2009 Chapter 11 Recent Developments (Part I)

Ahlich plaintiffs leave to amend and then dismissed all ten Fleming cases on the basis of being preempted by the Securities Litigation Uniform Standards Act ("SLUSA").

Issue:

(1)

Did the district court have bankruptcy jurisdiction over the Fleming cases at the time it dismissed the Fleming plaintiffs' claims? More specifically, does the district court maintain related to jurisdiction over claims after the Enron plan of reorganization was confirmed?

(2)

Did SLUSA preempt the Fleming plaintiffs' claims?

Holding: District court AFFIRMED.

Rules:

(1) Jurisdiction: A confirmed chapter 11 plan of reorganization does not divest a district court of bankruptcy jurisdiction over pre-confirmation claims based upon pre-confirmation activities. Id. at 336.

a. Although section 1334 does not expressly limit bankruptcy jurisdiction once a plan is confirmed the debtor's estate ceases to exist and jurisdiction remains only for implementing the plan of reorganization. In determining post-confirmation jurisdiction, three factors are considered: (i) whether the claims at issue regarded pre-confirmation or post-confirmation relations between the parties; (ii) whether the claim was pending as of the date of reorganization; and (iii) whether there were facts or law deriving from the reorganization or plan that were necessary to resolve the claims. Craig's Stores of Texas, Inc., 266 F.3d 388, 391 (5th Cir. 2001). All three factors need not be present to find that jurisdiction exists.

(2) SLUSA Preemption:

a.

SLUSA preempts a class action claim if the following four elements are met:

i.

The claim is a 'covered class action,' which has the following requirements

1. The suits are pending in the same court
2. The suits have common questions of fact and law
3. The damages are sought for more than 50 plaintiffs
4. The claims are joined, consolidated or otherwise proceed as a single action for any purpose

ii. The claim is based on state law

iii. The claim involves 'covered securities'

iv. The claim alleges an omission or misrepresentation of a material fact in connection with the sale or purchase of a security.

Reasoning:

(1)

Jurisdiction: The Fleming claims concern pre-confirmation relations between the parties and the claims were filed pre-confirmation. Thus, because related-to jurisdiction existed in the district court at the time the claims were filed (pre-confirmation), confirmation of the plan of reorganization did not divest the court of jurisdiction.

(2)

SLUSA Preemption: SLUSA was enacted in response to plaintiffs filing class-action claims based on state securities laws in state courts to get around the PSLRA, which was enacted in 1995 in response to what Congress felt was the abusive manner in which class-action lawsuits based on federal securities laws were being filed in federal courts. The "stated purpose of the SLUSA [which was to be broadly interpreted] is 'to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives' of the PLSRA." Id. at 338.

a.

With regard to 'covered class action,' the court relied on In re Worldcom, Inc. Sec. Litig., 308 F.Supp.2d 236, 242 (S.D.N.Y. 2004) and said that SLUSA did not limit its language to require that a case be pending in the same state or district court - it was sufficient that the cases were pending in the