Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.


United States District Court, S.D. New York

January 26, 2004.


The opinion of the court was delivered by: DENISE COTE, District Judge


Plaintiffs in six actions ("Plaintiffs" and "Six Actions") filed by Milberg Weiss Bershad Hynes & Lerach ("Milberg Weiss") request the voluntary dismissal of their actions in order to participate in the securities class action arising out of the collapse of WorldCom, Inc. ("WorldCom"). On January 20, 2004, the defendants' motions to dismiss the Six Actions in their entirety as barred by the statute of limitations were granted. For the following reasons, the Plaintiffs' requests for a voluntary dismissal are granted, and these actions will be dismissed with prejudice with the following exception. Plaintiffs will be permitted to remain as members of the WorldCom class action without prejudice with respect to any claims brought on behalf of the class.*fn1 Page 5


  The following presents the background to this litigation relevant to the statute of limitations issues that affect these Six Actions and to the pending motions for their voluntary dismissal. On June 25, 2002, WorldCom declared that it would undertake a massive restatement of its financial statements for 2001 and the first quarter of 2002. Beginning with the June 25 announcement, a series of public disclosures revealed, in essence, that WorldCom had misrepresented its financial condition since 1999. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219049, at *4 (S.D.N.Y. May 19, 2003)(opinion denying, in large part, motions to dismiss the class action complaint). By late July 2002, WorldCom had filed the largest bankruptcy in United States history.

  Even before the June 25 announcement, the first class action alleging WorldCom claims had been filed in this district. The class actions were consolidated by an Order of August 15, 2002. Numerous actions alleging individual, as opposed to class, claims ("Individual Actions") were also filed in venues across the country, many by Milberg Weiss ("Milberg Weiss Actions"). Page 6

  The Judicial Panel on Multi-District Litigation ("MDL Panel") transferred WorldCom litigation pending in other federal district courts, either because it was filed there originally or because it was removed by defendants to federal court, to this Court for pretrial proceedings. This Court's Order of December 23, 2002 found that the Individual Actions and the securities class actions (collectively, Securities Litigation) involve common questions of law and fact, and that consolidation of these actions for pretrial proceedings was necessary. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2002 WL 31867720 (S.D.N.Y. Dec. 23, 2002). A Consolidation Order of May 28, 2003, set out the framework for consolidation, and provided that "the requirement that any defendant named and served in an Individual Action must move, answer, or otherwise respond in that action is stayed." In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21242882, at *2 (S.D.N.Y. May 29, 2003).

  The first Milberg Weiss Action was filed on July 5, 2002. Each Milberg Weiss Action was filed in a state court and pleaded solely federal securities law claims under the Securities Act of 1933 ("Securities Act"). By the Fall of 2003, Milberg Weiss had filed at least forty-seven Individual Actions on behalf of over one hundred and twenty pension funds, many of them public employee or union pension funds. All of the Milberg Weiss Actions were removed by defendants on the ground that they were related to the WorldCom bankruptcy. While six of the removed Milberg Weiss Actions were remanded before their transfer to this Page 7 Court by the MDL Panel, the rest were transferred and have been consolidated in the Securities Litigation for pre-trial purposes. The Six Actions were each filed more than one year after the June 25, 2002 WorldCom announcement. The first of the Six Actions was filed on June 27, 2003; the last on August 13.*fn2

  On May 19, 2003, the motions to dismiss the class action were largely denied. In re WorldCom, Inc. Sec. Litig., 2003 WL 21219049. An amended consolidated class action complaint was filed on August 1. The class action complaint in the Securities Litigation pleads claims under both the Securities Act and the Securities Exchange Act of 1934. By October 14, 2003, virtually all defendants had filed answers to the amended consolidated class action complaint. The motion to certify a class was granted on October 24, 2003. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22420467 (S.D.N.Y. Oct. 24, 2003).

