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Stanford University Law School - Securities Class Action Clearinghouse

 

Gerald W. Palmer (State Bar No. 58968)
JONES, DAY, REAVIS & POGUE
555 West Fifth Street
Suite 4600
Los Angeles, CA 90013-1025
Telephone: 213/489-3939

David L. Carden
Robert C. Micheletto
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive
Suite 3500
Chicago, IL 60601-1692
Telephone: 312/782-3939

Attorneys for Defendants

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA


 
HOWARD HERTZBERG, JOHN DeROSA
and JEFFREY FEINMAN, on behalf of
themselves and all others similarly situated,

                      Plaintiffs,

v.

DIGNITY PARTNERS, INC., et al.,

                      Defendants.
 

_____________________________________

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)		 Civ. No. 96-C-4558 (CAL)
[filed Jan. 5, 1998]
 

Judge Charles A. Legge
 
 

DEFENDANTS' OPPOSITION TO
PLAINTIFFS' MOTION FOR AN
ORDER CERTIFYING FOR
INTERLOCUTORY APPEAL
PURSUANT TO 28 U.S.C. § 1292(b)

TABLE OF CONTENTS

INTRODUCTION

BACKGROUND

ARGUMENT CONCLUSION

TABLE OF AUTHORITIES

FEDERAL CASES

In re AHI Healthcare Systems, Inc. Sec. Litig.,
     No. 95-8658, slip op. (C.D. Cal. Jan. 19, 1997)

Arnold v. United Artists Theatre Circuit, Inc.,
     158 F.R.D. 439 (N.D. Cal. 1994)

Arthur Young & Co. v. United States District Court,
     549 F.2d 686 (9th Cir. 1977)
     cert. denied, 434 U.S. 829 (1977)

In re Brand Name Prescription Drugs Antitrust Litig.,
     878 F. Supp. 1078 (N.D. Ill. 1995)

In re Cement Antitrust Litig.,
     673 F.2d 1020 (9th Cir. 1982),
     aff'd, Arizona v. Ash Grove Cement Co.,
     459 U.S. 1190 (1983)

Chiron Corp. v. Abbott Lab.,
     No. C-93-4380 MHP, 1996 U.S. Dist. LEXIS 317
     (N.D. Cal. Jan. 3, 1996)

Cortez v. MTD Product, Inc.,
     927 F. Supp. 386 (N.D. Cal. 1996)

F.D.I.C. v. Jackson-Shaw Partners No. 46 Ltd.,
     No. Vic. 92-20556 SW, 1995 WL 594866
     (N.D. Cal. Oct. 4, 1995)

Gustafson v. Alloyd Co., Inc.,
     513 U.S. 561 (1995)

Harden v. Raffensperger, Hughes & Co.
     933 F. Supp. 763 (S.D. Ind. 1996)

Hotel Employees & Restaurant Employees Union, Local 2 v. Marriott Corp.,
     No. C-89-2707, 1993 U.S. Dist. LEXIS 16983
     (N.D. Cal. Nov. 12, 1993)

Levitin v. A Pea in the Pod, Inc.,
     No. 3:94-CV-0247-D, 1997 WL 160184
     (N.D. Tex. Mar. 31, 1997)

Lilley v. Charren,
     No. C-95-3450 (SI) slip op.
     (N.D. Cal. Mar. 24, 1997)

Mateo v. The M/S Kiso,
     805 F. Supp. 792 (N.D. Cal. 1992)

Murphy v. Hollywood Enter. Corp.,
     No. Civ. 95-1926-MA, 1996 WL 393662
     (D. Or. May 9, 1996)

North Carolina ex. rel Howes v. Peele,
     889 F. Supp. 849 (E.D.N.C. 1995)

In re Numerex Corp. Sec. Litig.,
     913 F. Supp. 391 (E.D. Pa. 1996)

Orson, Inc. v. Miramax Film Corp.,
     867 F. Supp. 319 (E.D. Pa. 1994)

Philan Ins. Ltd. v. Frank B. Hall & Co.,
     755 F. Supp. 94 (S.D.N.Y. 1991)

Piazza v. Major League Baseball,
     836 F. Supp. 269 (E.D. Pa. 1993)

