On April 2, 2015, the United States Court of Appeals for the Ninth Circuit dismissed an appeal seeking to overturn a district court’s order remanding a class action back to state court. In Eminence Investors, L.L.L.P., v. Bank of New York Mellon, 2015 WL 1475055 (April, 2, 2015), the Ninth Circuit held that the court lacked federal appellate jurisdiction under the Class Action Fairness Act (CAFA) due to the applicability of CAFA’s securities exception to the case before it.
In 2011, plaintiff-appellant Eminence Investors, L.L.L.P. filed a California state action against the Bank of New York Mellon for breach of fiduciary duty and gross negligence relating to the issuance of public financing bonds. Almost two years later, the Eminence Investors filed an amended complaint asserting claims on behalf of more than 100 putative class members that sought damages of more than $10 million. Within 30 days of the amended complaint’s filing, the bank removed the case to federal court under CAFA, and Eminence responded by moving to remand the case back to California state court. The investors argued that removal was improper because (a) removal was untimely and (b) CAFA’s security exception applied. Agreeing that the bank’s removal was untimely, the federal district court granted the motion to remand without discussing whether CAFA’s securities exception applied.
On appeal, the Ninth Circuit explained that it would only have jurisdiction to hear the bank’s appeal of the district court’s remand order if, as the bank argued, the case was not subject to a CAFA exception. While CAFA exempts three categories of cases from CAFA removal under 28 U.S.C § 1453(d), only the securities exception found in subsection (d)(3) was at issue in this case. The Ninth Circuit explained that the securities exception would only apply if (1) all the class action claims had a particular relationship with a security; and (2) each claim related to rights, duties, or obligations related, created by, or pursuant to a security that meets the definition of a security as set forth in 15 U.S.C. § 77b (a)(1).
The bank argued that the securities exception did not apply to the investors’ claims because the bonds’ terms expressly foreclosed some of the Investors’ allegations. Because this was a matter of first impression for the Ninth Circuit and to avoid unnecessary inter-circuit conflict, the court looked to jurisprudence concerning CAFA’s securities exception from its sister circuits. In ultimately holding that it lacked subject-matter jurisdiction, the Ninth Circuit relied on three cases from the Second Circuit. First, it relied on Estate of Pew v. Cardarelli, 527 F.3d 25, 32 (2d Cir. 2008), in finding that the investors’ status as holders (as distinguished from solely purchasers) of the bonds conferred them standing under CAFA’s security exception. Next, the panel relied on Greenwich Financial Services Distressed Mortgage Fund 3 LLC v. Countrywide Financial Corp., 603 F.3d 23, 29 (2d Cir. 2010), in explaining that collateral issues and common law duties raised by California state law securities claims and defenses do not nullify the applicability of CAFA’s securities exception. Lastly, the panel leaned on BlackRock Financial Management Inc. v. Segregated Account of Ambac Assurance Corp., 673 F.3d 169 (2d Cir. 2012), to reaffirm the application of CAFA’s securities exception for causes of action based on the bank’s state-imposed duties to administer the bonds.
Notably, the Ninth Circuit did not discuss the timeliness of removal under CAFA, which had been the focal point of Jordan v. Nationstar Mortgage LLC, Nos. 14-35943, 15-35113, 2015 WL 1447217 (9th Cir. Apr. 1, 2015), as summarized by William Holley in an earlier report. Had the securities exception not applied, the Ninth Circuit may very well have found the bank’s removal to be timely as it was within 30 days of the filing of the amended complaint, which appeared to provide the initial notice of the bank’s basis for CAFA removal. As such, the probable result would have been the Ninth Circuit reversing the district court’s remand order.