Retirement Sys. of Alabama v. J.P. Morgan Chase

• Decision Date: 24 September 2002
• Docket Number: No. CV-02-A-898-N.,CV-02-A-898-N.
• Citation: 285 B.R. 519
• Court: U.S. District Court — Middle District of Alabama
• Parties: The RETIREMENT SYSTEMS OF ALABAMA, consisting of The Employees Retirement System of Alabama and The Teachers Retirement System of Alabama; The Public Education Employees' Health Insurance Fund; The Public Employees Individual Retirement Account Fund; The Clerks' and Registers' Supernumerary Fund; The Wildlife and Freshwater Fisheries Fund; The Alabama Cultural Resources Preservation Trust Fund; and The Alabama Trust Fund, Plaintiffs, v. J.P. MORGAN CHASE & CO., J.P. Morgan Securities, Inc., Citigroup, Inc., Salomon Smith Barney, Inc., Arthur Andersen, LLP, Bank of America Corp., Banc of America Securities LLC, Bernard J. Ebbers, Scott D. Sullivan, Bear Stearns & Co., Inc., et al., Defendants.

Page 519

285 B.R. 519

The RETIREMENT SYSTEMS OF ALABAMA, consisting of The Employees Retirement System of Alabama and The Teachers Retirement System of Alabama; The Public Education Employees' Health Insurance Fund; The Public Employees Individual Retirement Account Fund; The Clerks' and Registers' Supernumerary Fund; The Wildlife and Freshwater Fisheries Fund; The Alabama Cultural Resources Preservation Trust Fund; and The Alabama Trust Fund, Plaintiffs, v. J.P. MORGAN CHASE & CO., J.P. Morgan Securities, Inc., Citigroup, Inc., Salomon Smith Barney, Inc., Arthur Andersen, LLP, Bank of America Corp., Banc of America Securities LLC, Bernard J. Ebbers, Scott D. Sullivan, Bear Stearns & Co., Inc., et al., Defendants.

No. CV-02-A-898-N.

United States District Court, M.D. Alabama, Northern Division.

September 24, 2002.

Thomas T. Gallion, III, Haskell Slaughter Young & Gallion LLC, Montgomery, AL, John Michael Rediker, Thomas L. Krebs, Michael K. K. Choy, Patricia C. Diak, Jeffrey V. Havercroft, Matthew T. Franklin, Kirk D. Smith, Haskell Slaughter Young & Rediker, LLC, Birmingham, AL, for plaintiffs.

David R. Boyd, Robin Garrett Laurie, Charles B. Paterson, Balch & Bingham, Montgomery, AL, Jay B. Kasner, John L. Gardiner, Skadden, Arps, Slate, Meagher & Flom, LLP, New York City, Warren B. Lightfoot, Robin H. Graves, Nikaa Baugh Jordan, Lightfoot, Franklin & White, L.L.C., Birmingham, AL, Eliot Lauer, Gary L. Cutler, Jonathan J. Walsh, Curtis, Mallet-Prevost, Colt & Mosle, LLP, New York City, Joseph C. Espy, III, James Flynn Mozingo, Benjamin Joseph Espy, Melton Espy & Williams PC, Montgomery, AL, R. David Kaufman, Brunini, Grantham, Crower & Hewes, Jackson, MS, David M. Maria, Arnold & Porter, Washington, DC, Alvin L. (Peck) Fox, Jr., Peter S. Fruin, Maynard, Cooper & Gale, P.C., Montgomery, AL, A. Inge Selden, III, Patrick C. Cooper, Maynard, Cooper & Gale, P.C., Birmingham, AL, for defendants.

MEMORANDUM OPINION

ALBRITTON, Chief Judge.

This matter is before the court pursuant to the August 13, 2002, Order of this court (Doc. # 13) directing the Defendants to show cause why this case should not be remanded to the Circuit Court of Montgomery County, Alabama, for the same reasons discussed in this court's Memorandum Opinion in Retirement Systems of Alabama v. Merrill Lynch & Co. et al., 209 F.Supp.2d 1257 (M.D.Ala.2002). Pending before the court are: 1) Plaintiffs' Motion to Remand or to Abstain (Doc. # 8), 2) Plaintiffs' Motion to Stay Consideration of Defendants' Motion to Transfer and For Preliminary Injunction (Doc. # 9), 3) Plaintiffs' Motion for Expedited Hearing on Remand and Stay Motions (Doc. # 10), and 4) Defendants' Salomon Smith Barney Inc. ("Salomon Smith Barney"), J.P. Morgan Securities Inc. ("JPM Securities"), Banc of America Securities LLC, and Citigroup, Inc. ("Citigroup") Motion to Stay Proceedings Pending Determination of the Multidistrict Panel and To Set Briefing Schedule (Doc. # 14).

After a careful and thorough review of the pleadings, motions, and memorandums filed by counsel in this case and for the reasons discussed below, the court finds that Plaintiffs' Motion to Remand or to Abstain is due to be GRANTED. The remaining pending motions are due to be DENIED.

I. Procedural History

The Retirement Systems of Alabama and its constituent pension funds ("RSA") originally filed this case on July 15, 2002, in the Circuit Court of Montgomery County, Alabama. RSA amended its complaint on July 31, 2002. Defendants J.P. Morgan Chase & Co. ("JPM Chase"), Bank of America Corp., Banc of America Securities LLC, Salomon Smith Barney, JPM Securities, and Citigroup timely removed this case to this court under 28 U.S.C. § 1452 on August 5, 2002.¹ Title 28 U.S.C. § 1452(a) provides:

A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334² of this title.

