United Investors Life Ins. v. Waddell & Reed

• Decision Date: 23 February 2004
• Docket Number: No. 02-56278.,02-56278.
• Citation: 360 F.3d 960
• Parties: UNITED INVESTORS LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. WADDELL & REED INC.; Waddell & Reed Financial Inc.; Waddell & Reed Financial Services Inc.; W & R Insurance Agency Inc.; Thomas A.N. Miller; Cheryl Aldava; David Atkinson; Timothy Glenn; Eric Hoopingarner, Michael Ingaglio; Duane Johnson; Carolyn Joyce; Gloria Kimmel; William Knoke; Mark Larsen; Carolyn Leone; Albert Martinez; John Morreale; Joyce O'Donnell; Elizabeth Ruch; Kenneth Sheets; Bobby Yount, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

360 F.3d 960

UNITED INVESTORS LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. WADDELL & REED INC.; Waddell & Reed Financial Inc.; Waddell & Reed Financial Services Inc.; W & R Insurance Agency Inc.; Thomas A.N. Miller; Cheryl Aldava; David Atkinson; Timothy Glenn; Eric Hoopingarner, Michael Ingaglio; Duane Johnson; Carolyn Joyce; Gloria Kimmel; William Knoke; Mark Larsen; Carolyn Leone; Albert Martinez; John Morreale; Joyce O'Donnell; Elizabeth Ruch; Kenneth Sheets; Bobby Yount, Defendants-Appellants.

No. 02-56278.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 10, 2003.

Filed February 23, 2004.

Rex S. Heinke, Akin, Gump, Strauss, Hauer & Feld, Los Angeles, CA, Robert F. Scoular, Sonnenschein Nath & Rosenthal, Los Angeles, CA, and Joseph P. Busch, III, Gibson Dunn & Crutcher, for the defendants-appellants.

William J. Baxley, South Birmingham, AL, and Michael Himes, Perkins Coie, San Francisco, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California Terry J. Hatter, Chief District Judge, Presiding. D.C. No. CV-01-09684-TJH.

Before J. CLIFFORD WALLACE, PAMELA ANN RYMER, and RICHARD C. TALLMAN, Circuit Judges.

Opinion by Judge Wallace

OPINION

WALLACE, Senior Circuit Judge:

Defendants Waddell & Reed, Inc., and its various associated entities, (Waddell &amp Reed) timely appeal from a district court order denying their motion to dismiss Plaintiff United Investors Life Insurance Co.'s (United Investors) state-law securities action and sua sponte remanding the action to state court. Waddell & Reed argues that the district court erred in determining that the Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. §§ 77p(b), 78bb(f)(1), does not preempt United Investors's representative class action, and that it should not have remanded the case. Because we lack jurisdiction to review the district court's remand order, we dismiss the appeal.

I.

The allegations in the complaint provide us with the background of this dispute. Waddell & Reed is a federally registered investment advisor and broker that sells mutual funds, variable annuities, and financial planning services. Waddell & Reed maintained a contractual relationship with United Investors, an Alabama-headquartered life insurance company, whereby Waddell & Reed sold United Investors variable annuities in exchange for a commission. United Investors alleges that its relationship with Waddell & Reed began to sour when Waddell & Reed threatened to cause United Investors policyholders to switch to a rival company unless United Investors consented to increase its commission compensation beyond the original contract price.

United Investors rebuffed these demands and terminated its relationship with Waddell & Reed with respect to future variable annuity contracts. In response, Waddell & Reed commenced "a concerted campaign to induce, pressure, and cause United Investors policyholders to replace their United Investors variable annuity contracts with variable annuity contracts issued by" a competitor of United Investors. Within approximately eight months, Waddell & Reed's agents had replaced almost $444 million of United Investors variable annuity policies. Of this sum, nearly $96 million came from California policyholders. United Investors alleges that Waddell & Reed's agents procured these replacement contracts by using material misstatements and misrepresentations, as well as other deceptive and manipulative practices, to pressure and deceive United Investors's policyholders.

