# Petitioners Brief — Kircher v. Putnam Funds Trust > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0221%3A12 ## Record - **Collection:** Supreme Court brief - **Document type:** Petitioners Brief - **Published:** January 1, 2006 - **Citation:** 547 U.S. 633 ## Text 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. ii 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 i 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. iv 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 5 Ill. PERMITTING REVIEW OF SLUSA RE- MAND ORDERS WOUD CONTRAVENE CONGRESS'S POLICY JUDGMENT IN iy InN ditieeliPbeeidentalinceieiaddnebsunsedienensconiceveennccess 45 iti calelahccaedaseadonsddiecubabdanaatenootontiesasoovoones 48 vl 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 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 xi 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 9 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 i) 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): (c) Removal of covered class actions Any covered class action brought in any State court involving a covered security, as set forth in subsection (b) of this section. shall be removable to the Federal 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) 10 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’). 1] 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) 12 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) 14 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- 15 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 16 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 17 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 18 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. 19 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- 20 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. 21 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) 22 & 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). 23 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. 24 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 tn s 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. 27 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 28 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 29 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”) 30 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)). 31 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 ~) 32 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 33 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 34 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) 36 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 38 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 39 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 40 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). - 41 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) 42 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. 45 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 (© 44-55) (Dudley 11), 289-93 (99 44-545) (Vogeler), 306-10 (© 44-51) _ (Jackson), 322-25 (49 19-58) (Spurgeon) 44 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). 45 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. a 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 46 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 47 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 48 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 la 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. (c) Removal of covered class actions 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. 2a (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 ja 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 subsect [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0221%3A12. Public record. Not legal advice.