In the Matter of Westec Corp.

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A Zu enN SpE conN — ~: - : .0 : . EEE
THE JUDICIAL PANEL PERI CE SE
ON RSARY Ee ee ) ; : | : i
MULTIDISTRICT LITIGATION poids Oo :
N THE MATTER OF WESTEC )
JRPORATION ) DOCKET NO. 27
OPINION AND ORDER So
FORE ALFRED P. MURRAH*, CHAIRMAN, AND JOHN MINOR WISDOM, | :
‘WARD WEINFELD, EDWIN A. ROBSON, WILLIAM H. BECKER, JOSEPH
LORD,III*, AND STANLEY A. WEIGEL*, JUDGES OF THE PANEL
EEE ee eettm te iteeet eset B i ] -
R CURIAM oo oo
Westec Corporation (Westec) was formed in 1964 through SE
e¢ merger of Western Equities Corporation (Western) and
>-Space Corporation (Geo-Space). Western stock had been
aded on the American Stock Exchange and Westec took over oo .
ts listing. Following the merger the stock advanced from : : oo
>ut three dollars per share to more than sixty-five dollars Co
> share. On August 25, 1966 the American Stock Exchange
‘pended trading on Westec stock and on September 26, 1966 oo So
‘tec filed a petition in the United States District Court co
the Southern District of Texas for the appointment of a
stee under Chapter X of the Bankruptcy Act.
The following day Mr. Orville S. Carpenter was appointed oo
stee and on August 23, 1968 he filed an action in the
Although Judges Murrah, Lord and Weigel were unable to
end the hearing they have, with the consent of all parties,ticipated in this decision.

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Southern District of Texas on behalf of Westec, the creditors,
and a class composed of Westec stockholders and others’
naming some 93 individual and corporate defendants and alleging
damages of "many millions of dollars." Twenty other related
actions were filed in the Southern Districts of Texas and
New York. With the exception of certain claims against the
American Stock Exchange (Exchange) and Chase Manhattan Bank
(Chase) which were severed and retained, the actions filed in
the Southern District of New York were transferred to the
Southern District of Texas under 28 U.S.C. Section 1404(a). See
Wyndham Associates v. Bintliff, 398 F.2d 614 (2d Cir.) 1968
® cert. denied, 89 Sup. Ct. 444; Schneider v. Sears, 265 F. Supp.
257 (S.D.N.Y. 1967). (The actions now pending in the Southern
District of Texas are listed on Schedule B.)
Judge Allen B. Hannay of the Southern District of Texas has
been designated to supervise the Chapter X reorganization and
all related actions filed in or transferred to the Southern
1/ The complaint, in pertinent part, provides:
2. This action is brought on behalf of Westec
Corporation on behalf of (a) itself, (b) the Fraud
Claimants for Creditors Class Six as set forth in
the Trustee's Amended Plan of Reorganization here-
tofore filed in Civil Action #66-H-62 styled In The
Matter of Westec Corporation, Debtor, a Proceeding for
the Reorganization of a corporation now pending in
this Court, and (c¢) as a class action for all persons
who sustained a loss as a result of any purchase of
or bona fide loan against the common stock of the
aforesaid Debtor corporation between September 2, 1964
® and August 25, 1966, or who otherwise were injuredas a result of the unlawful practices, conduct activi-
ties described herein or who were damaged as a conse-
quence thereof who may appear herein and prove their
claims as provided in Rule 23, Federal Rules of Civil
Procedures, as amended.

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District of Texas have been assigned to him. Judge Hannay
has consolidated these actions for the purpose of discovery
and has appointed a "working committee" of counsels Discovery
is generally being conducted in accordance with the Manual
for Complex and Multidistrict Litigation.
On June 17, 1969 the First National Bank of Dallas
(First National), the defendant in three actions pending in
the Northern District of Texas, (see Schedule A attached)
filed a motion with the Panel to transfer these three actions
to the Southern District of Texas for coordinated or consoli-
dated pretrial proceedings under Section 1407.2/ All parties
in these three actions are defendants in the trustee's action
® and it is clear that these three actions and those pending in
the Southern District of Texas share a great many common
questions of fact. The transfer of these three actions to
the Southern District of Texas will serve the convenience of
the parties and their witnesses and will promote their just
and efficient conduct. The motion of First National will be
granted and these three actions will be transferred to the
Southern District of Texas and assigned to Judge Hannay for
coordinated or consolidated pretrial proceedings.
Mr. Fred L. Hall is the President of the Lewisville
(Texas) National Bank and is the brother of Ernest M. Hall, Jr.,
2]Two	of the plaintiffs, A. G. Edwards & Son and Paine,
Webber, Jackson & Curtis have joined in the defendant's motion
® and the other plaintiff, G. C. Haasud Company, does not opposethe proposed transfer.

