GREENWICH FIN. SERV. DISTR. MORTG. v. COUNTRYWIDE
| Citation | 603 F.3d 23 |
| Decision Date | 20 April 2010 |
| Docket Number | Docket No. 09-3660-cv. |
| Parties | GREENWICH FINANCIAL SERVICES DISTRESSED MORTGAGE FUND 3 LLC, and QED LLC, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellees, v. COUNTRYWIDE FINANCIAL CORPORATION, Countrywide Home Loans, Inc., and Countrywide Home Loans Servicing LP, Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
David Grais (J. Bruce Boisture and Owen L. Cyrulnik, on the brief), Grais & Ellsworth LLP, New York, NY, for Plaintiffs-Appellees.
Matthew Shors (Walter Dellinger, Irving L. Gornstein, Kathryn E. Tarbert, Micah W.J. Smith, and William J. Sushon, on the brief), O'Melveny & Myers LLP, Washington, D.C., and New York, NY, for Defendants-Appellants.
Before: LIVINGSTON and LYNCH, Circuit Judges, and STANCEU, Judge.*
This appeal requires us to decide when a provision of the Class Action Fairness Act of 2005 ("CAFA") bars appellate review of orders remanding securities class actions to state court.
Plaintiffs-appellees commenced this putative class action in New York State Supreme Court. The case was removed to the United States District Court for the Southern District of New York (Richard J. Holwell, J.). Plaintiffs-appellees moved to remand the case to state court for lack of subject matter jurisdiction. They argued that, while CAFA extended federal jurisdiction for most class actions meeting certain monetary and diversity requirements, it did not apply to this action because the statute exempted suits involving claims that "related to the rights, duties, ... and obligations relating to or created by or pursuant to any security." 28 U.S.C. § 1332(d)(9)(C). Additionally, plaintiffs-appellees argued that no other basis for federal jurisdiction existed. The district court granted plaintiffs-appellees' motion to remand, and defendants-appellants appealed to this Court.
We construe the language of another provision of CAFA, 28 U.S.C. § 1453, which governs removal of class actions and appellate review of orders remanding such actions to state court. Like the parallel exception in the provision creating federal jurisdiction over class actions, § 1453(d)(3) exempts from appellate review orders remanding any class action that solely involves "a claim that relates to the rights, duties, ... and obligations relating to or created by or pursuant to any security...." We conclude that the present action falls within this provision. Accordingly, we do not have jurisdiction to hear this appeal and must dismiss it.
Defendants are affiliated corporations in the mortgage business. Defendant Countrywide Financial Corporation is a holding company, of which the other defendants are subsidiaries. One subsidiary, defendant Countrywide Home Loans, Inc., originates loans to individual consumers. The other subsidiary, defendant Countrywide Home Loans Servicing, LP, now known as BAC Home Loans Servicing, LP, ("Countrywide Servicing"), services the loans originated by Countrywide Home Loans.
To raise money to lend to consumers, Countrywide Home Loans entered into a number of securitization transactions. In these transactions, Countrywide Home Loans sold its mortgages to specially created trusts, which received payment of interest and principal from mortgage borrowers. The trusts in turn sold certificates to investors. These securities entitled their owners to repayments of their principal, as well as interest payments. Because the trusts themselves lacked the capacity to administer the loans, they entered into agreements with Countrywide Servicing to administer the mortgages on their behalf. The terms of these securitization transactions, as well as the rights and duties of the parties to them, were laid out in contracts known as "pooling and servicing agreements" ("PSAs"). Countrywide Home Loans and Countrywide Servicing, as well as the trusts' trustee, The Bank of New York, and various other entities, were parties to the PSAs, but the certificate holders and Countrywide Financial were not.
In the summer of 2008, the attorneys general of seven states filed lawsuits accusing the Countrywide businesses ("Countrywide") of violating laws against predatory lending. The states alleged that Countrywide engaged in deceptive sales practices, charged unlawful fees, and made loans it had no reasonable basis to think could be repaid. Countrywide later agreed to a multistate settlement, according to which it was required to modify the terms of many of the mortgages owned by the trusts and administered by Countrywide Servicing on behalf of the trusts. Modifying the loans created the possibility that the homeowners would make smaller payments of interest and principal to the trusts, thereby decreasing the value of the certificates.
Plaintiffs are holders of certificates issued by the trusts. They filed this putative class action in New York State Supreme Court, seeking declaratory judgments that Countrywide Servicing is required under the terms of the PSAs to repurchase the modified loans from the trusts at a price equal to their unpaid principal plus any accrued interest. They cite language in the PSAs to the effect that "Countrywide Servicing may agree to a modification of any Mortgage Loan ... if ... it purchases the Modified Mortgage Loan from the Trust Fund...."
