Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach

Citations: 140 L. Ed. 2d 62; 118 S. Ct. 956; 523 U.S. 26; 1998 U.S. LEXIS 1598; 98 Cal. Daily Op. Serv. 1482; 98 Daily Journal DAR 2041; 11 Fla. L. Weekly Fed. S 361; 66 U.S.L.W. 4158; 1998 Colo. J. C.A.R. 940Docket: 96-1482

Court: Supreme Court of the United States; March 3, 1998; Federal Supreme Court; Federal Appellate Court

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Petitioners Lexecon Inc. and its principal were defendants in a class action related to the failure of Lincoln Savings and Loan. This case, along with others, was transferred to the District of Arizona for pretrial proceedings under 28 U.S.C. § 1407(a), which allows for such transfers but mandates that the cases be remanded to the original district after pretrial proceedings. After reaching a resolution with the plaintiffs, Lexecon filed a separate diversity action against law firms Milberg and Cotchett in the Northern District of Illinois, claiming torts including defamation. The law firms moved for a transfer to the District of Arizona, which was granted.

Following the settlement of the Lincoln Savings cases, Lexecon requested the Arizona district court to remand the case back to Illinois. However, the law firms countered by seeking to keep the case for trial under § 1404(a). The court denied Lexecon's remand request and retained the case for trial, leading to a judgment against Lexecon on the defamation claim. Lexecon appealed the transfer order, but the Ninth Circuit upheld the decision, arguing that allowing the transferee court to self-assign cases post-pretrial was efficient and consistent with statutory language.

The Supreme Court held that a district court conducting pretrial proceedings under § 1407(a) cannot invoke § 1404(a) to retain the case for trial. It emphasized that the statutory command for remand, indicated by the word "shall," creates a binding obligation that cannot be disregarded, even if this interpretation diverges from previous practices. The ruling reaffirms the requirement for remanding cases to their original jurisdictions after pretrial work is completed.

Milberg's arguments regarding the language and legislative history of 28 U.S.C. § 1407 do not alter the clear directive that the Judicial Panel on Multidistrict Litigation must remand cases, which precludes any self-assignment authority for transferee courts and invalidates the Panel's Rule 14(b). The assertion that a remedy for Lexecon could be disregarded under the harmless error doctrine is incorrect, as the strict remand requirement of § 1407 warrants a substantial interest that cannot go unremedied. If objections to statutory violations could lead to no relief, the mandate of § 1407 would be rendered meaningless. The Supreme Court, in a unanimous opinion authored by Justice Souter (with Justice Scalia not joining Part II-C), held that a district court cannot use § 1404(a) to assign a transferred case to itself for trial. The case originated from a 1992 action by Lexecon against Milberg and Cotchett in Illinois, claiming malicious prosecution and other torts related to their prior role in a class action lawsuit against Charles Keating. After the claims against Lexecon were dismissed as meritless, Lexecon filed a new suit in Illinois, prompting a motion from Milberg and Cotchett to transfer the case for consolidation with the Lincoln Savings litigation, which was presided over by Judge Bilby. Despite Judge Bilby's recusal, the law firms continued to pursue the transfer under § 1407(a).

In June 1993, the Panel assigned Lexecon's case to Judge Roll, noting shared factual questions with a pending settlement involving Touche Ross and investor plaintiffs in the Lincoln Savings class actions (MDL-834). The Panel highlighted the relevance of a document depository in Arizona and an appeal in the Ninth Circuit concerning Lexecon's dismissal from the Lincoln Savings litigation. Before any significant action on Lexecon's claims, the Ninth Circuit appeal was dismissed, and the document depository was closed.

In November 1993, Judge Roll dismissed Lexecon's state law claims of malicious prosecution and abuse of process, applying a heightened pleading standard. Although the law firms sought summary judgment on remaining claims, Judge Roll deferred action pending discovery, during which the Lincoln Savings litigation settled in March 1994.

In August 1994, Lexecon requested the district court to refer the case back to the Panel for remand to the Northern District of Illinois, following Multidistrict Litigation Rule 14(d). The law firms opposed this, citing incomplete discovery, and instead requested a transfer under § 1404(a) to the District of Arizona for trial. Judge Roll again deferred the decision. 

