In Re Equity Funding Corp. of America Securities Litigation

375 F. Supp. 1378

• Court: United States Judicial Panel on Multidistrict Litigation
• Decided: April 25, 1974
• Docket: 142
• Status: Published

Opinions

ORDER

The Panel having found, upon the basis of the papers submitted and the hearing held, that the actions listed on the attached Schedule A involve common questions of fact and that transfer of these actions to the Central District of California for coordinated or consolidated pretrial proceedings would serve the convenience of the parties and witnesses and would further the just and efficient conduct of the litigation,

It is ordered that all actions on the attached Schedule A pending in districts other than the Central District of California? be, and the same hei'eby are, transferred to the Central District of California and, with the consent of that court, assigned to the Honorable Malcolm M. Lucas for coordinated or consolidated pretrial proceedings, pursuant to 28 U.S.C. § 1407, with the actions pending in that district and listed on Schedule A.

A full opinion and order embodying the above decision will be filed upon final preparation.

OPINION AND ORDER

Before ALFED P. MURRAH, Chairman, and JOHN MINOR WISDOM, EDWARD WEINFELD, EDWIN A. ROBSON, WILLIAM H. BECKER, JOSEPH S. LORD, III, and STANLEY A. WEI-GEL, Judges of the Panel. ALFRED P. MURRAH, Chairman, delivered the opinion of the Panel, in which EDWIN A. ROBSON, WILLIAM H. BECKER and JOSEPH S. LORD, Judges of the Panel, joined.

I. Background of Litigation

This complex multidistrict litigation arises out of the collapse of Equity Funding Corporation of America, a diversified financial services company based in California. In the latter part of March 1973 trading in Equity Funding’s securities was halted by the New York Stock Exchange and the Securities and Exchange Commission. Soon thereafter, in an action brought by the SEC in the Central District of California, Equity Funding consented to a decree enjoining the continuation of an alleged scheme to defraud investors. And the company is now in Chapter X bankruptcy in that district.¹ Numerous civil actions, involving in some respects the alleged fraud, have been filed in different federal district courts throughout the country. The majority of these actions are pending either in the Central District of California ² or the Southern District of New York.³

Defendant Seidman & Seidman, joined by numerous other parties, has moved to transfer all actions to the Central District of California for coordinated or consolidated pretrial proceedings.⁴ ***Practically all of the parties to the litigation favor coordinated or consolidated pretrial proceedings under Section 1407 in some form or to some extent. Some of the parties, however, insist on bifurcation of the litigation and transfer of certain groups of cases to the Southern District of New York where most of the actions comprising those groups are now pending.

The matter has been extensively briefed and twice orally argued. The real issue confronting us is whether all the litigation should be transferred to a single district and assigned to a single judge under Section 1407 or whether the litigation should be bifurcated with two transferee forums. For reasons which we shall articulate, we have decided that the convenience of the parties and witnesses and the just and efficient conduct of the litigation can best be served by transfer of all of the litigation to the Central District of California and, with the consent of that court, assigned to the Honorable Malcolm M. Lucas for coordinated or consolidated pretrial proceedings pursuant to Section 1407.

II. Litigation before the Panel

A classification of the claims asserted in the litigation is essential to an understanding of the considerations which prompt us to transfer all actions to one district and assign them to one judge for Section 1407 treatment.

A. Primary or Underlying Fraud Claims

The primary or underlying fraud claims relate to an alleged scheme by Equity Funding and its subsidiaries to inflate assets and earnings by, among other things, creating and selling to reinsurers bogus life insurance policies in order to present to the investing public an image of a successful, growing and prosperous enterprise. The alleged fraud, facilitated by the use of computers, enabled Equity Funding to overstate its assets and record'non-existent assets, which eventually appeared in its financial statements. The defendants in the fraud actions typically include Equity Funding, its officers, directors and subsidiaries, and its accountants and auditors who prepared the financial statements and reports which concealed the alleged fraud.

