NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

:

ELCHANAN RUBIN, : CIVIL ACTION NO. 10-6816 (MLC) 

:

Plaintiff, :

: MEMORANDUM OPINION

v. :

:

MERCER INSURANCE GROUP, :

INC., et al., :

:

Defendants. :

 :

Cooper, District Judge

Plaintiff, Elchanan Rubin (“Plaintiff”), brought this

putative class action in New Jersey Superior Court, Mercer

County. (Dkt. entry no. 1, Rmv. Not. & Ex. A, Compl.) Plaintiff

challenges a proposed merger whereby defendant Red Oak

Acquisition Corp. (“Red Oak”), a wholly-owned subsidiary of

defendant United Fire & Casualty Company (“United Fire”), will

acquire all outstanding common stock of defendant Mercer

Insurance Group, Inc. (“Mercer”). (Compl. at ¶¶ 1-2.) Plaintiff

owns Mercer common stock and asserts a state law claim for breach

of fiduciary duty against Andrew Speaker, Roland D. Boehm, H.

Thomas Davis, Jr., William V.R. Fogler, William C. Hart, George

T. Hornyak, Jr., Samuel J. Malizia, and Richard U. Niedt (the

“Individual Defendants”), each of whom is a member of Mercer’s

Board of Directors. (Id. at ¶¶ 8-16, 63-71.) Plaintiff also

asserts a state law claim for “aiding and abetting” against the

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Individual Defendants, Mercer, Red Oak, and United Fire

(collectively, “Defendants”), contending that the alleged breach

of fiduciary duty by the Individual Defendants “could not, and

would not, have occurred but for the conduct” of the other

defendants in “render[ing] substantial assistance to the

Individual Defendants in their breaches of their fiduciary duties

to Mercer stockholders.” (Id. at ¶¶ 72-79.) Plaintiff seeks,

inter alia, to enjoin Defendants from consummating the proposed

merger. (Id. at 19, “Prayer for Relief,” at ¶ D.)

Red Oak and United Fire (together, “Removing Defendants”)

removed this action on December 29, 2010, invoking the Class

Action Fairness Act of 2005 (“CAFA”), Pub. L. No. 109-2, 119

Stat. 4 (codified in scattered sections of 28 U.S.C.), as a basis

for this Court’s jurisdiction. (Rmv. Not. at 4-5.) See 28

U.S.C. §§ 1332(d), 1453(b). Plaintiff now moves to remand the 1

action, arguing that certain provisions of CAFA divest the Court

of subject matter jurisdiction. (Dkt. entry no. 10, Mot. to

Remand.) Removing Defendants oppose the motion, and cross-move

to (1) consolidate this action with Braun v. Mercer Insurance

Group, Inc., No. 11-166 (MLC) (removed 1-10-11), and (2) dismiss

the Complaint insofar as asserted against them. (Dkt. entry no.

34, Opp’n Br; dkt. entry no. 29, Mot. Dismiss; dkt. entry no. 30,

 Under CAFA, unanimous consent of all defendants is not 1

necessary to effect removal. See 28 U.S.C. § 1453(b).

2

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Mot. Consolidate.) The Court, for the reasons stated herein, 2

will grant the motion to remand.

BACKGROUND

Plaintiff alleges that on November 30, 2010, Mercer and

United Fire announced that they had entered into an Agreement and

Plan of Merger (the “Merger Agreement”) wherein United Fire’s

wholly-owned subsidiary, Red Oak, would acquire all of Mercer’s

outstanding common stock for $28.25 per share, or approximately

$191 million. (Compl. at ¶ 2.) The merger is scheduled to occur

at the end of the first quarter of 2011 and is subject to

approval by Mercer’s shareholders. (Id.) Plaintiff alleges that

concurrent with the Merger Agreement, United Fire entered into a

Shareholder Support Agreement whereby certain officers and

directors of Mercer collectively owning approximately 13% of

Mercer’s outstanding shares agreed to vote in favor of the Merger

Agreement. (Id. at ¶ 3.)

Plaintiff contends that the Individual Defendants breached

their fiduciary duty to Mercer’s shareholders by approving the

Merger Agreement because the benefits to United Fire of the

proposed merger “come at the expense of Mercer’s public

shareholders.” (Id. at ¶ 50.) Plaintiff argues that Mercer’s

stock price was undervalued at the time the Merger Agreement was

 Mercer and the Individual Defendants cross-move separately 2

to dismiss the Complaint insofar as asserted against them. (Dkt.

entry no. 28, Mot. Dismiss.)

