Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_15-cv-03825/USCOURTS-cand-4_15-cv-03825-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1441 - Petition for Removal: Securities Fraud

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ARTHUR V. CERVANTES,

Plaintiff,

v.

CHAD DICKERSON, et al.,

Defendants.

Case No. 15-cv-3825-PJH 

ORDER GRANTING MOTION TO 

REMAND

Plaintiff’s motion to remand the above-entitled action and defendants’ motion to 

transfer the case for the convenience of parties and witnesses came on for hearing 

before this court on September 30, 2015. Plaintiff appeared by his counsel Thomas 

McKenna, and defendants appeared by their counsel Judson Lobdell, Jim Kreissman, 

and Stephen Blake. Having read the parties’ papers and carefully considered their 

arguments and the relevant legal authority, the court hereby GRANTS the motion to 

remand and denies the motion to transfer as moot.

Plaintiff Arthur V. Cervantes filed this proposed class action in the Superior Court 

of California, County of San Mateo, on July 21, 2015, alleging claims under the Securities 

Act of 1933, 15 U.S.C. §§ 77a, et seq. (“Securities Act” or “1933 Act”). Named as 

defendants are Etsy, Inc. (“Etsy”); Chad Dickerson, Etsy's Chief Executive Officer and 

Chairman of the Board; Kristina Salen, Etsy's Chief Financial Officer; James W. Breyer, 

M. Michele Burns, Jonathan D. Klein, and Fred Wilson, all of whom are directors of Etsy; 

and Goldman, Sachs & Co., Morgan Stanley & Co., Allen & Company LLC, Loop Capital 

Markets LLC, and The Williams Capital Group L.P., all of which served as underwriters to 

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Etsy in connection with its initial public offering (“IPO”). 

Defendants removed the case on August 20, 2015, alleging jurisdiction under 

§ 22(a) of the Securities Act, 15 U.S.C. § 77v(a). Also on August 20, 2015, defendants 

filed a motion pursuant to 28 U.S.C. § 1404(a) seeking transfer of venue to the Eastern 

District of New York. On August 26, 2015, plaintiff filed a motion to remand, asserting 

that this court lacks subject matter jurisdiction, and that the removal was therefore 

improper. 

Plaintiff argues that the court should adjudicate the motion to remand first, while 

defendants contend that the court should adjudicate the motion to transfer first. Although 

a decision regarding whether to transfer a case or dismiss for forum non conveniens is 

not a decision on the merits, see Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 

U.S. 422, 435 (2007), the court finds that the better practice generally is to rule on a 

motion to remand first, where the motion raises questions involving subject matter 

jurisdiction. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998) 

(“Jurisdiction is power to declare the law, and when it ceases to exist, the only function 

remaining to the court is that of announcing the fact and dismissing the cause.”) (citations 

and quotations omitted); see also Leroy v. Great Western United Corp., 443 U.S. 173, 

180 (1979) (issues affecting court's subject matter jurisdiction are ordinarily decided 

before the court determines questions of personal jurisdiction or venue). 

DISCUSSION

A. Legal Standard

Federal courts are courts of limited jurisdiction, having subject matter jurisdiction 

only over matters authorized by the Constitution and Congress. See, e.g., Kokkonen v. 

Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also 28 U.S.C. § 1331 

(district courts have original jurisdiction over "all civil actions arising under the 

Constitution, laws, or treaties of the United States"). 

"Except as otherwise expressly provided by an Act of Congress, any civil action 

brought in a State court of which the district courts of the United States have original 

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jurisdiction, may be removed by the defendant or defendants, to the district court of the 

United States for the district and division embracing the place where such action is 

pending." 28 U.S.C. § 1441. A removed action must be remanded to state court if the 

federal court lacks subject matter jurisdiction. 28 U.S.C. § 1447(c).

There is a “strong presumption” against removal jurisdiction. Gaus v. Miles, Inc., 

980 F.2d 564, 566 (9th Cir. 1992). Doubts as to removability are resolved in favor of 

remanding the case to state court. Matheson v. Progressive Specialty Ins. Co., 319 F.3d 

1089, 1090 (9th Cir. 2003). The burden of establishing federal jurisdiction for purposes of 

removal is on the party seeking removal. Valdez v. Allstate Ins. Co., 372 F.3d 1115, 

1117 (9th Cir. 2004). But “a plaintiff seeking remand [on the basis of an express 

exception to removal jurisdiction] has the burden to prove that an express exception to 

removal exists.” Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031, 1034 

(9th Cir. 2008).

