Musick, Peeler & Garrett v. Employers Ins. of Wausau

1993-06-01

Headline: Court allows defendants in securities fraud lawsuits to demand contribution from other jointly responsible parties, making it easier for insurers and professionals to seek shared payment of settlements.

Holding: The Court held that people or companies sued under the federal securities fraud rule (Rule 10b-5) may, as a matter of federal law, seek contribution from other jointly responsible parties.

Real World Impact:

Allows insurers to sue other responsible parties for part of securities settlements.
Makes it easier for lawyers and accountants to be required to share liability costs.
Applies a uniform federal rule for contribution in Rule 10b-5 cases.

Topics: securities fraud, insurance and contribution, professional liability, stock offerings

Summary

Background

A company made a public stock offering and investors sued in a class action, accusing officers, underwriters, and others of misleading disclosures. Several named defendants settled for $13.5 million. Insurers who paid most of that settlement, standing in the insureds’ shoes, then sued the offering’s attorneys and accountants to recover part of the settlement as contribution.

Reasoning

The Court addressed whether people sued under the federal securities rule known as Rule 10b-5 can seek contribution from others who share responsibility. The majority reasoned that courts implied the 10b-5 private right of action long ago and that two explicit sections of the securities laws (Sections 9 and 18) include contribution rights. Because those sections are similar in purpose and operation to 10b-5, the Court concluded a contribution right fits within the federal 10b-5 scheme and affirmed the lower court.

Real world impact

The ruling means insurers, companies, and defendants in many securities fraud suits can bring federal contribution claims to shift settlement costs to other jointly responsible parties. The Court did not decide whether any particular professional was actually liable here; it only recognized the federal right to seek contribution, leaving fact-specific disputes for later proceedings.

Dissents or concurrances

A three-Justice dissent argued judges should not create a new cause of action absent clear congressional authorization, and warned the decision expands private 10b-5 suits beyond what Congress or the SEC intended.