Opinion
Civil Action No. 01-3676 Section "N"
February 15, 2002
ORDER AND REASONS
Before the Court are the following motions, to wit: (1) a motion to remand filed on behalf of plaintiffs, J. Charles Collins, Jr. and Freda Koch Collins (the Collins); and (2) a motion for summary judgment filed by the removing defendant Deposit Guaranty National Bank of Louisiana (Deposit Guaranty or "the Bank"). The motions were both formally opposed. Deposit Guaranty also filed a supplemental memorandum in support of its motion for summary judgment.
Plaintiffs filed the instant removed action against Merrill Lynch and others, approximately fourteen years ago in the Civil District Court for the Parish of Orleans, State of Louisiana, under Docket Number 88-18320 "K", and they challenge Deposit Guaranty's removal as untimely, inter alia.
Deposit Guaranty submits that pursuant to Title 15 U.S.C. § 78aa, the federal court is vested with exclusive jurisdiction over the plaintiffs' claims against it. Deposit Guaranty argues that it first became apparent that plaintiffs intended to rely on the SEC Regulation 14E-1(a) to establish, in part, their state law claims against the Bank, upon receipt of the plaintiffs' November 30, 2001 brief opposing its second motion for summary judgment filed in the state court proceeding.
For the reasons discussed below, the Court GRANTS the plaintiffs' Motion to Remand, and thus does not address Deposit Guaranty's motion for summary judgment.
I. PROCEDURAL AND FACTUAL BACKGROUND
Plaintiffs inherited their father's interest in Jefferson Guaranty Bank Trust in Jefferson Parish. As partial consideration for their buyout by Jefferson Guaranty Bank and Trust (JGB), the Collins children received Class A and Class B bank debentures. J. Charles Collins, Jr. and Freda Koch Collins, as legal successors of their brother, the late Frank F. Collins, allege that the Bank wrongfully honored an irrevocable tender by Merrill, Lynch, Pierce, Fenner Smith, Inc. ("Merrill Lynch") of certain unsecured debentures issued by the Bank and held by Merrill Lynch in its own name as the undisclosed agent for Frank F. Collins. J. Charles Collins, Jr. had power of attorney over Frank's account and had consolidated Frank's holdings in a Merrill Lynch account. Thus, at all pertinent times, Merrill Lynch was the nominal agent on debentures owned by Frank.
During the pendency of the lawsuit, Freda Collins died. Barry Ferguson, Administrator of the Estate of Freda Collins was substituted as party plaintiff for Freda Collins. See Fourth Supplemental and Amending Petition, filed March 15, 2000.
At issue in the instant litigation is the alleged "wrongful redemption" of those unsecured "Class B, Series 1, 11% Debentures Due 1988," by the Deposit Guaranty, which merged with and was substituted for defendant JGB. The Debentures were issued by JGB on April 3, 1984, bearing certificate numbers 00349 through 002356. Thereafter, Merrill Lynch credited the aforesaid debentures to a securities account established in the name of Frank F. Collins.
See "Debentures," issued on April 3, 1984 by Jefferson Guaranty Bank (JGB) and payable to "Merrill Lynch Pierce Fenner Smith or registered assigns" in the total face amount to $132, 478.25 [attached as Exhibit "A" in globo to Deposit Guaranty's Opposition to Motion to Remand]; Merrill Lynch Securities Receipt from Frank F. Collins in the amount of $132, 478.25 [attached as Exhibit "C" to Deposit Guaranty's Opposition to Motion to Remand]; and Deposition of J. Charles Collins, at p. 77 [Exhibit "B" to Deposit Guaranty's Opposition to Motion to Remand]. lamenting the fact, Charles Collins testified that the certificates were issued to the Merrill Lynch instead of in his brother's (Frank's) name. Id.
Approximately three years later on September 18, 1987, the Bank issued an "Offer to Purchase," and on September 21, 1987 Merrill Lynch, registered owner of the subject Debentures, received the offer. Considering the offer, and allegedly without the authority of Frank F. Collins or J. Charles Collins, Jr., who had power of attorney over Frank's account, Merrill Lynch irrevocably tendered the Debentures for redemption by the Bank at 25% of face value.
See JGB's September 18, 1997 Offer To Purchase Debentures and Capital Notes issued to holders [attached as Exhibit "D" to Deposit Guaranty's Opposition to Motion to Remand].