In November 1994, Lexecon repeated its request for remand, but the law firms continued to oppose it and sought a transfer, leading to another deferral by Judge Roll. On April 24, 1995, he granted summary judgment for the law firms on all claims except one defamation claim against Milberg and dismissed the law firms' counterclaims. Cotchett requested judgment under Federal Rule of Civil Procedure 54(b), which Lexecon objected to but did not contest the court's authority to enter judgment in Cotchett's favor. On June 7, 1995, the court granted Cotchett's request.

The Arizona court then granted the law firms' § 1404(a) motions for trial assignment and denied Lexecon's remand request. Lexecon filed a petition for mandamus in the Ninth Circuit, which was denied by the majority of the panel, despite acknowledging potential merit in Lexecon's contentions and the statutory conflict between § 1404 and § 1407. The panel noted that Lexecon could appeal the transfer order along with other issues after trial. The surviving defamation claim was subsequently tried in Arizona, resulting in a judgment for Milberg, which Lexecon appealed to the Ninth Circuit.

Lexecon appealed the denial of its motion requesting the Panel to remand the case to the Northern District of Illinois and contested the dismissal of its malicious prosecution and abuse of process claims, as well as the final judgment favoring Cotchett. Lexecon accepted the Arizona court's jurisdiction and did not claim trial conduct errors. A divided Ninth Circuit panel affirmed the lower court's decision against remand under § 1407(a) and supported its assignment of the case to itself under § 1404(a), citing efficiency and statutory consistency. Judge Kozinski dissented, emphasizing the plaintiff's choice of forum. The Supreme Court granted certiorari to determine if § 1407(a) allows a transferee court to consider a § 1404(a) transfer motion for trial retention. Milberg may argue in defense of the Ninth Circuit's majority that the Panel has sanctioned such self-assignments through its Rule 14(b), which permits the transferee court to retain cases requiring trial unless ordered otherwise. While challenges to this practice exist, federal courts have generally approved it, referencing precedents that began with the Second Circuit's ruling in Pfizer, Inc. v. Lord. Additionally, the multidistrict litigation statute, § 1407(a), allows for the transfer of actions with common factual questions for coordinated pretrial proceedings, suggesting that retaining a case under § 1404 is not prohibited by the statute's limits on authority.

The case at hand was not formally consolidated with others to litigate identical issues but involved coordinated pretrial matters related to the Lincoln Savings debacle. Although Judge Bilby's recusal limited coordination prospects, it did not eliminate them, allowing the transferee Arizona court to rule on motions relevant to individual cases. The statutory language in § 1404(a) permits district courts to transfer cases for the interests of justice and convenience, categorizing such motions as pretrial. However, § 1407 mandates that any case transferred for coordinated pretrial proceedings must be remanded to its original court once those proceedings conclude, which is a non-discretionary obligation. The Ninth Circuit majority viewed the relationship between "coordinated or consolidated pretrial" proceedings and the remand obligation as not conflicting, emphasizing that § 1407 defines the Panel's authority without restricting district courts under § 1404(a). However, this interpretation is contested as it overlooks the need to consider the statute in its entirety, potentially disregarding the clear remand obligation outlined in § 1407.

Section 1407(b) does not impose any obligations on the Panel regarding a transferee court's powers, which leads to issues with self-assignment by a transferee court that obstructs the Panel's compliance with § 1407(a). The Circuit majority's conclusion that the Panel lacked authority to remand under Rule 14(c) is criticized as it overlooks the Panel's statutory duty to remand after pretrial proceedings. The Court of Appeals specifically pointed out Lexecon's failure to file a remand motion directly with the Panel, which it deemed necessary. However, this interpretation neglects the Panel's obligation to remand as mandated by § 1407(f), which requires rules to align with the statute.

Milberg presents two arguments against the tension between a broad interpretation of pretrial authority and the Panel's remand duty. First, it interprets § 1407(a) as limiting remand obligations to cases not "previously terminated" during pretrial, suggesting that cases self-assigned under § 1404 are exempt from remand since their venue under § 1407 is considered "terminated." This argument is flawed because § 1407(a) refers to "civil actions" without implying any change in venue status, meaning the obligation to remand persists until the action itself is concluded.

