In Re: Bankamerica Corporation Securities Litigation, Allison Desmond Bruce O'Such Dr. Herman Shyken Mark Luniewski Ted Kraftsow Ernesto Gumapas Sidney Sorkin Richard Levy Lani Rothstein Neil Koni, Earl J. Gates Joseph Hempen Robert Hepwroth John M. Koehler David P. Oetting Pamela Wootton David Fike Selma Kaiser Brian Markee Walter E. Ryan, Jr. Patricia A. Thomas v. Bankamerica Corporation Hugh L. McColl Jr. James H. Hance, Jr. David A. Coulter Michael E. O'Neill John J. Higgins Marc D. Oken - Charles E. Rice Ray C. Anderson Rita Bornstein B. A. Bridgewater, Jr. Thomas E. Capps Alvin R. Carpenter Charles W. Coker Thomas G. Cousins Andrew B. Craig, III Allan T. Dickson Paul Fulton C. Ray Holman W. W. Johnson Kenneth D. Lewis Russell W. Meyer, Jr. Richard B. Priority John C. Slane O. Temple Sloan, Jr. Meredith R. Spangler Albert E. Suter Ronald Townsend Jackie M. Ward John A. Williams Virgil R. Williams Joseph Alibrandi Peter Bedford Richard Clarke Timm Crull Kathleen Feldstein Donald Guinn Frank Hope, Jr. Walt

Citations: 263 F.3d 795; 51 Fed. R. Serv. 3d 1; 2001 U.S. App. LEXIS 19035; 2001 WL 965141Docket: 00-2255

Court: Court of Appeals for the Eighth Circuit; August 24, 2001; Federal Appellate Court

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Allison Desmond leads a proposed class in a California state-court securities fraud lawsuit against BankAmerica Corporation. An injunction from a federal district court halted her suit, prompting an appeal to determine if the injunction breaches the Anti-Injunction Act, 28 U.S.C. § 2283. The Eighth Circuit Court upheld the injunction, ruling it does not violate the Act.

The background involves BankAmerica's merger with NationsBank Corporation in October 1998 and subsequent financial disclosures, including a $372 million charge-off that caused a significant drop in stock prices. This led to twenty-four class actions being filed in six federal courts by shareholders of the predecessor companies, which were consolidated in the Eastern District of Missouri. Additionally, Milberg Weiss filed several related class actions in California state court. 

After the district court appointed lead counsel per the Private Securities Litigation Reform Act of 1995, plaintiff Lani Rothstein sought to withdraw from the federal case, which the court granted despite opposition. Subsequently, the court certified the remaining federal actions as a class action and established four separate plaintiff classes.

Five California class actions were consolidated into Allison Desmond v. BankAmerica Corp., where the plaintiffs sought to certify a single class of individuals who acquired stock in BankAmerica or its predecessors during a specified period. Initially, three class representatives were proposed, but one was removed due to his criminal history. The motion for certification was denied because of conflicts within the proposed class and the lack of representative lead plaintiffs. Subsequently, the plaintiffs filed a second motion to certify five distinct classes based on different stock purchase periods. However, the defendants removed the case to federal court, claiming that the motion violated the Securities Litigation Uniform Standards Act (SLUSA) by introducing new parties. The federal district court found the removal premature and remanded the case, stipulating that any new claims could lead to another removal within 30 days. Following this, the plaintiffs sought to revise their class certification order to address conflicts and ensure adequate representation. A third certification motion was later withdrawn to pursue mediation. Additionally, federal plaintiffs sought to enjoin the California actions, arguing they conflicted with the Private Securities Litigation Reform Act's (PSLRA) lead-plaintiff provisions. The district court granted this injunction, affirming its legality under the PSLRA and the Anti-Injunction Act.

The court determined that the Private Securities Litigation Reform Act (PSLRA) established new federal rights for plaintiffs in securities class-action lawsuits, awarding control of litigation to the plaintiff with the largest financial stake to prevent abuses by professional plaintiffs and their attorneys. The federal plaintiffs in this case held significantly more stock than the Desmond plaintiffs and had engaged in only minimal discovery before settlement negotiations began. The court criticized Milberg Weiss for actions contrary to the PSLRA's intent and deemed the Desmond case an attempt to evade federal law. 

The district court ruled that allowing state court plaintiffs with fewer shares to negotiate settlements could undermine the federal process and potentially release federal claims. Consequently, it issued a comprehensive injunction preventing the Desmond plaintiffs from pursuing class action claims related to the BankAmerica merger, prohibiting the California court from certifying Desmond classes or ordering any alternative dispute resolution, and requiring procedures for the Desmond plaintiffs to opt out of any federal class action to pursue individual lawsuits. The Desmond plaintiffs are now appealing this injunction.

The Anti-Injunction Act restricts federal courts from staying state court proceedings unless permitted by federal statute, necessary for federal jurisdiction, or to protect federal judgments. The court has jurisdiction over this appeal and will review the district court's decision regarding the injunction under the Act. The case arose under the PSLRA, which was enacted to combat abusive practices in securities litigation by prioritizing the lead plaintiff status for those with the largest financial interests and implementing various requirements for potential lead plaintiffs.

