NEW JERSEY, DEPT. OF TREAS., DIV. OF INV. v. Fuld

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 09-2891

THE STATE OF NEW JERSEY,

DEPARTMENT OF TREASURY,

DIVISION OF INVESTMENT,

Appellant

v.

RICHARD FULD, JR.; CHRISTOPHER M. O’MEARA;

JOSEPH M. GREGORY; ERIN CALLAN;

IAN LOWITT; DAVID GOLDFARB;

HERBERT H. MCDADE, III; THOMAS RUSSO;

MARK WALSH; MICHAEL ANSLIE;

JOHN F. AKERS; ROGER S. BERLIND;

THOMAS H. CRUIKSHANK; MARSHA JOHNSON EVANS;

CHRISTOPHER GENT; ROLAND A. HERNANDEZ;

HENRY KAUFMAN; ERNST & YOUNG LLP;

JOHN D. MACOMBER

(Amended as per the Clerk’s 09/02/09 Order)

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 3-09-cv-01629)

District Judge: Honorable Anne E. Thompson

Argued April 12, 2010

Before: SLOVITER, HARDIMAN, Circuit Judges, and

RESTANI*, Judge

(Filed: May 17, 2010)

____

Merrill G. Davidoff (Argued)

Lawrence J. Lederer

Peter B. Nordberg

Robin Switzenbaum

Berger & Montague

Philadelphia, PA l9l03

Jeffrey W. Herrmann

Peter S. Pearlman

Cohn, Lifland, Pearlman, Herrmann & Knopf

Saddle Brook, NJ 07663

Attorneys for Appellant

Mary E. McGarry (Argued)

Michael J. Chepiga

Simpson, Thacher & Bartlett

New York, NY 10017

Jeffrey J. Greenbaum (Argued)

James M. Hirschhorn

Sills, Cummis & Gross

Newark, NJ 07102

Attorneys for Appellees Lehman Defendants

David J. McLean

Latham & Watkins

Newark, NJ 07101

Jamie L. Wine

Latham & Watkins

*

Hon. Jane A. Restani, Chief Judge, United States Court of

International Trade, sitting by designation.

2

New York, NY 10022

Attorneys for Appellee Ernst & Young LLP

Robert J. Cleary

Proskauer Rose

New York, NY 10036

Attorneys for Appellee Erin Callan

OPINION OF THE COURT

SLOVITER, Circuit Judge.

The State of New Jersey, Department of Treasury,

Division of Investment (“New Jersey”) appeals the District

Court’s order denying its motion to remand the action it brought

under the Securities Act of 1933, a statute that specifically

precludes removal, which defendants had removed to federal

court. Defendants/Appellees Richard S. Fuld and various other

officers and directors of Lehman Brothers Holdings, Inc.,

(collectively, “the Directors”) have filed a motion to dismiss the

appeal for lack of appellate jurisdiction. We proceed to examine

our jurisdiction over the District Court’s order denying remand.

I.

Background

New Jersey manages the pension and retirement plan

funds for over 700,000 of its active and retired state employees.

In April and June of 2008, New Jersey purchased over $180

million of investment securities from Lehman Brothers

Holdings, Inc. (“Lehman”) consisting of preferred stock and

common stock in Lehman. Three months after New Jersey’s

June purchases of these securities, Lehman filed for bankruptcy

protection.

3

In March 2009, New Jersey filed a complaint in the

Superior Court of New Jersey against the Directors and Ernst &

Young LLP, an accounting firm, alleging violation of state law

and the federal Securities Act of 1933 (the “Securities Act”), 15

U.S.C. §§ 77k, 77l, 77o, because of alleged material

misstatements and omissions regarding the value of Lehman’s

assets. Lehman, protected by the automatic stay, 11 U.S.C. §

362(a)(1), was not named as a defendant.

New Jersey’s complaint was one of dozens filed against

the Directors by investors seeking to recover their investment

losses. Those actions have been consolidated by the Judicial

Panel on Multidistrict Litigation and are pending in the Southern

District of New York. See In re Lehman Bros. Holdings, Inc.,

Sec. & Employee Ret. Income Sec. Act (ERISA) Litig. (“In re

Lehman Bros.”), 598 F. Supp. 2d 1362, 1364 (J.P.M.L. 2009).

