IL Municipal Retirem v. Citigroup Inc ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-3703
ILLINOIS MUNICIPAL RETIREMENT FUND,
Plaintiff-Appellee,
v.
CITIGROUP, INC., J.P. MORGAN SECURITIES, INC.,
BANC OF AMERICA SECURITIES, LLC, et al.,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 03 C 465—G. Patrick Murphy, Chief Judge.
____________
ARGUED NOVEMBER 9, 2004—DECIDED DECEMBER 2, 2004
Before FLAUM, Chief Judge, and CUDAHY and POSNER,
Circuit Judges.
FLAUM, Chief Judge. Plaintiff-appellee filed suit in Illinois
state court. Following removal by defendants-appellants,
the district court remanded the action to state court.
Defendants-appellants appeal, arguing that the district
court exceeded its authority, and seeking vacatur of the re-
mand order. For the reasons stated herein, we affirm.
2 No. 03-3703
I. Background1
Between 1998 and 2001, WorldCom, once the second larg-
est telecommunications company in the world, issued debt
securities worth billions of dollars in connection with which
defendants-appellants served as underwriters. WorldCom
agreed to indemnify appellants for liability arising out of
untrue statements or omissions in prospectuses issued in
connection with the offerings.
On June 25, 2002, WorldCom announced that it had im-
properly treated $3.8 billion in ordinary costs as capital
expenditures and that it would have to restate its financial
statements. This led to the filing of numerous individual
and class actions in state and federal courts across the coun-
try. On October 8, 2002, the Judicial Panel on Multidistrict
Litigation (“JPML”) ordered that actions pending in federal
courts be centralized in the Southern District of New York
before Judge Cote, pursuant to 28 U.S.C. § 1407, the mul-
tidistrict litigation statute.
Many of the individual actions brought in state courts
following WorldCom’s announcement were filed by state
and private pension funds that had purchased WorldCom
bonds (“bondholders”). Rather than joining a class action
against WorldCom and the other defendants, the bond-
holders, represented by Milberg Weiss Bershad Hynes &
Lerach, brought individual actions in state courts across the
country. Between July 5, 2002 and October 3, 2003, Milberg
Weiss filed at least 47 of these individual actions on behalf
of over 120 plaintiffs.
1
The facts in this section are taken principally from the Second
Circuit’s recent decisions in the WorldCom multidistrict litigation.
See Ret. Sys. of Ala. v. J.P. Morgan Chase & Co., 386 F.3d 419 (2d
Cir. 2004); Cal. Pub. Employees’ Ret. Sys. v. WorldCom, Inc., 368
F.3d 86 (2d Cir. 2004).
No. 03-3703 3
The bondholders’ actions filed in state courts, unlike the
class actions filed in federal courts, do not assert claims
under the Securities Exchange Act of 1934 (“1934 Act”), 15
U.S.C. § 78a, et seq.; instead, they allege claims only under
the Securities Act of 1933 (“1933 Act”), 15 U.S.C. § 77a, et seq.
Unlike the 1934 Act which provides for exclusive federal
jurisdiction, see 15 U.S.C. § 78aa, the 1933 Act allows for
concurrent federal and state jurisdiction and has an anti-
removal provision. See 15 U.S.C. § 77v(a) (“[N]o case arising
under this subchapter and brought in any State court of
competent jurisdiction shall be removed to any court of the
United States.”). Drafting the complaints in this way would
seem to ensure a state forum and prevent removal. If this
was the bondholders’ intention, however, their efforts have
been frustrated by WorldCom’s July 2002 bankruptcy filing.
After that date, state-court defendants began removing the
actions to federal court on the ground that they are related
to WorldCom’s bankruptcy. See 28 U.S.C. §§ 1334(b),
1452(a).2 Many of these removed bondholder actions have
been identified as “tag-along actions”3 and transferred to
Judge Cote.
On March 3, 2003, Judge Cote denied a motion to remand
filed by the New York City Employees’ Retirement System
2
Section 1334(b) provides, in relevant part: “[T]he district courts
shall have original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to cases
under title 11.” Section 1452(a), titled “Removal of Claims Related
to Bankruptcy Cases,” provides, in relevant part: “A party may
remove any claim or cause of action in a civil action . . . to the
district court for the district where such civil action is pending, if
such district court has jurisdiction of such claim or cause of action
under section 1334 of this title.”
3
JPML Rule 1.1 defines a “tag-along action” as “a civil action
pending in a district court and involving common questions of fact
with actions previously transferred under Section 1407.”
4 No. 03-3703
(“NYCERS”), holding that subject matter and removal
jurisdiction were proper and that abstention was not
appropriate. See In re WorldCom, Inc. Sec. Litig., 293 B.R.
