BT SECURITIES CORP. v. WR HUFF ASSET MANAGEMENT CO., LLC

• Decision Date: 16 April 2004
• Citation: 891 So.2d 310
• Parties: BT SECURITIES CORPORATION et al. v. W.R. HUFF ASSET MANAGEMENT CO., L.L.C.
• Court: Alabama Supreme Court

891 So.2d 310

BT SECURITIES CORPORATION et al. v. W.R. HUFF ASSET MANAGEMENT CO., L.L.C.

1021226.

Supreme Court of Alabama.

April 16, 2004.

Don B. Long, Jr., and Clark R. Hammond of Johnston Barton Proctor & Powell, LLP, Birmingham, for appellants BT Securities Corporation and Chase Manhattan Bank.

Jon E. Grenier of Adams & Reese/Lange Simpson, Birmingham, for appellant Salomon Brothers, Inc.

A. Inge Selden III and Jayna Partain Lamar of Maynard, Cooper & Gale, P.C., for appellant Arthur Andersen, LLP.

Terry L. Butts of Cervera, Ralph & Butts, Troy; and James W. Gewin, Matthew H. Lembke, and Dylan C. Black of Bradley Arant Rose & White, LLP, Birmingham, for appellant Deloitte & Touche, LLP.

James L. North and J. Timothy Francis of James L. North & Associates, Birmingham; and Clarence M. Small of Christian & Small, LLP, Birmingham (withdrawn 8/29/2003), for appellee.

SEE, Justice.

BT Securities Corporation, Chase Manhattan Bank, Salomon Brothers, Inc., Deloitte & Touche LLP, and Arthur Andersen LLP petitioned this Court for permission to appeal, pursuant to Rule 5, Ala. R.App. P., from the trial court's denial of their motion to dismiss an action pending against them. We granted permission to appeal, and we reverse the order denying their motion and render a judgment for them.

Facts and Procedural History

This case involves the applicability of the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. §§ 77p and 78bb, to a purchase of subordinated notes by W.R. Huff Asset Management Co., L.L.C., from BT Securities Corporation. On August 10, 1995, Bruno's, Inc., issued $400 million of high-yield subordinated notes. Huff, an investment management company, purchased $290 million of those notes on behalf of its customers in November 1995. On February 2, 1998, Bruno's and its subsidiaries filed a petition in bankruptcy in the District of Delaware under Chapter 11 of the Bankruptcy Code. See In re PWS Holding Corp., No. 98-212 (Bankr.D.Del., Dec. 30, 1999), aff'd,228 F.3d 224 (3d Cir.2000).

On August 4, 1999, Huff sued Kohlberg Kravis Roberts & Co., L.P., the company that acquired control of Bruno's in 1995, in the Jefferson Circuit Court. The action related to Kohlberg's participation in Bruno's recapitalization. Kohlberg had the case removed to the United States Bankruptcy Court for the Northern District of Alabama because of Bruno's pending bankruptcy proceeding in Delaware. Huff moved the bankruptcy court to remand the action to state court, and on January 4, 2001, the bankruptcy court transferred the case to the United States District Court for the Northern District of Alabama. On July 1, 2002, Huff moved the district court to remand the case to state court, but the district court determined that Huff's claims were preempted by SLUSA and dismissed Huff's claims without prejudice. See W.R. Huff Asset Mgmt. Co. v. Kohlberg Kravis Roberts & Co., 234 F.Supp.2d 1218, 1227 (N.D.Ala.2002)

("Huff I").

In the meantime, on April 28, 2000, Huff filed a second action involving the Bruno's notes, from which this permissive appeal is taken. Huff sued BT Securities Corporation, Chase Manhattan Bank, Salomon Brothers, Inc., Deloitte & Touche LLP, and Arthur Andersen LLP (collectively "BT Securities") in the Jefferson Circuit Court, alleging that BT Securities had engaged in fraud and misrepresentation in connection with the sale of the Bruno's notes. BT Securities removed the case to the United States District Court for the Northern District of Alabama. Huff moved the district court to remand the case to the state court. The district court, in an earlier unpublished opinion, found that "SLUSA was Huff's exclusive avenue for relief, found the existence of a federal question, and therefore denied Huff's motion to remand." It encouraged Huff to request the United States Court of Appeals for the Eleventh Circuit to accept an appeal pursuant to 28 U.S.C. § 1292(b)(authorizing an interlocutory appeal). W.R. Huff Asset Mgmt., Co., L.L.C. v. BT Sec. Corp., 190 F.Supp.2d 1273, 1274 (N.D.Ala. 2001)("Huff II"). Huff moved the Eleventh Circuit Court of Appeals to accept his appeal; the Eleventh Circuit declined to do so.

