IN RE: Magic Marker Corporation Securities Litigation

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BEFORE THE JUDICIAL PANEL FILE i. cLoN SERA
MULTIDISTRICT LITIGATION My 1g 187 Lo Se	P4 NZ Lo
IN RE MAGIC MARKER SECURITIES LITIGATION ) DOCKET EM! 37,5 VWOF rid	akg 5 oo	Apap 70, ; ’
OPINION AND ORDER aL \
BEFORE MURRAY I. GURFEIN, CHAIRMAN, AND EDWIN A. ROBSON, STANLEY A. :
WEIGEL*, ANDREW A. CAFFREY, ROY W. HARPER, AND CHARLES R. WEINER, Co
JUDGES OF THE PANEL. ES
PER CURIAM Co
Presently before the Panel are two actions, one pending
in the Eastern District of Pennsylvania’ and the other pending
in the Southern District of New York. oo
This litigation was spawned by the indictment of fourteen Co
individuals for conspiring, in violation of the federal securities : _—
laws, to inflate artifically the market price of Magic Marker
Corporation's common stock from approximately November 1, 1971, RA
through approximately November 30, 1972. The indictment, which -
also named nine individuals as unindicted co-conspirators, was Co
filed in the Eastern District of Pennsylvania on September 6,
1977. Simultaneously, the Government filed in the Eastern District a
of Pennsylvania a criminal information against seven defendants. oo
These seven defendants, all individuals, were named as unindicted Co
* Judge Weigel did not participate in the decision of this
matter.
1/ In the motion for transfer presently before us, the original
movant refers to six different actions pending in the Eastern
District of Pennsylvania. One of these six actions was dismissed
in March, 1978. The other five actions have been consolidated
for all purposes, and the Pennsylvania plaintiffs, pursuant to
an order of the court, have filed a single complaint in that
consolidated proceeding.

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co-conspirators in the Pennsylvania indictment. The seven defendants SET
named in the information and thirteen of the fourteen defendants Co Ea
named in the indictment pleaded guilty to one or more of the Co
| charges against them. The remaining defendant named in the indict- C Lo
© | ment was found guilty on all counts of the indictment, and is
presently appealing his conviction.
Defendants in the Pennsylvania action before the Panel include
each of the individuals named as defendants or unindicted co-con- SE
spirators in the Pennsylvania indictment, Magic Marker, and numerous BU
securities brokerage firms and other corporate entities that oo
employed the individual defendants or that allegedly are responsible
for the illegal conduct of others. The Pennsylvania action was
commenced on behalf of a class of all purchasers of Magic Marker oo
common stock between November 1, 1971, and July 31, 1973, who oo |
realized damages as a result of their purchase of the stock.
On March 22, 1979, The Honorable Alfred L. Luongo, before whom |
the Pennsylvania action is pending, certified this class for )
purposes of settlement only Zand preliminarily approved settlements : h
between this class and several individual defendants and most
: of the brokerage defendants.3’ ~
The New York action was commenced as an individual action :
by three institutional investors that purchased Magic Marker a oo
stock during the time period set forth in the indictment. The -
New York action presently includes fourteen defendants: eleven
2/ On April 9, 1979, Judge Luongo granted plaintiffs' motion :
for class action certification with respect to the federal -
securities law claim of the Pennsylvania complaint. This class
certification is not limited to purposes of settlement only.
3/ Each of the non-settling defendants in the Pennsylvania
action has asserted cross-claims against some or all of the
settling defendants.

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of these parties -- Magic Marker, five brokerage houses, four
individuals and a company that publishes an investment journal
—— are also named as defendants in the Pennsylvania action.
In addition, four other individuals that are named as defendants in
the Pennsylvania action are named as co-conspirators in the New
York action.
The complaint in the Pennsylvania action and the complaint
in the New York action, except for a more extended time period
in the Pennsylvania complaint, track the Government's allegations,
and basically allege that the defendants conspired to manipulate
and inflate artifically the market price of Magic Marker stock.
CN addition, plaintiffs in the New York action allege that twoindividual defendants -- the president of Magic Marker and a
registered representative of Shearson Hayden Stone Inc. (Shearson),
a brokerage defendantd/ —— made express material misrepresent-
ations directly to these plaintiffs concerning the value of Magic
Marker stock. The Pennsylvania plaintiffs also allege that they
had a "special and confidential customer relationship with Shearson
based on
(a) plaintiffs' recognition of the investment advice
given to them by Shearson through [Shearson's registered
agent], and (b) Shearson's holding itself out to
plaintiffs and the investing public, as an old, long-
established, highly competent and expert broker-dealer
and investment advisor with the highest standards of
care, prudence, and integrity.
47 The president of Magic Marker, Shearson and Shearson's registered
representative are also named as defendants in the Pennsylvania
action. Among the brokerage houses named as defendants in both
the Pennsylvania action and the New York acticn, only Shearson
has not yet entered into a settlement agreement with the settlement
class in the Pennsylvania action.

