Summary
granting motion to dismiss in above-captioned litigation without prejudice, when plaintiff conceded that allegations were essentially identical to those dismissed in LaSala II
Summary of this case from Lasala ex rel. Conextant, Inc. v. E*Trade Securities LLCOpinion
No. 05 Civ. 5869 (SAS).
October 31, 2005
Frederick Taylor Isquith, Esq., Daniel W. Krasner, Esq., Alexander H. Schmidt, Esq., WOLF HALDENSTEIN ADLER FREEMAN HERZ LLP, New York, NY.
Melvyn I. Weiss, Esq., MILBERG WEISS BERSHAD SCHULMAN LLP, New York, NY,
Stanley Bernstein, Esq., BERNSTEIN LIEBHARD LIFSHITZ, LLP, New York, NY, for Plaintiff.
John A. Freedman, Esq., ARNOLD PORTER LLP, Washington, DC,
Douglas P. Lobel, Esq., ARNOLD PORTER LLP, McLean, VA, for Defendant E*TRADE Securities LLC.
OPINION AND ORDER
I. BACKGROUND
A. Related Proceedings
This action, like over seventy similar actions currently pending in this Court, arises from a pending partial settlement between the class of plaintiff investors and the issuer defendants ("Issuers") in the hundreds of coordinated securities actions known as In re Initial Public Offering Securities Litigation ("the IPO Litigation"). In the IPO Litigation, investors seek recovery for securities fraud against numerous underwriters and issuers of stock pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934. This Court preliminarily approved this partial settlement ("Issuers Settlement") in February 2005. As part of this settlement, the Issuers agreed to assign their interest in all claims against the defendant investment banks ("Underwriters") for "Excess Compensation" to a Litigation Trust, which will be created if the settlement receives final approval, and which will be represented by plaintiffs' class counsel. These claims will be referred to as the "Assigned Claims."
See LaSala v. Needham Co., No. 04 Civ. 9237, 2005 WL 2094938, at *1 (S.D.N.Y. Aug. 30, 2005) ( "LaSala I").
See In re Initial Public Offering Sec. Litig., 241 F. Supp. 2d 281, 298-321 (S.D.N.Y. 2003) (describing in detail the IPO Litigation's allegations). Familiarity with that Opinion is assumed.
See generally In re Initial Public Offering Sec. Litig., 226 F.R.D. 186 (S.D.N.Y. 2005). A fairness hearing is scheduled for April 24, 2006. See Preliminary Order in Connection with Settlement Proceedings ¶ 4, In re Initial Public Offering Sec. Litig., 21 MC 92 (Sept. 1, 2005).
See LaSala I, 2005 WL 2094938, at *1 (citation omitted).
The Issuers retain some claims against the Underwriters, including claims based on underpricing. See id (citation omitted).
Nearly all of the Underwriters named as defendants in the IPO Litigation agreed to toll the applicable statute of limitations for the Assigned Claims until the Issuers Settlement is final. To ensure that the statute of limitations on the Assigned Claims against the handful of non-tolling Underwriters does not expire before the Issuers Settlement is finally approved, the plaintiffs and the Issuers have arranged to assign each Issuer's Assigned Claims against those Underwriters to Joseph LaSala, who will (subject to court approval) become the Litigation Trustee when and if the Issuers Settlement is approved. These assignments are conditional and for an extremely limited purpose, giving LaSala the power to do only two things: 1) file a separate action for each Issuer who has assigned claims to him; and 2) immediately seek a stay of that action.
See 4/13/05 Hearing Transcript, In re Initial Public Offering Sec. Litig., 21 MC 92, at 25-26.
See LaSala I, 2005 WL 2094938, at *1.
See, e.g., Conditional Assignment of Claims between Joseph LaSala and Conextant, Inc., entered into June 22, 2005 ¶¶ 4-6 ("Conditional Assignment"), Ex. 4 to 9/14/05 Declaration of Brian C. Wilson, counsel for E*TRADE ("Wilson Decl.") at 1-2. If LaSala acts beyond the scope of his assignment, or on the occurrence of one of several specified events, the claims automatically revert to the assignor-Issuer, or to the Litigation Trust if the Issuers Settlement is approved. See Conditional Assignment ¶¶ 5-6; see also LaSala I, 2005 WL 2094938, at *1 n. 10 (detailing an essentially identical assignment in another LaSala Action).
