Newby v. Enron Corp.

REVISED SEPTEMBER 15, 2008

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

September 8, 2008

No. 07-20043

Charles R. Fulbruge III

Clerk

MARK NEWBY, ET AL;

Plaintiffs

v.

ENRON CORPORATION, ET AL;

Defendants

___________________________________________________________

FLEMING & ASSOCIATES LLP

Plaintiff-Appellant

v.

ANDREW S FASTOW; BANK OF AMERICA CORP; CREDIT SUISSE

FIRST BOSTON; BARCLAYS PLC; CANADIAN IMPERIAL BANK OF

COMMERCE; MERRILL LYNCH & COMPANY INC; JP MORGAN CHASE

& CO; LEHMAN BROTHERS HOLDINGS INC; BANC OF AMERICA

SECURITIES LLC; FINANCIAL INSTITUTION DEFENDANTS; BANK OF

AMERICA N.A.; JOHN A URQUHART; JP MORGAN SECURITIES INC,

formerly known as Chase Securities Inc; MERRILL LYNCH PIERCE

FENNER & SMITH INC; PERSHING LLC; ROBERT A BELFER; NORMAN

P BLAKE, JR; RONNIE C CHAN; JOHN H DUNCAN; WENDY L GRAMM;

ROBERT K JAEDICKE; CHARLES A LEMAISTRE; JOE H FOY; JOSEPH

M HIRKO; KEN L HARRISON; REBECCA MARK-JUSBASCHE; JOHN

MENDELSON; PAULO V FERRAZ PEREIRA; FRANK SAVAGE; JEROME

J MEYER; CHARLES E WALKER; CITIGROUP INC; KRISTINA

MORDAUNT; CREDIT SUISSE FIRST BOSTON, (USA) INC; CAMPSITE

LTD; JP MORGAN SECURITIES INC; CIBC INC; CIBC WORLD MARKETS

CORP; CITIBANK NA; CITICORP NORTH AMERICA; LEHMAN

BROTHERS INC; BARCLAYS CAPITAL INC; SALOMON BROTHERS

INTERNATIONAL LTD; CITICORP; JP MORGAN CHASE; CITIGROUP

GLOBAL MARKETS LTD; CITIGROUP GLOBAL MARKETS INC; ROYAL

No. 07-20043

BANK OF CANADA; ROYAL BANK OF SCOTLAND; NATIONAL

WESTMINSTER BANK PLC; GREENWICH NATWEST LTD; GREENWICH

NATWEST STRUCTURED FINANCE INC; ROYAL BANK HOLDING;

ROYAL BK DS HOLDING; RBC DOMINION SECURITIES INC; RBC

DOMINION SECURITIES LTD; RBC HOLDINGS (USA)

Defendants-Appellees

Appeal from the United States District Court

for the Southern District of Texas

USDC No. 4:01-cv-03624

Before SMITH and PRADO, Circuit Judges, and LUDLUM*, District Judge.

PRADO, Circuit Judge:

In December 2001, Enron Corporation filed for bankruptcy. Seven years

later, litigation involving the Enron collapse endures. Today’s decision presents

another chapter in that story.

I. FACTUAL AND PROCEDURAL BACKGROUND

On October 16, 2001, Enron publicly announced that it had incurred a

$683 million loss and was taking non-recurring charges of $1.01 billion after-tax

in the third quarter of 2001. That week, the Wall Street Journal published a

series of articles revealing that Enron and related entities had engaged in

various fraudulent transactions. As a result, the price of Enron’s stock

plummeted, precipitating the decline of the company.

In late 2001, the Houston law firm of Fleming & Associates (the “Fleming

Firm”) filed seven securities-related lawsuits in Texas state courts on behalf of

several hundred clients against various Enron-related defendants. Pursuant to

these suits, the Fleming Firm sought ex parte temporary restraining orders to

prevent the defendants from destroying Enron-related documents. Meanwhile,

*

District Judge of the Western District of Texas, sitting by designation.

