United States District Court, S.D. New York
July 8, 2004.
LAWRENCE FOGARAZZO and CAROLYN FOGARAZZO, Joint Tenants With Rights of Survivorship, STEPHEN L. HOPKINS, and DON ENGEL on behalf of themselves, and all others similarly situated, Plaintiffs,
LEHMAN BROTHERS, INC., GOLDMAN SACHS & CO., and MORGAN STANLEY & CO., INC., Defendants.
The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge
MEMORANDUM OPINION AND ORDER
This securities fraud lawsuit concerns three investment banks
that allegedly issued fraudulently optimistic research reports
regarding RSL Communications, Inc. On May 21, 2004, I issued an
Opinion and Order denying defendants' motions to dismiss. See
Fogarazzo v. Lehman Bros., Inc., No. 03 Civ. 5194, 2004 WL
1151542 (S.D.N.Y. May 21, 2004) (the "May 21 Opinion"). Morgan
Stanley & Co., Inc. now asks that I certify that interlocutory
order for immediate appeal. See 28 U.S.C. § 1292(b). The
remaining defendants Lehman Brothers, Inc. and Goldman Sachs &
Co. have not joined in Morgan Stanley's application. For the reasons that follow, I decline to
certify the May 21 Opinion.
Section 1292(b) allows for an appeal from an interlocutory
order upon consent of both the District Court and the Court of
Appeals. See also Fed.R.App.P. 5. "[I]n order to obtain
certification under section 1292(b), the party seeking
interlocutory appellate review must `at a minimum,' satisfy three
statutory criteria." Ryan, Beck & Co. v. Fakih, 275 F. Supp.2d 393,
396 (E.D.N.Y. 2003) (quoting National Asbestos Workers Med.
Fund v. Philip Morris, Inc., 71 F. Supp.2d 139, 162 (E.D.N.Y.
1999)). To wit,
When a district judge, in making in a civil action an
order not otherwise appealable under this section,
shall be of the opinion that such order  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, [s]he shall so state in writing in such
order. The Court of Appeals . . . may thereupon, in
its discretion, permit an appeal to be taken from
such order. . . .
28 U.S.C. § 1292(b). In examining the legislative history of
section 1292(b), the Court of Appeals has concluded that,
It is a basic tenet of federal law to delay appellate
review until a final judgment has been entered.
Section 1292(b)'s legislative history reveals that
although that law was designed as a means to make an
interlocutory appeal available, it is a rare
exception to the final judgment rule that generally
prohibits piecemeal appeals. The use of § 1292(b) is
reserved for those cases where an intermediate appeal may avoid protracted litigation.
Koehler v. Bank of Bermuda Ltd., 101 F.3d 863, 865-66 (2d
Cir. 1996) (citations omitted) (also noting that 35 motions for
interlocutory appeal were filed from 1994 through 1995, of which
only eight were granted by the Second Circuit). In short,
"Section 1292(b) certification should be `strictly limited
because only exceptional circumstances will justify a departure
from the basic policy of postponing appellate review until after
the entry of a final judgment.'" In re Worldcom Inc. Sec.
Litig., No. 02 Civ. 3288, 2003 WL 22953644, at *4 (S.D.N.Y. Dec.
16, 2003) (quoting Flor v. BOT Fin. Corp., 79 F.3d 281, 284 (2d
In this case, Morgan Stanley asserts that the "controlling
question of law" resolved by the May 21 Opinion is: "whether
plaintiffs truly can comply with the [Private Securities
Litigation Reform Act] without making a single particularized
allegation that is specific to Morgan Stanley's research coverage
of RSL." Memorandum of Defendant Morgan Stanley & Co., Inc. in
Support of its Motion for the Court to Amend its May 21, 2004
Order to Certify it for Interlocutory Appeal ("MS Mem.") at 4.
That Morgan Stanley has not clearly identified any legal issue
or issues in the May 21 Opinion that it is challenging is itself
strong evidence that the motion should be denied. See, e.g., In
re Worldcom, Inc. Sec. Litig., No. 02 Civ. 3288, 2003 WL
22533398, at *11 (S.D.N.Y. Nov. 7, 2003) ("This motion is not really about the sufficiency of the
pleadings or any error of law in the May 19 Opinion. It if were,
the SSB Defendants would have pointed with more specificity to
language or passages in one or the other document that require
certification of an interlocutory appeal.").
