Summary
holding that purchasers of one type of debt security had standing to bring claims on behalf of purchasers of a different debt security when both were issued in the same offering pursuant to the same offering documents
Summary of this case from Fort Worth Employees' Ret. Fund v. J.P. Morgan Chase & Co.Opinion
MASTER FILE 02 Civ. 3288 (DLC)
March 19, 2004
Max W. Berger, John P. Coffey, Steven B. Singer, Chad Johnson, Beata Gocyk-Farber, John C. Browne, Jennifer L. Edlind, Bernstein Litowitz Berger Grossman LLP, New York, NY, for Lead Plaintiff in the Securities Litigation
Leonard Barrack, Gerald J. Rodos, Jeffrey W. Golan, Mark R. Rosen, Jeffrey A. Barrack, Pearlette V. Toussant, Barrack, Rodos Bacine, Philadelphia, Pennsylvania, for Lead Plaintiff in the Securities Litigation
Martin London, Richard A. Rosen, Brad S. Karp, Eric S. Goldstein, Walter Rieman, Marc Falcone, Joyce S. Huang, Paul Weiss Rifkind Wharton Garrison LLP, for Defendant Citigroup Global Markets Ltd. f/k/a Salomon Brothers International Ltd.
Robert McCaw, Peter K. Vigeland, Wilmer Cutler Pickering, New York, NY, for Defendant Citigroup Global Markets Ltd. f/k/a Salomon Brothers International Ltd.
Jay B. Kasner, Susan L. Saltzstein, Steven J. Kolleeny, Skadden Arps Slate Meagher Flom LLP, New York, NY, for Defendants J.P. Morgan Securities Ltd., Banc of America Securities Ltd., ABN AMRO Bank N.V., Deutsche Bank AG London, BNP Paribas
OPINION ORDER
This motion concerns the circumstances under which claims against foreign defendants relate back to a timely filed pleading against their American affiliates. Six banks ("Foreign Affiliates") who underwrote notes of WorldCom, Inc. ("WorldCom") denominated in Euros and British Pounds Sterling ("Foreign Notes") and who are foreign affiliates of defendants, have moved to dismiss the claims against them in this securities class action on the ground, inter alia, that the claims are time-barred. The Foreign Affiliates were identified by name in a timely filed pleading, along with the quantities of Foreign Notes that they had sold, but they were not named as defendants in, and were not served with, that original pleading. They have now been named as defendants in an amended pleading filed after the statute of limitations has run. The Foreign Affiliates are J.P. Morgan Securities Ltd., Bane of America Securities Ltd., ABN AMRO Bank N.V., Deutsche Bank AG London, BMP Paribas, and Salomon Brothers International Ltd. (now known as Citigroup Global Markets Ltd.). For the following reasons, the motion to dismiss is granted for four of the six Foreign Affiliates.
Background
In May 2001, WorldCom issued $11.8 billion worth of bonds. Over $10 billion were U.S. dollar bonds; approximately $1.7 billion were Foreign Notes ("2001 Offering"). The Registration Statement identified many banks associated with the underwriting of the bonds. It listed J.P. Morgan and Salomon Smith Barney as the joint book-runners. Banc of America Securities LLC, ABN AMRO Inc., and Deutsche Bane Alex. Brown were identified as the joint lead managers of the Euro and Sterling tranches and as senior co-managers of the dollar tranches. The underwriters of the U.S. dollar bonds were each listed, and the underwriters for the Foreign Notes were separately identified as J.P Morgan Securities Ltd., Salomon Brothers International Ltd., Banc of America Securities Ltd., ABN AMRO Bank N.V., Deutsche Bank AG London, Tokyo-Mitsubishi Int'l plc, Westdeutsche Landesbank Girozentrale, BNP Paribas, Caboto Holding SIM S.p.A., Robertson Stephens Int'l Ltd., Mizuho Int'l plc, Blaylock Partners, L.P., and Utendahl Capital Partners, L.P. Thus, each of the Foreign Affiliates was identified in this Registration Statement, along with others, as an underwriter of the Foreign Notes.
Tokyo-Mitsubishi Int'l plc and Westdeutsche Landebank Girozentrale were identified as senior co-managers. BNP Paribas, Fleet Securities, Inc., Blaylock Partners, L.P., Caboto-Gruppo IntesaBci, Mizuho Int'l plc, and Utendahl Capital Partners, L.P. were identified as co-managers.
