Niitsoo v. Alpha Natural Res., Inc.
| Decision Date | 05 November 2012 |
| Docket Number | Civil Action No. 2:12–cv–04377. |
| Citation | 902 F.Supp.2d 797 |
| Parties | Olivia NIITSOO, Plaintiff, v. ALPHA NATURAL RESOURCES, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of West Virginia |
OPINION TEXT STARTS HERE
Donald A. Broggi, Joseph P. Guglielmo, Scott+Scott, New York, NY, Gary Dustin Foster, Geoffrey M. Johnson, Scott+Scott, Cleveland Heights, OH, John D. Wooton, Jr., The Wooton Law Firm, Beckley, WV, Robert G. McCoid, McCamic Sacco & McCoid, Wheeling, WV, Stephen J. Teti, Scott + Scott, Colchester, CT, for Plaintiff.
Brian A. Glasser, Christopher S. Morris, Ricklin Brown, Bailey & Glasser, Charleston, WV, Mitchell A. Lowenthal, Victor L. Hou, Cleary Gottlieb Steen & Hamilton, New York, NY, for Defendants.
Pending before the court is the plaintiff's Motion to Remand Case to the Circuit Court of Boone County [Docket 13]. The disposition of this motion depends on whether the Securities Act of 1933 (“Securities Act”), as amended by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), permits the removal of securities class actions alleging violations of federal law. This is a matter of first impression for this court. For the reasons stated below, I hold that, as counter-intuitive as it may seem, the Securities Act only permits the removal of securities class actions alleging state law fraud violations, as defined in 15 U.S.C. § 77p(b), which must be dismissed whether they are before state or federal courts. Arguments to the contrary exist, but recent Supreme Court dicta in Kircher v. Putnam Funds Trust, 547 U.S. 633, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006), persuade me that the defendants cannot properly remove a federal securities class action originally brought in state court. Accordingly, the Motion to Remand is GRANTED.
This case arises out of the June 1, 2011 merger of Massey Energy Co. (“Massey”) into defendant Alpha Natural Resources, Inc. (“Alpha”), both major producers and sellers of coal. Pursuant to the merger agreement, Massey shareholders received $10 and 1.025 shares of Alpha common stock for each share of Massey common stock they owned. ( See Compl. [Docket 1–2], at 2–3). The plaintiff contends that Alpha acquired the outstanding Massey shares at an unreasonably low price by exchanging them for shares of Alpha that were over-valued due to Alpha's non-disclosure of production issues that were kept hidden until after the merger. ( See id. at 21–24). On July 13, 2012, the plaintiff filed this securities class action in the Circuit Court of Boone County, West Virginia on behalf of former Massey shareholders, other than the defendants, who received Alpha common stock in exchange for their Massey common stock. ( See id. at 1). The suit alleges only violations of federal law, specifically sections 11, 12(a)(2), and 15 of the Securities Act, 15 U.S.C. § 77a et seq., against Alpha and ten of its officers and directors. .
On August 16, 2012, the defendants removed the case to this court pursuant to 28 U.S.C. §§ 1441 and 1446 [Docket 1]. On August 30, the plaintiff moved to remand the case to the Circuit Court of Boone County [Docket 13]. The issue of remand has been fully briefed and is now ripe for review. For the reasons stated below, the motion to remand is GRANTED.
The plaintiff's Motion to Remand presents the court with a single, significant issue: whether a securities class action filed in state court can be removed to federal court if it alleges only violations of federal law. To quote another district court that dealt with the same issue:
Although the question is straight-forward, the answer has been anything but simple. Instead, because the specific removal provision (15 U.S.C. § 77p) and the general provision governing concurrent jurisdiction of federal securities (15 U.S.C. § 77v) are fraught with confusion, district courts have been unable to come up with a unified response to the question. Rather, district courts are split, with some finding removal of such federal claims from state court to be proper and with others finding that these federal claims must be remanded to state court.
Unschuld v. Tri–S Sec. Corp., No. 1:06–CV–02931–JEC, 2007 WL 2729011, at *1 (N.D.Ga. Sept. 14, 2007). The answer to the question depends on the interpretation of three of the amendments that SLUSA made to the Securities Act—15 U.S.C. § 77p(c), and two changes to 15 U.S.C. § 77v(a).
