11-5309-cv(L)

BlackRock Financial Management Inc., et al. v. The Segregated Account of Ambac Assurance

Corporation, et al.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 2011

(Argued: February 15, 2012 Decided: February 27, 2012)

Docket Nos. 11-5309-cv(L); 11-5314-cv(CON)

- - - - - - - - - - - - - - - - - - - -x

BLACKROCK FINANCIAL MANAGEMENT INC., MAIDEN LANE, LLC,

MAIDEN LANE II, LLC, KORE ADVISORS, L.P., METROPOLITAN LIFE

INSURANCE COMPANY, TRUST COMPANY OF THE WEST AND AFFILIATED

COMPANIES CONTROLLED BY THE TCW GROUP, INC., MAIDEN LANE

III, LLC, PACIFIC INVESTMENT MANAGEMENT COMPANY LLC, GOLDMAN

SACHS ASSET MANAGEMENT, L.P., NEUBERGER BERMAN EUROPE

LIMITED, INVESCO ADVISERS, INC., THRIVENT FINANCIAL FOR

LUTHERANS, TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF

AMERICA, LBBW ASSET MANAGEMENT (IRELAND) PLC, DUBLIN, ING

BANK N.V., LANDESBANK BADENWUERTTEMBURG, ING INVESTMENT

MANAGEMENT LLC, NEW YORK LIFE INVESTMENT MANAGEMENT LLC,

NATIONWIDE MUTUAL INSURANCE COMPANY AND ITS AFFILIATED

COMPANIES, ING CAPITAL LLC, AEGON FINANCIAL ASSURANCE

IRELAND LIMITED, TRANSAMERICA LIFE INTERNATIONAL (BERMUDA)

