Opinion
No. 3:03-0128
May 9, 2003
MEMORANDUM
Plaintiff, Tennessee Consolidate Retirement System ("TCRS"), filed this action, originally in the Davidson County Chancery Court, against the Defendants: Citigroup, Inc.; Salomon Smith Barney, Inc.; J.P. Morgan Securities, Inc.; J.P. Morgan Chase Co.; Bank of America Corporation; Banc of America Securities, LLC; ABN Amro Incorporated; Deutsche Bank AG; Deutsche Banc Alex. Brown, Inc.; Lehman Brothers Holdings, Inc.; Lehman Brothers, Inc.; Credit Suisse Group; Credit Suisse First Boston Corporation; Goldman Sachs Group, Inc.; Goldman Sach Co.; UBS Warburg, LLC; Nationsbanc Montgomery Securities, LLC; and Arthur Andersen, LLP.
TCRS's action "is a securities suit involving WorldCom, Inc., naming as defendants WorldCom's investment bankers and its accountants for violations of the Securities Act of 1933 (`1933 Act') arising out of its purchases of WorldCom debt securities (the `WorldComBond') sold to public investors in WorldCom's August 1998, May 2000 and May 2001 bond offerings (the `Offerings')." (Docket Entry No. 1, Attachment thereto, Exhibit A). TCRS's claims arise under Section 11 of the Securities Act of 1933 with jurisdiction under 22(a) of that Act, codified at 15 U.S.C. § 77v(a), as amended. TCRS alleges that misrepresentations were made in connection with bond purchases that TCRS made as investments for current and former Tennessee public employees. TCRS asserts only federal claims under Section 11 of the 1933 Act. Section 22(a) gives state courts concurrent jurisdiction with federal courts over Section 11 claims. 15 U.S.C. § 77v(a).
The Underwriter Defendants, with the exception of Arthur Andersen, LLP and Credit Suisse Group, removed the action to this Court, asserting that TCRS's action is "related to" the bankruptcy of WorldCom, Inc. that is not a named defendant in this action. (Docket Entry No. 1, Notice of Removal). The Underwriter Defendants cited 28 U.S.C. § 1334 (b), the federal bankruptcy jurisdictional statute, and 28 U.S.C. § 1452, the bankruptcy removal statute, as the legal bases for their removal and this Court's jurisdiction.
Arthur Andersen joined the other Defendants' opposition to TCRS's motion to remand. See Docket Entry No. 27. Under 28 U.S.C. § 1452 (a), a single party can remove an action. 16 James W. Moore et al Moore's Federal Practice, at 107.15[8][b]. Credit Suisse Group was apparently inadvertently omitted from the list of Underwriter Defendants in the Notice of Removal.
Before the Court is TCRS's motion to remand or abstain (Docket Entry No. 7) and the Underwriter Defendants' motion to stay proceedings pending a transfer order from the Judicial Panel on Multidistrict Litigation. (Docket Entry No. 15).
As to the Underwriter Defendants' motion to stay, during the pending of these proceedings, the Judicial Panel on Multidistrict Litigation entered a conditional order consolidating numerous actions pending in federal courts against these Defendants for pretrial proceedings under 28 U.S.C. § 1407. That conditional order, however, does not affect this Court's jurisdiction to consider TCRS's motion to remand. Sherwood v. Microsoft, 91 F. Supp.2d 1196, 1199 (M.D.Tenn. 2000). The Judicial Panel on Multidistrict Litigation advised this Court that jurisdiction remains here. (Docket Entry No. 43, Letter April 14, 2003) ("Thus your jurisdiction continues until any transfer ruling becomes effective. If you have a motion pending before you in the action — particularly a motion to remand to state court (if the action was removed to your court) — you are encouraged to rule on the motion unless you conclude that the motion raises issues likely to arise in other actions in the transferee court, should we order transfer, and would best be decided there."). Thus, the Court concludes that the Underwriter Defendants' motion to stay should be denied for the reasons stated below.
TCRS's motion argues, in essence: (1) that its federal securities claims under the 1933 Act are nonremovable under Section 22(a) of that Act; (2) that because Defendants' claims are contingent claims for contribution and indemnification from WorldCom, TCRS's claim does not "relate to" WorldCom's bankruptcy; and (3) that permissive abstention is appropriate under 28 U.S.C. § 1334 (c)(1) given the State of Tennessee's interests in its pension fund for its employees, and in state court proceedings, as well as TCRS's right to a jury trial in the state court.
