In a decision recently issued by the Seventh Circuit, Katz v. Gerardi, No. 08-8031, 2009 WL 18137, at *4 (7th Cir. Jan. 5, 2009), the Court of Appeals held that securities class actions that meet the jurisdictional requirements of the Class Action Fairness Act of 2005 (“CAFA”) are removable, subject to CAFA’s exceptions to removal in Sections 1332(d)(9) and 1453(d) of the Act. See 28 U.S.C. § 1332(d)(9); 28 U.S.C. § 1453(d). This creates a split of authority between the Seventh and Ninth Circuits regarding the application of CAFA to claims brought under the Securities Act of 1933 (“1933 Act”).
In Katz, the plaintiff brought a purported class action on behalf of holders of units in a real estate investment trust against the trust and its managers for alleged violations of the 1933 Act. Id. at *1. The defendants removed the action to federal court under CAFA, which permits removal of class actions that meet certain threshold requirements. See id. The district court remanded the action to state court after concluding that removal was precluded by Section 22(a) of the 1933 Act. Id.
Section 22(a) provides for concurrent jurisdiction of 1933 Act claims in either state or federal court. See id. at *4. Accordingly, the court determined that 1933 Act claims originally brought in state court must stay in state court. Id. Although an older law such as Section 22(a) would usually yield to a newer law like CAFA, the district court reasoned that Section 22(a) controls over CAFA because it is more specific – “[Section] 22(a) deals only with securities litigation, while [CAFA] covers class actions in many substantive fields.” Id. at *1.
The Seventh Circuit noted that this was the same reasoning recently employed by the Ninth Circuit in Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031 (9th Cir. 2008). See id. at *3. The Seventh Circuit, however, found that the Luther Court’s reasoning was faulty because “[t]he canon favoring preservation of specific statutes arguably affected by newer, but more general, statutes works [only] when one statute is a subset of the other.” Id. Section 22(a) is not a subset of CAFA, and, thus, the canon favoring specific laws over general laws did not resolve the issue on appeal. Id. Rather, “[t]he language of [CAFA], rather than a canon, tells [the court] how the new removal rule applies to corporate and securities actions.” Id. As explained by the Katz Court, the express language of CAFA allows for the removal of any securities class action that meets CAFA’s threshold requirements, subject to the exceptions set forth in Sections 1332(d)(9) and 1453(d). Id. at *4. Accordingly, the Seventh Circuit vacated the district court’s judgment. Id. at *5.
The Court also remanded the case to the district court for determination on whether the plaintiff’s claim fell within any of CAFA’s exceptions to removal. Id. If plaintiff’s claim “rests on a contention that deceit occurred in the merger and related transactions, then [Section] 1453(d)(3) does not prevent removal, and the suit must be decided on the merits in federal court.” Id.