The opinion of the court was delivered by: William H. Walls, District Judge
Ernst & Young ("E&Y") moves to certify this Court's May 7, 2001 opinion
for immediate appeal under 28 U.S.C. § 1292(b). That opinion held
that under the standard delineated by the Third Circuit in Semerenko v.
Cendant Corp., 223 F.3d 165 (3d Cir. 2000), plaintiffs in the
above-consolidated cases had sufficiently established the "in connection
with" element of a claim under Section 10(b) of the Securities Exchange
Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5,
17 C.F.R. § 240.10b-5. Pursuant to Fed.R.Civ.P. 78, this motion is
decided without oral argument and is denied.
Plaintiffs are the class of investors who purchased shares of American
Bankers Insurance Group, Inc. ("ABI") stock between January 27, 1998 and
October 13, 1998 after an announcement by Cendant that it would purchase
ABI. Cendant made a tender offer for the purchase of ABI after a bidding
war with American International Group, Inc. ("AIG"). Cendant filed a
Schedule 14D-1 with the SEC on January 27, 1998, which included an offer
by its subsidiary Season Acquisition Corp. to purchase ABI. Cendant later
filed several amendments to the 14D-1 from March 1998 until October
1998. Plaintiffs allege that they purchased ABI stock in reliance on the
materially false and misleading information contained in Cendant's offer
to purchase, its 14D-1 schedules, and other documents and press releases
related to the tender offer. They contend that Cendant's false and
misleading statements caused the artificial inflation of the price of
ABI's shares and that the true value of the securities they purchased was
lower than they paid. This Court originally dismissed plaintiffs' claims
under Section 10(b). See P. Schoenfeld Asset Management, LLC 47 F. Supp.
d 546 (D.N.J. 1999) ("Schoenfeld I"). This Court held, among other
things, that plaintiffs had failed to satisfy the "in connection with"
element of Section 10(b) and Rule 10b-5. Plaintiffs appealed, and the
Third Circuit reversed. The Circuit held, among other things, that the
Court should have applied the standards enunciated by Second and Ninth
Circuits when the alleged fraud involves the public dissemination of
allegedly misleading financial information. See Semerenko, 223 F.3d at
176, citing In re Ames Dep't Stores Inc. Stock Litig., 991 F.2d 953,
956, 965-66 (2d Cir. 1993); McGann v. Ernst & Young, 102 F.3d 390, 392-93
(9th Cir. 1996). The Semerenko Court observed that those cases held that
223 F.3d at 176. Accordingly, the Circuit directed this Court to
determine whether "the misrepresentations in question were disseminated
to the public in a medium upon which a reasonable investor would rely,
and that they were material when disseminated." Id. In addition, in
response to E&Y's petition for rehearing, the Circuit held that for E&Y's
alleged misrepresentations in its financial statements and audit reports
to be considered "in connection with" the purchase of ABI stock,
plaintiffs would be required to establish that E&Y "knew, or that it had
reason to know, that Cendant would use its financial statements and audit
reports when making the tender offer for shares of ABI common stock."
Id. at 177. This Court found that because the company's SEC filings
— which were incorporated by reference into the tender offer
documents — were the type of information upon which reasonable
investors would tend to rely, and it was foreseeable that financial
statements would be incorporated by reference into tender offer
documents, plaintiffs had established the "in connection with"
requirement. Schoenfeld II, 2001 WL 477096, *8-9.
E&Y argues first that this Court misapplied the standard articulated in
the Third Circuit's opinion with regard to foreseeability with regard to
the 1995 and 1996 financial statements, and that this is a controlling
question of law as to which there is a substantial ground for dispute
which, if reversed, would materially advance the resolution of the
litigation. According to E&Y, the foreseeability standard this Court used
on remand was broader than what the Third Circuit articulated, because
the Circuit stated that it would have to be foreseeable to E&Y at the
time the statements were disseminated that the statements might be
incorporated into tender offer documents for shares of ABI stock. Because
the 1995 and 1996 financial statements were disseminated before the
tender offer, claims based upon those financial statements cannot have
been foreseeable to E&Y.
Second, E&Y contends the Court erroneously applied the "in connection
with" test as to the claims based upon the 1997 financial statements,
which were issued publicly on March 31, 1998 but were never included in
any of the tender offer documents or used by Cendant to solicit the
purchase of ABI stock.
Plaintiffs respond that both of E&Y's issues are not controlling issues
of law and that there is no substantial ground for a difference of
dispute as to the Court's holdings on those issues. Plaintiffs contend
that E&Y's ground for dispute is only E&Y's own disagreement with this
Court's interpretation of the standard enunciated by the Circuit.
Moreover, plaintiffs argue that the 1997 financial statements stand on
their own in the public domain. Because of this, plaintiffs maintain that
an immediate appeal will not eliminate the need for a trial and thus
would not materially advance the termination of the litigation.
Standard for Certification for Immediate Appeal Under
28 U.S.C. § 1292(b)
Before an order is certified for appeal, the district court must
determine that the following conditions are met:
(1) The order involves a controlling question of law,
(2) as to which there is a substantial ground for a