Rainero v. Archon Corp.

• Decision Date: 21 December 2016
• Docket Number: No. 14-17106,14-17106
• Citation: 844 F.3d 832
• Parties: David Rainero, Plaintiff–Appellant, v. Archon Corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

844 F.3d 832

David Rainero, Plaintiff–Appellant,

v.Archon Corporation, Defendant–Appellee.

No. 14-17106

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 17, 2016 San Francisco, California

Filed December 21, 2016

Joseph N. Mott (argued) and Steven J. Parsons, Law Offices of Steven J. Parsons, Las Vegas, Nevada; Steven E. Goren, Goren Goren & Harris P.C., Bingham Farms, Michigan; for Plaintiff–Appellant.

John Desmond (argued) and Justin J. Bustos, Gordon Silver, Reno, Nevada, for Defendant–Appellee.

Before: Sidney R. Thomas, Chief Judge, and Carlos T. Bea and Sandra S. Ikuta, Circuit Judges.

OPINION

THOMAS, Chief Judge:

This appeal presents the question, inter alia , of whether the Securities Litigation Uniform Standards Act, 112 Stat. 3227, provides an independent basis for federal question jurisdiction under 28 U.S.C. § 1331. We conclude that it does not, and affirm the district court's dismissal of this class action suit for lack of subject matter jurisdiction.

I

On August 20, 1993, Archon Corporation ("Archon"), a Nevada corporation with its principal place of business in Las Vegas, created a class of equity securities designated as Exchangeable Redeemable Preferred Stock ("preferred stock"). After filing a Certificate of Designation ("Certificate") with the Nevada Secretary of State, Archon issued shares of the preferred stock. The Certificate reserved Archon's right to redeem the preferred stock, in whole or in part, at Archon's election and upon providing notice to the shareholders. Upon redemption, shareholders would be entitled to $2.14 per share in addition to accrued, unpaid dividends. According to the terms of the Certificate, dividends would "cease to accrue on the shares redeemed ... provided that the redemption price ... has been duly paid or provided for."

On July 31, 2007, Archon issued a Notice of Redemption ("Notice") to the holders of outstanding shares of preferred stock, announcing its intent to redeem all outstanding shares of the preferred stock on August 31, 2007. The Notice also announced that the preferred stock's redemption price would be $5.241 per share. Rainero, a resident of Pennsylvania, claims that he held 9,140 shares of preferred stock at the time of redemption.

On November 20, 2007, Rainero filed a complaint in the U.S. District Court for the District of Nevada, alleging breach of contract. He argued that, under the terms of the Certificate, the redemption price should have been $8.69 per share; therefore, he and other shareholders were entitled to an additional $3.45 per share. He brought the suit on behalf of himself and other holders of outstanding preferred stock at the time of redemption. According to Rainero's complaint, the class members held a total of 1,483,270 outstanding shares of preferred stock at the time of redemption. The sole basis for federal subject matter jurisdiction alleged in the complaint is 28 U.S.C. § 1332(d)(2), which confers federal subject matter jurisdiction over certain class action lawsuits.

Shortly before Rainero filed his complaint, the investment group D.E. Shaw Laminar Portfolios, LLC ("D.E. Shaw") filed a similar complaint against Archon. D.E. Shaw v. Laminar Portfolios, LLC v. Archon Corp. , 755 F.Supp.2d 1122 (D. Nev. 2010). After Rainero filed his complaint, the investment group Leeward Capital filed its own complaint against Archon. Leeward Capital, L.P. v. Archon Corp. , 759 F.Supp.2d 1249 (D. Nev. 2010). The three cases were consolidated only for the purpose of discovery; discovery in D.E. Shaw was to govern all three cases. On December 22, 2010, the district court held in D.E. Shaw and Leeward that the properly calculated redemption price was $8.69 and that Archon owed the shareholders of preferred stock an additional $3.449 per share. D.E. Shaw , 755 F.Supp.2d at 1128 ; Leeward , 759 F.Supp.2d at 1257. This Court subsequently affirmed the district court's decision in a consolidated appeal. D.E. Shaw Laminar Portfolios, LLC v. Archon Corp. , 483 Fed.Appx. 358 (9th Cir. 2012) (unpublished).