See General Power of Attorney for J. Charles Collins, Jr., executed April 23, 1982 [attached as Exhibit "B" to Deposit Guaranty's Opposition to Motion to Remand].
See Transmittal to JGB in globo, dated October 9, 1987; and Transcript of January 10, 1996 NASD Arbitration Proceeding No. 95-1819 (NASD Transcript), in the matter of J. Charles Jr., et al v. Merrill Lynch Pierce Fenner Smith, Inc., et al, at ppl 32-33 [attached as Exhibits "F" and "G", respectively to Deposit Guaranty's Opposition to Motion to Remand].
The Collins family prosecuted their claims against Merrill Lynch in an arbitration before the National Association of Securities Dealers (NASD). In the arbitration, the Collins family claimed, inter alia, that is was unfair for Merrill Lynch, "who had [their] account since World War I [1916 or 1917]" to treat them in that way, taking the position that it was "theft," particularly since Charles Collins notified Merrill Lynch by registered letter dated October 15th, 1987 to cancel the tender of Class B Debentures immediately. When the Debentures were irrevocably tendered by the registered owner Merrill Lynch, they did not show on their face that they had been endorsed by Merrill Lynch to Collins and did not show that they had been previously presented to the Bank for registration of a change in ownership, and thus remained registered in Merrill Lynch's name. The Bank honored the tender, issuing a Bank check payable to Merrill Lynch in the amount of $33, 119.75 as payment on the Debentures pursuant to the terms of the tender offer. On February 6, 1996, an arbitration award issued in the Collins' favor and they recovered an arbitration award in the amount of $121, 550.00 ( i.e., $99, 359.12 in principle, together with accrued interest due under the Debentures, but no punitive damages or attorney's fees).
NASD Transcript, at pp. 16-33.
See Copy of Bank Draft to Merrill Lynch in the full amount of $33, 119.75 as "payment in full" [attached as Exhibit "H" to Deposit Guaranty's Opposition to Motion to Remand].
See Arbitration Decision, issued February 6, 1996 in connection with NASD Case Number 95-01819 (finding R. Jackson Little and Merrill Lynch jointly and severally liable; and Satisfaction of Award in connection with NASD Case Number 95-01819 [attached as Exhibits "N" and "O" to Deposit Guaranty's Opposition to Motion to Remand].
The allegations in the removed action against Deposit Guaranty are that the Bank attempted to and did, in fact, take advantage of their knowledge that Frank Collins' Debentures were held in a Merrill Lynch account and executed on the tender of the Debentures to gain a financial advantage in the Bank buy-out. On September 7, 2001, prior to removal of the cause, Deposit Guaranty filed a second motion for summary judgment in the state court proceeding based upon La.Rev.Stat. § 10:8-207, arguing that the Bank had the unqualified right, obligation and absolute legal privilege under Louisiana Investment Securities Law (LISL) to honor the tender of the Debentures by Merrill Lynch (registered owner) — i.e., "the person exclusively entitled . . . to exercise all rights and powers of [the] owner" of the debentures. Deposit Guaranty highlighted the fact that the Debentures were "certified securities in registered form" governed by Louisiana Investment Securities Laws (LISL), citing La. Rev. Stat. § § 10:8-101, 102(1)(a), (c), (d) and 106.
See Deposit Guaranty's Motion for Summary Judgment filed Civil District Court for the Parish of Orleans, Docket No. 88-18320 at p. 9 (citing La.Rev.Stat. § 10:8-207(1) and 8-404(1).
Prior to filing the subject Notice of Removal, the captioned matter had been pending in Civil District Court for the Parish of Orleans against Deposit Guaranty for approximately thirteen (13) years since January 23, 1989. Since the inception of the suit against the Bank, plaintiff has alleged that the Bank's payment to Merrill Lynch on the unauthorized tender of the JGB Debentures for less than full value pursuant to the offer for purchase did not discharge the obligation of JGB to pay the full amount of these JGB debentures to Frank F. Collins or his successors.
See Second Amended Petition filed January 23, 1989 in Civil District Court for the Parish of Orleans under Docket No. 88-18320, in the matter entitled J. Charles Collins, et al v. Merrill Lynch, et al [Federal Record, Volume I].
See Second Amended Petition at paragraph 12.1 [Fed.Rec., Vol. I].
