Opinion
MASTER FILE. No. 03 Civ. 8269, No. 03 Civ. 8923, No. 03 Civ. 9168, No. 03 Civ. 9400, No. 03 Civ. 9402, No. 03 Civ. 9401
January 26, 2004
William S. Lerach, Darren J. Robbins, Spencer Burkholz, Michael J. Dowd, Randall Baron, Thomas E. Egler, Milberg Weiss Bershad Hynes Lerach LLP, San Diego, CA, For Plaintiffs
Melvyn I. Weiss, Steven G. Schulman, Sol Schreiber, Milberg Weiss Bershad Hynes Lerach LLP, New York, NY, For Plaintiffs
Patrick J. Coughlin, Milberg Weiss Bershad Hynes Lerach LLP, San Francisco, CA, For Plaintiffs
Max W. Berger, John P. Coffey, Steven B. Singer, Beata Gocyk-Farber, John C. Browne, Jennifer L. Edlind, Bernstein Litowitz Berger Grossman LLP, New York, NY, For Lead Plaintiff in the Securities Litigation
Leonard Barrack, Gerald J. Rodos, Jeffrey W. Golan, Mark R. Rosen, Jeffrey A. Barrack, Pearlette V. Toussant, Barrack Rodos Bacine, Philadelphia, PA, For Lead Plaintiff in the Securities Litigation
Eliot Lauer, Michael Moscato, Michael Hanin, Curtis, Mallet-Prevost, Colt Mosle LLP, New York, NY, For Defendant Arthur Anderson LLP
Jay B. Kasner, Susan L. Saltzstein, Steven J. Kolleeny, Skadden Arps Slate Meagher Flom LLP, New York, NY, For Underwriter Defendants
Martin London, Richard A. Rosen, Brad S. Karp, Eric S. Goldstein, Walter Rieman, Marc Falcone, Joyce S. Huang, Paul Weiss Rifkind Wharton Garrison LLP, New York, NY, for Defendants Citigroup Global Markets, Inc. f/k/a Salomon Smith Barney, Inc., Citigroup Inc., and Jack Grubman
Robert McCaw, Peter K. Vigeland, Wilmer Cutler Pickering, New York, NY, For Defendants Citigroup Global Markets, Inc.
OPINION AND ORDER
Plaintiffs in six actions ("Plaintiffs" and "Six Actions") filed by Milberg Weiss Bershad Hynes Lerach ("Milberg Weiss") request the voluntary dismissal of their actions in order to participate in the securities class action arising out of the collapse of WorldCom, Inc. ("WorldCom"). On January 20, 2004, the defendants' motions to dismiss the Six Actions in their entirety as barred by the statute of limitations were granted. For the following reasons, the Plaintiffs' requests for a voluntary dismissal are granted, and these actions will be dismissed with prejudice with the following exception. Plaintiffs will be permitted to remain as members of the WorldCom class action without prejudice with respect to any claims brought on behalf of the class.
The United States Court of Appeals for the Second Circuit is currently considering an interlocutory appeal on a jurisdictional issue certified by this Court. On January 21, the Court of Appeals issued an order requiring the parties in the WorldCom Securities Litigation to show cause by January 28 whether "in light of continuing proceedings in the district court, including dismissal of 31 individual actions brought by Milberg Weiss and its denial of Milberg's request to delay the opt out period for the class action, any order from this court should be issued in aid of our jurisdiction over this appeal." In order to give the Court of Appeals an opportunity to consider the submissions of January 28, this Court will not sign any order giving effect to this Opinion, or to the Opinion of January 20, before February 12, 2004. As described below, the Opinion of January 20 granted the motions to dismiss nine Milberg Weiss Actions in their entirety and to dismiss claims, but not the entire action, in the case of twenty-one other Milberg Weiss Actions.
