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November 10, 1994



The opinion of the court was delivered by: WILLIAM C. CONNER


 Certain defendants in this complex securities fraud class action have made cross-motions for summary judgment on their respective cross-claims for contribution and indemnification. For the reasons set forth below, Settling Defendants' motion for summary judgment is granted, while Deloitte & Touche's motion for summary judgment is granted in part and denied in part.


 The underlying action in this case was brought by purchasers or owners of shares of stock in Del-Val Financial Corp. ("Del-Val") against Del-Val (a real estate investment trust), Kenbee Management Inc. ("Kenbee") (Del-Val's investment manager), former Del-Val and Kenbee officers and directors (collectively, the "Individual Defendants"), *fn1" Interstate/Johnson Lane ("IJL") (Del-Val's underwriter), and Deloitte & Touche ("D&T") (Del-Val's independent auditor). The Consolidated Amended Class Action Complaint (the "Complaint"), dated May 6, 1991, alleges claims on behalf of the class of persons who purchased Del-Val common stock during the period from March 30, 1989 through October 19, 1990. Certain plaintiffs also have brought claims as representatives of subclasses of purchasers of Del-Val common stock in August 1989 and May 1990 stock offerings made by Del-Val.

 The action arises out of alleged violations of Sections 11, 12(2), and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 771(2), 77o (1988); Sections 10(b) and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t (1988); and the common law. *fn2" The Complaint alleges that during the class period, the defendants caused or permitted Del-Val to issue and sell, pursuant to public offerings in August 1989 and May 1990, at least $ 50 million worth of Del-Val common stock to the investing public by means of materially false and misleading registration statements and prospectuses.

 On July 12, 1991, D&T answered the complaint and denied all allegations of wrongdoing. D&T also asserted cross-claims for contribution against Del-Val, Kenbee and the Individual Defendants, in the event that Plaintiffs obtained a judgment against D&T. On August 12, 1991, Del-Val and its outside directors *fn3" answered D&T's cross-claims and filed their own cross-claims for contribution and indemnification in the event of a judgment against any of them.

 By Stipulation and Order dated June 11, 1991, the parties agreed to dismiss without prejudice Plaintiffs' claims against D&T for common law fraud and negligent misrepresentation. On September 26, 1991, this court certified the case as a class action.

 Plaintiffs then reached a settlement with Del-Val, Kenbee and almost all of the Individual Defendants (the "Settling Defendants"). That settlement is set forth in the Stipulation of Partial Settlement (the "Agreement"), dated September 10, 1993, and the Supplement to Stipulation of Settlement (the "Supplement"), dated November 23, 1993 (collectively, the "partial settlement agreement"). Only three defendants (the "Non-Settling Defendants") did not join in the stipulation of partial settlement: D&T, IJL, and Wright. *fn4" After a hearing, held pursuant to Fed. R. Civ. Pro. 23(e), to evaluate the fairness, reasonableness and adequacy of the partial settlement, this court approved the Agreement and the Supplement on December 3, 1993.

 The partial settlement provides that Plaintiffs will receive common stock in Del-Val, notes issued by Del-Val, $ 1.4 million in cash (which Del-Val may elect to pay in common stock), and various forms of non-pecuniary consideration, including Settling Defendants' promise to cooperate with Plaintiffs' counsel in various ways in any continuing litigation. *fn5" In return, Plaintiffs agreed to release all claims against the Settling Defendants arising out of the facts and transactions described in the Complaint.

 As originally drafted by Plaintiffs and Settling Defendants, the settlement agreement would have provided that Settling Defendants could apply to the court for an order barring any claims for contribution or indemnity that had been or might be brought against them, thereby protecting Settling Defendants from any potential for further liability to Plaintiffs or to Non-Settling Defendants. At a pre-trial conference on November 15, 1993, following extensive briefing on the issue of what type of bar order, if any, this court should enter, we indicated that we would enter a contribution bar order combined with a judgment credit based on proportional fault. Under that credit method, any judgment that Plaintiffs receive against Non-Settling Defendants would be reduced by the portion of the judgment attributable to Settling Defendants' share of fault, as determined by the finder of fact at the trial of the class claims. *fn6"

 Plaintiffs' expert, Hugh R. Lamle of M.D. Sass Investors Services, Inc., valued the settlement at $ 10.822 million. On December 3, 1993, relying on Plaintiffs' statement to the court that they would not dispute that value in any subsequent proceedings, we ordered that any judgment that might subsequently be entered against Non-Settling Defendants in the class action would be reduced by $ 10,822,000, subject to possible further reduction if the judgment reduction provision in the settlement agreement became applicable.

 On April 20, 1994, the Supreme Court issued its decision in McDermott, Inc. v. AmClyde, U.S. , 114 S. Ct. 1461, 128 L. Ed. 2d 148 (1994), which held that, in admiralty cases where settlement has been reached with some but not all defendants, a non-settling defendant is entitled to a proportionate share judgment reduction as a matter of law. A contribution action against the settling defendant is therefore unnecessary, since a non-settling defendant will pay only that portion of the judgment that corresponds to its percentage of fault. See id., at 1466. In light of the McDermott decision, Settling Defendants filed a motion for summary judgment dismissing D&T's cross-claims for contribution. D&T filed a cross-motion for summary judgment dismissing the Settling Defendants' cross-claims for contribution and indemnification. Both D&T and Settling Defendants argue that the proportionate share rule adopted in McDermott applies to partial settlements of federal securities actions and that their claims for contribution are therefore unnecessary. Plaintiffs oppose the dismissal of the cross-claims, arguing that dismissing those claims would violate the provisions of the partial settlement and that the proportionate share rule does not apply to securities fraud actions.


