IN RE: American Financial Corporation Litigation

—-— Case MDL No. 285 Document2 Filed 05/04/15 Page 1 of8
BEFORE THE JUDICIAL PANEL J DIHALPANEL ON, NON i i CTRICT WTIGATIO
® MULTIDISTRICT LITIGATION PEELED
IN RE AMERICAN FINANCIAL) DOCKET No Jagd 1877
CORPORATION LITIGATION ) ART)
PATRICIADAIHA* OPINION AND ORDER GLERROF Jak FRE
BEFORE JOHN MINOR WISDOM, CHAIRMAN, AND EDWARD WEINFELD,
- EDWIN A. ROBSON, WILLIAM H. BECKER*, JOSEPH S. LORD, III*,
STANLEY A. WEIGEL, AND ANDREW A. CAFFREY, JUDGES OF THE
PANEL
PER CURIAM
This litigation consists of four actions pending in
two federal districts: Merton in the Central District of
California,	and Goldstein, Elfenbein and Chekares in the
‘ Southern District of New York.
® Merton was filed in the Central District of Californiain early 1973 as a class action on behalf of certain holders
of $40 common stock purchase warrants of National General
Corporation (NGC). On April 30, 1975, the class was certified
to consist of all persons who purchased NGC's $40 warrants
prior to January 10, 1973, and who sold the warrants before
i
January 23, 1973. Named as defendants in Merton are NGC,
two of its former directors and officers, and American Financial
Corporation (AFC). Plaintiffs charge that defendants ’
violated the federal securities laws and breached a fiduciary
duty owed to members of the class because of false and
misleading representations and omissions of material facts in
* Judges Becker and Lord took no part in the consideration or
® decision of this matter.
1/ In May 1977, plaintiffs' motion to expand the class in Merton
to include members of the class in Goldstein, infra, was denied.

> a Case MDL No. 285 Document2 Filed 05/04/15 Page	2 of 8
various statements made in 1972 and 1973. The complaint
® alleges that defendants' fraudulent course of conduct cul-
minated on January 23, 1973,with 2 tender offer by AFC
to acquire all of NGC's outstanding $40 warrants.
Discovery has been completed in Merton, and a
comprehensive pretrial order has been entered. Trial is
scheduled to commence on September 13, 1977.
Goldstein was commenced in the Southern District of
New York in May 1976 as a class action against the
defendants involved in Merton, various officers and
directors of AFC and an investment company that allegedly
was a controlling person of NGC. In January 1977, a class
was certified in Goldstein comprised of all persons who
® held NGC's warrants on January 10, 1973, and who sold the
warrants on the open market at a loss between January 24,1973,
and March 14, 1974. The complaint in Goldstein alleges that
Co defendants violated the federal securities statutes and the
common law because of many of the same material omissions
and false statements that are alleged in the Merton complaint.
The Goldstein complaint, however, includes events that
occurred after January 23, 1973, the cut-off date in the Merton
complaint. ’
Alleging that Merton and Goldstein share numerous common
questions of fact and law, defendants in Goldstein moved
the Honorable Henry F. Werker, to whom Goldstein has been
assigned, for an order transferring Goldstein to the Central
® District of California pursuant to 28 U.S.C. §l404(a).

-3=
~ “ Case MDL No. 285 Document2 Filed 05/04/15 Page	3 of 8
In denying this motion, Judge Werker held that:
® [Tlhe Merton action is on the verge of trial,	a comprehensive pretrial order having been entered
and discovery having been completed. Thus, the
benefits of coordinated discovery could not here be
achieved by a transfer of {Goldstein] to California.
Moreover, it seems obvious that consolidation of
Goldstein with Merton is highly questionable because
of the inevitable delay to the Merton plaintiffs and
the prejudice to the Goldstein plaintiffs in having
to suddenly be prepared for trial. Thus, two trials
would probably result in that district and no interest
in judicial economy will have been served. Goldstein,
et al. v. American Financial Corp., et al., at 4,
No. 76 Civ. 2009 (S.D.N.Y. Oct. 19, 1976).
Both Elfenbein and Chekares are also pending in the
Southern District of New York before Judge Werker. All
defendants in these two actions are also named as defendants
in Goldstein. Except for the class action allegations, the
complaints in Elfenbein and Chekares are virtually identical
@ and allege that in 1972 AFC commenced a fraudulent course
of conduct in order to gain complete ownership of NGC. This
course of conduct allegedly culminated when AFC falsely
Ce claimed ownership of 93 percent of NGC's common stock and
effectuated a statutory short form merger on March 14, 1974.
Elfenbein has been certified as a class action on behalf of
stockholders of NGC and holders of NGC's 4 percent convertible
debentures who received AFC's 9 1/2 percent non-convertible
debentures in exchange for their NGC hecldings pursuant to
the terms of the merger of NGC into AFC. Chekares is brought
on behalf of a class of owners of NGC's $40 warrants who
continued to hold the warrants on the date of the merger. No
® class determination has been made in Chekares.

