Appendix — W. R. Huff Asset Management Co. v. BT Securities Corp.
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INDEX
Opinion of Alabama Supreme
Court, BT Securities Corp. v.
W.R. Huff Asset Management
Ce, L4.C., So.2d ;
2004 WL 818852 (S.Ct.Ala.
April 16, 2004)
Notice of Removal from
Alabama Circuit Court to
Northern District of Alabama,
(June 13, 2000)
Opinion of District Court, W.R.
Huff Asset Management Co.,
L.L.C. v. BT Securities Corp.
(N.D.Ala. August 17, 2000)
Order of Eleventh Circuit Court
of Appeal, W.R. Huff Asset
Management Co., L.L.C. v. BT
Securities Corp. (Nov. 2, 2000)
Opinion of District Court, W.R.
Huff Asset Management Co.,
L.L.C. v. BT Securities Corp.,
190 F.Supp.2d 1273 (N.D.Ala.
2001), and Order of Remand
(N.D.Ala. 2001)
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25a
43a
45a
Order of Eleventh Circuit Court
of Appeal, W.R. Huff Asset
Management Co., L.L.C. v. BT
Securities Corp. (11 Cir. May
30, 2002)
Opinion of Alabama Circuit
Court, W.R. Huff Asset
Management Co., L.L.C. v. BT
Securities Corp. (Cir.Ct.Ala.
March 31, 2003)
Securities Act of 1933, 15
U.S.C. §§ 77v and 77p
Securities Litigation Uniform
Standards Act of 1998
Procedure After Removal
Generally, 28 U.S.C. § 1447(c),
(d)
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66a
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112a
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APPENDIX A
Supreme Court of Alabama.
BT SECURITIES CORPORATION et al.
v.
W.R. HUFF ASSET MANAGEMENT CO.,
L.L.C.
1021226.
April 16, 2004.
Facts and Procedural History
This case involves the applicability of the
Securities Litigation Uniform Standards Act of
1998 (“SLUSA”), 15 U.S.C. §§ 77p and 78bb, to a
purchase of subordinated notes by W.R. Huff
Asset Management Co., L.L.C., from BT Securities
Corporation. On August 10, 1995, Bruno’s, Inc.,
issued $400 million of high-yield subordinated
notes. Huff, an investment management
company, purchased $290 million of those notes
on behalf of its customers in November 1995. On
February 2, 1998, Bruno’s and its subsidiaries
filed a petition in bankruptcy in the District of
Delaware under Chapter 11 of the Bankruptcy
Code. See In re PWS Holding Corp., No. 98-212
(Bankr.D.Del., Dec. 30, 1999), aff'd, 228 F.3d 224
(3d Cir. 2000)
On August 4, 1999, Huff sued Kohlberg
Kravis Roberts & Co., L.P., the company that
acquired control of Bruno’s in 1995, in the
Jefferson Circuit Court. The action related to
2a
Kohlberg’s participation in Bruno’s
recapitalization. Kohlberg had the case removed
to the United States Bankruptcy Court for the
Northern District of Alabama because of Bruno’s
pending bankruptcy proceeding in Delaware.
Huff moved the bankruptcy court to remand the
action to state court, and on January 4, 2001, the
bankruptcy court transferred the case to the
United States District Court for the Northern
District of Alabama. On July 1, 2002, Huff moved
the district court to remand the case to state
court, but the district court determined that
Huffs claims were preempted by SLUSA and
dismissed Huff’s claims without prejudice. See
W.R. Huff Asset Mgmt. Co. v. Kohlberg Kravis
Roberts & Co., 234 F.Supp.2d 1218, 1227 (N.D.
Ala. 2002)(“Huff 9).
In the meantime, on April 28, 2000, Huff
filed a second action involving the Bruno’s notes,
from which this permissive appeal is taken. Huff
sued BT _ Securities Corporation, Chase
Manhattan Bank, Salomon _ Brothers, Inc.,
Deloitte & Touche LLP, and Arthur Andersen LLP
(collectively “BT Securities”) in the Jefferson
Circuit Court, alleging that BT Securities had
engaged in fraud and misrepresentation in
connection with the sale of the Bruno’s notes. BT
Securities removed the case to the United States
District Court for the Northern District of
Alabama. Huff moved the district court to
remand the case to the state court. The district
court, in an earlier unpublished opinion, found
that “SLUSA was Huff’s exclusive avenue for
relief, found the existence of a federal question,
and therefore denied Huff’s motion to remand.” It
3a
encouraged Huff to request the United States
Court of Appeals for the Eleventh Circuit to
accept an appeal pursuant to 28 V.3.C.
§ 1292(b)(authorizing an interlocutory appeal).
W.R. Huff Asset Mgmt., Co., L. L. C. v. BT Sec.
Corp., 190 F. Supp. 2d 1273, 1274 (N.D.Ala.2001)
(“Huff IP). Huff moved the Eleventh Circuit Court
of Appeals to accept his appeal; the Eleventh
Circuit declined to do so.
Huff then moved the district court to
reconsider its decision that SLUSA controlled its
claims, or, alternatively, to sever the case as to
one defendant, Deloitte & Touche, and remand,
or, alternatively, to grant it leave to amend its
complaint. BT Securities moved the district court
to dismiss the action. On May 22, 2001, the
district court determined that it lacked
jurisdiction over Huff’s action and remanded the
cause to state court. Huff I, 190 F.Supp.2d at
1275.
On remand to the state court, BT Securities
moved to dismiss Huff’s action because, it argued,
SLUSA preempted all of its claims. On March 31,
2003, the circuit court denied BT Securities’
motion to dismiss. BT Securities petitioned this
Court for a permissive appeal pursuant to Rule 5,
Ala. R.App. P. On May 22, 2003, this Court
granted BT Securities’ petition for a permissive
appeal as to the circuit court’s denial of its
motion to dismiss.
Standard of Review
4a
This Court reviews de novo a trial
court’s conclusions of law. See State Farm Mut.
Auto. Ins. Co. v. Harris, [Ms. 1020609, Nov. 26,
2003] --- So. 2d ----, ---- (Ala.2003).
“The appropriate standard of review of a
trial court’s denial of a motion to dismiss
is whether ‘when the allegations of the
complaint are viewed most strongly in the
pleader’s favor, it appears that the pleader
could prove any set of circumstances that
would entitle [the pleader] to relief.’ Nance
v. Matthews, 622 So.2d 297, 299
(Ala.1993); Raley v. Citibanc of
Alabama/ Andalusia, 474 So.2d 640, 641
(Ala.1985). This Court does not consider
whether the plaintiff will ultimately
prevail, but only whether the plaintiff may
possibly prevail. Nance, 622 So.2d at 299.
A ‘dismissal is proper only when it appears
beyond doubt that the plaintiff can prove
no set of facts in support of the claim that
would entitle the plaintiff to relief.’ Nance,
622 So.2d at 299; Garrett v. Hadden, 495
So.2d 616, 617 (Ala.1986); Hill v. Kraft,
Inc., 496 So.2d 768, 769 (Ala.1986).”
Lyons v. River Road Constr., Inc., 858
So.2d 257, 260 (Ala.2003).
Application of SLUSA
The issue presented to this Court is
whether the circuit court erred in denying BT
Securities’ motion to dismiss based on its
conclusion that Huffs claims against BT
Securities were not preempted by SLUSA. SLUSA
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mandates that “covered class actions” brought
pursuant to state law must be removed to federai
court. See 15 U.S.C. § 77p(c)(requiring that “[a]ny
covered class action brought in any State court
involving a covered security ... shall be removable
to the Federal district court for the district in
which the action is pending”); see also 15 U.S.C.
§ 78bb(f)(5)(E) (defining a “covered security” to
mean “a security that satisfies the standards fora
covered security specified in paragraph (1) or (2)
of section 18(b) of the Securities Act of 1933, at
the time during which it is alleged that the
misrepresentation, omission, or Manipulative or
deceptive conduct occurred”). Section
78bb(f)(5)(B) defines a “covered class action” as
follows:
“(i) any single lawsuit in which --
“(I) damages are sought on behalf of more
than 50 persons or prospective class
members, and questions of law or fact
common to those persons or members of
the prospective class, without reference to
issues of individualized reliance on an
alleged misstatement or omission,
predominate over any question affecting
only individual persons or members; or
“(II) one or more named parties seek to
recover damages on a representative basis
on behalf of themselves and other
unnamed parties similarly Situated, and
the questions of law or fact common to
those persons or members of the
prospective class predominate over any
questions affecting only individual persons
or members; or
WAN AP iM ln ial nina ae cae a
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“(ii) any group of lawsuits filed in or
pending in the same court involving
common questions of law or fact, in
which--
“(I) damages are sought on behalf of more
than 50 persons; and
“(II} the lawsuits are joined, consolidated,
or otherwise proceed as a single action for
any purpose.”
Thus, for actions that fall within SLUSA,
the federal court is the exclusive venue for
securities fraud class-action litigation. See Huff
II, 190 F.Supp.2d at 1278 (“subsection (b) fof 15
U.S.C. §77p] compels a dismissal of actions
based on state law if they allege fraud, deception,
or misrepresentation regarding the purchase or
sale of securities traded, or authorized to be
traded, nationally”).
“Under SLUSA, a securities action is
preempted only if four conditions are
satisfied: (1) the action is a ‘covered class
action,’ (2) the claims are based on state
law, (3) the action involves a ‘covered
security,’ and (4) the claims allege a
misrepresentation or omission of material
fact ‘in connection with the purchase or
sale’ of the security.”
In re WorldCom, Inc. Sec. Litig., [Ms. 02 Civ.
3288(DLC), Feb. 20, 2004] --- F.Supp.2d ----, ----
(S.D.N.Y.2004) (quoting 15 U.S.C. § 77p(b)}. Huff
concedes that this action is a covered class action
pursuant to 15 U.S.C. § 78bb(f}(5)(B); that its
claims are based on Alabama state law; and that
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its claims allege a misrepresentation or omission
of material fact in connection with the purchase
or sale of the Bruno’s notes. Huff argues,
however, that the Bruno’s notes were not “covered
securities” as that term is defined by 15 U.S.C.
§ 78bb(f)(5)(E). To determine whether a security
is a “covered security,” we must determine
whether the security was traded nationally or was
authorized to be traded nationally at the time of
the alleged wrongful conduct. See 15
U.S.C.§ 78bb(f)(5)(E) (defining a “covered security”
as a security traded nationally or authorized to be
traded nationally “at the time during which it is
alleged that the misrepresentation, omission, or
Manipulative or deceptive conduct occurred”).
Thus, the inquiry is whether at the time of the
alleged wrongful conduct the Bruno’s notes were
“covered securities” as that term is defined by 15
U.S.C. § 78bb(f)(5)(E).
Section 78bb(f)(5)(E) adopts the definition of
a covered security in § 18(b) of the Securities Act
of 1933, codified at 15 U.S.C. § 77r(b). Section
77r(b)(1) defines a covered security as follows:
“A security is a covered security if such
security is --
“(A) listed, or authorized for listing, on the
New York Stock Exchange or the American
Stock Exchange, or listed, or authorized
for listing, on the National Market System
of the Nasdaq Stock Market (or any
successor to such entities);
“(B) listed, or authorized for listing, on a
national securities exchange (or tier or
segment thereof) that has listing
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standards that the Commission
determines by rule (on its own initiative or
on the basis of a petition) are substantially
similar to the listing standards applicable
to securities described in subparagraph
(A); or
“(C) is a security of the same issuer that is
equal in seniority or that is a senior
security to a _ security described in
subparagraph (A) or (B).”
Huff concedes that because Bruno’s
common stock was listed on the National
Association of Securities Dealers Automated
Quotations (“NASDAQ”) stock exchange and
because the Bruno’s notes were senior to Bruno’s
common stock, the Bruno’s notes would be a
covered security under § 77r(b)(1)(C).
However, Huff argues that at the time Huff
began to purchase the Bruno’s notes it was not a
covered security because Bruno’s common stock
was no longer listed on the NASDAQ stock
exchange. Thus, Huff’s argument is that while
the Bruno’s notes could be considered a covered
security when the Bruno’s common stock was
listed on the NASDAQ stock exchange, the
Bruno’s notes, at the time Huff purchased them,
were not a covered security because Huff
purchased the Bruno’s notes after Bruno’s
common stock was removed from the list of
stocks on the NASDAQ stock exchange on August
18, 1995. However, Huff's argument fails
because § 78bb(f}(5)(E) states that the time it is
determined whether a security is a “covered
security” is “at the time during which it is alleged -
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that the misrepresentation, omission, or
manipulative or deceptive conduct occurred.” The
majority of the allegedly wrongful conduct by BT
Securities occurred before the Bruno’s common
stock was removed from the NASDAQ stock
exchange on August 18, 1995. While Huff did not
purchase the Bruno’s notes until November 1995,
Huff states in its complaint that “in reliance on
the Prospectus and other disclosures made by the
defendants” it purchased the Bruno’s notes.
Because Huff’s complaint acknowledges that it
purchased the notes in reliance upon the
prospectus, which was dated August 10, 1995,
and upon other representations, occurring before
its decision to purchase the stock in November,
the majority of those events occurred while
Bruno’s common stock was listed on the NASDAQ
Stock exchange. Thus, because the allegedly
wrongful conduct occurred while the Bruno’s
common stock was listed, Bruno’s common stock
qualifies as a covered security pursuant to 15
U.S.C. § 77r(b)(1) and the Bruno’s notes would
also be considered a covered security under 15
U.S.C. § 77r(b)(1)(C).
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It does not appear from the record that Huff
. raised this argument previously in this action or
in Huff I, because the district courts in both cases
decided the question of SLUSA preemption, which
would have been unnecessary had either court
determined that the Bruno’s notes were not
covered securities. See Huff I, 234 F.Supp.2d at
1219, and Huff I, 190 F.Supp.2d at 1274.
10a
Preemption of Huff’s Claims
In this case, the circuit court denied BT
Securities’ motion to dismiss, finding that Huff's
claims were not preempted by SLUSA because the
alleged wrongful conduct occurred before the
enactment of SLUSA in 1998. The circuit court
reasoned that SLUSA did not apply retroactively
to Huff's claims because the preemptive
provisions of SLUSA “did not take effect until
November 3, 1998,” and “the conduct which
serves as a basis for the action predated the
enactment of the said amendments.” Thus, the
circuit court determined that ‘retroactive
application [of SLUSA] in this case not only
destroys a remedy but a right.” The circuit
court’s conclusion is consistent with the federal
district court’s conclusion in this case before its
remand of the case to the state court. See Huff IU,
190 F.Supp.2d at 1274.
However, the circuit court’s findings in this
case directly conflict with the findings made by
the federal district court in HuffI. See Huff I, 234
F.Supp.2d at 1219. In Huff J, the district
concluded that Huffs claims were preempted
because SLUSA applied retroactively to its claims
and that retroactive application of SLUSA did not
“impair Huff’s substantive rights to pursue its
claims: SLUSA merely requires that Huff proceed
in federal court under federal law if Huff and its
customers elect to pursue their claims in a form
that qualifies as a covered class action.” Huff J,
234 F.Supp.2d at 1225. The district court
reasoned:
lla
“[W]hen Congress enacted SLUSA on
November 3, 1998, it gave notice to Huff
that representative state law claims were
eliminated. At that time Huff could have
filed an action in federal court under
federal law, but chose to wait until August
4, 1999, to assert state law fraudulent
transfer claims against [Kohlberg] .... Huff
made aé_ distinct tactical choice in
attempting to bring state law claims
against [Kohlberg]. Any consequences
that follow from such a choice are
attributable to Huff’s desire to invoke a
particular mode of procedure and do not
constitute an abrogation of Huff’
substantive rights.”
Huff I, 234 F.Supp.2d at 1225.
