The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
MEMORANDUM OPINION and ORDER
This is a diversity action for common law fraud in connection
with a stock purchase. Plaintiff Sherleigh Associates, Inc.,
Profit Sharing Plan ("Sherleigh") is a New York investment
company with its principal place of business in New York City.
Defendant Patron Systems Inc. ("Patron") is a Delaware
corporation with its principal place of business in either
Florida or Illinois.*fn1 Defendant Patrick Allin, Patron's
former CEO and a member of the Board of Directors, is a resident
of Illinois. Defendant Robert Yaw, the Chairman of Patron's Board
of Directors, is a resident of Florida.
Plaintiff claims that defendants represented, in early 2003,
that Patron was poised to acquire two target corporations that
would make Patron a strong company with $40 million in expected
revenues. Based on information provided by defendants, and on the
results of plaintiff's own research, plaintiff purchased one
million shares of Patron stock between March 19 and March 28,
2003, at two dollars per share. According to plaintiff, the
anticipated acquisition of the two target companies never took
place. The value of plaintiff's shares dropped to less than twenty cents per share as a result.
Plaintiff and Defendant Allin have reached a settlement,
embodied in a Settlement Agreement. "The Settlement Agreement is
conditioned on a finding by this Court that (1) the Settlement
Agreement was entered into in good faith and (2) bars any future
contribution claims against Defendant Allin relating to the
claims or allegations asserted in Plaintiff's Amended
Complaint." Memorandum in Support of Motion to Voluntarily
Dismiss and to Issue Bar Order ("Mem. in Support") at 2-3
(emphasis in original). They thus move the Court for the entry of
an Order dismissing Defendant Allin with prejudice, finding that
the settlement is fair, reasonable and in good faith, and barring
any subsequent claims by Defendants Patron and/or Yaw against
Allin for contribution or indemnification relating to the claims
or allegations asserted in Plaintiff's amended complaint. They
seek the Court's determination that the settlement was reached in
good faith and the Court's Order dismissing the action with
prejudice as to Allin and barring all claims in contribution and
indemnification with respect to the claims specified in
Plaintiff's Amended Complaint.
Defendants Patron and Yaw oppose the motion on the following
grounds: (1) that contribution is regulated by N.Y. General Obligations Law § 15-108 ("§ 15-108") and thus need not be
addressed by the Court; (2) that indemnification is not covered
by § 15-108 and thus an Order barring indemnification claims
should not be issued, at least with respect to claims that Patron
might make; and (3) that no evidence has been put forth
demonstrating the reasonableness of the settlement.
Following the service of Defendants Patron and Yaw's Memorandum
in Opposition to the Plaintiff's and Defendant Allin's Joint
Motion to Voluntarily Dismiss and for Bar Order ("Mem. in Opp."),
Plaintiff and Defendant Allin modified their request to
accommodate some of Defendants Patron and Yaw's concerns. They
submitted a Proposed Order reflecting these modifications. Reply
Memorandum in Support of Motion to Voluntarily Dismiss and to
Issue Bar Order ("Rep. Mem.") Exhibit B.
I. New York General Obligations Law § 15-108
"[T]he Court notes the strong federal and state interest in
promoting settlements and the role of bar orders in serving that
interest." FDIC v. Abel, No. 92 Civ. 9175 (JFK), 1995 WL 716729
at *13 (S.D.N.Y. Dec. 6, 1995). In the context of the settlement
of a state common law tort claim, the entry of a bar order
pursuant to § 15-108 is appropriate. Id. Section 15-108
contains the following provisions: (b) Release of tortfeasor. A release given in good
faith by the injured person to one tortfeasor . . .
relieves him from liability to any other person for
contribution. . . .
(c) Waiver of contribution. A tortfeasor who has
obtained his own release from liability shall not be
entitled to contribution from any other person.
New York Gen. Oblig. Law § 15-108 (McKinney 2001).
Defendants Patron and Yaw argue that Plaintiff and Defendant
Allin overlooked two key elements of these provisions in drafting
the original Proposed Settlement Agreement. First, under §
15-108, the bar against contribution claims is a two-way street,
such that non-settling defendants cannot bring contribution
claims against settling defendants, and settling defendants
cannot bring contribution claims against non-settling defendants.
Second, a finding of good faith, rather than reasonableness, is
all that the statute requires.
As to the first issue, Plaintiff and Defendant Allin have
conceded their error. Rep. Mem. at 2 n. 2. They have addressed
this deficiency in their Proposed Order. Because of this
concession, Plaintiff and Defendant Allin's request regarding
contribution claims under § 15-108 is granted. As to the second issue, Plaintiff and Defendant Allin also
concede that a finding of reasonableness has been required by
only one district court in this circuit in a non-class action
case. Thus, "[i]f this Court determines that a reasonableness
finding is not necessary to issue the requested bar order,
Defendant Allin requests that the requested bar order be entered
without a finding of reasonableness." Rep. Mem. at 7. Because of
the plain language of the statute, and on the basis of the
parties' submissions, the request for a finding of good faith is
granted and there is no need for a finding of reasonableness.
As a preliminary matter, it is important to note the difference
between contribution and indemnification.
The right of contribution arises among several
tort-feasors who share culpability for an injury to
the plaintiff and whose liability may be equitably
apportioned according to fault. Indemnity, however,
flows from either a contractual or other relationship
between the actual wrongdoer and another, such as
that of employee and employer, and involves a
complete shifting of the loss.
Riviello v. Waldron, 47 N.Y.2d 297, 306 (1979) (citations
omitted). "A classic indemnity claim exists, of course, in favor of a person who has been held vicariously liable for the tort of
another. Thus, an employer who has been cast in ...