On August 5, 1992, the Bank filed a peremptory exception of no right of action in the state court action noting the plaintiffs' allegation that JGB had knowledge of Merrill Lynch's unauthorized tender, and all of the facts which allegedly caused the damages to Frank Collins took place prior to his death on November 7, 1987, which predated the Judgment of Possession (August 18, 1998). JGB argued that the proper party plaintiff was the succession of representative and not the plaintiffs, J. Charles and Freda Collins.
See JGB's Memorandum in Support of Exception of No Right of Action [Fed.Rec., Vol.I].
The Bank was copied on correspondence issued by the NASD's counsel chastising Mr. Collins regarding his efforts ( i.e., his Motion to Compel) to depose two of its directors and a supervisor of examiners, noting that to the extent plaintiff sought information relative to past or ongoing investigations carried out by the NASD, such information was protected by the law enforcement privilege. On September 2, 1984, plaintiffs filed a pleading entitled "Statement Citation of Authorities" in support of the their Motion to Compel depositions of NASD directors and JGB employees. That pleading, faxed directly to the Bank's counsel on September 2, 1994, and argued the following:
See August 15, 1994 Facsimile Transmission from NASD's Washington D.C. Office dated August 15, 1994, with copies sent to counsel for the Bank, inter alia [Fed.Rec. Vol. I].
I. Plaintiffs were the victims of the theft of their securities resulting from a conspiracy to defraud them by Merrill Lynch and Jefferson Guaranty Bank.
II. This theft was reported to NASD, a trade association of which Merrill Lynch is a member.
III. NASD took no action against Merrill Lynch or its employees although it had been fully informed of the danger to the public of the theft of their securities by powerful entities such as Merrill Lynch, Jefferson Guaranty Bank and its owners Royal Windsor Holding Corporation.
See Plaintiffs' Statement in Support and Citation of Authorities filed in connection with his Motion "to Compel [Fed.Rec., Vol. I].
JGB filed interrogatories and requests for production of documents addressed to the plaintiffs. On March 12, 1997 plaintiffs responded to JGB's Request for Production of Documents, advising the Bank that at trial in support of their allegations against the bank, they may use both "S.E.C. REG. 14E" and the "Transcript of the NASD Arbitration." See Plaintiffs' March 12, 1997 Response to JGB's Request for Production of Documents, at items 8 and 49 [Fed.Rec., Vol. I]. On July 30, 1998, new counsel substituted for the Bank, following which Deposit Guaranty deposed Charles Collins and filed the Bank's motion for summary judgment, alleging several grounds for dismissal as a matter of law, to wit: (1) the plaintiffs' claims had prescribed; and (2) that satisfaction of the NASD Award by Merrill Lynch and acceptance of payment by the plaintiffs sufficed to extinguish any and all obligations flowing from the tender of Class B debentures. See Memorandum in Support of Motion for Summary Judgment filed in the state court action in March, 1999 (attaching the January 10, 1996 Arbitration Hearing, the February 1, 1996 NASD Award and Satisfaction of Award Exhs "1", "8" and "9")[Fed.Rec., Vol. I].
Via reply to plaintiffs' opposition, Deposit Guaranty argued that the allegations against the Bank in the state court action were identical to the claims pursued against Merrill Lynch in the NASD Arbitration. See Reply Memorandum Further in Support of Motion for Summary Judgment, filed in June of 1999. Additionally, Deposit Guaranty argued that plaintiffs were collaterally estopped from re-litigating issues involved in the tender in the state court proceeding.
It is clear on the face of pleadings, motions, documents and papers filed by plaintiffs in the state court proceeding long before the November 30, 2001 opposition to the Bank's second motion for summary judgment, that the plaintiffs apprised the Bank of their position relative to S.E.C. Regulation 14E and raised the issue of "whether the tender offer was legal in the first place." Plaintiffs' case against the Bank concerns the alleged wrongful conversion of Debentures. Suffice it to say, the plaintiffs' November 30, 2001 Memorandum in opposition to the Bank's second Motion for Summary Judgment was not the first motion or document which indicated that plaintiffs also intended to adduce evidence of an unauthorized tender, and, in so doing, may refer to SEC Regulation 14E-1(a) and/or Section 14(e). It was old news.
See Plaintiffs' November 30, 2001 Opposition to Guaranty Bank's Motion for Summary Judgment, at p. 4 [Fed.Rec., Vol. II].