  A Clarification Order of November 5, provided that "for purposes of Rule 41(a) only, defendants are deemed to have filed an answer in each Individual Action as of the date the Individual Page 8 Action arrives on this Court's docket." In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22508508 (S.D.N.Y. Nov. 5, 2003). Parties were given until November 21 to object to the Clarification Order. None of the Milberg Weiss Actions made any objection. The objections that were made were denied. In re WorldCom, Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 23095478 (S.D.N.Y. Dec. 1, 2003).

  At a conference on September 12, defendants gave notice of an intent to bring, in two tranches, motions to dismiss claims common to many Individual Actions. Among the grounds they identified was the contention that some Securities Act claims were barred by the applicable statute of limitations and would not be able to rely on American Pipe tolling. See American Pipe & Construc. Co. v. Utah, 414 U.S. 538 (1974). At a conference on September 22, the Court proposed and the parties agreed that the defendants would initially address their motions to dismiss to one or two of the complaints among the Individual Actions. The plaintiffs in those actions would oppose the motions and the plaintiffs in other Individual Actions would be permitted to file a single, joint amicus brief in opposition. An Order of September 22 provided that when a decision on the motion to dismiss was issued, the parties in the other Individual Actions in which the same legal issue arose would be given an opportunity to show cause "why the decision does not apply to those actions." ("September 22 Order"). See In re WorldCom, Inc. Sec. Litig., Page 9 No. 02 Civ. 3288 (DLC), 2004 WL 77879, at *3 (S.D.N.Y. Jan. 20, 2004)(describing procedure for motion practice).

  The first motion to dismiss, filed on October 3, included a motion addressed to a single, representative Milberg Weiss Action, an action which has been described as the MW Alaska Action. It sought dismissal of certain claims on the ground, inter alia, that they were barred by the statute of limitations contained in the Securities Act.

  On October 29, the Lead Plaintiff in the WorldCom securities class action advised the Court that it had reason to believe that Milberg Weiss was soliciting absent class members with misleading statements about the Securities Litigation. It submitted solicitation materials from Milberg Weiss in support of its accusation. At a hearing held on November 13, the Court gave its preliminary observations and findings based on the submissions received from Milberg Weiss and Lead Plaintiff. Of particular pertinence to the instant motion are the following:

Every investor has a right to bring an individual action if it chooses to do so. Every investor will have the right to opt out of the certified class action.
  Milberg Weiss has engaged in an active campaign to encourage penion funds not to participate in the class action and instead to file Individual Actions with Milberg Weiss as their counsel. . . . Milberg Weiss has targeted a relatively sophisticated audience with important and serious fiduciary duties to its membership and beneficiaries. . . . There is no reason to believe that the funds that have filed Individual Actions have done so with any but the best of intentions to obtain the maximum recovery for their constituency. . . . [B]ehind the lawyers and the pension fund officers stand the many individual state, local, Page 10 public and private employees whose lost retirement savings and benefits the funds seek to recover. . . .


The communications with Milberg Weiss have resulted in some confusion and misunderstanding of the options available to putative class members. . . . Milberg Weiss does not appear to have presented a forthright description of the advantages and disadvantages of both the individual action and class action options. . . . The potential statute of limitations impediments to bringing certain of the more recently filed Individual Actions do not appear to have been described. This could be a very serious problem for a litigant who chooses to opt out of the class, only to learn that the Individual Action it had filed was barred by the statute of limitations and it had lost all right to recovery. This very issue in now sub judice. . . .
See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22701241, at *6-7 (S.D.N.Y. Nov. 17, 2003)(describing hearing and the findings)(emphasis supplied).

  Milberg Weiss made no objection at the hearing to any of the findings and endorsed the Court's solution,*fn3 which was to send a separate, curative notice to all plaintiffs who had filed Individual Actions, in addition to the notice to be provided to all class members to advise them of their right to opt out of the WorldCom securities class action (respectively "Individual Action Notice" and "Class Notice").*fn4 At the hearing held on November Page 11 13, Milberg Weiss advised the Court that it would immediately send a copy of the transcript of the hearing to each of its clients.

