J. Contribution and Indemnity Issues

• Library: South Carolina Damages (SCBar) (2009 Ed.)

J. Contribution and Indemnity Issues

1. Contribution

Congress gave contribution rights in actions brought under sections 9 and 18 of the Exchange Act,¹¹² as well as section 11 of the Securities Act.¹¹³ An implied right to contribution has been recognized under section 10(b) and Rule10b-5.¹¹⁴ No congressionally created express right to contribution exists under for section 12 of the Securities Act.¹¹⁵ The same is true for claims brought under section 16 of the Exchange Act,¹¹⁶ or section 20A of the Exchange Act.¹¹⁷

Under the South Carolina Securities Act any person liable thereunder has an express right of contribution against any other person liable under the statute "for the same conduct."¹¹⁸ Likewise, contribution may be available as to common law claims.

However, defendants sued in a case covered by the PSLRA can invoke special protection as "covered persons" under that act, and title 15, section 78u-4(g)(10)(C)(I) of the United States Code, with the result that all related contribution claims from non-settling parties would be barred, even if they arose under state law.¹¹⁹ To eliminate prejudice that a joint and severally liable non-settling defendant might incur as a result of having its contribution rights eliminated, the PSLRA contains an offset providing that any judgment subsequently obtained against non-settling parties shall be reduced by the greater of (1) an amount corresponding to the settling party's percentage of responsibility, or (2) the dollar amount paid by the settling party.¹²⁰

2. Indemnity

As a general rule, "Indemnity between Securities Act violators is rare."¹²¹ There are reasons for this. Indemnity rights stem from contracts and are subject to the principle, discussed in the introduction to this section, that contractual claims contrary to public policy are void in South Carolina. The securities laws function as in terrorem legislation, converting the policy of caveat emptor to caveat venditor.

Because the securities laws put the onus on participants in securities transactions to tell the truth, courts have tended to disfavor indemnity provisions that enable wrongdoers to escape liability for securities law violations.¹²²

More recently, in Lucas v. Hackett Assoc., Inc.,¹²³ the court held that a party was not entitled to indemnity for federal securities law violations, including those "clothed as state law tort claims." However, the court refused to enter an order barring a state court from proceeding on an indemnity claim...