B. The Securities Act Of 1933 and SLUSA 

The dispute at the center of this motion – whether removal was proper – arises 

from the amendments to the Securities Act effected through the 1998 enactment of the 

Securities Litigation Uniform Standards Act (“SLUSA”). This issue has generated a split 

among district courts, with a growing majority ruling in favor of the position argued by the 

plaintiff herein. 

Congress enacted SLUSA because it had discovered that plaintiffs were evading 

the reforms of the Private Securities Litigation Reform Act of 1995, 109 Stat. 737, by 

bringing securities class actions under state law, often in state court. See Kircher v. 

Putnam Funds Tr., 547 U.S. 633, 636 (2006). SLUSA sought to “prevent state laws from 

being used to frustrate the operation and goals of the [PSLRA].” S. Rep. No. 105-192 at 

2 (1998).

SLUSA amended, in relevant part, the jurisdictional and antiremoval provisions of 

the Securities Act, which, before SLUSA, would have barred removal of this case. Before 

1998, the jurisdictional provision of the Securities Act granted concurrent jurisdiction over 

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Securities Act claims to both state and federal courts. It provided that "[t]he district 

courts of the United States . . . shall have jurisdiction of offenses and violations under this 

subchapter . . . concurrent with State and Territorial courts, of all suits in equity and 

actions at law brought to enforce any liability or duty created by this subchapter.” 15 

U.S.C. § 77v(a) (1997). The antiremoval provision stated, “No case arising under this 

subchapter and brought in any State court of competent jurisdiction shall be removed to 

any court of the United States.” Id.

SLUSA amended § 77v(a) by adding the following italicized language:

The district courts of the United States . . . shall have jurisdiction of offenses 

and violations under this subchapter . . . concurrent with State and Territorial 

courts, except as provided in section 77p of this title with respect to covered 

class actions, of all suits in equity and actions at law brought to enforce any 

liability or duty created by this subchapter. . . . Except as provided in section 

77p(c) of this title, no case arising under this subchapter and brought in any 

State court of competent jurisdiction shall be removed to any court of the 

United States.

15 U.S.C. § 77v(a) (italics added).

Section 77p defines "covered class action" as meaning "any single lawsuit in 

which . . . damages are sought on behalf of more than 50 persons or prospective class 

members, . . . [or] one or more named parties seek to recover damages on a 

representative basis on behalf of themselves and other unnamed parties similarly 

situated.” 15 U.S.C. § 77p(f)(2)(A)(i). Section 77p(c), which was also added by SLUSA, 

is titled “Removal of covered class actions,” and states, “Any covered class action 

brought in any State court involving a covered security, as set forth in subsection (b), 

shall be removable to the Federal district court for the district in which the action is 

pending, and shall be subject to subsection (b).” 15 U.S.C. § 77p(c). 

Section 77p(b) (another SLUSA addition), in turn, is titled “Class action limitations” 

and describes certain class actions that are now completely precluded under the 

Securities Act:

No covered class action based upon the statutory or common law of any 

State or subdivision thereof may be maintained in any State or Federal 

court by any private party alleging –

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(1) an untrue statement or omission of a material 

fact in connection with the purchase or sale of a covered 

security; or

(2) that the defendant used or employed any 

manipulative or deceptive device or contrivance in connection 

with the purchase or sale of a covered security.

15 U.S.C. § 77p(b).

C. Plaintiff’s Motion

In the notice of removal, defendants assert that this case is "within the original 

jurisdiction of this [c]ourt under 28 U.S.C. § 1331 and 15 U.S.C. § 77v(a) because it 

includes claims arising under the laws of the United States" – specifically, claims "arising 

under Sections 11 and 15 of the Securities Act of 1933." Notice of Removal ¶ 9. Courts 

are divided, however, as to whether Congress intended by enacting SLUSA to eliminate 

states’ concurrent jurisdiction over 1933 Act claims entirely, or whether its goal was 

simply to eliminate certain securities class actions brought under state law.

In the present motion, the parties dispute whether the SLUSA provisions cited 

above, taken together, constitute an "express" exception to removal jurisdiction, with the 

effect of prohibiting the removal of securities fraud class actions like the present one that 

bring claims only under the federal Securities Act and not under state law. 

