In re ZZZZ Best Securities Litigation
| Decision Date | 12 August 1994 |
| Docket Number | No. CV-87-3574-RSWL(Bx).,CV-87-3574-RSWL(Bx). |
| Citation | 864 F. Supp. 960 |
| Parties | In re ZZZZ BEST SECURITIES LITIGATION. |
| Court | U.S. District Court — Central District of California |
COPYRIGHT MATERIAL OMITTED
Marc M. Seltzer, Corinblit & Seltzer, A Professional Corp., Los Angeles, CA, for plaintiffs.
William S. Lerach, Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, David J. Bershad, Milberg Weiss Bershad, Hynes & Lerach, New York City, for plaintiffs A. Jacques Lou, Seymour Lazar, and David Elefant.
Edward Labaton, Joseph Sternberg, Goodkind Labaton Rudoff & Sucharow, Stuart D. Wechsler, Robert A. Skirnick, Wechsler Skirnick Harwood Halebian & Feffer, Robert S. Schachter, Zwerling, Schachter & Zwerling, New York City, for plaintiff E. Allan Lustig.
Marian P. Rosner, Patricia I. Avery, Wolf Popper Ross Wolf & Jones, New York City, for plaintiff Mordecai Weiss.
Stephen Lowey, Richard Bemporad, Robert W. Rodriguez, Lowey Dannenberg, Bemporad & Selinger, P.C., Howard Sirota, Sirota & Sirota, New York City, for plaintiff David Elefant.
George C. Zachary, Rosenfeld, Meyer & Susman, Beverly Hills, CA, for plaintiffs E. Allan Lustig, Susan D. Fader, Bruce Doniger and George Strum.
Arthur N. Abbey, Joshua I. Rubin, Abbey & Ellis, New York City, for plaintiff Bruce Doniger.
David Berger, Sherrie R. Savett, Karen S. Orman, Stuart J. Guber, Berger & Montague, P.C., Philadelphia, PA, for plaintiffs Robert D. Slewett and Nathan Esformes.
Robert N. Kaplan, Kaplan, Kilsheimer & Fox, New York City, for plaintiff Michael E. Moss.
Glen DeValerio, Margaret Dobies, Berman, DeValerio & Pease, Boston, MA, for plaintiffs Nicholas Spiro, Stephen Horwitz and Ara Eresian, Jr.
Richard Appleby, Law Offices of Richard Appleby, New York City, for plaintiff Michael Watzky.
David B. Gold, Paul F. Bennett, George Trevor, Gold & Bennett, A Professional Law Corp., San Francisco, CA, for plaintiff Edward Slade.
Jules Brody, Mark Levine, Stull, Stull & Brody, Joseph H. Weiss, Law Offices of Joseph H. Weiss, New York City, for plaintiffs Susan D. Fader and George Strum.
Paul B. Steinberg, Steinberg & Slewett, P.A., Miami Beach, FL, for plaintiff Robert D. Slewett.
David H. Greenberg, Law Offices of David H. Greenberg, Beverly Hills, CA, Stanley Grossman, Marc I. Gross, Shaheen Rushd, Pomerantz Haudek Block & Grossman, David Jaroslawicz, Jaroslawicz & Jaros, New York City, for plaintiff Meir Akerman.
Kenneth A. Jacobsen, Chimicles, Jacobsen & Tikellis, Haverford, PA, Patrick Grannan, Chimicles, Jacobsen & Tikellis, Los Angeles, CA, for Class Action plaintiff Alfred Rosenstein.
Anthony F. Latiolait, Morgan & Wenzel, Los Angeles, CA, Stanley D. Bernstein, Kreindler & Kreindler, New York City, for plaintiffs Richard Trontz, Individually and as Custodian for Robert Trontz under The New York Gifts to Minors Act and as Custodian for Laurie Trontz under the New York Gift to Minors Act, and Scott Trontz With Respect to Count XII Only.
Norman H. Levine, Kelly Ann Coleman, Greenberg, Glusker, Fields, Claman & Machtinger, Los Angeles, CA, for plaintiffs Peter E. Strauss, Panache Productions, Inc. and Plushcell, Ltd. With Respect to Count XIII Only.
Keith E. Eggleton, Bruce G. Vanyo, Denise M. Amantea, David J. Berger, Joshua A. Lipp, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, CA, for plaintiffs Prudential-Bache Securities, Inc. and P-B Finance, Ltd.
Leonard Sharenow, Law Offices of Leonard Sharenow, P.C., Santa Monica, CA, for defendant Hal Berman.
Jack I. Samet, Karen Baker, Buchalter, Nemer, Fields & Younger, Los Angeles, CA, Jacob W. Heller, Sigmund S. Wissner-Gross, Heller, Horowitz & Feit, P.C., New York
City, for defendants Steven A. Greenberg and Anametrics Advisors, Inc.
William B. Campbell, Todd E. Gordinier, John H. Kanberg, Eve T. Saltman, Orrick, Herrington & Sutcliffe, Los Angeles, CA, for defendant Ernst & Young, Successor-in-Interest to Ernst & Whinney, and Lead Defense Counsel.
Jesse D. Miller, Calvin House, Meredith Munro-Ehrlich, Fulbright & Jaworski, L.L.P., Los Angeles, CA, for defendants Rauscher, Pierce, Refsnes, Inc., Un Financial Corp., Baer & Co., Inc., Cantor, Fitzgerald & Co., Inc., Evans & Co., Inc., Rosenkrantz, Lyons & Ross, Inc., Steinberg & Lyman and Whale Securities Corp. (the "Non-Managing Underwriter Defendants").
Edward M. Krivda, in pro per.
