ESTATE of Barbara PEW (Deceased), John Pew, Jr., Individually and as Executor of the Estate of Barbara E. Pew, Harold Pew, Donna Pew, H. Nancy Hann, Julia Hudasky and Kathleen Prickett, on behalf of themselves and all others similarly situated, Plaintiffs-Respondents, v. Donald P. CARDARELLI, Peter J. O‘Neill and PriceWaterhouseCoopers LLP, Defendants-Petitioners.
Docket No. 06-5703-mv.
United States Court of Appeals, Second Circuit.
Argued: April 24, 2007. Decided: May 13, 2008.
527 F.3d 25
Philip D. Anker (Peter K. Vigeland, Matthew M. Graves, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, James J. Capra, Jr. (Matthew L. Craner, Alison F. Swap, on the brief), Orrick, Herrington & Sutcliffe LLP, New York, NY, for Defendants-Petitioners.
Before: JACOBS, Chief Judge, KEARSE and POOLER, Circuit Judges.
This case construes certain provisions of the Class Action Fairness Act of 2005 (“CAFA“),
This putative class action was commenced in New York State Supreme Court, and was removed to the United States District Court for the Northern District of New York (Mordue, C.J.). The action alleges that officers of an issuer—abetted by the issuer‘s auditor—failed to disclose, while marketing certain debt certificates, that the issuer was insolvent. Plaintiffs seek relief under New York‘s consumer fraud statute. The main question for this appeal is whether such a claim falls within an exception to CAFA‘s grant of original and appellate jurisdiction—for class actions that solely involve claims that “relate [] to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security.”
Although the matter is not entirely clear given the imperfect wording of the statute, we hold that the present suit does not fall within this exception to CAFA jurisdiction. Consequently, we have authority to accept an appeal from the district court‘s order granting plaintiffs’ motion to remand this action to the state court. We elect to grant defendants’ petition for permission to appeal and, on the merits, we reverse the district court‘s remand order.
Agway, Inc., an agricultural supply and marketing cooperative, sought to raise capital by issuing money market certificates (“Certificates“)—unsecured, fixed-interest debt instruments. Later, Agway suspended sale of the Certificates, and ended its practice of repurchasing them prior to maturity. Agway filed for bankruptcy in September 2002. This is the second litigation brought by these plaintiffs over these Certificates.
The 2003 Lawsuit. Plaintiffs, seeking to represent a class of individuals who purchased the Agway Certificates between September 2000 and September 2002, filed a lawsuit in New York Supreme Court against Agway officers Donald P. Cardarelli and Peter J. O‘Neill, as well as Agway‘s auditor, PriceWaterhouseCoopers, LLP (“defendants“). That complaint was predicated on the federal securities laws—in particular, § 11(a) of the Securities Act of 1933,
Defendants removed the action to the United States District Court for the Northern District of New York. Plaintiffs then amended the complaint to plead essentially the same acts of concealment under New York‘s consumer fraud law, which creates a private right of action for victims of “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service,”
As to the federal securities claim, Judge Mordue granted defendants’ motion to dismiss with prejudice. See Pew v. Cardarelli, No. 5:03-cv-742, 2005 WL 3817472, at *7 (N.D.N.Y. Mar. 17, 2005). Judge Mordue declined to exercise supplemental jurisdiction over plaintiffs’ state law claim, dismissing without prejudice. Id. at *16. We affirmed by summary order, ruling that “no reasonable investor could have been misled about the nature and extent of the risks associated with investing in Agway Certificates.” Pew v. Cardarelli, 164 Fed.Appx. 41, 44 (2d Cir. 2006) (summary order).
The 2005 Lawsuit. The present lawsuit, filed in New York Supreme Court, makes essentially the same factual allegations, but seeks relief only under the state consumer fraud statute,
Defendants filed the present petition pursuant to
II
CAFA requires that any petition for review of an order granting or denying a motion to remand be made to the court of appeals “not less than 7 days after entry
III
Ordinarily, an order of remand is unappealable. See
IV
Plaintiffs contend that we lack appellate jurisdiction to review the order of remand, by virtue of
As always, we have jurisdiction to determine our jurisdiction. See Kuhali v. Reno, 266 F.3d 93, 100 (2d Cir. 2001). Section 1453 provides, in pertinent part:
(b) In general. A class action may be removed to a district court of the United States . . . without regard to whether any defendant is a citizen of the State in which the action is brought . . . .
