ORDER
SUSAN WRIGHT, District Judge
Plaintiff ABF Freight System, Inc. ("ABF") commenced this lawsuit against YRC, Inc., New Penn Motor Express, Inc., and USF Holland, Inc. (collectively, "employer defendants"); the International Brotherhood of Teamsters; the Teamsters National Freight Industry Negotiating Committee; and a putative class of local Teamsters unions. By letter to the Court dated November 29, 2010, the employer defendants request a hearing on their motion to dismiss for lack of subject matter jurisdiction. The employer defendants note that briefing on the motion will be complete on December 9, 2010, and they request a hearing date between December 15 and 17, or as soon as possible.
Also before the Court is a letter dated November 30, 2010 from ABF, opposing the request for a hearing. After careful consideration, and for reasons that follow, the Court will schedule a hearing by separate order. Further, the Court instructs all parties that all requests for relief must be made by written motion, filed with the Clerk. If parties wish to be heard on a matter before the Court, they must do so in the form of a response or other appropriate filing. In the future, the Court will not respond to letters.
ABF and the employer defendants are freight trucking companies with employees represented by local Teamsters unions. According to the complaint allegations, ABF and the employer defendants entered a multi-employer labor contract, the National Master Freight Agreement ("NMFA"), with local unions. ABF alleges that the defendants entered separate agreements that amend the NMFA and provide special relief to the employer defendants, giving them an improper competitive advantage over ABF in violation of the NMFA. By way of relief, ABF seeks appointment of a neutral third party tribunal to hear its grievances. Alternatively, ABF seeks certification of a defendant class composed of local Teamsters unions, nullification of the aforementioned agreements, and $750 million in damages.
ABF asserts that the Court's subject matter jurisdiction is predicated on § 301(a) of the Labor Management Relations Act, which confers federal jurisdiction over suits for violation of contracts between an employer and a labor organization. With their motion to dismiss, the employer defendants present a factual challenge to subject matter jurisdiction. Specifically, they contend that ABF is not a party to the NMFA and therefore lacks standing to challenge amendments to the contract. See Faibisch v. Univ. of Minn., 304 F.3d 797, 801 (8th Cir. 2002) (holding "if a plaintiff lacks standing, the district court has no subject matter jurisdiction").
ABF opposes a hearing at this juncture, arguing that the Court should avoid a premature judgment and address the jurisdictional issue at a "plenary trial . . . after discovery has been completed." Docket entry #63, at 11. The Eighth Circuit has instructed: "If the defendant thinks the court lacks jurisdiction, the proper course is to request an evidentiary hearing on the issue. The motion may be supported with affidavits or other documents. If necessary, the district court can hold a hearing at which witnesses may testify." Osborn v. United States, 918 F.2d 724, 730 (8th Cir. 1990) (citing Crawford v. United States, 796 F.2d 924, 928 (7th Cir. 1986)). Once the evidence is submitted, a district court must decide the jurisdictional issue. Id. In some cases the question of subject matter jurisdiction "may be so bound up with the merits that a full trial on the merits may be necessary to resolve the issue." Crawford, 796 F.2d at 929. The Court believes that a hearing will help the Court determine whether ABF has standing or whether the question of standing is severable from the merits of ABF's claims.
The Court finds no basis for delaying a hearing on the motion to dismiss and will set a hearing date by separate order.
IT IS SO ORDERED THIS 2ND DAY OF DECEMBER, 2010.
om Section 16(a) reporting requirements under the SEC's underwriting and market-making exemptions. However, this argument finds no support in
Whittaker's bright-line rule.
See Whittaker, 639 F.2d at 527 n. 9, 530. In any event, were we to follow the Defendants down this line of argument, we would soon find ourselves deciding the substantive merits of the parties' dispute. The question of whether or not the Underwriters are exempt from filing Section 16(a) reports is identical to the question of whether they may be held liable under Section 16(b). We refrain from adopting an approach that "would merge the tolling doctrine with the substantive wrong. . . ."
Santa Maria v. Pac. Bell, 202 F.3d 1170, 1177 (9th Cir. 2000).
Finally, the Defendants argue that Whittaker does not apply because it involved a corporation that was seeking disgorgement, rather than an outside shareholder as in the instant case. They assert that we should adopt different lines of analysis depending on whether the plaintiff is an issuing company or is an outside shareholder such as Simmonds. However, our decision in Whittaker created a blanket rule that applies in all Section 16(b) actions. A key component of our reasoning was that Section 16(a) notices allow the company's shareholders — who "are likely to be outsiders, minority holders" — to obtain the information necessary to bring a Section 16(b) action. Whittaker, 639 F.2d at 528. Nothing in Whittaker's logic or reasoning would allow us to distinguish between issuing companies and outside shareholders, and we refrain from adopting such a strained interpretation of our precedent.
