Kircher v. Putnam Funds Trust, 04-1495.

• Citation: 373 F.3d 847
• Decision Date: 29 June 2004
• Docket Number: No. 04-1495.,04-1495.
• Parties: Carl KIRCHER and Robert Brockway, individually and on behalf of a class, Plaintiffs-Appellees, v. PUTNAM FUNDS TRUST and Putnam Investment Management, LLC, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

373 F.3d 847

Carl KIRCHER and Robert Brockway, individually and on behalf of a class, Plaintiffs-Appellees, v. PUTNAM FUNDS TRUST and Putnam Investment Management, LLC, Defendants-Appellants.

No. 04-1495.

United States Court of Appeals, Seventh Circuit.

Submitted May 26, 2004.

Decided June 29, 2004.

George A. Zelcs (submitted), Korein Tillery, Chicago, IL, for Plaintiffs-Appellees.

Rebecca R. Jackson, Bryan Cave, St. Louis, MO, Matthew R. Kipp, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, for Defendants-Appellants.

Before EASTERBROOK, EVANS, and WILLIAMS, Circuit Judges.

EASTERBROOK, Circuit Judge.

Plaintiffs own shares in Putnam Funds Trust, a mutual fund regulated by the Securities and Exchange Commission under statutes such as the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. Contending that the fund and its investment adviser (Putnam Investment Management) had engaged in misconduct that reduced the value of their shares, plaintiffs filed suit in state court, invoking state law alone. They propose to represent a class of the Fund's investors. By forswearing reliance on federal law plaintiffs hope to avoid the strictures of federal statutes such as the Private Securities Litigation Reform Act of 1995. Similar maneuvers by other investors in the wake of the 1995 statute led Congress to enact the Securities Litigation Uniform Standards Act of 1998. This statute, usually known by its ungainly acronym SLUSA, blocks many class actions based on state law when the issuers are covered by the federal securities laws. Preemption normally is an affirmative defense, to be evaluated by the court in which the plaintiff elects to sue. See, e.g., Franchise Tax Board of California v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). SLUSA departs from the norm by permitting defendants to remove so that a federal court may evaluate the defense in advance of any step in the state litigation. See 15 U.S.C. §§ 77p(c), 78bb(f)(2). If the federal court determines that the claim is preempted, it dismisses the suit; otherwise it remands for proceedings under state law. 15 U.S.C. §§ 77p(b), (d)(4), 78bb(f)(1), (3)(D).

Defendants removed this suit under § 77p(c). (From here on, we mention only § 77p; provisions in § 78bb are functionally identical.) They asked the district judge to find the action foreclosed by § 77p(b), which 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 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.

The district court concluded that the proceeding is a "covered class action" because plaintiffs seek damages on behalf of more than 50 investors. (Section 77p(f)(2)(A) provides the full definition of "covered class action.") But the judge concluded that the suit is not affected by § 77p(b) because plaintiffs do not allege loss "in connection with the purchase or sale" of securities; they have held throughout the class period and claim to be injured by events that diminished the value realized by all investors. The court's conclusion that § 77p(b) does not thwart plaintiffs' claims required a remand under the terms of § 77p(d)(4):

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.

In the opinion's final paragraph, the district judge added: "Because the Court lacks subject matter jurisdiction, the Court REMANDS this action to the Madison County, Illinois Circuit Court." (Capitalization and boldface in original.) This sentence had led to the dispute that requires our resolution.

Because it ends the litigation in federal court, a remand is a "final decision" that may be appealed under 28 U.S.C. § 1291. See Quackenbush v. Allstate Insurance Co., 517 U.S. 706, 711-15, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996). Defendants filed a timely notice of appeal from the district court's remand. But we must reckon with 28 U.S.C. § 1447(d), which says that "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise." In Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976), the Court held that § 1447(d) is not as sweeping as its language suggests; instead, the Justices concluded, it blocks review only when the district court acts under the authority granted by § 1447(c) or an equivalent statute. See Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995), which recapitulates the Court's views on § 1447(d).

