IN RE: Franklin National Bank Securities Litigation

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- F% (CIAL PAN
_ BEFQRE. THE JUDICIAL PANEL Weiyd MUL TID 5 DANES pyps } i PISTEIC TS pl N
MULTIDILSTRICT LITIGATION = SHTIBATIo
IN RE FRANKLIN NATIONAL BANK ) PR 2
SECURITIES LITIGATION ¥ rocker 48SQas7s	RICA fe
: CLERK of TLE ARD
| OPINION	AND ORDER CE
EE BEFORE ALFRED P. MURRAH, CHAIRMAN, AND. JOHN MINOR WISDOM *,
- EDWARD WEINFELD *, EDWIN A. ROBSON, WILLIAM H. BECKER *,
JOSEPH S. LORD, III *, AND STANLEY A. WEIGEL, JUDGES OF THE PANEL
~ PER CURIAM |
I. Background
This litigation arises from the recent failure of the
Franklin National Bank (FNB) and consists of ten actions in two
® federal districts =- six in the Eastern District of New York andfour in the Southern District of New York. These actions include
an injunctive action by the SEC, five alleged class actions for
damages on behalf of purchasers of securities issued	by the
Franklin New York Corporation (FNYC), which is FNB's corporate
parent, and four derivative damage actions on behalf of FNYC
Coe ee oF bd . . s
x: “8 Fhareholders. In addition, FNB has been placed in receivership
EM s
ie} 8 2, re Eastern District of New York and FNYC has filed a petition	3 eo ed i	
E01 TEI
RT Meo Bankruptey in the Southern District of New York.	EA ay Bid 1
cel Lala Ng Th TAS ] .
een ING 5 While the defendants differ somewhat among the SEC,
TURE ] ags: and derivative actions, the principals are as follows:Sa @ 4 oN Eo
[& I EY TE )
© Spline former directors and officers of each; their independ-	SAC AY oOo 1 .
[a - fait? @ £2391 . CL. Lo Ce UN .
or 238 © of puditors, Ernst & Ernst; certain foreign corporationsoq +2 g T = a 3 > = .
x ) \ a Although Judges Wisdom, Weinfeld, Becker and Lord were
°c 3% ¢ A unable to attend the Panel hearing, they have, with	¥ rs . . .
EE tg the consent of all parties, participated in this decision.	CL |

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affiliated with Michele Sindona, a director and controlling
shareholder of FNYC; and the Federal Deposit Insurance Corpora-
tion (FDIC] , which has been designated as FNB's receiver.
These actions focus upon the same operative facts that
allegedly	led to FNB's collapse. The complaints in the SEC and
class actions contain allegations that defendants violated :
Section 10(b) of the Securities Exchange Act of 1934 by not
properly disclosing certain losses and financial weaknesses of FNB,
while the complaints in the derivative actions contain allegations
that defendants" conduct constituted violations of the National ER
Bank Act. |
® Six defendants who are former directors and officersof FNYC and FNB move the Panel for an order transferring the SEC, -
class and derivative actions to the Eastern District of New York.
All parties recognize the existence of common factual issues among
these actions, but some parties oppose transfer in whole or in part
on other grounds. We find that these actions involve common
questions of fact and that their transfer to the Eastern District
of New York for coordinated or consolidated pretrial proceedings
pursuant to 28 U.S.C. §1407 will best serve the convenience of
the parties and witnesses and promote the just and efficient
conduct of this litigation. |
II. The Question of Transfer
Most of the parties perceive the need for transfer of
9 the actions in this litigation to a single district under Section
1407 in order to prevent duplicative discovery and inconsistent

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C pretrial rulings concerning numerous common factual questions
arising from the activities that led to FNB's collapse. Never—
theless, the objectors to transfer raise the following issues:
A. Transfer of the SECAction a
The SEC and certain individual defendants oppose trans-—
fer of the SEC action on the ground that the SEC's discovery needs
are minimal compared to the needs of the private plaintiffs and,
therefore, the public's strong interest in the speedy prosecution
of the SEC action might be delayed by its inclusion in Section 1407
proceedings. We have heard these arguments before, however, and
adhere to our previous decisions in which we have found that the
purposes of the statute can best be achieved by having a single
o judge supervise not only the private actions but also the clearly :
related sEC action. ‘See, .g., In re National Student Marketing
Litigation, 368 F. Supp. 1311 (3.P.M.L. 1973) In re Caesar's Palace
Securities Litigation, 385 F. Supp. 1256 (J.P.M.L. 1974).
Once again, we point out that the transferee judge has
the broad flexibility to tailor a pretrial schedule to accommodate
’ any divergent interests among the parties in the various actions.
More precisely, he is free to gauge the extent of coordination
appropriate between the SEC and private actions, without inhibiting
the SEC's efforts for prompt injunctive relief and without sacri-
ficing the advantages of centralized pretrial proceedings.
B. Coordination or Consolidation of- the Class and
‘Derivative Actions So
® Defendant FDIC and the trustee in FNYC's bankruptcy
he proceedings recognize the value of some coordination between

