Estate of Pew v. Cardarelli

• Decision Date: 13 May 2008
• Docket Number: Docket No. 06-5703-mv.
• Citation: 527 F.3d 25
• Parties: ESTATE of Barbara PEW (Deceased), John Pew, Jr., Individually and as Executor of the Estate of Barbara E. Pew, Harold Pew, Donna Pew, H. Nancy Hann, Julia Hudasky and Kathleen Prickett, on behalf of themselves and all others similarly situated, Plaintiffs-Respondents, v. Donald P. CARDARELLI, Peter J. O'Neill and PriceWaterhouseCoopers LLP, Defendants-Petitioners.
• Court: U.S. Court of Appeals — Second Circuit

527 F.3d 25

ESTATE of Barbara PEW (Deceased), John Pew, Jr., Individually and as Executor of the Estate of Barbara E. Pew, Harold Pew, Donna Pew, H. Nancy Hann, Julia Hudasky and Kathleen Prickett, on behalf of themselves and all others similarly situated, Plaintiffs-Respondents, v. Donald P. CARDARELLI, Peter J. O'Neill and PriceWaterhouseCoopers LLP, Defendants-Petitioners.

Docket No. 06-5703-mv.

United States Court of Appeals, Second Circuit.

Argued: April 24, 2007.

Decided: May 13, 2008.

Robert I. Harwood (James Flynn, on the brief), Wechsler Harwood LLP, New York, NY, Harold G. Cohen, Dilworth Paxson LLP, Cherry Hill, NJ, Stuart Savett (James J. Rodgers, on the brief), Dilworth Paxson LLP, Philadelphia, PA, David M. Garber, Mackenzie Hughes LLP, Syracuse, NY, for Plaintiffs-Respondents.

Philip D. Anker (Peter K. Vigeland, Matthew M. Graves, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, James J. Capra, Jr. (Matthew L. Craner, Alison F. Swap, on the brief), Orrick, Herrington & Sutcliffe LLP, New York, NY, for Defendants-Petitioners.

Before: JACOBS, Chief Judge, KEARSE and POOLER, Circuit Judges.

DENNIS JACOBS, Chief Judge:

This case construes certain provisions of the Class Action Fairness Act of 2005 ("CAFA"), Pub.L. No. 109-2, 119 Stat. 4 (codified in scattered sections of Title 28, United States Code). One purpose of CAFA is to provide a federal forum for securities cases that have national impact, without impairing the ability of state courts to decide cases of chiefly local import or cases that concern traditional state regulation of the state's corporate creatures. CAFA does that by expanding federal diversity jurisdiction, by allowing removal of securities cases of national impact from the state courts, and by conferring appellate jurisdiction to review orders granting or denying motions to remand such removed cases.

This putative class action was commenced in New York State Supreme Court, and was removed to the United States District Court for the Northern District of New York (Mordue, C.J.). The action alleges that officers of an issuer — abetted by the issuer's auditor — failed to disclose, while marketing certain debt certificates, that the issuer was insolvent. Plaintiffs seek relief under New York's consumer fraud statute. The main question for this appeal is whether such a claim falls within an exception to CAFA's grant of original and appellate jurisdiction — for class actions that solely involve claims 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); id. § 1453(d)(3). This is a question of first impression in the circuit courts.

Although the matter is not entirely clear given the imperfect wording of the statute, we hold that the present suit does not fall within this exception to CAFA jurisdiction. Consequently, we have authority to accept an appeal from the district court's order granting plaintiffs' motion to remand this action to the state court. We elect to grant defendants' petition for permission to appeal and, on the merits, we reverse the district court's remand order.

I

Agway, Inc., an agricultural supply and marketing cooperative, sought to raise capital by issuing money market certificates ("Certificates") — unsecured, fixed-interest debt instruments. Later, Agway suspended sale of the Certificates, and ended its practice of repurchasing them prior to maturity. Agway filed for bankruptcy in September 2002. This is the second litigation brought by these plaintiffs over these Certificates.

The 2003 Lawsuit. Plaintiffs, seeking to represent a class of individuals who purchased the Agway Certificates between September 2000 and September 2002, filed a lawsuit in New York Supreme Court against Agway officers Donald P. Cardarelli and Peter J. O'Neill, as well as Agway's auditor, PriceWaterhouseCoopers, LLP ("defendants"). That complaint was predicated on the federal securities laws — in particular, § 11(a) of the Securities Act of 1933, 15 U.S.C. § 77k(a) — and it asserted that misrepresentations in Agway's financial statements fraudulently concealed that Agway was insolvent and could only discharge its previous debt through the issuance of new debt instruments.

