Remand Case Analysis

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It is important to note that the effect of the court’s decision is only that it will not reverse a district court’s decision on whether to remand a claim under the Securities Act of 1933, pursuant to 28 U.S.C. 1452(a). The district court in the case at bar ordered the case remanded, and the Seventh Circuit affirmed.

However, if an identical case were brought in Wisconsin, and the defendants removed the case to federal court, the federal district court would be free to deny a request for remand, and the Seventh Circuit would presumably affirm that decision, as well.

Furthermore, any defendant seeking to prevent remand has the sounder argument, amply made by the Second Circuit in Cal. Pub. Employees’ Ret. Sys v. WorldCom, Inc., 368 F.3d 86 (2d Cir.2004). Unlike the Seventh Circuit in the case at bar, the Second Circuit did not simply defer to the district court’s decision, but fully considered the conflict between the antiremoval provision of the 1933 Act, and the tag-along provision for actions related to bankruptcy in sec. 1452(a).

The Second Circuit rejected the argument accepted by the district court in the case at bar —that the 1933 Act is specific, while sec. 1452(a) is general, and therefore, the specific statute must control the conflict between the two.

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The court noted that sec. 1452(a) is not the general removal statute, but that 28 U.S.C. 1441 is; sec. 1452(a) is specific to claims related to bankruptcy cases. The court reasoned, “Section 22(a) [of the 1933 Act] does not cover only a subset of the universe of claims that are ‘related to’ a bankruptcy case; rather, it applies to numerous claims that are in no way ‘related to’ a bankruptcy, just as Section 1452(a) applies to numerous claims that are not brought under the 1933 Act.” WorldCom, 368 F.3d at 103.

In addition, sec. 1452(a) was passed 50 years after the 1933 Act, for the purpose of giving bankruptcy courts comprehensive jurisdiction over all matters connected to a bankruptcy estate. Id.

Policy reasons also dictate in favor of federal jurisdiction. As the Second Circuit reasoned, “were Section 22(a) construed to trump Section 1452(a), Section 22(a) could interfere with the operation of the Bankruptcy Code, especially in large chapter 11 cases. … Section 1452(a) dictates that these claims, when they are brought against defendants with contribution rights, should not be subject to conflicting outcomes along with repetitive and time-consuming discovery proceedings in multiple state courts,” Id., at 103-104.

In contrast, permitting sec. 1452(a) to trump Section 22(a) would in no way interfere with the operation of the securities laws.

— David Ziemer

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David Ziemer can be reached by email.