In re Philip Services Corp. Securities Litigation

• Decision Date: 04 May 1999
• Docket Number: No. M-21-77.,No. MDL 1230(MBM).,No. 98 CIV. 835(MBM).,M-21-77.,98 CIV. 835(MBM).,MDL 1230(MBM).
• Citation: 49 F.Supp.2d 629
• Parties: In re: PHILIP SERVICES CORPORATION SECURITIES LITIGATION. Robert W. Hillger, on behalf of himself and all others similarly situated, Plaintiff, v. Philip Services Corporation, Allen Fracassi, Marvin Boughton, and Robert Waxman, Defendants.
• Court: U.S. District Court — Southern District of New York

49 F.Supp.2d 629

In re: PHILIP SERVICES CORPORATION SECURITIES LITIGATION.

Robert W. Hillger, on behalf of himself and all others similarly situated, Plaintiff, v. Philip Services Corporation, Allen Fracassi, Marvin Boughton, and Robert Waxman, Defendants.

No. M-21-77.

No. 98 CIV. 835(MBM).

No. MDL 1230(MBM).

United States District Court, S.D. New York.

May 4, 1999.

Opinion Denying Reconsideration and Granting Motion to Amend in Part June 17, 1999.

COPYRIGHT MATERIAL OMITTED

Neil L. Selinger, Jeanne F. D'Esposito, Lowey Dannenberg Bemporad & Selinger, P.C., White Plains, NY, Co-Lead Counsel for Plaintiffs.

Jeffrey C. Block, Michael T. Matraia, Berman DeValerio & Pease, LLP, Boston, MA, Co-Lead Counsel for Plaintiffs.

Samuel Kadet, James W. Brown, Skadden, Arps, Slate, Meagher & Flom, LLP, New York City, for Defendant Philip Services Corp.

Gerald A. Novack, David S. Versfelt, Kirkpatrick & Lockhart, LLP, New York City, for Defendants Allen Fracassi, Philip Fracassi, Marvin Boughton, Colin Soule and John Woodcroft.

Stuart L. Shapiro, Michael I. Allen, Shapiro Forman & Allen, LLP, New York City, for Defendants Roy Cairns, Derrick Rolfe, Felix Pardo and Herman Turkstra.

Frederick P. Schaffer, Schulte Roth & Zabel, LLP, New York City, for Defendant Norman Foster.

James Serota, Vinson & Elkins, LLP, New York City, Co-Counsel for Defendant William E. Haynes.

Charles W. Schwartz, Vinson & Elkins, LLP, Houston, TX, Co-Counsel for Defendant William E. Haynes.

Craig R. Smyser, Larry K. Veselka, Asim Bhansali, Smyser Kaplan & Veselka, LLP, Houston, TX, for Defendant Robert L. Knauss.

John R. Behrendt, Robert F. Serio, Marshall R. King, Gibson Dunn & Crutcher, New York City, for Defendant Deloitte & Touche.

Brad S. Karp, Michael E. Gertzman, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for the Underwriter Defendants.

J. Lawrence Crocker, Slotnick, Shapiro & Crocker, LLP, New York City, for Defendant Robert Waxman.

OPINION AND ORDER

MUKASEY, District Judge.

In this consolidated class action, plaintiffs sue Philip Services Corporation ("PSC"), several of its current and former officers and directors, 17 underwriters (the "Underwriter Defendants") and Deloitte & Touche ("Deloitte"), alleging violations of several federal securities laws. Defendants move to dismiss plaintiffs' Consolidated and Amended Class Action Complaint (the "complaint") on forum non conveniens grounds. In addition, defendants Deloitte, William Haynes and Robert Knauss move to dismiss for failure to state a claim. For the reasons stated below, defendants' motion to dismiss on forum non conveniens grounds is granted, and plaintiffs' complaint is dismissed. In light of this outcome, the motions to dismiss for failure to state a claim will not be treated.

I.

The following facts are relevant to this motion. PSC, a Canadian corporation, is "an integrated resource recovery and industrial services company, which provides metal recovery and processing services, by-products recovery and industrial services to major industry sectors throughout North America." (Compl.¶ 48) The company's principal executive offices are in Ontario, Canada; its U.S. corporate headquarters are in Pittsburgh, Pennsylvania. (Id.) PSC's stock is traded on the New York Stock Exchange ("NYSE"), the Toronto Stock Exchange and the Montreal Stock Exchange, and, prior to April 30, 1996, was traded also on the NASDAQ market. (Id.)

Between 1992 and 1997, PSC sought to expand its revenue base, its range of services and its network of facilities throughout North America. (Id. ¶ 164) To the extent relevant here, this expansion effort took two forms. First, in 1997, PSC acquired two companies — Allwaste, Inc. ("Allwaste") and Serv-Tech, Inc. ("Serv-Tech") — in stock-for-stock deals worth a total of approximately $560 million. (Id. ¶ 165) Second, in November 1997, PSC completed two secondary public offerings, which together raised approximately $380 million. (Id. ¶¶ 1-2) One offering, which raised approximately $284 million, was made exclusively to U.S. investors, and was underwritten by 17 American securities firms, the Underwriter Defendants. (Selinger Aff. ¶¶ 6-11) The other offering, which raised approximately $94 million, was made only to investors outside the United States, and was underwritten by eight Canadian securities firms (the "Canadian Underwriters"). (Id. ¶¶ 8-10) In connection with the acquisitions of All-waste and Serv-Tech and the U.S. public offering, PSC filed registration statements with the Securities and Exchange Commission ("SEC"). (Compl.¶ 1)

