The Ninth Circuit federal court of appeals recently held that the Class Action Fairness Act of 2005 (CAFA), which permits in general the removal to federal court of high-dollar class actions involving diverse parties, does not supersede section 22(a)’s specific bar against removal of cases arising under the Securities Act of 1933 (’33 Act). Luther v. Countrywide Home Loans Servicing LP, et al., No. 08-55865 (July 16, 2008).
Suit was originally filed in November 2007 in a California state court against Countrywide Home Loans Servicing LP, CWALT, Inc.), various Countrywide subsidiaries, several alternative loan trusts and underwriters. The class consisted of individuals and entities who acquired billions of dollars worth of mortgage pass-through certificates from CWALT. The complaint includes allegations that the defendants violated sections 11, 12(a)(2) and 15 of the ’33 Act. Specifically, plaintiffs allege that CWALT made false representations in its registration statements and prospectus supplements relating to the credit worthiness of the underlying mortgage borrowers, thereby causing the devaluation of the certificates. Plaintiffs do not claim that any fraudulent, intentional or reckless misconduct took place, but do seek compensatory damages.
The Countrywide defendants removed the action to federal court under Section 4(a) of CAFA, which grants federal district courts original jurisdiction over class actions with alleged damages exceeding $5 million and at least minimal diversity. Plaintiffs then requested that the case be remanded to state court under section 22(a) of the ’33 Act, arguing that the Act prohibits removal of actions to federal court. The U.S. District Court for the Central District of California remanded the case to state court, ruling that section 22(a) anti-removal provision trumps CAFA’s provisions on diversity and removal jurisdiction.
In affirming the district court’s holding, the Ninth Circuit noted the rule of specificity in statutory interpretation and held that the ’33 Act applied because the claims were brought pursuant to the ’33 Act and section 22(a) “applies only to claims arising under the Securities Act of 1933 . . . [whereas] CAFA . . . applies to a ‘generalized spectrum’ of class actions.”