Petitioners Brief — Kircher v. Putnam Funds Trust

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No. 05-409 th et

IN THE

Supreme Court of the Cited States

CARL KIRCHER, ET AL..

Petitioners.

PUTNAM FUNDS TRUST. ET AL..

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Seventh Circuit

BRIEF FOR PETITIONERS

ROBERT L. KING DAVID C. FREDERICK

701 Market Street Counsel of Record

Suite 350 SCOTT K. ATTAWAY

St. Louis. Missour: 63101 Fk.) ANDREW HEssIck III

(314) 241-4844 KELLOGG, HUBER, HANSEN,

TODD, EVANS & FIGEL,

KLINT L. BRUNO Pi.

1732 North Wolcott 1615 M Street. N.W.

Suite #2 Suite 400

Chicago. Illinois 60622 Washington. D.C. 20036

(312) 286-4915 (202) 326-7900

February 21, 2006

QUESTION PRESENTED

On January 6, 2006, this Court granted the petition for

a writ of certiorari in this case, limited to Question 1 of

the petition:

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 jurisdic-

tion a suit removed under the Securities Litigation Uni-

form 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 courts’ conclusion that petitioners’ claims are not

preempted by and thus not removable under SLUSA.

LIST OF PARTIES TO THE PROCEEDINGS

Petitioners Carl Kircher, Beth Dudley, Steve Dudley,

Avery Jackson, Dorothy Luettinger, T.K. Parthasarathy,

Robert Potter, Terry Spurgeon, as Custodian for the Bene-

fit of James E. Spurgeon, and Gary Vogeler were plain-

tiffs in the district court and appellees in the court of

appeals.”

Robert Brockway, Sharon Smith, Stuart A. Smith, and

Edmund Woodbury also were plaintiffs in the district

court but did not participate in the court of appeals pro-

ceedings, and thus are not parties to this appeal.

The following were defendants in the district court and

appellants in the court of appeals, and are respondents

here:

Artisan Funds, Inc.

Artisan Partners Limited Partnership

Columbia Acorn Trust

Columbia Wanger Asset Management L.P.

Deutsche Investment Management Americas Inc.

Janus Capital Management LLC.

Janus Investment Fund

Pacific Life Insurance Company

Putnam Funds Trust

Putnam International Equity Fund

Putnam Investment Funds

Putnam Investment Management, LLC

Scudder International Fund, Inc.

Van Kampen Investment Advisory Corporation

Van Kampen Series Fund. Inc.

* Petitioners each filed suit as individuals and on behalf of all others

similarly situated

AIM Advisors, Inc., AIM International Funds, Inc.,

Evergreen International Trust, Evergreen Investment

Management Company LLC, T. Rowe Price International

Funds, Inc., T. Rowe Price International, Inc., Templeton

Funds, Inc., Templeton Global Advisors Limited, Tem-

pleton Global Smaller Companies Fund, Inc., Templeton

Growth Fund, Inc., and Templeton Investment Counsel

LLC also were defendants in the district court but did not

participate in the court of appeals proceedings, and thus

are not parties to this appeal.

TABLE OF CONTENTS

Page

QUESTION PRESENTED ...................ssccccssssccscccecesesssesseenes i

LIST OF PARTIES TO THE PROCEEDINGG.................. ii

TABLE OF AUTHORITIES ........... cece ceeeteeeeeeeeeeeee vi

TOTES OP PEs PION éactvivinsenccnsoshsciencninichsipptinaannibvininiiaaiaiaiacain 1

CP TREN eee AY swirssasinininpsssnstesotessecebinsdeisucbesdanmubeliiibiiciaten 2

FRI BION viinrssviitcitnisineniisicinctintiicsdntensiiiedimanibaels 2

STATUTORY AND REGULATORY PROVISIONS

SEU GRIT GED sniscpchenepsiciciviecimsistieiiceutqpeibecioginiepeiialiaialaaadpaidd 2

STATEMENT OF THE CASE ................csceccscccossessesnsreceesees 2

SUMMARY OF ARGUMENT. 0... eceeeeeeseceeeeeeeeeees 16

FPIIEUIIR SE s0icssiscncinivsniintininanneditjaaiianisatédummantiiaasiaian tas 19

I. DISTRICT COURT ORDERS REMANDING

TO STATE COURT FOR LACK OF

SUBJECT-MATTER JURISDICTION UN-

DER SLUSA ARE NOT REVIEWABLE ON

FRG MP lin tor ssckiseescdunintieindnialbediaiindsdasitiebiesaiindaiails 19

A. By Long-Standing Statutory Prohibition,

The General Rule !s That Courts Of

Appeals Lack Jurisdiction To Consider

Appeals Of District Court Orders Re-

manding A Removed Case Back To State

CIUE snisivciccecnssdianaiunserdebevesennialaieatiatisiaciens 19

B. The District Courts’ Remand Orders

Below Were Expressly Based On Lack

Of Subject-Matter Jurisdiction And Are

Therefore Unreviewable.................ccccccceseeeeeeees 24

C. SLUSA’s Removal Provision Does Not

Affect § 1447(d)'s General Prohibition On

Appellate Review Of Remand Orders.............. 28

II. SLUSA MAKES REMOVAL JURISDIC-

TION DEPENDENT ON PREEMPTION........... 30

A. SLUSA’s Removal Provision Creates

Federal-Question Jurisdiction For State-

Law Claims If And Only If SLUSA Pre-

EA CE

B. The Court Of Appeals’ Interpretation Is

Unsupported By The Statutory Text And

Ill. PERMITTING REVIEW OF SLUSA RE-

MAND ORDERS WOUD CONTRAVENE

CONGRESS'S POLICY JUDGMENT IN

iy InN ditieeliPbeeidentalinceieiaddnebsunsedienensconiceveennccess 45

iti calelahccaedaseadonsddiecubabdanaatenootontiesasoovoones 48

TABLE OF AUTHORITIES

CASES

Adkins v. Illinois Cent. R.R.. 326 F.3d 828 (7th |

0 RENE PNR IEE ET

Anusbigian v. Trugreen/Chemlawn, Inc., 72 F

1253 (6th Cir. 1996) ........c..cccsccccsscsescseeesuseenserees

Beneficial Nat'l Bank v. Anderson, 539 U.S

IID scienscdisecsiaieniteicbtidndeiiiatitadinicidetiinastatinienidiatdiea cas een

Blue Chip Stamps v. Manor Drug Stores, 421 |

SEP ED sinsctitiniantnlvnsiaciinintandaniiaiiaae 15, |

Bradfisch v. Templeton Funds, Inc., Case No. 03-

0760-MJR (S.D. fl. Jan. 23, 2004) 000000.

Bragdon v. Abbott, 524 U.S. 624 (1998).................

Briscoe v. Bell, 432 U.S. 404 (1977)..............ccceeeeeee

Bushnell v. Kennedy, 76 U.S. (9 Wall.) 387 (1870)

Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343 (19

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987) .

Chicago, St. P.. M. & O. Ry. Co. v. Roberts, 141 1

ae CID Knetindiccstnitesttinsscnidthidntianatcaneee

Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (19

Daily Income Fund, Inc. v. Fox, 464 U.S. 523 (198

Emplovers Reinsurance Corp. v. Brvant, 299 |

Ee CRIIUD ticnsemrstsisttsintnvienanetindee

Falkowski v. Imation Corp., 309 F.3d 1123 (20

amended, 320 F.3d 905 (9th Cir. 20038)............

Franchise Tax Bd. v. Construction Laborers Ve

tion Trust for Southern California, 463 U.S

(FREI CES ARE rae ee SESS LEE RE eT

Gardner v. Brown, 88 U.S. (21 Wall.) 36 (1875)...

vil

Pe 8 RS Se oem UEP 22

German Nat! Bank v. Speckert, 181 U.S. 405 (1901)....... 22

Glasser v. Amalgamated Workers Union Local 88,

806 F.2d 1539 (Lith Cir. 1986).................ccccccccssssssnensstBD

Gonzalez-Garcia v. Williamson Dickie Mfg. Co., 99

£ £ [1 L. 3 PER

Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723

SIIET TE tisncapeesentllehidincaidinadadiebiiaiadidiciidiahndsiiaietinnd 25, 26, 27

Green v. Custard, 64 U.S. (23 How.) 484 (1860)............... 2)

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473

PRIDE ncinciscasstncddaiatiansnctagitntossidenasaniensenditheiitmmamdttemmension 47

Gully v. First Natl Bank, 299 U.S. 109 (1936).................31

Gurnee v. Patrick County, 137 U.S. 141 (1890) ................22

Hagans v. Lavine, 415 U.S. 528 (1974)... eeeeeeeeees 2)

Harter Township v. Kernochan, 103 U.S. 562 (1881).......29

‘Jefferson County v. Acker, 527 U.S. 423 (1999) ................38

Kontrick v. Rvan, 540 U.S. 443 (2004) .....0000.. 36, 37

Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50

Lorillard v. Pons, 434 U.S. 575 (1978) ............ccceceeeeeeeeee es 11

Louisville & Nashville R.R. v. Mottley, 211 U.S. 149

Lyons v. Alaska Teamsters Employer Serv. Corp..

188 F.3d 1170 (Oth Cir. 1DDB)......cccocccccrcccccccceccscccesscesosDeD

Major League Baseball Players Ass'n v. Garvey,

ey ee MIIITE wriccnnctnttniichiahipbnobigianatndnasdedepiimeiminenitinss 27

Mavyor of Nashville v. Cooper. 73 U.S. (6 Wall.) 247

ED cantuctnrdsintinsieandgnbebigendbiennimabeggedinbadunieasndinemianniediauaa 21

Mckee v. Rains, 77 U.S. (10 Wall.) 22 (870) ................6. 2)

vill

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit,

126 S. Ct. 34 (2005) (No. 04-1371)............. 16, 17, 40, 42

Metropolitan Cas. Ins. Co. v. Stevens, 312 U.S. 563

TRUE cnsiasvicensismnsneidtdgutnnipneetisnienditmenbiithiarsiignemiiiatepeiangnedns 24

Missouri Pac. Ry. Co. v. Fitzgerald, 160 U.S. 556

TUTTE <oscencaiccbaticctecteceliopaibcliabinch eciticnntanedialiibedibutadammatitgiabdasssaiiededs 22

Morey v. Lockhart, 123 U.S. 56 (1887) «0.00.0... eeeeee 22

Mutual Funds Inv. Litig., In re, 384 F. Supp. 2d 845

RES ARPRENR ADEE Trier ie eee ewan See i)

Norman v. Salomon Smith Barney Inc., 350 F. Supp.

ee SI We: Bee ciesdetateinnciuidtyiscntnsecnndanibetindedet 42

Nutter v. Monongahela Power Co., 4 F.3d 319 (4th

O'Neill v. Brannigan, 54 Fed. Appx. 69 (3d Cir.

Pennsylvania Co., Ex parte, 137 U.S. 451 (1890) ............. 22

Quackenbush v. Allstate Ins. Co., 517 U.S. 706

PTIITEET sctnbccnaniiensindestaennndiictniialtangincidanatabtiindenadidindbiiibiadébetel 20

Railroad Co. v. Wiswall, 90 U.S. (23 Wall.) 507

ON PUUED ciooslsentakessspiinvtsscinbeeevleielabiiqilemscibghiisideatelcitabliilarsigies iia iadibimceuiieienlicas 21

Richmond & D.R.R. v. Thouron, 134 U.S. 45 (1890)........ 22

Rogers v. Tyson Foods, Inc., 308 F.3d 785 (7th Cir.

Santa Fe Indus., Inc. v. Green, 430 U.S. 462 (1977)......... 43

Scarborough v. Principi. 541 U.S. 401 (2004).............36. 37

Sheldon v. Sill, 49 U.S. (8 How.) 441 (1850)... 46

Sherman v. Grinnell, 123 U.S. 679 (1887) ...00. ccc cee cece 22

Smith v. Texas Children’s Hosp., 172 F.3d 923 (Sth

Snapper, Inc. v. Redan, 171 F.3d 1249 (11th Cir.

Southwestern Bell Tel. Co., In re, 535 F.2d 859 (5th

Cir. 1976), rev'd mem., Gravitt v. Southwestern

Bell Tel. Co., 430 U.S. 723 (1977) ......ccccccceceeceeeceeeeeeeees 25

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

Inc., 332 F.3d 116 (2d Cir. 2003) .................00 32, 33, 35

Steel Co. v. Citizens for a Better Environment,

a Pe necutscistcncdeiesaisiinatcliiieiinesinhes peuniaedbiabimsietinbtain 44

Tavlor v. Anderson, 234 U.S. 74 (1914)...........ccccccceeeeeeeeees 3]

Thermtron Products, Inc. v. Hermansdorfer, 423

Ss I tal in ctnee deliiatcaiiaaniciaabaed 16, 20, 21, 22, 23,

24, 25, 26, 28. 45, 46, 47

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

SITE ceuiscchupniiciisendinaspendntibitanttbeinipelansiails 19, 20, 27, 28, 29, 46

Transit Cas. Co. v. Certain Underwriters at Llovd’s

of London, 119 F.3d 619 (8th Cir. 1997) .....................35

United States v. Cotton, 535 U.S. 625 (2002)... 44

United States v. Rice, 327 U.S. 742 (1946)... 21. 23,

28, 29. 45

United States v. Ron Pair Enters., Inc., 489 U.S. 235

United States v. Rutz, 536 U.S. 622 (2002).......................56

Volvo of Am. Corp. v. Schwarzer, 429 U.S. 1331

a a 26

est v. Aurora City, 73 U.S. (6 Wall.) 139 (1868)............. 21

Williams v. AFC Enters... Inc... 389 F.3d 1185

I I i i a ee

Wood v. Davis, 59 U.S. (18 How.) 467 (1856)...........0........ 21

Xpedior Creditor Trust v. Credit Suisse First Boston

(USA) Inc., 341 F. Supp. 2d 258 (S.D.N.-Y. 2004) ....... 42

STATUTES AND REGULATIONS

Act of Mar. 3, 1887, ch. 373, 24 Stat. 552.000. eeeeeees

Be Bg Te ey Wee iddneiedascenesadbcnnioninedadatineventnabaeteubuabteiads

i Ee) a a

Act of Mar. 3, 1891, ch. 517, 26 Stat. 826...

Act of June 25, 1948, ch. 646, § 1, 62 Stat. 869, 939.....

Act of May 24, 1949, ch. 139, § 84(b), 63 Stat. 89,

Civil Rights Act of 1964, Pub. L. No. 88-352, Tit. IX,

NG Wen: ee as

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

SPR RE TE RS TIL og cs ROR

§ 4(a)(2), 119 Stat. 11 (to be codified at 28 U.S.C.

ie IIIs is ntiadedineadanellbtioniataatianssireneitede

§ Ala):

119 Stat. 12 (to be codified at 28 U.S.C.

ST EIR TE SSC RD

119 Stat. 13 (to be codified at 28 U.S.C.

i IEE patdiciiniicicennedintekdiiahatnkigdaietebsshGubeetatesashaeuee

Judicial Code of 1911, Act of Mar. 3, 1911, ch. 231,

Judiciary Act of 1875, ch. 137. 18 Stat. 470.......00.......... 21

Ue, Si TG ih clb cede santerenaehbasdebetsinainasiagieitlnventiibiged 21

Private Securities Litigation Reform Act of 1995,

Pream. Le. Wow. 106-7, 2D BOet. TST ccsccocccscccctccsescoscsccescoss: 2

Se a: UE EL AIOE wit cdne cbs hiaceihiamiccnnndschdiebaanenlensdotiall

Securities Act of 1933, 15 U.S.C. §§ 77a et seq. ..... 2-3. 4.5

SP eas FP vdsictctadocsictinicbedccndaaieiéssscdennersecenccestdgaaae

15 U.S.C. § 77plb)............cccceeeee 4, 5, 10, 11, 14, 17, 18,

27, 32, 36, 39, 40, 41, 43, 45

rs ae OED vhiischiiceiscsackitscthbuntatocinitnaencinen’ 12, 40

Sep EPS OF PINE scichincbiinnhonedeiinucisdtsdanmilindeomasceibadeboees 12

FP ee Te IID scttinstsctcdwessviieninlbesbin 4, 5, 10, 11, 14, 17,

27, 31, 32, 34, 36, 37, 38, 42

SOC Ie We initisinihiathanecdineaiicinheditaetieseiaioni 5, 28, 39

Sars ae TEENIE UU sen pisienbcbcsdsbccincnadiinesempbidnnnesebinedin 5, 39

Fee Seek EET vhisinthecninansevipheniehededediopebecioentabends 5, 39

PP een Ue OPINED vinnnddinesccivesannstinsinnncvereeapthdsetennttts OP

Bap Es FPR wchcinictcccccisdniscdacicsconosicnccsncty Gh Oe

RG ey ae Rin icinsssnchunibiinnannbaunpebinndetnibadnnennnes 14

15 U.S.C. § T7p(f)(2MAN AMT) .......eeeceseerrescessserceeeeseenerseees 5

Saas ae Seal tndienscinencdecctsenkduinipielsseniinghinmieeesicdle

Ey OF EID tikcdiddcrenseniaiesainuennedtsdtiininesietetin 5

SRP UEDA TE TUDE E sisdctiteiihcediusiteioviaebidcomnegassetboakecaevsdeibeianss 2

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

§ 10(b), 15 U.S.C. § T8i(b) ...ecceeeeee- 12, 15, 17. 40, 41. 43

re a A Fs sah onasuuennaiscadsaevedot 2

By CE ee By |)

BSED. BD WAC. BFR i icnescresivecccescnessessescsesssnesll

Securities Litigation Uniform Standards Act of

1998, Pub. L. No. 105-343, 112 Stat. 3227................ 1.3

a, CEE ERs, MEET cnddciciniechsrenepesermdbiiaiamatbdrinedebsaianeriessoerl

ey EN IRL THUIENY secsciduiteccttatcccdnctapidd posicepeudsindedsctesedestl

2 SB Ks SE eee

Xll

I: i a ee

RE UE MNEs IIIT > eccecciecsamientcagnineisdestesesieintipasstinbotesninatebinon 3

ITED ccincpsiicandinchaiidintetidginpeiiniteinigsialesideicie 3

Cr ND iicesntnincccvcscescstnnacisinescsccttbseceads 29

Se es Se I eisacischsesccinsnnsinininiinsninsiulanniniaantines 29

Be Cre PID cctsecctctctnsackdnraisenibiapetonnmabonentd 6

Sy Me ieciesicchiitaciddssesciscnnhodipubbeshasitaaiamcicibiebtsasinitiinbiailici 30

ee as Oe PIE ta ciidscaisiicsncescihinsipumiacenianiaiinbbedbanonibediiaiall 2

FP Ns Te UE ac isciisiistntcecinnpendeanedpiicanatnictdonbanoieis 11, 12, 16

ae Sies Te IED vcisisild siiiitshcisanbsndiddpipsdorsietaekauibiiadicedn

SE 2 A Se DO MA

Se NINA TO vaik ccsctcitb iceuistseintbiaiceangidiccsaibaniinatiladenen 23, 40, 47

28 U.S.C. § 1447(c)............ 13, 19, 20, 21, 23, 24, 25, 34, 39

SF Seas Oe ae cits ccadeeentinsdesnentnbcchsicneieneiptliaiginads 20

28 U.S.C. § 1447(d)........... ee 1, 13, 14. 16, 18, 19, 20, 21,

22, 23, 24, 25, 26, 28, 29, 30, 45, 47

FT S| _ WRESORRINA RAEN ENTRUST EIT OE LER 29

17 C.F.R.:

§ 240.10b-5 (Rule 10b-4) .......0.0...... 12, 15, 17, 40, 41, 43

8 Re ELE Mae two ee RY ae RS AP 6

LEGISLATIVE MATERIALS

H.R. Conf. Rep. No. 105-803 (1998) ........c:ccceeeeeeeeseeeeees

H.R. Rep. No. 81-352 (1949), reprinted in 1949

Es ot Eh © RABY SSeS Sy iene eneane aan eee

H.R. Rep. No. 105-640 (1998) ..........ccccesesceeeesenteeeeeeeeneees

Prepared Testimony of The Honorable Arthur

Levitt, Jr.. SEC Chairman, and The Honorable

Isaac C. Hunt, SEC Commissioner, Before the

Subcomm. on Securities of the Senate Comm. on

Banking, Housing, and Urban Affairs (Oct. 29,

1997), available at http://banking.senate.gov/

97_10hrg/102997/witness/sec.Htm............ceeeeeees

S. Rep. No. 105-182 (1998)........cccseccessseeserteeeeeeseeereesens

OTHER MATERIALS

19 Am. Jur. 2d Corporations (2004) ........cccccccecceeeeeeeeeees

57A Am. Jur. 2d Negligence (2004) .......cccccccccceeeeeeeeeeeees

Jennifer Barrett. “Inexcusable.” MSNBC.com, Nov.

