Green v. Ameritrade, Inc.

• Decision Date: 16 November 2000
• Docket Number: No. 4:00CV0256.,4:00CV0256.
• Citation: 120 F.Supp.2d 795
• Parties: Mitchell C. GREEN, an individual, and on behalf of himself and all other similarly situated as a private attorney general, Plaintiffs, v. AMERITRADE, INC., a Nebraska Corporation; Ameritrade Holding Corp., a Delaware Corporation, Defendants.
• Court: U.S. District Court — District of Nebraska

120 F.Supp.2d 795

Mitchell C. GREEN, an individual, and on behalf of himself and all other similarly situated as a private attorney general, Plaintiffs, v. AMERITRADE, INC., a Nebraska Corporation; Ameritrade Holding Corp., a Delaware Corporation, Defendants.

No. 4:00CV0256.

United States District Court, D. Nebraska.

November 16, 2000.

Matthew A. Lathrop, Hauptman, O'Brien Law Firm, Omaha, NE, Mark A. Ozzello, Arias, Ozzello Law Firm, Los Angeles, CA, for Plaintiffs.

Patrick B. Griffin, Richard P. Jeffries, Kutak Rock LLP, Omaha, NE, for Defendants.

MEMORANDUM AND ORDER

KOPF, District Judge.

This is a class action suit filed by Mitchell C. Green (Green), a California resident, against Ameritrade, Inc., a Nebraska corporation, and Ameritrade Holding Corp, a Delaware corporation (jointly "Ameritrade"). The putative class includes all "nonprofessional subscribers" who have paid Ameritrade $20 per month to obtain last sales information or real time market quotes for stocks or options via the internet. The suit was initiated in the District Court of Douglas County, Nebraska, but was promptly removed to federal court by Ameritrade as allegedly involving a class action that is covered by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. § 78bb(f).

Following removal, Ameritrade filed a motion to dismiss (filing 2) and Green filed a motion to remand (filing 4), both of which were submitted to the Honorable William G. Cambridge for determination. In a memorandum opinion and order entered on June 22, 2000 (filing 9), Judge Cambridge ruled that Green's state-law claims¹ were completely preempted by SLUSA.² Accordingly, the motion to remand³ was denied. While finding that Ameritrade's motion to dismiss had merit, Judge Cambridge denied the same without prejudice and sua sponte granted Green thirty days in which to file an amended complaint. This was accomplished in a timely manner, on July 20, 2000.

The amended complaint (filing 12) alleges that Ameritrade breached its contractual duties by failing to employ practices which would provide the plaintiff class with actual last sales information on option quotes, and that the plaintiffs have incurred damages in the amount paid for the information. The relief requested includes an unspecified amount of compensatory damages, prejudgment interest, attorney's fees, and costs of suit.

Presently pending before the court are another motion to dismiss, filed by Ameritrade on September 11, 2000 (filing 20), and another motion to remand, filed by Green on September 29, 2000 (filing 21).⁴ For the reasons stated below, the motion to remand will be granted.

The remand order will be entered pursuant to the court's discretionary authority under 28 U.S.C. § 1367(c), however, rather than pursuant to 28 U.S.C. § 1447(c) for lack of jurisdiction, as requested by Green. Because of the remand, I do not reach the merits of Ameritrade's motion to dismiss, and will deny the same without prejudice.

I. Plaintiffs' Motion to Remand

It is Green's position that the amended complaint contains a single state-law claim for breach of contract which is not covered by SLUSA, and that the case therefore should be remanded to the District Court of Douglas County, Nebraska, pursuant to 28 U.S.C. § 1447(c),⁵ because subject matter jurisdiction is now lacking in federal court. Ameritrade counters that the breach-of-contract claim that is alleged in the amended complaint is not materially different from the first cause of action that was alleged in the state court petition, which Judge Cambridge found to be preempted by SLUSA. Alternatively, Ameritrade argues that the court should exercise supplemental jurisdiction over the claim pursuant to 28 U.S.C. § 1367(a).⁶

A. SLUSA Preemption

The first issue to be determined is whether the claim that is alleged in the amended complaint is preempted by SLUSA and therefore subject to dismissal under Fed.R.Civ.P. 12(b)(6). I find that it is not because there is no allegation that Ameritrade was guilty of "a misrepresentation or omission of material fact" or that it "used or employed any manipulative or deceptive device or contrivance" in connection with the purchase or sale of a covered security.

The intent of Congress in enacting SLUSA was to completely preempt, with the exception of certain "preserved" actions,⁷ all state class actions alleging fraud or manipulation relating to covered securities. See Abada v. Charles Schwab & Co., Inc., 68 F.Supp.2d 1160, 1165 (S.D.Cal. 1999). The Act's language parallels that of Section 10(b) of the Securities Exchange Act of 1934⁸ and Rule 10b-5 as promulgated by the Securities and Exchange Commission.⁹ Because of this similarity, courts have looked to Section 10(b) and Rule 10b-5 cases in construing SLUSA. See Burns v. Prudential Securities, 116 F.Supp.2d 917 (N.D.Ohio 2000).

