IN RE WASHINGTON PUB. POWER SUP. SYSTEM SECURITIES
| Decision Date | 05 December 1985 |
| Docket Number | MDL No. 551. |
| Citation | 623 F. Supp. 1466 |
| Parties | In re WASHINGTON PUBLIC POWER SUPPLY SYSTEM SECURITIES LITIGATION. |
| Court | U.S. District Court — Western District of Washington |
COPYRIGHT MATERIAL OMITTED
Paul M. Bernstein, Chairperson, Bernstein, Litowitz, Berger & Grossman, New York City, Greenfield, Chimicles & Lewis, Richard D. Greenfield, Haverford, Pa., for plaintiff Henry Puchall.
Melvyn I. Weiss, Milberg, Weiss, Bershad, Specthrie & Lerach, New York City, for plaintiff Joseph Harris.
James R. Irwin, Shidler, McBroom & Gates, Seattle, Wash., for plaintiffs David Gold and Marvin Frankel.
Michael Mines (Ex-officio), Betts, Patterson & Mines, Seattle, Wash., for plaintiff Chemical Bank.
Richard A. Cirillo, Rogers & Wells, New York City, for defendants.
Graham & Dunn, Bruce M. Pym, Seattle, Wash., for various class plaintiffs.
Rabin & Silverman, Allan K. Peckel, Kaufman, Malchman & Kirby, P.C., New York City, for plaintiffs David Gold and Marvin Frankel.
Berger & Montague, P.C., David Berger, Philadelphia, Pa., for plaintiff Rosalyn Mirotznik.
Wolf Popper Ross Wolf & Jones, Stephen D. Oestreich, New York City, for plaintiff Morris Massry.
Goodkind, Wechsler & Labaton, Stuart D. Wechsler, New York City, and Wolfstone, Panchot, Bloch & Kelley, J. Porter Kelley, Seattle, Wash., for plaintiff Paul J. Bonseigneur.
Barrack, Rodos & Bacine, Gerald Rodos, Philadelphia, Pa., for plaintiff Dr. Howard Sheldon.
Schoengold & Sporn, P.C., Samuel P. Sporn, New York City, for plaintiff Jack Schroeder.
David B. Gold, P.A., David B. Gold, San Francisco, Cal., Pomerantz, Levy, Haudek, Block & Grossman, Stanley Grossman, Stephen P. Hoffman, New York City, Thomas M. Geisness, Inc., P.C., James A. Doherty, Seattle, Wash., for plaintiff Leonard Laub.
Meredith & Cohen, P.C., Joel C. Meredith, Philadelphia, Pa., Alan Neigher, Westport, Conn., for plaintiff Louis Brazen and 776 Broadway.
Wolf Haldenstein Adler Freeman & Herz, Daniel W. Krasner, New York City, for plaintiff-intervenor Schein.
Harvey Greenfield, Kaufman, Malchman & Kirby, Irving Malchman, New York City, Franco, Asia, Bensussen & Finegold, Benjamin S. Asia, Seattle, Wash., for plaintiff Bryna Stepak.
Wolf, Block, Schorr & Solis-Cohen, Barry F. Schwartz, Philadelphia, Pa., for plaintiff Danny S. Fruchter.
Stull, Stull & Brody, Jules Brody, New York City, for plaintiff Lawrence Zucker.
Sachnoff Weaver & Rubenstein, Ltd., Lowell E. Sachnoff, Chicago, Ill., for Martin Woolin.
Saveri & Saveri, Guido Saveri, O'Brien & Hallisey, A Professional Corp., Jeremiah F. Hallisey, San Francisco, Cal., for plaintiff The Doctors Co.
Much Shelist Freed Denenberg Ament & Eiger, P.C., Lawrence H. Eiger, Chicago, Ill., for plaintiff Ruth C. Sigmund, Trustee of Arthur W. Sigmund Residuary Trust and the Arthur W. Sigmund Marital Trust.
Bader & Bader, I. Walton Bader, White Plains, N.Y., for Malcolm Pine.
Albert R. Malanca, Donald S. Cohen, Kenneth G. Kieffer, Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, Tacoma, Wash., Seattle, Wash., for Washington Public Utilities Group.
David F. Jurca, Linda Cochran, Richard White, Helsell, Fetterman, Martin, Todd & Hokanson, Seattle, Wash., for Columbia Defendants.
Michael F. Schumacher, Jerome Hillis, Mark Clark, Greg Keller, Hillis, Phillips, Cairncross, Clark & Martin, Seattle, Wash., for Inland Utilities.
Hugo E. Oswald, Jr., Stevan Phillips, Margaret Pageler, Jones, Grey & Bayley, Seattle, Wash., for Wahkiakum defendants.
Larry S. Gangnes, John Tomlinson, H. Peter Sorg, Jr., Lane, Powell, Moss & Miller, Seattle, Wash., for Oregon Public Entities.
Everett B. Clary, Donald Wessling, O'Melveny & Myers, Los Angeles, Cal., for Certain Washington Public Power Supply System Director defendants.
Dennis K. Bromley, George Sears, Robert Gordon, Pillsbury, Madison & Sutro, San Francisco, Cal., for Snohomish Group.
John D. Lowery, Thomas Burt, Thomas Hamerlinck, Riddell, Williams, Bullitt & Walkinshaw, Seattle, Wash., for Small Utilities Group.
Malcolm S. Harris, John Mericle, Harris, Mericle, Orr & Bariault, Seattle, Wash., for Member Non-Participants.
