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WASHINGTON NAT'L LIFE INS. CO. v. MORGAN STANLEY &

May 9, 1997

WASHINGTON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK and WASHINGTON NATIONAL INSURANCE COMPANY, Plaintiffs, against MORGAN STANLEY & CO. INCORPORATED, HOWARD, WEIL, LABOUISSE, FREDERICHS, INCORPORATED, ALAN ARNOLD, PETER AVALONE, NEBRASKA INVESTMENT FINANCE AUTHORITY, NORWEST BANK, MINNEAPOLIS, N.A., KUTAK, ROCK, & CAMPBELL, THE FIRST BOSTON CORPORATION, BEAR, STEARNS & CO., INC., DILLON, READ & CO., INC., DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, KIDDER, PEABODY & CO. INCORPORATED, LAZARD FRERES & CO., PRUDENTIAL-BACHE SECURITIES INC., SALOMON BROTHERS INC., SMITH BARNEY, HARRIS UPHAM & CO., INCORPORATED, WERTHEIM SCHRODER & CO. INCORPORATED, DEAN WITTER REYNOLDS INC., GEORGE K. BAUM & COMPANY, BLUNT ELLIS & LOEWI INCORPORATED, BOETTCHER & COMPANY, INC., DAIN BOSWORTH INCORPORATED, HANIFEN, IMHOFF INC., INTERSTATE SECURITIES, LOVETT, MITCHELL, WEBB & GARRISON, MASTERSON MORELAND SAUER WHISMAN, INC., MCDONALD & COMPANY SECURITIES, INC., MORGAN, KEEGAN & COMPANY, INC., RAUSCHER PIERCE REFSNES, INC., ROTAN MOSLE INC., SMITH HAYES FINANCIAL SERVICES CORPORATION and WHEAT, FIRST SECURITIES, INC., Defendants.


The opinion of the court was delivered by: LOWE

 MARY JOHNSON LOWE, U.S.D.J.

 Before the Court is the motion of plaintiffs Washington National Life Insurance Company of New York and Washington National Insurance Company ("Plaintiffs"), pursuant to 28 U.S.C. § 1404(a), to transfer this action to the District of Nebraska. For the reasons stated below, Plaintiffs' motion is denied.

 BACKGROUND

 On May 16, 1990, Plaintiffs commenced this securities fraud action alleging violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Rule 10b-5, as adopted thereunder by the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5, Section 1962 of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, *fn1" and breach of contract, civil conspiracy, negligence, breach of fiduciary duty and common law fraud.

  Plaintiffs are purchasers of taxable municipal bonds issued by the Nebraska Investment Finance Authority ("NIFA"). *fn2" NIFA, a public instrumentality of the State of Nebraska, was established by the Nebraska Legislature in 1983 to encourage agricultural and other economic development in that state. On October 27, 1986, NIFA enacted a resolution authorizing a $ 200,000,000 issuance of taxable municipal bonds. The bonds were issued on November 13, 1986.

 Numerous parties played substantial roles in effectuating the NIFA bond offering. The bonds were underwritten by an underwriting syndicate led by Drexel Burnham Lambert, Inc. ("Drexel"), Howard, Weil, Labouisse, Friedrichs, Inc. ("Howard Weil"), and Morgan Stanley & Co. ("Morgan Stanley"). Defendant Peter Avalone, the Senior Vice President of Drexel and head of Drexel's municipal bond department, played a significant role in structuring and underwriting the NIFA bonds. Defendant Kutak, Rock & Campbell ("Kutak") served as bond counsel and also as NIFA's counsel, rendering legal advice in connection with the NIFA bonds. Defendant Norwest Bank, Minneapolis, N.A. ("Norwest"), served as bond trustee. The offering materials stated that the bond proceeds would be used to raise money for salutary public purposes, such as providing funds for agricultural loans.