In light of the decisions in D.E. Shaw and Leeward , Rainero sought partial summary judgment as to the method for calculating the redemption price. The district court granted Rainero's motion on November 7, 2013. On January 21, 2014, Archon filed a motion to dismiss for lack of subject matter jurisdiction because the class members' claims did not reach the $5 million amount in controversy required by 28 U.S.C. § 1332(d)(2). Archon argued in its motion to dismiss that the class held only 1,439,270 shares of preferred stock, and therefore the amount in controversy is only $4,964,042.23. Without ruling on Archon's motion, the district court entered a minute order on September 11, 2014, requiring Rainero to show cause why the action should not be dismissed for lack of subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d)(9), which excludes certain class actions from § 1332(d)(2)'s grant of subject matter jurisdiction. Both parties submitted briefs addressing the issue of subject matter jurisdiction. In addition, Rainero filed a motion for leave to amend his original complaint and submitted a proposed first amended complaint. Whereas Rainero's original complaint relies solely on class action diversity jurisdiction under 28 U.S.C. § 1332(d)(2), his proposed first amended complaint also asserts federal question jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. § 77p, individual diversity jurisdiction under 28 U.S.C. § 1332(a), and supplemental jurisdiction over the class members' claims under 28 U.S.C. § 1367. The district court subsequently dismissed the case, without prejudice, for lack of subject matter jurisdiction. Rainero timely appealed. We review de novo a district court's dismissal of a complaint for lack of subject matter jurisdiction. Young v. United States , 769 F.3d 1047, 1052 (9th Cir. 2014).

II

The district court properly held that it lacked federal question subject matter jurisdiction. Under 28 U.S.C. § 1331, "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." "The presence or absence of federal question jurisdiction is governed by the ‘well-pleaded complaint rule,’ which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." California ex rel. Sacramento Metro. Air Quality Mgmt. Dist. v. United States , 215 F.3d 1005, 1014 (9th Cir. 2000) (citation omitted). The sole claim in Rainero's complaint was a breach-of-contract claim arising under Nevada law. Because Rainero did not assert a federal claim, the district court lacked subject matter jurisdiction under § 1331.

Rainero argues that the Securities Litigation Uniform Standards Act ("SLUSA"), Pub. L. 105–353, 112 Stat. 3227 (codified in relevant part at 15 U.S.C. § 77p ), provides a basis for the district court's federal question jurisdiction under § 1331 because 15 U.S.C. § 77p(d)(1)(A) is a federal statute that allows certain class actions, including this one, to be maintained in either state or federal court. Specifically, he asserts that this case is a "covered class action" under § 77p that is "based upon the statutory or common law of the state in which the issuer is incorporated," 15 U.S.C. § 77p(d)(1)(A), and therefore the federal district court has jurisdiction over this case. Contrary to Rainero's arguments, SLUSA does not create an independent basis for federal question jurisdiction. Although we have not had the occasion to review this issue, the D.C. Circuit addressed it in Campbell v. American International Group, Inc. , 760 F.3d 62, 63 (D.C. Cir. 2014), and held that SLUSA "does not confer federal jurisdiction over ... state-law claims." We agree with and adopt Campbell 's analysis of this issue.

"As with any question of statutory interpretation, [a court's] analysis begins with the plain language of the statute." Jimenez v. Quarterman , 555 U.S. 113, 118, 129 S.Ct. 681, 172 L.Ed.2d 475 (2009). "[W]hen deciding whether the language is plain, [courts] must read the words ‘in their context and with a view to their place in the overall statutory scheme.’ " King v. Burwell , ––– U.S. ––––, 135 S.Ct. 2480, 2489, 192 L.Ed.2d 483 (2015) (citations omitted). If the statutory language is plain, we must enforce the statute according to its terms. Jimenez , 555 U.S. at 118, 129 S.Ct. 681.

As explained by the D.C. Circuit in Campbell , 760 F.3d at 64, the plain language of the provision shows that § 77p(a) simply preserves state law claims except as set forth in § 77p(b) :

(a) Remedies additional

Except as provided in subsection (b), the rights and remedies provided by this subchapter shall be in addition to any and all other rights and remedies that may exist at law or in equity.

(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.

15 U.S.C. § 77p(a) –(b). Subsection 77p(b) is commonly referred to as the "preclusion provision" because it bars individuals from bringing certain state-law securities fraud claims as class actions in either state or federal court. See Campbell , 760 F.3d at 64. Then, § 77p(c) ensures that federal courts have jurisdiction for the limited purpose of determining whether a certain state action is precluded under § 77p(b) :

(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

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