REVISED SEPTEMBER 15, 2008
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 8, 2008
No. 07-20043
Charles R. Fulbruge III
Clerk
MARK NEWBY, ET AL;
Plaintiffs
v.
ENRON CORPORATION, ET AL;
Defendants
___________________________________________________________
FLEMING & ASSOCIATES LLP
Plaintiff-Appellant
v.
ANDREW S FASTOW; BANK OF AMERICA CORP; CREDIT SUISSE
FIRST BOSTON; BARCLAYS PLC; CANADIAN IMPERIAL BANK OF
COMMERCE; MERRILL LYNCH & COMPANY INC; JP MORGAN CHASE
& CO; LEHMAN BROTHERS HOLDINGS INC; BANC OF AMERICA
SECURITIES LLC; FINANCIAL INSTITUTION DEFENDANTS; BANK OF
AMERICA N.A.; JOHN A URQUHART; JP MORGAN SECURITIES INC,
formerly known as Chase Securities Inc; MERRILL LYNCH PIERCE
FENNER & SMITH INC; PERSHING LLC; ROBERT A BELFER; NORMAN
P BLAKE, JR; RONNIE C CHAN; JOHN H DUNCAN; WENDY L GRAMM;
ROBERT K JAEDICKE; CHARLES A LEMAISTRE; JOE H FOY; JOSEPH
M HIRKO; KEN L HARRISON; REBECCA MARK-JUSBASCHE; JOHN
MENDELSON; PAULO V FERRAZ PEREIRA; FRANK SAVAGE; JEROME
J MEYER; CHARLES E WALKER; CITIGROUP INC; KRISTINA
MORDAUNT; CREDIT SUISSE FIRST BOSTON, (USA) INC; CAMPSITE
LTD; JP MORGAN SECURITIES INC; CIBC INC; CIBC WORLD MARKETS
CORP; CITIBANK NA; CITICORP NORTH AMERICA; LEHMAN
BROTHERS INC; BARCLAYS CAPITAL INC; SALOMON BROTHERS
INTERNATIONAL LTD; CITICORP; JP MORGAN CHASE; CITIGROUP
GLOBAL MARKETS LTD; CITIGROUP GLOBAL MARKETS INC; ROYAL
No. 07-20043
BANK OF CANADA; ROYAL BANK OF SCOTLAND; NATIONAL
WESTMINSTER BANK PLC; GREENWICH NATWEST LTD; GREENWICH
NATWEST STRUCTURED FINANCE INC; ROYAL BANK HOLDING;
ROYAL BK DS HOLDING; RBC DOMINION SECURITIES INC; RBC
DOMINION SECURITIES LTD; RBC HOLDINGS (USA)
Defendants-Appellees
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:01-cv-03624
Before SMITH and PRADO, Circuit Judges, and LUDLUM*, District Judge.
PRADO, Circuit Judge:
In December 2001, Enron Corporation filed for bankruptcy. Seven years
later, litigation involving the Enron collapse endures. Today’s decision presents
another chapter in that story.
I. FACTUAL AND PROCEDURAL BACKGROUND
On October 16, 2001, Enron publicly announced that it had incurred a
$683 million loss and was taking non-recurring charges of $1.01 billion after-tax
in the third quarter of 2001. That week, the Wall Street Journal published a
series of articles revealing that Enron and related entities had engaged in
various fraudulent transactions. As a result, the price of Enron’s stock
plummeted, precipitating the decline of the company.
In late 2001, the Houston law firm of Fleming & Associates (the “Fleming
Firm”) filed seven securities-related lawsuits in Texas state courts on behalf of
several hundred clients against various Enron-related defendants. Pursuant to
these suits, the Fleming Firm sought ex parte temporary restraining orders to
prevent the defendants from destroying Enron-related documents. Meanwhile,
*
District Judge of the Western District of Texas, sitting by designation.
