Newby v. Enron Corp.
| Decision Date | 09 August 2002 |
| Docket Number | No. 02-20343.,02-20343. |
| Citation | 302 F.3d 295 |
| Parties | Mark NEWBY; et al., Plaintiffs, Fleming & Associates L.L.P., Plaintiff-Appellant, David Jose; James Brister; Peter Maxfield, George Atallah, Appellants, v. ENRON CORP.; et al., Defendants, Andrew S. Fastow; Jeffrey J. Skilling; David B. Duncan; Kenneth L. Lay, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Gregory Sean Jez, George M. Fleming (argued), Sylvia Gerald Davidow, Fleming & Associates, Houston, TX, for all Appellants,
Craig Smyser (argued), Smyser, Kaplan & Veselka, Houston, TX, for Fastow.
Jeffrey William Kilduff, O'Melveny & Myers, McLean, VA, Bruce Hiler, Robert Michael Stern (argued), O'Melveny & Myers, Washington, DC, for Skilling.
Barry Grattan Flynn, Law Offices of Barry G. Flynn, Houston, TX, for Duncan.
James E. Coleman, Jr., Bruce William Collins, Diane M. Sumoski (argued), Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, for Lay.
Appeal from the United States District Court for the Southern District of Texas.
Before HIGGINBOTHAM, WIENER, and BENAVIDES, Circuit Judges.
Fleming & Associates, a Houston-based law firm, and its clients David Jose, James Brister, Peter Maxfield, and George Atallah appeal the district court's order dissolving a temporary restraining order issued by a state court and enjoining Fleming from filing any new Enron-related actions without leave of the district court.
Fleming and its clients argue that the district court lacked authority to enjoin prospective state court actions, that the Anti-Injunction Act barred the district court from doing so, and that the district court abused its discretion in issuing the injunction.1 We affirm.
Fleming has thus far filed at least seven lawsuits in state courts throughout Texas, alleging securities fraud arising out of the business failure of Enron Corporation. Each suit stated claims for fewer than fifty plaintiffs in complaints crafted to avoid the provisions of the Securities Litigation Uniform Standards Act of 1998, which made federal court the exclusive venue for class actions alleging fraud in the sale of covered securities.2 SLUSA defines a "covered class action" as a single lawsuit in which damages are sought on behalf of more than 50 persons,3 but Fleming's state court suits were each brought on behalf of less than 50 plaintiffs. Fleming has several hundred additional clients, and has advised this court of plans to file similar state court securities-related lawsuits on their behalf if permitted to do so.
At all relevant times, over 70 cases arising from the Enron collapse have been pending in the Southern District of Texas. Several shareholder suits have been consolidated into a case styled Mark Newby, et al. v. Enron Corp, et al. On April 16, 2002, the Judicial Panel on Multidistrict Litigation transferred all such federal Enron-related actions to the Southern District of Texas for pre-trial coordination. On the recusal of another judge, the cases were transferred to Judge Melinda Harmon. As the MDL judge she has ruled on many motions and has been heavily engaged in the considerable task of managing this complex litigation, including the filing of a comprehensive pre-trial scheduling order. Fleming represents clients with claims that are part of the MDL proceedings.
On December 5, 2001 the district court denied an application for a freeze order. Then, on January 23, 2002, the district court ordered defendant Arthur Andersen, L.L.P. to segregate, preserve, and protect all writings and other materials relating to Enron and any Enron-related entities. The district court also ordered depositions of individuals connected with Andersen on topics relating to document and data retention and destruction.
Meanwhile, Fleming filed the first state court suit on November 7, 2001 in Harris County, Texas on behalf of Fred and Marian Rosen, asserting breach of fiduciary duty of loyalty and care.4 On January 16, 2002, Fleming filed an amended petition on behalf of the Rosen plaintiffs, naming 21 new defendants and transforming the action into a state court securities fraud suit. The amended petition requested a temporary restraining order against Andersen to prevent Andersen from destroying Enron-related documents. Two days later, the state court in the Rosen case issued an ex parte TRO against Andersen.
Eight days later, Fleming filed Bullock v. Andersen on behalf of eleven plaintiffs in state court in Washington County, Texas. Among other relief, the Bullock plaintiffs sought a TRO against Andersen and former Enron CEO Kenneth Lay concerning the preservation of Enron-related documents. On the same day, the state court issued an ex parte TRO against Andersen, granting relief that was identical to the evidence order issued by Judge Harmon in Newby.
