ORDER OVERRULING OBJECTION OF DEFENDANT CRUTTENDEN & COMPANY TO JOINT LEGAL MEMORANDUM OF PLAINTIFFS AND WILSHIRE TECHNOLOGIES, INC. ON CONTRACTUAL INDEMNITY CLAIMS
[Document # 97]
On May 8, 1995, the above captioned matter came on regularly for hearing before the Honorable Rudi M. Brewster. Patrick J. Coughlin, Esq. appeared on behalf of plaintiffs. Defendant Wilshire Technologies ("Wilshire") was represented by Robert S. Stern, Esq., and defendant Cruttenden & Company, Inc. ("Cruttenden") was represented by Timothy B. Taylor, Esq. After due consideration of the papers filed both in support of and in opposition to Cruttenden's objection to plaintiffs' and Wilshire's Joint Legal Memorandum on Contractual Indemnity Claims, as well as oral argument offered at the hearing, the Court hereby OVERRULES Crittenden's objections.
This is a securities fraud action brought on behalf of all purchasers of stock in defendant Wilshire Technologies ("Wilshire") during the period between November 24, 1992 and March 14, 1994. On March 14, 1994, Wilshire announced that due to accounting improprieties, it was restating its previously reported 1993 profits and would instead report a massive loss. On March 28, 1994, Wilshire announced an unaudited loss of $ 4,532,000, or $ .139 per share for fiscal 1993, as compared to the previously reported net earnings of $ 2,057,000, or $ .54 a share announced on January 21, 1994.
As a result of the above events, a number of related actions were filed, and all have been consolidated before this Court. Among the numerous defendants named in the action are Cruttenden & Company, Inc. ("Cruttenden"), the managing underwriter for the initial public offering of Wilshire stock on November 24, 1992, and William Gibson ("Gibson"), an analyst employed by Cruttenden. The Complaint alleges that Cruttenden agreed to participate in the violations of the securities laws, and that Gibson was involved in the preparation of written reports and recommendations regarding the purchase of Wilshire stock.
On January 13, 1995, the parties stipulated to a dismissal of defendant Gibson without prejudice, and the Court entered an order thereon. On March 10, 1995, plaintiffs stipulated to a dismissal without prejudice of defendants Ernst & Young and Cruttenden, and the Court entered an order thereon.
On April 10, 1995, plaintiffs filed a motion for final approval of the settlement with Wilshire. In support of plaintiffs' motion for final approval of settlement, plaintiffs and Wilshire submitted a Joint Legal Memorandum Re Effect of Bar Order on Contractual Indemnity Claims. The hearing on the motion for final approval of settlement was originally scheduled for April 17, 1995. However, on April 13, 1995, Cruttenden filed an objection to the Joint Legal Memorandum of Plaintiffs and Wilshire Technologies. The Court continued the hearing until May 8, 1995 to allow Cruttenden to brief fully its opposition to the bar order in the settlement between plaintiffs and Wilshire.
Paragraph 12 of the Proposed Judgment between plaintiffs and Wilshire provides:
upon the Effective Date, all claims for contribution or indemnification, however denominated, against the Settling Defendant arising under the federal securities laws or state law in favor of persons, including any Non-Settling Defendant, who are asserted to be joint tortfeasors with the Settling Defendant in the Released Claims, are hereby extinguished, discharged, and barred. In the event of a trial against the Non-Settling Defendants, its liability shall be limited in the manner set forth in Franklin v. Kaypro Corp., 884 F.2d 1222 and other applicable case law.
Defendant Cruttenden opposes this bar order on the grounds of the Underwriting Agreement between Wilshire and Cruttenden, in which Wilshire agreed to
hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any representation, warranty, agreement or covenant of the Company herein contained or any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and . . to reimburse each Underwriter for any legal or other expense reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action . . .