Approximately one year later, on June 25, 2002, WorldCom announced a massive restatement of its financials. WorldCom entered bankruptcy shortly thereafter.
In April 2002, the first class action was filed in this district asserting federal securities law claims against those associated with WorldCom. Through an Order of August 15, 2002, the class actions were consolidated, and the New York State Common Retirement Fund ("NYSCRF") was appointed Lead Plaintiff. During this same period, many lawsuits brought on behalf of named plaintiffs ("Individual Actions") as opposed to a class of plaintiffs were also filed. The Individual Actions and the class action on this Court's docket have been consolidated for pretrial purposes within the WorldCom Securities Litigation ("Securities Litigation").
On October 11, 2002, a consolidated class action complaint ("Complaint") was filed. The Complaint listed each of the Foreign Affiliates within the paragraph describing the American underwriter defendant to whom they were related. For example, J.P. Morgan Securities Ltd. was mentioned in the paragraph concerning J.P. Morgan Chase Co. In relevant part the allegation reads as follows:
Defendant J.P. Morgan Chase Co. (J.P. Morgan") is a financial services institution that, through its subsidiaries and divisions, provides commercial and investment banking services and advisory services. . . . J. P. Morgan also was the joint book runner and co-lead underwriter for the 2001 Offering. In connection with that Offering, J.P. Morgan sold $480,000,000 worth of the 6.50% Notes due 2004. . . .; and through J.P. Morgan Securities Ltd., €403,125,000 worth of the Euro 6.75% Notes due 2008 and £160,000,000 worth of the Sterling 7.25% Notes due 2008. Similar allegations were made against each of the Foreign
Affiliates. The allegations concerning Bank of America Securities Ltd. were made in the paragraph asserting allegations against defendant Bank of American Securities LLC. The allegations concerning Deutsche Bank AG London were in the paragraph asserting allegations against defendant Deutsche Bank Securities Inc., now known as Deutsche Bank Alex. Brown Inc. The allegations concerning ABN AMRO Bank N.V. were within the paragraph asserting allegations against defendant ABN/AMRO Inc. The allegations concerning BNP Paribas were within the paragraph asserting allegations against defendant BNP Paribas Securities Corp. The allegations concerning Salomon Brothers International Ltd. were within the paragraph asserting allegations against defendant Salomon Smith Barney Inc.
Where an underwriter of the Foreign Notes did not have an American affiliate, it was separately named as a defendant. This was true, for example, for Blaylock Partners, L.P., Tokyo-Mitsubishi Int'l plc, Westdeutsche Landesbank Girozentrale, Caboto Holding SIM S.p.A. and Mizuho Int'l plc. The Complaint listed eighteen entities as "Underwriter Defendants." The list did not include the Foreign Affiliates.
On August 1, 2003, the first amended class action complaint ("Amended Complaint") was filed. The allegations concerning the Foreign Affiliates were essentially the same as those contained in the Complaint. Again, the Amended Complaint did not include the Foreign Affiliates among its list of Underwriter Defendants.
In October 2003, NYSCRF came to understand that the Underwriter Defendants would not produce documents from the Foreign Affiliates because the Foreign Affiliates were not separately named as defendants. On October 9, NYSCRF moved to file a corrected amended complaint to add six foreign subsidiaries or affiliates of Underwriter Defendants as defendants.
On December 1, 2003, the motion by NYSCRF to correct the Amended Complaint was granted. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22831008 (S.D.N.Y. Dec. 1, 2003) ("December 1 Opinion"). The December 1 Opinion rejected the Underwriter Defendants' argument that Rule 16, Fed.R.Civ.P., barred the filing of a corrected pleading to add the Foreign Affiliates as defendants. It did not reach the issue of whether a corrected pleading would be timely as to the newly named defendants.
On December 1, 2003, a Corrected Amended Complaint was filed. Each of the Foreign Affiliates was identified as a defendant. They were served with the pleading and have moved to dismiss the claims against them on the ground that they are time-barred and that the named plaintiffs lack standing to bring claims against them since none of the named plaintiffs purchased Foreign Notes.