 Federal courts may grant summary judgment when "there is no genuine issue as to any material fact and [] the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. Pro. 56(c). While the parties vigorously disagree as to many of the facts relevant to the underlying class action, the facts regarding the terms of the partial settlement and the contribution and indemnification cross-claims brought by the defendants are not disputed. Instead, we are faced with two legal questions. First, do the provisions of the partial settlement agreement preclude the granting of summary judgment dismissing the cross-claims for indemnification and contribution? Second, does the proportionate share rule adopted for partial settlements in admiralty actions in McDermott apply to partial settlements in federal securities actions, rendering the Defendants' contribution and indemnification cross-claims unnecessary and impermissible?

 I. Effect of Partial Settlement Agreement

 "A settlement is a contract, and once entered into is binding and conclusive." Janneh v. G.A.F. Corp., 887 F.2d 432, 436 (2d Cir. 1989), cert. denied, 498 U.S. 865, 112 L. Ed. 2d 141, 111 S. Ct. 177 (1990). If the terms of the settlement agreement govern the situation before the court, then we have a duty to enforce the agreement. See Meetings & Expositions, Inc. v. Tandy Corp., 490 F.2d 714, 717 (2d Cir. 1974). Plaintiffs argue that the partial settlement agreement controls the manner in which the actions for contribution and indemnification must proceed and that dismissing the Defendants' respective cross-claims would violate both its express terms and its spirit. We disagree.

 First, D&T is not a party to the partial settlement and may seek and be granted summary judgment dismissing the claims against it without violating the terms of a settlement it did not negotiate or agree to.

 Second, Settling Defendants may also move for and be granted summary judgment without abrogating the express terms of the partial settlement. Although Plaintiffs' argument focuses on several provisions in the Supplement, we find that none of these clauses precludes the granting of summary judgment. For instance, the language of the judgment reduction provision in the Supplement refers only to future contingencies:

In the event that the Class obtains a judgment(s) against Non-Settling Defendant(s) . . . and in the event that any of the Non-Settling Defendant(s) prosecute(s) any action . . . for . . . contribution . . . and any Non-Settling Defendant(s) obtains a judgment(s) . . . against any Settling Defendant, then the Class shall reduce the amount of the Class Judgment(s) . . . ."

 Supp., at P 2 (emphasis added). The judgment reduction provision does not come into play until there is a valid judgment for contribution against Settling Defendants. If D&T's cross-claims for contribution are dismissed before trial, there will never be a judgment against Settling Defendants.

 Furthermore, Settling Defendants agreed not to compromise any contribution claims without Plaintiffs' consent, see Supp., at P 3, but Settling Defendants' motion for summary judgment dismissing the claims against them does not seek to compromise those claims. Instead, Settling Defendants seek a judgment completely favorable to them. Finally, Settling Defendants agreed to defend in good faith against any claims for contribution. See Supp., at P 3. Moving for dismissal of the claims against them is wholly consistent with this obligation.

 Plaintiffs argue that even if Settling Defendants have not violated the letter of the settlement agreement by moving to dismiss the claims against them, they have violated its spirit by seeking to avoid their obligation to defend against D&T's contribution claims at a second trial following the trial of the class claims. According to Plaintiffs, the partial settlement agreement requires two trials and the court provided for two trials in its Order dated December 3, 1993.

 Although the partial settlement certainly contemplates the possibility of two trials and sets out a detailed procedure for coping with that eventuality, the language of the settlement agreement does not require that outcome. Moreover, our Order, like the judgment reduction provision, is couched in contingent language. The Order merely provides that:

if a judgment is entered against non-settling defendants in this action at a later date, it will be reduced by the amount of $ 10,822,000, subject to possible further reduction depending upon the outcome of the trial of the claims of the non-settling defendants against the settling defendants for contribution or indemnity.

 The Order, like the settlement agreement, lays out the procedures that the court and the parties would be obligated to follow if there were to be a second trial, but does not mandate a second trial.

 Indeed, far from dictating this court's course of action in deciding these cross-motions, the settlement agreement and the court's Order are completely silent concerning the possibility that Settling Defendants' and D&T's cross-claims might be dismissed. At the time that the partial settlement agreement was drafted, it no doubt seemed highly unlikely that the cross-claimants would seek to have their contribution or indemnification actions dismissed. Nevertheless, Plaintiffs cannot read nonexistent requirements into the settlement agreement now that this eventuality has come to pass. The settlement agreement does not preclude D&T or Settling Defendants from seeking summary judgment, nor does it preclude us from granting summary judgment.

 II. The Claims

 Having determined that the settlement agreement does not dictate the disposition of the motions before us, we now examine the defendants respective contribution and indemnification claims. We find that Settling Defendants are not entitled to contribution or indemnification based on Plaintiffs' common law causes of action or to indemnification based on Plaintiffs' federal securities claims. Accordingly, we dismiss those cross-claims. Both Settling ...

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