IN RE: Resource Exploration, Inc., Securities Litigation

Case MDL No. 406 Document 2 Filed 05/20/15 Page 1 of 13
, WHEY 4 N a. o sr CL -
: MTS ow EERIEPERT 3 ERENCE
1 hog oo (Los) Co	: RRC {
2 PAT, EU or -
Clery NE ELL . BR - . E	Pf i Apa . i
3 BEFORE THE JUDICIAL PANEL tL
ON -
4 MULTIDISTRICT LITIGATION
5 IN RE RESOURCE EXPLORATION, INC. ) DOCKET NO. 406
SECURITIES LITIGATION ) BRT
6 OPINION AND ORDER : E E
7 -—
BEFORE MURRAY I. GURFEIN, CHAIRMAN, AND ANDREW A. CAFFREY,
8 ROY W. HARPER, CHARLES R. WEINER, EDWARD S. NORTHROP, AND
ROBERT H. SCHNACKE, JUDGES OF THE PANEL.
9 PER CURIAM . : ’
J I. BACKGROUND A
1 This litigation consists of nine actions pending in oo EE
) a total of four districts: four in the Western District
3 of Louisiana; three in the Southern District of New York;
and one each in the Eastern District of Pennsylvania and : .
1 .
the Southern District of Indiana. So co
3 : Sos
Among the principal actors in this litigation are
’ Resource Exploration, Inc. (Resource) and two of its wholly
4 owned subsidiaries, Lafayette Funds, Inc. (Lafayette) and
3 0il &§ Gas Funds, Inc. (0il & Gas) .Y/ Between 1968 and
) 1975, Lafayette and 0il & Gas allegedly acted as general :
partners in at least 45 separate limited partnerships (and
as co-venturers in several joint ventures) formed to engage :
in the business of oil and gas drilling and production.
17 Resource, Lafayette and 0il & Gas presently are involved
. in Chapter XI bankruptcy proceedings in the Northern District
of Ohio, and the bankruptcy court has stayed all proceedings
: against these parties.
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1 Typically, a limited partner in any given partnership was B CL
2 allowed an income tax deduction for the partner's share | | : Co
3 of the intangible drilling expenses incurred by that limited RESET
4 partnership. The deductions were limited to the amount :
5 of the partner's investment, plus the partner's proportionate
share of any bona fide non-recourse loans made to the limited SEE
© partnership. Commencing in or about 1972, Resource allegedly | | k |
7 arranged with The First National Bank of Ruston, Louisiana
8 (First National) and The American Bank & Trust Company
9 of Shreveport, Louisiana (American Bank & Trust) for sham = ]
10 non-recourse loans to some of the limited partnerships. Ce
11 Certain other Louisiana banks allegedly either participated ~ RTE
12 in these loans or made similar loans. . |
In early 1976, the Securities and Exchange Commission
3 (SEC) began an investigation of Resource, Lafayette, 0il -
14 & Gas and their involvement with the non-recourse loans | co
15 purportedly made to the limited partnerships. The SEC's
16 investigation resulted in an action for an injunction brought
17 by the SEC in the Western District of Louisiana. That
18 action included the following parties as defendants: Resource, | a
19 Lafayette and 0il & Gas; several officers and/or directors }
20 of some or all of these three companies; and First National,
its chairman/president and its vice-president. The complaint :
21 in this action alleged that these defendants had entered
22 into a series of sham transactions regarding purported oo }
23 non-recourse loans from First National	to some of the limited
24 partnerships. The complaint further alleged that defendants
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0 1 misrepresented the existence, nature and substance of those
2 non-recourse loans to investors and to the independent
3 public accountants for Resource, Lafayette and 0il §& Gas.2/
The SEC's action was concluded when consent orders were
4
entered against all the defendants in the action.’
