Eminence Investors, L.L.L.P. v. Bank of New York Mellon

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

EMINENCE INVESTORS, L.L.L.P., an No. 15-15237

Arkansas Limited Liability Limited

Partnership, Individually, and on D.C. No.

behalf of all others similarly 1:13-cv-02025-

situated, AWI-MJS

Plaintiff-Appellee,

v. OPINION

BANK OF NEW YORK MELLON, a

New York Banking Corporation,

Defendant-Appellant.

Appeal from the United States District Court

for the Eastern District of California

Anthony W. Ishii, Senior District Judge, Presiding

Argued and Submitted

March 9, 2015—San Francisco, California

Filed April 2, 2015

Before: J. Clifford Wallace, Milan D. Smith, Jr.,

and Paul J. Watford, Circuit Judges.

Opinion by Judge Wallace

2 EMINENCE INVESTORS V. BNYM

SUMMARY*

Class Action Fairness Act / Removal / Jurisdiction

The panel dismissed for lack of subject matter jurisdiction

an appeal from the district court’s order remanding the case

to state court after the defendant had removed the case to

federal court pursuant to the Class Action Fairness Act.

The panel held that the securities exception from CAFA

removal, 28 U.S.C. § 1453(d)(3), applied to the case, and

dismissed for lack of jurisdiction.

COUNSEL

David J. Bird (argued), James C. Martin, Eric A. Schaffer,

and Benjamin J. Sitter, Reed Smith LLP, Pittsburgh,

Pennsylvania; Donald H. Glasrud, Dietrich, Glasrud, Mallek

& Aune, Fresno, California, for Defendant-Appellant.

Robert Branch (argued), Thornton Law Group, P.C., Fresno,

California; Douglas V. Thornton, Rummonds Thornton, LLP,

Fresno, California, for Plaintiff-Appellee.

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

EMINENCE INVESTORS V. BNYM 3

OPINION

WALLACE, Senior Circuit Judge:

Defendant-Appellant The Bank of New York Mellon

(Bank) appeals from the district court order remanding this

case to state court after the Bank removed the case pursuant

to the Class Action Fairness Act (CAFA) removal provision

in 28 U.S.C. § 1453(b). Because we conclude that the CAFA

securities exception, 28 U.S.C. § 1453(d)(3), applies to this

case, we dismiss the appeal for lack of jurisdiction.

I.

Plaintiff-Appellant Eminence Investors, L.L.L.P.

(Eminence), originally brought suit against the Bank in

California state court in 2011. Almost two years later,

Eminence filed a First Amended Complaint (Complaint),

adding class allegations on behalf of more than 100 class

members and requesting compensatory damages expected to

exceed $10 million for each of four causes of action. The

Bank is the successor to the indenture trustee under an

Indenture of Trust (Indenture) dated November 1, 1996,

governing the administration of the $16,000,000 Jensen

Ranch Public Financing Authority River Ranch Project –

Revenue Bonds, 1996 Series A (Bonds) issued by the Jensen

Ranch Public Finance Authority. The Complaint alleges that

Eminence and other class members have a common interest

as holders of the Bonds against the Bank as their fiduciary.

The Complaint includes causes of action for breach of

fiduciary duty and gross negligence as well as a request for

injunctive relief.

4 EMINENCE INVESTORS V. BNYM

Within thirty days of the filing of the Complaint, the Bank

removed the action to federal court. Eminence then moved to

remand the case to state court, arguing that removal was

untimely and that the CAFA securities exception applied. The

district court ultimately agreed with Eminence regarding the

untimeliness of the removal under 28 U.S.C. § 1446(b) and

remanded the case to state court without reaching the

securities exception issue.

II.

Normally, “[a]n order remanding a case to the State court

from which it was removed is not reviewable on appeal.” 28

U.S.C. § 1447(d). However, in cases that fall under CAFA, “a

court of appeals may accept an appeal from an order of a

district court granting or denying a motion to remand a class

action to the State court from which it was removed.” Id.

§ 1453(c)(1). The Bank relied exclusively on CAFA

jurisdiction when removing the case and no other source of

jurisdiction is apparent from the record. Any jurisdiction over

this appeal is therefore predicated on the applicability of

CAFA. We do not have jurisdiction if the CAFA securities

exception applies to this case.

The Bank argues that Eminence waived the securities

exception argument by omitting it from its opposition to the

petition for permission to appeal. Regardless of whether

Eminence has waived the argument, however, this court is

“bound to consider jurisdictional defects sua sponte.” United

States v. S. Pac. Transp. Co., 543 F.2d 676, 682 (9th Cir.