Plaintiffs' attorneys circumvented the reforms of the Private Securities Litigation Reform Act (PSLRA) by utilizing state courts, exposing publicly traded companies to inconsistent state practices. The Securities Litigation Uniform Standards Act (SLUSA), effective November 3, 1998, addresses this by preempting state-law securities fraud class actions with over fifty plaintiffs and granting federal courts the authority to stay discovery in state actions and to remove such actions to federal court. The Desmond injunction does not qualify under the Anti-Injunction Act's exceptions, as the district court's lead-plaintiff order is not a final or appealable order. The PSLRA's lead-plaintiff provisions create significant federal rights, allowing the lead plaintiff substantial control over litigation aspects such as discovery and settlement negotiations, which highlights their importance. Appellants downplay these provisions as merely procedural; however, the court finds such characterization misleading, emphasizing that the rights established by the PSLRA have substantial implications for class-action plaintiffs. The ruling references precedent, asserting that distinctions between procedural and substantive rights are often artificial, as seen in the context of the National Environmental Policy Act (NEPA).

Appellants argue that interpreting the Private Securities Litigation Reform Act (PSLRA) to support the district court's injunction makes the subsequent Securities Litigation Uniform Standards Act (SLUSA) amendments redundant. The court disagrees, cautioning against using SLUSA to interpret PSLRA due to the risk of misinterpreting the earlier Congress's intent. The court highlights that SLUSA's injunctive power is narrower because it aims to prevent state-court class actions entirely, not simply to regulate them. Under SLUSA, private parties cannot maintain class actions based on state law alleging misrepresentation or deceptive practices related to covered securities, thereby negating the need for the PSLRA's broader injunctive powers.

The court also distinguishes SLUSA's limited injunction power, which is meant to address potential state-court actions that could evade federal discovery rules. It references a case (In re Transcrypt Int'l Sec. Litig.) that suggests SLUSA injunctions apply only to state-court class actions, criticizing that view as inconsistent with SLUSA's intent. 

Additionally, Appellants contend that the district court's injunction improperly seeks to prevent a state-court settlement that could release federal claims, referencing the Supreme Court cases Matsushita and NBA. However, the court clarifies that these cases do not support the notion that federal courts should refrain from acting when state proceedings threaten federal rights, asserting that the district court's concerns about state judgments do not justify halting state court actions.

The district court's injunction aims to ensure that federal claims are resolved in a manner that upholds the rights established by the Private Securities Litigation Reform Act (PSLRA), specifically preventing a state-court plaintiff from taking control of federal litigation. The court found that the injunction was necessary to maintain the integrity of PSLRA rights, as allowing state-court actions to dominate could undermine those rights. The Desmond class's argument that federal plaintiffs could have sought protections in state court was deemed unpersuasive, as they did not explain how the state court would uphold PSLRA provisions. 

Concerns regarding the injunction's impact on California's interests were acknowledged, but the court emphasized that Congress's intent through the Securities Litigation Uniform Standards Act (SLUSA) necessitates prioritizing national policies over state laws. The appellants' claims of unjustified distrust in California courts were also rejected, as the injunction was aimed at ensuring an orderly resolution of federal claims, particularly given the complex history of the state litigation, which the court viewed as circumventing the PSLRA.

Additionally, the court held that it lacked jurisdiction to review the appellants' challenge to the class notice, as that issue was separate from the injunction itself. The court's jurisdiction was limited to the review of the injunction, leading to the affirmation of the district court's decision regarding the Desmond action.

Judge John F. Nangle, a Senior United States District Judge, addresses the concept of "strike suits," defined as actions lacking valid claims, often initiated for nuisance or leverage regarding settlements. Acknowledgment is made of Justice Rehnquist's opinion in Vendo Co. v. Lektro Vend Corp., which implies a restrictive interpretation of federal injunctions concerning state proceedings, although there is no majority support for this view. The court recognizes commendations for the Desmond plaintiffs' counsel's professionalism but clarifies these do not affect their legal analysis.

Circuit Judge Bye expresses partial agreement and dissent regarding the district court's identification of a federal right under the Private Securities Litigation Reform Act of 1995 (PSLRA) that allows "lead plaintiffs" control over securities litigation. Bye questions whether this control represents a "uniquely federal right" justifying the enjoining of state actions, arguing that it is not unique since all civil plaintiffs share this opportunity. He expresses reluctance to dispute the district court’s finding due to the lack of clear precedential guidance on federal rights.

The district court concluded that a lead plaintiff's control would be undermined without enjoining a conflicting state securities action, a position Bye disagrees with. He argues that a lead plaintiff's rights can be upheld without such injunctions, emphasizing the constitutional right for plaintiffs to opt out of coercive state court settlements. Bye points out that the legislative history of the PSLRA does not support the notion of enjoining state securities actions, indicating Congress intended for them to remain available.

Bye notes that the majority's opinion on injunctions is contentious among jurists and asserts that any uncertainties regarding federal injunctions against state proceedings should favor allowing state courts to resolve disputes. He dissents from the majority's ruling, except for its handling of the class-notice issue.