B. Trading or So-Called “Tippee” Claims

These claims are asserted by purchasers of Equity Funding’s securities against parties who allegedly possessed material, non-public information concerning Equity Funding and traded in the securities of the corporation without making such information generally available to the investing public. Plaintiffs typically allege that in March 1973 a former Equity Funding employee informed a securities analyst for a research oriented brokerage firm that a massive fraud was being perpetrated at the company; that the analyst conducted his own investigation and passed the information he gathered to certain investors and agents for investors in Equity Funding’s securities; and that those in possession of this inside information used it to their advantage until trading in all securities of Equity Funding was suspended. Plaintiffs also necessarily allege the facts of the primary or underlying fraud.

Some of the complaints which contain trading or “tippee” claims name as defendants not only parties which allegedly traded securities when in possession of inside information but also party-defendants to the primary fraud claims.

C. Combination Primary Fraud-Trading Claims

Some of the complaints contain a single claim for relief based upon allegations of both primary fraud and trading on inside information.

D. Underwriting Claims

These claims are asserted by purchasers of debentures of Equity Funding and focus upon the financial statements in the separate registration statements and prospectuses disseminated with respect to the public offerings of the debentures. The claims necessarily contain allegations relating to the underlying fraud at Equity Funding.

E. Rescission Claims

Claims for rescission and damages are made arising out of Equity Funding’s acquisition of Bankers National Life Insurance Company and Liberty Savings & Loan Association. Plaintiffs were stockholders in] the corporations at the time of the acquisitions and received Equity Funding stock in exchange for their shares. They allege that the financial statements used by Equity Funding in connection with the acquisitions were false and misleading. But included in plaintiffs’ claim for rescission are allegations concerning facts relevant to the primary fraud.

F. Miscellaneous Claims

1. Contract Action

This action involves a contractual dispute between duPont, Glore Forgan and Federated Income and Private Placement Fund concerning the sale of Equity Funding debentures.⁵ DuPont, Glore Forgan alleges that Federated Income breached its contract to purchase the debentures and misrepresented its willingness to pay for them under all circumstances. Clearly, this action has nothing in common with the other actions and since no purpose would be served by transfer under Section 1407, it should remain in the Southern District of New York.

2. Indenture Trustee Actions

Independent Investor Protective League has filed two actions in the Southern District of New York against the indenture trustees of the Equity Funding debentures, alleging that the trustee violated its fiduciary duties to protect the rights of the bondholders.⁶ Plaintiff is opposed to transfer of either of the actions. The complaints on their face, however, raise questions of fact common to the other actions and we find that these parties will to some extent benefit from participation in the coordinated or consolidated pretrial program in California.

3. Broker-Dealer Actions

Individuals who purchased Equity Funding securities before trading was suspended have filed actions against their brokers and representative agents alleging violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.⁷ These actions necessarily involve the primary fraud at Equity Funding and, in order to eliminate the possibility of duplicative discovery and inconvenience to the parties and witnesses, they should be transferred to the Central District of California and placed under the general supervision of the transferee judge.⁸ If separate treatment is warranted, however, plaintiffs may address these arguments to the transferee judge who may fashion a pretrial program to suit the needs of these plaintiffs and, when appropriate, recommend to the Panel that the actions be remanded to their respective transferor courts for further proceedings.

G. Unified and Consolidated Complaints

Pursuant to pretrial orders entered in the Central District of California and the Southern District of New York, a set of unified and consolidated complaints have been filed. Plaintiffs in California have filed a single unified and consolidated complaint containing requests for definition of four separate classes encompassing the primary fraud, trading or tippee, underwriting and rescission claims as described earlier.⁹ In the Southern District of New York, four separate consolidated class action complaints have been filed.¹⁰ The alleged classes as defined in the New York complaints overlap and conflict with the class allegations in the California consolidated complaint.¹¹

III. The Question of Transfer

The parties favoring bifurcation suggest that the primary fraud issue is only peripherally involved in the trading, underwriting and rescission claims and that most of the legal issues and discovery with respect to those claims have nothing in common with the primary fraud claims. They therefore argue that the primary fraud claims be transferred to the Central District of California and that the trading or “tippee,” underwriting and rescission claims be transferred to the Southern District of New York for separate coordinated or consolidated pretrial proceedings.