In accordance with his conditional assignments, LaSala has filed dozens of separate actions in this Court ("LaSala Actions"), along with a motion to stay each action. Each action asserts the Assigned Claims of a different Issuer, and each action names as defendants one or more of the non-tolling Underwriters. LaSala has filed each action shortly before the six-year anniversary of the IPO of the assignor-Issuer for that action, to avoid expiration of the applicable statute of limitations.
See LaSala v. Needham Co., No. 04 Civ. 9237, 2005 WL 2547986, at Appendix I (S.D.N.Y. Oct. 11, 2005) (" LaSala II") (list of pending LaSala Actions as of October 11, 2005).
See LaSala I, 2005 WL 2094938, at *2. More LaSala Actions are filed weekly, as the applicable statute of limitations for each Issuer's Assigned Claims draws close to expiration.
Every LaSala Action except for the above-captioned litigation is governed by a stipulation between the plaintiff and the non-tolling Underwriter defendants, providing that the resolution of pending motions in one of the earliest-filed LaSala Actions would resolve the essentially identical motions pending in the other LaSala Actions. I have issued two Opinions to date in that test case, LaSala (as assignee of Fatbrain.com) v. Needham Co., 04 Civ. 9237 (" Fatbrain"). First, on August 30, 2005, I stayed all the LaSala Actions (except this one) pending approval or rejection of the Issuers Settlement. Second, on October 11, 2005, I dismissed the LaSala Actions (again, except for this one) without prejudice, holding that LaSala did not state any valid causes of action. The stay granted in August remains in effect. Familiarity with both of these Opinions is assumed.
See id. at n. 15; see also id. n. 16 (noting that E*TRADE chose not to sign the stipulation governing the LaSala Actions).
See LaSala I, 2005 WL 2094938, at *6.
See LaSala II, 2005 WL 2547986, at *3-6. I also assumed without deciding, for purposes of the Motion to Dismiss, that I had jurisdiction over the LaSala Actions. See id. at *3
See id. at *6.
B. Background of LaSala v. E*TRADE
Joseph LaSala is a New Jersey resident, who had no connection to the events giving rise to the Complaint's allegations prior to receiving his assignment. The assignor of these claims, Globespan, was "a provider of Internet infrastructure solutions that enable Internet service providers and other telecommunications service providers . . . to meet the demands resulting from the rapid growth of the Internet." At the time of its IPO, Globespan was a Delaware corporation.
See Complaint ¶ 5.
Id. ¶ 9. Globespan is now known as Conextant. See Conditional Assignment at 1.
See Globespan Underwriting Agreement at 1, Ex. 3 to Wilson Decl. at 1.
Defendant E*TRADE Securities LLC ("E*TRADE") was a member of the syndicate for Globespan's IPO. LaSala invokes this court's jurisdiction on the basis of diversity of citizenship between himself, a New Jersey resident, and E*TRADE, a Delaware-registered corporation principally doing business in New York. LaSala also asserts that, given the fact that his claims could have been brought as cross-claims in the IPO Litigation by the Issuer-assignor, this Court can and should exercise supplemental jurisdiction over the present action.
See Complaint ¶ 6; see also Globespan Underwriting Agreement at Schedule A (listing E*TRADE as one of nine underwriters, slated to purchase 150,000 of the 3,250,000 shares to be sold by Globespan); E*TRADE Globespan Allocation List, Ex. 2 to Wilson Decl. (list of customers to whom E*TRADE allocated shares, reflecting a total allocation of 25,100 shares).
See Complaint ¶¶ 6-7.
See id. ¶ 7.
On or about June 24, 1999, Globespan entered into a "firm commitment underwriting" with E*TRADE, among others. The underwriters contracted to buy over three million shares, which they would then sell to investors in an IPO. In connection with this underwriting, LaSala alleges that E*TRADE received "excessive compensation" as a result of agreements extracted from its customers, who were forced to kick back a portion of the profits derived through participation in the IPO by: 1) payment of inflated brokerage commissions; 2) transactions in otherwise-unrelated securities made through or at the direction of a defendant merely to generate commissions; and 3) purchases of, and payments of commissions for, stock in future offerings underwritten by one or more of the defendants, including "follow-on" offerings of Globespan stock. Based on these allegations, LaSala pleads three causes of action — breach of contract, unjust enrichment, and breach of fiduciary duty. LaSala does not plead a specific amount of damages.
