Roland v. Green
| Decision Date | 19 March 2012 |
| Docket Number | 11–11031 and 11–11048.,Nos. 11–10932,s. 11–10932 |
| Parties | James ROLAND; Michael J. Giambrone; Thomas E. Bowden, Individually and on Behalf of Thomas E. Bowden S.E.P. I.R.A.; T.E. Bowden, Sr., Ret. Trust; G. Kendall Forbes, Individually and on Behalf of G. Kendall Forbes I.R.A.; et al., Plaintiffs–Appellants, v. Jason GREEN; Charles Jantzi; Tiffany Angelle; James Fontenot; Thomas Newland; Grady Layfield; Hank Mills; John Schwab; Russ Newton; Jim Weller; SEI Investments Company; Certain Underwriters at Lloyds London, in Syndicates 2987, 1866, 1084, 1274, 4000 & 1183; et al., Defendants–Appellees.Leah Farr; et al., Plaintiffs–Appellants, v. Jason Green; Dirk Harris; Timothy E. Parsons; Charles Jantzi; Tiffany Angelle; Grady Layfield; Hank Mills; John Schwab; Russ Newton; Jim Weller; SEI Investments Company; Certain Underwriters at Lloyds London, in Syndicates 2987, 1866, 1084, 1274, 4000 & 1183; et al., Defendants–Appellees.Samuel Troice; Horacio Mendez; Annalisa Mendez; Punga Punga Financial, Limited, individually and on behalf of a class of all others similarly situated, Plaintiffs–Appellants, v. Proskauer Rose, L.L.P.; Thomas V. Sjoblom; P. Mauricio Alvarado; Chadbourne and Parke, L.L.P., Defendants–Appellees.Samuel Troice; Martha Diaz; Paula Gilly–Flores; Punga Punga Financial, Limited, Individually and on behalf of a class of all others similarly situated; Promotora Villa Marino, CA; Daniel Gomez Ferreiro; Manuel Canabal, Plaintiffs–Appellants, v. Willis of Colorado Incorporated; Willis Group Holdings Limited; Amy S. Baranoucky; Robert S. Winter; Bowen, Miclette & Britt, Incorporated; Willis Limited, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
OPINION TEXT STARTS HERE
Phillip W. Preis (argued), Crystal DiBenedetto Burkhalter, Charles Malcolm Gordon, Jr., Caroline Preis Graham, Preis Gordon, A.P.L.C., Baton Rouge, LA, Edward Frazer Valdespino, Judith R. Blakeway, Andrew L. Kerr, Strasburger, Price, Oppenheimer, Blend, Edward C. Snyder, Castillo Snyder, P.C., San Antonio, TX, Douglas J. Buncher, Neligan Foley, L.L.P., Peter Michael Jung (argued), David Norman Kitner, Strasburger & Price, L.L.P., Dallas, TX, for Plaintiffs–Appellants.
Donna Garbarino Schwab, Kyle Christian Marionneaux, Heather S. Duplantis, Marshall M. Redmon, Phelps Dunbar, L.L.P., Baton Rouge, LA, Gordon Cooney, Jr., Managing Sr. Counsel (argued), Morgan, Lewis & Bockius, L.L.P., Philadelphia, PA, Allyson Newton Ho, Morgan, Lewis & Bockius, L.L.P., Neil N. Burger, Bruce William Collins, Carrington, Coleman, Sloman & Blumenthal, L.L.P., William Bryan Mateja, Fish & Richardson, P.C., William D. Sims, Jr., Vinson & Elkins, L.L.P., Margaret Michelle Hartmann, Yvette Ostolaza, Weil, Gotshal & Manges, L.L.P., Bradley Wayne Foster, Matthew Griffith Nielsen, Andrews Kurth, L.L.P., Dallas, TX, James Paul Rouhandeh (argued), Rajesh Sebastian James, Daniel Jacob Schwartz, Davis, Polk & Wardwell, L.L.P., Daniel Jacob Beller, Daniel J. Leffell, William B. Michael, Paul, Weiss, Rifkind, Wharton & Garrison, L.L.P., Jonathan D. Polkes (argued), Weil, Gotshal & Manges, L.L.P., New York City, Mindy Lynn Caplan, McKenna, Long & Aldridge, L.L.P., Washington, DC, David Keith Isaak, David Benjamin Gerger, Gerger & Clarke, Harry Max Reasoner, Vinson & Elkins, L.L.P., Mark Daniel Manela, Mayer Brown, L.L.P., Paul Kenneth Nesbitt, Kelly, Sutter & Kendrick, P.C., Houston, TX, David Philip Whittlesey, Trial Atty., Andrews Kurth, L.L.P., Austin, TX, for Defendants–Appellees.
