Opinion
02 Civ. 910 (GEL), 02 Civ. 10199 (GEL).
July 3, 2003.
OPINION AND ORDER
Plaintiffs filed this individual action in California Superior Court alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. § 77k, 771(a)(2), 77o, with respect to their purchase of securities of now-bankrupt Global Crossing, Ltd. The defendants include Arthur Andersen, LLP, Global Crossing's accounting firm, certain investment banks, and various officers and directors of Global Crossing. Global Crossing, Ltd., is not itself a defendant in this action.
Defendants removed to the Central District of California under the bankruptcy removal statute, 28 U.S.C. § 1452(a). Plaintiffs there moved to remand, arguing that (1) Section 22(a) of the Securities Act expressly prohibits removal of Securities Act individual actions filed in state court, and (2) the federal courts do not have jurisdiction of the case because the claims asserted do not "relate to" Global Crossing's bankruptcy proceedings.
Because the bankruptcy removal statute, which is more recent than the Securities Act, does not include among its listed exceptions one for actions filed under the Securities Act, and because plaintiff's claims could conceivably affect the Global Crossing bankruptcy proceedings and therefore are sufficiently related to those proceedings to create federal bankruptcy jurisdiction, plaintiff's motion for remand will be denied.
Bankruptcy Jurisdiction
We first address the question of bankruptcy jurisdiction, since if there is no jurisdiction under § 1452(a), there is no need to resolve the apparent conflict between the bankruptcy removal statute and the prohibition on removal of securities actions. However, plaintiffs' claim that there is no bankruptcy jurisdiction over this case is without merit. Federal jurisdiction exists substantially for the same reasons given in the thorough and scholarly opinion of Judge Cote in the remarkably similar WorldCom case. As Judge Cote pointed out, under the prevailing test,
Plaintiff relies extensively on Retirement Systems of Alabama v. Merrill Lynch Co., 209 F. Supp.2d 1257 (M.D. Ala. 2002). While that case is also similar to the instant one, arising from alleged securities frauds in connection with the collapse of Enron, Inc., it is, like WorldCom, a district court decision not binding on this Court, with the further disadvantage of being decided under a different Circuit's precedent.
a civil proceeding is "related to bankruptcy" if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." [In re Pacor, Inc., 743 F.2d 984, 994 (3d Cir. 1984)] (emphasis in original partially removed); see Celotex [Corp. v. Edwards], 514 U.S. [300,] 308 n. 6 [(1995)]. For a federal court to have "related to" jurisdiction over an action, "the proceeding need not necessarily be against the debtor or against the debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." [Id.] (citation omitted).In re WorldCom. Inc., Securities Litigation, 293 B.R. 308, 317 (S.D.N.Y. 2003); see also In re Cuyahoga Equip. Co., 980 F.2d 110, 114 (2d Cir. 1992) (adopting "any conceivable effect" test). Thus whether there is "potential collateral estoppel or res judicata" or whether the debtor is a party to this action, factors cited by plaintiff (P. Mem. at 19), are not determinative. Here, as in WorldCom, the possibility that litigation against an officer of a bankrupt corporation could lead to a claim against the corporation for contribution based on the wrongdoing of other corporate employees would certainly have a "conceivable effect" on the bankrupt estate. See also In re Global Crossing, Ltd., Securities Litigation (Beightol v. UBS PaineWebber), No. 02 Civ. 910 (GEL), 2003 WL 21507466 (S.D.N.Y. June 23, 2003).
Plaintiff correctly points out that Pacor itself rejected "related to" bankruptcy jurisdiction on the basis of a potential claim for contribution. (P. Mem. at 20, citingPacor, 743 F.2d at 994-96). However, as pointed out inWorldCom, many courts in this District and elsewhere appear not to have followed this aspect of Pacor. 293 B.R. at 318-20 (citing four Southern District of New York cases and opinions from the Fourth, Fifth and Sixth Circuits).
Bankruptcy Removal and the Securities Act
Since there is bankruptcy jurisdiction over this case, the Court must address the apparent conflict between two statutes governing the removal of the case from state court. Section 22(a) of the Securities Act of 1933, as amended, provides that, notwithstanding the federal courts' jurisdiction over cases brought under this federal statute, "Except as provided in section 16(c) [relating to class actions], no case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court of the United States." 15 U.S.C. § 77v(a). The bankruptcy removal statute, enacted in 1984, provides that "A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has [bankruptcy] jurisdiction of such claim or cause of action. . . ." 18 U.S.C. § 1452(a). What happens, then, when a case arising under the Securities Act is also within the bankruptcy jurisdiction?