(c) Review of remand orders.—
(1) In general. Section 1447 shall apply to any removal of a case under this section, except that notwithstanding section 1447(d), a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed if application is made to the court of appeals not less than 7 days after entry of the order.
(2) Time period for judgment.—If the court of appeals accepts an appeal under paragraph (1), the court shall complete all action on such appeal, including rendering judgment, not later than 60 days after the date on which such appeal was filed. . . .
(d) Exception.—This section shall not apply to any class action that solely involves—
. . .
(3) a claim that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security. . . .
As explained in detail infra,
Subsection (b) permits defendants (who are New York residents) to remove the action from New York Supreme Court. Subsection (c) gives defendants the right to petition this Court for an appeal of the district court‘s remand order. Compare
The plain language of subsection (d) (“This section shall not apply . . . .” (emphasis added)) limits all of § 1453, including subsection (c), which delineates the scope of our authority to “accept an appeal” from a remand order. Therefore,
Within our bounded appellate jurisdiction we nevertheless retain discretion to decline to hear such appeals. Section 1453(c) provides that “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand. . . .”
Lastly, because we grant defendants’ petition for leave to appeal, see infra, we also elect to decide the merits of the appeal simultaneously. This approach finds support in the caselaw, see, e.g., Wallace v. La. Citizens Prop. Ins. Corp., 444 F.3d 697, 701 n. 5 (5th Cir. 2006) (“Although this case comes to us as a petition to accept the appeal, the parties sufficiently address the basis for the underlying appeal, thus allowing us to rule on the merits.“), and it is permitted by the Federal Rules of Appellate Procedure, see
V
To determine whether the district court properly remanded to state court (and whether we lack appellate jurisdiction under
We first look to the statute‘s plain meaning; if the language is unambiguous, we will not look farther. See Connecticut Nat‘l Bank v. Germain, 503 U.S. 249, 253-54 (1992). Here, because the imperfect drafting of the statute makes it ambiguous, we read the wording, consider the statutory context, and consult the legislative history. And we conclude that all modes of analysis agree.
CAFA amends the diversity jurisdiction statute by adding
The bone of contention is subsection (C) of
that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 and the regulations issued thereunder).
As explained supra, the same wording is used in
To aid analysis, it is useful to break down the wording of
- [Section 1332(d)(2) and section 1453(b) and (c)] shall not apply to any class action that solely involves a claim . . . that relates to
- the rights, duties (including fiduciary duties), and obligations
- relating to or created by or pursuant to
- any security . . . .
The sentence as a whole cannot be read to cover any and all claims that relate to any security, because that would afford no meaning to [ii] and [iii], which are evidently terms of limitation. If the limitation is to rights, duties and obligations (those that relate to, are created by or arise pursuant to a security), what are those rights, duties and obligations?
The statute gives clues as to the import of each term. The word “duties” expressly includes “fiduciary duties,” which reinforces the common understanding that duties are owed by persons (whether human or artificial). “Obligations” can be owed by persons or by instruments, but the natural reading of this statutory language is to differentiate obligations from duties by reading obligations to be those created in instruments, such as a certificate of incorporation, an indenture, a note, or some other corporate document. And certain duties and obligations of course “relate to” securities even though they are not rooted in a corporate document but are instead superimposed by a state‘s corporation law or common law on the relationships underlying that document. Finally, the “rights” are those of the security-holders (or their trustees or agents) to whom these duties and obligations run. Thus, an instrument that creates an obligation generates a corresponding right in the holder.
