Opinion
MDL 1446, CIVIL ACTION NO. H-01-3624, AND CONSOLIDATED CASES, CIVIL ACTION NO. H-04-3581.
November 8, 2004
ORDER OF COORDINATION WITH MDL 1446 AND DENIAL OF MOTION TO REMAND
Pursuant to the order of the Judicial Panel on Multidistrict Litigation for consolidation or coordination of William Aksamit, et al. v. UBS PaineWebber, Inc., et al. with MDL 1446 for pretrial proceedings, the Court
ORDERS that H-04-3581 is hereby COORDINATED with MDL 1446 and with proceedings in lead case H-01-3624, Newby v. Enron Corp., et al.
Pending in this action ( "Aksamit II"), inter alia, is Plaintiffs' motion to remand (#9) to the Circuit Court for the Third Judicial Circuit, Madison County, Illinois, where it was originally filed.
Plaintiffs point out the filed the same claims in an earlier case, Aksamit v. UBS PaineWebber, Inc. et al., No. 02-cv-1168-MJR (S.D. Ill. May 13, 2003) ( "Aksamit I"). After Merrill Lynch removed Aksamit I on November 22, 2002, asserting as grounds preemption by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") and "related to" bankruptcy jurisdiction under 28 U.S.C. § 1334(b) and 1452, on May 13, 2003 the district court held that there was no SLUSA preemption and found there was no "related to" jurisdiction and remanded Aksamit I to the Circuit Court for the Twentieth Judicial Circuit, St. Claire County, Illinois. Defendants then moved to dismiss partly because Plaintiff William Aksamit never executed a customer agreement with PaineWebber and lacked standing to sue; instead, the Bank of Edwardsville was the true owner of Aksamit's stock. Aksamit's counsel subsequently obtained an assignment of the bank's claims to Aksamit. With the bank then involved, Plaintiffs voluntarily dismissed Aksamit I and refiled their claims in the Circuit Court for the Third Judicial Circuit, Madison County, Illinois, where the bank resides.
According to the complaint the Edwardsville Bank opened the PaineWebber account for the benefit of Aksamit and signed the client account agreement, with the knowledge and understanding of PaineWebber.
Aksamit II was then removed on March 22, 2004 on "related to" bankruptcy jurisdiction and diversity jurisdiction grounds. Plaintiffs claim neither basis is proper for removal here. They seek remand and an award of fees, costs and expenses for improper removal under 28 U.S.C. § 1447(c).
H-04-3581 asserts a putative class action claim for breach of contract under Illinois law, specifically breach of Customer Agreements that each Plaintiff entered into with one of the Defendants prior to October 2000 on the grounds that these Defendants allegedly provided their customers with analysts' research and recommendations that lacked any reasonable factual basis and that caused Plaintiffs to continue to hold Enron stock after October 1, 2000 in breach of Defendants' contractual obligations, until Plaintiffs lost the total value of the stock.
The Court hereby incorporates its prior memoranda and orders issued in MDL 1446 cases.
First, Plaintiffs' brief supporting their motion for remand maintains that the potential claims for indemnification and contribution are insufficient to confer "related to" bankruptcy jurisdiction. This Court has ruled otherwise, even where the debtor is not a party to the suit. See, e.g., #995, 1714 in Newby; # 55 in H-03-1219; #144 in H-03-2308; #39 in H-03-3393.
Second Plaintiffs argue that mandatory abstention under 28 U.S.C. § 1334(c)(1) is required here because the state court action is based on a state law claim or cause of action, the claim is merely "related to" a bankruptcy case, federal courts would otherwise have no jurisdiction over the state law claim, and the matter can be timely adjudicated in state court upon remand. This Court finds, as with other actions transferred for consolidation for pretrial matters with MDL 1446, that Plaintiffs have not demonstrated that this action, which will involve substantial overlap in complex and complicated discovery ongoing in MDL 1446, can be timely adjudicated in state court. See, e.g., #995 in Newby; #56 in G-02-2999. As noted by the parties, the Court has other "holder" class actions in MDL 1446, including Barsky, Chinn, McMurray, and Young.
