In re Worldcom Securities Litigation
| Decision Date | 26 July 2007 |
| Docket Number | Docket No. 05-6979-cv. |
| Citation | 496 F.3d 245 |
| Parties | In re WORLDCOM SECURITIES LITIGATION. California Public Employees' Retirement System, California State Teachers' Retirement System, The Los Angeles County Employees Retirement Association, Board of Trustees of the Teachers' Retirement System of the State of Illinois, State Universities Retirement System on Illinois, Illinois State Board of Investment, West Virginia Investment Management Board, Contra Costa County, Employees' Retirement System, Oakland Fire and Police Retirement System, Sacramento County Employees' Retirement System, Sacramento Regional Transit District Contract Employees' Retirement Plan, Sacramento Regional Transit District Salaried Employees' Retirement Plan, San Bernadino County Employees' Retirement Association, Sonoma County Employees' Retirement Association, Tulare County Employees' Retirement Association, Ventura County Employees' Retirement Association, Washington State Investment Board, Minnesota State Board of Investment, Los Angeles Board of Fire & Police Pension Commissioners, Board of Administration of the Los Angeles City Employees' Retirement System, The Maryland-National Capital Park and Planning Commission Employees' Retirement System, Heavy & General Laborers' Locals 472 & 172 Annuity Fund, Milwaukee Employees' Retirement System, Maine State Retirement System, Municipal Employees' Retirement System of Michigan, Monroe County Employees' Retirement System, State of Alaska Department of Revenue, Alaska State Pension Investment Board, and Carpenters Pension Trust for Southern California, Plaintiff-Appellants, v. Caboto-Gruppo Intesa BCI and Caboto Holdings Sim S.p.A., Defendant-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
Eric Alan Isaacson (William S. Lerach, Darren J. Robbins, Michael J. Dowd, Spencer A. Burkholz, Thomas E. Egler, Joseph D. Daley, Tami Falkenstein Hennick, on the brief), Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA; and Patrick J. Coughlin, Randi D. Bandman, Azra Z. Mehdi, on the brief, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Francisco, CA, for Plaintiff-Appellants.
Robert A. Horowitz (Toby S. Soli, on the brief), Greenberg Traurig, LLP, New York, NY, for Defendant-Appellees.
Before: FEINBERG, LEVAL, and CABRANES, Circuit Judges.
This is an appeal from the judgment of the United States District Court for the Southern District of New York (Cote, J.), which dismissed the actions of certain bondholders ("Appellants") of WorldCom, Inc. as time-barred. The question presented is whether the filing of a complaint asserting a class action tolls the statute of limitations for putative class members who file individual suits (asserting the same claims) prior to the class certification decision.
The Appellants are public and private pension funds, which purchased bonds of WorldCom. In these suits brought against the underwriters of the bonds under Section 11 of the Securities Act of 1933, the Appellants allege that the registration statements covering the bonds they purchased contained false and misleading information. The statute of limitations for such actions requires that claims be brought "within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence." 15 U.S.C. § 77m. These complaints initially named as defendants a number of underwriters—not including Caboto-Gruppo Intesa BCI and Caboto Holdings Sim S.p.A. (collectively, "Caboto") who are the Appellees. The complaints were later amended to add the Caboto defendants. The assertion of claims against Caboto in these actions did not occur until more than one year after the Appellants were put on inquiry notice of the misinformation in the registration statements. In the meantime, however, and prior to the expiration of the Appellants' one-year limitations period, other purchasers of the WorldCom bonds had filed timely class action suits under Section 11 against Caboto purporting to represent Appellants as members of the class. In the district court, responding to Caboto's motion to dismiss the suits for untimeliness, the Appellants argued that the filing of these class actions had tolled the statute of limitations as to their claims under the doctrine announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974): "[T]he commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class ...." Id. at 554, 94 S.Ct. 756. The district court rejected this argument because the Appellants had filed their individual suits before the class suits on their behalf had been certified. The district court held that tolling under American Pipe is unavailable to class members who, like the Appellants, file individual suits before the class certification decision. The court therefore found the Appellants' suits to be untimely and dismissed them. We disagree with the district court. As we understand the rule of American Pipe, it provides that the filing of a class action tolls the statute of limitations for all members of the asserted class, regardless of whether they file an individual action before resolution of the question whether the purported class will be certified.
