88 F.R.D. 696 (S.D.N.Y. 1981), 80 Civ. 2221, Kline v. Wolf

Docket Nº:80 Civ. 2221, 80 Civ. 2364.
Citation:88 F.R.D. 696
Opinion Judge:EDWARD WEINFELD, District Judge.
Party Name:Fay M. KLINE, Plaintiff, v. Emanuel L. WOLF, Jay N. Feldman, C. Ray Holloway, William V. Lurie, Carl Prager, Julio Proietto, Jack M. Sattinger and Price Waterhouse & Co., Defendants. Paul BLOCK, Plaintiff, v. Emanuel L. WOLF, Jay N. Feldman, C. Ray Holloway, William V. Lurie, Carl Prager, Julio Proietto, Jack M. Sattinger and Price Waterhouse & Co.
Attorney:Kass, Goodkind, Wechsler & Labaton, New York City, for plaintiff Fay M. kline. A. Arnold Gershon, New York City, for plaintiff Paul Block; Stuart D. Wechsler, Joseph Sternberg, New York City, of counsel. Jacobs, Persinger & Parker, New York City, for defendants Wolf, Feldman, Sattinger & Lurie; I...
Case Date:January 14, 1981
Court:United States District Courts, 2nd Circuit, Southern District of New York

Page 696

88 F.R.D. 696 (S.D.N.Y. 1981)

Fay M. KLINE, Plaintiff,

v.

Emanuel L. WOLF, Jay N. Feldman, C. Ray Holloway, William V. Lurie, Carl Prager, Julio Proietto, Jack M. Sattinger and Price Waterhouse & Co., Defendants.

Paul BLOCK, Plaintiff,

v.

Emanuel L. WOLF, Jay N. Feldman, C. Ray Holloway, William V. Lurie, Carl Prager, Julio Proietto, Jack M. Sattinger and Price Waterhouse & Co., Defendants.

80 Civ. 2221, 80 Civ. 2364.

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

January 14, 1981

Plaintiffs seeking to represent class of stockholders who purchased stock during interval between time allegedly misleading annual report was published and corporation's filing of Chapter XI petitions under the Bankruptcy Act moved for class certification. The District Court, Edward Weinfeld, J., held that the named plaintiffs did not qualify as representatives who would fairly and adequately protect the interests of the class they sought to represent where they were subject to unique defenses which vitiated the typicality of their claims and might imperil recovery in favor of the class.

Motion for class certification denied.

Page 697

Kass, Goodkind, Wechsler & Labaton, New York City, for plaintiff Fay M. kline.

A. Arnold Gershon, New York City, for plaintiff Paul Block; Stuart D. Wechsler, Joseph Sternberg, New York City, of counsel.

Jacobs, Persinger & Parker, New York City, for defendants Wolf, Feldman, Sattinger & Lurie; Irving Parker, Joseph N. Salomon, William Lasher, New York City, of counsel.

Richards, O'Neil & Allegaert, New York City, for defendant Proietto.

Davis, Polk & Wardwell, New York City, for defendant Price Waterhouse & Co.; Bartlett H. McGuire, New York City, of counsel.

OPINION

EDWARD WEINFELD, District Judge.

These are actions by Fay M. Kline and Paul Block, plaintiffs in two consolidated actions, that they be certified as representatives in a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure. The class sought to be represented is all purchasers of shares of stock in Allied Artists Industries, Inc. (" Allied" ) for the period August 18, 1978 to April 4, 1979. The gist of the claim is that the defendants, officers and executives of Allied and its independent auditors, caused Allied to issue false

Page 698

and misleading statements concerning Allied's earnings, its financial condition, its imminent insolvency, and its inadequate accounting procedures, and that the alleged misstatements and omissions were not made known to the public but were concealed until April 4, 1979 when Allied and two of its wholly-owned subsidiaries filed Chapter XI petitions under the Bankruptcy Act. The allegations of misrepresentations and omissions are based upon Allied's 1978 Annual Report, which included financial statements for the fiscal year ended March 31, 1978. The members of the purported class are those who purchased Allied shares in the period between August 18, 1978 when Allied's 1978 Annual Report was published and April 4, 1979 when upon the filing of the Chapter XI petition its financial condition became known. Plaintiffs contend that they relied on the allegedly misleading statements in that Report and on the integrity of the market price of the stock. Plaintiffs seek to recover on behalf of the class for losses allegedly sustained in purchasing Allied shares at prices artificially inflated as a result of these statements.

After plaintiffs moved for class certification, the defendants were afforded the opportunity to depose the plaintiffs with respect to their qualifications to act as class representatives. Based upon testimony given during the course of these depositions, and upon various affidavits and documents, the defendants oppose the motion for class certification on several grounds including that neither plaintiff qualifies as an adequate representative under the Rule in that each plaintiff is subject to unique defenses that will unnecessarily prejudice the class' probability of success in short, that the facts show each plaintiff in purchasing Allied shares relied primarily upon considerations or sources independent of Allied's 1978 Annual Report or the integrity of the market.

Preliminarily, it is noted that a similar action commenced by one Zelda L. Panzirer was denied class certification by Judge Motley upon the grounds here advanced by defendants.1 Thereafter, Judge Motley granted the defendants' renewed motion for summary judgment and dismissed the Panzirer complaint.2 Plaintiff Block's motion to intervene in that action was denied.3 These two actions were commenced within days after the dismissal of the Panzirer suit. Each complaint in this consolidated action tracks almost in haec verba the complaint of the dismissed Panzirer action. Each plaintiff, however, purports to see factual distinctions in his or her individual status as compared to Panzirer; accordingly, the situation of each plaintiff is considered.

Plaintiff Paul Block

Block made his first purchase of Allied shares on July 12, 1978, more than a month prior to the date the Allied Annual Report was published, and two months before it was mailed to its shareholders of record on September 8 and 11, 1978. He testified that Allied stock first came to his attention when he read articles in the May 24 and June 14, 1978 issues of Variety referring to Allied's efforts to enter the video cassette business, whereupon he called his broker, Sol Hitzig, who sent him a copy of Allied's 1978 Annual Report, following which he made his first purchase in July 1978. He was positive that it was the 1978 Annual Report that he had read, even recalling its colors which differed from those of the previous years. This testimony, to say the least, is implausible; it is contradicted by the undisputed fact that the Report, although dated August 18, 1978, was not mailed to shareholders of record until September 8 and 11, 1978. Moreover, his broker submitted an affidavit wherein he denies he sent any such report to Block. Thus defendants make a strong argument that Block's July 12, 1978 purchase could not

Page 699

have been made in reliance upon the 1978 financial statement, but was motivated by the Variety articles. Block later purchased 200 Allied shares on September 13 and 500...

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