LTD., AEGON USA INVESTMENT MANAGEMENT LLC, AUTHORIZED

SIGNATORY FOR TRANSAMERICA LIFE INSURANCE COMPANY,

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY, AEGON GLOBAL

INSTITUTIONAL MARKETS, PLC, MONUMENTAL LIFE INSURANCE

COMPANY, PINE FALLS RE, INC., TRANSAMERICA FINANCIAL LIFE

INSURANCE COMPANY, LIICA RE II, INC., WESTERN RESERVE LIFE

ASSURANCE CO. OF OHIO, FEDERAL HOME LOAN BANK OF ATLANTA,

STONEBRIDGE LIFE INSURANCE COMPANY, PRUDENTIAL INVESTMENT

MANAGEMENT, INC., WESTERN ASSET MANAGEMENT COMPANY,

BAYERISCHE LANDESBANK, THE BANK OF NEW YORK MELLON, as
2

Trustee under various Pooling and Servicing Agreements and

Indenture Trustee Under Various Indentures,

Petitioners-Appellants,

- v.-

THE SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION, AMBAC

ASSURANCE CORPORATION, TRIAXX PRIME CDO 2007-1, LTD., TRIAXX

PRIME CDO 2006-2, LTD., TRIAXX PRIME CDO 2006-1, LTD.,

COMMONWEALTH INVESTORS, AMERICAN EQUITY INVESTMENT LIFE

INSURANCE COMPANY, WALNUT PLACE LLC, WALNUT PLACE II LLC,

WALNUT PLACE III LLC, WALNUT PLACE IV LLC, WALNUT PLACE V

LLC, WALNUT PLACE VI LLC, WALNUT PLACE VII LLC, WALNUT PLACE

VIII LLC, WALNUT PLACE IX LLC, WALNUT PLACE X LLC, WALNUT

PLACE XI LLC, FEDERAL HOME LOAN BANK OF SAN FRANCISCO,

FEDERAL HOME LOAN BANK OF SEATTLE, RMBS ACQUISITION, INC.,

CRANBERRY PARK LLC, CRANBERRY PARK II LLC, TM1 INVESTORS,

LLC, V RE-REMIC, LLC, POLICEMENS ANNUITY & BENEFIT FUND OF

CHICAGO, THE WESTMORELAND COUNTY EMPLOYEE RETIREMENT SYSTEM,

CITY OF GRAND RAPIDS GENERAL RETIREMENT SYSTEM, CITY OF

GRAND RAPIDS POLICE AND FIRE RETIREMENT SYSTEM, FEDERAL HOME

LOAN BANK OF BOSTON, FEDERAL HOME LOAN BANK OF CHICAGO,

FEDERAL HOME LOAN BANK OF INDIANAPOLIS, FEDERAL HOME LOAN

BANK OF PITTSBURGH, THE WESTERN AND SOUTHERN LIFE INSURANCE

COMPANY, COLUMBUS LIFE INSURANCE COMPANY, WESTERN-SOUTHERN

LIFE ASSURANCE COMPANY, INTEGRITY LIFE INSURANCE COMPANY,

NATIONAL LIFE INSURANCE COMPANY, FORT WASHINGTON INVESTMENT

ADVISORS, INC. ON BEHALF OF FORT WASHINGTON ACTIVE FIXED

INCOME LLC, AMERICAN INTERNATIONAL GROUP, INC., AMERICAN

GENERAL ASSURANCE COMPANY, AMERICAN GENERAL LIFE AND

ACCIDENT INSURANCE COMPANY, AMERICAN GENERAL LIFE INSURANCE

COMPANY, AMERICAN GENERAL LIFE INSURANCE COMPANY OF

DELAWARE, AMERICAN HOME ASSURANCE COMPANY, AMERICAN

INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK, CHARTIS

SELECT INSURANCE COMPANY, CHARTIS PROPERTY CASUALTY COMPANY,

COMMERCE AND INDUSTRY INSURANCE COMPANY, FIRST SUNAMERICA

LIFE INSURANCE COMPANY, LEXINGTON INSURANCE COMPANY,
* The Clerk of the Court is respectfully directed to amend

the official caption to conform with that listed above.

3

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, NEW

HAMPSHIRE INSURANCE COMPANY, SUNAMERICA ANNUITY AND LIFE

ASSURANCE COMPANY, SUNAMERICA LIFE INSURANCE COMPANY, THE

INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, THE UNITED

STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, THE

VARIABLE ANNUITY LIFE INSURANCE COMPANY, WESTERN NATIONAL

LIFE INSURANCE COMPANY, KNIGHTS OF COLUMBUS,

Respondents-Appellees.*

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Before: JACOBS, Chief Judge, HALL and LOHIER, 

Circuit Judges.

On this appeal from an order of the United States

District Court for the Southern District of New York

(Pauley, J.), which denied petitioners’ motion to remand an

Article 77 proceeding to New York Supreme Court, we conclude

that the case falls within the securities exception to both

original and appellate jurisdiction under the Class Action

Fairness Act of 2005. We therefore dismiss the appeal,

reverse the order of the district court, and instruct it to

vacate its decision and order and remand the matter to the

state court. 
4

ROBERT MADDEN, Gibbs & Bruns, LLP,

Houston, TX (Kathy Patrick, Gibbs & Bruns,

LLP, Houston, TX, Kenneth E. Warner,

Warner Partners, P.C., New York, NY, on

the brief), for Petitioners-Appellants

BlackRock Financial Management, Inc., et

al.

ANDREW L. FREY, Mayer Brown LLP, New York,

NY (Matthew D. Ingber, Christopher J.

Houpt, Mayer Brown LLP, New York, NY,

Charles A. Rothfeld, Brian J. Wong, Mayer

Brown LLP, Washington, DC, Hector

Gonzalez, James M. McGuire, Dechert LLP,

New York, NY, on the brief), for

Petitioner-Appellant The Bank of New York

Mellon.

OWEN L. CYRULNIK, Grais & Ellsworth LLP,

New York, NY (David J. Grais, Kathryn E.

Matthews, Leanne M. Wilson, on the brief),

for Respondents-Appellees Walnut Place

LLC, et al.

Rachel Allison Gupta, DLA Piper LLP, New

York, NY, for Respondents-Appellees The

Segregated Account of Ambac Asssurance

Coorporation & AMBAC Assurance

Corporation.

John G. Moon, Miller & Wrubel P.C., New

York, NY, for Respondents-Appellees Triaxx

Prime CDO 2007-1, Ltd., et al.

Justin M. Sher, Sher LLP, New York,NY, for

Respondent-Appellee Commonwealth

Investors.
5

Peter N. Tsapatsaris, Peter N.

Tsapatsaris, LLC, New York, NY, for

Respondents-Appellees American Equity

Investment Life Insurance Company &

Knights of Columbus.

David J. Grais, Grais & Ellsworth LLP, New

York, NY , for Respondents-Appellees

Federal Home Loan Bank of San Francisco,

et al.