11. 2003, available at http://www.msnbce.com/id/

IT iI i cccnnscsindisciubensidaniuisonensennaeios

Benjamin Curtis, Jurisdiction, Practice, and Pecu-

liar Jurisprudence of the Courts of the United

States (2d rev. Cd. 1896) ..............cccscssscescrereeeeeseeees

Financial Policy Forum, Special Policy Brief 13 -

Overview of Mutual Fund Scandal: “A Gauntlet

of Fraud” (Dee. 14, 2003; updated May 21, 2004),

available at http://www.financialpolicy.org/

ferfappby 1 S.tAM............0ccee.crceccscsssesorsrresseesesresssnsccenssaners

Investment Company Institute, Trading Abuse

Reforms & Actions, available at http://www.ict.

OPg/ISSUCS/LUMING .........ccceceeeeeeeeeeeeeceeeeeneeeaeenneneneneeeees

reece

oie 8

2»

oo -

XIV

Richard L. Levine, Yvonne Cristovici & Richard A.

Jacobsen, Mutual Fund Market Timing, 52 Fed.

ne 8

United States Government Accountability Office,

Mutual Fund Trading Abuses: Lessons Can Be

Learned from SEC Not Having Detected Viola-

tions at an Earlier Stage (Apr. 2005), available

at http://www.gao.gov/new.items/d05313.pdf ............... 8

Rhonda Wasserman, Rethinking Review of Re-

mands: Proposed Amendments to the Federal

Removal Statute, 43 Emory L.J. 83 (1994) ................. 22

www.sec.gov/investor/tools/mfcc/mutual-fund-

AL, Sa, SIs suitabicsdibivicnuaciienaidbeidebicineidaaness 6

Eric Zitzewitz, Who Cares About Shareholders?

Arbitrage-Proofing Mutual Funds, 19 J.L. Econ.

ES SSSR IS iret. Sel eed ee 8-9

INTRODUCTION

This case concerns the appealability of an order re-

manding back to state court a case removed by defendants

to federal court. For the better part of two centuries, the

general rule has been (and has been codified since 1949 at

28 U.S.C. § 1447(d)) that a remand order based on a dis-

trict court’s conclusion that it lacks subject-matter juris-

diction is not appealable. Congress's rationale in estab-

lishing that rule is that litigants should not be forced to

sustain further delay in reaching the merits of their suit

through appellate review of remand orders. That rule

applies generally no matter what statutory context is at

issue, and the few exceptions Congress has specifically

enacted for discrete circumstances (such as appellate re-

view of remand orders involving federal agencies) are not

implicated here.

In a departure from this Court’s decisions interpreting

§ 1447(d) and those of every other court of appeals to

judge the appealability of remand orders in cases removed

under the Securities Litigation Uniform Standards Act of

1998 (“SLUSA”). the Seventh Circuit devised a novel and

erroneous theory to justify its decision to accept appellate

jurisdiction. The court reasoned that SLUSA empowers

courts of appeals to sit in judgment of district court orders

remanding cases on the ground that the plaintiffs’ claims

do not in fact fall within SLUSA’s preemptive ambit. In

so doing, the court ignored both a key phrase in SLUSA’s

removal provision that limits removal jurisdiction to only

those class-action claims that are preempted by SLUSA

and the general rule of non-appealability that this Court

has reaffirmed numerous times. If remand orders were

reviewable anytime the court of appeals disagrees with

the district court’s reading of a jurisdictional statute -

especially where. as here, the district court decisions are

all consistent with the holdings of every circuit to have

addressed this issue of federal subject-matter jurisdiction

and remand under SLUSA © then Congress's prohibition

on reviewability would be eviscerated. Because the Sev-

enth Circuit's decision judicially re-writes a congressional

statute, misapplies this Court's precedent, and evades the

central policy choice Congress has made generally to deny

appellate review of remand orders, the decision below

should be reversed.

OPINIONS BELOW

The district courts’ opinions granting plaintiffs’ motions

to remand (Pet. App. 23a-64a) are unreported. The court

of appeals’ opinions finding appellate jurisdiction (id. at

10a-17a), and reversing and remanding the district courts’

judgments with instructions to undo the remand orders

and to dismiss plaintiffs’ state-law claims (id. at la-9a),

are reported at 373 F.3d 847 and 403 F.3d 478.

JURISDICTION

The court of appeals entered its judgment on April 5,

2005. A timely petition for rehearing was denied on May

2, 2005. Pet. App. 65a. On July 22, 2005, Justice Stevens

extended the time for filing a petition for a writ of certio-

rari to and including August 30, 2005, id. at 143a. and, on

August 26, 2005. further extended the time for filing to

and including September 29, 2005, id. at 144a. The peti-

tion for a writ of certiorari was filed on September 29,

2005. and on January 6, 2006, this Court granted certio-

rari, limited to Question 1 of the petition (126 S. Ct. 979).

The jurisdiction of this Court rests on 28 U.S.C. § 1254(1).

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

Relevant statutory and regulatory provisions are set

forth at App.. infra, la-32a. _

STATEMENT OF THE CASE

1. In 1995. Congress enacted the Private Securities

Litigation Reform Act (“PSLRA”), Pub. L. No. 104-67, 109

Stat. 737 (codified in part at 15 U.S.C. §§ 77z-1. 78u). to

prevent “strike suits.” or meritless class actions alleging

fraud in the securities market. See H.R. Conf. Rep. No.

105-803, at 13 (1998). To deter such suits, the PSLRA

imposed stringent pleading and other procedural re-

quirements on securities class actions asserting claims

under “this Title.” i.e., those statutes (the Securities Act of

1933 (“1933 Act”) and the Securities Exchange Act of 1934

(“1934 Act”)) pursuant to which courts had implied a

private right of action for plaintiffs harmed by fraudu-

lent practices. See PSLRA § 101, 109 Stat. 737-49. The

PSLRA did not affect any state-law remedy or procedure

at all; rather, it was explicitly aimed only at curbing per-

ceived abuses in federal securities actions.

Within three vears. however, Congress concluded that

the more stringent pleading requirements it had enacted

in the PSLRA were being evaded by plaintiffs bringing, in

state court under state law, claims that in all pertinent

respects were the types of claims that heretofore had been

brought as federal claims. But, because those state-law

claims did not invoke the federal securities laws, they

were not subject to the heightened pleading requirements

of the PSLRA. To address what it felt was circumvention

of the intent behind the PSLRA, Congress enacted the Se-

curities Litigation Uniform Standards Act of 1998

(“SLUSA*), Pub. L. No. 105-353, 112 Stat. 3227.

In explaining its purposes in promulgating SLUSA,

Congress made specific findings in § 2 of the Act. In

§ 2(1). Congress stated that “the [PSLRA] sought to pre-

vent abuses in private securities fraud lawsuits.” 112

Stat. 3227. In § 2(2). Congress found that. “since enact-

ment of that legislation, considerable evidence has been

presented to Congress that a number of securities class

action lawsuits have shifted from Federal to State courts.”

Id. In § 2(3). Congress determined that “this shift has

prevented that Act from fully achieving its objectives.” Id.

Accordingly, in § 2(5), Congress found that, “in order to

prevent certain State private securities class action law-

suits alleging fraud from being used to frustrate the objec-

tives of the [PSLRA]. it is appropriate to enact national

standards for securities class action lawsuits involving

nationally traded securities. while preserving the appro-

priate enforcement powers of State securities regulators

and not changing the current treatment of individual law-

suits.” /d. Nevertheless. in § 2(4). Congress concluded

that “State securities regulation is of continuing impor-

tance, together with Federal regulation of securities, to

protect investors and promote strong financial markets.”

Id.

To effectuate those findings, Congress amended the

1933 and 1934 Acts to contain identical provisions that

preempt certain class actions under state law. SLUSA’s

preemption and removal provisions — which are at issue

in this case — are found in adjacent subsections. See 15

U.S.C. § 77p(b)-(c). The preemption provision, § 77p(b),

provides:

(b) Class action limitations

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

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 cov-

ered security.

Id. § T7p(b).

SLUSA’s adjacent removal provision, § 77p(c), provides

for removal with reference back to the set of claims pre-

empted by subsection (b):

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 district court for the district in which

the action is pending, and shall be subject to sub-

section (b).

Id. § 7T7p(c).'. Under SLUSA, a “covered class action” is

defined as, inter alia, a “lawsuit in which . . . damages are

sought on behalf of more than 50 persons or prospective

class members.” id. § 77p(f)(2MA)G)(D), and a “covered

security” includes a security that is either listed on a

national securities exchange or issued by an investment

company, id. §§ 77p(f)(3), 77r(b)(1)-(2).-

2. Petitioners are among the more than 90 million in-

dividual long-term investors estimated by the Federal Re-

serve to have more than $4 trillion in long-term savings

invested in mutual funds with substantial holdings in in-

ternational stocks.’ In 2003, petitioners filed eight sepa-

rate class actions in state court alleging only state negli-

' These preemption and removal provisions are from SLUSA’s

amendment to the 1933 Act. As the court of appeals held in this case.

those 1935 Act provisions are “functionally identical” to the preemption

and removal provisions added by SLUSA to the 1934 Act and codified

at 15 USC. § 78bhif(1)-(2). Pet App lla: see also H.R. Rep. No. 105-

610, at 18 (1998) (stating that amendments to the 1954 Act were in-

tended “to effect changes ... that are substantially similar to. and con-

sistent with, the amendments’ to the 1933 Act) Because the court of

appeals for simpheity relied solely on the 1933 Act provisions in its

analysts, this bref hencetorth wall do the same.

* Section 77pid), which is not at issue mm this case, preserves certain

state actions that would otherwise be preempted (and therefore removy-

able) pursuant to § 77ptb) and (c) Specifically. § T7pidi1) preserves

covered class actions involving the conduct of corporate officers with

respect to certam corporate actions including tender offers. exchange

offers, and the exercise of dissenter’s or appraisal rights, § 77pldy2)

preserves suits brought by States. ther political subdivisions. or their

pension plans so long as each plaintiff ts named and has authorized the

suit: and § 77p(d)C3) preserves state actions concerning bond inden-

tures See H.R Rep. No 105-640, at 16-17. In addition. § T7 pid)

provides that, if a removed action “may be mamtamed im State court

pursuant to this subsection” — ce. tis expressly preserved by subsee-

thon (d)¢1)-C3) despite the fact that ut qualifies for preemption and thus

removal under § 77p(b) and (c) - then the district court must remand

the action back to state court

‘See Financial Policy Forum, Spectal Poltey Brief 13 — Overvien of

Mutual Fund Scandal “A Gauntlet of Fraud. at *3 (Dec 14. 2005,

updated May 21, 2004), available at http.//www financialpoliey org/

fpfspb13.htm

gence and recklessness claims and no federal or state-law

fraud claims. Collectively, the complaints charge respon-

dents — several mutual funds and investment advisors,

and an insurance company that allows mutual fund in-

vestments through its variable annuity products — with

negligently and recklessly failing to protect long-term in-

vestors adequately from market timing.

a. As alleged in petitioners’ suits, “market timing” is a

practice by certain traders who time their investments in

mutual funds’ holding international stocks according to

shifts in the market that take advantage of stale prices for

stocks traded on foreign stock exchanges. Market timing

works to devalue the holdings of millions of mutual fund

investors who hold for the long term rather than sell their

fund shares in the short term. In contrast to the ordinary

investor who holds his investments long-term, market

timers buy and sell mutual funds in quick succession —

often trading in and out of the same shares within 24

hours — to take advantage of international time zone dif-

ferences that cause a fund holding international stocks to

be either undervalued or overvalued at the end of the U.S.

trading day.

A mutual fund holding assets that trade in competitive

markets must value those assets at their market price.

See 15 U.S.C. § 80a-2(a)(41)(B)(ii): 17 CPLR. § 270.2a-4(a).

Most mutual funds calculate the net asset (/.c.. market)

value, or “NAV.” of their entire portfolio only once per day.

typically at the 4:00 p.m. Eastern Time close of trading on

New York exchanges. Funds ordinarily calculate their

NAV by valuing each asset in their portfoho at the final

price at which it traded on its native exchange that day.

For assets listed on the New York exchanges, the NAV

generally supplies an up-to-date value. But, for assets

listed on foreign exchanges, some of which mav have

closed as many as 15 hours before the close of the New

' Mutual funds invest im a number of assets. typically mdividual

stocks. See www sec gov/investor/tools/mice/mutual-fund-help htm

(Oct. 17, 2005)

York market, that approach opens a temporary yet wide

window for arbitrage. (European markets close 5 or 6

hours before New York and Asian markets close 12 to 15

hours before New York.)

Because the NAV is calculated using the closing price of

each asset on its native exchange — and not its real-

market value based on information revealed after the

close of trading on that native exchange — the fund will

often give its portfolio an artificially high or low value.

Stale information used to calculate the NAV thereby cre-

ates opportunities to purchase or sell fund shares at an

immediate profit.

Market timers take their short-swing profits by pur-

chasing mutual fund shares on days when the foreign se-

curities in a fund’s portfolio are undervalued and redeem-

ing shares on days when the foreign securities are over-

valued. Consider, for example, a foreign security in a

fund's portfolio that closed at $10 on its native exchange

but, through a trend that emerges that day on other in-

ternational exchanges, is highly likely to rise in price on

the following trading day. As sophisticated investors.

market timers know that the price of foreign securities on

their native exchange will likely track the movements of

like market sectors or stocks in the U.S. market and ac-

cordingly move in like directions the following day. Mar-

ket timers profit from this information lag by purchasing

shares of mutual funds having an NAV that reflects stale.

lower foreign-securities prices, and then selling those

same fund shares soon thereafter, after the price of the

securities has risen on their native exchanges and the

mutual fund NAVs have been recalculated to reflect that

rise.

* Judge Easterbrook’s opimion for the court below provides the fol-

lowing tlustration “Stock of a Japanese firm that closes in Tokvo at

Y1O.000 might trade m Frankfurt at € 75.22 (equivalent to ¥10.500)

hetween the close in Tokve and the close m New York — but the mutual

tund nonetheless would value each share at ¥10,000. because that was

its most recent price in the issuers home market” Pet App Za

The rationale of petitioners’ common-law negligence

and recklessness claims is that, while day-trading arbi-

trageurs are the obvious winners in market-timing

schemes, their profits are supplied dollar-for-dollar by

long-term holders of mutual fund shares, which are con-

tinually devalued by ongoing market timing. When an

outdated NAV causes a mutual fund to value its shares at

an artificially low price, market timers buy shares in the

undervalued mutual fund and receive a greater ownership

interest in the fund than they would if the NAV had been

accurately calculated. Those purchasing market timers

consequently dilute the value of fund shares already held

by long-term investors. On the other hand, when an out-

dated NAV causes the fund to value its shares at an arti-

ficially high price, market timers sell the mutual fund and

receive a greater price per share for that sale than they

would if the fund shares had been valued at an NAV

hased on up-to-date information. Selling market timers,

just like purchasing market timers, disproportionately

deplete the pooled assets of the fund's investors. In both

scenarios, the parties harmed by market timing are those

who held their shares while others purchased and/or sold.”

The effects of market timing on long-term holders are

enormous in the aggregate. Studies have confirmed that

market timing costs non-trading shareholders between 85

and $10 billion each year.’ The mutual fund industry's

" Richard L Levine. Yvonne Cristovicr & Richard A’ Jacobsen.

Mutual Fund Market Timing, 52 Fed Law 28. 30 Gan ZOOS)

(market timing can be harmtul to long-term investors because it di-

lutes gains (given that a market-tomers strategy is to buy at a NAV

that undervalues the fund and to sell at a NAV that overvalues the

fund) >).

See United States Government Accountability Office, Mutual

Fund Trading Abuses. Lessons Can Be Learned from SEC Not Having

Detected Violations at an Earlwr Stage 4-5 (Apr. 2005). available at

www gao gov/new.1ems/d05313 pdf See also. eg. Jennifer Barrett,

“Inexcusable.” MSNBC com. Nov 11, 2008 (interview with John Bogle.

founder and former CEO of the Vanguard Group. estimating market-

timing dilution to cost investors 35 to $10 billion per vear). available at

http//www msnbe.com/id/S403564/site/newsweek: Eric Zitzewitz, Who

main trade organization has acknowledged that “the dis-

covery of trading abuses involving mutual funds... put at

risk the reputation of the entire fund industry,” “shook

the industry to its core,” and “triggered a degree of Con-

gressional oversight of mutual funds rarely seen in the

industry's history.”"" Many cases arising from that scan-

dal have been consolidated in a multidistrict proceeding

currently pending before three district judges. See Jn re

Mutual Funds Inv. Litig., 384 F. Supp. 2d 845 (D. Md.