Stack v. Lobo,
     903 F. Supp. 1361 (N.D. Cal. 1995)

United States Rubber Co. v. Wright,
     359 F.2d 784 (9th Cir. 1966)

White v. Nix,
     43 F.3d 374 (8th Cir. 1994)

In re Wrt Energy Sec. Litig.,
     [Current Binder] Fed. Sec. L. Rep.
     (CCH) ¶ 99,560 (S.D.N.Y. 1997)

Zygmuntowicz v. Hospitality Inv. Inc.,
     828 F. Supp. 346 (E.D. Pa. 1993)

FEDERAL STATUTES

15 U.S.C. § 77d(3)(B)

17 C.F.R. § 230.174(d)


INTRODUCTION

Plaintiffs have failed completely to meet their burden of demonstrating that any one, let alone all three, of the stringent prerequisites for interlocutory review under 28 U.S.C. § 1292(b) ("Section 1292(b)") have been satisfied. Indeed, flatly contrary to plaintiffs' contentions and arguments, there is no good reason for this Court to certify a piece-meal appeal of the dismissal of plaintiffs' Section 11 claims because: For all these reasons, discussed more fully below, the Court should deny plaintiffs' motion seeking certification of an interlocutory appeal pursuant to Section 1292(b).

BACKGROUND

A. Dismissal Of Plaintiffs' Section 11 Claims

This Court has twice dismissed plaintiffs' Section 11 claims, agreeing with defendants that, following the Supreme Court's ruling in Gustafson v. Alloyd Co., Inc., 513 U.S. 561 (1995), it is now clear that Section 11 confers standing only on those persons who purchased in the initial public offering itself. In its July 19, 1997 order dismissing plaintiffs' original complaint, the Court noted that "[w]ith respect to section 11 . . . I really don't think that the pleading is at the moment adequate with respect to [plaintiffs'] purchasing their stock in the IPO, or even in what I call the protected aftermarket, such as invoke Section 11 rather than 10(b)." (See Tr. of Proceedings Held on July 19, 1997 at 31.)

Plaintiffs' amended complaint fared no better. Plaintiffs' amended Section 11 claims again failed to allege that plaintiffs purchased their Dignity shares in the initial public offering. Rather, plaintiffs alleged that the shares they purchased were "traceable to the Registration Statement and Prospectus" and that because they each purchased their shares within 90 days of the initial public offering, those shares "are presumed to have been purchased pursuant to the Registration Statement and Prospectus." (Am. Compl. ¶¶ 20(a)-(c).) On December 5, 1997, the Court once again dismissed the Section 11 claims, this time with prejudice. The Court held that plaintiffs had no standing because they did not purchase their Dignity stock in the initial public offering or even in what could be deemed to be a protected aftermarket because they did not purchase their shares within 25 days of the initial public offering. (See Tr. of Proceedings held on December 5, 1997 at 7.)1

B. Plaintiffs' Motion For Interlocutory Appeal

Plaintiffs contend that, pursuant to Section 1292(b), this Court should certify for immediate appeal the following issues: (i) "did Gustafson overrule authorities allowing plaintiffs to maintain § 11 claims by "tracing" their shares to the registered offering?" and (ii) "[d]oes Gustafson implicitly require plaintiffs to purchase 'in' the public offering, or within 25 days of the registration statement's effective date?" (Pltfs.' Mot. at 3.) In so arguing, plaintiffs miscomprehend the correct legal standard under Section 1292(b). As detailed below, when plaintiffs' motion for interlocutory review is viewed under the appropriate legal standards, it is abundantly clear that the motion is entirely without merit and must be denied.