Beth A. Kaswan, Scott+Scott LLP, New York,

NY, for Respondents-Appellees Policemens

Annuity & Benefit Fund of Chicago, et al.

Derek W. Loeser, Amy Christine WilliamsDerry, Keller Rohrback, L.L.P., Seattle,

WA, Gary A. Gotto, Ron Kilgard, Keller

Rohrback, PLC, Phoenix, AZ for

Respondents-Appellees Federal Home Loan

Bank of Boston, et al.

Heather Yue-Ling Fong, Robbins, Kaplan,

Miller & Ciresi, LLP, New York, NY, for

Respondent-Appellee Federal Home Loan Bank

of Pittsburgh.

Daniel M. Reilly, Reilly Pozner, L.L.P.,

Denver, CO, for Respondents-Appellees

Columbus Life Insurance Company, et al.

THEODORE N. MIRVIS, Wachtell, Lipton,

Rosen & Katz, New York, NY (George T.

Conway III, Elaine P. Golin, Won S. Shin,

on the brief), for Amicus Curiae Bank of

America Corporation.
6

DENNIS JACOBS, Chief Judge:

On this appeal from an order of the United States

District Court for the Southern District of New York

(Pauley, J.) denying petitioners’ motion to remand an

Article 77 proceeding to New York Supreme Court, we consider

again the application of 28 U.S.C. §§ 1453(d)(3) and

1332(d)(9)(C), exceptions to the federal jurisdiction

conferred by the Class Action Fairness Act of 2005 (“CAFA”),

Pub.L. No. 109–2, 119 Stat. 4 (codified in scattered

sections of Title 28, United States Code).

The Bank of New York Mellon, acting in its capacity as

trustee of trusts established to hold residential mortgagebacked securities, settled claims that the originator and

servicer breached obligations owed to the trusts. Then, as

a condition precedent to the settlement, The Bank of New

York Mellon initiated an Article 77 proceeding in New York

Supreme Court to confirm that it had the authority to enter

into the settlement under the governing trust documents and

that entry into the settlement did not violate its duties

under the governing trust agreements and state law. Certain

investors intervened in the special proceeding and removed
7

the proceeding to federal court under CAFA. A motion to

remand--on the ground, among others, that the controversy

fell within CAFA’s securities exception, 28 U.S.C.

§ 1332(d)(9)--was denied. Bank of New York Mellon v. Walnut

Place LLC, No. 11 Civ. 5988 (WHP), 2011 WL 4953907 (S.D.N.Y.

Oct. 19, 2011). 

We hold that the case falls within CAFA’s

securities exception as one that solely involves a claim

that “relates to the rights, duties (including fiduciary

duties), and obligations relating to or created by or

pursuant to” a security. Accordingly, we dismiss the

petition for lack of jurisdiction, reverse the order of the

district court, and instruct it to vacate its decision and

order and remand the matter to the state court. 

BACKGROUND

The features of residential mortgage-securitization

trusts are well known in the recent annals of litigation. 

See, e.g., Greenwich Fin. Svcs. Distressed Mortg. Fund 3 LLC

v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir. 2010); In re
1

 Countrywide Home Loans, Inc.’s parent company, Countrywide

Financial Corporation, was acquired by Bank of America

Corporation in July 2008, after the last of the trusts was

created. Countrywide Home Loans Servicing LP, which has

since been renamed BAC Home Loans Servicing, LP after the

Bank of America acquisition, services the mortgages.

Investors in the trust have alleged that Bank of America

8

IndyMac Mortgage-Backed Sec. Litig.,793 F. Supp. 2d 637

(S.D.N.Y. 2011). To raise funds for new mortgages, a

mortgage lender sells pools of mortgages into trusts created

to receive the stream of interest and principal payments

from the mortgage borrowers. The right to receive trust

income is parceled into certificates and sold to investors,

called certificateholders. The trustee hires a mortgage

servicer to administer the mortgages by enforcing the

mortgage terms and administering the payments. The terms of

the securitization trusts as well as the rights, duties, and

obligations of the trustee, seller, and servicer are set

forth in a Pooling and Servicing Agreement (“PSA”). 

At issue in this case are 530 such trusts created

between 2004 and 2008, for which The Bank of New York Mellon

is trustee. The home mortgages were sold into the trusts by

Countrywide Home Loans, Inc.--now a subsidiary of Bank of

America--and are serviced by Countrywide’s servicing arm.1
is liable for Countrywide’s obligations under the PSAs. 2

 The vast majority of the 530 trusts are governed by PSAs. 