We start with the proposition that the alleged primary or underlying fraud actuates the entire litigation and, to some extent at least, conditions the various plaintiffs' right to recover in all of the actions. The nature and quantum of proof of the alleged primary fraud necessarily depends on and varies with the legal theories of the cases. Not all of the discoverable proof is common to all actions. For example, the trading, underwriting and rescission claims may-very well turn on operative facts not distinctly relevant to the primary fraud claims. But even so it cannot be said that the alleged underlying fraud is entirely irrelevant or non-essential to the establishment of each of the stated cases. The allegations as drafted speak loudly in that respect. Indeed, as we have seen for example, the facts of the primary fraud are carefully pleaded in each of the counts contained in the unified consolidated complaints filed in the Southern District of New York.

Our decision is necessarily based on the pleadings and oral argument of counsel, whose statements of fact are understandably colored by their manifest interest in the locale of the pretrial processing. Defendants do not concede the alleged fraud at Equity Funding and it must, of course, be proven as pleaded. We are governed by the facts as pleaded and we cannot assume that they will be admitted. The facts of the primary fraud underlie and undergird each action. This fact alone augurs for the transfer of all of the litigation to a single district under Section 1407.

We know that proof in litigation of this kind consists primarily of documents and depositions. And it is not the province of the Panel to determine the nature or quantum of proof relevant and discoverable by depositions and production of documents. These decisions must necessarily be left to the transferee judge who has the power and the duty to organize the discovery program to prevent duplication and unnecessary inconvenience to the parties and witnesses.

Coordinated or Consolidated Pretrial Proceedings

The statute speaks in terms of transfer to “any district for coordinated or consolidated pretrial proceedings.” 28 U.S.C. § 1407(a). Used in the disjuctive, the critical words denote different judicial functions. They are indicative of the flexibility and resourcefulness implicit in the legislation. They were undoubtedly intended to confer on a transferee judge the power to fashion the discovery program to accommodate the different facets and nuances of the litigation. It is the province of the Panel to decide whether in the first instance the litigation should be transferred for coordinated or consolidated pretrial proceedings. It is the province of the transferee judge to determine whether and to what extent the pretrial proceedings should be coordinated or consolidated. We have repeatedly declined to attempt to determine in what way and to what extent the litigation should be coordinated or consolidated. From the very beginning we have left that determination to the discretion of the transferee judge.

The concept of transferring actions, sharing one or more common questions of fact but resting upon different legal theories, to a single district and assigning them to the same judge is not new to the Panel. We have always been at pains to leave the extent of coordination or consolidation to the ingenuity and resourcefulness of the transferee judge. In the very beginning we were confronted with the problem of transfer of actions in the Plumbing Fixtures litigation, arising out of two alleged criminal conspiracies charged in two separate indictments. See In re Plumbing Fixtures Cases, 295 F.Supp. 33 (Jud.Pan.Mult.Lit.1968). The so-called “short-line” defendants in that litigation objected to consolidated discovery proceedings on the ground that the civil actions were based upon separate conspiracies and that discovery would not be common to all cases. And they argued that it would be prejudicial to coordinate their discovery with the other cases in which they were not parties and had no interest. We recognized the separability of the alleged conspiracies, but we nevertheless transferred all the cases to one district “. . . leaving to the transferee judge the sole power to determine in his discretion the order and procedures for conducting separate pretrial proceedings in respect to the separate alleged conspiracies.” Id. at 34.