John J. Little, Little, Pedersen, Fankhauser, L.L.P., Dallas, TX, for John J. Little and Official Stanford Investors Committee, Amici Curiae.Ben L. Krage, Krage & Janvey, L.L.P., Dallas, TX, for Ralph S. Janvey, Amicus Curiae.Royal B. Lea, III, Bingham & Lea, P.C., San Antonio, TX, for Public Investors Arbitration Bar Ass'n, Amicus Curiae.Edward C. Snyder, Castillo Snyder, P.C., San Antonio, TX, for Certain Members of Congress, Amicus Curiae.Appeals from the United States District Court for the Northern District of Texas.
Before REAVLEY, DAVIS and PRADO, Circuit Judges.
This consolidated appeal arises out of an alleged multi-billion dollar Ponzi scheme perpetrated by R. Allen Stanford through his various corporate entities. These three cases deal with the scope of the preclusion provision of the Securities Litigation Uniform Standards Act (“SLUSA”). That provision states: “No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” 15 U.S.C. § 78bb(f)(1)(A). All three cases seek to use state class-action devices to attempt to recover damages for losses resulting from the Stanford Ponzi scheme. Because we find that the purchase or sale of securities (or representations about the purchase or sale of securities) is only tangentially related to the fraudulent schemes alleged by the Appellants, we hold that SLUSA does not preclude the Appellants from using state class actions to pursue their recovery and REVERSE.
In 1995, because of “perceived abuses of the class-action vehicle in litigation involving nationally traded securities,” Congress passed the Private Securities Litigation Reform Act (“PSLRA”). Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006). “Its provisions limit recoverable damages and attorney's fees, provide a ‘safe harbor’ for forward-looking statements, impose new restrictions on the selection of (and compensation awarded to) lead plaintiffs, mandate imposition of sanctions for frivolous litigation, and authorize a stay of discovery pending resolution of any motion to dismiss.” Id. (citing 15 U.S.C. § 78u–4). These reforms were enacted to combat the “rampant” “nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests,” and manipulation of clients by class counsel in securities litigation. Id. (citing H.R.Rep. No. 104–369, at 31 (1995) (Conf. Rep.)). Perhaps the most consequential reform, however, was that the PSLRA “impose[d] heightened pleading requirements in actions brought pursuant to § 10(b) [] and Rule 10b–5.” Id.
The reforms had their intended effect, “[b]ut the effort also had an unintended consequence: It prompted at least some members of the plaintiffs' bar to avoid the federal forum altogether.” Id. at 82, 126 S.Ct. 1503. “[R]ather than confronting the restrictive conditions set forth by the PSLRA, plaintiffs began filing class-action securities lawsuits under state law, often in state court.” In re Enron Corp. Secs., 535 F.3d 325, 337 (5th Cir.2008) (citing Dabit, 547 U.S. at 82, 126 S.Ct. 1503). “To stem this shift from Federal to State courts and prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the [PSLRA], Congress enacted SLUSA.” Dabit, 547 U.S. at 82, 126 S.Ct. 1503 (internal quotation marks omitted).
“The stated purpose of SLUSA is ‘to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives' of the PSLRA ... [by advancing] ‘the congressional preference for national standards for securities class action lawsuits involving nationally traded securities.’ ” In re Enron, 535 F.3d at 338 (quoting Dabit, 547 U.S. at 86–87, 126 S.Ct. 1503). Specifically, the “core provision,” Dabit, 547 U.S. at 82, 126 S.Ct. 1503, provides that “[n]o covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.”1 15 U.S.C. § 78bb(f)(1)(A). To effectuate this, SLUSA mandates: “Any covered class action brought in any State court involving a covered security ... shall be removable to the Federal district court for the district in which the action is pending” and subject to dismissal. Id. at § 78bb(f)(2).
In February 2009, the Securities and Exchange Commission (“SEC”) brought suit against the Stanford Group Company, along with various other Stanford corporate entities, including the Antigua-based Stanford International Bank (“SIB”), for allegedly perpetrating a massive Ponzi scheme.
According to the SEC, the companies' core objective was to sell certificates of deposit (“CDs”) issued by SIB. Stanford achieved and maintained a high volume of CD sales by promising above-market returns and falsely assuring investors that the CDs were backed by safe, liquid investments. For almost 15 years, SIB represented that it consistently earned high returns on its investment of CD sales proceeds .... In fact, however, SIB had to use new CD sales proceeds to make interest and redemption payments on pre-existing CDs, because it did not have sufficient assets, reserves and investments to cover its liabilities.
... At the SEC's request, the district court issued a temporary order restraining the payment or expenditure of funds belonging to the Stanford parties. The district court also appointed [a] Receiver for the Stanford interests and granted him the power to conserve, hold, manage, and preserve the value of the receivership estate.
Janvey v. Alguire, 647 F.3d 585, 590 (5th Cir.2011) (internal quotation marks omitted). Lastly, the district court in the SEC action entered a case management order requiring all lawsuits against SIB's service providers or third parties to be filed as ancillary proceedings to the SEC action.
Two groups of Louisiana investors, represented by the same counsel, filed separate lawsuits in the 19th Judicial District Court, East Baton Rouge Parish on August 19, 2009— Roland v. Green and Farr v. Green. In those actions, each set of...
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