232 F.3d 49 (2nd Cir. 2000), 99-7825, DiRienzo, et al. v Philip Serv. Corp.

Docket Nº:Docket No. 99-7825, No. 99-7776
Citation:232 F.3d 49
Party Name:GABRIEL DiRIENZO; ALAN BILGORE; PAUL BLANCHARD; ROBERT GANS, IRA; ROBERT GANS; A. CARL HELWIG; BARRY ZEMEL; GREGORY N. MAPPUS; HERB SUDZIN; VINCENT DITRANO; BRUCE E. TOLL, IRA; BRUCE E. TOLL; JANE LANZO; INTERNET CAPITAL INC.; DEBORAH MIECZKOWSKI; JOSEPH H. MISIEWICZ; COLIN LOW; HAZEL M. O'BRIEN; DOUGLAS SCHMIDT; CHARLES K. FASOLD; RICHARD GREVE; G
Case Date:November 08, 2000
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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232 F.3d 49 (2nd Cir. 2000)

GABRIEL DiRIENZO; ALAN BILGORE; PAUL BLANCHARD; ROBERT GANS, IRA; ROBERT GANS; A. CARL HELWIG; BARRY ZEMEL; GREGORY N. MAPPUS; HERB SUDZIN; VINCENT DITRANO; BRUCE E. TOLL, IRA; BRUCE E. TOLL; JANE LANZO; INTERNET CAPITAL INC.; DEBORAH MIECZKOWSKI; JOSEPH H. MISIEWICZ; COLIN LOW; HAZEL M. O'BRIEN; DOUGLAS SCHMIDT; CHARLES K. FASOLD; RICHARD GREVE; GRACE SHUM; RONALD GLOTZER; RICHARD HERSHEY; RONALD McELROY; CHARLES MILLER; DEBORAH S. GREVE; ROBERT W. HILLGER; CAROL F. BRINK REVOCABLE TRUST; WILLIAM R. BRINK, IRA; WILLIAM R. BRINK REVOCABLE TRUST; WALTER CHOMPSKI; BRADWAL INVESTMENTS LTD.; LOCAL 138, 138A & 138B INTERNATIONAL UNION OF OPERATING ENGINEERS FRINGE BENEFIT FUNDS; MELVYN B. FLIEGAL; JAMES COLLINS; ALBERT SOLKOV; MICHAEL AND SOPHIA ISAACS; LEE PITMAN; KENNETH HARE; THOMAS LETH; LEVI SABOL; and LAWRENCE M. SIEGEL; on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.

PHILIP SERVICES CORPORATION; ALLEN FRACASSI; PHILIP FRACASSI; MARVIN BOUGHTON; ROBERT WAXMAN; JOHN WOODCRAFT; COLIN H. SOULE; NORMAN FOSTER; FELIX PARDO; HOWARD L. BECK; RAY CAIRNS; WILLIAM E.

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HAYNES; ROBERT L. KNAUSS; DERRICK ROLFE; HERMAN TURKSTRA; SALOMON BROTHERS, INC.; MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED; BT ALEX. BROWN INCORPORATED; MORGAN STANLEY & CO., INCORPORATED; CIBC OPPENHEIMER CORP.; CREDIT SUISSE FIRST BOSTON CORPORATION; DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION; LEHMAN BROTHERS INC.; SCHRODER & CO., INC.; SMITH BARNEY INC.; FURMAN SELZ LLC; ARNHOLD AND S. BLEICHROEDER, INC.; BLACKFORD SECURITIES CORP.; FIRST ALBANY CORPORATION; McDONALD & COMPANY SECURITIES, INC.; JANNEY MONTGOMERY SCOTT INC.; WM SMITH SECURITIES, INCORPORATED; DELOITTE & TOUCHE, CHARTERED ACCOUNTANTS, Defendants-Appellees.

