Adalman v. Baker, Watts & Co.

• Decision Date: 13 December 1984
• Docket Number: Civ. No. Y-83-2485.
• Parties: Sylvia L. ADALMAN, et al., v. BAKER, WATTS & CO., et al.
• Court: U.S. District Court — District of Maryland

599 F. Supp. 752

Sylvia L. ADALMAN, et al., v. BAKER, WATTS & CO., et al.

Civ. No. Y-83-2485.

United States District Court, D. Maryland.

December 13, 1984.

David Machanic, Fairfax, Va., John R. Erickson, Great Falls, Va., Frederic T. Spindel, Washington, D.C., David MacDonald and Michael M. Cramer, Rockville, Md., for plaintiffs.

Andrew J. Graham, Baltimore, Md., Joseph D. Lonardo, Columbus, Ohio, and Ellen A. Efros, Washington, D.C., for defendants and third-party plaintiffs.

Jervis S. Finney and James B. Wieland, Baltimore, Md. (Scott R. Schoenfeld, Washington, D.C., of counsel), for third-party defendants Julia M. Walsh & Sons, Inc., Henry T. Donaldson, and Thomas D. Walsh.

James W. Constable, David C. Daneker, Baltimore, Md., and David M. Doret, Philadelphia, Pa., for third-party defendant Elkins & Co.

J. Paul Mullen, Steven E. Leder, Baltimore, Md., Jay H. Calvert, Jr., and Eric Kraeutler, Philadelphia, Pa., for third-party defendant Beavers.

MEMORANDUM

JOSEPH H. YOUNG, District Judge.

Third-party defendants Julia M. Walsh & Sons, Inc., Henry T. Donaldson, and Thomas D. Walsh (collectively the "Walsh group") have submitted a motion for summary judgment as to the third-party complaint filed by defendant Baker, Watts & Co. and BW Resources, Inc. ("Baker, Watts"). The grounds for this motion are that: (1) indemnity is not allowed to wrongdoers under the federal securities laws or parallel state laws, because it would violate established public policies, (2) contribution does not lie where the plaintiff's claim does not assert that the defendants and the third-party defendants are joint tortfeasors, or where the claims against the third-party defendants is not "derivative" of the plaintiffs' claim, and (3) the unequivocal deposition testimony of six of the plaintiffs establishes that the Walsh group was not responsible for the injury to those six plaintiffs.

The Walsh group has argued that a claim for indemnity by a tortfeasor in a federal securities action fails to state a claim for which relief can be granted. Walsh points to cases where courts have held that an "active wrongdoer" may not recover indemnity on public policy grounds. See, e.g., Heizer Corporation v. Ross, 601 F.2d 330, 334-35 (7th Cir.1979) (under Rule 10b-5), Globus v. Law Research Services, Inc., 418 F.2d 1276, 1288 (2d Cir.1969), cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (Sections 12(2) and 17(a) of the 1933 Act, Section 10(b) of the 1934 Act), cert. denied, 404 U.S. 941 (1971); McLean v. Alexander, 449 F.Supp. 1251, 1266 (D.Del.1978) (under Rule 10b-5). In many of those cases, however, there had already been a determination that the defendants were guilty of some wrongdoing, and the court determined that it would be improper to allow indemnification of a wrongdoer. See Heizer, 601 F.2d at 334 (defendant's actions found to be "at least reckless"), Globus, 418 F.2d at 1288 (jury verdict finding defendant had actual knowledge of material omissions), McLean v. Alexander, 449 F.Supp. at 1266 (accountant already found to be an actual wrongdoer may not shift entire loss through indemnity).

The situation is quite different here. There has been no determination of actual culpability by a trier of fact. "Most of the cases on indemnity under the securities acts can be read to support the proposition that an unsuccessful defendant may obtain indemnity from one significantly more responsible for the injury to the plaintiff." Gould v. American-Hawaiian Steamship Co., 387 F.Supp. 163, 167 (D.Del.1974), quoted in Wassel v. Eglowsky, 399 F.Supp. 1330, 1366 (D.Md.1975). Defendants have asserted that the third-party defendants are significantly more liable, in fact solely responsible, for exciting the plaintiffs to purchase securities by making false statements outside the four corners of the Offering Memorandum. Absent some determination of liability, summary judgment on the issue of indemnity is inappropriate.

The Walsh group has argued that because the defendants can be found liable only if they are found to have acted with scienter, Ernest & Ernest v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), if the defendant is found liable it will automatically be an "actual wrongdoer" and not entitled to indemnity. This argument overlooks the fact that, especially with regard to Section 12(a) liability, defendants may be found liable although not found to have been actively attempting to defraud plaintiffs or actively engaged in any wrongdoing. In Globus, 418 F.2d at 1288, the court emphasized that it was considering "only the case where the underwriter the defendant has committed a sin graver than ordinary negligence." And in McLean v. Alexander, 449 F.Supp. at 1266, the court noted that although indemnification agreements between intentional tortfeasors would not be enforced by the federal court, "this is not to say that the innocent party whose liability attaches as a matter of law may not obtain indemnification from the actual wrongdoer." 449 F.Supp. at 1266, n. 49. (The court referred to the case where an employer might be found liable for the acts of its employees.) Given the unusual factual situation in this case, it is possible that Baker, Watts could be found to have made representations which were then made into material omissions by the more culpable misrepresentations of the third-party defendants. The determination of whether the indemnity agreement between Baker, Watts, and the Walsh group will be enforceable must await the determination of relative culpability.

Because the state securities laws which are the basis of some of the plaintiffs claims are essentially the same as the federal securities laws, the same conclusions apply with regard to the state claims. Baker, Watts may recover indemnity if the third-party defendants are found significantly...