Amicus Curiae Brief — Kircher v. Putnam Funds Trust

No. 05-409

IN THE

Supreme Court of the United States

- CARL KIRCHER, ET AL.,

Petitioners.

v;

PUTNAM FUNDS TRUST, ET AL..

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Seventh Circuit

BRIEF OF LAW PROFESSORS

ARTHUR R. MILLER AND E. FARISH PERCY

AS AMICI CURIAE IN SUPPORT OF PETITIONERS

ARTHUR R. MILLER STUART W. EMMONS

1545 Massachusetts Avenue Counsel of Record

Cambridge, MA 02138 FEDERMAN & SHERWOOD

(617) 495-4111 120 N. Robinson Avenue

Suite 2720

THOMAS G. GRIFFIN Oklahoma City, OK 73102

GRIFFIN LAW OFFICES, LLC (405) 235-1560

656 West Randolph Street

Suite SOOW

Chicago, Illinois 60661

(312) 648-1700 November 29, 2005

Counsel for Amici Curiae

Law Professors Arthur R. Miller and E. Farish Percy

QUESTION PRESENTED

This brief is limited to Question | in the Petition for a

Writ of Certiorari. That question is as follows:

Whether the court of appeals had jurisdiction, contrary to

the holdings of three other circuits, to review a district court

order remanding for lack of subject-matter jurisdiction a suit

removed under the Securities Litigation Uniform Standards

Act of | 1998 (“SLUSA”), notwithstanding 28 U.S.C.

§ 1447(d)’s bar on appellate review of remand orders based

on lack of subject-matter jurisdiction and the district court’s

conclusion that petitioners’ claims are not preempted by and

thus not removable under SLUSA.

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

CASES

Abada v. Charles Schwah & Co., 300 F.3d 1112

ISU aIaais SEITE isicinacishieeieneeihilataisiintbedasadiitgliiinimiaininatiiebdasions 3,7,9

Beneficial Nat'l Bank v. Anderson, 539 U.S. 1 (2003)........... 7

Connecticut Nat'l Bank vy. Germain, 503 U.S. 249

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Kircher v. Putnam Funds Trust, 373 F.3d 847 (7th Cir.

Suerte iscisaceiduincniieia celled na disciinsagiitaintaciatiditinnin:ediaelasidbaedadiedetaanen 8

Spielman v. Merrill Lynch, Pierce, Fenner & Smith,

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Thermtron Products, Inc. v. Hermansdorfer, 423 U.S.

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Things Remembered, Inc. v. Petrarca, 516 U.S. 124

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TMI Litig. Cases Consol. Il, In re, 940 F.2d 832

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United States v. American Library Ass'n, lac., 539 U.S.

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United States v. Rice, 327 U.S. 742 (1946) ....c.ccccsesseeesseeee 4,5

Williams v. AFC Enters., Inc., 389 F.3d 1185 (11th Cir.

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STATUTES AND RULES

Class Action Fairness Act of 2005, Pub. L. No. 109-2,

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§ S(a), 119 Stat. 12 (to be codified at 28 U.S.C.

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Securities Act of 1933, 15 U.S.C. §§ 77a et seq.:

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Securities Exchange Act of 1934, 15 U.S.C. §§ 78a

et seg.:

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INTERESTS OF AMICI CURIAE'

Professor Arthur. R. Miller its the Bruce Bromley

Professor of Law at the Harvard Law School. He has

devoted his teaching and writing career to an understanding

of federal courts, civil procedure, and federal practice.

Among his numerous publications are the leading treatise in

federal practice and the leading casebook in civil procedure:

Charles A. Wright & Arthur R. Miller, Federal Practice and

Procedure (West 2005), Jack H. Friedenthal, Arthur R.

Miller, John E. Sexton & Helen Hershkoff, Civil Procedure:

Cases and Materials (Thomson West 9th ed. 2005). In

addition, he has written numerous articles and consulted on—

numerous cases raising novel issues of federal practice and

procedure.