In two other notable groups of litigation we rejected suggested bifurcation, leaving the extent to which the transferred litigation should be coordinated or consolidated to the ingenuity and re-, sourcefulness of the transferee judge. See In re Revenue Properties Company Securities Litigation, 309 F.Supp. 1002 (Jud.Pan.Mult.Lit.1970), and In re Seeburg-Commonwealth United Merger Litigation, 312 F.Supp. 909 (Jud.Pan.Mult.Lit.1970). In the latter litigation we noted that while the two groups of cases might be appropriate for bifurcated treatment they did involve sufficient commonality of fact to warrant transfer of all actions to a single district “to be conducted by a judge familiar with both groups of cases and sensitive to the needs and rights of all parties.” And we observed that:

“The transferee judge may then consolidate and coordinate the pretrial proceedings in the two groups of cases to the extent he may deem consolidation or coordination desirable to serve the convenience of parties and witnesses and to promote the just and efficient conduct of such actions.” In re Seeburg-Commonwealth United Merger Litigation, 312 F.Supp. 909, 911 (Jud.Pan.Mult.Lit.1970).

The parties favoring bifurcation suggest that the Penn Central litigation provides an ideal model for bifurcating these proceedings. In that litigation we transferred all of the securities fraud litigation growing out of the financial difficulties of the Penn Central Transportation Company to the Eastern District of Pennsylvania¹² and later ordered all actions arising from the sale of Penn Centi’al Commercial Paper to the Southern District of New York.¹³

We ordered separate coordinated or consolidated pretrial proceedings for the commercial paper litigation because we found that those cases rested upon a different set of primary facts than those involved in the fraud actions in Philadelphia. But we transferred the bondholder actions to the Eastern District of Pennsylvania for coordinated or consolidated pretrial proceedings with the other fraud actions. The bondholder plaintiffs opposed transfer on the ground that they were proceeding only against the underwriters and accountants who participated in the issuance of the bonds and that their discovery would not be common to the fraud actions. We were not persuaded:

“Although the extent of the factual overlap is not certain, it is sufficient to- require these bond cases to be assigned with the other cases for pretrial purposes. The bondholding plaintiffs may present their arguments for separate treatment to the transferee judge, who is given the discretion to decide the extent of coordination or consolidation desirable in cases assigned to him under Section 1407.” In re Penn Central Securities Litigation, 322 F.Supp. 1021, 1022-1023 (Jud.Pan.Mult.Lit.1971).

We think the reasons for transfer of the bond actions in the Penn Central Litigation equally persuasive to support the transfer of all actions in this litigation to the Central District of California for coordinated or consolidated pretrial proceedings.

Potential Conflict in Rule 23 Class Determinations

There is yet another highly persuasive if not compelling reason for transfer of all actions to a single judge. We have consistently held that transfer of actions under Section 1407 is appropriate, if not necessary, where the possibility for conflicting, inconsistent class determinations by courts of coordinate jurisdiction exists.¹⁴ The complaints vary from the most precise and skillfully drafted documents depicting a high degree of legal artistry to what may be described as legal boilerplate. But a majority of the actions contain Rule 23 class allegations based upon the primary fraud. Facially at least the potentiality of inconsistent class determinations is readily apparent.

Because of the potential if not likely conflict of class action determinations, we think this litigation should be assigned to a single judge with the sole responsibility for making the class action determinations “as soon as practicable . . . .” See Fed.R.Civ.P. 23(c)(1). See also Manual for Complex Litigation, Part I, Section 1.40 (revised edition 1973).

The transferee judge, with all claims and all parties before him, will have a clear picture of the scope and complexity of the litigation, essential to making the class determinations. Once the class decisions are made, he will then be in a position to ascertain the scope of discovery common to all actions and formulate a pretrial schedule responsive to the various demands of the litigants. As Judge Wisdom observed in In re Four Seasons Securities Laws Litigation, 328 F.Supp. 221 (Jud.Pan.Mult.Lit.1971) :¹⁵

“Should conflicts concerning discovery objectives develop . . ., they may be presented to the transferee judge to decide the extent of the coordination or consolidation of pretrial proceedings.” Id. at 223.