It should have come as no surprise when plaintiffs again argued in the November 30, 2001 Opposition Memorandum that the circumstances under which the tender went forward were not legal and in violation of SEC rules. See Plaintiffs' Memorandum in Opposition to Motion for Summary Judgment, filed November 30, 2001, at pp. 2, 4 [attached as Exhibit "P" to Deposit Guaranty's Opposition to Motion to Remand].
II. ANALYSIS
Generally, the remand of a case that has been removed to federal court is governed by statutory provisions found at 28 U.S.C. § 1441(c) and 1447(c). Under these provisions, the district court has authority to remand a case under the following circumstances: 1) it has discretion to remand state law claims that were removed along with one or more federal claims; 2) it must act on a timely motion to remand based on a defect in the removal procedure; and 3) it must remand a case of which it has no subject matter jurisdiction. See Buchner v. F.D.I.C., 981 F.2d 816, 819 (5th Cir. 1993) (noting that no other authority to remand a case is established by statute, and only one additional jurisprudence authority for discretionary remand exists).
See Carnegie-Mellon University v. Cohill, 484 U.S. 343, 357, 108 S.Ct. 614, 623, 98 L.Ed.2d 720 (1988)("A district court has discretion to remand to state court a removed case involving [only] pendent claims upon proper determination that retaining jurisdiction over the case would be inappropriate.").
The plaintiff is the master of his complaint and, as such, a "[a] determination that a cause of action presents a federal question depends upon the allegations of the plaintiffs' well-pleaded complaint." When the plaintiff has a choice between federal and state laws claims, he may choose to proceed in state court "on the exclusive basis of state law, thus defeating the defendant's opportunity to remove." Thus, to support removal, the defendant must show a federal right is an essential element of the plaintiffs cause of action.
Carpenter v. Wichita Falls Independent School District, 44 F.3d 362 366 (5th Cir. 1995).
The Securities Exchange Act of 1934 was the written response to investor mistrust of the securities markets occasioned by the collapse of the stock market in 1928. See Ernst Ernst v. Hochfelder, 425 U.S. 185, 194-195, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) (setting forth legislative history of the 1933 and 1934 Acts). "The Securities Act of 1933 (1933 Act), 48 Stat. 74, as amended, 15 U.S.C. § 77a et seq. was designed to provide investors . . . protect[ion] . . . against fraud through full disclosure of material information concerning the sale of particular securities and, through the imposition of specified civil liabilities, to promote ethical standards of honesty and fair dealing. Id. at 195, 96 S.Ct. 1375. The 1934 Act created the Securities and Commission and the its purpose was to prevent the manipulation of stock prices through regulation of the securities, exchanges and over-the-counter markets. Id. The Commission had a full compliment (i.e., "an arsenal") of flexible enforcement powers. Id. States, likewise, enacted "blue sky legislation" which prohibited fraud in connection with an issuer's sale of securities to an investor.
Carpenter, 44 F.3d at 366.
See id
The burden of establishing subject matter jurisdiction is placed upon the party seeking removal. Willy v. Coastal Corporation, 855 F.2d 1160, 1164 (5th Cir. 1988). Removal raises significant "federalism concern" and must be strictly construed. Id. The right to remove a case from state to federal court derives solely from the statutory grant of jurisdiction in 28 U.S.C. § 1441, which provides in pertinent part that:
[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.28 U.S.C. § 1441(a). In the case at bar, the propriety of removal depends upon the existence of federal question jurisdiction pursuant to 28 U.S.C. § 1331.
Whereas here, the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable. See 28 U.S.C. § 1446(b) (excepting cases removed on the basis of § 1332, which may not be removed at all more than one year after the commencement of the action).
Deposit Guaranty submits removal is proper citing the exclusivity of federal jurisdiction pursuant to § 78aa, in light of the plaintiffs' most recently filed pleading in state court alleged that the Bank's redemption of the Debentures was voided because it was made pursuant to an offer of purchase that violated SEC 14E-1(a). 15 U.S.C. § 78aa vests exclusive jurisdiction in the federal court over any claim that asserts a violation of, or seeks to enforce a duty created by, the Exchange Act or any rule or regulation promulgated thereunder (such as SEC Regulation 14E-1(a)). Because Deposit Guaranty filed its notice of removal more than thirty (30) days ( i.e., years) after receipt of the first paper from which the existence of a removable federal question could be ascertained, its removal of the instant case was improper ( i.e., untimely).
