The federal district court denied plaintiff’s attempt to remand to state court on two grounds. First, pursuant to the general federal question jurisdiction statute, 28 U.S.C. § 1331, the case was deemed a “civil action[] arising under” federal law. Second, based on the Act’s Section 27 specific jurisdictional provision, the federal court was adjudged to have exclusive jurisdiction over the case insofar as it was “brought to enforce any liability or duty created by [the Act] or the rules and regulations thereunder.

On May 16, 2016, the Supreme Court of the United States decided Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, No. 14-1132, holding that that the “arising under” test for federal-question jurisdiction under 28 U.S.C. § 1331 determines whether federal courts have exclusive jurisdiction under section 27 of the Securities Exchange Act of 1934 (the “Exchange Act”) of lawsuits to enforce liabilities or duties created by that Act. (The Court did not address the portion of section 27 that gives federal courts exclusive jurisdiction of “violations of this chapter or the rules and regulations thereunder” with respect to criminal and regulatory enforcement actions.)

The court requests that the parties address the following seven questions in the briefs:Under which federal statutes, if any, may the court have jurisdiction?What specific liability, duty, rule, or regulation created by the Exchange Act, if any, does the petition seek to enforce that would create exclusive jurisdiction in the federal court under 15 U.S.C. §78aa?Does §78aa extend exclusive jurisdiction to suits to enforce liabilities or duties created by FINRA Rules?Does the complaint properly invoke federal question jurisdiction under 28 U.S.C. §1331?Alternatively, does the complaint entail federal issues necessarily raised, actually disputed, substantial, and capable of resolution in federal court so as to create jurisdiction under 28 U.S.C. §1331?Are there any other potential bases for federal jurisdiction?Assuming jurisdiction exists, what standards should the court apply in considering the petition?

Rainero v. Archon Corporation, 2016 WL 7384031 (9th Cir. Dec. 21, 2016).The Ninth Circuit held it lacked federal question jurisdiction under 28 U.S.C.§ 1331 because the plaintiff did not assert a federal claim and the Securities Litigation Uniform Standards Act, 15 U.S.C. § 77p(d)(1)(A), did not provide an independent basis for federal question jurisdiction over plaintiff’s state-law claim.The Ninth Circuit also held that CAFA does not allow a district court to assert diversity jurisdiction over a class action under 28 U.S.C. § 1332(d)(2) because the exception in 29 U.S.C.§ 1332(d)(9)(C) states that § 1332(d)(2) shall not apply to any class action that solely involves a claim that relates to the rights, duties, and obligations relating to or created by or pursuant to any security.Background Facts: The defendant, Archon Corporation, a Nevada Corporation with its principal place of business in Las Vegas, created a class of equity securities designated as Exchangeable Redeemable Preferred Stock in 1993.

October 2022 Term. Rulings in several cases will affect the practice of regulatory and administrative law either directly or indirectly, as is recounted below. Before the Court adjourned, it released its calendar of cases to be argued in October 2023, and of course, more cases will be scheduled after the Court returns.Decisions Directly Affecting Administrative and Regulatory LawAxon Enterprise, Inc. v. Federal Trade Commission (decided April 14, 2023) This case involves a standard federal agency enforcement practice usually administered by agency Administrative Law Judges. The petitioners, Michelle Cochran and Axon Enterprise, were cited for various regulatory violations by the SEC and the FTC. However, instead of submitting to the agencies well-establishedinternal administrative enforcement processes, the petitioners challenged the authority of the agencies to utilize these procedures because there were serious concerns that these processes were unconstitutional; a federal statute, 28 USC Section 1331, provides that federal district courts have jurisdiction over claims having a basis in federal law. The Court, in an opinion by Justice Kagan, held that the review schemes provided by the Exchange Act and the FTC Act, do not displace the authority to hear cases provided by Section 1331. Justice Kagan employed the balancing factors set forth in the Thunder Basin case of 1994, see 510 US 200 (1994),to determine that the petitioners can resort to Section 1331. Justice Gorsuch would dispense with the Thunder Basin analysis because this federal statute provides all the authority that is needed. This is another decision that is reducing somewhat the scope and scale of the authority offederal regulatory agencies.Sackett v. Environmental Protection Agency (decided May 25, 2023) The U.S. Court of Appeals for the Ninth Circuit upheld the federal government’s authority to regulate, under the Clean Water Act (CWA), the wetlands being filled in by the Sacketts on their property. The EPA rules then

