In re Tyco Intern., Ltd.

• Citation: 322 F.Supp.2d 116
• Decision Date: 21 June 2004
• Docket Number: No. 03-1346-PB.,No. 03-1344-PB.,No. 03-1349-PB.,No. 03-1347-PB.,No. 03-1345-PB.,No. 03-1338-PB.,No. MDL 02-1335-PB.,No. 03-1336-PB.,MDL 02-1335-PB.,03-1336-PB.,03-1338-PB.,03-1344-PB.,03-1345-PB.,03-1346-PB.,03-1347-PB.,03-1349-PB.
• Parties: In re TYCO INTERNATIONAL, LTD. Multidistrict Litigation (MDL 1335)
• Court: U.S. District Court — District of New Hampshire

Page 116

322 F.Supp.2d 116

In re TYCO INTERNATIONAL, LTD. Multidistrict Litigation (MDL 1335)

No. MDL 02-1335-PB.

No. 03-1336-PB.

No. 03-1338-PB.

No. 03-1344-PB.

No. 03-1345-PB.

No. 03-1346-PB.

No. 03-1347-PB.

No. 03-1349-PB.

United States District Court, D. New Hampshire.

June 21, 2004.

William Chapman, Orr & Reno, Concord, NH, for Securities Action.

Kenneth Bouchard, Bouchard & Kleinman PA, Hampton, NH, for ERISA Action.

Frederick Upshall, Upshall Cooper & Temple PA, Concord, NH, for Derivative Action.

Edward Haffer, Sheehan Phinney Bass & Green, Manchester, NH, for Tyco Internation.

Richard McNamara, Wiggin & Nourie PA, Manchester, NH, for L. Dennis Kozlowski.

William Hassler, Steptoe & Johnson LLP, Washington, DC, for Mark Belnick.

Jody L. King, Michael Grudberg, Stillman & Friedman PC, New York, NY, for Mark Swartz.

Arnold Rosenblatt, Cook Little Rosenblatt & Manson, PLLC, Manchester, NH, for PricewaterhouseCoopers.

James Townsend, Townsend Law Office, Londonderry, NH, for PricewaterhouseCoopers-Bermuda.

Alan Friedman, Kramer Levin Naftalis & Frankel, LLP, New York, NY, for Josehua Berman.

Miranda Schiller, Weil Gotshal & Manges, LLP, New York, NY, for Richard Bodman & Wendy Lane.

Gregory A. Markel, Cadwalader Wickersham & Taft, LLP, New York, NY, for Michael Ashcroft, John Fort, James Pasman & Joseph Welch.

Laurie Smilan, Latham & Watkins, Reston, VA, for Stephen Foss.

JaneAnne Murray, O'Melveny & Meyers LLP, New York, NY, for W. Peter Slusser.

Michelle Pahlmer, Lawrence Greenwald, Stroock Stroock & Lavan LLP, New York, NY, for Frank E. Walsh.

Ann Galvani, David Shapiro, Boise, Schiller & Flexner, LLP, Oakland, CA, for TYCO-Plaintiff.

Marshall R. King, Mitchell Karlan, Gibson Dunn & Crutcher, LLP, New York, NY, for TYCO Plaintiff.

Michael Beck, Judicial Panel on Multidistrict Litigation, Washington, DC, for Court Orders Only.

MEMORANDUM AND ORDER

BARBADORO, Chief Judge.

The plaintiffs in seven of the 47 cases that have been consolidated for pretrial proceedings in this multidistrict litigation matter have moved to remand their cases to the state courts in which they were originally filed. The cases are based exclusively on the Securities Act of 1933 ("the Securities Act"), 15 U.S.C. § 77a-77aa, which until 1998 did not permit the removal of any case that was deemed to arise under the Securities Act. Congress created a limited exception to the nonremoval rule when it adopted the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), Pub.L. No. 105-353, 112 Stat. 3227 (codified as amended at 15 U.S.C. §§ 77p, 77v, 77z-1, 78u-4 and 78bb (1998)). The question that I must resolve is whether the cases at issue qualify for removal under SLUSA.¹

I.

Congress passed SLUSA to prevent plaintiffs in certain securities fraud class action cases from using state laws and state courts to avoid the rigorous pleading standards, discovery limitations, and other requirements of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). See Pub.L. No. 105-353, § 2, 112 Stat. 3227. Congress attacked the problem primarily by adding preemption and removal provisions to both the Securities Act and the Exchange Act of 1934, 15 U.S.C. §§ 78a-78mm ("Exchange Act").

The Securities Act's preemption provision is codified at 15 U.S.C. § 77p(b). It states that

No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging —

(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or

(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.

15 U.S.C. § 77p(b).

The removal provision is codified at 15 U.S.C. § 77p(c). It states that

Any covered class action brought in any State court involving a covered security, as set forth in subsection (b), shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to subsection (b).

