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NAUHEIM v. INTERPUBLIC GROUP OF COMPANIES

April 15, 2003

JACK NAUHEIM, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
THE INTERPUBLIC GROUP OF COMPANIES, INC., JOHN J. DOONER, JR., SEAN F. ORR, FREDERICK MOLZ, FRANK J. BORELLI, REGINALD K. BRACK, JIM M. CONSIDINE, JAMES R. HEEKIN, FRANK B. LOWE, MICHAEL A. MILES, LEIF H. OLSEN, J. PHILLIP SAMPER, AND PRICE WATERHOUSECOOPERS, LLP, DEFENDANTS.



The opinion of the court was delivered by: Marvin P Aspen, United States District Judge

MEMORANDUM OPINION AND ORDER

Presently before us is the motion of Defendants, The Interpublic Group of Companies, Inc. ("IPG"), PricewaterhouseCoopers, LLP ("PwC"), John J. Dooner, Jr., Sean F. Orr, Frederick Molz, Frank J. Borelli, Reginald K. Brack, Jim M. Considine, James R. Heekin, Frank B. Lowe, Michael A. Miles, Leif H. Olson, and J. Phillip Samper (collectively the "Defendants") to transfer venue to the United States District Court for the Southern District of New York. Also before us is Plaintiff Jack Nauheim's motion to remand the putative shareholder class action complaint (the "Complaint") to the Circuit Court of Cook County, Illinois. For the reasons set forth below, we grant Plaintiff's motion to remand.*fn1

I. BACKGROUND

On November 22, 2002, Plaintiff filed a putative shareholder class action complaint against Defendants in the Circuit Court of Cook County, Illinois Defendant IPG is a global advertising and marketing communications and services company, Defendant PwC is a firm of certified public accountants that provides independent auditing of IPG's financial statements Individual DefendantS are all current or former officers and directors of IPG. The Complaint relates to Plaintiff's acquisition of IPG securities in connection with IPG's acquisition of True North Communications, Inc. ("True North") in a stock-for-stock transaction Plaintiff and other former True North shareholders exchanged their True North shares for newly-issued IPG shares in a June 2001 offering. The Complaint alleges that the Registration Statement and Prospectus filed with the Securities Exchange Commission contained materially false statements and material omissions regarding the true nature of IPG's financial condition, including its net income and expenses IPG has stated that it will restate its earnings for a five-year period beginning in 1997.

The Complaint alleges violations of sections 11 and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77k and 77o. While alleging violations of federal securities law only, Plaintiff brought the Complaint in state court pursuant to the concurrent jurisdiction provided by 15 U.S.C. § 77v(a). On December 18, 2002, Defendants timely removed the action to this Court under the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. § 77p(c), 78bb(f)(2). On January 20, 2003, Defendants moved under 28 U.S.C § 1404(a) to transfer venue to the United States District Court for the Southern District of New York where thirteen other securities class actions, each arising out of similar events as those alleged in the present case, have been filed and consolidated.*fn2 The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). After Plaintiff filed the Complaint at issue, the court-appointed lead plaintiff in the New York consolidated action filed an amended complaint that additionally alleged violations of Sections 11 and 15 of the Securities Act, Plaintiff moved on January 17, 2003 to remand the Complaint to the Circuit Court of Cook County, Illinois under 28 U.S.C. § 1447 and SLUSA, 15 U.S.C. § 77v, 77p(c).

II. ANALYSIS

Defendants urge this Court to first decide the motion to transfer, We decline to do so, and instead turn our attention to Plaintiff's motion to remand, See Meyers v. Bayer AG, 143 F. Supp.2d 1044, 1048-49 (E.D. Wisc. 2001) (finding in the context of a motion to stay and a motion to remand that "a court should first give preliminary scrutiny to the merits of the motion to remand."). As we discuss infra, our determination of Plaintiff's motion to remand implicates the issue of whether we have jurisdiction over the matter. The Supreme Court has long held that "[w]ithout jurisdiction the court cannot proceed at all in any cause." Ex parte McCardle, 74 U.S. 506, 514, 19 L.Ed. 264 (1868). Indeed, 28 U.S.C. § 1447(c) dictates that "[i]f at any time before judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Judicial economy similarly drives our decision to first examine Plaintiff's motion to remand because that examination may, as Plaintiff suggests, be dispositive as to both motions. Finally, we address the motion to remand first because it undeniably effects Plaintiff's ability to draft the Complaint so as to choose the forum in which to litigate the matter. See Garble v. DaimlerChrysler Corp., 211 F.3d 407, 410 (7th Cir. 2000).