Background
The following presents the background to this litigation relevant to the statute of limitations issues that affect these Six Actions and to the pending motions for their voluntary dismissal. On June 25, 2002, WorldCom declared that it would undertake a massive restatement of its financial statements for 2001 and the first quarter of 2002. Beginning with the June 25 announcement, a series of public disclosures revealed, in essence, that WorldCom had misrepresented its financial condition since 1999. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219049, at *4 (S.D.N.Y. May 19, 2003) (opinion denying, in large part, motions to dismiss the class action complaint). By late July 2002, WorldCom had filed the largest bankruptcy in United States history.Even before the June 25 announcement, the first class action alleging WorldCom claims had been filed in this district. The class actions were consolidated by an Order of August 15, 2002. Numerous actions alleging individual, as opposed to class, claims ("Individual Actions") were also filed in venues across the country, many by Milberg Weiss ("Milberg Weiss Actions").
The Judicial Panel on Multi-District Litigation ("MDL Panel") transferred WorldCom litigation pending in other federal district courts, either because it was filed there originally or because it was removed by defendants to federal court, to this Court for pretrial proceedings. This Court's Order of December 23, 2002 found that the Individual Actions and the securities class actions (collectively, Securities Litigation) involve common questions of law and fact, and that consolidation of these actions for pretrial proceedings was necessary.See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2002 WL 31867720 (S.D.N.Y. Dec. 23, 2002). A Consolidation Order of May 28, 2003, set out the framework for consolidation, and provided that "the requirement that any defendant named and served in an Individual Action must move, answer, or otherwise respond in that action is stayed."In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21242882, at *2 (S.D.N.Y. May 29, 2003).
The first Milberg Weiss Action was filed on July 5, 2002. Each Milberg Weiss Action was filed in a state court and pleaded solely federal securities law claims under the Securities Act of 1933 ("Securities Act"). By the Fall of 2003, Milberg Weiss had filed at least forty-seven Individual Actions on behalf of over one hundred and twenty pension funds, many of them public employee or union pension funds. All of the Milberg Weiss Actions were removed by defendants on the ground that they were related to the WorldCom bankruptcy. While six of the removed Milberg Weiss Actions were remanded before their transfer to this Court by the MDL Panel, the rest were transferred and have been consolidated in the Securities Litigation for pre-trial purposes. The Six Actions were each filed more than one year after the June 25, 2002 WorldCom announcement. The first of the Six Actions was filed on June 27, 2003; the last on August 13.
The Six Actions are the following. (1) Alaska Electrical Pension Fund, 03 Civ. 8269 — filed on June 27, 2003. (2) Alaska Permanent Capital Mgt. Co., 03 Civ. 8923 — filed on July 23, 2003. (3) Locals 302 and 612 of the Int'l Union of Operating Engineers-Employers Construction Industry Retirement Trust, 03 Civ. 9168 — filed on July 28, 2003. (4) Alaska Teamster-Employer Pension Trust, 03 Civ. 9400 — filed on August 6, 2003. (5) The National Asbestos Workers Pension Fund, 03 Civ. 9402 — filed on August 6, 2003. (6) District No. 9, I.A. of M. A. W. Pension Trust and District No. 9, I.A. of M. A. W. Welfare Trust, No. 03 Civ. 9401 — filed on August 13, 2003.
On May 19, 2003, the motions to dismiss the class action were largely denied. In re WorldCom, Inc. Sec. Litig., 2003 WL 21219049. An amended consolidated class action complaint was filed on August 1. The class action complaint in the Securities Litigation pleads claims under both the Securities Act and the Securities Exchange Act of 1934. By October 14, 2003, virtually all defendants had filed answers to the amended consolidated class action complaint. The motion to certify a class was granted on October 24, 2003. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22420467 (S.D.N.Y. Oct. 24, 2003).
A Clarification Order of November 5, provided that "for purposes of Rule 41(a) only, defendants are deemed to have filed an answer in each Individual Action as of the date the Individual Action arrives on this Court's docket." In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22508508 (S.D.N.Y. Nov. 5, 2003). Parties were given until November 21 to object to the Clarification Order. None of the Milberg Weiss Actions made any objection. The objections that were made were denied. In re WorldCom, Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 23095478 (S.D.N.Y. Dec. 1, 2003).