The remainder are governed by indentures and Sale and

Servicing Agreements. Appellants have represented, and

Walnut Place does not dispute, that the agreements are

sufficiently similar for the Court to rely on a

representative PSA for purposes of this appeal. Decl. of

Matthew D. Ingber Ex. A (“PSA”) (Dist. Ct. Docket No. 56).

9

Countrywide made representations and warranties that the

mortgages conformed to the trusts’ requirements for credit

quality, property value, title, and lien priority.2 A

breach of any such representation or warranty required the

seller to cure or repurchase at the mortgage purchase price. 

The servicing and administration of the mortgage loans was

required to be “in accordance with the terms of [the PSA]

and customary and usual standards of practice of prudent

mortgage loan servicers.” PSA § 3.01. The PSAs granted to

the trustee, “for the benefit of the Certificateholders,”

the “right to require each Seller to cure any breach of a

representation or warranty made herein by Seller, or to

repurchase or substitute for any affected Mortgage Loan in

accordance herewith.” PSA § 2.01(b). 

Two organized groups of certificateholders are opposed

in this case. The “Institutional Investors” are aligned
10

with The Bank of New York Mellon and include such large

financial institutions as BlackRock Financial Management

Inc., Goldman Sachs Asset Management L.P., Federal Home Loan

Mortgage Corporation, and Maiden Lane LLC and associated

entities formed by the Federal Reserve Bank of New York. 

The “Walnut Place” group is the set of investors that

intervened in the state proceeding and removed it to federal

court. Everyone is a sophisticated investor.

In June 2010, the Institutional Investors complained to

The Bank of New York Mellon that a large number of mortgages

that Countrywide sold into the trusts failed to comply with

the PSAs’ representations and warranties. In October, they

complained that the servicer had also breached its

obligations. Negotiations, aimed at avoiding litigation,

ensued among the Institutional Investors, Countrywide, Bank

of America, and The Bank of New York Mellon.

Walnut Place also complained to The Bank of New York

Mellon that Countrywide was in breach. Countrywide had

refused Walnut Place’s direct demand that Countrywide

repurchase the nonconforming loans, and Walnut Place
11

demanded that The Bank of New York Mellon sue Countrywide to

enforce the terms of the PSA. In February 2011, after The

Bank of New York Mellon did not act, Walnut Place filed a

derivative action in state court on behalf of a trust in

which it held an interest. 

Meanwhile, the negotiations provoked by the

Institutional Investors culminated in a “Settlement

Agreement” on June 28, 2011, which provided that Countrywide

and Bank of America will pay $8.5 billion, to be allocated

among all of the trusts in accordance with an agreed-upon

formula. (It also required the mortgage servicer to adopt

reforms.) 

The Settlement Agreement is contingent on court

approval: it is not effective until The Bank of New York

Mellon brings an Article 77 proceeding in New York state

court and obtains entry of a judgment sanctioning its

execution of the Settlement Agreement. On June 29, 2011,

The Bank of New York Mellon filed a verified petition in New

York Supreme Court under CPLR § 7701 seeking a judgment,

inter alia, 
12

(1) that The Bank of New York Mellon “has the

authority, pursuant to the Governing Agreements and

applicable law” “to assert, abandon, or compromise”

claims belonging to the trusts and enter into the

Settlement Agreement on behalf of the trusts and trust

beneficiaries; and

(2) that it had “acted in good faith, within its

discretion, and within the bounds of reasonableness in

determining that the Settlement Agreement was in the

best interests of the Covered Trusts.”

Joint Appendix 165-70.

Article 77 of the New York Civil Practice Law and Rules

authorizes a special proceeding “to determine a matter

relating to any express trust . . . .” N.Y. C.P.L.R. 7701. 

Permissible uses of Article 77 are “broadly construed to

cover any matter of interest to trustees, beneficiaries or

adverse claimants concerning the trust.” Greene v. Greene

(In re Greene), 451 N.Y.S.2d 741, 743 (1st Dep’t 1982). 

