In re Resource America Securities Litigation, Civ. No. 98-5446 (E.D. Pa. 7/26/2000)
| Decision Date | 26 July 2000 |
| Docket Number | Civ. No. 98-5446. |
| Parties | In re: RESOURCE AMERICA SECURITIES LITIGATION. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
AND NOW, to wit, this 26th day of July, 2000, upon consideration of (1) the Motion of the Resource America defendants1 for Reconsideration of the Court's Order of September 3, 19992, or, in the Alternative, for Certification of that Order Pursuant to 28 U.S.C. § 1292(b) (Doc. 19, filed Sep. 16, 1999); (2) the Motion of defendant Grant Thornton for Reconsideration of the Court's Order of September 3, 1999 (Doc. 20, filed Sep. 17, 1999); (3) Plaintiff's Memorandum of Law in Opposition to Defendants' Motions (Doc. 22); (4) the Reply Brief in Support of defendant Grant Thornton's Motion for Reconsideration (Doc. 24); and the related submissions of the parties, IT IS ORDERED as follows:
1. Defendants' Motions for Reconsideration of the Court's Order docketed September 3, 1999 (Docs. 19 and 20) are GRANTED;
2. Upon reconsideration, defendants' original Motions to Dismiss the First Amended Consolidated Complaint (Docs. 11 and 12), which were denied by the Court's Order docketed September 3, 1999, are DENIED;
3. The alternative relief sought by the Resource America defendants for certification of the Court's Order docketed September 3, 1999 pursuant to 28 U.S.C. § 1292(b) is DENIED; and
4. The request of the Resource America defendants for oral argument is DENIED.
IT IS FURTHER ORDERED that the Court will conduct a scheduling conference in due course.
MEMORANDUMOn February 22, 1999, plaintiffs filed their First Consolidated Amended Complaint (the "Amended Complaint") in this class action brought under 10(b) of the Securities Exchange Act, see 15 U.S.C.A. 78j(b), SEC Rule 10b-5 promulgated thereunder, see 17 C.F.R. § 240.10b-5, and 20(a) of the Securities Exchange Act, see 15 U.S.C.A. 78t-1. The putative class encompasses all persons who purchased stock of defendant, Resource America, Inc., from December 17, 1997 to February 22, 1999 (the "class period").
In the Amended Complaint, plaintiffs allege that the Resource America defendants, together with defendant Grant Thornton, LLP ("Grant Thornton"), engaged in a course of conduct that was designed to, and did materially, misstate the revenues and net income of Resource America, Inc. throughout the class period in direct violation of Generally Accepted Accounting Principles ("GAAP") by, inter alia,:
(a) improperly recognizing gains from the sale of senior liens on its loan portfolio;
(b) improperly employing the accretion-of-discount method of recognizing revenue on distressed loans that Resource America, Inc. purchased at discounts;
(c) failing to properly discount cash flows on subordinated loan interests that Resource America, Inc. refinanced with other lenders; and
(d) engaging in concerted conduct to wrongfully increase Resource America, Inc.'s reported revenues.
According to the Amended Complaint, defendants employed a scheme involving purchasing of loans on income-producing properties, obtaining of artificially inflated appraisals on the properties securing the loans, and then selling certain senior loan interests to a related party or others and, relying on alleged artificially inflated appraisals, recognizing significant non-cash "gain on sale" and "accretion of discount" income, which was then used to materially overstate current and historical revenues, earnings and assets, on which members of the plaintiff class allegedly relied in purchasing stock. See Amended Complaint at 3.
On March 24, 1999 the Resource America defendants and defendant Grant Thornton filed separate Motions to Dismiss the Amended Complaint (the "Original Motions to Dismiss," Docs. 11 and 12) for failure to comply with the pleading requirements of Fed.R.Civ.P. 9(b) and the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), see 15 U.S.C.A. 78u-4 et. seq. On September 1, 1999 this Court issued an Order denying defendants' Motions to Dismiss without prejudice "to the right of the moving defendants to address the issues raised in the motions after completion of relevant discovery by motion for summary judgment and/or at trial." The order was docketed on September 3, 1999.
On September 16, 1999 the Resource America defendants moved the Court to reconsider its Order docketed September 3, 1999, or in the alternative, to certify the Order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). In a separate motion filed on September 17, 1999, defendant Grant Thornton also asked the Court to reconsider its Order docketed September 3, 1999. It is these motions that are presently before the Court.
