Opinion
No. 3:03-0128.
October 8, 2004
MEMORANDUM
Plaintiff, Tennessee Consolidate Retirement System ("TCRS"), filed this action, originally in the Davidson County Chancery Court, against the Defendants: Citigroup, Inc.; Salomon Smith Barney, Inc.; J.P. Morgan Securities, Inc.; J.P. Morgan Chase Co.; Bank of America Corporation; Banc of America Securities, LLC; ABN Amro Incorporated; Deutsche Bank AG; Deutsche Banc Alex. Brown, Inc.; Lehman Brothers Holdings, Inc.; Lehman Brothers, Inc.; Credit Suisse Group; Credit Suisse First Boston Corporation; Goldman Sachs Group, Inc.; Goldman Sach Co.; UBS Warburg, LLC; Nationsbanc Montgomery Securities, LLC; and Arthur Andersen, LLP.
TCRS's action "is a securities suit involving WorldCom, Inc., naming as defendants WorldCom's investment bankers and its accountants for violations of the Securities Act of 1933 (`1933 Act") arising out of its purchases of WorldCom debt securities (the "WorldComBond") sold to public investors in WorldCom's August 1998, May 2000 and May 2001 bond offerings (the "Offerings")." (Docket Entry No. 1, Attachment thereto, Exhibit A). TCRS's claims arise under Section 11 of the Securities Act of 1933 with jurisdiction under 22(a) of that Act, codified at 15 U.S.C. § 77v(a), as amended. TCRS alleges that misrepresentations were made in connection with bond purchases that TCRS made as investments for current and former Tennessee public employees. TCRS asserts only federal claims under Section 11 of the 1933 Act. Section 22(a) gives state courts concurrent jurisdiction with federal courts over Section 11 claims. 15 U.S.C. § 77v(a).
The Underwriter Defendants, with the exception of Arthur Andersen, LLP and Credit Suisse Group, removed the action to this Court, asserting that TCRS's action is "related to" the bankruptcy of WorldCom, Inc. that is not a named defendant in this action. (Docket Entry No. 1, Notice of Removal). The Underwriter Defendants cited 28 U.S.C. § 1334(b), the federal bankruptcy jurisdictional statute, and 28 U.S.C. § 1452, the bankruptcy removal statute, as the legal bases for their removal and this Court's jurisdiction. In earlier proceedings, the Court granted the Plaintiff's motion to remand concluding that the express provisions of Section 22(a) of the Securities Act of 1933, as amended in 1998, barred the removal of this action from the Court. In light of a possible appeal, under the Sixth Circuit precedent, the Court stayed its Order of removal so as to not to prejudice the Defendants' appeal rights.
Arthur Andersen joined the other Defendant' opposition to TCRS's motion to remand. See Docket Entry No. 27. Under 28 U.S.C. § 1452(a), a single party can remove an action. 16 James W. Moore, et al., Moore's Federal Practice, at 107.15[8][b]. Credit Suisse Group was apparently inadvertently omitted from the list of Underwriter Defendants in the Notice of Removal.
Contrary to the suggestion of the District Court inWorldCom, Inc. Securities Litigation, 2003 WL 22953644, * 6 (S.D.N.Y. 2003), the Court was not "[e]xpressing uncertainty about its analysis [in] stay[ing] its ruling pending appeal." The Court stayed its Order to avoid the Defendants losing any appeal of that Order of remand.
Before the Court is the Defendants' motion for relief under Fed.R.Civ.P. Rule 60(b) (Docket Entry No. 62), contending that since the Court's decision, a copy of which is attached hereto, the Second Circuit in California Public Employees Retirement System v. WorldCom, Inc., 368 F.3d 86 (2d Cir. 2004), has held that Section 22(a) does not preclude the exercise of federal bankruptcy jurisdiction. Plaintiff responds that Second Circuit opinion does not present any new legal arguments to justify relief under Rule 60(b).
The Court applies the law of the case doctrine and will not set aside its earlier Order of remand absent a showing of manifest error or injustice. United States v. Moored, 38 F.3d 1419, 1421 (6th Cir. 1994).
The Court holds the Second Circuit and the Honorable Jose A. Cabranes, the author of the WorldCom opinion in the highest regard. Yet, after review of the Second Circuit's decision, the Court reaffirms its earlier conclusion that Section 22(a) precludes the removal of Plaintiff's action to this Court. In the Court's view, the Second Circuit decision misapplies Supreme Court precedent; erroneously utilizes a rule of statutory construction to set aside a clear statutory mandate and misconstrues this Court's earlier opinion.
