444 F.Supp.2d 718 (N.D.Tex. 2006), 3 03-CV-1769, Ryan v. Flowserve Corp.

Docket Nº:3 03-CV-1769
Citation:444 F.Supp.2d 718
Party Name:Ryan v. Flowserve Corp.
Case Date:June 09, 2006
Court:United States District Courts, 5th Circuit, Northern District of Texas

Page 718

444 F.Supp.2d 718 (N.D.Tex. 2006)

Jerry RYAN, et al., Plaintiffs,


FLOWSERVE CORPORATION, et al., Defendants.

No. 3:03-CV-1769-B.

United States District Court, N.D. Texas, Dallas Division.

June 9, 2006

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[Copyrighted Material Omitted]

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Robert J. Hill, Claxton & Hill, Joe Kendall, Willie Briscoe, Provost Umphrey Law Firm, Marc R. Stanley, Martin Woodward, Roger L. Mandel, Stanley Mandel & Iola, Dallas, TX, Kimberly C. Epstein, Lauren M. Winston, Ex Kano S. Sams, II, Kimberly C. Epstein, Maria V. Morris, Mary K. Blasy, Shana E. Scarlett, Shawn A. Williams, Willow E. Radcliffe, Lerach Coughlin Stoia Geller Rudman & Robbins, San Francisco, CA, Tamara J. Driscoll, Lerach Coughlin Stoia Geller Rudman & Robbins, Seattle, WA, Thomas E. Bilek, Hoeffner & Bilek, Houston, TX, Mel E. Lifshitz, Bernstein Liebhart & Lifshitz, New York, NY, William B. Federman, Federman & Sherwood, Oklahoma City, OK, for Plaintiffs.

R. Thaddeus Behrens, Carrie Lee Huff, Nicholas Even, Haynes & Boone, Richard A. Rohan, Fletcher Yarbrough, Jennifer E. Morris, Todd A. Murray, Carrington Coleman Sloman & Blumenthal, David W. Klaudt, Charles Watts Flynn, Locke Liddell & Sapp, Ellen B. Sessions, Rodney Acker, Melissa J. Swindle, Jenkens & Gilchrist, M. Byron Wilder, Joshua P. Martin, Gibson Dunn & Crutcher, Rodney Acker, Melissa J. Swindle, Jenkens & Gilchrist, Dallas, TX, Dean J. Kitchens, Gibson Dunn & Crutcher, Los Angeles, CA, for Defendants.


BOYLE, District Judge.

This is a securities fraud action. The Defendants move to appeal this Court's interlocutory order denying their motions to dismiss Plaintiffs' Fifth Amended Complaint. The precise motion before the Court is Defendants' Motion to Certify November 22, 2005 Order for § 1292(b) Interlocutory Appeal (doc. 141). For the reasons that follow, the motion is DENIED.



Defendant Flowserve Corporation, 1 is a world-wide manufacturer of pumps, valves, seals and related components in the "process industries." Plaintiffs, individuals who purchased publicly traded securities of Flowserve during the purported class period, allege that the Defendants violated federal securities laws by overstating the company's income and understating its costs in order to conceal its declining financial condition. As a result, Plaintiffs claim they suffered losses when the company's true financial condition was revealed in mid-2002 and the stock price plummeted "75% from its Class Period high." (Fifth Am. Compl. pp 13, 328-49)

Plaintiffs filed this suit in August 2003 accompanied by a series of pleadings culminating in their 154-page Fifth Amended Complaint. Flowserve responded with motions to dismiss pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure and the Private Securities

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Litigation Reform Act of 1995 ("PSLRA"). In their motions, the Defendants identified numerous perceived pleading deficiencies including--and relevant to this determination--that Plaintiffs failed to adequately plead loss causation; that Plaintiffs' claims are barred by the statutory negative causation defense; and that Plaintiffs' claims regarding Defendants' earnings projections statements are precluded by the PSLRA's "safe harbor" provision.

On November 18, 2005, the Court heard arguments on the Defendants' motions to dismiss and denied all three motions in a ruling from the bench followed by a written order on November 22, 2005. Defendants now seek certification on three issues they describe as "controlling questions of law", including:

· Whether, in a case predicated on the fraud-on-the market theory, a plaintiff must plead that the alleged curative disclosure of the "truth" that resulted in the plaintiff's losses revealed each material fact allegedly misrepresented to satisfy the required element of loss causation;

· Whether, in a case predicated on the fraud-on-the market theory, a plaintiff's claims under Section 11 are barred by the statutory negative causation defense where the alleged curative disclosure that the plaintiff claims resulted in his losses did not reveal the facts allegedly misrepresented in the challenged registration statements; and

· Whether the PSLRA safe harbor for forward-looking statements protects from liability projections accompanied by meaningful cautionary language independent of the speaker's alleged state of mind.