Many of the actions, similar to the one brought by New Jersey in

state court, were brought by state and local government

investment funds.

The Directors removed New Jersey’s action to federal

court, asserting that it was “related to” the Lehman bankruptcy

and hence removable under 28 U.S.C. §§ 1334(b) and 1452(a).

New Jersey filed a motion to remand, arguing that section 22(a)

of the Securities Act prohibits the removal from state courts of

cases arising under the Act.1 See 15 U.S.C. § 77v(a) (“Except as

provided in section 77p(c) of this title [relating to class actions],

no case arising under this subchapter and brought in any State

court of competent jurisdiction shall be removed to any court of

the United States.”). After considering the conflict between the

Bankruptcy Code (which allows removal) and the Securities Act

1

In April 2009, after the removal, the Judicial Panel on

Multidistrict Litigation issued a conditional transfer order

transferring this case from the District of New Jersey to the

consolidated proceedings in the Southern District of New York.

See In re Lehman Bros., MDL No. 2017 (J.P.M.L. Apr. 30, 2009)

(order for conditional transfer). The order was vacated pending

this appeal. See In re Lehman Bros., MDL No. 2017 (J.P.M.L.

Aug. 10, 2009) (order vacating conditional transfer order).

4

(which prohibits it), the District Court denied New Jersey’s

motion to remand, finding persuasive the decision of the Second

Circuit that the bankruptcy removal statute, 28 U.S.C. §§

1334(b) and 1452(a), trumps the anti-removal provision of the

Securities Act. See State of N.J., Dep’t of Treasury, Div. of Inv.

v. Fuld, No. 09-1629 (AET), 2009 WL 1810356, at *2 (D.N.J.

June 25, 2009) (citing Cal. Pub. Employees’ Ret. Sys. v.

WorldCom, Inc., 368 F.3d 86 (2d Cir. 2004), cert. denied, 543

U.S. 1080 (2005)). The statutory conflict raises an issue of first

impression for our court, and to date the Second Circuit in

WorldCom is the only court of appeals to have addressed it. 368

F.3d at 90.

In June 2009, New Jersey filed a notice of appeal from

the District Court’s order denying remand, citing 28 U.S.C. §

1291 and the collateral order doctrine as the bases for our

appellate jurisdiction. New Jersey also filed, in the alternative, a

petition for interlocutory appeal under 28 U.S.C. § 1292(b). The

District Court granted in part New Jersey’s motion for

certification under § 1292(b), certifying for appeal the question

of “how to resolve the statutory conflict between 28 U.S.C. §

1452(a) and Section 22(a) of the Securities Act of 1933, 15

U.S.C. § 77v(a).” State of N.J., Dep’t of Treasury, Div. of Inv. v.

Fuld, No. 09-1629 (AET), 2009 WL 2905432, at *1 (D.N.J.

Sept. 8, 2009). A motions panel of this court denied the petition

in a one-line order. See Order, State of N.J., Dep’t of Treasury,

Div. of Inv. v. Fuld, No. 09-8068 (3d Cir. Oct. 16, 2009). The

motions panel also denied New Jersey’s petition for panel

rehearing, which requested “that the Petition be referred for

decision to the merits panel” in this appeal. N.J.’s Pet. for Panel

Rehr’g at 1, State of N.J., Dep’t of Treasury, Div. of Inv. v. Fuld,

No. 09-8068 (3d Cir. Oct. 30, 2009). Accordingly, appellate

jurisdiction must be found, if at all, in 28 U.S.C. § 1291 and the

collateral order doctrine.2 Before us is the Directors’ motion to

dismiss the appeal for lack of jurisdiction.

II.

2

New Jersey did not seek a writ of mandamus, and we have

no occasion to discuss that option.

5

Discussion

The courts of appeals “have jurisdiction of appeals from

all final decisions of the district courts of the United States, . . .

except where a direct review may be had in the Supreme Court.”