Since the federal district court’s decision to
remand the case in Huff IT based on the district
court’s conclusion that Huff’s claims were not
preempted by SLUSA, a number of courts have
held that SLUSA applies to actions filed after the
enactment of SLUSA on November 3, 1998, that
involved pre-enactment conduct. Those courts
reasoned that SLUSA does not involve a
substantive right, but a mode of procedure. See,
€.g., Huff I, 234 F.Supp.2d at 1226 (“SLUSA
applies retroactively to actions filed subsequent to
enactment based on pre-enactment conduct”);
Gray v. Seaboard Sec., Inc., 241 F.Supp.2d 213,
218 (N.D.N.Y.2003) (“Plaintiffs’ lawsuit in this
case was filed in August of 2002, well after the
enactment of SLUSA. While some of the conduct
complained of in the instant action predates
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SLUSA’s enactment, the weight of authority
suggests that the relevant conduct is the filing of
the lawsuit, not the conduct allegedly giving rise
to liability. Accordingly, the Court find[s] that
this case does not raise any retroactivity concerns
and that SLUSA therefore applies to this present
action.” (footnote omitted)); In re BankAmerica
Corp. Sec. Litig., 95 F.Supp.2d 1044, 1046 n. 2
(E.D.Mo.2000) (stating that SLUSA “does not
apply to suits filed prior to November 3, 1998, the
effective date of [SLUSA]);” In re Enron Corp. Sec.,
Denvative & “Erisa” Litig., No. MDL-1446
(S.D.Tex., Aug. 16, 2002) (not published in
F.Supp.) (““SLUSA exemplifies a rule of procedure
that regulates secondary rather than primary
conduct, the plaintiffs filing and prosecution of
the litigation, as opposed to the defendant’s
allegedly unlawful conduct. Liability under the
statute is based on the same kind of activities by
a defendant as existed before SLUSA’s enactment.
What SLUSA eliminates is a state-court forum for
class actions arising from securities violations
under state law pursuant to Congress’ right,
under the Supremacy Clause, to impose uniform
and stringent pleading standards in such suits in
an effort to eliminate abusive litigation and to
prevent plaintiffs from evading the protections of
federal law.”).
The United States Court of Appeals for the
Eighth Circuit recently addressed the application
of SLUSA to conduct occurring before its
enactment:
“The mere fact that the challenged
conduct occurred before the _ statute’s
l3a
enactment does not mean the statute
operates retroactively .... Landgraf v. USI
Film Prods., 511 U.S. 244 » 269, 114 S.Ct.
1483, 128 L.Ed.2d 229 (1994). There is
generally no retroactivity concern when a
new procedural rule goes into effect after a
cause of action accrues, but before filing of
a lawsuit based on pre-enactment
conduct. Id. at 275, 114 S.Ct. 1483.
‘Because rules of procedure regulate
secondary rather than primary conduct,
the fact that a new procedural rule [is]
instituted after the conduct giving rise to
the suit does not make application of the
rule [] retroactive.’ Id.”
See Professional Mgmt. Assocs., Inc.
Employees’ Profit Sharing Plan v. KPMG, LLP, 335
F.3d 800, 803 (gth Cir.2003). The Eighth Circuit
Court of Appeals then held that “SLUSA applies
to all actions commenced after its enactment,
even if the challenged conduct predates SLUSA,”
id., and cited Ruff 1.
Based on the foregoing decisions, we
conclude that Huff’s ability to bring a covered
Class action is a matter of procedure, not a
substantive right; therefore, we hold that SLUSA
applies to and preempts Huff's Claims. [FN1]
Conclusion
Because Huff’s claims are preempted by
SLUSA, the circuit court erred in denying BT
Securities’ motion to dismiss. Therefore, we
reverse the circuit court’s order denying BT
l4a
Securities’ motion to dismiss and render a
judgment for BT Securities dismissing Huff's
state-court action.
REVERSED AND JUDGMENT RENDERED.
HOUSTON, BROWN, HARWOOD, and STUART,
JJ., concur.
FN1. This Court is not bound by the
district court’s decision to remand Huff II
to the state court. See In re Loudermilch,
158 F.3d 1143, 1146 (11 Cir.1998) (*[A]
district court’s decision on the motion to
remand has no preclusive effect on the
state court’s resolution of respondents’
preemption defense in the same case.”).
2004 WL 818852, 2004 WL 818852 (Ala.)
END OF DOCUMENT
l5a
APPENDIX B
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
W.R. HUFF ASSET
MANAGEMENT CO., LLC, as
investment advisor and as
attorney-in-fact on behalf of
certain Beneficial Owners of
10 1/2% Senior Subordinated
Notes;
Plaintiff,
vs.
BT SECURITIES,
CORPORATION, a subsidiary
of Deutche Banc Alex Brown,
)
)
)
)
;
)
)
)
)
)
)
)
) CIVIL
)
Inc., a Delaware corporation, )
)
)
)
)
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)
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)
ACTION NO.
CHASE MANHATTAN
CORPORATION, INC.,a
Delaware Corporation, as
successor-in-interest to
Chemical Securities, Inc. a
subsidiary of Chase
Manhattan Corporation, a
Delaware corporation;
SALOMON BROTHERS, INC. a
subsidiary of Salomon Smith
Barney Holdings, Inc., which
is owned by Citigroup, Inc., a
Delaware corporation;
DELOITTE & TOUCHE, LLP, a
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Delaware limited partnership;
ARTHUR ANDERSEN, LLP, a
Delaware limited partnership;
AND DEFENDANTS A-F,
Defendants.
NOTICE OF REMOVAL
Please take notice that Defendants BT
Securities Corporation, now DB Alex. Brown LLC,
The Chase Manhattan Bank, Salomon Brothers,
Inc., Deloitte & Touche LLP and Arthur Andersen,
LLP, through their undersigned counsel, have
removed this cause to the United States District
Court for the Northern District of Alabama,
Southern Division pursuant to the provisions of
the Securities Litigation Uniform Standards Act of
1998, Section 16(c) of the Securities Act of 1933,
as amended, 15 U.S.C. § 77p(c), and Section
28(f}(2) of the Securities Exchange Act of 1934, as
amended, 15 U.S.C. § 78bb(f}(2). The grounds for
removal are as follows:
l. On April 28, 2000, a civil action was
filed in the Circuit Court of Jefferson County,
Alabama entitled W.R. Huff Asset Management
Co., LLC, as investment advisor and as attorney-
in-fact on behalf of certain Beneficial Owners of
10 1/2% Senior Subordinated Notes v. BT
Securities, Corporation, Chase Manhattan
Corporation, Inc., Salomon Brothers, Inc., Deloitte
& Touche, LLP, [sic] and Arthur Andersen, LLP,
Case No. CV 2000 002630 00. Pursuant to 28
U.S.C. § 1446(a), true and correct copies of all
_
17a
process, pleadings, orders and other papers filed
and served in this action are attached hereto as
Exhibit A.
* - Defendants, The Chase Manhattan
Bank, Salomon Brothers, Inc. and Arthur
Andersen, LLP, were served with the summons
and complaint in this action (a copy of which is
included as part of Exhibit A) on May 16, 2000,
Defendant Deloitte & Touche LLP was served with
the summons and complaint in this action on
May 17, 2000, and Defendant BT Securities
Corporation, was served with the summons and
complaint in this action on May 19, 2000. This
notice of removal is filed within thirty (30} days
after receipt by Defendants The Chase Manhattan
Bank, Salomon Brothers, Inc. and Arthur
Andersen, LLP of a copy of the summons and
complaint in this action and is therefore timely
filed pursuant to 28 U.S.C. § 1446(b). See
Murphy Bros. v. Michetti Pipe Stringing, Inc., 526
U.S. ____, 119 S.Ct. 1322, 1328-29, 143 L. Rd.
448, 459 (1999).
3. Pursuant to 28 U.S.C § 1446(d),
concurrently with the filing of this notice of
removal, defendants have served written notice
thereof on all adverse parties and have filed a
copy of this notice with the Clerk of the Circuit
Court of Jefferson County, Alabama, from which
this case was removed.
4. The Securities Litigation Uniform
Standards Act of 1998 (“Uniform Standards Act”
or “Act” provides for exclusive jurisdiction in
federal court for virtually all securities class
18a
action lawsuits. The Act authorizes the removal
of any (1) “covered class action,” (2) based on
state law, (3) that alleges an untrue statement or
omission of material fact in connection with the
purchase or sale,” (4) of a “covered security.” The
Act is codified as Section 16(b)-(f} of the Securities
Act of 1933, as amended, and Section 28(f) of the
Securities Exchange Act of 1934, as amended.
See 15 U.S.C. § 77(p(c);15 U.S.C. § 78bb(f}(2).
a First, plaintiffs complaint qualifies as
a “covered class action” for purposes of the
Uniform Standards Act. The complaint alleges
that the plaintiff, W.R. Huff Asset Management
Co., LLC (“*Huff’) is “bringing this lawsuit on
behalf of its beneficial owner clients” and that |
Huff “acts in its capacity as investment manager
and as_ attorney-in-fact for certain clients
(“Beneficial Owners”) who have held in excess of
$290,000,000 in principal amount of 10 1/2%
Senior Subordinated Notes due 2005 (“Notes”)
which were publicly offered by Bruno’s, Inc.
(“Bruno’s” or “Company”)-in August 1995
pursuant to registration under the Securities Act
of 1933.” Complaint, J 8-9. Huff also alleges that
it is “bringing these claims in its individual
capacity as a person defrauded by Defendants.”
Complaint, § 15. Therefore, based upon the
plaintiffs allegations, this action is a “covered
class action” as defined in Section 16(f}(2) of the
Securities Act of 1933, as amended, 15 U.S.C.
§ 77p(f}(2) and Section 28(f}(5)(B) of the Securities
Exchange Act of 1934, as amended, 15 U.S.C.
§ 78bb(f)(5)(B), in that it is a lawsuit in which (1)
damages are sought on behalf of more than 50
persons or prospective class members, and
: | |
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questions of law or fact common to those persons
or members of the prospective class, without
reference to issues of individualized reliance on
an alleged misstatement or omission,
predominate over any questions affecting only
individual persons; or (2) one or more named
parties seeks to _ recover damages on a
representative basis on behalf of themselves and
other unnamed parties similarly situated, and
questions of law or fact common to those persons
predominate over any questions affecting only
individual persons.
6. Second, Huffs purported causes of
action are based entirely on state law. The
complaint alleges causes of action for (1)
fraudulent suppression “as defined by Ala. Code
§§ 6-5-100 and 6-5-102 (1975)” (Complaint,
19 231,233); (2) fraud “as defined by Ala. Code
§§ 6-5-100 and 6-5-101 (1975)” (Complaint
{ 249); (3) fraudulent and reckless deceit “as
defined by Ala. Code §§ 6-5-103 and 6-5-104
(1975)” (Complaint, 4 267); (4) violations of the
Alabama Securities Act, Ala. Code § 8-6-17
(Complaint, q 275); (5) negligent
misrepresentation (Complaint 11 283-358); (6)
civil conspiracy (Complaint 11 359-368); and (7)
aiding and abetting (Complaint, 369-377).
These alleged causes of action are “based upon
the statutory or common law of [a] State” — here,
Alabama - and cannot “be maintained in any
State or Federa! court” under the Uniform
Standards Act. 15 U.S.C. § 77p(b); 15 U.S.C.
§ 78bb(f}(1).
20a
as Third, the Notes constitute a “covered
security” as specified in the Act, 15 U.S.C.
§ 77r(b) at the time during which it is alleged that
the misrepresentations, omissions and
manipulative and deceptive conduct alleged by
Huff in the complaint occurred. During the
period from 1995 to date, the common stock of
Bruno’s, Inc. has been listed or authorized for
listing on the National Market System of the
Nasdaq Stock Market. The Notes are a bond,
debenture, note or _ similar obligation or
instrument constituting a security and evidencing
indebtedness and are a security of Bruno’s, Inc.
that is a senior security to the common stock of
Bruno’s, Inc. As a result, the Notes constitute
“covered securities” under the provisions of
Section 16(f}(3) of the Securities Act of 1933, 15
U.S.C. § 77p(f)(3) and Section 28(f)(5)(E) of the
Securities Exchange Act of 1934, 15 U.S.C.
§ 78bb(f)(S)(E).
8. Finally, Huff alleges fraud by the
defendants “in connection with” its purchase of
the Notes. Huff alleges that “Defendants’ personal
egregious conduct caused substantial harm to
Huff in connection with its purchase and
retention of over $290 million of Notes.”
Complaint, § 228 (emphasis added). See also
Complaint J 248 (“Huff acted upon and relied on
these Material Representation and Omissions to
its detriment by, inter alia, deciding to purchase,
retain, or sell the Notes and/or deciding whether
to take other action to which [sic] Huff was
entitled to take.”); Complaint, 9 266 (“Huff acted
upon and justifiably and reasonably relied on the
Defendants’ Material Representations and
2la
Omissions and deceit to its detriment by deciding
to purchase, retain, or sell the Notes and/or
deciding to take other action to which Huff was
entitled.”); Complaint, 1273 (“The Defendants
made Material Representations and Omissions
during the relevant time period in connection with
the offer, sale, or purchase of the wetes . . .*).
Accordingly, Huff alleges “a misrepresentation or
omission of a material fact in connection with the
purchase or sale of a covered security” or that the
defendants “used or employed [a] manipulative or
deceptive device or contrivance in connection with
the purchase or sale of a covered security” as set
forth in the Uniform Standards Act, 18 U.S.C.
§ 77p(b), 15 U.S.C. § 78bb(f)(1).
9. All properly-served defendants
consent to and join in this Notice of Removal.
10. Based upon the preceding facts and
allegations, this Court has subject matter
jurisdiction of this action and this action is
properly removable to this Court pursuant to
Section 16(c) of the Securities Act of 1933, as
amended, 15 U.S.C. 77p(c) and Section 28(f)(2) of
the Securities Exchange Act of 1934, as amended,
1S U.S.C. § 78bb(f)(2), because this case is a
“covered class action based upon the statutory or
common law of [a] State ... alleging ... a
misrepresentation or omission of a material fact
in connection with the purchase or sale of a
covered security” or that “the defendant/s] used or
employed [a] manipulative or deceptive device or
contrivance in connection with the purchase or
Sale of a covered security.”
22a
WHEREFORE, Defendants BT Securities
Corporation, The Chase Manhattan Bank,
Salomon Brothers, Inc., Deloitte & Touche LLP
and Arthur Andersen, LLP pray that the above
described action pending in the Circuit Court of
Jefferson County, Alabama, be removed to this
Court.
Dated: June 13, 2000.
Respectfully Submitted,
/s/ Don B. Long, Jr.
Don B. Long, Jr.
/s/ Clark R. Hammond
Clark R. Hammond
Attorneys for Defendant The
Chase Manhattan Bank and BT
Securities Corporation
OF COUNSEL:
JOHNSTON BARTON PROCTOR & POWELL LLP
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
(205) 458-9400
/s/ John E. Grenier
John E. Grenier
Attorney for Salomon Brothers,
Inc.
23a
OF COUNSEL:
LANGE, SIMPSON, ROBINSON & SOMERVILLE
LLP
1700 Regions Bank Building
417 20th Street North
Birmingham, Alabama 35203
(205) 250-5000
/[s/ James W. Gewin
James W. Gewin
/s/ Dylan C. Black
Dylan C. Black
Attorneys for Deloitte & Touche
LLP
OF COUNSEL:
BRADLEY, ARANT, ROSE & WHITE, LLP
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama 35203
(205) 521-8000
/s/ Jayna Partain Lamar
Jayna Partain Lamar
Attorney for Arthur Andersen,
LLP
OF COUNSEL:
MAYNARD, COOPER & GALE, P.c.