Discussion
The Foreign Affiliates are named in claims brought pursuant to the Securities Act of 1933 ("Securities Act"). Securities Act claims are governed by the earlier of a one year/three year statute of limitations.In re WorldCom, Inc. Sec. Litig., 294 F. Supp.2d 431, 439-44 (S.D.N.Y. 2003) (the "November 21 Opinion"). The one year inquiry notice period began to run no later than June 25, 2002. Id. at 449. Unless the Securities Act claims brought against the Foreign Affiliates in the Corrected Amended Complaint relate back to the Complaint, or unless the one year period was otherwise tolled, the claims against the Foreign Affiliates are time-barred. The NYSCRF argues that its Corrected Amended Complaint relates back to the Complaint, and is thus timely. In the alternative, it argues that the statute of limitations period was tolled with respect to two of the six Foreign Affiliates.
1. Relation Back
The governing law regarding the relation-back doctrine has already been described in the Securities Litigation. It was first described in the November 21 Opinion, in connection with a motion to dismiss brought by certain Underwriter Defendants who had been added to an amended complaint of September 24, 2003 filed in an Individual Action. In re WorldCom, Inc. Sec. Litig., 294 F. Supp.2d at 448-50. Since the plaintiffs in that Individual Action failed to demonstrate that the omission of the additional defendants was a mistake, the Opinion found that the amended pleading did not relate back and that the claims were time-barred. The Opinion explained that the plaintiffs "knew the identities of the Additional Underwriter Defendants, were not required to name them to make their original complaint legally sufficient, and chose not to name them."Id. at 449.
More recently, another motion to dismiss brought by Underwriter Defendants added to an amended pleading of July 11, 2003 filed in another Individual Action was granted. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2004 WL 97666 (S.D.N.Y. Jan. 20, 2004)("January 20 Opinion"). The January 20 Opinion rejected the plaintiffs' bald claim that they had omitted these additional defendants from their original pleading because of a mistake in identity. The January 20 Opinion noted that each of the defendants was listed as an underwriter in the pertinent bond offering's registration statement. Id. at *2. In briefing the instant motion, the parties rely significantly on each of these Opinions, and they are incorporated by reference.
The starting point for any analysis of this motion must be Rule 15(c), which provides in pertinent part that an amended pleading relates back to the date of the original timely pleading when:
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, or
(3) the amendment changes the party or the naming of the party against whom a claim is asserted if the foregoing provision (2) is satisfied and, within [120 days] the party to be brought in by amendment (A) has received such notice of this institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and (B) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.
Rule 15(c), Fed.R.Civ.P. (emphasis supplied).
The Advisory Committee Notes to Rule 15(c) observe that the concept of relation back "is intimately connected with the policy of the statute of limitations." The Rule has been revised to, among other things, "prevent parties against whom claims are made from taking unjust advantage of otherwise inconsequential pleading errors to sustain a limitations defense." Rule 15, Fed.R.Civ.P., advisory committee's note.
Rule 15's "requirement that a new defendant `knew' he was not named due to a mistake concerning identity presupposes that in fact the reason for his not being named was a mistake in identity." Cornwell v. Robinson, 23 F.3d 694, 705 (2d Cir. 1994). A "mistake" regarding the identity of the "proper party" for purposes of Rule 15(c) can be a mistake of either fact or law. A mistake of fact occurs when a plaintiff misapprehends the identity of the individual she wishes to sue. Soto v. Brooklyn Correctional Facility, 80 F.3d 34, 36 (2d Cir. 1996). A mistake of law occurs when the plaintiff misunderstands the legal requirements for her cause of action. Id. A common application of the relation-back doctrine permits a plaintiff to name individual government officers as tortfeasors instead of their government agency employer. Id. at 37.
In Cornwell, a plaintiff bringing employment discrimination claims had listed certain individuals by name and described them as "perpetrators" of misconduct against her in her timely filed 1986 complaint, but did not name these perpetrators as defendants until she filed an amended pleading in 1992. The statute of limitations had expired well before 1992.Cornwell, 23 F.3d at 700-01. The plaintiff did not allege that her failure to name these individuals in her initial pleading was due to a "mistake concerning identity." Id. at 705. Any such assertion would have been untenable since she knew the identities of those who had harassed her and the "original complaint identified those individuals and set out details of their alleged misconduct." Since the plaintiff was not required to sue them, and obviously knew of them, the Court of Appeals considered her failure to name them as defendants in a timely filed pleading "a matter of choice, not mistake." Id.