See id. ¶ 10. A firm commitment underwriting takes place when the underwriters purchase the securities directly from the issuer, and then resell the securities to investors. Accordingly, even if the underwriters had failed to sell the stock, Globespan would still receive the agreed-upon sum for the shares. See In re Initial Public Offering Sec. Litig., 241 F. Supp. 2d at 309 n. 30.
See Complaint ¶ 12.
See id. ¶ 12.
See id. ¶¶ 14-19, 20-25, 26-29.
See id. ¶¶ 19, 25, 29 (for each of LaSala's three causes of action, repeating the assertion that: "[a]s a result of [E*TRADE's] conduct, Globespan suffered damage"); see also id. ¶ 6 (plaintiff asks for an indeterminate damage award).
C. The Pending Motions
As in the other LaSala Actions, the parties have collectively filed three motions. First, LaSala filed a complaint together with a motion to stay the action he had just initiated. Then, E*TRADE filed a motion to dismiss pursuant to Rules 12(b)(1), (3) and (6) of the Federal Rules of Civil Procedure. Finally, in responding to the motion to dismiss, LaSala filed a cross-motion to consolidate this action with the IPO Litigation action involving Conextant, on the theory that any possible jurisdictional defects in this action would be cured by consolidation of this action with the IPO Litigation.
E*TRADE asserts five grounds for dismissal. First, E*TRADE adopts the jurisdictional arguments made by the Fatbrain defendants, who argued that: 1) LaSala lacks standing because his assignment did not convey a sufficient personal interest in the Assigned Claims; and 2) the Court lacks diversity jurisdiction because LaSala received a collusive assignment from non-diverse Issuer Globespan, the real party in interest. Second, E*TRADE argues that, given its extremely limited involvement in the Globespan IPO, LaSala cannot establish that this case meets the $75,000 amount in controversy required for diversity jurisdiction. Third, E*TRADE adopts the Fatbrain defendants' arguments rejecting plaintiff's reliance on supplemental jurisdiction. Fourth, E*TRADE urges this Court to dismiss for improper venue, as the Globespan underwriting agreement includes a forum selection clause providing that "each party irrevocably submits to the exclusive jurisdiction . . . of [San Francisco state and federal] courts" in any suit "arising out of or based upon" the underwriting agreement." Finally, E*TRADE adopts the arguments made in Fatbrain in favor of dismissing LaSala's claims on 12(b)(6) grounds.
See Defendant E*TRADE Securities LLC's Memorandum of Law in Support of Its Motion to Dismiss ("Def. Mem.") at 8-9 (expressly adopting the standing and diversity jurisdiction arguments made by the Fatbrain defendants).
See id. at 10-12.
See id. at 12 (expressly adopting the arguments made in, inter alia, Underwriters' Response to Plaintiff's Motion to Consolidate, LaSala (as assignee of Fatbrain.com) v. Needham Co., 04 Civ. 9237). In that brief, the Fatbrain defendants argued that consolidating the LaSala Actions into the IPO Litigation would not cure the jurisdictional defects in those actions.
Def. Mem. at 4 (quoting Globespan Underwriting Agreement ¶ 14(b)).
See id. at 12-13.
The parties also reprise the arguments from Fatbrain regarding LaSala's motion to stay. Attempting to distinguish LaSala I, E*TRADE argues that its attenuated involvement in the IPO Litigation, as well as the forum selection clause in the Globespan Underwriting Agreement, should lead the Court to balance the relevant factors differently.
See Defendant E*TRADE Securities LLC's Memorandum of Law in Opposition to Plaintiff's Motion to Stay this Action ("Def. Stay Opp.") at 1-2. In LaSala I, I applied the following factors in deciding to grant a stay: `"(1) the private interests of the plaintiffs in proceeding expeditiously with the civil litigation as balanced against the prejudice to the plaintiffs if delayed; (2) the private interests of and burden on the defendants; (3) the interests of the courts; (4) the interests of persons not parties to the civil litigation; and (5) the public interest."' LaSala I, 2005 WL 2094938, at *3 (quoting Kappel v. Comfort, 914 F. Supp. 1056, 1058 (S.D.N.Y. 1996)). I held that the interests of non-parties to the litigation (the intended beneficiaries of the Assigned Claims), the public and the courts outweighed defendants' non-specific claims of prejudice resulting from a stay. See id. at *3-6.