Plaintiffs argue (and the dissent essentially agrees) that the term “rights . . . relating to . . . any security” includes the right to bring any cause of action that relates to a security. But this would defeat any limitation that was intended by the use of the term. Moreover, this interpretation would render superfluous
The Agway Certificates—which the parties agree are “securities” under CAFA—certainly create “obligations,” and there-fore corresponding “rights” in the holders. For example, the Certificates create rights in the holders to a rate of interest and to principal repayment at certain dates. But the present suit does not “relate [] to” those rights; rather, it is a state-law consumer fraud action alleging that Agway fraudulently concealed its insolvency when it peddled the Certificates. Claims that “relate [] to the rights . . . and obligations” “created by or pursuant to” a
Our interpretation arguably renders the words “relating to” superfluous. But forced as we are to construe “CAFA‘S cryptic text,” Lowery, 483 F.3d at 1187, we prefer an interpretation that preserves the meaning of an entire subsection. In any event, the words “relating to” are repetitive and lack any predictable or precise effect. See
“Interpretation of a word or phrase depends upon reading the whole statutory text [and] considering the purpose and context of the statute. . . .” Dolan v. U.S. Postal Serv., 546 U.S. 481, 486 (2006). Review of SLUSA and CAFA confirms an overall design to assure that the federal courts are available for all securities cases that have national impact (including those that involve securities traded on national exchanges), without impairing the ability of state courts to decide cases of chiefly local import or that concern traditional state regulation of the state‘s corporate creatures:
- Thus, although SLUSA bars state-law class actions from all courts if the class alleges a fraudulent statement or omission or manipulative device in connection with the purchase or sale of a security traded on a national exchange, see
15 U.S.C. § 77p(b) , it carves out an exception for actions that are based on the law of the state in which the issuer is incorporated or organized and that concern transactions with or communications to persons who already hold the securities of the issuer, seeid. § 77p (d)(1)(A) -(B), thereby creating concurrent jurisdiction in cases that are likely to have both national and local impact. - CAFA‘s amendments to the diversity statute—including its exceptions—proceed along similar lines, granting federal courts jurisdiction over all class actions (with regard to securities and otherwise) over $5 million in the aggregate if the class members are largely out of state, see
28 U.S.C. § 1332(d)(3) ,(4) . Reading the provisions in context, we infer that diversity jurisdiction is created under CAFA for all large, non-local securities class actions, subject to the three exceptions discussed above.
The legislative history confirms our reading of CAFA. See S.Rep. No. 109-14, at 45 (2005), reprinted in 2005 U.S.C.C.A.N. 3, 42-43. This Circuit has expressed some skepticism as to the “probative value” of the Senate Report because it was issued after CAFA‘s enactment (by ten days). Blockbuster, Inc. v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006). However, as the Eleventh Circuit has pointed out, the Report “was submitted to the Senate on February 3, 200[5]—while that body was [still] considering the bill.” Lowery, 483 F.3d at 1206 n. 50 (emphasis added) (citing 151 Cong. Rec. S909, 978 (daily ed. Feb. 3, 2005)). We therefore think it ap-
Certain passages from the Senate Judiciary Committee Report speak directly to the issue here:
[T]he Act excepts from . . . [its grant to the district courts of original] jurisdiction those class actions that solely involve claims that relate to matters of corporate governance arising out of state law. . . . By corporate governance litigation, the Committee means only litigation based solely on . . . the rights arising out of the terms of the securities issued by business enterprises.
. . .
The subsection 1332(d)(9) exemption to new section 1332(d) jurisdiction is also intended to cover disputes over the meaning of the terms of a security, which is generally spelled out in some formative document of the business enterprise, such as a certificate of incorporation or a certificate of designations.
S. Rep. 109-14, at 45 (emphases added). These passages demonstrate that Congress intended that
CONCLUSION
For the foregoing reasons, we have appellate jurisdiction to review the district court‘s remand order. Furthermore, we grant defendants leave to appeal, reverse the district court‘s remand order, and remand the case to the district court for further proceedings.
POOLER, Circuit Judge, dissenting:
The majority opinion misconstrues the plain language of a statute and reaches an incorrect result. Because I believe we are bound by the text of the enactment, I am constrained, respectfully, to dissent.
We are called upon in this case to apply certain provisions of the Class Action Fairness Act of 2005 (“CAFA“),
I. The Applicability of 28 U.S.C. Section 1332(d)(9)(C).
I agree with the majority that the central issue on this appeal is the exception, now codified at
(A) concerning a covered security as defined under 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb (f)(5)(E));
(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized, or
(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).”
I agree with the majority that the exemption to federal jurisdiction set forth in
I also agree with the majority regarding the inapplicability of
The majority correctly asserts that
Agway was insolvent from the beginning of the Class Period, because the value of its assets during that time . . . was in-sufficient by several hundred million dollars to discharge its Money Market-Certificate-related liabilities, and the only substantial liquid source of funds available to discharge the hundreds of millions of dollars of Money Market Certificates sold and maturing during and after the Class Period was other peoples’ money—from the sale of hundreds of millions of dollars of new Money Market Certificates to plaintiffs and other unsuspecting investors.