Third, Plaintiffs urge that discretionary abstention under 28 U.S.C. § 1334(c)(2) is appropriate. Again, for reasons expressed in other memoranda and orders, the Court finds that neither permissive abstention nor equitable remand under 28 U.S.C. § 1452(b) is appropriate in this complex and massive multidistrict litigation (including holding claims of similar nature against the same Defendants arising out of the collapse of Enron), which, in the interests of fairness and practicality, necessitates a heightened emphasis on order, coordination, efficiency and judicial economy. Id.; #1714 at 56 in Newby.
While no one disputes that citizenship of the parties is diverse here, Plaintiffs contend that Defendants fail to show that diversity jurisdiction based on 28 U.S.C. § 1332 exists because Defendants have not demonstrated that the amount in controversy for each named plaintiff exceeds the requisite $75,000. In re Brand Name Prescription Drug Antitrust Litig., No. 94 C 897, 1996 WL 732834, *5 (N.D. Ill. Dec. 18, 1996. Plaintiffs' counsel has submitted affidavits, Ex. 2 to #10) attesting that Plaintiffs' damages do not exceed $75,000. Plaintiffs argue that attorney's fees for purposes of calculating the amount in controversy, must be attributed to the entire class, both named and unnamed members, on a pro rata basis and "cannot be aggregated so as to allow a single plaintiff to satisfy the amount in controversy requirement." Rodgers v. General Electric Capital Corp., No. 97 C 4280, 1998 WL 128675, *3 (N.D. Ill. Mar. 18, 1998). Here, without attorney's fees, William Aksamit has alleged that his total investment in Enron stock was $20,000, Norbert Greka, $50,000, and Linda Oldcorn, $49,880.
In a class action, the citizenship of the plaintiffs is determined by that of the named representatives. Calagaz v. Calhoon, 309 F.2d 248, 253 (5th Cir. 1962).
If the plaintiff seeks damages of less than the jurisdiction amount required by § 1332, the defendant has the burden of demonstrating by a preponderance of evidence that the amount in controversy is greater than the jurisdictional amount. De Aguilar v. Boeing Co., 47 F.3d 1412, 1408 (5th Cir.), cert. denied, 516 U.S. 865 (1995). Where the plaintiff's petition does not specify the amount of damages sought, the plaintiff may file affidavits that clarify the amount. Quebe v. Ford Motor Co., 908 F. Supp. 445 (W.D. Tex. 1995), citing Asociacion National de Pescadores v. Dow Quimica de Colombia, S.A., 988 F.2d 559, 565 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994). Indeed in Texas, because the rules of civil procedure do not allow the plaintiff to state the exact amount of money damages but only a general statement that the damages sought are within the jurisdictional limits of the court in which the petition is filed, the Fifth Circuit allows affidavits to be filed to clarify such jurisdictional requirements. Quebe, 908 F. Supp. at 451, citing Asociacion National de Pescadores, 988 F.2d at 565.
This Court notes that the Fifth Circuit generally agrees with the pro rata attribution rule. Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 455 n. 5 (5th Cir. 2001) (for jurisdictional purposes, when there is no state statute allowing plaintiffs to combine attorney's fees and the amount of their claims to satisfy the named plaintiffs' amounts in controversy, "[t]he standard approach to awards of attorney's fees in a class action context is to distribute them pro rata to all class members, both named and unnamed."); Garcia v. Koch Oil Co. of Texas, Inc., 351 F.3d 636, 638 n. 2 (5th Cir. 2003). Defendants rely on In re Abbott Laboratories, 51 F.3d 524 (5th Cir. 1995), holding that an award of attorney's fees in a class action was attributable to the named plaintiffs rather than to the class as a whole, based on a Louisiana statute that allowed combining the fees and claims of the named plaintiffs to satisfy diversity jurisdiction's amount in controversy requirement. Coghlan, 240 F.3d at 455 n. 5. In accord Stromberg Metal Works, Inc. v. Press Mech., Inc., 77 F.3d 928, 930 (7th Cir. 1996) (following Abbott). In Abbott the Fifth Circuit also held, "[W]hen the federal court has jurisdiction over at least one member of the class by virtue of (1) diversity of citizenship and (2) a sufficient jurisdictional amount, that court has supplemental jurisdiction over all diverse class members, including those whose claims fall short of § 1332's amount-in-controversy threshold." Grant v. Chevron Phillips Chemical Co., 309 F.3d 864, 873 (5th Cir. 2002), cert. denied, 538 U.S. 945 (2003). In accord In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 529 (5th Cir. 1995) ("At least one named plaintiff must satisfy the jurisdictional minimum. Moreover, if one [named plaintiff does so], the other named plaintiffs and the unnamed class members can, by virtue of the supplemental jurisdiction conferred on the federal district courts by 28 U.S.C. § 1367, piggyback on that plaintiff's claim. That is, they remain plaintiffs, or unnamed members of the class, as the case may be, even though their own claims are for far less than the jurisdictional minimum amount."), cert. denied, 523 U.S. 1040 (1998).