At a conference on September 12, defendants gave notice of an intent to bring, in two tranches, motions to dismiss claims common to many Individual Actions. Among the grounds they identified was the contention that some Securities Act claims were barred by the applicable statute of limitations and would not be able to rely on American Pipe tolling. See American Pipe Construc. Co. v. Utah, 414 U.S. 538 (1974). At a conference on September 22, the Court proposed and the parties agreed that the defendants would initially address their motions to dismiss to one or two of the complaints among the Individual Actions. The plaintiffs in those actions would oppose the motions and the plaintiffs in other Individual Actions would be permitted to file a single, joint amicus brief in opposition. An Order of September 22 provided that when a decision on the motion to dismiss was issued, the parties in the other Individual Actions in which the same legal issue arose would be given an opportunity to show cause "why the decision does not apply to those actions." ("September 22 Order"). See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2004 WL 77879, at *3 (S.D.N.Y. Jan. 20, 2004) (describing procedure for motion practice).
The first motion to dismiss, filed on October 3, included a motion addressed to a single, representative Milberg Weiss Action, an action which has been described as the MW Alaska Action. It sought dismissal of certain claims on the ground, inter alia, that they were barred by the statute of limitations contained in the Securities Act.
On October 29, the Lead Plaintiff in the WorldCom securities class action advised the Court that it had reason to believe that Milberg Weiss was soliciting absent class members with misleading statements about theSecurities Litigation. It submitted solicitation materials from Milberg Weiss in support of its accusation. At a hearing held on November 13, the Court gave its preliminary observations and findings based on the submissions received from Milberg Weiss and Lead Plaintiff. Of particular pertinence to the instant motion are the following:
Every investor has a right to bring an individual action if it chooses to do so. Every investor will have the right to opt out of the certified class action.
Milberg Weiss has engaged in an active campaign to encourage penion funds not to participate in the class action and instead to file Individual Actions with Milberg Weiss as their counsel. . . . Milberg Weiss has targeted a relatively sophisticated audience with important and serious fiduciary duties to its membership and beneficiaries. . . . There is no reason to believe that the funds that have filed Individual Actions have done so with any but the best of intentions to obtain the maximum recovery for their constituency. . . . [B]ehind the lawyers and the pension fund officers stand the many individual state, local, public and private employees whose lost retirement savings and benefits the funds seek to recover. . . .
The communications with Milberg Weiss have resulted in some confusion and misunderstanding of the options available to putative class members. . . . Milberg Weiss does not appear to have presented a forthright description of the advantages and disadvantages of both the individual action and class action options. . . . The potential statute of limitations impediments to bringing certain of the more recently filed Individual Actions do not appear to have been described. This could be a very serious problem for a litigant who chooses to opt out of the class, only to learn that the Individual Action it had filed was barred by the statute of limitations and it had lost all right to recovery. This very issue in now sub judice. . . .See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22701241, at *6-7 (S.D.N.Y. Nov. 17, 2003) (describing hearing and the findings) (emphasis supplied).
Milberg Weiss made no objection at the hearing to any of the findings and endorsed the Court's solution, which was to send a separate, curative notice to all plaintiffs who had filed Individual Actions, in addition to the notice to be provided to all class members to advise them of their right to opt out of the WorldCom securities class action (respectively "Individual Action Notice" and "Class Notice"). At the hearing held on November 13, Milberg Weiss advised the Court that it would immediately send a copy of the transcript of the hearing to each of its clients.
Mr. William S. Lerach represented Milberg Weiss at the hearing.
