Court Opinion

ID: 44705
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:26:54+00
Date Added: 2024-06-11T14:57:06.238051
License: Public Domain

[DO NOT PUBLISH]

                IN THE UNITED STATES COURT OF APPEALS

                         FOR THE ELEVENTH CIRCUIT                    FILED
                           ________________________        U.S. COURT OF APPEALS
                                                             ELEVENTH CIRCUIT
                                                                December 11, 2006
                                 No. 06-11861                 THOMAS K. KAHN
                             Non-Argument Calendar                CLERK
                           ________________________

                       D. C. Docket No. 00-01872-CV-HS-S

W.R. HUFF ASSET MANAGEMENT CO.,
as investment advisor and as attorney in fact on
behalf of certain Beneficial Owners of 10 1/2%
Senior Subordinated Notes,

                                                              Plaintiff-Appellant,

                                       versus

KOHLBERG, KRAVIS, ROBERTS,
KKR ASSOCIATES LP,
KKR PARTNERS II LP,
CRIMSON ASSOCIATES LP,
ROBINSON HUMPHREY CO., INC.,
a Delaware corporation, et al.,

                                                           Defendants-Appellees.

                           ________________________

                   Appeal from the United States District Court
                      for the Northern District of Alabama
                         _________________________

                               (December 11, 2006)
Before ANDERSON and BARKETT Circuit Judges, and STROM,* District Judge.

PER CURIAM:

       W.R. Huff Asset Management Co., LLC (“Huff”) appeals from the dismissal

of Huff’s Third Amended Complaint and denial of leave to file a Fourth Amended

Complaint against Kohlberg Kravis Roberts & Co. and various related entities

(collectively, “KKR”).1

                                       BACKGROUND

       This case originated in the Circuit Court of Jefferson County, Alabama, in

August 1999, when Huff filed an action against KKR on behalf of certain

beneficial owners of 10½% senior subordinated notes issued by Bruno’s (“Notes”),

a supermarket chain owner. In the original complaint and its amended successors,

Huff repeatedly asserted Alabama state law claims for fraudulent transfer, breach

of fiduciary duty, aiding and abetting, and conspiracy. Thereafter, the case had

long and torturous procedural history, which gives rise to the present appeal.2

       *
          Honorable Lyle E. Strom, United States District Judge for the District of Nebraska,
sitting by designation.
       1
        These related entities were affiliated entities of Kohlberg Kravis Roberts, certain
individuals who were partners in Kohlberg Kravis Roberts and officers and/or directors of
Bruno’s, Inc., and two companies that rendered opinions for Bruno’s.
       2
         In the seven years since the case was originally filed, it has come before five federal
judges and a variety of state judges. In its wandering travels, the case has encountered two
bankruptcy courts and the Alabama Supreme Court, and numerous motions for dismissal and
reconsideration.

                                                 2
During this extended odyssey, Huff has filed three amended complaints and sought

leave to file a fourth. The main issue in the case pertained to whether the Securities

Litigation Uniform Standards Act of 1998, 15 U.S.C. §§ 77p and 78 bb(f)

(“SLUSA”), preempts Huff’s state law claims. Any federal claims Huff might have

had against KKR expired before Huff filed its first action in August 1999, due to

the three-year statute of repose then set forth in SLUSA. See 15 U.S.C. § 78r(c).3

       After much litigation pertaining to amended complaints, bankruptcy, and the

preemptive effect of SLUSA, Huff filed a Third Amended Complaint, again

asserting only state law claims, which Huff argued were outside the ambit of

SLUSA. KKR moved to strike the Third Amended Complaint on the grounds that

it failed to adhere to a previous order entered by Judge Karon Bowdre on October

22, 2002, which dismissed Huff’s Second Amended Complaint and granted Huff

leave to “assert any applicable federal claims it may have under SLUSA.” Huff v.

Kohlberg Kravis & Roberts, 234 F. Supp. 2d 1218, 1227 (M.D. Ala 2002). Judge

Bowdre then on December 12, 2002 issued an order setting a briefing schedule on

the Third Amended Complaint, noting the existence of an “issue of law, namely

whether the Notes in Question are ‘covered securities’ so that the claims involving

those Notes are preempted by the Securities Litigation Uniform Standards Act.”