2
No. 07-20043
the district court, which already had jurisdiction over various Enron-related
cases involving these parties as part of the Enron Multidistrict Litigation
(“MDL”) proceeding and the “Newby” consolidated cases, had already issued a
similar order against the same defendants. Based on the Fleming Firm’s
conduct in seeking ex parte orders in state court, on February 15, 2002, the
district court issued a memorandum and order enjoining the Fleming Firm from
filing any new Enron-related actions without leave of the court (the “February
15, 2002, injunction”). This court affirmed the issuance of the injunction. See
Newby v. Enron Corp., 302 F.3d 295, 302 (5th Cir. 2002) (Newby I). We held that
the district court had the power to issue a “narrowly tailored” injunction under
the All Writs Act, 28 U.S.C. § 1651, to “enjoin[] repeatedly vexatious litigants
from filing future state court actions.” Id. We noted,
The district court in this case was attempting to rein in a law firm
that represents over 750 plaintiffs . . . . The problem is Fleming’s
unjustified and duplicative requests for ex parte temporary
restraining orders, without notice to lawyers already across the
counsel table from Fleming and engaged in the prosecution and
defense of virtually identical claims in federal suits.
Id.
Pursuant to the injunction, in October 2003, the Fleming Firm filed a
motion for leave to file two Enron-related actions in state court and a motion to
lift the injunction. The district court granted the motion for leave to file suit but
denied the motion to lift the injunction. Meanwhile, on July 11, 2003, the
district court issued a scheduling order in the Newby securities class action, and
on July 5, 2006, the district court certified the class in Newby.1
1
This court subsequently ordered the decertification of the Newby class. See Regents
of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. 2007), cert.
denied, Regents of Univ. of Cal. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 128 S. Ct. 1120
(2008).
3
No. 07-20043
On October 14, 2005, the Fleming Firm moved for leave to file thirty-four
lawsuits in Texas courts on behalf of approximately 1200 clients. The proposed
defendants included several financial institutions and Enron outside officers and
directors (this group comprises the Defendants-Appellees “Financial
Institutions”).2 The Fleming Firm attached its proposed state court petitions to
its motion for leave to file suit. The state court suits would allege seven state
law causes of action: common law fraud and fraud-on-the-market, negligence,
statutory fraud, aiding and abetting liability under the Texas Securities Act,
civil conspiracy, aiding and abetting common law fraud, and negligent
misrepresentation.
The district court denied the Fleming Firm’s motion for leave to file suit.
The court determined that the statute of limitations had run for all of the
Fleming Firm’s proposed state law claims and that no tolling doctrines applied.
Therefore, the court concluded that it would be futile to grant the motion, as the
Texas courts would dismiss the state law claims as time-barred. The Fleming
Firm appeals.
II. JURISDICTION AND STANDARD OF REVIEW
This court has jurisdiction pursuant to 28 U.S.C. § 1291, as the district
court issued a final judgment denying the motion for leave to file suit. The
district court had jurisdiction under 28 U.S.C. § 1331 because the Newby case
involves federal securities law claims.
We review the district court’s actions pursuant to the injunction it issued
for an abuse of discretion. See Newby I, 302 F.3d at 301. We review de novo
underlying questions of law, such as whether the statute of limitations has run
2
The Fleming Firm has settled this case with some of the Defendants-Appellees, and
this court has dismissed those parties from this case. Although many financial institutions are
part of that settlement, for ease we still refer to the remaining Defendants-Appellees as the
“Financial Institutions.”
4
No. 07-20043
or whether equitable tolling applies. See In re Hinsley, 201 F.3d 638, 644 (5th
Cir. 2000); FDIC v. Dawson, 4 F.3d 1303, 1308 (5th Cir. 1993).
III. DISCUSSION
A. Statutes of Limitations
The Fleming Firm seeks to bring seven causes of action in state court. The
proposed state law claims for common law fraud and fraud-on-the-market (Count
I), statutory fraud (Count III), and aiding and abetting common law fraud
(Count VI) all have a four-year statute of limitations. TEX. CIV. PRAC. & REM.
CODE ANN. § 16.051 (common law fraud); id. § 16.004(a)(4) (statutory fraud); id.
§ 16.051 (aiding and abetting common law fraud). The proposed claims for
aiding and abetting under the Texas Securities Act (Count IV) have a three-year
statute of limitations. TEX. REV. CIV. STAT. ANN. art. 581-33(H). The claims for
negligence (Count II), civil conspiracy (Count V), and negligent
misrepresentation (Count VII) all have a two-year statute of limitations. TEX.