II. LEGAL STANDARD
1. Rule 12(b)(1)
A. Standard of Review
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides for the dismissal of a claim when the federal court "lacks jurisdiction over the subject matter." In considering a motion to dismiss for lack of subject matter jurisdiction, the court must assume the truth of the complaint's factual allegations. However, "jurisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the party asserting it." In fact, "where jurisdictional facts are placed in dispute, the court has the power and obligation to decide issues of fact by reference to evidence outside the pleadings, such as affidavits." Plaintiff bears the burden of establishing the court's jurisdiction by a preponderance of the evidence.
See Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
Id. (citation omitted). Accord J.S. ex rel N.S. v. Attica Cent. Schools, 386 F.3d 107, 110 (2d Cir. 2004).
LeBlanc v. Cleveland, 198 F.3d 353, 356 (2d Cir. 1999). Accord APWU v. Potter, 343 F.3d 619, 627 (2d Cir. 2003); Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000).
See Luckett v. Bure, 290 F.3d 493, 496-97 (2d Cir. 2002).
2. Rule 12(b)(6)
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a motion to dismiss should be granted only if `"it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."' The task of the court in ruling on a Rule 12(b)(6) motion is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." When deciding a motion to dismiss, courts must accept all factual allegations in the complaint as true, and draw all reasonable inferences in plaintiffs' favor.
Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100 (2d Cir. 2005) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of New York, 375 F.3d 168, 176 (2d Cir. 2004) (quotation and citation omitted).
See Ontario Pub. Serv. Employees Union Pension Trust Fund v. Nortel Networks Corp., 369 F.3d 27, 30 (2d Cir. 2004) (citation omitted).
B. Diversity Jurisdiction — Jurisdictional Amount
Among the requirements for diversity jurisdiction is that the plaintiff's claim is worth at least $75,000. "A party invoking the jurisdiction of the federal court has the burden of proving that it appears to a `reasonable probability' that the claim is in excess of the statutory jurisdictional amount." "The amount in controversy is determined at the time the action is commenced." As with jurisdictional facts generally, "the party asserting jurisdiction must support [the jurisdictional amount] with `competent proof' and `justify its allegations by a preponderance of the evidence.'"
See 28 U.S.C. § 1332(a). Diversity jurisdiction also requires that there be complete diversity between all plaintiffs and all defendants. See, e.g., St. Paul Fire and Marine Ins. Co. v. Universal Builders Supply, 409 F.3d 73, 80 (2d Cir. 2005) (citation omitted). And in cases where the plaintiff received his claims through an assignment, that assignment must not be for "the primary aim [of concocting] federal diversity jurisdiction." Airlines Reporting Corp. v. S and N Travel, Inc., 58 F.3d 857, 862 (2d Cir. 1995) (construing 28 U.S.C. § 1359).
Tongkook Am. Inc. v. Shipton Sportswear Co., 14 F.3d 781, 784 (2d Cir. 1994).
Id.
Stengel v. Black, No. 03 Civ. 0495, 2004 WL 1933612, at *2 (S.D.N.Y. Aug. 30, 2004) (quoting United Food Comm. Workers Union v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298, 305 (2d Cir. 1994)). This proof may consist of evidence developed through discovery. See id.
To be sure, courts recognize "`a rebuttable presumption that the face of the complaint is a good faith representation of the actual amount in controversy."' To overcome this presumption, the party opposing jurisdiction must show "to a legal certainty" that the amount recoverable does not meet the jurisdictional amount. This means that "`[t]he legal impossibility of [sufficient] recovery must be so certain as virtually to negative the plaintiff's good faith in asserting the claim." Where damages are uncertain, any doubt should be resolved in favor of plaintiff's pleadings.
Scherer v. Equitable Life Assurance Soc'y of U.S., 347 F.3d 394, 397 (2d Cir. 2005) (quoting Wolde-Meskel v. Vocational Instruction Project Cmty. Servs., Inc., 166 F.3d 59, 63 (2d Cir. 1999)).
See id. (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-289 (1938)).
Chase Manhattan Bank, N.A. v. American Nat'l Bank Trust Co. of Chi., 93 F.3d 1064, 1070-71 (2d Cir. 1996) (quoting Tongkook, 14 F.3d at 785)).
