Moskowitz v. Arthur Andersen & Co.

• Decision Date: 01 February 1979
• Docket Number: No. 78 Civ. 5374 (GLG).,78 Civ. 5374 (GLG).
• Citation: Moskowitz v. Arthur Andersen & Co., 464 F. Supp. 1246 (S.D. N.Y. 1979)
• Parties: Paul MOSKOWITZ and Frances Moskowitz, in behalf of themselves and all other parties similarly situated and circumstances, Plaintiffs, v. ARTHUR ANDERSEN & COMPANY, Dorlexa Co., Howard Dulman, Individually and d/b/a Van Eck Associates, Richard Gersh, Mervyn Silver, Gerald Lee, Joseph W. Heilbrun, and "John Doe" and "Richard Roe" being fictitious, the parties intended being those persons identified in the complaint herein by such appellations, Defendants.
• Court: U.S. District Court — Southern District of New York

464 F. Supp. 1246

Paul MOSKOWITZ and Frances Moskowitz, in behalf of themselves and all other parties similarly situated and circumstances, Plaintiffs, v.ARTHUR ANDERSEN & COMPANY, Dorlexa Co., Howard Dulman, Individually and d/b/a Van Eck Associates, Richard Gersh, Mervyn Silver, Gerald Lee, Joseph W. Heilbrun, and "John Doe" and "Richard Roe" being fictitious, the parties intended being those persons identified in the complaint herein by such appellations, Defendants.

No. 78 Civ. 5374 (GLG).

United States District Court, S. D. New York.

February 1, 1979.

Bader & Bader, White Plains, N. Y., for plaintiffs; I. Walton Bader, New York City, of counsel.

Breed, Abbott & Morgan, New York City, Wilson & McIlvaine, Chicago, Ill., for defendant, Arthur Andersen & Co.; James D. Zirin, James R. Peterson, New York City, Charles W. Boand, Chicago, Ill., of counsel.

OPINION

GOETTEL, District Judge:

This is an action against several directors of Frigitemp Corp. and Arthur Andersen & Co., the independent accountants for Frigitemp, involving alleged deficiencies in financial statements and in other aspects connected with Frigitemp's publicly held securities.The plaintiff brought the action, on behalf of a class of stock purchasers, in New York State Supreme Court, and the accountant defendant removed it to this court.

The plaintiff now moves to remand, and the motion brings into focus the relationship between two occasionally competing policies — one which promotes the dual existence of state and federal courts and one which encourages the conservation of judicial resources.The motion also produces the anomalous situation of an accountant defendant seeking to be included in a federal securities fraud case, rather than making the usual argument that it has been named in a federal fraud action on vague allegations that amount to no more than a charge of negligence or professional malpractice.See, e. g., Ernst & Ernst v. Hochfelder,425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668(1976).True to tradition, but perhaps contrary to its theory of removal, Andersen has cross-moved to dismiss the complaint for failure to plead with the particularity required by Fed.R.Civ.P. 9(b).¹

Knowledge of the factual background is necessary to a practical understanding of the problem posed by the motion to remand to state court.In July, 1978, three purported class actions against these or similar defendants, based on the federal securities laws, were filed in this court.Shortly thereafter, those cases were consolidated, and a consolidated complaint was filed by those plaintiffs.Litowitz v. Arthur Andersen &Co., 78 Civ. 3100(GLG).Class discovery has progressed in Litowitz, and a motion for class certification is pending.

The instant plaintiff, or maybe more properly this plaintiff's counsel, apparently missed the boat on the federal class actions, and although the plaintiff would undoubtedly be included in the Litowitz class if certified, he chose rather to file a trailing action against Andersen in state court, naming some but not all of the other defendants sued in Litowitz, plus several additional defendants not parties in Litowitz.Although it clearly arises out of the same events that led to the Litowitz actions before this Court, the complaint expressly disavows any reliance on federal law.Instead of pleading the usual claim under section 10(b) of the Securities Exchange Act,15 U.S.C. § 78j(b)(the "1934 Act"), the plaintiff bases his claims against Andersen solely on state statutory and common law.Two counts allege violations of New York's "securities antifraud"statutes,² and two more counts allege claims for professional malpractice and violations of New York common law.The Litowitz consolidated complaint, although based primarily on federal law, also contains similar state law claims pleaded under the rubric of pendent jurisdiction.

Andersen, faced with the prospect of defending on two different fronts, removed the instant case to this Court, presumably with the intention of moving for consolidation with the Litowitz actions.Such a course would no doubt reduce substantially any duplication of effort during discovery and trial.Andersen argues, in support of its position, that the plaintiff and his counsel should not be permitted to ride on the coattails of the Litowitzplaintiffs by maintaining an independent state action while profiting from all the discovery work occurring in federal court.In addition, Andersen says that it is unfair to force it to defendant multiple, vexatious actions in the state courts while the real work is going on here.Not only would a parallel state action increase the cost of coordinating discovery, but it would also prove a stumbling block to any settlement efforts in the federal class actions.Andersen sees the plaintiff's counsel as a scavenger, letting other plaintiffs' attorneys do his work for him and yet able to avoid sharing his benefits with the others.Equitably, there is much to be said for Andersen's position.

The law, however, does not support removal, and for some good reasons.The removal statute, 28 U.S.C. § 1441(a), permits removal of any action over which this Court could have had "original jurisdiction."The only reference to securities violations in the plaintiff's various causes of action are clearly limited to state law.Although the allegations are so vague that they might be insufficient under state practice, they do not clearly set forth such facts from which it would necessarily follow that there had been a federal securities violation as well.Even if the plaintiff had pleaded a section 10(b) violation in his state complaint, however, it is also clear that the state court would not have had subject matter jurisdiction and dismissal here would be appropriate for that reason.Jurisdiction under the 1934 Act is lodged exclusively in the federal courts, 15 U.S.C. § 78aa, and since removal jurisdiction is "derivative,"this Court could not acquire jurisdiction from the state court from which the case was removed.Lambert Run Coal Co. v. Baltimore & O. RR.,258 U.S. 377, 42 S.Ct. 349, 66 L.Ed. 671(1922).See e. g., Bancohio Corp. v. Fox,516 F.2d 29(6th Cir.1975).In such a case, the proper course would be for the plaintiff to file a new federal action.³

Andersen argues, however, that the state law claims in plaintiff's complaint are removable because this Court already has pendent jurisdiction over the similar state law claims in Litowitz, and therefore, plaintiff's claims come within this court's "original jurisdiction" for purposes of the removal statute.Simply stated, there is no legal authority for this novel proposition.Andersen cites cases which support retention by a federal court of removed pendent state law claims, but only where there is clearly one removable claim which could have been brought initially in federal court.See, e. g., Iodice v. Calabrese,291 F.Supp. 592(S.D.N. Y.1968).In the instant case, if there were a federal claim pleaded, it would not be removable under Lambert Run, supra, so that there is no peg on which to hang pendent jurisdiction over the state law claims.

Moreover, the prospect that this Court may eventually exercise its...