The plaintiff filed a complaint in California state court alleging four state law causes of action, including claims for fraud, in connection with a “hostile takeover” of the plaintiff. The defendant removed the action to federal district court, asserting that federal subject matter jurisdiction was proper because plaintiff’s fraud claims involved substantial questions of federal securities law—specifically, interpretation of the Williams Act, an amendment to the Securities and Exchange Act of 1934 regulating tender offers. The plaintiff then moved to remand the case back to state court, arguing that remand was appropriate because there was no federal subject matter jurisdiction.
The court first pointed out that in analyzing whether jurisdiction was proper, it must look solely to the allegations of the complaint, and that there was a “strong presumption” against removal jurisdiction. In determining whether federal subject matter jurisdiction existed, the court applied the Supreme Court’s decision in Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., which held that federal jurisdiction is appropriate where: (i) “the state law claim ‘necessarily raises a stated federal issue,’” (ii) “the federal issue is ‘both actually disputed and substantial,’” and (iii) “a federal forum may entertain the issue ‘without disturbing any congressionally approved balance of federal and state judicial responsibilities.’”
The court held that plaintiff’s fraud claim did not “necessarily” raise a stated federal issue, and therefore remand was appropriate. Specifically, it found that the claim “does not rely on construction or interpretation of the Williams Act, and the claim may be viable even if no Williams Act violation is found.” Further, the court held that remand was appropriate even though the plaintiff’s fraud claim “may embrace a point of federal securities law,” because “federal law did not create [the] claim and is not essential in determining whether [the plaintiff] has a right to relief.” (Emulex Corp. v. Broadcom Corp., 2009 WL 1872694 (C.D. Cal. June 29, 2009))