The Meaning of Transfer of All Actions to a Single District

Transfer of all actions to California does not mean that all discovery proceedings will take place there. There is no necessity for lawyers to travel across the continent to participate in pretrial discovery which has no bearing on their litigation. Indeed, the Manual for Complex Litigation contains recommendations to protect a party disinterested in a particular aspect of discovery.¹⁶ Transfer does mean, however, that the responsibility for determining what discovery is common and what is independently irrelevant to the stated theories and issues rests in a single judge who, with an overall perspective of the entire litigation and the cooperation of counsel, can schedule the discovery to minimize the expense to the parties and maximize the just and expeditious termination of the litigation.

We are well aware of the burdens this litigation will impose upon the transferee court. But we are equipped to provide assistance and it is precisely in this context that we can demonstrate the flexibility and resourcefulness of Section 1407, while at the same time providing for complete control over all aspects of this litigation. The Panel is authorized under the statute to provide deposition judges to assist the transferee court. 28 U.S.C. § 1407(b). Inasmuch as the actions presently pending in New York are all assigned to Judge Gagliardi, who will presumably be responsible for them if remanded by the Panel at or before the conclusion of the pretrial proceedings, he may very well preside over the depositional discovery which will necessarily take place in New York. In this way, he will be familiarized with the issues and nature of the evidence involved in the event the actions or certain claims are remanded to him for further proceedings.

Furthermore, the flexibility of the statute empowers the Panel to “separate any claim, cross-claim, counterclaim or third party claim and remand any of such claims before the remainder of the action is remanded.” 28 U.S.C. § 1407 (a). Once the parties have succeeded in obtaining the necessary discovery of the alleged underlying fraud, the transferee judge may in his discretion conclude that certain claims are appropriate for remand by the Panel. Thus, claims outside the mainstream of the over-all litigation may successfully be brought to conclusion with a minimum of delay and expense to the parties while at the same time reserving to a single judge the efficient administration so important to an expeditious termination of the complete litigation.

IV. Selection of the Transferee Forum

Virtually all parties concede that the Central District of California is the most appropriate transferee forum for the primary or underlying fraud claims. We agree and, furthermore, conclude that it is the most appropriate transferee district for all the litigation. The documents and the majority of the witnesses relevant to the alleged underlying fraud at Equity Funding, as well as the Chapter X bankruptcy proceedings, are located within that district. On balance, we find that transfer of all of these actions to the Central District of California will best serve the convenience of the majority of the parties and witnesses and promote the just and efficient conduct of the litigation.

It is therefore ordered that all actions on the appended Schedule A pending in districts other than the Central District of California be, and the same hereby are, transferred to that district and, with the consent of that court, assigned to the Honorable Malcolm M. Lucas for coordinated or consolidated pretrial proceedings pursuant to 28 U.S.C. § 1407 with the actions pending in that district and listed on Schedule A.

WILLIAM H. BECKER, Judge of the Panel, filed a concurring opinion. JOHN MINOR WISDOM, Judge of the Panel, filed a dissenting opinion, in which EDWARD WEINFELD and STANLEY A. WEEGEL, Judges of the Panel, joined.

SCHEDULE A

Central District of California

Anne Oringer, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C-73-705-MML

Anne Oringer, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C-73—706-MML

May Miller, et al. v. Equity Funding Corp. of America, et al. Civil Action No. C-73-707-MML

Michael Zucker, et al. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—708—MML

Simon Singer, et al. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—717—MML

David M. Stern, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—735—MML

Shigeo Matsuhara, et al. v. Equity Funding Corp. of America, et al. Civil Action No. C-73-741-MML

Hy Hacker, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—742-MML

Hy Hacker, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—743-MML

Sylvia Consino, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—753—MML

Jerry Goldstein, et al. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—754—MML

Stanley Ferber v. Stanley Goldblum, et al. Civil Action No. C—73—756—MML

Isidore Miller, et al. v. Stanley Goldblum, et al.