Tongkook, 14 F.3d at 785 (citation omitted). As has been noted by another court in this circuit, the "reasonable probability" and "legal certainty" tests are in some tension. See Mehlenbacher v. Akzo Nobel Salt, Inc., 207 F. Supp. 2d 71, 76 n. 3 (W.D.N.Y. 2002) ("[i]t is not clear whether the `reasonable probability' and `legal certainty' tests are the same, or, if they are different, the circumstances under which each should be applied. Both the Second Circuit and district courts in this circuit have recited both standards, without discussing whether there is any difference between the two"); see also Scherer, 347 F.3d at 397 (in a 2003 opinion, reciting both tests and giving no guidance as to how they are to be reconciled).
III. DISCUSSION
A. Plaintiff's Complaint Must Be Dismissed for Failure to State a Claim on Which Relief Can Be Granted
E*TRADE asserts a myriad of jurisdictional and substantive grounds for dismissal of LaSala's complaint. However, I reach only one — LaSala's allegations in this case are essentially identical to the claims I have already dismissed as legally deficient in LaSala II. First, LaSala's breach of contract claim is barred by a recent New York Court of Appeals opinion dismissing a very similar breach of contract claim. Second, LaSala's unjust enrichment claim fails because he cannot make the necessary allegation that the Underwriters underpriced the IPO. Finally, LaSala's fiduciary duty claim fails because it was not brought within New York's applicable three-year statute of limitations. As both parties implicitly acknowledge, my reasoning in LaSala II applies equally here. Accordingly, LaSala's claims are dismissed. However, plaintiff has leave to replead his claims, in a manner consistent with LaSala II, within twenty days of this Opinion and Order.
See LaSala II, 2005 WL 2547986, at *3-6. As in LaSala II, I assume without deciding that I have jurisdiction over this action, for purposes of reaching the 12(b)(6) grounds for dismissal. See id. at *3.
See id. at *3-4 (discussing EBCI, Inc. v. Goldman, Sachs Co., 5 N.Y.3d 11, 16-23 (2005)).
See id. at *4-5.
See id. at *5. However, I also noted that LaSala's breach of fiduciary duty allegations were similar to claims in recent cases, involving the relationship between an issuer and its underwriter in the context of an IPO, that survived a motion to dismiss. See id. at *5 n. 68. "Thus, if [LaSala's] claim was not time-barred it could survive." Id.
See Def. Mem. at 12-13 (adopting the 12(b)(6) arguments of the Fatbrain defendants); see also Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss and in Support of Plaintiff's Cross-Motion to Consolidate at 2 (adopting plaintiff's 12(b)(6) arguments from Fatbrain).
B. Any Amended Complaint Must Clarify the Basis for Federal Jurisdiction Over This Action
I have previously noted that "the possible jurisdictional defects of the Assigned Claims at this juncture are a product of the unique procedural posture of the LaSala Actions as they relate to the IPO Litigation." And to the extent that E*TRADE repeats the jurisdictional arguments made in Fatbrain, I repeat my response: "[i]t would be unjust for this court to allow the statute of limitations on these claims to expire because the procedural safeguards accorded class-action settlements place these claims in a kind of limbo where the settling plaintiffs cannot yet vindicate the claims they obtained through the settlement."
LaSala II, 2005 WL 2547986, at *3.
See Def. Mem. at 8-9 (adopting the standing and diversity jurisdiction arguments of the Fatbrain defendants).
LaSala I, 2005 WL 2094938, at *4.
However, E*TRADE has raised a serious question as to whether LaSala can establish that this action meets the jurisdictional amount. Moreover, unlike the jurisdictional issues in the other LaSala Actions, a failure to meet this threshold would not be obviated by reassignment of the Assigned Claims to the Litigation Trust after approval of the IPO Settlement. In fact, even if LaSala (or the Litigation Trust) eventually joined the other members of the Globespan underwriting syndicate as defendants, the claims against E*TRADE still must separately meet the jurisdictional amount, as a plaintiff's claims against multiple defendants generally may not be aggregated to reach the jurisdictional minimum.
See James Wm. Moore, et al., Moore's Federal Practice, § 1332.5[2][B] at 446 (2005 ed.) ("[a] plaintiff's claims against multiple defendants . . . may not be aggregated to reach the jurisdictional minimum, unless the defendants' liability on the claims is common and undivided"); see also Chase Manhattan Bank, N.A. v. Aldridge, 906 F. Supp. 870, 874 (S.D.N.Y. 1995) (where a plaintiff bank was suing several Lloyd's of London insurance policy underwriters who were each liable under an insurance policy held by plaintiff, plaintiff would not be allowed to aggregate claims against all defendants to meet amount in controversy requirement, as "[t]he interest of each underwriter-defendant in this action is limited to the underwriter's individual share of the risk under the Policy.").
