Knox v. Agria Corp.

Citation613 F.Supp.2d 419
Decision Date27 January 2009
Docket NumberNo. 08 Civ. 7651 (WHP).,08 Civ. 7651 (WHP).
PartiesRobert T. KNOX, individually and on behalf of all others similarly situated, Plaintiff, v. AGRIA CORP. et al., Defendants.
CourtU.S. District Court — Southern District of New York

Beth A. Kaswan, Esq., Scott + Scott, LLP, New York, NY, for Plaintiff Robert Knox.

David M. Brodsky, Esq., Latham & Watkins LLP, New York, NY, for Defendant Agria Corporation.

James Farrell, Esq., Latham & Watkins, LLP, Los Angeles, CA, for Defendants Kenneth Hua Huang, Gary Kim Ting Yeung, Zhahua Qian, and Terry McCarthy.

A. Hyun Rich, Esq., Larry Byrne, Esq., Paul Stephen Hessler, Esq., Linklaters, New York, NY, for Credit Suisse Securities (USA) LLC, HSBC Securities (USA), Inc., Piper Jaffray & Co., and CIBC World Markets Corp.

David A. Rosenfeld, Esq., Coughlin Stoia Geller Rudman & Robbins, LLP, Melville, NY, for Agria Corp. Securities Litigation.

MEMORANDUM & ORDER

WILLIAM H. PAULEY III, District Judge.

In August 2008, Plaintiff Robert T. Knox ("Knox") filed this putative class action in New York State Supreme Court asserting claims under the Securities Act of 1933 ("1933 Act"). At that time, three federal securities class actions were pending in this Court. Knox's complaint tracks the allegations in the federal pleadings. Defendants removed this action pursuant to 28 U.S.C. § 1441(a) and the jurisdictional provisions in Section 22(a) of the 1933 Act as they were amended by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). Knox now moves to remand. For the following reasons, this Court denies Knox's motion to remand and consolidates this case with the pending federal securities class actions.

I. Legal Standard

"Except as otherwise expressly provided by Act of Congress," a state court action may be removed to federal court if it qualifies as a "civil action . . . of which the district courts of the United States have original jurisdiction . . . ." See 28 U.S.C. § 1441(a); see also Rivet v. Regions Bank of La., 522 U.S. 470, 474, 118 S.Ct. 921, 139 L.Ed.2d 912 (1998). "The defendant bears the burden of demonstrating the propriety of removal." Cal. Pub. Employees' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir.2004) (citation and quotation marks omitted).

II. PSLRA and SLUSA

In 1995, Congress enacted the Private Securities Litigation Reform Act of 1995 ("PSLRA") in part "to prevent `strike suits'—merit less class actions that allege fraud in sale of securities." Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 107 (2d Cir.2001). "[M]any class action plaintiffs avoided the PSLRA's heightened requirements by bringing suit in state courts under state statutory and common law rather than in federal court." Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 332 F.3d 116, 123 (2d Cir.2003); see also Lander, 251 F.3d at 108.

Congress enacted SLUSA in 1998 to correct the perceived failure of the PSLRA to curb abuses of federal securities fraud litigation arising under the 1933 Act. See Lander, 251 F.3d at 107-08. In enacting SLUSA, Congress intended to make "Federal court the exclusive venue for most securities class action lawsuits[] [and] ... to prevent plaintiffs from seeking to evade the protections that Federal law provides against abusive litigation by filing suit in State, rather than Federal, court." H.R. Conf. Rep. No. 105-803, at 13 (1998); see also Lander, 251 F.3d at 108. Specifically, SLUSA amended the 1933 Act, inter alia, to define "covered class actions" and "covered securities." A "covered class action" is a lawsuit where damages are sought on behalf of more than fifty people. 15 U.S.C. § 77p(f)(2). A "covered security" is a security traded nationally and listed on a regulated national exchange. 15 U.S.C. § 77p(f)(3).

III. Statutory Construction

Construction of a statute begins with the words of the text. Mallard v. United States Dist. Court, 490 U.S. 296, 300, 109 S.Ct. 1814, 104 L.Ed.2d 318 (1989); WorldCom, 368 F.3d at 101 (quoting Saks v. Franklin Covey Co., 316 F.3d 337, 345 (2d Cir.2003)). "Statutory construction . . . is a holistic endeavor." United .Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assoc., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988). "The meaning of a particular section in a statute can be understood in context with and by reference to the whole statutory scheme, by appreciating how sections relate to one another." Auburn Housing Auth. v. Martinez, 277 F.3d 138, 144 (2d Cir.2002). The "cardinal rule [is] that a statute is to be read as a whole, ... since the meaning of statutory language, plain or not depends on context." King v. St. Vincent's Hosp., 502 U.S. 215, 221, 112 S.Ct. 570, 116 L.Ed.2d 578 (1991). Moreover, courts must interpret a statute to give meaning to each provision so as to "avoid statutory interpretations that render provisions superfluous." State St. Bank & Trust Co. v. Salovaara, 326 F.3d 130, 139 (2d Cir.2003). It is also a "`familiar canon of statutory construction that remedial legislation should be construed broadly to effectuate its purposes.'" Henrietta D. v. Bloomberg, 331 F.3d 261, 279 (2d Cir.2003) (quoting Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967)).