28 U.S.C. § 1291. A “final decision” is a decision by the district

court that “ends the litigation on the merits and leaves nothing

for the court to do but execute the judgment,” Catlin v. United

States, 324 U.S. 229, 233 (1945), or one “by which a district

court disassociates itself from a case,” Swint v. Chambers

County Comm’n, 514 U.S. 35, 42 (1995). However, the

Supreme Court “has long given § 1291 a practical rather than a

technical construction.” Mohawk Indus., Inc. v. Carpenter, 130

S. Ct. 599, 605 (2009) (quoting Cohen v. Beneficial Indus. Loan

Corp., 337 U.S. 541, 546 (1949) (internal quotations omitted)).

Under the collateral order doctrine enunciated in Cohen over a

half-century ago, the courts of appeals have appellate

jurisdiction over “that small class [of orders] which finally

determine claims of right separable from, and collateral to, rights

asserted in the action, too important to be denied review and too

independent of the cause itself to require that appellate

consideration be deferred until the whole case is adjudicated.”

337 U.S. at 546. The collateral order doctrine “permits appeals

not only from a final decision . . . but also from a small category

of decisions that, although they do not end the litigation, must

nonetheless be considered ‘final’” for purposes of § 1291.

Swint, 514 U.S. at 42 (citing Cohen, 337 U.S. at 546).

To be appealable under the collateral order doctrine, an

order must “[1] conclusively determine the disputed question, [2]

resolve an important issue completely separate from the merits

of the action, and [3] be effectively unreviewable on appeal from

a final judgment.” Coopers & Lybrand v. Livesay, 437 U.S. 463,

468 (1978). “[A] failure to meet any one of the three factors

renders the doctrine inapplicable as a basis for appeal, no matter

how compelling the other factors may be.” In re Pressman-

Gutman Co., 459 F.3d 383, 396 (3d Cir. 2006) (citing Virgin

Islands v. Hodge, 359 F.3d 312, 320 (3d Cir. 2004)).

The criteria are “stringent,” Digital Equip. Corp. v.

Desktop Direct, Inc., 511 U.S. 863, 868 (1994), and the scope of

6

the doctrine is “narrow” and “modest,” Will v. Hallock, 546 U.S.

345, 350 (2006). The Supreme Court has stressed that the

collateral order doctrine “must ‘never be allowed to swallow the

general rule that a party is entitled to a single appeal, to be

deferred until final judgment has been entered,’” Mohawk, 130

S. Ct. at 605 (quoting Digital Equip., 511 U.S. at 868), since

“[p]ermitting piecemeal, prejudgment appeals . . . undermines

‘efficient judicial administration’ and encroaches upon the

prerogatives of district court judges, who play a ‘special role’ in

managing ongoing litigation,” id. (quoting Firestone Tire &

Rubber Co. v. Risjord, 449 U.S. 368, 374 (1981)). “The

justification for immediate appeal must therefore be sufficiently

strong to overcome the usual benefits of deferring appeal until

litigation concludes.” Id.

The parties in this appeal agree that the first two Cohen

criteria are satisfied: the District Court’s order “conclusively

determine[s] the disputed question” and it “resolve[s] an

important issue completely separate from the merits of the

action.” Coopers & Lybrand, 437 U.S. at 468. The parties

dispute only whether the right at issue is “effectively

unreviewable” after a final judgment. Id. New Jersey argues

that the District Court’s order denying remand is “effectively

unreviewable” because the interest sought to be protected –

namely, its interest in having the Securities Act claim heard in a

New Jersey state court – will be lost if the case proceeds to final

judgment. According to New Jersey, “[t]he matter at issue . . .

flies directly in the face of Congress’s express intent to prevent

removal of 1933 Securities Act cases filed in state court to

federal court,” N.J.’s Resp. to Directors’ Mot. to Dismiss at 17,

and without interlocutory review “New Jersey . . . will be forced

into a web of complex, time consuming and costly bankruptcy

proceedings,” id. at 18. New Jersey contends that “an appeal

that voids every order entered in the case will be too late and

years of expensive litigation will have been fruitless.” Id. at 18-

19.

The crux of New Jersey’s argument is that the order

denying remand “implicate[s] [the] state’s interest in protecting

certain aspects of the administration of its judicial system”

inasmuch as “a motion to remand on the basis of subject matter

7

jurisdiction seeks to invoke [a] congressional policy to protect

the interest of a state sovereign which is seeking to vindicate the

rights of its pension plan participants.” Id. at 17-18. In

response, the Directors argue that New Jersey fails to satisfy

Cohen’s third criterion because “the existence of removal

jurisdiction can be raised on appeal of the eventual final

judgment in the case.” Directors’ Mot. to Dismiss at 7.