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No. 07-20043

the district court, which already had jurisdiction over various Enron-related

cases involving these parties as part of the Enron Multidistrict Litigation

(“MDL”) proceeding and the “Newby” consolidated cases, had already issued a

similar order against the same defendants. Based on the Fleming Firm’s

conduct in seeking ex parte orders in state court, on February 15, 2002, the

district court issued a memorandum and order enjoining the Fleming Firm from

filing any new Enron-related actions without leave of the court (the “February

15, 2002, injunction”). This court affirmed the issuance of the injunction. See

Newby v. Enron Corp., 302 F.3d 295, 302 (5th Cir. 2002) (Newby I). We held that

the district court had the power to issue a “narrowly tailored” injunction under

the All Writs Act, 28 U.S.C. § 1651, to “enjoin[] repeatedly vexatious litigants

from filing future state court actions.” Id. We noted,

The district court in this case was attempting to rein in a law firm

that represents over 750 plaintiffs . . . . The problem is Fleming’s

unjustified and duplicative requests for ex parte temporary

restraining orders, without notice to lawyers already across the

counsel table from Fleming and engaged in the prosecution and

defense of virtually identical claims in federal suits.

Id.

Pursuant to the injunction, in October 2003, the Fleming Firm filed a

motion for leave to file two Enron-related actions in state court and a motion to

lift the injunction. The district court granted the motion for leave to file suit but

denied the motion to lift the injunction. Meanwhile, on July 11, 2003, the

district court issued a scheduling order in the Newby securities class action, and

on July 5, 2006, the district court certified the class in Newby.1

1

This court subsequently ordered the decertification of the Newby class. See Regents

of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. 2007), cert.

denied, Regents of Univ. of Cal. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 128 S. Ct. 1120

(2008).

3

No. 07-20043

On October 14, 2005, the Fleming Firm moved for leave to file thirty-four

lawsuits in Texas courts on behalf of approximately 1200 clients. The proposed

defendants included several financial institutions and Enron outside officers and

directors (this group comprises the Defendants-Appellees “Financial

Institutions”).2 The Fleming Firm attached its proposed state court petitions to

its motion for leave to file suit. The state court suits would allege seven state

law causes of action: common law fraud and fraud-on-the-market, negligence,

statutory fraud, aiding and abetting liability under the Texas Securities Act,

civil conspiracy, aiding and abetting common law fraud, and negligent

misrepresentation.

The district court denied the Fleming Firm’s motion for leave to file suit.

The court determined that the statute of limitations had run for all of the

Fleming Firm’s proposed state law claims and that no tolling doctrines applied.

Therefore, the court concluded that it would be futile to grant the motion, as the

Texas courts would dismiss the state law claims as time-barred. The Fleming

Firm appeals.

II. JURISDICTION AND STANDARD OF REVIEW

This court has jurisdiction pursuant to 28 U.S.C. § 1291, as the district

court issued a final judgment denying the motion for leave to file suit. The

district court had jurisdiction under 28 U.S.C. § 1331 because the Newby case

involves federal securities law claims.

We review the district court’s actions pursuant to the injunction it issued

for an abuse of discretion. See Newby I, 302 F.3d at 301. We review de novo

underlying questions of law, such as whether the statute of limitations has run

2

The Fleming Firm has settled this case with some of the Defendants-Appellees, and

this court has dismissed those parties from this case. Although many financial institutions are

part of that settlement, for ease we still refer to the remaining Defendants-Appellees as the

“Financial Institutions.”

4

No. 07-20043

or whether equitable tolling applies. See In re Hinsley, 201 F.3d 638, 644 (5th

Cir. 2000); FDIC v. Dawson, 4 F.3d 1303, 1308 (5th Cir. 1993).

III. DISCUSSION

A. Statutes of Limitations

The Fleming Firm seeks to bring seven causes of action in state court. The

proposed state law claims for common law fraud and fraud-on-the-market (Count

I), statutory fraud (Count III), and aiding and abetting common law fraud

(Count VI) all have a four-year statute of limitations. TEX. CIV. PRAC. & REM.

CODE ANN. § 16.051 (common law fraud); id. § 16.004(a)(4) (statutory fraud); id.

