MEMORANDUM AND ORDER
Before me are the remaining motions presented to the Court on April 3,1980: (A) the motion of certain defendants for an amendment to the opinion and order of the Court dated January 25, 1980, certifying certain questions to the Court of Appeals for the Second Circuit, pursuant to 28 U.S.C. § 1292(b); (B) the motion of certain defendants for leave either to amend their answers to assert crossclaims, pursuant to Fed.R.Civ.P. 13, or to file third-party complaints, pursuant to Fed.R.Civ.P. 14, against the City of Nеw York; (C) the motion of certain defendants for an order, pursuant to Fed.R.Civ.P. 26(c)(1), decertifying the bond class certified by the Court in Spector v. City of New York,
A. Defendants’ Motion fоr Certification of the Court’s January 25, 1980 Decision.
Defendants seek certification, pursuant to 28 U.S.C. § 1292(b) of this Court’s opinion and order, dated January 25, 1980, which (1) denied the motion of certain defendants for judgment on the pleadings on the ground that underwriters and sellers of municipal securities were subject to implied liability under § 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), for fraudulent conduct in connection with the sale of municipal securities; (2) dismissed the City of New York (the “City”) and its former Mayor and its Comptroller from this lаwsuit on the ground that, prior to the 1975 amendments to the Securities Exchange Act of 1934 (the “1934 Act”), the City was not a “person” within the meaning of § 3(a)(9) of the 1934 Act, 15 U.S.C. § 78c(a)(9). The Court also held that the plaintiffs’ common law claims against the City did not fall within the Court’s pendant jurisdiction.
For the reasons set forth below, I conclude that certification of this Court’s order of January 25,1980 would be inappropriate. An interlocutory appeal is permitted, pursuant to 28 U.S.C. § 1292(b), only where the district cоurt concludes that the order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal may materially advance the ultimate termination of the litigation. See Milbert v. Bison,
The Interlocutory Appeals Act of 1958 was designed, inter alia, to permit appellate review in “cases where a long trial would be necessary for the determination of liability or damages upon a [district court] decision overruling a defense going to the right to maintain the аction.” H.Rep. No. 1667, 85th Cong. 2d Sess. 1 (1958). See generally, S.Rep. No. 2434, 85th Cong. 2d Sess. 2-3, reprinted in 1958 U.S.Code Cong. & Admin. News, pp. 5255, 5256. The enactment of 28 U.S.C. § 1292(b) did not, however, exempt “big cases” from the final judgment rule of 28 U.S.C. § 1291 so as to permit interlocutory appeals as of right in such cases.
Defendants’ arguments in support of their certification motion are essentially the same as those advanced in connection with the motion to dismiss. The defendants first contend that recent Supreme Court decisions in Transamerica Mortgage Advisors, Inc. v. Lewis,
The decision in Superintendent of Insurance may reflect “the unique history of § 10b-5, Cannon v. University of Chicago, supra, at 1979, but the Supreme Court has not chosen to alter it.
Accordingly, the motion by the defendants to amend the order, dated Januаry 25, 1980, is denied.
B. Motion of Certain Defendants to Amend Their Answers to Assert Counterclaims or Crossclaims.
Defendants move to amend their answers to assert either crossclaims or counterclaims against the City for indemnity and contribution with respect to defendants’ potential liability for alleged violations of the federal securities laws and state law. In filing this motion, the defendants seek the benefits of a “stand-still” agreement executed in February 1976 between the City of New York аnd the underwriter defendants which preserved the underwriters’ right to assert crossclaims and/or counterclaims against the City.