The Court rejected the requests by Lead Plaintiff to order Milberg Weiss to produce information related to its solicitation efforts, including communications and the names of class members contacted, to order Milberg Weiss not to disseminate material without first obtaining the consent of Lead Counsel for the class or the Court, and to order Milberg Weiss not to initiate oral discussions with any member of the certified class who had not already retained it. See In re WorldCom, Inc. Sec. Litig., 2003 WL 22701241, at *9.
A November 21 Opinion resolved the October 3 motions to dismiss claims in the MW Alaska Action based, inter alia, on the statute of limitations that applies to Securities Act claims. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003) ("November 21 Opinion"). The November 21 Opinion held that the statute of limitations contained within the Securities Act governed the Section 11 Securities Act claim. That limitations period is a one year/three year regimen. The Opinion also held that "[t]here can be no doubt that at least as of WorldCom's announcement on June 25, 2002 — that it would have to restate its publicly reported financial results for 2001 and the first quarter of 2002 by $3.8 billion — plaintiffs were on inquiry notice of their" Securities Act claims.Id. at *14. The November 21 Opinion rejected the argument that an action that files independently of the class before a determination on class certification could benefit from American Pipe tolling.Id. at *15.
During the period that followed the November 13 hearing, the Court and counsel drafted the notices. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288, 2003 WL 22852660 (S.D.N.Y. Dec. 2, 2003) (circulating Court's redraft of notices based on parties' submissions). On December 11, 2003, the Court approved the two notices. The Individual Action Notice was mailed on December 12, and the Class Notice was mailed and posted on December 15.
The Class Notice advised all WorldCom investors that the period to opt out of the securities class action ends on February 20, 2004. It also advised them that fact discovery was scheduled to close on June 18, 2004, and the class action trial was to begin January 10, 2005.
The Individual Action Notice provided complainants with important information to help them make an informed choice as to whether to opt out of the class action. It identified one important issue for their consideration as the "timeliness" of their action. The Individual Action Notice described the rulings in the November 21 Opinion, the fact that based on those rulings, defendants were filing motions to dismiss with prejudice some or all of the claims brought in many Individual Actions, and that the opposition to these motions was due December 23. It further advised, "[i]f the claims are dismissed with prejudice, then the defendants take the position that the plaintiffs in these Individual WorldCom Actions will lose forever their right to recover for any WorldCom losses covered by the dismissed claims." The Individual Action Notice also stated that the November 21 Opinion had explained that "there is `no authority' that would support the refiling of claims, for instance after the certification of a class action, where those claims have been dismissed on the ground that they were barred by the statute of limitations."
The Individual Action Notice added that the Lead Plaintiff in the class action takes the position that if a plaintiff requests a dismissal of their action, then the Court can
exercise its discretion to condition the dismissal on an agreement that the dismissal is with prejudice to the refiling of the Individual WorldCom Action, but without prejudice to the plaintiff participating as a Class member. . . . The defendants have indicated that they will oppose any such conditional or voluntary dismissal. . . . No motion has been made by any Individual WorldCom Plaintiff whose claims may be subject to dismissal or by any other party before the Court and, as a result, the Court has made no determination in this regard.
Pursuant to the Scheduling Order of September 22, plaintiffs in other Individual Actions, including the Six Actions, were given an opportunity to show why the November 21 Opinion did not require the dismissal of some or all of their Securities Act claims as a result of motions to dismiss that the defendants filed against their actions on or about December 2. Through the December 2 motions to dismiss, the defendants sought the dismissal of the Six Actions in their entirety. The Plaintiffs served their opposition to the motion to dismiss on December 22. Their opposition did not raise the issue of the voluntary dismissal of their lawsuits. The opposition presented on behalf of the Milberg Weiss Actions did, however, present new arguments not made in opposition to the motion to dismiss the MW Alaska Action or in the motion for reconsideration addressed to the November 21 Opinion. On January 20, 2004, those new arguments were rejected and the motions to dismiss with prejudice various Securities Act claims in twenty-six Individuals Actions and nine Milberg Weiss Actions in their entirety, including the Six Actions, were granted. See, e.g., In re WorldCom, Inc. Sec. Litig., 2004 WL 77879 ("January 20 Opinion").
