Federal Judge In Massachusetts Holds That Only Covered Class Actions Based On State Law Can Be Removed To Federal Court Under The Securities Act
05/09/2016On April 29, 2016, Chief Judge Patti Saris of the United States District Court for the District of Massachusetts granted plaintiff’s motion to remand to state court a putative class action brought under the U.S. Securities Act of 1933 (the “Securities Act”). Fortunato v. Akebia Therapeutics, Inc., No. 15-13501-PBS, 2016 BL 137403 (D. Mass. Apr. 29, 2016). This decision joins a number of courts that have remanded Securities Act class actions to state court after concluding that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not negate the removal bar contained in the Securities Act. This decisional trend has led plaintiffs to increasingly file Securities Act class action lawsuits in state courts, which often are less likely to dismiss complaints and may not apply the procedural protections of the Private Securities Litigation Reform Act (“PSLRA”), such as the pre-motion to dismiss discovery stay.
Plaintiff Anthony Fortunato filed a securities class action in Suffolk County Superior Court of the Commonwealth of Massachusetts against Akebia Theraputics, Inc. and the investment banks that underwrote Akebia’s IPO. The complaint alleges violations of the Securities Act, asserting that defendants issued a registration statement that failed to disclose material information about the results of a drug trial for the company’s principal drug. 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 opposing plaintiff’s motion in Fortunato, defendants argued that SLUSA’s amendment did away with concurrent jurisdiction of any class actions that assert claims under the Securities Act, even if no other claims are asserted. Fortunato, 2016 BL 137403 at *3–4. Plaintiff, on the other hand, argued that the SLUSA amendments only applied when plaintiffs brought class action lawsuits asserting claims under both the Securities Act and under state law. In other words, because plaintiff asserted only federal claims, the removal bar still precluded removal. Id. at *4.
Chief Judge Saris agreed with plaintiff, relying on district court precedent within the First Circuit and holding that only covered class actions based on state law can be removed to federal court under the removal bar provision, as amended by SLUSA. Chief Judge Saris also noted that there was a “‘deeply rooted’ presumption that state courts enjoy concurrent jurisdiction” over federal law claims, and that there was no “explicit statutory directive,” “unmistakable implication from legislative history,” or “clear incompatibility between state-court jurisdiction and federal interests” that could rebut that presumption. Id. at *5–6. While Chief Judge Saris acknowledged the merit of defendants’ argument that “state court jurisdiction over covered class actions based on the Securities Act will undermine the development of uniform standards for federal law class actions,” she opined that these “policy arguments are better addressed to Congress.” Id. at *6.