Serial Remover Foiled Again

I’ve heard of Defendants trying to remove their state court case to federal court, but these guys over at Prudential have got to be some of the most persistent removers (yes, I believe I have invented a new word in this context, but I think this situation warrants it) I’ve ever seen.Long story short, Plaintiffs brought a class action against Prudential in an Ohio state court alleging state court claims.But Pru claims the case is actually “a federal securities class action masquerading as a state-law case, and claims Plaintiffs’ purpose is to avoid federal jurisdiction where this kind of action was intended to be brought.”Yeah, right.

Anyway, here’s where things heat up.Twice Prudential tried to remove the case, first at the beginning, and next on the eve of trial, and twice they were remanded.Then the firestorm came, as “the state court trial proceeded, and the jury awarded Plaintiffs $11 million in compensatory damages and $250 million in punitive damages.”

So guess what Prudential did?Yep, that’s right, they removed the case a third time (now seven years after the case was filed), arguing that Merrill Lynch v. Dabit confers federal jurisdiction.Well, I must admit my eyes glazed over reading the rest (something about 28 U.S.C. § 1446), but you’ll surely want to know that newly commissioned Judge Jack Zouhary (N.D. Ohio) (pictured) sent the case back to state court again, and also declined “to decide the issue of whether the holding of Dabit otherwise precludes this class action.”

Want to try for a fourth removal?I wouldn’t put it past them. I have a perfect time – how about after Pru loses each appeal?

Update: Looks like Pru just lost the first appeal, although they did get quite a hefty reduction in the punitive damages — $250 million cut down to $6 million.

You can read Burns v. Prudential, issued July 10, 2006, at 2006 U.S. Dist. LEXIS 46329.

Nugget: “Ultimately, the cases Prudential cites in its effort to expand the concept of ‘order or other paper’ are either easily distinguishable or unpersuasive.”

Court Wields SLUSA in Tossing Mutual Fund Action

In October 2003, an investor filed a putative class action in Madison County, Illinois against the Templeton Funds, alleging that the Fund “breached a duty of care owed to investors by using stale pricing information to value securities in their open end mutual funds” (to be more specific, during the interval that elapses between when the Fund sets its share Net Asset Value (or “NAV”) and releases it to the NASD for communication to the public, securities markets in countries such as Japan, Russia, Germany, and Australia have traded for an entire session, thus making the prices stale).

Anyway, a month after the case was filed, Templeton promptly removed the action to the Southern District of Illinois. However, Judge Michael J. Reagan sent the case back to the state court, finding that his federal forum had no subject matter jurisdiction. Over a year later, Defendants again removed the case, “claiming that the Seventh Circuit’s April 5, 2005 opinion in an unrelated case, Kircher v. Putnam Funds Trust, 403 F.3d 478 (7th Cir. 2005), rendered” the action “freshly removable.” Judge Reagan noted that the Seventh Circuit’s opinion held that “SLUSA’s removal and preemption provisions are triggered when four conditions are met: (1) the underlying suit is a “covered class action,” (2) the action is based on state or local law, (3) the action concerns a “covered security,” and (4) the defendant misrepresented or omitted a material fact for employed a manipulative or deceptive device or contrivance “in connection with the purchase or sale” of that security.” Since the judge found that the four conditions had been satisfied, he held removal proper, and further found that “Kircher mandates that this Court dismiss all of Plaintiffs’ state law claims as barred by SLUSA,” as SLUSA “effectively blocks state court litigation of such claims.”

You can read the decision, issued July 12, 2005, at 2005 U.S. Dist. LEXIS 14500.

Nugget: “Plaintiffs — whose briefs focused on removal under 28 U.S.C. § 1446(b) — have not addressed the removability of the case under the above-cited SLUSA provision. Nor have Plaintiffs disputed Defendants’ argument that the allegations in this action are ‘identical’ to those examined by the Seventh Circuit in Kircher.”

Split Continues with Securities Act Claims Remanded

Further widening the split of authority on whether SLUSA allows defendants to remove covered class actions from state to federal court when the complaint only asserts federal causes of action under the 1933 Act, Judge R. Gary Klausner (C.D. Cal.) has ruled in the Salem Communications Corporation action that he will not permit it. In finding that the “plain meaning” of SLUSA prohibits removal, the court declared that “the language of the 1933 Act clearly states that removal is allowed only for class actions” “based upon the statutory or common law of any State.” “Thus, the plain language of the amended 1933 Act allows only for the removal of state claims or for federal claims brought along with state claims.”

As for Defendants’ reliance on SLUSA’s legislative history, Judge Klausner recognized that “while some pieces of SLUSA’s legislative history might, standing alone, show a desire by Congress to move many security class action claims to federal court, when taken as a whole the legislative history does not show a clearly contrary congressional intent,” because “for instance, the Senate and the House stated that SLUSA was designed to limit the conduct of securities class actions under state law,” and “these statements are consistent with Plaintiffs’ proposed interpretation.”

You can read the decision, issued June 28, 2005, at 2005 U.S. Dist. LEXIS 14202.

Nugget: “Two district courts in this Circuit have reached opposite conclusions.”

So Let Me Get this Straight. I Bring My State Law Claims In Federal Court, and My Federal Law Claims in State Court?