In short, the fundamental holding of Whittaker is that Section 16(b)'s two-year statute of limitations begins to run from the time that the defendant files a Section 16(a) disclosure statement. Because Simmonds alleges that the Defendants did not file any Section 16(a) reports, we conclude that Simmonds's claims are not time-barred. Accordingly, the district court's decision on this ground is reversed.
C. Cross-Appeal
In their cross-appeal, the Underwriters contend that the district court erred by dismissing the thirty cases involving the Moving Issuers without prejudice on account of Simmonds's inadequate demand. They argue that these dismissals should have been with prejudice because Simmonds's claims are time-barred. Although we disagree that Simmonds's claims are time-barred, we agree that the district court should have dismissed the thirty Complaints against the Moving Issuers with prejudice on account of her failure to satisfy the Section 16(b) demand requirement in those cases.
We have previously held that a complaint may be dismissed with prejudice on account of the plaintiffs failure to satisfy the demand requirement, In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 990-91 (9th Cir. 1999), abrogated on other grounds, Tellabs, Inc. v. Makor Issues Rights, 551 U.S. 308, 322-24, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007), and various other circuits have reached the same conclusion. Although the district court dismissed Simmonds's thirty Complaints against the Moving Issuers "without prejudice," our decision to convert the dismissal is not unprecedented. In a derivative action in which the shareholder failed to show demand futility, the First Circuit sua sponte converted the district court's dismissal from "without prejudice" to "with prejudice." In re Kauffman Mut. Fund Actions, 479 F.2d 257, 267 (1st Cir. 1973). The court explained that the plaintiff was barred from relitigating the issues decided in that action, and accordingly the dismissal should have been entered with prejudice rather than without. Id.
E.g., Kanter v. Barella, 489 F.3d 170, 175 (3d Cir. 2007) (dismissal with prejudice and without leave to amend); Starrels v. First Nat'l Bank of Chicago, 870 F.2d 1168, 1169, 1172 (7th Cir. 1989) (dismissal with prejudice and without leave to amend); Gaubert v. Fed. Home Loan Bank Bd., 863 F.2d 59, 62, 69 (D.C. Cir. 1988) (dismissal with prejudice and without leave to amend); Shlensky, 574 F.2d at 141-42 (dismissal without leave to amend); In re Kauffman Mut. Fund Actions, 479 F.2d 257, 267 (1st Cir. 1973) (dismissal with prejudice).
We agree with the First Circuit's approach in Kauffman. Simmonds is barred from relitigating issues relating to the adequacy of the demand letters she sent to the thirty Moving Issuers and the follow-up letters she sent to twenty-five of the Moving Issuers. As with any issue litigated fully on the merits, shareholders may not endlessly relitigate the adequacy of their presuit demand. Accordingly, we vacate the district court's order dismissing without prejudice the thirty cases involving the Moving Issuers, and the district court is instructed to dismiss these thirty cases with prejudice.
In the twenty-four cases that were improperly dismissed as time-barred and in which the Issuing Companies did not join the Moving Issuers' Motion to Dismiss, the district court is directed to permit the Underwriters and Issuing Companies to seek dismissal on account of Simmonds's failure to comply with the demand requirement. We note that our discussion in this opinion will almost certainly resolve the twenty remaining cases involving issuers incorporated in Delaware. (We express no opinion regarding the four cases involving non-Delaware issuers.) However, as Simmonds's demands letters to those companies are not in the record, we leave it to the district court to address those cases in the first instance. We note that four of the cases involve issuers incorporated in jurisdictions other than Delaware (two issuers are incorporated in California, one in Washington, and one in Bermuda). We direct the district court to analyze the adequacy of those demand letters in accordance with the choice-of-law principles articulated in Kamen — namely, the court should apply the demand requirements of California, Washington, and Bermuda law, unless those requirements "would frustrate specific objectives" of Section 16 and the Exchange Act. Kamen, 500 U.S. at 98, 111 S.Ct. 1711 (citation, internal quotation marks, and alterations omitted).
Contrary to the district court's suggestion, see In re Section 16(b) Litig., 602 F.Supp.2d at 1211, the Underwriters should be permitted to file motions challenging Simmonds's compliance with the demand requirement. See Shlensky v. Dorsey, 574 F.2d 131, 142 (3d Cir. 1978) ("it is well settled . . . that defendants other than the corporation whose rights the shareholder plaintiffs are seeking to vindicate may successfully raise the defense of failure to comply with Rule 23.1" and the demand requirement); accord Hawes v. City of Oakland, 104 U.S. 451, 461-62, 26 L.Ed. 827 (1881) (complaint dismissed on motion by third party defendant); Brody v. Chem. Bank, 517 F.2d 932, 933 (2d Cir. 1975) (per curiam) (complaint dismissed sua sponte).