* Civil Action No. C-73—784-MML

Franz Paul, etc. v. Equity Funding Corp. of America, et al. Civil Action No. C—73—797—MML

Sue Cholondenko, et al. v. Equity Funding Corp. of America, et al. Civil Action No. C—73-808-MML

Martin B. Nimkoff, et al. v. Stanley Goldblum, et al. Civil Action No. C-73-832-MML

James N. Routh, etc. v. Equity Funding Corp. of America, et al.** Civil Action No. C-73-710-MML

Robert M. Loeffler, etc. v. Stanley Goldblum, et al. Civil Action No. C—73—1034

Securities & Exchange Commission v. Equity Funding Corp. of America Civil Action No. C—73—714

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. H. Lynden Taylor Corp. Civil Action No. 73—1188—CC

Southern District of New York

May Miller, et al. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 1374

Benjamin Messinger, etc. v. Stanley Goldblum, et al. Civil Action No. 73 Civ. 1390

A. Bruce Rosow, etc. v. Equity Funding Corp. of America Civil Action No. 73 Civ. 1396

Michael W. Untermeyer, et al. v. Equity Funding Corp. of America Civil Action No. 73 Civ. 1444

Isidore Miller, et al. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 1466

Betty Levine, etc. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 1475

Guy Michaels v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 1485

A. Richard Parkoff, etc. v. Stanley Goldblum, et al. Civil Action No. 73 Civ. 1528

Nat Berens, et al. v. Bache & Co., Inc., et al. Civil Action No. 73 Civ. 1604

Pinetree Fund, Inc. v. Stanley Goldblum, et al. Civil Action No. 73 Civ. 1605

Fidelity Corp. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 1623

Fidelity Corp. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 1624

Arnold Elkind v. Stanley Goldblum, et al. Civil Action No. 73 Civ. 1645

Independent Investor Protective League v. Seidman & Seidman, et al. Civil Action No. 73 Civ. 1957

Independent Investor Protective League, etc. v. Raymond L. Dirks, et al. Civil Action No. 73 Civ. 1519

Salomon Brothers v. John W. Bristol & Co., et al. Civil Action No. 73 Civ. 1556

Nat Berens, et al. v. Fiduciary Trust Co. of New York, et al. Civil Action No. 73 Civ. 1684

Lawton General Corp., etc. v. The Boston Co., Inc., et al. Civil Action No. 73 Civ. 1691

Arthur Rogosin, etc. v. Chemical Bank, et al. Civil Action No. 73 Civ. 1885

Independent Investor Protective League, etc. v. Seidman & Seidman, et al. Civil Action No. 73 Civ. 1994

Lisadent, Inc. v. Delafield Childs Inc., et al. Civil Action No. 73 Civ. 2032

Russell J. Priskwaldo, etc. v. Stanley Goldblum, et al. Civil Action No. 73 Civ. 2146

Independent Investor Protective League, etc. v. Chemical Bank, et al. Civil Action No. 73 Civ. 1551

Jefferies & Co., Inc. v. Yura Arkus Duntov, et al. Civil Action No. 73 Civ. 1407

Guy Michaels v. The Boston Co., et al. Civil Action No. 73 Civ. 1476

Independent Investor Protective League v. New York Securities Co. Civil Action No. 73 Civ. 2824

Robert R. Felton v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 2201

Max Israelson, et al. v. John W. Bristol, & Co., Inc., et al. Civil Action No. 73 Civ. 2269

Murray Gilbert, et al. v. Bankers Trust Co., et al. Civil Action No. 73 Civ. 2453

Edwards & Hanly, etc. v. The Boston Co., et al. Civil Action No. 73 Civ. 2307

Salomon Brothers v. The Savings and Profit Sharing Pension Fund of Sears, Roebuck & Co. Civil Action No. 73 Civ. 2531

Stanley Spielman, etc. v. Seidman and Seidman, et al. Civil Action No. 73 Civ. 2603

Independent Investor Protective League v. First National City Bank of New York, et al. Civil Action No. 73 Civ. 2213

