Monday, July 27, 2009

State Enforcement Action Was Not Removable Under SLUSA

A federal district court (E.D. Mo.) has held that an enforcement action brought by a state in state court was not removable to federal court under the Securities Litigation Uniform Standards Act of 1998 (SLUSA). The defendant brokerage firm had invoked SLUSA in order to remove a civil action brought by the Missouri Securities Commissioner (Commissioner) that sought damages on behalf of customers who purchased action rate securities from the firm. SLUSA makes federal court the exclusive venue for "covered" class actions alleging fraud in the case of certain securities and precludes any such class actions that are based on state law.

Rejecting the defendant’s argument that SLUSA’s removal provision is not limited to those actions that are precluded by the statute, the district court concluded that it lacked subject matter jurisdiction because SLUSA expressly preserves the right of a state to investigate and bring enforcement actions. Removal of the action, therefore, would have denied the state the right, expressly granted to the Commissioner under the Missouri Blue Sky Law, to bring an action in state court for securities fraud. Moreover, the district court noted, the U.S. Supreme Court had directly addressed the issue in Kircher v. Putnam Funds Trust, where the high court held that a covered class action is removable only if it is precluded. Finally, nothing in the legislative history of SLUSA envisions a state enforcement action brought by a state in state court being removed and tried in federal court, the district court reasoned. Accordingly, the state’s motion to remand the matter to state court was granted.

State of Missouri ex rel. Carnahan v. Stifel, Nicolaus & Co., (E.D. Mo. 2009)





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