Plaintiff makes three main arguments – that the plain language of the 1933 

Securities Act prohibits removal of state court actions alleging only federal claims under 

the 1933 Act; that SLUSA's legislative history shows that Congress intended to make 

only state law claims removable, not stand-alone 1933 Act claims; and that the action 

should be remanded because defendants concede there is doubt about the propriety of 

the removal, and removal statutes are strictly construed against removal with any doubt 

resolved against removability.

In the first main argument, plaintiff asserts that removal was improper because this 

case does not fit within the § 77p(c) exception to the Securities Act's antiremoval

provision. Plaintiff asserts that the § 77p(c) exception applies only to "covered class 

action[s] . . . as set forth in subsection (b)" (citing Kircher, 547 U.S. at 642-43), and that 

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§ 77p(b), in turn, applies only to "class action[s] based upon the statutory or common law 

of any State." Thus, plaintiff asserts, because he brings only Securities Act claims, not 

state law claims, removal of the action is barred by the antiremoval provision in § 77v(a). 

In opposition, defendants contend that the "except as provided" clause in § 77v(a) 

stripped state courts of jurisdiction over "covered class actions" such as this one arising 

under the Securities Act. They also argue that the antiremoval clause of § 77v(a) does 

not apply because that statute bars removal of an action originally brought in a "State 

court of competent jurisdiction," which they claim refers to a state court with subject 

matter jurisdiction. They assert that SLUSA stripped state courts of subject matter 

jurisdiction in this area, and that the San Mateo Superior Court is therefore not a "State 

court of competent jurisdiction" for this action to have been filed there in the first place. 

Defendants contend that plaintiff's interpretation would render SLUSA's 

amendment to § 77v(a)'s jurisdictional provision meaningless. They argue that § 77v(a) 

addresses jurisdiction and removability of claims under the Securities Act, not state-law 

claims, and that if Congress had wanted to limit removal jurisdiction only to claims based 

on state law, no amendments to § 77v(a) would have been necessary. They argue that 

because § 77v(a) deals only with Securities Act claims – not state law claims – § 77p(b) 

and § 77p(c) are irrelevant to this analysis because they address only state law claims. 

Taken together, the statutory provisions at issue here – § 77v(a) (the jurisdictional 

provision), § 77p(c) (the removal provision) and § 77p(b) (the preclusion provision) –

cannot be described as a model of clarity, but the court finds plaintiff’s interpretation to be 

more persuasive. In plaintiff’s view, § 77p(c) (the removal provision) permits removal of 

only those class actions based on state law, described in § 77p(b) (the preclusion 

provision), and because he does not allege any state law claims, the removal bar in 

§ 77v(a) (the jurisdictional provision) prohibits removal of the action.

It appears clear that § 77p(b) precludes both state and federal courts from hearing 

securities class actions based on state law. Section 77p(c), which provides a narrow 

exception to the general antiremoval rule, applies only to actions described in § 77p(b) 

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(as it provides that removable actions shall be “subject to subsection (b)”). The most 

logical way of reading these provisions is that only covered class actions based on state 

law can be removed to federal court, and only for the purpose of dismissing the 

precluded state law claims as required by § 77p(b). The court finds nothing in the statute 

indicating that SLUSA created any other basis for removal beyond the narrow exception 

described above – to allow federal courts to dismiss precluded state law class actions. 

See City of Warren Police and Fire Ret. Sys. v. Revance Therapeutics, Inc., __ F.Supp. 

3d __, 2015 WL 5117631 at *2-3 (N.D. Cal. Aug. 31, 2015). 

This interpretation reflects the increasing majority view among the district courts 

within the Ninth Circuit. See, e.g., Liu v. Xoom Corp., 2015 WL 3920074 (N.D. Cal. June 

25, 2015); Pacific Inv. Mgmt. Co. LLC v. American Int’l Group, Inc., 2015 WL 3631833

(C.D. Cal. June 10, 2015); Plymouth Cnty Ret. Sys. v. Model N., Inc., 2015 WL 65110 

(N.D. Cal. Jan. 5, 2015); Rajasekaran v. CytRx Corp., 2014 WL 4330787 (C.D. Cal. Aug. 

21, 2014); Desmarais v. Johnson, 2013 WL 5735154 (N.D. Cal. Oct. 22, 2013); Toth v. 

