CalPERS Loses Bid to Keep Suit in State Court

The California Public Employees’ Retirement System may not bring a securities-fraud suit on behalf of WorldCom Inc. bondholders in state court, a federal appeals court in New York ruled Tuesday.

The pension fund attempted to stay out of the more costly, slower-paced federal courts by suing under a 1933 law that holds securities underwriters strictly liable for the misstatements of client issuers and allows investors to sue in state courts.

The court said that a bankruptcy law that requires that all litigation “related to” the bankruptcy case of WorldCom be heard in federal court trumps a federal securities law that bars the move to federal court by most state court securities-law claims. WorldCom renamed itself MCI Inc. when it completed its court-supervised Chapter 11 reorganization last month.

The ruling is a defeat for CalPERS lawyer William Lerach and other attorneys who have attempted to pursue bondholder-loss claims in state courts, which impose a lower burden of proof than federal forums.