E*TRADE asserts that by the terms of the underwriting agreement, "E*TRADE's compensation from the Globespan [IPO] was under $20,000." This estimate apparently derives from 1) the number of shares distributed by E*TRADE (25,100), and 2) a fixed selling concession of 63 cents per share, for a total of $15,813. Although LaSala alleges that E*TRADE received an unspecified amount of "excess compensation" from its customers, over and above the compensation contemplated by the underwriting agreement, E*TRADE also argues that "[p]laintiff's complaint nowhere explains any facts establishing that E*TRADE had sufficient market power to earn more than [$75,000] at Globespan's expense. Nor has plaintiff explained how E*TRADE — which distributed approximately 25,000 shares and earned a fixed selling concession of $.63 per share . . . could have injured Globespan."
Def. Mem. at 10.
See generally E*TRADE Globespan Allocation List.
See Globespan Prospectus at 76, Ex. 1 to Wilson Decl.
Def. Mem. at 11-12.
LaSala, whose burden it is to establish jurisdiction, does not address this issue at all, arguing instead that it is not proper for the Court to consider whether the jurisdictional amount is met, because damages are an "inherently factual issue." But E*TRADE is not challenging damages — it is challenging jurisdiction. And a plaintiff cannot sidestep the jurisdictional question simply by pleading an indeterminate amount of damages, accompanied by a conclusory statement that the amount-in-controversy threshold is met. Although doubts regarding whether the jurisdictional amount is met are resolved in plaintiff's favor, on the present record the Court simply has no way to determine whether LaSala's allegations of excess compensation reach the jurisdictional amount.
Plaintiff's Reply Memorandum in Further Support of Plaintiff's Motion to Stay this Action ("Pl. Stay Reply") at 3; see also id. at 3 n. 3 ("[t]he amount of damages sustained by a party is a question of fact that cannot be resolved on a motion to dismiss.").
See Complaint ¶¶ 7, 19, 25, 29.
See ACMAT Corp. v. Greater N.Y. Mut. Ins. Co., 58 F. Supp. 2d 1, 5 (D. Conn. 1999) (bare assertion that amount in controversy threshold is met insufficient to establish jurisdiction); cf. Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 298 (2d Cir. 2000) (in a case where plaintiff did not plead specific amount of damages, remand to district court was warranted, due to insufficient factual record to determine whether jurisdictional amount was met; party seeking federal jurisdiction had burden to establish reasonable probability that jurisdiction existed).
See ACMAT Corp., 58 F. Supp. 2d at 5 (dismissing action for lack of subject matter jurisdiction, when "[the Court has] no way of knowing what the value of this litigation is to plaintiff."). Indeed, the only indication of the value of these claims to date is E*TRADE's assertion that it "allocated less than one percent of the Globespan stock to only a handful of individuals, none of whom could or did `kick back' anything to E*TRADE or otherwise provide it with `excessive compensation.'" Def. Stay Opp. at 3.
As noted, plaintiff may replead his claims, but if plaintiff files an amended complaint, he must establish a reasonable probability that he can meet the required jurisdictional amount. Alternatively, if LaSala concedes that the $75,000 threshold cannot be met, and he intends to rely instead on his theory of supplemental jurisdiction, he should so state.
See Chase Manhattan Bank N.A., 93 F.3d at 1070 (internal quotation and citation omitted, alteration in original) ("before determining that the amount in controversy requirement has not been met, the court must afford the plaintiff an appropriate and reasonable opportunity to show good faith in believing that a recovery in excess of [the jurisdictional amount] is reasonably possible.").
To be sure, given that the Second Circuit also directs that a complaint should not be dismissed unless there is a "legal certainty" that the jurisdictional amount cannot be met, the "reasonable probability" burden cannot be particularly onerous. See Scherer, 347 F.3d at 397; see also Slaven v. Mee Noodle Shop Grill, Inc., No. 96 Civ. 0374, 1998 WL 661477, at *2 (S.D.N.Y. Sept. 24, 1998) (reciting the "reasonable probability" standard, but also holding that "although defendants presented evidence casting serious doubt as to the extent of [plaintiff's] damages, they have not shown that it is legally impossible for him to meet the $75,000 jurisdictional amount.").
