In re Nucorp Energy Securities Litigation

• Decision Date: 15 April 1987
• Docket Number: No. M.D.L. 514.,M.D.L. 514.
• Citation: 661 F. Supp. 1403
• Parties: In re NUCORP ENERGY SECURITIES LITIGATION,
• Court: U.S. District Court — Southern District of California

661 F. Supp. 1403

In re NUCORP ENERGY SECURITIES LITIGATION,

No. M.D.L. 514.

United States District Court, S.D. California.

April 15, 1987.

COPYRIGHT MATERIAL OMITTED

William S. Lerach, Milberg Weiss Bershad Spechtrie & Lerach, San Diego, Cal., David B. Gold, Law Offices of David B. Gold, San Francisco, Cal., for Class Plaintiffs.

Sheldon D. Camhy, Shea & Gould, New York City, for Executive Life Ins. Co.

Scott Metzger, Duckor & Spradling, San Diego, Cal., for Nelson-Dykes Co., Inc.

Watson B. Tucker, Mayer Brown & Platt, Chicago, Ill., for Continental Illinois Nat. Bank & Trust Co.

James Goldman, Kadison, Pfaelzer, Woodward, Quinn & Rossi, Los Angeles, Cal., for Arthur Andersen & Co.

William R. Fishman, Denver, Colo., for LaMar Plaintiffs.

Browning Marean, Gray, Cary, Ames & Frye, San Diego, Cal., for Republicbank Dallas, N.A.

James Spiotto, Chapman & Cutler, Chicago, Ill., for LaSalle Nat. Bank.

Earle Miller, Brobeck, Phleger & Harrison, Los Angeles, Cal., for Drexel Burnham Lambert, Inc.

Howard D. Finkelstein, Jenkins & Perry, San Diego, Cal., for Decatur Income Fund, Inc.

D. Scott Wise, Davis Polk & Wardwell, New York City, Donaldson, Lufkin & Jenrette Securities Corp.

Charles H. Dick, Jr., MacDonald, Halsted & Laybourne, San Diego, Cal., for The Circle K Corp.

Donald M. Wessling, O'Melveny & Myers, Los Angeles, Cal., for Richard Langdon, Daniel Bell, Larry D. Corl, Frederick Frank, John F. Masdea, Alvin J. Pearson, and David A. Stoller.

Robert Wright, Wright & L'Estrange, San Diego, Cal., for O. Morris Sievert.

Joseph J. Wheeler, Latham & Watkins, San Diego, Cal., for Richard L. Burns.

AMENDED MEMORANDUM DECISION AND ORDER

IRVING, District Judge.

I. BACKGROUND

In the above-entitled consolidated actions, plaintiffs assert various federal claims, based primarily upon the Securities Act of 1933, 15 U.S.C. §§ 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq., and various pendent state claims, based upon both statutory and common law theories, which arise from the sale of Nucorp securities. In March 1983, plaintiffs and defendants, under the guidance of Magistrate Harry R. McCue, began what would become an intensive series of settlement negotiations. In the summer of 1986, after Magistrate McCue had conducted over one hundred settlement or settlement-related conferences or hearings, plaintiffs and certain of the defendants executed and filed with the court a stipulation of settlement. The stipulation of settlement provides for a $41 million payment from the settling defendants — who consist primarily of the officers and directors of Nucorp — to the plaintiffs in exchange for a dismissal of all claims asserted against them.

Paragraph 20.L of the stipulation conditions the finality of the settlement upon entry of an order providing

(a) that the settlement embodied in this Stipulation is entered into and made in good faith, within the meaning of Sections 877 and 877.6 of the California Code of Civil Procedure, and (b) that all claims for contribution or indemnification, however denominated, against the Settling Defendants arising under the federal securities laws or state law in favor of persons, including Non-Settling Defendants, who are asserted to be joint tortfeasors with the Settling Defendants in the Settled Claims and based upon liability on the Settled Claims are extinguished, discharged, satisfied and/or otherwise unenforceable.

On September 5, 1985, Magistrate McCue entered an order pursuant to paragraph 20.G of the stipulation of settlement, which calendared a hearing on the issue of the settlement's good faith for November 14, 1986. After the November 14 hearing, Magistrate McCue entered the order required by paragraph 20.L.

Pursuant to an order entered October 6, 1986, four of the non-settling defendants — Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), Arthur Andersen & Co. (Arthur Andersen), the Circle K Corporation (Circle K), and Continental Illinois National Bank & Trust Company (Continental) — now seek a de novo review of Magistrate McCue's finding of good faith and order barring claims for contribution and indemnification. In their briefs, the non-settling defendants advance various arguments against Magistrate McCue's finding of good faith and order barring claims. The court has considered each of these arguments. Only those which raise serious questions of law or fact will be discussed below.

