The opinion of the court was delivered by: CAHN
Both of these cases involve alleged violations of sections 12(2) and 17(a) of the "Securities Act of 1933," 15 U.S.C. § 77l(2) and § 77q(a); sections 10(b) and 20(a) of the "Securities Exchange Act of 1934", 15 U.S.C. § 78j(b) and § 78t(a); and Rule 10b-5, 17 C.F.R. 240.10b-5, adopted by the Securities and Exchange Commission under authority of sections 10(b) and 23(a) of the Exchange Act, 15 U.S.C. § 78j(b) and § 78w(a). The plaintiffs in the B & B Investment Club action
charge in two counts that a registration statement and prospectus for a public offering of Kleinert's, Inc., shares made on or about May 17, 1972, were false and misleading and otherwise violated the Securities Act and the Exchange Act. By Order of Clifford Scott Green, J., dated March 1, 1974, the B & B Investment Club action was certified for class action status and thereafter, pursuant to further Court approval, appropriate notice was given to the class.
The Chairman action also involves purchasers of Kleinert's, Inc., shares on or after May 17, 1972. The defendants in both actions include Kleinert's, Inc., its officers and directors, two accounting firms and the underwriter for the public offering. Peter H. Spencer, although neither an officer nor a director of Kleinert's, Inc., is alleged to be a selling shareholder in regard to the May 17, 1972, public offering. He was originally a named defendant in the B & B Investment Club action but was dismissed as a party by the plaintiff before class certification. Spencer is presently a named defendant in the Chairman action. There are three motions before the Court for disposition each involving Spencer.
Arthur Anderson & Co., a defendant in the B & B Investment Club action has moved for leave as third-party plaintiff to serve Peter H. Spencer as third-party defendant. The gist of the third-party complaint against Spencer is that he was primarily responsible for the content of certain financial statements of a subsidiary of Kleinert's, Inc., and that third-party plaintiff relied upon such statements. Third-party plaintiff seeks alternative remedies of indemnification or contribution from Spencer.
Spencer contests the motion on the following grounds: that Arthur Anderson & Co. has not pointed to a single specific representation allegedly made by Spencer; that Spencer was not directly involved in the prospectus which is the subject matter of the B & B Investment Club action; and that Arthur Anderson & Co. has no right of indemnity or contribution against Spencer. While I agree with Spencer that the third-party complaint does not particularize the misrepresentations allegedly made by him, I am not convinced that the question of his liability should be disposed of in a summary manner. The proposed third-party complaint is sufficient to put Spencer on notice of the basis of the claim against him and, therefore, it passes muster at this preliminary stage. 2A J. Moore, Federal Practice, § 8.13 at 1695 and 1700 (2nd ed. 1974). Arthur Anderson & Co. should have an opportunity to prove its claim, and if it fails to sustain the burden of proof at trial, appropriate relief is available.
The pleadings could be more specific in regard to Spencer's involvement in the prospectus, but for the purposes of disposing of the motion before the Court, it does not appear that Spencer should be removed from the litigation as a matter of law. Fact pleading is not required in the federal courts. A third-party complaint is sufficient if it contains a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). Arthur Anderson & Co. has pleaded in its proposed third-party complaint:
"5. Third-party defendant had the primary responsibility for the financial statements of Danoca and represented to third-party plaintiff that the financial data with respect to Danoca included or reflected in the financial statements set forth in the Prospectus were correct in all material respects and were prepared in conformity with acceptable principles of accounting."
The parties can obtain more specific information about Spencer's alleged involvement through the discovery process.
Arthur Anderson & Co. is entitled to seek contribution against Spencer. Globus, Inc. v. Law Research Service, Inc., 318 F. Supp. 955 (S.D.N.Y.1970), aff'd on opinion below, 442 F.2d 1346 (2nd Cir. 1971) Cert. denied sub nom., 404 U.S. 941, 92 S. Ct. 286, 30 L. Ed. 2d 254 (1971); deHaas v. Empire Petroleum Company, 286 F. Supp. 809 (D.Colo.1968). In Alexander & Baldwin, Inc. v. Peat, Marwick, M. & Co., 385 F. Supp. 230, 238 (S.D.N.Y.1974) the defendant accounting firm, in seeking contribution, was permitted:
"[To] implead third-party defendants it claimed gave false information on which the accountants relied in certifying financials."
Although there may be some doubt as to the right of Arthur Anderson & Co. to obtain indemnification from Spencer on the grounds of public policy ( Globus v. Law Research Service, Inc., 418 F.2d 1276, 1288 (2nd Cir. 1969)) that question can be deferred until later in the proceedings. Therefore, leave will be given to defendant, Arthur Anderson & Co., as third-party plaintiff to serve Peter H. Spencer a summons and third-party complaint in the form attached to its motion as Exhibit 1.
The second motion before the Court is made on behalf of Peter H. Spencer to vacate Judge Green's Order of April 26, 1974, granting the motion of defendant, Kleinert's, Inc., for leave to serve a third-party complaint against him. Spencer first contends that the joinder was not timely under Rule 14(a) Fed.R.Civ.P. and Local Rule of Civil Procedure 24(a) which requires that a motion for leave to bring in a third-party defendant be made within six months from the date of service of the third-party plaintiff's answer to the complaint.
Spencer argues that it is incumbent upon Kleinert's, Inc., to establish that the delay is excusable, that the third-party defendant will not be prejudiced and that trial of the principal action will not be delayed or unduly complicated. Kleinert's, Inc., however, argues that Judge Green's Order of April 26, 1974, in essence disposed of such contentions since similar arguments were submitted to Judge Green by letter from Spencer's counsel. Kleinert's, Inc., also claims that the time limits in regard to third-party practice should not be imposed in this case because the plaintiff unilaterally dismissed Spencer as an original defendant without notice to the other defendants and without Court approval. Whether or not to permit joinder is largely discretionary with the Court.
" Pennsylvania Local Rule. -- Local federal court rule requiring motion to implead to be made within six months is only a guide to court's discretion that cannot bind court and will not preclude a later filing." 3 J. Moore, ...