Envivo, Inc., 2013 WL 5596965 (N.D. Cal. Oct.11, 2013); Reyes v. Zynga Inc., 2013 WL 

5529754 (N.D. Cal. Jan. 23, 2013), Young v. Pac. Bioscis. of Cal., Inc., 2012 WL 851509 

(N.D. Cal. Mar. 13, 2012); W. Va. Laborers Tr. Fund v. STEC Inc., 2011 WL 6156945 

(C.D. Cal. Oct. 7, 2011); W. Palm Beach Police Pension Fund v. Cardionet, Inc., 2011 

WL 1099815, at *2 (S.D. Cal. Mar. 24, 2011). 

Dicta from the U.S. Supreme Court and the Ninth Circuit further support this 

interpretation. In Kircher, the Supreme Court considered whether a decision to remand a 

case removed under SLUSA is appealable despite 28 U.S.C. § 1447(d)'s mandate that 

“[a]n order remanding a case to the State court from which it was removed is not 

reviewable,” except in certain limited circumstances. Id., 547 U.S. at 640. In ruling that 

such orders may not be appealed, the Court endorsed a reading of the § 77p(c) 

exception to antiremoval provision that is in line with the position taken by plaintiff herein. 

Indeed, the Court interpreted the “authorization for the removal in [§ 77p(c)], on 

which the District Court's jurisdiction depends, as confined to cases ‘set forth in 

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subsection (b).’” Id. at 642; see also id. at 643-44 (“removal jurisdiction under subsection 

(c) is understood to be restricted to precluded actions defined by subsection (b)” . . . . “If 

the action is precluded [under § 77p(b)], neither the district court nor the state court may 

entertain it, and the proper course is to dismiss”). “If,” however, “the action is not 

precluded” because it is not “based upon the statutory or common law of any State,” 15 

U.S.C. § 77p(b), then “the proper course is to remand to the state court that can deal with 

it.” Id. at 644. While the Court’s interpretation of § 77p(c) is dicta, this court joins other 

courts that find it persuasive under the circumstances presented here. See, e.g., Liu, 

2015 WL 3920074 at *4; Plymouth Cnty, 2015 WL 65110 at *3; Rajasekaran, 2014 WL 

4330787, at *4. 

In Madden v. Cowen & Co., 576 F.3d 957 (9th Cir. 2009), the Ninth Circuit 

considered whether the plaintiff's complaint was “precluded by § 77p(b) of SLUSA.” Id. at 

965. Before addressing that question, the court analyzed the relationship between 

section 77p(b) and section 77p(c):

To prevent actions precluded by SLUSA from being litigated in state court, 

SLUSA authorizes defendants to remove such actions to federal court, 

effectively ensuring that federal courts will have the opportunity to determine 

whether a state action is precluded. As the Supreme Court has explained, 

any suit removable under SLUSA's removal provision, § 77p(c), is 

precluded under SLUSA's preclusion provision, § 77p(b), and any suit not 

precluded is not removable.

Id. at 964-65 (footnote omitted) (citing Kircher, 547 U.S. at 644). The court added that if 

a federal court finds that an action is not precluded, “it ‘has no jurisdiction to touch the 

case on the merits, and the proper course is to remand to the state court that can deal 

with it.’” Id. at 965 (quoting Kircher, 547 U.S. at 644).

Similarly, in Luther, the Ninth Circuit emphasized that section 77v(a)'s antiremoval

provision “strictly forbids the removal of cases brought in state court and asserting claims 

under the [Securities] Act.” Id. 533 F.3d at 1034. Thus, “by virtue of [section 77v(a)],” the 

plaintiff's “state court class action alleging only violations of the Securities Act of 1933 

was not removable.” Id. 

Defendants rely heavily on the decision in Knox v. Agria Corp., 613 F.Supp. 2d 

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419 (S.D.N.Y. 2009), where the district court held that no state court had subject matter 

jurisdiction over "covered class actions" raising 1933 Act claims, and that it therefore did 

not need to address the scope of the exception to the antiremoval provision in § 77v(a). 

See id. at 422-23. The court acknowledged that under § 77v(a), state and federal courts 

have concurrent jurisdiction over 1933 Act claims "except as provided in [§ 77p] with 

respect to covered class actions,'" and that § 77p includes § 77p(b) and § 77p(c), but 

concluded that it did not need to consider those subdivisions because they dealt 

exclusively with state law claims and did not touch on suits brought under the 1933 Act. 

Id. at 423-24. As a result, the court focused only on the definitional provision in 

§ 77p(f). Id. at 424. 