2400 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
(205) 254-1000
24a
CERTIFICATE OF SERVICE
I hereby certify that I have served the
foregoing Notice of Removal by placing copies of
the same in the United States mail, postage
prepaid, properly addressed to the following, this
the 13th day of June, 2000:
James L. North
J. Timothy Francis
James L. North & Associates
700 Title Building
300 2111 Street North
Birmingham, Alabama 35203
Clarence M. Small Jr.
Eric Breithaupt
Rives and Peterson
1700 Financial Center
505 20th Street North
Birmingham, Alabama 35203-2696
Beus Gilbert
Suite 1000 Great American Tower
3200 North Central Avenue
Phoenix, Arizona 85012-2431
Of Counsel
25a
APPENDIX C
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
W.R. HUFF ASSET
MANAGEMENT CO., L.L.C.,
Plaintiff,
Civil Action
No.
00-AR-1630-S
V.
BT SECURITIES
CORPORATION, et al.,
— ee eee ee eee ee ee ee ee ee
Defendants.
MEMORANDUM OPINION
Before this court is plaintiffs motion to
remand. Plaintiff, W.R. Huff Asset Management
Co., L.L.C. (“Huff”), originally filed this action in
State court under various state law theories.
Essentially, Huff alleges that defendants engaged
in fraud and misrepresentation in connection
with Huffs purchase of certain securities. On
June 13, 2000, defendants filed a notice of
removal based upon alleged preemption of the
State law claims by the Securities Litigation
Uniform Standards Act of 1998 (“SLUSA”). On
June 19, 2000 defendants filed a motion to
dismiss Huff’s complaint. On June 20, 2000, Huff
filed a motion to remand. This court heard oral
argument on both motions at its regular motion
docket on June 23, 2000. Because both sides
26a
wanted to fully brief the issues, this court
provided them a briefing schedule. After all the
briefs were filed, lead counsel for Huff requested
further oral argument. Because counsel had not
been available for the June 23, 2000 motion
docket as a result of surgery, and because the
questions in this case are both novel and
important, this court again heard oral argument
on August 11, 2000.
For the reasons set forth in the following
opinion, the court will deny Huff's motion to
remand. However, as explained in the order
accompanying this memorandum opinion, the
court will allow plaintiff an opportunity to seek an
appeal of the denial of its motion to remand
| - under 28 U.S.C. § 1292 (b). The court will not
rule on defendants’ motion to dismiss until a
response is obtained from the Eleventh Circuit on
this courts’ removal jurisdiction. This court
would prefer not to rule dispositively until it
knows whether or not it has jurisdiction.
Generali Overview of SLUSA
Congress passed the Private Securities
Litigation Reform Act (“PSLRA”) in 1995. The goal
of the PSLRA was to establish more stringent
procedural requirements for private securities
litigation in federal courts. Three years later,
Congress passed SLUSA, Pub. L. No. 105-353,
112 Stat. 3227 (1998), after determining that
plaintiffs attorneys were’ attempting to
circumvent the PSLRA’s tougher requirements by
filing securities lawsuits under various state law
theories in the state courts. SLUSA was expressly
———— rr t—“‘“—COO
27a
designed to completely preempt all ““covered class
actions” (as defined by SLUSA itself and not Rule
23, Fed. R. Civ. P.) filed in state courts and in
which fraud or misrepresentation is alleged under
State law in connection with the sale of a “covered
security.”
SLUSA states: “Any covered class action
brought in any State court, involving a covered
security, as set forth in subsection (b), shall be
removable to the Federal district court for the
district in which the action is pending, and shall
be subject to subsection (b).” 112 Stat. at 3228.
Defendants argue that this language makes it
clear that SLUSA preempts Huff’s state law
claims. Huff argues that SLUSA does not
preempt Huff's state law claims and, accordingly,
that this court does not have jurisdiction. Huff
gives two reasons for this: (1) that because the
alleged misrepresentations and fraud occurred
before SLUSA was passed, SLUSA does not apply
to pre-enactment conduct; and (2) that even if
SLUSA applies retroactively, this court does not
have jurisdiction because the securities in
question were not “covered securities” as defined
by SLUSA.
Factual Background and Procedural History
Huff is a money Manager and investment
advisor for numerous clients. After the common
stock of Bruno’s, Inc., was delisted in November
1995, Huff began purchasing certain Senior
Subordinated Notes for its clients. These Notes
were issued on August 18, 1995 in connection
with the takeover of Bruno’s by Kohlberg Kravis
28a
Roberts & Co.(“KKR”) through a_ leveraged
recapitalization. Huff alleges that defendants
made material misstatements in connection with
the sale of the Notes, and that defendants
continued to make material misstatements and
omissions in various periodic public filings until
Bruno’s declared bankruptcy on February 2,
1998.
On April 28, 2000, Huff filed a complaint in
the Circuit Court of Jefferson County, making
claims that Huff says arise solely under Alabama
statutory and common law, including claims for
fraudulent suppression, fraudulent and reckless
misrepresentation, fraudulent and_ reckless
deceit, negligent misrepresentation, civil
conspiracy, and violations of the Alabama
Securities Act.!
On June 13, 2000, defendants removed the
case to this court, asserting that plaintiffs’ state
law claims are preempted by Section 16(c) of the
Securities Act and Section 28(f) (2) of the
Securities Exchange Act, as amended by SLUSA.
Legal Questions and Analysis
Whether SLUSA Applies Retroactively
Huff cites the famous Landgraf v. USI Film
Products, 511 U.S. 244, 114 S.Ct. 1483 (1994),
for the proposition that SLUSA does not apply to
1 Huff asserts that it did not discover the fraud until
October of 1999. Defendant does not dispute this
assertion, so there is no statute of limitations problem.
29a
Huff’s case because the complained of conduct
occurred before SLUSA was passed, and
therefore, that SLUSA cannot apply retroactively.
This court Tespectfully disagr-es. The precise
holding of Landgraf is that absent a clear
Congressional Statement to the contrary, a
Statute is presumed not to apply retroactively to
cases that were pending prior to the Statute’s
enactment. In Landgraf, the Court made clear
expressly rejected. Thus, the “narrow holding” of
Landgraf is that the 1991 amendments did not
apply to pending cases because there was no
clear Congressional Statement to the contrary.
Despite Landgraf’s express holding, Huff
argues that Landgraf should be read to prohibit
completely without merit. This court
acknowledges that in Landgraf, the Supreme
Court Tepeatedly refers to the law as it existed at
the time of the discriminatory “conduct.” At one
point, the Court Says, “Thus the controlling
question is whether the Court of Appeals should
have applied the law in effect at the time the
discriminatory conduct occurred, or at the time of
30a
its decision in 1992.” Landgraf at 250, 1489. As
a result, Huff can make a credible argument that
the “broad holding,” of Landgraf is that absent a
clear Congressional statement to the contrary,
statutes are presumed not to apply retroactively
to conduct that occurred before the statute’s
enactment.
However, ultimately, this court finds that
SLUSA does apply to this case for the following
reasons. SLUSA itself states the following:
“APPLICABILITY: The amendments made by this
section shall not affect or apply to any action
conimenced before and pending on the date of
enactment of this Act.” 112 Stat. at 3233. This
provision is a clear Congressional statement that
SLUSA will not apply to any pending cases. The
logical, if negative, implication of this applicability
provision is that SLUSA will apply to any cases
filed after the effective date of the Act, regardless
of when the underlying conduct took place.? A
case filed one day after the effective date of
SLUSA would necessarily involve conduct that |
preceded the enactment. Therefore, based on the
text of the statute, SLUSA applies to this case.
2 At oral argument, plaintiffs counsel suggested that
because a negative implication must be made, the
language is, by definition, ambiguous. The court finds this
position untenable, and a simple example illustrates the
point: If a mother were to tell her child, “You may not go
outside before 2:00,” the logical implication of that
statement, although a negative implication, is that the
child would be allowed to go outside after 2:00. No one
would seriously contend that the mother’s statement is
ambiguous as to what time the child was allowed to go
outside.
SS
3la
Furthermore, defendants cite to several cases in
which the PLSRA was applied to cases filed after
its enactment although the- alleged conduct
occurred before the PLSRA was enacted, and the
applicability language in SLUSA is identical to the
language in the PLSRA. For example, in Zeid v.
Kimberley, 973 F.Supp. 910 (N.D. Cal. 1997),
reversed on other grounds, the plaintiff argued
that the PLSRA did not apply to pre-act conduct.
In rejecting that argument, the court stated:
The language [of the reform Act] means
exactly what it says. The amendments
contained in the Reform Act do not apply
retroactively to pending actions. Rather,
they apply prospectively to all actions...
that are commenced after December 22,
1995. Since Plaintiffs filed their action on
February 23, 1996, two months after the
effective date, the Reform Act applied to
their suit. Zeid at 914-915. Although not
binding, the court finds Zeid persuasive.
Also, the Eleventh Circuit has stated,
“Landgraf v. USI Film Products . . . provides the
analytical framework for determining whether
newly enacted statutory provisions are applicable
to pending cases.” Hunter v. United States, 101
F.3d 1565, 1569 (11™ Cir. 1996) (en banc)
(emphasis added). This Statement is in accord
with this court’s conclusion, supra, that the
precise holding of Landgraf is limited to pending
cases.
Furthermore, even though some language
in Landgraf refers to conduct, the case before
32a
this court is different from the Landgraf case in
several important respects. For example, in
Landgraf, both the conduct and the filing of the
suit occurred before the act was passed. And,
most importantly, the Court’s rationale for the
presumption against retroactivity as to pending
cases was that it is unfair to attach new liabilities
to conduct that, at the time, was not subject to
those liabilities. So, as it is in its Ex Post Facto
jurisprudence, the Court was concerned about
due process-namely, notice and the opportunity
to conform one’s conduct before new liabilities or
punishments attach to that conduct. See
Landgraf at 265-268, 1497-1498. But in the case
before this court, that concern is not present.
Defendants are not arguing that SLUSA should
not apply to them because SLUSA unfairly and
without notice attaches new liabilities to pre-
enactment conduct.
In addition to the text of SLUSA, the
purpose of SLUSA strongly supports its
application to this case. Because SLUSA’s
purpose was not to add new liabilities to
defendants’ conduct in securities litigation, but to
remedy apparent attempts by plaintiffs to
circumvent the requirements of the PLSRA by
filing suits under state laws in state courts, it
would not make sense to decide the retroactivity
question under SLUSA in favor of protecting
plaintiffs’ rights to bring state law claims in state
courts.
Finally, Huff argues that the retroactive
application of SLUSA will impair its rights that
existed at the time of the alleged conduct. And
33a
Landgraf does discuss whether rights would be
impaired by the retroactive application of a
Statute. However, Landgraf makes it clear that a
court only reaches the question of whether rights
were impaired if there is no clear Congressional
Statement regarding retroactivity, and this court
has determined that there is a clear
Congressional statement in SLUSA. Furthermore,
even if the language of SLUSA were ambiguous,
this court agrees with defendants that there is no
impairment of the rights of Huff or of the putative
Class it seeks to represent, because they are still
free under SLUSA to bring individual actions in
State court under any and all of Huff's present
State law theories. The only thing they could not
do is file a class action in state court. For the
foregoing reasons, this court finds that SLUSA
does apply “retroactively” to Huff’s claims.
This court is not particularly enamored of
the concept of federal preemption of traditional
State law remedies. For instance, this court
would be delighted if it is determined by a binding
appellate court that Judge Holmes is correct in
Lewis v. Aetna U.S. Healthcare Inc., 78 F. Supp.
2d 1202 (N.D. Okla. 1999), so that it will be
harder for insurers to tow their frauds into the
federal harbor provided by ERISA preemption for
the purpose of skuttling them. But, if Congress
Clearly decrees preemption in a particular area of
controversy and has a constitutional basis for its
enactment, preemption is the order of the day.
Whether the Securities at Issue Are Covered
Securities Huff argues that even if there is no
retroactivity problem, SLUSA still does not apply
34a
presumptively to this case because the Notes at
issue were not “covered securities” as defined by
SLUSA. Huff asserts that the securities at issue
could not have been “covered securities” because
in 1995, when some of the alleged fraud took
place, there was no existing definition of a
“covered security.” Huff points out that § 18 of
the Securities Act of 1993 did not even define
“covered security” until 1996 when the National
Securities Markets Improvement Act of 1996 was
enacted. However, the court finds that this
argument is not plausible for the reasons that
follow.
A covered security was originally defined as
follows: “A security is a covered security if such
security is- (A) listed, or authorized for listing, on
the New York Stock Exchange or the American
Stock Exchange, or listed on the National Market
System of the NASDAQ Stock Market... .* 15
U.S.C. § 77(r)(b)(1). In 1998, SLUSA amended the
definition of a “covered security” to add
“authorized for listing” on the NASDAQ instead of
just “listed” on the NASDAQ. SLUSA also states:
“(3) COVERED SECURITY- The term ‘covered
security’ means a _ security that satisfies the
standards for a covered security specified in
paragraph (1) or (2) of section 18(b) at the time
during which it is alleged that the
misrepresentation, omission, or manipulative
or deceptive conduct occurred... 112 Stat. at
3230 (emphasis added).
This court has already found that SLUSA
applies to this case, and it is only logical to
conclude that any definitions contained within
35a
SLUSA must also apply. Accordingly, Huff's
argument that there was no such thing as a
“covered security” at the time of the alleged
misrepresentations is erroneous, that is, unless
this court’s conclusion that SLUSA applies is
| erroneous. SLUSA states that the security must
| have been a covered security at the time during
which the alleged fraud occurred, and (for the
Purposes of this case), SLUSA defines a “covered
security” as a security that is either listed or
authorized for listing on the NASDAQ. Therefore,
the court must look to the timing of the alleged
misrepresentations to determine whether the
securities at issue were either listed or authorized
for listing on the NASDAQ at the time of the
misrepresentation.
Huff’s complaint alleges:
The Underwriter Defendants solicited
[Huff] to purchase the Notes in early
August 1995. The Underwriter
Defendants engaged in Solicitations by
distributing a preliminary ‘red herring’
Prospectus to investment Managers and
analysts at Huff in early August 1995, and
by inviting Huff to attend a road show in
New York City... . Also, in early August
1995 and before the final Prospectus,
dated August 10, 1995, the Underwriter
Defendants and KKR solicited Huff by
arranging a one-on-one meeting at Huff's
Offices in Morristown, New Jersey.
(Compl. 92.) Huff's complaint also states that
“Huff began its purchases of the Notes in
36a
November 1995, approximately three months
after the Leveraged Recapitalization, and in
reliance on the Prospectus and other disclosures
made by Defendants.” (Compl. 93.) It is clear
from this that the primary _ alleged
misrepresentations occurred on or before August
10, 1995, because it is the prospectus and the
representations allegedly made at the meeting
before the prospectus was issued which Huff
alleges it relied on in deciding to purchase the
Notes in the first place.
Under SLUSA, Bruno’s equity and debt
instruments were in fact covered securities on or
before August 10, 1995, because prior to August
21, 1995, Bruno’s was actually listed on the
NASDAQ.? Because the statute says that the
appropriate time frame is the time when the
material omissions or fraudulent statements were
made, it is clear that much of the alleged fraud
occurred when the stock was still listed on
NASDAQ. Therefore, any alleged fraud that
occurred before the delisting concerned “covered
securities.”
3 Plaintiff states that the delisting date was August 18,
1995. August 18 was a Friday and August 21 was a
Monday. Given the fact that the stock market closes on
Friday and opens on Monday, the court is not sure whether
the stock was technically delisted at the close of business
on Friday or the start of business on Monday. Regardless,
this difference is not material to the court’s determination of
whether the stock at issue was a covered security because it
is undisputed, based on Huffs complaint, that many if not
most of the alleged material misrepresentations occurred
prior to August 18.
