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IN RE DEL-VAL FIN. CORP. SECS. LITIG.

January 27, 1995

IN Re DEL-VAL FINANCIAL CORP. SECURITIES LITIGATION; THIS DOCUMENT RELATES TO: ALL ACTIONS

William C. Conner, Sr. United States District Judge


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

CONNER, D.J.:

 Before us is a motion to certify an interlocutory appeal of our November 10, 1994 Opinion and Order (the "Order") in this case. Because we fully described the facts and circumstances of this matter in that Order, see In Re Del-Val Financial Corp. Securities Litigation, 868 F. Supp. 547 (S.D.N.Y. 1994), we assume familiarity with it and merely sketch the bare essentials here.

 Plaintiffs in this securities fraud case are a class of shareholders who bought stock in Del-Val Financial Corp. ("Del-Val"), a real estate investment trust, between March 30, 1989 and October 19, 1990. On May 6, 1991, Plaintiffs brought suit for various alleged violations of the federal securities laws and New York common law against Del-Val, Kenbee Management Inc. ("Kenbee") (Del-Val's investment manager), former officers and directors of Del-Val and Kenbee (the "Individual Defendants"), Deloitte & Touche ("D&T") (Del-Val's independent auditor), and Interstate/Johnson Lane (Del-Val's underwriter). Del-Val, Kenbee and almost all of the Individual Defendants (collectively, "Settling Defendants") have settled with Plaintiffs. We approved the Settlement Agreement on December 3, 1993. The remaining defendants are D&T, Interstate/Johnson Lane, and Martin Wright (former Chairman of the Board and director of Del-Val and Kenbee).

 On July 12, 1991, D&T filed cross-claims for contribution against Settling Defendants. On August 12, 1991, Settling Defendants filed cross-claims for contribution and indemnification against D&T. Following the Supreme Court's decision in McDermott v. AmClyde, 128 L. Ed. 2d 148, 114 S. Ct. 1461 (1994) (holding that in admiralty cases where partial settlement has been reached, non-settling defendant is entitled to proportionate share judgment reduction as matter of law and may not maintain contribution action against settling defendant), Settling Defendants and D&T filed cross-motions for summary judgment on their respective claims.

 On November 10, 1994, we issued the Order, which held that the proportionate share judgment credit rule announced in McDermott applies to this case. We therefore dismissed D&T's contribution claim against Settling Defendants, but left intact Settling Defendants' securities law contribution claim against D&T. *fn1" We also ordered that, if Settling Defendants wish to pursue their contribution claim against D&T, they must do so at the same trial at which the jury will decide the class claims.

 On December 16, 1994, Plaintiffs made a motion requesting that we certify our Order to the Second Circuit for interlocutory appeal. For the reasons set forth below, Plaintiffs' motion is denied.

 In order for a district court to certify one of its orders for interlocutory appeal, the party seeking certification must show that the order it seeks to appeal "involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292(b). While our Order concerns issues on which there is substantial ground for difference of opinion, Plaintiffs have not convinced us that these issues are "controlling" or that an appeal at this stage will materially advance the termination of this litigation.

 The Second Circuit has held that there are often substantial grounds for difference of opinion where an issue is difficult and of first impression. See Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 25 (2d Cir. 1990); Chan v. City of New York, 803 F. Supp. 710, 733 (S.D.N.Y. 1992), aff'd, 1 F.3d 96 (2d Cir.), cert. denied, 126 L. Ed. 2d 423, 114 S. Ct. 472 (1993). Whether the McDermott rule applies in partially settled securities cases is certainly an issue of first impression in this Circuit. Having wrestled with this question ourselves, we are also prepared to admit that it is difficult and that our resolution of the issues raised by the defendants' cross-motions is "by no means the only reasonable conclusion an impartial arbiter could reach." Chan, 803 F. Supp. at 733. Nevertheless, the interlocutory appeal process should be used sparingly, see Klinghoffer, 921 F.2d at 25, and the order appealed from must concern something more than a novel and interesting issue about which there may be substantial disagreement.

 The definition of "controlling issue of law" encompasses issues ranging from those that, if the district court's order were reversed on appeal, would terminate an action, see id., at 24, to those that involve "a procedural determination that may importantly affect the conduct of an action," see In Re Duplan Corp., 591 F.2d 139, 148 n.11 (2d Cir. 1978). It does not, however, include the issues on which our Order ruled.

 We fail to see a significant difference in the position Plaintiffs will be in if the class claims are tried according to the procedure outlined in our Order rather than according to the mechanism described in the Settlement Agreement. It is true that the procedures differ. If the action were conducted according to the provisions of the Settlement Agreement, the jury would be instructed to decide liability at the trial of the class claims against the Non-Settling Defendants, but not to apportion fault among the defendants. If the Non-Settling Defendants are found liable, the proportionate fault determination would be made at a subsequent trial where both D&T and Settling Defendants would present their contribution claims to a jury. Under our Order, there will be only one trial: Plaintiffs will try their claims against Non-Settling Defendants and Settling Defendants will try their contribution claim to the same jury. That jury will be instructed to determine liability and proportionate fault. D&T's contribution claim, having been dismissed, will not figure in the proceedings.

 Plaintiffs argue that they will be so gravely prejudiced if we conduct the trial according to the procedures outlined in our Order that a costly retrial of the class claims will be necessary if our Order is subsequently reversed on appeal. They do not convince us. Throughout these proceedings, Plaintiffs' main argument in favor of their preferred two-tier trial procedure has been that it protects them from the empty-chair syndrome. They contend that if proportionate fault is determined at the trial between Plaintiffs and Non-Settling Defendants, the Non-Settling Defendants will try to lay the lion's share of the blame on the Settling Defendants, who would not be actively involved in that trial. Plaintiffs argue that this finger-pointing would cause the jury to attribute less than their actual share of fault to the Non-Settling Defendants, which under the proportionate share rule would reduce Plaintiffs' total recovery. We acknowledge that the Non-Settling Defendants may attempt to lay blame at the Settling Defendants' door. However, in this situation, the Settling Defendants' chair will not be empty at trial because they will be present to prosecute their contribution claim. Their success in that endeavor depends upon their ability to convince the jury that the Non-Settling Defendants are more responsible for any injury to Plaintiffs than they are. Thus, the empty-chair syndrome does not present a problem here.

 Even if Settling Defendants do not choose to pursue their contribution claim, they must be present as witnesses at the trial of the class claims and the jury will have an opportunity to evaluate their testimony and to apportion fault accurately. Whichever procedure we use to conduct the trial, Plaintiffs will make the same claims and the jury will hear the same evidence. There is no reason to believe that the prejudice to Plaintiffs under the procedures outlined in our Order will be sufficient to require a retrial of the class claims if we were to be reversed on appeal.

 Plaintiffs also argue that our Order has impermissibly modified the Settlement Agreement by mandating a different trial procedure and that the issue of whether we had the power to do so is a controlling question of law in this case. This argument not only suffers from the same flaw as Plaintiffs' argument that reversal would require a retrial of the class claims, but it also ignores our clear statement that the Settlement Agreement did not govern the disposition of the summary judgment motions before us. See Order at 7-10. Our Order ...


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