ARGUMENT

Interlocutory appeals are governed by 28 U.S.C. § 1292(b), which "is to be applied sparingly and only in exceptional cases in furtherance of the long-standing federal policy against piecemeal appeals." Hotel Employees & Restaurant Employees Union, Local 2 v. Marriott Corp., No. C-89-2707, 1993 U.S. Dist. LEXIS 16983 (N.D. Cal. Nov. 12, 1993); see also United States Rubber Co. v. Wright, 359 F.2d 784, 785 (9th Cir. 1966) (Section 1292(b) "was to be used only in exceptional circumstances in which allowing an interlocutory appeal would avoid protracted and expensive litigation"); F.D.I.C. v. Jackson-Shaw Partners No. 46 Ltd., No. Civ. 92-20556 SW, 1995 WL 594866 (N.D. Cal. Oct. 4, 1995) (an interlocutory appeal is an exception to "the basic rule that appellate review becomes available only after the entry of a final judgment"). Section 1292(b) strictly limits interlocutory review to those exceptional situations where a party can demonstrate that a disputed order (i) involves a controlling issue of law, (ii) as to which there is substantial ground for difference of opinion and (iii) that an immediate appeal from the order may materially advance the ultimate termination of the litigation. 28 U.S.C. § 1292(b). As movants, plaintiffs bear the burden of demonstrating that each of the three statutory prerequisites to interlocutory review is satisfied and that the case presents the sort of exceptional circumstances justifying a piece-meal appeal. See Mateo v. The M/S Kiso, 805 F. Supp. 792, 799 (N.D. Cal. 1992) ("[t]he party seeking certification of an interlocutory appeal has the burden to show the presence of . . . exceptional circumstances); Arthur Young & Co. v. United States District Court, 549 F.2d 686, 697-98 (9th Cir. 1977) (the "narrow exception to the finality rule cannot be invoked until the district court judgment makes a determination" that the mandates of § 1292(b) are satisfied), cert. denied, 434 U.S. 829 (1977); Cortez v. MTD Prod., Inc., 927 F. Supp. 386, 393-94 (N.D. Cal. 1996) (same); Chiron Corp., v. Abbott Lab., No. C-93-4380 MHP, 1996 U.S. Dist. LEXIS 317, *3 (N.D. Cal. Jan. 3, 1996) (same). Plaintiffs fail to meet their burden with respect to even one of the three prerequisites to a Section 1292(b) interlocutory appeal.

I. The Issue Of Section 11 Standing Is Not A "Controlling Issue Of Law" Because A Reversal Of The Court's Dismissal Order Will Not Be Dispositive Of This Litigation.

In a misplaced effort to satisfy the first requirement under Section 1292(b), plaintiffs contend that the issue of Section 11 standing is a "controlling question of law" allegedly because as a result of the Court's ruling "[p]laintiffs will not be able to take advantage of what is undeniably a more lenient standard of pleading and proof under Section 11." (Pltfs.' Mot. at 7.) Plaintiffs' argument finds no support in the law.2 For purposes of Section 1292(b), the correct legal standard for determining the first prerequisite is as follows: "if reversal of the district court's order would terminate the action, then the question of law contained in the order clearly is 'controlling'." Jackson-Shaw, 1995 WL 594866, at *2. Thus, where a plaintiff is pursuing multiple causes of action, courts generally decline to find that the dismissal of one of those causes of action raises a "controlling issue of law" because a reversal of the interlocutory ruling will not affect the disposition of the remaining claims. Mateo, 805 F. Supp. at 800 (order dismissing "only one claim, not the entire suit" did not raise controlling issue of law because the resolution of that claim on appeal "would have some impact on the case but would not be dispositive"); see also Wright, 359 F.2d at 785 (because issue on appeal was "relevant to only one of several causes of action," appellate court denied interlocutory review because "no disposition [it] might make of [the] appeal on its merits could materially affect the course of the litigation in the district court").

Here, in addition to their Section 11 claims, plaintiffs also are pursuing claims under Section 10(b) of the 1934 Act, which would not be impacted in any way by an interlocutory appeal of the dismissal of plaintiffs' Section 11 claims.3 Under these circumstances, the issues upon which plaintiffs seek interlocutory review cannot be considered "controlling issue[s] of law" for purposes of Section 1292(b). Mateo, 805 F. Supp. at 800; Wright, 359 F.2d at 785; see also Piazza v. Major League Baseball, 836 F. Supp. 269, 270 (E.D. Pa. 1993) (denying interlocutory appeal because a possible controlling issue existed only with respect to one count of a multi-count complaint). For this reason, alone, plaintiffs' interlocutory appeal motion should be denied. But there are additional, compelling reasons why plaintiffs' motion must fail.