————— ts
37a
Huff makes the following additional
argument: after the delisting, the stock was no
longer a “covered security,” so any alleged fraud
that occurred after the delisting is not covered by
SLUSA. However, even if Huff is correct that
some of the alleged fraud occurred after the
securities were no longer even “authorized for
listing,”* SLUSA still applies to this case because
SLUSA provides:
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
parties alleging an untrue Statement or
omission of material fact in connection
with the purchase or sale of a covered
security.
112 Stat. at 3228. The statute does not say that
all allegations in a “covered class action” must
involve “covered securities.” It Says that a class
action may not be maintained in State or Federal
court if the party is alleging “an untrue statement
or omission of material fact in connection with
the purchase or sale of a covered security.” That
is the case here. While it is true that some of the
allegations of fraud occurred after the stock was
delisted, many of them occurred while the stock
* Because the court finds that SLUSA applies regardless of
whether, after the delisting, the Notes continued to be
“authorized for listing,” the court expresses no opinion as to
the question of whether the Notes were, in fact, still
“authorized for listing.” Huff remains free, of course to
make that argument to the Eleventh Circuit at an
appropriate time.
38a
was a “covered security” by virtue of being listed
on the NASDAQ. Therefore, the action alleges
fraud in connection with the purchase or sale of a
covered security, and therefore, SLUSA applies.
Huff’s Other Arguments
In its brief, Huff argues that SLUSA does
not apply because this action was not a covered
class action and that SLUSA violates the Equal
Protection Clause. Although Huff essentially
conceded both of these arguments during oral
argument, this court will nevertheless address
them briefly in the interest of being
comprehensive, and because of the promise of an
interlocutory appeal by Huff from any denial of
Huff's motion to remand.
Whether This Action is a Covered Class Action
SLUSA does not use Rule 23, Fed. R. Civ.
P., to define a “class action.” Rather, it has its
own definitions. For example, section (f}(2)(A)
defines a covered class action as
(i) any single lawsuit in which—
(1) damages are sought on behalf of more
than 50 persons or prospective class
members, and questions of law or fact
common to those persons or members of
the prospective class, without reference to
issues of individualized reliance on an
alleged misstatement or omission,
predominate over any questions affecting
only individual persons or members; or
39a
(II) one or more named parties seek to
recover damages on a representative basis
on behalf of themselves and other
unnamed parties similarly Situated, and
questions of law or fact common to those
persons or members of the prospective
Class predominate over any questions
affecting only individual persons or
members (emphasis added).
112 Stat. at 3229.
In its brief, Huff argues that it is not
covered by (f}(2)(A)(i)(I) because the class contains
less than 50 persons or prospective class
members, and Huff further offers to amend its
complaint to make it clear that it is representing
less than 50 persons or members. However,
regardless of whether Huff is bringing this action
on behalf of 49 clients or 200 clients, this action
is still a “covered class action” because it meets
the alternative definition of a covered class action
as outlined by subsection II.
As defendants point out, Huff's complaint
States that it is “bringing these claims in its
individual Capacity as a person defrauded by
Defendants,” (compl. 1 15,) and that it is
“bringing this lawsuit on behalf of its beneficial
Owner clients.” (Compl. 4 14.) Thus, by the
language of Huff's own complaint this case is
Clearly a “covered class action” under subsection
40a
II,> and to the extent that Huff has not conceded
the “covered class action” argument, that
argument fails.
Huff could have avoided this removal if it
had been willing to be the sole plaintiff.
Equal Protection
In portions of its briefs, Huff appears to be
arguing that SLUSA violates the Equal Protection
Clause because investors for whom it would be
cost prohibitive to bring an individual lawsuit in
state court are precluded from pursuing their
state law claims, period, inasmuch as they are
forced to be a part of a federal class that can sue
only under SLUSA in federal court. But then Huff
also states:
The right of a defrauded small investor to
bring a class action asserting claims based
upon state law for common law fraud or
deceit, or for violations of the state blue
sky law act, is a fundamental right of
access to the courts, requiring close
scrutiny of any statute depriving some
investors (but not others) of access to the
courts.
(Huff's Mem. in Support of Mot. to Remand at 25)
(emphasis added) Huffs argument, if the court
understands it, is untenable for several reasons.
S Huffs ancillary argument, that no common issues of law
and fact predominate, is not credible based on the language
of its own complaint and on the facts of this case.
reason for holding that SLUSA violates the Equal
Protection Clause. Finally, Huff's argument that
completely Preempts state law, and Huff has not
cited to any cases in which the Supreme Court
has held that a federal law, solely by virtue of its
preemptive effect, violates the Equal Protection
Because there jis no fundamental right
involved, SLUSA only has to Pass the ‘rational
basis” test, and this court can see no reason why
it does not. The wisdom of Congress is not a
42a
that there is nothing inherently irrational about
the 51 plaintiff minimum. Class actions under
Rule 23 involve a determination of numerosity,
which is always to some degree, arbitrary.
Likewise, Congress picked a number here. But an
arbitrary selection of particular number does not
equal an irrational selection. As defendants put
it, “This kind of legislative line-drawing is
commonplace and constitutionally sound.” (Defs.’
Supplemental Opp’n to Pl.’s Mot. to Remand at
22.) Therefore, Huff's Equal Protection argument,
to the extent that Huff has not conceded it, fails.
Lastly, if there were a__ serious
Constitutional attack on SLUSA itself, it would be
necessary to notify the Solicitor General and to
obtain from him the position of the United States
on the constitutional question.
Conclusion
A separate and appropriate order will be
entered.
DONE this 17th day of August, 2000.
/s/ William M. Acker, Jr.
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT
JUDGE
a
43a
APPENDIX D
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 00-90029-J
W.R. HUFF ASSET MANAGEMENT,
COo., L.LS.,
Petitioner,
Versus
BT SECURITIES CORPORATION ;
CHASE MANHATTAN CORPORATION, INC.,
SALOMON BROTHERS, INC.,
DELOITTE & TOUCHE, LLP,
ARTHUR ANDERSEN, LLP,
DEFENDANTS A-F,
Respondents.
Petition for Permission to Appeal an Order from
the United States District Court for the
Northern District of Alabama
BEFORE: EDMONDSON, MARCUS, and
KRAVITCH, Circuit Judges.
BY THE COURT:
44a
The petition for permission to appeal
pursuant to 28 U.S.C. § 1292(b) is DENIED.
45a
APPENDIX E
United States District Court,
N.D. Alabama,
Southern Division.
W.R. HUFF ASSET MANAGEMENT CO., L.L..,
etc., Plaintiff, ~ —
Vv.
BT SECURITIES CORPORATION, et al.,
Defendants.
No. CIV.A.00-AR-1630-s.
May 22, 2001.
MEMORANDUM OPINION
=
ACKER, District Judge.
Procedural Background
unnamed owner-clients. It proceeded under
various state law theories. It alleged that
defendants engaged in fraud and
misrepresentation in connection with the sale of
securities. It Carefully avoided the slightest hint
of reliance upon federal law. Defendants removed
the case to this court, alleging Super-preemption
of Huff state law Claims by the Securities
Litigation Uniform Standards ~ act —of 1998
(“SLUSA” or “the Act”), Pub.L.No. 105-353, 112
46a
Stat. 3227 (1998). The “well-pleaded complaint”
rule does not prevent federal question removal
under 28 U.S.C. §1331 if federal law so
pervasively covers the field that a purported state
cause of action cannot exist without, in reality,
being nothing if not a federal claim. The
provisions relevant to defendants’ preemption
theory are found in Title I of SLUSA, which
amends Section 16 of the Securities Act of 1933
(‘the Securities Act”), 15 U.S.C. §77p, and
Section 28 of the Securities Exchange Act of 1934
(“the Exchange Act”), 15 U.S.C. § 78bb. Because
§ 101(a) of SLUSA, which amends the Securities
Act, is materially identical to § 101(b), which
amends the Exchange Act, it provides the means
by which a federal court can ascertain whether it
has jurisdiction.
In its opinion of August 17, 2000, this court
concluded that SLUSA was Huff's exclusive
avenue for relief, found the existence of a federal
question, and therefore denied Huffs motion to
remand. However, the court expressly
encouraged Huff to request the Eleventh Circuit
to accept an appeal under 28 U.S.C. § 1292(b).
This court reasoned that an_ interlocutory
expression by the Eleventh Circuit on this court’s
subject matter jurisdiction would advance the
ultimate termination of this litigation and would
minimize the likelihood of a waste of judicial
resources. The Eleventh Circuit rejected Huff's
attempt at an appeal. This provoked the three
motions by Huff now pending in this court: 1)
motion to reconsider the August 17 opinion, 2)
alternative motion to sever and remand the case
as to one defendant, Deloitte & Touche, LLP
47a
(“Deloitte”), and 3) alternative motion for leave to
amend the complaint. Defendants have filed a
motion to dismiss and their Own motion to amend
the opinion of August 17.
The Eleventh Circuit’s decision not to decide the
question of jurisdiction constitutes a reminder to
this court of its obligation under 28 U.S.C.
§ 1447(c) to constantly examine and reexamine its
own jurisdiction.
This obligation is ever present, without regard to
Huff's motion for reconsideration. Simply,
§ 1447(c) requires a federal court to remand an
action removed to it if subject matter jurisdiction
is lacking, unless and until that lack of
jurisdiction Only appears after a final judgment
has been entered. Accordingly, this court takes a
second look at its jurisdiction. For reasons the
court will now elaborate, it finds that it does not
have jurisdiction. In other words, a new look is
about to result in a different outcome.
If this court did have jurisdiction, the case would
be over, because defendants’ argument for
removal jurisdiction is based on 15 U.S.C. &
77p(c) which is identical to, and goes hand in
hand with, 15 U.S.C. 8 77y(b) which would
require dismissal. If the former is satisfied, so is
the latter. Because the court now finds that
SLUSA does not apply because the Act does not
apply retroactively, this court cannot do anything
except to remand the case. It remains to be seen
what the Circuit Court of Jefferson County,
Alabama, the forum properly chosen by Huff, will
do with the case. This court concentrates only
48a
upon the obligation created by 28 U.S.C.
§ 1447(c), which is unambiguous, even if, from
time to time, it calls for a change of mind.
Discussion
If SLUSA is not to be applied retroactively to
conduct predating its enactment, SLUSA does not
preempt Huff's state law claims, and there is no
federal question upon which defendants can
invoke the removal jurisdiction of this court
The court takes a deeper look into whether
applying SLUSA to Huffs complaint would be
“retrospective”, so as to implicate the Landgraf
retroactivity analysis, as elaborated in
subsequent Supreme Court decisions. Landeraf
v. USI Film Prod., 511 U.S. 244, 280, 114 S.Ct.
1483, 1505, 128 L.Ed.2d 229 (1994); see Martin
v. Hadix, 527 U.S. 343, 119 S.Ct. 1998, 144
L.Ed.2d 347 (1999); Lindh v. Murphy, 521 U.S.
320,117 S.Ct. 2059,138 L.Ed.2d 481 (1997);
Hughes Aircraft Co. v. United States ex rel.
Schumer, 520 U.S. 939, 117 S.Ct. 1871.138
L.Ed.2d 135. (1997). Huff points out that all of
defendants’ acts and omissions that form the
basis of claimed liability occurred prior to
SLUSA’s enactment on November 3, 1998. Huff
did not file its complaint until April 28, 2000. In
other words, although the case was not filed until
after SLUSA became the law of the land, the
conduct complained of predated the enactment.
On the basis of references to “pending cases” in
Landgraf and some of its progeny, see, e.g.,
Martin, 527 U.S. at 352,119 S.Ct. 1998, 144
L.Ed.2d 347; Landgraf, 511 U.S. at 249-50, 114
aaa
49a
S.Ct. 1483, 128 L.Ed.2d 229; Hunter v. United
States, 101 F.3d 1565, 1569 (11% Cir. 1996) (en
banc), the argument is made that the protection
recognized _ by Landgraf against unfair
retrospective application Should be limited to
those actions in which the complaint was filed
prior to enactment of the law proscribing the
conduct. However, upon reflection, the court
concludes that the Landgraf limitation cannot be
plaintiff filed suit in 1989, but premised liability
on a 1986 amendment to the Fair Claims Act,
Saying that it should be applied to the defendant’s
pre-1986 conduct. See Hughes Aircraft, 520 U.S.
at 941-45, 117 S.ct. 1871, 138 L.Ed.2d 135.
Even though the Landgraf complaint was pending
at the time of the Statutory enactment at issue
there, the unanimous Hughes Aircraft Court
employed the Landgraf analysis, without
commenting on the obvious feature that
distinguishes the two Cases, and concluded that
the 1986 amendment could not be applied
retroactively. See Hughes Aircraft, 520 U.S. at
945-51, 117 S.Ct. 1871, 138 L.Ed.2d 135. In SO
doing, the Supreme Court reaffirmed the fact that
Landgraf focuses on conduct as the central fact
for determining retroactivity. See, e€.g., Landgraf,
S11 U.S. at 250, 114 S.Ct. 1483, 128 L.Ed.2d
229. Moreover, given the purpose for a
presumption against retroactivity, as discussed in
Landgraf, 511 U.S. at 265-73, 114 S.Ct. 1483,
128 L.Ed.2d 229, there is nothing within the logic
of Landgraf that can explain why a court should
not apply that Presumption equally to a case
pending as to a case not pending on the date of a
Statute’s enactment, as long as pre-enactment
50a
conduct forms the basis for liability. No matter
which comes first, the enactment or the filing, the
application of a statute may be precluded on the
basis of impermissible retroactivity, either as a
matter of statutory construction or as a matter of
the constitutional guarantee of “due process”.
Huff’s complaint raises the overarching concern
over SLUSA retroactivity when it relies upon
defendants’ actionable conduct that occurred
prior to SLUSA’s enactment.
In order to decide whether SLUSA covers
defendants’ conduct, the first question to be
answered is whether | Congress _ expressly
described the statute’s temporal reach. See
Martin, 527 U.S. at 352, 119 S.Ct. 1998, 144
L.Ed.2d 347 (citing Landgraf, 511 U.S. at 280,
114 S.Ct. 1483, 128 L.Ed.2d 229). A court must
follow explicit and unambiguous congressional
instruction, unless the clear intent is overridden
by some constitutional prohibition. See Landgraf,
511 U.S. at 266-72, 280, 114 S.Ct. 1483, 128
L.Ed.2d 229. If there is no statutory prescription,
the court must determine whether retrospective
application would have an_ impermissible
“retroactive effect”. See id. SLUSA’s applicability
provision, which covers § 101(a) and § 101(b),
states: “The amendments made by this section
shall not affect or apply to any action commenced
before and pending on the date of enactment of
this Act.” § 101(c), 112 Stat. at 3233. Subsection
101(c), then, amounts to an express proscription
that forbids the application of SLUSA to any case
pending on the day SLUSA came into force.
However, to the degree it establishes the Act’s
temporal reach, such a prescription must be
Sla
inferred. It is certainly not express except as to
pending cases. Based on the statutory maxim
that the expression of one thing is the exclusion
of another, the inference can be drawn from the
language of SLUSA’s applicability provision that
the Act does apply to all cases brought after
enactment, whether or not based on pre-
enactment conduct. Because it cannot be said
that § 101(c) expressly prescribes the temporal
reach of SLUSA, it falls Short of the standard
established by the Supreme Court for
accomplishing retroactivity as to pre-enactment
conduct by unequivocal Statutory language.