Five days later, on January 29, 2002, Fleming filed the Ahlich suit in Brazos County, Texas. This suit was brought on behalf of 45 plaintiffs, purchasers of an unknown amount of Enron stock. Fleming also sought an identical ex parte TRO against Andersen and Lay. Defendants were given no notice of the filing of the suit or the application for a TRO.
Eight days later, Fleming filed Jose, et al. v. Arthur Andersen, L.L.P., et al. in Bexar County, Texas, making essentially the same allegations as the previous suits against the same 37 defendants named in the Ahlich suit. Once again, Fleming sought an ex parte TRO, which the state court granted on the same day. Fleming provided no notice to defendants before seeking the TRO. The TRO, like the previous orders granted by the state courts, enjoined defendants from destroying, altering, or deleting Enron-related documents. Unlike the others, it also prevented defendants from transferring any property, funds, or assets to third parties not in the ordinary course of their business and from transferring assets out of the United States.
Five days later, Lay and Skilling urged Judge Harmon to enjoin Fleming from requesting further injunctive relief in state court without providing notice to them. After a hearing, the federal district court on February 15 enjoined Fleming from filing any new Enron-related actions without leave of the district court and ordered Fleming to dissolve the TRO obtained in Jose. The district court rested its authority to issue the injunction in the All Writs Act, the Anti-Injunction Statute, and its inherent authority.
On February 19, Fleming sought leave to file two Enron-related actions in state court, which the district court denied, noting that Fleming failed to provide the court with copies of the lawsuits that it wished to file. Fleming's motion to file the state court suits did not describe the nature of the injunctive relief sought by Fleming or delineate the allegations made in the suits. On February 22, Fleming petitioned this court for a writ of mandamus, along with a motion for emergency relief seeking a stay of the district court's order. We denied relief, noting that orders granting an injunction are appealable.
Fleming and the Jose plaintiffs now appeal the injunction, arguing that the district court lacked subject matter jurisdiction or the authority to grant it, that the Anti-Injunction Act barred the district court from enjoining state proceedings, and that its issue was an abuse of discretion.
As a preliminary matter, we note that Fleming's argument that the district court had no authority to order Fleming to obtain the dissolution of the Jose TRO is moot. Under Texas state law, the TRO was effective for only fourteen days,5 and before the expiration of the fourteen days, Andersen removed the Jose action to federal court. Because the TRO was never dissolved and would have expired in any case, this issue is moot and is not likely to occur again.
Preliminary matters aside, we turn to the jurisdiction of the district court to enjoin Fleming from filing any new Enron-related actions without leave of the court. The contention here is that the district court's claim of authority to enjoin Fleming under "the All Writs Act, the Anti-Injunction Statute, and its inherent authority" is mistaken. We agree that the All Writs Act and the Anti-Injunction Act do not afford independent grounds for the jurisdiction of the district court.6 At the same time, the district court plainly had jurisdiction over the actions pending before it in the Newby litigation, and jurisdiction over the Jose state court action was not necessary.
Similarly, a federal district court can exercise ancillary jurisdiction over a second action in order "to secure or preserve the fruits and advantages of a judgment or decree rendered" by that court in a prior action,7 but we need not draw upon that power here. It is a given that the district court, with jurisdiction over Newby, had subject matter jurisdiction to issue an injunction to preserve and protect its jurisdiction. As we will explain, the district court had the authority to compel lawyers properly before it from engaging in vexatious and needlessly harassing maneuvers that challenged judicial efforts to maintain the cooperative approach essential to preserving fair processes in the complex suit in federal court.
We review the district court's grant of an injunction for an abuse of discretion, and underlying questions of law de novo.8
Although the Anti-Injunction Act is an absolute bar to any federal court action that has the effect of staying a pending state court proceeding unless the action falls within a designated exception,9 it does not preclude injunctions against a lawyer's filing of prospective state court actions.10 Even so, we are constrained by the overarching principle that federal courts must be wary of infringing on legitimate exercises of state judicial power.11 The All Writs Act provides that federal courts may "issue all writs necessary or appropriate in aid of their respective jurisdictions and...
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