CIV. PRAC. & REM. CODE ANN. § 16.003 (negligence); Stevenson v. Koutzarov, 795
S.W.2d 313, 318 (Tex. App. 1990) (civil conspiracy); TEX. CIV. PRAC. & REM. CODE
ANN. § 16.003, Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221
n.9 (Tex. 2003) (negligent misrepresentation). Given that the Fleming Firm’s
clients had notice of their claims on October 17, 2001, the longest statute of
limitations at issue here (four years) would have expired on October 17, 2005,
unless a tolling doctrine applies.
The Fleming Firm submitted its motion for leave to file the state court
suits on October 14, 2005. The district court held that as of this date, without
tolling, the statutes of limitations would bar all but the claims with a four-year
limitations period. Further, the court concluded that without tolling, Texas law
would also bar the claims that have a four-year statute of limitations because
the Fleming Firm did not file an original petition with a state court clerk
pursuant to Texas Rule of Civil Procedure 22 before the limitations period
5
No. 07-20043
expired. The district court noted that under its Local Rule 7.3, the motion for
leave to file suit would not be ripe for a ruling until twenty days after the
Fleming Firm filed the motion, or until November 3, 2005, meaning that the
Fleming Firm could not have filed the state court suits within the statute of
limitations even if the court had granted leave.3 Accordingly, the court held that
granting leave to file any of the proposed claims would be futile.
Contrary to the Fleming Firm’s suggestion, the district court did not
violate any notions of federalism by determining whether a Texas state court
would dismiss the Fleming Firm’s suits based on the state’s statute of
limitations. The district court has jurisdiction over a multitude of claims under
the MDL and is intimately involved in the many facets of the litigation
surrounding the Enron collapse. All of the parties in the Fleming Firm’s
proposed state law claims are also before the district court in similar
proceedings. It was not outside of the scope of the district court’s duties to
determine if the Texas courts would immediately dismiss the proposed state law
claims involving parties already before the district court. Further, federal courts
often consider issues involving a state statute of limitations. See, e.g., Vaught
v. Showa Denko K.K., 107 F.3d 1137, 1147 (5th Cir. 1997) (analyzing the Texas
rule for tolling the state statute of limitations when the plaintiff also was
involved in a federal class action).
In determining that it had the authority to deny the motion for leave based
on the futility of the state law claims, the district court analogized to the rules
for granting leave to file a motion to amend under Federal Rule of Civil
Procedure 15(a). That rule states that a court should freely give leave to amend
a pleading “when justice so requires.” FED. R. CIV. P. 15(a)(2). However, a court
3
The Southern District of Texas’s Local Rule 7.3 states, “Opposed motions will be
submitted to the judge twenty days from filing without notice from the clerk and without
appearance by counsel.”
6
No. 07-20043
need not grant leave to amend when the filing would be futile because the
proposed claims are time-barred. See FDIC v. Conner, 20 F.3d 1376, 1385 (5th
Cir. 1994).
The Fleming Firm argues that the district court incorrectly failed to
incorporate the “relation-back” principle of Rule 15(c) into its analysis when the
court used Rule 15(a) as an analogy. Rule 15(c) states that an amendment to a
pleading relates back to the date of the original pleading when, inter alia, “the
amendment asserts a claim or defense that arose out of the conduct, transaction,
or occurrence set out—or attempted to be set out—in the original pleading.”
FED. R. CIV. P. 15(c)(1)(B). The Fleming Firm asserts that the district court
should have determined that the proposed actions would be timely because the
Fleming Firm attached the petitions to its motion for leave to file suit, and thus
they would relate back to the date of filing (October 14, 2005, which was three
days before the statute of limitations expired for some of its claims). The
Fleming Firm also contends that the Texas state courts would apply Texas’s
analogous “relation-back” rule for motions to amend given that the federal court
denied the motion for leave on the basis of the rules regarding motions to amend.