In essence, Morgan Stanley appears to argue that in order to
allege a securities fraud claim against a research analyst, a
plaintiff must plead, at a minimum, direct evidence that the
analyst's recommendation was contrary to her best judgment. For
example, Morgan Stanley might be satisfied if plaintiffs could
point to an e-mail from one of its analysts that said, "Even
though RSL is worthless, I'm giving it a strong buy." Because the
May 21 Opinion did not require this level of proof at the
pleading stage, Morgan Stanley argues that the Court
impermissibly eliminated the PSLRA's requirement that fraud be
pleaded with specificity. See generally MS Mem. at 4-7.
In fact, the May 21 Opinion did not hold that a plaintiff can
comply with the PSLRA without making particularized allegations;
to the contrary, it held that the allegations in the complaint
were sufficiently particular. In the May 21 Opinion, I held that
the complaint adequately alleged that Morgan Stanley's analyst
reports were misleading, see Fogarazzo, 2004 WL 1151542, at *15
n. 124, and that the analysts made the recommendations in those
reports with scienter, see id. at *15 n. 128 & *16 nn. 133-34.
But all of this is beside the point. Morgan Stanley's motion
can be rejected for a simple reason: interlocutory review of the
May 21 Opinion would not "materially advance the ultimate
termination of th[is] lawsuit," 28 U.S.C. § 1292(b), the third
and most important finding required by section 1292(b). See
Lerner v. Millenco, L.P., 23 F. Supp.2d 345, 347 (S.D.N.Y.
1998) ("The Court of Appeals has emphasized the importance of the
third consideration in determining the propriety of an
interlocutory appeal.") (citing cases). Because the May 21
Opinion was only addressed to whether plaintiffs had alleged
fraud with sufficient particularity, reversal would likely result
in an amended complaint (and another motion to dismiss), further
delaying the ultimate disposition of this case. For that reason,
the Second Circuit has long disfavored interlocutory review of
pleadings, except where novel legal questions are implicated:
It would seem axiomatic that appeals challenging
pre-trial rulings upholding pleadings against
demurrer could not be effective in bringing nearer
the termination of litigation; on the contrary, they
only stimulate the parties to more and greater
pre-trial sparring apart from the merits. We are not
accustomed to criticize or reverse such pleading
decisions, and the chance of reversal here seems so
slight as to be quite negligible. Further, a reversal
at most could lead only to a remand for repleading,
with possibilities of further interlocutory appeals
Gottesman v. General Motors Corp., 268 F.2d 194
, 196 (2d Cir.
1959) (quoted in Degulis, 1997 WL 20832, at *3).
Moreover, because Lehman never moved to dismiss on the grounds
asserted by Morgan Stanley, no matter what else happens, the
litigation will proceed as to Lehman. That being so, permitting
interlocutory review of the May 21 Opinion as it relates to
Morgan Stanley would only delay the ultimate resolution of this
case. See, e.g., In re Blech Sec. Litig., No. 94 Civ. 7696,
2003 WL 134988, at *3 (S.D.N.Y. Jan. 17, 2003) (denying 1292(b)
certification because claims would proceed against some
defendants even if the interlocutory order were reversed);
Degulis v. LXR Biotechnology, Inc., No. 95 Civ. 7215, 1997 WL
20832, at *7 (S.D.N.Y. Jan. 21, 1997) (same); In re NASDAQ
Market Makers Antitrust Litig., 938 F. Supp. 232, 234-35 (1996)
In this motion, Morgan Stanley does not seek review of a
discrete "controlling question of law" that it believes must be
resolved. Rather, it calls into question the entirety of the May
21 Opinion, suggesting that the determination that the
complaint's allegations are sufficiently particular was
erroneous. Morgan Stanley moved to have the complaint against it
dismissed, and it lost. While losing a dispositive motion is a
setback to its case, and no doubt upsetting, the May 21 Opinion
is not the proper subject of a section 1292(b) certification. As
Judge Brieant has explained, The District Court should not lose credibility with
the Court of Appeals by certifying interlocutory
appeals simply to accommodate requests of counsel who
are dissatisfied with or inconvenienced by a ruling
made by the District Court, or to entice the Court of
Appeals to provide more grist for the law reviews. A
trial court must recognize that winners and losers
are about equal in number, and that litigators will
litigate any issue as far as they can, and will
appeal whenever they can do so.
In re Oxford Health Plans, Inc., 182 F.R.D. 51, 53 (S.D.N.Y.
Morgan Stanley's motion is denied. The Clerk is directed to
close this motion [No. 29].
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