In its analysis of the issue of statutory construction, the Second Circuit relied principally on Radzanower v. Touche Ross Co., 426 U.S. 148, 153 (1976). After its review of the circumstances in Radzanower, involving different venue statutes for claims against a national bank, the Second Circuit concluded:
Based on the principles of statutory interpretation articulated in Radzanower, we cannot conclude that Section 22(a) is more "specific" than Section 1452(a). First, unlike the National Bank Act's venue provision, which applies to a defined group of litigants, Section 22(a), like both Section 1452(a) and the 1934 Act's venue provision, applies to a defined class of claims. Thus, the Supreme Court's distinction between a statute applicable to a "broad" universe of potential defendants" and a statute that protects a "particularized" group of defendants, id. at 153-54, 96 S.Ct. 1989, carries not weight here.
Additionally, the class of claims covered by Section 22(a) is no more specific than the class of claims covered by Section 1452(a). Section 22(a) does not cover only a subset of the claims covered by Section 1452(a). By the same token, Section 1452(a) does not cover only a subset of the claims covered by Section 22(a). Rather, just as Section 1452(a) applies to many claims that are not brought under the 1933 Act, Section 22(a) applies to many claims that are not "related to" a bankruptcy.
In that respect, it is instructive to compare Section 1452(a) to the general removal statute, which, "except as otherwise expressly provided by Act of Congress," permits removal of "any civil action brought in a State court of which the district courts of the United States have original jurisdiction . . ." 28 U.S.C. § 1441(a). Even without the introductory clause in Section 1441(a), Section 22(a) would arguably trump that provision on the ground that Section 22(a) is more specific than Section 1441(a); that is Section 22(a) applies to only one . . .
Finally, even if we were to conclude that Section 22(a) covers a more "specific" group of claims than Section 1452(a), Section 22(a) would not necessarily control. The Supreme Court in Radzanower indicated that where the application of a specific statute would "unduly interfere" with the operation of a general statute that was enacted subsequent to the specific statute, the more general statute controls. See Radzanower, 426 U.S. at 156, 96 S.Ct. 1989. In Radzanower, however, the Court determined that the National Bank Act's venue provision would not "unduly interfere" with the operation of the 1934 Act, because (1) the provision "will have not impact whatever upon the vast majority of lawsuits brought under that Act" and (2) "[i]n the tiny fraction of litigation where its effect will be felt, it will foreclose nobody from invoking the Act's provisions." Id.
We are not so sanguine about Section 22(a)'s effect on the system created by the Bankruptcy Code. When Congress enacted Section 1452(a) in 1984, fifty years after it first enacted Section 22(a), "Congress intended to grant comprehensive jurisdiction to bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate." Celotex Corp. v. Edwards, 514 U.S. 300, 308, 115 S. Ct. 1493, 131 L. Ed. 2d 403 (1995) (emphasis added and internal quotation marks omitted). Therefore, Congress crafted Section 1452(a) to allow removal in a broad array of situations. First, unlike Section 1441(a), which authorizes defendants to remove, the bankruptcy removal statute authorizes any "party," including plaintiffs, to remove. See 28 U.S.C. § 1452(a). Second, because any one "party" can remove under Section 1452(a), removal that provision, unlike removal under Section 1441(a), does not require the unanimous consent of the defendants. See Creasy v. Coleman Furniture Corp., 763 F.3d 656, 660 (4th Cir. 1985).
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Because, in any given case, the full amount of damages sought under the 1933 Act can be the basis for a claim against the estate, the policy underlying Section 1452(a) applies with full force to claims under the Act. Section 1452(a) dictates that these claims, when they are brought against defendants with contribution rights, should not be subject to conflicting outcomes along with repetitive and time-consuming discovery proceedings in multiple state courts.
In sum, because Section 22(a) does not cover a narrower class of claims than Section 1452(a), it cannot be considered more "specific" than Section 1452(a). Moreover, even if Section 22(a) were more specific than Section 1452(a), Radzanower counsels that, because Section 22(a) could interfere with the operation of the Bankruptcy Code, it would not necessarily control.368 F.3d at 102-04.
The Second Circuit also noted that "SLUSA . . . merely expanded federal jurisdiction over class actions," and that "`nothing in the text or legislative history of SLUSA indicates that Congress intended to alter the jurisdictional scheme applicable toindividual actions under the 1933 Act.'" Id. at 104-05 (quoting In Re Global Crossing, Ltd. Sec. Litig., 2003 WL 21659360, at *3 (S.D.N.Y. July 15, 2003)) (emphasis in the original). "Because Congress did not manifest an intent to alter the preexisting law when it amended the 1993 Act in 1988, we cannot resolve the statutory conflict by focusing on SLUSA."Id. at 105. Thus, the Second Circuit deferred to § 1452(a) and concluded that "Congress did not intend for Section 22(a) and its analogues to bar removal of `related to' claims." Id. at 106.