Second, Milberg attempts to draw support from § 1407(h), which allows the Panel to transfer cases for trial, arguing that the lack of an override for § 1407(a) implies consistency between the two subsections regarding transfer authority. However, this reasoning is misleading because subsections (a) and (h) function independently, and the absence of an override does not imply that subsection (a) must accommodate subsection (h). Each subsection stands alone, and nothing in (a) limits the provisions of (h).

Subsection (h) serves as a critical point for Lexecon, illustrating Congress's ability to differentiate between trial assignments and pretrial proceedings in cases governed by § 1407. The enactment history of subsections (a) and (h) supports the conclusion that self-assignment orders are not included in the subjects of pretrial proceedings. Milberg's arguments rely heavily on legislative history, including a House Report discussing trial transfers, but fail to address whether a transferee court can grant such a motion. The cited legislative history tends to reinforce the idea that self-assignment is outside the authority of transferee courts. The House Report specifies that the statute pertains solely to pretrial stages and does not affect trial locations or allow for self-assignments by transferee courts. Both House and Senate Reports indicate that any future consolidation for trial would require congressional amendment. Ultimately, the language mandates remand responsibilities for the Panel, negating any self-assignment authority in transferee courts and invalidating the Panel's Rule 14(b). While Milberg argues for the desirability of self-assignments over maintaining plaintiff venue choices, the resolution of this issue is deemed a matter for Congress. The final point raised concerns the remedy, which Milberg suggests may be disregarded under the harmless error doctrine.

Milberg distinguishes between two case categories regarding venue issues: (1) cases litigated in an improper district where venue cannot be established under the governing statute, necessitating reversal; and (2) cases where a plaintiff is mistakenly transferred to an incorrect forum, which may allow for affirmance if no substantial rights are violated. Milberg argues that since Lexecon could have legitimately filed in Arizona, and the transfer was authorized under § 1404(a), this situation fits the second category and should not result in reversal, as Lexecon's substantial rights were not prejudiced.

However, the court finds this case more analogous to the first category, where reversal is mandated due to statutory venue restrictions. The court asserts that both types of statutes—those limiting a plaintiff's forum choice and those restricting court authority—should be respected equally. The court emphasizes that any violation of a venue statute is substantial and cannot be disregarded, paralleling the importance of the remand requirement in § 1407. 

The court clarifies that Milberg's reliance on Caterpillar v. Lewis is misplaced, as that case involved a jurisdictional defect that was cured prior to judgment, unlike the current case where there was an ongoing violation of statutory mandates. The court concludes that allowing a party to ignore a clear statutory violation without remedy would undermine the purpose of venue statutes. Consequently, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

The syllabus is not part of the Court's opinion and is intended solely for reader convenience. Justice SCALIA concurs with the opinion except for Part II-C. The Ninth Circuit did not appropriately infer a waiver from Lexecon's failure to file a remand motion directly with the Panel, as such an inference would be unsound. While the Panel's Rule 14(c)(i) allows for remand motions, Rule 14(d) indicates that these motions are rarely granted without a remand suggestion from the transferee court. Lexecon's lack of a remand request from the Panel does not imply a waiver of the § 1407 remand requirement, especially since the transferee court denied Lexecon's remand request and assigned the case for trial. Under the Panel's rules, Lexecon had no opportunity to waive anything.

The text also addresses the limitations of arguments regarding the compatibility of self-assignments under § 1404(a) with the Panel's mandate, noting that while a transferor court can assign a case for trial after pretrial proceedings under § 1407(a), this is not the case if the transfer is under § 1404, which is constrained by general venue statutes. The Court finds that the language of § 1407 prevents a transferee court from granting any § 1404(a) motions, thus not needing to assess the self-transfer question under § 1404(a).

Additionally, Milberg's suggestion for prospective application of any ruling against multidistrict litigation courts' handling of § 1404 transfer motions is disregarded since this argument was not raised in prior proceedings. Milberg's claim regarding the dismissal of the surviving trial claim is also not addressed, as it falls outside the scope of the questions for certiorari. Lastly, Cotchett's request for dismissal under Rule 54(b) was appropriately granted as a pretrial order, reflecting the Arizona court's decisions on resolved claims prior to its ruling on the § 1404 transfer.