Desmond v. BankAmerica Corp., 00-2255
| Decision Date | 12 February 2001 |
| Docket Number | No. 00-2255,00-2255 |
| Citation | 263 F.3d 795 |
| Parties | (8th Cir. 2001) IN RE: BANKAMERICA CORPORATION SECURITIES LITIGATION, ALLISON DESMOND; BRUCE O'SUCH; DR. HERMAN SHYKEN; MARK LUNIEWSKI; TED KRAFTSOW; ERNESTO GUMAPAS; SIDNEY SORKIN; RICHARD LEVY; LANI ROTHSTEIN; NEIL KONI, APPELLANTS, EARL J. GATES; JOSEPH HEMPEN; ROBERT HEPWROTH; JOHN M. KOEHLER; DAVID P. OETTING; PAMELA WOOTTON; DAVID FIKE; SELMA KAISER; BRIAN MARKEE; WALTER E. RYAN, JR.; PATRICIA A. THOMAS, PLAINTIFFS, v. BANKAMERICA CORPORATION; HUGH L. MCCOLL, JR.; JAMES H. HANCE, JR.; DAVID A. COULTER; MICHAEL E. O'NEILL; JOHN J. HIGGINS; MARC D. OKEN; DEFENDANTS - APPELLEES, CHARLES E. RICE; RAY C. ANDERSON; RITA BORNSTEIN; B. A. BRIDGEWATER, JR.; THOMAS E. CAPPS; ALVIN R. CARPENTER; CHARLES W. COKER; THOMAS G. COUSINS; ANDREW B. CRAIG, III; ALLAN T. DICKSON; PAUL FULTON; C. RAY HOLMAN; W. W. JOHNSON; KENNETH D. LEWIS; RUSSELL W. MEYER, JR.; RICHARD B. PRIORITY; JOHN C. SLANE; O. TEMPLE SLOAN, JR.; MEREDITH R. SPANGLER; ALBERT E. SUTER; RONALD TOWNSEND; JACKIE M. WARD; JOHN A. WILLIAMS; VIRGIL R. WILLIAMS; JOSEPH ALIBRANDI; PETER BEDFORD; RICHARD CLARKE; TIMM CRULL; KATHLEEN FELDSTEIN; DONALD GUINN; FRANK HOPE, JR.; WALTER MASSEY; SANFORD ROBERTSON; RICHARD ROSENBERG; MICHAEL SPENCE; SOLOMON TRUJILLO; SHIRLEY YOUNG, DEFENDANTS, JOSEPH HEMPEN; JOHN M. KOEHLER; DAVID P. OETTING; KEVIN KLOSTER; SELMA KAISER; WALTER E. RYAN, JR.; BRIAN MARKEE, APPELLEES. Submitted: |
| Court | U.S. Court of Appeals — Eighth Circuit |
[Copyrighted Material Omitted]
Before Loken, Heaney and Bye, Circuit Judges.
Allison Desmond heads a putative class of plaintiffs in a California state-court securities fraud action. On April 25, 2000, the district court1 presiding over a parallel federal class action granted an injunction that effectively halted the Desmond suit. Our task is to decide whether the injunction violates the Anti-Injunction Act, 28 U.S.C. § 2283 (2000). We conclude that it does not and affirm the district court.
In October 1998, BankAmerica Corporation merged with NationsBank Corporation to form a new BankAmerica Corporation. Shortly thereafter, it was disclosed that the new entity would take a $372 million charge-off for a bad loan to D.E. Shaw, a New York investment firm with which the old BankAmerica had established a relationship. The price of shares in the new BankAmerica dropped precipitously. See In re BankAmerica Corp. Sec. Litig., 78 F.Supp.2d 976, 983-84 (E.D. Mo. 1999) (BankAmerica I). Between October 15 and November 18, 1998, twenty-four class actions were filed in six federal district courts by stockholders of the predecessor companies. One of the federal cases was filed on behalf of appellant Lani Rothstein by the law firm of Milberg, Weiss, Hynes & Lerach ("Milberg Weiss"). The cases were consolidated by order of the Multidistrict Litigation Panel, and transferred to the Eastern District of Missouri. Milberg Weiss also filed five class actions related to the merger in California state court, including separate actions on behalf of Desmond and Rothstein.
After the district court appointed lead counsel according to the procedures set out in the Private Securities Litigation Reform Act of 1995 (PSLRA), Rothstein sought a voluntary dismissal from the federal action. Over the objection of other parties to the federal action, the district court granted Rothstein's motion on July 1, 1999. On July 6, 1999, the district court certified the remaining consolidated federal actions as a class action and certified four separate plaintiff classes.
