Filed: Jul. 02, 2008
Latest Update: Feb. 21, 2020
Summary: IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED July 2, 2008 No. 06-20658 Charles R. Fulbruge III Clerk MARK NEWBY; ET AL Plaintiffs v. ENRON CORPORATION; ET AL Defendants - LILA WARD, Individually and on Behalf of All Others Similarly Situated; THE HENRY GROUP, Lead Plaintiff Plaintiffs-Appellants v. STANLEY C HORTON; DANA R GIBBS; LAWRENCE CLAYTON, JR; KENNETH L LAY; ARTHUR ANDERSEN LLP Defendants-Appellees Appeal from the United S
Summary: IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED July 2, 2008 No. 06-20658 Charles R. Fulbruge III Clerk MARK NEWBY; ET AL Plaintiffs v. ENRON CORPORATION; ET AL Defendants - LILA WARD, Individually and on Behalf of All Others Similarly Situated; THE HENRY GROUP, Lead Plaintiff Plaintiffs-Appellants v. STANLEY C HORTON; DANA R GIBBS; LAWRENCE CLAYTON, JR; KENNETH L LAY; ARTHUR ANDERSEN LLP Defendants-Appellees Appeal from the United St..
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 2, 2008
No. 06-20658 Charles R. Fulbruge III
Clerk
MARK NEWBY; ET AL
Plaintiffs
v.
ENRON CORPORATION; ET AL
Defendants
-----------------------------------------------------------------------------------------
LILA WARD, Individually and on Behalf of All Others Similarly Situated;
THE HENRY GROUP, Lead Plaintiff
Plaintiffs-Appellants
v.
STANLEY C HORTON; DANA R GIBBS; LAWRENCE CLAYTON, JR;
KENNETH L LAY; ARTHUR ANDERSEN LLP
Defendants-Appellees
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:03-CV-484
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No. 06-20658
Before SMITH and PRADO, Circuit Judges, and LUDLUM, District Judge.*
PER CURIAM:**
In this case, we review the district court’s dismissal without prejudice of
the Plaintiffs-Appellants’ claims for failure to timely effect service of process, as
required by Federal Rule of Civil Procedure 4(m). For the following reasons, we
AFFIRM the district court’s ruling.
I. FACTUAL AND PROCEDURAL BACKGROUND
On February 11, 2003, Lila Ward filed a shareholders’ class action suit
(“the Ward case”) against Stanley Horton, Dana Gibbs, Lawrence Clayton, Jr.,
Kenneth Lay, and Arthur Andersen, L.L.P. (“Defendants-Appellees”), alleging
violations of the Private Securities Litigation Reform Act (“PSLRA”). Horton,
Gibbs, Clayton, and Lay were sued in their capacity as officers and directors of
EOTT Energy Partners, L.P. (“EOTT”), which was the sole general partner to
EOTT Energy Corporation (“EOTT Energy”), an indirect wholly-owned
subsidiary of Enron Corporation (“Enron”). According to the complaint, these
officers and directors caused EOTT to engage in fraudulent practices by making
material misrepresentations and omissions about EOTT’s earnings. Defendant-
Appellee Arthur Andersen, L.L.P., which provided auditing services for both
Enron and EOTT, allegedly violated its professional duty of care to EOTT
shareholders. The class of plaintiffs consisted of all persons and entities who
purchased common stock units of EOTT between July 2, 2001 and January 22,
2002.
*
District Judge of the Western District of Texas, sitting by designation.
**
Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5th
Cir. R. 47.5.4.
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No. 06-20658
On February 13, 2003, the Ward case was consolidated with Newby v.
Enron Corp., 4:01-CV-3624, the case designated as the lead case for litigation
involving certain Enron-related persons and entities. The Ward case was
immediately stayed because of prior bankruptcy filings by EOTT and EOTT
Energy and because of a stay of discovery in effect under 15 U.S.C. § 78u-
4(b)(3)(B), a provision of the PSLRA. The bankruptcy stay was eventually lifted,
and in April 2003, the district court lifted the PSLRA’s automatic stay.