IV. The Anti-Removal Provision of the 1933 Act

While 28 U.S.C. §§ 1441(a) and (b) provide for the removal of claims arising under federal law, Section 22(a) of the 1933 Act includes an "anti-removal" provision that states: "Except as provided in section [16(c)] of [the 1933 Act], no case arising under [the 1933 Act] and brought in any State court of competent jurisdiction shall be removed to any court of the United States." 15 U.S.C. § 77v(a) (emphasis added to SLUSA amendments). Section 16(c) provides that "[a]ny 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 ... and shall be subject to subsection (b)." 15 U.S.C. § 77p(c). Subsection (b), in turn, prohibits state or federal courts from hearing any covered class action raising state or common law claims based on untrue statements or deceit in the sale of a nationally traded security. See 15 U.S.C. § 77p(b).

District courts are divided on the question whether the anti-removal provision, as amended by SLUSA, allows for removal of covered class actions raising only 1933 Act claims.1 All agree that removed actions should be remanded unless they fall within Section 16(c). This has led some district courts to construe Sections 16(c) broadly to include 1933 Act claims. See Rubin v. Pixelplus Co., No. 06 Civ. 2964 (ERK), 2007 WL 778485, at *3-4 (E.D.N.Y. Mar. 13, 2007). However, other courts reject that approach as inconsistent with the text of Section 16(c), which explicitly refers to subsection (b), taking the more narrow approach that Section 16(c) only applies to covered class actions raising state or common law claims. See Unschuld v. Tri-S Sec. Corp., No. 06 Civ. 2931-JEC, 2007 WL 2729011 (N.D.Ga. Sept. 14, 2007).

The narrow reading granting remand creates a jurisdictional anomaly because it has the effect of prohibiting state securities fraud claims in state court, while allowing federal securities fraud class actions to be litigated there. It also does not make sense. SLUSA was intended to curtail the proliferation in state courts of securities fraud class actions (federal or state) beyond the reach of the PSLRA's heightened pleading standards. Instead, the constricted approach threatens to spawn federal securities fraud class actions in state courts where they could proceed under the PSLRA radar. That bizarre result would shift the center of gravity of federal securities fraud class actions under the 1933 Act from federal to state courts. It is precisely this lacuna that the Knox plaintiffs seek to exploit.

Because this Court holds that no state court has subject matter jurisdiction over covered class actions raising 1933 Act claims, it need not address the scope of the exception to the anti-removal provision. As discussed below, this Court parses Section 22(a) differently from other courts, which have considered the question of removal of 1933 Act claims, and focuses on the phrase "any State court of competent jurisdiction."

"[W]hen `judicial interpretations have settled the meaning of an existing statutory provision, repetition of the same language in a new statute indicates, as a general matter the intent to incorporate its . . . judicial interpretations as well.'" Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 85-86, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006) (quoting Bragdon v. Abbott, 524 U.S. 624, 645, 118 S.Ct. 2196, 141 L.Ed.2d 540 (1998)). The term "court of competent jurisdiction" is used in many statutes and normally refers to a court with subject matter jurisdiction. See United States v. Morton, 467 U.S. 822, 828, 104 S.Ct. 2769, 81 L.Ed.2d 680 (1984); see also Storey v. Cello Holdings, L.L.C., 347 F.3d 370, 380 (2d Cir.2003) ("[A]s a term of art, we give [court of competent jurisdiction] its plain meaning, namely a court that has jurisdiction to hear the claim brought before it."). Thus, the antiremoval provision in Section 22(a) applies to 1933 Act claims brought in a state court with subject matter jurisdiction to hear them. This Court now considers to what extent state courts have subject matter jurisdiction over 1933 Act covered class action claims after SLUSA.

V. The 1933 Act's Jurisdictional Provision

Section 22(a), the jurisdictional provision of the 1933 Act, provides:

The district courts of the United States . . . shall have jurisdiction of offenses and violations under [the 1933 Act] . . ., and concurrent with State and Territorial courts, except as provided in [Section 16] with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by [the 1933 Act].

15 U.S.C. § 77v(a) (emphasis added to...

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