(Defs. Mot. to Certify ("Mot.") at 2)

Plaintiffs oppose the motion on several grounds, arguing, inter alia, that the Defendants' "controlling questions" are simply fact-bound issues disguised as questions of law for § 1292(b) purposes; that an interlocutory appeal will "retard" rather than advance the litigation; and that they will be severely prejudiced by any further postponement of discovery in this almost three-year-old case.


§ 1292(b)

At the outset, it is important to understand the circumstances under which a party may appeal an interlocutory order. This is best approached by first reviewing the pertinent statutory language and then examining how the courts have interpreted and applied the provision. Section 1292(b) expressly permits a district court to certify an order for interlocutory appeal only if it "involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." 28 U.S.C.A. § 1292(b) (1994 & Supp.2005). This terminology was intended to restrict the category of cases suitable for permissive appeal, but courts have not always agreed on the contours of the stated limitations. See 16 CHARLES A. WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE§ 3929 at 366-67 (2d ed.1996) [hereinafter WRIGHT & MILLER]. See generally Ahrenholz v. Bd. of Trustees of the Univ. of Illinois, 219 F.3d 674, 676 (7th Cir.2000) ("The [§ 1292(b)] criteria, unfortunately, are not as crystalline as they might be....").

For example, at times, courts including the Fifth Circuit have held that § 1292(b) appeals are appropriate under only "exceptional" circumstances or in "big" cases. Clark-Dietz and Associates-Engineers v. Basic Constr. Co., 702 F.2d 67, 69 (5th Cir.1983) (explaining that interlocutory appeals are permitted only under "exceptional"

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circumstances); see Gottesman v. Gen. Motors Corp., 268 F.2d 194, 196 (2d Cir.1959) (clarifying that certification should be "strictly limited to the precise conditions stated in the law"); WRIGHT & MILLER, supra, § 3929 at 365 & n. 10 (internal citations omitted) (collecting cases holding interlocutory appeal appropriate only in "big" or "exceptional" cases).

Conversely, at other times courts--the Fifth Circuit included--have employed a more flexible approach to § 1292(b) appeals. In Hadjipateras v. Pacifica, S.A., Judge Brown promoted a more relaxed application of the provision:

Each application is to be looked at ... in the light of the underlying purpose reflected in the statute.... [I]t was a judge-sought, judge-made, judge-sponsored enactment. Federal Judges from their prior professional practice, and more so from experience gained in the adjudication of today's complex litigation, were acutely aware of two principal things. First, certainty and dispatch in the completion of judicial business makes piecemeal appeal as permitted in some states undesirable. But second, there are occasions which defy precise delineation or description in which as a practical matter orderly administration is frustrated by the necessity of a waste of precious judicial time while the case grinds through to a final judgment as the sole medium through which to test the correctness of some isolated identifiable point of fact, of law, of substance or procedure, upon which in a realistic way the whole case or defense will turn. The amendment was to give to the appellate machinery of § 1291 through § 1294 a considerable flexibility operating under the immediate, sole and broad control of Judges so that within reasonable limits disadvantages of piecemeal and final judgment appeals might both be avoided. It is that general approach rather than the use of handy modifiers--which may turn out to be Shibboleths--that should guide us in its application and in determining whether the procedure specified has been substantially satisfied.

290 F.2d 697, 702-03 (5th Cir.1961)); see also WRIGHT & MILLER, supra, § 3929 at 368-69 & n. 16 (quoting Ex parte Tokio Marine & Fire Ins. Co., 322 F.2d 113, 115 (5th Cir.1963)) (criticizing other courts' "epithets" that § 1292(b) is to be " 'sparingly applied' ").

Regardless of the approach--rigid or more flexible--some common ground can be gleaned from both ends of the spectrum. First, the decision to permit such an appeal is firmly within the district court's discretion. Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 405 n. 9, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004) (Ginsburg, J., dissenting) (instructing that discretion for a § 1292(b) appeal lies "in the first instance in the district court's sound discretion"). Second, § 1292(b) is not a vehicle to question the correctness of a district court's ruling or to obtain a second, more favorable opinion. McFarlin v. Conseco Serv., LLC, 381 F.3d 1251, 1256 (11th Cir.2004) (quoting S.Rep. No. 85-2434 (1958), reprinted in U.S.C.C.A.N. at 5260-61)). Third, the issue for appeal must involve a question of law--not fact. Clark-Dietz, 702 F.2d at 69 (holding that "fact-review" issues are inappropriate for § 1292 review). And a "question of law" does not mean the application of settled law to disputed facts. McFarlin, 381 F.3d at...

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