David Rainero v. Archon Corporation
2016 U.S. App. LEXIS 22893
| 9th Cir. | 2016Background
- Archon, a Nevada corporation, issued Exchangeable Redeemable Preferred Stock governed by a Certificate of Designation that specified a redemption price and dividend rules.
- Archon redeemed the preferred shares on August 31, 2007; Rainero (Pennsylvania resident) claimed he held 9,140 shares and sued on November 20, 2007 for breach of contract, asserting the correct redemption price was $8.69 (seeking ~$3.45 per share).
- Rainero filed a putative class action relying solely on federal diversity class-jurisdiction under 28 U.S.C. § 1332(d)(2) (CAFA). Related suits (D.E. Shaw and Leeward) had established the same contract interpretation in favor of the shareholders.
- Rainero later sought leave to amend to add federal-question jurisdiction under 28 U.S.C. § 1331 via SLUSA (15 U.S.C. § 77p), and alleged individual diversity under § 1332(a) and supplemental jurisdiction under § 1367.
- The district court dismissed for lack of subject-matter jurisdiction; the Ninth Circuit affirmed, holding (1) SLUSA does not create an independent federal-question basis under § 1331, (2) CAFA jurisdiction was barred by § 1332(d)(9)(C) because the claim related to rights created by a security, and (3) individual diversity jurisdiction was not pleaded or supported (amount-in-controversy under $75,000), so supplemental jurisdiction did not cure jurisdictional defects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA (15 U.S.C. § 77p(d)(1)(A)) supplies an independent federal-question basis under 28 U.S.C. § 1331 | Rainero: § 77p(d)(1)(A) preserves certain state-law class actions in federal court, so § 77p supplies federal-question jurisdiction | Archon: § 77p preserves or precludes class actions and provides limited removal jurisdiction for preclusion questions, but does not create an independent federal-question cause of action | Court: Held SLUSA does not confer independent federal-question jurisdiction under § 1331; dismissal for lack of § 1331 jurisdiction affirmed |
| Whether CAFA § 1332(d)(2) provides class-jurisdiction despite claims involving a security | Rainero: Shares were redeemed/cancelled before filing, so § 1332(d)(9)(C) inapplicable; CAFA jurisdiction exists | Archon: § 1332(d)(9)(C) excludes class actions that relate to rights/obligations created by a security regardless of whether the security remains outstanding | Court: Held § 1332(d)(9)(C) applies because the suit enforces the Certificate’s terms; CAFA jurisdiction is precluded |
| Whether Rainero pleaded individual diversity jurisdiction under 28 U.S.C. § 1332(a) (and thus supplemental jurisdiction) | Rainero: Proposed amended complaint asserted the individual claim exceeded $75,000 | Archon: Original complaint pleaded only residency, not citizenship; claimed damages ($3.45/share × 9,140) yield ~$31,533, below $75,000 | Court: Held plaintiff failed to plead or prove diversity amount and citizenship; individual diversity jurisdiction absent, amendment futile; no supplemental jurisdiction |
| Whether dismissal after years of litigation was improper given delay | Rainero: Long litigation had occurred before jurisdictional objection | Archon: Subject-matter jurisdiction can be raised anytime and requires dismissal if absent | Court: Held lack of subject-matter jurisdiction requires dismissal regardless of litigation duration; dismissal proper |
Key Cases Cited
- Campbell v. American Int'l Grp., 760 F.3d 62 (D.C. Cir. 2014) (SLUSA does not create independent federal-question jurisdiction)
- Jimenez v. Quarterman, 555 U.S. 113 (statutory-interpretation plain-meaning starting point)
- King v. Burwell, 135 S. Ct. 2480 (read statutory text in context of statutory scheme)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (interpretation of SLUSA statutory scheme)
- Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (CAFA amount-in-controversy aggregation principles)
- Arbaugh v. Y & H Corp., 546 U.S. 500 (lack of subject-matter jurisdiction requires dismissal)
- United States v. Cotton, 535 U.S. 625 (subject-matter jurisdiction cannot be forfeited)