W.R. Huff Asset Management Co. v. Kohlberg, Kravis, Roberts & Co.

Citations: 566 F.3d 979; 2009 U.S. App. LEXIS 9608; 2009 WL 1148026Docket: 07-13114

Court: Court of Appeals for the Eleventh Circuit; April 29, 2009; Federal Appellate Court

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In the case before the United States Court of Appeals for the Eleventh Circuit, W.R. Huff Asset Management Co. (Plaintiff-Appellee) is appealing against Kohlberg Kravis Roberts & Co. L.P. and other associated defendants (Defendants-Appellants). The appeal concerns the district court's decision to grant Huff leave to file a Fourth Amended Complaint. The court ultimately determined it lacked appellate jurisdiction over the matter and dismissed the appeal.

The procedural history indicates that Huff, acting as an investment advisor, initially invested around $290 million in subordinated notes connected to the leveraged recapitalization of Bruno's, Inc., orchestrated by KKR. Following Bruno's bankruptcy filing in 1999, Huff filed a lawsuit in Alabama state court, alleging fraudulent transfer and other claims. The case was later removed to federal bankruptcy court and subsequently back to state court, then removed again to federal court by the defendants, asserting that Huff's claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA).

To circumvent SLUSA's preclusion, Huff filed a Third Amended Complaint focusing on misrepresentations made after Bruno's stock de-listing and removed certain defendants involved in earlier misrepresentations. After a prolonged delay in the district court's ruling on the Third Amended Complaint, Huff sought permission to file a Fourth Amended Complaint, again aiming to avoid SLUSA preclusion by substituting in forty-six individual Note holders as plaintiffs, despite SLUSA's stipulations regarding "covered class actions."

The Fourth Amended Complaint reinstated Murray Devine and Robinson Humphrey as defendants. On February 7, 2006, the district court denied leave to file this complaint, dismissing the case with prejudice due to violations of a prior order, untimeliness, undue burden on KKR, and waste of judicial resources. An appellate panel vacated this dismissal, disagreeing with the district court's reasoning but refraining from ruling on other potential grounds for denial. Following remand, on June 22, 2007, the district court granted leave to file the Fourth Amended Complaint under Federal Rule of Civil Procedure 15(a), but later determined that the only basis for federal jurisdiction, the Securities Litigation Uniform Standards Act (SLUSA), was inapplicable, leading to a remand to state court for lack of jurisdiction.

Appellants subsequently appealed, contesting the district court's decision to allow the Fourth Amended Complaint, which replaced Huff with forty-six individual plaintiffs and reinstated the two defendants that had been dropped in the previous complaint. They raised several issues including Huff's role as the sole real party in interest, his status as an indispensable party, the propriety of adding back the two defendants, the implications of the statute of limitations on this addition, and whether the amendment circumvented SLUSA. 

The court first addressed appellate jurisdiction, noting that remanding a case from federal to state court is generally not subject to appeal under 28 U.S.C. § 1447(d). This statute aims to prevent prolonged litigation over jurisdictional questions distracting from the merits of the case. The Supreme Court has consistently ruled that remand orders based on the grounds specified in § 1447(c) are not reviewable. However, exceptions exist for orders that are separate from the remand itself but have a definitive impact on the state court proceedings, as established in the case of City of Waco v. United States Fidelity. Guaranty Co., where the dismissal of a cross-complaint was deemed appealable despite the remand.

The appeal in this case does not meet the requirements for finality under 28 U.S.C. § 1291, as the district court's order is not final and does not end litigation on the merits. While the Supreme Court allows for appeals of certain non-final orders under the collateral order doctrine, the district court’s order fails to meet the third prong of this doctrine, which requires that the order be effectively unreviewable on appeal from a final judgment. Generally, orders allowing substitution of plaintiffs or joining parties are considered interlocutory and unappealable in isolation. The court emphasizes that the order in question is reviewable in the context of a final state court judgment. Furthermore, since the Appellants cannot seek federal court review due to Section 1447(d) barring review of remand orders and Section 1291 preventing appeal of the interlocutory order, collateral estoppel cannot be applied here. The court aligns with other circuits in concluding that state appellate courts retain the ability to review the district court’s order in connection with an appeal from a final judgment.

The plaintiff obtained permission to amend the complaint to include an additional defendant based on a relation back theory, which led to the loss of diversity jurisdiction and a remand to state court. The Third Circuit found no barrier preventing the state appellate court from reviewing the federal court's decision to allow the amendment, noting that the value at stake did not justify immediate appeal under the collateral order doctrine. A similar case, Price v. J. H Marsh. McLennan, Inc., involved a plaintiff who, after the defendant's removal to federal court based on diversity, sought to add another plaintiff, which also destroyed diversity. The Second Circuit dismissed the appeal for lack of jurisdiction, asserting that the state appellate court could review the joinder decision following a final judgment. Both circuits emphasized that state courts can interpret federal law, including the Securities Litigation Uniform Standards Act (SLUSA), and that the collateral order doctrine allows for review only of effectively unreviewable orders. Additionally, the procedural rules of Alabama and federal courts are largely aligned, allowing state courts to address merits issues upon final judgment. Although appellants argued that the remand constituted a final judgment enabling review of prior district court orders, the courts clarified that the remand order itself is the only final aspect, and merits issues can still be addressed in state court. Thus, the remand did not convert the earlier interlocutory order into an appealable final order.

Congress did not intend for the bar in 28 U.S.C. § 1447(d) to convert a non-collateral, unreviewable interlocutory order into a collateral, appealable one, thus failing to satisfy the third prong of the collateral order exception. Appellants referenced a series of cases stemming from the Supreme Court's Waco decision, which hold that a dismissal of a defendant and all claims against it is appealable as it is separate from the remanded case. However, this situation is distinguished because no part of the action has been severed; all claims against the defendants were remanded to state court. The state courts are competent to determine the propriety of the Fourth Amended Complaint. Appellants raised concerns about potential repetitive litigation between federal and state courts regarding the substitution order. They claimed that if the state court reverses the substitution, they would re-remove the action to federal court, only for it to be remanded back due to lack of subject matter jurisdiction. The court disagreed, stating that the Securities Litigation Uniform Standards Act (SLUSA) does not grant federal courts exclusive jurisdiction over preclusion decisions. Defendants can choose to remain in state court, trusting its competence to resolve preclusion matters. Appellants have had the chance to litigate federally and are now expected to utilize state courts to resolve their claims. Consequently, the remand order due to lack of subject matter jurisdiction is unreviewable under § 1447(d), making the district court's order allowing the amendment to substitute plaintiffs an unappealable interlocutory order. The appeal is dismissed for lack of appellate jurisdiction, and jurisdiction over Appellants' motions for judicial notice and to supplement the record is also lacking.