Franklin U.S. Rising Dividends Fund v. American International Group, Inc.

14-3752
Franklin U.S. Rising Dividends Fund, et al. v. American International Group, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY
PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals for the Second Circuit, held at the
2 Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
3 1st day of April, two thousand fifteen.
4
5 PRESENT:
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7 PIERRE N. LEVAL,
8 DEBRA ANN LIVINGSTON,
9
10 Circuit Judges,
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12 RICHARD K. EATON*,
13
14 Judges.
15 ______________________________________________
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17 FRANKLIN U.S. RISING DIVIDENDS FUND; FRANKLIN MANAGED TRUST-FRANKLIN RISING
18 DIVIDENDS FUND; FRANKLIN VALUE INVESTORS TRUST-FRANKLIN LARGE CAP VALUE FUND;
19 FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST-FRANKLIN RISING DIVIDENDS
20 SECURITIES FUND; TEMPLETON FUNDS-TEMPLETON WORLD FUND; FRANKLIN TEMPLETON
21 VARIABLE INSURANCE PRODUCTS TRUST-FRANKLIN LARGE CAP GROWTH SECURITIES FUND;
22 AND FRANKLIN TEMPLETON INVESTMENT FUNDS-FRANKLIN US EQUITY FUND,
23
24 Plaintiffs -Appellants,
25
26 -v.- No. 14-3752
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*
Richard K. Eaton, of the United States Court of International Trade, sitting by designation.
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1 AMERICAN INTERNATIONAL GROUP, INC.,
2
3 Defendant-Appellee.
4 __________________________________________
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6 SHEILA A. SADIGHI (Thomas E. Redburn, Jr., on the brief),
7 Lowenstein Sandler LLP, Roseland, NJ, for Plaintiffs-
8 Appellants.
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10 DANIEL J. KRAMER (Audra J. Soloway, Paul A. Patterson, on
11 the brief), Paul, Weiss, Rifkind, Wharton & Garrison LLP,
12 New York, NY, for Defendant-Appellee.
13
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15 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
16 DECREED that the order of the District Court is VACATED, and REMANDED.
17 In October 2004, current and former shareholders of American International Group, Inc.
18 (“AIG”) filed a class action lawsuit in the United States District Court for the Southern District of
19 New York alleging, inter alia, that the company violated the Securities Exchange Act of 1934 by
20 fraudulently misstating its earnings between 1999 and 2004. AIG and the lead plaintiffs reached a
21 settlement agreement in July 2010 and, on February 2, 2012, the district court approved the
22 agreement and entered final judgment. Franklin U.S. Rising Dividends Fund and six other mutual
23 funds (“Plaintiffs”) opted out of that settlement and sought to pursue their claims individually
24 against AIG. After they opted out, this Court issued an opinion in Police & Fire Retirement System
25 of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013), which concluded that the
26 commencement of a class action does not toll the three-year statute of repose in the Securities Act
27 of 1933 for members of the class. Id. at 100-01. The Supreme Court granted certiorari to review
28 the decision on March 10, 2014. Pub. Emps.’ Ret. Sys. of Miss. v. IndyMac MBS, Inc., 134 S. Ct.
29 1515 (2014).
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1 On September 30, 2013, Plaintiffs filed a joint complaint in the United States District Court
2 for the District of New Jersey alleging that AIG’s fraudulent misstatements between 1999 and 2004
3 violated the Securities Exchange Act. AIG then moved to transfer the case to the Southern District
4 of New York pursuant to 28 U.S.C. § 1404(a). Plaintiffs opposed that motion arguing, in part, that
5 if “the case is transferred . . . it will immediately be dismissed as time-barred” because, under
6 IndyMac, the original class action against AIG did not toll the Securities Exchange Act’s five-year
7 statute of repose for Plaintiffs. J.A. 2711; see 28 U.S.C. § 1658. Unpersuaded, the District of New
8 Jersey (Linares, J.) granted AIG’s motion on July 29, 2014 and transferred the case to the Southern
9 District of New York (Batts, J.).
10 Once in the Southern District, Plaintiffs submitted a letter to Judge Batts requesting a pre-
11 motion conference to discuss staying the case pending the Supreme Court’s decision in IndyMac.
