Board of Trustees of Teachers' Retire. v. Worldcom, 02 C 5542.

• Decision Date: 18 October 2002
• Docket Number: No. 02 C 5542.,No. 02 C 5543.,02 C 5542.,02 C 5543.
• Citation: 244 F.Supp.2d 900
• Parties: BOARD OF TRUSTEES OF THE TEACHERS' RETIREMENT SYTEM OF THE STATE OF ILLINOIS, Plaintiff, v. WORLDCOM, INC., et al., Defendants. State University's Retirement System Of The State Of Illinois, Plaintiff, v. Worldcom, Inc., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

244 F.Supp.2d 900

BOARD OF TRUSTEES OF THE TEACHERS' RETIREMENT SYTEM OF THE STATE OF ILLINOIS, Plaintiff, v. WORLDCOM, INC., et al., Defendants.

State University's Retirement System Of The State Of Illinois, Plaintiff, v. Worldcom, Inc., et al., Defendants.

No. 02 C 5542.

No. 02 C 5543.

United States District Court, N.D. Illinois, Eastern Division.

October 18, 2002.

Clinton A. Krislov, Krislov & Associates, Ltd., Dennis E. Both, Edward R. Vrdolyak, Ltd., Chicago, IL, William S. Lerach, Milberg Weiss Bershad Hynes & Lerach LLP, San Diego, CA, for Plaintiff.

Stephen Novack, Stephen J. Siegal, Novack & Macey, Chicago, IL, M. Patrick McDowell, Robert David Kaufman, Brunini, Grantham, Grower & Howes, PPLC, Jackson, MS, John Peirce Morrison, Kenneth E. Rechtoris, Robert Raymond Brown, Bell, Boyd & Lloyd, Chicago, IL, H. Nicholas Berberian, Bettina Elise Levin, Neal, Gerber & Eisenberg, Allan Tracy Slagel, James Donehoo Wilson, Brett Nolan, Shefsky & Froelich, Ltd., Chicago, IL, for Defendants.

ORDER

GOTTSCHALL, District Judge.

Two Illinois pension funds, the Teachers' Retirement System of the State of Illinois and the State Universities Retirement System of Illinois (collectively, the "Funds"), pursue separate but related actions alleging violations of section 11 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. § 77k, against certain former officers and directors of WorldCom, Inc. (the "Officers"), Arthur Andersen ("Andersen"), and nine investment and commercial banks (the "Banks"). Plaintiffs originally filed these cases in Cook County Circuit Court, but, upon request of the Officers and Banks, the cases were removed to this court pursuant to 28 U.S.C. § 1452. Andersen did not join in the removal petition. The Funds ask for immediate remand; the Banks, joined by one of the Officers, seek a stay pending a transfer decision by the Judicial Panel on Multidistrict Litigation (the "JPML"). For the reasons set forth below, these cases are stayed pending a transfer decision by the JPML.

I. Background

Plaintiffs in both cases purchased debt securities in WorldCom's May 2001 bond sale. The subsequent collapse of the company has rendered those securities essentially worthless. (WorldCom filed for bankruptcy in the Southern District of New York on July 21, 2002.) Between June 27 and July 19, 2002, nine bondholder actions (including these two) were initiated. In all but one, plaintiffs assert claims under section 11 of the 1933 Act. Five out of nine cases were originally filed in state court and were removed to federal court on August 5, 2002. Plaintiffs have moved for remand in at least four of these five cases, including the two at bar. Thus far, one case has been remanded, Ret. Sys. of Ala. v. J.P. Morgan Chase & Co., 285 B.R. 519 (M.D.Ala.2002) (mem.op.) ("J.P.Morgan"), and one case has been "removed from the pending caseload pending further order of [the district court] or order of the [JPML]." Cal. Pub. Employees Ret. Sys. v. WorldCom, Inc., No. CV 02-6088 (C.D.Cal. Oct. 1, 2002) (order). The last of the five removed cases is apparently still active in the Southern District of West Virginia. W. Va. Inv. Mgmt. Bd. v. WorldCom, Inc., No. 1:02-1001 (S.D. W. Va. removed Aug. 5, 2002).

There have been as many as three motions to transfer before the JPML arising out of the same events at WorldCom. On August 7, 2002, the Banks requested that the five removed bondholder actions be considered "tag-along" actions. J.P.M.L. Rule 7.2(i). The JPML heard argument on the motions to transfer on September 26, 2002, and centralized much of the WorldCom litigation in the Southern District of New York on October 8, 2002.