- . Case MDL No. 285 Document 2 Filed 05/04/15 Page	4 of 8
The defendants in this litigation originally moved : ’
® the Panel pursuant to 28 U.S.C. §1407 to transfer Goldstein
to the Central District of California for coordinated or :
consolidated pretrial proceedings with Merton, Plaintiffs
in each of the four actions before the Panel, however,
subsequently moved the Panel to transfer Merton to the
Southern District of New York for coordinated or consolidated
pretrial proceedings with the three actions pending there.
Although we recognize the existence of common
questions of fact in Merton, Goldstein, Elfenbein and Chekares,
we have concluded that the inclusion of Merton in Section
1407 proceedings would not serve the convenience of the parties
or witnesses or promote the just and efficient conduct of the
[ litigation. And since the other three actions are already pending
in a single district, we deny the motions. :
Defendants argue that the complaints in Goldstein and
Merton raise virtually identical questions of law and fact. The
only difference between these two actions, they contend, is that
Merton seeks damages on behalf of purchasers of NGC warrants who
sold the warrants prior to January 23, 1973, whereas Goldstein
seeks damages on behalf of holders of the same warrants who sold
: the warrants after that date. Transfer pursuant to Section 1407
is necessary, these defendants maintain, in order to avoid
duplicative discovery and the possibility of inconsistent class
determinations and other pretrial rulings.
® Defendants contend that Merton and Goldstein do not share
significant common questions of fact with Elfenbein and

Ca - Case MDL No. 285 ECREDTNE2A Filed 05/04/15 Page 5 of 8
DOCKET NO. 285
® CENTRAL DISTRICT OF CALIFORNIA Civil Action No.
Robert Cox Merton, etc. v. American 75-193
Financial Corp.,et al.
SOUTHERN DISTRICT OF NEW YORK
Max and Florence L. Goldstein, etc. v. 76-Civ-2009
American Financial Corp., et al.
Ira Elfenbein, etc. v. American 75-Civ-3595
Financial Corp., et al. ‘
Gus Chekares, etc. v. American 76-Civ-2377
Financial Corp., et al.

-5- :
x . Case MDL No. 285 Document 2 Filed 05/04/15 Page 6 of 8
and Chekares. They argue that the majority of the wrongful
( acts alleged in the Elfenbein and Chekares complaints arise
out of the merger of NGC into AFC, which took place more
than one year after the alleged violations in Merton and
Goldstein.
All plaintiffs, on the other hand, argue that these
four actions share numerous questions of fact arising out of
the common core of this litigation: the concerted and
continuing course of conduct by defendants, from late 1972
to March 1974, to obtain control of NGC for AFC at an
artificially depressed price.
In his decision denying the transfer of Goldstein to
the Central District of California pursuant to Section 1404 (a),
) Judge Werker characterized the relationship of Merton and
Goldstein to Elfenbein and Chekares as follows:
Although decision on this issue is premature at
this point, it is possible that Goldstein could be
consolidated for trial at least with respect to
certain common issues with Elfenbein and Chekares.
Although the Elfenbein and Chekares actions . . . are
based in part on events subsequent to those which
serve as the basis for Goldstein, the allegation that
[AFC] sought to obtain complete ownership of [NGC]
by fraudulent means is common to all three actions....
The defendants' claim that the Goldstein and
Merton actions are intimately related and are different
from the Elfenbein and Chekares actions while accurate
from one perspective, fails to consider in the nature
of the relationship of Chekares to Goldstein. The
classes represented in Goldstein and Merton were the
owners of warrants who sold them in contiguous time
spans. Goldstein, however, bears the same relationship
to Chekares as it does to Merton. Chekares covers the
class of those who continued to hold the warrants up
to the date of the merger in March of 1974, and thus
covers the time span subsequent to that covered by

- Case MDL No. 285 Document 2 Filed 05/04/15 Page 7 of 8
2" Goldstein. Moreover, all four suits bear a strong
resemblance to one another in that they arose out of
[ the alleged fraudulent scheme by which [AFC] ultimatelytook over [NGC]. Goldstein, supra, at 5-6.
We agree with Judge Werker's analysis of the factual issues
involved in this litigation. And, while the prior denial of a
Section 1404 (a) transfer is not dispositive of a Section 1407 motion
because of the different considerations that underlie these two
: statutes, see In re Air Crash Disaster at Toronto International
Airport on July 5, 1970, 346 F. Supp. 533 (1972).and see also
In re Aviation Products Liability Litigation, 347 F. Supp. 1401, 1404:
(1972), in the litigation now before us we further agree with Judge
Werker's conclusion that Merton, wherein discovery has been
completed and trial is imminent, should be left alone to proceed
to trial as expeditiously as possible. See p.3 supra. In contrast
[ to the advanced stage of Merton, at the Panel hearing on this
’ matter counsel for plaintiffs in Goldstein estimated that discovery
in Goldstein, Elfenbein and Chekares would continue until early
oF or mid 1978. Transcript at 33. Thus, including Merton in Section
1407 proceedings with any or all of the New York actions is
clearly inappropriate. See In re Celotex Corp. "Technifoam"
Products Liability Litigation, 68 F.R.D. 502, 505 (J.P. M.L. 1975).
Moreover, we envision no possibility of duplicative discovery
in Merton and the three New York actions. At the Panel hearing
counsel for all parties stipulated that all discovery in Merton
would be deemed applicable to Goldstein. Transcript at 29-33.
And since the three New York actions are already before a single
® judge, he can easily take appropriate steps to ensure that thediscovery in Merton may be made applicable to Elfenbein and

“aa Case MDL No. 285 Document2 Filed 05/04/15 Page	8 of 8
Chekares as well. Cf. Manual for Complex Litigation, Parts
I and II, §3.11 (rev.ed. 1973). We also observe that there
® no longer appears to be any danger of conflicting class
certifications in this litigation. Non-overlapping classes
already have been certified in Goldstein, Elfenbein and Merton,
and a wholly distinct class is alleged in Chekares.
IT IS THEREFORE ORDERED that the motions for transfer
pursuant to 28 U.S.C. §1407 pertaining to the actions listed
on the following Schedule A be, and the same hereby are,
DENIED.
PY
®