In re Enron Corporation Securities

Decision Date08 December 2006
Docket NumberNo. MDL-1446.,Civil Action Nos. H-01-3624, H-02-4788.,MDL-1446.
Citation465 F.Supp.2d 687
PartiesIn re ENRON CORPORATION SECURITIES, Derivative & "ERISA" Litigation. Mark Newby, et al., Plaintiffs v. Enron Corporation, et al., Defendants. Public Employees' Retirement System of Ohio, et al., Plaintiffs, v. Andrew S. Fastow, et al., Defendants.
CourtU.S. District Court — Southern District of Texas

David E Sellinger, Grant & Eisenhofer, Wilmington, DE, for, Public Employees Retirement System Board.

David Carr Geer, Bieser & Greer, Dayton, OH, for Defendants.


HARMON, District Judge.

Pending before the Court in the above referenced cause are two motions inter alia: (1) Plaintiffs Public Employees' Retirement System of Ohio ("PERS"), State Teachers' Retirement System of Ohio ("STRS"), School Employees' Retirement System of Ohio ("SERS"), and Ohio State Highway Patrol Retirement System's ("HPRS's") (collectively, the "Ohio Retirement Systems'") motion for leave to file an amended complaint and for the Cincinnati Retirement System ("Cincinnati") and the Ohio Tuition Trust Authority ("OTTA") to join in the Ohio Retirement Systems' Amended Complaint (instrument # 54); and (2) the Ohio Retirement Systems, Cincinnati, and OTTA's motion to strike the Sur-Reply Briefs of Proposed Defendants Goldman Sachs & Co.1 and the Outside Directors2 and for order that all parties and proposed Defents seen leave of Court prior to filing sur-reply briefs (# 86).

Since these motions were filed, the Newby class in H-01-3624 was certified on July 5, 2006, #4836. The Ohio Retirement Systems, Cincinnati, and OTTA filed a statement opting out of the class (# 94, filed on July 18, 2006), giving notice pursuant to the Court's July 11, 2003 order (#1561 in H-01-3624), as amended on July 11, 2006 (# 4848 in H-01-3624), that they were filing an amended complaint, in essence what they were seeking leave to do in the motions listed above, "without waiving any rights arising from (or asserted in) the motion for leave to amend and motion to join." Both scheduling orders clearly stated that if Plaintiffs were amending their complaints after opting out, unless as a matter of right, Plaintiffs must request leave of court. Thus the Court finds the motions listed above are still pending and apply to the permissibility of the filing of the new complaint, joinder of Cincinnati and OTTA as Plaintiffs in the instant suit, addition of federal securities claims, and suing additional Defendants in the amended complaint filed on August 17, 2006, # 97 in H-02-778.3

The Court addresses the motion to strike first because it affects the scope of review of the motion for leave to amend and to join.

I. Motion to Strike

Plaintiffs seek to strike the two sur-reply briefs on the grounds that (1) they were filed without leave of court4 and (2) Defendants "simply repackage arguments already asserted in their respective opposition briefs" and Defendants are not permitted to make new arguments that could have been raised in Defendants' responses.

Both Defendants respond that they are not aware of any federal, local or Court rule that requires a party to seek leave before filing a sur-reply, but that if the Court requires such, they request leave to file such a motion. Bank of America Corporation and Banc of America Securities LLC also filed a surreply (# 89), which reiterates the same point. In addition, Goldman Sachs states that it "believes its sur-reply will assist the Court in ruling on the merits of the original motion, especially in light of plaintiffs' omnibus reply brief, which fails to address many of the arguments raised in the separate briefs filed in opposition to their motion."

This Court observes that the Lacker court, 147 F.Supp.2d at 539, relied on the Northern District of Texas' then-in-effect Local Civil Rule 7.1, which, after a motion had been filed, permitted a response by the nonmovant and then a reply by the movant. The equivalent of that rule does not currently exist in the Southern District of Texas. Moreover, the Northern District of Texas follows the rule that generally a court should not consider arguments raised for the first time in a reply brief. Pennsylvania General Ins. Co. v. Story, No. Civ. A. 3:03CV0330-G, 2003 WL 21435511 (N.D.Tex. June 10, 2003), citing the following cases: Lacher, 147 F.Supp.2d at 539; Blanchard and. Company, Inc. v. Heritage Capital Corp., No. 3:97-CV-690-H, 1997 WL 757909 at *1 (N.D.Tex. Dec.l, 1997); Springs Industries, Inc. v. American Motorists Ins. Co., 137 F.R.D. 238, 240 (N.D.Tex.1991). Nevertheless, in Pennsylvania General, Chief Judge Fish concluded that "no `palpable injustice' exists where the nonmovants are given a chance to respond, as would be the situation if the court were to grant the instant motion for leave to file a surreply." 2003 WL 21435511 at *1, citing Blanchard at *1 and Springs Industries at 240.