This court’s ultimate finding of no retroactivity is
not based just upon the definitional distinction
occasioned by the one-letter difference between
“prescribe” and “proscribe”. The Supreme Court’s
discussion of what the “clear statement rule’
means in practice leaves no doubt that § 101(c)
fails as a purported manifestation of
congressional intent for retrospective application
in this case. The potential for elementary
unfairness that plagues retrospective application
has long justified the Supreme Court’s stance
that Congress, if retroactivity is to be achieved,
must show that it “has determined that the
benefits of retroactivity outweigh the potential for
disruption or unfairness” by providing a loud and
clear signal that a statute takes effect from a time
921 U.S. at 325-26, 328, n. 4, 117 S.Ct. 2059,
52a
provisions shall apply to all proceedings pending
on or commenced after the date of enactment of
this Act.” 511 U.S. at 260, 114 S.Ct. 1483, 128
L.Ed.2d 229 (emphasis added; internal quotation
marks omitted); see Martin, 527 U.S. at 354-55,
119 S.Ct. 1998 (quoting Landgraf’s illustration).
The words of § 101(c), namely, “The amendments
made by this section shall not affect or apply to
any action commenced before and pending on the
date of enactment of this Act” (emphasis added),
do not come close to taking the Supreme Court’s
advice on draftsmanship. 112 Stat. at 3233.
Assuming that Landgraf’s hypothetical provision
would suffice, the absence of similarly absolute
language for retrospective application in § 101(c)
distinguishes SLUSA’s applicability provision.
See Lindh, 521 U.S. at 328 n. 4, 117 S.Ct. 2059,
138 L.Ed.2d 481. Moreover, the suppositional
example provided in Landgraf shows that express
language for a retrospective application of SLUSA
to actions filed post-enactment could have
effortlessly been added to § 101(c). Therefore,
§ 101(c) fails as an expression of legislative intent
to override the presumption against retrospective
application. This court respectfully disagrees
with In re BankAmerica Corp. Sec. Litig., 95
F.Supp.2d 1044, 1046 n. 2 (E.D.Mo.2000), in
which that court concluded that § 101(c) prevents
retrospective application of SLUSA only as to
cases filed pre-enactment. The difference of
opinion between this court and the Eastern
District of Missouri means only that this court
had good reason to certify the jurisdictional
question for interlocutory review.
93a
The use of negative inference in Lindh to
determine the temporal reach of a federal statute
does not alter this court’s conclusion. In Lindh,
from the presence of explicit language in only one
inferred that the other chapter was not meant to
apply to pending cases. 921 U.S. at 326-30, 117
S.Ct. 2059, 138 L.Ed.2d 481. However, the Lindh
Court used negative inference to find that the
Statutory provision applied prospectively; here,
using negative inference to divine congressional
intent would result in retrospective application.
Because Prospective application does not carry
the long-recognized, powerful potential for
unfairness that is inherent in retrospective
application, see Landgraf, 511 U.S. at 265-73,
114 S.Ct. 1483, 128 L.Ed.2d 229, the Supreme
Court does not require that Congress be express
in manifesting its intention that a statute apply
congressional intent for Prospective application;
actions initiated post-enactment. However, if
applying the relevant SLUSA provisions to a
Particular case would have a retroactive effect,
unless there is clear congressional intent to give it
54a
that effect, it cannot be applied to pre-enactment
conduct.
FN 1. Indication to the contrary in Mayers
v. Reno, 175 F.3d 1289, 1302-1303 (llth
Cir. 1999) is dictum. The court in Mayers,
like the Supreme Court in Lindh, used
negative inference to find congressional
intent for prospective application only.
Furthermore, any persuasiveness. of
statements in Mayers on this issue is
undercut by Martin’s subsequent re-
affirmation of the requirements and role of
the clear statement rule. 527 U.S. at 353-
54, 119 S.Ct. 1998, 144 L.Ed.2d 347.
Having found that there is no clear, controlling
statutory language in SLUSA, the court explores
whether applying SLUSA to the conduct
complained of is impermissible for reasons of
constitutional proportion, or of public policy. The
Landgraf Court held that a statute would not be
allowed to have retroactive effect if applying it
“would impair rights a party possessed when he
acted, increase a party’s liability for past conduct,
or impose new duties with respect to transactions
already completed.” 511 U.S. at 280, 114 S.Ct.
1483, 128 L.Ed.2d 229. A court should rely on
“familiar considerations of fair notice, reasonable
reliance, and settled expectations.” /d., at 270,
511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229.
The statute that this court is checking out for
possible retroactive effect is 15 U.S.C. § 77(t}(c)
entitled “Removal of covered class actions”, which
provides: “Any covered class action brought in
55a
any State court, involving a covered security, as
set forth in subsection (b), shall be removable to
the Federal district court for the district in which
the action is pending, and shall be subject to
subsection (b).” As alluded to Supra in the
discussion of the procedural posture of this case,
subsection (b) compels a dismissal of actions
based on state law if they allege fraud, deception,
. OF misrepresentation regarding the purchase or
Sale of securities traded, or authorized to be
traded, nationally. 15 U.S.C. § 77p(b). If
applicable, § 77p(c) does two things, 1) permits
removal of a state action, and 2) sinks the state
Ship once in the federal harbor. This is the
Classic sequence of events in ERISA preemption
removals. The first consequence, if severed from
the second, usually does not raise concerns
because a_ removal Opportunity achieved
retroactively is not so shocki 8. See, e.g., Hughes
Aircraft, 520 U.S. at 950-51, 117 S.Ct. 1871, 138
L.Ed.2d 135. Whether § 77p(c) does or does not
raise such concerns need not be decided, because
SLUSA dictates that each of the two
consequences not be looked at in isolation from
the other. The Plain language of SLUSA shows
follows. Thus, the two Steps were clearly intended
to operate in tandem. [FN2] SLUSA makes
ERISA look like a good friend to those who want
to pursue their state law remedies in state court.
The appropriate level] of analysis limits the
examination to § 77p(c) itself, not to its conjoined
subparts, and the whole provision must be devoid
of retroactive effect in order for any portion of it to
withstand scrutiny in the present procedural
I, ee
56a
context. If dismissal is not mandated in order to
avoid impermissibly placing a_ retroactive
encumbrance on Huff, the entire provision,
including its grant of removal jurisdiction,
cannot apply. If this is a conundrun,, it is one of
Congress’s making and not one this court made
up.
FN2. Beyond the issue of congressional
intent that any removal under § 77p(c) be
coupled with dismissal, to determine the
retroactive effect of a portion of the
provision independently of the other would
risk the creation of a questionable state of
affairs. If-consideration of the applicability
of the provision’s jurisdictional grant was
severed from that of the dismissibility
aspect of the provision, and the former
was not found to have retroactive effect,
but the latter was so found, Huff's
complaint, entirely based on state law on
its face, would be removable under federal
law, but not preempted by federal law.
This anomaly is otherwise avoided in
SLUSA, which does allow a federal district
court to entertain certain actions founded
on state law. 15 U.S.C. § 77p(d). If those
actions get into federal court via removal,
that court must remand. 15 U.S.C.
§ 77p(d)(4). None of these exceptions
apply here.
Subsection 77p(c),, by incorporating § 77p(b),
requires the dismissal of some, but not all,
actions sounding in state law and essentially
alleging fraud in connection with the sale of
97a -
certain securities. Because the preemptive effect
is limited to “covered Class actions” as defined in
IS US.C. § 77p(f(2)(A), § 77p(c) may be
characterized, in a sense, as procedural.
However, labeling a rule as “procedural” does not
end the inquiry. In Landgraf, the Supreme Court
“took pains to dispel the ‘Sugges[tion] that
concerns about retroactivity have no application
to procedural rules.” Martin, 527 U.S. at 359,
119 S.Ct. 1998, 144 L.Ed.2q 347 (quoting
Landgraf 511 U.S. at 275 n. 29, 114 S.ct. 1483,
128 L.Ed.2d 229). In keeping with the functional
approach, this court must look at the practical
procedural restrictions resulting from the
application of the term “covered class action”.
The Act defines it as:
(i) any single lawsuit in which--
(I) damages are sought on behalf of more
than 50 persons or Prospective’ class
members, and questions of law or fact
common to those persons or members of
the prospective Class, without reference to
issues of individualized reliance on an
alleged misstatement or Omission,
predominate over any questions affecting
only individual persons or members; or
(II) one or more named parties seek to
recover damages on a representative basis
on behalf of themselves and other
unnamed parties Similarly Situated, and
questions of law or fact common to those
persons or members of the prospective
Class predominate over any questions
affecting only individual persons or
members; or
58a
(ii) any group of lawsuits filed in or
pending in the same court and involving
common questions of law or fact, in
which--
(I) damages are sought on behalf of more
than 50 persons; and
(II) the lawsuits are joined, consolidated,
or otherwise proceed as a single action for
any purpose.
15 U.S.C. § 77p(f}(2)(A). Thus, the question is
whether SLUSA, if it denies Huff and its unnamed
party-clients the use of the various incarnations
of “covered class action” as they seek to recover
for injuries caused by defendants’ alleged
violations of state law, is also denying them
procedural rights that cannot be retrospectively
yanked from under them without running afoul of
the notions of “fair notice”, “reasonable reliance’,
and “settled expectations’.
In opposition to Huffs motion to remand,
defendants have persuasively argued that the
plain language of the definition establishes that
the present group action led by Huff falls under
§ 77(p)(f)(2)(A)(i) (I). Huff brought suit on a
representative basis seeking damages not only for
itself but for the “owner-clients” for whom it was
purportedly acting as investment manager and
attorney-in-fact. Compl. J 14-16. In its
submissions, Huff has sought to slip the noose of
this statutory provision by asserting that common
questions of law or fact do not predominate as
between it and the unnamed parties or as among
the unnamed parties. On August 17, 2000, this
court found this argument unconvincing, and still
framed to take advantage of that rule. More to
the point, the language of § 77p(f)(2)(A)(i) casts a
wider net than Rule 23. The bottom line is that
this complaint, as drafted, would be prohibited by
SLUSA if SLUSA applies.
If SLUSA applies, it will deny Huff and the
individuals on whose behalf it purports to act the
efficient resolution of claims naturally suited to
group action and wil] expose them to the
Shortcomings inherent in Separate actions. Such
¢xposure runs counter to the concepts of fair
notice, reasonable reliance, and settled
expectations and would attach new legal
Consequences to completed events that form the
factual basis for Huffs complaint. [FN3] See,
application of a limitation on attorneys’ fees for
postjudgment monitoring services stemming from
prison conditions litigation would have retroactive
effect).
FN3. It is no answer to this point to say
that in drafting SLUSA, Congress sought
to address what it determined to be,
through exercise of its fact-finding powers,
an abuse of the established right to
Proceed as a class by the Category of
Plaintiff into which Huff falls. This court
does not dispute the fact that Congress
Can act prospectively to curb such abuse.
That legislative Prerogative is not at issue |
60a
here. The question is whether
dispossessing individuals, potential future
plaintiffs, of that right after the occurrence
of the events giving rise to their cause of
action, attaches new legal consequences to
those events. Expanding the temporal
reach of a statute, whether forward or
backward in time, will naturally further
the ends sought by the legislation. That
unremarkable proposition cannot
overcome the presumption against
retroactivity. See Landgraf, 511 U.S. at
285-86, 114 S.Ct. 1483, 128 L.Ed.2d 229.
An additional element of unfairness _ that
underlies unanticipated legal consequences rests
on the fact that at the time of Huff's alleged
discussions and transactions with defendants,
Huff was acting as an investment manager and as
attorney-in-fact for unnamed clients who
comprise the group which would otherwise have
to proceed as individuals. Huff was treated by
defendants as the representative of a group. It is
not unreasonable, then, for Huff and its clients to
have expected that if Huff was misled while
operating in its representative capacity, it could
bring suit in that same capacity under then
existing legal theories to remedy the wrong. If
Huff was the conduit for defendants’ fraud on its
clients, it is hardly fair to take away, post hoc,
Huff’s right to seek redress for that fraud.
While SLUSA, if it applies, would erase Huff's
action under state law, it allows for the bringing
of federal securities fraud claim in the form of a
collective action. The legislative history of SLUSA
6la
contains many indications that one of its
intended effects is to contro] securities fraud Class
aclass. See, e.g., H.R. CONF. REP. NO. 105-640,
at 13 (1998). However, even assuming arguendo
constituting the violation, and a 3-year period of
Tepose. See Lampf. Pleva, Lipkind, Prupis, &
Petigrow v. Gilbertson, 501 U.S. 350, 111 S.ct.
2773, 115 L.Ed.2d 321 (1991). Undoubtedly,
under the facts pled by Huff, the operation of
these limitations would eliminate a substantial
would be holding Huff accountable for its “failure”
that are preemptive only. if retroactive. This
Proposition shocks the conscience of this court.
62a
Assuming that Huff and its unnamed clients
could file substantially the same complaint under
federal law, they could do so only by surrendering
otherwise viable causes of action. The reasonable
expectations they had at the time of the allegedly
actionable conduct cannot be reconciled with
such a relinquishment of a substantive right.
[FN4]
FN4. The court need not address the
serious, but more speculative, argument
concerning the combined effect of
§ 77p(f)(2)(A)(i) and (f)(2)(A)(ii) on the
possibility of Huff and its clients receiving
any hearing whatsoever on the merits of
their state claims. Even if Huff and its
clients were to escape the ‘grasp of
§ 77p(f)(2)(A)(i) by filing a _ non-
representative action, or actions, of less
than 50 plaintiffs and subsequently were
able to elude the grouping possibility
anticipated in § 77p/(f)(2)(A)(ii), they would
still have been denied the procedural right
to pursue effective relief in the form of a
collective action. Because the court finds
that § 77p(f}(2)(A)(i)’s limitations alone
would have a retroactive effect, there is no
need to determine whether retrospective
application of the “covered class action”
term would lead to an impermissible
result in other ways.
There is one last rule of statutory construction
that strongly militates against applying SLUSA to
pre-enactment conduct. It arises from the
principles of federalism and comity which
way to recognize the primacy of the state courts
as courts of first instance.
For the foregoing reasons, separate and in
combination, this court cannot and will not grant
defendants’ motion to dismiss. To do SO would
constitute a dispositive ruling, something this
Conclusion
The action will be remanded. All pending motions
not carried with the order of remand will be moot.
A sf oarate and appropriate order will be entered.
190 F.Supp.2d 1273, Fed. Sec. L. Rep. P 91,673
64a
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
W.R. HUFF ASSET
MANAGEMENT CoO., L.L.C.,
out...
CIVIL ACTION
Vv.
00-AR-1630-S
BT SECURITIES
CORPORATION, et al.,
eee ee ee ee ee ee eee See” See” Stee”
Defendants.
ORDER OF REMAND
In’ accordance with the accompanying
memorandum opinion, the court, as required by
28 U.S.C. §1447(c), upon finding that it lacks
subject matter jurisdiction, ORDERS that the
above-entitled case be REMANDED to the Circuit
Court of Jefferson County, Alabama, from whence
it was improvidently removed by defendants. The
Clerk is DIRECTED to effectuate this order:
The parties shall bear their own_ respective
costs incurred as a result of the removal.
DONE this _[2"4] day of May, 2001.
WILLIAM M. ACKER, Jr.
UNITED STATES DISTRICT
JUDGE
65a
APPENDIX F
Before EDMONDSON, HILL and LAY,” Circuit
Judges.
PER CURIAM:
Dismiss for lack of jurisdiction, no
exception to 28 U.S.C. § 1447(d) having been
shown.
DISMISSED.
* Honorable Donald P. Lay, United States Circuit Judge for
the Eighth Circuit, sitting by designation.
66a
APPENDIX G
IN THE CIRCUIT COURT OF JEFFERSON
COUNTY, ALABAMA CIVIL DIVISION
W.R. HUFF ASSET MANAGEMENT
CAD... dnd O06,
Plaintiffs,
CIVIL ACTION NUMBER:
Vv. CV 00-2630
BT SECURITIES, CORPORATION, et al.
Defendants.
ORDER
This matter comes before the Court on
Defendants’ motion to dismiss. The Court having
considered Defendants’ motion and memorandum
of law as well as Plaintiffs’ response and having
conducted oral argument of this matter on March
21, 2003 makes the following findings:
This action commenced on April 28, 2000.