II. Plaintiffs Fail To Demonstrate That There Exists A Substantial Ground For Difference Of Opinion As To This Court's Section 11 Standing Analysis.

In support of their request for the extraordinary remedy of an interlocutory appeal, plaintiffs contend that a substantial ground for difference of opinion exists regarding the Section 11 standing analysis employed by this Court. (Pltfs.' Mot. at 8-11.) In so arguing, plaintiffs fail to cite a single case from any court that raises a substantial ground for difference of opinion regarding the issues plaintiffs themselves have framed. Thus, plaintiffs have not cited a single case holding that: (i) Gustafson did not overrule authorities permitting "tracing;" or (ii) Gustafson does not require plaintiffs to purchase their shares "in" the public offering, or within 25 days thereafter. Plaintiffs' cases are either mis-cited, misapplied, entirely irrelevant or readily distinguishable. In fact, there is no substantial ground for difference of opinion on either of the issues as to which plaintiffs seek interlocutory review. Moreover, plaintiffs' arguments on this point are really no more than a verbatim restatement of the very arguments they previously proffered in opposition to defendants' motions to dismiss. As such, these arguments are insufficient as a matter of well-settled law to satisfy plaintiffs' burden under Section 1292(b).

Plaintiffs first contend that "[m]any courts have interpreted § 11's plain text to mean that standing can be based on [tracing]." (Pltfs.' Mot. at 9.) In support of this contention plaintiffs rely exclusively on pre-Gustafson cases. (Id.) Defendants' motions to dismiss and this Court's ruling, however, are premised on Gustafson and post-Gustafson rulings from within and outside this Circuit. And, the very issues on which plaintiffs seek interlocutory review concern the applicability and effect of the Gustafson ruling. (Pltfs.' Mot. at 3.) It is thus incredible, if not plainly nonsensical, for plaintiffs even to suggest that pre-Gustafson cases can somehow raise a substantial ground for difference of opinion regarding the meaning and applicability of Gustafson.

Plaintiffs next contend that "[e]ven after the Supreme Court's Gustafson decision, many courts continue to hold that allegations of tracing remain a viable means of pleading § 11 standing." (Pltfs.' Mot. at 9 (citing Stack v. Lobo, 903 F. Supp. 1361, 1375 (N.D. Cal. 1995), Harden v. Raffensperger, Hughes & Co., 933 F. Supp. 763, 766 (S.D. Ind. 1996); In re Numerex Corp. Sec. Litig., 913 F. Supp. 391, 395 n. 4 (E.D. Pa. 1996)).) None of the cases upon which plaintiffs rely, however, actually supports plaintiffs' position; nor do any of those cases identify a substantial ground for difference of opinion as to the issues identified by plaintiffs.

Plaintiffs cite Stack for the proposition that "§ 11 claims may be brought by plaintiffs who either purchased in the IPO or can trace their shares to the offering." (Pltfs.' Mot. at 9.) However, the portion of Stack upon which plaintiffs so heavily rely is mere dicta, devoid of any analysis. It cannot be ascertained from that portion of the ruling whether the Court was even asked to consider whether "tracing" survived the Supreme Court's ruling in Gustafson. Further, there is no analysis in Stack that actually addresses either of the issues as to which plaintiffs seek interlocutory review. Thus, Stack does not help plaintiffs meet their burden of demonstrating the existence of a substantial ground for difference of opinion.4

