On August 23, 2012, the District Court for the Northern District of California issued an opinion that analyzed whether class action lawsuits brought under the Securities Act of 1933 (the "1933 Act") were removable to federal court. There is currently a split among district courts on whether these 1933 Act class actions are removable. Ultimately, Judge Maxine Chesney held that 1933 Act class actions are covered by the Securities Litigation Uniform Standards Act (SLUSA) and thus are removable to federal court.
In the case, Lapkin v. Facebook, Inc., the plaintiffs sought to bring a number of putative class action lawsuits arising exclusively under the 1933 Act. After the defendant removed the cases to federal court, the plaintiffs filed a motion to remand them back to state court. The court began its analysis by noting that federal courts typically have original jurisdiction over all cases "arising under the laws of the United States," such as claims under the 1933 Act. But the 1933 Act expressly contains a non-removal provision that states that "[n]o case arising under [the 1933 Act] and brought in any State court of competent jurisdiction shall be removed to any court of the United States" — effectively permitting plaintiffs to file 1933 Act claims, either individually or as a class, in state court. However, as of November 3, 1998, the 1933 Act was amended by SLUSA to allow for the removal of a "covered class action" to federal court. The term "covered class action" was defined to include any lawsuit in which "one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to these persons or members of the prospective class predominate over any questions affecting only individual persons or members." The parties disagreed as to whether the non-removal provision of the 1933 Act still applied to class actions in light of SLUSA.
After noting that neither the Supreme Court nor any Circuit Court of Appeals had ruled on the issue, the district court noted that Congress specifically enacted the Private Securities Litigation Reform Act (PSLRA) to prevent so-called "strike suits" — meritless class actions that allege fraud in the sale of securities — and that SLUSA was enacted specifically to "correct the perceived failure of the PSLRA to curb abuses of federal securities litigation." The court then focused on the particular language of the 1933 Act's non-removal provision. Specifically, the district court noted that the provision barred removal of cases brought "in any State court of competent jurisdiction." The court concluded that, in light of SLUSA's amendments to the 1933 Act, the non-removal provision no longer applied because state courts were no longer of competent jurisdiction. The district court noted that this interpretation was supported by certain language in SLUSA's legislative history, which further emphasized that SLUSA was designed to strengthen the PSLRA and to "prevent plaintiffs from seeking to evade the protections that Federal law provides against abusive litigation by filing suit in State, rather than in Federal, court." The plaintiffs' motion to remand was denied.
Lapin v. Facebook, Inc., Nos. C–12–3195 MMC, C–12–3196 MMC, C–12–3199 MMC, C–12–3200 MMC, C–12–3201 MMC, C–12–3202 MMC, C–12–3203 MMC, 2012 WL 3647409 (N.D. Cal. Aug. 23, 2012).
Click here to read the opinion.