As to the parties' legal contentions on TCRS's motion, the Court notes that in this Circuit, contingent claims of contribution and indemnification are sufficient to invoke the "related to" bankruptcy jurisdiction under 28 U.S.C. § 1334 (b). In re Dow Corning Corp., 86 F.3d 482, 490 (6th Cir. 1996)
("Specifically, the defendants argued that contingent claims for contribution and indemnification, jointly-held insurance policies, the possibility of collateral estoppel with a corresponding increased exposure to liability, and the burden of defending against the overwhelming number of breast implant claims all give rise to the possibility that the Dow Corning estate will be seriously impacted if the claims at issue, all of which to some degree affect the reorganization of Dow Corning under Chapter 11, are permitted to proceed in separate forums nationwide. We believe two of these theories support a finding that the district court has `related to' jurisdiction over the claims at issue, and address them in turn.") (footnotes omitted). Thus, under 28 U.S.C. § 1334 (b), this Court ordinarily would possess "original, but not exclusive jurisdiction of all civil proceedings . . . related to cases under Title 11" of the Bankruptcy Code including TCRS's action.
Yet, Section 22(a) of the 1933 Act contains an express bar to any removal of an action filed by a State or its pension plan under the 1933 Act. Section 22(a) provides, in pertinent part: "except as provided by Section 16(c) no case arising under this Title [ 15 U.S.C. § 77p(c)] [the 1933 Act] 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) (emphasis added).
District Courts are divided on whether, in essence, Section 22(a) bars removal under the circumstances presented here. Compare e.g., In re WorldCom Securities Litigation, 2003 WL 716243 (S.D.N.Y. 2003) withRetirement Systems of Alabama v. Merrill Lynch Co., 209 F. Supp.2d 1257 (M.D.Ala. 2002). The Court notes that in the latter case the Eleventh Circuit precedent on the "related to" aspect of bankruptcy jurisdiction was not as clear as Sixth Circuit precedent, and that ambiguity was a factor in the Alabama District Court's decision to remand. 209 F. Supp.2d at 1267.
The wording of Section 22(a) of the 1933 Act clearly conflicts with the removal authority under Dow Corning and 28 U.S.C. § 1334 (a) and 1452. Thus, legal tensions arise between Section 22(a) of the 1933 Act and Section 1334(b) and 1452, as well as Dow Corning.
The Supreme Court precedent provides "that a specific statute controls over a general one without regard to priority of enactment." Bulova Watch Co. v. United States, 365 U.S. 753, 758 (1961). The Sixth Circuit stated in N.A.A.C.P., Detroit Branch v. Detroit Police Officers Assocs., 900 F.3d 903, 912 (6th Cir. 1990), that:
General and special acts may be in pari materia. If so, they should be construed together. Where one statute deals with a subject in general terms, and another deals with a part of the same subject in a more detailed way, the two should be harmonized if possible; but if there is any conflict, the latter will prevail, regardless of whether it was passed prior to the general statute, unless it appears that the legislature intended to make the general act controlling. . . . Where the special statute is later it will be regarded as an exception to or qualification of the prior general one. . . .
Sutherland Statutory Construction § 51.05, at 499-500 (N. Singer ed. 1984) (footnotes omitted). The Supreme Court has consistently endorsed this canon of construction. See e.g., Brown v. General Servs. Admin., 425 U.S. 820, 834, 96 S.Ct. 1961, 1968-69, 48 L.Ed.2d 402 (1976) ("In a variety of contexts the Court has held that a precisely drawn, detailed statute pre-empts more general remedies.").900 F.3d at 912 (emphasis added).
