2:20-cv-07561
C.D. Cal.Oct 20, 2020Background:
- Plaintiff Evergreen Capital Management LLC is a holder of Trust Units (ticker ROYT) in a trust that owns profit rights from California oilfields; Pacific Coast Energy Company LP (PCEC) operates the fields and is party to the Trust Agreement and Conveyance governing distributions.
- Plaintiff alleges PCEC (after acquisition by NewBridge/Scott Wood) and the Trustee failed to follow the Trust Agreement/Conveyance, causing inflated deductions, starving the Trust of funds, collapsing unit value, and depriving unitholders of distributions.
- Causes of action: (1) breach of the Trust Agreement by the Trustee for failing to act to protect the Trust; (2) breach of the implied covenant of good faith and fair dealing by PCEC for over‑deducting costs.
- PCEC removed the putative class action to federal court under CAFA; the Trustee consented to removal.
- Plaintiff moved to remand, arguing CAFA’s securities provision (28 U.S.C. § 1332(d)(9) / § 1453(d)(3)) divests federal jurisdiction because the claims relate to rights/duties created by a security (the Trust Units).
- The Court found the securities provision applies and remanded the action to Los Angeles County Superior Court; PCEC’s motion to dismiss was denied as moot.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CAFA’s securities provision (§ 1453(d)(3) / § 1332(d)(9)) bars removal | Claims arise from rights, duties, and obligations created by the Trust Agreement/Conveyance for holders of Trust Units, so CAFA’s securities provision applies and divests federal jurisdiction | Claims involve third‑party conduct by an operator and are not solely about the terms of a security; therefore CAFA applies and federal court has jurisdiction | Held: Securities provision applies because plaintiffs’ claims "stem from" positions as unitholders and seek to enforce rights/duties created by the Trust agreements; remand ordered |
| Who bears burden to show applicability of § 1332(d)(9) | Plaintiff argued the provision applies (so remand warranted) | PCEC argued removing party must negate the provision (burden on defendant) and contested scope | Court adopted Ninth Circuit guidance: removing party generally bears burden to establish CAFA prerequisites, but plaintiff must show an exception/provision applies; regardless, court remanded on merits |
| Effect on pending dismissal motion | N/A | N/A | Dismissal motion denied as moot because court lacks jurisdiction |
Key Cases Cited
- Serrano v. 180 Connect, Inc., 478 F.3d 1018 (9th Cir. 2007) (allocation of burdens in CAFA removal and remand contexts)
- Eminence Investors, L.L.L.P. v. Bank of New York Mellon, 782 F.3d 504 (9th Cir. 2015) (securities provision applies where claims relate to rights/duties created by a security)
- Rainero v. Archon Corp., 844 F.3d 832 (9th Cir. 2016) (securities provision divests CAFA jurisdiction for suits enforcing terms of instruments that create securities)
- Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir. 2010) (securities provision applies to enforcement of terms that define securities)
- Madden v. Cowen & Co., 576 F.3d 957 (9th Cir. 2009) (interpretive guidance on statutory prerequisites to jurisdiction)
- Estate of Pew v. Cardarelli, 527 F.3d 25 (2d Cir. 2008) (distinction between purchasers and holders for securities‑provision analysis)
- BlackRock Fin. Mgmt., Inc. v. Segregated Account of Ambac Assurance Corp., 673 F.3d 169 (2d Cir. 2012) (state‑law duties tied to relationship created by a security fall within the securities provision)