Likewise, plaintiffs' reliance on Harden and Numerex is entirely misplaced. Neither of these cases from outside this Circuit even addresses whether investors who purchase in the secondary market have standing under Section 11. Instead, plaintiffs are content to rely on out-of-context blurbs, extracted from dicta in those cases. In Harden, the court invoked "tracing" without even citing Gustafson or addressing whether secondary-market purchasers had standing under Section 11. See 933 F. Supp. at 766. Similarly, the Numerex footnote plaintiffs cite relies on pre-Gustafson cases and invokes "tracing" without even considering whether "tracing" survived Gustafson. See 913 F. Supp. at 394 n.4. Thus, contrary to plaintiffs' assertions, none of the cases plaintiffs cite is sufficient to demonstrate the existence of a substantial ground for difference of opinion on either of the issues as to which plaintiffs seek certification of an interlocutory appeal. See Arnold v. United Artists Theatre Circuit, Inc., 158 F.R.D. 439, 465 (N.D. Cal. 1994) (Section 1292(b) movant cannot establish a "substantial difference of opinion" by quoting a passage from a case that "is not a holding, or even dictum, but simply a hint contained in an order dismissing a grant of certiorari"); see also In re Brand Name Prescription Drugs Antitrust Litig., 878 F. Supp. 1078, 1082 (N.D. Ill. 1995) (declining to certify interlocutory appeal, noting that the cases movants relied on to show a "substantial difference of opinion" "do not even arguably address" the issue at hand when taken in context).

Even assuming arguendo that the Court were to accept plaintiffs' descriptions of the cases as the actual holdings thereof, it would not necessarily follow that there exists a substantial ground for difference of opinion. See North Carolina ex. rel Howes v. Peele, 889 F. Supp. 849, 852 (E.D.N.C. 1995) ("a court is not bound to find reasonable cause for disagreement whenever authorities lack unanimity"); Hotel Employees, 1993 U.S. Dist. LEXIS 16983 at *4 (no substantial difference of opinion because "[t]his is not a case where several districts in this circuit are in disagreement on the issue; nor have any districts resolved the question in apparent contradiction with results reached in the Ninth Circuit. Further, even an absence of direct authority does not invariably establish a substantial ground for difference of opinion under the statute"). Moreover, as even plaintiffs concede, the Court's ruling enjoys ample support. (Pltfs.' Mot. at 10-11.) Indeed, all the cases that have actually considered Gustafson and the issue of "tracing" have all concluded, as did this Court, that Section 11 confers standing only on those investors who actually purchase in the initial public offering. Thus, even assuming plaintiffs' authorities are as plaintiffs claim them to be, the Court can be assured that its ruling is on firm ground and not susceptible to reversal. For this reason also, the issues identified by plaintiffs are not appropriate for interlocutory review. See In re Brand Name Prescription Drugs, 878 F. Supp. at 1082 ("[w]here a controlling court of appeals has not decided an issue, it must still be demonstrated that a substantial likelihood exists that the district court ruling will be reversed on appeal").

The remainder of plaintiffs' arguments do nothing to support their burden of demonstrating that substantial grounds for a difference of opinion exist on the issues at hand. (Pltfs.' Mot. at 10-15.) Rather, those arguments simply repeat the very same contentions contained in plaintiffs' briefs in opposition to defendants' motions to dismiss. Thus, plaintiffs simply rehash their earlier arguments regarding the "plain meaning" of Section 11 and reargue that tracing is sufficient to confer standing under Section 11. (Id. at 10-13.)5 This Court has already considered and rejected each of those arguments. No matter how vehemently plaintiffs disagree with this Court's ruling, "[a] party's strong disagreement with the Court's ruling is not sufficient for there to be a substantial ground for difference [of opinion on the issue.]" Mateo, 805 F. Supp. at 800; see also Hotel Employees, 1993 U.S. Dist. LEXIS 16983 at *10-11 (denying interlocutory appeal, noting that defendant was "simply seeking early reevaluation of this court's rejection of [defendant's theory] . . . while [defendant] may disagree with the court's ultimate conclusion, the question is not so close or so novel to justify the additional delay and expense that would result from an interlocutory appeal"); Chiron Corp., 1996 U.S. Dist. LEXIS 317 at *5 ("[t]his court is unwilling, under the guise of a motion for interlocutory appeal, to rehash its rationale" where the defendant argues that the court "simply misinterpreted the applicable law and therefore applied the wrong standard"); Philan Ins. Ltd. v. Frank B. Hall & Co., 755 F. Supp. 94, 95-96 (S.D.N.Y. 1991) (no "substantial ground for difference of opinion" where defendants offered no authority demonstrating a difference of opinion and defendants merely sought to relitigate the issues already decided).