However, on July 11, 2003, the district court imposed another stay, which
allowed for continued discovery but prevented the filing of any amended or
responsive pleadings until a determination regarding the Newby class
certification was made.1
On February 17, 2005, Sam Henry, Ted Zigan, Melvin Schulz, and Elsie
Schulz (“Henry Group”) were appointed by the district court as lead plaintiffs in
the Ward case. In addition, Cauley Bowman Carney & Williams P.L.L.C. was
appointed as lead plaintiffs’ counsel. Newly appointed lead counsel attempted
to contact counsel for EOTT and the Defendants-Appellees to coordinate
discovery and the filing of an amended complaint. In response, Mr. Cotham,
counsel for Defendants-Appellees Lawrence Clayton, Jr. and Dana Gibbs,
notified lead plaintiffs’ counsel on August 16, 2005 that Clayton and Gibbs were
never served in the Ward case. Mr. Cotham requested that his clients be
dismissed for insufficiency of process and because the statute of limitations had
already expired.
Upon further investigation, lead plaintiffs’ counsel determined that none
of the defendants in the Ward case had been served. On December 20, 2005,
1
The Newby class was not certified until July 5, 2006, after dismissal of the Ward case.
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No. 06-20658
over 120 days after being notified by Mr. Cotham, the Henry Group filed a
motion in the district court, seeking an additional sixty days to effect service,
pursuant to Federal Rule of Civil Procedure 4(m). The Defendants-Appellees
objected to the motion on grounds that after the expiration of 1,053 days from
the filing of the complaint, the Henry Group had made no attempt to serve them.
They also filed a cross motion to dismiss under Federal Rule of Civil Procedure
12(b)(5) and 4(m) for failure to timely perfect service.
Defendant-Appellee Horton additionally asserted that he had already been
dismissed as a party from the Ward case. On December 9, 2004, Regents of the
University of California, the party designated as lead plaintiff for the
consolidated Newby action, conferred with Stanley Horton and several other
parties not named in the Ward case. They all filed an agreed motion for
voluntary dismissal, which the district court granted a day later. Horton argued
that this dismissal released him from all pending consolidated cases, including
the Ward case.
The district court entered an order on May 15, 2006, denying the motion
for additional time to perfect service, stating only that after considering the
motion, responses, and the cross motion to dismiss, the motion was without
merit. In addition, without specifically referencing or granting the motion to
dismiss, the district court ordered the dismissal of all claims against the
Defendants-Appellees, without prejudice, for failure to timely effect service as
required by Rule 4(m). The district court also denied the Henry Group’s motion
for reconsideration, filed on May 25, 2006. In the order denying reconsideration,
the district court found that the Henry Group failed to show good cause why they
had failed to serve the Defendants-Appellees for 1,053 days.
The Henry Group, as lead plaintiffs, filed a timely notice of appeal,
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No. 06-20658
asserting that the district court abused its discretion in not allowing additional
time to effect service. In addition, Defendant-Appellee Horton filed a motion to
dismiss him from the appeal, reasserting his argument that he was previously
dismissed from the Ward case on December 10, 2004, and asking that he be
released as a party to the appeal.
II. DISCUSSION
We review a district court’s dismissal under Rule 4(m) for abuse of
discretion. Traina v. United States, 911 F.2d 1155, 1157 (5th Cir. 1990). Under
Rule 4(m), a district court is permitted to dismiss a case without prejudice if a
defendant has not been served within 120 days after a complaint is filed.
Thompson v. Brown,
91 F.3d 20, 21 (5th Cir. 1996). However, if a plaintiff can
establish good cause for failing to serve a defendant, the court must allow
additional time for service.