15 U.S.C. § 77p(c).

Until SLUSA became law, no case that was deemed to arise under the Securities Act was removable to federal court. SLUSA amended the nonremoval provision, codified at 15 U.S.C. § 77v, to create an exception for cases that are removable under § 77p(c). The nonremoval provision (with the new language emphasized) states that

Except as provided in section 77p(c) of this title, no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States.

15 U.S.C. § 77v (emphasis added).²

II.

The parties agree that § 77v bars the removal of the cases at issue unless they qualify for removal under § 77p(c). Section 77p(c), in turn, applies to "[a]ny covered class action brought in any State court involving a covered security, as set forth in subsection (b)." Because it is undisputed that the cases at issue are "covered class actions"³ and involve "covered securities,"⁴ their removability depends upon the meaning of the phrase "as set forth in subsection (b)."

Plaintiffs argue that "as set forth in subsection (b)" modifies the term "covered class action." Because § 77p(b) applies only to covered class actions that are "based upon the statutory or common law of any State or subdivision thereof," plaintiffs argue that cases such as the ones that are now before me, which are based exclusively on the Securities Act, are not removable under § 77p(c).

Defendants argue that § 77p(c) permits the removal of cases that are based exclusively on the Securities Act if they qualify as "covered class actions," involve "covered securities," and are based in fraud.⁵ Defendants rest their argument primarily on a canon of statutory construction known as the "rule of the last antecedent." See, e.g., Montalvo-Huertas v. Rivera-Cruz, 885 F.2d 971, 975 (1st Cir.1989); United States v. Ven-Fuel, Inc., 758 F.2d 741, 751 (1st Cir.1985). This canon holds that when a qualifying phrase has multiple antecedents, the phrase ordinarily qualifies only the final antecedent. See id. Defendants argue that the phrase "as set forth in subsection (b)" has two antecedents: "covered class action" and "involving a covered security." They then reason that "as set forth in subsection (b)" should be read to modify "involving a covered security" rather than "covered class action." Because §§ 77p(b)(1) and (2) limit the preemption provision to claims that involve covered securities that are purchased or sold through fraudulent means, defendants argue that § 77p(c) must authorize the removal of any covered class action that involves such securities, whether the claims that comprise the action are based on state or federal law.

While defendants' argument is well presented, it does not withstand careful analysis. The disputed language in § 77p(c) consists of a defined term, "covered class action," and a series of three qualifying phrases: "brought in any State court," "involving a covered security," and "as set forth in subsection (b)." Because the first two phrases obviously qualify "covered class action," it is reasonable to expect that the third phrase in the series should modify the same term as the two that precede it. Thus, absent some signal from Congress that a different meaning was intended, plaintiffs appear to be correct in claiming that "as set forth in subsection (b)" modifies "covered class action" rather than "involving a covered security."

Any real doubt about the meaning of § 77p(c) is dispelled by the way in which it is punctuated. If Congress had intended "as set forth in subsection (b)" to modify "involving a covered security," one would expect to see commas setting off the phrase "involving a covered security as set forth in subsection (b)" from the rest of the sentence. Instead, the drafters of § 77p(c) placed the comma between "involving a covered security" and "as set forth in subsection (b)." The only purpose that this choice serves is to preclude defendants' interpretation by signaling that "as set forth in subsection (b)" should modify "covered class action" rather than "covered security". Thus, this case is governed by the exception to the rule of the last antecedent which applies when a comma is placed between the last antecedent and the qualifying phrase. See 2A Norman J. Singer, Statutes and Statutory Construction § 47:33 (6th ed.2000); see also Kahn Lucas Lancaster, Inc. v. Lark Int'l Ltd., 186 F.3d 210, 215 (2d Cir.1999); Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Shell Oil Co., 606 N.W.2d 376, 380 (Iowa 2000); In re Pers. Restraint of Smith, 139 Wash.2d 199, 986 P.2d 131, 133-34 (1999).

Defendants attempt to bolster their case by arguing that plaintiffs' reading of § 77p(c) suffers from its own interpretive difficulties. They first claim that plaintiffs' interpretation makes SLUSA's amendment of § 77v superfluous. Their argument is that if plaintiffs were correct in claiming that § 77p(c) authorizes the removal only of cases that are based on state law, Congress would not have needed to amend § 77v to create an exception for cases that are removable under § 77p(c) because § 77v applies only to claims that arise under the Securities Act. See Kulinski, No. 02-03-412; Alkow v. TXU Corp., 2003 WL 21056750; Brody v. Homestore, 240 F.Supp.2d 1122 (C.D.Cal.2003).

I reject this argument because it is based on the mistaken premise that a case cannot both arise under the Securities Act and be based on state law. As the two leading commentators on federal jurisdiction recognize, a case that includes federal law claims is deemed to arise under federal law for purposes of the general removal statute, 28 U.S.C. § 1441, even though it also contains related claims that are based on state law. See 14C Charles H. Wright, Arthur R. Miller, Edward H. Cooper, Federal...