The defendants forthrightly admit that the assertion of crossclaims or counterclaims is nothing other than an attempt “to frame an optimal package for appellate consideration.” Memorandum of Law in Support of Leave to File Crossclaims or Third Party Complaints at 6. Basically, the defendants request three orders: (1) granting them leave to file crossclaims or third party claims for indemnity and/or contribution; (2) an order dismissing these claims, pursuant to the court’s decision in Levy v. First National City Bank, (S.D.N.Y.1980); and (3) an order entering final judgment, pursuant to Fed.R.Civ.P. 54(b), permitting an appeal as of right. But see note 6, infra. In this fashion, defendants seek expedited review by the Court of Appeals for the Second Circuit of the availability of indemnity and/or contribution from the City for liability incurred in the distribution of such securities, as well as the applica
For the reasons set forth in Levy v. First National City Bank, (S.D.N.Y.1980), I decline to permit these crossclaims or third-party claims against the City. See generally, 3 Moore’s Federal Practice ¶ 14.-03[3][7] (2d ed. 1979 & Supp.1980). The Court of Appeals for the Second Circuit has held that indemnity agreements between issuers and underwriters are unenforceable, reasoning that “underwriters who knew they could be indemnified simply by showing that the issuer was ‘more liable’ than they . . would have a tendency to be lax in their independent investigations.” Globus v. Law Research Service, Inc.,
Defendants also seek to assert crossclaims or third-party claims for contribution against the City, as a joint tortfeasor, in connection with the defendants’ alleged violations of the federal securities laws and state common law. Federal courts have permitted contribution in connection with federal securities law violations because it accomplishes an equitable apportionment of liability among joint tortfeasors.
Defendants move to decertify the class composed of the first non-dealer purchasers of City notes originally certified, pursuant to Fed.R.Civ.P. 23(b)(3), in Friedlander v. City of New York,
I conclude that the challenge to the adequacy of the named plaintiffs as class representativеs is both factually and legally deficient.
The defendants also contend that the named plaintiffs in Friedlander are inadequate class representatives because their claims are atypical of those of the class. See Fed.R.Civ.P. 23(a)(3). According to the defendants, the claims of the named plaintiffs in Friedlander are susceptible to defenses arising out of the particular circumstances surrounding their purchase of the City’s notes. Briefly stated, the defendants contend that in making their investment decisions, the named plaintiffs relied on the advice and/or representations of certain non-defendants. Such reliance would, in the defendants’ view, make these plaintiffs susceptible to the defense that the alleged nondisclosures werе not “material” to their investment decision, and make their claims atypical of those of the class they purport to represent.
Four years ago, the defendants unsuccessfully opposed class certification in Friedlander on the ground that individual questions predominated because the representations made to the public by the brokers and dealers differed among the proposed class members. The court’s observations at that time are еqually appropriate today. In a nondisclosure case
the varying amounts and kinds of knowledge that may have been possessed by different class members, whether misrepresentations by broker/dealers or information gleaned from the press, does not preclude class treatment where what is alleged is a complete failure to disclose critical facts. Esplin v. Hirschi,402 F.2d 94 , 100 (10th Cir. 1968) cert, denied,394 U.S. 928 ,89 S.Ct. 1194 ,22 L.Ed.2d 459 (1969); Seiffer v. Topsy’s Int’l Inc.,64 F.R.D. 714 , 719 (D.Kan.1974).
Friedlander v. City of New York, supra, at 549.
The Supreme Court has held that, in a nondisclosure case, “positive proоf of reliance is not [necessary].” Affiliated Ute Citizens v. United States,
[i]n cases involving non-disclosure of material facts, even when coupled with access to the information, materiality rather than reliance thus becomes the decisive element of causation. See, e. g., Metro-Goldwyn-Mayer, Inc. v. Ross,509 F.2d 930 (2d Cir. 1975), Stier v. Smith,473 F.2d 1205 (5th Cir. 1973). And determination of materiality allows logically an inference of reliance. Chris-Craft Industries, Inc. v. Piper Aircraft Corp.,480 F.2d 341 (2d Cir.), cert, denied,414 U.S. 910 , 94*580 S.Ct. 231,38 L.Ed.2d 148 (1973). See, generally, Note, 88 Harvard L.Rev. 584 (1975).