Huff then moved the district court to reconsider its decision that SLUSA controlled its claims, or, alternatively, to sever the case as to one defendant, Deloitte & Touche, and remand, or, alternatively, to grant it leave to amend its complaint. BT Securities moved the district court to dismiss the action. On May 22, 2001, the district court determined that it lacked jurisdiction over Huff's action and remanded the cause to state court. Huff II, 190 F.Supp.2d at 1275.

On remand to the state court, BT Securities moved to dismiss Huff's action because, it argued, SLUSA preempted all of its claims. On March 31, 2003, the circuit court denied BT Securities' motion to dismiss. BT Securities petitioned this Court for a permissive appeal pursuant to Rule 5, Ala. R.App. P. On May 22, 2003, this Court granted BT Securities' petition for a permissive appeal as to the circuit court's denial of its motion to dismiss.

Standard of Review

This Court reviews de novo a trial court's conclusions of law. See State Farm Mut. Auto. Ins. Co. v. Harris, 882 So.2d 849, 852 (Ala.2003)

.

"The appropriate standard of review of a trial court's denial of a motion to dismiss is whether `when the allegations of the complaint are viewed most strongly in the pleader's favor, it appears that the pleader could prove any set of circumstances that would entitle [the pleader] to relief.' Nance v. Matthews, 622 So.2d 297, 299 (Ala.1993); Raley v. Citibanc of Alabama/Andalusia, 474 So.2d 640, 641 (Ala.1985). This Court does not consider whether the plaintiff will ultimately prevail, but only whether the plaintiff may possibly prevail. Nance, 622 So.2d at 299. A `dismissal is proper only when it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief.' Nance, 622 So.2d at 299; Garrett v. Hadden, 495 So.2d 616, 617 (Ala.1986); Hill v. Kraft, Inc., 496 So.2d 768, 769 (Ala.1986)."

Lyons v. River Road Constr., Inc., 858 So.2d 257, 260 (Ala.2003).

Application of SLUSA

The issue presented to this Court is whether the circuit court erred in denying BT Securities' motion to dismiss based on its conclusion that Huff's claims against BT Securities were not preempted by SLUSA. SLUSA mandates that "covered class actions" brought pursuant to state law must be removed to federal court. See 15 U.S.C. § 77p(c)(requiring that "[a]ny 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"); see also 15 U.S.C. § 78bb(f)(5)(E)(defining a "covered security" to mean "a security that satisfies the standards for a covered security specified in paragraph (1) or (2) of section 18(b) of the Securities Act of 1933, at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred"). Section 78bb(f)(5)(B) defines a "covered class action" as follows:

"(i) any single lawsuit in which —

"(I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any question affecting only individual persons or members; or

"(II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and the questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members; or

"(ii) any group of lawsuits filed in or pending in the same court involving common questions of law or fact, in which —

"(I) damages are sought on behalf of more than 50 persons; and

"(II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose."

Thus, for actions that fall within SLUSA, the federal court is the exclusive venue for securities fraud class-action litigation. See Huff II, 190 F.Supp.2d at 1278 ("subsection (b) [of 15 U.S.C. § 77p] compels a dismissal of actions based on state law if they allege fraud, deception, or misrepresentation regarding the purchase or sale of securities traded, or authorized to be traded, nationally").

"Under SLUSA, a securities action is preempted only if four conditions are satisfied: (1) the action is a `covered class action,' (2) the claims are based on state law, (3) the action involves a `covered security,' and (4) the claims allege a misrepresentation or omission of material fact `in connection with the purchase or sale' of the security."

In re WorldCom, Inc. Sec. Litig., 308 F.Supp.2d 236, 243 (S.D.N.Y.2004) (quoting 15 U.S.C. § 77p(b)). Huff concedes that this action is a covered class action pursuant to 15 U.S.C. § 78bb(f)(5)(B); that its claims are based on Alabama state law; and that its claims allege a misrepresentation or omission of material fact in connection with the purchase or sale of the Bruno's notes. Huff argues, however, that the Bruno's notes were not "covered securities" as that term is defined by 15 U.S.C. § 78bb(f)(5)(E). To determine whether a security is a "covered security," we must determine whether the security was traded nationally or was authorized to be traded nationally at the time of the alleged wrongful conduct. See 15 U.S.C. § 78bb(f)(5)(E)(defining a "covered security" as a security traded nationally or authorized to be traded nationally "at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred"). Thus, the inquiry is whether at the time of the alleged wrongful conduct...