The December 2 motions, as amended, were filed against thirty-six Individual Actions, thirty-one of which were Milberg Weiss Actions. The motions sought the dismissal of nine actions in their entirety, each of which was a Milberg Weiss Action.
While Milberg Weiss objected to the December 2 motions as premature with respect to two recently transferred cases, it did not make that argument regarding any of the Six Actions. See In re Worldcom, Inc. Sec. Litig., 2004 WL 77879, at *5.
The Court reserved decision on one action, 03 Civ. 9824, to give the parties an opportunity to address the plaintiff's recently amended complaint.
Meanwhile, between January 9 and January 13, the Plaintiffs filed motions seeking voluntary dismissal of their actions on the condition that they will not opt out of the class action. The motions were fully submitted on January 23. The Lead Plaintiff in the class action submitted a brief in support of allowing the movants to dismiss their Individual Actions and to remain members of the class pursuant to Rule 41(a)(2), Fed.R.Civ.P. Arthur Anderson, the Underwriter Defendants and the Salomon Smith Barney Defendants oppose the motions.
The Lead Plaintiff opposes any motion to dismiss the actions pursuant to Rule 41(a)(1), Fed.R.Civ.P.
This Opinion adopts the names for groups of defendants from the Opinion of May 19, 2003. See In re WorldCom, Inc. Sec. Litig., 2003 WL 21219049.
Discussion
Each of the Plaintiffs in the Six Actions requests that it be permitted pursuant to Rule 41(a)(2), Fed.R.Civ.P., to dismiss its Individual Action without prejudice "on the condition that it be permitted to remain a member of the [WorldCom] class for all claims asserted in that case." "Once a defendant has answered a complaint a plaintiff may no longer dismiss his suit as a matter of right."D'Alto v. Dahon California, Inc., 100 F.3d 281, 283 (2d Cir. 1996). Rule 41(a)(2), Fed R. Civ. P., provides that except where parties agree to a stipulation of dismissal, "an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper." Fed.R.Civ.P. 41(a)(2). "It is within the district court's sound discretion to deny a Rule 41(a)(2) motion to dismiss." Catanzano v. Wing, 277 F.3d 99, 109 (2d Cir. 2001) (citing Zacrano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990)).
In the alternative, Plaintiffs request that the Court reconsider its November 5 Order and permit them to withdraw their actions voluntarily pursuant to Rule 41(a)(1)(i), Fed.R.Civ.P., in order to permit them to participate in the class action. Because their application pursuant to Rule 41(a)(2) is granted, it is unnecessary to reach this complicated, and hotly contested alternative ground for the same relief.
In connection with the drafting of the Individual Action Notice, Milberg Weiss took the position that a plaintiff who had filed an Individual Action did not also need to opt out of the class in order to be allowed to continue with its Individual Action. In the Plaintiffs' submissions in support of the motion for a voluntary dismissal, Milberg Weiss now agrees that unless a plaintiff explicitly opts out of the class on or before February 20, 2004, a plaintiff will "forfeit its individual action."