See TEX. CIV. PRAC. & REM. CODE ANN. § 16.068. Finally, the Fleming Firm
argues that the filing of its motion for leave to file suit, accompanied by the
thirty-four proposed petitions, served the purpose of a statute of limitations
because it gave the defendants notice of the claims within the limitations period.
See, e.g., Moore v. Indiana, 999 F.2d 1125, 1131 (7th Cir. 1993) (“As a party has
no control over when a court renders its decision regarding the proposed
amended complaint, the submission of a motion for leave to amend, properly
accompanied by the proposed amended complaint that provides notice of the
substance of those amendments, tolls the statute of limitations, even though
technically the amended complaint will not be filed until the court rules on the
motion.”).
7
No. 07-20043
Assuming, arguendo, that Rule 15(a) applies in this situation, the district
court was correct to conclude that it would be futile to grant leave for the
Fleming Firm to file the state court actions that have a two-year or three-year
statute of limitations. That is, the state court would rule that these claims are
time-barred, even with the benefit of a relation-back doctrine, because the
Fleming Firm did not file its motion for leave to file suit before these statutes of
limitations had expired.
The district court was incorrect, however, in denying the motion for leave
to file suit for the claims that have a four-year statute of limitations. The court
did not cite any authority for using its own local rules to dictate the state’s filing
date for purposes of Texas’s relation-back principle. In effect, the district court
was requiring the Fleming Firm either to file a motion for leave at least twenty
days before the statute of limitations expired—or perhaps even earlier if the
district court did not rule on the motion in time—or to violate the injunction by
filing in state court within the limitations period. Cf. Schillinger v. Union Pac.
R.R. Co., 425 F.3d 330, 334 (7th Cir. 2005) (“The logic underlying [using the date
of filing for limitations purposes as opposed to the date the court rules on the
motion] is that defendants are on notice of the amendment when the motion is
filed and it would be unfair to plaintiffs if a trial court waited months or years
to rule.”). Thus, the district court should have allowed the Texas state courts to
decide whether the filing of the state petitions relates back to the filing of the
motion for leave to file suit (for the claims that have a four-year statute of
limitations), meaning that these claims might not be futile. Because the
Fleming Firm sought to file these claims before the statute of limitations
expired, it is up to the state court to determine how to proceed. In sum, the
district court improperly denied the motion for leave to file the claims involving
common law fraud and fraud-on-the-market (Count I), statutory fraud (Count
III), and aiding and abetting common law fraud (Count VI), because these claims
8
No. 07-20043
all have a four-year statute of limitations, and the Fleming Firm submitted its
motion for leave to file suit before that limitations period expired.
B. Tolling
As discussed above, the district court properly denied the motion for leave
for the claims that have a two-year or three-year statute of limitations unless a
tolling doctrine applies. The Fleming Firm posits three possible tolling
doctrines. First, the Fleming Firm argues that the district court’s scheduling
order in the Newby MDL tolled the limitations period for its proposed claims.
Second, the Fleming Firm argues that the February 15, 2002, injunction itself
tolled the statute of limitations because it prevented the Fleming Firm from
exercising its clients’ legal remedies. Finally, the Fleming Firm asserts that the
tolling doctrine from American Pipe & Construction v. Utah, 414 U.S. 538 (1974)
applies. After a careful review, it is apparent that none of the Fleming Firm’s
arguments have merit.
1. Newby MDL Scheduling Order
In its July 11, 2003 scheduling order in the Newby MDL case, the district
court stated that “all other suits [except for those brought by plaintiffs who had
decided to proceed under the Newby consolidated amended complaints] shall be
stayed as to the filing of amended pleadings and/or responsive pleadings until
the motions for class certification in Newby . . . are resolved by the Court, but
discovery may proceed.” The district court did not rule on the Newby class
certification until July 5, 2006. The Fleming Firm argues that the district court
admitted in its December 12, 2006 order involving other claims not subject to
this appeal that it had intended to toll the statute of limitations for all claims in
its July 11, 2003 scheduling order. See In re Enron Corp., No. H-01-3624-CV, et
al., 2006 WL 3716669, at *7 (S.D. Tex. Dec. 12, 2006) (“In issuing the July 11,
2003 scheduling order, . . . this Court fully intended to toll the statute of
limitations from running in the Newby consolidated and coordinated cases from
9
No. 07-20043
entry of the order until it certified the class in Newby and gave plaintiffs in the
consolidated and coordinated cases a schedule to opt out and to file motions for
leave to amend . . . .”).