The Court notes that Section 22(a) was amended as part of a series of 1998 amendments to the 1933 Act, under the Securities Litigation Uniform Standards Act ("SLUSA"), 112 Stat. 3227 (1998). As the District Court inRetirement Systems of Alabama explained, SLUSA expressly recognizes:
. . . the special interests of states in the context of securities litigation, as embodied in 15 U.S.C. § 77p(d)(2)(A) and § 77v(a). 15 U.S.C. § 77p(d)(2)(A) exempts from the preemption provisions of the Securities Litigation Uniform Standards Act ("SLUSA") state governments and specifically state pension plans. This exemption. it is argued. embodies a Congressional recognition of the special needs of state governments and pension plans to be able to pursue state law remedies in state courts in order to protect their pensioners and taxpayers from securities fraud. 15 U.S.C. § 77v(a) disallows the removal of actions under the Securities Act of 1933 from any state court of competent jurisdiction. At a minimum, these provisions clearly evince a policy of special respect for the forum choices of state pension plans with regard to securities claims and for state courts whose jurisdiction is invoked to hear them, and adds a strong reason for abstention in this case not present in most other cases.209 F. Supp.2d at 1269 (emphasis added).
Given that SLUSA, a 1998 statute, allows state pension plans, such as TCRS, to pursue its Section 11 claims under the 1933 Act in state court and expressly bars any removal to any federal court except as provided by 15 U.S.C. § 77p(c), the Court concludes that Section 22(a) is a special statute. As a special statute, the relevant rule of statutory construction requires that Section 22(a), as amended, control over 28 U.S.C. § 1334 (b) and 1452, general statutes, that were also enacted earlier. Second, Section 22(a) is a clear statutory prohibition, and as the Sixth Circuit recently stated, "[t]he primary rule of statutory construction is to ascertain and give effect to the legislative intent." Cline v. General Dynamics Land Systems, Inc., 296 F.3d 466, 469 (6th Cir. 2002) (citing Hedgepeth v. Tenn., 215 F.3d 608, 616 (6th Cir. 2000).
This conclusion differs from In re WorldCom Securities Litigation 2003 WL 716243, *16 (S.D.N.Y. 2003), that looked to Section 1452(a) that was enacted decades after Section 22 became law. ("Section 1452(a) was enacted decades after Section 22 became law, and could easily have included a third exception to incorporate 1933 Act claims. It did not do so, Inclusio unius est exclusio alterius: the absence of such an exclusion leads to the conclusion that Section 1452(a) removal may apply to the securities claims at issue here.") (citations omitted). In this Courts view, SLUSA, a 1998 statute amending the 1933 Act, is the relevant comparative statute, not the original 1933 Act.
Moreover, as the District Court in Retirement Systems observed, discretionary abstention under 28 U.S.C. § 1334 (c)(1) is appropriate here, given Congress' express desire to allow state court actions and in light of the importance of protecting public retirement resources from violations of the 1933 Act. As stated in Retirement Systems,
. . . comity and respect for state law militate in favor of abstention under § 1334(c)(1). The court recognizes that the ends of judicial economy might be well-served by the consolidation of this case with others before the MDL court, but judicial economy alone is not enough to override the comity concerns embodied in § 1334(c)(1). See Pacor 743 F.2d at 994.209 F. Supp.2d at 1269, 1270.
For these reasons, the Court concludes that TCRS's motion to remand and abstain should be granted. Despite this conclusion, the Court notes that, but for Section 22(a)'s express prohibition of removal of this action, Dow Corning would otherwise control here and TCRS's motion to remand and abstain would be denied. Although this Court concludes that Plaintiffs motion to remand should be granted in light of the plain language of Section 22(a), the Court will stay its ruling on this significant question of first impression, to allow Defendants the opportunity for an appeal to the Sixth Circuit. Dow Corning, 86 F.3d at 488 (holding that a remand order in a similar context was a collateral order under the Cohen doctrine to qualify for an appeal despite the general rule that remand orders are not appealable.).
See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949).
In sum, the Court concludes that TCRS's motion to remand should be granted, but that this ruling will be stayed for at least thirty (30) days to allow any party the opportunity to appeal the accompanying Order on an issue of first impression in this Circuit.
An appropriate Order is filed herewith.
ORDER
In accordance with the Memorandum filed herewith, Plaintiffs motion to remand and abstain this action (Docket Entry No. 7) is GRANTED. Defendants' motion to stay pending a final transfer order from the Judicial Panel on Multidistrict Litigation (Docket Entry No. 15) is DENIED.
For the reasons stated in the Memorandum, the Court, however, STAYS its Order granting Plaintiffs motion to remand and abstain for thirty (30) days or until an Order of the Sixth Circuit, for the opportunity for any party to appeal this Order.
This is the Final Order in this action.
It is so ORDERED.