§ 16.051 (aiding and abetting common law fraud). The proposed claims for

aiding and abetting under the Texas Securities Act (Count IV) have a three-year

statute of limitations. TEX. REV. CIV. STAT. ANN. art. 581-33(H). The claims for

negligence (Count II), civil conspiracy (Count V), and negligent

misrepresentation (Count VII) all have a two-year statute of limitations. TEX.

CIV. PRAC. & REM. CODE ANN. § 16.003 (negligence); Stevenson v. Koutzarov, 795

S.W.2d 313, 318 (Tex. App. 1990) (civil conspiracy); TEX. CIV. PRAC. & REM. CODE

ANN. § 16.003, Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221

n.9 (Tex. 2003) (negligent misrepresentation). Given that the Fleming Firm’s

clients had notice of their claims on October 17, 2001, the longest statute of

limitations at issue here (four years) would have expired on October 17, 2005,

unless a tolling doctrine applies.

The Fleming Firm submitted its motion for leave to file the state court

suits on October 14, 2005. The district court held that as of this date, without

tolling, the statutes of limitations would bar all but the claims with a four-year

limitations period. Further, the court concluded that without tolling, Texas law

would also bar the claims that have a four-year statute of limitations because

the Fleming Firm did not file an original petition with a state court clerk

pursuant to Texas Rule of Civil Procedure 22 before the limitations period

5

No. 07-20043

expired. The district court noted that under its Local Rule 7.3, the motion for

leave to file suit would not be ripe for a ruling until twenty days after the

Fleming Firm filed the motion, or until November 3, 2005, meaning that the

Fleming Firm could not have filed the state court suits within the statute of

limitations even if the court had granted leave.3 Accordingly, the court held that

granting leave to file any of the proposed claims would be futile.

Contrary to the Fleming Firm’s suggestion, the district court did not

violate any notions of federalism by determining whether a Texas state court

would dismiss the Fleming Firm’s suits based on the state’s statute of

limitations. The district court has jurisdiction over a multitude of claims under

the MDL and is intimately involved in the many facets of the litigation

surrounding the Enron collapse. All of the parties in the Fleming Firm’s

proposed state law claims are also before the district court in similar

proceedings. It was not outside of the scope of the district court’s duties to

determine if the Texas courts would immediately dismiss the proposed state law

claims involving parties already before the district court. Further, federal courts

often consider issues involving a state statute of limitations. See, e.g., Vaught

v. Showa Denko K.K., 107 F.3d 1137, 1147 (5th Cir. 1997) (analyzing the Texas

rule for tolling the state statute of limitations when the plaintiff also was

involved in a federal class action).

In determining that it had the authority to deny the motion for leave based

on the futility of the state law claims, the district court analogized to the rules

for granting leave to file a motion to amend under Federal Rule of Civil

Procedure 15(a). That rule states that a court should freely give leave to amend

a pleading “when justice so requires.” FED. R. CIV. P. 15(a)(2). However, a court

3

The Southern District of Texas’s Local Rule 7.3 states, “Opposed motions will be

submitted to the judge twenty days from filing without notice from the clerk and without

appearance by counsel.”

6

No. 07-20043

need not grant leave to amend when the filing would be futile because the

proposed claims are time-barred. See FDIC v. Conner, 20 F.3d 1376, 1385 (5th

Cir. 1994).

The Fleming Firm argues that the district court incorrectly failed to

incorporate the “relation-back” principle of Rule 15(c) into its analysis when the

court used Rule 15(a) as an analogy. Rule 15(c) states that an amendment to a

pleading relates back to the date of the original pleading when, inter alia, “the

amendment asserts a claim or defense that arose out of the conduct, transaction,

or occurrence set out—or attempted to be set out—in the original pleading.”

FED. R. CIV. P. 15(c)(1)(B). The Fleming Firm asserts that the district court

should have determined that the proposed actions would be timely because the

Fleming Firm attached the petitions to its motion for leave to file suit, and thus

they would relate back to the date of filing (October 14, 2005, which was three

days before the statute of limitations expired for some of its claims). The

Fleming Firm also contends that the Texas state courts would apply Texas’s

analogous “relation-back” rule for motions to amend given that the federal court

denied the motion for leave on the basis of the rules regarding motions to amend.

