Monday, May 09, 2016

Nothing's shocking as Electrical Workers case is sent back to state court

By Rodney F. Tonkovic, J.D.

The district court sitting in California's Northern District has sent yet another case alleging only claims under the Securities Act back to the state court from which it originated. This reinforces what is becoming the dominant view in the circuits, and what is definitely the current view of the Ninth Circuit: that only covered class actions based on state law can be removed to federal court. Finding that the action was filed in a state court of competent jurisdiction and was thus not removable, the court granted the plaintiff's motion to remand (Electrical Workers Local #357 Pension and Health & Welfare Trusts v. Clovis Oncology, Inc., May 5, 2016, Chen, E.).

Clovis Oncology, Inc. is a biopharmaceutical company that, in May 2014, announced that the FDA had granted "Breakthrough Therapy" designation for its product, rociletinib, a treatment for lung cancer. One year later, Clovis filed a prospectus for a secondary offering. In late 2015, however, Clovis announced that the FDA had requested more clinical data on rociletinib and that the Prescription Drug User Fee Act date for Clovis's NDA for rociletinib was extended by three months; Clovis's share price dropped after each of these announcements.

Complaint filed. In early 2016, this action was filed in the San Mateo County Superior Court on behalf of all persons who acquired Clovis common issued in connection with the secondary offering. The complaint, which asserted claims under Sections 11, 12, and 15 of the Securities Act, alleged that Clovis knew, but concealed from investors, that, among other items, the NDA submitted by Clovis contained an immature data set and that the NDA was likely to be either delayed or rejected. In February 2016, Clovis removed the action to the Northern District, and, in response, the plaintiffs filed a motion to remand the action back to state court.

Remanded. The district court found that it lacked jurisdiction over the action and remanded it to the state court. The court noted at the outset that the majority of courts that have addressed the issue concluded that removal of securities class actions with only federal claims is explicitly barred by the Securities Act, as amended by the SLUSA, and that these actions must be remanded to state court.

According to the court, the plain language of the removal provision states that only covered class actions asserting state law claims are removable. This reading, the court said, is consistent with dicta from opinions of the Supreme Court and the Ninth Circuit. Reinforcing its point, the court observed that every court in its district has granted remand of removed suits alleging violations of the Securities Act and that this "appears to be emerging as the dominant view around the country." Moreover, many of these courts have analyzed and rejected the arguments advanced by Clovis in this case. The SLUSA's legislative history supports this conclusion, the court added.

The case is No. 3:16-cv-00933.

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