Jerome H. Craig, Dennis M. Perluss, Gary Plessman, Mark R. McDonald, Hufstedler & Kaus, Los Angeles, CA, Rosenman & Colin, New York City, for defendants Ladenburg, Thalmann & Co., Inc. and Robert Grossmann.
Donald E. Stemberg, Law Offices of Donald E. Sternberg, Woodland Hills, CA, for defendants Harold J. Lipman and Vera Hojecki.
Andrew S. Gelb, Wolf, Rifkin & Shapiro, Los Angeles, CA, Hartley T. Bernstein, Brandeis, Bernstein, New York City, for defendant Randolph K. Pace.
Richard F. Oetting, Paul I. Wapner, Barton, Klugman & Oetting, Los Angeles, CA, Richard L. Brown, Barton, Klugman & Oetting, Newport Beach, CA, for defendant Greenspan and Co. and S. George Greenspan.
Bruce T. Andersen, Woodland Hills, CA, Daniel E. Mancilla, Iron Works, Reseda, CA, for defendant Daniel E. Mancilla, individually and dba D & M Iron Works.
S. Thomas Pollack, Jonathan H. Steinberg, Sara D. Lipscomb, Irell & Manella, Los Angeles, CA, for defendants Hughes Hubbard & Reed and Mark R. Moskowitz.
Terry W. Bird, Jason D. Kogan, Bird, Marella, Boxer, Wolpert & Matz, P.C., Los Angeles, CA, for defendant Neal Dem.
Michael M. Gless, Neal S. Robb, Mitch J. Albert, Keesal, Young & Logan, Long Beach, CA, for defendants Freshman Marantz Orlanski Cooper & Klein and Mark A. Klein.
Elliot D. Burick, Law Offices of Elliot D. Burick, Los Angeles, CA, for defendants J. Richard Charbit, Silverstone Investments, Inc. and Tarchit Inv. Corp.
Anthony Michael Glassman, Glassman & Browning, Inc., Beverly Hills, CA, for defendants Mark Morze and Marbil Marketing Management.
Maurice Rind, in pro per.
Larry G. Baker, C.P.A., in pro per.
Thomas D. Padgett, in pro per.
Mark Roddy, in pro per.
Jerry N. Polevoi, in pro per.
Jack N. Polevoi, in pro per.
Daniel Krowpman, in pro per.
Defendant Ernst & Young, successor-in-interest to Ernst & Whinney ("E & Y"), has moved in the above captioned action for Summary Adjudication on Class Plaintiffs' Section 10(b)/Rule 10b-5 claim for the commission of a manipulative or deceptive act in connection with the sale of securities (Count III). The matter came up regularly for hearing on July 18, 1994.
Now, having carefully considered all of the papers filed in support of and in opposition to the motions, as well as oral arguments, the Court hereby GRANTS in part and DENIES in part Defendant's Motion for Summary Adjudication.
ZZZZ Best Co., Inc. ("Z Best"), at one time thought to be the nation's largest carpet cleaning company, was widely regarded as a company which had achieved tremendous financial success prior to its sudden collapse into bankruptcy in 1987. Z Best's founder and largest shareholder, Barry Minkow, was ultimately convicted and imprisoned for fraud and embezzlement.
The Class Plaintiffs allege that Z Best's glamorous aura was a sham, and that a massive fraud was perpetrated in connection with the public trading of Z Best securities and the sale of Z Best shares in a public stock offering commencing on December 9, 1986. Plaintiffs allege that the fraud was committed through a series of false and misleading statements and omissions of material fact made in public statements regarding Z Best, its finances, management, and future business prospects. Accordingly, Plaintiffs filed a class action complaint in this Court alleging numerous federal securities law, RICO, and state law violations against a number of Defendants.1
Plaintiffs' claims against E & Y arise in part out of E & Y's release of a review report on first quarter interim financial information for the three-month period ending July 31, 1986 (the "Review Report").2 E & Y's Review Report was included in Z Best's December 1986 offering prospectus and stated that "we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with generally accepted accounting principles." Review Report, p. 35 of Prospectus (attached as Exhibit A to the declaration of Frank M. Tse). Plaintiffs allege that E & Y did however know of major discrepancies in Z Best's internal accounting procedures and that the figures released by Z Best were not accurate. Thus, Plaintiffs contend that E & Y knowingly engaged in a fraudulent scheme resulting in the issuance of the Review Report which contained misrepresentations and/or omissions that directly affected the purchase or sale of securities in violation of Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)),3 as well as Rule 10b-5 of the Securities Exchange Commission's ("SEC") regulations (17 C.F.R. § 240.10b-5).4
In addition to the Review Report, Plaintiffs contend that E & Y is also liable for its involvement in the creation, review or issuance of approximately thirteen other publicly released statements related to the Z Best fraudulent scheme.5 These additional statements include: 1) an October 29, 1986 press release issued by Z Best; 2) a December 9, 1986 press release issued by Z Best; 3) a public announcement made on December 18, 1986 by Z Best and Bruce T. Anderson; 4) a Report issued on March 9, 1987 by Ladenburg, Thalmann & Co., Inc. ("Ladenburg") and Robert Grossmann; 5) a Form 10-Q quarterly report issued on March 16, 1987 by Z Best; 6) a press release issued on March 16, 1987 by Z Best and Greenberg; 7) a press release issued on April 16, 1987 by Z Best and Steven A. Greenberg; 8) another report by Ladenburg and Grossmann issued on April 20, 1987; 9) a supplement to the December 9, 1987 prospectus issued on April 28, 1987 by Z Best; 10) a press release issued on May 18, 1987 by Z Best and Greenberg; 11)...
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