Complaint ¶ 3 (emphases in original). Thus, it is alleged that Agway fraudulently concealed the fact that it could not meet its unqualified obligations with respect to the Certificates, i.e., that the plaintiffs were fraudulently deprived of their right to re-payment of the principal component of their investment:
[T]he new Money Market Certificates purchased by plaintiffs . . . had no possibility of ever being fully repaid. To the contrary, aside from the money of plaintiffs and other hapless investors, . . . the only possible source for Agway‘s satisfaction of any portion of the principal amount of the new Money Market Certificates . . . was the dismantling and sale of Agway‘s most valuable remaining business segments. . . . But these valuable assets would never be available in connection with the more distant maturities of the new Money Market Certificates . . . because the assets would have to be disposed of to meet Agway‘s presently existing obligations with respect to the hundreds of millions of dollars of previously sold Money Market Certificates maturing during and shortly after the Class Period.
Complaint ¶ 5 (emphases in original).
In light of these allegations, the applicability of the
An odd feature of the majority‘s opinion is that it explicitly acknowledges the initial premise of the argument just made. That is, the majority writes that the Certificates “certainly create ‘obligations,’ and therefore corresponding ‘rights’ in the holders . . . . [T]he Certificates create rights in the holders to a rate of interest and to principal repayment at certain dates.” Opinion at 31. But then the majority takes an idiosyncratic turn:
But the present suit does not “relate [] to” those rights; rather, it is a state-law consumer fraud action alleging that Agway fraudulently concealed its insolvency when it peddled the Certificates. Claims that “relate [] to the rights and obligations” “created by or pursuant to” a security must be claims ground in the terms of the security itself, the kind of claims that might arise where the interest rate was pegged to a rate set by a bank that later merges into another bank, or where a bond series is discontinued, or where a failure to negotiate replacement credit results in a default on principal. The present claim—that a debt security was fraudulently marketed by an insolvent enterprise—does not enforce the right of the Certificate holders as holders, and therefore it does not fall within § 1332(d)(9)(C). . . .
Now there are a host of comments that could be made about this passage. For example, the phrase “Certificate holders as holders” seems to be without sense. Further, one wonders why a suit involving “a failure to negotiate replacement credit [which] results in a default on principal” would fall within the purview of
Thus, the majority‘s recitation of what claims “must be” in order to fall within the
Further, the majority‘s assertion that this suit is “a state-law consumer fraud action” is of no moment. If the plaintiffs were challenging a bank merger, or the discontinuance of a bond series, or a failure to negotiate replacement credit, such actions would presumably be brought under state corporate law. But the terms of CAFA simply do not contain any indication that this distinction has any import whatsoever. Under those terms, all that matters is that the suit is one in which securities holders are seeking the enforcement of rights created by, or relating to, the securities they hold. If this condition is met, our inquiry is finished.
The majority‘s attempt to justify its eccentric reading of
Far more importantly, the Senate Report‘s assertion that the scope of
We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: the judicial inquiry is complete.
Connecticut Nat. Bank v. Germain, 503 U.S. 249, 253-254 (1992) (internal quotation marks omitted).3
III. A Concluding Observation.
Writing almost ninety ago, a wise and revered judge noted that statutes are “designed to meet the fugitive exigencies of the hour.” Benjamin N. Cardozo, The Nature of the Judicial Process, 83 (1921). Because they are enacted under such circumstances, he concluded that it sometimes happens that “gaps” appear between the statutory language and the facts presented by a given case. In such situations, he asserted that judges, in order to reach decisions, have the discretion to apply the statutory language in a manner which effectively adds to or subtracts from the
In countless litigations, the law is so clear that judges have no discretion. They have the right to legislate within gaps, but often there are no gaps. We shall have a false view of the landscape if we look at the waste spaces only, and refuse to see the acres already sown and fruitful.
Id. at 129.
I believe the application of CAFA to the facts of the instant case leads to the straightforward conclusion that the district court correctly held that the case should be remanded to state court. In other words, no gap exists. By contrast, I believe that the majority has ignored the plain terms of CAFA, created its own waste space, and filled in the resulting gap with an unwarranted exercise of legislative power. I must therefore respectfully dissent.
Notes
Paragraph (2) [granting district courts original jurisdiction over such class actions] shall not apply to any class action that solely involves a claim—
(A) concerning a covered security as defined under 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p (f)(3)) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb (f)(5)(E));
(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or
(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder). Although there are still few cases considering