Hung ex rel. Situated v. Idreamsky Tech. Ltd., 15-CV-2514 (JPO)
| Decision Date | 25 January 2016 |
| Docket Number | 15-CV-2514 (JPO),15-CV-3794 (JPO),15-CV-3484 (JPO),15-CV-2944 (JPO) |
| Parties | TROY HUNG, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. IDREAMSKY TECHNOLOGY LIMITED, et al., Defendants. JAMES PATRICK GRIFFITH, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. IDREAMSKY TECHNOLOGY LIMITED, et al., Defendants ABRAHAM JEREMIAS, ROGER MARIANI, and MICHAEL RUBIN, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. IDREAMSKY TECHNOLOGY LIMITED, et al., Defendants, STEPHEN MANSOUR, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. IDREAMSKY TECHNOLOGY LIMITED, et al., Defendants |
| Court | U.S. District Court — Southern District of New York |
These four cases are putative class actions brought against iDreamSky Technology Limited, its officers and directors, and four underwriters, relating to iDreamSky's initial public offering of American Depository Shares on the NASDAQ stock exchange. Before the Court are motions for consolidation and appointment of lead plaintiffs. One Plaintiff, Stephen Mansour, also moves to remand his case to New York state court. For the reasons that follow, the motion to remand is denied, the motions to consolidate the cases are granted, and Melvyn Boey Kum Hoong is appointed lead plaintiff.
As a threshold issue, the Court considers whether the Mansour case is properly part of this litigation. That action was filed in the Supreme Court of the State of New York, County of New York, on April 22, 2015, and removed to this Court on May 18, 2015. (No. 15-cv-3794, Dkt. No. 1.) Mansour now seeks remand back to state court.
The Mansour action alleges only violations of the Securities Act of 1933. 15 U.S.C. § 77a et seq. That Act is subject to a complicated removal scheme, the interpretation of which has divided federal and state courts. See, e.g., Plymouth Cty. Ret. Sys. v. Model N, Inc., No. 14-cv-04516, 2015 WL 65110, at *3 (N.D. Cal. Jan. 5, 2015) (collecting cases). As a general rule, cases falling within the court's federal question jurisdiction—such as this one—are removable under 28 U.S.C. §§ 1441 and 1446. The Securities Act, however, prohibits removal for cases arising under the Act "and brought in any State court of competent jurisdiction." 15 U.S.C. § 77v(a).
This bar on removal is subject to two exceptions. First, the Securities Act includes an explicit exception to the general prohibition on removal "as provided in section 77p(c)." As the Supreme Court has explained in considered dicta, "removal jurisdiction under subsection (c) is . . . restricted to . . . actions defined by subsection (b) [of section 77(p)]." Kircher v. Putnam Funds Tr., 547 U.S. 633, 643-44 (2006); see, e.g., Niitsoo v. Alpha Nat. Res., Inc., 902 F. Supp. 2d 797, 802-04 (S.D.W. Va. 2012). Section 77p(b), in turn, precludes certain securities class actions that are "based upon the statutory or common law of any State or subdivision thereof." 15 U.S.C. § 77p(b). Together, these provisions function to allow removal, followed by dismissal, of certain state class actions. Kircher, 547 U.S. at 642-44. Despite Defendants'arguments to the contrary, this exception to the removal bar is not relevant to this despite, which concerns only federal securities claims. See, e.g., Niitsoo, 902 F. Supp. 2d at 804 (); W. Va. Laborers Tr. Fund v. STEC Inc., No. SACV 11-01171-JVS, 2011 WL 6156945, at *3-5 (C.D. Cal. Oct. 7, 2011) (reaching this conclusion); cf. Knox v. Agria Corp., 613 F. Supp. 2d 419, 425 (S.D.N.Y. 2009) ().
The second exception to the removal bar derives from the fact that the Securities Act prohibits removal from a "State court of competent jurisdiction." 15 U.S.C. § 77v(a). If a state court lacks jurisdiction over a Securities Act case, it is not a court of competent jurisdiction, so the removal bar does not apply and the usual federal removal statute does.
The parties dispute whether state courts have jurisdiction over Securities Act class actions like this one. Section 77v(a) of the Act grants concurrent federal and state jurisdiction over actions "brought to enforce any liability or duty created by" the Securities Act "except as provided in section 77p of [Title 15] with respect to covered class actions." 15 U.S.C. § 77v(a). Defendants argue that the language "except as provided in section 77p" refers to § 77p(f)(2), which defines "covered class actions" as lawsuits involving more than 50 persons with common questions of law or fact, or lawsuits brought on a representative basis. Id. § 77p(f). Under this reading, there is concurrent federal and state jurisdiction over individual Securities Act claims and certain group claims—such as a suit involving 30 persons—but not over "covered" Securities Act class claims. There is no dispute that the Mansour class action satisfies the definition of a covered class action in § 77p(f). Accordingly, under Defendants' interpretation, state courts lack jurisdiction over the case, so it is removable to federal court.
