928 F.3d 325
4th Cir.2019Background
- Two putative South Carolina shareholder class actions (Warren; Metzler) challenged SCANA’s 2018 merger with Dominion, alleging the board breached fiduciary duties and that Dominion/Sedona aided and abetted those breaches.
- Petitioners (Dominion and Sedona) removed both actions to federal court under CAFA, asserting numerosity, amount-in-controversy, and minimal diversity were satisfied.
- District court remanded both cases, concluding at least one of CAFA’s three removal exceptions applied; petitioners sought permission to appeal under 28 U.S.C. §1453(c)(1).
- The Fourth Circuit granted permission to appeal, reviewed de novo whether CAFA jurisdiction exists, and focused on whether aiding-and-abetting claims fall within CAFA’s internal-affairs or securities-related exceptions (28 U.S.C. §1453(d)).
- The Fourth Circuit held the aiding-and-abetting claims do not fall within either exception, reversed the remand orders, and directed the cases to proceed in federal court; Judge Motz dissented as to the securities-related exception.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether aiding-and-abetting claims fall within CAFA’s internal-affairs exception (§1453(d)(2)) | Aiding-and-abetting relates to SCANA’s internal affairs because it depends on breach of duties owed to shareholders. | Petitioners: aiding-and-abetting alleges conduct by outsiders (Dominion), not matters "among or between" corporation, directors, officers, and shareholders. | Held: Not within internal-affairs exception; outsider conduct falls outside that doctrine. |
| Whether aiding-and-abetting claims fall within CAFA’s securities-related exception (§1453(d)(3)) | These claims "relate to" fiduciary duties created by SCANA stock and thus are excepted from CAFA removal. | Petitioners: claims are not grounded in rights/duties created by the security; allowing exception would swallow CAFA and frustrate its purpose. | Held: Not within securities-related exception; exception construed narrowly, applies to duties/instruments that directly create/enforce securities rights. |
| Proper construction of CAFA exceptions (text v. purpose) | Plaintiffs urge plain reading of "relates to" and fiduciary reference to include aiding-and-abetting. | Petitioners emphasize CAFA’s objective of broad federal jurisdiction and narrow reading of exceptions. | Held: Court favors CAFA’s broad jurisdiction and narrow exceptions; close questions resolved in favor of removal. |
| Whether remand orders are appealable and appropriate to consider now | Warren/Metzler: remand orders should stand and be left to state courts. | Petitioners: §1453(c)(1) allows interlocutory appeals of class-action remands; factors favor immediate review. | Held: Petition for permission to appeal granted; appellate review appropriate and remands reversed. |
Key Cases Cited
- Standard Fire Ins. Co. v. Knowles, 568 U.S. 588 (U.S. 2013) (CAFA’s objective to bring certain class actions to federal court)
- AU Optronics Corp. v. South Carolina, 699 F.3d 385 (4th Cir.) (standard of review for CAFA jurisdictional questions)
- Estate of Pew v. Cardarelli, 527 F.3d 25 (2d Cir. 2008) (securities-related exception limited to claims enforcing instrument-created rights or duties)
- Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir. 2010) (focus on source of the right a plaintiff seeks to enforce under the securities exception)
- BlackRock Fin. Mgmt. Inc. v. Segregated Account of Ambac Assurance Corp., 673 F.3d 169 (2d Cir. 2012) (duties superimposed by state law as a result of the relationship underlying a security can fall within the securities-related exception)
- Appert v. Morgan Stanley Dean Witter, 673 F.3d 609 (7th Cir.) (narrow construction of CAFA exceptions)
- Eminence Inv’rs, LLLP v. Bank of N.Y. Mellon, 782 F.3d 504 (9th Cir.) (agreeing with BlackRock’s approach to duties tied to securities)
- Quicken Loans Inc. v. Alig, 737 F.3d 960 (4th Cir.) (procedural treatment of CAFA remand petitions)
- Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (U.S. 2014) (standards for removal pleadings under CAFA)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (federal pleading plausibility standard applied to state-law claims in federal court)