On January 26, 1998, PSC announced that it would take "charges to earnings" for fiscal year 1997 of between $250 and $275 million. (Id. ¶¶ 7, 346) Over the next several months, this figure was raised to over $381 million, of which $125 million was reported to arise from overstated copper inventory and unrecorded copper-trading losses. (Id. ¶¶ 6-7, 9-11, 130, 346) In addition, PSC issued revised financial statements for fiscal years 1995, 1996 and 1997. (Id. ¶¶ 353, 357, 359) The revised statements disclosed that 1995 earnings had been overstated by approximately $22.5 million, or 690%, and that 1996 earnings had been overstated by $48.3 million. (Id. ¶¶ 3, 319) Thus, instead of posting a $28.4 million gain in 1996, as PSC had initially reported, the company recorded losses totaling approximately $20 million. (Id. ¶ 3) Due at least in part to these announcements, the share price of PSC stock dropped from $13 1/8 on January 16, 1998 to $2 9/16 in July 1998, a loss of approximately 80%. (Id. ¶ 13)

Unsurprisingly, PSC's announcements and the drop in its share price loosed a torrent of litigation. In Ontario, Joseph Menegon filed a class action (the "Menegon Class Action") on behalf of himself and all other "persons in Canada who held and/or purchased common shares of [PSC] between February 28, 1996 and April 23, 1998" against PSC, Deloitte and the Canadian Underwriters. (Serio Decl. ¶ 5 & Ex. D, ¶ 1) Additionally, PSC itself filed a lawsuit in Ontario against, inter alia, Robert Waxman—the former President of PSC's Metals Recovery Group and one of the defendants here—and Greg Madesker and Rik Barrese, metals traders who worked under Waxman, alleging that they perpetrated fraud at PSC. (Serio Decl. ¶ 6 & Ex. E)

In the United States, more than 20 class action lawsuits were commenced, in various jurisdictions, against some combination of the defendants here. These actions were transferred to this court by the Judicial Panel on Multidistrict Litigation and consolidated for pre-trial purposes. Thereafter, plaintiffs filed an amended complaint, alleging violations of (1) sections 10(b) and 20 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), 78t; (2) SEC Rule 10b-5, 17 C.F.R. § 240.10b-5; and (3) sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77k, 77l(a)(2), 77o. (Compl.¶ 15) Specifically, plaintiffs charge PSC with making materially false and misleading statements concerning its publicly reported revenues, earnings, assets and liabilities. (Id. ¶ 2) In addition, they seek to hold Deloitte liable in connection with its audits of PSC in 1995, 1996 and 1997 (id. ¶¶ 277-336), and to hold the Underwriter Defendants liable in connection with the November 1997 public offering. (Id. ¶¶ 337-45) Deloitte is a partnership organized under the laws of Ontario, and all its partners are Canadian citizens. (Matz Decl. ¶ 2) The 17 Underwriter Defendants are based in the United States, although seven of the firms conduct business in Canada also. (Selinger Aff. ¶¶ 9, 12 & n. 1)

II.

The doctrine of forum non conveniens permits a court to decline jurisdiction on the ground that adjudication in a foreign forum is more appropriate and convenient. The forum non conveniens analysis proceeds in two steps. First, the court must determine whether an "adequate alternative forum" exists for litigation of the plaintiff's claims. Alfadda v. Fenn, 159 F.3d 41, 45 (2d Cir.1998) (citing Piper Aircraft Co. v. Reyno, 454 U.S. 235, 254 n. 22, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981)). Second, assuming there is such a forum, the court must weigh the public and private interest factors identified by the Supreme Court in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09, 67 S.Ct. 839, 91 L.Ed. 1055 (1947), to determine which forum "will be most convenient and will best serve the ends of justice." Peregrine Myanmar Ltd. v. Segal, 89 F.3d 41, 46 (2d Cir.1996).

In making this inquiry, "[t]here is ordinarily a strong presumption in favor of the plaintiff's choice of forum." Murray v. British Broad. Corp., 81 F.3d 287, 290 (2d Cir.1996) (citations omitted); accord Piper, 454 U.S. at 255, 102 S.Ct. 252. Thus, "dismissal usually is not appropriate unless `the balance of convenience tilts strongly in favor of trial in the foreign forum.'" Alfadda, 159 F.3d at 46 (quoting R. Maganlal & Co. v. M.G. Chem. Co., 942 F.2d 164, 167 (2d Cir.1991)); accord Capital Currency Exch., N.V. v. National Westminster Bank PLC, 155 F.3d 603, 609 (2d Cir.1998), cert. denied, No. 98-1308, 119 S.Ct. 1459, 143 L.Ed.2d 545 (Apr. 19, 1999). Nevertheless, where, as here, plaintiffs proceed in a representative capacity, their choice of forum is entitled to less weight. See Koster v. (American) Lumbermens Mut. Cas. Co., 330 U.S. 518, 524, 67 S.Ct. 828, 91 L.Ed. 1067 (1947); DeYoung v. Beddome, 707 F.Supp. 132, 138 (S.D.N.Y.1989) (citing Koster, 330 U.S. at 523-27, 67 S.Ct. 828); see also Shulof v. Westinghouse Elec. Corp., 402 F.Supp. 1262, 1263 (S.D.N.Y.1975) ("While it is axiomatic that a plaintiff's choice of forum is entitled to great consideration, the adage has little weight in stockholder class actions ...." (citing Koster, 330 U.S. at 524, 67 S.Ct. 828)). Such plaintiffs "have only a small direct interest in a large controversy in which there are many potential plaintiffs, usually in many potential...