Opinion
MASTER FILE No. 02 Civ. 3288 (DLC).
September 30, 2005
For plaintiffs in 03 Civ. 4498 and 04 Civ. 233: Dewitt T. Hicks, Jr. Gholson, Hicks Nichols AmSouth Bank, Third Floor Columbus, Mississippi.
For Arthur Andersen LLP: Eliot Lauer Michael Moscato Cynthia L. Ebbs Curtis, Mallet-Prevost, Colt Mosle LLP New York.
For the Citigroup Defendants: Martin London Richard A. Rosen Brad S. Karp Eric S. Goldstein Walter Rieman Joyce S. Huang Paul, Weiss, Rifkind, Wharton Garrison LLP New York.
For the Director Defendants: Pamela Rogers Chepiga Andrew Rhys Davies Allen Overy LLP New York.
For the Underwriter Defendants: Jay B. Kasner Thomas J. Nolan David Springer Jay S. Berke Susan L. Saltzstein Jason D. Russell Cyrus Amir-Mokri Steven J. Kolleeny Skadden, Arps, Slate, Meagher Flom LLP New York.
OPINION ORDER
Plaintiffs Public Employees Retirement System of Mississippi and Health Care Trust Fund of Mississippi in Teachers Retirement System of Louisiana et al. v. Ebbers et al., No. 03 Civ. 4498 (DLC), and plaintiff in Shriners Hospitals for Children v. Alexander, et al., No. 04 Civ 233 (DLC), have filed motions to remand these actions back to their transferor court, the U.S. District Court for the Southern District of Mississippi. For the reasons stated below, both motions are denied.
Background
The procedural history of the various WorldCom actions filed on behalf of individual plaintiffs (the "Individual Actions") has been described in prior Opinions. See, e.g., In re WorldCom, Inc., Sec. Litig., No. 02 Civ. 3288 (DLC), 2004 WL 2889974, at *1-*5 (S.D.N.Y. Dec. 15, 2004). In brief, numerous WorldCom-related class actions and Individual Actions were transferred to this Court by the Judicial Panel on Multi-District Litigation ("MDL Panel"). The Individual Actions were consolidated with the WorldCom securities class action for pretrial purposes through an Order of December 23, 2002. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2002 WL 31867720 (S.D.N.Y. Dec. 23, 2002). The consolidated litigation is referred to as theSecurities Litigation. On March 3, 2003, a motion for remand back to state court brought by plaintiffs in one of the Individual Actions was denied on the basis that even an action pleading solely state law and (ordinarily unremovable) Securities Act of 1933 claims was removable to federal court as related to WorldCom's bankruptcy. See In re WorldCom, Inc. Sec. Litig., 293 B.R. 308, 328-30 (S.D.N.Y. 2003), aff'd sub nom. Calif. Pub. Employees Ret. Sys. v. WorldCom, Inc., 368 F.3d 86 (2d Cir. 2004). A later Opinion denied other remand motions. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21031974 (S.D.N.Y. May 5, 2003). Later, motions to dismiss by defendants in the Individual Actions were organized into several phases involving common issues. See WorldCom, 2004 WL 2889974, at *2-*3. The motions to dismiss brought in Phases I and II have been addressed. Because decision on most Individual Action Phase III motions was deferred pending settlement discussions after the WorldCom class action settlements were announced earlier this year, see In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), ___ F. Supp. 2d ___, 2005 WL 2293190 (S.D.N.Y. Sept. 21, 2005), most Phase III motions to dismiss are still sub judice.
The plaintiffs in the Teachers and Shriners actions plead claims under Mississippi state law; the Shriners complaint also alleges federal securities law claims. Teachers was filed in Mississippi state court and removed to the U.S. District Court for the Southern District of Mississippi on the ground that it related to the WorldCom bankruptcy; Shriners was filed in the Mississippi federal district court in the first instance. The MDL Panel order transferring Teachers to this Court was docketed on June 20, 2003, and the file was received by this Court on July 11, 2003. Shriners was transferred pursuant to an MDL Panel order docketed on January 13, 2004; the file was received on January 27, 2004. Pursuant to a Consolidation Order of May 28, 2003, the plaintiffs had ten days following the arrival on this Court's docket to object to the consolidation of their cases with the WorldCom Securities Litigation. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21242882, at *3 (S.D.N.Y. May 28, 2003). An Order of June 11, 2003, created a procedure whereby actions had three weeks after their arrival on the Court's docket to show cause why this Court's earlier remand Opinions did not require the denial of their remand motions. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21357026 (S.D.N.Y. June 11, 2003). The plaintiffs filed no objection to consolidation and did not act to preserve any remand motions. Phase III motions to dismiss by defendants in both cases were filed on December 17, 2004.
In twin motions filed on February 17, 2005, plaintiffs contend that the actions should be transferred back to the federal district court in Mississippi before the pending motions to dismiss are decided. Plaintiffs argue that it would be "inappropriate" for a court "foreign to the State of Mississippi" to consider the Mississippi state law claims. Second, they contend that 28 U.S.C. § 1407 does not give this Court, as the transferee court, jurisdiction to decide "substantive legal matters" such as those issues of Mississippi law implicated in the pending motions to dismiss. Finally, plaintiffs argue that this Court's decision of the pending motions to dismiss would be a procedural due process violation under the Fifth Amendment. Because the briefs in support of theTeachers and Shriners remand motions are nearly identical, the motions are considered together.
