G.F. Thomas Investments, L.P. v. Cleco Corp.

• Decision Date: 09 April 2004
• Docket Number: No. CIV.A.03-2227-A.,CIV.A.03-2227-A.
• Court: U.S. District Court — Western District of Louisiana
• Parties: G.F. THOMAS INVESTMENTS, L.P. On Behalf of Itself and all Others Similarly Situated v. CLECO CORPORATION

317 F.Supp.2d 673

G.F. THOMAS INVESTMENTS, L.P. On Behalf of Itself and all Others Similarly Situated v. CLECO CORPORATION

No. CIV.A.03-2227-A.

United States District Court, W.D. Louisiana, Alexandria Division.

April 9, 2004.

COPYRIGHT MATERIAL OMITTED

Glenn L. Langley, Herschel E. Richard, Jr., John Tucker Kalmbach, Cook Yancey et al., Shreveport, LA, for Plaintiff.

Richard C. Stanley, Jennifer L. Thornton, William Raley Alford, III, Stanley Flanagan & Reuter, New Orleans, LA, for Defendants.

RULING

DRELL, District Judge.

Before this Court is a motion to remand [Doc. No. 15]¹ by Plaintiff and a motion to dismiss [Doc. No. 10] by Defendant pursuant to FED. R. CIV. P. 12(b)(6). For the reasons set forth below, the motion to remand is DENIED and the motion to dismiss is GRANTED with prejudice.

I. PROCEDURAL HISTORY

After Standard & Poor's rating services lowered the credit rating of Cleco and Cleco Power, L.L.C. from "BBB +" to "BBB," and A.G. Edwards downgraded its recommendation of Cleco stock from a "hold" to a "sell," Plaintiff brought suit alleging that Defendant violated Generally Accepted Accounting Principles ("GAAP") and state blue sky laws (La. R.S. §§ 51:712(A) and (D), and 51:714(E)). Plaintiff also wanted to represent a class of similarly affected shareholders and claimed that all of the requirements for a class action under state law were satisfied. Finally, Plaintiff contended that Defendant's behavior constituted "fault" under La. Civ.Code art 2315.

This is the second suit brought by Plaintiff against Defendant since November 2002. Both suits are based on the same factual allegations. The plaintiff, G.F. Thomas Investments, L.P., on behalf of itself and all others similarly situated, petitioned for a securities class action on behalf of "certain CLECO shareholders", who were, at the time they purchased securities of CLECO, already shareholders of CLECO, including but not limited to participants in the CLECO Dividend Reinvestment Plan ("DRIP") who purchased securities of CLECO, between October 1, 1999 and November 14, 2002 (the "Class Period"). Doc. No. 1, ¶ 2 (emphasis added).

Defendant removed the first suit pursuant to 18 U.S.C. § 1441, and the Securities and Exchange Act of 1934, as amended by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. §§ 78bb; the existence of a federal question, 15 U.S.C. § 78aa and 28 U.S.C. § 1331; and principles of supplemental jurisdiction, 15 U.S.C. § 1367. As will be set forth below, SLUSA provides for complete preemption in certain areas of securities law. Therefore, this is a rare occasion in which the Defendant has the authority to remove the case notwithstanding the fact that Plaintiff has been careful to avoid directly implicating any federal laws.

After Defendant removed the case the first time, Plaintiff moved the court to allow it to dismiss voluntarily its claims without prejudice so that it might bring them again outside of the parameters of SLUSA. Defendant objected to the voluntary dismissal without prejudice because, as set forth below, SLUSA mandates that certain suits be removed from state court and dismissed automatically. Defendant argued then, and argues now, that this is such a suit.

After opportunities for the parties to come to an agreement, Judge Robert James approved a stipulated dismissal of the previous action without prejudice, to a point. In exchange for voluntary dismissal without prejudice, Plaintiff entered into binding stipulations which included, inter alia: 1) Plaintiff may file a state-court class action against Cleco only under the "Delaware carve-out;" 2) Plaintiff may not attempt to bring any claims in any court against Cleco under federal securities law based on the same factual allegations; 3) Plaintiff may not bring any claims in any "covered class action," as defined in 15 U.S.C. § 78bb(f)(5), in any court against Cleco based on the same factual allegations unless the claims fall within the Delaware carve-out exception; 4) In the event Plaintiff does not adhere to these stipulations Defendant reserved the right to remove the suit again.

Subsequent to the voluntary dismissal without prejudice, Plaintiff filed the second suit in state court. The second suit, again, purported to be based solely on state law. Furthermore, Plaintiff attempted to allege itself within the Delaware carve-out exception.

