Dominion Energy, Inc. v. City of Warren Police & Fire Ret. Sys. ex rel. Situated, 18-276

• Decision Date: 28 June 2019
• Docket Number: No. 18-276, No. 18-310, No. 18-1844, No. 18-2066,18-276
• Parties: DOMINION ENERGY, INC.; Sedona Corp., Petitioners, v. CITY OF WARREN POLICE AND FIRE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Respondent. Dominion Energy, Inc.; Sedona Corp., Petitioners, v. Metzler Asset Management GMBH, on behalf of themselves and all others similarly situated, Respondent. City of Warren Police and Fire Retirement System, Individually and on Behalf of All Others Similarly Situated, Plaintiff – Appellee, v. Dominion Energy, Inc.; Sedona Corp., Defendants – Appellants. Metzler Asset Management GMBH, on behalf of themselves and all others similarly situated, Plaintiff – Appellee, v. Dominion Energy, Inc.; Sedona Corp., Defendants – Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

928 F.3d 325

DOMINION ENERGY, INC.; Sedona Corp., Petitioners,

v.CITY OF WARREN POLICE AND FIRE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Respondent.

Dominion Energy, Inc.; Sedona Corp., Petitioners,

v.Metzler Asset Management GMBH, on behalf of themselves and all others similarly situated, Respondent.

City of Warren Police and Fire Retirement System, Individually and on Behalf of All Others Similarly Situated, Plaintiff – Appellee,

v.Dominion Energy, Inc.; Sedona Corp., Defendants – Appellants.

Metzler Asset Management GMBH, on behalf of themselves and all others similarly situated, Plaintiff – Appellee,

v.Dominion Energy, Inc.; Sedona Corp., Defendants – Appellants.

No. 18-276

No. 18-310

No. 18-1844

No. 18-2066

United States Court of Appeals, Fourth Circuit.

Argued: March 19, 2019

Decided: June 28, 2019

ARGUED: William Walter Wilkins, Jr., NEXSEN PRUET, LLC, Greenville, South Carolina, for Petitioners. David Todd Wissbroecker, ROBBINS GELLER RUDMAN & DOWD, LLP, San Diego, California; Lawrence P. Eagel, BRAGAR EAGEL & SQUIRE, P.C., New York, New York, for Respondent. ON BRIEF: Burl F. Williams, Andrew A. Mathias, NEXSEN PRUET, LLC, Greenville, South Carolina; Brian E. Pumphrey, Brian D. Schmalzbach, MCGUIREWOODS LLP, Richmond, Virginia, for Petitioners. James M. Morton, MORTON & GETTYS, Rock Hill, South Carolina; Timothy Z. Lacomb, ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, California; Thomas C. Michaud, VANOVERBEKE, MICHAUD & TIMMONY, P.C., Detroit, Michigan; Mark D. Chappell, Graham S. Newman, CHAPPELL SMITH & ARDEN, P.A., Columbia, South Carolina; Melissa A. Fortunato, BRAGAR EAGEL & SQUIRE, P.C., New York, New York; Deborah Sturman, STURMAN LLC, New York, New York, for Respondent.

Before MOTZ, KING, and THACKER, Circuit Judges.

KING, Circuit Judge:

The Petitioners in these proceedings — Dominion Energy, Inc., and its subsidiary Sedona Corp. — seek to appeal from two District of South Carolina orders remanding putative class action lawsuits to the South Carolina state courts. See City of Warren Police & Fire Ret. Sys. v. SCANA Corp. , No. 3:18-cv-00509 (D.S.C. June 27, 2018), ECF No. 60 (the "Warren Remand Order"); Metzler Asset Mgmt. GmbH v. Aliff , No. 3:18-cv-00505 (D.S.C. Aug. 1, 2018), ECF No. 48 (the "Metzler Remand Order"). The Respondents are named plaintiffs in the separate lawsuits — City of Warren Police and Fire Retirement System ("Warren") and the Metzler Asset Management GmbH ("Metzler"). Their class actions, initiated in two circuit courts of South Carolina, arise from a merger agreement between Dominion and SCANA Corporation, a former utility company in which the Respondents were stockholders. Both class action complaints name the Petitioners as two of several defendants and allege that Petitioners aided and abetted a breach of fiduciary duty in negotiating the merger agreement.

The Petitioners removed the class action lawsuits to the District of South Carolina, invoking provisions of the Class Action Fairness Act of 2005 ("CAFA"). By the Warren and Metzler Remand Orders, however, the federal district court returned the lawsuits to their respective state circuit courts, ruling that neither was subject to removal. Pursuant to CAFA, the Petitioners seek appellate review and ask us to reverse the Remand Orders. Because we are satisfied that the class action lawsuits were properly removed from the state courts and should, pursuant to CAFA, be litigated in the District of South Carolina, we grant the petitions for permission to appeal and reverse.

I.

A.