II. DISCUSSION

A. Federal Claims for Contribution and Indemnification

With respect to that portion of Magistrate McCue's order which bars claims for contribution or indemnification based on federal law, the primary argument advanced by each of the non-settling defendants is, in essence, the same. DLJ, Arthur Andersen, Circle K, and Continental each contend that the federal securities statutes under which they are sued provide them with potential causes of action for contribution and indemnification against the settling defendants, that federal rather than state law controls the availability and scope of these causes of action, and that federal law does not permit these causes of action to be extinguished prior to a trial on the merits of the claims asserted against them.

Of the various federal securities statutes upon which plaintiffs' actions rely, only section 11 of the 1933 Act creates an express right to contribution among those found jointly liable for its violation. 15 U.S.C. § 77k(f). Contribution, however, reinforces the policy underlying all federal securities laws since apportioning a plaintiff's loss among joint wrongdoers ensures that the deterrent effect of a judgment is felt by all culpable parties. Heizer Corp. v. Ross, 601 F.2d 330, 332 (7th Cir.1979). Thus, federal courts which have considered the issue have generally held that where a private remedy for the violation of a federal securities statute is implied, a right to contribution among joint violators of the statute should also be implied. Id. at 332-333. For purposes of this motion, then, the court assumes, without holding, that in addition to the express right to contribution created by section 11 of the 1933 Act, the non-settling defendants also have an implied right to contribution under those sections of the 1933 Act and the 1934 Act upon which the plaintiffs' other claims are based.

The court, however, declines to find that the non-settling defendants have any potential right to indemnification under the federal securities laws. The Ninth Circuit has expressly held that implying a right to indemnification under section 11 of the 1933 Act would undermine its statutory purpose of "assuring diligent performance of duty and deterring negligence." Laventhol, Krekstein, Horwath & Horwath v. Horwitch, 637 F.2d 672, 676 (9th Cir.1980), cert. denied, 452 U.S. 963, 101 S.Ct. 3114, 69 L.Ed.2d 975 (1981). Federal courts which have considered claims for indemnification based on other sections of the 1933 Act, as well as on sections of the 1934 Act, have rejected them as contrary to the regulatory nature of the federal securities laws. Tucker v. Arthur Andersen & Co., 646 F.2d 721, 724 (2nd Cir.1981); Globus v. Law Research Service, Inc., 418 F.2d 1276, 1288 (2nd Cir.1969); cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (1970); Stowell v. Ted S. Finkel Investment Services, Inc., 641 F.2d 323, 325 (5th Cir.1981); Heizer, 601 F.2d at 332 and 334. Accordingly, the court holds that the non-settling defendants have no potential right to indemnification from the settling defendants under the federal securities laws.

The effect of a partial settlement or release on claims for contribution under the federal securities laws is governed by federal and not state law. First Federal Savings & Loan Association v. Oppenheim, Appel, Dixon & Co., 631 F.Supp. 1029, 1034 (S.D.N.Y.1986); Smith v. Mulvaney, 1984-85 Transfer Binder Fed.Sec.L.Rep. (CCH) ¶ 92,084 at 91,422 (S.D.Cal.1985), appeal docketed, No. 86-6076 (9th Cir. June 26, 1986); see Laventhol, 637 F.2d at 675. In this circuit, it is unclear to what extent and under what circumstances a non-settling defendant can exact contribution under the federal securities laws from a settling co-defendant. The non-settling defendants contend, citing the Ninth Circuit's opinion in Laventhol as authority, that a partial settlement cannot affect the potential contribution rights of defendants who are not parties to the settlement stipulation. Plaintiffs and the settling defendants, citing as authority the identical case, argue that the recent trend in federal case law encourages settlement in multi-defendant securities cases by permitting partial settlements to bar a non-settling defendant's right to contribution.

In Laventhol, plaintiffs filed a class action, alleging violations of section 11 of the 1933 Act, on behalf of investors who purchased limited partnership interests in the Western Properties Limited Partnership. The complaint named as defendants Western Properties, the general partner of Western Properties (the Doug Frank Development Corporation), the general partner's president and vice-president (Doug Frank and Michael Folb), the underwriter of the limited partnership issue (United States Trust Company), and the issuer's accountant (Laventhol). The complaint alleged losses of "at least" $2,000,000. United States Trust and Laventhol filed cross-claims for contribution against Frank and Folb. Prior to trial, plaintiffs entered a settlement agreement with Frank, Folb, Doug Frank Development, and Western Properties. Under the terms of the agreement, plaintiffs agreed to release all claims against the settling defendants in exchange for an $8,000 payment on account of costs and the cooperation of Frank and Folb during litigation of the remaining claims against United States Trust and Laventhol. After the District Court approved the settlement, Frank and Folb moved for summary judgment on the cross-claims for contribution,...