" A district court may allow a plaintiff to dismiss an action if the defendant will not be prejudiced thereby." Correspondent Services Corp. v. First Equities Corp. of Florida, 338 F.3d 119, 126 (2d Cir. 2003) (citation omitted). D'Alto observed that
"Starting a litigation all over again does not constitute legal prejudice. However . . . [there is] an exception to the rule; namely when the cause has proceeded so far that the defendant is in a position to demand on the pleadings an opportunity to seek affirmative relief and he would be prejudiced by being remitted to a separate action. Having been put to the trouble of getting his counter case properly pleaded and ready, he may insist that the cause proceed to a decree."D'Alto, 100 F.3d at 283 (citing Jones v. Securities Exchange Commission, 298 U.S. 1, 19 (1936)). Among the factors relevant to a court's decision are
[1] the plaintiff's diligence in bringing the motion; [2] any `undue vexatiousness' on plaintiff's part; [3] the extent to which the suit has progressed, including the defendant's effort and expense in preparation for trial; [4] the duplicative expense of relitigation; and [5] the adequacy of plaintiff's explanation for the need to dismiss.Catanzano, 900 F.2d at 109-110 (citing Zagano, 900 F.2d at 14). Diligence in bring the motion
Whether the Plaintiffs have been diligent in bringing their motions to dismiss their actions voluntarily depends on the point at which one starts the analysis. Their counsel have been on notice of the defendants' intent to raise the statute of limitations bar since September 2003. The defendants gave notice in a September 12 conference of their intent to move to dismiss Individual Actions based on the statute of limitations. The motion was made on October 3 and fully described the defendants' theory. The motion brought against the test case — a Milberg Weiss Action whose complaint is indistinguishable from the Plaintiffs' complaints in every material aspect — was granted on November 21. The motions to dismiss the Six Actions in their entirety were made on December 2. The Plaintiffs opposed these motions on December 22. At no point during those three months, including in their opposition to the motions to dismiss, did the Plaintiffs seek to dismiss their actions voluntarily.
On the other hand, the Six Actions were transferred by the MDL Panel at various points throughout the Fall. Moreover, the curative, Individual Action Notice was not mailed until December 12. This notice allowed the Court to explain the implications of the statute of limitations litigation directly to each plaintiff who had filed an Individual Action. The Plaintiffs brought their motions to dismiss their actions voluntarily between January 9 and January 13.
The Liaison Counsel for the Individual Actions in theSecurities Litigation mailed the Individual Action Notice directly to each such plaintiff.
Undue Vexatiousness by Plaintiffs
With the possible exception of the new arguments presented in opposition to the December 2 motions to dismiss, the Plaintiffs have not been unduly vexatious. As previously noted by this Court, there is "no reason to believe that the funds that have filed Individual Actions have done so with any but the best of intentions to obtain the maximum recovery for their constituency." In re WorldCom, Inc. Sec. Litig., 2003 WL 22701241, at *6.
Because the Plaintiffs had failed to follow the procedure incorporated in the September 22 Order, the defendants urged that the Court treat the new arguments in the Plaintiffs' opposition to the motions to dismiss as an untimely motion for reconsideration, and reject them without discussion. Because of the importance of the issues to the parties, and to assist the Plaintiffs in making informed decisions about their legal options, the Court addressed the new arguments on the merits and as promptly as it could. See In re WorldCom Sec. Litig., 2004 WL 77879, at *6.
The defendants contend that the Plaintiffs have been unduly vexatious because they have participated with the other Milberg Weiss Actions in a coordinated "de facto class action". See In re WorldCom Sec. Litig., 2003 WL 22701241, at *6. The defendants recite that this campaign has resulted in a significant expenditure of the parties' resources, duplicative litigation, and waste. While it is true that the burden on the parties and the court system from this strategy of conducting a parallel, quasi class action has been enormous, that is an entirely separate issue from the filing, and now dismissal, of a time-barred lawsuit. The law protects the right of investors to opt out of securities class actions and to pursue their own independent lawsuits. So long as a lawsuit otherwise conforms to the requirements of the law, it cannot be labeled vexatious simply because it is duplicative litigation.
The burden on the defendants is obvious. It has resulted in the expenditure of significant resources that may ultimately diminish the amount of funds available for distribution to investors. Many of the defendants are insured through "wasting" insurance policies that require the deduction of attorney's fees spent in defense of litigation. There has also been a significant burden on Lead Counsel for the class, who has had to correct misinformation provided to class members. Its efforts on behalf of absent class members have included its identification of the voluntary dismissal strategy and an excellent brief in support of the Plaintiffs' application to dismiss their lawsuits voluntarily.