In Mohawk, the Court held that the court of appeals had

no jurisdiction under the collateral order doctrine over the

interlocutory appeal by a defendant/employer of the trial court’s

order requiring it to disclose information that it sought to protect

as privileged. 130 S. Ct. at 603. The Supreme Court, speaking

through Justice Sotomayor, “acknowledge[d] the importance of

the attorney-client privilege” as “one of the oldest recognized

privileges for confidential communications,” id. at 606 (citation

and internal quotations omitted), but nonetheless held that the

disclosure of privileged materials was not “effectively

unreviewable” after final judgment because “[a]ppellate courts

can remedy the improper disclosure of privileged material in the

same way they remedy a host of other erroneous evidentiary

rulings: by vacating an adverse judgment and remanding for a

new trial in which the protected material and its fruits are

excluded from evidence,” id. at 605, 606-07. In those cases

where “litigants [are] confronted with a particularly injurious or

novel privilege ruling,” the Court noted that litigants have

“useful ‘safety valves’” available to them, including

interlocutory appeal of a certified order under 28 U.S.C. §

1292(b) and mandamus relief. Id. at 607-08 (quoting Digital

Equip., 511 U.S. at 883) (alteration omitted).

The Court’s decision in Mohawk is consistent with earlier

decisions that declined to apply the collateral order doctrine. In

Firestone, the Supreme Court held that “[a]n order refusing to

disqualify counsel plainly falls within the large class of orders

that are indeed reviewable on appeal after final judgment, and

not within the much smaller class of those that are not.” 449

U.S. at 377. In Richardson-Merrell, Inc. v. Koller, the Court

held that an order disqualifying counsel in a civil case did not

qualify for immediate appeal under the collateral order doctrine.

472 U.S. 424, 426 (1985). The Court reached the same result in

8

a criminal case in Flanagan v. United States, notwithstanding

the Sixth Amendment rights at stake. 465 U.S. 259, 260 (1984).

In contrast, the Supreme Court has applied the collateral

order doctrine in cases involving orders rejecting absolute

immunity, Nixon v. Fitzgerald, 457 U.S. 731, 742-43 (1982), and

qualified immunity, Mitchell v. Forsyth, 472 U.S. 511, 530

(1985). In Nixon, the Court stressed the “compelling public

ends,” 457 U.S. at 758, “rooted in . . . the separation of powers,”

id. at 749, that would be compromised by failing to allow

immediate appeal of a denial of absolute Presidential immunity,

id. at 743. In examining collateral order review when a qualified

immunity claim was at issue in Mitchell, the Court noted “the

threatened disruption of governmental functions, and fear of

inhibiting able people from exercising discretion in public

service if a full trial were threatened whenever they acted

reasonably in the face of law that is not ‘clearly established.’”

Will, 546 U.S. at 352 (citing Mitchell, 472 U.S. at 526).

Similarly, in Puerto Rico Aqueduct & Sewer Authority v. Metcalf

& Eddy, Inc., 506 U.S. 139 (1993), the Court “explained the

immediate appealability of an order denying a claim of Eleventh

Amendment immunity by adverting not only to the burdens of

litigation but to the need to ensure vindication of a State’s

dignitary interests.” Will, 546 U.S. at 352 (citing Metcalf, 506

U.S. at 146). “In each case, some particular value of a high

order was marshaled in support of the interest in avoiding trial:

honoring the separation of powers, preserving the efficiency of

government and the initiative of its officials, respecting a State’s

dignitary interests, and mitigating the government’s advantage

over the individual.” Id. at 352-53.

The Court has also applied the collateral order doctrine in

a narrow set of criminal cases. In Stack v. Boyle, 342 U.S. 1

(1951), the Court applied the doctrine to an order denying a

motion to reduce bail because the order “becomes moot if review

awaits conviction and sentence,” Flanagan, 465 U.S. at 266

(citing Stack, 342 U.S. 1). “Orders denying motions to dismiss

an indictment on double jeopardy or speech or debate grounds

are likewise immediately appealable” because “appellate review

must occur before trial to be fully effective.” Id. This is so

because “[t]he right guaranteed by the Double Jeopardy Clause

9

is more than the right not to be convicted in a second prosecution

for an offense: it is the right not to be ‘placed in jeopardy’ – that

is, not to be tried for the offense.” Id. (citing Abney v. United

States, 431 U.S. 651 (1977)). “Similarly, the right guaranteed by

the Speech or Debate Clause is more than the right not to be

convicted for certain legislative activities: it is the right not to

‘be questioned’ about them – that is, not to be tried for them.”