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negotiated, and the proposed merger will therefore deny Mercer’s

shareholders from realizing the value of their investment, given

industry predictions that the value of the stock will continue to

increase through the end of 2011. (Id. at ¶ 57-62.) Plaintiff

further alleges that Mercer failed to disclose “whether it

conducted any type of auction or market check to confirm the

value of the Company or otherwise shopped the Company around” to

determine whether a higher price could have been obtained for

Mercer shares. (Id. at ¶ 54.) Finally, Plaintiff challenges the

fairness of the proposed merger, based on the fact that the

Merger Agreement “imposes a $6.685 million termination fee . . .

on Mercer’s public shareholders in the event that either Mercer

or United Fire terminates the Merger Agreement,” without imposing

a reciprocal termination fee on United Fire “under any

circumstances.” (Id. at ¶ 52.) The Complaint alleges that the

“Individual Defendants have breached their duties of candor,

loyalty, fairness, good faith, and care by not taking adequate

measures to ensure that the interests of Mercer’s public

shareholders are properly protected.” (Id. at ¶ 66.)

DISCUSSION

CAFA “confers jurisdiction on federal courts over certain

class actions in which any defendant and any class member are

citizens of different states” and the amount in controversy

exceeds $5 million. Kaufman v. Allstate N.J. Ins. Co., 561 F.3d

4

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144, 148 (3d Cir. 2009) (citing 28 U.S.C. § 1332(d)(2)). 

However, this grant of federal subject matter jurisdiction does

not extend to 

any class action that solely involves a claim –

(A) concerning a covered security as defined under

[section] 16(f)(3) of the Securities Act of 1933

[15 U.S.C. § 77p(f)(3)] and section 28(f)(5)(E) of

the Securities Exchange Act of 1934 (15 U.S.C. [§]

78bb(f)(5)(E));

(B) that relates to the internal affairs or governance

of a corporation or other form of business

enterprise and that arises under or by virtue of

the laws of the State in which such corporation or

business enterprise is incorporated or organized;

or

(C) 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 Securities Act of

1933 (15 U.S.C. [§] 77b(a)(1)) and the regulations

issued thereunder).

28 U.S.C. § 1332(d)(9). Plaintiff asserts that the action should

be remanded because the Court lacks subject matter jurisdiction

under either subsection (A) or (C) of 28 U.S.C. § (“Section”) 

1332(d)(9), and that removal was improper pursuant to parallel

provisions in the statute governing removal of class actions,

Section 1453(d), prohibiting removal of class actions falling

within these exceptions. (Dkt. entry no. 10, Pl. Br. at 5, 8.) 

Specifically, Plaintiff contends that Section 1332(d)(9)(C)

applies because the Complaint “alleges only breach of fiduciary

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duty claims . . . ‘related to or created by or pursuant to’ a

‘security’” – the Mercer stock held by Plaintiff. (Id. at 6-7.) 

Plaintiff further contends that because Mercer’s common stock is

listed on the NASDAQ stock market, it qualifies as a “covered

security” for purposes of Section 1332(d)(9)(A). (Id. at 8-11.)

Removing Defendants correctly observe that the party

objecting to the exercise of federal jurisdiction and seeking

remand bears the burden of establishing that an exception to CAFA

applies. Kaufman, 561 F.3d at 153-54. Removing Defendants

oppose remand, contending that “[t]his is precisely the type of

case that Congress intended federal courts to resolve under . . .

CAFA.” (Opp’n Br. at 1.) 

We find that remand is appropriate here. Removing

Defendants contend that the claim asserted against them for

“aiding and abetting” the Individual Defendants’ alleged breach

of fiduciary duty does not sound in fraud and therefore does not

fall within the securities exception of Section 1332(d)(9)(A). 

(Id. at 4.) Removing Defendants further contend that Section

1332(d)(9)(C) does not apply because the aiding and abetting

claim against them is not a breach of fiduciary duty claim, and

because “Plaintiff is not suing United Fire in relation to any

United Fire security.” (Id. at 7.) However, as Removing

Defendants point out in support of their pending motion to

dismiss, the aiding and abetting claim is entirely dependent on

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the breach of fiduciary duty claim. (Dkt. entry no. 29, Removing

Defs.’ Br. Supp. Mot. Dismiss at 3.)

