District Court Holds That State Courts Lack Jurisdiction Over “Covered Class Actions” Under The Securities Act; Finds Section 22(a)’s Removal Bar Does Not Apply
On September 2, 2016, Chief Judge Leonard P. Stark of the U.S. District Court for the District of Delaware denied a motion to remand a putative class action brought under the Securities Act of 1933 (the “Securities Act”) to state court. Iron Workers District Counsel of New England Pension Fund v. MoneyGram Int’l Inc.
Plaintiff – an investor in MoneyGram International, Inc. (“MoneyGram”), a money transfer servicer – filed a securities class action in Delaware state court against MoneyGram, several of its principal shareholders and officers, and its underwriters, based on allegedly false or misleading statements in the prospectus supplement filed in connection with its secondary offering. According to plaintiff, the prospectus supplement allegedly failed to disclose material adverse information regarding the possible entry of a competitor into the money transfer business in violation of Sections 11, 12(a)(2), and 15 of the Securities Act. Defendants removed the case to federal court, and plaintiff moved to remand.
A Securities Act claim can be brought either in state or federal court. See 15 U.S.C. § 77v(a). The same section of the Securities Act that establishes concurrent jurisdiction also contains a “removal bar” that precludes defendants from removing cases asserting Securities Act claims to federal court in cases where the state court otherwise has subject matter jurisdiction. See id. SLUSA amended this section to create an exception to the concurrent jurisdiction provision as well as an exception to the removal bar. Both the courts and the parties have since grappled with the question of whether class actions asserting only Securities Act claims can be removed to federal court.
In denying plaintiff’s motion to remand, the Court rejected plaintiff’s argument that only class actions based on state law can be removed to federal court. Instead, the Court held that SLUSA divested state courts of concurrent jurisdiction over all class actions – including those asserting Securities Act claims – and that the removal bar applied only to individual actions asserting federal claims. The Court cited two main reasons for this conclusion. First, had Congress intended to eliminate concurrent jurisdiction for class actions that only asserted state law claims, it could have done so by using narrower, more specific language. Second, the Court observed that its interpretation is the “only [one] that comports with” SLUSA’s legislative history and stated purpose to counter the trend of plaintiffs filing class actions in state court to avoid the procedural protections of the Private Securities Litigation Reform Act (PSLRA).