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A bid by nine New York City pension funds to have their fraud case against former WorldCom Inc. CEO Bernard Ebbers and others returned to state court has been rejected by Southern District of New York Judge Denise L. Cote. Citing the need to coordinate WorldCom’s bankruptcy proceedings and the myriad shareholder suits filed against the troubled telecommunications company, Cote ruled that the case, brought initially in New York County Supreme Court, was rightly removed to the Southern District. Plaintiffs’ lawyers in New York City Employees Retirement System v. Ebbers, 02 Civ. 8981, had argued that the removal should be reversed because it was not “related to” the bankruptcy within the meaning of the provision for subject matter jurisdiction in Title 28 U.S.C. � 1334 (b). They also argued that even if jurisdiction existed, Cote should abstain from exercising it or at least remand the case to state court based on equitable considerations. Defendants in the case, which include WorldCom directors and underwriting investment banks, countered that the “related to” standard was met by the indemnification and contribution rights asserted against the company and company insurance policies covering the directors. Judge Cote agreed, saying the defendants had “carried their burden” in showing the connection needed for jurisdiction under � 1334 (b). The ruling could also affect at least a dozen actions brought on behalf of private and public funds in other states by William Lerach of Milberg Weiss Bershad Hynes & Lerach. Lerach intervened in this case to press the same point as attorneys for the New York City Employees Retirement System, (NYCERS). But Judge Cote left little hope for their success, saying only that plaintiffs in other removed actions will be given a chance to show “why the analysis in this opinion does not control any motion to remand filed in their cases.” The funds, represented by Stephen Lowey, David C. Harrison and Neil L. Selinger of Lowey Dannenberg Bemporad & Selinger in White Plains, N.Y., as well as the Corporation Counsel’s office, based their claims on the collapse of WorldCom stocks and bonds purchased between 1999 and mid-2002, when a multibillion dollar accounting fraud at the company came to light. Their case differs from the more than 20 WorldCom class actions currently before Judge Cote, as well as other cases sent to her by the federal Panel for Multi-District Litigation. First, the funds make a claim for aiding and abetting common-law fraud under New York law. Second, they make claims only under the Securities Act of 1933, which allows for concurrent state and federal jurisdiction for some claims, unlike the Securities Exchange Act of 1934 as amended. But Judge Cote found that the desire of the pension funds to return to state court had to give way to the “efficiency and reorganization goals of the Bankruptcy Code,” which favor federal jurisdiction and removal in all but a few limited circumstances. Paul C. Curnin of Simpson Thacher & Bartlett represented the WorldCom directors. Jay B. Kasner and John Gardiner of Skadden, Arps, Slate, Meagher & Flom represented the underwriters.

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