Id. Morever, even if good cause is lacking, the court
has discretionary power to extend time for service.
Id. Such relief may be
warranted, “for example, if the applicable statute of limitations would bar the
refiled action, or if the defendant is evading service or conceals a defect in
attempted service.” Fed. R. Civ. P. 4(m) advisory committee’s note (1993).
To establish good cause, a plaintiff has the burden of demonstrating “at
least as much as would be required to show excusable neglect . . . .” Winters v.
Teledyne Movible Offshore, Inc., 776 F.2d 1304, 1306 (5th Cir. 1985). “[S]imple
inadvertence or mistake of counsel or ignorance of the rules usually does not
suffice . . . .”
Id. In addition, “some showing of ‘good faith on the part of the
party seeking an enlargement and some reasonable basis for noncompliance
within the time specified’ is normally required.”
Id. (quoting Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure § 1165 (1969)). It is
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No. 06-20658
“irrelevant that the defendant not served within the 120-day period later finds
out about the suit or is in fact later served, so long as there was not good cause
for the failure to serve within the 120 days.” Id. at 1305-06.
According to the Plaintiffs-Appellants, good cause was established solely
by the fact that they would be time-barred in refiling the action because the
statute of limitations has run. However, they also contend that an
amalgamation of other factors—including confusion over the bankruptcy stay
and the PSLRA discovery stay, lack of knowledge as to any defects in service,
and the prolonged length of time before the district court appointed lead
plaintiffs and counsel—also constitute good cause. Alternatively, Plaintiffs-
Appellants argue that even if good cause does not exist, the district court abused
its discretion by not considering these factors and allowing additional time under
the discretionary provisions of Rule 4(m). Further, they argue that the court’s
cursory dismissal order failed to indicate that it ever considered its discretionary
powers under Rule 4(m).
We find that the district court did not abuse its discretion in determining
that the Plaintiffs-Appellants’ reasons for failing to timely serve the Defendants-
Appellees did not constitute good cause. Plaintiffs-Appellants have not
demonstrated any good-faith effort in attempting service and have proffered no
reasonable basis for failing to serve Defendants-Appellees within 120 days of
filing the original complaint. None of the stays affected the ability to effect
service of process. The reasons cited by Plaintiffs-Appellants, therefore, relate
to inadvertence, mistake of counsel, and unfamiliarity with rules, all matters
that fall short of the excusable neglect threshold, especially considering the
length of delay in effecting service and the continued delay after learning of
defects in service.
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No. 06-20658
In addition, we have rejected the argument that dismissal is unwarranted
when the statute of limitations period has run. Redding v. Essex Crane Rental
Corp. of Ala., 752 F.2d 1077, 1078 (5th Cir. 1985). “It is not our function to
create exceptions to the rule for cases in which dismissal without prejudice may
work prejudice in fact . . . .” Norlock v. City of Garland,
768 F.2d 654, 658 (5th
Cir. 1985); see also McDonald v. United States,
898 F.2d 466, 468 (5th. Cir. 1990)
(“[D]ismissal is not unwarranted simply because the limitations period has
run.”); Traina v. United States,
911 F.2d 1155, 1157 (5th Cir. 1990) (“It is well
settled that inability to refile a suit does not bar dismissal . . . . ).2
We also find that the district court did not err by disallowing additional
time for service under the discretionary provision of Rule 4(m). Although the
advisory guidelines to Rule 4(m) suggest that the bar to refiling the Ward case
might justify relief, the power nonetheless remains discretionary.3 The record
2
Norlock, McDonald, and Traina addressed dismissals under Rule 4(j), the
predecessor to Rule 4(m). Under Rule 4(j), dismissals where service was not effected within
120 days were mandatory absent a showing of good cause, leaving the district court with no