 Following the underwriters' purchase of the bonds, the indenture trustee used the bond proceeds to purchase Guaranteed Investment Contracts ("GICs") from Executive Life Insurance Corporation ("ELIC"), where the money would remain until loans were made. ELIC was a California insurance company and subsidiary of First Executive Corporation; both companies were headed by Fred Carr. ELIC invested the proceeds from the sale of the GICs in "junk bonds," although the offering materials did not disclose that the proceeds would be so invested. In June 1986, Standard & Poors, Inc. ("S&P") issued a AAA rating to ELIC. The junk bond market collapsed in the early months of 1989. As a result, S&P downgraded ELIC's rating, as well as the rating of the taxable municipal bonds, which resulted in the decline of the bonds' value.

 PROCEDURAL BACKGROUND

 Plaintiffs initially filed this action in the Southern District of New York. On July 23, 1990, defendants Morgan Stanley, Howard Weil, ELIC, and NIFA moved to transfer the case, pursuant to 28 U.S.C. § 1404(a) ("Section 1404(a)"), to the District of Nebraska. At that time, Plaintiffs opposed the motion. The Court referred the transfer motion to Magistrate Judge Buchwald. In a Report and Recommendation dated November 27, 1990 ("1990 Report"), the Magistrate Judge recommended that the Court grant the defendants' motion to transfer the case to Nebraska. See Report and Recommendation, dated Nov. 27, 1990, at 15.

 On the same day that the 1990 Report was issued, the Judicial Panel on Multi-District Litigation ("MDL Panel") transferred the case, pursuant to 28 U.S.C. § 1407 ("Section 1407"), to the Eastern District of Louisiana, consolidating the case with other related cases *fn3" for pre-trial purposes. After the close of approximately five years of discovery, nearly all of the cases settled. *fn4" Plaintiffs, however, opted out of settlement. By order dated May 16, 1995 ("May 1995 Order"), Chief Judge Sear of the Eastern District of Louisiana ordered the non-settling parties to submit memoranda on whether the Louisiana court should retain the cases for trial or remand the cases to the original transferor courts. See Mem. and Order, dated May 16, 1995, at 3. Pursuant to the May 1995 Order, a majority of the defendants requested that Chief Judge Sear retain the case for trial, and Plaintiffs requested transfer to Nebraska. In an initial order dated October 27, 1995 ("October 1995 Order"), Chief Judge Sear concluded, without discussion, "that pursuant to 28 U.S.C. § 1404(a) Washington National's claims are properly transferred to Nebraska as opposed to New York." See In re Taxable Municipal Bond Secs. Litig., 1995 U.S. Dist. LEXIS 16274, No. MDL 863, 1995 WL 637822, at *2 n.9 (E.D. La. Oct. 30, 1995). Accordingly, Chief Judge Sear ordered that a suggestion of remand be issued to the MDL Panel, specifically recommending that this case be transferred to the District of Nebraska. Id. at *2.

 Prior to the entry of a transfer order, however, Defendants moved for reconsideration, arguing that the case should be remanded back to the Southern District of New York as opposed to Nebraska. Chief Judge Sear allowed the parties to brief the issue "on the basis that they were not previously afforded the opportunity to make this argument." In re Taxable Municipal Bond Secs. Litig., 1995 U.S. Dist. LEXIS 18638, *1, No. MDL 863, 1995 WL 731693, at *1 (E.D. La. Dec. 7, 1995). On December 29, 1995, Chief Judge Sear reversed his earlier recommendation and recommended to the MDL Panel that the case be remanded to the Southern District of New York ("December 1995 Order"). See In re Taxable Municipal Bond Secs. Litig., No. MDL 863, 1995 WL 766339, at *3 (E.D. La. Dec. 29, 1995). On January 4, 1996, the MDL Panel issued a conditional remand order adopting Chief Judge Sear's recommendation to remand the case to the Southern District of New York. Within the time permitted by Rule 14 of the Rules of Procedure of the Judicial Panel on Multidistrict Litigation, Plaintiffs filed a Notice of Opposition to Conditional Remand Order, citing the 1990 Report and the October 1995 Order. On April 12, 1996, the MDL Panel adopted Chief Judge Sear's recommendation and remanded the case to this Court. See Remand Order, dated April 12, 1996, at 1-2.