12 AIG opposed the request with a letter of its own, and Plaintiffs replied. On September 8, 2014, and
13 without notice to the parties affording them the opportunity to express their views, Judge Batts
14 denied Plaintiffs’ request for a stay, dismissed the case as time-barred, and entered final judgment.1
15 This appeal followed. We assume the parties’ familiarity with the underlying facts, the procedural
16 history of the case, and the issues on appeal.
17 We review a district court’s dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6)
18 de novo, “accepting all factual allegations in the complaint as true.” Absolute Activist Value Master
19 Fund Ltd. v. Ficeto, 677 F.3d 60, 65 (2d Cir. 2012). “Both the Supreme Court and the Second
20 Circuit have long held that courts may dismiss actions on their own motion in a broad range of
1
The Supreme Court later dismissed its grant of certiorari in IndyMac as improvidently
granted. Pub. Emps.’ Ret. Sys. of Miss. v. IndyMac MBS, Inc., 135 S. Ct. 42 (2014).
3
1 circumstances where they are not explicitly authorized to do so by statute.” Snider v. Melindez, 199
2 F.3d 108, 112 (2d Cir. 1999). However, “[u]nless it is unmistakably clear that the court lacks
3 jurisdiction, or that the complaint lacks merit or is otherwise defective, we believe it is bad practice
4 for a district court to dismiss without affording a plaintiff the opportunity to be heard in opposition.”
5 Id. at 113; see also Perez v. Ortiz, 849 F.2d 793, 797 (2d Cir. 1988). Failure to do so is, “by itself,
6 grounds for reversal.” Lewis v. New York, 547 F.2d 4, 6 n.4 (2d Cir. 1976).
7 We conclude that the district court erred by dismissing this case without notifying the parties
8 and, in particular Plaintiffs (who now seek to amend their complaint, to challenge the transfer from
9 New Jersey, and to demonstrate that IndyMac does not apply retroactively), of its intentions.
10 Plaintiffs arrived in the Southern District of New York only after a transfer from the District of New
11 Jersey. Because of this procedural posture, Plaintiffs neither drafted their complaint anticipating
12 litigation in the Southern District of New York, nor had the opportunity to contest the District of
13 New Jersey’s transfer decision. On both matters, litigation in the district court is essential. Under
14 Federal Rule of Civil Procedure 15(a)(2), leave to amend a pleading is within the district court’s
15 discretion and “we are accustomed to reviewing a district court’s decision whether to grant or deny
16 leave to amend, rather than making that decision for ourselves in the first instance.” Iqbal v.
17 Ashcroft, 574 F.3d 820, 822 (2d Cir. 2009) (per curiam). Similarly, once a case has been transferred
18 to this Circuit, we typically require the transferred party to make a retransfer motion “in order to
19 preserve the opportunity for review” of the transfer. SongByrd, Inc. v. Estate of Grossman, 206
20 F.3d 172, 177-78 (2d Cir. 2000). Plaintiffs’ decision to first seek a pre-motion conference on a stay
21 pending the Supreme Court’s decision in IndyMac did not forfeit these other litigating options.
22 Under these circumstances, waiting for AIG to move for dismissal or giving Plaintiffs notice of, and
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1 an opportunity to respond to, the district court’s intention to dismiss the case as time-barred, would
2 have “help[ed] the court secure a just determination” by allowing Plaintiffs “to present their best
3 arguments in opposition” to dismissal, and would have clarified the issues for appeal. Perez, 849
4 F.2d at 797. We therefore conclude that the district court erred in dismissing Plaintiffs’ claims sua
5 sponte without providing notice and an opportunity to be heard.
6 In vacating and remanding the district court’s dismissal, we need, and do not, decide whether
7 IndyMac applies retroactively to claims that arose before this Court issued the decision, or whether
8 the district court should grant a motion to amend the complaint or re-transfer the case to the District
9 of New Jersey. These matters should be addressed in the first instance by the district court. For the
10 foregoing reasons, the judgment of the district court is VACATED and REMANDED.
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12 FOR THE COURT:
13 Catherine O’Hagan Wolfe, Clerk
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