Assistant Professor E. Farish Percy joined the faculty at

the University of Mississippi School of Law in 2001 and

teaches Civil Procedure, Torts and Insurance.” Much of her

recent research has been devoted to the issue of federal court

' This brief of amici curiae is submitted on behalf of Professors Arthur R.

Miller and E. Farish Percy. The parties have consented to the filing of

this brief. The letter reflecting petitioners’ consent is being filed with the

office of the Clerk contemporaneously with the filing of this brief; the

letter reflecting respondents’ consent is being filed with the office of the

Clerk by counsel for respondents directly. In accordance with Rule 37.6.

counsel states that this brief was authored by counsel with the input and

assistance of amici, and was not authored in whole or in part by counsel

for any party. No person or entity, other than amici and their counsel

submitting this brief on behalf of amici, made a monetary contribution to

the preparation or submission of the brief.

° Professor Percy obtained her J.D. from the University of Virginia in

1991, where she was a member of the Virginia Law Review and Order of

the Coif. After graduating, she clerked tor Judge E. Grady Jolly of the

United States Court of Appeals for the Fifth Circuit. Professor Perey

practiced law for eight years with the Tollison Law Firm, P.A. in Oxford,

Mississippi, where she concentrated in tort litigation, commercial

litigation, and appellate practice. She tried numerous civil cases in state

and federal courts in Mississippt and briefed and argued several appellate

cases before the United States Court of Appeals for the Fifth Cireuit and

the Mississippi Supreme Court.

2

jurisdiction. She has recently written two law journal articles

proposing a framework to be used by federal district courts

when evaluating allegations of fraudulent joinder in cases

where removal is based on federal diversity jurisdiction.’ In

both, she emphasizes that the fraudulent joinder doctrine

should be structured so as to ensure that the federal courts do

not exceed their limited statutory jurisdiction and also to

address the federalism concerns raised when cases are

removed from state to federal court.

Having devoted their careers to teaching and writing

about the federal courts and working for their improved

administration, amici have a keen interest in seeing that those

courts function efficiently. It is equally important that the

lower federal courts function only as Congress has

authorized. Unless the court below is reversed, appellate

panels (at least in the Seventh Circuit) will continue to

entertain appeals that Congress has specifically prohibited.

SUMMARY OF ARGUMENT

The Securities Litigation Uniform Standards Act of 1998

(“SLUSA”) preempts certain state law securities cases and

makes those cases removable to federal court. If, following

an attempted removal under SLUSA, the federal district court

determines that the plaintiffs’ claims are not preempted and

accordingly not subject to removal, the district court must

remand the action to state court. Congress has prohibited

appellate review of a district court’s order remanding a

removed case to state court for lack of subject matter

jurisdiction. 28 U.S.C. § 1447(d). Until the ruling by the

court below, the circuit courts that have considered the matter

had determined that section 1447(d) precluded appellate

review of a remand order under SLUSA.

‘ F. Farish Perey, Making a Federal Case of It) Removing Civil Cases to

Federal Court Based on Fraudulent Joinder, 91 lowa L. Rev.

(forthcoming late 2005); E. Farish Percy. Defining the Contours of the

Emerging Fraudulent Misjoinder Doctrine, 29 Harv. J.L. & Pub. Pol'y

(forthcoming March 2006).

3

The Seventh Circuit, however, found for the first time

that such a remand order is reviewable. In a ruling that

conflicts with holdings in three other circuits,’ the court

below held that section 1447(d) does not apply to a district

court’s remand ruling if the action was removed to federal

court under SLUSA. The court reasoned that SLUSA vests

the federal district courts with subject matter jurisdiction over

all proceedings falling within the definition of a “class

covered action” — even if the claims are not preempted

under SLUSA — and that a district court remand of the

action accordingly could not be premised upon lack of

subject matter jurisdiction. As characterized by the Seventh

Circuit, an action removed to federal court under SLUSA,

even if it must be remanded because it falls outside of those

actions that SLUSA preempts, is “a case properly removed

and remanded only when the federal job is done.”