These proceedings center on CAFA's jurisdictional provisions. Congress enacted CAFA in 2005 to expand subject matter jurisdiction in the federal courts over "interstate" class actions "of national importance." See CAFA, Pub. L. No. 190-2, § 2(b)(2), 119 Stat. 4, 5 (2005); see also Standard Fire Ins. Co. v. Knowles , 568 U.S. 588, 595, 133 S.Ct. 1345, 185 L.Ed.2d 439 (2013) (describing CAFA's objective).¹ CAFA sought to accomplish that purpose by amending the diversity jurisdiction statute, codified in 28 U.S.C. § 1332. A primary justification for diversity jurisdiction in the federal courts under § 1332 — and for expanding such jurisdiction under CAFA in particular — is the prevention of state court "bias against out-of-State defendants." See CAFA, § 2(a)(4)(B), 119 Stat. at 5 (specifying congressional finding that "State and local courts ... sometimes act[ed] in ways that demonstrate bias against out-of-State defendants" in class action lawsuits); Erie R.R. Co. v. Tompkins , 304 U.S. 64, 74, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ("Diversity of citizenship jurisdiction was conferred in order to prevent apprehended discrimination in state courts against those not citizens of the state.").

To ensure that interstate class actions of national importance are litigated in a perceived more neutral federal forum, CAFA extended federal jurisdiction to those class action proceedings that satisfy three requirements: (1) the putative class has more than 100 members (numerosity); (2) the amount in controversy exceeds five million dollars, exclusive of interest and costs (amount in controversy); and (3) the parties are minimally diverse in citizenship (minimal diversity). See 28 U.S.C. § 1332(d)(2), (5)(B).² When the foregoing three criteria (i.e., numerosity, amount in controversy, and minimal diversity) are satisfied, a defendant sued in a class action in a state court is presumptively entitled to remove the proceedings to federal court. See 28 U.S.C. § 1453(b).

Congress, however, has excluded from CAFA's jurisdictional reach three types of class actions, even when such actions otherwise satisfy CAFA's jurisdictional criteria. See 28 U.S.C. § 1332(d)(9) ; see also Ferrell v. Express Check Advance of S.C. LLC , 591 F.3d 698, 704 (4th Cir. 2010) (explaining that § 1332(d)(9) of Title 28 identifies CAFA's three exceptions to federal court jurisdiction). Those same types of class actions are also, of course, excepted from removal to federal court. See 28 U.S.C. § 1453(d). CAFA's removal provision — specifying the three excepted types of class actions — provides in full at 28 U.S.C. § 1453(d) :

Exception.—This section shall not apply to any class action that solely involves—

(1) a claim concerning a covered security as defined under section 16(f)(3) of the Securities Act of 1933 ( 15 U.S.C. 78p(f)(3) ) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78bb(f)(5)(E) );

(2) a claim that relates to the internal affairs or governance of a corporation or other form of business enterprise and arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or

(3) a claim that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 ( 15 U.S.C. 77b(a)(1) ) and the regulations issued thereunder).

See 28 U.S.C. § 1453(d) (footnote omitted). In sequence with their listing, CAFA's removal exceptions are generally called the "covered security" exception, the "internal affairs" exception, and the "securities-related" exception.³

Significant to these proceedings, by § 1453(d)'s "solely involves" language, CAFA allows for the removal of a class action that alleges both an excepted claim and an unexcepted claim. Thus, the existence of an unexcepted claim in a class action complaint means that CAFA confers federal court jurisdiction on that class action lawsuit.

B.

In these proceedings, the two underlying putative class actions arise from a 2018 merger between two major utility companies. Petitioner Dominion is a Virginia-based energy utility company that operates in eighteen states, making it "one of the largest energy utility companies in the United States." See J.A. 29.⁴ On January 3, 2018, Dominion announced that it had entered into a merger agreement with SCANA, which was then a South Carolina-based electric and natural gas utility with about 25,000 stockholders. Pursuant to the merger agreement, Dominion's subsidiary, Petitioner Sedona, was to merge with SCANA, and Dominion would then own the business resulting from the merger.

1.

On January 23, 2018, soon after learning of the merger agreement, Respondent Warren — on behalf of itself (as an owner of SCANA common stock), and a class comprised of other such owners — lodged a class action complaint against Petitioners Dominion and Sedona, plus SCANA, SCANA's CEO, and nine members of SCANA's Board of Directors (the "Board Members"). According to the Warren complaint — filed in the Circuit Court of Lexington County, South Carolina — the Board Members decided to "fire-sell" SCANA to Dominion for "an unfair price" after SCANA's stock price "dropped roughly 10%" in late 2017. See J.A. 26-27. That decrease in stock price followed SCANA's summer of 2017 announcement that it would abandon a multibillion-dollar project to build two nuclear reactors in South Carolina. The announcement confirmed that SCANA intended to recover the billions of dollars it had spent on the nuclear project from its public utility customers.

The Warren complaint alleges that the merger agreement was "a bad deal for SCANA stockholders," in that those stockholders would receive only a 0.6690 share of Dominion stock in exchange for each share of SCANA common stock. See J.A. 27. In contrast, the complaint alleges that the merger would be a financial boon to SCANA's CEO and the Board Members, and also for Dominion. That is, SCANA's CEO and the Board Members would receive cash for certain of their shares of SCANA stock, along with other benefits not provided to other SCANA stockholders. And, according to the complaint, Dominion was able to "acquir[e] SCANA at a significant discount to its fair market value." Id .

Based on the purported lopsidedness of the merger agreement, the Warren class action complaint alleges two...