Notwithstanding the untimely filed notice of removal, the Court observes that the mere fact that federal law may be involved or that there is a federal interest in the litigation is not sufficient to confer removal jurisdiction upon a federal court. That is the case here. An SEC violation is not a necessary prerequisite of the plaintiffs' state law claims. The state courts are competent to interpret federal law as well as adjudicate cases that may involve significant federal interests. See Chuska Energy Co. v. Mobil Exploration Producing, North America Inc., 854 F.2d 727, 730 (5th Cir. 1988). In Chuska Energy, the Fifth Circuit explained:
Plaintiffs deny that the state court action is one to enforce the twenty-day rule. Instead plaintiffs characterize their state-law claim as follows:
The bank solicited tenders at twenty-five cents on the dollar from Merrill Lynch when it knew full well that Merrill Lynch was a nominal party and that the true party at interest was J. Charles Collins, Jr. Further, they absolutely knew he would not tender the debentures under the conditions of the tender offer.
See Plaintiffs' Memorandum in Support of Motion to Remand, at p. 4.
State courts are routinely required to adjudicate suits in which there are related issues requiring construction of federal statutes and the Constitution. There is no danger of erroneous or inconsistent construction each time a state court adjudicates those questions in common law or state statutory actions.Chuska Energy, 854 F.2d at 730.
As stated at the outset, the Court must examine the plaintiffs' complaint under the wellpleaded complaint rule. See Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429, 96 L.Ed.2d 318 (1987); and Louisville Nashville Ry. Co. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908). Since Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 118 S.Ct. 921, 139 L.Ed.2d 912 (1998), the only federal courts that have held that it is proper to look beyond the face of the well-pleaded complaint to determine whether removal is proper have done so invoking the socalled "artful pleading doctrine."
It is well-settled law that a case may not be removed to federal court on the basis of a federal defense, including the defense of preemption, even if both parties concede that the federal defense is the only question truly at issue. See Caterpillar, 482 U.S. at 393.
In Baccus v. Parrish, 45 F.3d 958, 960 (5th Cir. 1995), the Fifth Circuit held that to succeed in his state-court suit it would have "affected" the court-approved settlement agreement in a federal suit concerning Texas' state schools for the mentally retarded. Id. The Baccus court held that "a claim brought in state court [that] seeks to attack or undermine an order of a federal district court" falls within the original jurisdiction of the district courts. Id. (citing § 1441(a) and Villareal v. Brown Express, Inc., 529 F.2d 1219, 1221 (5th Cir. 1976); see also Nowling v. Aero Services Int'l, Inc., 734 F. Supp. 733 (E.D. La. 1990)("[A] state law claim is said to have federal character when . . . it calls into question a federal court order.").
The purpose of that doctrine is to prevent the plaintiff from avoiding federal court simply by omitting a "necessary federal question" from the complaint However, the artful pleading doctrine applies only in cases where federal law completely preempts a plaintiffs causes of action under state law.
See Franchise Tax Bd v. Construction Laborers Vacation Trust, 463 U.S. 122, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983).
See Waste Control Specialists v. Envirocare of Texas, Inc., 199 F.3d 781, 783 (5th Cir.), superseded in part on other grounds, 207 F.3d 225 (2000) (noting that "[i]f this was once a matter of debate, the Supreme Court has put the issue to rest," citing Rivet, 118 S.Ct. at 925).
Plaintiff disavows that his state-law claims are an SEC action to enforce the twenty-day rule. It is rather an action under state law which asserts that the bank breached its debenture agreement and obligations thereunder, soliciting tenders at twenty-five cents on the dollar from Merrill Lynch when it allegedly knew full well that Merrill Lynch was a nominal party and that the true party in interest was J. Charles Collins, Jr. In any event, the plaintiff highlights that the pleadings, motions and papers received early on in the state court proceedings by Deposit Guaranty demonstrate the disingenuousness of the Bank's claim that it only recently realized, through pleadings, that a relevant factual assertion that the bank may have "violated Section 14(e) of the SEC Regulations" might arise in this case.
Plaintiffs' Memorandum in Support of Motion to Remand at p. 3.
For all of the reasons discussed above, the Court agrees with the plaintiffs that the removal was not proper and that it does not have subject matter jurisdiction in this matter. Accordingly,
IT IS ORDERED that the plaintiffs Motion to Remand is GRANTED.
The Clerk of Court is directed to remand this matter to the Civil District Court for the Parish of Orleans.