1976).

EMINENCE INVESTORS V. BNYM 5

III.

Three categories of cases are expressly exempted from

CAFA removal. 28 U.S.C. § 1453(d). Virtually identical

language is used in 28 U.S.C. § 1332(d)(9) to describe the

cases excluded from original jurisdiction under CAFA. The

third removal exception, which for the sake of simplicity we

refer to as the “securities exception,” see Greenwich Fin.

Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin.

Corp., 603 F.3d 23, 29 (2d Cir. 2010), is the only one relevant

to this appeal. We have not yet had occasion to construe the

language of the securities exception.

Under this exception, CAFA removal does not apply to

any class action that solely involves ... a claim

that relates to the rights, duties (including

fiduciary duties), and obligations relating to or

created by or pursuant to any security (as

defined under section 2(a)(1) of the Securities

Act of 1933 (15 U.S.C. 77b(a)(1)) and the

regulations issued thereunder).

28 U.S.C. § 1453(d)(3). Thus, the securities exception applies

if all of the claims in the class action have a particular kind of

relationship with a security. Each claim must relate to certain

rights, duties, or obligations; those rights, duties, or

obligations must be related to or created by or pursuant to a

security; and that security must meet the definition

established in 15 U.S.C. § 77b(a)(1) “and the regulations

issued thereunder.”

Neither party disputes that the Bonds fit within the

relevant definition of “security” under the last part of the

6 EMINENCE INVESTORS V. BNYM

exception. Nor does either party dispute that the issuance of

the Bonds gave rise to rights, duties, and obligations between

the holders of the Bonds, the borrower, and the indenture

trustee. The disputed issue is whether all of the claims in the

Complaint “relate[] to the rights, duties ..., and obligations

relating to or created by or pursuant to” the Bonds.

Eminence’s Complaint asserts five causes of action

against the Bank. The first three causes of action are for

breach of fiduciary duty, based respectively on non-

disclosure, loyalty, and due care. All three allege that “[b]y

reason of the Indenture, the [Bank], as fiduciary and agent for

[Eminence], ... owed fiduciary duties to [Eminence],” and

that the Bank “set out to create and did in fact create a special

relationship of trust and confidence, and thereby owed

[Eminence] a fiduciary duty.” These causes of action allege

that the Bank breached its duties in various ways: by failing

to disclose certain information to Eminence; by taking certain

actions that “harmed the collateral for the Deed of Trust and

ultimate security for the Note,” including selling other

properties for less than market value and without

guaranteeing access rights; and by taking similar actions

including failing to record the Indenture in a timely manner.

The third cause specifically alleges that the Bank “further

owed professional duties under applicable state and federal

laws, industry standards, and professional codes of ethics.”

The fourth cause of action is for gross negligence, and the

allegations closely follow the allegations made in the third

cause of action, including allegations that the Bank was under

a duty to perform its work with due care and that the Bank

owed further professional duties. The fifth cause of action is

entitled “injunctive relief”; it appears to be a request for a

EMINENCE INVESTORS V. BNYM 7

temporary restraining order or preliminary injunction, rather

than an independent cause for relief.

The duties the Bank allegedly owed to Eminence all stem

from the current relationship between the Bank and Eminence

based on their positions with respect to the Bonds. Although

neither the Bank nor Eminence were parties to the original

transaction, the Bank is now the successor to the indenture

trustee, and Eminence holds some of the Bonds. All of the

duties allegedly breached by the Bank, such as the fiduciary

duties supporting the first three causes of action and the

duties supporting the gross negligence cause of action, arise

out of the Bank’s position as indenture trustee and

Eminence’s corresponding position as holder of the Bonds.

Although it is true that Eminence’s causes of action also

rely on various sources of law—including the state and

federal laws, industry standards, and professional codes of

ethics mentioned in the Complaint—that are not part of the

Bonds themselves or the Indenture governing their

administration, the same would also be true of any cause of

action that relates to the duties created by a security, because

the cause would at least rely on those provisions of contract

law necessary to construe and apply the security. The causes

of action stated in the Complaint are based on alleged duties,

and those alleged duties arise from the Bonds and the

Indenture. In fact, Eminence conceded at oral argument that

if the Indenture did not exist, Eminence would have no cause

of action against the Bank. Thus, we conclude that under any

plausible interpretation of the statutory language, all of the

causes of action in the Complaint “relate[] to the rights, duties

..., and obligations relating to or created by or pursuant to”

the Bonds, so the securities exception must apply.