In a multi-count complaint Plaintiff alleges that
commencing in early August 1995, it was solicited
by certain of the Defendants to purchase certain
Notes which were issued by said Defendants to
finance the purchase of Bruno’s, Inc. Beginning
in November 1995, Plaintiff alleges that it
commenced the purchase of the said Notes.
Plaintiff, Huff Asset Management Co., LLC (“Huff)
brings this action in its capacity “as investment
manager and as attorney in fact for certain clients
(“Beneficial Owners”) who have held in excess of
67a
$290 million in principle amount of 10%% Senior
Subordinated Notes Due 2005 (“Notes”) that were
publicly offered by Bruno’s, Inc. (“Bruno’s”) in
August 1995 pursuant to registration under the
Securities Act of 1933. (Plaintiff's complaint
7 11(16), p. 11). Plaintige alleges the following
claims:
Count I: Fraudulent Suppression, as against all
Defendants, under the Provisions of Ala. Code §6-
5-100 & 102 (1975);
Count IT: Fraudulent and _ Reckless
Misrepresentation, aS against all Defendants,
under the provisions of Ala. Code §6-5-100 & 101
(1975);
Count III: Fraudulent and Reckless Deceit, as
against all Defendants, under the provisions of
Ala. Code §6-5-103 & 104 (1975);
Count IV: Violation of the Alabama Securities
Act, as against all Defendants, under the
provisions of Ala. Code §8-6-17(1975):
Count V: Negligent Misrepresentation, as against
what is __ identified as “The Underwriter
Defendants’;
Count VI: Negligent Misrepresentation of
Financial Information, against what is identified
as the “Auditor Defendants’; and;
Count VII: Civil Conspiracy, as against all
Defendants.
68a
On June 14, 2000, Defendants filed notice
of removal of the cause of action to the United
States District Court for the Northern District of
Alabama.
On August 17, 2000, Federal District Judge
William Acker ruled that removal to the Federal
District Court was proper, but nevertheless
encouraged the parties to take an interlocutory
appeal to the 11th Circuit Court of Appeals. This
was attempted but the 11th Circuit rejected the
appeal. Plaintiffs herein then prevailed upon
Judge Acker to reconsider his previous ruling
which the Court did. In a published opinion, W.R.
Huff Asset Management Co., L.L.C. v. BT
Securities, 190 F.Supp.2d 1273 (N.D. Ala. 2001)
the Court remanded this matter back to the
Jefferson County Circuit Court. In its May 2,
2001 order of remand, which accompanied the
Court’s memorandum opinion, the Court stated:
“. . . [T]he court, as required by 28
U.S.C.A. §1447(c), upon finding that it
lacks subject matter jurisdiction, ORDERS
that the above-entitled case be
REMANDED to the Circuit Court of
Jefferson County. . .”
Defendants then, on January 24, 2003 filed
the present motion to dismiss Plaintiffs’ complaint
based upon the preemption by the Securities
Litigation Uniform Standards Act of 1998
(“SLUSA”), [PL 105-353 (S1260) 1998].
The basis of Defendants removal petition
was their assertion that SLUSA applied to
69a
Plaintiffs cause of action to preempt the asserted
State claims in favor of the relief afforded by the
Securities Act of 1933 (15 U.S.C.A. §77a et seq.)
and the Securities Act of 1934 (15 U.S.C.A. §78a
et seq.) Because the preemptive provisions of
those Acts did not take effect until November 3,
1998 with the passage of the SLUSA
amendments, and the conduct which serves as a
basis for the action predated the enactment of the
Said amendments, Plaintiffs position before the
Federal District Court was that the Act did not
apply to preempt its state law Claims. To so apply
the Act, Plaintiffs have argued, would constitute
an impermissible retroactive application.
Defendants’ position before the Federal District
Court was that Plaintiffs complaint was not filed
until after passage of the SLUSA amendments.
Since SLUSA, by its express Statutory language,
does not apply to cases commenced or pending at
the time of enactment!, Defendants argued before
the Federal District Court that it does apply to the
case now before the Court and that based on its
broad preemptive application should serve as a
basis for removal of this action to Federal Court.
In rejecting Defendants argument, the
Federal District Court directly addressed the
issue of retroactive application of SLUSA and
expressly determined that those amendments do
not have retroactive applicability to pre-
enactment conduct. In so finding, the Federal]
' (c) APPLICABILITY -- The amendments made by this
Section shall not affect or apply to any action commenced
before and pending on the date of enactment of this Act.
P.L. 105-353 §101(c).
70a
District Court explicitly invoked §1447(c) and
expressly stated that the basis for its remand
order was its finding that it lacked subject matter
jurisdiction founded upon its determination that
SLUSA did not have retroactive application.
Clearly Judge Acker’s May 2, 2001 remand order
is now final.
Defendants are before the Court under
ARCP 12(b)(1) motion to dismiss averring that the
Court lacks subject matter jurisdictién over
Plaintiffs case. The appropriate standard of review
to be exercised by the Court in considering
Defendants’ motion was set forth in Lyons v.
River Road Const., Inc., 2003 WL 1146517 (Ala.
2003) as follows: ;
“The appropriate standard of review of a
trial court’s denial of a motion to dismiss
is whether ‘when the allegations of the
complaint are viewed most strongly in the
pleader’s favor, it appears that the pleader
could prove any set of circumstances that
would entitle [the pleader] to relief.”
Nance v. Matthews, 622 So.2d 297, 299
(Ala. 1993); Raley v. Citibanc of
Alabama/Andatlusia, 474 So.2d 640, 641
(Ala. 1985). This Court does not consider
whether the plaintiff will ultimately
prevail, but only whether the plaintiff may
possibly prevail. Nance, 622 So.2d at 299
- A ‘dismissal is proper only when it appears
beyond doubt that the plaintiff can prove
no set of facts in support of the claim that
would entitle the plaintiff to relief.’ Nance,
622 So.2d at 299; Garrett v. Hadden, 495
7la
So.2d 616, 617 (Ala. 1986); Hill v. Kraft,
Inc., 496 So.2d 768, 769 (Ala. 1986). 2003
WL 1146517 at *2
In other words, Defendants motion tests
Plaintiffs’ pleadings to determine whether
Plaintiffs have set forth a plausible Cause of
action against Defendants. The only basis upon
which Defendants Challenge the sufficiency of
Plaintiffs complaint is on the preemption issue
posed by the retroactive application of the SLUSA
amendments to the Securities Acts of 1933 and
1934, the denial of which was the basis of the
federal district court’s remand order.
Defendants have cited the Court to a
California state court decision, Shaw v. Charles
Schwab & Co., Inc., 2003 WL 1463842 (Cal.
Superior, 2003) which in turn cited Moreau v.
San Diego Transit Co + 210 Cal.App.3d 614
(Cal. App.4. Dist. 1989) for the Proposition that the
complaint. The California Court Stated the
following in its rationale for this holding:
“In making its jurisdictional determination
on a motion for remand, the district court
looks no further than the complaint and
the motion for removal. This limitation is
one aspect of the “well-pled complaint”
rule which holds a plaintiff is the “master”
72a
of his complaint and he may craft his
causes of action, if he so desires, to
exclude federal jurisdiction. Under the
rule a federal question must appear from
the complaint and not from = any
preemption defense which might be raised
in state court and which might ultimately
defeat the cause of action. (Franchise
Tax Bd. v. Laborers Vacation Trust
(1983) 463 U.S. 1, 9-11 [77 L.ed.2d 420,
430-432, 103 S.Ct.2841].)
However, an independent corollary to the
“well-pled complaint” rule is the “artful
pleading” rule or the “doctrine of complete
preemption.” This doctrine states that
while couched in state contract or tort
terms, federal jurisdiction exists if the
issues actually raise an essentially federal
question. In this case Transit’s claim of
preemption both in federal and state court
was based on this doctrine.
When a federal court grants a motion for
remand in the present context, it does nothing
more than determine the complaint fails, either
directly or by operation of the ‘artful pleading”
doctrine, to state a question arising under federal
law. It does not determine whether a preemption
defense can be successfully offered in state court
when the entire case is considered. As was stated
in Survival Sys. V. U.S. District Court for the
Southern District of California, 825 F.2d 1416
(9 Cir. 1987): “In this case, the order of remand
did not resolve a matter of substantive law, as in
Pelleport [Pelleport Investors v. Budco Quality
73a
Theatres, (9th Cir. 1984) 741 F.2d 273, 276-278]
or Clorox [Clorox v. U.S. Dist. Ct. for N.D. of
California, (% Cir. ] 985) 779 F.2d 517, 520).
The ruling of the district court was that the state
cause of action alleged in Rodriquez’s
complaint was not an artfully pled federal claim
that was preempted by federal labor law. This did
not finally resolve the issue of preemption, which
could still be raised as a defense to the state
claim in state court. Thus, if the proof in the state
court were such as to justify the conclusion that
the cause of action was completely preempted by
federal labor law, the defense of preemption could
be sustained. The ruling of the district court was
simply that the allegations of the complaint did
not justify such a result.’ (See also Caterpillar,
Inc. v. Williams (1 987) 482 U.S. 386, 398, fn.13
[96 L.Ed.2d 318, 331, 107 S.Ct 2425]; Price v.
PSA, Inc. (9 Cir. 1987) 829 F.2d 871, 876).
While we cannot determine the exact nature
of the district court’s determination, it clearly
involved only the question of jurisdiction and
thus Transit could properly assert its defense of
preemption in state court. Shaw, supra, at 620-
41.
Similarly, the removal petition filed in the
case before this Court was not premised on the
“well-pled complaint” doctrine, but on the “artful
pleading doctrine”. Removal was not premised on .
any count contained in Plaintiffs’ complaint, but
upon grounds that the entire field of litigation had
been preempted by federal legislation around
which Plaintiff attempted to artfully plead. As in
the Shaw opinion, the Federal District Court
74a
issued a remand order on an explicit finding that
it lacked subject matter jurisdiction. Shaw ruled
that when the federal court makes a finding that
it lacks subject matter jurisdiction, then it could
not have addressed the merits of the preemption
defense, therefore the matter could be addressed
by the state court on remand. The Court,
however, must look to the exceptions cited in
Moreau, relied upon in Shaw so as to determine
if the California ruling is applicable to the case
now before it.
In one of those exceptions, Pelleport
Investors v. Budco Quality Theatres, 741 F.2d
273, (9th Cir. 1984), the federal district court
remanded the case to state court, however, the
Court found that the proscription contained in 28
USCA 1447(d) regarding nonreviewability did not
apply to the federal district court’s remand order
and that Defendants proper procedural course to
review the remand order was an appeal to the 9%
Circuit Court of Appeals. In Pelleport, removal
was opposed on two grounds, one, that diversity
of citizenship of the parties, the basis for removal,
did not exist; and, second, the contract at issue
contained a forum _ selection clause, which
specified the state court. The federal district court
found that that it did not have subject matter
jurisdiction on the express basis that the forum
selection clause contained in the contract
provided otherwise. In finding that the remand
order was reviewable, the Court wrote:
“Had the district court based its remand
order on the first theory, Section 1447(d)
would no doubt apply, because, even if
ceetienneinell
75a
Clearly erroneous, a district court’s
decision that it lacks subject matter
jurisdiction to hear a case is. not
reviewable. See Thermtron Products,
Inc. v. Hermansdorfer, 423 U.S. 336,
343, 96 S.Ct. 584, 589, 46 L.Ed.2d 542
(1976). But the court did not base its
remand order on lack of subject matter
jurisdiction. It relied instead upon the
forum selection clause. The novel question
before this court, then, is whether a
remand order based on the enforceability
of such a clause is reviewable. We believe
it is. ... Budco argues that, because
enforceability of a forum selection clause,
like court congestion, is a ground “wholly
different” from the grounds for remand
specified in Section 1] 447(c), Section
1447(d) does not apply, and the remand
order is reviewable. See Thermtron, 423
U.S. at 344, 96 S.Ct., at 58. Although we
agree that enforceability of a forum
Selection clause is not a ground specified
in Section 1447(c), equating this case with
Thermtron is difficult.
The confusion appears to be generated by
the label of remand. Once the fact of
remand is separated from the reason for
its issuance, however, it becomes clear
that the district court did not merely
remand this case to the state court; it
reached a substantive decision on the
merits apart from any jurisdictional
decision... .
76a
Budco presents an even stronger case for
review. In Waco [v. United States
Fidelity & Guaranty Co., 293 U.S. 140,
55 S.Ct. 6, 79 L.Ed. 244 (1935)] and
Armstrong [v. Alabama Power Co., 667
F.2d 1385, 1387 (11% Cir. 1982]), the
district courts issued remand orders
based on lack of subject matter
jurisdiction, a basis clearly enumerated in
section 1447(c). The cases stand for the
proposition that although the final
determination that diversity is lacking is
not reviewable, the earlier determination
that a third party defendant must be
dismissed from the action is. Here, the
district court ordered the case remanded
to state court after it found the parties’
agreement to litigate in state court
enforceable. Not only did the court’s
determination that the forum selection
clause was valid and enforceable precede
the remand order, it formed the basis of
that order. Like the dismissal in Waco, the
court’s decision that the contract clause is
enforceable, if not reversed or set aside, is
conclusive upon Budco, and, therefore,
must be reviewed. To hold otherwise
would deprive Budco of its right to appeal
a substantive determination of contract
law. We cannot believe that Congress
intended to immunize such decisions from
review....
The policy underlying the _ general
nonreviewability rule of Section 1447(d) is
to prevent delay by protracted litigation
77a
over jurisdictional issues. See Thermtron,
423 U.S. at 351, 96 S.Ct at 593; United
States v. Rice, 327 U.S. 742, 751, 66 S.Ct.
835, 838 90 L.Ed. 982 (1946) (construing
the predecessor to section 1447(d)).
Congress’ concern that parties might use
the appeal process to protract litigation
Over jurisdictional issues and thereby
further delay litigation over the merits of
the case reflects a balancing of competing
interests resolved in favor of judicial
economy. The availability of a federal
forum through the removal procedure had
to be weighed against the interest of
expeditious resolution of a dispute
initiated in state court. Congress decided
that in cases begun in state court, lengthy
delays occasioned by federal appeals over
jurisdictional issues are unacceptable.
Consequently, the district court is the
final arbiter of whether it has jurisdiction
to hear the case. But where a district
court bypasses the jurisdictional
arguments and reaches the merits of a
contract dispute, the policy is
inapplicable. Any delay caused by an
appeal of the contract issue is a delay that
1447(d) far beyond its intended
parameters and would leave matters of
substantive contract law unreviewable. We
refuse to impute such an intent to
Congress.” 741 F.2d at 277-78.
78a
The Court’s examination of Judge Acker’s
remand order indicates that the ruling in
Pelleport, supra, an exception to the ruling in
Moreau, is more applicable to the case now
before it. Judge Acker not only remanded the case
on a finding that the federal court lacked subject
matter jurisdiction, but he premised that finding
of lack of subject matter jurisdiction on a merits
determination that the federal legislation, which
Defendants aver impose complete federal
preemption, did not apply to the pre-enactment
conduct which Plaintiffs allege to be actionable.
As such, the remand order in this case, aS was
the case in Pelleport, was properly reviewable for
its merits determination on the issue of
retroactivity, by the 11 Circuit Court of Appeals.
