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Luther v. Countrywide Financial Corp.

October 9, 2009

DAVID H. LUTHER, ET AL., PLAINTIFFS,
v.
COUNTRYWIDE FINANCIAL CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Mariana R. Pfaelzer United States District Judge

ORDER DISMISSING the Complaint

BACKGROUND

The following background is necessary to understand this case's peculiar posture. That posture, in turn, explains this order's rare conclusion: sua sponte dismissal before any motion or briefing on the issues.*fn1

A. The Issue Presented for Declaratory Judgment

This declaratory judgment action relates to a case in California state court between the same parties ("Luther I"). Defendants previously removed Luther I to this Court under the case number CV-07-08165-MRP. Luther I asserts solely federal claims under the Securities Act of 1933 ("'33 Act").*fn2

Upon removal in Luther I, Defendants argued that removal was proper under the "Class Action Fairness Act" ("CAFA"). This Court and a unanimous panel of the Ninth Circuit concluded that removal was improper. Both opinions mention the Securities Litigation Uniform Standards Act ("SLUSA"). And both opinions recognize that, after CAFA and SLUSA, the federal courts have struggled with securities jurisdiction and removal. 533 F.3d 1031 (9th Cir. 2008); 2008 U.S. Dist. LEXIS 26534 (C.D. Cal. Feb. 28, 2008).*fn3 It appears that Defendants neither moved for rehearing nor petitioned for certiorari. The Ninth Circuit issued its mandate for remand; and this Court remanded. Upon remand, "a district court disassociates itself from the case entirely, retaining nothing of the matter on the federal court's docket." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 714 (1996).

After remand, Defendants raised a SLUSA jurisdictional issue in Luther I to Judge Emilie H. Elias, who is presiding over Luther I in the state court. Defendants did not raise a SLUSA issue (removal or jurisdictional) in this Court; nor did they raise it before the Ninth Circuit.*fn4

Following a colloquy about Knox v. Agria Corp., 613 F. Supp. 2d 419 (S.D.N.Y. 2009) (recognizing a split of authority on SLUSA removal, reading part of SLUSA "as a 'guide'" by construing a reference to a statutory section as referring to a definitional subsection, and concluding that the reference and a definition affect jurisdiction), Judge Elias suggested removing Luther I again to this Court. Compl. Exh. C at 16. Judge Elias expressed concerns about the issue's gravity; she also stated her preference that a federal court hear Defendants' SLUSA argument in the first instance. Id. at 16-19.

Perhaps because a second removal was not procedurally available, Judge Elias subsequently entered an order staying Luther I. The order also compelled "Plaintiffs to file an action" in this Court. Compl. Exh. A.*fn5 Judge Elias did so "in an abundance of caution, and in order to promote efficiency." Id. at 3. She reiterated her "willing[ness] to preside over the action and to vigorously proceed with the litigation." Id. at 3 n.7.

Plaintiffs then filed this case. It seeks declaratory judgment that SLUSA is no impediment to Judge Elias' jurisdiction in Luther I. Compl. at 14 ¶ A.

This Court understands well the importance of jurisdiction and Judge Elias' concerns. Some observers find SLUSA and CAFA poorly drafted; some have pointed out possible drafting errors. Such drafting is particularly dangerous in legislation that may affect jurisdiction, removal, preemption, or related issues.

Judge Elias' thoughtful and sincere consideration is apparent from the record. This Court is confident that Judge Elias, and the rest of the state judiciary, can reach an appropriate conclusion, regardless whether this Court (or another lower federal court) might come to the same conclusion.

B. Important Issues Raised by this Case's Procedural Posture

The federal courts have jurisdictional and procedural limitations. The present parties may have a case or controversy between them on SLUSA, but this action was filed under court order. See U.S. CONST. art. III, ยง 2. It may also be that the state court intends to treat a judgment from this Court as an advisory opinion in a literal sense. See id.; Compl. Exh. C at 16 (Elias, J., "If [the federal courts] don't want me to have [Luther ...


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