II. Analysis

A threshold question is which motion to decide first: the Funds' motion to remand or the Banks' motion for a stay. The Funds suggest that the remand question must be decided first because it goes to subject matter jurisdiction. Although some case law adopts this position, see, e.g., Farkas v. Bridgestone/Firestone, Inc., 113 F.Supp.2d 1107, 1115 n. 8 (W.D.Ky. 2000), the better reasoned view is that a court may stay proceedings even where subject matter jurisdiction is uncertain. Cf. Gen. Elec. Co. v. Byrne, 611 F.2d 670 (7th Cir.1979) (per curiam) ("[I]f the Multidistrict Panel had transferred these cases prior to the entry of the remand order . . ., the transferee court would have had jurisdiction to consider the motion for remand after transfer."). The fullest discussion of the methodological issues raised by simultaneous remand and stay motions in the MDL context appears in Meyers v. Bayer AG, 143 F.Supp.2d 1044 (E.D.Wis.2001), which settles on the following three-step approach:

[A] court should first give preliminary scrutiny to the merits of the motion to remand. If this preliminary assessment suggests that removal was improper, the court should promptly complete its consideration and remand the case to state court. If, on the other hand, the jurisdictional issue appears factually or legally difficult, the court's second step should be to determine whether identical or similar jurisdictional issues have been raised in other cases that have been or may be transferred to the MDL proceeding. . . .

. . . . .

Only if the jurisdictional issue is both difficult and similar or identical to those in cases transferred or likely to be transferred should the court proceed to the third step and consider the motion to stay.

Id. at 1049.

This court generally agrees with the reasoning and methodology of Meyers, although the analytical divisions between the three steps are perhaps not as neat as the quoted language implies. In determining the appropriateness of a stay, the court considers the interests of judicial economy and the balance of hardships to the proponent and opponent of the stay. Id. (citing Rivers v. Walt Disney Co., 980 F.Supp. 1358, 1360 (C.D.Cal.1997)). When the merits of a remand motion are easy, a decision requires little judicial time and a stay would merely postpone the inevitable. Similarly, when remand motions in cases potentially subject to MDL consolidation raise unique issues of law or fact, channeling the decisions to a single court would result in little or no savings of judicial resources. The threat of inconsistent judgments in either case is de minimus. In this sense, the appropriateness of a stay is arguably implicit in the analysis performed at steps one and two. And although Meyers does not say so explicitly, there is a fourth step. When the balance of equities weighs heavily against a stay, it may well be appropriate for a court to immediately decide even a difficult and duplicative remand question.

The motion to remand or abstain in this case raises thorny questions of law, as two recent district court opinions from the Middle District of Alabama demonstrate. J. P. Morgan, (mem.op.); Ret. Sys. of Ala. v. Merrill Lynch & Co., 209 F.Supp.2d 1257 (M.D.Ala.2002) ("Merrill Lynch"). The court in J.P. Morgan, a WorldCom bondholder action, ordered the parties to show cause why that case should not be sent back to state court for the same reasons discussed in an Enron-related decision, Merrill Lynch. A critical question in both cases was (as it is here) whether the bankruptcy removal statute, 28 U.S.C. § 1452, requires all defendants to join a notice of removal. The court strongly suggested that unanimity was required, but pointedly declined to base its decisions on this ground in light of the wealth of case law (including case law from three courts of appeals) reaching the opposite conclusion. J.P. Morgan, 285 B.R. 519, 523-525; Merrill Lynch, 209 F.Supp.2d at 1261-64.¹

A second legal quagmire present in both Alabama cases and the cases at bar is the scope of "related to" jurisdiction under 28 U.S.C. § 1334. More specifically, the parties dispute whether potential indemnity claims are "related to" bankruptcy proceedings. There is apparently a circuit split on this issue, J.P. Morgan, 285 B.R. 519, 526-27 n. 12, and the Seventh Circuit has weighed in only in dicta (if at all), Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 750 (7th Cir.1989). In evaluating essentially the same arguments forwarded in the present cases, the Alabama district court concluded that "related to" jurisdiction was uncertain. J.P. Morgan, at 530. Again, the court declined to base its decision on this ground but cited the uncertainty as support for discretionary abstention.

It would be possible to avoid both of these tricky issues if, as the Funds argue, 1933 Act claims cannot be removed under 28 U.S.C. § 1452. The basis for this argument is section 22 of the 1933 Act, which states that "[e]xcept as provided in section 16(c), no case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court of the United States." 15 U.S.C. § 77v(a). Section 16(c) relates to certain class actions and is not applicable here. Id. § 77p(c). Congress added this exception to the general rule of nonremovability in 1998. The failure to provide an exception for bankruptcy removal, the Funds contend, demonstrates that no such exception exists.

The Officers and Banks respond with the bankruptcy removal provision:

A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title. 28 U.S.C. § 1452(a). In support of removability, defendants emphasize the word "any," the presence of two specific exceptions, and the absence of any exception for 1933 Act claims. Defendants also point out that, unlike the general removal provision, the bankruptcy removal provision does not include the limitation "[e]xcept as otherwise expressly...