  A November 21 Opinion resolved the October 3 motions to dismiss claims in the MW Alaska Action based, inter alia, on the statute of limitations that applies to Securities Act claims. In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003) ("November 21 Opinion"). The November 21 Opinion held that the statute of limitations contained within the Securities Act governed the Section 11 Securities Act claim. That limitations period is a one year/three year regimen. The Opinion also held that "[t]here can be no doubt that at least as of WorldCom's announcement on June 25, 2002 — that it would have to restate its publicly reported financial results for 2001 and the first quarter of 2002 by $3.8 billion — plaintiffs were on inquiry notice of their" Securities Act claims. Id. at *14. The November 21 Opinion rejected the argument that an action that files independently of the class before a determination on class certification could benefit from American Pipe tolling. Id. at *15.

  During the period that followed the November 13 hearing, the Court and counsel drafted the notices. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288, 2003 WL 22852660 (S.D.N.Y. Dec. 2, 2003) (circulating Court's redraft of notices based on parties' Page 12 submissions). On December 11, 2003, the Court approved the two notices. The Individual Action Notice was mailed on December 12, and the Class Notice was mailed and posted on December 15.

  The Class Notice advised all WorldCom investors that the period to opt out of the securities class action ends on February 20, 2004. It also advised them that fact discovery was scheduled to close on June 18, 2004, and the class action trial was to begin January 10, 2005.

  The Individual Action Notice provided complainants with important information to help them make an informed choice as to whether to opt out of the class action. It identified one important issue for their consideration as the "timeliness" of their action. The Individual Action Notice described the rulings in the November 21 Opinion, the fact that based on those rulings, defendants were filing motions to dismiss with prejudice some or all of the claims brought in many Individual Actions, and that the opposition to these motions was due December 23. It further advised, "[i]f the claims are dismissed with prejudice, then the defendants take the position that the plaintiffs in these Individual WorldCom Actions will lose forever their right to recover for any WorldCom losses covered by the dismissed claims." The Individual Action Notice also stated that the November 21 Opinion had explained that "there is `no authority' that would support the refiling of claims, for instance after the certification of a class action, where those claims have been Page 13 dismissed on the ground that they were barred by the statute of limitations."

  The Individual Action Notice added that the Lead Plaintiff in the class action takes the position that if a plaintiff requests a dismissal of their action, then the Court can


exercise its discretion to condition the dismissal on an agreement that the dismissal is with prejudice to the refiling of the Individual WorldCom Action, but without prejudice to the plaintiff participating as a Class member. . . . The defendants have indicated that they will oppose any such conditional or voluntary dismissal. . . . No motion has been made by any Individual WorldCom Plaintiff whose claims may be subject to dismissal or by any other party before the Court and, as a result, the Court has made no determination in this regard.
  Pursuant to the Scheduling Order of September 22, plaintiffs in other Individual Actions, including the Six Actions, were given an opportunity to show why the November 21 Opinion did not require the dismissal of some or all of their Securities Act claims as a result of motions to dismiss that the defendants filed against their actions on or about December 2. Through the December 2 motions to dismiss, the defendants sought the dismissal of the Six Actions in their entirety.*fn5 The Plaintiffs served their opposition to the motion to dismiss on December 22. Their opposition did not raise the issue of the voluntary Page 14 dismissal of their lawsuits.*fn6 The opposition presented on behalf of the Milberg Weiss Actions did, however, present new arguments not made in opposition to the motion to dismiss the MW Alaska Action or in the motion for reconsideration addressed to the November 21 Opinion. On January 20, 2004, those new arguments were rejected and the motions to dismiss with prejudice various Securities Act claims in twenty-six Individuals Actions and nine Milberg Weiss Actions in their entirety, including the Six Actions, were granted.*fn7 See, e.g., In re WorldCom, Inc. Sec. Litig., 2004 WL 77879 ("January 20 Opinion").

