Abada v. Charles Schwab & Co., Inc.

• Decision Date: 21 August 2002
• Docket Number: No. 00-56844.,00-56844.
• Citation: 300 F.3d 1112
• Parties: Aaron ABADA, on behalf of himself and all others similarly situated, Plaintiff-Appellee, v. CHARLES SCHWAB & CO., INC., a California corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

300 F.3d 1112

Aaron ABADA, on behalf of himself and all others similarly situated, Plaintiff-Appellee, v. CHARLES SCHWAB & CO., INC., a California corporation, Defendant-Appellant.

No. 00-56844.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 5, 2002.

Filed August 21, 2002.

COPYRIGHT MATERIAL OMITTED

Gilbert R. Serota, Ethan P. Schulman, Keith D. Kessler, Patricia J. Medina; Howard, Rice, Nemerovski, Canady, Falk & Rabin; San Francisco, CA, for the appellant.

James C. Krause, Patrick N. Keegan, Jessica K. Fawver, Krause & Kalfayan; San Diego, CA, for the appellee.

Appeal from the United States District Court for the Southern District of California; M. James Lorenz, District Judge, Presiding. D.C. No. CV-99-00940-MJL.

Before: THOMAS and RAWLINSON, Circuit Judges, and ARMSTRONG, District Judge.^*

OPINION

THOMAS, Circuit Judge.

This appeal presents the question of whether we have appellate jurisdiction over a district court order remanding to state court a class action suit alleging that a securities broker misled its customers concerning the capabilities of its on-line investment system. We dismiss for lack of appellate jurisdiction.

I

In 1996, Charles Schwab, Inc., ("Schwab") became the first major securities broker to allow its customers to conduct securities transactions over the internet. By November 1998, Schwab was the largest provider of on-line brokerage services. Schwab's growth in the on-line trading market was fueled by a marketing and advertising campaign that extolled its on-line trading service as convenient, fast and efficient. For example, Schwab's Online Investing Brochure stated:

When it comes to easy, convenient ways to invest, it's hard to find a better tool than schwab.com. With a click you're connected — to current news and research, to trading and to all your Schwab accounts.... To place a trade online, simply select the security type and the action. Once you've confirmed your order, it's sent through Schwab directly to the trading floor. Market orders entered while the market is open are subject to immediate execution.

Aaron Abada opened an account with Schwab in November 1998, allegedly in reliance on Schwab's representations that Schwab would provide fast, high quality executions, which Abada says he reasonably understood to mean immediate order executions at the best prices available.

Abada alleges that Schwab's on-line system was, in fact, somewhat limited at the time: that its systems could only support 4% of its on-line customers simultaneously. Abada claims this capacity was insufficient to meet customer demand, particularly during the initial trading of new internet stocks.

On November 13, 1998, matters came to a head for Abada. On that day, theglobe.com, Inc. (Nasdaq ticket symbol "TGLO") was scheduled to begin secondary trading on the Nasdaq after its initial public offering on the previous day. According to Abada, he placed a market order through Schwab's website shortly before the market opened to buy 500 shares of TGLO. Abada received an "Order Acknowledgment" stating that his order had been received. When the market opened, TGLO was trading at $50 1/8 a share. Shortly thereafter, Abada decided to sell his TGLO shares. After numerous failed attempts to log onto the Schwab's website, Abada was finally able to access his account. However, his account did not reflect an order confirmation, because the purchase order had been delayed more than three hours. Abada eventually learned that 500 TGLO shares were purchased for $86 1/2, more than $36 more than the price at the time that Abada placed his order. By the time that Abada learned that he had purchased shares at $86 1/2, the price for TGLO shares had plummeted to $70 a share.

In April 1999, Abada filed suit in the Superior Court for the County of San Diego, on behalf of himself and a class of "all investors who had online accounts with Schwab on November 13, 1998 and: (A) who placed market orders to purchase or sell TGLO, (B) whose market orders were delayed by more than one minute and executed at disadvantageous prices, and (C) who were damaged thereby." Abada's complaint alleged that Schwab's actions violated various statutory and common law rights. Specifically, Abada alleged that Schwab: (1) committed acts of unfair competition in violation of California Business and Professions Code § 17200 by "falsely and inaccurately representing" that it could provide customers with timely access to their accounts when Schwab knew or should have known that it lacked the capacity to do so; (2) committed acts of untrue and misleading advertising in violation of California Business and Professions Code § 17500 in order to induce potential customers to open accounts; (3) was unjustly enriched by its deceptive practices; (4) negligently made 12294 untrue statements of material fact regarding the characteristics and capabilities of its trading system in order to induce potential customers to open accounts; and (5) knowingly made untrue statements of material fact regarding the characteristics and capabilities of its trading system in order to induce potential customers to open accounts.