Id. (citing Helstoski v. Meanor, 442 U.S. 500 (1979)). These

cases generally present rights derived from the Constitution.

New Jersey’s interlocutory appeal presents none of these

considerations that have justified collateral order review. There

is no separation of powers issue, see Nixon, 457 U.S. at 748, nor

are there claims of qualified immunity or state sovereign

immunity, see Mitchell, 472 U.S. at 526; Metcalf, 506 U.S. at

146. Nor is this a criminal case in which appellate review after

final judgment will impinge upon a constitutional right or render

an issue moot. See Helstoski, 442 U.S. at 508; Abney, 431 U.S.

at 659. Rather, this is a civil case that involves a dispute over

money. In that regard New Jersey is no different from the other

investors whose securities lost value after the collapse of

Lehman, many of which, like New Jersey, are state and local

government investment funds.

If we lack collateral order jurisdiction to review the

pretrial disqualification of defense counsel in a criminal case,

which raises an issue of constitutional import, see Flanagan, 465

U.S. at 263, we fail to see how we have collateral order

jurisdiction to review the District Court’s order denying remand

in this civil case, see Caterpillar Inc. v. Lewis, 519 U.S. 61, 74

(1996) (“An order denying a motion to remand, standing alone,

is obviously not final and immediately appealable as of right.”)

(citation, quotations and alterations omitted); Chi., Rock Island

& Pac. R.R. v. Stude, 346 U.S. 574, 578 (1954) (“Obviously, . . .

an order [denying a motion to remand] is not final and

appealable if standing alone.”) (citation omitted); Spring Garden

Assocs., L.P. v. Resolution Trust Corp., 26 F.3d 412, 414 (3d

Cir. 1994) (“As for the district court’s denial of a remand,

neither 28 U.S.C. § 1291 nor 28 U.S.C. § 1292 expressly confers

jurisdiction on this court to review orders denying a remand to a

state court.”) (citations omitted).

10

We are not persuaded that the District Court’s order

denying remand falls within the “narrow class of decisions that

do not terminate the litigation, but must, in the interest of

achieving a healthy legal system, nonetheless be treated as

final.” Digital Equip., 511 U.S. at 867 (internal citations and

quotations omitted). If New Jersey’s arguments in favor of

remand are correct, a question that we do not decide today, an

appellate court can vacate the order denying remand with

instructions to remand the case to the New Jersey court.

New Jersey’s reliance on the cost and delay associated

with litigation in the consolidated proceedings does little to

advance its position. The Supreme Court has held that “the

possibility that a ruling may be erroneous and may impose

additional litigation expense is not sufficient to set aside the

finality requirement imposed by Congress [in § 1291].”

Richardson-Merrell, 472 U.S. at 436; see also Lauro Lines s.r.l.

v. Chasser, 490 U.S. 495, 499 (1989) (noting that the Court “has

declined to find the costs associated with unnecessary litigation

to be enough to warrant allowing the immediate appeal of a

pretrial order”). The Court held that “‘[i]f the expense of

litigation were a sufficient reason for granting an exception to

the final judgment rule, the exception might well swallow the

rule.’” Richardson-Merrell, 472 U.S. at 436 (quoting Lusardi v.

Xerox Corp., 747 F.2d 174, 178 (3d Cir. 1984)).

That reasoning applies here. Congress considered the

expense of litigation when it fashioned the final judgment rule of

§ 1291, and we cannot second-guess its policy choice by using

those same litigation expenses to justify departure from the rule.