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The Pennsylvania complaint and the New York complaint charge
that defendants' fraudulent course of conduct violated both the
federal securities laws and, respectively, Pennsylvania and New
York securities and/or deceptive business practices laws.
Substantial pretrial proceedings have already occurred in
both the Pennsylvania action and the New York action. On October
17, 1978, the Honorable Lee P. Gagliardi, to whom the New York
action 1s assigned, denied a motion brought by four defendants
in the New York action to transfer that action to the Eastern
District of Pennsylvania pursuant to 28 U.S.C. §1404(a).
One of the brokerage houses that is named as a defendant
in both the Pennsylvania action and the New York action has moved
the Panel, pursuant to 28 U.S.C. §1407, to transfer the New York o
action to the Eastern District of Pennsylvania for coordinated
or consolidated pretrial proceedings with the action pending
there. Eight other defendants, including seven common defendants,
have joined in this motion. Plaintiffs in both the Pennsylvania
and New York actions oppose transfer.
We conclude that transfer under Section 1407 would not
necessarily serve the convenience of the parties and witnesses
or promote the just and efficient conduct of this litigation.
Accordingly, we deny the motion to transfer .>’
5/7 R11parties to this litigation waived their right to oral
argument and, accordingly, the matter before us was submitted
for decision on the briefs. See Rule 14, R.P.J.P.M.L., 78 F.R.D.
561, 572 (1978). TT C

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Movants argue that the actions before the Panel involve
a common core of facts arising from the allegations that Magic
Marker common stock had an artifically inflated market price
because of an intricate securities fraud undertaken by Magic
Marker and the other defendants. Thus, movants maintain, transfer
for coordinated or consolidated pretrial proceedings is essential
in order to eliminate the possibility of duplicative discovery,
prevent conflicting pretrial rulings and conserve the time and
efforts of the parties, the witnesses and the judiciary. Movants
state, for example, that certain conflicting discovery requests
have already been made in the New York and Pennsylvania actions.
® Movants contend that the allegation that plaintiffs in the	New York action purchased their Magic Marker stock after face-to-
face dealings with certain defendants does not distinguish that
action from the Pennsylvania action. Movants point out that
the complaint in the New York action alleges not only these face-
to-face dealings, but also alleges the overall conspiracy involved
in the Pennsylvania action and in the Government proceedings.
In addition, movants state, the New York plaintiffs’ purchases
of Magic Marker stock fall within the period of time covered
in the Pennsylvania complaint, and the New York plaintiffs are “
members of the classes certified in the Pennsylvania
action. Finally, movants stress that each potential class member
and class representative had face-to-face dealings with a brokerage
@ Movants conclude that the New York plaintiffs are thusin no different position from any of the other class members.

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We do not find these arguments convincing. Where, as here,
only a minimal number of actions are before the Panel, movants
bear a strong burden of showing that the common factual questions
are sufficiently complex and that the accompanying discovery
will be so time consuming as to justify transfer under Section
14,07. See In re Scotch Whiskey Antitrust Litigation, 299 F.
Supp. 543, 544 (J.P.M.L. 1969). While we agree with movants that
these two actions involve numerous significant common questions
of fact regarding the alleged conspiracy artifically to inflate
the market price of Magic Marker stock, and that the presence
of these questions commends Section 1407 transfer, ® a careful
review of the entire record before the Panel has persuaded us
that this factor is outweighed by the advanced stage of pretrial ®
proceedings in these actions. Inclusion of the two actions now
before us in coordinated or consolidated pretrial proceedings
would, we are convinced, disrupt the orderly progress which is
being made in those actions and would result in no significant
benefits to the litigation as a whole. See In re Photocopy Paper,
305 F. Supp. 60, 61-62 (J.P.M.L. 1969).
We note that the parties can easily take steps to coordinate
whatever discovery remains to be accomplished in the two actions.Z/
6/ We note that the New York plaintiffs have explicitly represented
To the Panel that they intend to opt out of the Pennsylvania
settlement class.
7/ The New York plaintiffs, in their papers before the Panel,
have explicitly offered to coordinate with plaintiffs’ lead counsel C	in the Pennsylvania action all discovery with respect to the
common defendants. The New York plaintiffs state that they made
a similar offer of voluntary cooperation in April, 1978 in con-
nection with the Section 1404(a) motion in the New York action.

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For example, notices of a particular deposition could be filed
in both actions, thereby making the deposition applicable in
each action; the parties could seek to agree upon a stipulation
that any past and future discovery relevant to both actions may
be used in either action; and any party could seek orders from
the two district courts directing the parties to coordinate their
remaining pretrial efforts. See In re OklahomaInsurance	Holding
Company Act Litigation, 464 F. Supp. 961, 965-66 (J.P.M.L. 1979):
In re Molinaro/Catanzaro Patent Litigation, 464 F. Supp. 966, 969
(J.P.M.L. 1979). See also Manual for Complex Litigation, Parts
C I and II, §8§3.11 (rev. ed. 1977). Furthermore, consultationand cooperation among the two concerned district courts, if
deemed appropriate by those courts, coupled with the cooperation
of the parties, would minimize the possibility of conflicting
pretrial rulings. See In_re Allen Compound Bow Patent Litigation,
446 F. Supp. 248, 250-51 (J.P.M.L. 1978).
IT IS THEREFORE ORDERED that the motion pursuant to 28 U.S.C.
§1407 to transfer the action pending in the Southern District
of New York and listed on the following Schedule A to the Eastern
District of Pennsylvania be, and the same hereby is, DENIED.
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DOCKET NO. 375 SCHEDULE A
EASTERN DISTRICT OF PENNSYLVANIA
Wolgin, et al. v. Magic Marker Corporation Civil Action
SOUTHERN DISTRICT OF NEW YORK
A. W. Jones Company, et al.	v. Jay Teitelbaum, Civil Action
et al. No. 78 Civ. 0303(LPG)