Opinion
MASTER FILE 02 Civ. 3288 (DLC), No. 03 Civ. 4496 (DLC), No. 03 Civ. 4492 (DLC), No. 03 Civ. 4495 (DLC), No. 03 Civ. 6222 (DLC), No. 03 Civ. 4489 (DLC), No. 03 Civ. 4491 (DLC), No. 03 Civ. 4490 (DLC), No. 03 Civ. 4493 (DLC), No. 03 Civ. 4497 (DLC), No. 03 Civ. 4494 (DLC)
December 30, 2003
OPINION ORDER
[EDITOR'S PAGE: THIS PAGE CONTAINED "CASE NAMES"]
This Opinion addresses an objection to an Order of November 5, 2003, by plaintiffs in ten Individual Actions that were originally filed in Mississippi ("Mississippi Actions" and "Mississippi Plaintiffs") and subsequently transferred to this Court. The November 5 Order confirmed that the answers filed by defendants to the WorldCom class action complaint were deemed answers to each of the complaints filed in this consolidated securities litigation, including to each of the Individual Action complaints. For the following reasons, the objections by the Mississippi Plaintiffs to the November 5 Order are denied.
Background
On December 23, 2002, this Court found that the Individual Actions and the consolidated class actions that comprise the WorldCom Securities Litigation assigned and transferred to this Court by the Judicial Panel on Multi-District Litigation ("MDL Panel") involve common questions of law and fact and that consolidation of the actions for pretrial proceedings was necessary. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2002 WL 31867720, at *1 (S.D.N.Y. Dec. 23, 2002). An Opinion of May 22, 2003 further explained the reasons for consolidating the class and Individual Actions, and the reasons for the form the consolidation takes. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219037 (S.D.N.Y. May 22, 2003) ("May 22 Opinion"). A Consolidation Order of May 28, set out the framework for consolidation described in the May 22 Opinion. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21242882 (S.D.N.Y. May 28, 2003) ("May 28 Order"). The May 28 Order provided, inter alia, that, "the requirement that any defendant named and served in an Individual Action must move, answer, or otherwise respond in that action is stayed."Id. at *2.
The May 22 Opinion and May 28 Consolidation Order had been immediately preceded by a May 19 Opinion denying, with limited exceptions, the defendants' motions to dismiss the claims in the consolidated Class Action Complaint. See In re WorldCom. Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21219049 (S.D.N.Y. May 19, 2003). On August 1, 2003, the Lead Plaintiff filed the First Amended Class Action Complaint ("Amended Complaint"). By Stipulation and Order dated August 19, the defendants' answers to the Amended Complaint were due September 30, and any motions to dismiss claims in the Amended Complaint were due September 5.
The Section 10(b), 15 U.S.C. § 78j(b), securities fraud claims against four WorldCom directors who were members of the Audit Committee ("Audit Committee Defendants") were dismissed with leave to amend. The motions by WorldCom's auditors and accountants were addressed in an Opinion and Order dated June 24, 2003. Arthur Andersen LLP's motion to dismiss was denied; the motions to dismiss filed by related entities and individuals were granted. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 21488087 (S.D.N.Y. June 24, 2003).
Salomon Smith Barney, Jack Grubman and Citigroup, Inc. ("SSB Defendants") moved to dismiss claims against them in the Amended Complaint and, in the alternative, to strike the Amended Complaint. Their motion was denied by Opinion and Order dated October 24. The Amended Complaint repleaded the Section 10(b) claim against the Audit Committee Defendants, who moved to dismiss it. The Audit Committee Defendants' motion to dismiss the Section 10(b) claim against them was granted by Opinion and Order dated December 1.
By Order dated September 22, and as discussed at a conference held that day, the defendants' time to answer the Amended Complaint was extended until October 14, 2003. Answers to the Amended Complaint were filed by October 14 by all defendants against whom litigation is not stayed, with the exception of the Audit Committee Defendants who had moved to dismiss.
By motion fully submitted on November 14, Lead Plaintiff sought leave to file a corrected Amended Complaint. The motion was granted on December 1, and a Corrected Amended Complaint in the consolidated class action was filed that day. With the exception of the underwriter-related defendants, all defendants against whom litigation has not been stayed have filed answers to the Corrected Amended Complaint. By Stipulation and Order dated December 19, 2003, the underwriter defendants' time to answer is extended until January 16, 2004.