The Delaware Supreme Court has thoroughly and persuasively explained why third parties have standing to raise defenses based on the shareholder's failure to comply with demand requirement. Kaplan v. Peat, Marwick, Mitchell Co., 540 A.2d 726, 730 (Del. 1988). "The standing of a third party to assert demand related defenses must be determined, not on the basis of whether such status benefits the interests of the third party, but whether according such status furthers the nature and purpose of the demand requirement." Id. The court explained (as we discussed supra) that "[t]he purpose of presuit demand is to assure that the stockholder affords the corporation the opportunity to address an alleged wrong without litigation and to control any litigation which does occur." Id. Accordingly, the court concluded that third party defendants may challenge the sufficiency of a shareholder's demand. Id.
We agree with the reasoning of the Delaware Supreme Court in Kaplan, and disagree with the district courts that have held that this result is at odds with the purposes of Section 16(b). See In re Section 16(b) Litig., 602 F.Supp.2d at 1211 (collecting cases). In light of our general discussion of the demand requirement, we conclude that the Section 16(b) demand requirement — like the demand requirement in all derivative actions — exists for the purpose of allowing corporations to investigate their insiders' wrongdoing, resolve disputes without resorting to litigation, and control any litigation that may take place. See Kaplan, 540 A.2d at 730. In addition, we note that the demand requirement of Section 16(b) is a required statutory precondition to a shareholder's lawsuit. See 15 U.S.C. § 78p(b). As the Delaware Supreme Court explained in Kaplan, third parties are permitted to raise demand-related defenses because a shareholder's "right to bring a derivative action does not come into existence until the plaintiff shareholder has made a demand on the corporation to institute such an action." Id. We see no reason why such reasoning does not apply in the Section 16(b) context.
Accordingly, in the twenty-four cases being remanded, the district court should follow the general rule under both Delaware law and federal law: any defendant in a Section 16(b) action may challenge the adequacy of the shareholder's presuit demand.
Because consolidated appeals "do not merge into one" for all purposes, Fed.R.App.P. 3 advisory committee's note (1998 amend.), the district court should be careful about invoking the "law of the case" doctrine in the remanded cases involving the twenty issuers incorporated in Delaware that did not join the Moving Issuers' Motion to Dismiss, see generally, Joan Steinman, Law of the Case: A Judicial Puzzle in Consolidated and Transferred Cases and in Multidistrict Litigation, 135 U. Pa. L. Rev. 595, 623-25 (1987) (hereinafter Steinman); cf. State HMO Management, Inc. v. Tingley Systems, Inc., 181 F.3d 174, 180 (1st Cir. 1999) (treating consolidated cases "as a single action for res judicata purposes"). However, if Simmonds's demand letters to those twenty Delaware-incorporated issuers are substantially similar to the thirty demand letters examined in this opinion, the district court is bound by stare decisis to apply our holding that demand letters such as the thirty letters we have examined are inadequate as a matter of Delaware law. See Steinman, supra, at 624-25.
CONCLUSION
We AFFIRM the district court's conclusion that Simmonds's demand letters to the thirty Moving Issuers were inadequate under Delaware law, REVERSE the district court's conclusion that all of Simmonds's claims are time-barred, and VACATE the district court's dismissal orders as to the thirty Moving Issuers with instructions that the district court dismiss these thirty cases with prejudice on account of Simmonds's failure to satisfy Delaware's demand requirement. We REMAND the remaining twenty-four cases (that is, the cases involving the twenty-four Issuing Companies that did not join the Moving Issuers' Motion to Dismiss) with instructions for the district court to allow the Underwriters and Issuing Companies to file an appropriate motion to challenge the adequacy of Simmonds's demand letters under Delaware, California, Washington, and Bermuda law, unless that law conflicts with Section 16(b). Costs are awarded to the Appellees.
AFFIRMED IN PART, REVERSED IN PART, VACATED IN PART, AND REMANDED IN PART.
M. SMITH, Circuit Judge, specially concurring:
The statutory text of Section 16(b) provides that "no such suit shall be brought more than two years after the date such profit was realized." 15 U.S.C. § 78p(b). In my view, "no suit" means no suit, and "two years after the date such profit was realized" means two years after the insider's final profitable transaction, regardless of when — or even if — a Section 16(a) report is filed. The text of the statute sets a firm bar against Section 16(b) suits filed more than two years after the transaction is completed. Accordingly, I agree with the Supreme Court's dictum that Section 16(b) "sets a 2-year . . . period of repose." Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350, 360 n. 5, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991).