Accordingly, because plaintiffs have failed to demonstrate that there is substantial ground for difference of opinion as to this Court's dismissal of their Section 11 claims, plaintiffs have failed to satisfy the second prerequisite to obtaining certification of an interlocutory appeal pursuant to Section 1292(b). For this reason, also, plaintiffs' interlocutory appeal motion should be denied.

III. An Interlocutory Appeal Will Not Materially Advance The Termination Of This Case Because Plaintiffs Will Be Required, In Any Event, To Plead And Prove Their Wholly Independent Section 10(b) Claims.

Plaintiffs argue that an immediate appeal of the dismissal of their Section 11 claims will materially advance the termination of this litigation because, if the case proceeds to trial and results in a jury verdict unfavorable to plaintiffs "because of a purported lack of scienter," and if plaintiffs subsequent appeal to the Ninth Circuit on the Section 11 dismissal is successful, then plaintiffs' Section 11 claims "would be sent back to this Court to be re-tried, resulting in months of discovery, motion practice and trial." (Id. at 15-16.) Plaintiffs' contorted hypothetical scenario not only miscomprehends the appropriate legal standard, it also is without merit.

For purposes of Section 1292(b), "[w]hen litigation will be conducted in substantially the same manner regardless of our decision, the appeal cannot be said to materially advance the ultimate termination of the litigation." White v. Nix, 43 F.3d 374, 378-79 (8th Cir. 1994); see also In re Brand Name Prescription Drugs Antitrust Litig., 878 F. Supp. at 1082-83 (the fact that regardless of whether plaintiffs may seek damages under § 4 of the Clayton Act, they may still pursue injunctive relief under § 16 is significant because "where the pertinent question is relevant only to one of several claims, the courts have held that an immediate appeal will not materially advance the termination of the case, and interlocutory appeal should be denied"); Mateo 805 F. Supp. at 799 (no exceptional circumstances warranting interlocutory appeal because "[e]ven if the Ninth Circuit ruled in favor of the plaintiffs, this matter would still have to be tried in a substantially similar fashion"); Zygmuntowicz v. Hospitality Inv., Inc., 828 F. Supp. 346, 353-54 (E.D. Pa. 1993) (interlocutory appeal would not materially advance the litigation because it would not "(1) obviate the need for a trial; (2) eliminate complex issues thereby greatly simplifying the trial; or (3) eliminate issues thus making discovery much easier and less costly"); Orson, Inc. v. Miramax Film Corp., 867 F. Supp. 319, 322 (E.D. Pa. 1994) (denying interlocutory appeal because "an immediate appeal would not eliminate the need for a trial, [i]ndeed a trial will most likely occur on the remaining issued in this action regardless of the outcome of any interlocutory appeal . . . and an appellate order vacating this Court's order and remanding the matter back to the district court, would serve to add, and not eliminate, issues for disposition at trial").

This litigation will be conducted in substantially the same fashion regardless of the disposition of plaintiffs' interlocutory appeal. First, the only issues on appeal would relate to whether plaintiffs have standing to pursue claims under Section 11. The determination of those standing issues is irrelevant to the litigation of plaintiffs' Section 10(b) claims, which do not implicate any similar standing analysis. Moreover, the Section 10(b) claims impose pleading and proof burdens on such elements as scienter, reliance and damages that are not part of plaintiffs' Section 11 claims. (Pltfs.' Mot. at 5-7.)

Second, because the parties will necessarily be litigating each of the elements of plaintiffs' Section 11 claims during the course of litigating the Section 10(b) claims, even under plaintiffs' contorted hypothetical, there would likely be no real savings resulting from an immediate appeal. If interlocutory review is denied and the parties litigate the Section 10(b) claims to a jury verdict and the jury finds in favor of defendants because of, for example, a lack of scienter, then if plaintiffs prevail in a subsequent appeal on the Section 11 standing issue, the parties and the Court could deal with the need for further proceedings on the Section 11 claims on the basis of the evidence already adduced. On the other hand, if interlocutory review is denied and the defendants prevail on the Section 10(b) claims because, for example, plaintiffs are unable to prove that any of defendants' representations were false when made, then plaintiffs' proposed appeal of the Section 11 standing issues would necessarily be rendered moot. Likewise, if interlocutory review is denied and the plaintiffs prevail on their Section 10(b) claims then, a Section 11 appeal would also be mooted because plaintiffs could recover all their alleged damages via their Section 10(b) claim.

