Luther v. Countrywide Financial Corp.
125 Cal. Rptr. 3d 716
Cal. Ct. App.2011Background
- Plaintiffs allege 1933 Act violations in connection with mortgage-backed securities issued 2005–2007, not listed on a national exchange.
- Case brought in state court with only federal claims under the 1933 Act; no state-law claims asserted.
- SLUSA amendments created exemptions and removal limitations for certain 'covered class actions' involving 'covered securities'.
- Defendants demurred, arguing the action falls within SLUSA’s removal/exemption framework; trial court sustained the demurrer and dismissed.
- Court must determine whether the action is excluded from concurrent federal jurisdiction by SLUSA or remains within it.
- California Court of Appeal reverses the dismissal, holding concurrent jurisdiction survives because the case is not exempt under 77p.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does SLUSA exempt this action from concurrent jurisdiction? | Luther contends the action is not within SLUSA’s exemption scope. | Countrywide argues it is a covered class action involving a covered security, thus exempt from concurrent jurisdiction. | No, concurrent jurisdiction survives; not exempt under 77p. |
| Is this a 'covered class action' under 77p? | Case does not fit the 77p definition for covered class actions. | Case is a covered class action because of >50 plaintiffs and common questions, despite non-covered security. | Not a covered class action under 77p; SLUSA does not remove to federal court. |
| Does a reference to 77p in 77v create an exemption for all covered class actions? | 77v’s language, read in full, does not create an across-the-board exemption for all covered class actions. | 77v creates an exception to concurrent jurisdiction for all covered class actions via 77p’s provisions. | 77v, read with 77p, does not exempt all covered class actions; case remains under concurrent jurisdiction. |
Key Cases Cited
- Kirchner v. Putnam Funds Trust, 547 U.S. 633 (U.S. 2006) (treats SLUSA structure and definitions; informs reading of 77v and 77p)
- Connecticut Nat. Bank v. Germain, 503 U.S. 249 (U.S. 1992) (statutory interpretation: words mean what they say when unambiguous)
- Gustafson v. Alloyd Co., 513 U.S. 561 (U.S. 1995) (statutory purpose of disclosure obligations under the 1933 Act)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (U.S. 2006) (purpose of SLUSA to curb state-court securities class actions)
- Knox v. Agria Corp., 613 F. Supp. 2d 419 (S.D.N.Y. 2009) (removal issue under SLUSA; court contrasted with others)
- In re Waste Management, Inc. Securities Litigation, 194 F. Supp. 2d 590 (S.D. Tex. 2002) (legislative history guiding SLUSA scope; court’s view on preemption)