Again, Defendant removed [Doc. No. 2]pursuant to 18 U.S.C. § 1441, and the Securities and Exchange Act of 1934, as amended by SLUSA; the existence of a federal question, 15 U.S.C. § 78aa and 28 U.S.C. § 1331; and principles of supplemental jurisdiction, 15 U.S.C. § 1367. Now, Defendant moves for dismissal with prejudice [Doc. No. 10] pursuant to FED. R. CIV. P. 12(b)(6) and SLUSA, claiming mandatory dismissal, because Plaintiff failed to fit its cause of action within the Delaware carve-out.

II. BACKGROUND

The gravamen of Plaintiff's petition is that most of Cleco's official statements and SEC filings during the alleged class period "were materially false and misleading when issued because they failed to disclose the fact that its wholesale energy revenue and income derived from and attributable to the operations of Cleco's trading volumes and revenues had been artificially inflated throughout the Class Period because CLECO had utilized certain Roundtrip transactions in order to create a false and enhanced picture of its financial condition." Petition at par. 10.² In layman's terms, Plaintiff says Cleco was under a duty to disclose the roundtrip transactions every time it issued a public statement. The absence of such disclosure caused each public statement to be incomplete. Because of this lack of completeness, investors were unable to paint an educated picture of the organization. Accordingly, each statement was materially false and misleading, resulting in the two alleged state law violations.

III. ANALYSIS

A. The Rule 12(b)(6) Motion

A plaintiff's complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). The plaintiff must simply allege all the elements of a right to recover against a defendant. See Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir.1994). When considering a motion to dismiss for failure to state a claim, the district court must take the factual allegations of the complaint as true and resolve any ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff. See Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir.1993) (citing Doe v. United States Dep't of Justice, 753 F.2d 1092, 1102 (D.C.Cir.1985)). Unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief, the complaint should not be dismissed for failure to state a claim. See Leffall v. Dallas Indep. Sch. Dist., 28 F.3d 521, 524 (5th Cir.1994); Fernandez-Montes, 987 F.2d at 285 (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). For that reason, a motion to dismiss for failure to state a claim is viewed with disfavor and rarely is granted. See Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982). With this standard in mind, we embark on our analysis of SLUSA and the parties' motions.

B. SLUSA

1. Legislative History

SLUSA was passed by Congress to promote uniformity in the securities markets. It was a follow-up by Congress to the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), Pub.L. No. 104-67, 109 Stat. 737 (1995) (codified in part at 15 U.S.C. §§ 77z-1, 78u). The PSLRA was passed to "provide uniform standards for class actions and other suits alleging fraud in the securities market." Lander v. Hartford Life & Annuity Ins., 251 F.3d 101 (2nd Cir.2001). By passing the PSLRA, Congress intended to prevent "strike suits." See H.R. CONF. REP. NO. 105-803 (1998). Strike suits are meritless class actions that allege fraud in the purchase or sale of securities. See Newby v. Enron Corp., 338 F.3d 467, 471 (5th Cir.2003) (describing strike suits as frivolous and meritless). "Because of the expense of defending such suits, issuers were often forced to settle, regardless of the merits of the action. See H.R. CONF. REP. NO. 104-369 (1995). The PSLRA addressed these concerns by instituting, inter alia, heightened pleading requirements for class actions alleging fraud in the sale of national securities, see 15 U.S.C. § 78u-4." Lander., 251 F.3d at 107.

By the late 1990's Congress realized that the goals of the PSLRA were being circumvented. Id. Many class action plaintiffs were bringing suit in state court rather than federal court and avoiding the heightened pleading requirements of the PSLRA. See Pub.L. No. 105-353 § 2(2). A House-Senate Committee Report found that the decline in federal securities class action suits that occurred after the enactment of the PSLRA was almost directly proportional to the increase in state court filings. Id. Congress passed SLUSA, to close this loophole. When enacting SLUSA, Congress found that:

(1) the Private Securities Litigation Reform Act of 1995 sought to prevent abuses in private securities fraud lawsuits; (2) since the enactment of that legislation, considerable evidence has been presented to Congress that a number of securities class action lawsuits have shifted from Federal to State courts; (3) this shift has prevented the Act from fully achieving its objectives; (4) State securities regulation is of continuing importance, together with Federal regulation of securities, to protect investors and promote strong financial markets; and (5) in order to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the Private Securities Litigation Reform Act of 1995, it is appropriate to enact national standards for...