8 EMINENCE INVESTORS V. BNYM

The Bank argues that the securities exception should not

apply because some of the allegations underlying the causes

of action involve the transfer of the “District Property,” which

was completely unrelated to the Bonds or the original

transaction that created the Bonds. However, the Complaint

makes clear that the District Property transaction is relevant

to Eminence’s causes of action because the Bank “breached

[its] fiduciary duties by ... authorizing the sale of the District

Lands to a private party to the financial detriment of the

Development Property.” Thus, the District Property

allegations are only relevant to Eminence’s causes of action

against the Bank because the Bank allegedly owed Eminence

and other bondholders certain fiduciary duties in its role as

trustee under the Indenture. These allegations are therefore

part of “a claim that relates to the rights, duties (including

fiduciary duties), and obligations relating to or created by or

pursuant to” the Bonds held by Eminence.

The Bank also argues that the securities exception should

not apply because several specific allegations in the

complaint against the Bank are expressly foreclosed by the

terms of the Indenture. But the Bank’s ability to invoke the

terms of the Indenture as a defense is logically dependent

upon the degree to which those causes of action are based on

the relationship created by the issuance of the Bonds. The

Bank may be right that the terms of the Indenture preclude

any liability for the Bank under the theories set forth in

Eminence’s causes of action, but the assumptions underlying

that argument lead inexorably to the conclusion that the

causes of action at least “relate[] to the rights, duties

(including fiduciary duties), and obligations relating to or

created by or pursuant to” the Bonds.

EMINENCE INVESTORS V. BNYM 9

IV.

Although we have not yet construed the language of the

securities exception, the Second Circuit has done so

previously in three of its cases: BlackRock Fin. Mgmt. Inc. v.

Segregated Account of Ambac Assurance Corp., 673 F.3d 169

(2d Cir. 2012); Greenwich, 603 F.3d 23; and Estate of Pew v.

Cardarelli, 527 F.3d 25 (2d Cir. 2008). The reasoning

followed by the Second Circuit in its securities exception

cases confirms the conclusion we reached above.

In addition, we have stated that we prefer not to create

intercircuit conflicts unless we conclude it is absolutely

necessary. See Envtl. Prot. Info. Ctr., Inc. v. Pac. Lumber Co.,

257 F.3d 1071, 1077 (9th Cir. 2001) (“unless there are valid

and persuasive reasons to hold otherwise, we should not

create an intercircuit conflict”); United States v.

Chavez-Vernaza, 844 F.2d 1368, 1374 (9th Cir. 1987) (same).

The application of this wisdom is especially important here

because the controversy deals with securities, which by their

nature have no state boundary impediments. Further, the

legislative history as well as the logic behind CAFA dictate

that a nationwide rule is of great significance. We therefore

join our sister circuit on the issue before us.

In Cardarelli, purchasers of certain money market

certificates brought suit against the issuers of the certificates

and their auditors under a state consumer fraud statute.

527 F.3d at 26. The Second Circuit held that because the

plaintiffs sought to enforce their rights as purchasers of the

securities rather than as holders of the securities under a state

fraud statute that focused on the transaction in which they

acquired the notes, the exception did not apply. Id. at 32.

10 EMINENCE INVESTORS V. BNYM

The Bank quotes Cardarelli for the proposition that in

order to apply the securities exception the causes involved

must be causes “grounded in the terms of the security itself.”

However, the next sentence in Cardarelli clarifies that the

key distinction was whether the plaintiffs were seeking to

enforce their rights as holders of the certificates or purchasers

of the certificates, id., and subsequent Second Circuit cases

reinforce this interpretation of Cardarelli. See BlackRock,

673 F.3d at 176 (in Cardarelli “we held that § 1453(d)(3) was

inapplicable because the claim related to plaintiffs’ status as

the ‘purchaser’ rather than the holder of a security”);

Greenwich, 603 F.3d at 29 (“The key distinction between

suits that were immune from removal under CAFA and those

that were not [in Cardarelli] is that immune suits sought to

enforce the rights of the securities ‘holders as holders’”).

In this case, Eminence is clearly asserting its rights as a

holder of the Bonds rather than as a purchaser of the Bonds.

Neither Eminence nor the Bank were involved in the original

transaction that gave rise to the Bonds. Eminence acquired

the Bonds by repurchasing them from their original holders

in subsequent years, and the Bank later became the successor

in interest to the original trustee. Thus, Cardarelli cannot be

construed to suggest that the securities exception is

inapplicable in this case.