See TEX. CIV. PRAC. & REM. CODE ANN. § 16.068. Finally, the Fleming Firm

argues that the filing of its motion for leave to file suit, accompanied by the

thirty-four proposed petitions, served the purpose of a statute of limitations

because it gave the defendants notice of the claims within the limitations period.

See, e.g., Moore v. Indiana, 999 F.2d 1125, 1131 (7th Cir. 1993) (“As a party has

no control over when a court renders its decision regarding the proposed

amended complaint, the submission of a motion for leave to amend, properly

accompanied by the proposed amended complaint that provides notice of the

substance of those amendments, tolls the statute of limitations, even though

technically the amended complaint will not be filed until the court rules on the

motion.”).

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No. 07-20043

Assuming, arguendo, that Rule 15(a) applies in this situation, the district

court was correct to conclude that it would be futile to grant leave for the

Fleming Firm to file the state court actions that have a two-year or three-year

statute of limitations. That is, the state court would rule that these claims are

time-barred, even with the benefit of a relation-back doctrine, because the

Fleming Firm did not file its motion for leave to file suit before these statutes of

limitations had expired.

The district court was incorrect, however, in denying the motion for leave

to file suit for the claims that have a four-year statute of limitations. The court

did not cite any authority for using its own local rules to dictate the state’s filing

date for purposes of Texas’s relation-back principle. In effect, the district court

was requiring the Fleming Firm either to file a motion for leave at least twenty

days before the statute of limitations expired—or perhaps even earlier if the

district court did not rule on the motion in time—or to violate the injunction by

filing in state court within the limitations period. Cf. Schillinger v. Union Pac.

R.R. Co., 425 F.3d 330, 334 (7th Cir. 2005) (“The logic underlying [using the date

of filing for limitations purposes as opposed to the date the court rules on the

motion] is that defendants are on notice of the amendment when the motion is

filed and it would be unfair to plaintiffs if a trial court waited months or years

to rule.”). Thus, the district court should have allowed the Texas state courts to

decide whether the filing of the state petitions relates back to the filing of the

motion for leave to file suit (for the claims that have a four-year statute of

limitations), meaning that these claims might not be futile. Because the

Fleming Firm sought to file these claims before the statute of limitations

expired, it is up to the state court to determine how to proceed. In sum, the

district court improperly denied the motion for leave to file the claims involving

common law fraud and fraud-on-the-market (Count I), statutory fraud (Count

III), and aiding and abetting common law fraud (Count VI), because these claims

8

No. 07-20043

all have a four-year statute of limitations, and the Fleming Firm submitted its

motion for leave to file suit before that limitations period expired.

B. Tolling

As discussed above, the district court properly denied the motion for leave

for the claims that have a two-year or three-year statute of limitations unless a

tolling doctrine applies. The Fleming Firm posits three possible tolling

doctrines. First, the Fleming Firm argues that the district court’s scheduling

order in the Newby MDL tolled the limitations period for its proposed claims.

Second, the Fleming Firm argues that the February 15, 2002, injunction itself

tolled the statute of limitations because it prevented the Fleming Firm from

exercising its clients’ legal remedies. Finally, the Fleming Firm asserts that the

tolling doctrine from American Pipe & Construction v. Utah, 414 U.S. 538 (1974)

applies. After a careful review, it is apparent that none of the Fleming Firm’s

arguments have merit.

1. Newby MDL Scheduling Order

In its July 11, 2003 scheduling order in the Newby MDL case, the district

court stated that “all other suits [except for those brought by plaintiffs who had

decided to proceed under the Newby consolidated amended complaints] shall be

stayed as to the filing of amended pleadings and/or responsive pleadings until

the motions for class certification in Newby . . . are resolved by the Court, but

discovery may proceed.” The district court did not rule on the Newby class

certification until July 5, 2006. The Fleming Firm argues that the district court

admitted in its December 12, 2006 order involving other claims not subject to

this appeal that it had intended to toll the statute of limitations for all claims in

its July 11, 2003 scheduling order. See In re Enron Corp., No. H-01-3624-CV, et

al., 2006 WL 3716669, at *7 (S.D. Tex. Dec. 12, 2006) (“In issuing the July 11,

2003 scheduling order, . . . this Court fully intended to toll the statute of

limitations from running in the Newby consolidated and coordinated cases from

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No. 07-20043

entry of the order until it certified the class in Newby and gave plaintiffs in the

consolidated and coordinated cases a schedule to opt out and to file motions for

leave to amend . . . .”).