Furthermore, because the issue. of
retroactive application of SLUSA has already been
ruled upon in this case by the Federal District
Court, the doctrine of the law of the case applies
to that ruling. Citing to Blumberg v. Touche
Ross & Co., 514 So.2d 922 (Ala. 1987), the
Alabama Supreme Court in Quimby v. Memorial
Parks, Inc., 835 So.2d 134 (Ala.,2002) wrote the
following:
“According to the doctrine of the law of the
case, ‘whatever is once established
between the same parties in the same case
continues to be the law of that case,
whether or not correct on_ general
principles, so long as the facts on which |
the decision was predicated continue to be
the facts of the case.’ Blumberg v. Touche
Ross & Co., 514 So.2d 922, 924 (Ala.
a
79a
1987).... Because the trial court entered
[its] judgment on the Same record as that
before the Court of Civil Appeals, the facts
on which the Court of Civil Appeals’
decision was predicated continue to be the
facts of the case, and, therefore, the Court
of Civil Appeals’ conclusions in its .. .
opinion are the law of the case.’ Ex parte
S.T.S., 806 So.2d 336, 341-42 (Ala.
2001).” 835 So.2d at 135-36.
Defendants, in their briefs and argument to
the Court, cited other Federal District Courts
which have, since Judge Acker’s order, reached
different conclusions on the issue of retroactive
application of SLUSA to pre-enactment conduct.
However, Defendants have not made a showing to
the Court that the underlying facts upon which
Judge Acker’s ruling was based have changed.
In any event, the Court finds the rationale
employed by the federal district court to be
compelling in its finding that SLUSA, to be
applied to this Case, necessarily would require a
retroactive application which is impermissible.
The competing authorities posed by Plaintiffs and
Defendants, that authored by District Judge
Acker, W.R. Huff Asset Management Co., L.L.C.
v. BT, 190 F.Supp.2d 1273 (N.D.Ala. 2001); and
by District Judge Bowdre, W.R. Huff Asset
Management Co., LLC ov, Kohlberg, 234
F.Supp.2d 1218 (N.D.Ala., 2002) both cite to
common authority, Landgraf v. USI Film Prod.,
S1i U.S. 244, 114 Sct 1483, 128 L.Ed.2d 229
(1994), for their very different conclusions
regarding the appropriateness of retroactive
80a
application of SLUSA. The heart of the Landgraft
opinion on this issue is contained on page 1505
of the ruling where the Court wrote:
“When a case implicates a federal statute
enacted after the events in suit, the court’s
first task is to determine whether
Congress has expressly prescribed the
statute’s proper reach. If Congress has
done so, of course, there is no need to
resort to judicial default rules. When,
however, the statute contains no such
| express command, the court must
| determine whether the new statute would
have retroactive effect, i.e., whether it
would impair rights a party possessed
when he acted, increase a party’s liability
for past conduct, or impose new duties
with respect to transactions already
completed. If the statute would operate
retroactively, our traditional presumption
teaches that it does not govern absent
clear congressional intent favoring such a
result.” 114 S.Ct. at 1505.
Both lines of authority cited by Plaintiffs
and Defendants concede that the legislative
language contained in the SLUSA Amendments
addressing the Act’s temporal reach do not pass
the test of serving as a clear and unambiguous
statement of Congressional intent, therefore rules
of judicial construction must be applied in order
to determine whether the civil statute was
intended to or may have a retroactive application.
The language adopted by the Court in Landgraft,
as cited hereinabove, is essentially at the root of
ee |
8la
the differing interpretations, which the parties
have presented to the Court. That language is
lifted directly from the opinion in Society for the
Propagation of the Gospel v. Wheeler, 22
F.Cas. 756 (C.C.N.H. 1814). In that case, Mr.
Justice Story addressed the issue of the
applicability of a statute enacted in June 19,
1805 by the New Hampshire legislature which
established a 6 year statute of limitations for the
filing of certain claims dealing with rights to real
Property. Prior to the passage of the Act, only the
equitable principle of laches, if any, applied as a
time constraint upon potential plaintiffs to
exercise their right to file a claim and not be time
barred. The Court thus wrote:
“The present action was brought in 1807,
and if, as the tenants contend, the act
applies to it, it must be upon the ground,
that the six years’ possession under a
Supposed legal title is to be calculated
backwards, from the time of the
commencement of the action, although
that time should not have elapsed after
the date of the act. And in this view, the
argument to support its constitutionality
must be the same, as though the action
were commenced immediately after the
passage of the act. It may be admitted,
that if this were a mere statute of
limitations, barring the actions in the
realty after a reasonable time, under the
exercise of legislative discretion, its
constitutionality could not be doubted.
And if the statute had declared, that if a
party entitled should, for six years after
82a
passing the act, or for six years after any
ouster or disseisin in futuro, neglect to
pursue his remedy for the recovery of his
right, then the recovery should only be
had upon the terms of the act, it might,
perhaps, have fallen under the same
consideration, for it would in effect be only
a rigorous statute of limitations.
But if the legislature were to pass an act of
limitations, by which all actions upon past
disseisins were to be barred, without any
allowance of time for the commencement
thereof in futuro, it would be difficult to
support its constitutionality, for it would
be completely restropsective in_ its
operation on _ vested rights. (citation
omitted). But the present cannot be
considered as a statute merely regulating
a remedy, and prescribing the mode and
time of proceeding. It confers an absolute
right to compensation on one side, and a
corresponding liability on the other, if the
party would enforce his previously vested
title to the land. And unless he should
comply within a given time, his title, or,
what is in effect the same thing, his
remedy, is completely extinguished. It is
not, therefore, in form, or in substance, a
modification of the remedy, but a direct
extinguishment of a vested right in all the
improvements and erections on the land,
which were annexed to the freehold. It also
directly impairs the value of the vested
right of the party in the land itself,
inasmuch as it impairs the remedy, and
83a
subjects the party to burthens, which may
render the right not worth pursuing; and
that too upon past considerations,
respecting which the party had incurred
no legal obligation, and had imputed to
him no legal laches. If, indeed, it ought, as
is alleged, to be the very essence of a new
law, that it is to be a rule for future cases,
nova constitutio futuris formam imponere
debet, non praeteritis,’ (Bract. lib. 4, fol.
228), and that it is against natural justice
to apply it to past Case, it would seem to
follow, that an act, which works the
effects, which have been Stated, ought to
be deemed a retrospective law within the
prohibition of the constitution of New
Hampshire; for it is a law for the decision
of a civil Cause, which affects past cases;
and has a retroactive Operation... .
On the whole, if the Statute must have a
construction, which wil] embrace the case
at bar, with whatever reluctance it may be
declared, in my judgment it is
unconstitutional, inasmuch as it divests a
vested right of the demandants, and vests
a new right in the tenants, upon
considerations altogether past and gone.”
22 F.Cas. at 768.
It was within the context of interpreting
such a statute that the Court wrote, with regard
to whether a statute is retroactive or not:
“What is a retrospective law, within the
true intent and meaning of this article? Is
84a
it confined to statutes, which are enacted
to take effect from a time anterior to their
passage? or does it embrace all statutes,
which, though operating only from their
passage, affect vested rights and past
transactions? It would be a construction
utterly subversive of all the objects of the
provision, to adhere to the former
definition. It would enable the legislature
to accomplish that indirectly, which it
could not do directly. Upon principle, every
| statute, which takes away or impairs
| vested rights acquired under existing laws,
or creates a new obligation, imposes a new
duty, or attaches a new disability, in
respect to transactions or considerations
already _past., must be deemed
retrospective; and this doctrine seems fully
supported by _ authorities.” (emphasis
added) 22 F.Cas. at 767.
The operative effect of SLUSA and the
express purpose of its passage in 1998, namely,
to extinguish state “covered class actions” alleging
fraud or misrepresentation in transactions
involving “covered securities” and to force such
claims into federal court requiring the parties to
proceed under federal securities statutes, is in the
legislative history of the Act. As the Court wrote in
Lander v. Hartford Life & Annuity Ins. Co.,
251 F.3d 101 (2nd Cir. Conn. 2001):
“SLUSA is one of several federal securities
statutes passed in the latter half of the
1990s which were intended to promote
uniformity in the securities markets. In
a
85a
1995, Congress passed the Private
Securities Litigation Reform Act of 1995
(“PSLRA”), Pub.L. 104-67, 109 Stat 737
(1995) (codified in part at 15 U.S.C. §§77z-
1, 78u, to provide uniform standards for
Class actions and other suits alleging
fraud in the securities market. PSLRA was
intended to prevent “strike suits”? —
meritless class actions that allege fraud in
the sale of securities. See H.R. Conf. Rep.
No. 105-803 (1998). Because of the
expense of defending such Suits, issuers
were often forced to Settle, regardless of
the merits of the action. See H.R. Conf.
Rep, 104-369 (1995). PSLRA addressed
these concerns by instituting, inter alia,
heightened pleading requirements for
Class actions alleging fraud in the sale of
national securities, see 15 U.S.C. § 78u-4,
and a mandatory Stay of discovery so that
district courts could first determine the
legal Sufficiency of the claims in all
Securities class actions, see 15 USC
§77z-1(b). These mechanisms were
investors and maintain confidence in our
Capital markets’ by ‘discourag|ing]
frivolous litigation.’ H.R. Conf. Rep. 104-
369 (1995). PSLRA also has the effect,
however, of discouraging non-frivolous
litigation.
By 1998, however, it became clear to
Congress that many of the goals of PSLRA
had not been realized. According to
SLUSA’s Congressional findings, many
86a
class action plaintiffs avoided the
stringent procedural hurdles erected by
PSLRA by bringing suit in state rather
than federal court. See Pub. L. No. 105-
353 §2(2). By suing in state court under
state statutory or common law, these
litigants were able to assert many of the
same causes of action, but avoid the
heightened procedural requirements
instituted in federal court. See _ id.
According to a joint House-Senate
Committee Report, the decline in federal
securities class action suits that occurred
after the passage of PSLRA _ was
accompanied by a_ nearly identical
increase in state court filings. See H.R.
Conf. Rep. No. 105-803 (1998).
SLUSA was passed in 1998 primarily to
close this loophole in PSLRA. It did this by
making federal court the exclusive venue
for class actions alleging fraud in the sale
of certain covered securities and by
mandating that such class actions be
governed exclusively by federal law. See 15
U.S.C. §§ 77p(b)-(c).” 251 F.3d at 107-108.
The federal district court took the only
meaning that the clear legislative intent allowed,
which was that SLUSA was meant to extinguish
rights of covered class action litigants to proceed
in state court alleging state claims that involved
covered securities, and thus escape the operation
of Private Securities Litigation Reform Act of 1995
(PSLRA). The characteristics of impermissible
retroactive application oof civil statutes
87a
enumerated by Mr. Justice Story, namely, “.. .
[E]very statute, which takes away or impairs
vested rights acquired under existing laws, or
creates a new obligation, imposes a new duty, or
attaches a new disability, in respect to
transactions or considerations already past, must
be deemed retrospective” exist in the authority in
the disjunctive rather than the conjunctive.
From August 1995, the time when Plaintiff
alleges its right to proceed in state court arose, to
the effective date of the SLUSA amendments on
November 3, 1998, Plaintiffs had the right to
proceed in state court seeking their state law
remedies without impairment from the federal
securities statutes. On November 3, 1998 that
right, under a retroactive application of the
SLUSA amendment would not only be impaired
but extinguished. As was the case in Society for
the Propagation of the Gospel v. Wheeler,
which is the basis for the opinion in Landgraf.
with regard to the determination of permissible or
impermissible retroactive application of civil
litigation, retroactive application in this case not
only destroys a remedy but a right. As this was
the basis for Judge Acker’s remand order, this
Court finds no basis upon which to challenge that
Court’s reasoned conclusion.
The foregoing matters and authority having
been considered by this Court, Defendants
motion to Dismiss Plaintiffs complaint is hereby
DENIED.
88a
DONE AND ORDERED THIS THE __ DAY OF
MARCH, 2003.
CIRCUIT JUDGE
89a
APPENDIX H
§ 77v. Jurisdiction of offenses and suits
(a) Federal and State courts; venue; service of
process; review; removal; costs
the United States courts of any Territory shall
have jurisdiction of offenses and violations under
this subchapter and under the rules and
respect thereto, and, concurrent with State and
Territorial courts, except as provided in section
77p of this title with respect to covered class
actions, of all suits in equity and actions at law
brought to enforce any liability or duty created by
this subchapter. Any such suit or action may be
brought in the district wherein the defendant is
found or is an inhabitant or transacts business,
or in the district where the offer or sale took
place, if the defendant participated therein, and
process in such cases may be served in any other
district of which the defendant is an inhabitant or
wherever the defendant may be found.
Judgments and decrees So rendered shall be
Subject to review as provided in sections 1254,
1291, 1292, and 1294 of Title 28. Except as
provided in section 77p(c) of this title, no case
arising under this subchapter and brought in any
State court of competent jurisdiction shall be
removed to any court of the United States. No
costs shall be assessed for Or against the
Commission in any proceeding under this
subchapter brought by or against it in the
Supreme Court or such other courts.
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§ 77p. Additional remedies; limitation on
remedies
(a) Remedies additional
Except as provided in subsection (b), the
rights and remedies provided by this subchapter
[15 U.S.C.A. § 77a et seq.] 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 employed
any manipulative 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 involving a covered security, as set forth in
subsection (b), shall be removable to the Federal
district court for the district in which the action is
pending, and shall be subject to subsection (b).
(d) Preservation of certain actions
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(1) Actions under State law of State of
incorporation
(A) Actions preserved
Notwithstanding subsection (b) or
(c), a covered class action described in
Subparagraph (B) of this paragraph
that is based upon the Statutory or
common law of the State in which the
issuer is incorporated (in the case of a
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 subparagraph if it involves--
(i) the purchase or sale of
securities by the issuer 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
securities of the issuer that--
(I} is made by or on
behalf of the issuer or an
affiliate of the issuer to
holders of equity securities of
the issuer; and
a ———
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(II) concerns decisions of
those equity holders with
respect to voting ~ their
securities, acting in response
to a tender or exchange offer,
or exercising dissenters’ or
appraisal rights.
(2) State actions
(A) In general
Notwithstanding any other
provision of this section, nothing in
this section may be construed to
preclude a_ State oor political
subdivision thereof or a State pension
plan from bringing an action involving
a covered security on its own behalf, or
as a member of a class comprised
solely of other States, _ political
subdivisions, or State pension plans
that are named plaintiffs, and that
have authorized participation, in such
action.
(B) State Pension plan defined
For purposes of this paragraph, the
term “State pension plan” means a
pension plan established and
maintained for its employees by the
government of the State or political
subdivision thereof, or by any agency
or instrumentality thereof.
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(3) Actions under contractual agreements
between issuers and indenture
Notwithstanding subsection (b) or (c), a
covered class action that seeks to enforce a
contractual agreement between an issuer
and an_ indenture trustee may be
maintained in a State or Federal court by a
party to the agreement or a successor to
such party.
(4) Remand of removed actions
In an action that has been removed from a
State court pursuant to subsection (c), if the
Federal court determines that the action may be
maintained in State court pursuant to this
subsection, the Federal court shall remand such
action to such State court.
(e) Preservation of State jurisdiction
The securities commission (or any agency or
office performing like functions) of any State shall
retain jurisdiction under the laws of such State to
investigate and bring enforcement actions.
(f) Definitions
For purposes of this section, the following
definitions shall apply:
(1) Affiliate of the issuer
The term “affiliate of the issuer” means a
person that directly or indirectly through one
94a
or more’ intermediaries, controls or is
controlled by or is under common control with,
the issuer.
(2) Covered class action--
(A) In general
The term “covered class action”
means--
(i) any single lawsuit in which--
(I) damages are sought
on behalf of more than 50
persons or prospective class
- members, and questions of
law or fact common to those
persons or members of the
prospective class, without
reference to issues’. of
individualized reliance on an
alleged - misstatement or
omission, predominate over
any questions affecting only
individual persons or
members; or
(II) one or more named
parties seek to _ recover
damages on a representative
basis on behalf of themselves
and other unnamed parties
similarly situated, and
questions of law or fact
common to those persons or
a
95a
members of the prospective
Class predominate over any
questions _ affecting only
individual persons or
members; or
(ii) any group of lawsuits filed in
or pending in the same court and
involving common questions of law
or fact, in which--
(I) damages are sought
on behalf of more than 50
persons; and
(II) the lawsuits are
joined, consolidated, or
otherwise proceed as a single
action for any purpose.