In Re PHILIP SERVICES CORP. SECURITIES LITIGATION THIS DOCUMENT CONCERNS:

NOAH LIFF, as former shareholder of Steiner-Liff Iron and Metal Company, Shredders, Inc., McKinley Iron, Inc. and Southern Alloys & Metal Corp., ADAM LIFF, as former shareholder of Steiner-Liff Iron and Metal Company, Southern Alloys & Metal Corp. and Southeastern Scrap Trading, Inc., DANIEL LIFF, as former shareholder of Steiner-Liff Iron and Metal Company and Southeastern Scrap Trading, Inc., DARREN LIFF, as former shareholder of Southeastern Scrap Trading, Inc., JAN LIFF, as former shareholder of Steiner-Liff Iron and Metal Company, TERENCE LIFF, as former shareholder of Southeastern Scrap Trading, Inc., ZACHARY LIFF, as former shareholder of Southeastern Scrap Trading, Inc., ROBERT H. WILSON, as former shareholder of Shredders, Inc. and Southeastern Scrap Trading, Inc., HERMAN GELLMAN, as former shareholder of McKinley Iron, Inc., ROBERT GELLMAN, as former shareholder of McKinley Iron, Inc., DANIEL SHAPIRO, as former shareholder of McKinley Iron, Inc., LEONARD BIERMAN, as former shareholder of McKinley Iron, Inc., ALBERT BAISLEY, as former shareholder of Southern Alloys & Metal Corp. and ELIZABETH BAISLEY, as former shareholder of Southern Alloys & Metals Corp., Plaintiffs-Appellants,

v.

PETER CHODOS, ALLEN FRACASSI, COLIN SOULE, HOWARD BECK and MARVIN D. BOUGHTON, Defendants-Appellees.

Docket No. 99-7825, No. 99-7776

United States Court of Appeals, Second Circuit

November 8, 2000

Argued: March 13, 2000

Plaintiffs in a direct action and an as-yet uncertified class action brought suit against the directors and officers of a Canadian corporation now in bankruptcy proceedings and other defendants, alleging federal securities fraud and related state law claims. The United States District Court for the Southern District of New York (Mukasey, J.), dismissed both cases on the ground of forum non conveniens. Plaintiffs-appellants argue that the district court abused its discretion in failing to accord full deference to plaintiffs' choice of forum, in mischaracterizing transactions as international, and in giving too little weight to U.S. interest in enforcing its securities laws.

Reversed and remanded.

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NEIL L. SELINGER, White Plains, New York (Jeanne F. D'Esposito, Lowey Dannenberg Bemporad & Selinger, P.C., White Plains, New York; Jeffrey C. Block, Michael T. Matraia, Berman, DeValerio & Pease LLP, Boston, Massachusetts, of counsel), for Plaintiffs-Appellants DiRienzo, et al.

JACK M. WEISS, New York, New York (John T. Behrendt, Marshall R. King, Gibson, Dunn & Crutcher LLP, New York, New York, of counsel), for Defendant-Appellee Deloitte & Touche.

GERALD A. NOVACK, New York, New York (David S. Versfelt, Kirkpatrick & Lockhart LLP, New York, New York; Stuart I. Shapiro, Michael I. Allen, Shapiro Forman & Allen LLP, New York, New York; Frederick P. Schaffer, Schulte Roth & Zabel LLP, New York, New York; Charles W. Schwartz, Vinson & Elkins LLP, Houston, Texas; Craig R. Smyser, Smyser Kaplan & Veselka LLP, Houston, Texas, of counsel), for Defendants- Appellees Director-Officers.

Brad S. Karp, New York, New York (Michael E. Gertzman, Amy B. Vernick, Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, of counsel), filed a brief for Defendants-Appellees Underwriter Defendants.

Allan A. Capute, Washington, D.C. (Harvey J. Goldschmid, David M. Becker, Eric Summergrad, Securities and Exchange Commission, Washington, D.C., of counsel), filed a brief for the Securities and

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Exchange Commission, Amicus Curiae, in support of Appellants.

