IN RE REPUBLIC NATIONAL-REALTY EQUITIES SECURITIES LIT., 174.

• Decision Date: 22 August 1974
• Docket Number: No. 174.,174.
• Citation: 382 F. Supp. 1403
• Parties: In re REPUBLIC NATIONAL-REALTY EQUITIES SECURITIES LITIGATION.
• Court: Judicial Panel on Multidistrict Litigation

382 F. Supp. 1403

In re REPUBLIC NATIONAL-REALTY EQUITIES SECURITIES LITIGATION.

No. 174.

Judicial Panel on Multidistrict Litigation.

August 22, 1974.

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

I. Background of Litigation

In March of 1974 the Securities and Exchange Commission filed an enforcement action in the Southern District of New York against Republic National Life Insurance Company, seven of its officials, and its auditor, Peat, Marwick, Mitchell & Co.; Realty Equities Corporation of New York, two of its officials, and its auditor, Westheimer, Fine, Berger & Co., and two other individuals. The SEC alleges that defendants violated the federal securities laws by participating in a massive scheme to defraud the investing public by concealing the fact that Realty, in which Republic had a huge investment, was in dire financial condition. It is further alleged that, as a result of this scheme, Republic was able to perpetuate the materially false appearance that its holdings in Realty were valuable assets and was also able to report as income millions of dollars in funds that Republic had pumped into Realty or Realty-controlled companies for the specific purpose of enabling Realty, in turn, to pay interest on the debts it owed Republic.

Defendants Realty and two of its officers have recently entered into a consent decree with the SEC. Realty neither admitted nor denied the allegations in the complaint and agreed to take certain measures to avoid future securities laws violations. The action is still pending against the remaining defendants.

In addition to the SEC action, seventeen private actions concerning the Republic-Realty financial relationship have been filed in three different districts: twelve in the Southern District of New York, four in the Northern District of Texas and one in the Middle District of Tennessee. Taken as a whole, they involve the same as well as additional defendants. Plaintiffs in many of the actions purport to represent similar classes of Republic or Realty securities holders.

As a result of a motion by Peat, Marwick, Mitchell & Co., a motion by Republic and a show cause order issued by the Panel, all actions, including the SEC action, are now before the Panel for consideration pursuant to 28 U.S.C. § 1407.¹ Except for the SEC, plaintiffs in the Synercon and Garrett actions and defendants Standard & Poor's Corporation and A. M. Best Company, all parties favor transfer to a single district for coordinated or consolidated pretrial proceedings. The parties disagree, however, on whether the Southern District of New York or the Northern District of Texas is the most appropriate transferee forum. We find that these actions involve common questions of fact and that transfer of all actions under Section 1407 to the Southern District of New York will best serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation.

II. The Question of Transfer

Most of the parties recognize the need for transfer of all actions to a single district under Section 1407 in order to avoid duplication of common discovery concerning numerous complex questions of fact underlying the Republic-Realty financial relationship. Furthermore, transfer will eliminate the possibility of conflicting Rule 23 class determinations and other pretrial rulings. The following parties, however, have objected to any transfer:

A. Plaintiffs in the Synercon and Garrett Actions

Synercon Corporation, the sole plaintiff in the action pending in the Middle District of Tennessee, is seeking rescission of the merger between its wholly-owned subsidiary Forrest Life Insurance Company and Republic or, in the alternative, compensatory and punitive damages.

The Garrett action is pending in the Northern District of Texas and involves the merger of Mercantile Security Life Insurance Company into Republic. An order has been entered in that action allowing it to proceed as a class action on behalf of all persons who acquired Republic stock by virtue of having been Mercantile stockholders.

Both the Synercon and Garrett plaintiffs concede that their actions share questions of fact common to all other actions in this litigation. Nevertheless, they argue that their actions should not be transferred because the discovery on these common issues can be easily obtained from the records of the SEC investigation. They also argue that their actions involve discovery of many factual issues unrelated to the other actions and that that discovery would be delayed by transfer. In addition, plaintiffs in Garrett contend that progress in their action would be unfairly delayed pending discovery on the issue of class maintainability in the other actions.

We are not convinced that the records of the SEC investigation will provide the sole source of discovery on the common issues between the Synercon and Garrett actions and the rest of the litigation and, accordingly, we find that inclusion of these actions in the coordinated or consolidated pretrial proceedings will promote the just and efficient conduct and expedite the termination of the entire litigation. Nor do we accept the proposition that progress on the discovery of the asserted non-common issues will be impeded by transfer. The transferee judge has the broad discretion to design a pretrial program which will allow discovery on any unique issues to proceed concurrently with discovery on the common issues. Moreover, the class of plaintiffs previously designated in the Garrett action falls within the boundaries of class requests in some of the other actions in this litigation and, therefore, it is necessary to have all class action questions resolved by a single judge in order to eliminate the possibility of conflicting class determinations and achieve the most expeditious method of organizing the class or classes and any necessary subclasses.

B. SEC

Although the SEC action shares common factual issues with the other actions in this litigation, the SEC maintains that its action is entitled to separate treatment from a public policy viewpoint.² Since the SEC action is already pending in the transferee district, however, the degree of coordination between that action and the private actions is a matter to be determined by the transferee judge.

C. Defendants Standard & Poor's and A. M. Best

Standard & Poor's, a publisher of financial information, and A. M. Best, a publisher of information for the insuance industry, are defendants in only Count VII of the Herman action pending in the Southern District of New York. They are not named as defendants in any other action in this litigation and, as a result, they request that, in the event the Herman action is transferred, Count VII be separated from the rest of the litigation pursuant to 28 U.S.C. § 1407(a) and remanded to New York for further proceedings. In light of our selection of the Southern District of New York as the...