In re National Student Marketing Litigation, 105.
| Decision Date | 29 January 1973 |
| Docket Number | No. 105.,105. |
| Citation | 368 F. Supp. 1311 |
| Parties | In re NATIONAL STUDENT MARKETING LITIGATION. |
| Court | Judicial Panel on Multidistrict Litigation |
Before ALFRED P. MURRAH, Chairman, and JOHN MINOR WISDOM, EDWARD WEINFELD, EDWIN A. ROBSON, WILLIAM H. BECKER, JOSEPH S. LORD, III, and STANLEY A. WEIGEL, Judges of the Panel.
ALFRED P. MURRAH, Chairman.
The Panel having found, upon the basis of the papers submitted and the hearing held, that the actions listed on the attached Schedules A and B involve common questions of fact and that transfer of these actions to a single district for coordinated or consolidated pretrial proceedings would serve the convenience of the parties and witnesses and would further the just and efficient conduct of the litigation,
It is ordered that all actions on the attached Schedule A pending in districts other than the District of Columbia be, and the same hereby are, transferred to the District of Columbia and, with the consent of that court, assigned to the Honorable Barrington D. Parker for coordinated or consolidated pretrial proceedings with the action pending there pursuant to 28 U.S.C. § 1407.
It is further ordered that, in view of the pendency of the appeal of defendant White & Case from an order of the Southern District of New York, the claims against White & Case asserted in the actions listed on Schedule B will not be transferred at this time and only the claims asserted in those actions against defendants other than White & Case are transferred to the District of Columbia and, with the consent of that court, assigned to the Honorable Barrington D. Parker for coordinated or consolidated pretrial proceedings, pursuant to 28 U.S.C. § 1407, with the actions pending in that district.
A full opinion and order will be filed hereafter.
Southern District of Ohio
Michael Monroe, et al. v. Peat, Civil Action
Marwick, Mitchell & Co. No. 71-309
Northern District of Texas
B. Vernon Roberts v. Peat, Marwick, Civil Action
Mitchell & Co. No. CA-3-5782
District of Columbia
Securities & Exchange Commission Civil Action
v. National Student Marketing No. 225-72
Corp., et al
SCHEDULE B
Southern District of New York
Mildred Lipsig, et al. v. National Civil Action
Student Marketing Corp., et al. No. 70 Civ. 2006
Louis Garber v. Cortes W. Randell, Civil Action
et al. No. 70 Civ. 835
Domenick L. Natale v. National Civil Action
Student Marketing Corp., et al. No. 72 Civ. 721
Morton Augenstein, et al. v. National Civil Action
Student Marketing Corp. No. 72 Civ. 1606
Joseph Kwiatkowski v. Peat, Marwick, Civil Action
Mitchell & Co., et al. No. 72 Civ. 2107
Before ALFRED P. MURRAH, Chairman, and JOHN MINOR WISDOM,* EDWARD WEINFELD, EDWIN A. ROBSON, WILLIAM H. BECKER, JOSEPH S. LORD, III,* and STANLEY A. WEIGEL, Judges of the Panel.
Peat, Marwick, Mitchell & Co. ("Peat, Marwick" hereinafter) moves to have six private damage actions under the federal securities laws involving National Student Marketing Corp. transferred to the Southern District of New York for coordinated or consolidated pretrial proceedings. An action brought by the Securities and Exchange Commission against National Student Marketing ("National" hereinafter) and others for injunctive relief and an additional action against National pending in the Southern District of New York1 are also before the Panel. Upon the basis of the briefs and arguments we have concluded that all eight actions must be coordinated in a single district for pretrial proceedings, but that the District of Columbia is the most appropriate transferee district for the litigation.
During the period in issue National was apparently engaged in a wide range of promotional and marketing services aimed at young people and acquired several corporations engaged in similar endeavors. A series of annual reports, audited and unaudited financial statements, press releases and other communications were issued by National during this period and utilized in connection with its acquisitions. Plaintiffs now allege, among other things, that these statements and related communications were false and misleading and otherwise in violation of the federal securities laws. Defendants in these actions include National and its officers and directors; National's accountant, Peat, Marwick; several attorneys and their law firms; and several brokerage houses and public relations firms.