Cf. Pl. Stay Reply at 3 ("E*TRADE's complaint that plaintiff fails to meet the [$75,000 threshold] . . . simply ignores the fact that plaintiff also asserts the existence of supplemental federal jurisdiction under 28 U.S.C. § 1367 as an alternative to diversity jurisdiction."); see also id. (noting a recent Supreme Court decision, Exxon Mobil Corp. v. Allapattah Servs., Inc., 125 S.Ct. 2611 (2005), holding that supplemental jurisdiction statute allows exercise of diversity jurisdiction over plaintiffs who fail to satisfy jurisdictional amount, as long as 1) diversity jurisdiction is otherwise present; and 2) at least one plaintiff in the action satisfies jurisdictional amount).
C. Plaintiff's Motion to Stay Is Granted
E*TRADE notes the existence of two facts which it asserts should distinguish this case from the other LaSala Actions, where I found that the interests of justice favored granting a stay. First, E*TRADE asserts that it has "an extremely minor role in [the IPO Litigation], having participated in only one of the 309 offerings at issue. E*TRADE's embroilment in the [LaSala Actions] . . . is especially costly in this light, and will prove more expensive to the extent it is extended by this stay, both in terms of employee time and the cost of counsel." Second, E*TRADE notes the existence of a valid forum selection clause in the Globespan Underwriting Agreement, which mandates that these claims be litigated in a San Francisco court.
Def. Stay Opp. at 2-3.
See id. at 2. LaSala does not contest E*TRADE's assertion that this clause was "freely negotiated between the underwriters and Globespan." Def. Mem. at 7.
Although I am mindful of the burdens associated with litigating this action, the considerations which led me to grant the stay in the other LaSala Actions also apply here. Specifically, a stay serves two related purposes: 1) it helps to prevent settlement class members, the ultimate (potential) beneficiaries of these claims, from losing part of their settlement as a result of the time it takes to observe the procedural safeguards attendant to class-action settlements; and 2) it upholds the public and judicial policy in favor of settling civil actions, especially in the context of complex class-action litigation. Against these considerations, defendant's claim that it is unduly burdened by defending this suit, which is common to any defendant in civil litigation, does not persuade me to reach a different conclusion than the one reached in the other LaSala Actions.
E*TRADE is not without options if it concludes that the costs of defending itself is disproportionate to its exposure in this litigation. See Fed.R.Civ.P. 68 (defendant can extend an offer of judgment, and if that offer is not accepted, and if the eventual judgment against defendant is not more favorable than the offer, plaintiff must pay all costs incurred after the offer was made).
See LaSala I, 2005 WL 2094938, at *4-5. Put another way, I note that the Assigned Claims against the Underwriters who entered tolling agreements are not subject to these jurisdictional attacks, simply because there is no need for the IPO Litigation plaintiffs to assert them at this time to prevent expiration of the statute of limitations. It would be unjust for some Assigned Claims to be lost while some are preserved, based purely on whether a given Underwriter decided to sign a tolling agreement.
Additionally, if I were to treat E*TRADE differently from the other Underwriters based only on its allegedly minor role in the IPO Litigation, other Underwriters who may have participated in only a handful of IPOs could also argue for different treatment, and there is no sensible basis by which to distinguish among Underwriters playing a "major role," as opposed to a "minor role," in the IPO Litigation.
Moreover, although this Circuit has a strong policy in favor of enforcing forum-selection clauses, this case represents a rare exception where enforcing such a clause would be unreasonable. Even if I dismissed this action for improper venue, E*TRADE would still remain in this Court as a defendant in the IPO Litigation. Thus, enforcing the forum selection clause would exacerbate, rather than ameliorate, defendant's burden. More generally, it would be an egregious waste of judicial resources to require that the parties litigate this one action in San Francisco while the IPO Litigation, and several dozen LaSala Actions, are still pending in a court uniquely familiar with the underlying facts common to all of these proceedings. For these reasons, the forum selection clause provides no basis to deny the motion to stay.
See Chasser v. Achille Lauro Lines, 844 F.2d 50, 54 (2d Cir. 1988); see also Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1363 (2d Cir. 1993) (quoting The Bremen v. Zapata Offshore Oil Co., 407 U.S. 1, 12 (1972)) (forum selection clauses presumptively enforceable unless there is a "clear showing that the clauses are `unreasonable under the circumstances.'").