The district court summarized the origins of this complex litigation:
For many years, WorldCom grew by acquisitions. By 1998, it had acquired more than sixty companies in transactions valued at over $70 billion.... In early 2000, however, its attempt to acquire Sprint collapsed. During this period of acquisition-driven expansion, WorldCom had used accounting devices to inflate its reported earnings. Senior WorldCom management instructed personnel in the company's controller's office on a quarterly basis to falsify WorldCom's books to reduce WorldCom's reported costs and thereby to increase its reported earnings. When the pace of acquisitions slowed, it added new strategies to disguise a decline in its revenues. In 2002, however, the scheme collapsed.
In re WorldCom, Inc. Sec. Litig., 294 F.Supp.2d 392, 400 (S.D.N.Y.2003).
In February 2002, WorldCom reduced its revenue and earnings forecasts for the year, and reduced them again on April 22. Shortly thereafter, the first investor class action lawsuit against WorldCom was filed on April 30, 2002. On June 25, WorldCom admitted publicly that it had previously issued false and misleading financial statements. WorldCom admitted it had overstated earnings and had falsely reported ordinary costs as capital expenditures. Soon after this public disclosure, WorldCom filed for bankruptcy. Once WorldCom's admission became public, numerous class action lawsuits were filed in various federal courts around the country on behalf of purchasers of WorldCom securities. In August 2002 the Judicial Panel on Multi-District Litigation consolidated the federal court class actions before Judge Cote in the United States District Court for the Southern District of New York.
In the same period, numerous individual actions were filed by holders of WorldCom securities, primarily in state courts. After WorldCom's public disclosures, between July 2002 and October 2003, over 120 public and private pension funds, all represented by the law firm of Milberg Weiss Bershad Hynes & Lerach LLP, filed individual state-court actions asserting claims relating to their purchase of WorldCom bonds. These state-court suits alleged claims under the Securities Act of 1933, but not under the Exchange Act of 1934. This choice was apparently intended to prevent removal of the state-court actions to federal court. Federal courts have exclusive jurisdiction over Exchange Act claims, see 15 U.S.C. § 78aa, and any claim joined to an Exchange Act claim may also be removed under 28 U.S.C. § 1441. By contrast, the Securities Act grants state and federal courts concurrent jurisdiction and generally bars the removal of state-court actions to federal court. See 15 U.S.C. § 77v(a).
Notwithstanding this strategy, the Appellants' state-court actions were removed to federal court under 28 U.S.C. § 1452(a), which permits removal from state courts of actions falling within the federal courts' bankruptcy jurisdiction. The Appellants challenged the removal, but the district court concluded that their cases were removable because they were "related to" the WorldCom bankruptcy, In re WorldCom, Inc. Sec. Litig., 293 B.R. 308 (S.D.N.Y.2003)—a decision later affirmed on appeal, Cal. Pub. Employees' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86 (2d Cir. 2004). The Appellants' actions were thus consolidated with the class actions in May 2003.
The first of these class action suits was filed by one group of Appellants, the State of Alaska Department of Revenue and the Alaska State Pension Investment Board (the "Alaska Appellants"), in state court in Alaska on April 21, 2003. Their complaint alleged that the Alaska Appellants suffered substantial losses arising out of their purchases of bonds from WorldCom's August 1998, May 2000, and May 2001 offerings. The complaint named as defendants a number of the underwriters of those bonds.1 On September 24, 2003, a month after the removal of their suit to the U.S. District Court for the Southern District of New York, the Alaska Appellants amended their complaint, adding additional underwriters (the "Additional Underwriters")— including Caboto—as defendants. The Caboto defendants are the sole appellees in this appeal.
The amended complaint alleged that Caboto, as well as other underwriters, violated Section 11 of the Securities Act,2 which imposes liability on underwriters of securities when the registration statement contains an "untrue statement of a material fact or omit[s] to state a material fact required to be stated therein or necessary to make the statements therein not...
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