(Article from Securities Law Alert, January 2017)
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On December 21, 2016, the Ninth Circuit held that Section 77p(d)(1)(A) of the Securities Litigation Uniform Standards Act (“SLUSA”) does not “provide[ ] an independent basis for federal question jurisdiction under 28 U.S.C. § 1331.”[1] Rainero v. Archon Corp., 2016 WL 7384031 (9th Cir. 2016) (Thomas, J.).
The question arose in the context of a putative class action in which the “sole claim . . . was a breach-of-contract claim arising under Nevada law.” Plaintiff contended that federal question jurisdiction existed under § 1331 “because [SLUSA] is a federal statute that allows certain class actions . . . to be maintained in either state or federal court.” Plaintiff relied specifically on 15 U.S.C. § 77p(d)(1)(A), which provides that certain “covered class action[s]” that are “based upon the statutory or common law of the State in which the issuer is incorporated . . . may be maintained in a State or Federal court by a private party.”
The Ninth Circuit rejected plaintiff’s argument as a misreading of SLUSA. In so holding, the court “agree[d] with and adopt[ed]” the D.C. Circuit’s analysis in Campbell v. American International Group, 760 F.3d 62 (D.C. Cir. 2014). The D.C. Circuit found that 15 U.S.C. § 77p(d) only “carves out exceptions to the preclusive reach of” 15 U.S.C. § 77p(b), which prohibits plaintiffs from bringing certain state-law based securities fraud class actions in state or federal court. Id. (quoting Campbell, 760 F.3d 62). The D.C. Circuit determined that there was “no indication . . . that Congress intended subsection (d)(1)(A) to go substantially further, so as to create federal jurisdiction over a category of state-law securities class actions.” Id. (quoting Campbell, 760 F.3d 62).
Following the D.C. Circuit’s reasoning, the Ninth Circuit held Section 77p(d)(1)(A) of “SLUSA does not create an independent basis for federal question jurisdiction.”[2]
[1] 28 U.S.C. § 1331 provides that “[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”
[2] However, the Ninth Circuit stated that under Section 77p(c) of SLUSA, "federal courts have jurisdiction for the limited purpose of determining whether a certain state action is precluded under § 77p(b)" of SLUSA.