On October 27, plaintiffs in the Mississippi Actions mailed notices of voluntary dismissal of their actions pursuant to Rule 41(a)(1)(i), Fed.R.Civ.P., to the Clerk of Court of the Southern District of New York for filing. On the same day, the defendants served their second tranche of motions to dismiss claims common to Individual Actions. The SSB Defendants moved to dismiss one of the ten Mississippi Actions on the ground that it is preempted by the Securities Litigation Uniform Standards Act of 1998.
The first tranche of motions to dismiss claims common to many Individual Actions was filed on October 3 and fully submitted on October 31. The motions raised issues related to the applicable statutes of limitations and the claims arising from a December 2000 WorldCom bond private placement. The motions were addressed in Opinions of November 21 and 25. See In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22790942 (S.D.N.Y. Nov. 25, 2003); In re WorldCom, Inc. Sec. Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003).
Rule 41(a)(1) provides that a plaintiff may dismiss a case once without prejudice "by filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs." Rule 41(a)(1)(i), Fed.R.Civ.P. The defendants in the Securities Litigation requested clarification of the May 28 Order for purposes of Rule 41(a) and on November 5, an Order 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 Action arrives on this Court's docket." ("Clarification Order"). The Clarification Order was dated nunc pro tunc to May 28, 2003, and provided an opportunity for parties objecting to the clarification to submit a brief and supporting papers by November 21. The only parties filing an objection on or before that date were the Mississippi Plaintiffs. The Director Defendants have submitted a response in support of the Clarification Order, in which the SSB Defendants and Ebbers join. Discussion
On December 9, SLS Investors, L.P., SLS Offshore Fund, Ltd. and GS SLS Portfolio LLC, plaintiffs in the Individual Action No. 03 Civ. 7826 (DLC) ("SLS Plaintiffs"), filed an untimely objection, which merely sought to join in the objections of the Mississippi Plaintiffs. Although defendant Ebbers has consented to the SLS Plaintiffs' filing of its objection, all of the remaining defendants oppose the SLS Plaintiffs' objection and request that it be rejected as untimely. The SLS Plaintiffs filed their action in this district on October 3, and were notified on October 22 that it had been assigned to this Court as related to the WorldCom Securities Litigation. They offer no reason sufficient to justify their lack of diligence in filing their objection to the Clarification Order, which is rejected as untimely.
In their December 5 letter in opposition to the SLS Plaintiffs' submission, the Underwriter Defendants note that they had not joined the objections filed by the Director Defendants since they are not parties to the Mississippi Actions. They request, however, the opportunity to join in the Director Defendants' submission in the event the SLS Plaintiffs are permitted to file their untimely objections.
The Mississippi Plaintiffs raise four arguments: (1) that their notice of voluntary dismissal should have been filed, and taken effect, on the date it was received by the Clerk of Court of the Southern District of New York; (2) that the right to voluntary dismissal prior to answer or motion for summary judgment is absolute; (3) that the stay of the obligation to answer has no effect on the right to voluntarily dismiss; and (4) the filing of a motion to dismiss does not extinguish the right to voluntary dismissal.
Rule 41(a)(1) "provides for automatic dismissal of a complaint, without court order," subject to the provisions of Rules 23(e) and 66, Fed.R.Civ.P., if a plaintiff files a notice of dismissal before the defendant has either answered or moved for summary judgment. Valley Disposal, Inc. v. Central Vermont Solid Waste Management Dist., 71 F.3d 1053, 1055 n. 2 (2d Cir. 1995). Within the limitations set forth by the rule itself, the right to dismiss pursuant to Rule 41(a)(1) is "absolute." See Bressler v. Liebman, No. 96 Civ. 9310 (LAP), 1998 WL 167334, at *2 (S.D.N.Y. Apr. 8, 1998). "Once the defendant has filed a summary judgment motion or answer," however, "the plaintiff may dismiss the action only by stipulation, or by order of the court, upon such terms and conditions as the court deems proper." Cooter Cell v. Hartmarx Corp., 496 U.S. 384, 394 (1990) (citations omitted). The Supreme Court has noted that Rule 41(a)(1) "allow[s] a plaintiff to dismiss an action without the permission of the adverse party or the court only during the brief period before the defendant ha[s] made a significant commitment of time and money." Id. at 397.
Rule 41(a)(1) does not provide any comfort to the Mississippi Plaintiffs. They have failed, even in their reply papers, to address the consolidation orders and procedural history in this case. While they are entirely correct that a plaintiff may voluntarily dismiss a complaint before an answer or motion for summary judgment has been filed, answers were filed in the Securities Litigation and they were deemed to be answers in each of the Mississippi Actions.