Plaintiffs in Teachers initially argued that a decision by this Court on the pending motions to dismiss would also be an Eleventh Amendment violation, based on their status as agents of the State of Mississippi, but they abandon this argument in their reply brief.
Discussion
Despite their contention that their remand motions raise issues of constitutional law undecided in this Court's prior Opinions, the plaintiffs have waived any right to seek a remand to the transferor court during pretrial proceedings. They did not object to consolidation within the Securities Litigation or renew any remand motions within the time permitted by the May 28, 2003 Consolidation Order and the June 11, 2003 Order. In any event, their motions must be denied on the merits.
1. Appropriateness and Constitutionality of this Court's Decision on Matters of Mississippi State Law
Plaintiffs argue that the issues of Mississippi law implicated in the pending motions to dismiss "should be initially determined by a Mississippi based judge (State or Federal Court) and not by a judge of a Court foreign to the State of Mississippi." Plaintiffs' procedural due process argument is essentially a constitutionalization of this argument. Neither contention is supported by any legal precedent.
Plaintiffs correctly note that, under the principle adoptedErie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), this Court will be bound by the decisional law of the Mississippi Supreme Court in deciding motions to dismiss claims governed by Mississippi state law. When an action involving state law claims is transferred pursuant to the MDL provision of 28 U.S.C. § 1407 (2000), "a transferee court applies the substantive state law, including choice-of-law rules, of the jurisdiction in which the action was filed." Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993). This rule "furthers Erie's policies by insuring that a pre-trial transfer under § 1407 does not lead to the application of a state substantive law that differs from the law applicable in the jurisdiction where the case was properly filed." Id.
Even though Mississippi law is to be applied, it does not in any way follow that issues of Mississippi law must be decided by a Mississippi-based state or federal court because plaintiffs filed in Mississippi in the first instance. The U.S. Supreme Court has long recognized that a federal district court may apply the law of a state other than the one in which it sits, even if the plaintiff did not choose the eventual forum. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964) (holding that a district court to which a case has been transferred pursuant to 28 U.S.C. § 1404 (a) must apply the state law that would have been applied if there had been no change in venue). As a general practice, of course, federal courts routinely apply the law of states outside their home district or circuit, see, e.g., Goetz v. Synthesys Techs., Inc., 415 F.3d 481 (5th Cir. 2005) (applying New York law); In re Rezulin Prods. Liab. Litig., 331 F. Supp. 2d 196 (S.D.N.Y. 2004) (applying Mississippi and Texas law in a case transferred to the court by the MDL Panel), just as state courts apply other states' laws if choice-of-law principles so require. While plaintiffs' contention that state law questions should be "determined by a Court whose judges are extensively familiar with the substantive law of the State involved" might be an interesting policy argument to present to Congress in favor of an amendment to the MDL statute, it does not present a prudential or constitutional bar to this Court's jurisdiction over their cases. Plaintiffs' argument is thus rejected as meritless.
2. This Court's Jurisdiction Under 28 U.S.C. § 1407
The MDL Panel transfer statute provides in relevant part:
When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Such transfers shall be made by the judicial panel on multidistrict litigation . . . upon its determination that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions. Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred unless it shall have been previously terminated. . . .28 U.S.C. § 1407 (a).
Plaintiffs argue that the "pretrial proceedings" contemplated by the statute do not include decisions regarding the "substantive legal issues relating to the validity of [state law claims]"; that the transfer provision gives the transferee court the authority to decide "fact discovery matters only, but not dispositive legal issues"; and that this Court accordingly does not have jurisdiction to decide the pending motions to dismiss. They do not cite a single case supporting the proposition that "pretrial proceedings" would not encompass motions to dismiss and other dispositive pretrial motions, however, whether based on federal or state law.
The sole case cited by plaintiffs in support of their argument,Lexecon Inc. v. Milberg Weiss Bershad Hynes Lerach, 523 U.S. 26 (1998), held that a court to which a case had been transferred by the MDL Panel under § 1407 could not assign a case to itself for trial pursuant to 28 U.S.C. § 1404 (a). That holding has no relevance here. A dictum in Lexecon confirms that a transferee court has the authority to decide dispositive pretrial motions: "To be sure, [the provision of Section 1407 (a) obligating the MDL Panel to remand cases not `previously terminated' during the pretrial period] indicates that the Panel is not meant to issue ceremonial remand orders in cases already concluded by summary judgment, say, or dismissal." Lexecon, 523 U.S. at 37 (emphasis added). As the Honorable Gerard E. Lynch concluded when confronted with an argument similar to plaintiffs', "nothing in Lexecon prohibits the dismissal of actions on proper grounds during the pretrial phase of the case."In re Global Crossing, Ltd. Sec. Litig., No. 02 Civ. 910 (GEL), 2004 WL 2584874, at *2 (S.D.N.Y. Nov. 12, 2004); see also In re Rizulin Prods. Lia. Litig., No. 00 Civ. 2843 (LAK), 2003 WL 1900870, at *1 (S.D.N.Y. Apr. 16, 2002) (rejecting the argument that a Section 1407 transferee court may not rule on a dispositive motion as "frivolous" and suggesting that the assertion "may raise a question under Fed.R.Civ.P. 11"). Plaintiffs' argument is therefore rejected.
Conclusion
The remand motions in Individual Actions Nos. 03 Civ. 4498 and 04 Civ. 233 are denied.
SO ORDERED.