In making its argument, however, the Fleming Firm misconstrues the

district court’s July 11, 2003 scheduling order. In that order, the district court

was contemplating cases in which the plaintiffs had already filed a complaint.

In particular, the court stated that its scheduling order operated to stay the

cases as to the filing of “amended pleadings and/or responsive pleadings,” not

initial complaints. The December 12, 2006 order did not state anything to the

contrary, simply noting that the July 11, 2003 order tolled the statute of

limitations from running in the Newby consolidated and coordinated cases. Id.

Thus, the district court intended to stay the cases in which the plaintiffs had

already filed a complaint, not toll the statute of limitations for claims not yet

before the court. Accordingly, the district court did not toll the Fleming Firm’s

proposed state law claims, which the Fleming Firm had not yet filed.

2. February 15, 2002 Injunction

The district court’s February 15, 2002 injunction, preventing the Fleming

Firm from filing state law claims without leave of the court, also did not toll the

statute of limitations. Contrary to the Fleming Firm’s argument, this order did

not prevent the Fleming Firm from exercising its clients’ legal remedies. See

Jackson v. Johnson, 950 F.2d 263, 265 (5th Cir. 1992) (stating that “where a

person is prevented from exercising his legal remedy by the pendency of legal

proceedings, the time during which he is thus prevented should not be counted

against him in determining whether limitations have barred his right”). The

injunction simply required the Fleming Firm to take another step and seek

judicial approval before proceeding in state court. The Fleming Firm still could

bring its claims in an attempt to vindicate its clients’ legal rights, so long as it

first filed a motion for leave to file suit. In fact, this is exactly what occurred in

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No. 07-20043

October 2003 when the Fleming Firm successfully moved for leave to file two

actions in state court. Therefore, this argument is without merit.

3. American Pipe Tolling

In American Pipe, the Supreme Court held that the “commencement of a

class action suspends the applicable statute of limitations as to all asserted

members of the class who would have been parties had the suit been permitted

to continue as a class action.” 414 U.S. at 554. The policy behind this decision

is that a contrary rule would induce potential class members to file protective

motions to intervene or join in the event that the court denied class certification,

simply to preserve their claims. See id. at 553-54. The Court clarified the scope

of American Pipe in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350 (1983),

ruling that a class action tolls a statute of limitations for all asserted members

of the class, not just potential intervenors.

The Texas courts generally have adopted the American Pipe tolling

doctrine for state class actions. In Grant v. Austin Bridge Construction Co., 725

S.W.2d 366, 370 (Tex. App. 1987), the Texas Court of Appeals held that “even

though the statute of limitations on a class member’s individual cause of action

would expire during the pendency of a class action, the filing of the class action

suspends the applicable statute of limitations as to all purported members of the

class.” However, the Texas courts have not extended this holding to allow a

federal class action to toll a state statute of limitations. See Bell v. Showa Denko

K.K., 899 S.W.2d 749, 757-58 (Tex. App. 1995) (refusing to apply American Pipe

tolling to a state law mass personal injury suit based on a federal class action).

The court in Bell distinguished the decision in Grant in part by noting that the

state rules for tolling are based on state, not federal, law. See id. at 757 (“We do

not agree that American Pipe operates to toll our state statute of limitations.”).

This court has summarized Texas’s approach to the American Pipe tolling

doctrine as follows:

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No. 07-20043

A state (Texas) class action that raises property damage-type claims

tolls a Texas statute of limitations pending a certification ruling.

And, consistent with our understanding of this Texas tolling rule, it

is unclear whether, under this rule, a federal class action filed in

Texas or in any other State would ever toll a Texas statute of

limitations, regardless of the type of claims raised.