Plaintiffs emphasize that the Coghlan panel concluded that "[u]nder Texas law attorney's fees should not be attributed to the named class representative for jurisdictional purposes." Coghlan, 240 F.3d at 455 n. 5, citing Gooding v. Allstate Ins. Co., 2000 WL 626856 (N.D. Tex. 2000); Johnson v. Directv, 63 F. Supp.2d 768, 770 (S.D. Tex. 1999); Quebe v. Ford Motor Co., 908 F. Supp. 446, 449-50 (W.D. Tex. 1995). Therefore, they insist, the amount in controversy has not been satisfied.
Nevertheless, Defendants point out that this is a breach of contract case, that the contracts at issue, attached to the complaint, each specify that they will be governed and construed in accordance with New York state law, and that under Rule 909 of the New York Civil Practice Law and Rules, using virtually the same language as the Louisiana statute at issue in Abbott, states that a court "may award attorneys' fees to the representatives of the class."
La. Code Civ. P. 595 states that a "court may allow the representative parties their reasonable expenses of litigation, including attorney's fees, when as a result of the class action a fund is made available, or a recovery or compromise is had which is beneficial to the class." In Abbott, the Fifth Circuit also examined comment (a) to the statute, "It is intended in the first paragraph that the reasonable expenses of litigation allowed the successful representative parties is to be paid out of the funds or benefits made available by their efforts." Abbott, 51 F.3d at 526. The panel concluded that the clear language of the first sentence of 595, allowing fees to the "representative parties," echoed in comment a, evidenced legislative intent to attribute attorney's fees to the representative plaintiff rather than to be distributed pro rata. Id.
The dispute here needs to be examined in a wider context. Title 28 U.S.C. § 1332 authorizes original diversity jurisdiction where the parties are completely diverse in citizenship and where the matter in controversy exceeds a set amount, currently $75,000. In Zane v. International Paper Co., 313 U.S. 291 (1973), the Supreme Court held that, based on the version of 28 U.S.C. § 1367 in effect at the time, where a class action is based on diversity jurisdiction, every class member's claim, individually and independently, must satisfy the jurisdictional minimum amount for a court to have jurisdiction and that class claims may not be aggregated to satisfy the amount-in-controversy requirement. Subsequently Congress enacted the Judicial Improvements Act of 1990, amending § 1367 with its grant of supplemental jurisdiction. 28 U.S.C. § 1367. Since then, courts have disagreed whether the statute authorizing supplemental jurisdiction abrogated the Zahn rule that each plaintiff must independently satisfy the amount-in-controversy requirement. Abbott, 51 F.3d at 527. The question has arisen in both class actions based on diversity and in cases involving ordinary joinder under Fed.R.Civ.P. 20. See, e.g., Rosario Ortega v. Star-Kist Foods, Inc., 370 F.3d 124, 132 (1st Cir. 2004). cert. granted, 2004 WL 2070565, 73 U.S.L.W. 3228 (U.S. Oct. 12, 2004). Decisions regarding both contexts have reflect the courts are divided. In the joinder context, see, e.g., Rosario Ortega, 370 F.3d at 127 ("We hold that by limiting supplemental jurisdiction to `civil action[s] of which the district courts have original jurisdiction,' § 1367(a), Congress preserved the traditional rule that each plaintiff in a diversity action must separately satisfy the amount-in-controversy requirement."); Meritcare, Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214, 216 (3d Cir. 1999) (each co-plaintiff must independently satisfy the amount-in-controversy requirement). But see Stromberg Metal Works, Inc. v. Press Mech., Inc., 77 F.3d 928, 932 (7th Cir. 1996) (if one plaintiff satisfies the amount-in-controversy requirement, § 1367 authorizes jurisdiction over transactionally-related claims of those plaintiffs who do not independently meet the requirement). In the class action