(B) Exception for derivative actions
Notwithstanding subparagraph (A),
the term. “covered class action’ does
not include an exclusively derivative
action brought by one or more
Shareholders on _ behalf of a
corporation.
(C) Counting of certain class
members
For purposes of this paragraph, a
corporation, investment company,
pension plan, partnership, or other
entity, shall be treated as one person
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or prospective class member, but only
if the entity is not established for the
purpose of participating in the action.
(D) Rule of construction
Nothing in this paragraph shall be
construed to affect the discretion of a ~
State court in determining whether
actions filed in such court should be
joined, consolidated, or otherwise
allowed to proceed as a single action.
(3) Covered security
The term “covered security” means a security
that satisfies the standards for a covered security
specified in paragraph (1) or (2) of section 77r(b)
of this title at the time during which it is alleged
that the misrepresentation, omission, or
manipulative or deceptive conduct occurred,
except that such term shall not include any debt
security that is exempt from registration under
this subchapter pursuant to rules issued by the
Commission under section 77d(2) of this title.
(May 27, 1933, c. 38, Title 1, § 16, 48 Stat. 84;
Nov. 3, 1998, Pub.L. 105-353, Title I, § 101(a)(1),
112 Stat. 3227.)
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APPENDIX I
Securities Litigation Uniform Standards Act
ONE HUNDRED FIFTH CONGRESS OF
THE UNITED STATES OF
AMERICA
At the Second Session
Begun and held at the City of Washington
on Tuesday, the twenty-seventh day of January,
one thousand nine hundred and ninety-eight
An. Act to reform Federal securities
litigation, and for other purposes.
Be it enacted by the Senate and House of
Representatives of the United States of America in
Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the “Securities Litigation
Uniform Standards Act of 1998”.
SEC. 2. FINDINGS.
The Congress finds that —
(1) the Private Securities Litigation Reform
Act of 1995 sought to prevent abuses in private
securities fraud lawsuits;
(2) since enactment of that legislation,
considerable evidence has been presented to
Congress that a number of securities class action
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lawsuits have shifted from Federal to State
courts;
(3) this shift has prevented that Act from
fully achieving its objectives;
(4) State securities regulation is of
continuing importance, together with Federal
regulation of securities, to protect investors and
promote strong financial markets; and
(5) in order to prevent certain State private
securities class action lawsuits alleging fraud
from being used to frustrate the objectives of the
Private Securities Litigation Reform Act of 1995, it
is appropriate to enact national standards for
securities class action lawsuits involving
nationally traded securities, while preserving the
appropriate enforcement powers of _ State
securities regulators and not changing the
current treatment of individual lawsuits.
TITLE I - SECURITIES LITIGATION UNIFORM
STANDARDS
Sec. 101. LIMITATION ON REMEDIES.
(a) Amendments to the Securities Act of
1933.--
(1) Amendment.—Section 16 of the
Securities Act of 1933 (15 U.S.C. 77p) is amended
to read as follows:
“SEC. 16. ADDITIONAL REMEDIES;
LIMITATION ON REMEDIES.
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“(a) Remedies Additional—Except as
provided in subsection (b), the rights and
remedies provided by this title shall be in addition
to any and all other rights and remedies that may
exist at law or in equity.
“(b) Class Action Limitations.—No covered
class 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 covered security.
“(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), shall be removable to the Federal
district court for the district in which the action is
pending, and shall be subject to subsection (b).
“(d) Preservation of Certain Actions.—
“(1) Actions under state law of State of
incorporation.—
“(A) Actions preserved.—Notwithstanding
subsection (b) or (c) a covered class action
described in subparagraph (B) of this paragraph
that is based upon the Statutory or common law
100a
of the State in which the issuer the issuer is
incorporated (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 subparagraph if it
involves--
“(i) the purchase or sale of securities by the
issuer 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
securities of the issuer that --
“(I) is made by or on behalf of the issuer or
an affiliate of the issuer to holders of equity
securities of the issuer; and
“(II) concerns decisions of those equity
holders with respect to voting their securities,
acting in response to a tender or exchange offer,
or exercising dissenters’ or appraisal rights.
“(2) State actions.—
“(A) In general.—Notwithstanding any other
provision of this section, nothing in this section
may be construed to preclude a State or political
subdivision thereof or a State pension plan from
bringing an action involving a covered security on
its own behalf, or as a member of a class
comprised solely -of other States, political
subdivisions, or State pension plans that are
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named plaintiffs, and that have authorized
Participation, in such action.
“(B) State pension plan defined.—For
purposes of this paragraph, the term “State
pension plan” means a pension plan established
and maintained for its employees by the
government of the State or political subdivision
thereof, or by any agency or instrumentality
thereof.
“(3) Actions under contractual agreements
between issuers. an indenture trustees.—
Notwithstanding subsection (b) or (c), a covered
Class action that seeks to enforce a contractual
agreement between an issuer and an indenture
trustee may be maintained in a State or Federal
court bya party to the agreement or a successor
to such party.
“(4) Remand of removed actions.—In an
action that has been removed from a State court
pursuant to subsection (c), if the Federal court
determines that the action may be maintained in
State court pursuant to this subsection, the
Federal court shall remand such action to such
State court.
“(e) Preservation of State Jurisdiction.—The
securities commission (or any agency or office
performing like functions) of any State shall
retain jurisdiction under the laws of such State to
investigate and bring enforcement actions.
“(f) Definitions. —For purposes of this
section, the following definitions shall apply:
102a
“(1) Affiliate of the issuer—The term
“affiliate of the issuer” means a person that
directly or indirectly, through one or more
intermediaries, controls or is controlled by or is
under common control with, the issuer.
“(2) Covered class action.—
“(A) In general.—The term “covered class
action” means—
“(i) any single lawsuit in which—
“(I) damages are sought on behalf of more
than 50 persons or prospective class members,
and questions of law or fact common to those
persons or members of the prospective class,
without reference to issues of individualized
reliance on an alleged misstatement or omission,
predominate over any questions affecting only
individual persons or members; or
“(II} one or more named parties seek to
recover damages on a representative basis on
behalf of themselves and other unnamed parties
similarly situated, and questions of law or fact
common to those persons or members of the
prospective class predominate over any questions
affecting only individual persons or members; or
“(ii) any group of lawsuits filed in or
pending in the same court and involving common
questions of law or fact, in which--
“(I) damages are sought on behalf of more
than 50 persons; and
103a
“(II) the lawsuits are joined, consolidated, or
otherwise proceed as a single action for anv
purpose.
“(B) Exception for derivative actions —
Notwithstanding subparagraph (A), the term
“covered class action” does not include an
exclusively derivative action brought by one or
more shareholders on behalf of a corporation.
“(C) Counting of certain class members.—
For purposes of this paragraph, a corporation,
investment company, pension plan, partnership,
or other entity, shall be treated as one person or
prospective class member, but only if the entity is
not established for the purpose of participating in
the action.
“(D) Rule of construction—Nothing in this
paragraph shall be construed to affect the
discretion of a State court in determining whether
actions filed in such court should be joined,
consolidated, or otherwise allowed to proceed asa
single action.
“(3) Covered security—The term “covered
security” means a security that satisfies the
Standards for a covered security specified in
paragraph (1) or (2) of section 18(b) at the time
during which it is alleged that the
misrepresentation, omission, or manipulative or
deceptive conduct occurred, except that such
term shall not include any debt security that is
exempt from registration under this title pursuant
to rules issued by the Commission under section
4(2).”
104a
(2) Circumvention of stay of discovery.—
Section 27(b) of the Securities Act of 1933 (15
U.S.C. 77z-1(b)) is amended by inserting after
paragraph (3) the following new paragraph:
“(4) Circumvention of stay of discovery.—
Upon a proper showing, a court may stay
discovery proceedings in any private action in a
State court as necessary in aid of its jurisdiction,
or to protect or effectuate its judgments, in an
action subject to a stay of discovery pursuant to
this subsection.”
(3) Conforming amendments.—Section 22(a)
of the Securities Act of 1933 (15 U.S.C. 77v(a)) is
amended—
(A) by inserting “except as provided in
section 16 with respect to covered class actions,”
after “Territorial courts,”; and
(B) by striking “No case” and inserting
“Except as provided in section 16(c), no case”.
(b) Amendments to the Securities Exchange
Act of 1934.—
(1) Amendment.—Section 28 of the
Securities Exchange Act of 1934 (15 U.S.C. 78bb)
is amended—
(A) in subsection (a), by striking “The rights
and remedies” and inserting “Except as provided
in subsection (f), the rights and remedies”; and
(B) by adding at the end the following new
subsection:
105a
“(f) Limitations on Remedies.—
“(1) Class action limitations—No covered
class action based upon the Statutory or common
law of any State or subdivision thereof may be
maintained in any State or Federal court by any
private party alleging—
“(A) a misrepresentation or omission of a
material fact in connection with the purchase or
sale of a covered security; or
“(B) that the defendant used or employed
any manipulative or deceptive device or
contrivance in connection with the purchase or
Sale of a covered security.
“(2) Removal of covered class actions.—Any
covered class action brought in any State court
involving a covered security, as set forth in
paragraph (1), shall be removable to the Federal
district court for the district in which the action is
pending, and shall be subject to paragraph (1).
“(3) Preservation of certain actions.—
“(A) Actions under state law of state of
incorporation.—
“(i) Actions preserved.—Notwithstanding
paragraph (1) or (2), a covered class action
described in clause (ii) of this subparagraph that
is based upon the statutory or common law of the
State in which the issuer is incorporated (in the
case of a corporation) or organized (in the case of
any other entity) may be maintained in a State or
Federal court by a private party.
106a
“(ii) Permissible actions.—A covered class
action is described in this clause if it involves—
“(I) the purchase or sale of securities by the
issuer 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
securities of an issuer that—
“(aa) is made by or on behalf of the issuer
or an affiliate of the issuer to holders of equity
securities of the issuer; and
“(bb) concerns decisions of such equity
holders with respect to voting their securities,
acting in response to a tender or exchange offer,
or exercising dissenters’ or appraisal rights.
“(B) State actions.--
“(i) In general.—Notwithstanding any other
provision of this subsection, nothing in this
subsection may be construed to preclude a State
or political subdivision thereof or a State pension
plan from bringing an action involving a covered
security on its own behalf, or as a member of a
class comprised solely of other States, political
subdivisions, or State pension plans that are
named plaintiffs, and that have authorized
participation, in such action.
“(ii) State pension plan defined.—For
purposes of this subparagraph, the term “State
pension plan” means a pension plan established
and maintained for its employees by the
107a
government of a State or political subdivision
thereof, or by any agency or instrumentality
thereof.
“(C) Actions under contractual agreements
between issuers and _ indenture trustees.—
Notwithstanding paragraph (1) or (2), a covered
Class action that seeks to enforce a contractual
agreement between an issuer and an indenture
trustee may be maintained in a State or Federal
court by a party to the agreement or a successor
to such party.
“(D) Remand of removed actions—In an
action that has been removed from a State court
pursuant to paragraph (2), if the Federal court
determines that the action may be maintained in
State court pursuant to this subsection, the
Federal court shall remand such action to such
State court.
“(4) Preservation of state jurisdiction.—The
securities commission (ar any agency or office
performing like functions) of any State shall
retain jurisdiction under the laws of such State to
investigate and bring enforcement actions.
“(S) Definitions—For purposes of this
subsection, the following definitions shall apply:
“(A) Affiliate of the issuer—The term
“affiliate of the issuer” means a person that
directly or indirectly, through one or more
intermediaries, controls or is controlled by or is
under common control with, the issuer.
108a
“(B) Covered class action—The term
“covered class action” means—
“(i) any single lawsuit in which—
“(I) damages are sought on behalf of more
than 50 persons or prospective class members,
and questions of law or fact common to those
persons or members of the prospective class,
without reference to issues of individualized
reliance on an alleged misstatement or omission,
predominate over any questions affecting only
individual persons or members; or
“(II} one or more named parties seek to
recover damages on a representative basis on
behalf of themselves and other unnamed parties
similarly situated, and questions of law or fact
common to those persons or members of the
prospective class predominate over any questions
affecting only individual persons or members; or
“(ii) any group of lawsuits filed in or
pending in the same court and involving common
questions of law or fact, in which—
“(I} damages are sought on behalf of more
than 50 persons; and
“(II) the lawsuits are joined, consolidated, or
otherwise proceed as a single action for any
purpose.
“(C) Exception for derivative actions.—
Notwithstanding subparagraph (B), the term
“covered class action” does not include an
109a
exclusively derivative action brought by one or
more shareholders on behalf of a corporation.
“(D) Counting of certain class members.—
For purposes of this paragraph, a corporation,
investment company, pension plan, partnership,
or other entity, shall be treated as one person or
prospective class member, but only if the entity is
not established for the purpose of participating in
the action.
“(E) Covered security—The term “covered
security” means a security that satisfies the
Standards for a covered security specified in
paragraph (1) or (2) of section 18(b) of the
Securities Act of 1933, at the time during which it
is alleged that the misrepresentation, omission, or
manipulative or deceptive conduct occurred,
except that such term shall not include any debt
security that is exempt from registration under
the Securities Act of 1933 pursuant to rules
issued by the Commission under section 4(2) of
that Act.
“(F) Rule of construction.—Nothing in this
paragraph shall be construed to affect the
discretion of a State court in determining whether
actions filed in such court should be joined,
consolidated, or otherwise allowed to proceed asa
single action.”
(2) Circumvention of stay of discovery.—
Section 21D(b)(3) of the Securities Exchange Act
of 1934 (15 U.S.C. 78u-4(b)(3)) is amended by
adding at the end the following new
subparagraph:
110a
“(D) Circumvention of stay of discovery.—
Upon a proper showing, a court may stay
discovery proceedings in any private action in a
State court, as necessary in aid of its jurisdiction,
or to protect or effectuate :ts judgments, in an
action subject to a stay of discovery pursuant to
this paragraph.”
(c) Applicability—-The amendments made
by this section shall not afect or apply to any
action commenced before and pending on the
date of enactment of this Act.
Sec. 102. PROMOTION OF RECIPROCAL
SUBPOENA ENFORCEMENT.
[Omitted]
TITLE II—REAUTHORIZATION OF THE
SECURITIES AND EXCHANGE COMMISSION
[Omitted]
TITLE III—CLERICAL AND TECHNICAL
AMENDMENTS
Sec. 301. [Omitted)
Sec. 302. EXEMPTION OF SECURITIES
ISSUED IN CONNECTION WITH CERTAIN STATE
HEARINGS.
Section 18(b)(4)(C) of the Securities Act of
1933 (15 U.S.C. 77r(b)(4)(C) is amended by
striking “paragraph (4) or (11)” and inserting
“paragraph (4), (10), or (11).’
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Approved November 3,1998
Speaker of the House of Representatives.
Vice President of the United States and President
of the Senate.
112a
APPENDIX J
§ 1447. Procedure after removal generally.
**kek
(c) A motion to remand the case on the
basis of any defect other than lack of subject
matter jurisdiction must be made within 30 days
after the filing of the notice of removal under
section 1446(a). If at any time before final
judgment it appears that the district court lacks
subject matter jurisdiction, the case shall be
remanded. An order remanding the case may
require payment of just costs and any actual
expenses, including attorney fees, incurred as a
result of the removal. A certified copy of the order
of remand shall be mailed by the clerk to the
clerk of the State court. The State court may
thereupon proceed with such case.
(d) 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
remanding a case to the State court from which it
was removed pursuant to section 1443 of this-
title shall be reviewable by appeal or otherwise.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.