The opinion of the court was delivered by: ZIEGLER
Pending before the court are the motions of defendants, Coopers & Lybrand, a nationwide accounting firm, and a certified class of partners and principles of the firm (hereinafter "Coopers"), for judgment notwithstanding the verdict of the jury on the issue of liability, and for a new trial. At the outset, we must address the argument of the prevailing plaintiffs, including the DeBartolo
and Grove Associates Plaintiffs
(collectively, the "DeBartolo Plaintiffs"), that we should defer consideration of the pending motions until the damages phase of the trial is completed. Plaintiffs contend that resolution of the instant motions will cause prejudicial delay and will "raise the prospect of piecemeal appeals, inasmuch as any order entering a judgment before the damages verdicts would be immediately appealable . . . ." Plaintiffs rely on EEOC v. State of Delaware Dep't of Health & Social Servs., 865 F.2d 1408, 1413 (3d Cir. 1989).
Ironically, the decision actually supports the position of Coopers. In EEOC v. State of Delaware, then district court judge, the Honorable Jane Roth, granted a motion for judgment NOV following a verdict for the plaintiffs on the issue of liability in a bifurcated trial, thereby obviating the need for a trial on damages. If Judge Roth had deferred ruling on the motion for judgment NOV, and proceeded to trial on damages, she would have presided over an unnecessary expenditure of limited judicial resources. On appeal, the Court of Appeals held that the order was "final" because the district court had entered judgment on all claims of all plaintiffs, and there was no reason to try the issue of damages.
Applying these teachings, it is clear that we have a duty to rule on Coopers' motions before the damages trial because if Coopers prevails and the court enters judgment on all claims of all plaintiffs, there will be no trial on damages. Additionally, if Coopers prevails on some but not all of plaintiffs' claims, federal law requires that we try the claims that remain before a jury empaneled to assess damages. Contrary to the argument of plaintiffs, there will be no piecemeal appeals because a party can appeal only from the entry of a final judgment, and the grant of judgment on some but not all of the claims of plaintiffs is not a final judgment. Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 47 L. Ed. 2d 435, 96 S. Ct. 1202 (1976).
Plaintiffs also have suffered no prejudice from the briefing schedule of the court. The briefing schedule was ordered on March 1, 1996, which is two weeks after the jury rendered its verdict on liability. The parties were given 30 days within which to file briefs and that strikes us as a reasonable period for briefing following a five month jury trial, and a pending motion by Coopers which challenges the sufficiency of the evidence on all claims of all plaintiffs.
Finally, Coopers has the right to file these motions after the jury's findings on the issue of liability. First, Rules 50 and 59 require only that an appropriate motion shall be filed not later than 10 days after the entry of judgment. Since no final judgment has been entered, Coopers' motions are timely. Second, neither Rule 50 nor Rule 59 limits the number of motions that can be filed so long as they are timely. Third, Coopers has the right to bring to the court's attention any claim in which there is no legally sufficient evidentiary basis for the jury to consider in the damages phase of the trial. Fourth, Coopers has the right to request reconsideration of any ruling that was made by the court with respect to defendants' Rule 50 motions during the liability phase. And fifth, the court has a duty to prune all legally deficient claims from the action and if a party desires to challenge the ruling, federal law provides that a party can appeal only after the district court enters final judgment on all claims. Compare 28 U.S.C. § 1291 with 28 U.S.C. § 1292(b) and Fed.R.Civ.P. 54(b). In sum, we hold that plaintiffs have suffered no prejudice from resolution of the pending motions, and there is no prospect of piecemeal appeals because an interlocutory order is not appealable.
Before turning to the merits of Coopers' motions, we would be remiss if we did not remind the parties that much has been accomplished in this MDL proceeding in a very short period of time. This action began with over 49 civil actions involving multiple parties asserting complex claims under federal and state law. Plaintiffs claimed money damages allegedly in excess of $ 2 billion against a host of defendants, including Coopers. In a period of 3 years, discovery was completed, 43 civil actions were settled, 61 written opinions were filed by the court, 335 orders were entered on the docket, a five month jury trial was held, and three appeals were taken to the Court of Appeals. In short, while plaintiffs are anxious to proceed to the next phase of this litigation, we will do so only after the pending motions have been resolved with study and reflection.