The Second Circuit reasoned that unlike § 1441(a), § 1452(a) does not contain a clause excepting claims arising under an Act of Congress that otherwise prohibits removal and a literal reading of Section 22(a) would render the exception clause under § 1441(a) mere surplusage. Id. at 106. "In other words, if we concluded that a nonremoval provision such as Section 22(a) prevents removal under both Section 1441(a) and Section 1452(a), notwithstanding the phrase `[e]xcept as otherwise expressly provided by Act of Congress' in Section 1441(a), that phrase in the general removal statute would serve no apparent purpose." Id. Second Circuit thus concluded that Section 1452(a) "grant[ed] additional removal jurisdiction in a class of cases which would not otherwise be removable under the prior grant of authority. . . . [Therefore,] generally nonremovable claims brought under the Securities Act of 1933 may be removed to federal court if they come within the purview of 28 U.S.C. § 1452(a), which confers federal jurisdiction over claims that are related to a bankruptcy case." Id. at 107-08 (internal quotation omitted).
The Court respectfully disagrees with the Second Circuit for several reasons. First, Radzanover articulates the principle that the specific statute governs the more general statute.
It is a basic principle of statutory construction that a statute dealing with a narrow, precise, and specific subject is not submerged by a later enacted statute covering a more generalized spectrum. "Where there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment." Morton v. Mancari, 417 U.S. 535, 550-551. "The reason and philosophy of the rule is, that when the mind of the legislator has been turned to the details of a subject, and he has acted upon it, a subsequent statute in general terms, or treating the subject in a general manner, and not expressly contradicting the original act, shall not be considered as intended to affect the more particular or positive previous provisions, unless it is absolutely necessary to give the latter act such a construction, in order that its words shall have any meaning at all."426 U.S. at 153 (emphasis added and citations omitted) (quoting T. Sedgwick, The Interpretation and Construction of Statutory and Constitutional Law 98 (2d ed. 1874)).
Another Sedgwick rule of statutory construction supports this Court earlier conclusion:
"Leges posteriores, priores contrarias abrogant. `If two inconsistent acts be passed at different times, the last,' said the Mater of the Rolls, `is to be obeyed; and if obedience cannot be observed without derogating from the first, it is the first which must give way. Every act of Parliament must be considered with reference to the sate of the law subsisting when it came into operation, and when it is to be applied; it cannot otherwise be rationally construed. Every act is made, either for the purpose of making a change in the law, or for the purpose of better declaring the law; and its operation is not to be impeded by the mere fact that it si inconsistent with some previous enactment.'"Sedgwick, supra, at 104.
The Court remains of the view that Radzanower counsels the enforcement of more specific statute, to Section 22(a) that applies a particular and well defined group of Plaintiffs that Congress consciously selected after a study of state and federal securities class actions.
Second, the Second Circuit's analysis lies principally in its characterization of SLUSA as a "mere expan[sion]" of federal jurisdiction over class actions and its subsequent analysis of 28 U.S.C. § 1452(a) as the later-enacted modifier of Section 22(a).Id. at 105-08. The relevant Section 22(a) provisions, as amended by SLUSA in 1998 provide:
Notwithstanding any other provision of this section, nothing in this section may be construed to preclude a State or political subdivision thereof or a State pension plan from bringing an action involving a covered security on its own behalf, or as a member of a class comprised solely of other States, political subdivisions, or State pension plans that are named plaintiffs, and that have authorized participation, in such action.
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Except as provided in section 77p(c) of this title [dealing with class actions], no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States.15 U.S.C. §§ 77p(d)(2)(A), 77v(a) (emphasis added).
Under the SLUSA amendments, Section 77p(d)(2)(A) as part of a statutory overhaul added section covering "Protected Actions", and Section 77v(a) was amended to include its current first clause. The Second Circuit based its analysis on the fact that exception to removal under Section 77v(a) predated Section 1452(a), and concluded that the latter created an exception to the former. This Court disagrees with this conclusion. Congress' 1998 amendments to the Securities Act of 1933 added several provisions allowing for the removability of class actions, and also featured provisions, such as Section 77p(d)(2)(A) above, which "protected" state actions such as those dealing with state pension.