       3
        That period was amended in 2002 to extend the statute of repose period to five years,
see 28 U.S.C. § 1658(b)(i)(2), but Huff concedes that this amendment does not apply here.

                                               3
Briefing on the Third Amended Complaint was completed on April 7, 2003. But in

April 2005, before the court had ruled on the Third Amended Complaint, Huff

sought leave to file a Fourth Amended Complaint decreasing the number of

plaintiffs to 46 noteholder clients. This amendment would arguably have removed

Huff’s claims from the reach of SLUSA, since SLUSA only governs actions filed

by 50 or more plaintiffs. 15 U.S.C. §§ 77p(f)(2)(A)(i)(I),(II).

        Judge Virginia Emerson Hopkins, to whom the case had then been assigned,

denied Huff’s proposed amendment on February 7, 2006, and simultaneously

struck Huff’s Third Amended Complaint. Judge Hopkins held that the state law

claims in Huff’s Fourth Amended Complaint violated Judge Bowdre’s October 22

order, were untimely, and that it would be “unduly burdensome on KKR and a

waste of judicial resources for the court to continue to entertain Huff’s attempts to

avoid the reach of SLUSA.” 4 Judge Hopkins explicitly reserved decision on

whether the proposed Fourth Amended Complaint would fall within the reach of

SLUSA and, just as Judge Bowdre had, granted Huff leave to amend in order to

“assert any applicable federal claims it may have under SLUSA.” Reiterating that it

recognized that it had no such claims, Huff instead moved for reconsideration of

        4
          The district court also found that “Huff’s assertion that it is not the real party in interest
to this action” represented simply a “desire to change its tactics” and “not a sufficient
justification for a substitution of parties” under Federal Rule of Civil Procedure 17. It is unclear
whether the district court intended this as a separate ground for denying leave to amend.

                                                    4
Judge Hopkins’ and Judge Bowdre’s orders. The motion was denied, the case

dismissed with prejudice, and this appeal followed.

        From this long procedural history, four issues arise on appeal. Huff argues

that: (1) the district court abused its discretion in denying Huff’s Motion to File a

Fourth Amended Complaint; (2) the district court erred as a matter of law in

striking Huff’s Third Amended Complaint; (3) the district court abused its

discretion in denying Huff’s motion to reconsider the district court’s 2002 Order

finding that Huff’s case was a “covered class action”; and (4) the district court

erred as a matter of law in dismissing the case “with prejudice.” We hold that the

district court’s reasons for denying the motion to file the Fourth Amended

Complaint constitute an abuse of discretion. Because that complaint, if allowed,

would supersede all prior complaints, we need not reach the final three questions

here.

        The district court denied Huff’s motion for leave to amend on essentially

three grounds5: (1) the proposed Fourth Amended Complaint contravened Judge

Bowdre’s October 22 order granting leave to amend in order to plead federal

causes of action; (2) it would be “unduly burdensome on KKR” and a waste of

        5
         At oral argument before this Court, KKR argued that the Fourth Amended Complaint
should be dismissed on other grounds, such as futility and preemption. Because these arguments
were not developed and district court did not rely on them, we express no opinion as to their
ability.

                                               5
judicial resources; and (3) Huff’s proposed amendment was “untimely.” We

address each in turn, noting that “leave to amend should be liberally granted when

necessary in the interest of justice,” Fed. R. Civ. P. 15(a), and that “unless there is

a substantial reason to deny leave to amend, the discretion of the district court is

not broad enough to permit denial.” Burger King Corp. v. Weaver, 169 F.3d 1310,

1319 (11th Cir. 1999).6

       The first ground on which the district court relied was that “Huff’s proposed

Fourth Amended Complaint is improper in light of the Court’s holding that

SLUSA preempts the state law claims Huff is attempting to assert in the

complaint.” The “holding” to which the court referred was Judge Bowdre’s

October 2002 Order, which granted Huff leave to plead any federal causes of

action arising under SLUSA. Judge Bowdre’s order, however, limited Huff to

federal claims only if Huff elected to pursue its case based on SLUSA-defined

“covered securities.” This order cannot be interpreted to preclude all state law

claims. Indeed, Judge Bowdre recognized the possibility of existing state law

claims when on December 12, 2002, she directed the filing of briefs addressing the