This Court should grant certiorari with respect to this

issue. The ruling below creates a clear conflict among the

circuits. Although the court below sought in its decision to

belittle the magnitude of the conflict, this rift between the

circuits undermines the very purpose of SLUSA. Regardless

of which circuit reached the correct result, the conflict among

the circuits provides an incentive to plaintiffs to file actions

subject to possible SLUSA removal in New York or

California, rather than Illinois, merely because a remand of

such actions after removal will not be subject to review in

New York or California, but would be subject to review in

INinois. Certiorari should also be granted in this case

because the court below erred, and premised its ruling upon a

tortured construction of the statute and a cavalier rejection of

well-reasoned contrary rulings in other circuits.

* See Williams v. AFT Enters., Inc., 389 F.3d 1185 (lth Cir. 2004):

Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 332 F306 116,

123 (2d Cir. 2003), Abada v. Charles Schwab & Co., 300 F.3d 1112,

1119 (9th Cir. 2002).

4

ARGUMENT

From the inception of the Republic, remand orders for

lack of subject matter jurisdiction or fer defects in the

removal procedure have been unreviewable on appeal except

during a short-lived period between 1875 and 1887. United

States v. Rice, 327 U.S. 742, 749 (1946) (“save for a brief

interval under § 5 of the Act of 1875, ... an order of remand

was not appealable”);, /n re TMI Litig. Cases Consol. [/, 940

F.2d 832, 840 (3d Cir. 1991) (“[wlith the brief exception . . .

of the period between 1875 and 1887, Congress, by adopting

section 1447(d) and its statutory predecessors,” prohibited the

review of remand orders). The time-honored bar to appellate

review of remand orders rests upon Congress's explicit

legislative choice and “policy of not permitting interrupting

of the litigation of the merits of a removed cause by

prolonged litigation of questions of jurisdiction of the district

court to which the cause is removed.” Rice, 327 U.S. at 751.

Prior to this Court’s decision in Thermtron Products,

Inc. v. Hermansdorfer, 423 U.S. 336 (1976), the statutory

prohibition “precluded review of all remand orders,

regardless of the reasons underlying the decision to remand.”

TMI Litig., 940 F.2d at 840. “As we explained in Thermiron,

§ 1447(d) must be read in pari materia with § 1447(c), so

that only remands based on grounds specified in § 1447(c)

are immune from review under § 1447(d).” Things

Remembered. Inc. v. Petrarca, 516 U.S. 124, 127 (1995)

(citation omitted). “Although the rule that most remand

orders are not subject to review remains, Thermiron made

clear that the seemingly unequivocal language of section

1447(d), may, in extraordinary circumstances, give way to

permit appellate consideration of certain categories of

remand orders.” 7M/ Litig.. 940 F.2d at 841. When “a

district court's remand is based on a timely raised defect in

removal procedure or on lack of subject-matter jurisdiction

— the grounds for remand recognized by § 1447(c) — a

court of appeals lacks jurisdiction to entertain an appeal of

the remand order under § 1447(d).” Thines Remembered.

5

S516 U.S. at 127-28. Thus, even after 7Thermtron, there

remain “broad restrictions on the power of federal appellate

courts to review district court orders remanding removed

cases to state court.” /d. at 127.

Moreover, and of particular concern in the present case,

section 1447(d)’s bar to appellate review applies “regardless

of whether removal was effected pursuant to § 1441(a)”

(which 1s the general removal statute) or “under any other

statutes, as well.” Things Remembered, 516 U.S. at 128

(quoting Rice, 327 U.S. at 752). “Absent a clear statutory

command to the contrary, we assume that Congress is ‘aware

of the universality of thle] practice’ of denying appellate

review of remand orders when Congress creates a new

ground for removal.” /d.

Congress has provided such a “clear statutory command”

in a few instances. For example, section 1447(d) itself

provides that civil rights cases “removed pursuant to section

1443 of this ttle shall be reviewable by appeal or otherwise.”

Similarly, the recently enacted Class Action Fairness Act of

2005," Pub. L. No. 109-2, 119 Stat. 4, provides that,

“notwithstanding section 1447(d), 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

trom which it was removed if application is made to the court

of appeals not less than 7 days after entry of the order.”

Section S(a), 119 Stat. 12 (to be codified at 28 U.S.C.