5
Each of the nine actions before the Panel was commenced
6 after the initiation of the SEC proceedings in the Western
7 District of Louisiana. In addition to the parties named
8 as defendants in the SEC's injunctive action, parties named
9 as defendants or co-conspirators in one or more of the
10 actions now before the Panel	- include a law firm which acted
11 as counsel to Resource, Lafayette and 0il & Gas; various
officers, directors and/or employees of Resource, Lafayette,
12
C 0il & Gas and another subsidiary of Resource; a company	13
engaged in building and maintaining gas pipe lines and
14
15 2/ The accounting firm of Lincove, Evans, Cole & Peterson
(Lincove Evans) served as the independent public accountant
for Resource, Lafayette and 0il & Gas through September,
16 1975; thereafter, the accounting firm of Price Waterhouse
& Co. (Price Waterhouse) performed these functions for
17 Resource, Lafayette and 0il & Gas. In addition, Price
Waterhouse served as the independent public accountant
18 for the limited partnerships both before and after September,
1975.
19 Ce : Co
3/ A grand jury sitting in the Western District of Louisiana
also investigated the matters that were the subject of
20 the SEC proceedings. On April 13, 1979, the grand jury
handed down an indictment against an individual who was
21 the president and a director of Resource, Lafayette and
0il & Gas. The indictment charges this individual, together
22 with others, with many of the allegations included in the
SEC's injunctive action. In particular, the indictment
23 includes allegations concerning misrepresentations made
to Price Waterhouse about purported non-recourse loans
from First National to some of the limited partnerships.
24 The defendant pleaded guilty on September 13, 1979, and is
® awaiting sentencing.	25
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1 in the exploration, acquisition and transmission of gas,
2 and this company's parent corporation; Price Waterhouse;
3 Lincove Evans; and two broker-dealers and certain of their
4 registered representatives who allegedly participated in
the offer and sale of the limited partnership interests.
5
Plaintiffs in each action are persons who purchased interests
6
in one or more of the limited partnerships. The complaint
=
in each action alleges that defendants violated the federal
8 securities statutes®’ in connection with the offer and
9 sale to plaintiffs of investment interests in one or more
10 limited partnerships. Defendants are basically charged
11 with misrepresenting the tax benefits of owning interests
12 in the limited partnerships and misrepresenting the financial
condition of the partnerships, including their ability
13
timely to drill viable oil and gas wells.
14
Six of the nine actions before the Panel were commenced
15 as class actions. In two of these actions, one pending
16 in the Southern District of New York and one in the Western
17 District of Louisiana, plaintiffs seek to represent a class
18 consisting of all persons who purchased limited partner-
19 ship interests from 1971 until 1978.3 In a second Southern
20 ———— .
4/ Some of the complaints also allege that defendants
21 violated certain state securities laws and/or the common	law.
22 5/ The same plaintiff commenced each of these two actions.
Plaintiff originally filed a complaint in the Southern
23 District of New York against, inter alia, First National.
In June 1979, however, the claims against First National
24 were transferred from the Southern District of New York
to the Western District of Louisiana because First National,
as a national bank, may be sued only in its home district.
25 12 U.S.C. §94.
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® 1 District of New York action, plaintiffs seek certification
2 of a class consisting of all persons who purchased interests
3 in the limited partnerships between 1968 and 1975. In
4 two additional actions, one pending in the Southern District
of New York and one in the Western District of Louisiana,
5
plaintiffs seek to represent a class consisting of all
6
purchasers of interests in the limited partnerships between
7 January 1, 1972 and November 17, 1975.87 Finally, in the
8 Eastern District of Pennsylvania action, the purported
9 class consists of approximately 35 persons who purchased
10 interests in a particular limited partnership that was
11 offered for sale commencing in 1975. No class determinations
have yet been reached in any of these actions.
12
C Discovery is not well advanced in any of the actions	13
before the Panel. The parties have brought to our attention
14
certain other pretrial proceedings that have occurred in
15 some of these actions, however.
16 In the Pennsylvania action, defendants' motion for
17 summary judgment based on a statute of limitations defense
18 has been sub judice since June, 1979.