Id. at 239. This “inference of reliance” can be rebutted upon a showing that the alleged nondisclosures were not material to the named plaintiffs’ investment decision. See Titan Group, Inc. v. Faggen, supra; Greenspan v. Brassler, supra; Panzirer v. Wolff, CCH Fed.Sec.L.Rep. ¶ 97,251 (S.D.N.Y. 1980).
Under the circumstances of this case, the defendants have not demonstratеd that their alleged nondisclosures were not material to the named plaintiffs. In a case involving an alleged fraud on the market, the mere fact that the plaintiffs may have conversed with others before purchasing the City’s securities does not undermine the materiality of the alleged nondisclosure. Accordingly, the defendants’ challenge to the adequacy of the class representative must fail.
In Spector v. City of New York, the defendants challenge the adequacy of James Truncell as a class representative because he is allegedly not a member of the redefined class, i. e., an original issue purchaser. It is undisputed that Mr. Truncell purchased approximately $300,000 of the New York City general obligation bonds issued on March 1, 1974 from the Bankers Trust Company on May 1, 1974. The defendants contend that these purchases were made in the after-market, and not in the primary market. In support of this view, defendants submit the affidavit of Mr. Douglаs S. Lasher, a Vice President of the Chase Manhattan Bank, N.A., the managing underwriter of the March 1, 1974 bond issue. Mr. Lasher reports that “the primary syndicate was closed and that all the securities had been taken down or sold by April 12,1974.” Lasher Affidavit ¶ 2. This view is directly contradicted by an affidavit submitted by Mr. Thomas R. Farrell, an attorney for the bond class. Farrell Affidavit ¶ 17.
While it is clear that Mr. Truncell cannot adequately represent a class of which he is not a member, there is a substantial faсtual dispute as to his membership in the redefined class. The court cannot resolve this dispute without testimony from an appropriate official or officials of the Bankers Trust Company, who can give testimony tracing to their source the securities sold by the bank to Mr. Truncell. Accordingly, a hearing will be held during the morning of June 13, 1980 commencing at 10:00 A.M. to take such testimony. The court will at this time reserve decision as to the adequacy of Mr. Truncell as class representative. In order to protect the rights of the members of the Spector class, the class plaintiffs are directed to proceed with class notice and, pursuant to Fed.R.Civ.P. 23(d)(2), are to include in such notice a statement soliciting the intervention of other class members as class representatives.
D. Motions of Class Plaintiffs to Amend the Complaint to Narrow the Bond Class.
Plaintiffs move to redefine the bond class in Spector v. City of New York and Trun-cell v. Bank of America N. T. & S. A. to include only the non-dealers who purchased New York City General Obligation Bonds upon their originаl issue after May 1, 1974 and prior to September 30, 1975. This would eliminate from the Spector class all aftermarket purchasers of the bonds in question; the redefined Spector class would be composed of all original issue purchasers of these securities.
Prior to a decision on the merits, leave to amend the complaint to redefine the class should be freely given except when some prejudice results to either the defendants or to those persons droppеd from the class. Fed.R.Civ.P. 15(a) and 23(d). See Ross v. Warner,
The likelihood of prejudice to thоse persons who are dropped from the class “can only be determined by examining carefully the circumstances of each case.” Berse v. Berman,
Accordingly, the motion of the class plaintiffs to redefine the Spector class is granted on the conditions set forth herein.
E. Motion of Class Plaintiffs to Amend Their Complaint To Drop Certain Peripheral Defendants.
Finally, with respect to the motion of the class plaintiffs to amend the complaints in all of the actions to drop as defendants Weeden & Co., Inc., A. G. Becker & Co., Inc., Bear Stearns & Co., Inc., Ehrlich-Bo-ber & Co., Inc. and First Pennco Securities Inc., the motion is granted. In litigation of this size and complexity, it is not unсommon for plaintiffs to uncover, through the discovery process, weaknesses in their own case or in their litigation strategy. Plaintiffs, having taken, extensive discovery, as much as concede that they do not have a case against these defendants. See Meyer Affidavit at 3. Insofar as such revelations lead to a motion to drop certain defendants,
Conclusion
Plaintiffs in Spector v. City of New York are to submit to the court within 15 days of the date of this order (1) a proposed form of public notice to those who would hereafter not be included in the class, as required in Part D above, and (2) the proposed supplement to the class notice presently in preparation soliciting additional class representatives.