In making its argument, however, the Fleming Firm misconstrues the
district court’s July 11, 2003 scheduling order. In that order, the district court
was contemplating cases in which the plaintiffs had already filed a complaint.
In particular, the court stated that its scheduling order operated to stay the
cases as to the filing of “amended pleadings and/or responsive pleadings,” not
initial complaints. The December 12, 2006 order did not state anything to the
contrary, simply noting that the July 11, 2003 order tolled the statute of
limitations from running in the Newby consolidated and coordinated cases. Id.
Thus, the district court intended to stay the cases in which the plaintiffs had
already filed a complaint, not toll the statute of limitations for claims not yet
before the court. Accordingly, the district court did not toll the Fleming Firm’s
proposed state law claims, which the Fleming Firm had not yet filed.
2. February 15, 2002 Injunction
The district court’s February 15, 2002 injunction, preventing the Fleming
Firm from filing state law claims without leave of the court, also did not toll the
statute of limitations. Contrary to the Fleming Firm’s argument, this order did
not prevent the Fleming Firm from exercising its clients’ legal remedies. See
Jackson v. Johnson, 950 F.2d 263, 265 (5th Cir. 1992) (stating that “where a
person is prevented from exercising his legal remedy by the pendency of legal
proceedings, the time during which he is thus prevented should not be counted
against him in determining whether limitations have barred his right”). The
injunction simply required the Fleming Firm to take another step and seek
judicial approval before proceeding in state court. The Fleming Firm still could
bring its claims in an attempt to vindicate its clients’ legal rights, so long as it
first filed a motion for leave to file suit. In fact, this is exactly what occurred in
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No. 07-20043
October 2003 when the Fleming Firm successfully moved for leave to file two
actions in state court. Therefore, this argument is without merit.
3. American Pipe Tolling
In American Pipe, the Supreme Court held 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.” 414 U.S. at 554. The policy behind this decision
is that a contrary rule would induce potential class members to file protective
motions to intervene or join in the event that the court denied class certification,
simply to preserve their claims. See id. at 553-54. The Court clarified the scope
of American Pipe in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350 (1983),
ruling that a class action tolls a statute of limitations for all asserted members
of the class, not just potential intervenors.
The Texas courts generally have adopted the American Pipe tolling
doctrine for state class actions. In Grant v. Austin Bridge Construction Co., 725
S.W.2d 366, 370 (Tex. App. 1987), the Texas Court of Appeals held that “even
though the statute of limitations on a class member’s individual cause of action
would expire during the pendency of a class action, the filing of the class action
suspends the applicable statute of limitations as to all purported members of the
class.” However, the Texas courts have not extended this holding to allow a
federal class action to toll a state statute of limitations. See Bell v. Showa Denko
K.K., 899 S.W.2d 749, 757-58 (Tex. App. 1995) (refusing to apply American Pipe
tolling to a state law mass personal injury suit based on a federal class action).
The court in Bell distinguished the decision in Grant in part by noting that the
state rules for tolling are based on state, not federal, law. See id. at 757 (“We do
not agree that American Pipe operates to toll our state statute of limitations.”).
This court has summarized Texas’s approach to the American Pipe tolling
doctrine as follows:
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No. 07-20043
A state (Texas) class action that raises property damage-type claims
tolls a Texas statute of limitations pending a certification ruling.
And, consistent with our understanding of this Texas tolling rule, it
is unclear whether, under this rule, a federal class action filed in
Texas or in any other State would ever toll a Texas statute of
limitations, regardless of the type of claims raised.
Vaught v. Showa Denko K.K., 107 F.3d 1137, 1147 (5th Cir. 1997). But see Prieto
v. John Hancock Mut. Life Ins. Co., 132 F. Supp. 2d 506, 518 (N.D. Tex. 2001)
(surmising that Texas courts would “interpret the class action tolling rule of
Grant and Bell as extending to all property damage claims . . . regardless of the
forum in which the class action was filed”); In re Norplant Contraceptive Prods.