ficiently accountable to the President, in violation of separation of powers principles.[4] As the opinion notes, these challenges “are fundamental, even existential” to the agencies, asserting that “as currently structured,” the agencies “are unconstitutional in much of their work.”[5] The Supreme Court was not presented with—nor did it decide—those constitutional issues. Instead, the opinion addresses when and “where [such challenges] may be heard.”[6]In Cochran and Axon, the respondents to administrative enforcement actions immediately brought suit in federal district court, seeking to enjoin the ALJ proceeding and arguing that “some fundamental aspect of the Commission’s structure violate[d] the Constitution; that the violation made the entire proceeding unlawful; and that being subjected to such an illegitimate proceeding causes legal injury (independent of any rulings the ALJ might make).”[7] These collateral lawsuits were premised on ordinary federal-question jurisdiction under 28 U.S.C. 1331. The district courts in each underlying matter concluded that they lacked jurisdiction—that the Exchange Act’s and FTC Act’s review scheme displaced 28 U.S.C. 1331 jurisdiction for claims concerning the agency’s administrative adjudications.The Court’s RulingThe Supreme Court concluded that the statutory review schemes do “not necessarily extend to every claim concerning agency action.”[8] In considering whether a district court may exercise jurisdiction in the first instance, the Court considered whether the particular claims at issue were “of the type Congress intended to be reviewed within this statutory structure.”[9] The Thunder Basin factors, which the Court has held guide this inquiry, pose three questions: (1) could precluding district court jurisdiction foreclose all meaningful judicial review of the claim? (2) Is the claim wholly collateral to the statute’s review provisions? and (3) is the claim outside the agency’s area of expertise? When the answer to all three is yes, th

ise other constitutional challenges to the SEC, FTC and other agencies that have a similar administrative adjudicatory process.BackgroundIn Axon Enterprise, Inc. v. FTC and SEC v. Cochran, the respondents in administrative agency enforcement actions brought suit in federal district court, challenging the constitutionality of each respective agency’s attempt to litigate its enforcement action in an administrative proceeding presided over by an Administrative Law Judge (ALJ), removable only for good cause as determined by the Merit Systems Protection Board (MSPB) rather than by the President. Respondents each argued “that [this] fundamental aspect of the Commission’s structure violates the Constitution; that the violation made the entire proceeding unlawful; and that being subjected to such an illegitimate proceeding causes legal injury (independent of any rulings that the ALJ might make).” Respondents premised jurisdiction on a district court’s ordinary federal-question authority under 28 U.S.C. § 1331 to resolve “civil actions arising under the Constitution, laws and treaties of the United States.”Respondents filed their collateral Constitutional actions to enjoin the FTC’s and SEC’s administrative actions despite the fact that both the Securities Exchange Act of 1934 (Exchange Act, 15 U.S.C. § 78a et seq.) and the FTC Act (15 U.S.C. § 41 et seq.), provide that the SEC and FTC can bring enforcement actions by instituting administrative proceedings adjudicated by an ALJ, and each set forth the procedures which must be followed to appeal an ALJ’s ruling. Under these statutes, a losing party in the administrative forum can appeal an ALJ’s ruling to the respective agency, either the SEC or FTC. Only after a final commission decision is a respondent permitted to seek review by a federal court of appeals of the commission decision. See 15 U.S.C. § 78y(a)(1); 15 U.S.C. § 45(c). Prior to this decision by the Supreme Court, lower courts were routinely rejecting similar collateral attacks on

Jessica Casey, et al., v. Roger Denton, et al., 2017 WL 3461363 (S.D. Ill. Aug. 11, 2017).In this action, while denying the plaintiffs’ motion to remand, a district court in Illinois found that CAFA is not the exclusive means for establishing subject matter jurisdiction over class actions, and that 28 U.S.C. § 1331 original jurisdiction, and § 1332 CAFA jurisdiction, are two alternative bases for removal.The plaintiffs brought a putative class action in Illinois state court for one count of legal malpractice against numerous defendants stemming from actions involving the multidistrict litigation, In re Yasmin and YAZ (Drospirenone) Marketing, Sales Practices and Products Liability Litigation, MDL 2100, No. 3:09-md-02100-DRH-CJP (“MDL” or “Yaz MDL”).

The complaint alleged only state law claims, but did refer explicitly to the Securities and Exchange Commission’s Regulation SHO, which concerns such sales. Merrill Lynch removed the case to Federal District Court, invoking “arising under” jurisdiction under the general federal question statute, 28 U.S.C. §1331, as well as §27 of the Securities Exchange Act of 1934, which gives exclusive federal jurisdiction to “all suits in equity and actions at law brought to enforce any liability or duty created by [the Exchange Act] or the rules or regulations thereunder.” The District Court denied Manning’s motion to remand, but the Third Circuit reversed, holding that 1) §1331 did not confer jurisdiction because all claims arose under state law and did not necessarily raise federal issues; and 2) §27 of the Exchange Act did not confer jurisdiction because it only extended to cases that would satisfy the “arising under” test for §1331.

Future cases involving securities trading, and the extensive body of federal regulation governing that activity, may well require future courts to determine that issue.The Scope of the Manning Decision As previously reported on this blog, the sole issue before the Manning Court was the scope of Section 27 of the Exchange Act, which provides federal courts with exclusive jurisdiction over all actions “brought to enforce any duty or liability” under the Exchange Act. The Court interpreted that provision to be co-extensive with the general federal jurisdiction statute, 28 U.S.C. § 1331, which grants federal courts jurisdiction over all civil actions “arising under” federal law. In other words, where an action “arises under” the Exchange Act within the meaning of § 1331, the federal courts will have exclusive jurisdiction under § 27 of the Exchange Act.