§ 1453(c)(1)).

SLUSA contains no such “clear statutory command”

authorizing the review of SLUSA remand orders. Rather,

SLUSA merely authorizes the removal of a specific class of

securities Cases:

Removal of covered class actions

Any covered class action brought in any State court

involving a covered security, as set forth in subsection

(b) of this section, shall be removable to the Federal

* The Class Action Farmess Act makes certain state court class actions

commenced on or afler February 18, 2005, removable to federal court.

6

district court for the district in which the action is

pending, and shall be subject to subsection (b).

15 U.S.C. § 77p(c) (emphasis added); accord id. § 78bb(f)(2).

In order to rationalize its ruling, the court below

disassociated the subsection (c) analysis from the subsection

(b) requirements. The plain words of the statute, however,

require the district court to evaluate whether claims fall

within the ambit of subsection (b) in order to determine

whether they are removable in the first instance. The “as set

forth in subsection (b)” language is clearly both mandatory

and delimiting. Had Congress intended to authorize the

removal of every covered class action involving a covered

security, it could easily have provided that “any covered class

action brought in any State court involving a covered security

shall be removable.” If, as the court below held, this were

the proper interpretation of subsection (c), then the words “as

set forth in subsection (b) of this section” have no distinct

meaning of their own. Of course, canons of construction

generally preclude such a conclusion which renders statutory

language superfluous. United States v. American Library

Ass'n, Inc., 539 U.S. 194, 233 (2003) (“[c]ourts should

disfavor interpretations of statutes that render language

superfluous”) (quoting Connecticut Nat'l Bank v. Germain,

503 U.S. 249, 253 (1992)).

The subset of cases “as set forth in subsection (b)”

consists of those “covered Class actions” which SLUSA also

preempts. Subsection (b) of the statute provides:

No covered class action based upon the statutory or

common law of any State or subdivision thereof may

* As purely a matter of English grammar, the language “as set forth in

subsection (b) of this section” could be understood to modily the

immediately preceding phrase. “a covered security.” In context, however,

this interpretation makes no sense because subsection (b) does not “set

forth” a description of covered securities. Instead, subsection (b) sets

forth a category of cases which cannot “be maintained in any State or

Federal court ....° The conclusion that the “as set forth” language

describes a subset of “covered class actions involving a covered security”

is therefore inescapable.

7

be maintained in any State or Federal court by any

private party alleging —

(1) an untrue statement or omission of a material fact

in connection with the purchase or sale of a covered

security; or

(2) that the defendant used or employed any

manipulative or deceptive device or contrivance in

connection with the purchase or sale of a covered

security.

15 U.S.C. § 77p(b); accord id. § 78bb(f)(1). Subsection (b)

thus “sets forth” a defined set of covered class actions and

preempts them. Subsection (c), in turn, makes those

preempted class actions removable: “preemption and the

existence of subject matter jurisdiction ... are the opposite

sides of the same coin.” Spielman; 332 F.3d at 132

(Newman, J., concurring).

The kind of preemption that SLUSA employs is a

species of federal jurisdiction that federal courts have

recognized under the “complete preemption” doctrine.

When [a] federal statute completely pre-empts [a] state-

law cause of action, a claim which comes within the

scope of that cause of action, even if pleaded in terms

of state law, is in reality based on federal law. This

claim is then removable under 28 U.S.C. § 1441(b),

which authorizes any claim that “arises under” federal

law to be removed to federal court.

Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8 (2003).

Other lower courts have recognized that SLUSA preemption

is “complete preemption.” See, e.g., Spielman, 332 F.3d at

123 (“SLUSA was intended to completely preempt the field

of certain types of securities ‘class actions”) (emphasis in

original); Abada, 300 F.3d at 1119 (“the district court was

required to decide whether Abada’s claims were completely

preempted by SLUSA”). sy

Because a district’ court’s removal jurisdiction under

SLUSA extends only to those covered class actions which

SLUSA preempts, a district court’s remand of a case to state

8

court on the grounds that SLUSA does not preempt the case

is, a priori, a remand for lack of removal jurisdiction. The

plain language of SLUSA permits no other conclusion.