Lawrence M. Weiner v. Oppenheimer & Co. Civil Action No. 73 Civ. 2420

Independent Investor Protective League, et al. v. Stanley Goldblum, et al. Civil Action No. 73 Civ. 3115

Jonas M. L. Cohen, etc. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 3255

Irvin Davison v. Boston Co. Institutional Investors, Inc. Civil Action No. 73 Civ. 3256

Kent M. Klineman, et al. v. Equity Funding Corp. of America Civil Action No. 73 Civ. 3164

Lowell S. Fink, etc. v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 3275

Harold I. Cole v. Equity Funding Corp. of America, et al. Civil Action No. 73 Civ. 3314

Alfred Grien, Trustee v. A. G. Becker & Co., et al. Civil Action No. 73 Civ. 2946

Northern District of Illinois

Millicent Jones, et al. v. Equity Funding Life Insurance Co., et al. Civil Action No. 73 C 879

Marc Gould, et al. v. Equity Funding Corp. of America, et al. Civil Action No. 73 C 905

F. J. Lunding, et al. v. Equity Funding Life Insurance Co., et al. Civil Action No. 73 C 2018

District of Maryland

Irvin Davison, etc. v. Equity Funding Corp. of America, et al. Civil Action No. 73—333—H

Jonas M. L. Cohen, etc. v. Equity Funding Corp. of America, et al. Civil Action No. 73—357—H

Eastern District of Pennsylvania

Robert Selig, et al. v. Equity Funding Corp. of America, et al. Civil Action No. 73-845

Merion Associates, etc. v. Equity Funding Corp. of America, et al. Civil Action No. 73-813

Southern District of Texas

John W. Dalton v. Goldman, Sachs & Co. Civil Action No. 73-H-684

1 . The bankruptcy proceedings are assigned to the Honorable Harry Pregerson of the Central District of California.

2 . The civil actions filed in the Central District of California have been assigned to the Honorable Malcolm M. Lucas.

3 . The civil actions filed in the Southern District of New York have been assigned to the Honorable Lee P. Gagliardi.

4 . In litigation of this magnitude it is not unusual that the moving party is not a “party” to all actions “in which transfer for coordinated or consolidated pretrial proceedings under this section may be appropriate,” 28 U.S.C. § 1407 (c) (ii). A purely literal reading of Section 1407(c) (ii) suggests that a party may only move for transfer of an action in which it appears as a party. Such a narrow reading, however, is not consistent with the purposes and intent of the legislation. In any event, any argument challenging movant’s right to request transfer of an action in which it does not appear as a party was disposed of by the Panel, which, on its own initiative, simply ordered all parties to actions arising out of the collapse of Equity Funding to show cause why those actions should not be transferred to a single district or districts for coordinated or consolidated pretrial proceedings under Section 1407.

5 . DuPont, Glore Forgan, Inc. v. Federated Income and Private Placement Fund, S.D.N.Y., Civil Action No. 73 Civ. 1683.

6 . Independent Investor Protective League, etc. v. Chemical Bank et al., S.D.N.Y., Civil Action No. 73 Civ. 1551; Independent Investor Protective League, etc. v. First National City Bank, S.D.N.Y., Civil Action No. 73 Civ. 2213.

7 . John W. Dalton v. Goldman, Sachs & Co., S.D.Texas, Civil Action No. 73-H-684; Alfred Grien, Trustee, v. A. G. Becker & Co., et al., S.D.N.Y., Civil Action No. 73 Civ. 2946; and Lawrence M. Wiener, et ux v. Oppenheimer & Co., et al., S.D.N.Y., Civil Action No. 73 Civ. 2420.

8 . Cf. In re Four Seasons Securities Laws Litigation, 344 F.Supp. 1404 (Jud.Pan.Mult.Lit.1972) and 352 F.Supp. 962 (Jud.Pan.Mult.Lit.1972).