Progress in the Suit
The WorldCom Securities Litigation is in the midst of fact discovery; fact discovery is due to close on June 18, 2004. Settlement discussions have been ongoing since last Winter, but to date no settlement agreement has been announced. Discovery on behalf of the class is being conducted by Lead Counsel for the Class. The Individual Actions are participating fully in the discovery process through a consolidation order and with the assistance of a Liaison Counsel. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219037 (S.D.N.Y. May 22, 2003) (explaining the reasons for the consolidation of all the Securities Litigation actions for pretrial proceedings). Allowing plaintiffs who have filed Individual Actions to join the class action will have no adverse effect on the progress of discovery in the Securities Litigation.
At the Court's invitation, the Honorable Robert W. Sweet and the Honorable Michael Dolinger are supervising settlement discussions.
The opt out period for the class action does not expire until February 20, 2004. After that date, it will be clearer to all which parties have finally decided to pursue Individual Actions, and the potential size of the class. That information can be expected to facilitate the ongoing settlement discussions, to permit all parties to focus their efforts more effectively on the litigation, and to assist in the management of the litigation. A motion by Plaintiffs to dismiss their Individual Actions before the close of the opt out period is helpful in this regard and timely.
Duplicative Expense of Relitigation
Permitting the Plaintiffs to remain full participating members of the class action will not result in any duplicative expense of relitigation. Indeed, permitting such participation may reduce the burden of collateral litigation. For instance, by remaining in the class action, the Plaintiffs are foregoing their right to appeal the January 20 dismissal of their actions.
Plaintiffs' Explanation of the Need to Dismiss
The Plaintiffs' reason for requesting a voluntary dismissal of their actions is readily apparent. The applicable statute of limitations presents an insurmountable barrier to the maintenance of the Six Actions. This barrier, which would exist whether their actions were remanded to state court or whether they remain in federal court, prevents them from obtaining any recovery for their losses from WorldCom investments.
Public Policy Considerations
In addition to the Zagano factors, it is appropriate in this case to consider issues of public policy. The defendants urge that the Court deny this application for a conditioned voluntary dismissal because to do so would "fatally undermine the rationale of the American Pipe tolling doctrine". The defendants contend that plaintiffs will be encouraged to file preemptive suits, knowing that they can opt out of any adverse decisions in their individual cases and simply join the class without any penalty, and with great cost to the defendants and the court system. They assert that the motions are not brought in good faith since the Plaintiffs waited to see if the Court would rule in the defendants' favor on the first tranche of the motions to dismiss. Among the authorities that defendants cite to support their argument that plaintiffs cannot participate in a class action after they have filed time-barred claims are In re Heritage Bond Litig., 289 F. Supp.2d 1132, 1150, 1154 (C.D. Cal. 2003); In re Brand Name Prescription Drugs Antitrust Litig., Nos. 94 C 897, MDL 997, 1998 WL 474146, at *8 (N.D. Ill. Aug. 6, 1998); andPatterson v. Alaska Airlines, Inc., 756 F. Supp. 476, 478 (W.D. Wa. 1990).
The defendants' argument has force. It is a particularly compelling argument in the context of these Six Actions. The statute of limitations barrier at issue here should have been readily apparent to each of the Plaintiffs when they filed their lawsuits. Even if they thought that the law was unsettled, it is difficult to understand how, as fiduciaries, the Plaintiffs could run the risk of losing all right to pursue recovery for their participants and beneficiaries when there were alternatives readily available to them that did not present that risk. They could simply have waited to see whether it was in their interest to join the class action, and if they concluded that it was not, they could have opted out of the class action and filed their own individual action. A suit filed after a decision has been made on class certification can take advantage ofAmerican Pipe tolling, and their claims would not have been vulnerable to dismissal simply because they were filed more than a year after June 25, 2002.
