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: CAFA Law Blog - Information, cases and insights regarding the Class Action Fairness Act of 2005

It's Official: Size Matters. At Least in New York.

New Jersey Carpenters Vacation Fund v. Harborview Mortgage Loan Trust, et al., Case No. 08-CV-05093 (SDNY Sept. 24, 2008).

If your email account is like mine – you are told everyday from some business start up in Tanzania that size matters. I, for one, am buying into the hype. I do everything I can to increase my size. The size of what you ask? My client portfolio, of course! What did you think I was talking about?

The Southern District of New York faced the question of whether size matters, not regarding CAFA's jurisdictional threshold of five million dollars, but in another sense that will be addressed shortly. 

The class action plaintiffs filed suit in state court under Sections 11, 12, and 15 of the Securities Act of 1933 (15 U.S.C. §§ 77, et seq.), alleging misrepresentations in the prospectuses and registration statements of certain mortgage related bonds. Why did plaintiffs limit their cause of action to the Securities Act of 1933? Because it contains an anti-removal provision. Section 22(a) of the Securities Act reads in relevant part:

Except as provided in section 77(p) of this title [i.e. for class actions involving covered securities], no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States.

Thinking that CAFA's size was bigger, defendants removed the case under CAFA's removal provisions – 28 U.S.C. §§ 1332(d)(2), 1453(b) – which the readers of this blog are probably most familiar. Relying on the anti-removal provision of the Securities Act, plaintiffs moved to remand.

The district court faced the question: which removal provision prevails? CAFA's or the Securities Act's? Relying on a California case affirmed by the 9th Circuit, Luther v. Countrywide Home Loans, 07-CV-8165, 2008 U.S. Dist. LEXIS 26534 (C.D. Cal. Feb 28, 2008), aff'd 533 F.3d 1031 (9th Cir. 2008), holding the Securities Act's anti-removal provision trumped CAFA, the plaintiffs argued that the matter was settled. (Editors' Note: See the CAFA Law Blog analysis of Luther posted on July 16, 2009.) The court, however, was not buying into the 9th Circuit's reasoning. Why? It forgot that size matters.

After spending three pages detailing CAFA's history and purpose, the court emphasized Congress's intent that under CAFA, federal courts should have jurisdiction over large, non-local securities class actions dealing with matters of national importance. Noting the size of this class action and its national importance (as plaintiffs' counsel asserted, there was nothing of more national importance than the mortgage crisis), the court held CAFA's removal provisions trumped the anti-removal provisions of the Securities Act of 1933. As such, the court denied the plaintiffs' motion to remand.

The lesson: The next time an email comes in from Tanzania with the subject line: Size Matters – well….you should still probably delete it.

Full post as published by CAFA Law Blog - Information, cases and insights regarding the Class Action Fairness Act of 2005 on December 02, 2009 (boomark / email).