2005).

b. A significant portion of the respondent funds’ portfo-

lios consists of foreign securities that are readily suscepti-

ble to market timing. Petitioners allege that respondents

knew, or should have known, of the existence of market

timing, and that they acted negligently’ or recklessly’ by

failing to adopt procedures that would have prevented pe-

titioners investments from being diluted by market tim-

ing.'' Petitioners alleged. for example, that respondents

should have made pricing adjustments based on correla-

tions between movements in the U.S. and foreign mar-

Cares About Shareholders’ Arbitrage-Proofing Mutual Funds. 19 4.1.

Keon & Org. 245, 260 (2003) (total annualized dilution im the first

three quarters of 2001 can be estimated at $4.9 billion per vear’).

* Investment Company Institute. Trading Abuse Reforms & Actions.

avatlable at www 1c.org/tssues/timing.

“ See JA TR1-R2, 186 (8 56, 69) (Potter), 205 (© 56) (Kircher), 230

(* 60) (Parthasarathy), 255-56 (© 49) (Dudley 1). 275-74 (© 49) (Dudley

I), 290-91 (% 19) (Vogelers. 307 ( 49) (Jackson), 326-27 ( 62)

(Spurgeon) (breach of fiductary duties).

" See JA 183. 187-88 (©© 60, 73) (Potters, 206-07 (4 60) (Kircher).

241-32 (© GW) (Parthasarathy), 257-58 (© 54) (Dudley 1). 275-76 (4 54)

(Dudley 11), 292-93 (% 54) (Vogeler). 308-09 (© 53) (Jackson), 324

(%* 56-57) (Spurgeon)

Petitioner Spurgeon also alleged violations of several provisions of

the Cahiormia Business & Protession Code (Count [V) See JA 28-29

(%* 67. 69, 73)

kets.'° Petitioners’ claims are based on negligence and

recklessness, and do not allege fraud.

Each of petitioners’ complaints defined the class to in-

clude holders of the relevant securities. The Kircher com-

plaint is typical. limiting the class to “all persons in the

United States who have owned shares of [the fund] for

more than fourteen days from the date of purchase to the

date of sale (redemption) or exchange.”'* The Spurgeon

complaint took the additional step of explicitly excluding

from the class “any claims based upon [the fund’s] conduct

in connection with Plaintiff's or any class member's pur-

chase or sale of any” security. JA 319 (4 40). That exclu-

sion is implicit in the negligence and recklessness claims

of the other complaints because only a holder may experi-

ence damage from market timing.

3. In each of petitioners’ cases, the named respondents

filed notices of removal to the United States District

Court for the Southern District of Illinois, arguing that

the cases were subject to removal because they were

preempted by SLUSA. Respondents’ notices of removal

relied on SLUSA’s intertwined preemption and removal

provisions, § 77p(b)-(c), as well as the general removal

‘= See JA 170-71, 174-75 (94 17. 32-33) (Potter), 193-94, 197-98

(44 17. 32-33) (Kircher), 219, 222-23 (99 22. 37-38) (Parthasarathy),

245, 249-50 (9 13. 28-29) (Dudley 1), 265, 267-68 (84) 13, 28-2)

(Dudley 11), 280, 284-85 (9% 48> 28-29) (Vogeler), 297, 300-02 (9S 13.

28-29) (Jackson), 316-17 (89 31-32) (Spurgeon)

JA 200-01 (© 41) (Kircher). see JA 177-78 (© 41) (Potter) (same).

226 (© 46) (Parthasarathy) (same), 252 (4.37) (Dudley 1) (alleging

“held” instead of “owned”), 270 (© 37) (Dudley 11) (same), 287 (© 57)

(Voveler) (alleging “held” instead of “owned™), 303-04 (© 37) Clackson)

(alleging “held” instead of “owned” and omitting “from the date of

purchase to the date of sale (redemption) or exchange”), 519 (4 39)

(Spurgeon) (defining plaintiff class as “all persons in the United States

who. through their ownership of [the fund’s| products, held units of any

|fund] sub-account invested im mutual funds which included forergn

securities in thei portfolios and which experrenced market timing

trading activity’).

statute, 28 U.S.C. § 1441." In Kircher. for example, the

removal notice argued that SLUSA makes the “federal

courts the exclusive venue for ‘covered class actions’ alleg-

ing fraud in connection with the purchase or sale of ‘cov-

ered securities,” thus basing removability under § 77p(c)

on the satisfaction of each of the preemption factors set

out in § 77p(b).'° The notices also challenged petitioners’

pleading of their state-law negligence and recklessness

claims by characterizing them as “in essence” alleging

fraud or the use of a manipulative device and then assert-

ing that those claims were “preempted ... notwithstand-

ing |petitioners’] attempt to artfully plead their securities

class action claims as state-law claims.”

Petitioners moved to remand to state court for lack of

subject-matter jurisdiction.'’ The district judges assigned

to petitioners’ various cases remanded all of them back to

'! See JA 346-57 (Kircher), 360-61 (Potter), 377-89 (Dudley 1), 394-

106 (Dudley 11), 409-12 (Jackson): see also JA 332-33 (Parthasarathy)

(arguing that removal 1s proper under § 14.41 because SLUSA creates

a federal question), 370-71 (Vogeler) (relying only on § 1441), 418

(Spurgeon) (relying only on § 1441)

'* JA S47 (Kircher)

JA SAS-50. 353-54 (Kercher). accord JA 360-61 (Potter) (arguing

that removal was proper under SLUSA because petitioners’ claims

were “in connection with’ the purchase or sale of a covered security”).

385 (Dudley 1) Plaintiffs’ claims fall squarely within the four corners

of SLUSA and, therefore. are preempted For these reasons, re-

moval under SLUSA ts proper .. .”), 402 (Dudley 11) (same), see also

JA 371 (Voweler) (stating that petitioners’ claims are “in connection

with the purchase or sale of securtties, and therefore are removable

under [SLUSA]"), 410 (Jackson) (stating that removal was proper un-

der SLUSA because plaintiffs alleged “misrepresentations or omts-

sions” and that “[respondents] used... a manipulative or deceptive

device or contrivance in connection with the purchase or sale of covered

securities’), 425-31 (Spurgeon) (arguing that removal was proper be-

cause SLUSA completely preempted petitioners claims)

In Spurgeon, the district court sua sponte ordered briefing on the

remand issue, see JA 8&3 (Docket Entry 7), and, in Vogeler, the court

remanded sua sponte without briefing. see JA 65-61 (Docket Entry 28)

state court, expressly holding in each case that the court

“lacks subject matter jurisdiction.”

In all eight cases consolidated for this appeal, the dis-

trict court judges individually recognized that SLUSA’s

“in connection with” language derives from § 10(b) of the

1934 Act and SEC Rule 10b-5. They also held, in turn,

that a claim could be preempted under SLUSA only if that

claim satisfied the “in connection with” requirement of

§ 10(b) of the 1934 Act and SEC Rule 10b-5. Each indi-

vidual judge then explained that petitioners’ claims were

not actionable under § 10(b) and Rule 10b-5 because they

brought their claims as holders of securities and their

claims did not arise “in connection with the purchase or

sale of a covered security” (§ 77p(b)(1)-(2)) as required by

SLUSA’s preemption provision. Accordingly, each district

judge found that petitioners’ state-law claims were not

preempted.” For that reason, they did not address

whether petitioners’ state-law claims were also outside

SLUSA’s preemptive ambit because they did not involve

allegations of misstatements or omissions of material fact,

te., fraud.

Because the claims did not fall within the preemption

provision, the courts concluded, they were not removable

under SLUSA and therefore were outside the courts’

subject-matter jurisdiction.” As the district court in

~ Pet App. 27a (Aurcher) (Because the Court lacks subject matter

jurisdiction [over plaintiff's claims]. the Court REMANDS this action”

to state court), 0a (Dudley 1 & I). 40a (Parthasarathy). 46a (Potter),

Sla (Vogeler), 57a (Jackson), 64a (Spurgeon)

" See, eg.: Pet. App. 26a-27a (Kircher), 30a (Dudley 1 & 1H) COnI\y

holders of fund shares have the dilution of ownership interests and

voting rights claims asserted in the complamts “), 40a (Parthasarathy)

(ayreempg that the “complaint alleges dilution clams that only a

holder of securtties can bring”) (quoting Bradfisch ve Templeton

Funds, Inc . Case No, 03-CV-0760-MJR, shp op at 648 D Tl Jan. 23.

2004). tda-d5a (Potter) (same). 50a-Sla (Vogeler) (same). S6a-57a

(Jackson) (same), 61a (Spurgeon) (stating that “SLUSA does not pre-

empt” claims by “a holder of securities”).

“ Each of the district courts also rejected the argument that pets

tioners state-law claims could be removed under 28 USC. § 1411

133

Kircher put it, “SLUSA does not permit removal of Plain-

tiffs’ claims” because petitioners’ claims were not pre-

empted by SLUSA.*' Accordingly, the district courts re-

manded all eight cases to state court for a lack of subject-

matter jurisdiction.~

4. On respondents’ appeal of the remand order in

Kircher, the Seventh Circuit ordered the respondent mu-

tual fund to show cause why its appeal should not be dis-

missed for lack of jurisdiction under 28 U.S.C. § 1447(d),

which precludes appellate review of remand orders based

on a district court's conclusion that it lacked subject-

matter jurisdiction. The court of appeals then held that

it had jurisdiction to review the district court’s remand

order. See Pet. App. 15a-16a.

The court of appeals noted that § 1447(d) prohibits ap-

pellate review of an order remanding a case to state court

on a ground listed in § 1447(c), which provides that a case

must be remanded if the court determines that it lacks

subject-matter jurisdiction. The court acknowledged that

the district court expressly based its remand on the con-

clusion that, because SLUSA does not preempt petition-

ers’ market-timing holder claims, “‘the Court lacks subject

matter jurisdiction.” id. at 12a (quoting Kircher remand

order, reproduced at Pet. App. 27a). The court of appeals

did not accept that explanation. however. See id. at La.

Instead. despite the district court's express statements to

the contrary, the court of appeals characterized the dis-

trict court opinion as holding that removal was “proper.”

on the ground that they involved a substantial federal question or

satisfied the diversity jurtsdiction requirements See Pet. App 27a

(Kircher), 30a Dudley 1 & 11). 34a-38a, Wa (Parthasarathy), 45a-46a

(Potter), la (WVogeler), S7a Clackson), 59a-60a (Spurgeon). Those hoid-

Mes are not at issue here

“' Pet. App 26a-27a (Kircher), see also rd at 30a (Dudley 1 & 11),

39a-10a (Parthasarathy). 44a-da (Potter), 50a-51la (Vogeler), 56a-57a

(Jackson), 60a-61a (Spurgeon)

*- See Pet. App 27a (Arrcher), 30a (Dudley 1 & I), 40a (Parthasara-

thy). 46a (Potter), Sia WVogeler), 57a Clackson), 64a (Spurgeon)

but that remand was required under § 77p(d)(4) because

§ 77p(b) did not preempt the claims. /d. at 13a-14a.

In concluding that an order remanding a claim on the

ground that it is not preempted under SLUSA is not

based on a lack of subject-matter jurisdiction, the court of

appeals opined that SLUSA authorizes removal of all

“covered class actions” — that is, all class actions that seek

damages on behalf of more than 50 investors, see

§ 77p(f)(2)(A). Pet. App. 13a-14a. The court failed to ad-

dress Kircher’s argument that, because the removal pro-

vision in § 77p(c) applies only to those actions meeting

SLUSA’s preemption criteria “as set forth in subsection

(b),” an action may be removed under SLUSA only if that

action is preempted by SLUSA. Instead, the court held

that the only condition for removal is that the lawsuit in-

volve a “covered class action,” and it is only after a suit

has been removed under SLUSA that a district court must

make the “substantive decision” whether the suit is pre-

empted by § 77p(b). Jd. at 14a. Thus, the court con-

cluded, because the determination whether the suit is

preempted is a substantive one that occurs only after re-

moval has been found appropriate, a remand following a

determination that the suit is not preempted is not based

on a lack of jurisdiction; rather. it is based on a substan-

tive determination that SLUSA does not preempt the

claims. For those reasons. the court concluded that

§ 1447(d) did not prohibit appellate review of the remand

order. See id. at 17a.

The court of appeals further justified its conclusion that

the remand order was appealable by explaining that, if it

were otherwise, “a major substantive issue in the case

|would] escape review.” /d. at 15a. According to the

court, under SLUSA. state yudges are incapable of deter-

mining whether a claim is preempted by SLUSA: rather,

the court stated. SLUSA requires that the preemption de-

termination “be made by the federal rather than the state

judiciary. 7d. Thus, unlike a “|njormal” remand order.

which “leavels}] all substantive issues open to plenary

resolution in the state court.” “it is now or never for appel-

late review of the question” whether a state-law action is

preempted under SLUSA. 7d.

5. Having determined that it could exercise appellate

jurisdiction over the district court’s remand order in

Kircher, the court of appeals issued orders declaring that

appellate jurisdiction was proper in the other seven cases,

and it subsequently consolidated all eight cases. The

court then reversed the district courts’ remand orders in

all eight cases and remanded the cases with instructions

to dismiss the state-law claims as preempted under

SLUSA.

The court began by explaining that each of the class ac-

tions was a covered class action under SLUSA and that

each involved covered securities. See Pet. App. 4a. It

then turned to the question whether petitioners’ actions

alleged fraud or manipulation “in connection with” the

purchase or sale of those securities.

The court explained that the “in connection with” lan-

guage in SLUSA “has the same scope as its antecedent in

Rule 10b-5.~ /d. at 5a. The court noted that in Blue Chip

Stamps v. Manor Drug Stores, 421 U.S. 723 (1974), this

Court held that an investor who neither purchases nor

sells securities cannot bring a cause of action under

§ 10(b) and Rule 10b-5. The court concluded that. even if

SLUSA’s “in connection with” language incorporates Blue

Chip Stamps holding, all of the actions except Spurgeon

were preempted. That was because, the court explained.

those complaints defined the class as including investors

who held shares of a mutual fund between two dates. Ac-

cording to the court, these actions had to be dismissed

under SLUSA, hecause “some of the investors who held

shares during the class period must have purchased their

interest ... during that time: others . . . undoubtedly sold

some or all of their investment during the window.” Pet.

App. 6a. In so ruling. the court stated that it perceived

petitioners suits to be seeking recovery only for respon-

dents deceit or manipulation, and not for losses resulting

from respondents mismanagement of the fund, despite

petitioners’ consistent position that thev were alleging

only claims of negligent and reckless mismanagement.

See id. Because, in the court’s view, all of the class ac-

tions alleged deceit or manipulation in connection with

the purchase or sale of a security, the court concluded that

SLUSA preempted the claims. See id. at a.

6. This Court granted certiorari in this case limited to

Question 1 in the petition. That question is whether the

court of appeals erred in holding that the district courts’

remand orders are reviewable on appeal. The second

question presented in the certiorari petition, which con-

cerns the court of appeals’ second holding that SLUSA

preempts petitioners’ claims, is before the Court in Merrill

Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, No. 04-1371

(argued and submitted Jan. 18, 2006), on review of the

Second Circuit's conclusion (which is contrary to the Sev-

enth Circuit's decision in this case) that SLUSA does not

generally preempt holder claims because those claims are

not “in connection with the purchase or sale” of securities.

SUMMARY OF ARGUMENT

Section 1447(d) prohibits appellate review of a district

court order remanding a case to state court if the district

court bases the remand on its determination that it lacks-

subject-matter jurisdiction, regardless of whether that ju-

risdictional determination is “erroneous or not.” Therm-

tron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 343

(1976). That absoiute bar on review of such remand or-

ders has a pedigree of more than a century, and it applies

to cases. such as this one, removed under a_ provision

other than the general removal provision, 28 U.S.C.

§ 1441. In each of the cases under review, the district

court expressly remanded based on its conclusion that it

lacked subject-matter jurisdiction. Those orders therefore

are not reviewable.

Even if, contrary to this Court's precedents, it were

proper for the court of appeals to second-guess the district

courts conclusions that they lacked subject-matter juris-

diction, the district courts properly determined that

whether a claim is preempted under SLUSA is a question

of subject-matter jurisdiction. SLUSA confers removal

jurisdiction only over those claims that meet the preemp-

tion criteria “as set forth in subsection (b),” SLUSA's

preemption provision. 15 U.S.C. § 77p(c). By cross-

referencing SLUSA’s preemption provision, the plain lan-

guage of SLUSA’s removal provision provides that a class

action cannot be removed unless that action satisfies

SLUSA’s preemption provision. Without that cross-

reference, the federal courts would not have subject-

matter jurisdiction over the suit, because a federal pre-

emption defense generally does not confer-subject-matter

jurisdiction for removal purposes. The legislative history

confirms that Congress intended to limit removal only to

those actions that are preempted by SLUSA.

There is no merit to the court of appeals’ conclusion that

SLUSA preemption does not bear directly on the district

court's subject-matter jurisdiction, but rather is a “sub-

stantive decision” that Congress authorized the court

to make after it assumed jurisdiction over the removed

case. That conclusion simply cannot be reconciled with

SLUSA’s plain text and legislative history, both of which

make clear that preemption ts a threshold prerequisite for

the exercise of removal jurisdiction under SLUSA.

Moreover, the court of appeals committed two errors in

concluding that petitioners’ claims are preempted by

SLUSA. First. the court of appeals erroneously concluded

that petitioners’ holder claims raise allegations “in con-

nection with the purchase or sale” of securities within the

meaning of § 77p(b). As correctly explained by respondent

in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit.

