finding SLUSA was passed to counteract a shift in cases to state court and therefore allows the removal of cases based solely on the Securities ActSummary of this case from In re Tyco International, Ltd.
Cause No. 3:02-CV-2738-K, Cause No. 3:02-CV-2739-K
May 8, 2003
MEMORANDUM OPINION AND ORDER
Before the court are identical motions to remand these two cases. For the reasons discussed below, the motions to remand are denied and these cases are hereby consolidated with Schwartz v. TXU Corp., et al., Cause No. 3:02-CV-2243-K.
I. Motion to Remand
In October 2002 and shortly thereafter, twenty-seven class action suits were filed in federal courts against the Defendants in this case. Those cases are now consolidated into Schwartz v. TXU Corp., et al., Cause No. 3:02-CV-2243-K. In late 2002, Harvey Alkow and Judith Alkow each filed a class action in district courts for Dallas County, Texas with virtually identical factual allegations as those in the Schwartz case. The only difference is that the Alkows alleged only that the Defendants' conduct violated the Securities Act of 1933 ("1933 Act"), while the petitions in Schwartz allege violations of the Securities Exchange Act of 1934 as well as violations of the 1933 Act. On December 19, 2002, Defendants removed the Alkows' cases to this court, arguing that removal is proper under 28 U.S.C. § 1441 and 15 U.S.C. § 77v(a).
Both Alkows contend that the court must remand these cases because removal of claims brought under the 1933 Act is prohibited. Under the 1933 Act, a plaintiff may bring suit in state or federal court. If a plaintiff chooses state court, a defendant generally has no right to remove the case to federal court. 15 U.S.C. § 77v(a). The one exception to the general rule is § 77p(c), which provides "A covered class action brought in any State court involving a covered security, as set forth in subsection (b), shall be removable . . ." 15 U.S.C. § 77p(c) (emphasis added). In turn, subsection (b) preempts the application of state securities laws in "covered class actions" and permits the dismissal of class action claims "based upon the statutory or common law of any State." 15 U.S.C. § 77p(b). The Alkows argue that because § 77p(c) references subsection (b), the 1933 Act allows defendants to remove only class actions asserting state law claims, not class actions based entirely on the 1933 Act.
A careful reading of the statute, however, shows the Alkows' arguments are unpersuasive. Section 77v(a) prohibits removal of cases "arising under" the 1933 Act, "[e]xcept as provided in section 77p(c)." In other words, claims arising under the 1933 Act are removable as provided in § 77p(c). If § 77p(c) applies only to state law claims as the Alkows claim, then no claims arising under the 1933 Act would be removable, and the exception language in § 77v(a) would be meaningless. To accept the Alkows' argument, therefore, would require the court to ignore the language Congress chose, which this court cannot do. Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331 (1979) (holding that courts are required to "give effect, if possible, to every word Congress used."); Woodfork v. Marine Cooks Stewards Union, 642 F.2d 966, 970-71 (5th Cir. 1981) ("A basic rule of statutory construction is that `a statute should not be construed in such a was as to render certain provisions superfluous or insignificant.'") (quoting Zeigler Coal Co. v. Kleppe, 536 F.2d 398, 406 (D.C. Cir. 1976). Instead, the reference in § 77p(c) to subsection (b) includes state law class actions among the cases that may be removed, but does not limit removal to just those cases. This interpretation harmonizes § 77p(c) and § 77v(a).
Moreover, the language at issue was drafted precisely to prevent the type of tactics employed by the Alkows to avoid federal court. In 1995, Congress passed the Public Securities Reform Act (PSLRA), which contained sweeping reforms for securities class action cases. At the time, § 77v(a) had no exception to the general prohibition of removal. Section § 77v(a), therefore, provided an end run around the protections provided in PSLRA because plaintiff's could simply file class actions in state courts to avoid the effect of PSLRA. Lander v. Hartford Life, 251 F.3d 101, 107-08 (2d Cir. 2001).
To close this loop-hole, Congress passed the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which, in part, added the exception to the removal prohibition in § 77v(a) and the removal and preemption language in § 77p(b) and (c). SLUSA included congressional findings which note that since the enactment of the PSLRA, a large number of securities class action lawsuits had shifted from federal to state courts. Congress also found that the shift of cases prevented PSLRA from having the full effect intended. Therefore, Congress determined that SLUSA was necessary to establish national standards for securities class actions "while preserving the appropriate enforcement powers of the State securities regulators and not changing the current treatment of individual lawsuits." Securities Litigation Uniform Standards Act of 1998, Pub.L. No. 105-353, § 2, 112 Stat. 3227 (1998) (emphasis added).
In short, Congress intended SLUSA to prevent the exact maneuver used by the Alkows here. If § 77p(c) does not permit removal of claims arising under the 1933 Act, then SLUSA did not counteract the shift in cases to state courts that Congress determined had frustrated the intent of PSLRA. The Alkows' interpretation of §§ 77v(a) and 77p(b)-(c) is, therefore, irreconcilable with the congressional findings.
Based on the language of the statute and the congressional findings in SLUSA, the court determines that removal of these cases was proper pursuant to 15 U.S.C. § 77p(c), and the Alkows' motions to remand should be denied.
There is little question that the factual allegations and legal theories in these cases are substantively identical to those already consolidated in the Schwartz case discussed above. Consolidation would serve to expedite resolution of the disputed issues and is ultimately required by 15 U.S.C. § 77z-1(a)(3)(B)(ii). Therefore, Civil Action Numbers 3:02-CV-2738-K and 3:02-CV-2739-K are consolidated with Civil Action Number 3:02-2243-K. Pursuant to N.D. Tex. Civ. R. 42.1, all pleadings, motions, or other papers will be filed in Civil Action Number 3:02-CV-2243-K and bear only the caption of that case, together with the legend required by Rule 42.1.
For the foregoing reasons, the Alkows' motions to remand in their respective cases are DENIED. These cases are hereby consolidated with Civil Action No. 3:02-CV-2243-K. The Clerk of the court shall administratively close for statistical purposes Civil Action Numbers 3:02-CV-2738-K and 3:02-CV-2739-K.