Vaught v. Showa Denko K.K., 107 F.3d 1137, 1147 (5th Cir. 1997). But see Prieto

v. John Hancock Mut. Life Ins. Co., 132 F. Supp. 2d 506, 518 (N.D. Tex. 2001)

(surmising that Texas courts would “interpret the class action tolling rule of

Grant and Bell as extending to all property damage claims . . . regardless of the

forum in which the class action was filed”); In re Norplant Contraceptive Prods.

Liab. Litig., 173 F.R.D. 185, 189 (E.D. Tex. 1997) (holding that a federal class

action would toll the state statute of limitations when the class action gives the

defendant “fair notice of the type and potential number of claims against it”).

Here, the Fleming Firm contends that the federal Newby class action

tolled all state law claims based on American Pipe. This is a weak argument

given this court’s prior language in Vaught and the Texas Court of Appeals’

holding in Bell. In Vaught, we questioned whether Texas would “ever” allow

tolling for a state claim based on a federal class action. See Vaught, 107 F.3d at

1147. Our doubt was premised, in part, on Bell, where the Texas court did not

allow a federal class action to toll the state statute of limitations and made clear

that the state tolling rule differs from the federal rule. See Bell, 899 S.W.2d at

757-58. Additionally, Grant does not apply, because that case involved whether

a Texas class action would toll a Texas individual action. See Grant, 725 S.W.2d

at 370. Therefore, the district court correctly concluded that, based on our

understanding of Texas law, the Texas courts likely will not extend American

Pipe tolling to this situation. Nevertheless, the Financial Institutions are free

to pursue this argument with the Texas courts, so the state courts can clarify the

reach of Texas’s tolling rules.

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No. 07-20043

C. Scope of Injunction

In another attempt to save all of its proposed state law claims, the Fleming

Firm argues that the district court exceeded the purposes of the February 15,

2002 injunction by denying its motion for leave. Specifically, the Fleming Firm

asserts that we had previously constrained the district court’s actions when we

affirmed the issuance of the injunction. See Newby I, 302 F.3d at 302. In that

case, we noted that the purpose of the injunction was to rein in the Fleming

Firm’s conduct in making “unjustified and duplicative requests for ex parte

temporary restraining orders” in a state court case when the same lawyers were

already opposing each other in similar federal suits. Id. The Fleming Firm

posits that when we reminded the district court that it had “a duty to consider

[the Fleming Firm’s] requests for leave to file suit in state court,” we envisioned

that the district court would grant leave so long as the proposed state court suits

would not produce the same type of vexatious conduct. In sum, the Fleming

Firm argues that the district court’s action here should have been “purely

ministerial” regarding whether the Fleming Firm’s proposed state law suits

would violate the purpose of the injunction, that is, to stop the filing of ex parte

orders.

However, the Fleming Firm reads too much into our opinion in Newby I.

We never directed the district court to consider only whether a future lawsuit

would involve ex parte orders when deciding whether to grant leave. Id. at 303.

Instead, we merely stated that the district court had a duty to consider any

requests for leave and could not deny leave solely based on the Fleming Firm’s

desire to avoid federal jurisdiction (by tailoring its suit in a way that would avoid

the preemptive effects of the Securities Litigation Uniform Standards Act). See

id. Nowhere did we indicate that the district court had to contemplate the initial

catalyst for the injunction when considering a motion for leave. Constraining

the district court to the original purposes of the injunction would give the

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No. 07-20043

injunction little effect, as it would prevent the district court from stopping other

vexatious conduct that is not precisely the same as that listed in the injunction.

Our decision in Newby I did not go this far. As such, the Fleming Firm’s

argument that the district court exceeded the scope of the February 15, 2002

injunction is without merit.

D. SLUSA Dismissal

The Financial Institutions present an alternative argument, suggesting

that this court should affirm the district court in its entirety because the

Securities Litigation Uniform Standards Act (SLUSA) would preempt all of the

proposed state law claims. SLUSA provides,“No covered class action based upon

the statutory or common law of any State or subdivision thereof may be

maintained in any State or Federal court by any private party alleging” a

securities claim. 15 U.S.C. § 77p(b). The Act defines a “covered class action” as,

inter alia, “any group of lawsuits filed in or pending in the same court and

involving common questions of law or fact, in which (I) damages are sought on

behalf of more than 50 persons; and (II) the lawsuits are joined, consolidated, or

otherwise proceed as a single action for any purpose.” Id. § 77p(f)(2)(A)(ii). If a

state law case is a “covered class action” under SLUSA, it is subject to removal

and subsequent dismissal as preempted. Id. § 77p(c).