See Caspian Invs., Ltd. v. Vicom Holdings, Ltd., 770 F. Supp. 880, 885 n. 5 (S.D.N.Y. 1991) (citation omitted) (dismissing New York action in deference to previous action involving same claims in Ireland; forum selection clause specifying New York as forum held "not enforceable if, as here, enforcement is `unreasonable' or violates principles of comity or judicial efficiency.").
See Mylan Pharms. Inc. v. American Safety Razor Co., 265 F. Supp. 2d 635, 639 (N.D.W. Va. 2002) (refusing to enforce a forum selection clause, when defendant sought to dismiss only a cross-claim, and when even if cross-claim was dismissed and refiled in a different court, defendant would remain in original court); see also Nippon Fire Marine Ins. Co. v. M/V Spring Wave, 92 F. Supp. 2d 574, 577 (E.D. La. 2000) (refusing to dismiss claims in favor of a foreign forum selection clause requiring litigating claim in Japan, as "[defendant] would remain in this Court to defend [related claims] and litigate the same facts under the same legal theories, thereby undermining the central purpose of the forum selection clause — litigating only in Japan.").
See Taylor Investment Corp. v. Weil, 169 F. Supp. 2d 1046, 1061 (D. Minn. 2001) (enforcement of forum selection clause would be "unreasonable and unjust" when clause would have the effect of dismissing only a portion of pending lawsuit; adjudication in a different district would result in inefficient use of the courts' and the parties' resources, and a risk of conflicting judgments); see also First Interstate Credit Alliance, Inc. v. Alliance Leasing, Inc., No. 89 Civ. 4038, 1990 WL 67445, at *5 (S.D.N.Y. May 15, 1990) (citation omitted) (transferring case to Alabama, despite forum selection clause specifying New York as the proper forum; action arising from same facts was already pending in Alabama, and thus a separate action in New York would "flout the theory of judicial economy . . . [t]o enforce the forum selection clause without taking into consideration the facts of the case would be unreasonable.").
To be sure, another judge of this Court once rejected a similar argument in La Fondiaria Assicurazione, S.P.A. v. Ocean World Lines, Inc., No. 02 Civ. 40, 2002 WL 31812679, at *2 (S.D.N.Y. Dec. 12, 2002) (rejecting argument that forum selection clause should not be enforced due to the possibility of creating duplicative litigation: "[a]dmittedly, it might be more efficient to dispose of the entire case in one court, but that is not the standard for overcoming a forum selection clause."). But especially given that the LaSala Actions are an integral part of the pending partial settlement in the massive and complicated IPO Litigation, the judicial economy concerns here are acute and reach beyond the interests of the parties to the above-captioned litigation. Cf. In re Rationis Enters., Inc. of Panama, No. 97 Civ. 9052, 1999 WL 6364, at *3 (S.D.N.Y. Jan. 7, 1999) (in admiralty proceeding of great complexity and "global magnitude," giving effect to the forum selection clauses of various parties "would fragment this case beyond recognition.").
This passage should provide guidance to E*TRADE regarding the likely outcome of a renewed motion to dismiss on 12(b)(3) grounds.
IV. CONCLUSION
For the foregoing reasons, defendant's motion to dismiss is granted without prejudice, plaintiff's cross-motion for consolidation is denied as moot, and plaintiff's motion to stay is granted. Plaintiff is granted leave to replead within twenty days of this Opinion and Order, in a manner consistent with this Opinion and with the Court's October 11, 2005 Opinion and Order in LaSala v. Needham Co., 04 Civ. 9237. The Clerk is directed to close these motions [numbers 3, 9 and 15 on the docket sheet].
As in LaSala I, the stay remains in effect until the IPO Issuers Settlement is approved or rejected. See LaSala I, 2005 WL 2094938, at *6.
Plaintiff's counsel, who are also plaintiffs' class counsel in the IPO Litigation, are directed to post this Opinion and Order on the website established to provide information to IPO Litigation settlement class members, www.iposecuritieslitigation.com. However, the written notice now being prepared for distribution to settlement class members need not be updated to reflect this Opinion and Order. That notice, as recently amended, already directs settlement class members to the website to "check on any and all future developments with respect to the assigned claims." Order of October 19, 2005, In re Initial Public Offering Sec. Litig., 21 MC 92 (approving certain updates to the previously-approved notice to settlement class members).
SO ORDERED.