Scienter is an acknowledged essential element of a Section 10(b) or Rule 10b-5 claim even though it is not explicitly required by the statutory text. See Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1534 (8th Cir.1996) (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)). See also In re NationsMart Corp. Securities Litigation 130 F.3d 309, 320 (8th Cir.1997) ("Proof of scienter, or the `intent to deceive, manipulate, or defraud,' is necessary to prevail in a 10b-5 action."), cert. denied, 524 U.S. 927, 118 S.Ct. 2321, 141 L.Ed.2d 696 (1998). Also, because a Rule 10b-5 claim is necessarily grounded in fraud, the more stringent pleading requirements of Fed.R.Civ.P. 9(b) apply.¹⁰ Id.

Green's amended complaint, unlike his state court petition, contains no allegations that Ameritrade made any misrepresentations or that it engaged in any deceptive practices. While Ameritrade characterizes this merely as "artful pleading," the changes are substantive.

For example, Green originally alleged that "AMERITRADE does not purchase or obtain real time last sales information from all option exchanges and/or market makers, yet the subscriber is led to believe that the option quotes on his/her quote list are in fact real time, last sales information quotes, from any and all exchanges or market makers." Petition (filing 1, ¶ 12) (emphasis supplied). By contrast, Green now alleges that "AMERITRADE does not purchase or obtain real time last sales information from all option exchanges and/or market makers, yet the subscriber contracts for option quotes, which are supposed to be real time, last sales information quotes, from any and all exchanges or market makers." Amended Complaint (filing 12, ¶ 12) (emphasis supplied).

Ameritrade points out that the amended complaint's prayer for relief still includes a request for attorney's fees under the Nebraska Consumer Protection Act and the Uniform Deceptive Trade Practices Act. I do not consider this apparent oversight to be determinative, since the prayer for relief is no part of the claim stated. See Peitzman v. City of Illmo, 141 F.2d 956, 962 (8th Cir.1944) (but also stating that in case of doubt as to the nature of the cause of action, the prayer of the complaint may be looked to).

If any significance is to be attached to the prayer for relief, it is that the amended complaint seeks compensatory damages, whereas the state court petition sought injunctive relief and restitution. This is indicative of the fact that Green now intends the action to sound purely in contract.

In summary, I construe the amended complaint as alleging nothing other than a claim for breach of express agreements by Ameritrade to provide members of the plaintiff class with "real time, last sales information"¹¹ on option quotes. As such, I conclude that the claim is not preempted by SLUSA because no proof of scienter is required. See Burns v. Prudential Securities, supra (holding that SLUSA did not preempt state-law claims for conversion, breach of contract, breach of fiduciary duty, and negligent supervision against securities brokerage firm).

B. Mandatory Remand

The next issue to be determined is whether the action must be remanded to state court pursuant to 28 U.S.C. § 1447(c).¹² I find that it does not because the court has not been divested of subject matter jurisdiction.

The complete preemption doctrine converts an ordinary state-law claim into a federal claim. See Gore v. Trans World Airlines, 210 F.3d 944, 949 (8th Cir.2000). Under this doctrine, "the preemptive force of certain federal statutes is deemed so `extraordinary' as to convert complaints purportedly based on the preempted state law into complaints stating federal claims from their inception." Krispin v. May Dept. Stores Co., 218 F.3d 919, 922 (8th Cir.2000) (citing Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987)) (emphasis supplied). As to such claims, in other words, the federal district courts have original jurisdiction because they "arise under" the laws of the United States.¹³ See Caterpillar, 482 U.S. at 393, 107 S.Ct. 2425; 28 U.S.C. § 1331; 28 U.S.C. § 1441(b).

Although the matter is not entirely free from debate, most courts which have addressed the issue have held that the language "lacks subject matter jurisdiction" in 28 U.S.C. § 1447(c) refers only to defects existing at the time of removal. See 14C Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3739 at 435-36 (3d ed.1998). This prevailing interpretation of the statute also appears to be the law in this circuit. See Kansas Public Emp. Ret. System v. Reimer & Koger, 77 F.3d 1063, 1067-68 (8th Cir.) ("The existence of [supplemental] jurisdiction is determined at the time of removal, even though subsequent events may remove from the case the facts on which jurisdiction was predicated."), cert. denied, 519 U.S. 948, 117 S.Ct. 359, 136 L.Ed.2d 250 (1996).¹⁴ But see In re Atlas Van Lines, Inc., 209 F.3d 1064, 1067 (8th Cir.2000) ("[I]n cases where a plaintiff has filed...