the defendant disseminated material 'knowing [it was] false or that the method of preparation was so egregious as to render [the] dissemination reckless.'" Id. (citing Ades v. Deloitte & Touche, 799 F. Supp. at 1498-99). This indicates that the September 16 Opinion did not overlook the recklessness standard mandated by Rolf and applied in Hollinger, Sundstrand Corp., Modern Settings, and The Limited.
Eastlake does not argue that the Court "overlooked" the factual matters discussed in its motion for reargument, all of which were extensively briefed by Eastlake in the papers submitted in connection with the original motion. Whether or not these matters were discussed in the September 16 Opinion, they were considered by the Court. Cf. Market St. Ltd. Partners v. Englander Capital Corp., 1993 U.S. Dist. LEXIS 10002, at *3 (S.D.N.Y. July 21, 1993).
The present motion is, instead, predicated on the Court's alleged erroneous application of a negligence standard to the pleading requirements of scienter for purposes of Rule 10b-5. For the reasons stated above, it is clear that the Court did not "overlook" any factual matters or controlling case law. Any attempt by Eastlake to dispute the legal conclusions derived from these facts and cases in the September 13 Opinion is inappropriate in a motion to reargue under Local Rule 3(j).
For the reasons stated above, Eastlake's motion to reargue, and consequently its motion to dismiss the Rule 10b-5 claims alleged against it in the Third Party Complaint are denied.
It is so ordered.
New York, N.Y.
February 7, 1994
ROBERT W. SWEET
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