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Federal Court Remands Securities Act Claim to State Court Despite SLUSA: Cervantes, In Re: Cervantes v. Dickerson
Posted on Categories Class Actions, Court DecisionsTags ,

By Paul J. Dubow

A securities class action that only alleges a violation of the Securities Act of 1933 cannot be removed to federal court, even if "covered" under SLUSA.

Cervantes, In Re: Cervantes vs. Dickerson, No. 15-3825 (N.D. Cal., 10/21/15).

SLUSA and Jurisdiction

Plaintiff filed a class action against defendants, a corporation and its officers, directors and securities underwriters, in the state court of California, alleging only a violation of the Securities Act of 1933 arising from an initial public offering. Defendants removed the matter to Federal Court. Although Section 77v(a) of the Act prohibits the removal to federal court of claims alleging its violation, defendants asserted that the claim could be removed because it is a “covered class action,” as described in the Securities Litigation Uniform Standards Act (SLUSA), and that SLUSA created an exception to the anti-removal provision for covered class actions.

That exception provides that 1933 Act claims cannot be removed “except as provided in Section 77p of this title with respect to covered class actions” and further states that “except as provided in Section 77p(c) of this title,” 1933 Act claims cannot be removed. Section 77p(c), which was also added by SLUSA, states: “Any covered class action brought in any State court involving a covered security, as set forth in subsection (b), shall be removable... and shall be subject to subsection (b).” Section 77p(b) states that “no covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court....”

Ruling on the Motion to Remand

Plaintiff moves to remand, arguing that the exception only applies where state law claims are asserted and not where the sole claim arises under the 1933 Act. The motion is granted. Taken together, the statutory provisions at issue here – section 77v(a) (the jurisdictional provision), section 77p(c) (the removal provision) and section 77p(b) (the preclusion provision) – cannot be described as a model of clarity, but the Court finds plaintiff's interpretation to be more persuasive. In plaintiff's view, section 77p(c) (the removal provision) permits removal of only those class actions based on state law, described in section 77p(b) (the preclusion provision), and, because he does not allege any state law claims, the removal bar in section 77v(a) (the jurisdictional provision) prohibits removal of this action. It appears clear that section 77p(b) precludes both state and federal courts from hearing securities class actions based on state law.

Section 77p(c), which provides a narrow exception to the general antiremoval rule, applies only to actions described in Section 77p(b) (as it provides that removable actions shall be “subject to subsection (b)”). The most logical way of reading these provisions is that only covered class actions based on state law can be removed to federal court, and only for the purpose of dismissing the precluded state law claims as required by section 77p(b). The Court finds nothing in the statute indicating that SLUSA created any other basis for removal beyond the narrow exception described above – to allow federal courts to dismiss precluded state law class actions.

(P. Dubow)

(SLC Ref. No. 2015-44-06)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA)from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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