United States District Court, Southern District of New York
January 17, 2003
IN RE: BLECH SECURITIES LITIGATION. THIS DOCUMENT RELATES TO: ALL ACTIONS.
The opinion of the court was delivered by: Sweet, District Judge
Defendant Bear Stearns & Co. Inc. ("Bear Stearns"), has moved for interlocutory certification pursuant to Rule 60, Fed.R.Civ. P., and 28 U.S.C. § 1292(b) of an order of October 17, 2002 (the "October 17 Order") in which this Court denied Bear Stearns' motion for summary judgment. In re Blech Securities Litigation, 2002 WL 31356498 (Oct. 17, 2002 S.D.N.Y.). For the reasons set forth below, the motion is denied.
Familiarity with the prior opinions in this action (which alleges various securities violations) is assumed. See In re Blech Securities Litigation, 928 F. Supp. 1279 (S.D.N.Y. 1996); In re Blech Securities Litigation, 961 F. Supp. 569 (S.D.N.Y. 1997). Bear Stearns' motion for certification to appeal the October 17 Order were marked fully submitted on December 11, 2002 when oral argument was heard.
The Standard for Certification
Section 1292(b) provides that a district court may certify an interlocutory order for appeal if it is of the opinion that (1) the order "involves a controlling question of law"; (2) "as to which there is substantial ground for difference of opinion," and (3) the immediate appeal "may materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292(b).
In considering a request for certification, the district court must carefully assess whether each of the three conditions for certification is met. See German v. Federal Home Loan Mortgage Corp., 896 F. Supp. 1385, 1398 (S.D.N.Y. 1995); see also Gottesman v. General Motors Corp., 268 F.2d 194, 196 (2d Cir. 1959) (certification to be "strictly limited to the precise conditions stated in the law"). The determination of whether Section 1292(b) certification is appropriate is in the discretion of the district court. See Ferraro v. Secretary of U.S. Dept. of Health & Human Servs., 780 F. Supp. 978, 979 (E.D.N.Y. 1992).
Since the statute was enacted in 1958, the Second Circuit has repeatedly emphasized that a district court is to "exercise great care in making a § 1292(b) certification." Westwood Pharmaceuticals, Inc. v. National Fuel Gas Dist. Corp., 964 F.2d 85, 89 (2d Cir. 1992); see also Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 25 (2d Cir. 1990). Certification is only warranted in "exceptional cases," where early appellate review "might avoid protracted and expensive litigation." Telectronics Proprietary, Ltd. v. Medtronic, Inc., 690 F. Supp. 170, 172 (S.D.N.Y. 1987); see also German, 896 F. Supp. at 1398. Section 1292(b) was not intended "to open the floodgates to a vast number of appeals from interlocutory orders in ordinary litigation", Telectronics, 690 F. Supp. at 172, or to be a "vehicle to provide early review of difficult rulings in hard cases." German, 896 F. Supp. at 1398; see also Abortion Rights Mobilization, Inc. v. Regan, 552 F. Supp. 364, 366 (S.D.N.Y. 1982); McCann v. Communications Design Corp., 775 F. Supp. 1506, 1534 (D.Conn. 1991).
The institutional efficiency of the federal court system is among the chief concerns underlying Section 1292(b). Forsyth v. Kleindienst, 599 F.2d 1203 (3d Cir. 1979). The efficiency of both the district court and the appellate court are to be considered, and the benefit to the district court of avoiding unnecessary trial must be weighed against the inefficiency of having the Court of Appeals hear multiple appeals in the same case. See Harriscom Svenska AB v. Harris Corp., 947 F.2d 627, 631 (2d Cir. 1991).
In determining whether a controlling question of law exists the district court should consider whether reversal of the district court's opinion could result in dismissal of the action, whether reversal of the district court's opinion, even though not resulting in dismissal, could significantly affect the conduct of the action, or, whether the certified issue has precedental value for a large number of cases. See Klinghoffer, 921 F.2d at 24-25; In re Oxford Health Plans, Inc., 182 F.R.D. 51, 54-55 (S.D.N.Y. 1998). Immediate appeal may be considered to advance the ultimate termination of the litigation if "`appeal promises to advance the time for trial or to shorten the time required for trial.'" In re Oxford, 182 F.R.D. at 53 (quoting 16 Charles A. Wright & Arthur Miller, Federal Practice and Procedure § 3930 at 432 (2d ed. 1996)). However, the advancement must be "material," 28 U.S.C. § 1292(b); see In re Duplan, 591 F.2d at 148 n. 11 ("'The critical requirement is that [an interlocutory appeal] have the potential for substantially accelerating the disposition of the litigation.'") (quoting 9 James Wm. Moore et al., Moore's Federal Practice, ¶ 110.22 at 260 (1975)).