The legislation provides for certain exceptions for specific types of actions. The legislation preserves State jurisdiction over: (1) certain actions that are based upon the law of the State in which the issuer of the security in question is incorporated; (2) actions brought by States and political subdivisions, and State pension plains, so long as the plaintiffs are named and have authorized participation in the action; and (3) actions by a party to a contractual agreement (such as an indenture trustee) seeking to enforce provisions of the indenture.
H.R. Conf. Rep. 105-803, **13, 14.
Congress clearly modified Section 77v(a) by excepting from the removal exception only the state class actions described in Section 77p(c): "Except as provided in section 77p(c) of this title. . . ." Congress did this in 1998 with full knowledge of the Bankruptcy removal statute, yet did nothing to textually provide for the removability of cases under 77p (except those under subsection (c)) "related to" bankruptcy claims.
Thus, SLUSA does more than "merely expand" federal jurisdiction over class actions, SLUSA specifically "disallows the removal of actions under the Securities Act of 1933 from any state court from competent jurisdiction," and it "expressly recognizes `the special interests of states in the context of securities litigation . . . evinc[ing] a policy of special respect for the forum choices of state pension plans with regard to securities claims and for state courts whose jurisdiction is invoked to hear them, and adds a strong reason for abstention. . . .'" Tenn. Consol. Ret. Sys. v. Citigroup, Inc., 2003 WL 22190841, at *3 (M.D. Tenn. May 9, 2003) (quoting Ret. Sys. of Ala. v. Merrill Lynch Co., 209 F. Supp. 2d 1257, 1269 (M.D. Ala. 2002)).
Because SLUSA enumerated many classes of state-initiated securities cases, yet granted state court jurisdiction to only one specific class of cases, and amended the removal exception statute without reflecting Section 1452(a), this Court concludes that Section 22(a)'s removal exception, read in light of SLUSA, trumps Section 1452(a) as it applies to this action.
Accordingly, the Court considers the 1998 SLUSA amendments to Section 22(a) as the later-enacted modifier of Section 1452. The SLUSA amendments were enacted after Section 1452(a); is more specifically worded; and expressly removes from federal jurisdiction a narrow class of cases, including claims related to state pension plans. Congress enacted SLUSA with full cognizance of the existence and breadth of Section 1452(a). The Court concludes that as the later-enacted, specifically-worded statute, SLUSA's exception to federal jurisdiction control over the general grant of federal jurisdiction to "any claim `related to'" bankruptcy cases in Section 1452(a).
To the extent a conflict between Section 22(a) and the bankruptcy statute exists, the Court's conclusion in this case is consistent with the Supreme Court's holding in Radzanower that a specific statute governs a previously-enacted generally-worded one. Radzanower, 426 U.S. at 154 ("[W]here provisions in . . . two acts are in irreconcilable conflict, the later act to the extent of the conflict constitutes an implied repeal of the earlier one") (emphasis added). The remedy for this conflict rests with Congress.
Third, the Second Circuit's reading of SLUSA and Section 1452(a) nullifies and eviscerates the clearly articulated intent of Congress to preserve to the state court's jurisdiction over certain securities actions concerning state pension funds. Even if Section 22(a) were read as predating Section 1452, the former, more specific statute would be nullified. As the Court noted previously in this action, "`[t]he primary rule of statutory construction is to ascertain and give effect to the legislative intent.'" Tenn. Consol Ret. Sys., 2003 WL 22190841, at *3. Indeed, Congress recognized explicitly the distinction between securities claims involving public employee pension funds and espoused the policy of fiscal integrity so as to allow them to pursue claims against a named defendant, and not against the debtor. The exemption of state pension plans from SLUSA's preemption provisions:
"embodies a Congressional recognition of the special needs of state governments and pension plans to be able to pursue state law remedies in state courts in order to protect their pensioners and taxpayers from securities fraud. . . . [T]hese provisions clearly evince a policy of special respect for forum choices of state pension plans with regard to securities claims and for state courts whose jurisdiction is invoked to hear them. . . ."Id. at *3 (quoting Ret. Sys. of Ala., 209 F. Supp. 2d at 1269).
Thus, the Court reaffirms its conclusion that "Section 22(a) is a clear statutory prohibition" to removal Tenn. Consol. Ret. Sys., 2003 WL 22190841, at *3, that evinces a clear legislative intent to reserve to the state pension funds the right to litigate securities action in state courts. This statutory command should be honored.
For these reasons, the Defendants' motion to reconsideration is granted, but the Court affirms its earlier ruling.
An appropriate Order is filed herewith.