Schwartz v. Concordia Int'l Corp.

• Decision Date: 09 June 2017
• Docket Number: 16-CV-6576 (NGG) (CLP).
• Citation: 255 F.Supp.3d 380
• Parties: David SCHWARTZ, Plaintiff, v. CONCORDIA INTERNATIONAL CORP., Mark Thompson, and Adrian de Saldanha, Defendants.
• Court: U.S. District Court — Eastern District of New York

255 F.Supp.3d 380

David SCHWARTZ, Plaintiff,

v.CONCORDIA INTERNATIONAL CORP., Mark Thompson, and Adrian de Saldanha, Defendants.

16-CV-6576 (NGG) (CLP).

United States District Court, E.D. New York.

Signed June 9, 2017

Filed June 12, 2017

Peretz Bronstein, Yitzchak Eliezer Soloveichik, Bronstein, Gewirtz & Grossman, LLC, New York, NY, for Plaintiff.

Gerard G. Pecht, Pro Hac Vice, Norton Rose Fulbright US LLP, Houston, TX, Mark Allen Robertson, Norton Rose Fulbright US LLP, New York, NY, Peter A. Stokes, Pro Hac Vice, Norton Rose Fulbright US LLP, Austin, TX, for Defendants.

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, United States District Judge

Plaintiff David Schwartz initiated this putative class action in the New York State Supreme Court, Kings County, against Defendants Concordia International Corp., Mark Thompson, and Adrian de Saldanha. (See Compl. (Dkt. 1–1 at ECF p.6).) Plaintiff's claims all arise under the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77a et seq. On November 28, 2016, Defendants removed the action to this court. (Not. of Removal (Dkt. 1).) Pending before the court are Plaintiff's motion to remand the action to New York Supreme Court and Defendants' cross-motion for a transfer of venue to the Southern District of New York ("SDNY"). (See Pl. Mot. to Remand (Dkt. 12); Defs. Mot. to Transfer Venue (Dkt. 13).) For the reasons stated below, Plaintiff's motion to remand is DENIED and Defendants' motion to transfer venue is GRANTED.

I. PLAINTIFF'S MOTION TO REMAND

Plaintiff's motion to remand presents a question of law that has sharply divided the nation's district courts. In 1998, Congress amended the Securities Act by passing the Securities Litigation Uniform Standards Act ("SLUSA"), Pub. L. No. 105–353, 112 Stat. 3227. SLUSA precluded certain types of securities class actions, and also defined categories of actions that can and cannot be removed to federal court. The courts have wrestled with the precise boundaries of those categories ever since. Certain questions of removability suffer from a dearth of appellate authority, presumably due to the bar on appellate review of remand orders. See 28 U.S.C. § 1447(d).

Plaintiff argues that SLUSA prohibits removal of class actions that solely assert claims under the Securities Act. Defendants counter that such actions must be removable because SLUSA vested the federal courts with exclusive jurisdiction over them. The court finds that Defendants' view is the most logical reading of the statutory text. Recognizing, however, that district courts have disagreed as to the meaning of SLUSA's less-than-lucid text, the court confirms its interpretation by looking to the statutory and legislative history for evidence of congressional intent.

A. Removal on the Basis of Federal Question Jurisdiction

"The federal district courts have ‘original jurisdiction’ of civil actions ‘arising under’ federal law, and unless otherwise provided by Congress, they have removal jurisdiction over ‘any civil action brought in a State court of which the district courts of the United States have original jurisdiction.’ " N.Y. ex rel. Jacobson v. Wells Fargo Nat'l Bank, N.A., 824 F.3d 308, 315 (2d Cir. 2016) (quoting 28 U.S.C. §§ 1331, 1441(a) ). "The defendant, as the party seeking removal and asserting federal jurisdiction, bears the burden of demonstrating that the district court has original jurisdiction." McCulloch Orthopaedic Surgical Servs., PLLC v. Aetna Inc., 857 F.3d 141, 144 (2d Cir. 2017) (citation omitted).

B. Statutory Text

"When construing a statute, we begin with its language and proceed under the assumption that the statutory language, unless otherwise defined, carries its plain meaning." Carlin v. Davidson Fink LLP, 852 F.3d 207, 214 (2d Cir. 2017) (alteration omitted) (quoting Chen v. Major League Baseball Props., Inc., 798 F.3d 72, 76 (2d Cir. 2015) ). "A statutory provision's plain meaning may be ‘understood by looking to the statutory scheme as a whole and placing the particular provision within the context of that statute.’ " Catskill Mountains Chapter of Trout Unlimited, Inc. v. Envtl. Prot. Agency, 846 F.3d 492, 513 (2d Cir. 2017) (quoting Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 108 (2d Cir. 2012) ).