No. 04-1371, in private securities litigation uncer § 10(b)

and Rule 10b-5. the phrase “in connection with the pur-

chase or sale” has a settled judicial interpretation: A pri-

vate party does not assert a claim “in connection with the

purchase or sale of any security” within the meaning of

§ 10(b) and Rule 10b-5 unless that party avers that the

defendant's act or omission was in connection with her

own purchase or sale. See Blue Chip Stamps v. Manor

Drug Stores. 421 U.S. 723, 730-31. 749 (1975). Congress

incorporated that interpretation of § 10(b) and Rule 10b-5

when it used that same language in SLUSA. Second, the

court of appeals erroneously concluded that petitioners’

claims are preempted by SLUSA because those claims do

not “allegie] ...an untrue statement or omission of a ma-

terial fact” or “that the defendant used or employed any

manipulative or deceptive device or contrivance.” 15

U.S.C. § 77p(b). Instead, petitioners allege that respon-

dents acted negligently and recklessly by failing to follow

practices that would protect petitioners assets from the

dilution in value caused by market timing. Accordingly,

because petitioners’ claims fall outside the ambit of

SLUSA preemption in § 77p(b), the district court’s re-

mand to state court was appropriate.

Permitting the court of appeals’ decision to stand would

directly undermine Congress's purpose in prohibiting re-

view of remand orders: to avoid burdening plaintiffs who

already have suffered delay through removal with the ad-

ditional delay and costs associated with appeal. By con-

cluding that appellate review was appropriate because it

would generate “little cost in delay beyond” the delay al-

ready caused by the removal. the court of appeals imper-

missibly substituted its own policy view for that enacted

into law by Congress in § 1447(d). Nor is there any

basis for the court of appeals’ assertion that appellate

review is warranted because SLUSA requires that the

federal judiciary resolve the preemption issue. A federal

court did decide the SLUSA preemption question, but be-

cause Congress made a legislative judgment to make that

determination part of the court’s subject-matter juris-

diction, it falls squarely within § 1447(d)'s prohibition on

reviewability.

ARGUMENT

I. DISTRICT COURT ORDERS REMANDING TO

STATE COURT FOR LACK OF SUBJECT-

MATTER JURISDICTION UNDER SLUSA ARE

NOT REVIEWABLE ON APPEAL

A. By Long-Standing Statutory Prohibition, The

General Rule Is That Courts Of Appeals Lack

Jurisdiction To Consider Appeals Of District

Court Orders Remanding A Removed Case

Back To State Court

Since the earliest days of the Republic, “Congress has

placed broad restrictions on the power of federal appellate

courts to review district court orders remanding removed

cases to state court.” Things Remembered, Inc. v. Pet-

rarca, 516 U.S. 124, 127 (1995). That general prohibition

provides the background rule that governs this case.

Under 28 U.S.C. § 1447(c), district courts have the au-

thority to remand a case improperly removed from state

court:

A motion to remand the case on the basis of any

defect other than subject matter jurisdiction must

be made within 30 days after the filing of the no-

tice of removal under section 1446(a). If at any

time before final judgment it appears that the dis-

trict court lacks subject matter jurisdiction, the

case shall be remanded.

28 U.S.C. § 1447(e).

Such remand orders, however. are not reviewable by an

appellate court (with limited statutory exceptions not ap-

plicable here). That prohibition derives from § 1447(d),

which is the “general statutory provision governing the

reviewability of remand orders.” Things Remembered.

516 U.S. at 127. Section 1447(d) provides:

An order remanding a case to the State court

from which it was removed is not reviewable on

appeal or otherwise, except that an order remand-

ing a case to the State court from which it was re-

moved pursuant to section 1443 of this title shall

be reviewable by appeal or otherwise.

28 U.S.C. § 1447(d).*' This general prohibition on appel-

late review is clear from not only the plain language of

§ 1447(d) but also the statutory history of that provision.

1. The text of § 1447(d) generally precludes appellate

review of remand orders: “An order remanding a case to

the State court from which it was removed is not review-

able on appeal or otherwise.” This Court has held,

however, that “‘§ 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).” Quackenbush v. Allstate Ins. Co., 517 U.S.

706, 711-12 (1996) (quoting Things Remembered, 516 U.S.

at 127). Thus, notwithstanding the broad prohibitory

language of § 1447(d), its scope is limited somewhat by

the reach of § 1447(c).

As this Court has noted. § 1447(c) specifies two grounds

for remand — “lack of subject matter jurisdiction or defects

in removal procedure.” /d. at 712.** “As long as a district

court’s remand is based on a timely raised defect in re-

moval 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).”. Things Remembered, 516

U.S. at 127-28. On the other hand, the Court has held

that remand orders based on grounds other than those

mentioned in § 1447(c) are not affected by § 1447(d)'s pro-

hibition on appellate review. See Quackenbush, 517 U.S.

706 (remand based on abstention); Thermtron Products,

* Section 1443 of Title 28 provides for the removal of civil rights

cases In a few other statutes, Congress has likewise excepted certam

other remand orders from § 1447(d)'s general non-reviewabihty prohi-

bition. See infra pp 29-30

‘In 1996, Congress amended § 1117) by replacing the above-

referenced language, “any detect im removal procedure” (28 USC

§ 1447(c) (L994). with the broader. currently etfective language “any

defect other than subject matter jurtsdiction ” See infra note 43.

Inc. v. Hermansdorfer, 423 U.S. 336 (1976) (remand based

on overcrowded district court docket). The Court has

made clear, however, that those limited exceptions “nei-

ther disturb nor take issue with the well-established gen-

eral rule that § 1447(d) and its predecessors were in-

tended to forbid review by appeal or extraordinary writ of

any order remanding a case on the grounds permitted by

the statute.” Thermtron, 423 U.S. at 351-52.

2. The general rules now codified in § 1447(c) and (d)

have long been mandated by Congress. Except for a short

period between 1875 and 1887. remand orders for lack of

subject-matter jurisdiction or defects in removal have

been unreviewable on appeal. See 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 ap-

pealable”). In Thermtron. this Court traced the history of

the predecessors to § 1447(c) and (d). See 423 U.S. at 346-

48.

Before 1875. orders remanding a removed case were not

reviewable by appeal or writ of error because they were

not final judgments. See id. at 346 (citing Railroad Co. v.

Wiswall. 90 U.S. (23 Wall.) 507 (1875)).*” In the Judiciary

Act of 1875, Congress authorized trial courts to remand a

removed action (or to dismiss an action filed in federal

court) where jurisdiction was lacking. and expressly pro-

vided that an order of the “circuit court dismissing or re-

manding said cause to the State court shall be reviewable

by the Supreme Court on writ of error or appeal” Ch.

137. § 5, 18 Stat. 470, 472: see Thermtron, 423 U.S. at 346

** Prior to Wiswall, this Court reviewed remand orders on several

occasions without addressing whether tt had jurisdiction to do so. See,

e.2.. Gardner v Brown, 88 ULS. (21 Wall.) 36 (1875). MeKee v. Rains. 77

Us 0 Wall.) 22 (870): Bushnell v. Kennedy, 76 US (© Wall) 387

(1870); Mavor of Nashuille v. Cooper. 73 US (6 Wall.) 247 (1868). West

v. Aurora City. 73 US. (6 Wall) 139 (1868). Green v. Custard, 64 US

(23 How.) 484 (1860); Wood © Davis. 59 US (18 How ) 467 (1856).

However. “when questions of surtsdiction have been passed on in

prior decisions sub silentio. this Court has never considered itself

hound when a subsequent case finally brings the jurisdictional issue”

Hagansv Lavine. 415 US 528, 534 n.5 1971)

& n.10.% That provision for review of remand orders,

however, was short-lived. In 1887, apparently in response

to severe docket congestion resulting from such review,

Congress repealed the 1875 review provision and provided

instead that “no appeal or writ of error from the decision

of the circuit court so remanding such cause shall be

allowed.” Act of Mar. 3, 1887, ch. 373, §§ 1, 6, 24 Stat.

552, 553, 555; see Thermtron, 423 U.S. at 346-47 & n.11.

See generally Rhonda Wasserman, Rethinking Review of

Remands: Proposed Amendments to the Federal Removal

Statute, 43 Emory L.J. 83, 95-99 (1994).

The 1887 Act contained the “roots” of the provision now

codified in § 1447(d), and from those roots have sprung

numerous decisions of this Court and statutory re-

codifications by Congress. Thermtron, 423 U.S. at 346.

This Court remarked on the breadth of the 1887 Act’s pro-

hibition on review of remand orders, holding that it “has

relation to removals generally — those for prejudice or lo-

cal influence, as well as those for other causes — and the

prohibition has no words of limitation. ... Its language is

broad enough to cover all cases, and such was evidently

the purpose of congress.” Morev v. Lockhart, 123 U.S. 56,

58 (1887). This Court repeatedly reaffirmed the principle

announced in Morey, continuing to “broadly construe| |”

that provision as “prohibiting review of an order of re-

mand. directly or indirectly, by any proceeding.” Gay v.

Ruff. 292 U.S. 25, 29 (1934).*" In 1911, Congress reen-

acted the 1887 prohibition on appellate review of remand

“” At that time, the district and circuit courts had original jurisdic-

toon over different tvpes of matters. See generally Benjamin Curtis.

Jurisdiction, Practice, and Peculiar Jurisprudence of the Courts of the

United States (2d rev ed 1896). The federal courts of appeals were not

created until 1891. See Act of Mar. 3. 1891. ch 517, 26 Stat. 826.

-' See also German Nat? Bank © Speckert, 131 US. 405, 406 (1901):

Missourt Pac. Ry. Co. v. Fitzgerald, 160 US. 556, 581-82 (1896):

Chiwago, St P.M & O. Rv Co. v Roberts. 141 ULS. 690. 694 (1891).

Ex parte Pennsylvania Co . 137 US 451. 453-54 (1890) (1887 Act bars

mandamus challenging remand order), Gurnee v Patrick County, 137

US. 141. 143 (1890): Richmond & D.R.R v. Thouron. 134 US 45. 16

(1890). Sherman v. Grinnell, 123 U.S. 679. 679-80 (1887).

orders based on a lack of jurisdiction. See Judicial Code of

1911, Act of Mar. 3. 1911, ch. 231, § 28, 36 Stat. 1087,

1094-95. See also Emplovers Reinsurance Corp. v. Brvant,

299 U.S. 374, 380 (1937): Thermtron, 423 U.S. at 347-48.

Thus, in 1946, the Court observed that “the practice in

removal cases was, as it had been established from the

beginning, save for a brief interval under § 5 of the Act of

1875, that an order of remand was not appealable.” Rice,

327 U.S. at 749.>*

Against that virtually uniform history generally prohib-

iting review of remand orders, Congress enacted 28 U.S.C.

§ 1447 in 1948. See Act of June 25, 1948, ch. 646, § 1,

62 Stat. 869, 939. Because of an oversight, the original

§ 1447 did not prohibit appellate review of remand orders.

That omission was soon corrected in 1949 when Congress

added § 1447(d), which provided then as it does now: “An

order remanding a case to the State court from which it

was removed is not reviewable on appeal or otherwise.”~”

Act of May 24, 1949, ch. 139, § 84(b). 63 Stat. 89, 102. As

this Court has explained, “|t]he plain intent of Congress,

which was accomplished with the 1949 amendment, was

to recodify the pre-1948 law without material change.”

Thermtron, 423 U.S. at 350 n.15: see also H.R. Rep. No.

81-352 (1949) (stating that § 1447(d) was added “to

remove any doubt that the former law as to the finality

of an order of remand to a State court is continued’),

reprinted in 1949 U.S.C.C.A.N. 1254, 1268.

Accordingly, under the plain language of § 1447(d) and

the history behind that provision, a district court's order

based on a ground specified in § 1447(c) — lack of “subject

matter jurisdiction” or “any defect other than subject mat-

ter jurisdiction’ — is unreviewable.

” The Court likewise held “that an order remanding a cause which

is subject to the prohibition against appeals of [the 1887 Act] cannot be

reviewed by mandamus. Rice. $27 US at 751

“In 1964. Congress added to § 1447(d) the provision permitting ap-

pellate review of remand orders in civil rights cases See Civil Rights

Act of 1964. Pub Lo No 88-352. Tit. IX. § 901, 78 Stat 241. 266.

B. The District Courts’ Remand Orders Below

Were Expressly Based On Lack Of Subject-

Matter Jurisdiction And Are _ Therefore

Unreviewable

Each of the eight district court orders (including the

Kircher order reviewed by the court of appeals) based re-

mand on an express finding that “the Court lacks subject

matter jurisdiction.”” Under this Court's precedents,

those findings are dispositive and the remand orders is-

sued pursuant to those findings are unreviewable."' The

court of appeals’ effort to evade this Court's precedent and

to mischaracterize the district courts’ actions should be

rejected.

1. The proper application of the general rule of

§ 1447(d) compels reversal of the Seventh Circuit's judg-

ment for two reasons. First, the district courts’ charac-

terizations of their holdings are dispositive, and, second,

even if those judgments are erroneous, appellate jurisdic-

tion still does not obtain over the remand orders in this

case. Well-established precedent supports both princi-

ples. “If a trial judge purports to remand a case on the

ground that it was removed ‘improvidently and without

jurisdiction, his order is not subject to challenge in the

court of appeals by appeal, by mandamus. or otherwise.”

Thermtron, 423 U.S. at 343 (emphasis added) (quoting

1949 version of § 1447(c)).

This Court has long stressed that “the issue of remov-

ability ts closed if the federal district court refuses to as-

sume jurisdiction and remands the cause.” Metropolitan

Cas. Ins. Co. v. Stevens, 312 U.S. 563, 568 (1941): id.

“Pet App 27a (Kircher). see also td at 30a (Dudley 1 & 11). Wa

(Parthasarathy), 46a (Potter). Sila (Wogeler). Sia Clackson). Gta

(Spurgeon)

’ Although the Court could decide the question presented solely on

this ground. we explain in Part IL, infra. why the district courts cor

rectly concluded that they lacked subject-matter jurisdiction because

SLUSA preemption is a question of subject-matter jurisdiction and

petitioners claims are not preempted by SLUSA

(“Section 28 of the Judicial Code [now § 1447(c)| precludes

review of the remand order directly or indirectly after

final judgment in the highest court of the state in which

decision could be had.”) (citations omitted). That prohibi-

tion on appellate review applies irrespective of the cor-

rectness of the district court's conclusion that jurisdiction

is lacking: § 1447(d) “prohibits review of all remand or-

ders issued pursuant to § 1447(c) whether erroneous or not

and whether review is sought by appeal or by extraordi-

nary writ. This has been the established rule under

§ 1447(d) and its predecessors stretching back to 1887.”

Thermtron, 423 U.S. at 343 (emphasis added).

Shortly after deciding Thermtron, this Court reaffirmed

those core principles in Gravitt v. Southwestern Bell Tele-

phone Co., 430 U.S. 723 (1977) (per curiam). The defen-

dant in Gravitt had removed a state-law tort suit based on

diversity jurisdiction, alleging that it was a Missouri cor-

poration. See In re Southwestern Bell Tel. Co., 535 F.2d

859, 860 (5th Cir. 1976) (per curiam). Based on the de-

fendant’s pleadings in a previous, unrelated suit, how-

ever, the district court held that the defendant was judi-

cially estopped under Texas law from claiming it was not

a Texas citizen. It therefore remanded the case for lack of

diversity because it haa concluded that at least one plain-

tiff was also a Texas citizen. On petition for a writ of

mandamus, the Fifth Circuit acknowledged the “general

rule” that remand orders are unreviewable, but it read

Thermtron to permit review of the district court's judicial

estoppel decision, because that issue in and of itself was

not jurisdictional and was therefore not covered by the

remand grounds mentioned in § 1447(c). See id. (Thus.

the Court concluded [in Thermtron], if a district judge's

reason for remanding a case is outside the grounds speet-

fied in § 1447(c). as Judge Hermansdorfer’s was, the bar-

rier to review in § 1447(d) is also inapplicable, and man-

damus is a proper remedy to redress the illegal remand

order. >).

This Court summarily reversed the Fifth Circuit in a

three-paragraph, per curiam opinion. It rejected the

premise that a district court order that allegedly “had

employed erroneous principles in concluding that it

was without jurisdiction” could be reviewed on appeal.

Gravitt, 430 U.S. at 723. Instead, the Court expressly

confirmed that “Thermtron did nut question but re-

emphasized the rule that § 1447(c) remands are not re-

viewable.” Jd. at 724. Thus. because “[t]he District

Court's remand order was plainly within the bounds of

§ 1447(c).” the Court concluded, it “was unreviewable by

the Court of Appeals, by mandamus or otherwise.” /d. at

723.

This Court has subsequently read Gravitt as holding

that. “|w}here the order is based on one of the enumerated

grounds, review is unavailable no matter how plain the

legal error in ordering the remand.” Briscoe v. Bell, 432

U.S. 404, 413 n.13 (1977) (citing Gravitt, 430 US. at 723);

see also Volvo of Am. Corp. v. Schwarzer, 429 U.S. 1331,

1332 (1976) (Rehnquist, Circuit Justice) (concluding that

§ 1447(d) bars review of remand order based on lack of

jurisdiction, even though “the District Court may have

been wrong in its analysis”).

2. To avoid those settled legal principles, the court of

appeals engaged in a series of unpersuasive deflections of

fact and law. The court acknowledged that the district

courts remand order was expressly based on the conclu-

sion that, “*[blecause the Court lacks subject matter juris-

diction, the Court REMANDS this action.” Pet. App. l2a

(quoting Aircher remand order). Under Gravitt and simi-

lar cases, once the court of appeals recognized that point,

its job was at its end: the district court’s remand for lack

of subject-matter jurisdiction is unreviewable “whether

erroneous or not.” Thermtron, 423 U.S. at 343."

Indeed. until this case, the Seventh Circuit had understood

Thermtron to mean that, “[alf the district court announced that its re-

mand order was based on one of the grounds tor remand recognized in

Slit then review was barred” Adkins t Ilinois Cent RR.

$26 F Sd 828. 851 7th Cur 2003) (emphasis added): td (The Court has

made it clear, however, that the Thermtron holding was not an open-

ended invitation to exercise appellate review over remand decisions.

Although the court of appeals cited Gravitt. see Pet.

App. 12a-13a, it simply disregarded the holding of that

case. Cf. Major League Baseball Players Ass'n v. Garvey,

532 U.S. 504, 510 (2001) (per curiam) (“[T]he Court of Ap-

peals here recited these principles. but its application of

them is nothing short of baffling.”). In an attempted end

run around the non-reviewability rule. the court of ap-

peals inexplicably mischaracterized the district court's

Kircher order by asserting that “[rlemoval of this suit was

proper, the district judge held; that is why the court pro-

ceeded to the question how § 77p(b) affects the litigation.”

Pet. App. 14a. But the district court held no such thing.