Liab. Litig., 173 F.R.D. 185, 189 (E.D. Tex. 1997) (holding that a federal class
action would toll the state statute of limitations when the class action gives the
defendant “fair notice of the type and potential number of claims against it”).
Here, the Fleming Firm contends that the federal Newby class action
tolled all state law claims based on American Pipe. This is a weak argument
given this court’s prior language in Vaught and the Texas Court of Appeals’
holding in Bell. In Vaught, we questioned whether Texas would “ever” allow
tolling for a state claim based on a federal class action. See Vaught, 107 F.3d at
1147. Our doubt was premised, in part, on Bell, where the Texas court did not
allow a federal class action to toll the state statute of limitations and made clear
that the state tolling rule differs from the federal rule. See Bell, 899 S.W.2d at
757-58. Additionally, Grant does not apply, because that case involved whether
a Texas class action would toll a Texas individual action. See Grant, 725 S.W.2d
at 370. Therefore, the district court correctly concluded that, based on our
understanding of Texas law, the Texas courts likely will not extend American
Pipe tolling to this situation. Nevertheless, the Financial Institutions are free
to pursue this argument with the Texas courts, so the state courts can clarify the
reach of Texas’s tolling rules.
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No. 07-20043
C. Scope of Injunction
In another attempt to save all of its proposed state law claims, the Fleming
Firm argues that the district court exceeded the purposes of the February 15,
2002 injunction by denying its motion for leave. Specifically, the Fleming Firm
asserts that we had previously constrained the district court’s actions when we
affirmed the issuance of the injunction. See Newby I, 302 F.3d at 302. In that
case, we noted that the purpose of the injunction was to rein in the Fleming
Firm’s conduct in making “unjustified and duplicative requests for ex parte
temporary restraining orders” in a state court case when the same lawyers were
already opposing each other in similar federal suits. Id. The Fleming Firm
posits that when we reminded the district court that it had “a duty to consider
[the Fleming Firm’s] requests for leave to file suit in state court,” we envisioned
that the district court would grant leave so long as the proposed state court suits
would not produce the same type of vexatious conduct. In sum, the Fleming
Firm argues that the district court’s action here should have been “purely
ministerial” regarding whether the Fleming Firm’s proposed state law suits
would violate the purpose of the injunction, that is, to stop the filing of ex parte
orders.
However, the Fleming Firm reads too much into our opinion in Newby I.
We never directed the district court to consider only whether a future lawsuit
would involve ex parte orders when deciding whether to grant leave. Id. at 303.
Instead, we merely stated that the district court had a duty to consider any
requests for leave and could not deny leave solely based on the Fleming Firm’s
desire to avoid federal jurisdiction (by tailoring its suit in a way that would avoid
the preemptive effects of the Securities Litigation Uniform Standards Act). See
id. Nowhere did we indicate that the district court had to contemplate the initial
catalyst for the injunction when considering a motion for leave. Constraining
the district court to the original purposes of the injunction would give the
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No. 07-20043
injunction little effect, as it would prevent the district court from stopping other
vexatious conduct that is not precisely the same as that listed in the injunction.
Our decision in Newby I did not go this far. As such, the Fleming Firm’s
argument that the district court exceeded the scope of the February 15, 2002
injunction is without merit.
D. SLUSA Dismissal
The Financial Institutions present an alternative argument, suggesting
that this court should affirm the district court in its entirety because the
Securities Litigation Uniform Standards Act (SLUSA) would preempt all of the
proposed state law claims. SLUSA provides,“No covered class action based upon
the statutory or common law of any State or subdivision thereof may be
maintained in any State or Federal court by any private party alleging” a
securities claim. 15 U.S.C. § 77p(b). The Act defines a “covered class action” as,
inter alia, “any group of lawsuits filed in or pending in the same court and
involving common questions of law or fact, in which (I) damages are sought on
behalf of more than 50 persons; and (II) the lawsuits are joined, consolidated, or
otherwise proceed as a single action for any purpose.” Id. § 77p(f)(2)(A)(ii). If a
state law case is a “covered class action” under SLUSA, it is subject to removal
and subsequent dismissal as preempted. Id. § 77p(c).