Typically, a motion for reconsideration is filed pursuant to Federal Rule of Civil Procedure 59(e) or 60(b). See Scott v. EPA, No. 97-6529, 1999 WL 358918, at *1 (E.D.Pa. June 2, 1999) (). However, neither Rule 59(e) nor 60(b) applies in this case because the order defendants seek to have reconsidered is not a final judgment or order but rather an interlocutory decision. See, e.g., Perez-Ruiz v. Crespo-Guillen,25 F.3d 40, 42 (1st Cir. 1994) (); Murr Plumbing, Inc. v. Scherer Bros. Fin. Svcs., 48 F.3d 1066, 1070 (8th Cir. 1995) ().
A district court has the inherent power to reconsider interlocutory orders "when it is `consonant with justice to do so.'" Walker v. Pearl S. Buck Foundation, Inc., No. 94-1503, 1996 WL 706714, at *2 (E.D.Pa. Dec. 3, 1996) (quoting United States v. Jerry, 487 F.2d 600, 605 (3d Cir. 1973)). Because of the interest in finality, however, courts should grant motions for reconsideration only sparingly. See Rottmund v. Continental Assurance Co., 813 F. Supp. 1104, 1107 (E.D.Pa. 1992).
The Court has reviewed its Order docketed September 3, 1999 and agrees that under the circumstances reconsideration is appropriate, although not required, because the Court did not fully articulate in the Order the bases for its ruling. Accordingly, the Court will grant defendants' Motions for Reconsideration of that Order.
The Resource America defendants' original Motion to Dismiss the Amended Complaint raised two principal arguments3: (1) that Resource America, Inc.'s public SEC filings fully disclosed the facts plaintiffs allege were concealed from the market — a "truth on the market" defense; and (2) that the Amended Complaint's allegations of scienter are insufficient under the Reform Act.
The Resource America defendants' first argument — that dismissal is warranted because they disclosed the allegedly concealed facts in SEC filings — was not specifically addressed in the Court's Order docketed September 3, 1999. Upon reconsideration of that argument, the Court concludes that it does not warrant dismissal of the Amended Complaint.
Plaintiffs acknowledge that this is a "fraud on the market" case. See Amended Complaint, at 26. Accordingly, plaintiffs employ the presumption of reliance established by the fraud on the market doctrine; they allege that defendants made material misrepresentations or omissions which affected the market price of Resource America, Inc. common stock and that the plaintiffs, in purchasing the securities, relied on the integrity of the price established by the market.
In general, defendants may defend a fraud on the market case by "asserting that the information allegedly withheld from the market had in fact entered the market." See In re Silicon Graphics, 970 F. Supp. 746, 753 (N.D.Cal. 1997) (quoting In re Apple Computer Sec. Lit., 886 F.2d 1109, 1113-14 (9th Cir. 1989)). This so-called "truth on the market" defense provides that "[i]f the allegedly withheld information has otherwise been supplied to the market and had its presumed effect on the market, then the alleged misrepresentation or omission in a particular public disclosure will not sustain a `fraud on the market' claim." Stepak v. Aetna Life & Casualty Co., No. 90-00886, 1994 WL 858045, at *8 (D.Conn. Aug. 29, 1994); see also Raab v. General Physics Corp., 4 F.3d 286, 289 (4th Cir. 1993).
The Resource America defendants raise a truth on the market defense, arguing that, based on the allegations of the Amended Complaint, "it is beyond dispute in this case that the relevant facts were disclosed." Motion of Resource America Defendants for Reconsideration (Doc. 19), at 4; Original Motion of Resource America Defendants to Dismiss the Complaint (Doc. 12), at 27. In connection with this defense, they point to the Eleventh Circuit's decision in Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir. 1999), for the proposition that "when considering a motion to dismiss in a securities fraud case, [a court] may take judicial notice . . . of relevant public documents required to be filed with the SEC. . ." Id. at 1277. According to the Resource America defendants, their SEC filings adequately "describe the Company's methods for accounting for accretion of discount income and for the gain on sale of senior lien interests in its loans . . . set forth on an aggregate and loan-by-loan basis the amount of such income for each relevant period, and . . . list the cost of each loan and the value of the underlying real estate as established by independent appraisal." Motion of Resource America Defendants for Reconsideration (Doc. 19), at 4.
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