Such proceedings are used by trustees to obtain instruction

as to whether a future course of conduct is proper, and by

trustees (and beneficiaries) to obtain interpretations of

the meaning of trust documents. See Gilbert v. Gilbert (In

re Gilbert), 39 N.Y.2d 663, 666 (1976) (interpreting

addendum to trust); First Nat’l City Bank v. Palmer (In re

Scarborough Props. Corp.), 25 N.Y.2d 553, 559-60 (1969)
3

 The “matter[s] relating to a trust” that can be resolved in

an Article 77 proceeding also include, among other relief,

the judicial settlement of a trustee’s accounts; an

accounting; the modification of a trust; the compelling

of payment to trust beneficiaries; a determination of

trust revocation; and the removal of a trustee. See 14

Jack B. Weinstein, et al., New York Civil Practice: CPLR ¶

7701.05 (2011).

4

 Notwithstanding these allegations, The Bank of New York

Mellon’s Article 77 proceeding provided for an expansive

program intended to provide notice to all

certificateholders, and the Settlement Agreement required

13

(approving sale of trust assets to trustee after adversarial

hearing to determine fairness); Andrews v. Trustco Bank,

Nat’l Ass’n (In re Andrews), 735 N.Y.S.2d 640, 643 (3d Dep’t

2001) (interpreting income provision of trust).3

 Ultimately,

however, whether a New York court is able and willing to

grant the relief sought in this case is an issue for the New

York courts.

Walnut Place moved to intervene in the Article 77

proceeding, chiefly to exclude the three trusts that it

invested in from the proposed settlement. The motion stated

that The Bank of New York Mellon had negotiated the

Settlement Agreement “in secret,” working only with the

Institutional Investors, that the Article 77 proceeding was

initiated without notice to all certificateholders,4 and
that a preliminary order regarding the notice plan be

sought in the Article 77 proceeding. 

14

that the parties had conflicts of interest: The Bank of New

York Mellon obtained for itself an expanded indemnity, and

the Institutional Investors had other business relationships

with Bank of America. On August 19, 2011 the state court

granted the motion to intervene.

On August 26, Walnut Place removed the Article 77

proceeding to the United States District Court for the

Southern District of New York, on the ground that the

Article 77 proceeding was a “mass action” under CAFA, 28

U.S.C. § 1332(d)(11), and therefore removable under 28

U.S.C. §§ 1446 and 1453. The Bank of New York Mellon and

the Institutional Investors moved to remand. The district

court denied the motion. 

The Bank of New York Mellon and the Institutional

Investors sought permission to bring an appeal pursuant to

CAFA’s interlocutory appeal provision. See 28 U.S.C.

§ 1453(c). We granted leave to appeal to consider whether

the case falls within CAFA's securities exception, whether

CAFA’s interlocutory appeal provision extends to appeals of
15

remand orders relating to “mass actions,” whether the

Article 77 Proceeding was in fact a “mass action,” and

whether the case was properly removed by a “defendant or

defendants” as dictated by 28 U.S.C. § 1446. 

We conclude that we lack appellate jurisdiction over

this case as one that solely involves a claim that “relates

to the rights, duties (including fiduciary duties), and

obligations relating to or created by or pursuant to any

security.” 28 U.S.C. § 1453(d)(3). For the same reason,

the case was not removable from state court and must be

remanded. See 28 U.S.C. § 1332(d)(9)(C). We therefore do

not reach any of the other questions raised on appeal.

DISCUSSION

CAFA expanded federal jurisdiction to permit a

defendant to remove to federal court a class actions or

“mass action” notwithstanding the absence of the complete

diversity or federal question otherwise required for

removal. See 28 U.S.C. §§ 1332(d), 1453(b); Greenwich Fin.,

603 F.3d at 26. Such a removal is subject to the general
16

remand statute, 28 U.S.C. § 1447. See 28 U.S.C. §

1453(c)(1). A district court order on a motion to remand is

ordinarily unappealable under the collateral order doctrine. 

See In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab.

Litig., 488 F.3d 112, 121 (2d Cir. 2007). However, CAFA

expanded appellate jurisdiction to allow courts of appeals

to accept interlocutory appeals from orders granting or

denying motions to remand cases removed under CAFA. See 28

U.S.C. § 1453(c)(1) (“[A] court of appeals may accept an

appeal from an order of a district court granting or denying

a motion to remand a class action to the State court from

which it was removed.”). 

At the same time, Congress carved out exceptions to

CAFA’s expanded jurisdiction. One of them targets claims

that relate to the rights, duties, and obligations relating

to securities:

(d) Exception.—This section shall not apply to any

class action that solely involves

. . . 