Section 1332(d)(9)(A) applies here because it is undisputed

that Mercer stock is traded on the NASDAQ stock market. (Compl.

at ¶ 5.) See 15 U.S.C. § 77r(b)(1)(A) (“A security is a covered

security if such security is . . . listed, or authorized for

listing, on the National Market System of the Nasdaq Stock Market

. . .”); 15 U.S.C. § 78bb(f)(5)(E) (“The term ‘covered security’

means a security that satisfies the standards for a covered

security specified in paragraph (1) or (2) of section 18(b) of

the Securities Act of 1933 [15 U.S.C. § 77r(b)], at the time

during which it is alleged that the misrepresentation, omission,

or manipulative or deceptive conduct occurred. . . .”). We think

it fair to say that the Complaint “solely involves a claim

concerning a covered security” in that the Mercer stock held by

Plaintiff and the putative class is the lynchpin for both the

breach of fiduciary duty and aiding and abetting breach of

fiduciary duty claims. Plaintiff alleges no claims not relating

to the Mercer stock, such that the entire action falls within

Section 1332(d)(9)(A). (See dkt. entry no. 38, Pl. Reply Br. at

7.) See Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v.

Countrywide Fin. Corp., 603 F.3d 23, 31-32 (2d Cir. 2010) (noting

that “[i]f Congress had intended [CAFA exceptions] to apply only

to class actions that involve no legal issues extraneous to the

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primary claim, they would have used language that was more

clearly limiting”); cf. Tuttle v. Sky Bell Asset Mgmt., LLC, No.

10-3588, 2011 WL 208060, at *5 (N.D. Cal. Jan. 21, 2011) (finding

that Section 1332(d)(9)(A) exception did not apply, given amended

pleading’s assertion of a claim for simple negligence,

notwithstanding existence of CAFA-exempt claims including breach

of fiduciary duty and aiding and abetting breach of fiduciary

duty).

Even if Section 1332(d)(9)(A) did not apply, Section

1332(d)(9)(C) provides an alternative basis for remand. The

Complaint “relates to” the rights, duties, and obligations

created by virtue of Plaintiff’s ownership of Mercer stock, in

that both claims asserted pertain to the alleged breach of

fiduciary duty: the alleged breach of duty by the Individual

Defendants, and the coordinate claim against Removing Defendants

for aiding and abetting the same. See In re Textainer P’ship

Sec. Litig., No. 05-969, 2005 WL 1791559, at *6-7 (N.D. Cal. July

27, 2005) (finding that breach of fiduciary claim challenging

proposed sale of limited partnership interests negotiated by the

general partners as fundamentally unfair was exempt from CAFA

jurisdiction under Section 1332(d)(9)(C), as it “solely involved”

an “investment contract,” which is included in the definition of

“security” in the Securities Act, 15 U.S.C. § 77b(a)(1)). A

claim for aiding and abetting a breach of fiduciary duty, under

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the plain language of Section 1332(d)(9)(C), clearly “relates to”

the breach of fiduciary duty claim asserted against the

Individual Defendants, and thus does not take the action outside

of Section 1332(d)(9)(C)’s exemption from CAFA’s grant of federal

subject matter jurisdiction. See Estate of Pew v. Cardarelli,

527 F.3d 25, 32, 33-38 (2d Cir. 2008) (Pooler, J., dissenting)

(rejecting majority’s assertion that Section 1332(d)(9)(C) only

applies to claims “grounded in the terms of the security itself”

and criticizing majority’s “wholly inexplicable departure from

the plain text of Section 1332(d)(9)(C)”).

CONCLUSION

For the foregoing reasons, the Court will remand the action

to New Jersey Superior Court, Mercer County. The Court will sua

sponte remand Braun v. Mercer Insurance Group, Inc., No. 11-166

(MLC), on the same grounds discussed herein, because that action

contains identical claims against the same parties and the Court

therefore lacks subject matter jurisdiction. See Martin v. WalMart Stores, Inc., 709 F.Supp.2d 345, 347 (D.N.J. 2010)

(remanding action sua sponte for lack of jurisdiction); Martin v.

Lafon Nursing Facility of the Holy Family, Inc., 548 F.Supp.2d

268, 279 n.45 (E.D. La. 2008) (noting that district courts need

not give notice of decision to remand pursuant to CAFA because

“it is a bedrock principle of federal jurisdiction [that] a court

may sua sponte review whether subject matter jurisdiction exists

9

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in a case”) (citation and quotation omitted, alteration in

original). 

Removing Defendants’ cross motions to consolidate and to

dismiss, as well as the cross motion to dismiss by Mercer and the

Individual Defendants, will be denied without prejudice. The

Court will issue an appropriate order and judgment.

 s/ Mary L. Cooper 

MARY L. COOPER

United States District Judge

Dated: February 15, 2011

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