Ex parte Ebbers

• Decision Date: 11 July 2003
• Citation: 871 So.2d 776
• Parties: Ex parte Bernard J. EBBERS and Ex parte Salomon Smith Barney, Inc., et al. (In re Retirement Systems of Alabama et al. v. J.P. Morgan Chase & Co. et al.)
• Court: Alabama Supreme Court

871 So.2d 776

Ex parte Bernard J. EBBERS and

Ex parte Salomon Smith Barney, Inc., et al.

(In re Retirement Systems of Alabama et al. v. J.P. Morgan Chase & Co. et al.)

1008.

Supreme Court of Alabama.

July 11, 2003.

Joe Espy III, Flynn Mozingo, and Benjamin J. Espy of Melton, Espy & Williams, P.C., Montgomery, for petitioner Bernard J. Ebbers.

Charles B. Paterson, David R. Boyd, and Robin G. Laurie of Balch & Bingham, LLP, Montgomery; and Jay B. Kasner and John L. Gardiner of Skadden, Arps, Slate, Meagher & Flom, LLP, New York, New York, for petitioners J.P. Morgan Chase & Co., J.P. Morgan Securities, Inc., CitiGroup, Inc., Salomon Smith Barney, Inc., Bank of America Corp., and Bank of America Securities, LLC.

J. Michael Rediker, Thomas L. Krebs, Michael K.K. Choy, Patricia C. Diak, Matthew T. Franklin, Jeffrey V. Havercroft, and Page A. Poerschke of Haskell Slaughter Young & Rediker, L.L.C., Birmingham; and Thomas T. Gallion III and Constance C. Walker of Haskell Slaughter Young & Gallion, L.L.C., Montgomery, for respondents.

HARWOOD, Justice.

In this opinion we address two petitions for a writ of mandamus directed at orders entered by Judge Charles Price in a case pending before him in the Montgomery Circuit Court. That case is styled:

"THE RETIREMENT SYSTEMS OF ALABAMA consisting of THE EMPLOYEES RETIREMENT SYSTEM OF ALABAMA AND THE TEACHERS RETIREMENT SYSTEM OF ALABAMA; THE PUBLIC EDUCATION EMPLOYEES' HEALTH INSURANCE FUND; THE PUBLIC EMPLOYEES INDIVIDUAL RETIREMENT ACCOUNT FUND; THE CLERKS' AND REGISTERS' SUPERNUMERARY FUND; THE WILDLIFE AND FRESHWATER FISHERIES FUND; THE ALABAMA CULTURAL RESOURCES PRESERVATION TRUST FUND; AND THE ALABAMA TRUST FUND, Plaintiffs

"vs.

"J.P. MORGAN CHASE & CO., J.P. MORGAN SECURITIES, INC., CITIGROUP, INC., SALOMON SMITH BARNEY, INC., ARTHUR ANDERSEN, LLP, BANK OF AMERICA CORP., BANC OF AMERICA SECURITIES LLC, BERNARD J. EBBERS, SCOTT D. SULLIVAN, BEAR STEARNS & CO., INC., [and numerous fictitiously named parties], Defendants."

That litigation arises out of the financial collapse of the telecommunications corporation WorldCom, Inc., which in July 2002 filed for protection under Chapter 11 of the United States Bankruptcy Code. A number of other civil actions have been filed against one or more of the defendants in this case, as detailed in In re WorldCom, Inc., Securities Litigation/In re WorldCom, Inc., Erisa Litigation (No. 02 Civ. 3288) (S.D.N.Y. Dec. 5, 2002)(not published in F.Supp.), describing the centralization under United States District Court Judge Denise L. Cote of the Southern District of New York of 40 WorldComrelated class actions, the first of which was filed on April 30, 2002 (hereinafter "the WorldCom litigation"). Sullivan and Ebbers are defendants in the WorldCom litigation, along with some of the entity defendants in this case. Filed on July 15, 2002, this case is proceeding under the allegations presented in the third amended complaint filed February 20, 2003. The plaintiffs identify themselves in that pleading variously as public corporations, public retirement funds, or "other funds" and state that they are all instrumentalities or "arms" of the State of Alabama. They designate themselves collectively as "The Retirement Systems of Alabama" (hereinafter "RSA"). Defendant Bernard Ebbers, a resident of Mississippi, is the former president and chief executive officer of WorldCom. Defendant Scott D. Sullivan is the former chief financial officer of WorldCom. Both also served on the board of directors of WorldCom. Defendant Arthur Andersen, LLP, is identified in the complaint as an international accounting and consulting firm that provided various auditing, accounting, consulting, tax, and document-review services for WorldCom. The other seven entity defendants are various investment and brokerage houses that RSA describes in its complaint as WorldCom's "principal Investment Banks." Six of them—Salomon Smith Barney, Inc., J.P. Morgan Securities, Inc., Banc of America Securities LLC, Bank of America Corp., CitiGroup, Inc., and J.P. Morgan Chase & Co.—jointly filed one of the petitions for a writ of mandamus (case no. 1021008) and are hereinafter referred to as "the Bank defendants"; the other petition was filed by Ebbers (case no. 1020931). Arthur Andersen is not a participant in these appellate proceedings. Bear Stearns & Co., Inc., another defendant, is not a participant in either of the two mandamus proceedings addressed in this opinion.¹ Scott Sullivan also has filed no submission in either proceeding. Accordingly, in the final analysis, the participating parties before this Court are RSA, Ebbers, and the Bank defendants.