Defendants promptly removed the action to the Southern District of New York. In their notice of removal, defendants cited two independent bases for federal jurisdiction. First, defendants claimed original diversity jurisdiction under CAFA, 28 U.S.C. § 1332(d)(2), which generally allows district courts to exercise jurisdiction over class actions based solely on state law provided that minimal diversity is present and the amount in controversy exceeds $5,000,000. Second, defendants asserted federal question jurisdiction under 28 U.S.C. § 1331, arguing that plaintiffs' state-law claim required the court to resolve a disputed, substantial question of federal law. Specifically, defendants claimed that Countrywide Servicing's duties under the PSAs were defined by the Housing and Economic Recovery Act of 2008 ("HERA"), which at 15 U.S.C. § 1639a provides a safe harbor for servicers of pooled mortgages who modify home loans meeting certain conditions. They argued that since the court would be required to adjudicate the applicability of this safe harbor in order to determine the merits of plaintiffs' claim, federal jurisdiction was proper under Grable & Sons Metal Products v. Darue Engineering & Manufacturing, 545 U.S. 308, 315, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005).
Two weeks later, plaintiffs moved to remand. Plaintiffs did not dispute that their action met the diversity and amount-in-controversy requirements for CAFA jurisdiction. They argued, however, that their suit fell within an exception to CAFA jurisdiction for actions "that relate to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security. ..." 28 U.S.C. § 1332(d)(9)(C). They further argued that federal question jurisdiction was extended by Grable only to those state-law claims of which federal law was an essential element. Federal law, they asserted, was not an element of their claim. Rather, the safe harbor of HERA, if it applied, would simply provide a federal defense to a claim under state law, and therefore was not a basis for subject matter jurisdiction. The district court agreed with both of plaintiffs' arguments and remanded.
Defendants petitioned to file the present appeal pursuant to 28 U.S.C. § 1453(c), which authorizes the courts of appeals to hear at their discretion appeals from orders granting or denying motions to remand class actions. We granted petitioners leave to file this appeal, which we considered on an expedited basis in accordance with the time limit set out in 28 U.S.C. § 1453(c)(2).1
This case requires us to interpret certain provisions of CAFA, which expanded the jurisdiction of the federal courts to allow class actions originally filed in state courts that conform to particular requirements to be removed to federal district courts. 28 U.S.C. §§ 1332(d), 1453(b); Estate of Pew v. Cardarelli, 527 F.3d 25, 30 (2d Cir.2008). Class actions removed under CAFA may be remanded to originating state courts pursuant to the general remand statute, 28 U.S.C. § 1447. See 28 U.S.C. § 1453(c)(1) (). The party opposing remand generally bears the burden of showing that federal jurisdiction is proper. Blockbuster, Inc. v. Galeno, 472 F.3d 53, 57-58 (2d Cir.2006). However, once the general requirements of CAFA jurisdiction are established, plaintiffs have the burden of demonstrating that remand is warranted on the basis of one of the enumerated exceptions. See Brook v. UnitedHealth Group Inc., No. 06 Civ. 12954(GBD), 2007 WL 2827808, at *3 (S.D.N.Y. Sept.27, 2007); accord Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1021-22 (9th Cir.2007); Hart v. FedEx Ground Package Sys., Inc., 457 F.3d 675, 679-80 (7th Cir.2006); Frazier v. Pioneer Ams. LLC, 455 F.3d 542, 546 (5th Cir.2006).
As a general rule, an order to remand is not appealable. See 28 U.S.C. § 1447(d). At the same time that CAFA expanded the jurisdiction of federal courts over most class actions, however, it expanded the jurisdiction of the courts of appeals to hear appeals of orders remanding class actions to state courts. 28 U.S.C. 1453(c); see Coll. of Dental Surgeons of P.R. v. Conn. Gen. Life Ins. Co., 585 F.3d 33, 37-38 (1st Cir.2009). But 28 U.S.C. § 1453(d) sets forth three circumstances under which appellate review of such orders is barred, only one of which is relevant to the case at bar:2
To continue reading
Request your trial
-
This Mellon's Mine, Says A District Judge
...of law or fact. Relying on the Second Circuit's finding in Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir. 2010), BNYM argued that the Article 77 Proceeding could not be removed because it fell under CAFA's securities exception. Under the s......