On October 10, 2001, United Investors filed this action in Los Angeles County Superior Court on behalf of persons who purchased its variable annuities from Waddell & Reed. United Investors contends that Waddell & Reed's alleged foul play violates California's Business and Professions Code § 17200 et seq., which prohibits "unfair competition," including any "unlawful, unfair or fraudulent business act or practice" and any "unfair, deceptive, untrue or misleading advertising." Cal. Bus. & Prof.Code § 17200. On behalf of its past and present policyholders, United Investors sought injunctive relief to prevent Waddell & Reed from continuing its allegedly false and misleading sales practices, as well as restitution of commissions and other income derived from these practices to be paid to United Investors's policyholders.

Waddell & Reed filed a timely notice of removal in federal court, asserting federal subject matter jurisdiction pursuant to SLUSA, a federal statute that preempts state-law securities actions under the following circumstances:

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); see also id. § 78bb(f)(1) (containing virtually identical language).

Having removed the case to federal court, Waddell & Reed immediately filed a motion to dismiss United Investors's complaint. Waddell & Reed's notice of removal contends that United Investors's state-law securities action falls squarely within SLUSA's preemption provisions because it constitutes a "covered class action" that alleges "an untrue statement or omission of a material fact ... or ... that the defendant used or employed [a] manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security." Id. § 77p(b). Relying on SLUSA's preemptive scope, Waddell & Reed argued that the district court should dismiss the action.

In response to Waddell & Reed's motion to dismiss, the district court issued a remand order stating only that:

The Court has considered Defendants' motion to dismiss, together with the moving and opposing papers.

It is Ordered that the motion to dismiss be, and hereby is, Denied.

It is further Ordered, sua sponte, that the case be, and hereby is, Remanded.

II.

Before advancing to the merits of Waddell & Reed's federal preemption claim, we must first ascertain whether we possess jurisdiction to review the district court's order. 28 U.S.C. § 1447(d) declares in part that "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal." Courts have narrowed the reach of this facially unlimited proscription by construing it to preclude only appellate review of remand orders based on one of the two grounds listed in subsection 1447(c): lack of subject matter jurisdiction or removal procedure irregularities. Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 127-28, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995); Abada v. Charles Schwab & Co., 300 F.3d 1112, 1116 (9th Cir.2002). Remand orders based on other grounds, such as abstention, are fully susceptible to appellate review, subsection 1447(d) notwithstanding. Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 711-12, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996); Abada, 300 F.3d at 1116-19. Thus, we may reach the merits of Waddell & Reed's motion to dismiss only if the district court's remand order does not fall within subsection 1447(c).

A.

Waddell & Reed argues that subsection 1447(c) does not apply to this case, because the remand order does not specifically rest on removal procedure irregularities or lack of subject matter jurisdiction. The district court could not have relied on either of these grounds, Waddell & Reed maintains, because its order makes no explicit reference to them, and because the record as a whole suggests that the district court remanded on purely discretionary grounds. Waddell & Reed points out that "only remand orders issued under [subsection] 1447(c) and invoking the grounds specified therein that removal was improvident and without jurisdiction are immune from review under [subsection] 1447(d)." Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 346, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976); see also United Nat'l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1111 n. 10 (9th Cir.2001) (stating that subsection 1447(d) does not prevent appellate review of remands based on a district court's failure to exercise discretionary jurisdiction). Thus, if Waddell & Reed is correct that the district court remanded on non-subsection 1447(c) discretionary grounds, then subsection 1447(d) does not bar appellate review.

United Investors challenges this interpretation of the district court's order. Subsection 1447(c) precludes appellate review, it argues, because the district court remanded the case for lack of subject matter jurisdiction:

Simply put, the district court ... was called upon to decide whether the action should be maintained, if at all, in federal court under SLUSA. The district court's decision was that the action could be maintained on the state court allegations, but only in state court. This is the very sort of remand decision that is shielded from appellate review.

While it would have aided our review had the district court identified the specific grounds for remanding sua sponte or had there been any remand motion or argument, their absence does not deter our analysis. In assessing the parties' rival interpretations, we examine the full record before the district court to ascertain the court's "actual reason" for remanding. See Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 332 F.3d 116, 128-29 (2d Cir.2003); Transit Cas. Co. v. Certain Underwriters at Lloyd's of London, 119 F.3d 619, 623-24 (8th Cir.1997). The remand order's failure to cite subsection 1447(c) affirmatively or to invoke one of its enumerated grounds is not necessarily dispositive. Kunzi v. Pan Am. World Airways, Inc., 833 F.2d 1291, 1294 n. 7 (9th Cir.1987); accord Dalrymple v....