308 (S.D.N.Y. 2003).4 This ruling applied to the actions
transferred to Judge Cote pursuant to the JPML’s October
8, 2002 order, as well as to the tag-along actions. On May
11, 2004, the Second Circuit affirmed Judge Cote’s denial of
the motion to remand, holding that the 1933 Act’s anti-
removal provision does not bar removal of actions under
§ 1452(a). See Cal. Pub. Employees’ Ret. Sys. v. WorldCom,
Inc., 368 F.3d 86 (2d Cir. 2004).
On June 18, 2003, plaintiff-appellee Illinois Municipal
Retirement Fund (“IMRF”) filed suit in Illinois state court,
alleging claims arising out of IMRF’s purchase of WorldCom
debt securities and alleging false and misleading statements
in registration statements and prospectuses issued in con-
nection with the bond offerings, of which the underwriter
appellants allegedly were aware or should have been aware.
Consistent with the litigation strategy of other individual
pension funds, and represented by the same attorneys,5
IMRF alleged claims only under the 1933 Act. On July 16,
2003, appellants removed the case to the United States
District Court for the Southern District of Illinois, premis-
ing removal on § 1452(a). On the same day, appellants filed
a notice with the clerk of the JPML, requesting that the
action be transferred as a tag-along action to Judge Cote.
On July 25, 2003, appellants filed a motion to stay the
4
Plaintiffs in numerous individual bondholder actions, represented
by Milberg Weiss, were permitted to intervene in NYCERS’s
motion so that their arguments concerning removal could be heard
on an expedited basis. Id. at 315.
5
On May 1, 2004, the west coast partners of Milberg Weiss
Bershad Hynes & Lerach LLP formed a new law partnership,
Lerach Coughlin Stoia Geller Rudman & Robbins LLP. Plaintiff-
appellee is represented by the new partnership.
No. 03-3703 5
action pending a determination by the JPML on the issue
of transfer. The JPML issued a conditional transfer order
on September 3, 2003, notice of which appellants filed with
the district court on September 5, 2003.
On the same day that appellants filed their motion to
stay, June 25, 2003, IMRF filed a motion to remand or ab-
stain, raising three arguments: (1) the 1933 Act absolutely
prohibits removal, even by way of § 1452(a); (2) IMRF’s
action does not fall within federal bankruptcy jurisdiction;
and (3) even if there is subject matter and removal jurisdic-
tion, the district court should abstain from exercising
jurisdiction and should remand pursuant to § 1334(c)(1),
which permits abstention in cases related to a bankruptcy
case “in the interest of justice, or in the interest of comity
with State courts or respect for State law,” or § 1452(b), which
permits remand of claims related to a bankruptcy case “on
any equitable ground.” These were the same arguments
IMRF’s attorneys already had made to Judge Cote without
success, and would later make to the Second Circuit with
the same result.
On September 9, 2003, although acknowledging Judge
Cote’s contrary decision and the JPML’s conditional trans-
fer order, the district court remanded this action to Illinois
state court. (Sept. 9, 2003 Order at 3.) The court found that
the 1933 Act bars removal but that its language conflicts
with § 1452(a). (Id.) It resolved this conflict by concluding
that “the rules of statutory construction require [the 1933
Act] to control over the more general provisions of 28 U.S.C.
§§ 1334(b) and 1452” and that “the only way to give effect
to the legislative intent behind its enactment is to construe
it as a bar to removal even under these circumstances.” (Id.
at 3-4.) The district court further held that even if the 1933
Act did not bar removal, the claims were “not ‘related to’ the
WorldCom bankruptcy and cannot be removed under
Section 1452,” and also that “remand is appropriate pursu-
ant to the doctrines of permissive abstention and equitable
6 No. 03-3703
remand” under §§ 1334(c)(1) and 1452(b). (Id. at 4.) The
court denied appellants’ motion to stay proceedings pending
the final transfer decision of the JPML and granted the
IMRF’s motion to remand or abstain. (Id. at 5.) On October
9, 2003, appellants filed a notice of appeal.
II. Discussion
A. Appellate Jurisdiction
We first must determine whether we have jurisdiction to
hear this appeal. The general grant of our appellate juris-
diction is found in 28 U.S.C. § 1291, which provides that
courts of appeals “shall have jurisdiction of appeals from all
final decisions of the district courts of the United States.”
