Citation Codes

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Docket Number

MDL DOCKET NO. 3:03-MDL-1537.

Judges

John Trice Nixon

Acts

Bankruptcy — Case Administration — Administrative Powers — Automatic Stay
Judiciary And Judicial Procedure — United States Magistrate Judges — Court Officers And Employees — Jurisdiction, Powers, And Temporary Assignment

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Smart Summary

Summary of Opinion: In re Nortel Networks Corp. "ERISA" Litigation — MDL No. 3:03-MDL-1537 (M.D. Tenn. Sept. 25, 2009)

Factual and Procedural Background

This consolidated ERISA litigation has been pending in the Middle District of Tennessee since 2003. On January 14, 2009, Nortel Networks Corporation and related entities filed for Chapter 11 relief in the United States Bankruptcy Court for the District of Delaware (Case No. 09-10139 KG) and in the Superior Court of Justice — Ontario (Commercial List). The Nortel Defendants filed a Suggestion of Bankruptcy and raised the applicability of the automatic stay under 11 U.S.C. § 362. The Delaware Bankruptcy Court issued a Recognition Order adopting a Canadian order that stayed proceedings against the corporate Nortel entities and proceedings commenced or continued against former, current or future directors or officers with respect to pre-petition claims relating to obligations of the applicants.

In response, Magistrate Judge Bryant entered an order on March 5, 2009, staying all further proceedings in the case. Plaintiffs argued the bankruptcy stays did not apply to twenty-eight individual Nortel defendants; Defendants asserted the stay applied to all defendants. The matter was litigated in Ontario, where Justice Morawetz held on August 18, 2009, that the stay applied to the individual Nortel defendants as well as the corporate defendants. Plaintiffs subsequently conceded that the Recognition Order and the Canadian clarification decision made the Canadian stay applicable to all defendants in this case.

Magistrate Judge Bryant had issued a Report and Recommendation on September 2, 2009, addressing Plaintiff's Motion for Class Certification and directing that written objections be filed within ten days. The district court suspended deadlines to respond to that Report pending resolution of the Motion to Stay. Defendants sought, in addition to a stay, rescission of any actions inconsistent with the bankruptcy stay, specifically requesting that the court rescind Magistrate Bryant's Report.

Legal Issues Presented

Whether the bankruptcy stays (as reflected in the Delaware Recognition Order adopting the Canadian stay) apply to the individual Nortel defendants in addition to the corporate Nortel defendants.
Whether the Court should rescind or set aside Magistrate Judge Bryant's Report and Recommendation addressing class certification on the ground that its issuance was inconsistent with the bankruptcy stay.

Arguments of the Parties

Plaintiffs' Arguments

Plaintiffs argued that the bankruptcy stays issued by the Delaware and Canadian courts applied to the corporate Nortel defendants but did not apply to the twenty-eight individual Nortel defendants.

Defendants' Arguments

Defendants asserted that the bankruptcy stay applied to all defendants, including the individual Nortel defendants.
Defendants further argued that the issuance of Magistrate Judge Bryant's Report and Recommendation was inconsistent with the bankruptcy stay and therefore asked the Court to rescind and set aside that Report.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Brown v. Wesley's Quaker Maid, Inc., 771 F.2d 952, 954 (6th Cir. 1985)	Explains that for matters referred under 28 U.S.C. § 636(b)(1)(B), a magistrate judge "does not rule directly" but files a report containing findings and recommendations for the district judge.	The Court relied on this principle to explain that Magistrate Bryant's Report is recommendatory and has no force of law until the district judge reviews it and enters an adopting or rejecting order; because no such district judge order had been entered, the Report was not a final action to be rescinded under the bankruptcy stay.

Court's Reasoning and Analysis

The Court's analysis proceeded in two main parts: (1) determining the applicability of the bankruptcy stay to all defendants, and (2) addressing whether the magistrate's Report should be rescinded.

On the stay's applicability, the Court noted the Delaware Recognition Order adopting the Canadian order that stayed proceedings against the corporate debtors and against directors or officers for pre-petition claims. Magistrate Judge Bryant had already entered a stay of proceedings on March 5, 2009. The Ontario court (Justice Morawetz) later clarified on August 18, 2009, that the stay applied to the individual Nortel defendants as well as the corporate defendants. Plaintiffs conceded that, in light of the Recognition Order and the Canadian clarification, the Canadian stay applied to all defendants. Based on these developments and the parties' concession, the Court concluded the stay should be imposed and Magistrate Bryant's prior stay order upheld.

With respect to the request to rescind the magistrate's Report and Recommendation, the Court explained the legal framework under 28 U.S.C. § 636(b)(1)(B) (as described in the opinion) and cited Brown v. Wesley's Quaker Maid, Inc. to emphasize that a magistrate judge's report is not an order with the force of law. Because Magistrate Bryant issued the Report on September 2, 2009, but the district court had not entered any order adopting or denying the Report, the Report remained a recommendation and did not constitute a final action of the district court to be rescinded. On that basis, the Court denied Defendants' request to rescind and set aside the Report.

Finally, the Court explained the practical consequences of the stay: due to the bankruptcy stay it ordered the action administratively closed and suspended the deadline to respond to the Report until the parties take further action to reopen the case; the Court will set a response deadline, if appropriate, when the case is reopened.