  Meanwhile, between January 9 and January 13, the Plaintiffs filed motions seeking voluntary dismissal of their actions on the condition that they will not opt out of the class action. The motions were fully submitted on January 23. The Lead Plaintiff in the class action submitted a brief in support of allowing the movants to dismiss their Individual Actions and to remain members of the class pursuant to Rule 41(a)(2), Fed.R. Civ. P.*fn8 Arthur Page 15 Anderson, the Underwriter Defendants*fn9 and the Salomon Smith Barney Defendants oppose the motions.


  Each of the Plaintiffs in the Six Actions requests that it be permitted pursuant to Rule 41(a)(2),*fn10 Fed.R. Civ. P., to dismiss its Individual Action without prejudice "on the condition that it be permitted to remain a member of the [WorldCom] class for all claims asserted in that case."*fn11 "Once a defendant has answered a complaint a plaintiff may no longer dismiss his suit as a matter of right." D'Alto v. Dahon California, Inc., 100 F.3d 281, 283 (2d Cir. 1996). Rule 41(a)(2), Fed R. Civ. P., provides that except where parties agree to a stipulation of dismissal, "an action shall not be dismissed at the plaintiff's Page 16 instance save upon order of the court and upon such terms and conditions as the court deems proper." Fed.R.Civ.P. 41(a)(2). "It is within the district court's sound discretion to deny a Rule 41(a)(2) motion to dismiss." Catanzano v. Wing, 277 F.3d 99, 109 (2d Cir. 2001) (citing Zacrano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990)).

  " A district court may allow a plaintiff to dismiss an action if the defendant will not be prejudiced thereby." Correspondent Services Corp. v. First Equities Corp. of Florida, 338 F.3d 119, 126 (2d Cir. 2003) (citation omitted). D'Alto observed that

"Starting a litigation all over again does not constitute legal prejudice. However . . . [there is] an exception to the rule; namely when the cause has proceeded so far that the defendant is in a position to demand on the pleadings an opportunity to seek affirmative relief and he would be prejudiced by being remitted to a separate action. Having been put to the trouble of getting his counter case properly pleaded and ready, he may insist that the cause proceed to a decree."
D'Alto, 100 F.3d at 283 (citing Jones v. Securities & Exchange Commission, 298 U.S. 1, 19 (1936)). Among the factors relevant to a court's decision are


[1] the plaintiff's diligence in bringing the motion; [2] any `undue vexatiousness' on plaintiff's part; [3] the extent to which the suit has progressed, including the defendant's effort and expense in preparation for trial; [4] the duplicative expense of relitigation; and [5] the adequacy of plaintiff's explanation for the need to dismiss.
Catanzano, 900 F.2d at 109-110 (citing Zagano, 900 F.2d at 14). Page 17

  Diligence in bring the motion

  Whether the Plaintiffs have been diligent in bringing their motions to dismiss their actions voluntarily depends on the point at which one starts the analysis. Their counsel have been on notice of the defendants' intent to raise the statute of limitations bar since September 2003. The defendants gave notice in a September 12 conference of their intent to move to dismiss Individual Actions based on the statute of limitations. The motion was made on October 3 and fully described the defendants' theory. The motion brought against the test case — a Milberg Weiss Action whose complaint is indistinguishable from the Plaintiffs' complaints in every material aspect — was granted on November 21. The motions to dismiss the Six Actions in their entirety were made on December 2. The Plaintiffs opposed these motions on December 22. At no point during those three months, including in their opposition to the motions to dismiss, did the Plaintiffs seek to dismiss their actions voluntarily.

  On the other hand, the Six Actions were transferred by the MDL Panel at various points throughout the Fall. Moreover, the curative, Individual Action Notice was not mailed until December 12. This notice allowed the Court to explain the implications of the statute of limitations litigation directly to each plaintiff who had filed an Individual Action.*fn12 The Plaintiffs brought Page 18 their motions to dismiss their actions voluntarily between January 9 and January 13.