Defendants removed the action to the United States District Court for the Northern District of New York. Plaintiffs then amended the complaint to plead essentially the same acts of concealment under New York's consumer fraud law, which creates a private right of action for victims of "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service," N.Y. Gen. Bus. Law § 349(a). See id. § 349(h).

As to the federal securities claim, Judge Mordue granted defendants' motion to dismiss with prejudice. See Pew v. Cardarelli, No. 5:03-cv-742, 2005 WL 3817472, at *7 (N.D.N.Y. Mar.17, 2005). Judge Mordue declined to exercise supplemental jurisdiction over plaintiffs' state law claim, dismissing without prejudice. Id. at *16. We affirmed by summary order, ruling that "no reasonable investor could have been misled about the nature and extent of the risks associated with investing in Agway Certificates." Pew v. Cardarelli, 164 Fed.Appx. 41, 44 (2d Cir.2006) (summary order).

The 2005 Lawsuit. The present lawsuit, filed in New York Supreme Court, makes essentially the same factual allegations, but seeks relief only under the state consumer fraud statute, N.Y. Gen. Bus. Law § 349. Defendants removed the action to federal court under CAFA, which in some circumstances permits removal of class actions based wholly on state law. Plaintiffs moved to remand the case to state court, arguing that their suit falls within an exception to CAFA's removal provision for actions "that relate [ ] to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security," and that the district court therefore lacks jurisdiction over it, 28 U.S.C. § 1332(d)(9)(C), and cannot accede to removal, id. § 1453(d)(3). Chief Judge Mordue agreed, and remanded. Estate of Pew v. Cardarelli, No. 5:05-cv-1317, 2006 WL 3524488 (N.D.N.Y. Dec.6, 2006).

Defendants filed the present petition pursuant to 28 U.S.C. § 1453(c), seeking permission to appeal the district court's remand order. We advised the parties that were we to grant defendants' motion for leave to appeal, we might also elect to decide the merits simultaneously.

II

CAFA requires that any petition for review of an order granting or denying a motion to remand be made to the court of appeals "not less than 7 days after entry of the order." 28 U.S.C. § 1453(c)(1) (emphasis added). As the Third Circuit concluded, this is surely a typographical error, because the "uncontested legislative intent behind § 1453(c) was to impose a seven-day deadline for appeals," not a waiting period. Morgan v. Gay, 466 F.3d 276, 277 (3d Cir.2006) (emphasis added). We join our sister circuits in interpreting the statute to mean "not more than 7 days." Id.; see also Miedema v. Maytag Corp., 450 F.3d 1322, 1326 (11th Cir.2006) (reaching same interpretation); Amalg. Transit Union Local 1309 v. Laidlaw Transit Servs., Inc., 435 F.3d 1140, 1146 (9th Cir.2006) (same); Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1093 n. 2 (10th Cir.2005) (same). Defendants' petition is timely because it was filed on the seventh business day after the entry of the district court's order.

III

Ordinarily, an order of remand is unappealable. See 28 U.S.C. § 1447(d). Plaintiffs argue that we lack jurisdiction to decide the present appeal because defendants failed to make a timely application to the district court to stay its order of remand. Section 1453 conditions the right of appeal on a timely filing, without mention of a stay. See 28 U.S.C. § 1453(c)(1). We therefore hold that in granting the federal courts of appeals jurisdiction to review remand orders "notwithstanding section 1447(d)," Congress did not require a defendant to seek a stay. Id. § 1453(c)(1).

IV

Plaintiffs contend that we lack appellate jurisdiction to review the order of remand, by virtue of 28 U.S.C. § 1453(d)(3).

As always, we have jurisdiction to determine our jurisdiction. See Kuhali v. Reno, 266 F.3d 93, 100 (2d Cir.2001). Section 1453 provides, in pertinent part:

(b) In general. — A class action may be removed to a district court of the United States ... without regard to whether any defendant is a citizen of the State in which the action is brought ....

(c) Review of remand orders. —

(1) In general. — Section 1447 shall apply to any removal of a case under this section, except that notwithstanding section 1447(d), a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed if application is made to the court of appeals not less than 7 days after entry of the order.

(2) Time period for judgment. — If the court of appeals accepts an appeal under paragraph (1), the court shall complete all action on such appeal, including rendering judgment, not later than 60 days after the date on which such appeal was filed....

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

. . .

(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 explained in detail infra, § 1453(d)(3) mirrors § 1332(d)(9)(C), which provides an exception to CAFA's grant of original federal jurisdiction.

Subsection (b) permits defendants (who are New York residents) to remove the action from New York Supreme Court. Subsection (c) gives defendants the right to petition this Court for an appeal of the district court's remand order. Compare 28 U.S.C. § 1447(d) ("An order remanding a case to the State court from which it was ...