Meanwhile, the five California class actions were consolidated as Allison Desmond v. BankAmerica Corp., No. 998629 (Cal. Super. Ct.). The Desmond plaintiffs, through Milberg Weiss, first sought certification of a single class consisting of all those who acquired stock in BankAmerica or its predecessors between August 4, 1998, and October 13, 1998 ("the class period"). The motion proposed three class representatives, and proposed Milberg Weiss as class counsel. One of the proposed class representatives was subsequently stricken after it was learned that he was a convicted felon with a record of fraudulent conduct. The motion was denied due to conflicts among members of the proposed single class and because the proposed lead plaintiffs, apparently having held stock in the old BankAmerica prior to the class period, were not truly representative of the whole proposed plaintiff class.
On November 17, 1999, the Desmond plaintiffs filed a second motion seeking certification of five proposed plaintiff classes: those who purchased NationsBank stock prior to the class period; those who purchased NationsBank stock during the class period; those who purchased old BankAmerica stock prior to the class period; those who purchased old BankAmerica stock during the class period; and those who purchased new BankAmerica stock after the consummation of the merger but before the disclosure of the Shaw charge-off. Just before a hearing on the second motion, however, defendants filed a notice of removal to federal court based on the Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. §§ 77p, 78bb(f) (2000). The defendants contended that the addition of new class representatives amounted to a commencement of a new state-court securities law suit in violation of SLUSA, which had become effective on November 3, 1998.
The district court to which the Desmond case had been removed concluded that defendants' notice of removal was premature and remanded the case to state court. The court noted, however, that if parties or claims not identified in the original complaint were brought into the Desmond litigation by a class certification order, defendants would have 30 days to file a notice of removal under SLUSA.
Following the Desmond remand, Milberg Weiss attorney Reed Kathrein directed a letter to the California Superior Court judge hearing the case. Kathrein indicated the Desmond plaintiffs "would like to resubmit a proposed order of class certification to this Court which would avoid adding new parties, yet resolve this Court's concerns with potential conflicts amongst the classes, and provide a mechanism to assure that each subclass is adequately represented and that the named plaintiffs and the Court are able to fulfill their fiduciary duties." (Br. Supp. Mot. Oral Arg., Ex. B, at 2.)
Following Kathrein's correspondence, a third motion for class certification was filed. Pursuant to a joint motion filed by the Desmond plaintiffs and BankAmerica, however, that motion was removed from the calendar to permit the parties to pursue a mediated settlement.
The federal plaintiffs filed their motion to enjoin the California actions in November 1999, contending that the California proceedings undermined the PSLRA's lead-plaintiff provisions. The district court granted a broad injunction on April 25, 2000, concluding that such an injunction was expressly authorized by the PSLRA and therefore permissible under the Anti-Injunction Act. In re BankAmerica Corp. Sec. Litig., 95 F.Supp. 2d 1044, 1049 (E.D. Mo. 2000) (BankAmerica II).
The court concluded that PSLRA's lead-plaintiff provisions created new federal rights for certain plaintiffs in securities class-action lawsuits. Specifically, the court noted that the PSLRA, in response to abuses by professional plaintiffs and their attorneys, vested the control over such litigation in the plaintiff with the greatest financial stake, thereby eliminating the "race to the courthouse" system. The court further noted that the federal plaintiffs represented more than twenty-six times the amount of stock represented by the Desmond plaintiffs, and that the Desmond plaintiffs had entered settlement negotiations after only "minimal written discovery and document exchanges" and before taking a single deposition. BankAmerica II, 95 F.Supp.2d at 1050.
Singling out Milberg Weiss, the court chastised the firm for engaging in "precisely the sort of lawyer-driven machinations the PSLRA was designed to prevent." Id. In the district court's view, the Desmond case was "nothing more than a thinly-veiled attempt to circumvent federal law." Id.
The district court concluded that the federal right of control by the greatest stakeholder could not "be given its intended scope if competing state court plaintiffs, representing a significantly smaller number of shares, [could] institute premature settlement negotiations which threaten the orderly conduct of the federal case and which could result in the release of the federal claims." Id. at 1049.
The court granted a broad injunction that (1) barred the named Desmond plaintiffs from prosecuting any class action claims arising out of the BankAmerica merger; (2) barred the California court from certifying any Desmond plaintiff classes; (3) barred the California court from ordering any alternative dispute resolution in Desmond and directed the court to stay any alternative dispute resolution that had already been ordered; (4) established procedures for the Desmond plaintiffs to opt out of any class certified by the federal court in order to pursue individual actions. Id. at 1053-54. The Desmond plaintiffs now appeal the district court's issuance of the injunction.
The Anti-Injunction Act is part of a scheme, formed by statutory and decisional law, that serves to forestall the frictions that would result from turf wars between federal and state courts over control of a particular case. See Atlantic Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 286 (1970). The Act bars a federal court from granting an injunction staying state-court proceedings unless such an injunction is (1) expressly provided for in a federal statute, (2) necessary in aid of the federal court's jurisdiction, or (3) necessary to protect or effectuate the federal court's judgments. 28 U.S.C. § 2283 (2000). We...
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