It examined the preemption criteria set forth in § 77p(b)

only tor the purpose of deciding whether removal jurisdic-

tion existed under § 77p(c). See id. at 25a-27a. Finding

that the claims in the Aircher complaint were not pre-

empted because they alleged holder claims that were not

“in connection with the purchase or sale of a covered secu-

rity’ (§ 77p(b)). the district court granted the motion to

remand “{bjecause the Court lacks subject matter jurisdic-

tion.” Pet. App. 27a."

Beyond mischaracterizing the district court’s holding,

the court of appeals stated that tt simply disagreed with

the district court’s jurisdictional analysis that. under

SLUSA’s provision authorizing removal jurisdiction, the

question of preemption is inseparable from the question of

removal jurisdiction. See id. at lda (That |i.e.. SLUSA

preemption] is not the ‘lack of subject-matter jurisdiction’

that authorizes a remand.”). But a disagreement between

——— - _ _ ————

To the contrary, it has three tumes cautioned that the Thermtron

exception to § 1447(d) as to be narrowly construed”) (citing Grace/t,

Things Remembered, and Carnegte-Mellon Unie vo Cohild, 84 US.

S45) Ca MS))

Although a court of appeals might in some cases have to interpret

an unclear or ambiguous order to glean the true ground on which re-

mand was based, see. eg.. Adkins, 326 F 3d at 844 Creasonable people

might disagree over the best reading of the district court's remand

order’). here the district courts’ orders could not have been clearer

mn stateng that the cases were remanded for lack of subject-matter

jurisdiction

the court of appeals and the district court over whether

the district court properly understood the limits on its

own subject-matter jurisdiction does not make the district

court's order reviewable under § 1447(d). “Otherwise, the

rule means nothing at all, because appeals will be taken

and sustained in those cases where the district court

made a mistake, and rejected in cases where the district

court was correct. Even if the district court was wrong

that it lacked jurisdiction over the claims that it re-

manded, the remand would nevertheless be jurisdic-

tional.” Adkins, 326 F.3d at 834; 1d. (“[T]he only impor-

tant point is that the district court did not think that

janvthing] saved its jurisdiction.”). “

Accordingly, whether or not the district courts erred in

concluding that SLUSA makes federal-question jurisdic-

tion dependent on whether the state claims are pre-

empted — and they did not err. as explained below in Part

Il — § 1447(d) plainly bars review of the district courts’

remand orders here.

C. SLUSA’s Removal Provision Does Not Affect

§ 1447(d)'s General Prohibition On Appellate

Review Of Remand Orders

The general prohibition on appellate review in § 1447(d)

applies notwithstanding the presence of a removal provi-

sion in SLUSA. § 77p(d). Congress is presumed to be

“aware of the universality of thie] practice’ of denying

appellate review of remand orders when Congress creates

a new ground for removal.” Things Remembered. 516

U.S. at 128 (quoting Rice, 327 U.S. at 752) (alteration in

This is not a case where the district court absurdly apphed a label

of “subject-matter jurisdiction” to a plainly non-jurtsdictional remand

Cf Thermiron, 4283 US. at 3545-44 cholding remand based on over-

crowded district court docket not jurisdictional, “Neither the propriety

of the removal nor the purmsdiction of the court was questioned by re-

spondent in the shghtest.”). Even if such a patently unreasonable mis.

labeling could be reviewed. SLUSA’s removal provision, all agree. goes

to subject-matter jurisdiction If review could be had on the mere as-

sertion that the district court misinterpreted a jurtsdictional statute,

then § 1447¢d) would be a nullity

original). Accordingly, “|aJbsent a clear statutory com-

mand to the contrary,” the prohibition in § 1447(d) on ap-

pellate review “applies ‘not only to remand orders made in

suits removed under |the general removal statute], but to

orders of remand made in cases removed under any other

statutes, as well.” Id. (quoting Rice, 327 U.S. at 752)

(alteration in original).

Applying these principles, this Court held in Things

Remembered that § 1447(d) precluded appellate review of

a remand order issued under 28 U.S.C. § 1452, which au-

thorizes the removal of bankruptcy actions. The Court

observed that there was “no express indication in § 1452”

that it was intended to be “the exclusive provision govern-

ing removals and remands in bankruptcy.” and there was

no “reason to infer from § 1447(d) that Congress intended

to exclude bankruptcy cases from its coverage.” 516

U.S. at 129. While § 1452 contained its own remand pro-

vision, the Court held that “[t}here is no reason §§ 1447(d)

and 1452 cannot comfortably coexist in the bankruptcy

context.” Id.

Here, there likewise is no indication that § 1447(d) ex-

cludes securities cases from its coverage. See Harter

Township v. Kernochan. 103 U.S. 562. 566-67 (1881)

(upholding removal of securities case). And nothing in

SLUSA suggests that its removal provision is exempt

from § 1447(d), let alone provides the requisite “clear

statutory command’ to that effect. Things Remembered,

516 U.S. at 128. To the contrary, when Congress has in-

tended to carve out exceptions to § 1447(d), it has done so

clearly and explicitly. For example. § 1447(d) itself ex-

cludes civil rights cases removed pursuant to § 1443 from

its reach: two statutes give the Resolution Trust Corpo-

ration and the Federal Deposit Insurance Corporation the

express right to appeal a remand order: and another

“See 1Z USC. § 144100200) (RTC “may appeal any order of re-

mand entered by a United States district court’). rd § IS19¢bM2 HC)

(FDIC “may appeal any order of remand entered by any United States

district court”)

permits the United States to appeal remand orders in

cases involving the property of Indians.” In addition. the

recent Class Action Fairness Act of 2005 (“CAFA”) author-

izes “an appeal from an order of a district court granting

or denying a motion to remand a class action to the State

court” “notwithstanding section 1447(d).”"" (That Act ex-

pressly excludes securities class actions, and thus SLUSA,

from its reach.”) Because SLUSA does not contain simi-

lar provisions, § 1447(d)’s prohibition on appellate review

applies to district court orders remanding a case for lack

of subject-matter jurisdiction under SLUSA.

Therefore, the court of appeals erred in exercising ap-

pellate jurisdiction over the district courts’ remand orders,

because their orders were based on those courts’ conclu-

sions that they lacked subject-matter jurisdiction under

SLUSA over petitioners’ cases.

Il. SLUSA MAKES REMOVAL JURISDICTION

DEPENDENT ON PREEMPTION

A. SLUSA’s Removal Provision Creates Federal-

Question Jurisdiction For State-Law Claims If

And Only If SLUSA Preempts Them

The court of appeals also erred for a second reason: even

if, contrarv to this Court's precedent, it was proper for

the court of appeals to second-guess the district courts’

conclusions that they lacked subject-matter jurisdiction,

preemption under SLUSA ts a question of subject-matter

jurisdiction.

" See 25 US.C § 487(d) (the United States shall have the right to

appeal from any order of remand” in a suit involving foreclosure or sale

of “tribal land”)

~ Pub L. No 109-2. § Stay 119 Stat. 1. 12 (to be codified at 2S

USC § 14530001)

“ CAFA does not apply to “any class action that solely involves . a

clam ... concerning a covered security as defined under section

16043) of the Securmies Act of 1935 015 USC. 78ptf)0S)) and section

PR MSME) of the Securities Exchange Act of 195314 015 USC

Tabbif Monkey” Jd. & Maye). 119 Stat. 11 (to be codified at 28 USC.

§ 1552(dnM MAD). accord id. § Siar, 119 Stat 13 (to be codified at ZS

USC § 1453¢d)).

1. Petitioners alleged in their complaints only state-

law causes of action challenging respondents’ failure to

take measures to prevent market-timing activities, which

~ because petitioners continued to hold rather than sell

their mutual-fund shares — reduced the value of their

holdings. See Pet. App. 10a (“plaintiffs filed suit in state

court. invoking state law alone’). Ordinarily. a defense of

federal preemption of state-law claims does not create

original federal-question jurisdiction and thus does not

provide a ground for removal. See Caterpillar Inc. v.

Williams, 482 U.S. 386, 399 (1987). Under the well-

pleaded complaint rule, federal preemption is an affirma-

tive defense that must be assessed by the state court in

which the action was filed. “[S]ince 1887 it has been set-

tled law that a case may not be removed to federal court

on the basis of a federal defense, including the defense of

pre-emption.” Franchise Tax Bd. v. Construction Laborers

Vacation Trust for Southern California, 463 U.S. 1, 14

(1983): see Pet. App. lla.”

Section 77p(c) provides an exception to the well-pleaded

complaint rule because it authorizes removal based on a

defense of federal preemption. Section 77p(c) permits re-

moval of “|aJny covered class action brought in any State

court involving a covered security, as set forth in subsec-

tion (b) of this section.” By its terms. § 77p(c) does not

permit removal of all covered class actions. Rather, it

“ See also. ea. Gully ve First Natl Bank. 299 US 109, 112 1956)

{A} mght or ummunity created by the Constitution or laws of the

United States must be an element. and an essential one. of the plain-

tiffs cause of action”), Tavlor « Anderson, 234 US 71. 75-76 (19119)

(|W)hether a case ts one arising under the Constitution or a law or

treaty of the United States. in the sense of the yurisdictional statute,

must be determined from what necessarily appears in the plamtilfs

statement of his own claim in the bill or declaration, unaided by any-

thing alleged in anticipation of avoidance of defenses which uo ts

thought the defendant may interpose.”) (citation omitted), Louisville &

Nashulle RR. cv. Mottley, 211 US 149, 152 (1908) (Although such

allegations show that very likely. in the course of the litigation, a ques-

tion under the Constitution would arise, they do not show that the suit,

that is. the plaintiff's ormginal cause of action, arises under the Consti-

tution ~)

provides for removal of a covered class action if and only if

it meets the preemption criteria “as set forth in subsection

(b).” 15 U.S.C. § 77p(c). By cross-referencing SLUSA’s

preemption provision in subsection (b), the plain language

of SLUSA’s removal provision (§ 77p(c)) clearly mandates

that a class action cannot be removed unless that action

satisfies SLUSA’s preemption provision. Thus, under

§ 77p(c)'s plain terms, the district court must determine

whether the removed state-law claims are in fact pre-

empted by subsection (b) as a prerequisite to determining

whether the case is removable. “{W]here, as here, the

statute's language is plain, the sole function of the courts

is to enforce it according to its terms.” United States v.

Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989) (internal

quotation marks omitted).

SLUSA’s legislative history confirms that Congress de-

liberately crafted SLUSA’s removal provision to confer

subject-matter jurisdiction only over state actions pre-

empted by SLUSA’s preemption provision. Both the

House and Senate reports state that § 77p(c) “provides

that any class action described in subsection (b) that is

brought in a State court shall be removable to Federal dis-

trict court, and may be dismissed pursuant to the provi-

sions of subsection (b).” H.R. Rep. No. 105-640, at 16

(emphasis added); 8S. Rep. No. 105-182, at 8 (1998) (same).

The chairman of the SEC and one of its commissioners

likewise explained in prepared testimony on the bill that

SLUSA’s removal provision “is coextensive with the pre-

emption provision.”*”

Thus, as the Second Circuit has explained, “SLUSA

only converts into federal claims those state claims that

fall within its clear preemptive scope, thereby confining

federal question jurisdiction under this statutory regime

to a subset of securities fraud cases.” Sprelman v. Merrill

" Prepared Testimony of The Honorable Arthur Levitt. Jr. SEC

Chairman, and The Honorable Isaac C Hunt, SEC Commissioner,

Betore the Subcomm on Securities of the Senate Comm. on Banking.

Housing. and Urban Aftairs (Oct. 29, 1997). available at http://banking

senate. gov/47 10hrg/102997/witness/sec htm

Lynch, Pierce, Fenner & Smith, Inc., 332 F.3d 116, 124 (2d

Cir. 2003). If, as in this case, a district court “determines

that the action is not a ‘preempted class action’ and,

therefore, removal was improper, the district court lacks

subject matter jurisdiction to further entertain the ac-

tion.” Id. at 125.

Respondents, through sets of counsel including counsel

of record in this Court, undertook precisely the same

analysis in their notices of removal. In Aircher. for

example, respondents argued that petitioners claims were

“preempted” and, “[flor th{is] reason|[], removal under

SLUSA |wal]s proper.”'' They also followed that analysis

in Opposing petitioners motions to remand. In Potter. for

example, respondents expressly opposed remand on the

ground that the claims were removable because they were

preempted, arguing that “SLUSA’s preemptive provisions

authorize removal.” Opposition of Defendants Janus In-

vestment Fund and Janus Capital Management, LLC to

Motion to Remand at 5 (emphasis added) (Potter, Dist. Ct.

Docket Entry 43). Plainly. when they were not attempt-

" JA 355-54 (Aircher). accord JA 360-61 (Potter) (arguing that re-

moval was proper under SLUSA because petitioners’ clams were “‘in

connection with the purchase or sale of a covered security”), O85

(Dudley 1) CPlamtutts clams tall squarely wiuhin the four corners of

SLUSA and. therefore. are preempted For these reasons, remoy al

under SLUSA ts proper “), 402 (Dudley 11) (same). see also JA S71

(Vougeler) (stating that petitioners claims are “in connection with the

purchase or sale of securities, and therefore are removable .. under

ISLUSAP). 110 Glackson) (stating that removal was proper under

SLUSA because plaintiffs alleged “misrepresentations or omissions”

and that “[respondents] used a manipulative or deceptive device or

contrivance in connection with the purchase or sale of covered securt-

ties), 425-51 (Spurgeon) (arguing that removal was proper because

SLUSA completely preempted petitioners’ claums).

" See alse. eg. Artisan Defendants’ Memorandum in Opposition to

Plamtifts’ Motion to Remand at 16 (Under SLUSA, of an action [meets

all four of the preemption criterial . the case is removable to ted-

eral court and subject to dismissal”) (Parthasarathy, Dist Ct Docket

Entry 50). Response to Phantiff’s Jurisdictional Memorandum at 1

(ISLUSA| preemption has the ‘force to provide removal jurisdiction “”)

tquoting Benefecral Nat'l Bank © Anderson, 539 US 1. 10 ¢2005))

(Spurgeon, Dist Ct Docket Entry 26). Defendants’ Memorandum ot

ing to read SLUSA in such a way as to permit review-

ability of remand orders, respondents understood that

removal jurisdiction depends on the satisfaction of

SLUSA’s preemption provision.**

2. That analysis of SLUSA is consistent with the

Court's approach in the analogous context of complete

preemption. The complete preemption doctrine, which

this Court has crafted as a narrow exception to the well-

pleaded complaint rule, holds that. “[w]hen the federal

statute completely pre-empts the state-law cause of ac-

tion, 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 Natl Bank. 539 U.S. at 8: see also Franchise

Tax Bd., 463 U.S. at 24 (“|I]f a federal cause of action com-

pletely preempts a state cause of action any complaint

that comes within the scope of the federal cause of action

necessarily ‘arises under’ federal law.”).

Law in Opposition to Plaintiffs’ Motion to Remand at 2 (SLUSA

authorizes removal of any ‘covered class action’ based on ‘the statutory

or common law of any State. alleging misrepresentation or manipula-

tion in connection with the purchase or sale of ‘covered securities 15

USC §§ 77ple) and TSbbit 2).") (Arreher, Dist. Ct Docket Entry 10)

Even of a remand based on the determination that a clam is not

preempted by SLUSA did not in tact concern subject-matter jurisdic.

tion, it would nevertheless be unreviewable because it would be based

on “any defect other than lack of subject matter jurisdiction” 2S

USC. § 1447) As the Eleventh Crreurt has explamed, a “detect” m

removal exists when any of the “legal requisites” for removal set forth

in the appheable removal statute are not satisfied Snapper. Inc

Redan, V7) BF Sd 1249, 1253 1th Cur 1999) Unternal quotation marks

omitted) By cross-referencing SLUSA’s preemption provision, § T7ptc)

makes preemption one of the legal requisites for removal. The removal!

of clams that do not satisfy this requirement is plamly defective from

the outset See Willams « AFC Enters., Inc. 389 Ftd 1185, 1190

(‘ith Cir 2004) (stating that. even of a remand order under SLUSA

“was not based upon a lack of subject matter jurisdiction. we would

readily conclude that this removal order is one based upon a ‘defect’

within the meaning of 1447(¢) and therefore one we cannot review”)

Under the complete preemption doctrine, federal-

question jurisdiction exists if and only if federal law com-

pletely displaces the state-law claims. In that context,

therefore, the preemption decision is a question of subject-

matter jurisdiction. It logically follows that a district

courts order remanding a case because the claims are not

subject to the complete preemption doctrine is also not

reviewable. as the courts of appeals (including the Sev-

enth Circuit) have uniformly held."

SLUSA functions in the same way: it provides federal

removal jurisdiction over state-law claims if and only if

those state claims are preempted. The court of appeals

simply got it backwards in determining that the district

court had removal jurisdiction over any and all “covered

class actions” and that the preemption question had noth-

" See. e.g.. Gonzalez-Garca v. Williamson Dickie Mfg. Co.. 99 F 3d

490. 191-92 (1st Cir, 1996), Sprelman, 332 F 3d at 124 (2d Cur); O'Neil

t. Brannigan, 54 Fed Appx 69, 72 (4d Cur 2002), Nutter v Mononga-

hela Power Co. 4 F 3d 319. 321 (4th Cir 1993) (Because complete pre-

emption was the basis for the district court’s purisdiction, the court's

findings regarding preemption and jurisdiction are indistinguishable

The preemption findings were merely subsidiary legal steps on the ways

to its determination that the case was not properly removed.”) (internal

quotation marks and alteration omitted): Smith v. Texas Childrens

Hosp . 172 F 3d 925. 926 Oth Cr, 1999 C]T]he destrict court’. conclu-

sion regarding the lack of complete preemption ts insulated from appel-

late review by § 14470d)"). Anushigian «) Trugreen /Chemiawn. Ine., 72

Pusd 1253, 1256-57 (6th Cur 1996) C [Where a district court reyects a

detendant s claim ot complete federal preemption as a basis for remov-

ing a cause to federal court. the court of appeals does mot have jurisdic-

tion te hear the appeal from a remand order “); Rogers « Tyson Foods.