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the former President of Westec.3/ On June 23, 1967, he filed
a libel action against Dow Jones & Co., Inc. (Dow Jones) in
the United States District Court for the Northern District
of Texas. 2/ (See Schedule A.) Dow Jones has filed a motion
with the Panel to transfer this action to the Scuthern
District of Texas for coordinated or consolidated pretrial
proceedings; Hall vigorously opposes such a transfer.
The action is based on an editorial published in the
June 19, 1967 issue of Barron's and reproduced in the
margin.2/ The plaintiff specifically alleges that three of
the statements contained in the editorial are "false,
malicious and in reckless disregard of the truth." The
® allegedly untrue statements are (1) that Westec is bankrupt,
(2) that Westec's bookkeeping is "dubious" and (3) that Fred
Hall engaged in any "dubious stock manipulations." Dow Jones
raises defenses of "truth" and "fair comment,” both absolute
37 Ernest M. Hall, Jr. and James W. Williams, former Chairman
of the Board of Westec, are defendants in the trustee action
and most of the other actions involved in this litigation.
Both were convicted of criminal charges related to this matter,
4/ Jurisdiction is based on diversity of citizenship and a
damage claim in excess of $10,000.
5/ "THE LEWISVILLE NATIONAL BANK of Lewisville, Texas, with
deposits of $2,750,000, scarcely seems deserving of national
attention. But the Lewisville's president is one Fred M.
Hall, Jr., former president of the bankruptcy Westec Corp.
So deeply is the former involved in the latter's dubious book-
keeping and stock manipulations	that he would appear to have
disqualified himself as a banker. All this has been plainly
on the record for almost a year. The Johnson Administration,
it will be recalled, last year persuaded Congress to give the
nation's banking agencies greater disciplinary power over
® errant bank officials. Up to now, the citizenry of Lewisville(and elsewhere) should note, the Washington of ficialdom has
seen no evil,"

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® Cs
defenses under Texas law. We agree that the facts necessary
to establish such defenses are sufficiently related to the
facts necessary to establish liability (or nonliability) in
all of the other related actions as to make them common
within the meaning of Section 1407.%/ We think they will
necessarily involve testimony from the same witnesses and
reliance upon the same documentary evidence.
Counsel for the plaintiff opposes transfer of his action
to the Southern District of Texas on the ground that transfer
will not serve the convenience of his client and witnesses.
However, Fred Hall is a defendant in several of the actions
already pending in the Southern District of Texas and he will
® be involved in discovery occurring in that district since the
majority of witnesses and documents relating to the Westec
collapse are located there and many of the records are under
the control of the reorganization court in Houston. Despite
his argument to the contrary, we are convinced that the transfer
of this action to the Southern District of Texas will clearly
serve the convenience of this plaintiff and his witnesses for
otherwise they might be required to participate in discovery
being conducted by two different district courts.
The Dow Jones motion will be granted and this action
will be transferred to the Southern District of Texas and
6/ Theexistence of different questions of law does not pre-
® clude transfer under Section 1407. In re Cineinnati Air	isaster (American) 295 F., Supp. 51 (JPML 1968).

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assigned to Judge Hannay for coordinated or consolidated
pretrial proceedings on the common issues.’
This is large complicated multidistrict litigation with
many common parties. Each of these actions involves essentially
identical questions of fact and many involve related questions
of law. The Southern District of New York has, on several
occasions, determined that actions brought there arising
from the Westec collapse should be transferred to the Southern
District of Texas under 28 U.S.C. Section 1404(a). See, e.g.,
Sehneider v. Sears, supra. This decision has been affirmed
by the Second Circuit. Wyndham Associates v. Bintliff, supra.
® While not binding on the Panel, these decisions are entitledto great weight and we think that the promotion of the just
and efficient conduct of all of these actions compels their
transfer to the Southern District of Texas.
When the claims against the other defendants in the
Wyndham and Friedman cases were transferred to the Southern
District of Texas under Section 1404 (a) the claims against
the Exchange and the Chase were severed and retained in the
Southern District of New York.8/ Wyndham Associates v.
Bintliff, supra. The possible transfer of these two residual
actions has been considered by the Panel on its own initiative.
77 This action may, of course, be remanded for trial or other
proceedings as soon as discovery involving common issues of
fact is completed.
) 8/ One of the reasons for declining transfer of these cases	was the Court's determination that they could not have been
originally brought in the Southern District of Texas and there-
fore could not be transferred to that district under 1404(a).
Such a lack of venue does not preclude transfer under section
1407.

