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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,

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge


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 [1] involves a controlling question of law [2] as to which there is substantial ground for difference of opinion and [3] 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 Cir. 1996)).

  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 thereafter.
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) (same).

  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. 1998).

  Morgan Stanley's motion is denied. The Clerk is directed to close this motion [No. 29].


20040708 ...

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