PAUL A. ALEXIS, Nashville, Tennessee (Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee, of counsel), for Plaintiffs-Appellants Liff, et al.

GERALD A. NOVACK, New York, New York (David S. Versfelt, Kirkpatrick & Lockhart LLP, New York, New York; Stuart L. Shapiro, Michael I. Allen, Shapiro Forman & Allen LLP, New York, New York, of counsel), for Defendants-Appellees Chodos, Fracassi, Soule, Boughton and Beck.

Before: CARDAMONE, CABRANES, Circuit Judges, and TRAGER[*], District Judge.

Judge Cabranes dissents in a separate opinion.

CARDAMONE, Circuit Judge:

Philip Services Corporation (Philip), a Canadian metal processing company, is alleged in the complaint in the instant action to have perpetrated a massive fraud upon its shareholders, the vast majority of whom are U.S. investors. Philip decided about eight years ago to become a dominant player in the metal recovery and processing industry in the United States. To that end during the period 1992-97 it purchased 15 American companies and maintained facilities in 12 states. Its American efforts thereafter generated 70 percent of its corporate revenue. To raise money to carry out its corporate plans it sold stock in the U.S. and Canada. In November 1997 it placed two secondary stock offerings that raised $380 million, of which $284 million came from U.S. investors and $94 million came from Canadian investors.1

By the end of 1996, the number of Philip's shares outstanding, traded on American and Canadian stock exchanges, had increased substantially, and 60 percent of the 70 million shares were held by U.S. investors. To tout its 1997 stock offerings Philip aggressively promoted the stock, traveling to U.S. cities with "road shows," issuing press releases, and filing financial reports with the Securities and Exchange Commission. When extensive litigation was commenced in different states in the U.S. and in Canada, the American suits were all transferred by the Judicial Panel on Multi-District Litigation to the United States District Court for the Southern District of New York, where they were dismissed, prompting the two appeals, argued together, before us now.

These appeals arise out of the allegedly fraudulent misrepresentations regarding the income and value of Philip during a three-year period between 1995 and 1998. In both cases plaintiffs allege federal securities law fraud as well as various state law claims. Philip is now in bankruptcy proceedings in Canada. The plaintiffs in DiRienzo, the first appeal, sue as representatives of an as-yet uncertified class of Philip investors who bought stock during the proposed class period. Most Philip shares traded during that period were sold in the United States. The DiRienzo defendants include Philip directors and officers, Philip's accountants Deloitte & Touche, LLP, a member of Deloitte Touche Tohmatsu, a federation of affiliated accountants headquartered in New York City, and the American underwriters of the 1997 public offering.

The Liff plaintiffs, in the second appeal, sold their interests in five American corporations for Philip stock and cash, and sue certain Philip directors and officers for alleged fraud in connection with the sales. Both cases were dismissed by the district court under the doctrine of forum non conveniens. See In re Philip Servs. Corp. Sec. Litig., 49 F.Supp.2d 629 (S.D.N.Y.

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1999). Because we think the district court's application of the test established in Gulf Oil Corp. v. Gilbert, 330 U.S. 485 (1947), was in some respects fundamentally flawed, we reverse.

BACKGROUND

Philip, the corporation whose securities lie at the core of this case, has its principal offices in Hamilton, Ontario, Canada, with subsidiaries in the United States. During the proposed class period, its primary base of operations was in the United States, where the bulk of its revenues were generated. Its stock was traded on the New York Stock Exchange (NYSE), the Toronto Stock Exchange (TSE), the Montreal Stock Exchange, and NASDAQ until April 30, 1996. Nearly 80 percent of the shares traded in Philip's stock during the class period traded on U.S. exchanges.

After reporting substantial increases in earnings for the years 1995-1997, the company announced on January 26, 1998 that it would take "charges to earnings" for the 1997 fiscal year of between...

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