In consolidated proceedings, the Manual for Complex Litigation notes that the court may "make orders providing that specified pleadings, motions, and orders, unless specifically disavowed by a party, are `deemed' filed in cases later brought, transferred, or removed, without actually filing the document." Manual for Complex Litigation at § 21.32 (Third Ed. 1995). The May 22 Opinion expressly found that given the substantial overlap between the facts and claims in the consolidated class action and the Individual Actions, motion practice and answers in the class action were sufficient to put plaintiffs on notice of the defendants1 positions. See In re WorldCom, Inc. Sec. Litig., 2003 WL 21219037, at *5-6. The May 22 Opinion identified several significant case management considerations, not least of which was the preservation of assets for distribution to plaintiffs. Equally important was the need to heighten efficiency and decrease costs while ensuring a full and fair opportunity for all plaintiffs and defendants to conduct the discovery and motion practice necessary to their actions and defenses. In this case, such efficiencies are particularly appropriate since the Individual Actions and the class action all stem from the same course of conduct and involve common questions of law and fact. The May 22 Opinion explained that as a consequence of these considerations, the requirement to answer or move with respect to any complaint filed in an Individual Action was stayed.Id. at *5. The May 28 Order confirmed that conclusion, but left in place defendants' obligation to answer or move with respect to the consolidated class action.
The reasoning and purpose behind the stay was that each of the plaintiffs in Individual Actions would be on sufficient notice of the defendants' answers to their own complaints by referring to the answers filed to the class action complaint. The similarities between the individual and class actions are so great as to render separate filings of answers in each Individual Action unnecessarily duplicative and wasteful. The Clarification Order merely translates that intention into explicit terms, by expressly deeming an answer to have been filed in an Individual Action as of the date the action arrives on this Court's docket.
Although the Mississippi Plaintiffs contend that the Court lacks the discretion to require a consolidated complaint and to deem the answers to that complaint to have been filed in each of the consolidated Individual Actions, the only relevant authority on which they rely approved of a similar consolidation order. In Katz v. Realty Equities Corp., 521 F.2d 1354, 1355 (2d Cir. 1975), the Second Circuit affirmed a district court order requiring the filing and service of a single consolidated complaint in a complex securities litigation. The Second Circuit noted that one of the "significant attractions" of the consolidation order was the reduction of duplicative pleadings, in particular by deeming answers to the consolidated complaint to be answers to each of the constituent complaints. The court explained:
The plaintiffs also rely on Miller v. Reddin, 422 F.2d 1264 (9th Cir. 1970) (per curiam), which is readily distinguishable. In Miller, the plaintiffs sought to voluntarily dismiss their action after the trial court announced from the bench its proposed ruling on the defendants1 motion to dismiss, but before an opinion or order had been issued. The Ninth Circuit was "disturbed" by the manner in which the district court had proceeded. The district court had concluded that five books were obscene without any hearing or motion requesting that determination. Id. at 1265. There was no discussion of the effect of a consolidation order on the obligation to answer.
A separate answer from each defendant to each complaint in which that defendant is named would involve literally hundreds of answers. As noted previously, all the complaints in the private actions track the SEC complaint, and the answers to each complaint would be substantially the same. The benefits of collecting, for example, sixteen identical answers in each of sixteen cases from one defendant is not readily discernible. . . . [T] he overall economies in reducing the proliferation of duplicative papers warrant the trial judge's efforts in the present circumstances.Id. at 1359. Here, as in Katz, the May 28 Consolidation Order was designed to preserve the integrity of each Individual Action and to ensure that each plaintiff was on notice of the potential defenses to her claim, while at the same time reducing the "proliferation of duplicative papers." Id.
The Mississippi Plaintiffs do not identify any unfair prejudice to them resulting from the Clarification Order. Nor do they argue that it was not clear from the May 22 Opinion that the stay of the obligation to answer was instituted because an answer in the class action was to have the effect of putting all plaintiffs in Individual Actions on notice of the defenses to their actions, and to serve as an answer to all actions consolidated for pretrial purposes with the WorldCom class action. They utterly fail to address the procedural history in this case. In short, they have not shown any reason to vacate the November 5 Order.
Conclusion
The objections by the Mississippi Plaintiffs to the November 5, 2003 Order are denied.SO ORDERED.