discretionary powers to allow additional time for service for other reasons. Changes
reflected in Rule 4(m), however, did not affect any provisions relating to good cause or
prejudice, and these cases, therefore, continue to apply in Rule 4(m) dismissals. See
Petrucelli v. Bohringer & Ratzinger, 46 F.3d 1298, 1307 n.11 (3d Cir. 1995) (holding that
Rule 4(m) did not impact prior decisions under Rule 4(j) that articulated the standard for
good cause); Sanchez v. Perez, No. 96-40049,
1996 WL 512289, at *2 (5th Cir. Aug. 30,
1996) (citing
Norlock, 768 F.2d at 658 in holding that “[a] district court may order a
dismissal under Rule 4(m) even where it will operate as ‘with prejudice’ because the statute
of limitations has run.”); McWherter v. Collins, No. 95-20347,
1995 WL 725358, at *2 (5th
Cir. Oct. 20, 1995) (“A Rule 4(m) dismissal may be ordered even when the ‘without
prejudice’ dismissal operates as a ‘with prejudice’ dismissal because the applicable statute
of limitations has run.”); Sefati v. M.D. Anderson Hosp., No. 94-20737,
1995 WL 449727, at
*1 (holding that the proper time to consider the practical effect of a dismissal with prejudice
is under the broad discretion afforded a district court under Rule 4(m)).
3
Plaintiffs-Appellants argue that because the running of the statute of limitations
prevents refiling, the dismissal, despite being without prejudice, was effectively one with
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No. 06-20658
indicates that not only did Plaintiffs-Appellants fail to serve Defendants-
Appellees for a period of over 1,000 days, they also waited an additional 126 days
after receiving direct notice from certain Defendants-Appellees of defects in
service before seeking leave from the court for additional time. This additional
delay alone exceeded the 120-day time limit of Rule 4(m). Based on the extent
of the delay, we refuse to find an abuse of discretion by the district court.
Morever, “[t]he absence of a discussion of the district court’s discretionary
powers in the court’s order does not demonstrate that the court misapplied
[R]ule 4(m).” Thompson, 91 F.3d at 21. A review of the record indicates that the
district court was fully briefed on all issues and was aware of its discretionary
powers under Rule 4(m), along with reasons why such relief might be granted.
Therefore, although the district court’s orders were brief, there is no indication
that it failed to consider its discretionary powers.
III. CONCLUSION
The district court did not err by rejecting as good cause the Plaintiffs-
Appellants’ reasons for failing to serve the Defendants-Appellees within 120
days. Further, based on the severe delay in effecting service, the district court
prejudice, running afoul to the provisions of Rule 4(m). Because of this, they argue that the
court first should have addressed certain factors dictated in cases reviewing dismissals for
failure to prosecute under Rule 41(b). Under Rule 41(b), a court may dismiss claims for
failure to prosecute with or without prejudice, but effective dismissals with prejudice where
the running of the statute of limitations prevents refiling will be treated as involuntary
dismissals and affirmed only upon a showing of “a clear record of delay or contumacious
conduct by the plaintiff, and where lesser sanctions would not serve the best interests of
justice.” Sealed Appellant v. Sealed Appellee, 452 F.3d 415, 417 (5th Cir. 2006) (footnote
and quotation omitted); see also Veazey v. Young’s Yacht Sale & Serv., Inc.,
644 F.2d 475,
477 (5th Cir. 1981); Boazman v. Econ. Lab., Inc.,
537 F.2d 210, 213 (5th Cir. 1976). The
district court, however, dismissed the Ward case based solely on the provisions of Rule 4(m)
and not Rule 41(b). As such, cases discussing dismissals under Rule 41(b) are inapplicable
here.
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No. 06-20658
did not abuse its discretion by refusing to grant additional time to effect service
under the discretionary powers of Rule 4(m), even considering that the running
of the statute of limitations would prevent refiling. Because of our holding, it is
unnecessary to reach the merits of Defendant-Appellee Horton’s motion to
dismiss him from the appeal.
AFFIRMED.
9