Inc., SOS F 3d 785, THO Gth Cir 2002) (We accordingly conclude that

removal of this action to federal court was improper. and we must

reverse and remand this case to the district court with direction~ to

remand the action te state court for lack of federal subject) matter

gurisdiction “), Transit Cas Co. cv. Certain Underwriters at Llovd = of

London, 119 F Sd 619, 621 Oth Cir 1997) CA remand based on lack

of ‘complete preemption . is a remand required by 28 USC

§ 1447600 Gnternal quotation marks omitted): Lvons ¢. Alaska Team

asters Emplover Serv. Corp.. 188 F 3d 1170. 1175 oth Car, 1999) [The

remand, while tt considers the merits of the preemption defense. is not

apart trom the yurtsdictional determination”): Glasser v Amalgamated

Workers Union Local 88. 806 F 2d 1539. 1540 (Lith Cir 1986)

ing to do with jurisdiction. As with this Court's complete

preemption doctrine, federal jurisdiction under SLUSA

attaches only to those covered class actions that SLUSA

preempts. Thus. whether SLUSA preempts a removed

claim is a threshold question of subject-matter jurisdiction

that a district court must answer before it turns to the

merits of the claim.

B. The Court Of Appeals’ Interpretation Is Un-

supported By The Statutory Text And This

Court’s Cases

1. The court of appeals concluded that SLUSA preemp-

tion is not a question of subject-matter jurisdiction for the

district court but rather is “the substantive decision that

Congress authorized it to make” after it assumed jurisdic-

tion over the removed case. Pet. App. 14a. The court ex-

plained that a district court lacks subject-matter jurisdic-

tion “only when Congress has not authorized the federal

judiciary to resolve the sort of issue presented by the

case.” Jd. at 13a (citing Scarborough v. Principi, 541 U.S.

401, 413-14 (2004), and Kontrick v. Rvan, 540 U.S. 443.

454-55 (2004)). According to the court, it was required to

“distinguish between a decision that ‘this court lacks ad-

judicatory competence’ and a decision that ‘the court has

been authorized to do X and having done so should bow

out.” /d. at 14a. In the court’s view, treating the SLUSA

preemption question as one of subject-matter jurisdiction

would mean that “every federal suit, having been decided

on the merits, would be dismissed ‘for lack of jurisdiction’

because the court's job was finished.” /d. The court of

appeals reasoning is deeply flawed.

First. the fact that courts are “authorize|d]” to resolve

the SLUSA preemption issue stems from the “familiar law

that a federal court always has jurisdiction to determine

its own jurisdiction.” United States v. Ruiz, 536 U.S. 622.

628 (2002). Section 77p(c) provides federal jursdiction

only over cases that are in fact preempted by § 77p(b).

Thus, under SLUSA, a district court must resolve the

“merits of the preemption question to determine whether

it has subject-matter jurisdiction over the claim.

Nothing in Kontrick or Scarborough suggests that the

district courts’ authority to resolve the preemption issue

in ruling on motions to remand under SLUSA somehow

meant that the courts’ remand orders were not based on a

lack of jurisdiction. On the contrary, Scarborough ex-

plains that the “label” subject-matter jurisdiction refers to

statutory prescriptions “‘delineating the classes of cases

... falling within a court's adjudicatory authority.” 541

U.S. at 413-14 (quoting Kontrick, 540 U.S. at 454-55). By

conditioning removability on the satisfaction of the pre-

emption criteria “as set forth in subsection (b),” § 77p(c)

provides federal “adjudicatory authority” only for that

class of cases satisfying the requirements for preemption

under SLUSA.

If Congress had intended to authorize the removal! of all

“covered class actions,” it would simply have enacted a

statute providing that “any covered class action brought

in any State court involving a covered security shall be

removable.” But that is not what Congress did. Instead,

Congress expressly limited removal jurisdiction to only

covered class actions that also meet the preemption re-

quirements “set forth in subsection (b).” Although the

court of appeals acknowledged that “|djefendants removed

this suit under § 77pic).” Pet. App. lla, it never analyzed

the text of § 77p(c). Instead. the court asserted without

anv textual basis that SLUSA creates federal jurisdiction

over any covered class action in which a defendant

chooses to file a notice of removal, and that a district

courts preemption ruling is not one of jurisdiction. Jd. at

L3a-l4da (Because ... this is a ‘covered class action|,] .. .

a federal judge is... authorized . . . to decide whether any

court may entertain the litigation.”). Congress, however.

chose to permit removal on/y for those covered class

actions that also meet the preemption requirements “set

forth in subsection (b).” Accordingly, removal is appropri-

ate only in those covered class actions that fall within

SLUSA’s preemption provision, and the lower court's judi-

cial revision of the statute should be rejected.”

Second, the court of appeals’ decision is internally in-

consistent. The court conceded that “|a] conclusion that a

suit is not a ‘covered class action’ (say, because just 40 in-

vestors stand to recover damages) would imply that re-

moval! had been improper, and such a decision would come

within § 1447(d).” /d. at 14a. Under SLUSA’s removal

provision, however, determining whether the suit sought

to be removed is a “covered class action” is but one of

three express conditions for removal laid out in § 77p(c).

For a suit to be removable under § 77p(c), not only must it

be a “covered class action,” but it must also involve “a cov-

ered securitv’ and meet the criteria for preemption “as set

forth in subsection (b).”. 15 U.S.C. § 77ple). It is illogical

to conclude that the failure to meet one of those prerequi-

sites results in a lack of subject-matter jurisdiction, but

failing to meet the other two conditions does not. Thus,

the court's acknowledgment that jurisdiction would be

lacking if the covered class action requirement in § 77p(c)

In opposing certiorari, respondents relied on the federal officer

remaval statute authorizing removal of a state-court civil action

against a federal officer “for anv act under color of such offiee” 28

USC §1442(a)1). see Brief in Opposition at 16-17 (hiled Nov. 2%,

ZOOS) (crtung. inter alia. Jefferson County vc Acker, 527 US 125

(1900)) That statute upholds mmportant federal sovereignty interests

not present in SLUSA. The Court has interpreted it not to require the

removing otheer to prove a “clearly sustamable defense” but only a

“colorable defense ~ Acker, 527 US at 452 Onternal quotation marks

omitted) SLUSA, on the other hand, expressly bases removability on

whether there is preemption in fact — not merely on whether that de-

fense is colorable The Court's interpretation of the federal officer re-

moval statute also rehed on what it viewed as the statutory purpose “to

have the validity of the defense of offical pmmunity tried in a federal

court” /d at 431 Gnternal quotation marks omitted). Similar con-

cerns are not present here In every case removed under SLUSA,

a federal court determines the “validity” of the argument that the

chums are preempted. that determination dictates whether the case

Was properly removed and subject to dismissal or improperly removed

and subject to remand. In any event. Acker in no wav purports to alter

the rule that an order remanding tor lack of subject-matter yurtsdiction

is unreviewable

were not met demonstrates that jurisdiction likewise

would be lacking if the cl«:m did not involve a fraudulent

misstatement, was in connection with the purchase or

sale of a covered security, or met any other criteria for

preemption.”

Third, in determining that appellate jurisdiction was

proper, the court of appeals erroneously placed substan-

tial reliance on § 77p(d)(4), which provides that, if a dis-

trict court determines that an action removed from state

court “may be maintained in State court pursuant to...

subsection [(d)|,” it must remand the action to state court.

15 U.S.C. § 77p(d)(4). The court perceived that this pro-

vision is the basis for a remand if a district court deter-

mines that “§$ 77p(b) does not thwart plaintiffs’ claims.”

and that such remands are “not within § 1447(c).... fora

remand under § 77p(d)(4) comes at the end rather than

the outset of federal adjudication.” Pet. App. 12a, 13a.

The court erred in concluding that § 77p(d)(4) applies

here at all. Although that provision does specifically re-

quire a remand, it does so only for certain state actions

enumerated in “subsection [(d)|" in particular, state

claims involving tender offers. dissenters’ rights, and suits

brought by States or their pension plans that otherwise

would mect the preemption criteria vet nevertheless are

preserved from preemption by subsection (d) of § 77p. See

15 USC. § T7ptdy(1)-(3): see also supra note 2 (discussing

§$ 77pid)). But this case does not involve any of the

specific carve-outs in § 77p(d). so the remand provision of

§ 77pld)i4) does not apply. That is the only sensible read-

ing of “subsection” in § 7T7ptdy4). See Koons Buick

Pontiac GMC, Inc. v. Nigh, 543 US. 50. 61 (2004) (observ-

ing that, under the ordinary “hierarchical scheme” of sub-

" To the extent the court might have meant that the covered class

action holding would be unresiewable. not because it was jurisdictional

but rather because it qualified as “any detect other than lack of subject

matter purtsdiction” § Liivte). that logic would likewise extend to the

tull preemption analysts required under § 77 pay See supra note 1

Section 77 pid) as set out m tallat App. mfra, 2a-sa. l7a-DSa

dividing statutes, “subsections” “start{ | with (a)"). A dis-

trict court's finding that a case is subject to preemption

under § 77p(b), therefore, is subject to the normal remand

rules of § 1447.

2. Given the court of appeals’ linkage of the preemp-

tion “merits” discussion to its removal analysis, we briefly

address here why the court also erred in viewing petition-

ers’ claims as preempted by SLUSA. First, the court

erred by focusing exclusively on whether petitioners’

claims were “in connection with the purchase or sale” of

securities. Second, even if petitioners’ claims were “in

connection with the purchase or sale” of securities after

disposition of Merrill Lynch v. Dabit, No. 04-1371, their

claims do not entail allegations of an “untrue statement

or omission of a material fact.” 15 U.S.C. § 77p(b)(1).

Instead, their claims assert that respondents acted negli-

gently and recklessly by failing to follow practices that

would protect petitioners assets from the dilution in value

caused by market timing.”

a. The court of appeals erroneously concluded that

SLUSA’s preemption provision applies in this case be-

‘ause petitioners’ holder claims asserted here do not raise

allegations “in connection with the purchase or sale” of

securities within the meaning of § 77p(b). Respondent in

Merrill Lynch v. Dabit, No. 04-1371, 1s correct in arguing

that SLUSA does not preempt claims brought by private

plaintiffs who neither bought nor sold any security in

connection with a defendant's misconduct. The operative

language in SLUSA’s preemption provision - “in connec-

tion with the purchase or sale” — replicates the identical

phrase in § 10(b) and Rule 10b-5, both of which proscribe

fraudulent conduct “in connection with the purchase or

sale of any security.” In Blue Chip Stamps, this Court

held, based on an interpretation of that phrase, that a pri-

™ See JA TR1-S82. TS3. 186. 187-88 (98 56. GO. 69, 73) (Potter), 205.

206-07 (8 56. 60) (Kircher), 230, 251-32 (4° 60. 64) (Parthasarathy),

255-56, LAT-AR (8 AGL AAD (Dudlevw 1). 273-74, 275-76 (89 WD AD

(Dudley IL), 290-91, 292-93 (8 19. 51) (Vogeler). 307, 308-09 (88 49,

+) (Jackson), 324, 326-27 (88 56-57, 62) (Spurgeon).

vate party does not allege misconduct “in connection with

the purchase or sale of any security” within the meaning

of § 10(b) and Rule 10b-5 unless that misconduct was in

connection with the plaintiff's own purchase or sale of a

security. See 421 U.S. at 730-31, 749. “When .. . judicial

interpretations have settled the meaning of an existing

statutory provision, repetition of the same language in a

new statute indicates, as a general matter. the intent to

incorporate its ... judicial interpretations as well.” Brag-

don v. Abbott, 524 U.S. 624, 645 (1998): see Lorillard v.

Pons, 434 U.S. 575, 581 (1978). The phrase “in connection

with the purchase or sale” in SLUSA’s preemption provi-

sion therefore must have the same meaning as the iden-

tical language in § 10(b) and Rule 10b-5. Accordingly.

SLUSA’s preemption provision does not apply to claims

brought bv holders of securities, as opposed to purchasers

or sellers. See generally Resp. Br. at 21-38,-No. 04-1371.

Under that correct reading of § 77p(b), petitioners’

claims are not preempted by SLUSA. Petitioners do not

seek to recover for injuries they sustained in connection

with their own purchase or sale of a security. Instead,

they seck compensation for the dilution of the value of the

mutual-fund shares that they held while others engaged

in market timing."” Indeed. holders are the only indh-

viduals injured by market timing: those who purchase

and sell their fund shares benefit in the distorted valua-

tion from which market timers benefit at the expense of

holders. The dilution in an investor-holder’s investment

constitutes an injury uniquely suffered only by holders.

Holders should not be denied the opportunity to bring

state-law negligence or breach of fiduciary duty claims

under a misapprehension that they are § 10(b) fraud

claims in disguise. They are not such claims. Holder

claims based on market timing cannot be brought as

§ 10(b) claims under the rule of Blue Chip Stamps because

" See JA LS0-84 (88 49-61) (Potter), 204-07 (4% 51-61) (Kircher), 228-

3 (8° 55-65) (Parthasarathy), 254-59 (©© 14-55) (Dudley 1), 275-76

(8 44-55) (Dudley 11), 289-95 (8 44-55) (Vogelernd. 306-10 (8 14-5

(Jackson), 322-25 (89 49-58) (Spurgeon)

they do not involve the holder’s own purchase or sale of a

security. Rather, such claims to recover for harm caused

by purchasers and sellers at the expense of holders can be

brought only under state law.”

b. Even if the Court were to decide in Merrill Lynch v.

Dabit, No. 04-1371, that SLUSA preempts class actions

brought under state law alleging fraud in connection with

the purchase or sale of securities by someone other than

the plaintiff, petitioners’ claims still are not preempted by

SLUSA. For SLUSA’s preemption provision to apply, a

plaintiff must “alleg|e] an untrue statement or omission of

a material fact” or “that the defendant used or employed

any manipulative or deceptive device or contrivance.” 15

U.S.C. § 77p(c). By its terms, that provision does not en-

compass claims that do not depend on allegations of fraud

or manipulation.”!

“ Contrary to the Seventh Circuit's erroneous view (Pet App 6a).

such claims cannot be brought as derivative clams By definition. de-

rivative claims assert harm to the corporation in ways that adversely

atfect al/ shareholders. See 19 Am. Jur 2d Corporations § 1947. at 134

(2004) (“An action brought by a= stockholder 1s derivative if the

yravamen of the complaint is an injury to the corporation or to the

whole body of tts stock or property’) (emphasis added); Daily Income

Fund, Inc v. Fox, 464 US 528, 528 (1984) (a derivative suit is one

founded on a right of action existing in the corporation itself, and in

which the corporation itself is the appropriate plaintiff”) (internal quo-

tatrton marks omitted). But market timing does not affect all share-

holders the same way. Those who sell at the same time as market tim-

ers (through fortuity or design) cause a similar harm to remaming

holders of shares and reap a similar benefit for themselves That ts

why the market-tuming claims asserted by petitioners select a discrete

time period and allege claims only for those share holdings investors

maintained during that period

°' SLUSA's preemption provision therefore does not encompass class

actions under state law to recover tor harm caused by negligence:

breach of contract, see Falkowski v Imation Corp . 309 F 3d 1123. 1151

(2002), amended on other grounds, 320 F.3d 905 (9th Cir 2008),

Norman ct Salomon Smith Barney Ince. 350 F Supp 2d SS2Z. 585-88

(S.D.N.Y. 2004); Xpedwor Creditor Trust v Credit Suisse First Boston

(USA) Ine. SAL FL Supp 2d 258. 269-70 (S.D N-Y. 2004): or breach of

fiduciary duties or the umplhed covenants of good faith and tar dealing,

see Norman, 350 F Supp. 2d at 385-88. Npedior Creditor Trust, 341 F.

That conclusion is consistent with this Court's decision

in Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977).

In that case, the Court rejected a claim that a majority

shareholder had violated § 10(b) and Rule 10b-5 — which

together make it unlawful to use “fraud” or a “manipulat-

ive or deceptive device or contrivance” in connection with

the purchase or sale of a security — by undervaluing

shares in buying out minority shareholders during a

short-form merger. /d. at 470. The Court explained that

the complaint had not alleged a misrepresentation of fact,

and it concluded that “the transaction, if carried out as

alleged in the complaint, was neither deceptive nor ma-

nipulative and therefore did not violate either § 10(b) of

the Act or Rule 10b-5.” /d. at 474. Accordingly, the Court

concluded. the shareholders’ action was simplv a state-law

claim for breach of fiduciary duty. Jd. at 479. Because

SLUSA’s preemption provision tracks the language of

§ 10(b) and Rule 10b-5, Santa Fe’s holding that negligence

claims fall outside the ambit of federal securities laws

means that such claims also fall outside the preemptive

scope of § 77p(b).

Petitioners complaints allege that respondents acted

negligently or recklessly by failing to evaluate whether

they were vulnerable to market timing because of changes

in the value of shares in respondents’ portfolio after the

close of the native market but before the calculation of the

NAV and by failing to adhere to their published policies

designed to discourage or eliminate market timing.” No-

where in the complaints do petitioners allege that they

suffered harm because of fraudulent statements made by

respondents. Instead. the gravamen of petitioners’ com-

plaints is that respondents inadequately protected the

funds from market timing. To prevail on those claims,

Supp 2d at 269-70; cf Pet App. 6a tenting Santa Fe lndus., Inc. v.

Green, ASO US 462 1977)

* See JA 180-8419 19-61) (Potter), 204-07 (© 51-61) Atrcher), 22-

33 (8 53-65) (Parthasarathy), 254-59 (©© 44-55) (Dudley 1), 275-76

(Jackson), 322-25 (49 19-58) (Spurgeon)

petitioners need not prove that respondents made a mis-

representation or omission, or engaged in manipulation.

They must show only that respondents were aware, or

should have been aware, of the risks posed by market tim-

ing, but did not take any action to prevent it.”

Despite the foregoing, the court of appeals concluded

that petitioners’ claims were preempted, stating that

“|pjlaintiffs do not contend that... their suits allege mis-

management rather than deceit or manipulation.” Pet.

App. 6a. That statement is belied by the face of the com-

plaints themselves, all of which clearly allege only claims

of negligence and recklessness for respondents’ failure to

adopt practices that would protect petitioners’ assets from

the dilution in value caused by market-timing negligence

or breach of fiduciary duty.°* Moreover, because SLUSA

preemption raises a question of federal subject-matter ju-

risdiction, see supra pp. 31-34, the court erred in thinking

that this argument was subject to waiver. It is not. As

this Court has held numerous times, subject-matter juris-

diction “can never be forfeited or waived,” because it “in-

volves a [federal] court's power to hear a case.” United

States v. Cotton, 535 U.S. 625, 630 (2002): see Steel Co. v.