The breadth of our jurisdiction, however, is limited by
several statutes which specifically bar appellate review of
certain types of “final decisions.” Each of the following stat-
utes limit our jurisdiction in this case, given the district
court’s alternative grounds for remand: 28 U.S.C. § 1447(d)
provides that “[a]n order remanding a case to the State
court from which it was removed is not reviewable on ap-
peal or otherwise”; § 1334(d) bars appellate review of “[a]ny
decision to abstain” made in a bankruptcy case or proceed-
ing; and § 1452(b) bars review of equitable remands of
claims related to a bankruptcy case.
The parties agree that these three statutes bar appellate
review of the district court’s reasons for remand in this
case.6 Appellants argue, however, that “antecedent ques-
tions of power are properly presented to courts of appeals.”
In other words, appellants contend that the district court
6
In unpublished opinions, the Sixth and Eleventh Circuits
dismissed similar appeals on this ground. See Tenn. Consol. Ret.
Sys. v. Citigroup, Nos. 03-5785, 03-5786 (6th Cir. Nov. 4, 2003)
(unpublished); Ret. Sys. of Ala. v. J.P. Morgan Chase & Co., No.
02-15385 (11th Cir. June 18, 2003) (unpublished).
No. 03-3703 7
lacked statutory authority to issue the remand order and
that we may vacate the order even though we may not
review its reasoning.
In Thermtron Products, Inc. v. Hermansdorfer, where the
Supreme Court first decided that § 1447(d) is not a com-
plete bar to appellate review of remand orders, the Court
held that it had appellate jurisdiction to review a remand
order premised on the district court’s overcrowded docket.
423 U.S. 336 (1976), abrogated on different grounds by
Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996).
“Because the District Judge remanded a properly removed
case on grounds that he had no authority to consider, he
exceeded his statutorily defined power.” Id. at 351. We have
explained that “Thermtron permits us to decide whether a
district court has the power to do what it did, although we
cannot examine whether a particular exercise of power was
proper.” In re Cont’l Cas. Co., 29 F.3d 292, 294 (7th Cir.
1994).
In Continental Casualty, we issued a writ of mandamus
ordering a district court to “recall its remand and reinstate
the case on its docket” because it had remanded sua sponte
for a procedural removal defect. Id. at 295. We held that the
district court lacked statutory authority to remand a case
based on a procedural defect in removal absent a motion by
a party. Id. at 294-95. In so holding, we did not consider the
substance of the district court’s order, but merely explained
that the “lack of a motion deprives a district court of power
to return a case to state court.” Id. at 294 (emphasis in
original).
In Thermtron, the Supreme Court permitted appellate
review of a statutorily invalid reason for remand. In
Continental Casualty, we recognized that appellate review
also may be had where a district court has articulated stat-
utorily valid reasons for remand yet has exceeded its au-
thority in some other way. This principle has been applied
8 No. 03-3703
in various contexts. For example, in Tramonte v. Chrysler
Corp., 136 F.3d 1025 (5th Cir. 1998), the defendant asked
the judge to recuse herself because a member of the judge’s
family was a potential class member. The judge denied the
recusal motion and remanded the case for lack of subject
matter jurisdiction. The defendant appealed, arguing that
the judge lacked authority to enter the remand order be-
cause she was disqualified from handling the case under
the federal recusal statute.7 The Fifth Circuit agreed,
explaining that, if the judge should have recused herself,
any subsequent order must be vacated:
Our vacatur of the remand order would therefore not
constitute a review of the merits of that order, prohib-
ited by 28 U.S.C. § 1447(d). Rather, we would be per-
forming an essentially ministerial task of vacating an
order that the district court had no authority to enter
for reasons unrelated to the order of remand itself.
Tramonte, 136 F.3d at 1028. Similar reasoning has been
relied upon in vacating remand orders entered by magis-
trate judges acting without the parties’ consent. See, e.g.,
Vogel v. U.S. Office Prods. Co., 258 F.3d 509, 517-19 (6th Cir.
2001) (holding that a remand order entered by a magistrate
judge was beyond his statutory authority and concluding
that review was proper because the court of appeals was not
reviewing the merits of the remand order itself); In re U.S.
Healthcare, 159 F.3d 142, 146-47 (3d Cir. 1998) (same). Thus,
although §§ 1447(d), 1334(d), and 1452(b) preclude appel-
late review of the reasoning contained in many remand
orders, they do not deprive appellate courts of jurisdiction
to vacate a remand order issued in excess of a district
court’s statutory authority.
7
See 28 U.S.C. § 455(b)(5) (Any judge of the United States shall
disqualify himself where “[h]e or his spouse, or a person within
the third degree of relationship to either of them, or the spouse of
such a person . . . [i]s a party to the proceeding.”).
