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In re Green Jacobson, P.C.

United States Court of Appeals, Eighth Circuit

December 28, 2018

In re: Green Jacobson, P.C. Debtor
David A. Sosne; SKMDV Holdings, Inc. Appellees David P. Oetting Appellant

          Submitted: September 26, 2018

          Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before LOKEN, BENTON, and SHEPHERD, Circuit Judges.

          LOKEN, Circuit Judge.

         In 1999, class action suits filed in many districts under the federal securities laws were transferred to the Eastern District of Missouri and captioned In re BankAmerica Corp. Sec. Litig., No. 4:99-MD-1264 (the "MDL Action"). This is the fifth appeal of district court orders arising out of the MDL Action, despite a "global" settlement approved by the district court in 2002 and affirmed by this court in In re BankAmerica Corp. Sec. Litig., 350 F.3d 747 (8th Cir. 2003).

         In this appeal, class representative David Oetting appeals the dismissal of the unsecured creditor claim and amended claim he filed in the pending Chapter 7 bankruptcy proceeding of lead class counsel, Green Jacobson, P.C. In re Green Jacobson, P.C., No. 4:15-BK-41404 (Bankr. E.D. Mo.). The bankruptcy court dismissed the claims as either "no longer in issue" or barred by the Missouri statute of limitations. Oetting appealed to the district court. Relying on our decision in Oetting v. Norton, 795 F.3d 886, 891 (8th Cir. 2015), the district court dismissed the appeal, concluding that Oetting as class representative lacked standing because the claims he filed in the bankruptcy court were not ancillary to the MDL Action but were "independent, separate and distinct actions." Oetting appeals. Reviewing de novo, we affirm in part, reverse in part, and remand for further proceedings. In re SuperValu, Inc., 870 F.3d 763, 768 (8th Cir. 2017) (standard of review).

         I. Background.

         A. Many facts and much of the procedural history relevant to this appeal were summarized in our Norton decision:

After the merger of NationsBank Corporation and BankAmerica Corporation, shareholders of both companies filed class action lawsuits alleging violations of the federal securities laws. The cases were transferred to the Eastern District of Missouri, where the district court appointed David Oetting as one lead plaintiff of the NationsBank class and the St. Louis law firm of Green Jacobson as lead counsel for the class. The litigation settled, resulting in a $333 million settlement fund for the NationsBank class. We affirmed the district court's approval of the settlement over Oetting's objection that it was inadequate. In re BankAmerica Corp. Sec. Litig., 350 F.3d 747 (8th Cir. 2003); see Koehler v. Brody, 483 F.3d 590, 598-99 (8th Cir. 2007).
On the recommendation of Green Jacobson, the district court appointed Heffler, Radetich & Saitta, LLP (Heffler), as claims administrator to distribute the settlement fund to class member claimants. During the claims process, an employee of Heffler conspired to submit fifteen false claims against the fund, resulting in the payment of $5.87 million that otherwise would have been paid to members of the class. In 2010, the district court denied Green Jacobson's motion for leave to file a supplemental complaint against Heffler to recover this loss. Oetting subsequently filed a separate action against Heffler on behalf of the NationsBank class that was transferred to and [dismissed by] the Eastern District of Pennsylvania.[1]
After two distributions to the NationsBank class in December 2004 and April 2009, some $2.4 million remained in the settlement fund. Green Jacobson moved to have the remaining $2.4 million distributed cy pres and requested an additional award of $98, 114.34 in attorney's fees for post-settlement work. Oetting opposed the cy pres distribution as contrary to the class members' interests, opposed the award of additional attorney's fees, and argued that Green Jacobson should disgorge $2 million in fees for abandoning the class. Oetting also filed this separate class action, alleging in four counts that class counsel Green Jacobson and three members of the firm (collectively, "Green Jacobson") (i) committed legal malpractice by negligently hiring and failing to supervise claims administrator Heffler, and (ii) breached its fiduciary duty by taking various actions that constituted abandonment of the NationsBank class. The complaint sought damages for causing the $5.87 million fraud loss to the settlement fund and disgorgement of the entire $60 million in attorneys fees awarded Green Jacobson in the BankAmerica litigation.
In the main action, the district court granted Green Jacobson's motion for a cy pres distribution and for a supplemental fee award and denied Oetting's request for disgorgement. In re BankAmerica Corp. Sec. Litig., No. 4:99-MD-1264, 2013 WL 3212514, at *1, *6 (E.D. Mo. June 24, 2013). Oetting appealed. We reversed the cy pres award, ordering the district court to allow an additional distribution to the class and then to consider whether a cy pres award of any remaining funds would be appropriate. In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060, 1064-67 (8th Cir. 2015). We vacated the supplemental fee award as premature prior to completion of additional distributions that would be made after remand. Id. at 1067-68.

795 F.3d at 887-88 (one footnote omitted). In Norton, answering "unusual questions of standing," we held that Oetting lacked personal standing as well as standing to commence the "separate class action" on behalf of the NationsBank class. Id. at 889-91. We concluded that the class's "independent status" in the MDL Action "did not make it an independent legal entity that may file claims against other parties in a new action, even if the claims arise out of or relate to the main action." Id. at 891.

         After our 2015 decision in In re BankAmerica Corp. Sec. Litig., 775 F.3d at 1060 (the "Cy Pres Case"), Green Jacobson's Chapter 7 proceeding commenced, triggered by an unrelated state court malpractice judgment. An Order for Relief was entered on April 16, 2015, and appellee David A. Sosne was appointed Chapter 7 Trustee. Oetting as representative of the NationsBank Class then timely filed Claim 1-1, an unsecured claim for $10, 503, 914.70. Trustee Sosne objected to the claim. Wanting his claims resolved as part of the MDL Action, rather than by the bankruptcy court, Oetting filed a motion to withdraw reference in the district court, see 28 U.S.C. § 157(d), and a motion to abstain or suspend proceedings in the bankruptcy court. The district court denied the motion to withdraw reference, noting that "allowance or disallowance of a claim is a core proceeding," 28 U.S.C. § 157(b)(2)(B). That ruling is not at issue. On November 29, 2016, the bankruptcy court denied the motion to abstain or suspend proceedings, and sustained the Trustee's objection ...

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