9 . The California consolidated complaint contains Rule 23 class allegations with respect to the following described classes :

(1) Open Market Purchasers: All persons who purchased common stock, debentures, or warrants of Equity Funding Corporation of America, or its subsidiaries, on the open market beginning at least in 1964 and ending March 28, 1973, the exact period of time being unknown to plaintiffs because of the fraudulent concealment of the defendants, and who sustained damage as a result of the fraudulent practices and scheme hereinafter alleged.

(2) Original Issue Purchasers: All persons who purchased debentures issued by Equity Funding Corporation of America as described below, and who continue to hold said debentures and who sustained damages as a result of the fraudulent practices and scheme hereinafter alleged.

(i) a 5y-2% debenture due 1991 offered by prospectus dated in 1971;

(ii) a 9%% debenture due 1990 offered by prospectus dated in 1970; and

(iii) a 514% debenture issue, unlisted, issued by Equity Funding Capital Corporation and guaranteed by EFCA, due 1989.

(3) Exchange of Stock Purchasers: All persons who purchased securities of Equity Funding Corporation of America by exchanging stock owned in the two corporations noted below for said securities, and who were injured as a result of the fraudulent practices and scheme hereinafter alleged.

(1) Bankers National Life Insurance Company, (‘Bankers’), said exchange taking place on or about October 12, 1971.

(ii) Liberty Savings & Loan Association, (‘Liberty’), said exchange taking place on or about September 14,1970.

(4) March 1978 Seolurity Purchasers: All open market purchasers, or purchasers who relied on the open market price, of securities of Equity Funding Corporation of America without knowledge of the fraudulent practices and scheme hereinafter alleged between March 6, 1973, and March 28, 1973, and who sustained damage as a result of the fraudulent practices and scheme hereinafter alleged, and as a result of the acquisition, utilization, and dissemination of inside information by certain defendants regarding said fraudulent scheme as hereinafter alleged.

10 . (1) A unified consolidated class action complaint on behalf of trading class.

(2) A unified consolidated complaint in class actions brought on behalf of former stockholders of Bankers National Life Insurance Company.

(3) A unified consolidated complaint in underwriting class actions.

(4) A unified consolidated complaint in fraud and miscellaneous class actions.

11 . For example, in the New York consolidated complaint on behalf of the “trading class” no fewer than 14 separate class allegations are made, which conflict not only with the California plaintiffs’ alleged class on behalf of “March 1973 Security Purchasers,” but also with other classes alleged in the California unified and consolidated complaint.

12 . In re Penn Central Securities Litigation, 322 F.Supp. 1021 (Jud.Pan.Mult.Lit.1971).

13 . In re Penn Central Commercial Paper Litigation, 325 F.Supp. 309 (Jud.Pan.Mult.Lit.1971). It was the unique nature of commercial paper as well as the magnitude of the fraud litigation in Philadelphia which prompted us to order plaintiffs’ claims for relief to a separate district for separate Section 1407 treatment. Inasmuch as commercial paper is the unsecured equivalent of cash, it was clear to us that the claims for relief by holders of unsecured commercial paper were distinguishable from other conventional claims for relief by holders of conventional securities.

14 . See, e. g., In re Brown Company Securities Litigation, 325 F.Supp. 307, 308 (Jud.Pan.Mult.Lit.1971) ; In re Texas Gulf Sulphur Securities Litigation, 344 F.Supp. 1398, 1400 (Jud.Pan.Mult.Lit.1972) ; In re Career Academy Antitrust Litigation, 342 F.Supp. 753, 754 (Jud.Pan.Mult.Lit.1972) ; In re Plumbing Fixtures Cases, 298 F.Supp. 484, 493 (Jud.Pan.Mult.Lit.1968).

15 . Like the instant litigation, Four Seasons was also involved in a Chapter X reorganization under the bankruptcy laws in the transferee court.

16 . See, e. g., Manual for Complex Litigation, Part I, section 2.31 (rev.ed. 1973).

Dismissed by Judge Lucas on July 2, 1973.

Dismissed by Judge Lucas on April 16, 1973.