“issue of law, ... whether the Notes in question are ‘covered securities’ so that the

       6
        We review a denial of a motion to amend for abuse of discretion. Bryant v. Dupree, 252
F.3d 1161, 1163 (11th Cir. 2001). However, “a district court by definition abuses its discretion
when it makes an error of law.” Koon v. United States, 518 U.S. 81, 100 (1996).

                                               6
claims involving those Notes are preempted by the Securities Litigation Uniform

Standards Act.” The Fourth Amended Complaint would reduce the number of

plaintiffs below fifty, thus apparently eliminating any question of whether the case

involved “covered securities.” This would thus remove it from the reach of the

federal securities laws and from the ambit of Judge Bowdre’s order. The district

court committed an error of law in misinterpreting that order. Its denial of leave to

amend based on that error was an abuse of discretion. Koon, 518 U.S. at 100.

      The second reason on which the district court relied was that it would be

“unduly burdensome on KKR and a waste of judicial resources for the court to

continue to entertain Huff’s attempts to avoid the reach of SLUSA.” This holding

was apparently based on the court’s flawed reading of Judge Bowdre’s order, and

its correspondingly erroneous conclusion that the Fourth Amended Complaint

would be “exclusively comprised of barred claims.” As explained above, the

Fourth Amended Complaint contained claims that were not “barred” by Judge

Bowdre’s order. Moreover, we perceive no undue burden on KKR when the

litigation – though long-lived – had not yet progressed beyond the pleading stage.

There has been no discovery, nor a trial date set, and the claims presented in the

new complaint do not differ in substance from those raised previously. Nor can we

perceive a “waste of judicial resources” where no federal judges have yet

                                           7
considered the substance of Huff’s complaints against KKR, nor has any judge

found the Third or Fourth Amended Complaints to be preempted by SLUSA.

       The third reason offered by the district court was the “untimely” nature of

the motion to amend. This, too, is an insufficient reason to deny the motion.

Although this case has had an undeniably long procedural history, the delays to

which it has been subject have generally been no fault of Huff’s. The removals to

bankruptcy court, for example, and corresponding stays were beyond Huff’s

control. The “passage of time, without anything more, is an insufficient reason to

deny leave to amend.” Floyd v. Eastern Airlines, Inc., 872 F.2d 1462, 1490 (11th

Cir. 1989) (citation omitted), rev’d on other grounds, 499 U.S. 530 (1991); see also

Bryant, 252 F.3d at 1164-65 (where “the district court did not give any reason,

other than the mere passage of time, to support its conclusion that allowing the

plaintiffs to amend their complaint would prejudice the defendant” the court

“should have allowed the plaintiffs to amend their complaint.”). Moreover, the

district court still had not ruled on that Complaint two years later when Huff

moved for leave to file a Fourth Amended Complaint.7

       7
         While the Third Amended Complaint was pending, parallel litigation in the Alabama
state courts (“Huff II”) eventually reached the Alabama Supreme Court, which ruled in April
2004 that Huff’s state law claims against certain underwriters and accountants involved in the
Notes’ issuance were preempted by SLUSA. BT Secs. Corp. v. W.R. Huff Asset Mgmt Co., 891
So. 2d 310, 315-17 (Ala. 2004). After the United States Supreme Court denied certiorari in Huff
II, Huff moved for leave to file a Fourth Amended Complaint, before the district court had ruled
on Huff’s Third Amended Complaint.

                                                8
                                 CONCLUSION

      For the foregoing reasons, we VACATE the district court’s denial of Huff’s

motion for leave to file a fourth amended complaint, and REMAND for further

proceedings consistent with this opinion.

                                            9