Plaintiff claims that the Complaint was improperly removed under 28 U.S.C. § 1441(a) and SLUSA, 15 U.S.C. § 77v, 77p(c). Title 28 U.S.C. § 1441(a) states:

Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdictions may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending. (emphasis added).
In the case presently before us, the Complaint alleges violations of sections 11 and 15 of the Securities Act, 15 U.S.C. § 77k and 77o. Plaintiff brought the Complaint in the Circuit Court of Cook County, Illinois pursuant to the concurrent jurisdiction provision of the Securities Act, 15 U.S.C. § 77v(a), which provides:
The district courts of the United States and United States courts of any Territory shall have jurisdiction of offenses and violations under this title and under the rules and regulations promulgated by the Commission in respect thereto, and concurrent with state and territorial courts, except as provided in section 16 with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by [ 15 U.S.C. § 77a, et seq.].
Until 1998, section 77v of the Securities Act prohibited the removal of any claim brought in state court. See Piambino v. Bailey, 610 F.2d 1306, 1333 (5th Cir. 1980). In 1998, Congress enacted SLUSA, which, in part, amended section 77v of the Securities Act to read as follows: "Except as provided in section 77p(c) of this title, no case arising under this subchapter and brought in any State court of competent jurisdiction should be removed to any court of the United States." 15 U.S.C. § 77v(a) (emphasis added). Section 77p(c) of the Securities Act permits removal of "[a]ny class action brought in any State court involving a covered security, as set forth in subsection (b)." Subsection (b) of section 77p 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 —
(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or
(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
In enacting removal legislation, Congress intended to "restrict the jurisdiction of federal courts on removal," thereby requiring district courts to strictly construe such statutes. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941). The party that removes an action to federal court bears the burden of demonstrating the propriety of removal. See Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97-98, 42 S.Ct. 35, 37, 66 L.Ed. 144 (1921). Defendants contend that section 77p(c) permits removal of any covered class action alleging fraud or manipulation involving the purchase or sale of covered securities, including those actions which are based on federal securities laws. It is in accordance with that contention that Defendants removed the Complaint to this Court. Plaintiff asserts that section 77p(c) permits removal of only those covered class action complaints based on State statutory or common law that allege fraud or manipulation involving the purchase or sale of covered securities. Consequently, Plaintiff argues that Defendants' removal was improper because the Complaint only alleges violations of federal law. We agree with Plaintiff's interpretation of the statute.

To determine Congress' intention in enacting the legislation at issue, we look first to the plain language of the statute. See Reves v. Ernst & Young, 507 U.S. 170, 177, 113 S.Ct. 1163, 1169, 122 L.Ed.2d 525 (1993); see also O'Kane v. Apfel, 224 F.3d 686, 688-89 (7th Cir. 2000). When statutory language "is clear and unambiguous, no need exists for the court to examine the legislative history, and the court must give effect to the plain meaning of the statute." United States v. Hayward, 6 F.3d 1241, 1245 (7th Cir. 1993). In contrast, a court may look beyond "the express language of a statute only where that statutory language is ambiguous or a literal interpretation would lead to an absurd result or thwart the purpose of the overall statutory scheme." United States v. 916 Douglas Ave., 903 F.2d 490, 492 (7th Cir. 1990).

The plain language of the Securities Act, 15 U.S.C. § 77v(a), as amended by SLUSA, states Congress' intent to prohibit removal of any "case arising under this subchapter and brought in any State court . . . [e]xcept as provided in section 77p(c) of this title." Section 77p(c) permits removal of "[a]ny covered class action brought in any State Court involving a covered security as set forth in subsection (b)." Subsection (b) in turn preempts any "covered class action" brought in "any State or Federal court" that is "based upon the statutory or common law of any State or subdivision thereof" alleging fraud or manipulation "in connection with the purchase or sale of a covered security." 15 U.S.C. § 77p(b) (emphasis added). Thus, the plain language of the Securities Act, as amended by SLUSA, clearly and unambiguously permits the removal of only those covered class action complaints that are based on State statutory or common law.

Although the matter before this Court is one of first impression in this jurisdiction, the Southern District of Texas has found that "[w]ith respect to removal, the plain language of SLUSA, is U.S.C. § 77p(c), evidences Congress' intent to preempt a specifically defined category of state-law class actions." In re Waste Management, Inc. Securities Litig., 194 F. Supp.2d 590, 593 (S.D. Tex. 2002). Indeed, federal courts in various jurisdictions have concluded that "in order to remove an action to federal court under SLUSA, the removing party must show that (1) the suit is a covered class action, (2) the plaintiffs' claims are based on state law, (3) one or more covered securities has been purchased or sold, and (4) the defendant misrepresented or omitted a material fact in connection with the purchase or sale of such security." Riley v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 292 F.3d 1334, 1342 (11th Cir. 2002) (internal quotations omitted) (emphasis added); see also In re Waste Management, Inc. 194 F. Supp.2d at 594 (S.D. Tex. 2002) (setting forth the same test for removal ...


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