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Special Situations Fund, III, LP v. Cocchiola

January 25, 2007

RE: SPECIAL SITUATIONS FUND, III, LP
v.
COCCHIOLA, ET AL.



Appeal of Magistrate's July 31, 2006 Order Granting Plaintiffs' Motion to Amend the Complaint.

The opinion of the court was delivered by: William H. Walls William H. Walls, U.S.D.J.

Chambers of William H. Walls District Judge (973) 645-2564 (973) 645-3436 Fax

Martin Luther King Jr. Federal Courthouse 50 Walnut Street Newark, New Jersey 07102

NOT FOR PUBLICATION

LETTER OPINION

ORIGINAL ON FILE WITH CLERK OF COURT

Dear Litigants:

This matter comes before the Court on appeal by appellant-defendant BDO Seidman, LLP ("BDO Seidman") from Magistrate Judge Hedges' July 31, 2006 order granting respondent-plaintiffs Special Situations Fund, III, L.P.'s and Special Situations Fund Cayman, L.P.'s ("The SSF Plaintiffs") motion to amend their complaint. Pursuant to Fed. R. Civ. P. 78, the Court decides this appeal without oral argument. Magistrate Judge Hedges' order is affirmed.

FACTS AND PROCEDURAL HISTORY

BDO Seidman, an accounting firm, is one of numerous defendants in litigation concerning fraud, negligence, and recklessness connected to public stock offerings by Suprema Specialties, Inc., a manufacturer and marketer of cheese products. BDO Seidman was Supreme Specialties' outside auditor during the period of the alleged fraud.

The SSF Plaintiffs are two institutional investors who, alongside other plaintiffs, have brought actions in the District of New Jersey for damages against BDO Seidman, Suprema's former officers and directors, and several investment firms that served as underwriters in two public stock offerings through which plaintiffs claim to have acquired Suprema stock. The SSF Plaintiffs asserted claims for relief under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act"), and Sections 10(b), 18, and 20 of the Securities and Exchange Act of 1934 (the "Exchange Act"), along with fraud and misrepresentation claims under state law. On defendants' motions, this Court dismissed all claims pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, as well as provisions of the Private Securities Litigation Reform Act ("PSLRA"). In particular, this Court dismissed the SSF Plaintiffs' Section 18 claim because they failed to allege they had relied upon the defendants' misrepresentations.*fn1 This Court did not specify that the dismissal was with or without prejudice.

Though they could have moved for leave to amend the complaint, the plaintiffs elected to appeal this Court's dismissal of the complaints to the Court of Appeals for the Third Circuit. The Court of Appeals reversed this Court's order to dismiss the claims under Sections 11 and 12(a)(2) of the Securities Act and Section 10(b) of the Exchange Act as to at least some of the defendants, including BDO Seidman. The Court of Appeals affirmed this Court's dismissal of the Section 18 claim against all defendants.

On June 2, 2006, the SSF Plaintiffs moved before this Court to amend their complaint. Among other amendments, the SSF Plaintiffs sought to correct their Section 18 pleading by asserting that they had in fact relied upon the misrepresentations made by BDO Seidman. On July 31, 2006, Magistrate Judge Hedges issued an order granting the SSF Plaintiffs' request to amend their complaint.

BDO Seidman now appeals Magistrate Judge Hedges' July 31, 2006 order, claiming that the order was contrary ...


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