context, see Allapattah Serv., Inc. v. Exxon Corp., 333 F.3d 1248, 1254 (11th Cir. 2004) (§ 1367 authorizes jurisdiction over all class members where one satisfies the amount in controversy requirement); Gibson v. Chrysler Corp. 261 F.3d 927, 934 (9th Cir. 2001) (same); Rosmer v. Pfizer, Inc., 263 F.3d 110, 114 (4th Cir. 2001) (same); and the Fifth Circuit in Abbott, 51 F.3d at 528. But see Trimble v. Asarco, Inc., 232 F.3d 946, 962 (8th Cir. 2000) (§ 1367 does not authorize jurisdiction over class members that do not independently satisfy the amount in controversy requirement); Leonhardt v. W. Sugar Co., 160 F.3d 631, 640 (10th Cir. 1998) (same). The Supreme Court had previously granted certiorari to address the issue, but in a 4-4 split, simply affirmed the lower court without an opinion. Free v. Abbott Labs., Inc., 529 U.S. 333 (2000). Perhaps it will resolve the issue when it reviews Rosario Ortega.
In relevant part, § 1367 provides,
(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
(b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.
The Abbott decision was based on the amended § 1367. The Fifth Circuit observed that "Section 1367(a) grants district courts supplemental jurisdiction over related claims generally, and § 1367(b) carves exceptions. Significantly, class actions are not among the exceptions." 51 F.3d at 527. Moreover it found the statute to be clear and unambiguous, and thus there was no need to turn to legislative history to construe it. Id. at 528. The appellate court also found that "[a]bolishing the strictures of Zahn is not an absurd result" because inter alia such an abrogation would permit the federal courts to "resolve complex interstate disputes," and the appellate panel was "persuaded that under § 1367 a district court can exercise supplemental jurisdiction over members of a class, although they did not meet the amount-in controversy requirement, as did the class representatives." Id. at 529. Under Abbott, it is clear that original jurisdiction must first be established by at least one plaintiff's claim exceeding the jurisdictional amount, and then supplemental jurisdiction under § 1367 is triggered with respect to claims of other class members.
Plaintiffs have pointed to a number of district court cases out of the Second Circuit that have disagreed with the conclusions of the Fifth Circuit and other cases in accord with Abbott. Nevertheless, the issue of diversity in class actions and supplemental jurisdiction here is one of federal law. As this Court has discussed at length in another memorandum and order, in MDL actions the law of the transferee court controls in construing federal law under what is now the majority rule, established in In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171, 1175 (D.C. Cir. 1987) (because theoretically federal law is supposed to be unitary and because "federal courts comprise a single system in which each tribunal endeavors to apply a single body of law," the transferee court has the right to use the law of its own circuit since the transferee court is presumed to be "competent to decide federal issue correctly."), aff'd on other grounds sub nom. Chan v. Korean Air Lines, 490 U.S. 122 (1989). #2143 in Newby at 1227. Thus this Court applies the ruling of Abbott here.
This Court concludes that there is diversity jurisdiction here. Under Abbott, the attorney's fees here are attributable to named Plaintiffs because under language of the New York statute a court "may award attorneys' fees to the representatives of the class." As a result, at least one, but most likely all three, named Plaintiffs clearly satisfy the amount in controversy; if even one does so, this Court has supplemental jurisdiction over the claims of the other named and unnamed class members.
Finally, because the response date to pending motions to dismiss was stayed by the previous judge until the motion to remand was resolved, the Court
ORDERS that Plaintiffs shall file any response to the motions to the motions to dismiss within twenty days of entry of this order.