Holding and Implications

Holding:

The Defendants' Motion to Stay is GRANTED (the Court upholds Magistrate Judge Bryant's prior stay of proceedings), and further proceedings in this case are stayed pending the outcome of the bankruptcy proceedings.
The Defendants' request to rescind and set aside Magistrate Judge Bryant's Report and Recommendation is DENIED.
The case is ORDERED ADMINISTRATIVELY CLOSED and the deadline to respond to the Report is SUSPENDED until further action to reopen the case; the Court will set any applicable response deadline at that time.

Implications: The direct effects are that all proceedings in this district court action are stayed as to all defendants (including the individual Nortel defendants), the magistrate judge's Report remains a recommendatory filing (no district judge action has been taken), and the case is administratively closed with suspended deadlines. The opinion does not announce or rely upon any new legal precedent; it applies existing authority and the parties' concession regarding the applicability of the Canadian stay.

This summary is based exclusively on the text of the provided opinion and does not add information beyond that opinion.

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IN RE NORTEL NETWORKS CORP. "ERISA" LITIGATION.

ORDER

JOHN NIXON, Senior District Judge

Pending before the Court is the Nortel Defendants' ("Defendants") Renewed Suggestion of Bankruptcy and Emergency Motion to Stay All Proceedings and Rescind Any Actions Inconsistent With the Bankruptcy Stay ("Motion to Stay") (Doc. No. 266). Plaintiff filed a Response (Doc. No. 268). For the following reasons, Defendants' Motion to Stay is GRANTED in part.

This ERISA litigation was consolidated in the Middle District of Tennessee in 2003. On January 14, 2009, Nortel Networks Corporation, et al., filed for bankruptcy relief under Chapter 11 in the United States Bankruptcy Court for the District of Delaware (Case No. 09-10139 KG) as well as in the Superior Court of Justice — Ontario (Commercial List). (See Doc. No. 265, at 1). Defendants subsequently submitted to this Court a Suggestion of Bankruptcy and Applicability of the Automatic Stay Under 11 U.S.C. § 362 (Doc. No. 253) and a Notice of Filing (Doc. No. 254) attaching a copy of the Delaware Bankruptcy Court's Order Granting Recognition and Related Relief ("Recognition Order") adopting the Canadian Bankruptcy Court's Order staying all proceedings against Defendants Nortel Networks Corporation, Nortel Networks Limited, and any proceedings:

commenced or continued against any of the former, current or future directors or officers of the Applicants with respect to any claim against the directors or officers that arose before the date hereof and relates to any obligation of the Applicants whereby the directors or officers are alleged under any law to be liable in their capacity as directors or officers.

(See id., Ex. A., at Ex. 1). In response, by his March 5, 2009 Order, Magistrate Judge Bryant stayed all further proceedings in the case ("Magistrate Bryant's Order"). (See Doc. No. 255).

In response to Magistrate Bryant's Order, Plaintiffs argued that while the Delaware and Canadian bankruptcy stays applied to the corporate Nortel Defendants, the stays did not apply to the twenty-eight individual Nortel Defendants. (See Doc. No. 256). Defendants responded asserting that the stay applied to all Defendants (See Doc. No. 257). The Parties eventually briefed this issue in the Ontario Court and, on August 18, 2009, Justice Morawetz specifically held that the stay applied to the individual Nortel defendants as well as the corporate defendants. (See Doc. No. 263, Ex A., at 7). Plaintiffs now concede that the Recognition Order, along with the recent Canadian clarification decision, result in the Canadian stay's applicability to all Defendants in this case. (See Doc. No. 268). Therefore, Defendants' Motion to Stay is GRANTED and Magistrate Bryant's Order is UPHELD and further proceedings in this case are STAYED pending the outcome of the bankruptcy proceedings.

However, Defendants also request that this Court rescind any actions inconsistent with the bankruptcy stay. (See Doc. No. 265). Per this Court's Order (Doc. No. 259), Magistrate Judge Bryant issued a Report and Recommendation ("Report") addressing Plaintiff's Motion for Class Certification and directing any party to file any written objections to the Report within ten (10) days of receipt. (Doc. No. 37). This Court then suspended all deadlines to respond to that Report pending its decision on the Motion to Stay. (Doc. No. 267). Defendants now argue that issuance of the Report is inconsistent with the bankruptcy stay and pray that the Court will rescind and set aside that Report.

A district court judge may "designate a magistrate judge to . . . submit to a judge of the court proposed findings of fact and recommendations for the disposition, by a judge of [a motion to dismiss or permit maintenance of a class action]." 28 U.S.C. § 636(b)(1)(B) (2005). A report and recommendation issued by a magistrate judge does not have the force of law; rather a district judge then reviews such a report de novo and then enters an order adopting or rejecting its findings. Id.; Brown v. Wesley's Quaker Maid, Inc., 771 F.2d 952, 954 (6th Cir. 1985) (for matters referred under 28 U.S.C. § 636(b)(1)(B), the magistrate "does not rule directly on such a motion, but rather must file a report containing findings of fact and recommendations for the assistance of the direct judge who makes the ruling"). Magistrate Bryant issued his Report on September 2, 2009. This Court has not entered an Order either adopting or denying this Report. Therefore, no action has been taken in this case regarding the Motion for Class Certification (Doc. No. 37) or the Amended Motion for Class Certification (Doc. No. 98). Defendants' request to have the Report rescinded and set aside is DENIED.

Due to the bankruptcy stay, the Court ORDERS the present action ADMINISTRATIVELY CLOSED. The deadline to respond to the Report is SUSPENDED until further action by the Parties to reopen the case. The Court will set a response deadline, if applicable, at that time.

It is so ORDERED.

IN RE NORTEL NETWORKS CORP. "ERISA" LITIGATION