Lead counsel for the NYSCRF asserts that NYSCRF "fully intended to sue the banks that had underwritten" the Foreign Notes. "By identifying the Foreign Affiliates in the same paragraph as their American affiliates, in the section of the complaint entitled `Defendants,' we believed it was unnecessary to name the Foreign Affiliates separately as defendants." Lead counsel emphasizes that it made "no strategic choice" to exclude the underwriters of the Foreign Notes as defendants. If its belief was ill-founded, it asserts that it was the product of a "mistake" and not "intentional."
The Lead Plaintiff appears to be asserting that it made a mistake of law. In its memorandum in opposition to this motion, it argues that it initially believed that it could hold the Foreign Affiliates liable for the Foreign Notes they sold simply by listing them in the same paragraph as their American affiliates. It would be highly unusual for counsel to believe that an entity could be held liable when it was not named as a defendant and properly served in the action. Every defendant has a right to be given notice of an action and to take steps within the course of a litigation to defend itself against a judgment of liability. It would appear that something else is actually at work here. It would appear that the Lead Plaintiff has changed its strategy and now seeks to hold a second defendant liable on each of the Foreign Note transactions where there was both an American entity and its foreign affiliate involved in the transaction.
What has always been clear is that the Lead Plaintiff based its suit on all of the bonds sold in the 2001 Offering, including the Foreign Notes. It appears that it decided initially to sue only the American entity through which the Foreign Notes were sold when the American entity did so through a foreign affiliate, and to sue the foreign entity itself only when the foreign entity had no American affiliate that was also acting as an underwriter in the 2001 Offering. This was a pure tactical decision.
It does not appear that there was any mistake of law as to the identity of the correct defendant for the Foreign Note transactions. For example, there is no suggestion in anything that the Underwriter Defendants or the Lead Plaintiff have submitted on this motion to the effect that the American entity cannot be held liable for its foreign affiliate's Foreign Note sales. For instance, there is no suggestion that J.P. Morgan cannot be held liable for the Foreign Note sales made by J.P. Morgan Securities Ltd. By not separately naming J.P Morgan Securities Ltd. as a defendant, however, the Lead Plaintiff chose in the context of its initial pleading not to seek to hold J.P Morgan's foreign affiliate also liable for the sales with which it charged J.P. Morgan.
If this were a case in which the Lead Plaintiff had made a mistake as to the correct entity that could be held liable for a transaction on which it clearly sought to bring suit, then it would be necessary to continue with the remainder of the analysis that must be undertaken before amended pleadings can be found to relate back under Rule 15(c). It is not such a case, however. Instead, this is a case in which the plaintiff made a strategic decision to name only one of two entities with potential liability for certain conduct. As a consequence, the claims against the Foreign Affiliates do not relate back to the timely filed pleading.
2. Tolling
The NYSCRF argues that its amended claims are in any event timely as to two of the six Foreign Affiliates — J.P. Morgan Securities, Ltd. and Salomon Brothers International, Ltd. ("Two Foreign Affiliates") — because the Two Foreign Affiliates were named as defendants in a timely filed class action complaint in one of the class actions consolidated through the Order of August 15, 2002. That class action, Above Paradise Investments Ltd. v. WorldCom, Inc., et al., No. 02 Civ. 4990 ("Paradise Action"), was filed on June 27, 2002. The parties do not dispute that the statute of limitations began to run just two days earlier, on June 25, 2002. The motion to file a Corrected Amended Complaint was filed on October 8, 2003. Between June 25, 2002 and October 8, 2003, less than one year expired when the period between June 27 and October 11, 2002, that is, the period between the filing of the Paradise Action and the filing of the Complaint by the NYSCRF, is subtracted.
The NYSCRF's argument relies on the doctrine of tolling as articulated in American Pipe Construction Co. v. Utah, 414 U.S. 538, 554 (1974), and its progeny. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2004 WL 77879, at *11-12 (S.D.N.Y. Jan. 20, 2004); In re WorldCom, Inc. Sec. Litig., 294 F. Supp.2d at 450. It is well established that "the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action."American Pipe, 414 U.S. at 554. While this tolling does not apply to those plaintiffs who file individual actions before there is a decision on class certification, see, e.g., In re WorldCom, Inc. Sec. Litig., 294 F. Supp.2d at 451, it does apply to all plaintiffs within the class action.