The Financial Institutions argue that the thirty-four proposed lawsuits
constitute a “covered class action” because, in the aggregate, they assert claims
on behalf of more than fifty persons, and the lawsuits would proceed as a single
action in the state court. The Financial Institutions note that the thirty-four
proposed petitions are identical except for the plaintiffs’ names, and the
proposed suits each include fewer than fifty plaintiffs solely to defeat preemption
under SLUSA. The Financial Institutions speculate that if the Fleming Firm
were to file the thirty-four petitions in state court, the Texas courts would
consolidate them under Texas Rule of Civil Procedure 174, which would then
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No. 07-20043
allow the Financial Institutions to remove the cases pursuant to SLUSA. The
Financial Institutions also assert that the cases still would “otherwise proceed
as a single action” for purposes of discovery even if the Texas courts do not
consolidate the cases.
However, the Financial Institutions’ argument falls apart when
recognizing that a party is allowed to tailor a suit to avoid federal jurisdiction.
See Newby I, 302 F.3d at 303. As we stated when affirming the district court’s
February 15, 2002 injunction, “the district court cannot predicate future denials
of leave solely upon [the] Fleming[] [Firm’s] desire to avoid the reach of
[SLUSA].” Id.; see also S. REP. NO. 105-182 (1998), 1998 WL 226714, at *7-8
(noting that Congress did not intend SLUSA preemption “to prevent plaintiffs
from bringing bona fide individual actions simply because more than fifty
persons commence the actions in the same state court against a single
defendant”). Additionally, the Financial Institutions’ premise rests on an
assumption that the Texas courts will consolidate the cases, but there is no
evidence that the Texas courts will order consolidation. Predicting that the
Texas courts necessarily will consolidate would infringe upon notions of
federalism. See, e.g., Newby I, 302 F.3d at 303 (“The parallel exercise of state
and federal judicial power is inherent in our government of dual sovereignty.”).
The Texas courts should be allowed to decide in the first instance how to manage
their dockets with regard to the Fleming Firm’s claims that are not time-barred.4
4
This case is unlike the situation the district court faced in its December 12, 2006 order,
where the district court dismissed nine state law claims that the Fleming Firm had filed
because they constituted a “covered class action” under SLUSA. See In re Enron, 535 F.3d 325,
333 (5th Cir. 2008). In that case, the Fleming Firm previously had asserted its claims in state
court and then (after removal based on bankruptcy jurisdiction and consolidation in the federal
court) attempted to amend its federal complaint to add these causes of action. See id. We
agreed with the district court that SLUSA preempted the state law claims. Id. at 342. In
contrast, here the Fleming Firm has not yet brought its claims in either state or federal court,
meaning that the suits have not been “filed” and are not “pending” in any court. See 15 U.S.C.
§ 77p(f)(2)(A)(ii); see also id. § 78bb(f)(5)(F) (“Nothing in this paragraph shall be construed to
affect the discretion of a State court in determining whether actions filed in such court should
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No. 07-20043
Therefore, we reject the Financial Institutions’ alternative argument for
affirming.
IV. CONCLUSION
The district court properly denied the motion for leave to file suit for the
proposed state law claims that have a two-year or three-year statute of
limitations. No tolling doctrine applies. Therefore, filing these claims would be
futile because the Texas courts would dismiss the lawsuits as time-barred.
However, the district court incorrectly denied the motion for leave to file suit
with respect to the claims that have a four-year statute of limitations. The
Texas courts should be allowed to decide whether, under Texas law, the filing of
the state court petitions relates back to the filing of the motion for leave to file
suit. As such, we affirm in part, reverse in part, and remand to the district court
to grant the motion for leave to file the claims for common law fraud and fraud-
on-the-market, statutory fraud, and aiding and abetting common law fraud.
AFFIRMED IN PART; REVERSED IN PART; REMANDED.
be joined, consolidated, or otherwise allowed to proceed as a single action.”).
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