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All parties in these two actions vigorously oppose transfer
| claiming there are few if any common questions of fact and
urging that the convenience of all parties and their witnesses
would be best served by leaving the actions in the Southern
District of New York where the parties and witnesses are
located. We think it particularly significant that neither
Chase nor the Exchange were named as defendants or co-conspirators
in the comprehensive action brought by the trustee. We also
note that the plaintiff's class action claims have been dis-
allowed thus avoiding any possible class action conflict with
the trustee's action. We are convinced that the just and
efficient conduct of these two actions would not be furthered
® by their transfer under section 1407.
IT IS THEREFORE ORDERED that the four actions listed on
the attached Schedule A now pending in the Northern District
of Texas are hereby transferred to the Southern District of
Texas and, with the consent of that court, assigned to the
Honorable Allen B., Hannay for coordinated or consolidated
pretrial proceedings under 28 U.S.C. §1407. The two actions
now pending in the Southern District of New York are not
affected by this order.
®

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® DOCKET NO. 27 SCHEDULE A
NORTHERN DISTRICT OF TEXAS
1. G. C. Haas & Co. Vv. First National Civil Action
Bank of Dallas No. 3-2740-A
2. Paine, Webber, Jackson & Curtis v. First Civil Action
National Bank of Dallas No. 3-2729-A
3. A. G. Edwards & Son v. First National Civil Action
Bank of Dallas No. 3-2763-A
4. Fred L. Hall v. Dow Jones & Co., Civil Action
Inc. No. 3-2110-C
SOUTHERN DISTRICT OF NEW YORK
5. Wyndham Associates, et al. v. American Civil Action
Stock Exchange No. 67 Civ. 2611
6. Maurice M. Friedman, et al. v. The Chase Civil Action
C Manhattan Bank, N.A. No. 67 Civ. 3661

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( DOCKET NO. 27 : SCHEDULE B
SOUTHERN DISTRICT OF TEXAS
1. Robert Miller v. James W. Williams, Civil Acticn
et al. (*) No. 67-H-268
2. Mitchell Rysansky v. Ernest M. Hall, Civil Action
et al. No. 66-H-649
3. Schneider v. H. A. Sears, et al. (%*) Civil Action
No. 67-H-261
4. Weingarten v. Robert W. Bull, Jr., Civil Action
et al. (*) No. 67-H-269
5. Stephen E. Leber v. Westec Corp., Civil Action
et al. (*) No. 67-H-262
6. Lattman v. Ince, et al. (*) Civil Action
No. 67-H-265
7. Westec Corp. v. E, M, Hall, Jr., Civil Action
et al. No. 66-H-583
® 8. Ada Elster v. James W, Williams, Civil Action
et al. (*) No. 67-H-263
9. Beulah Curtis v. Westec Corporation, Civil Action
et al. (*) No. 67-H-264
10. Benjamin Messinger, et al. v. Westec Civil Action
Corporation, et al. (¥*) No. 67-H-270
11. Albert Nagelberg v. George H. Wolf, Civil Action
et al. (*) No. 67-H-266
12. Herman Siegel v. Westec Corporation, Civil Action
: et al. (*) No. 67-H-267
© 13. Cosmos Bank v. David S. Bintliff, Civil Action
et al. (*) No. 67-H-590
14. Commercial Discount Corp. v. Ernest M. Civil Action
Hall, Jr., et al. No. 67-H=-572
15. John H. Hurbrough v. Moroney, Beissner Civil Action
& Co., Inc., et al. No. 67-H-576
16. Chemetron Corp. v. Business Funds, Inc., Civil Action
C et al. No. 67-H-642

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17. E. F. Hutton & Co., Inc. v. John D. Brown Civil Action
No. 68-H-592
18. Donald McGregor & Tupper Lake Corp. Vv. Civil Action
James W. Williams, et al. No. 67-H-654
19. Wyndham Associates, et al. v. David C. Civil Action
Bintliff, et al. (¥%) No. 69-H-371
20. Maurice M. Friedman, et al. v. David C. Civil Action
Bintliff, et al. (*) No, 69-H-372
21. Orville S. Carpenter v. E. M. Hall, Civil Action
Jr., et al. No. 68~H-738
(*) Transferred from the Southern District of New York
under 28 U.S.C. §l404 (a).