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Last Call for Non-Proportionate Bar Orders

By Ralph Ferrara and Alycia Kellman

The means by which courts implement bar orders in securities class actions continue to evolve. Currently, courts use three widely recognized methods to calculate the judgment reduction credit given to a non-settling defendant who is barred from pursuing contribution claims from a settling defendant. One method, pro rata, has already lost favor in the courts and in the near future, the second method, pro tanto, will most likely fall from grace as well. In contrast to the first two, the last method, proportionate fault, is rising in popularity due to its greater likelihood of leading to equitable results. It is, therefore, last call to those seeking to have their bar order filled by anything other than the proportionate fault method.

There can be various types of bar orders, both statutory and judicially crafted ones. Statutory bar orders under the Private Securities Litigation Reform Act (PSLRA) give non-settling defendants a mix of pro tanto and proportionate responsibility, where, regardless of what happens, they will receive a judgment reduction in an amount at least as great as the amount paid by the settling defendants and no more than required by their actual liability. A similar methodology was used in the Second Circuit's Gerber v. MTC Elec. Techs. Co., 329 F.3d 297 (2nd Cir. 2003). However, it appears likely that in the near future, the Second Circuit and others will adopt the proportionate method as a unified means to calculate judgment credit reductions. A brief overview of the three methods will be detailed below, followed by a description of the Gerber and Denney cases from the Second Circuit and an explanation of why the trend towards a single method of serving bar orders should be welcomed.

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