Illinois Mun. Retirement Fund v. Citigroup

• Decision Date: 02 December 2004
• Docket Number: No. 03-3703.,03-3703.
• Citation: 391 F.3d 844
• Parties: ILLINOIS MUNICIPAL RETIREMENT FUND, Plaintiff-Appellee, v. CITIGROUP, INC., J.P. Morgan Securities, Inc., Banc of America Securities, LLC, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

391 F.3d 844

ILLINOIS MUNICIPAL RETIREMENT FUND, Plaintiff-Appellee, v. CITIGROUP, INC., J.P. Morgan Securities, Inc., Banc of America Securities, LLC, et al., Defendants-Appellants.

No. 03-3703.

United States Court of Appeals, Seventh Circuit.

Argued November 9, 2004.

Decided December 2, 2004.

Rehearing and Rehearing En Banc Denied January 11, 2005.

Eric A. Isaacson (argued), LeRach, Coughlin, Stoia, Geller, Rudman & Robbins, san Diego, CA, Stephen M. Tillery Korein Tillery, St. Louis, MO, for Plaintiff-Appellee.

Cyrus Amir-Mokri (argued), Skadden, Arps, Slate, Meagher & Flom, New York City, for Defendants-Appellants.

Before FLAUM, Chief Judge, and CUDAHY and POSNER, Circuit Judges.

FLAUM, Chief Judge.

Plaintiff-appellee filed suit in Illinois state court. Following removal by defendants-appellants, the district court remanded the action to state court. Defendants-appellants appeal, arguing that the district court exceeded its authority, and seeking vacatur of the remand order. For the reasons stated herein, we affirm.

I. Background¹

Between 1998 and 2001, WorldCom, once the second largest telecommunications company in the world, issued debt securities worth billions of dollars in connection with which defendants-appellants served as underwriters. WorldCom agreed to indemnify appellants for liability arising out of untrue statements or omissions in prospectuses issued in connection with the offerings.

On June 25, 2002, WorldCom announced that it had improperly treated $3.8 billion in ordinary costs as capital expenditures and that it would have to restate its financial statements. This led to the filing of numerous individual and class actions in state and federal courts across the country. On October 8, 2002, the Judicial Panel on Multidistrict Litigation ("JPML") ordered that actions pending in federal courts be centralized in the Southern District of New York before Judge Cote, pursuant to 28 U.S.C. § 1407, the multidistrict litigation statute.

Many of the individual actions brought in state courts following WorldCom's announcement were filed by state and private pension funds that had purchased WorldCom bonds ("bondholders"). Rather than joining a class action against WorldCom and the other defendants, the bondholders, represented by Milberg Weiss Bershad Hynes & Lerach, brought individual actions in state courts across the country. Between July 5, 2002 and October 3, 2003, Milberg Weiss filed at least 47 of these individual actions on behalf of over 120 plaintiffs.

The bondholders' actions filed in state courts, unlike the class actions filed in federal courts, do not assert claims under the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78a, et seq.; instead, they allege claims only under the Securities Act of 1933 ("1933 Act"), 15 U.S.C. § 77a, et seq. Unlike the 1934 Act which provides for exclusive federal jurisdiction, see 15 U.S.C. § 78aa, the 1933 Act allows for concurrent federal and state jurisdiction and has an antiremoval provision. See 15 U.S.C. § 77v(a) ("[N]o case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States."). Drafting the complaints in this way would seem to ensure a state forum and prevent removal. If this was the bondholders' intention, however, their efforts have been frustrated by WorldCom's July 2002 bankruptcy filing. After that date, state-court defendants began removing the actions to federal court on the ground that they are related to WorldCom's bankruptcy. See 28 U.S.C §§ 1334(b), 1452(a).² Many of these removed bondholder actions have been identified as "tag-along actions"³ and transferred to Judge Cote.

On March 3, 2003, Judge Cote denied a motion to remand filed by the New York City Employees' Retirement System ("NYCERS"), holding that subject matter and removal jurisdiction were proper and that abstention was not appropriate. See In re WorldCom, Inc. Sec. Litig., 293 B.R. 308 (S.D.N.Y.2003).⁴ This ruling applied to the actions transferred to Judge Cote pursuant to the JPML's October 8, 2002 order, as well as to the tag-along actions. On May 11, 2004, the Second Circuit affirmed Judge Cote's denial of the motion to remand, holding that the 1933 Act's antiremoval provision does not bar removal of actions under § 1452(a). See Cal. Pub. Employees' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86 (2d Cir.2004).