Citizens for a Better Environment, 523 U.S. 83, 95 (1998)

(“Every federal appellate court has a special obligation to

“To state a neghgence clam, a plainuff must allege “a duty the de-

fendant owes to the plaintiff. a breach of that duty by the defendant, a

causal connection between the breach and the plaintiff's mjyury. and

actual injurv.” 574A Am Jur. 2d Negligence § 71, at 141 (2004) To

state a claim for recklessness, a plaintiff must allege that he was

harmed by an act that the defendant “intentionally performied|” and

that was “so unreasonable and dangerous” that the detendant should

have known tt was “highly probable that harm [would] result.” /d

§ 276, at 340) An “untrue statement or omission of a material fact” or a

“manipulative or deceptive device or contrivance” is neither an element

of those state-law claims nor a fact asserted to support petitioners’

clams.

“ See JA 181-82, 183, 186, 187-88 (8 56, GO, 69, 75) (Potter), 205,

206-07 (8 56, 60) (Kircher), 230, 231-32 (89 60, 64) (Parthasarathy).

255-56, 2AT-5R (99 419, 54) (Dudley 1), 273-74, 275-76 (84% AD, 5A)

(Dudley 11), 290-91, 292-93 (© 49, 54) (Vogeler), 307, 308-09 (9© 19,

53) (Jackson), 321, 326-27 (8 © 56-57. 62) (Spurgeon).

satisfy itself not only of its own jurisdiction, but also that

of the lower courts in a cause under review, even though

the parties are prepared to concede it.”) (internal quota-

tion marks and brackets omitted).

Accordingly, because petitioners’ claims fall outside the

ambit of SLUSA preemption in § 77p(b), the district

courts lacked subject-matter jurisdiction over the claims

and remand to state court was therefore appropriate. And

because the district courts in all of these consolidated

cases correctly reached that judgment, the Seventh Cir-

cuit erred in thinking that it had appellate jurisdiction to

review those remand orders.

Ill. PERMITTING REVIEW OF SLUSA REMAND

ORDERS WOUD CONTRAVENE CONGRESS'S

POLICY JUDGMENT IN § 1447(d)

The prohibition on the review of remand orders derives

from Congress's long-held “policy of not permitting inter-

ruption 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; see Thermtron, 423 U.S. at 351 (“There is no

doubt that in order to prevent delay in the trial of re-

manded cases by protracted litigation of jurisdictional 1s-

sues, Congress immunized from all forms of appellate re-

view any remand order issued on the grounds specified in

§ 1447(c)"). Sueh interruptions unfairly increase the de-

lay that a plaintiff must endure when a claim that he has

filed in state court has been removed to federal court.

As then-Justice Rehnquist explained in his dissent in

Thermtron:

Congress’ purpose in barring review of all remand

orders has always been very clear — to prevent

the additional delay which a removing party may

achieve by seeking appellate reconsideration of

an order of remand. The removal jurisdiction

extended by Congress works a significant inter-

ference in the conduct of litigation commenced in

state court. While Congress felt that making

available a federal forum in appropriate instances

justifies some such interruption and delay, it obvi-

ously thought it equally important that when re-

moval to a federal court 1s not warranted the case

should be returned to the state court as expedi-

tiously as possible. If this balanced concern is dis-

regarded. federal removal provisions may become a

device affording litigants a means of substantially

delaying justice.

423 U.S. at 354-55 (Rehnquist, J., dissenting). Upholding

the Seventh Circuit's erroneous decision will undermine

that “strong congressional policy against review of re-

mand orders.” Things Remembered, 516 U.S. at 136

(Ginsburg & Stevens, JJ., concurring) (internal quotation

marks omitted), by unfairly delaying the resolution of

claims of litigants who properly brought their claims in

state court.

Although giving lip-service to Congress's long-standing

policy against burdening litigants with delay caused by

appellate review of orders remanding cases for lack of

subject-matter jurisdiction, the court of appeals concluded

that review of remand orders under SLUSA would result

in “little cost in delay bevond” the delay already caused by

the removal and that this delay was warranted because

SLUSA requires “that one specific substantive decision in

securities litigation must be made by the federal rather

than the state judiciary.” Pet. App. 15a. That analysis 1s

wrong on three counts.

First, the federal judiciary did resolve the preemption

issue in this case. Each of the district courts in this case

determined that petitioners’ claims were not preempted

by SLUSA. The fact that SLUSA authorizes federal dis-

trict courts to determine whether a claim is preempted by

SLUSA and therefore removable does not mean that that

determination must be reviewable on appeal. It has long

been recognized that Congress has the power to preclude

review of any order in the court of appeals. See Sheldon v.

Sill, 49 U.S. (8 How.) 441. 449 (1850) (“Courts created by

statute can have no jurisdiction but such as the statute

confers.”). Congress exercised that power when it enacted

§ 1447(d)'s prohibition on appellate review of orders re-

manding for lack of subject-matter jurisdiction.

Second, contrary to the court of appeals’ apparent view,

Congress did not vest the federal judiciary with exclusive

power to interpret and apply SLUSA’s preemption provi-

sion. While SLUSA permits removal of preempted claims,

it does not require removal. “It is black letter law... that

the mere grant of jurisdiction to a federal court does not

operate to oust a state court from concurrent jurisdiction.”

Gulf Offshore Co. v. Mobil Oil Corp:, 453 U.S. 473, 479

(1981); see also Chick Kam Choo v. Exxon Corp., 486 U.S.

140, 149-50 (1988) (“[W]hen a state proceeding presents a

federal . . . pre-emption issue, the proper course is to seek

resolution of that issue by the state court.”). Congress's

decision not to confer exclusive jurisdiction on federal

courts over securities class actions reflects Congress's

judgment that state courts are competent to resolve

whether SLUSA preempts a particular claim.

Third, by concluding that permitting appeals of remand

orders under SLUSA would result in excusable delays,

the court of appeals impermissibly ignored the policy con-

cerns advanced in the removal scheme crafted by Con-

gress in SLUSA and § 1447. By authorizing removal of

certain claims under SLUSA, Congress determined that

the need for the availability of a federal forum to resolve

whether a securities class action under state law must be

dismissed as preempted justified imposing on plaintiffs

the costs and delays associated with removal. But the ab-

sence from SLUSA of a provision authorizing appellate

review of remand orders reflects Congress's decision not to

saddle plaintiffs who already have suffered delay through

removal with the additional delav and costs associated

with appeal. Instead, “Congress decided to place final

responsibility for implementation of its removal scheme

with the district courts.” Thermtron, 423 U.S. at 361

(Rehnquist, J.. dissenting). By disregarding the limits on

its jurisdiction prescribed by Congress in § 1447(d), the

court of appeals impermissibly substituted its own judg-

ment for that of Congress.

CONCLUSION

The judgment of the court of appeals should be reversed.

Respectfully submitted,

ROBERT L. KING DAVID C. FREDERICK

701 Market Street Counsel of Record

Suite 350 Scot? K. ATTAWAY

St. Louis, Missouri 63101 F. ANDREW HESSICK III

(314) 241-4844. KELLOGG. HUBER, HANSEN,

TODD, EVANS & FIGEL,

KLINT L. BRUNO P.L.L.C.

1732 North Wolcott 1615 M Street, N.W.

Suite #2 Suite 400

Chicago, Illinois 60622 Washington, D.C. 20036

(312) 286-4915 (202) 326-7900

February 21, 2006

APPENDIX

TABLE OF CONTENTS

Page

Statutory and Regulatory Provisions Involved:

8 SR ree ero ee WEP Ee OEE. a la

es Me ech iccscniiobicintiniinciniahcerlinbitstiniisibiatidedainiianagii 6a

Securities Litigation Uniform Standards Act

of 1998, Pub. L. No. 105-353, 112 Stat. 3227

I catatinnscctnictgtanctigneinmrivditeltniaieiincintmmneiics 15a

icin nscridipinticittah tine ntnindninntnenitineadeioastios l5a

§ 101(a)(1) (adding 15 U.S.C. § 77p)..................... l6a

§ 101(b)(1)(B) (adding 15 U.S.C. § 78bb(f)).......... 21a

a a Wee ctsichinccuiinliciadgetteriinslintadinasiiasiiecipieapiitieniainbimbisiiiaaies 26a

te EID sbiieididcincnnsictindiinniaisidninbacsapiildt ing tiiieel 28a

Fr ie: UIE estdacenaiicidiidh dice cntintiitiniiemetnndigidimvensiiaseee

POE BOING sini sc ciinintineniionaioanne

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

15 U.S.C. § 77p provides:

§ 77p. Additional remedies; limitation on remedies

(a) Remedies additional

Except as provided in subsection (b) of this section, the

rights and remedies provided by this subchapter shall be

in addition to any and all other rights and remedies that

may exist at law or in equity.

(b) Class action limitations

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 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 emploved any manipu-

lative or deceptive device or contrivance in connection

with the purchase or sale of a covered security.

Any covered class action brought in any State court in-

volving a covered security, as set forth in subsection (b) of

this section, shall be removable to the Federal district

court for the district in which the action is pending, and

shall be subject to subsection (b) of this section.

(d) Preservation of certain actions

(1) Actions under State law of State of incorpora-

tion

(A) Actions preserved

Notwithstanding subsection (b) or (c) of this sec-

tion, a covered class action described in subparagraph

(B) of this paragraph that is based upon the statutory

or common law of the State in which the issuer is in-

corporated (in the case of a corporation) or organized

(in the case of any other entity) may be maintained in

a State or Federal court by a private party.

(B) Permissible actions

A covered class action is described in this subpara-

graph if it involves —

(i) the purchase or sale of securities by the is-

suer or an affiliate of the issuer exclusively from or

to holders of equity securities of the issuer: or

(ii) any recommendation, position, or other

communication with respect to the sale of securi-

ties of the issuer that —

(1) 1s made by or on behalf of the issuer or an

affiliate of the issuer to holders of equity securi-

ties of the issuer: and

(11) concerns decisions of those equity holders

with respect to voting their securities, acting in

response to a tender or exchange offer, or exer-

cising dissenters or appraisal rights.

(2) State actions

(A) In general

Notwithstanding any other provision of this sec-

tion, nothing in this section may be construed to pre-

clude a State or political subdivision thereof or a

State pension plan from bringing an action involving

a covered security on its own behalf, or as a member

of a class comprised solely of other States, political

subdivisions, or State pension plans that are named

plaintiffs, and that have authorized participation, in

such action.

(B) “State pension plan” defined

For purposes of this paragraph, the term “State

pension plan” means a pension plan established and

maintained for its emplovees by the government of

the State or political subdivision thereof, or by any

agency or instrumentality thereof.

(3) Actions under contractual agreements be-

tween issuers and indenture trustees

Notwithstanding subsection (b) or (c\) of this section,

a covered class action that seeks to enforce a contrac-

tual agreement between an issuer and an indenture

trustee may be maintained in a State or Federal court

by a party to the agreement or a successor to such

party.

(4) Remand of removed actions

In an action that has been removed from a State

court pursuant to subsection (c) of this section, if the

Federal court determines that the action may be main-

tained in State court pursuant to this subsection, the

Federal court shall remand such action to such State

court.

(e) Preservation of State jurisdiction

The securities commission (or any agency or office per-

forming like functions) of any State shall retain jurisdic-

tion under the laws of such State to investigate and bring

enforcement actions.

(f) Definitions

For purposes of this section, the following definitions

shall apply:

(1) Affiliate of the issuer

The term “affiliate of the issuer” means a person that

directly or indirectly, through one or more intermediar-

ies, controls or is controlled by or is under common con-

trol with, the issuer.

(2) Covered class action

(A) In general

The term “covered class action” means —

(i) any single lawsuit in which —

(1) damages are sought on behalf of more

than 50 persons or prospective class members,

and questions of law or fact common to those

persons or members of the prospective class,

without reference to issues of individualized re-

lance on an alleged misstatement or omission,

predominate over any questions affecting only

individual persons or members: or

(Il) one or more named parties seek to re-

cover damages on a representative basis on be-

half of themselves and other unnamed parties

similarly situated, and questions of law or fact

common to those persons or members of the

prospective class predominate over any ques-

tions affecting only individual persons or mem-

bers; or

(ii) any group of lawsuits filed in or pending in

the same court and involving common questions of

law or fact, in which

(I) damages are sought on behalf of more

than 50 persons: and

(Il) the lawsuits are joined, consolidated, or

otherwise proceed as a single action for any

purpose.

(B) Exception for derivative actions

Notwithstanding subparagraph (A), the term “cov-

ered class action” does not include an exclusively de-

rivative action brought by one or more shareholders

on behalf of a corporation.

For purposes of this paragraph, a corporation, in-

vestment company, pension plan, partnership, or

other entity, shall be treated as one person or pro-

spective class member, but only if the entity is not es-

tablished for the purpose of participating in the ac-

tion.

(D) Rule of construction

Nothing in this paragraph shall be construed to af-

fect the discretion of a State court in determining |

whether actions filed in such court should be joined,

consolidated, or otherwise allowed to proceed as a

single action.

(3) Covered security

The term “covered security’ means a security that

satisfies the standards for a covered security specified

in paragraph (1) or (2) of section 77r(b) of this title at

the time during which it is alleged that the misrepre-

sentation, omission, or manipulative or deceptive con-

duct occurred, except that such term shall not include

any debt security that is exempt from registration un-

der this subchapter pursuant to rules issued by the

Commission under section 77d(2) of this title.

15 U.S.C. § 78bb provides:

§ 78bb. Effect on existing law

(a) Addition of rights and remedies; recovery of

actual damages; State securities commissions

Except as provided in subsection (f) of this section, the

rights and remedies provided by this chapter shall be in

addition to any and all other rights and remedies that

may exist at law or in equity: but no person permitted to

maintain a suit for damages under the provisions of this

chapter shall recover, through satisfaction of judgment in

one or more actions, a total amount in excess of his actual

damages on account of the act complained of. Except as

otherwise specifically provided in this chapter, nothing in

this chapter shall affect the jurisdiction of the securities

commission (or any agency or officer performing like func-

tions) of any State over any security or any person insofar

as it does not conflict with the provisions of this chapter

or the rules and regulations thereunder. No State law

which prohibits or regulates the making or promoting of

wagering or gaming contracts, or the operation of “bucket

shops” or other similar or related activities, shall invali-

date any put, call, straddle, option, privilege. or other se-

curity subject to this chapter, or apply to any activity

which is incidental or related to the offer, purchase, sale,

exercise, settlement, or closeout of any such security. No

provision of State law regarding the offer, sale, or distri-

bution of securities shall apply to any transaction in a se-

curity futures product, except that this sentence shall not

be construed as limiting any State antifraud law of gen-

eral applicability.

(b) Modification of disciplinary procedures

Nothing in this chapter shall be construed to modify ex-

isting law with regard to the binding effect (1) on any

member of or participant in any self-regulatory organiza-

tion of any action taken by the authorities of such organi-

zation to settle disputes between its members or partici-

pants, (2) on any municipal securities dealer or municipal

securities broker of any action taken pursuant to a proce-

dure established by the Municipal Securities Rulemaking

Board to settle disputes between municipal securities

dealers and municipal securities brokers, or (3) of any ac-

tion described in paragraph (1) or (2) on any person who

has agreed to be bound thereby.

The stay, setting aside, or modification pursuant to sec-

tion 7&s(e) of this title of any disciplinary sanction im-

posed by a self-regulatory organization on a member

thereof, person associated with a member, or participant

therein, shall not affect the validity or force of any action

taken as a result of such sanction by the self-regulatory

organization prior to such stay, setting aside, or modifica-

tion: Provided, That such action is not inconsistent with

the provisions of this chapter or the rules or regulations

thereunder. The rights of any person acting in good faith

which arise out of any such action shall not be affected in

any wav by such stay, setting aside, or modification.

(d) Physical location of facilities of registered clear-

ing agencies or registered transfer agents not to

subject changes in beneficial or record owner-

ship of securities to State or local taxes

No State or political subdivision thereof shall impose

anv tax on any change in beneficial or record ownership of

securities effected through the facilities of a registered

clearing agency or registered transfer agent or anv nomi-

nee thereof or custodian therefor or upon the delivery or

transfer of securities to or through or receipt from such

agency or agent or any nominee thereof or custodian

therefor, unless such change in beneficial or record own-

ership or such transfer or delivery or receipt would other-

wise be taxable by such State or political subdivision if

the facilities of such registered clearing agency. registered

transfer agent. or anv nominee thereof or custodian there-

for were not physically located in the taxing State or

political subdivision. No State or political subdivision

thereof shall impose any tax on securities which are de-

posited in or retained by a registered clearing agency, reg-

istered transfer agent. or any nominee thereof or custo-

dian therefor, unless such securities would otherwise be

taxable by such State or political subdivision if the facili-

ties of such registered clearing agency, registered transfer

agent, or anv nominee thereof or custodian therefor were

not physically located in the taxing State or political sub-

division.

(e) Exchange, broker, and dealer commissions;

brokerage and research services

(1) No person using the mails, or anv means or instru-

mentality of interstate commerce. in the exercise of in-

vestment discretion with respect to an account shall be

deemed to have acted unlawfully or to have breached a

fiduciary duty under State or Federal law unless ex-

pressly provided to the contrary by a law enacted by the

Congress or any State subsequent to June 4, 1975, solelv

by reason of his having caused the account to pay a mem-

ber of an exchange, broker, or dealer an amount of com-

mission for effecting a securities transaction in excess of

the amount of commission another member of an ex-

change. broker, or dealer would have charged for effecting

that transaction, if such person determined in good faith

that such amount of commission was reasonable in rela-

tion to the value of the brokerage and research services

sided by such member, broker, or dealer, viewed in

terms of either that particular transaction or his overall

responsibilities with respect to the accounts as to which

he exercises investment discretion. This subsection is ex-

clusive and plenary insofar as conduct is covered by the

foregoing, unless otherwise expressly provided by con-

tract: Provided, however, That nothing in this subsection

shall be construed to impair or limit the power of the

Commission under any other provision of this chapter or

otherwise.

(2) A person exercising investment discretion with re-

spect to an account shall make such disclosure of his

policies and practices with respect to commissions that

will be paid for effecting securities transactions, at such

times and in such manner, as the appropriate regulatory

agency, by rule, may prescribe as necessary or appropri-

ate in the public interest or for the protection of investors.

(3) For purposes of this subsection a person provides

brokerage and research services insofar as he —

(A) furnishes advice, either directly or through publi-

cations or writings, as to the value of securities, the ad-

visability of investing in. purchasing, or selling securi-

ties, and the availability of securities or purchasers or

sellers of securities:

(B) furnishes analyses and reports concerning issuers,

industries, securities, economic factors and trends, port-

folio strategy, and the performance of accounts: or

tions incidental thereto (such as clearance, settlement,

and custody) or required in connection therewith by

rules of the Commission or a self-regulatory organiza-

tion of which such person 1s a member or person associ-

ated with a member or in which such person is a par-

ticipant.