Certification Is Not Appropriate
Bear Stearns has failed to meet the stringent criteria for Section 1292(b) certification. Bear Stearns seeks certification of two questions:
1. Whether the Supreme Court's decision in Central
Bank of Denver, N.A. v First Interstate Bank, N.A.,
511 U.S. 164 (1994) prohibits a claim against a
clearing broker based upon a showing that (i) the
clearing broker performed acts which the District
Court finds are "appropriate and essential parts of
the securities business" with (ii) knowledge that the
introducing broker was engaged in a market
manipulation and that knowledge that the introducing
broker will likely continue to engage in a market
2. Whether, on a motion for summary judgment, the
Court may parse through a third party's plea
allocation in a related criminal proceeding and accept
as true certain admissions and reject as false other
admissions made as part of the plea allocution and use
such selective admissions against the movant, thereby
relieving the non-movant of the burden of proof with
respect to basic facts essential to the non-movant's
Bear Stearns' motion primarily raises questions of fact and does not warrant interlocutory appeal. See Genentech, Inc. v. Novo Nordisk A/S, 907 F. Supp. 97, 99 (S.D.N.Y. 1995) (when controlling issues are factual, rather than legal, certification not available). The purported issues raised by Bear Stearns relate to whether Bear Stearns engaged in conduct knowingly in such a manner as to enhance the Blech market manipulation scheme.
Bear Stearns contends that there is a controlling question of law with respect to whether the Supreme Court's Central Bank decision prohibits a claim against a clearing broker. As discussed in the October 17 Order, the Central Bank Court held that in a private action secondary actors cannot be held liable for aiding and abetting a securities fraud under Section 10(b). However, the October 17 Order held that the employment of a manipulative device or the making of a material misstatement (or omission) may result in liability as a primary violator and that the evidence raised a factual issue as to whether Bear Stearns "directed" or "contrived" certain allegedly fraudulent trades.
It is fair to say that there is substantial ground for difference of opinion as to the adequacy of the plaintiffs' proof in view of the Central Bank decision, but that presents primarily a matter of fact, not law.
Bear Stearns also contends that there is a controlling question of law concerning whether the Court may assume a market manipulation of all Blech securities based on David Blech's plea allocution, and whether the Court may select certain admissions and reject others. However, in the October 17 Order this Court recognized that the issue was whether there was sufficient evidence to create an issue of material fact as to the actions of Bear Stearns and that this was separate from David Blech's market manipulation. Plaintiffs presented evidence that Bear Stearns directed David Blech and D. Blech & Co. to reduce their debits to Bear Stearns, knowing that in order to do so David Blech would engage in fraudulent and fictitious transactions, and that Bear Stearns cleared those transactions. Plaintiffs also presented evidence of the accounts utilized by David Blech and that Bear Stearns was aware of these accounts and the October 17 Order concluded that there was evidence that each of the Blech securities had been involved in one or more of the alleged unlawful activities. Thus plaintiffs were not, as Bear Stearns suggests, relieved of the burden of proof with respect to basic facts essential to its claim.
The final factor that a district court is to consider, the advancement of the termination of the litigation, does not weigh in Bear Stearns' favor. Under Section 1292(b), "the critical requirement is that it (an interlocutory appeal) have the potential for substantially accelerating the disposition of the litigation." In re Duplan Corp., 591 F.2d 139, 148 n. 11 (2d Cir. 1978). There will be a trial of plaintiffs' Section 20(a) claim against Baird Patrick even were Bear Stearns to succeed on its motion. Moreover, there remains a common law fraud claim against Bear Stearns. See Blech, 961 F. Supp. at 587. Accordingly, an interlocutory appeal will not promote the efficient litigation of this case, but will only serve to delay it.
For the reasons set forth above, Bear Stearns' motion is denied.
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