Here Plaintiffs filed an omnibus reply; after reviewing it and the surreplies the Court finds that allowing Defendants' surreplies will cause no prejudice as long as the surreplies respond to previous briefs and do not raise new legal arguments. This Court is capable of determining whether a surreply raises new legal arguments and ignoring them if it does. Here it finds no such new theories. Instead the Court finds that the Goldman, Sachs & Co.'s surreply points to three points previously made in its opposition and argues that Plaintiffs have failed to address them in Plaintiffs' reply and have therefore conceded them by silence. Similarly, the Outside Directors highlight arguments made in their opposition that they claim Plaintiffs have failed to rebut in their reply to insure that Outside Directors' "relatively straightforward entitlement to relief is not obscured by the white noise of Plaintiffs' ambitious, `Omnibus Reply.'" Bank of America Corporation and Banc of America Securities LLC similarly have not crossed the line by arguing new legal theories. Moreover Plaintiffs' objection to the surreplies is conclusory, and they have not identified any specific points in the surreplies as inappropriate. Accordingly, because there are no new arguments being made and there is no prejudice, the Court denies the motion to strike the sur-replies.

II. Motion for Leave and to Join in Amended Complaint

As has often happened in this Multidistrict Litigation, there is a broad spectrum of judicial responses to the issues raised by the motion under review. The Court first summarizes the motion, responses, and reply, then sets out what it has determined should be the applicable law relating to the issues raised by the parties, and thereafter applies that law to resolve the questions. The Court also points out the law and pleading standards for issues that it finds should be more appropriately addressed by motions to dismiss in response to the viable portions of Plaintiffs' proposed amended complaint.

A. Pleadings Relating to Plaintiffs' Motion for Leave to Amend and to Join

1. Plaintiffs' Motion

The Ohio Retirement Systems filed their original complaint5 against numerous Defendants in Ohio state court on September 4, 2002, asserting claims for common law fraud and deceit, aiding and abetting common law fraud, conspiracy to commit fraud, and negligent misrepresentation under Ohio law, as well as violation of the Texas Securities Act, Tex. Civ. Stat. Art. 581-33. Lehman Brothers Holdings, Inc. removed the action, based on diversity and "related to" bankruptcy jurisdiction, to the United States District Court for the Southern District of Ohio, from which it was transferred to this Court on December 6, 2003 by the Judicial Panel on Multidistrict Litigation for inclusion in MDL 1446. On January 7, 2003, the undersigned judge ordered it coordinated with Newby for pretrial proceedings in MDL 1446.

In their motion, the Ohio Retirement Systems seek to amend the complaint to add new federal securities law claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 and to add certain new defendants to both these new federal claims and to the state law claims in their original complaint. They further maintain that their fraud allegations are pleaded in significantly more detail in the proposed amended complaint, found at Ex. A to the Declaration of Sidney S. Liebsman, # 56 in H-02-4788, and virtually identical to the amended complaint (# 97) that was filed without leave on August 17, 2006.

The motion for leave to amend (# 56) was filed on September 15, 2005, two and a half months before the cut-off for fact discovery, November 30, 2005. Plaintiffs expressed concern that if they did not seek leave to amend at that time, but instead complied with the Court's July 11, 2003 order staying the filing of amended complaints in this action until a class had been certified in Newby and in Tittle, some of the proposed new claims might become time-barred.6 As noted, the order certifying the Newby class was not entered in 01-3624 until July 5, 2006, # 4836; a class was certified in Tittle, H-01-3913, on June 7, 2006, # 1191. Plaintiffs argue that the July 11, 2003 order should be construed as having tolled the applicable statutes of limitations: "[W]here a person is prevented from exercising his legal remedy by the pendency of legal proceedings, the time during which he is thus prevented should not be counted against him in determining whether limitations have barred his right." Piotrowski v. City of Houston, 237 F.3d 567, 577 n. 14 (5 th Cir.2001) (applying Texas law7).8 See also Versluis v. Town of Haskell, Okla., 154 F.2d 935, 942 (10th Cir.1946)("it is ... well recognized ... that `whenever a person is prevented from exercising his legal remedy by some paramount authority, the time during which he is thus prevented is not to be counted against him in determining whether the statute of limitations has barred his right.'"). Mor...

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