67 F.R.D. 111 | S.D.N.Y. | 1975
MEMORANDUM AND ORDER
Defendants Shearson Hayden Stone Inc., Bernstein-Macauley, Inc., Roger S. Berlind and Sanford I. Weill (hereinafter collectively referred to as the Hayden Stone defendants) have moved
Connell v. Bernstein-Macauley, Inc., 72 Civ. 3272 (WK) (“Connell”); Taylor v. Bernstein-Macauley, Inc., 73 Civ. 4136 (M.E.F.) (“Taylor”); United States Steel and Carnegie Pension Fund, Inc. v. Orenstein, 74 Civ. 391 (E.W.) (“U. S. Steel”); The 65 Security Plan Pension Fund v. Hayden Stone, Inc., 74 Civ. 2426 (E.W.) (“65 Security Plan”)
There is no doubt in anyone’s
Both Connell and United States Steel arise solely out of a private placement of $5,250,000 worth of Convertible Subordinated Debentures of Topper Corporation (“Topper”), completed on September 28, 1971 (“1971 Private Placement”). The plaintiffs in these two actions allege, in essence, that they were induced by various misrepresentations and omissions by the various named defendants to purchase the Debentures, which later proved worthless upon Topper’s subsequent adjudication in bankruptcy. While the Connell plaintiffs seek damages in the amount of $250,000, the United States Steel plaintiffs seek damages in the aggregate amount of $4,250,000. The chief defendant in both actions—Hayden Stone—is a brokerage and investment banking firm which acted as Topper’s agent in the 1971 Private Placement. In that connection, it prepared an Offering Memorandum for distribution to prospective purchasers which had attached to it a prospectus dated April 29, 1971. This prospectus in turn continued allegedly misleading financial statements for Topper for the year 1970, which it is claimed the Hayden Stone defendants knew or should have known to be false and misleading.
Messrs. Weill and Berlind, defendants in the United States Steel action, were officers and directors of Hayden Stone and outside directors of Topper. Henry Orenstein, also a defendant in the United States Steel action, was the founder and chief executive officer of Topper. Bernstein-Macauley, Inc.—a wholly owned subsidiary of Hayden Stone—rendered investment advisory services to the plaintiffs in both Connell and United States Steel. Finally, defendant First National City Bank (“FNCB”) acted not only as investment advisor to certain of the plaintiffs in the United States Steel action, but also was Topper’s secured lender and chief source of financing. The claim against FNCB is that although it knew of Topper’s deteriorating financial condition it failed to report on such condition to the plaintiffs.
The Taylor and 65 Security Plan cases, on the other hand, concern both issues and parties not involved in the Connell and United States Steel ac
Secondly, only one of the three causes of action asserted in Taylor relate to the 1971 Private Placement, the transaction which gave rise to both Connell and United States Steel. The other two claims in Taylor relate to the purchase of $250,000 worth of Subordinated Topper Notes a year earlier, on January 29, 1970, and the extension of the maturity date of said Notes from July 30, 1971 until June 30, 1972.
Since Taylor and 65 Security Plan involve issues not raised and parties defendant not named in Connell and United States Steel, I have decided, in the exercise of my discretion, not to consolidate all four actions, but rather to consolidate only Connell and United States Steel—the two eases with the most similarity of issues and parties. Moreover, of the four actions sought to be consolidated, only Connell is non-jury. Consolidation of the already complex issues concerning insider liability raised in Connell and United States Steel with the even more complex and subtle issue of the liability of independent auditors raised in Taylor and 65 Security Plan would only’ serve to unnecessarily confuse the jury. Cohen v. Franchard Corporation (2d Cir. 1973) 478 F.2d 115, 117. Although the suggestion of the United States Steel plaintiffs that I consolidate on an issue rather than a case basis is appealing in a theoretical sense, as a practical matter, it would take more time than it is worth to separate out all the issues raised in the four cases, decide which ones are common and which are not, and then try them all on a separate basis.
The decision to consolidate only the Connell and United States Steel cases for trial shall in no way interfere with the continuation of discovery in all four cases on a joint basis. The parties are directed to continue their consolidated discovery apace before Magistrate Schreiber with September 15, 1975 set as the date by which all discovery is to be completed. At that time, a pretrial order will be drawn up under the supervision of the Magistrate and the consolidated actions (at least) marked ready for trial as of October 15, 1975.
As mentioned earlier, the Hayden Stone defendants have also moved—in the Connell and United States Steel actions—for leave to file cross-claims for contribution and indemnity against certain already named defendants and other persons or corporations not as yet parties, pursuant to F.R.C.P. 13(g) and (h). The primary entity they wish to bring into the lawsuits via their proposed cross-claims is Arthur Young.