No. 03-3703 9
In an earlier case we suggested that it would be within
our appellate jurisdiction to vacate a remand order issued
by a transferor court after the case has been transferred by
the JPML. See Gen. Elec. Co. v. Byrne, 611 F.2d 670, 673
(7th Cir. 1979) (“[T]he entry of the transfer order deprives
the transferor court of jurisdiction until the case is returned
to it, so that any action taken by the transferor court after
transfer would be ineffective.”). Today we make the prin-
ciple underlying this observation explicit: When a district
court exceeds its statutory authority by the very issuance of
a remand order—as opposed to merely issuing a flawed
remand order—it is within our appellate jurisdiction to
review that court’s exercise of authority and vacate the
ineffective order, provided we can do so without reference
to the contents of the remand order. In this case, we can
review the contested exercise of authority without consider-
ing the reasoning in the district court’s remand order.
Accordingly, we do so here.
B. Authority to Remand
We review de novo whether 28 U.S.C. § 1407, the multi-
district litigation statute, prohibits a district court from
issuing a remand order in contravention of a potential
transferee court’s earlier jurisdictional ruling. See Resolution
Trust Corp. v. Gallagher, 10 F.3d 416, 418 (7th Cir. 1993)
(questions of statutory construction are subject to de novo
review).
Section 1407 provides, in part:
(a) When civil actions involving one or more common
questions of fact are pending in different districts, such
actions may be transferred to any district for coordi-
nated or consolidated pretrial proceedings. Such trans-
fers shall be made by the judicial panel on multidistrict
litigation authorized by this section upon its determina-
tion that transfers for such proceedings will be for the
10 No. 03-3703
convenience of parties and witnesses and will promote
the just and efficient conduct of such actions. . . .
(b) Such coordinated or consolidated pretrial proceed-
ings shall be conducted by a judge or judges to whom
such actions are assigned by the judicial panel on multi-
district litigation. . . .
28 U.S.C. § 1407. Under the rules of procedure adopted by
the JPML, see 199 F.R.D. 425 (2001), upon learning of a
potential tag-along action, an order “may be entered by the
Clerk of the [JPML] transferring the action to the previ-
ously designated transferee district court.” JPML Rule 7.4(a).
“The Clerk of the [JPML] shall serve this order on each
party to the litigation but, in order to afford all parties the
opportunity to oppose transfer, shall not send the order to
the clerk of the transferee district court for fifteen days
from the entry thereof.” Id. If there is no opposition to the
transfer in response to the conditional transfer order, the
clerk of the JPML will transmit a final transfer order to the
transferee court. See JPML Rule 7.4(d). “Conditional trans-
fer orders do not become effective unless and until they are
filed with the clerk of the transferee district court.” JPML
Rule 7.4(e). The pendency of a conditional transfer order
“does not affect or suspend orders and pretrial proceedings
in the district court in which the action is pending and does
not in any way limit the pretrial jurisdiction of that court.”
JPML Rule 1.5.
In this case, the district court remanded after the JPML
issued a conditional transfer order but before transmittal of
a final transfer order to the previously designated trans-
feree, Judge Cote in the Southern District of New York.
Therefore, the transfer had not become effective and the
conditional order did not “in any way limit the pretrial jur-
isdiction” of the district court. JPML Rules 1.5, 7.4(e).
Under the JPML rules of procedure, the district court did
not exceed its authority in issuing the remand order. At oral
No. 03-3703 11
argument, appellants acknowledged that they cannot
prevail in this appeal without showing that JPML Rule 1.5
is invalid. They have attempted to do so by arguing that the
rule conflicts with the text, structure, and purpose of
§ 1407.
Appellants’ textual argument for invalidating Rule 1.5 is
based on the language in the statute providing that “con-
solidated pretrial proceedings shall be conducted” by the
transferee judge. 28 U.S.C. § 1407(b). Appellants contend
that the word “shall” signals an obligation of the transferee
court and deprives other courts of the authority to interfere
with the transferee court’s actions: “given the scope of the
transferee court’s authority over pretrial proceedings, it
follows inevitably that once a transferee court has been
designated, potential transferor courts—such as the district
court below—do not enjoy the latitude to issue decisions
contrary to the rulings of the transferee court.” We disagree.
Subsection (b) provides that the transferee judge shall
conduct “consolidated pretrial proceedings,” but subsection
(a) states that actions must be “transferred,” not merely
designated, for “consolidated pretrial proceedings” to be con-
ducted. Thus, though the statute identifies a duty of the
transferee court after an action has been transferred, it does
not suggest, even implicitly, that the authority of either
court is affected before transfer by the mere designation of
a transferee court. Consistent with this, Rule 1.5 states that
the authority of the potential transferor court is not limited
“in any way” prior to actual transfer. There is no textual
conflict between § 1407 and Rule 1.5 that would support
striking the latter or finding that the district court exceeded
its authority in this case.