Schwab removed the case to federal court pursuant to 28 U.S.C. §§ 1441 and 1446 and the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). SLUSA prohibits a private party from bringing a "covered class action" in federal or state court based on the statutory or common law of a state alleging a "misrepresentation or omission of a material fact" or the use of "any manipulative device or contrivance" "in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1). SLUSA provides that any such class action brought in state court "shall be removable to federal court." 15 U.S.C. § 78bb(f)(2). Abada moved to remand, arguing that his claims were not preempted by SLUSA because they did not allege misrepresentations "in connection with" the purchase or sale of a covered security.

The district court held that Abada's claims were completely preempted by SLUSA and denied Abada's motion to remand. Abada v. Charles Schwab & Co., Inc., 68 F.Supp.2d 1160 (S.D.Cal.1999). Abada then filed a first amended complaint. The amended complaint continued to include all of the same state law claims, but added an additional claim that Schwab had violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

The case was then transferred to another district judge. Schwab filed a motion to dismiss the first amended complaint. In his opposition to the motion to dismiss, Abada asked the district court to reconsider its refusal to remand. The district court concluded that remand was appropriate because the court lacked subject matter jurisdiction. The court entered an order vacating the prior judge's order denying the motion to remand, denying the motion to dismiss, striking the first amended complaint, and remanding the original action to state court. Abada v. Charles Schwab & Co., Inc., 127 F.Supp.2d 1101 (S.D.Cal.2000). Schwab appeals.

II

The threshold question is whether we have appellate jurisdiction to entertain this appeal, given the general rule that "[a]s long as a district court's remand is based on a timely raised defect in removal procedure or on a lack of subject matter jurisdiction ... a court of appeals lacks jurisdiction to entertain an appeal of a remand order under § 1447(d)." Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995).

The district court remanded this case to state court because it concluded that it lacked subject matter jurisdiction. Abada, 127 F.Supp.2d at 1103. The district court reasoned that Abada's complaint included only state law causes of action, and therefore it only had federal question jurisdiction over the complaint if Abada's state law claims were completely pre-empted by SLUSA. The district court then determined that SLUSA did not completely preempt Abada's state law claims and remanded Abada's complaint to state court for lack of federal subject matter jurisdiction.

Thus, unless one of the exceptions to the general rule applies, we do not have appellate jurisdiction to review the remand order because it was founded on the absence of subject matter jurisdiction. Yakama Indian Nation v. State of Wash. Dept. of Revenue, 176 F.3d 1241, 1248 (9th Cir. 1999). "Remand orders based on a defect in removal procedure or lack of subject matter jurisdiction are immune from review even if the district court's order is erroneous." Id. (citing Krangel v. General Dynamics Corp., 968 F.2d 914, 916 (9th Cir.1992)).

A

Section 1447(d) does not bar appellate review of a district court's discretionary decision not to exercise jurisdiction. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996); City of Tucson v. U.S. West Communications, Inc., 284 F.3d 1128, 1131 (9th Cir.2002) ("[I]t is clear that non-jurisdictional, discretionary remands are not barred from appellate review."). We are not bound by the district court's characterization of its authority for remand. Ferrari, Alvarez, Olsen & Ottoboni v. Home Ins. Co., 940 F.2d 550, 553 (9th Cir.1991). Thus, if we concluded that the district court's order was the result of an exercise of discretion, we could review it. However, such is not the case here.

Schwab claims that the district court was exercising its discretion in remanding the case because the amended complaint included a federal cause of action that conferred subject matter jurisdiction on the court. Thus, Schwab reasons, the district court necessarily must have been exercising its discretion in remanding, rather than doing so on a jurisdictional basis.

However, Schwab's argument proceeds from a false premise. The complaint that Schwab removed to federal court contained only state law claims, which are ordinarily insufficient to invoke federal subject matter jurisdiction....