Camden M. Hall, Foster, Pepper & Riviera, Seattle, Wash., for Member Non-Participants and City of Seattle, Wash.
Robert D. Stewart, David J. Lenci, Culp, Dwyer, Guterson & Grader, Seattle, Wash., for Washington Public Power Supply System.
Mark C. Rutzick, U.S. Dept. of Justice, Portland, Or., for U.S. — Bonneville Power Admin.
Irwin J. Sugarman, Robert Abrahams, Schulte, Roth & Zabel, New York City, for Law Firm defendants.
Otto G. Klein, III, Peter Danelo, Syrdal, Danelo, Klein & Myre, Seattle, Wash., for Engineer defendants.
Herbert M. Wachtell, Peter C. Hein, Wachtell, Lipton, Rosen & Katz, New York City, for Underwriter defendants.
James J. Hagan, Robert Woody, Simpson, Thacher & Bartlett, New York City, for Blyth Eastman Paine Webber, Inc.
This multidistrict securities litigation involves numerous claims brought by various plaintiffs who purchased Project 4/5 bonds issued by the Washington Public Power Supply System to finance the construction of two nuclear power plants. After bonds with a face value of $2.25 billion dollars were sold, serious problems led to the termination of both projects and resulted in default by the Supply System on its bond obligations. Claims against several hundred defendants under both federal and state law are made in complaints filed by class plaintiffs and by Chemical Bank. These actions have been consolidated for pretrial purposes. Only the motions to dismiss the federal claims will be considered in this Order. The defendants have aligned themselves into fifteen groups with lead counsel submitting briefs on behalf of each group.
The procedural posture of the various motions to dismiss now before the Court is unique. All of these motions were filed in the fall of 1983 and ruled on in December, 1983, by the Honorable Richard M. Bilby. In January of 1985 Judge Bilby decided to recuse himself from the case based on his discovery that his father and stepmother held $100,000. in WPPSS Project 3 bonds. After the case was transferred to the undersigned, an order vacating the substantive rulings of the prior Court, based on a technical application of 28 U.S.C. § 455, was entered. It was my conclusion that in litigation as massive and complex as this, a record as unimpeachable as possible was essential. Therefore, although there was never any allegation or finding of actual bias on the part of Judge Bilby, I undertook to revisit the substantive motions previously ruled upon.
Parties were given the opportunity to re-urge any motions that had resulted in vacated orders. An independent review of the record on these re-urged motions, including previously filed moving and responding papers and memoranda and transcripts of applicable hearings, was conducted. Parties were given leave to submit, without argument, any additional authority decided since the original pleadings were filed. The Court advised the parties that additional briefing or argument would be ordered if necessary. Following are the Court's rulings on these federal claims.
All of the defendants move to dismiss the federal claims under Federal Rule of Civil Procedure 9(b) for failure to plead fraud with particularity. It is clear that Rule 9(b) requirements should be applied to the claim based on § 10(b) of the 1934 Act. Walling v. Beverly Enterprises, 476 F.2d 393 (9th Cir.1973); Hokama v. E.F. Hutton, 566 F.Supp. 636 (C.D.Cal.1983); McFarland v. Memorex Corp., 493 F.Supp. 631 (N.D.Cal.1980).
It is not clear that Rule 9(b) applies to the claim brought under § 20 of the 1934 Act. The cases cited by defendants in support of applying the Rule 9(b) requirements to § 20 are open to differing interpretation in that regard. In Hudson v. Capital Management Int'l., Inc., 565 F.Supp. 615 (N.D.Cal.1983), certain § 20 claims were dismissed, but the court does so on the basis of failure to plead control status. Nowhere in that opinion does it state that Rule 9(b) applies to § 20. Similarly in McFarland v. Memorex Corp., supra and Hokama v. E.F. Hutton, supra, the courts discuss the sufficiency of allegations of control person status, but do not explicitly apply Rule 9(b) standards. Confusion has arisen about this issue because courts tend to discuss the pleading requirements for securities claims together. Technically, the strict pleading requirements of Rule 9(b) are probably properly applied to the § 10(b) and Rule 10b-5 claims, but not to the § 20 claim. The discussion below will indicate, however, that the § 20 claim would survive even the Rule 9(b) standard.
The issue of whether Rule 9(b) applies to the claim based on § 17(a) of the 1933 Act is more problematic, and will be reserved pending discussion later in this opinion of the more basic question of whether or not there is a private right of action at all under that section of the federal securities laws.
In support of their Rule 9(b) arguments, the defendants cite a series of Second Circuit cases that adopt an expansive interpretation of Rule 9(b). See, e.g. Decker v. Massey-Ferguson, Ltd., 681 F.2d 111 (1982); Ross v. A.H. Robins, 607 F.2d 545 (1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980). The Ninth Circuit has adopted a more relaxed interpretation of the requirements of Rule 9(b) that is more in keeping with the spirit of the liberal federal rule of notice pleading and consistent with Rule 8(a). See, e.g., Walling v. Beverly Enterprises, supra; Bosse v. Crowell, Collier & MacMillan, 565 F.2d 602 (9th Cir.1977); Gottreich v. San Francisco Investment Corp., 552 F.2d 866 (9th Cir.1977).
Under these Ninth Circuit cases, Rule 9(b) "does not require nor make legitimate the pleading of detailed evidentiary matter." 2A J. Moore, Federal Practice § 9.03, at 1930 (2d ed. 1972), cited in Walling v. Beverly Enterprises, 476 F.2d at 393....
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