19 Certain defendants in the New York actions have moved,
pursuant to 28 U.S.C. §1404(a), to transfer those actions
20
21 6/ The same plaintiff commenced both of these actions.
The complaint in the Louisiana action brought by this plain-
22 tiff, which names only First National as a defendant, alleges
as follows: :
23 } } .
The other possible defendants to this action
24 are the subject of a separate lawsuit filed in the
...Southern District of New York. Upon information
and belief, First National is sued herein in a separate
25 action because no national bank may be sued outside
of its district.
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1 to the Western District of Louisiana. Alternatively, American
2 Bank & Trust has moved to sever the claims against it in
3 the New York actions and to transfer those claims to the
a Western District of Louisiana pursuant to Section 1404(a).
Some of the parties in the New York actions have advised
° the Panel that: (1) the district court in New York has
6 reserved decision on these motions pending the Panel's
7 ruling under Section 1407; and (2) at the direction of
8 the court, counsel in the New York actions have agreed
9 to a schedule governing class action motions and discovery.
10 Finally, in the Indiana action an appeal and a cross-appeal
11 have been taken to the district judge from an order by
12 a magistrate imposing sanctions upon a defendant for failure
to provide discovery. The record before the Panel is unclear
13 as to whether this motion has been fully briefed and/or
14 argued, however.
15 II. PROCEEDINGS BEFORE THE PANEL |
16 Because these nine actions appeared to share common
17 questions of fact, the Panel originally issued an order
18 to show cause why the actions should not be transferred
19 to a single district for coordinated or consolidated pretrial |
proceedings. See Rule 8(a), R.P.J.P.M.L., 78 F.R.D. 561,
20 566-67 (1978). Subsequently, one of the plaintiffs who
21 has filed an action in the Southern District of New York
22 and also in the Western District of Louisiana moved the
23 Panel to centralize all actions in the Western District
24 of Louisiana.
25 |
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® 1 Plaintiff in one of the Louisiana actions; one of
2 the plaintiffs who has brought actions in both the Southern
3 District of New York and the Western District of Louisiana;
4 and numerous defendants oppose Section 1407 transfer.
5 Alternatively, these parties favor centralization in the
Southern District of New York. All other responding parties
© favor transfer of some or all of these actions; some of
7 these parties favor centralization in the Southern District
8 of New York, while others urge us to centralize these actions
9 in the Western District of Louisiana. In addition, should
10 the Panel find transfer appropriate, (1) numerous defendants
11 involved in, inter alia, the Pennsylvania action request
12 that that action be excluded from transfer pending the
C resolution of defendants' motion for summary judgment;13 and (2) plaintiff in the Indiana action moves the Panel
14 to exclude from transfer the issues concerning the appeals
15 to the Indiana district judge from the magistrate's discovery
16 ruling.
17 III. HOLDING
18 We find that these actions involve common questions
19 of fact and that centralization at this time of all actions, |
90 except the Pennsylvania action, in the Southern District
of New York for coordinated or consolidated pretrial proceedings
21 under Section 1407 will serve the convenience of the parties
22 and witnesses and promote the just and efficient conduct
23 of the litigation.
24
0.
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1 IV. THE QUESTION OF TRANSFER
2 The parties that oppose Section 1407 transfer acknowledge
3 the presence of common factual questions among these actions,
4 but maintain that coordinated or consolidated pretrial
proceedings pursuant to Section 1407 are not warranted
° in this litigation. Opponents maintain that the complaints
6 in the three Southern District of New York actions encompass
7 the allegations of the complaints in the six other actions
8 before the Panel, and these parties point out that the
9 classes sought in the New York actions include all purchasers
10 of the limited partnerships involved in this litigation.
11 The Indiana action and two of the Louisiana actions, opponents
12 assert, are simply individual actions brought by lone investors.
The remaining two Louisiana actions are pending in the
13 Western District of Louisiana because of the unique venue
14 provisions (12 U.S.C. §94) governing national banks, opponents
15 state. And the Pennsylvania action, opponents point out,
16 is a purported class action brought on behalf of approximately
17 35 persons who invested in only one of the limited partnerships.