The notice of motion filed by the defendants lists each of the class actions consolidated within the complaint filed by the Lead Plaintiff. The defendants' list includes the Paradise Action.
The single decision on which the defendants rely to refute this principle is inapposite. In Lindner Dividend Fund, Inc. v. Ernst Young, 880 F. Supp. 49 (D. Mass. 1995), a defendant was named in an initial class action complaint, but omitted from the consolidated and amended class action complaint. Id. at 54. The court addressed whether class action tolling would apply to an individual action in such circumstances. Id. Here, it is the class action itself that seeks to amend its complaint and to use a prior class action's pleading to toll the statute of limitations. While there are other distinctions betweenLindner and the issue presented here, this single distinction is sufficient to eliminate Lindner as persuasive authority for a conclusion contrary to that reached here.
Since the defendants relied on Lindner for the first time in their reply brief, the plaintiff's surreply of February 26, and the defendants' sur-surreply of March 3, have been considered in connection with this portion of the parties' arguments.
3. Standing
The Two Foreign Affiliates contend that the plaintiffs lack standing because none of the named plaintiffs in the class action purchased any Foreign Notes. The Two Foreign Affiliates argue that while the plaintiffs may have sufficient standing in the context of class certification, they do not have standing under Article III of the United States Constitution.
The issue of standing has already been addressed in the Securities Litigation. See In re WorldCom, Inc. Sec. Litig., 294 F. Supp.2d 392, 422 (S.D.N.Y. 2003) (addressing motion to dismiss). It is undisputed that at least one of the named plaintiffs purchased millions of dollars of WorldCom notes in the 2001 Offering. That offering, which included both the U.S. dollar notes and the Foreign Notes, was made pursuant to a single registration statement that listed each of the underwriters, including the Two Foreign Affiliates. It is undisputed that the class includes those who purchased Foreign Notes from the Two Foreign Affiliates.
Constitutional standing requires a plaintiff to have a personal stake in the outcome of the controversy sufficient to establish standing. "To meet Article Ill's constitutional requirement for standing, a plaintiff must allege an actual or threatened injury to himself that is fairly traceable to the allegedly unlawful conduct of the defendant." Lamar Advertising of Penn, LLC v. Town of Orchard Park, New York, 356 F.3d 365, 373 (2d Cir. 2004) (citation omitted). The standing doctrine is designed to ensure that federal jurisdiction is limited to suits "capable of resolution through the judicial process." Baur v. Veneman, 352 F.3d 625, 632 (2d Cir. 2003) (citation omitted). By assuring that a plaintiff has a personal stake in the controversy, it prevents courts from being used merely as fora for venting public grievances or where there is an injury that is not suitable for judicial review. Id. See also Warth v. Seldin, 422 U.S. 490, 498 (1975); Demaria v. Andersen, 318 F.3d 170, 173 n. 3 (2d Cir. 2003).
A named plaintiff's purchase of bonds in the 2001 Offering is sufficient to establish standing to bring suit on behalf of a class against any and all underwriters of that offering. The defendants have presented no authority to support their contention that one of the named plaintiffs in the class action must have bought Foreign Notes from the Two Foreign Affiliates in order for the named plaintiffs to have standing under Article III to bring suit against the Two Foreign Affiliates. The two cases on which they rely do not support that principle. Cats v. Protection One, Inc., No. CV99-3755DT(RCX), 2001 WL 34070630, at *9-10 (C.D.Cal. June 4, 2001), and In re Paracelsus Corp. Sec. Litig., 6 F. Supp.2d 626, 631 (S.D.Tex. 1998), dismissed bondholder claims because there was no named plaintiff that had ever purchased debt securities. Here, there is no dispute that at least one of the named plaintiffs bought bonds in the 2001 Offering. The named plaintiffs have a sufficient personal stake in this lawsuit to make this a justiciable controversy.
Conclusion
The motion to dismiss brought by Banc of America Securities Ltd., ABN AMRO Bank N.V., Deutsche Bank AG London, and BNP Paribas is granted. The motion to dismiss brought by J.P. Morgan Securities Ltd. and Salomon Brothers International Ltd. is denied.
SO ORDERED.