The Financial Institutions argue that the thirty-four proposed lawsuits

constitute a “covered class action” because, in the aggregate, they assert claims

on behalf of more than fifty persons, and the lawsuits would proceed as a single

action in the state court. The Financial Institutions note that the thirty-four

proposed petitions are identical except for the plaintiffs’ names, and the

proposed suits each include fewer than fifty plaintiffs solely to defeat preemption

under SLUSA. The Financial Institutions speculate that if the Fleming Firm

were to file the thirty-four petitions in state court, the Texas courts would

consolidate them under Texas Rule of Civil Procedure 174, which would then

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allow the Financial Institutions to remove the cases pursuant to SLUSA. The

Financial Institutions also assert that the cases still would “otherwise proceed

as a single action” for purposes of discovery even if the Texas courts do not

consolidate the cases.

However, the Financial Institutions’ argument falls apart when

recognizing that a party is allowed to tailor a suit to avoid federal jurisdiction.

See Newby I, 302 F.3d at 303. As we stated when affirming the district court’s

February 15, 2002 injunction, “the district court cannot predicate future denials

of leave solely upon [the] Fleming[] [Firm’s] desire to avoid the reach of

[SLUSA].” Id.; see also S. REP. NO. 105-182 (1998), 1998 WL 226714, at *7-8

(noting that Congress did not intend SLUSA preemption “to prevent plaintiffs

from bringing bona fide individual actions simply because more than fifty

persons commence the actions in the same state court against a single

defendant”). Additionally, the Financial Institutions’ premise rests on an

assumption that the Texas courts will consolidate the cases, but there is no

evidence that the Texas courts will order consolidation. Predicting that the

Texas courts necessarily will consolidate would infringe upon notions of

federalism. See, e.g., Newby I, 302 F.3d at 303 (“The parallel exercise of state

and federal judicial power is inherent in our government of dual sovereignty.”).

The Texas courts should be allowed to decide in the first instance how to manage

their dockets with regard to the Fleming Firm’s claims that are not time-barred.4

4

This case is unlike the situation the district court faced in its December 12, 2006 order,

where the district court dismissed nine state law claims that the Fleming Firm had filed

because they constituted a “covered class action” under SLUSA. See In re Enron, 535 F.3d 325,

333 (5th Cir. 2008). In that case, the Fleming Firm previously had asserted its claims in state

court and then (after removal based on bankruptcy jurisdiction and consolidation in the federal

court) attempted to amend its federal complaint to add these causes of action. See id. We

agreed with the district court that SLUSA preempted the state law claims. Id. at 342. In

contrast, here the Fleming Firm has not yet brought its claims in either state or federal court,

meaning that the suits have not been “filed” and are not “pending” in any court. See 15 U.S.C.

§ 77p(f)(2)(A)(ii); see also id. § 78bb(f)(5)(F) (“Nothing in this paragraph shall be construed to

affect the discretion of a State court in determining whether actions filed in such court should

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Therefore, we reject the Financial Institutions’ alternative argument for

affirming.

IV. CONCLUSION

The district court properly denied the motion for leave to file suit for the

proposed state law claims that have a two-year or three-year statute of

limitations. No tolling doctrine applies. Therefore, filing these claims would be

futile because the Texas courts would dismiss the lawsuits as time-barred.

However, the district court incorrectly denied the motion for leave to file suit

with respect to the claims that have a four-year statute of limitations. The

Texas courts should be allowed to decide whether, under Texas law, the filing of

the state court petitions relates back to the filing of the motion for leave to file

suit. As such, we affirm in part, reverse in part, and remand to the district court

to grant the motion for leave to file the claims for common law fraud and fraud-

on-the-market, statutory fraud, and aiding and abetting common law fraud.

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

be joined, consolidated, or otherwise allowed to proceed as a single action.”).

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