Prior to SLUSA, the Securities Act provided federal and state courts with concurrent jurisdiction over claims arising thereunder (the "Jurisdiction Provision"), but prohibited removal of any Securities Act action "brought in any State court of competent jurisdiction" (the "Anti–Removal Provision"). 15 U.S.C. § 77v(a) (1995) (amended 1998). SLUSA amended the Securities Act by adding a preclusion provision, codified at 15 U.S.C. § 77p, and by carving out new exceptions to the Anti–Removal and Jurisdiction Provisions. The court finds that the amended Jurisdiction Provision strips state courts of concurrent jurisdiction over covered class actions asserting Securities Act claims.

1. Section 77p

Section 77p precludes certain types of class actions asserting claims under state law that sound in fraud.

Subsection (f) provides definitions: subject to certain exceptions, a " ‘covered class action’ is a lawsuit in which damages are sought on behalf of more than 50 people," and a " ‘covered security’ is one traded nationally and listed on a regulated national exchange." Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 83, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006)(footnotes omitted)¹ ; see also 15 U.S.C. § 77p(f). The parties do not appear to dispute that the instant putative class action constitutes a "covered class action" involving "covered securities" under SLUSA. (See, e.g., Compl. ¶ 27 (estimating "that there are at least hundreds or thousands of members in the proposed Class"); Defs. Opp'n to Pl. Mot to Remand (Dkt. 16) at 4 ("Plaintiff does not dispute that Concordia stock is a ‘covered security.’ ").)

Subsection (b) is the preclusion provision:

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).² In the interest of analytical efficiency, this opinion will refer to such precluded actions as "state-law class actions"; the court is cognizant, however, that the definition of a "covered class action" under SLUSA does not track the more general "class action" definition under Federal Rule of Civil Procedure 23.

Subsection (c) discusses removal of state-law 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)." Id.§ 77p(c). The Supreme Court has clarified in dicta that "removal jurisdiction under subsection (c)" is limited to "precluded actions defined by subsection (b)," that is, covered class actions asserting state-law fraud claims.³ Kircher v. Putnam Funds Tr., 547 U.S. 633, 643–44, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006). This construction appears bizarre at first blush, but it has a purpose. "To prevent actions precluded by SLUSA from being litigated in state court, SLUSA authorizes defendants to remove such actions to federal court, effectively ensuring that federal courts will have the opportunity to determine whether a state action is precluded."

Madden v. Cowen & Co., 576 F.3d 957, 964–65 (9th Cir. 2009) (footnote omitted); see also 15 U.S.C. § 77p(d)(4) ("In an action that has been removed from a State court pursuant to subsection (c), if the Federal court determines that the action may be maintained in State court pursuant to [the exceptions in subsection (d) ], the Federal court shall remand [the] action."); Kircher, 547 U.S. at 642–44, 126 S.Ct. 2145.

2. The Anti–Removal Provision

SLUSA amended the Anti–Removal Provision as follows (new text underlined): "Except as provided in section 77p(c) of this title, no case arising under [the Securities 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). Because the instant case involves only federal claims asserted under the Securities Act, this case does not fall under the Anti–Removal Provision's exception for state-law class actions, per the cross-reference to section 77p(c).⁴

There is a second exception built in to the Anti–Removal Provision, however: the statute only prohibits removal of "case[s] arising under" the Securities Act that are "brought in [a] State court of competent jurisdiction." Id.§ 77v(a) (emphasis added). "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." Hung v. IDreamSky Tech. Ltd., No. 15-CV-2514 (JPO), 2016 WL 299034, at *2 (S.D.N.Y. Jan. 25, 2016). The court must therefore consider whether, in this instance, the New York state court was a "court of competent jurisdiction."

3. The Jurisdiction Provision

As noted, federal and state courts previously enjoyed full concurrent jurisdiction over actions with claims arising under the Securities Act. See 15 U.S.C. § 77v(a) (1995) (amended 1998). SLUSA carved out an exception, however: the Jurisdiction Provision now provides that federal and state courts have concurrent jurisdiction over Securities Act cases, "except as provided in section 77p [ ] with respect to covered class actions." Id.§ 77v(a) (1998).⁵

To clarify the scope of this exception, the court proceeds in order through the provisions of section 77p. Subsections (a) through (e) cannot logically be read as imposing any...