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FRIEDMAN v. GANASSI

December 9, 1987

Milton Friedman, Plaintiff,
v.
Floyd R. Ganassi, G. Gray Garland, Jr., Stanley B. Scheinman, James W. Cooper, Laidlaw, Adams & Peck Inc., and The Ohio Company, the latter two defendants being sued individually and representatively on behalf of a class of defendants similarly situated, and Arthur Young & Co. partnership



The opinion of the court was delivered by: MENCER

 HON. GLENN E. MENCER, Judge

 Milton Friedman, the plaintiff, brought a class action under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k. Friedman was unsuccessful at trial, and Arthur Young & Company, Laidlaw Adams & Peck, and The Ohio Company submitted bills of cost. This court is presently considering whether to award costs to these defendants.

 1. Legal Analysis

 The threshold issue in this case is whether to apply the standard for awarding costs found in Rule 54(d) of the Federal Rules of Civil Procedure (Rule 54) or the standard in Section 11 of the Securities Act of 1933 (Section 11). The standards are significantly different, and the awarding of costs in this case depends entirely upon which standard we apply.

 Under Rule 54, costs are awarded almost automatically. The rule states that "Except when express provision therefor is made either in a statute of the United States or in these rules, costs shall be allowed as of course to the prevailing party unless the court otherwise directs . . . ." F.R. Civ. P. 54(d). Under this standard, the defendants are entitled to some costs, even though they might not be entitled to the full amount they claimed.

 Thus, the selection of cost provisions is outcome determinative. The defendants argue that their motion is under Rule 54, so that standard should apply. They argue that the provisions are not mutually exclusive, so they may make their motion under either cost provision.

 Friedman argues that Section 11 is the only provision that applies to this case. Friedman brought the entire suit under the provisions of Section 11, so that Section 11's cost provision must apply. Rule 54 does not apply, Friedman argues, because by its own language, Rule 54 applies only in the absence of a cost provision in an applicable United States Statute.

 One would expect that this narrow issue of whether the court may apply the cost provisions in Rule 54 to a case brought under 15 U.S.C.A. § 77k would have been addressed in a reported case, but apparently it has not. The cases reach results which imply the adoption of one position or another with respect to this issue, but they do not overtly recognize the issue and resolve it. Nonetheless, we will examine some of these cases to glean any insight as to the preferable approach.

 Case Law

 If the trial judge concludes that a Section 11 suit was brought without merit or was frivolous, then he generally awards costs and/or attorney's fees under Section 11. See, e.g., Gmelin v. Permeator Corp., 1984-85Fed. Sec. L. Rep. (CCH) P 91,946 (D.N.J. 1985); Rubin v. Long Island Lighting Co., 576 F. Supp. 608 (E.D.N.Y. 1984). Cases in which the trial judge concludes that the suit had some merit, however, are split as to whether the judge awards costs.

 The primary case cited by the defendants to support the proposition that Rule 54 applies in Section 11 cases is Nemeroff v. Abelson, 620 F.2d 339 (2d Cir. 1980). Nemeroff does not apply to the instant litigation, however, because Nemeroff involved Rule 11 of the Federal Rule of Civil Procedure, not Section 11 of the Securities Act of 1933.

 At least one judge did apply Rule 54 to award costs even though the movant did not meet the standards in Section 11. In Electro-Neucleonics, Inc. v. Oppenheimer, 1975-76Fed. Sec. L. Rep. (CCH) P 95,269 (S.D.N.Y. 1975), the New York court considered a suit involving causes of action under both Section 11 and Section 10(b) of the 1934 Exchange Act. The defendants won, and petitioned the court for costs and attorney's fees. The court concluded that Section 11 required a finding that the suit was without merit, a finding which the court was unwilling to make. The court proceeded to award costs under Rule 54. The wording of the New York court suggests ...


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