The foregoing is so ordered.
Notes
. The moving defendants are the Chase Manhattan Bank, N.A., Citibank, N.A., Morgan Guaranty Trust Company, Chemical Bank, Bankers Trust Co., Manufacturers Hanover Trust Co., and Salomon Brothers (hereinafter the “defendants” or the “underwriter defendants.”).
. The decision of the Court of Appeals for the Second Circuit in Ross v. A. H. Robins Co., Inc.,
. The plaintiffs have not requested certification pursuant to 28 U.S.C. § 1292(b). In fact, they strenuously object tо certification on the ground that it would unduly prolong the lawsuit.
. Today’s result is entirely consistent with the court’s earlier decision in Levy v. First National City Bank. In that case, the third party plaintiffs claims for indemnity under federal and state law were dismissed on the authority of Globus, Inc. v. Law Services, Inc.,
The court did not decide in Levy, and does not resolve today, the question of whether the defendants could seek contribution from the City on the plaintiffs’ common law fraud claims. The court lacks jurisdiction to adjudicate that claim for contribution because it is asserted against a pendent party. See Aldinger v. Howard,
. Contribution provisions are found in § 11 of the 1933 Act, 15 U.S.C. § 77k, and in § 9 and § 18 of the 1934 Act, 15 U.S.C. §§ 78i, 78r.
. The defendants’ access to full appellate review is not restricted by today’s decision. Upon the entry of a final judgment fixing the defendants’ liability, if any, under the federal securities laws, the Court of Appeals for the Second Circuit can review this decision denying defendants leave to assert crossclaims or third-party claims for indemnity and/or contribution against the City. In any event, prior to a determination as to defendants’ liability to plaintiffs, appellate review of the defendants’ contingent claims for indemnity and/or contribution would be premature. See Brunswick Corp. v. Sheridan,
. Consistent with today’s decision granting the plаintiffs’ motion to redefine the Spector class, the Spector and Friedlander classes are composed of original issue purchasers of the securities in question.
. The original class representative for the bond class was Michael Spector. Mr. Spector now seeks to withdraw as class representative because he did not authorize the suit against the underwriter defendants. Consequently, for purposes of determining the adequacy of the class representative, the court will focus оn James Truncell, the remaining class representative.
. With respect to the Friedlander case, the deposition testimony of Mrs. Friedlander clearly indicates a willingness on her part to pay the costs of class notice up to a certain dollar amount. Friedlander Deposition at 59-64. Defendants unsuccessfully attempted to discover the outer limits of her financial commitment to this litigation. A similar problem arose in the Spector case. Although Mr. Truncell, a practicing attorney, had an awareness of his obligation to pay certain costs of this litigation, he did not fully understand the extent of his potential financial liability. Truncell Deposition at 87-92; Farrell Affidavit ' 8. Whether Mrs. Friedlander or Mr. Truncell would have been willing to assume the financial burdens of class notice to the note and bond classes is a matter of speculation. Given the fact that the costs of class notice in the Friedlander and Spector cases are to be paid out of the proposed settlemеnt funds, the precise nature of the class representative’s financial commitment is no longer relevant.
. The defendants can hardly complain about the plaintiffs’ realization that the Spector class was unmanageable, because the defendants originally objected to class certification on these grounds. See Spector v. New York, supra. Nonetheless, the redefined class is certainly of manageable size.
. The class notice to be sent to the members of the Friedlander and Spector classes will apprise them of the fact that these defendants have been dropped from this litigation, and will give the class members an opportunity to object to that decision.