Viewing the evidence in the light most favorable to the DeBartolo Plaintiffs, as we must, we conclude that there is sufficient evidence to support the verdict of the jury with respect to the Rule 10b-5 claims. Specially, we find that there is sufficient credible and competent evidence to support the jury's finding that Coopers & Lybrand made reckless and misleading statements when it represented that it had performed GAAS audits (and issued clean audit opinions) during the relevant period for the stock purchases in October 1990; omitted to state material facts which were necessary under the circumstances; Coopers acted recklessly; the DeBartolo Plaintiffs justifiably relied upon the audit opinions during the relevant time period prior to the purchases in 1990; plaintiffs suffered damages as the proximate result of the misrepresentations and omissions; and an instrument of interstate commerce was used in the purchase of the securities. Coopers' motion for judgment as a matter of law will be denied with respect to the purchase of 750,000 shares and the separate purchase of 3,750 shares of Phar-Mor common stock in October 1990, which appear on the verdict slip at "DeBartolo Plaintiffs Interrogatories To Jury" at No. I, 1 and 2.
We turn now to the state law claims based on Pennsylvania law. The DeBartolo Plaintiffs must prove their claims of fraud by clear and convincing evidence, and whether the Plaintiffs have sustained their burden of proof with respect to any of the purchases, investments, transactions and leases by clear and convincing evidence is an exceedingly close question.
With respect to the common law fraud claims based on the financial statements of Phar-Mor for the fiscal years 1984, 1985 and 1986, we will grant the motion of Coopers for judgment as a matter of law. We find that the DeBartolo Plaintiffs have failed to sustain their burden of proof by clear and convincing evidence and that there is no legally sufficient evidentiary basis for a reasonable jury to find for the Plaintiffs on the claims based on those financial statements.
The DeBartolo Plaintiffs presented evidence that they relied on the 1984, 1985 and 1986 audited financial statements in making three purchases of Phar-Mor stock: (1) 50,000 shares purchased in December 1985; (2) 12,301 shares in September 1986; and (3) 4,871 shares purchased in July 1987. In response, Coopers argues that, with respect to these purchases, the DeBartolo Plaintiffs have failed to adduce clear and convincing evidence that Coopers' audits of those years were the proximate cause of their losses.
Coopers' argument is premised on the fact that there is no clear and convincing evidence that Phar-Mor's financial statements were materially misstated for fiscal years 1984, 1985 and 1986. None of the expert witnesses called by plaintiffs testified that the financial statements failed to accurately portray the financial condition of Phar-Mor during these years. One expert witness, Daniel Dooley, stated that there was fraud in the financial statements in 1986. Transcript of October 24, 1995 at p. 96. However, Dooley's testimony on this issue fails to surmount the clear and convincing evidentiary standard because (1) he provided no supporting evidence of fraud in 1986; (2) he did not testify that the alleged fraud resulted in a material misstatement of the 1986 financials; and (3) his testimony was limited to fiscal years 1987 through 1991. We agree with Coopers that the DeBartolo Plaintiffs have failed to prove that the 1984, 1985 and 1986 financial statements were materially misstated.
Causation under Rule 10b-5 requires both transaction causation and loss causation. In re Catanella & E.F. Hutton & Co., Inc. Secs. Litig., 583 F. Supp. 1388, 1414 (E.D.Pa. 1984). Transaction causation focuses on whether the misrepresentation induced the plaintiff to buy the security; loss causation looks to whether the misrepresentation caused the plaintiff's pecuniary injury. Id. Because common law tort principles underlie the federal securities laws, analogies can be drawn between these causation concepts and the law of torts. Bastian v. Petren Resources Corp., 892 F.2d 680, 683 (7th Cir.), cert. denied, 496 U.S. 906, 110 L. Ed. 2d 270, 110 S. Ct. 2590 (1990). Indeed, transaction causation corresponds to the cause-in-fact requirement, while loss causation is often described as another term for proximate cause. In re Catanella, 583 F. Supp. at 1414 n.38; see Bastian, 892 F.2d at 686 (loss causation is "more accurately described as an element of cause, period.").
To satisfy transaction causation, a plaintiff must prove that "but for" the misrepresentations, he/she would not have engaged in the transaction in question. In re Catanella, 583 F. Supp. at 1414. Because transaction causation also satisfies the reliance element, the terms are often confused and used interchangeably. Id.; see Sharp v. Coopers & Lybrand, 649 F.2d 175, 186 (3d Cir.), cert. denied, 455 U.S. 938, 71 L. Ed. 2d 648, 102 S. Ct. 1427 (1982). In contrast, loss causation requires a plaintiff to prove that the misstatement was the direct, or proximate, cause of the injury. Huddleston v. Herman & MacLean, 640 F.2d 534, 549 (5th Cir. 1981), aff'd in part, rev'd in part, 459 U.S. 375 ...