As noted, however, each of the Plaintiffs is a fund with many participants who depend upon the fund to guard and preserve assets intended for their benefit. To the extent that the Plaintiffs lost assets invested in WorldCom securities through violations of the federal securities laws, there is a strong public interest in favor of allowing them and those to whom they owe a fiduciary duty to participate in any recovery that may be received through theSecurities Litigation. Innocent beneficiaries should not suffer because of flawed legal advice. The penalty imposed upon them by filing untimely lawsuits is, in effect, the loss of the opportunity to pursue an Individual Action. As this Court has stated repeatedly, investors have the right to bring individual actions and to opt out of a certified class action. This is a "bedrock truth." In re WorldCom Sec. Litig., 2003 WL 22701241, at *6. With the filing of their motions for voluntary dismissal, Plaintiffs acknowledge that they are giving up that right.
Timing of January 20 Opinion
Plaintiffs complain that this Court issued the January 20 Opinion on the statute of limitations issues before reaching their motions for a voluntary dismissal. The Plaintiffs are six of the thirty-six actions affected by the December 2 motions to dismiss. It is essential that each of those actions have as much guidance as quickly as possible about the fate of their cases. Milberg Weiss' opposition to the December 2 motions raised new arguments that it had not made in its opposition to the October 3 motions to dismiss the representative Milberg Weiss Action. To the extent that it believed that those new arguments deserved serious consideration and could affect the outcome of that motion practice, it was critical that each of their affected clients have an analysis of those arguments in order to assist them in making a better informed decision about what course to follow, including whether to seek to remain in the class by moving voluntarily to dismiss their action, or to continue with their Individual Action and opt out of the class. Simply put, deferring a decision on the December 2 motions would have left each of the actions subject to those motions with less information as they faced the February 20 opt out deadline.
As already described above, Plaintiffs' counsel has had notice since September of the defendants' intention to move to dismiss Securities Act claims as time-barred, and the Plaintiffs did not even raise the issue of a voluntary dismissal in response to the December 2 motions to dismiss their actions. Their first motion for voluntary dismissal was not filed until January 9.
On December 16, 2003, the Court certified an interlocutory appeal of a legal issue central to the denial of the Plaintiffs' remand motions. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22953644 (S.D.N.Y. Dec. 16, 2003). The Court of Appeals for the Second Circuit has accepted the appeal. Regardless of the forum in which the Individual Actions are litigated, however, the statue of limitations bar will remain the same.
In sum, weighing each of the factors described above, and considering them as a whole, the Plaintiffs have shown that their application for the voluntary dismissal of their actions in order to permit them to be full participants in the WorldCom class action should be granted. The judgments to be entered in defendants' favor pursuant to the January 20 Opinion, therefore, shall be entered with prejudice for all purposes except allowing Plaintiffs to remain members of the WorldCom class action and participate fully in any recovery obtained by the class.
The defendants request an award of fees and costs, including those connected to the transfer and consolidation efforts, in the event that the Court permits the Plaintiffs to remain in the class action without prejudice to any of the claims being pursued by the class. The request is denied.
Conclusion
The motions by plaintiffs in 03 Civ. 8269, 03 Civ. 8923, 03 Civ. 9168, 03 Civ. 9400, 03 Civ. 9401, and 03 Civ. 9402 to dismiss their actions voluntarily is granted with the condition that they not opt out of the class or seek in any way to continue their Individual Actions. No order giving effect to the decisions of January 20 will be executed before February 12, 2004.
An Order is being issued today to allow any plaintiff who has filed an Individual Action in the Securities Litigation, and whose action or claims are subject to dismissal in accordance with the November 21 and January 20 Opinions, to participate fully in any class action recovery so long as the plaintiff files a motion to dismiss their action voluntarily by February 20, 2004, the date the opt out period for the class action ends.
At a conference on January 22, 2004, the Court advised the parties that it was addressing the motions for voluntary dismissal and requested that counsel for the Underwriter Defendants prepare judgments and orders for the Individual Actions subject to the November 21 and January 20 Opinions that would permit their full participation in the class action. Those proposed judgments and orders were submitted on January 23, 2004.
SO ORDERED.