Lack of subject-matter jurisdiction is a ground on which remand is authorized (indeed, required) by § 1447(c), and accordingly a district judge's conclusion that jurisdiction is lacking is not subject to appellate review. See, e.g., Gravitt v. Southwestern Bell Telephone Co., 430 U.S. 723, 97 S.Ct. 1439, 52 L.Ed.2d 1 (1977); Rubel v. Pfizer Inc., 361 F.3d 1016 (7th Cir.2004); Adkins v. Illinois Central R.R., 326 F.3d 828 (7th Cir.2003); Phoenix Container, L.P. v. Sokoloff, 235 F.3d 352 (7th Cir.2000). Section 77p(d)(4), by contrast, is not within § 1447(c) or equivalent to it, for a remand under § 77p(d)(4) comes at the end rather than the outset of federal adjudication. The Supreme Court has itself reviewed remand decisions that fall outside the scope of § 1447(c). Quackenbush and Thermtron are two; Carnegie-Mellon University v. Cohill, 484 U.S. 343, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988), is another. We must decide how this situation fits.

One possibility is that the district judge's use of the word "jurisdiction" is conclusive. We held in Rubel and Phoenix Container that a court may not look behind a jurisdictional remand to examine the reasons why the district judge thought jurisdiction lacking; plaintiffs say that the same principle applies here. Yet defendants do not want us to pierce an ultimate conclusion in order to get at the intermediate steps in the syllogism. Their point, rather, is that "jurisdiction" is a word of many shadings, and that judges sometimes use the word "jurisdiction" or the phrase "subject-matter jurisdiction" when they mean something else. Twice in the past few months the Supreme Court has observed that a court lacks "subject-matter jurisdiction" only when Congress has not authorized the federal judiciary to resolve the sort of issue presented by the case (or the Constitution forbids adjudication). See Kontrick v. Ryan, 540 U.S. 443, ___-___, 124 S.Ct. 906, 914-16, 157 L.Ed.2d 867 (2004); Scarborough v. Principi, 541 U.S. 401, ___-___, 124 S.Ct. 1856, 1864-65, 158 L.Ed.2d 674, ___-___ (2004). There may be many other reasons why a court should not resolve a dispute, but these differ from the lack of subject-matter jurisdiction.

In Gravitt, Rubel, Adkins, and Phoenix Container the district judges held that removal was improper; the litigation never should have come to federal court. That is not, however, what the district judge found here. Because plaintiffs represent more than 50 investors, this is a "covered class action" and a federal judge is not only authorized but also required to decide whether any court may entertain the litigation. A conclusion that a suit is not a "covered class action" (say, because just 40 investors stand to recover damages) would imply that removal had been improper, and such a decision would come within § 1447(d).

Removal of this suit was proper, the district judge held; that is why the court proceeded to the question how § 77p(b) affects the litigation. Only after making the substantive decision that Congress authorized it to make did the district court remand. After making the decision required by § 77p(b), the district court had nothing else to do: dismissal and remand are the only options. Perhaps one could say that jurisdiction evaporated at that juncture, but that would be tautological. Once a court does all that the statute authorizes, there is no adjudicatory competence to do more. That is not the "lack of subject-matter jurisdiction" that authorizes a remand. Otherwise every federal suit, having been decided on the merits, would be dismissed "for lack of jurisdiction" because the court's job was finished. Cf. Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946).

We must distinguish between a decision that "this court lacks adjudicatory competence" and a decision that "the court has been authorized to do X and having done so should bow out." The former implies lack of subject-matter jurisdiction, as Kontrick and Scarborough explain; the latter implies the presence of jurisdiction. A good example of the second category is a suit under federal law with a state-law claim supported by the supplemental jurisdiction. 28 U.S.C. § 1367. District courts should relinquish supplemental jurisdiction under certain circumstances, remanding to state court if the suit originated there. 28 U.S.C. §§ 1367(c), 1441(c). We know from Carnegie-Mellon that § 1447(d) does not foreclose review of such a remand. In both Carnegie-Mellon and Quackenbush the district judge found the removal proper but concluded that the state court should handle some issues. In Carnegie-Mellon the remand reflected limits to the supplemental jurisdiction, and in Quackenbush the district judge concluded that abstention was appropriate so that the state judiciary could resolve points of state law. In both cases the Supreme Court reviewed the decision on the merits, treating a remand as unaffected by §...