Northern District Of California Remands Securities Class Actions To State Court, Holding Only Covered Class Actions With State Law Claims Are Removable
On July 27, 2016, Judge Sarah Illston of the United States District Court for the Northern District of California remanded two putative securities class actions against Fitbit, Inc.—one to the Superior Court of California, San Mateo County and the other to the Superior Court of California, San Francisco County. See Rivera v. Fitbit, Inc., Case No. 16-cv-2890 (N.D. Cal. July 27, 2016); De Luz v. Fitbit, Inc., Case No. 16-cv-3381 (N.D. Cal. July 27, 2016). Both matters had been commenced in California Superior Court in April and May of 2016, alleging only claims under the Securities Act of 1933 (the “Securities Act”). Fitbit removed both actions to federal court, and plaintiffs moved to remand, arguing that the Securities Act prohibits removal of class actions when those actions assert only Securities Act claims.
Plaintiffs’ claims stem from allegations that Fitbit misled investors by promoting the accuracy of the technology both prior to and after its June 2015 IPO. Plaintiffs argued that the “removal bar” contained in the Securities Act prohibits removal of complaints asserting class action claims under the Securities Act. 15 U.S.C. § 77v(a). Defendants argued that the Securities Litigation Uniform Standards Act (“SLUSA”) divests state courts of jurisdiction over certain class actions brought under the Securities Act, and that plaintiffs’ interpretation of the removal bar contained in Section 77v(a) is incorrect and would lead to the anomalous result of state courts retaining jurisdiction over federal Securities Act claims but not state law securities claims.
The Court rejected Fitbit’s argument that SLUSA “explicitly divests state courts of jurisdiction over class actions.” Citing precedent from the Northern District of California, the Court found “[t]the most straightforward reading of the [SLUSA] provisions is that only . . . class actions with state law claims can be removed to federal court . . . and only for the purpose of dismissing the state law claims.” The Court further observed that the “parties agree that nearly every court within this district that has addressed this issue since 2012 has remanded this type of case back to state court,” and ordered that the cases be remanded to Superior Court. The Court did, however, deny plaintiffs’ requests for attorneys’ fees and costs. This decision is likely to reinforce a trend of increased securities filings in California state courts, in particular in San Mateo County, where more than a dozen cases have been filed in 2016.