(3) a claim that relates to the rights, duties

(including fiduciary duties), and obligations

relating to or created by or pursuant to any

security (as defined under section 2(a)(1) of the
17

Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and

the regulations issued thereunder).

28 U.S.C. § 1453(d). This wording appears twice in CAFA,

once as an exception to our appellate jurisdiction, id., and

once as an exception to the district courts’ original

jurisdiction, id. § 1332(d)(9)(C). These provisions work in

tandem and are given the same meaning. See Greenwich Fin.,

603 F.3d at 27; S. Rep. No. 109-14, at 49-50 (2005) (“The

parameters of [§ 1453(d)] are intended to be conterminous

with new subsection 1332(d)(9).”). It follows that if we

lack appellate jurisdiction, the district court likewise

lacked original jurisdiction. 

I

We have twice before construed the exception to CAFA

for an action that solely involves a claim that “relates to

the rights, duties (including fiduciary duties), and

obligations relating to or created by or pursuant to any

security”. See Greenwich Fin., 603 F.3d 23; Estate of Pew

v. Cardarelli, 527 F.3d 25 (2008). Although the wording of

the exception (like much of CAFA) does not easily give up
18

its meaning, Cardarelli, 527 F.3d at 30, our precedents

explain that § 1453(d)(3) carves out from our jurisdiction

“claims based either on the ‘terms of the instruments that

create and define securities or on the duties imposed on

persons who administer securities,’” while leaving

unaffected federal jurisdiction over “claims based on rights

arising from independent sources of state law.” Greenwich

Fin., 603 F.3d at 28-29 (alterations omitted) (quoting

Cardarelli, 527 F.3d at 33).

By way of example, the plaintiffs in Cardarelli sued

solely under a New York consumer fraud statute, N.Y. Gen.

Bus. Law § 349, alleging that they had been sold a debt

security by officers of the issuer who knew the company was

insolvent. Cardarelli, 527 F.3d at 27. Although the

purchase was of a security, we held that § 1453(d)(3) was

inapplicable because the claim related to plaintiffs’ status

as the “purchaser” rather than the holder of a security: 

“The present claim--that a debt security was fraudulently

marketed by an insolvent enterprise--does not enforce the

rights of the Certificate holders as holders, and therefore
19

it does not fall within § 1332(d)(9)(C) and § 1453(d)(3).”

Id. at 32.

The same principle produced the opposite result in

Greenwich Financial, which was brought by certificateholders

of trusts that were similar in all material respects to

those at issue here, down to the originator, trustee, and

servicer. 603 F.3d at 24-25. A class action complaint in

New York state court sought a declaratory judgment that

Countrywide was required by the governing PSAs to buy back

non-conforming mortgages. Id. at 25. We concluded that,

unlike the plaintiffs in Cardarelli, the plaintiffs sought

“enforcement of their rights as holders rather than as

purchasers of securities”: the “right to force Countrywide

Servicing to repurchase the loans arises from the deal

instruments themselves, not from an extrinsic provision of

state law, such as a consumer fraud statute.” Id. at 29.

II

The first step is to determine what claims were

asserted in the state court, an inquiry complicated somewhat
20

by the nature of an Article 77 proceeding. Ultimately, we

conclude that The Bank of New York Mellon is seeking a

judicial determination [i] that it has the authority to

assert and settle claims on behalf of the trusts and [ii]

that it “acted in good faith, within its discretion, and

within the bounds of reasonableness in determining that the

Settlement Agreement was in the best interests of the

Covered Trusts.” Joint Appendix at 165-166, 169; Walnut

Place Br. at 25 (“[The Bank of New York Mellon] is

affirmatively and unambiguously seeking a declaration that

it complied with its duties under New York common law.”). 

Thus it asks for a construction of the PSA and an

instruction that its planned course of action complies with

its obligations under that document and the law of trusts--

consistent with other proceedings brought under Article 77. 

See Gilbert, 39 N.Y.2d at 666 (providing construction of

trust documents); Scarborough, 25 N.Y.2d at 559-60

(approving sale of trust assets to trustee after adversarial

proceeding).