 The transfer issue in this case has come full circle: Plaintiffs move this Court to transfer the case to the District of Nebraska, and Defendants urge the Court to deny any such transfer. As a result, each side finds itself vehemently supporting a position to which it was strenuously opposed when the issue came before the Magistrate Judge in 1990.

 I. Law of the Case Doctrine

 Under the "law of the case" doctrine, "when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case." Arizona v. California, 460 U.S. 605, 618, 75 L. Ed. 2d 318, 103 S. Ct. 1382 (1983) (dictum) (citation omitted); see also Pescatore v. Pan American World Airways, Inc., 97 F.3d 1, 7-8 (2d Cir. 1996). "Federal courts routinely apply law-of-the-case principles to transfer decisions of coordinate courts. Indeed, the policies supporting the doctrine apply with even greater force to transfer decisions than to decisions of substantive law; transferee courts that feel entirely free to revisit transfer decisions of a coordinate court threaten to send litigants into a vicious circle of litigation." Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 816, 100 L. Ed. 2d 811, 108 S. Ct. 2166 (1988) (citations omitted). Although the doctrine does not restrict a court's authority to revisit a previously decided issue, "courts should be loathe to do so in the absence of extraordinary circumstances, such as where the initial decision was 'clearly erroneous and would work a manifest injustice.'" Id. at 817 (quoting Arizona, 460 U.S. at 618 n.8); see also Corporation de Mercadeo Agricola v. Mellon Bank Int'l, 608 F.2d 43, 48 (2d Cir. 1979) (finding law of the case doctrine a rule of practice, not a restriction on a court's jurisdiction); Dictograph Prods. Co. v. Sonotone Corp., 230 F.2d 131, 135 (2d Cir. 1956) (same).

 The grounds, or special circumstances, upon which a court may reconsider an issue previously determined in an earlier stage of the same litigation are: (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or to prevent manifest injustice. DiLaura v. Power Auth., 982 F.2d 73, 76 (2d Cir. 1992) (citing Virgin Atl. Airways v. National Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992)); see also Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516-17 (10th Cir. 1991) (holding that court should not reconsider prior ruling of transferor court unless governing law has changed, new evidence becomes available, clear error has been committed or manifest injustice will result). Thus, absent special circumstances, courts in this Circuit have refused to revisit transfer orders from another court. See, e.g., Herskowitz v. Charney, 1994 U.S. Dist. LEXIS 4857, No. 93 Civ. 5248, 1994 WL 150812, at *2 (S.D.N.Y. April 18, 1994) (denying motion to retransfer because original forum ruled on issue and no special circumstances present to justify reversing law of case); Repp v. Webber, 142 F.R.D. 398, 400-01 (S.D.N.Y. 1992) (refusing to retransfer without impelling and unusual circumstances); BMC Indus., Inc. v. Employers Ins. of Wausau, 1991 U.S. Dist. LEXIS 1243, 1991 WL 12800, at *2 (N.D.N.Y. 1991) (holding that commencement of second action in Minnesota did not constitute "the type of changed circumstances which would warrant retransfer" to Minnesota); Dresser Indus., Inc. v. First Travel Corp., 1990 U.S. Dist. LEXIS 20889, Nos. 88 Civ. 581E, 90 Civ. 470E, 1990 WL 159037, at *3-4 (W.D.N.Y. Oct. 11, 1990) (denying motion to retransfer where movant had full and fair opportunity to litigate matter previously, transferor court's order was not manifestly erroneous and no "impelling and unusual" circumstances existed).

 In the December 1995 Order, the Eastern District of Louisiana determined that this case should be remanded back to this Court rather than be transferred to the District of Nebraska. See In re Taxable Municipal Bond, 1995 WL 766339. That transfer decision became the law of this case, to be adhered to by a court of coordinate jurisdiction, including this Court. Absent one of the exceptions enumerated in DiLaura, this ...


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