  Undue Vexatiousness by Plaintiffs

  With the possible exception of the new arguments presented in opposition to the December 2 motions to dismiss,*fn13 the Plaintiffs have not been unduly vexatious. As previously noted by this Court, there is "no reason to believe that the funds that have filed Individual Actions have done so with any but the best of intentions to obtain the maximum recovery for their constituency." In re WorldCom, Inc. Sec. Litig., 2003 WL 22701241, at *6.

  The defendants contend that the Plaintiffs have been unduly vexatious because they have participated with the other Milberg Weiss Actions in a coordinated "de facto class action". See In re WorldCom Sec. Litig., 2003 WL 22701241, at *6. The defendants recite that this campaign has resulted in a significant expenditure of the parties' resources, duplicative litigation, Page 19 and waste. While it is true that the burden on the parties*fn14 and the court system from this strategy of conducting a parallel, quasi class action has been enormous, that is an entirely separate issue from the filing, and now dismissal, of a time-barred lawsuit. The law protects the right of investors to opt out of securities class actions and to pursue their own independent lawsuits. So long as a lawsuit otherwise conforms to the requirements of the law, it cannot be labeled vexatious simply because it is duplicative litigation.

  Progress in the Suit

  The WorldCom Securities Litigation is in the midst of fact discovery; fact discovery is due to close on June 18, 2004. Settlement discussions have been ongoing since last Winter, but to date no settlement agreement has been announced.*fn15 Discovery on behalf of the class is being conducted by Lead Counsel for the Page 20 Class. The Individual Actions are participating fully in the discovery process through a consolidation order and with the assistance of a Liaison Counsel. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219037 (S.D.N.Y. May 22, 2003)(explaining the reasons for the consolidation of all the Securities Litigation actions for pretrial proceedings). Allowing plaintiffs who have filed Individual Actions to join the class action will have no adverse effect on the progress of discovery in the Securities Litigation.

  The opt out period for the class action does not expire until February 20, 2004. After that date, it will be clearer to all which parties have finally decided to pursue Individual Actions, and the potential size of the class. That information can be expected to facilitate the ongoing settlement discussions, to permit all parties to focus their efforts more effectively on the litigation, and to assist in the management of the litigation. A motion by Plaintiffs to dismiss their Individual Actions before the close of the opt out period is helpful in this regard and timely.

  Duplicative Expense of Relitigation

  Permitting the Plaintiffs to remain full participating members of the class action will not result in any duplicative expense of relitigation. Indeed, permitting such participation may reduce the burden of collateral litigation. For instance, by Page 21 remaining in the class action, the Plaintiffs are foregoing their right to appeal the January 20 dismissal of their actions.

  Plaintiffs' Explanation of the Need to Dismiss

  The Plaintiffs' reason for requesting a voluntary dismissal of their actions is readily apparent. The applicable statute of limitations presents an insurmountable barrier to the maintenance of the Six Actions. This barrier, which would exist whether their actions were remanded to state court or whether they remain in federal court, prevents them from obtaining any recovery for their losses from WorldCom investments.

  Public Policy Considerations

  In addition to the Zagano factors, it is appropriate in this case to consider issues of public policy. The defendants urge that the Court deny this application for a conditioned voluntary dismissal because to do so would "fatally undermine the rationale of the American Pipe tolling doctrine". The defendants contend that plaintiffs will be encouraged to file preemptive suits, knowing that they can opt out of any adverse decisions in their individual cases and simply join the class without any penalty, and with great cost to the defendants and the court system. They assert that the motions are not brought in good faith since the Plaintiffs waited to see if the Court would rule in the defendants' favor on the first tranche of the motions to dismiss. Among the authorities that defendants cite to support their Page 22 argument that plaintiffs cannot participate in a class action after they have filed time-barred claims are In re Heritage Bond Litig., 289 F. Supp.2d 1132, 1150, 1154 (C.D. Cal. 2003); In re Brand Name Prescription Drugs Antitrust Litig., Nos. 94 C 897, MDL 997, 1998 WL 474146, at *8 (N.D. Ill. Aug. 6, 1998); and Patterson v. Alaska Airlines, Inc., 756 F. Supp. 476, 478 (W.D. Wa. 1990).