See id. at 434 (“One purpose of the final judgment rule

embodied in § 1291 is to avoid the delay that inherently

accompanies time-consuming interlocutory appeals.”) (citing

Flanagan, 465 U.S. at 264); see also Transtech Indus., Inc. v. A

& Z Septic Clean, 5 F.3d 51, 56 (3d Cir. 1993) (“That an

erroneous ruling may result in additional litigation expense is not

sufficient to set aside the finality requirement imposed by

Congress in § 1291.”) (citations, alterations and internal

quotations omitted); Powers v. Southland Corp., 4 F.3d 223, 232

(3d Cir. 1993) (“The courts . . . have consistently rejected claims

that the time and expense of litigating a suit that will later be

11

reversed amounts to effective denial of review because those

costs can never be recovered.”). Moreover, litigation costs are

inherent in the denial of every motion to remand. Such costs

alone do not render the order “effectively unreviewable” because

to hold otherwise “would leave the final order requirement of §

1291 in tatters,” Will, 546 U.S. at 351, and would render hollow

§ 1291’s requirement of finality.

Apparently recognizing the dearth of authority supporting

its position, New Jersey relies on a non-precedential opinion of

this court for its statement that “an order denying remand is

reviewable under the collateral order doctrine.” Dieffenbach v.

CIGNA, Inc., 310 F. App’x 504, 506 (3d Cir. 2009) (per curiam)

(citing Pennsylvania v. Newcomer, 618 F.2d 246, 249 (3d Cir.

1980)). As a non-precedential opinion, Dieffenbach is only as

persuasive as its reasoning. Dieffenbach provides no reasoning

relevant to the collateral order doctrine except a lone citation to

Newcomer, which does not support collateral order review of an

order denying remand. 618 F.2d at 247. On the contrary, the

court in Newcomer noted that “[i]n the instant case no effort was

made to secure collateral order review of the denial of the

motion to remand,” and thus the court held that “we need not

decide whether direct appeal was available under [the collateral

order doctrine]. . . .”3 Id. at 249. Even if we found the statement

in Dieffenbach to be persuasive, we would not have cited it as

authority. See 3d Cir. Internal Operating P. 5.7 (“The court by

tradition does not cite to its not precedential opinions as

authority.”).

Finally, New Jersey emphasized at oral argument that it is

“not an ordinary litigant,” but rather “a state sovereign” that has

3

New Jersey also attempts to analogize its “interest in

protecting certain aspects of the administration of its judicial

system” to the state’s interest in Newcomer. N.J.’s Resp. to Mot.

at 18. The interests are distinguishable. In Newcomer, the court

considered a petition for a writ of mandamus to compel a district

court to remand to state court a state criminal prosecution. 618

F.2d at 247. We are not presented with a state criminal prosecution

or a petition for a writ of mandamus.

12

been placed into a “procedural morass” entailing “years of

litigation [and] years of expense and waste.” We are not

unsympathetic to New Jersey’s disinclination to litigate this case

in a federal forum, where it will likely be transferred.4 Indeed,

we cannot say that we would have denied a petition to hear the

appeal under 28 U.S.C. § 1292(b). The Second Circuit granted a

similar petition and considered the same statutory conflict as a

certified question in WorldCom, 368 F.3d at 94, but that is not

our case. We are bound by the motions panel’s denial of New

Jersey’s petition for review under § 1292(b) and its petition for

panel rehearing. In any event, if, after the trial level proceedings

are completed, it is determined that it was error to deny remand,

there is nothing to prevent New Jersey from effectuating its

purported interest in having its case heard in a New Jersey state

court on remand after a final judgment.

III.

Conclusion

For the foregoing reasons, we will grant the Directors’

motion to dismiss the appeal for lack of jurisdiction.

Accordingly, we express no view on the conflict between 28

U.S.C. § 1452(a) and the anti-removal provision of the Securities

Act, 15 U.S.C. § 77v(a).

4

We note, however, that the Bankruptcy Code ameliorates

any comity concerns by providing for abstention in an appropriate

case: “nothing in [28 U.S.C. § 1334] prevents a district court in the

interest of justice, or in the interest of comity with State courts or

respect for State law, from abstaining from hearing a particular

proceeding arising under title 11 or arising in or related to a case

under title 11.” 28 U.S.C. § 1334(c)(1); see also In re Mystic Tank

Lines Corp., 544 F.3d 524, 528 (3d Cir. 2008) (“No provision of

the Bankruptcy Code requires the Bankruptcy Court to hear all

‘related to’ claims.”).

13