In the Baxter International securities litigation, Senior Judge William T. Hart (N.D. Ill.) issued two rulings in one opinion. In the first ruling, he sent a securities class action based solely on a federal claim (Section 11 of the 1933 Securities Act) back to Circuit Court of Cook County, Illinois. He did that because he said § 16(c) of the Securities Act “plainly and unambiguously limit[s] removal to certain class actions containing state law claims.” He also held that “where the statutory language is plain and unambiguous and does not produce an absurd result, that language should be applied and legislative history need not be considered.” A system that makes claimants file their federal claims in state court, and their state claims in federal court, doesn’t budge the needle on the absurdity-meter? Not even a little?

Moving on to the second ruling, which addressed the consolidated securities class action against Baxter based on ’34 Act claims, Judge Hart granted Defendants’ request to dismiss Plaintiffs’ claims that “a substantial portion of [Baxter’s] improperly recognized revenue resulted from sales to fictitious customers, fictitious sales to actual customers, and the illegal rigging of bids for the sale of blood by products to the Brazilian government.” Sounds like some pretty bad stuff, huh?

However, focusing almost exclusively on defendants’ knowledge and intent (a/k/a scienter, but to the Nugget more unnecessary Latin-speak), the court found that Plaintiffs’ allegations of weak internal controls, management’s “ineffective financial review,” the receipt by management of monthly financial reports, and overstatements of income or revenues (without more), were not enough to meet the scienter requirement. As for the insider’s stock sales, the court found that “it is not reasonable to infer that [defendants] were motivated to overstate net income by a mere 1.5% ($ 33,000,000 over three years) in order to obtain more favorable rates or returns for the listed transactions valued at more than $ 4,000,000,000. Even if the 1.5% overstatement were to be considered significant enough to affect the alleged transactions, plaintiffs fail to allege facts connecting the overstatements to the transactions nor any facts supporting that the individual defendants would directly benefit from these transactions.”

Judge Hart did not grant or deny Plaintiffs’ permission to modify their complaint. Instead, he gave them 10 days to ask him permission to do that, and ordered them to attach a copy of the proposed amended complaint to their request.

You can read the decision at 2005 U.S. Dist. LEXIS 12006.

Nugget: “No case containing a § 11 claim is removable from state court unless it meets the exception set forth in § 16(c). Section 16(c) provides that it only applies to covered class actions “as set forth in subsection [16](b).” To be a class action set forth in § 16(b), the case must be inter alia a “covered class action based upon the statutory or common law of any State or subdivision thereof.”

Tempered Rigas Celebration Seems Likely

Former Adelphia tycoon John Rigas and his son Tim are no doubt in chipper spirits this evening after learning of their victory in one of the many securities fraud actions pending against them. Yes, just as the Rigas’ have been arguing for nearly a year, at least one case against them will remain in federal court instead of being shipped back to the Luzerne County, Pennsylvania Court of Common Pleas.

To understand what happened here, you’ll need to get a bit dizzy first. Ready? It all started back in January 2003 when a group of investors sued Deloitte & Touche in Luzerne County for securities fraud related to Adelphia stock they received in a merger. Deloitte of course wasted little time adding Rigas and Sons as third-party defendants. In the meantime, Adelphia filed for bankruptcy in the Southern District of New York. So, using the powers of 28 U.S.C. § 1452(a), which allows a party to remove state court actions related to bankruptcy cases, the Rigas’ removed their case to the Bankruptcy Court in the Middle District of Pennsylvania. In the meantime, the case was conditionally transferred to Senior Judge Lawrence M. McKenna’s courtroom in the Southern District of New York by the Judicial Panel on MultiDistrict Litigation. Plaintiffs asked the Panel to reconsider. Then the Pennsylvania Bankruptcy Court remanded the case back to Luzerne County. The Rigas’ appealed the remand order to Judge McKenna in the SDNY, and shortly thereafter, the MDL Panel (despite the remand order) fully transferred the case to Judge McKenna. Happens all the time, right?

After hearing all sides, Judge McKenna rejected Plaintiffs’ arguments that the Southern District of New York has no authority to hear the appeal of the remand order issued by the Pennsylvania Bankruptcy Court, finding that “review of any order of the district court in a transferred cause, made before transfer, is within the jurisdiction of the court of appeals of the circuit to which the cause has been transferred.” Judge McKenna also rejected Plaintiffs argument that the remand order divested the MDL Panel of jurisdiction based primarily on the fact that the Rigas’ had timely appealed that Order to the District Court in Pennsylvania, opining that “it seems unlikely, to say the least, that Congress intended that a transfer by the MDL Panel could eliminate Article III review of a bankruptcy judge’s decision.”

The Court ended the decision by denying Plaintiffs’ request to remand under either the abstention doctrine or equitable remand principles. In sum, Judge McKenna found that since the Rigas Defendants showed that the case against them is related to the Adelphia bankruptcy, it was therefore properly removed pursuant to § 1452(a).

So c’mon guys, what’s wrong? You won. It’s time to break out the bubbly and celebrate.

You can read the decisions, filed June 13, 2005 and May 2, 2005 at 2005 U.S. Dist. LEXIS 7909 and 2005 U.S. Dist. LEXIS 11685.

Nugget: “[A] transfer under section 1407 transfers the action lock, stock and barrel.”