We classify the claims by reference to the verified

petition filed by The Bank of New York Mellon and its
21

election to proceed under Article 77. The Bank of New York

Mellon’s verified petition alleges chiefly its good faith in

negotiating, evaluating, and agreeing to the settlement, as

well as the fairness of the settlement itself. It sets out

the potential claims belonging to the trusts, the demands

made by certificateholders, the varying strength of the

claims and the obstacles to prevailing on them, concerns

about successor liability in enforcing a recovery from

Countywide, and the retention of experts to evaluate the

settlement. 

The proposed order that The Bank of New York Mellon

submitted in state court is consistent with the petition,

and confirms that the trustee is primarily seeking a

construction of the trust documents and an instruction about

the reasonableness of its planned course of action--the

kinds of relief afforded under Article 77. But it

ostensibly recites other relief--relief that, according to

Walnut Place’s theory, fundamentally alters or expands the

scope of The Bank of New York Mellon’s claim such that it no

longer solely involves a claim relating to a security. Thus

the proposed order [i] directs the “parties” to “consummate
22

the Settlement in accordance with its terms and conditions,”

[ii] enjoins Countrywide and Bank of America from suing The

Bank of New York Mellon in connection with the Settlement

Agreement, and [iii] enjoins the certificateholders,

including Walnut Place, from suing The Bank of New York

Mellon in connection with the Settlement Agreement. This

wish list does not alter the nature of the relief sought by

the trustee, for several reasons. As a structural matter,

relief would be limited by the purposes and procedural

features of Article 77. As a procedural matter, it is

elementary that a court cannot bind a non-party absent

special circumstances, and neither Countrywide nor Bank of

America is a party to the Article 77 proceeding. See

Briscoe v. City of New Haven, 654 F.3d 200, 203 (2d Cir.

2011) (“The general principle in Anglo–American

jurisprudence is ‘that one is not bound by a judgment in

personam in a litigation in which he is not designated as a

party or to which he has not been made a party by service of

process.’” (quoting Hansberry v. Lee, 311 U.S. 32, 40

(1940))). The injunction against certificateholders like

Walnut Place simply gives effect to the primary relief
23

sought in the Article 77 proceeding--the determination that

The Bank of New York Mellon acted reasonably in entering

into the Settlement Agreement and in accordance with its

duties as trustee for all certificateholders. Moreover,

although we leave these matters for New York courts to

decide, there is no basis for an injunction compelling the

parties to execute the Settlement Agreement because they

have no present disagreement and unanimously seek only the

opportunity to consummate it. Likewise, there is no basis

for an injunction preventing suit by Bank of America against

The Bank of New York Mellon because there is no threat of

such litigation. 

III

Having characterized the claim as a declaration

authorizing the exercise of a trustee’s powers, we can now

determine whether it solely involves a claim that “relates

to the rights, duties (including fiduciary duties), and

obligations relating to or created by or pursuant to any

security.” 28 U.S.C. § 1453(d)(3). Because The Bank of New
24

York Mellon seeks a construction of its rights under the PSA

and an instruction from the court as to whether it has

complied with its “duties . . . and obligations” arising

from the PSA and its “fiduciary duties” superimposed by

state law, we conclude that it does. 

Greenwich Financial already held that a suit by

security holders attempting to enforce the terms of a PSA

fit within § 1453(d)(3). At that time, Countrywide argued

that the plaintiffs’ claims did not relate to a security

because the terms being enforced were contained in the PSA

rather than in the certificate. We rejected that argument:

The fact that a certificate holder’s rights may be

enumerated in an instrument other than the security

itself is not material. Securities are created and

defined not simply by their own text, but also by any

number of deal instruments executed between various

parties. Indeed, we made clear in Cardarelli that the

“instruments that create and define securities” include

documents such as certificates of incorporation and

bond indentures. [Cardarelli, 527 F.3d at 31.] For

this reason, the fact that plaintiffs seek enforcement

of a term of the PSAs--trust agreements similar to bond

indentures in many respects--rather than of the

certificates does not affect our conclusion that this

suit is not removable under CAFA.

Greenwich Fin., 603 F.3d at 29. 
25

The sole claim presented in the Article 77 proceeding

fits within § 1453(d)(3) because it concerns the

relationship between the entity which administers the

securities, The Bank of New York Mellon, and the

certificateholders. In Cardarelli, we drew no distinction

between suits that relate to “the terms of instruments that

create and define securities,” and those that relate to the

“duties imposed on persons who administer securities.” 527

F.3d at 33. As Walnut Place points out, our previous cases

interpreting § 1453(d)(3) have dealt with suits enforcing

rights, duties, and obligations that relate to or are

created by or pursuant to a security; however, the statutory

language equally bears upon a declaration as to what those

rights, duties and obligations may be. Cases that declare

them (so that they can be realized) “relate” to them to the

same extent as cases that enforce them. 