  The defendants' argument has force. It is a particularly compelling argument in the context of these Six Actions. The statute of limitations barrier at issue here should have been readily apparent to each of the Plaintiffs when they filed their lawsuits. Even if they thought that the law was unsettled, it is difficult to understand how, as fiduciaries, the Plaintiffs could run the risk of losing all right to pursue recovery for their participants and beneficiaries when there were alternatives readily available to them that did not present that risk. They could simply have waited to see whether it was in their interest to join the class action, and if they concluded that it was not, they could have opted out of the class action and filed their own individual action. A suit filed after a decision has been made on class certification can take advantage of American Pipe tolling, and their claims would not have been vulnerable to dismissal simply because they were filed more than a year after June 25, 2002.

  As noted, however, each of the Plaintiffs is a fund with many participants who depend upon the fund to guard and preserve Page 23 assets intended for their benefit. To the extent that the Plaintiffs lost assets invested in WorldCom securities through violations of the federal securities laws, there is a strong public interest in favor of allowing them and those to whom they owe a fiduciary duty to participate in any recovery that may be received through the Securities Litigation. Innocent beneficiaries should not suffer because of flawed legal advice. The penalty imposed upon them by filing untimely lawsuits is, in effect, the loss of the opportunity to pursue an Individual Action. As this Court has stated repeatedly, investors have the right to bring individual actions and to opt out of a certified class action. This is a "bedrock truth." In re WorldCom Sec. Litig., 2003 WL 22701241, at *6. With the filing of their motions for voluntary dismissal, Plaintiffs acknowledge that they are giving up that right.

  Timing of January 20 Opinion

  Plaintiffs complain that this Court issued the January 20 Opinion on the statute of limitations issues before reaching their motions for a voluntary dismissal.*fn16 The Plaintiffs are six of the thirty-six actions affected by the December 2 motions Page 24 to dismiss. It is essential that each of those actions have as much guidance as quickly as possible about the fate of their cases. Milberg Weiss' opposition to the December 2 motions raised new arguments that it had not made in its opposition to the October 3 motions to dismiss the representative Milberg Weiss Action. To the extent that it believed that those new arguments deserved serious consideration and could affect the outcome of that motion practice, it was critical that each of their affected clients have an analysis of those arguments in order to assist them in making a better informed decision about what course to follow, including whether to seek to remain in the class by moving voluntarily to dismiss their action, or to continue with their Individual Action and opt out of the class.*fn17 Simply put, deferring a decision on the December 2 motions would have left each of the actions subject to those motions with less information as they faced the February 20 opt out deadline.

  In sum, weighing each of the factors described above, and considering them as a whole, the Plaintiffs have shown that their application for the voluntary dismissal of their actions in order to permit them to be full participants in the WorldCom class Page 25 action should be granted.*fn18 The judgments to be entered in defendants' favor pursuant to the January 20 Opinion, therefore, shall be entered with prejudice for all purposes except allowing Plaintiffs to remain members of the WorldCom class action and participate fully in any recovery obtained by the class.


  The motions by plaintiffs in 03 Civ. 8269, 03 Civ. 8923, 03 Civ. 9168, 03 Civ. 9400, 03 Civ. 9401, and 03 Civ. 9402 to dismiss their actions voluntarily is granted with the condition that they not opt out of the class or seek in any way to continue their Individual Actions.*fn19 No order giving effect to the Page 26 decisions of January 20 will be executed before February 12, 2004.*fn20


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.