Each of the statutes states a general rule, and each enumerates one or more exceptions, but neither excepts cases covered by the other's general rule. Plaintiff argues that, since the removal statute does not explicitly mention the Securities Act at all, the Securities Act's specific prohibition on removal trumps the more general rule of the removal statute. However, § 1452 must be understood in the context of the general federal removal statute, 28 U.S.C. § 1441. The latter statute permits removal of actions "of which the district courts of the United States have original jurisdiction," except "as otherwise expressly provided by Act of Congress." Id. § 1441(a). Against that background, the bankruptcy removal statute is just as specific with respect to actions within its scope as § 22(a) of the Securities Act. It supplements the general removal statute, which allows for a broad range of exceptions "otherwise expressly provided by Act of Congress," by adding a specific authorization to remove any action within the bankruptcy jurisdiction. Section 1452(a) makes only two narrow exceptions, thus foreclosing other exceptions under the canon of statutory construction inclusio unius est exclusio alterius. Thus, the bankruptcy removal statute is not, as plaintiffs claim, a "general statute." (P. Reply at 6.) Rather, it creates a specific, new heading of federal removal jurisdiction, which did not exist at the time that either the general federal question removal statute, § 1441, or the Securities Act of 1933, with its exception to § 1441, was enacted. This was essentially the reasoning of Judge Cote in deciding this very issue inWorldCom. 293 B.R. at 328-30 ("Unlike Section 1441 . . . the Section 1452(a) exceptions are limited and express.").
Thus these two statutes are in direct conflict on the specific issue of removal, under bankruptcy jurisdiction, of Securities Act suits filed in state court. In resolving such a conflict, a court must consider the timing, purpose, and scope of the each enactment. In re Ionosphere Clubs, Inc., 922 F.2d 984, 991 (2d Cir. 1990) ("[W]hen two statutes are in irreconcilable conflict, we must give effect to the most recently enacted statute since it is the most recent indication of congressional intent.");SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharmaceuticals, Inc., 211 F.3d 21, 27-28 (2d Cir. 2000) ("[W]here two laws are in conflict, courts should adopt the interpretation that preserves the principal purposes of each.");Greene v. United States, 79 F.3d 1348, 1355 (2d Cir. 1996) ("When two statutes are in conflict, that statute which addresses the matter at issue in specific terms controls over a statute which addresses the issue in general terms, unless Congress has manifested a contrary aim.").
Ordinarily, the more recently enacted statute will control where it conflicts with a prior law. After 1933, the general removal statute, which would otherwise have permitted removal of state-court cases based on a federal statute, did not permit removal of cases brought under the Securities Act, because the prohibition in § 22(a) constituted an exception, "otherwise expressly provided by Act of Congress," to its general rule. In 1984, however, Congress modified that scheme, by permitting the removal, without exception for Securities Act cases, of actions "related to" bankruptcy. The rule of recency thus favors the conclusion that the bankruptcy removal statute, enacted in 1984, controls over the Securities Act's prohibition on removal, enacted in 1933.
Plaintiffs attempt to avoid this conclusion by arguing that the most recent enactment of all is the 1998 amendment of § 22(a), as part of the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), which excluded class actions from the scope of the prohibition on removing Securities Act cases. (P. Mem. at 14.) But this argument is unavailing. The scope of the SLUSA amendment to § 22(a) was narrow: SLUSA was passed by Congress for the purpose of closing a loophole in the Private Securities Litigation Reform Act of 1995 ("PLSRA") that permitted "many class action plaintiffs [to] avoid the stringent procedural hurdles erected by PSLRA by bringing suit in state rather than federal court." Lander v. Hartford Life Annuity Ins. Co., 251 F.3d 101, 107 (2d Cir. 2001). Thus this amendment was intended to address only what Congress perceived to be pressing unsolved problems relating to securities class actions, and does not reflect a "recent indication of congressional intent" regarding the fourteen-year-old conflict between § 1452 and § 22(a). It would be ironic indeed to read this provision of SLUSA, which was passed for the purpose ofexpanding federal jurisdiction (albeit in a specific, narrow way) to permit greater coordination of overlapping securities actions in federal courts, as implicitly contracting federal jurisdiction by reversing, without comment in either text or legislative history, the bankruptcy removal statute's effect on the prior removal scheme. Thus neither SLUSA's scope nor its purpose qualify it to resolve the conflict here.
Plaintiffs' citation to a 1987 amendment to § 22(a) "substituting . . . `sections 1254, 1291, 1292 and 1294 of title 28' . . . for `sections 128 and 240 of the Judicial Code" as further evidence that Congress did not "create an exception for actions that may be removed under . . . § 1452(a)" (P. Mem. at 15) is completely unpersuasive, since the quoted clause of § 22(a) comes before, and is entirely unrelated to, the bar on removal of state-court suits.
This leaves the 1987 enactment of § 1452(a) itself as Congress's most recent "indication of [its] intent" on the issue here. The purpose of that enactment was to broaden, not narrow, federal jurisdiction. See Things Remembered. Inc. v. Petrarca, 516 U.S. 124, 131-32 (1995) (Ginsburg, J., concurring) (finding that § 1452 was "meant to enlarge, not to rein in, federal trial court . . . authority for claims related to bankruptcy cases"). As Judge Cote pointed out in WorldCom. "Broadly construing the federal courts' bankruptcy jurisdiction is essential to their ability to preserve assets and reorganize the estate. . . . The efficiency and reorganization goals of the Bankruptcy Code require interpreting Section 1452 in favor of federal jurisdiction and removal except in the limited cases it expressly excepts." 293 B.R. at 329. In light of the timing, scope and purpose of § 1452(a)'s enactment, Section 22(a)'s earlier prohibition on removal of state-court suits, and its apparent purpose of respecting the plaintiff's choice of a state forum, must be given lower priority.
Conclusion
For the reasons stated above, this case was properly removed to federal court. Accordingly, plaintiffs' motion is denied.
SO ORDERED.