Appellants’ structural argument for invalidating Rule 1.5
flows from their observation that § 1407, implicitly, and the
rules, explicitly, contemplate tag-along actions that are
brought to the JPML’s attention for transfer after a multi-
12 No. 03-3703
district litigation has already been assigned to a transferee
court. From this, appellants conclude that “the command
that pretrial proceedings ‘shall’ be before the designated
transferee court affects not only cases transferred, but also
those waiting to be transferred.” Appellants contend that
the “contrary interpretation leads to absurd results because
it would allow potential transferor courts to issue rulings
discordant with those of the transferee court, which clearly
undermines the stated purposes of the multidistrict liti-
gation statute.”
We find nothing absurd in district courts individually
evaluating their own jurisdiction. Furthermore, Congress
has indicated a preference for remands based on such in-
dividualized jurisdictional evaluations and a tolerance for
inconsistency. As we have explained, 28 U.S.C. § 1447(d)
bars appellate review of a remand order based on a district
court’s determination that it lacks subject matter jurisdic-
tion. See Baker v. Kingsley, 387 F.3d 649, 653-54 (7th Cir.
2004). This creates a “one-bite- at-the-apple scheme,” under
which inconsistent jurisdictional decisions by district courts
cannot be brought in line through the appellate process.
Adkins v. Ill. Cent. R.R. Co., 326 F.3d 828, 832 (7th Cir.
2003). Even clear errors in a district court’s jurisdictional
analysis may not be corrected by the courts of appeals if the
district court thought that it lacked subject matter juris-
diction. See Baker, 387 F.3d at 655. Section 1447(d) makes
clear that errors in favor of remand which yield inconsistent
holdings on subject matter jurisdiction must be tolerated.
See id. If the courts of appeals have no power to bring con-
sistency to these remand orders, there is no reason why a
sister district court, in a different circuit, should have this
power. After a transfer takes place under § 1407, the
transferee court has authority to issue consistent jurisdic-
tional rulings in all of the transferred cases before it. Before
the transfer is effective, however, the potential transferee
court wields no such power over individual, unconsolidated
cases.
No. 03-3703 13
Finally, appellants’ statutory purpose argument for inval-
idating Rule 1.5 relies on § 1407’s goal of centralizing civil
litigation “involving one or more common questions of fact”
that are “pending in different districts.” 28 U.S.C. § 1407(a).
The JPML is empowered to effectuate this goal by transfer-
ring pending actions upon determining that such transfers
will be to the “convenience of parties and witnesses and will
promote the just and efficient conduct of such actions.” Id.Appellants argue that the district court’s order issued
during the pendency of the transfer process undermines the
purposes of the statute, namely, promotion of efficient
litigation and avoidance of inconsistent contemporaneous
rulings in like cases.
Undoubtably, efficiency and consistency are goals of
§ 1407. It does not follow from this premise, however, that
any rule that limits efficiency or allows inconsistency
conflicts with the statute and may not stand. As appellants
acknowledge, among the statute’s stated goals are the “con-
venience of parties and witnesses” and the “just . . . conduct
of such actions.” § 1407(a). To this end, the JPML rules
provide for a conditional transfer period “in order to afford
all parties the opportunity to oppose transfer.” JPML Rule
7.4(a). Appellants do not, and cannot, suggest that the
existence of this pre-transfer interim conflicts with the
purposes of § 1407.
We need not decide if a district court ever exceeds its
authority in acting during this period. We are satisfied,
however, that it does not do so when it rules on its own
jurisdiction. This, after all, is a fundamental obligation of
all courts of limited jurisdiction. See Hay v. Ind. State Bd.
of Tax Comm’rs, 312 F.3d 876, 878 (7th Cir. 2002). Though
some district courts stay proceedings during the interim fol-
lowing a conditional transfer order, see, e.g., Bd. of Trs. of
the Teachers’ Ret. Sys. of the State of Ill. v. WorldCom, Inc.,
244 F. Supp. 2d 900 (N.D. Ill. 2002), this is not required
where the court concludes that it lacks subject matter
14 No. 03-3703
jurisdiction. We will not require a district court that
believes that it lacks subject matter jurisdiction over a case
to facilitate a transfer under § 1407, a statute that does not
itself confer jurisdiction. Rule 1.5, as applied in this case,
does not conflict with the text, structure, or purpose of
§ 1407, and the district court did not exceed its authority in
issuing a remand order.
III. Conclusion
The order of the district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-2-04