18 Thus, opponents conclude:
[I]t is clear that the New York actions are the |
19 most comprehensive and complex and that the control
of pre-trial proceedings by the one judge to whom
20 all three of these actions have been assigned will
resolve to the extent necessary any conflicts in depo-
21 sitions or redundancy in proceedings which might result
among the various cases.
22 We find these arguments unpersuasive. Opponents’
23 suggestion of voluntary or informal cooperation among the
24 parties and the courts involved in this litigation is com-
25 mendable. We are convinced, however, that the number of
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® 1 actions before us, coupled with the complexity of the common
2 factual questions regarding the sale and operation of the
3 limited partnerships, warrant Section 1407 transfer in
a order to ensure that the actions are supervised by a single
5 judge who, from day-to-day contact with all aspects of
the litigation, will be in the best position to design
6 a pretrial program that will prevent duplicative discovery,
7 eliminate the possibility of conflicting rulings and sub-
8 stantially conserve the time and efforts of the parties,
9 the witnesses and the federal judiciary. See In re Common-
10 wealth 0Oil/Tesoro Petroleum Securities Litigation, 458
11 F. Supp. 225, 229 (J.P.M.L. 1978). An additional justification
12 for transfer is the fact that most of the actions before
C us have been brought on behalf of similar or overlapping13 classes of purchasers of the limited partnerships. It
14 is desirable to have a single judge oversee the class action
15 issues in these actions to avoid duplicative efforts and
16 inconsistent rulings in this area. See In re First National
17 Bank, Heavener, Oklahoma (First Mortgage Revenue Bonds)
18 Securities Litigation, 451 F. Supp. 995, 997 (J.P.M.L.
19 1978). |
20 We are persuaded, on principles of comity, to defer
our decision concerning transfer of the Pennsylvania action
21 because of the pendency of the defendants' motion for summary
22 judgment, which is fully submitted to the potential transferor
23 judge. See, e.g., In re Air Crash Disaster at Tenerife,
24 Canary Islands, on March 27, 1977, 435 F. Supp. 927, 928
® 25 n.3 (J.P.M.L. 1977); In re Professional Hockey Antitrust
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1 Litigation, 352 F. Supp. 1405, 1406-07 (J.P.M.L. 1973);
2 In re Kaehni Patent Litigation, 311 F. Supp. 1342, 1344
3 (J.P.M.L. 1970).
4 The motion by the Indiana plaintiff to exclude from
transfer certain issues involved in the Indiana action
5
falls outside the purview of the Panel. While Section
6 .
1407(a) provides a mechanism whereby the Panel can effectively
7 exclude claims from Section 1407 transfer, the Panel is
8 not empowered to carve out issues for separate treatment
9 under Section 1407. In In re Plumbing Fixture Cases, 298
10 F. Supp. 484, 489-90 (J.P.M.L. 1968), the Panel stated
as follows:
11
While paragraph (a) of Section 1407 permits sep-
12 aration and remand by the Panel of claims, cross-claims,
counterclaims and third-party claims separable under
13 paragraph (b) of Rule 42, it does not permit the Panel
to order a separate trial of any separate issue or
14 * * * igsues which are also separable under paragraph
(b) of rule 42. This unequivocal and obviously deliberate
withholding from the Panel of power to separate issues
15 in a single civil action assigning one or more to
the transferee court and one or more to the transferor
16 court is a clear, precise and wise limitation on the
powers of the Panel.