Mansour, in contrast, argues that the language "except as provided in section 77p" refers to the entirety of § 77p, primarily §§ 77p(b)-(c) precluding certain state-law class actions. Underthis reading, there is concurrent federal and state jurisdiction over Securities Act claims, except with respect to those state-law class actions removable under § 77p(c) and precluded by § 77p(b). By this interpretation, state courts have jurisdiction over Mansour's case, and it is not removable.
While the construction of § 77v(a) has split federal district courts, this Court concurs with those agreeing with the Defendants—including the other judges from this district. See In re Fannie Mae 2008 Sec. Litig., No. 08-cv-7831, 2009 WL 4067266, at *2 (S.D.N.Y. Nov. 24, 2009); Knox, 613 F. Supp. 2d at 425; see also Rubin v. Pixelplus Co., No. 06-cv-2964, 2007 WL 778485, at *5-6 (E.D.N.Y. Mar. 13, 2007). Compare, e.g., Wunsch v. Am. Realty Cap. Props., Civ. No. JFM-14-4007, 2015 WL 2183035 (D. Md. Apr. 14, 2015) (Motz, J.) (agreeing with Knox), with Pac. Inv. Mgmt. Co. v. Am. Intern. Grp., Inc., No. SA CV 15-0687-DOC, 2015 WL 3631833, at *6 (C.D. Cal. June 10, 2015) ( with Knox). First, the Defendants have the better reading of the text. Defendants interpret "except as provided in section 77p with respect to covered class actions" to mean "except with respect to covered class actions, as defined in section 77p." The statutory language is amenable to this reading, and the phrase "covered class action" is a term of art with no meaning absent a reference to some definition. Knox, 613 F. Supp. 2d at 424. But see Luther v. Countrywide Fin. Corp., 125 Cal. Rptr. 3d 716, 721 (Cal. Ct. App. 2011).
Mansour's parsing, meanwhile, runs afoul of the Supreme Court's decision in Kircher. Mansour interprets the "except" clause to strip state courts of jurisdiction over cases removable under § 77p(c). In Kircher, the Supreme Court said just the opposite. 547 U.S. at 646 ; see Lowenthal & Choe, State Courts Lack Jurisdiction to Hear Securities Act Class Actions, But the Frequent Failure to Ask the Right Question Too Often Produces the Wrong Answer, 17 U. Pa. J.Bus. L. 739, 775 (2015). Mansour's interpretation would also create an inconsistency in the language of the Securities Act. Niitsoo, 902 F. Supp. 2d at 805. As noted above, the Act grants state courts jurisdiction over actions "created by" the Securities Act "except as provided in section 77p." According to Mansour, this language grants state courts jurisdiction over federal claims "except" for certain state claims. But state claims, of course, are not a subset of federal claims, excisable through an exception. Id. ().
To reconcile the language in § 77v(a), Mansour argues that the reference to "this subchapter" is aimed at cases involving both federal and state claims. According to this argument, §§ 77p(b)-(c) allow removal and dismissal of cases involving certain state-law securities claims even if they also include federal claims. Congress was worried that the grant of concurrent jurisdiction, which (under Mansour's view) contains an exception for cases removable under § 77p(c), would be understood to exclude such mixed federal/state cases. So it left in the reference to claims "created by" the Securities Act to clarify that state courts retain jurisdiction over federal claims in cases that are removed via §§ 77p(b)-(c). See In re Tyco Int'l, Ltd. Multidist. Litig., 322 F. Supp. 2d 116, 120 n.7 (D.N.H. 2004) (accepting this argument).
Though this reading is clever, it is also unconvincing. Prior to the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), § 77v(a) granted concurrent jurisdiction over all Securities Act claims. SLUSA added the exception "as provided in section 77p of this title with respect to covered class actions." Securities Litigation Uniform Standards Act of 1998, Pub. L. No. 105-353, Tit. I, § 101(a)(3). Mansour's reasoning, then, is that the Securities Act granted concurrent jurisdiction over cases involving Securities Act claims, so Congress added an exception to clarify that there is concurrent jurisdiction over cases involving Securities Act claims. That proposition is doubtful. See Niitsoo, 902 F. Supp. 2d at 806-07 (...
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