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S.E.C. v. MCCASKEY

May 5, 1999

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
DOUGLAS G. MCCASKEY, NEAL E. FITZPATRICK JR., HOPE D. TROWBRIDGE, MARCORP, INC., ROBERT A. SCHATZ, JOHN VON DER LIETH, III, AND DANIEL F. DUGAN, DEFENDANTS. DOUGLAS G. MCASKEY, NEAL E., FITZPATRICK, JR., HOPE D. TROWBRIDGE, THIRD-PARTY PLAINTIFFS, V. THE SECURITIES AND EXCHANGE COMMISSION, COUNTERCLAIM-DEFENDANT, AND GRUNTAL & CO., SQUADRON AND ELLENOFF, KENNETH P. FELIS, MERRILL, LYNCH PIERCE, FENNER & SMITH, INC., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Kram, District Judge.

ORDER

In this action alleging violations of the federal securities laws, plaintiff Securities and Exchange Commission ("SEC") and third-party defendant Gruntal & Co. ("Gruntal") move, pursuant to 15 U.S.C. § 78u(g), to dismiss defendants Douglas G. McCaskey's ("McCaskey"), Neal D. Fitzpatrick's ("Fitzpatrick"), and Hope D. Trowbridge's ("Trowbridge") third-party complaint. The SEC also moves, pursuant to Section 78u(g), to dismiss McCaskey's, Fitzpatrick's and Trowbridge's counterclaim and pursuant to Federal Rule of Civil Procedure 12(f), to strike certain affirmative defenses. For the reasons set forth below the motions to dismiss the third-party complaint and counterclaim are granted and the motion to strike certain affirmative defenses is granted in part and denied in part.

BACKGROUND*fn1

On September 1, 1998, the SEC filed a complaint alleging that from in or about September 1993, through December 1994, defendants*fn2 violated the anti-fraud, registration and filing provisions of the federal securities laws as part of a scheme to manipulate the common stock of Marcorp Inc. ("Marcorp").*fn3 The SEC seeks the following equitable relief: (1) permanent injunctions enjoining defendants from future securities laws violations; (2) disgorgement of illegal profits; and (3) orders enjoining each of the defendants from serving as officers of any public companies (collectively, the "equitable remedies"). The SEC also seeks civil penalties. In their answer, defendants assert, inter alia, the following affirmative defenses: (1) statute of limitations; (2) estoppel; and (3) laches. Defendants also assert a counterclaim against the SEC and have filed a third-party complaint against Gruntal and others.

DISCUSSION

I. Third Party Complaint and Counterclaim

The SEC and Gruntal argue that defendants' third-party complaint is expressly barred by 15 U.S.C. § 78u(g). Likewise, the SEC argues that Section 78u(g) also bars defendants' counterclaim. Section 78u(g) provides:

  Notwithstanding the provisions of section 1407(a) of
  Title 28, or any other provision of law, no action
  for equitable relief instituted by the Commission
  pursuant to the securities laws shall be consolidated
  or coordinated with other actions not brought by the
  Commission, even though such other actions may
  involve common questions of fact, unless such
  consolidation is consented to by the Commission.

15 U.S.C. § 78u(g). The purpose of Section 78u(g) is to ensure speedy resolution of SEC enforcement actions, see SEC v. Thrasher, No. 92 Civ. 6987, 1995 WL 456402, at *2-*5 (S.D.N Y Aug. 2, 1995), and it has routinely been employed to dismiss third-party complaints, id., and counterclaims, see SEC v. Better Life Club of America, Inc., 995 F. Supp. 167, 179-80 (D.D.C. 1998), because such additional claims protract litigation.

In this case, the SEC has brought an action seeking equitable relief and civil penalties and has not consented to consolidation of this action with defendants' third-party complaint or counterclaim. Accordingly, defendants' third-party complaint and counterclaim must be dismissed. The caption shall be amended to reflect the removal of third-party defendants, as well as the striking of the counterclaim against the SEC.*fn4

II. Affirmative Defenses

A. Standard of Law


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