“Congress could not have spoken more clearly.” Spie/man.

332 F.3d at 123. As a result, a remand order based on the

conclusion that SLUSA does not preempt the case is the very

kind of remand for lack of subject matter jurisdiction which

Congress has forbidden appellate courts to review on “appeal

or otherwise.” 28 U.S.C. § 1447(d).

The Seventh Circuit’s conclusion that SLUSA remand

orders are not remands for lack of subject matter jurisdiction

(and are thus reviewable on appeal) depends upon an

untenable reading of SLUSA. According to the appellate

court, “[b]ecause plaintiffs represent more than 50 investors,

this 1s a ‘covered class action’ and a federal judge is not only

authorized but also required to decide whether any court may

entertain the litigation.” Kircher v. Putnam Funds Trust, 373

F.3d 847, 849 (7th Cir. 2004). For reasons already discussed,

this interpretation of SLUSA’s removal provision is not just a

misreading of the statute, it is a judicial revision of the statute

which eliminates the phrase “as set forth in subsection (b).”

The Second, Ninth and Eleventh Circuits’ holdings that

SLUSA remand orders are unappealable remands for lack of

subject matter jurisdiction are sound. Moreover, the Seventh

Circuit's sole criticism of the Second and Ninth Circuits —

that those courts were “mesmerized by the word

‘jurisdiction’ ” (Kircher, 373 F.3d at 851) — is unfounded.

The district court in Spie/man did not expressly remand for

lack of subject matter jurisdiction. As a result, the Second

Circuit was first required to discern whether the remand order

was a remand for lack of subject matter. Spie/man, 332 F.3d

at 128-29 (“the district court never used the words ‘subject

matter jurisdiction,’ ‘federal question jurisdiction,” or even

‘jurisdiction’ when ordering a remand,” but “[oJjur reading of

the remand order convinces us that the remand could not

have been predicated on anything other than the district

court's determination that it lacked subject matter jurisdiction

under SLUSA”). The Second Circuit thus could not possibly

9

have been “mesmerized” by the district court’s use of a word

(“jurisdiction”) which the district court never used.

Similarly, in Abada, the Ninth Circuit expressly

recognized that it was “not bound by the district court's

characterization of its authority for remand,” and that, if it

“concluded that the district court’s order was the result of an

exercise of discretion, we could review it. However, such ts

not the case here.” 300 F.3d at 1117. The Ninth Circuit

recognized that the district court's “resolution of the

substantive legal question” of preemption “was a necessary

predicate to deciding the existence of subject matter

jurisdiction.” /d. at 1118. Thus, the Ninth Circuit was also

not “mesmerized” by a district court's injudicious use of the

word “jurisdiction.” The issue of appellate jurisdiction was

correctly decided in both cases based upon SLUSA’s plain

language and that of section 1447(d).

CONCLUSION

The Court should grant certiorari to hear this case. The

twin issues of SLUSA removal jurisdiction and appellate

jurisdiction to review SLUSA remand orders are important

ones. The circuits where most securities litigation arises —

the Second. Seventh and Ninth — have authoritatively

decided the issue, and there is no reason to think a better

opportunity will present itself for resolving the current circuit

conflict. These important jurisdictional issues involve lines

of authority that Congress has drawn, lines that should

always be drawn bright and clear. They also involve an

important issue of federalism. The petition for a writ of

certiorari should be granted with regard to Question | of the

Questions Presented.

ARTHUR R. MILLER

1545 Massachusetts Avenue

Cambridge, MA 02138

(617) 495-4111

THOMAS G. GRIFFIN

GRIFFIN LAW OFFICES, LLC

656 West Randolph Street

Suite SOOW

Chicago, Illinois 60661

(312) 648-1700

10

Respectfully submitted,

STUART W. EMMONS

Counsel of Record

FEDERMAN & SHERWOOD

120 N. Robinson Avenue

Suite 2720

Oklahoma City, OK 73102

(405) 235-1560

November 29, 2005

Counsel for Amici Curiae

Law Professors Arthur R. Miller and E. Farish Percy