17
Vv. THE TRANSFEREE DISTRICT
18 The primary arguments of the parties that favor centrali-
19 zation in the Western District of Louisiana are as follows:
20 (1) the alleged sham loan transactions were entered into
21 in that district, and the bank defendants' records are
99 located there; (2) Lincove Evans' accounting records concerning
Resource, Lafayette and 0il & Gas are maintained in the
23
Western District of Louisiana; (3) Price Waterhouse's accounting
24
records regarding Resource, Lafayette, 0il & Gas and the
25 limited partnerships are located in Houston, Texas, which
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® 1 is near the Western District of Louisiana; (4) the documentary
2 evidence and transcripts of the testimony generated by
3 the SEC proceeding and the more recent grand jury investigation
4 and criminal action are on file with the federal district
court in the Western District of Louisiana; (5) because
° of the SEC and the criminal proceedings, the district court
6 in the Western District of Louisiana is uniquely familiar
7 with the subject matter of this litigation; and (6) many
8 individual defendants and/or potential witnesses reside
9 in Louisiana, or in states adjoining Louisiana.
10 On the basis of the record before us, either the Western
11 District of Louisiana or the Southern District of New York
12 would be an appropriate transferee forum. On balance,
C however, we are convinced that the Southern District of
13 New York is the preferable forum for the conduct of coordinated
14 or consolidated pretrial proceedings in this litigation.
15 Initially we note, as opponents of transfer have pointed out,
16 that the most comprehensive purported class actions have been
17 commenced in the Southern District of New York, 8’ and we
18 also observe that the court there has established a schedule
19 governing class action motions and discovery. In addition,
some of the parties who favor centralization in the Southern
20 District of New York have advised us that all "parties
21 to this litigation for whom a substantial quantity of documents
22
23 8/ Inaddition, the record before us reveals that two
of the Western District of Louisiana actions are pending
C 24 there only because of the provisions of the National Bank	Venue Act, supra, and that plaintiffs in those two actions
25 elected to bring their actions against other defendantsin the Southern District of New York.
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1 may be anticipated as part of the discovery process" have
2 agreed to establish a document depository for these materials
3 in New York City. Finally, we are persuaded that the Southern
4 District of New York is a far more convenient and accessible
| 5 forum for the parties in this litigation than the Western
6 District of Louisiana.
IT IS THEREFORE ORDERED that, pursuant to 28 U.S.C.
7 §1407, all actions listed on the following Schedule A and
8 pending in the Southern District of Indiana and the Western
2 District of Louisiana be, and the same hereby are, transferred
10 to the Southern District of New York and, with the consent
11 of that court, assigned to the Honorable Charles L. Brieant
12 for coordinated or consolidated pretrial proceedings with
13 the actions pending in that district and listed on Schedule
A.
14
IT IS FURTHER ORDERED that our ruling regarding
15 transfer of the action listed on schedule A and pending
16 in the Eastern District of Pennsylvania be, and the same
17 hereby is, DEFERRED until the ruling of the court in that
18 district on defendants' pending motion for summary judgment.
19
20
21
22
23
24
25
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o 1 DOCKET NO. 406
2 SCHEDULE A
3 CIVIL ACTION NO.
4 SOUTHERN DISTRICT OF INDIANA
5 J. Thomas O'Brien v. Resource IP77-733-C
Exploration, Inc., et al.
6 WESTERN DISTRICT OF LOUISIANA
7 Chester Z. Haverback v. Resource CI 780227
Exploration, Inc., et al.
8
Irwin Kossoff v. The First National CI 790139
9 Bank of Ruston, Louisiana
Frank B. Foster, III v. J.E. Trahan, CI 790189
10 et al.
11 Arnold B. Elkind, etc. v. The First CI 790875
National Bank of Ruston, Louisiana
12
C EASTERN DISTRICT OF PENNSYLVANIA13 Philip Vogel, et al. v. J. C. 78-2724
Trahan, et al.
14
SOUTHERN DISTRICT OF NEW YORK
15
Jesse M. Townsley, et al. v. Price 78 Civ 5996
16 Waterhouse & Co., et al.
17 Arnold B. Elkind, etc. v. Price 78 Civ 6084
Waterhouse & Co., et al.
18 Irwin Kossoff v. J. Russell Duncan, 79 Civ 54
et al.
19
20
21
22
23
®25
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