Puddu v. NYGG, LTD.

Background

Benjamin Wey was a defendant in the plaintiffs’ securities-fraud action concerning 6D Global Technologies, Inc. Wey filed a third-party complaint against BDO USA, LLP, which had audited 6D’s financial statements, and Adam Hartung, the chair of 6D’s audit committee. Wey alleged that BDO and Hartung negligently or recklessly caused NASDAQ to deny 6D’s appeal from its delisting, leading to losses for which Wey was being sued. He sought contribution and indemnification.

The plaintiffs’ Second Amended Complaint did not assert claims against BDO or Hartung. Wey’s First Amended Third-Party Complaint nevertheless included brief allegations that the third-party defendants violated Section 10(b) of the Securities Exchange Act. In opposing dismissal, Wey abandoned the theory that BDO and Hartung were liable for contribution because they had committed their own securities-law violations. Instead, he argued that New York law allowed contribution based on their alleged negligence or recklessness.

Legal standards

The court applied the standard for a motion to dismiss for failure to state a claim. A complaint must allege enough facts to make the requested relief plausible, and the court generally assumes well-pleaded factual allegations are true when deciding such a motion. Federal Rule of Civil Procedure 14 allows a defendant to bring in a nonparty that may be liable for all or part of the claim against the defendant, including through contribution or indemnification. Impleader is not proper merely because the third-party defendant may be liable directly to the original plaintiff.

Contribution

Contribution allows a defendant to recover a proportionate share of a judgment from other joint wrongdoers whose conduct contributed to the plaintiff’s injury and who are also liable to the plaintiff. Under the securities laws, the court explained, contribution is available only among parties who together defrauded the plaintiff. Because Wey did not allege that BDO or Hartung participated in the securities fraud asserted against him, he could not state a federal securities-law contribution claim.

The court also rejected Wey’s attempt to use New York contribution law instead. It explained that courts in the circuit had repeatedly held that, when a defendant is sued under federal law, the lack of a federal contribution remedy prevents reliance on a potentially broader state-law contribution remedy. The court therefore dismissed Wey’s contribution claims against BDO and Hartung.

Indemnification

Common-law indemnification allows a party held vicariously liable—liable for another person’s conduct without having independently acted negligently—to seek reimbursement from the person responsible. It is not available for a party’s own reckless, willful, or criminal misconduct, including alleged securities fraud. The court reasoned that Wey either would be found liable for his own conduct, in which case indemnification would be unavailable, or would not be found liable, in which case there would be nothing to indemnify.

Disposition

The court granted BDO’s and Hartung’s October 29, 2021 motions to dismiss. It dismissed the First Amended Third-Party Complaint. The opinion did not state that the dismissal was with or without prejudice.