The most comprehensive complaint has been filed by the Securities and Exchange Commission in the District of Columbia. The SEC alleges that National and its officers and directors and Peat, Marwick and its employees participated in a scheme to defraud National's stockholders and others. Part of the alleged scheme involves the series of acquisitions referred to earlier. For purposes of the present motion, the most important of these acquisitions involved Impressions by M, Inc., acquired in April 1969; Varsity House, Inc., which exchanged its assets for National stock in October 1969; and Interstate National Corp., acquired two days after Varsity House. In the negotiation for all these acquisitions National's Consolidated Financial Statement for the fiscal year ended August 31, 1968, was given to the acquired corporations and their stockholders. And in both the Varsity House and Interstate dealings an unaudited report for the third quarter of 1969 was also provided by National.
The second claim asserted by the SEC relates exclusively to the Interstate acquisition and adds as defendants the attorneys who advised Interstate and National in connection with that merger. The proxy materials mailed to the National and Interstate stockholders contained National's unaudited financial statement for the third quarter of 1969. As a condition to the merger, Peat, Marwick was asked to issue a "comfort letter" stating that it had no reason to believe that the unaudited financial statement was not prepared in accordance with generally accepted accounting principles or required any material adjustments. The letter was also to state that National had suffered no material adverse change in its financial position after the date of the unaudited statement. The SEC alleges that after examining National's unaudited financial statement Peat, Marwick informed National's counsel that material adjustments in the statement were required and, after the closing, suggested that resolicitation of the stockholders should be considered. It is further alleged that National and its officers and attorneys and the officers of Interstate and their attorneys concealed Peat, Marwick's conclusions from public investors and other stockholders and that false opinions were given by the attorneys concerning the merger.2
The SEC requested a permanent injunction against future securities law violations by all defendants and a mandatory injunction requiring the correction of past filings with the Commission. On the consent of the company, which neither admitted nor denied the allegations of the complaint, such a judgment was entered against National subsequent to the Panel hearing in this matter. The action is still pending against the remaining defendants.
Five actions have been filed in the Southern District of New York by National stockholders, seeking damages for alleged violations of the federal securities laws. Three of the five actions have been consolidated for trial and a consolidated, amended complaint has been filed, naming as defendants many of those named in the SEC action along with several brokerage houses and public relations firms.3 Recovery is sought on behalf of a class composed of all persons who acquired the securities of National between April 1, 1965 and February 17, 1972, and were damaged by the acts of the defendants.
The allegations of the consolidated complaint are quite similar to those of the SEC. Plaintiffs assert that National's financial reports, statements, press releases and other communications were materially false and misleading, causing the price of National's stock to be artificially inflated. And one of the consolidated New York plaintiffs who acquired his National securities in the Interstate acquisition makes many allegations concerning this transaction which are said to be based on the allegations of the SEC complaint. In addition, the brokerage firms are said to have promoted National's stock when they knew or should have known its price was artificially inflated while the public relations firms are said to have written and circulated unrealistically favorable reports on National during this period.
Also pending in the Southern District of New York are the Augenstein and Kwiatkowski actions. Augenstein and several other individuals, stockholders of Impressions by M, who became National stockholders, allege that their exchange of Impressions by M stock for National stock was made in reliance on the 1968 Consolidated Financial Statement of National and other statements of the defendants which were false, misleading and in violation of the federal law. It is also alleged that the sale of shares to plaintiffs constituted an unregistered, non-exempt public offering and that National breached its merger agreement warranties concerning the accuracy of its financial statements and violated its agreement to deliver additional National shares to plaintiffs, contingent upon the earnings of Impressions. The Kwiatkowski action is brought by another former stockholder of Impressions by M and is based on the Impressions acquisition, the Consolidated Financial Statement of 1968 and the alleged deception in the Interstate...
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