On June 18, 2003, plaintiff-appellee Illinois Municipal Retirement Fund ("IMRF") filed suit in Illinois state court, alleging claims arising out of IMRF's purchase of WorldCom debt securities and alleging false and misleading statements in registration statements and prospectuses issued in connection with the bond offerings, of which the underwriter appellants allegedly were aware or should have been aware. Consistent with the litigation strategy of other individual pension funds, and represented by the same attorneys,⁵ IMRF alleged claims only under the 1933 Act. On July 16, 2003, appellants removed the case to the United States District Court for the Southern District of Illinois, premising removal on § 1452(a). On the same day, appellants filed a notice with the clerk of the JPML, requesting that the action be transferred as a tag-along action to Judge Cote. On July 25, 2003, appellants filed a motion to stay the action pending a determination by the JPML on the issue of transfer. The JPML issued a conditional transfer order on September 3, 2003, notice of which appellants filed with the district court on September 5, 2003.

On the same day that appellants filed their motion to stay, June 25, 2003, IMRF filed a motion to remand or abstain, raising three arguments: (1) the 1933 Act absolutely prohibits removal, even by way of § 1452(a); (2) IMRF's action does not fall within federal bankruptcy jurisdiction; and (3) even if there is subject matter and removal jurisdiction, the district court should abstain from exercising jurisdiction and should remand pursuant to § 1334(c)(1), which permits abstention in cases related to a bankruptcy case "in the interest of justice, or in the interest of comity with State courts or respect for State law," or § 1452(b), which permits remand of claims related to a bankruptcy case "on any equitable ground." These were the same arguments IMRF's attorneys already had made to Judge Cote without success, and would later make to the Second Circuit with the same result.

On September 9, 2003, although acknowledging Judge Cote's contrary decision and the JPML's conditional transfer order, the district court remanded this action to Illinois state court. (Sept. 9, 2003 Order at 3.) The court found that the 1933 Act bars removal but that its language conflicts with § 1452(a). (Id.) It resolved this conflict by concluding that "the rules of statutory construction require [the 1933 Act] to control over the more general provisions of 28 U.S.C. §§ 1334(b) and 1452" and that "the only way to give effect to the legislative intent behind its enactment is to construe it as a bar to removal even under these circumstances." (Id. at 3-4.) The district court further held that even if the 1933 Act did not bar removal, the claims were "not `related to' the WorldCom bankruptcy and cannot be removed under Section 1452," and also that "remand is appropriate pursuant to the doctrines of permissive abstention and equitable remand" under §§ 1334(c)(1) and 1452(b). (Id. at 4.) The court denied appellants' motion to stay proceedings pending the final transfer decision of the JPML and granted the IMRF's motion to remand or abstain. (Id. at 5.) On October 9, 2003, appellants filed a notice of appeal.

II. Discussion

A. Appellate Jurisdiction

We first must determine whether we have jurisdiction to hear this appeal. The general grant of our appellate jurisdiction is found in 28 U.S.C. § 1291, which provides that courts of appeals "shall have jurisdiction of appeals from all final decisions of the district courts of the United States." The breadth of our jurisdiction, however, is limited by several statutes which specifically bar appellate review of certain types of "final decisions." Each of the following statutes limit our jurisdiction in this case, given the district court's alternative grounds for remand: 28 U.S.C. § 1447(d) provides that "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise"; § 1334(d) bars appellate review of "[a]ny decision to abstain" made in a bankruptcy case or proceeding; and § 1452(b) bars review of equitable remands of claims related to a bankruptcy case.

The parties agree that these three statutes bar appellate review of the district court's reasons for remand in this case.⁶ Appellants argue, however, that "antecedent questions of power are properly presented to courts of appeals." In other words, appellants contend that the district court lacked statutory authority to issue the remand order and that we may vacate the order even though we may not review its reasoning.

In Thermtron Products, Inc. v. Hermansdorfer, where the Supreme Court first decided that § 1447(d) is not a complete bar to appellate review of remand orders, the Court held that it had appellate jurisdiction to review a remand order premised on the district court's overcrowded docket. 423 U.S. 336, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976), abrogated on different grounds by Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996). "Because the District Judge remanded a properly removed case on grounds that he had no authority to consider, he exceeded his statutorily defined power." Id. at 351, 96 S.Ct. 584. We have explained that "Thermtron permits us to decide whether a district court has the power to do what it did, although we cannot examine whether a particular exercise of power was proper." In re Cont'l Cas. Co., 29 F.3d 292, 294 (7th Cir.1994).

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