 The court agrees with plaintiff that the decision in Knox is unpersuasive, because 

§ 77v(a) refers to all of § 77p, and not just to § 77p(f)'s definition of "covered class 

actions," while the Knox court isolated § 77p(f)'s definition of "covered class action" from 

the rest of § 77p. Because the phrase "except as provided in section 77p of this title with

respect to covered class actions" limits the concurrent jurisdiction of state courts, this 

court looks to the subsections that fulfill the function of limiting state court jurisdiction.

In the second main argument, plaintiff contends that SLUSA's legislative history 

emphasizes that the purpose of the SLUSA amendments is to “limit the conduct of 

securities class actions under state law” or to preempt “securities fraud class actions 

brought under state law,” and that it nowhere indicates that stand-alone 1933 Act claims 

are removable. Plaintiff does not clearly explain how this legislative history supports his 

argument that a suit alleging only federal claims under the 1933 Act is not removable. He 

does assert, however that if Congress had intended to eliminate the concurrent 

jurisdiction and antiremoval provisions of the 1933 Act, it would have done so explicitly 

(as other courts have noted). He contends that because Congress did not do that, and 

instead kept the concurrent jurisdiction and antiremoval language in the 1933 Act, it 

would not be proper for the court to simply find that that language is superfluous. 

In opposition, defendants argue that their statutory interpretation is supported by 

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the stated purposes of SLUSA. Defendants agree that SLUSA's purpose was to preempt 

state law claims involving allegations of fraud or falsity related to nationally-traded 

securities, but contend that that was not its only purpose, and that in any event, such a 

purpose could have been accomplished by § 77p alone, without any amendment to 

§ 77v(a)'s jurisdictional provision. They claim that plaintiff's citation to legislative history 

ignores SLUSA's amendments to § 77v(a). 

Defendants cite other excerpts from the legislative history, including a statement in 

H.R. Conf. Rep. No. 105-803 (1998) ("[SLUSA] makes Federal court the exclusive venue 

for most securities class action lawsuits. The purpose of this title is to prevent plaintiffs 

from seeking to evade the protections that Federal law provides against abusive litigation 

by filing suit in State, rather than in Federal, court."); a statement by Rep. Bliley, reported 

in 144 Cong. Rec. H11019-01 (Oct. 13, 1998) ("The premise of this legislation is simple: 

lawsuits alleging violations that involve securities that are offered nationally belong to 

Federal court."); and a statement by Sen. Feinstein, reported in 144 Cong. Rec. S4778-

03 (May 13, 1998) ("[T]he legislation would provide for shifting of securities lawsuits filed 

in state court into the more appropriate federal court."). 

The cited legislative history is simply too generalized to provide any useful 

guidance or assistance, although if anything, the legislative history cited by defendants 

appears to support plaintiff's claim that the purpose of the SLUSA amendments was to 

preclude class actions filed in state court alleging violation of state securities laws. 

Courts look to legislative history to help interpret statutory language when that language 

is unclear. Heppner v. Alyska Pipeline Service Co., 665 F.2d 868, 871 (9th Cir. 1981).

Here, the language seems clear enough, but the practical application of the three SLUSA 

provisions at issue is somewhat difficult to determine. The court is not persuaded that 

any of the cited legislative history provides a more satisfactory interpretation of the effect 

of the SLUSA amendments than does a close and careful reading of the statute, as the 

court has attempted here.

The Ninth Circuit has cautioned that, in situations where there are doubts as to 

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whether federal jurisdiction exists, those doubts must be “resolved against removability.” 

See Toth, 2013 WL 5596965 at *2 (quoting Luther, 533 F.3d at 1034). Given the lack of 

clear authority from the Supreme Court or the Ninth Circuit (or any Circuit) on this issue, 

and in view of the split among the district courts (as well as the recent trend to denial of 

removability, especially by the judges in this district), the court finds that remand is 

appropriate here. 

Because plaintiff's federal claims do not constitute a covered class action “as set 

forth in [15 U.S.C. § 77p] subsection (b),” which applies only to state law claims alleging 

fraud, the action is not removable to federal court under 15 U.S.C. § 77p(c).

CONCLUSION

In accordance with the foregoing, the court finds that the motion must the 

GRANTED, and that the case must be REMANDED to the San Mateo County Superior 

Court. Because the court remands the case for lack of subject matter jurisdiction, the 

motion to transfer is denied as moot.

IT IS SO ORDERED.

Dated: October 21, 2015

__________________________________

PHYLLIS J. HAMILTON

United States District Judge

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