The proposed cross-claims are of two types: (1) cross-claims pursuant to Rule 13(g), F.R.C.P. against entities already parties to the actions, and (2) cross-claims pursuant to Rule 13(h) F.R.C.P., against certain persons or companies not now defendants, together with already named defendants. As against Arthur Young, they allege that it improperly certified Topper’s 1970 financial statements, thus misleading the proposed cross-claimants. The proposed cross-claim against FNCB—already a named defendant—asserts that had FNCB disclosed Topper’s deteriorating financial condition to the prospective purchasers, the 1971 Private Placement would never have been consummated. Finally, the proposed cross-claims against the various Topper officers mentioned above (see Footnote 3) allege that they knew or should have known that the 1970 financial statements were misleading and that they withheld certain material facts in that respect from the Hayden Stone defendants and the plaintiffs.
A careful review of the proposed cross-claims reveals that most of them are more in the nature of third-party impleader claims, which are governed by F.R.C.P. 14(a) and Local Rule 16, than cross-claims, which are governed by F.R.C.P. 13(g) and (h). In the first place, they seek contribution and indemnity as against the proposed cross-claim defendants only “if judgment is rendered for plaintiffs and against cross-claimants.” Such contingent claims, especially when asserted against persons not already parties to the action, are ordinarily made under F.R.C.P. 14(a), which provides that:
“ . . . [A] defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of plaintiff’s claim against him * * * ”
Although the same “is or may be liable” language appears in Rule 13—under which the movants propose to assert their cross-claims—the actual operation of the Rule as it relates to claims against non-parties is quite limited. In fact, additional parties can only be joined by means of a cross-claim if their presence “is required for the granting of complete relief in the determination of the cross-claim.” Moore’s Federal Practice ff 13.39 at p. 992 (2d ed. 1974). Subdivision (h) of Rule 13—which allows for the joinder of additional parties—can only be utilized to permit such joinder under a cross-claim where the claim is jointly asserted against at least one existing party and persons as yet not party to the action so as to render the inclusion of such third persons essential to the litigation of the cross-claim.
The significance of this distinction becomes apparent when Rule 14 is read in conjunction with Local Rule 16 of the Southern District of New York’s Civil Rules, which requires that all motions for leave to bring in a third party defendant under F.R.C.P. 14 be made within six months from the service of the moving party’s answer. Under the clear mandate of Local Rule 16, the instant motions to assert claims against additional parties are untimely,
Moreover, from their own affidavits, it is apparent that they were on notice of the facts giving rise to their proposed claims against the various Topper officers at least as early—if not earlier —as they became familiar with Arthur Young’s role.
Injection of additional parties into these lawsuits at this late date would inevitably delay completion of discovery and unnecessarily complicate the issues to be presented to the jury. Although Arthur Young may have been present at some of the depositions conducted in Connell and United States Steel by virtue of the earlier consolidation for pretrial purposes only of all four
So ordered.
. A similar motion was made on March 14, 1974 before Judge Bauman by the same defendants, in the Connell action. On April 28, 1974, Judge Bauman issued an order denying the relief requested—without prejudice to its renewal'—but consolidating the actions for discovery purposes only.
. The Connell plaintiffs had initially opposed any form of consolidation, for fear that it would postpone the Spring, 1975 trial date that it had hoped for. Since it is now clear that the Court’s calendar will not permit of a trial in any event before the Fall of this year, they have reluctantly withdrawn their objections.
. In the Connell cross-claim motion, they also seek to add the following people (hereinafter collectively referred to as “Topper officers”) : Henry Orenstein (shareholder— president and director of Topper), Jack J. Rose (the senior vice president—Finance, secretary and a director of Topper), Julius H. Schwartz (vice president—Finance and treasurer of Topper), David L. Downs (executive vice president—Corporate Development and a director of Topper), Mason Benson (vice president—National Account Sales of Topper), Sanford L. Obolsky (controller of Topper), and Alex W. Hughes, Jr. (National Sales Manager of Topper). In the United States Steel cross-claims motion, they also
. 6 Wright & Miller, Federal Practice and Procedure § 1435, at p. 188 (1971).
. In United States Steel, the answers of the Hayden Stone defendants were interposed on April 1, 1974 and their amended answers were served on April 19, 1974. In Connell, their final amended answers were interposed on April 22,1974.
. Local Rule 16 reads, inter alia, as follows: “ * * * motions of this nature may be granted after the expiration of such period in exceptional cases upon a showing of special circumstances and of the necessity for such relief in the interest of justice and upon such terms and conditions as the Court deems fair and appropriate.”