Originally, the Securities Act “provided for unqualified concurrent jurisdiction in both federal and state courts of cases brought under the 1933 Act.” Id. at *3. It also “prohibited a defendant from removing to federal court a case under the 1933 Act that had been filed in state court.” Id.; See15 U.S.C. § 77v(a) (1933) (). The combination of concurrent jurisdiction and lack of removal allowed plaintiffs in all federal securities cases to choose unilaterally whether the case would be heard in federal or state court.
In an effort to limit frivolous strike suits against corporations, Congress enacted the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. §§ 77z–1, 78u. The PSLRA erected barriers to bringing securities class actions under federal law, such as heightened pleading requirements for federal securities fraud claims. See Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 107 (2d Cir.2001). However, there was a loophole—PSLRA's heightened requirements could be avoided by alleging securities fraud under state law instead of federal law. Many plaintiffs took advantage by filing suits in state court alleging securities fraud under state law. See id. at 107–08.
One of the primary motivations behind SLUSA's enactment was to prevent plaintiffs from using state law actions to frustrate the objectives of PSLRA. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 82, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006); Unschuld, 2007 WL 2729011, at *2–3. The SLUSA closed the PSLRA loophole by amending the Securities Act to prohibit any court, state or federal, from hearing class action securities fraud claims under state law. See Dabit, 547 U.S. at 82, 126 S.Ct. 1503; 15 U.S.C. § 77p(b) (). Plaintiffs must now file securities fraud class actions under the federal Securities Act. However, beyond the prohibition of state law securities fraud class actions, there is a sharp divide among district courts regarding the impact of other SLUSA amendments. Many courts have found that the SLUSA amendments only keep plaintiffs from filing under state law, while others have found that they keep plaintiffs from filing under state law and from filing under federal law in state court.
Three specific, related changes that SLUSA made to the Securities Act give rise to the issue in this case: 1) the addition of 15 U.S.C. § 77p(c), 2) the added clause in the penultimate sentence of § 77v(a), and 3) the added clause in the first sentence of § 77v(a). The meaning of § 77p(c), added to the Securities Act along with § 77p(b), is the subject of great debate. Subsection (b) prohibits any state or federal court from hearing state law securities class actions alleging misrepresentation, omission of a material fact, or deceit (collectively referred to in this opinion as “fraud claims”). See Dabit, 547 U.S. at 82–83, 126 S.Ct. 1503. Subsection (c), the removal provision, contains the lone exception to the removal prohibition under the Securities Act—if, and only if, an action is within subsection (c), it can be removed. These subsections read:
(b) Class action limitations
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.
(c) Removal of covered class actions
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(b–c).1 Since the passage of SLUSA, district courts have been unable to agree on which actions can be removed under the language of § 77p(c). It is the second clause, “as set forth in subsection (b),” that is at the heart of the disagreement.
Many courts have found that “as set forth in subsection (b)” modifies the entire preceding clause, and as a result, only the covered class actions alleging violations of state law that are defined in subsection (b) can be removed to federal court, where they will be immediately “subject to subsection (b),” meaning dismissed. See, e.g., W. Va. Laborers' Trust Fund v. STEC, Inc., No. SACV 11–01171–JVS (MLGx), 2011 WL 6156945 (C.D.Cal. Oct. 7, 2011); W. Palm Beach Police Pension Fund v. Cardionet, Inc., No. 10cv711–L(NLS), 2011 WL 1099815 (S.D.Cal. Mar. 24, 2011); Unschuld v. Tri–S Sec. Corp., No. 1:06–CV–02931–JEC, 2007 WL 2729011 (N.D.Ga. Sept. 14, 2007); Irra v. Lazard Ltd., No. 05 CV 3388 (RJDRML), 2006 WL 2375472 (E.D.N.Y. Aug. 15, 2006); In re Tyco Int'l, Ltd. Multidistrict Litig., 322 F.Supp.2d 116 (D.N.H.2004); Nauheim v. Interpublic Grp. of Cos., No. 02–C–9211, 2003 WL 1888843 (N.D.Ill. Apr. 16, 2003); Haw. Structural Ironworkers Pension Trust Fund v. Calpine Corp., No. 03CV0714BTM(JFS), 2003 WL 23509312 (S.D.Cal. Aug. 27,...
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