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® . «4 = .the class and derivative actions, but express concern over the
degree	of coordination ox consolidation between the two groups
of actions because of their conflicting objectives; namely,
the purpose of the derivative actions is to recover FNB's assets,
whereas the goal of the class actions is to obtain damages from
FNB and FNYC. Our observation in the preceding section of this
opinion regarding the flexibility of the transferee judge to fashion
pretrial proceedings	to suit divergent interests is equally appli-
cable here. And we emphasize that whether and to what extent
the pretrial proceedings should be coordinated or consolidated
is strictly the province of the transferee judge. "In re Equity
Funding Corporation of America Litigation, 375 F. Supp. 1378,
® 1384-85 (3.P.M.L. 1974).
Cc. Transfer of ‘the Kanner Action
| The plaintiff in the Kanner action pending in the
Southern District of New York has filed a motion to remand the
action to New York state court. Plaintiff Kanner urges the Panel
to postpone any decision on the question of transfer of this action
| until the remand motion has been decided.
We see no reason for delaying transfer of Kanner because
it certainly shares a commonality with the other actions in this
litigation and the transferee judge can easily resolve the remand
issue. See In re Florida Everglades Air Disaster Litigation,
368 F. Supp. 812 (J.P.M.L. 1973].
@ © nifes: ofhemor	mis un |~ Bankruptcy Rule 401 provides that the filing of a
petition for bankruptcy operates as an automatic stay of the -

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L , commencement or continuation of any action against the bankrupt
until further order by the bankruptcy court; the parties may seek
= to vacate or modify the stay. Rule 401, Rules of Bankruptcy
Procedure. Since defendant FNYC has filed a petition for bank-
ruptcy and, hence, all of the actions are affected by this rule,
| defendant Sindona questions the authority of the Panel to transfer
these actions under Section 1407 until the stay is vacated or
appropriately modified. |
We completely disagree. Transfer of these actions under
: section 1407 in no way affects the operation of the stay brought
about by Bankruptcy Rule 401. We are simply indicating the place
~ where the pretrial proceedings of these actions will occur. The
o question of the effect of the bankruptcy stay and any modification
thereof is entirelya problem to be worked out by the transferee |
court, the bankruptcy court and the parties. A Section 1407 trans-
fer will produce the salutary consequence of having a single judge
coordinate these actions with the bankruptcy proceedings and thereby
eliminate the possibility of inconsistent rulings.
III. The Transferee District
Because the two districts wherein these actions are
pending are in proximity to each other, the selection of either
one as the transferee forum for this litigation will not substan-
tially inconyenience any of the parties. On balance,	we are
persuaded that the Eastern District of New York is the preferable
® transferee district since most of the parties favor transfer to~ that district and most of the actions are already pending there.

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@ , Moreoyer, Judge Orrin G. Judd, who is handling all of the
Eastern District of New York actions, has become familiar with
the underlying factual issues in this litigation, which will
enable him to supervise it toward its most just and expeditious
termination.
IT IS THEREFORE ORDERED that all actions listed on :
the following Schedule A pending in the Southern District of
New York be, and the same hereby are, transferred to the Eastern
District of New York and, with the consent of that court, assigned
to the Honorable Orrin G. Judd for coordinated or consolidated
pretrial proceedings pursuant to 28 U.S.C. §1407 with the actions
listed on Schedule A and pending in that district.
® | |
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® SCHEDULE A DOCKET NO. 196. EASTERN DISTRICT OF NEW YORK
Irving Rothman v. Raymond T. Andersen, et al. Civil Action	No. 74C 894
Lillian Ratner v. Franklin National Bank, Civil Action
et al. No. 74C 1174
Freida Mendes v. Michele Sindona, et al. Civil ActionNo. 74C 1256
Benjamin Pilcer, et al. v. Franklin New York Civil Action ’
Corp., et al. ; No. 74C 1372
Harry Stern v. Michele Sindona, et al. Civil Action	No. 74C 1379
Louis Pergament, et al. wv. Franklin Civil Action
National Bank, et al. No. 74C 1451
SOUTHERN DISTRICT OF NEW YORK
Securities & Exchange Commission V. Franklin Civil Action :
® New York Corp. No. 74 Civ. 4557Joyce H. Bookstein v. Franklin New York Corp. Civil Action |	No. 74 Civ. 4595
Robert Gold v. Ernst & Ernst, et al. Civil ActionNo. 74 Civ. 4622
Joseph J. Kanner v. Raymond T. Andersen, Civil Action
et al. No. 74 Civ. 5440

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JUBICIAL PANEL ON
® BEFORE THE JUDICIAL PANEL MULTIDISTRICT LITIGATION	. ON FILED
) MULTIDISTRICT LITIGATION
APR 30 1975
IN RE FRANKLIN NATIONAL BANK ) DOCHETCNG	-+ikQ 8p
SECURITIES LITIGATION ) CLERK OF THE PANEL
PARTIAL DISSENTING OPINION
BEFORE ALFRED P. MURRAH, CHAIRMAN, AND JOHN MINOR WISDOM,
EDWARD WEINFELD, EDWIN A. ROBSON, WILLIAM H. BECKER,
JOSEPH S. LORD, III, AND STANLEY A. WEIGEL, JUDGES OF
THE PANEL :
EDWARD WEINFELD, JUDGE OF THE PANEL, DISSENTING IN PART:
I would not coordinate or consolidate the SEC action
with the other actions for the reasons set forth in my dissent
@ in In re National Student Marketing Litigation, 368 F. Supp.
1311, 1319-20 (J.P.M.L. 1973).