(4) The provisions of this subsection shall not apply

with regard to securities that are security futures prod-

ucts.

(f) Limitations on remedies

(1) Class action limitations

No covered class action based upon the statutory or

common law of anv State or subdivision thereof may be

maintained in any State or Federal court by any private

party alleging -—

10a

(A) a misrepresentation or omission of a material fact in

connection with the purchase or sale of a covered security;

(B) that the defendant used or employed any manipulat-

ive or deceptive device or contrivance in connection with

the purchase or sale of a covered security.

(2) Removal of covered class actions

Any covered class action brought in any State court

involving a covered security, as set forth in paragraph

(1), shall be removable to the Federal district court for

the district in which the action is pending, and shall be

subject to paragraph (1).

(3) Preservation of certain actions

(A) Actions under State law of State of incorpo-

ration

(i) Actions preserved

Notwithstanding paragraph (1) or (2), a covered

class action described in clause (ii) of this sub-

paragraph that is based upon the statutory or

common law of the State in which the issuer is

incorporated (in the case of a corporation) or or-

ganized (in the case of any other entity) may be

maintained in a State or Federal court by a pri-

vate party.

(ii) Permissible actions

A covered class action is described in this

clause if it involves -

(1) the purchase or sale of securities by the

issuer or an affilhate of the issuer exclusively

from or to holders of equity securities of the is-

suer: or

(II) any recommendation, position, or other

communication with respect to the sale of secu-

rities of an issuer that —

lla

(aa) is made by or on behalf of the issuer or

an affiliate of the issuer to holders of equity

securities of the. issuer: and

(bb) concerns decisions of such equity hold-

ers with respect to voting their securities,

acting in response to a tender or exchange

offer, or exercising dissenters’ or appraisal

rights.

(B) State actions

(i) In general

Notwithstanding any other provision of this

subsection, nothing in this subsection may be

construed to preclude a State or political subdivi-

sion thereof or a State pension plan from bringing

an action involving a covered security on its own

behalf, or as a member of a class comprised solely

of other States, political subdivisions, or State

pension plans that are named plaintiffs, and that

have authorized participation, in such action.

(ii) State pension plan defined

For purposes of this subparagraph, the term

“State pension plan” means a pension plan estab-

lished and maintained for its employees by the

zovernment of a State or political subdivision

thereof, or by any agency or instrumentality

thereof,

tween issuers and indenture trustees

Notwithstanding paragraph (1) or (2), a covered

class action that seeks to enforce a_ contractual

agreement between an issuer and an indenture trus-

tee may be maintained in a State or Federal court by

a party to the agreement or a successor to such party.

l2a

(D) Remand of removed actions

In an action that has been removed from a State

court pursuant to paragraph (2). if the Federal court

determines that the action may be maintained in

State court pursuant to this subsection, th. Federal

court shall remand such action to such State cuurt.

(4) Preservation of State jurisdiction

The securities commission (or any agency or office

performing like functions) of any State shall retain ju-

risdiction under the laws of such State to investigate

and bring enforcement actions.

(5) Definitions

For purposes of this subsection, the following defini-

tions shall apply:

(A) Affiliate of the issuer

The term “affiliate of the issuer” means a person

that directly or indirectly, through one or more in-

termediaries, controls or is controlled by or is under

common control with, the issuer.

(B) Covered class action

The term “covered class action” means —

(1) any single lawsuit in which —

(1) damages are sought on behalf of more

than 50 persons or prospective class members,

and questions of law or fact common to those

persons or members of the prospective class,

without reference to issues of individualized re-

liance on an alleged misstatement or omission,

predominate over any questions affecting onlv

individual persons or members: or

(11) one or more named parties seek to re-

cover damages on a representative basis on be-

half of themselves and other unnamed parties

l3a

similarly situated, and questions of law or fact

common to those persons or members of the

prospective class predominate over any ques-

tions affecting only individual persons or mem-

bers; or

(ii) any group of lawsuits filed in or pending in

the same court and involving common questions of

law or fact, in which —

(1) damages are sought on behalf of more

than 50 persons; and

(Il) the lawsuits are joined, consolidated, or

otherwise proceed as a single action for any

purpose.

Notwithstanding subparagraph (B), the term “cov-

ered class action” does not include an exclusively de-

rivative action brought by one or more shareholders

on behalf of a corporation.

(D) Counting of certain class members

For purposes of this paragraph, a corporation,

investment company, pension plan, partnership, or

other entity. shall be treated as one person or pro-

spective class member, but only if the entity is not

established for the purpose of participating in the

action.

(E) Covered security

The term “covered security” means a security that

satisfies the standards for a covered security specified

in paragraph (1) or (2) of section 18(b) of the Seeuri-

ties Act of 1933 [15 U.S.C. 77rtb)], at the time during

which it is alleged that the misrepresentation, omis-

sion, or manipulative or deceptive conduct occurred,

except that such term shall not include any debt secu-

rity that is exempt from registration under the Secu-

rities Act of 1933 [15 U.S.C. 77a et seq.] pursuant to

l4a

rules issued by the Commission under section 4(2) of

that Act [15 U.S.C. 77d(2)}.

(F) Rule of construction

Nothing in this paragraph shall be construed to af-

fect the discretion of a State court in determining

whether actions filed in such court should be joined,

consolidated, or otherwise allowed to proceed as a

single action.

ld5a

The Securities Litigation Uniform Standards Act of

1998, Pub. L. No. 105-353, 112 Stat. 3227, provides in

relevant part:

To amend the Securities Act of 1933 and the Securities Exchange Act of

1934 to limit the conduct of securities class actions under State

law. and tor other purposes

Be it enacted by the Senate and House of Representatives

of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Securities Litigation Uni-

form Standards Act of 1998”.

SEC. 2. FINDINGS.

The Congress finds that —

(1) the Private Securitis Litigation Reform Act of 1995

sought to prevent abuses in private securities fraud law-

sults:

(2) since enactment of that legislation. considerable evi-

dence has been presented to Congress that a number of

securities class action lawsuits have shifted from Federal

to State courts:

(3) this shift has prevented that Act from fully achieving

its objectives;

(4) State securities regulation is of continuing impor-

tance, together with Federal regulation of securities, to

protect investors and promote strong financial markets:

and

(5) in order to prevent certain State private securities

class action lawsuits alleging fraud from being used to

frustrate the objectives of the Private Securities Litigation

Reform Act of 1995, it is appropriate to enact national

standards for securities class action lawsuits involving na-

tionally traded securities. while preserving the appropri-

16a

ate enforcement powers of State securities regulators and

not changing the current treatment of individual lawsuits.

TITLE I - SECURITIES LITIGATION

UNIFORM STANDARDS

SEC. 101. LIMITATION ON REMEDIES.

(a) AMENDMENTS TO THE SECURITIES ACT OF 1933. —

(1) AMENDMENT. — Section 16 of the Securities Act of

1933 (15 U.S.C. 77p) is amended to read as follows:

“SEC. 16. ADDITIONAL REMEDIES; LIMITATION

ON REMEDIES.

“(a) REMEDIES ADDITIONAL. — Except as provided in

subsection (b), the rights and remedies provided by this

title shall be in addition to any and all other rights and

remedies that may exist at law or in equity.

“(b) CLASS ACTION LIMITATIONS. — No covered class ac-

tion based upon the statutory or common law of any State

or subdivision thereof may 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 manipu-

lative or deceptive device or contrivance in connection

with the purchase or sale of a covered security.

“(c) REMOVAL OF COVERED CLASS ACTIONS. — Any cov-

ered class action brought in any State court involving a

covered security, as set forth in subsection (b), shall be

removable to the Federal district court for the district in

which the action is pending, and shall be subject to sub-

section (b).

17a

“(d) PRESERVATION OF CERTAIN ACTIONS. —

“(1) ACTIONS UNDER STATE LAW OF STATE OF INCOR-

PORATION. —

“(A) ACTIONS PRESERVED. — Notwithstanding sub-

section (b) or (c), a covered class action described in

subparagraph (B) of this paragraph that is based

upon the statutory or common law of the State in

which the issuer is incorporated (in the case of a cor-

poration) or organized (in the case of any other en-

tity) may be maintained in a State or Federal court

by a private party.

“(B) PERMISSIBLE ACTIONS. — A covered class action

is described in this subparagraph if it involves —

“(i) the purchase or sale of securities by the is-

suer or an affiliate of the issuer exclusively from or

to holders of equity securities of the issuer; or

“(ii) any recommendation, position, or other

communication with respect to the sale of securi-

ties of the issuer that —

“(1) is made by or on behalf of the issuer or an

affiliate of the issuer to holders of equity securi-

ties of the issuer; and

“(I1) concerns decisions of those equity hold-

ers with respect to voting their securities, acting

in response to a tender or exchange offer, or ex-

ercising dissenters’ or appraisal rights.

“(2) STATE ACTIONS. —

“(A) IN GENERAL. — Notwithstanding any other

provision of this section, nothing in this section may

be construed to preclude a State or political subdivi-

sion thereof or a State pension plan from bringing an

action involving a covered security on its own behalf.

or as a member of a class comprised solely of other

States, political subdivisions. or State pension plans

18a

that are named plaintiffs, and that have authorized

participation, in such action.

“(B) STATE PENSION PLAN DEFINED. — For purposes

of this paragraph, the term ‘State pension plan’

means a pension plan established and maintained for

its employees by the government of the State or po-

litical subdivision thereof, or by any agency or in-

strumentality thereof.

“(3) ACTIONS UNDER CONTRACTUAL AGREEMENTS BE-

TWEEN ISSUERS AND INDENTURE TRUSTEES. — Notwith-

standing subsection (b) or (c), a covered class action

that seeks to enforce a contractual agreement between

an issuer and an indenture trustee may be maintained

in a State or Federal court by a party to the agreement

or a successor to such party.

“(4) REMAND OF REMOVED ACTIONS. — In an action

that has been removed from a State court pursuant to

subsection (c), if the Federal court determines that the

action may be maintained in State court pursuant to

this subsection, the Federal court shall remand such ac-

tion to such State court.

“(e) PRESERVATION OF STATE JURISDICTION. — The secu-

ritics commission (or any agency or office performing like

functions) of any State shall retain jurisdiction under the

laws of such State to investigate and bring enforcement

actions.

“(f) DEFINITIONS. — For purposes of this section, the fol-

lowing definitions shall apply:

“(1) AFFILIATE OF THE ISSUER. — The term ‘affiliate of

the issuer’ means a person that directly or indirectly.

through one or more intermediaries, controls or 1s con-

trolled by or is under common control with, the issuer.

*(2) COVERED CLASS ACTION. —

“(A) IN GENERAL. — The term ‘covered class action’ |

means

19a

“(i) any single lawsuit in which —

“([) damages are sought on behalf of more than

50 persons or prospective class members, and

questions of law or fact common to those persons

or members of the prospective class, without ref-

erence to issues of individualized reliance on an

alleged misstatement or omission, predominate

over any questions affecting ouly individual per-

sons or members; or

“(Il one or more named parties seek to recover

damages on a representative basis on behalf of

themselves and other unnamed parties similarly

situated, and questions of law or fact common to

those persons or members of the prospective class

predominate over any questions affecting only in-

dividual persons or members: or

“(1i) any group of lawsuits filed in or pending in

the same court and involving common questions of

law or fact, in which —

“(1) damages are sought on behalf of more than

50 persons; and

“(Il) the lawsuits are joined. consolidated, or

otherwise proceed as a single action for any pur-

pose.

“(B) EXCEPTION FOR DERIVATIVE ACTIONS. — Not-

withstanding subparagraph (A), the term ‘covered

class action’ does not include an exclusively deriva-

tive action brought by one or more shareholders on

behalf of a corporation.

“(C) COUNTING OF CERTAIN CLASS MEMBERS. — For

purposes of this paragraph, a corporation, investment

company, pension plan, partnership. or other entity,

shall be treated as one person or prospective class

member, but only if the entity is not established for

the purpose of participating in the action.

20a

“(D) RULE OF CONSTRUCTION. — Nothing in this

paragraph shall be construed to affect the discretion

of a State court in determining whether actions filed

in such court should be joined, consolidated, or oth-

_ erwise allowed to proceed as a single action.

“(3) COVERED SECURITY. — The term ‘covered security’

means a security that satisfies the standards for a cov-

ered security specified in paragraph (1) or (2) of section

18(b) [15 U.S.C. § 77r(b)] at the time during which it is

alleged that the misrepresentation, omission, or ma-

nipulative or deceptive conduct occurred, except that

such term shall not include any debt security that is ex-

empt from registration under this title pursuant to

rules issued by the Commission under section 4(2) [15

U.S.C. § 77d(2)}.”.

(2) CIRCUMVENTION OF STAY OF DISCOVERY. — Section

27(b) of the Securities Act of 1933 (15 U.S.C. 77z-1(b)) is

amended by inserting after paragraph (3) the following

new paragraph:

“(4) CIRCUMVENTION OF STAY OF DISCOVERY. — Upon a

proper showing, a court may stay discovery proceedings in

any private action in a State court as necessary in aid of

its jurisdiction, or to protect or effectuate its judgments, in

an action subject to a stay of discovery pursuant to this

subsection.”.

(3) CONFORMING AMENDMENTS. — Section 22(a) of the

Securities Act of 1933 (15 U.S.C. 77v(a)) is amended —

(A) by inserting “except as provided in section 16

with respect to covered class actions,” after “Territo-

rial courts,”: and

(B) by striking “No case” and inserting “Except as

provided in section 16(c), no case”.

2la

(b) AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF

1934. —

(1) AMENDMENT. — Section 28 of the Securities Ex-

change Act of 1934 (15 U.S.C. 78bb) is amended —

(A) in subsection (a), by striking “The rights and

remedies” and inserting “Except as provided in sub-

section (f), the rights and remedies”; and

(B) by adding at the end the following new subsec-

tion:

“(f) LIMITATIONS ON REMEDIES. —

“(1) CLASS ACTION LIMITATIONS. — 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 by any private party alleging —

“(A) a misrepresentation or omission of a material

fact in connection with the purchase or sale of a cov-

ered security; or

“(B) that the defendant used or employed any ma-

nipulative or deceptive device or contrivance in con-

nection with the purchase or sale of a covered secu-

rity.

“(2) REMOVAL OF COVERED CLASS ACTIONS. — Any cov-

ered class action brought in any State court involving a

covered security, as set forth in paragraph (1), shall be

removable to the Federal district court for the district

in which the action is pending, and shall be subject to

paragraph (1).

(3) PRESERVATION OF CERTAIN ACTIONS. —

“(A) ACTIONS UNDER STATE LAW OF STATE OF IN-

CORPORATION. -

“Gi) ACTIONS PRESERVED. — Notwithstanding

paragraph (1) or (2). a covered class action de-

scribed in clause (i) of this subparagraph that is

based upon the statutory or common law of the

22a

case of a corporetion) or organized (in the case of

any other entity: my be maintained in a State or

Federal court by a private party.

“(ii) PERMISSIBLE ACTIONS. — A covered class ac-

tion is described in this clause if it involves —

“(I) the purchase or sale of securities by the is-

suer or an affiliate of the issuer exclusively from

or to holders of equity securities of the issuer; or

“(I]) any recommendation, position, or other

communication with respect to the sale of securi-

ties of an issuer that —

“(aa) is made by or on behalf of the issuer or

an affiliate of the issuer to holders of equity

securities of the issuer: and

“(bb) concerns decisions of such equity hold-

ers with respect to voting their securities, act-

ing in response to a tender or exchange offer,

or exercising dissenters’ or appraisal rights.

“(B) STATE ACTIONS. —

“(i) IN GENERAL. -- Notwithstanding any other

provision of this subsection, nothing in this subsec-

tion may be construed to preclude a State or politi-

cal subdivision thereof or a State pension plan

from bringing an action involving a covered secu-

rity on its own behalf, or as a member of a class

comprised solely of other States, political subdivi-

sions, or State pension plans that are named plain-

tiffs, and that have authorized participation, in

such action.

“(Gu) STATE PENSION PLAN DEFINED. — For pur-

poses of this subparagraph, the term ‘State pen-

sion plan’ means a pension plan established and

maintained for its employees by the government of

23a

a State or political subdivision thereof, or by any

agency or instrumentality thereof.

“(C) ACTIONS UNDER CONTRACTUAL AGREEMENTS

BETWEEN ISSUERS AND INDENTURE TRUSTEES. — Not-

withstanding paragraph (1) or (2), a covered class ac-

tion that seeks to enforce a contractual agreement

between an issuer and an indenture trustee may be

maintained in a State or Federal court by a party to

the agreement or a successor to such party.

“(D) REMAND OF REMOVED ACTIONS. — In an action

that has been removed from a State court pursuant

to paragraph (2), if the Federal court determines that

the action may be maintained in State court pursu-

ant to this subsection, the Federal court shall remand

such action to such State court.

“(4) PRESERVATION OF STATE JURISDICTION. — The se-

curities commission (or any agency or office performing

like functions) of any State shall retain jurisdiction un-

der the laws of such State to investigate and bring en-

forcement actions.

“(5) DEFINITIONS. — For purposes of this subsection,

the following definitions shall apply:

“(A) AFFILIATE OF THE ISSUER. — The term ‘affiliate

of the issuer’ means a person that directly or indi-

rectly, through one or more intermediaries, controls

or is controlled by or is under common control with,

the issuer.

“(B) COVERED CLASS ACTION. — The term ‘covered

class action’ means -

“(i) any single lawsuit in which -

“(1) damages are sought on behalf of more than

50 persons or prospective class members, and

questions of law or fact common to those persons

or members of the prospective class, without ref-

erence to issues of individualized reliance on an

24a

alleged misstatement or omission, predominate

over any questions affecting only individual per-

sons or members; or

“(II) one or more named parties seek to recover

damages on a representative basis on behalf of

themselves and other unnamed parties similarly

situated, and questions of law or fact common to

those persons or members of the prospective

class predominate over any questions affecting

only individual persons or members; or

“(ii) any group of lawsuits filed in or pending in

the same court and involving common questions of

law or fact, in which —

“(I[) damages are sought on behalf of more than

50 persons; and

“(II) the lawsuits are joined, consolidated, or

otherwise proceed as a single action for any pur-

pose.

“(C) EXCEPTION FOR DERIVATIVE ACTIONS. — Not-

withstanding subparagraph (B), the term ‘covered

class action’ does not include an exclusively deriva-

tive action brought by one or more shareholders on

behalf of a corporation.

“(D) COUNTING OF CERTAIN CLASS MEMBERS. — For

pur

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