In re Penn Central Securities Litigation, 56.

• Decision Date: 25 January 1971
• Docket Number: No. 56.,56.
• Citation: 322 F. Supp. 1021
• Parties: In re PENN CENTRAL SECURITIES LITIGATION.
• Court: Judicial Panel on Multidistrict Litigation

322 F. Supp. 1021

In re PENN CENTRAL SECURITIES LITIGATION.

No. 56.

Judicial Panel on Multidistrict Litigation.

January 25, 1971.

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.

OPINION AND ORDER

PER CURIAM.

The financial difficulties of the Penn Central Transportation Company, now the subject of a Section 77 Reorganization proceeding before Judge John P. Fullam in the Eastern District of Pennsylvania, have generated numerous lawsuits by dissatisfied stockholders and bondholders of the related Penn Central companies. Most of these actions are brought by stockholders of the Penn Central Co., holding company for the stock of Penn Central Transportation Co.¹ The plaintiffs allege various violations of common law duties and the federal securities laws by the Penn Central companies, their present and former directors and officers, and a miscellaneous group of stockbrokers, underwriters, accountants and others. Seventeen actions in two districts are now before the Panel² on the motion of twenty individual defendants common to most of these actions, proposing transfer of the Southern District of New York actions to the Eastern District of Pennsylvania (Philadelphia) for coordinated or consolidated pretrial proceedings.

The majority of the parties responding to the motion agree that these cases raise common questions of fact concerning alleged concealment of Penn Central Transportation's financial state by the defendants. More particularly, these actions all contain allegations of sales of Penn Central stock by directors and officers on the basis of inside information concerning Penn Central Transportation, the publication of false and misleading information by the defendants in proxies and other materials, or of related breaches of fiduciary duties and mismanagement. Coordinated or consolidated pretrial proceedings in these cases would eliminate repetitive discovery programs in these common areas, advancing the just and efficient conduct of the litigation and serving the convenience of the parties and witnesses.

The plaintiffs in two actions, however, contend that they are concerned only with bonds issued by The Pennsylvania Company and intend to proceed against only the underwriters and accountants who participated in the issuance of those bonds.³ At the hearing, however, counsel for one of the plaintiffs conceded that he would have to prove some of the same facts proved in the other actions in order to establish the liability of the accountants and underwriters for misstatements in connection with the bond issue. Although the extent of the factual overlap is not certain, it is sufficient to require these bond cases to be assigned with the other cases for pretrial purposes. The bond-holding plaintiffs may present their arguments for separate treatment to the transferee judge, who is given the discretion to decide the extent of coordination or consolidation desirable in cases assigned to him under Section 1407.⁴

The remaining issue is the selection of the appropriate transferee district. On this question we find the arguments in favor of the Eastern District of Pennsylvania persuasive. The main offices of Penn Central Transportation and its parent, Penn Central, are in Philadelphia. And the records of those companies and Penn Central Transportation's subsidiary, The Pennsylvania Co., are located there. In addition, most of the past and present officers and directors of those companies reside in or near that district. Most importantly, the Section 77 reorganization of Penn Central Transportation is pending in that district before Judge Fullam. The reorganization court and the trustee appointed by it have custody and control of the records of the debtor corporation, 11 U.S.C. § 205, and will be drawing heavily on the time of both present and former officials of the debtor and related companies. Coordination of these cases with the reorganization proceeding is thus essential to their efficient management and can be most easily effectuated by transfer to the Eastern District of Pennsylvania. See In re Westec Corp., 307 F.Supp. 559 (Jud.Pan.Mult.Lit.1969); Schneider v. Sears, 265 F.Supp. 257 (S.D.N.Y.1967) (involving a § 1404(a) transfer in a similar situation).

We conclude, however, that these cases should not be assigned to the judge who has responsibility for the reorganization proceedings.⁵ In addition to the question of whether any one judge would be equal to the mammoth task of supervising pretrial proceedings in the stockholder cases and the Section 77 reorganization, see In re Antibiotic Drug, 320 F.Supp. 586 (Jud.Pan.Mult.Lit. 1970), there is the question of possible conflicts of duties to which such an assignment might give rise. The very purpose of the reorganization proceedings is to avoid liquidation of the corporate debtor and to work out a plan of reorganization for its rehabilitation. See generally, S.E.C. v. American Trailer Rentals, 379 U.S. 594, 605, 85 S.Ct. 513, 13 L.Ed.2d 510 (1965). For this reason the reorganization court is given a number of special powers aimed at conserving the debtor's assets, including the power to stay and enjoin litigation against the debtor, 11 U.S.C. § 205. If these cases were assigned to the reorganization judge, he would also have the responsibility of expeditiously conducting pretrial proceedings in these cases in which the stockholders seek discovery from the...