This straightforward textual reading is further confirmed by comparing the language of Section 16(b) with the language of the other statutes of limitations in our securities laws. See Lampf, 501 U.S. at 360-61 nn. 5-7, 111 S.Ct. 2773. The Court in Lampf explained that language such as Section 16(b)'s "no such suit shall be brought" creates periods of repose that are not subject to tolling. Id. at 360-61, 363, 111 S.Ct. 2773. In addition, the general securities fraud statute of limitations added by the Sarbanes-Oxley Act of 2002, 116 Stat. 801, provides that securities fraud suits "may be brought not later than . . . 5 years after such violation." 28 U.S.C. § 1658(b)(2). The Supreme Court recently noted that this provision "giv[es] defendants total repose after five years." Merck Co., Inc. v. Reynolds, ___ U.S. ___, 130 S.Ct. 1784, 1797, 176 L.Ed.2d 582 (2010) (emphasis added). There is little meaningful distinction between the language of 28 U.S.C. § 1658(b)(2) and Section 16(b) — one provides that suits "may be brought not later than . . . 5 years after such violation," and the other provides that "no such suit shall be brought more than two years after the date such profit was realized." To me, this nearly identical language should "giv[e] defendants total repose" under both statutes. See Merck, 130 S.Ct. at 1797.
There are numerous reasons why Congress would elect to create a firm two-year period of repose for Section 16(b) actions. Although there is no direct evidence of Congress's intent, the legislative history has left behind an intriguing clue. When the Senate and House of Representatives passed their respective bills that later became the Exchange Act, the House of Representatives's version did not even provide for a private right of action under Section 16(b), whereas the Senate's version provided a right of action but omitted a statute of limitations. Romeo Dye, supra, § 1.02[3][b][vi]. It is reasonable to infer that the House negotiators, in reaching a compromise with the Senate over the inclusion of a private right of action, might have bargained to include a stringent statute of limitations to circumscribe that right of recovery.
Admittedly, the legislative history is in-conclusive, but a restrictive statute of limitations is eminently logical. Section 16(b) imposes an inflexible penalty on corporate insiders even if they are not at fault and third parties are unharmed. As Section 16(b)'s critics have noted, its disgorgement provision "is little more than a trap for the unwary." Id. § 9.01[11][a]. It makes no sense to allow individuals to be hauled into court years — or even decades — after they unintentionally violate Section 16. Our holding in Wkittaker creates the possibility that "a claim that affects long-settled transactions might hang forever over honest persons." Litzler v. CC Investments, L.D.C., 362 F.3d 203, 208 n. 5 (2d Cir. 2004) (Jacobs, J., concurring). Whittaker could lead to the anomalous situation in which a corporate officer who mistakenly calculates the six-month short-swing period can be compelled to disgorge his trading profits decades after the fact, whereas a culpable officer who engages in fraudulent insider trading becomes immune from civil suit after five years as long as his trades were spaced more than six months apart. I fail to see the logic behind such a result, and I fear that Whittaker failed to foresee such anomalies.
I note that Whittaker was motivated by the well-intentioned concern that corporate insiders could avoid Section 16(b) liability if they flout Section 16(a)'s reporting requirements. However, I do not believe that this concern warrants the creation of never-ending liability for corporate directors, officers, and shareholders. The Exchange Act is a comprehensive statute that was designed to address various types of wrongdoing. It is inappropriate for us to use Section 16(b), which prohibits certain types of insider trading, to enforce the policies of Section 16(a), which requires disclosure of insider trading. The Exchange Act creates more than adequate enforcement mechanisms for enforcing Section 16(a)'s disclosure requirements. If the insiders do not file their reports, they may be held professionally, civilly, or criminally liable for failing to do so. See, e.g., 15 U.S.C. § 78ff(a) (criminal penalties); In re Gold, Exchange Act Release No. 34-51585, 85 S.E.C. Docket 724 (Apr. 20, 2005) (professional and civil penalties). And if the insiders withhold their Section 16(a) reports in order to profit from inside information, they may be subjected to Rule 10b-5 securities fraud actions. See, e.g., In re Daou Sys., Inc., 411 F.3d 1006, 1022-24 (9th Cir. 2005).
Ultimately, I believe that Whittaker's cure is worse than the disease it intended to address. I would have preferred to adopt any one of the three alternatives to Whittaker: the statute of repose approach, Lampf, 501 U.S. at 360 n. 5, 111 S.Ct. 2773, the actual notice approach, Litzler, 362 F.3d at 208, or the hybrid approach that tolls the statute in cases of "fraud or concealment," id. at 208 n. 5 (Jacobs, J., concurring). Of these three approaches, the statutory text and statutory structure clearly point toward the repose approach. Were it not for Whittaker, I would hold that Section 16(b) suits may not be brought more than two years after the short-swing trades take place.
Despite these concerns, I am compelled to follow Whittaker. See Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en banc). Accordingly, I concur with the panel's decision.