In sum, given the interplay between plaintiffs' Section 10(b) and Section 11 claims, an immediate appeal of the Section 11 standing issue will materially advance the termination of this litigation. White, 43 F.3d at 378-79; see also In re Brand Name Prescript WIDTH="100%" > Dated: January 2, 1998 Respectfully submitted,

JONES, DAY, REAVIS & POGUE

                /s/
By______________________________
     Gerald W. Palmer

Attorneys for Defendants
DIGNITY PARTNERS, INC., et al.

1 The Court thus agreed with defendants that even assuming the SEC's prospectus delivery rules extend the protection of Section 11, none of the plaintiffs has standing because Dignity was subject to the SEC's prospectus delivery requirements for only 25 days and each plaintiff purchased his shares beyond that 25-day period. See 15 U.S.C. § 77d(3)(B); 17 C.F.R. § 230.174(d); see also Murphy v. Hollywood Enter. Corp., No. Civ. 95-1926-MA, 1996 WL 393662 (D. Or. May 9, 1996); Levitin v. A Pea in the Pod, Inc., No. 3:94-CV-0247-D, 1997 WL 160184 (N.D. Tex. Mar. 31, 1997).

2 Equally without merit is plaintiffs' contention that "an issue is 'controlling' if interlocutory reversal might save time for the district court, and time and expense for the litigants." (Pltfs.' Mot. at 4.) The Ninth Circuit expressly "reject[ed] this approach." In re Cement Antitrust Litig., 673 F.2d 1020, 1027 (9th Cir. 1982) ("[s]ome courts have adopted the view that a question is controlling if it is one the resolution of which may appreciably shorten the time, effort, or expense of conducting a lawsuit, . . . essentially reading the 'controlling question of law' requirement out of section 1292(b)"), aff'd, Arizona v. Ash Grove Cement Co., 459 U.S. 1190 (1983).

3 The Court has twice dismissed plaintiffs' Section 10(b) claims because plaintiffs have failed to plead scienter as required by the Reform Act. Plaintiffs' Second Amended Complaint is due to be filed on January 5, 1998. If plaintiffs are yet again unsuccessful in pleading a Section 10(b) cause of action, this entire matter will likely be concluded, at which time plaintiffs would be free to appeal the dismissal of both sets of claims to the Ninth Circuit without burdening the courts or the parties with piece-meal appeals.

4 More significantly, and contrary to the position staked out by plaintiffs, Stack supports this Court's conclusion that the Supreme Court's analysis in Gustafson can be extended to Section 11. Indeed, relying entirely on Gustafson, the court in Stack actually held that Section 11 "is not applicable to aftermarket transactions." Stack, 903 F. Supp. at 1376.

5 Remarkably, plaintiffs also reassert the erroneous argument that because Sections 12 and 11 of the Securities Act of 1933 are different, the Gustafson analysis does not extend to Section 11. (Id. at 13-15.) Plaintiffs do not cite a single case that contradicts this Court's conclusion, and the conclusion of numerous other courts, that Gustafson's analysis regarding standing under Section 12(2) applies equally to Section 11. Stack, 903 F. Supp. at 1375-76; Lilley v. Charren, No. C-95-3450 (SI) slip op. at 3-4 (N.D. Cal. Mar. 24, 1997); In re AHI Healthcare Systems, Inc. Sec. Litig., No. 95-8658, slip op. at 4 (C.D. Cal. Jan. 19, 1997); In re Wrt Energy Sec. Litig., [Current Binder] Fed. Sec. L. Rep. (CCH) ¶ 99,560 at 97,790 (S.D.N.Y. 1997) ("[this]Court therefore agrees with the other district courts which, following Gustafson, have held that standing under section 11, as under section 12(a)(2), is limited to those who purchase their securities in a public offering"). In the face of this unanimous authority, even plaintiffs do not seek interlocutory review on this issue. (See Pltfs.' Mot. at 3 (identifying issues as to which "[a]ppellate guidance is needed").)
 

Source: Computer file from Jones, Day, Reavis & Pogue