Class Action Defense Cases: Kircher v. Putnam Funds Trust : Remand Of SLUSA Class Action To State Court Not Appealable Supreme Court Holds

Jun 16, 2006 | By: Michael J. Hassen

Remand to State Court of Case Removed Under SLUSA (Securities Litigation Uniform Standards Act of 1998) Not Appealable U.S. Supreme Court Holds

CAFA (Class Action Fairness Act of 2005) and SLUSA (Securities Litigation Uniform Standards Act of 1998) are discussed in various separate articles. Removal and remand issues also are discussed in various articles, which set forth the general rule recently reiterated by the United States Supreme Court: “28 U.S.C. § 1447(d) limits appellate review of a district court order remanding a case from federal to state court.” Kircher v. Putnam Funds Trust, 547 U.S. ___, 126 S.Ct. 2145, 2150 (2006). The Supreme Court addressed the scope of appellate review of remand orders in Kircher. As the Supreme Court summarized, “The question here is whether an order remanding a case removed under [SLUSA] is appealable, notwithstanding § 1447(d). We hold it is not.Kircher, at 2150 (italics added).

Kircher involves eight separate putative class actions by investors against mutual funds, investment advisers and an insurance company that alleged state law claims for damages (such as damages for negligence and breach of fiduciary duty) arising out of the practice of “market timing.” Kircher, at 2150 and n.4. The actions were removed to federal court on the grounds that they were “removable under and precluded by [SLUSA].” Id., at 2151. The investors moved to remand the lawsuits claiming the district court lacked subject matter jurisdiction; the district court agreed, and remanded the actions on the grounds that it lacked subject matter jurisdiction and that SLUSA did not preclude the claims asserted therein. Id.

The Seventh Circuit reversed, but only after concluding that it had appellate jurisdiction to hear the appeal. Kircher v. Putnam Funds Trust, 373 F.3de 847, 849-50 (7th Cir. 2004). In part, the Court concluded that the district court’s orders were not actually founded on lack of jurisdiction but on the substantive issue of whether the state law claims were precluded by SLUSA: accordingly, the Seventh Circuit concluded that appellate review was not barred by § 1447(d). Id., at 849-51. Having concluded that it had appellate jurisdiction, the Seventh Circuit then held further that SLUSA precluded the investors’ claims.

The Supreme Court disagreed. First, the High Court summarized the well-established rules regarding removal and remand, and regarding the appealability of orders remanding cases to state court. Kircher, at 2152-53. The Court then held that the district court’s orders were “unmistakably premised on the view” that “the court had no subject matter jurisdiction.” Id., at 2153. That being the case, “‘review is unavailable no matter how plain the legal error in ordering the remand.’” Id., at 2154 (quoting Briscoe v. Bell, 432 U.S. 404, 413-14 n.13 (1977)).

The Supreme Court discussed the relationship between subsections (b) and © of SLUSA. Kircher, at 2155-55. Subsection (b) provides: “No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging – (1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or (2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.” Subsection ©, concerning “removal of covered class actions” provides: “Any covered class action brought in any State court involving a covered security, as set forth in subsection (b) of this section, shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to subsection (b) of this section.”

The Supreme Court concluded that “removal and jurisdiction to deal with removed cases is limited to those precluded by the terms of subsection (b).” Kircher, at 2155. “Once removal jurisdiction under subsection © is understood to be restricted to precluded actions defined by subsection (b), a motion to remand claiming the action is not precluded must be seen as posing a jurisdictional issue.Id. (italics added). Accordingly, the remand order was not subject to appellate review. Id., at 2157.

NOTE: The Supreme Court was not unsympathetic to the concern that a district court’s erroneous decision on preclusion under SLUSA would be insulated from review, Kircher, at 2156, but the Court stressed that state courts may revisit the district court’s determination and that they would not be bound by the district court’s conclusion:

But a district court does not have the last word on preclusion under the Act, for nothing in the Act gives the federal courts exclusive jurisdiction over preclusion decisions. A covered action is removable if it is precluded, and a defendant can enlist the Federal Judiciary to decide preclusion, but a defendant can elect to leave a case where the plaintiff filed it and trust the state court (an equally competent body, see Missouri Pacific R. Co. v. Fitzgerald, 160 U. S. 556, 583 (1896)) to make the preclusion determination.

Kircher, at 2156.

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