In its third amended complaint, RSA asserts claims against the defendants under the "strict liability" provisions of §§ 11 and 12(a)(2) of the Securities Act of 1933, under § 8-6-19(a), Ala.Code 1975, a part of the Alabama Securities Act, and under the statutory and common law of the State of Alabama. RSA alleges that the defendants, either individually or in concert and conspiracy with WorldCom and certain of its top officers, principally Ebbers and Sullivan, engaged in various accounting machinations and irregularities and issued various materially misleading financial reports and statements, so that WorldCom's earnings were overstated by $9,000,000,000 and its assets "must be written down by as much as sixty-six billion dollars ($66,000,000,000.00)." RSA asserts that it was misled by the information generated or reported by the defendants to purchase various WorldCom securities, resulting in losses to RSA of more than $275,000,000. RSA seeks to recover those losses as well as punitive damages. The claims and theories of liability asserted by RSA are legally and factually complex.² However, for the purpose of presenting, analyzing, and deciding the issues raised by the two petitions for the writ of mandamus, the highly condensed summary of the nature of this litigation set out above will suffice.

In addition to being named as a defendant in both this case and the WorldCom litigation, Sullivan has been indicted by a federal grand jury in the Southern District of New York on charges of conspiracy to commit securities fraud, securities fraud, and making false filings with the Securities and Exchange Commission.³ Indicted jointly with Sullivan was Burford Yates, Jr., a certified public accountant who served as WorldCom's director of general accounting. Yates has already pleaded guilty, pursuant to a cooperation agreement with the United States attorney for the Southern District of New York, to the conspiracy and fraud counts of the indictment. Three other former officers of WorldCom have also been indicted as a result of their participation in the scheme to inflate artificially WorldCom's earnings by means of various accounting irregularities. All three of those officers have likewise pleaded guilty.

Ebbers has not been indicted, but he has been the subject of an ongoing criminal investigation. The probability/possibility of an indictment ultimately being returned against him was the subject of much discussion and argument before Judge Price.

Based on the indictment of Sullivan and the ongoing criminal investigation of Ebbers during the pendency of the RSA litigation, Sullivan and Ebbers each moved Judge Price to stay the RSA litigation as to them. The motion to stay filed by Ebbers on December 24, 2002, is among the materials submitted in connection with his petition for mandamus, but no party has supplied a copy of the motion for a stay filed by Sullivan.⁴ Judge Price conducted a hearing on Ebbers's and Sullivan's motions on February 14, 2003. Although Ebbers asserted in his motion that a stay of the case as to him was necessary to preserve his rights "under the First, Fourth, Fifth, Sixth, and Ninth Amendments to the United States Constitution and the Alabama Constitution," he did not identify any applicable provision of the Alabama Constitution and in a supporting memorandum brief he referenced only the Fifth Amendment to the United States Constitution ("the Fifth Amendment"). All counsel referred only to the Fifth Amendment in arguing the stay motions before Judge Price at the February 14 hearing.

Counsel for RSA advised Judge Price at that hearing that the criminal charges against Sullivan were set for trial before Judge Barbara S. Jones, United States District Judge for the Southern District of New York, on September 8, 2003. Sullivan's counsel confirmed that status and further advised Judge Price that Judge Cote had granted Sullivan's motion for stay in the WorldCom litigation because of his indictment and pending criminal trial. Ebbers, for his part, argued that the ongoing criminal investigation into his activities posed a sufficient risk of self-incrimination so as to implicate his Fifth Amendment right not to be compelled to be a witness against himself and that, if no stay of discovery was granted as to him in the RSA litigation, he would be forced to choose between either waiving that right and risking self-incrimination, or asserting it, in which event his refusal to respond could be the subject of adverse comment at trial in the RSA litigation. On February 26, 2003, Judge Price entered an order that, relying on the fact that Sullivan was under indictment and "his trial is set for September 2003," granted Sullivan's motion for a stay, but only "until October 1, 2003." On that same day, Judge Price entered a separate order denying Ebbers's motion to stay.

At one point during the February 14 hearing, counsel for RSA had stated to Judge Price that "the best way to handle this matter is to bifurcate these proceedings and ... deny their stay with respect to Mr. Ebbers ... [and] grant the motion with respect to Mr. Sullivan." The proffered rationale for the separate dispositions was that both rulings would likely be reviewed by this Court, with the result that the parties could "get a full exposition of the...