The Second Circuit’s later opinion in Greenwich involved

a suit brought by the holders of mortgage-backed securities

against the mortgage company and the trusts it created to

generate and sell the securities; the plaintiffs sued to force the

defendants to repurchase the securities under the agreements

governing the securities. 603 F.3d at 25. The Second Circuit

held that the securities exception applied because the

“[p]laintiffs’ asserted right to force [the defendant] to

EMINENCE INVESTORS V. BNYM 11

repurchase the loans arises from the deal instruments

themselves, not from an extrinsic provision of state law, such

as the consumer fraud statute that formed the basis of the

action in Cardarelli.” Id. at 29. The Second Circuit also

rejected the defendants’ arguments that the securities

exception could not apply because the plaintiffs’ claims

raised “collateral legal issues that go beyond the

interpretation of the certificates,” including state alter ego law

and a defense based on “‘standard industry practice,’ as

defined in federal law at 15 U.S.C. § 1639a(c).” Id. at 31. The

Second Circuit reasoned that “[a]lmost any securities claim

under state law will necessarily ‘involve’ defenses—such as

statutes of limitations—and collateral issues—such as state

contract law,” and the court had to “reject an interpretation of

the statutory text that would render the jurisdictional

exception of ... [section] 1453(d)(3) nugatory.” Id.

The Bank does not cite Greenwich, perhaps

unsurprisingly given that the Second Circuit’s reasoning in

Greenwich directly addresses and dispatches the arguments

raised by the Bank in this case. The Bank argues that the

securities exception should not apply both because

Eminence’s causes of action raise collateral issues of state

law such as the common law duties (if any) of an indenture

trustee and because Eminence’s causes are subject to a

variety of defenses under the terms of the contract. As the

Second Circuit stated, such a broad interpretation of the

securities exception would render the exception null, since

“[n]othing differentiates [such arguments] from the sorts of

affirmative defenses and collateral issues that arise in

virtually every lawsuit,” and “Congress cannot have intended

its exceptions to CAFA jurisdiction to be essentially

meaningless.” Id. at 31–32.

12 EMINENCE INVESTORS V. BNYM

In the Second Circuit’s most recent securities exception

case, BlackRock, the Bank of New York Mellon (the same

party in this case), acting in its capacity as a trustee over

trusts holding mortgage-backed securities, initiated a state-

court proceeding to confirm its settlement authority, at which

point certain investors removed the proceeding to federal

court pursuant to CAFA. 673 F.3d at 172. The district court

held that the securities exception did not apply “if the

trustee’s conduct in approving the settlement must also be

evaluated under some source of law other than the

[documents underlying the securities], such as New York’s

common law of trusts.” Id. at 179 (internal quotation marks

omitted). But the Second Circuit dismissed the appeal,

holding that “duties superimposed by state law as a result of

the relationship created by or underlying the security fall

within the plain meaning of the statute, which expressly

references ‘duties (including fiduciary duties).’” Id., quoting

28 U.S.C. § 1453(d)(3).

The reasoning in Blackrock likewise confirms the

propriety of applying the securities exception in this case,

since it is clear here that Eminence’s causes of action are

based on the “duties superimposed by state law as a result of

the relationship created by or underlying the [Bonds].” To

hold that the securities exception does not apply to such

causes of action would run counter to the statute’s text, which

expressly includes causes of action based on “fiduciary

duties.” The Bank appears to cite Blackrock for the principle

that the securities exception should not apply to causes of

action “seeking solely to ‘enforce the terms of’ the

Indenture,” quoting a passage from Blackrock stating that the

exception should not apply to “claims based on rights arising

from independent sources of state law,” id. at 176 (internal

quotation marks omitted). However, the Bank does not

EMINENCE INVESTORS V. BNYM 13

discuss the preceding phrase, which states that the securities

exception does apply to causes based “on the duties imposed

on persons who administer securities.” Id. An indenture

trustee is the one responsible for administering bonds, so

under the reasoning of this passage in Blackrock, the

securities exception should apply because all of Eminence’s

causes of action are based on the Bank’s alleged duties in

administering the Bonds.

The Second Circuit’s reasoning regarding CAFA’s

securities exception therefore does not conflict with our

conclusion above that the exception clearly applies to the

causes of action in this case. Regardless of whether we would

have taken the Second Circuit’s approach to the specific and

sometimes difficult issues that it has addressed in its

securities exception cases, it is clear that the underlying

causes of action in this case are covered by the CAFA

securities exception under any plausible reading of the text.

APPEAL DISMISSED.