It follows that the district court erred insofar as it

reasoned that the securities exception does not apply if

“the trustee’s conduct in approving the settlement must also

be evaluated under some” source of law other than the PSA,

“such as New York’s common law of trusts.” Bank of New York
26

Mellon, 2011 WL 4953907, at *8. The district court

specifically cited the duty to avoid conflicts of interest

that (it determined) beset The Bank of New York Mellon. Id.

However, duties superimposed by state law as a result of the

relationship created by or underlying the security fall

within the plain meaning of the statute, which expressly

references “duties (including fiduciary duties).” We have

previously explained that “certain duties and obligations of

course ‘relate to’ securities even though they are not

rooted in a corporate document but are instead superimposed

by a state’s corporation law or common law on the

relationships underlying that document.” Cardarelli, 527

F.3d at 31; see also Rubin v. Mercer Ins. Grp., Inc., No.

10-6816 (MLC), 2011 WL 677466, at *4 (D.N.J. Feb. 15, 2011)

(remanding breach of fiduciary duty claim brought by

shareholders against issuer).

Walnut Place argues that applying this analysis in a

suit that is not brought by certificateholders would amount

to a bright-line rule that any suit touching on a PSA falls

within CAFA’s securities exception. Walnut Place would thus

recast the removed proceeding (which concerns a trustee’s
5

 Far from requiring a bright-line rule, we recognize that

these questions must be resolved on a case-by-case basis.

The question, for example, of whether and how an

instrument can be disaggregated into a “security” portion

and into a non-security “contract” portion is vexed. 

Compare Lincoln Nat. Life Ins. Co. v. Bezich, 610 F.3d

448, 450-51 (7th Cir. 2010) (holding claim brought under

terms of variable life insurance policy, but not

implicating the investment account that was registered

security, falls within CAFA § 1453(d)(3)), with Ring v.

AXA Fin., Inc., 483 F.3d 95, 101 (2d Cir. 2007) (holding

that rider purchased for and incorporated into variable

life insurance policy was not a “covered security” for

purposes of the Securities Litigation Uniform Standards

Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227 (1998)). 

27

rights, duties, and obligations) into the underlying claim

resolved in the Settlement Agreement: a claim by The Bank of

New York Mellon against Countrywide and Bank of America to

enforce the buy-back provisions of the PSA. That is not the

claim that was removed here, and we need not reach the

question of whether such a suit would be removable under

CAFA.5

 

III

Walnut Place argued in opposition to Appellants’

petitions for permission to appeal that if we should find

that this case fits within § 1453(d)(3)--as we do--we lack
28

jurisdiction to direct the district court to remand the

case. There is no doubt, however, that where the federal

courts no longer have jurisdiction over a case, courts of

appeal retain the authority to properly dispose of it. See

U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18,

21 (1994) (“[R]eason and authority refute the . . . notion

that a federal appellate court may not take any action with

regard to a piece of litigation once it has been determined

that the requirements of Article III no longer are (or

indeed never were) met.”); Duke Power Co. v. Greenwood

Cnty., 299 U.S. 259 (1936). There is explicit statutory

authority for such orders:

The Supreme Court or any other court of appellate

jurisdiction may affirm, modify, vacate, set aside or

reverse any judgment, decree, or order of a court

lawfully brought before it for review, and may remand

the cause and direct the entry of such appropriate

judgment, decree, or order, or require such further

proceedings to be had as may be just under the

circumstances.

28 U.S.C. § 2106; see also In re Wallace & Gale Co., 72 F.3d

21, 25 (4th Cir. 1995) (“When we conclude, as we do here,

that we lack jurisdiction to reach the merits of an appeal,

we are not without power to act. We retain the power under
29

28 U.S.C. § 2106 to dismiss the appeal and remand the cause

with instructions.” (citation omitted)). We therefore have

authority to reverse the order of the district court and

instruct it to vacate its decision and order and remand the

case to state court.

CONCLUSION

For the foregoing reasons, we dismiss the appeal for

lack of jurisdiction, reverse the order of the district

court, and instruct it to vacate its decision and order and

remand the matter to New York Supreme Court.