28 U.S.C. § 1452(a). Defendant Arthur Andersen LLP ("Andersen") did not join the Notice of Removal. RSA filed its timely motion to remand or abstain on August 9, 2002.

II. Remand Standard

Federal courts are courts of limited jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir.1994); Wymbs v. Republican State Executive Comm., 719 F.2d 1072, 1076 (11th Cir.1983), cert. denied, 465 U.S. 1103, 104 S.Ct. 1600, 80 L.Ed.2d 131 (1984). They may only hear cases that they have been authorized to hear by the Constitution or the Congress of the United States. See Kokkonen, 511 U.S. at 377, 114 S.Ct. 1673. The Eleventh Circuit favors remand of removed cases where federal jurisdiction is not absolutely clear. See Burns, 31 F.3d at 1095.

III. Background

The financial decline of the WorldCom Corporation brought about this litigation. RSA has sued a number of entities and persons allegedly involved in, and/or with culpable knowledge of, the events and transactions leading to WorldCom's bankruptcy. WorldCom filed its petition for Chapter 11 relief on July 21, 2002, in the United States Bankruptcy Court for the Southern District of New York. Prior to WorldCom's filing for bankruptcy, RSA had purchased millions of dollars worth of WorldCom debt securities as well as large amounts of WorldCom common stock. These securities are now largely valueless. RSA's Amended Complaint alleges that the Defendants³ violated the Alabama Securities Act, Ala.Code §§ 8-6-1 et seq., the Alabama common law of aiding and abetting, the Alabama statutory and common law of fraud, including Ala.Code § 6-5-100 et seq., and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l(a)(2), & 77o.⁴

WorldCom is not a defendant in this action. Despite the large number of civil actions involving both WorldCom and the defendants in this case, the Judicial Panel on Multidistrict Litigation ("JPML") has yet to designate a Multidistrict Litigation ("MDL") court to consolidate these cases. The defendants have notified this court that the JPML has set a hearing for September 26, 2002, to consider the various lawsuits relating to WorldCom's collapse. Defendants Memorandum in Support of the Motion to Stay Proceedings, pp. 4, 7 (Doc. # 15); Declaration of Charles B. Paterson, p. 2.

The facts in this case are quite similar to those found in this court's memorandum opinion in Retirement Systems of Alabama v. Merrill Lynch & Co. et al., 209 F.Supp.2d 1257 (M.D.Ala.2002) ("Merrill Lynch"). Given the parties' familiarity with this decision, an extended discussion of that opinion is not necessary. The Order at issue in this case directed the Defendants to show cause why the Merrill Lynch opinion does not control the outcome of this case.

IV. Underwriter Defendants' Motion to Transfer

A preliminary issue facing the court is the Underwriter Defendants' Motion to Stay Proceedings Pending Determination of the Multidistrict Panel (Doc. # 14). The Underwriter Defendants argue that Gould v. National Life Insurance Co., 990 F.Supp. 1354 (M.D.Ala.1998) compels this court to consider their motion to stay prior to deciding RSA's Motion to Remand or Abstain. Under Eleventh Circuit jurisprudence, "a court should inquire into whether it has subject matter jurisdiction at the earliest possible stage in the proceedings." Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 410 (11th Cir.1999). Because RSA's Motion to Remand or Abstain directly addresses the question of subject matter jurisdiction, the court will address that motion first in accordance with Eleventh Circuit guidance. Accord Merrill Lynch, 209 F.Supp.2d at 1261 (deciding first the question of subject matter jurisdiction in the motion to remand instead of the motion to transfer).

V. RSA's Motion to Remand or Abstain

A. Responses to Show Cause Order

Pursuant to this court's August 13, 2002, Order directing the Defendants to show cause why this case should not be remanded to the state circuit court, the Underwriter Defendants offer several reasons why this case is distinct from Merrill Lynch. First, they argue that unanimity is not required for removal of cases under 28 U.S.C. § 1452. The Underwriter Defendants seek to distinguish this case from Merrill Lynch both by conforming the removal to Rule 9027 of the Federal Rules of Bankruptcy Procedure and by consenting to the entry of final orders and judgments by the bankruptcy judge. The Underwriter Defendants also note that even if the JPML intervenes, they will still seek to have the Southern District of New York chosen as the MDL court, from which this case can be automatically referred to the bankruptcy court supervising the WorldCom reorganization. In Merrill Lynch, the Merrill Lynch defendants⁵ desired to transfer the case to the MDL court in Houston, Texas, instead of the Bankruptcy Court for the Southern District of New York, which was handling the Enron reorganization. 209 F.Supp.2d at 1260-61. The Merrill Lynch defendants wanted to use the bankruptcy removal procedure under 28 U.S.C. § 1452 to transfer the case not to a bankruptcy court but to another district court. Id.

Second, the Underwriter Defendants argue that this case is "related to" the WorldCom bankruptcy within the meaning of 28 U.S.C. §§ 1334(b) & 1452. In support of this argument, the Underwriter Defendants offer the indemnification agreements contained in the underwriting agreements between WorldCom and the Underwriter Defendants. The Underwriter Defendants argue that these indemnification agreements provide for a present right of reimbursement by WorldCom to the Underwriter Defendants for their legal fees, as incurred, for any defense involving an issuance of...