Opinion ID: 2618
Heading Depth: 1
Heading Rank: 1

Heading: The Applicability of 28 U.S.C. Section 1332(d)(9)(C).

Text: I agree with the majority that the central issue on this appeal is the exception, now codified at 28 U.S.C. Section 1332(d)(9), which states that CAFA's broad grant of federal court jurisdiction over multistate class action litigation shall not apply to any class action that solely involves a claim (A) concerning a covered security as defined under 16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(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). I agree with the majority that the exemption to federal jurisdiction set forth in 28 U.S.C. Section 1332(d)(9)(A) is not applicable here. That provision's reach is expressly limited to claims involving covered securit[ies] as defined under 16(f)(3) of the Securities Act of 1933. As recognized by the district court, covered securities as defined by the Securities Act are securities that are traded nationally or listed on a regulated national exchange. See 15 U.S.C. § 77r(b), cited in 15 U.S.C. §§ 77p (f)(3); 78bb (f)(5)(E). Pew v. Cardarelli, 2006 WL 3524488 at  (N.D.N.Y. 2006). There is no assertion by either of the parties that the Agway Certificates are traded nationally, nor that they are they listed on any national securities exchange. I also agree with the majority regarding the inapplicability of Section 1332(d)(9)(B). That section speaks of suits relating to the internal affairs or governance of the firm against which the suit is brought. The claims asserted by the plaintiffs here only go to the integrity of their investment in the Agway Money Market Certificates (the Certificates); they do not seek to alter the course of Agway's management. Our disagreement is therefore over the proper construction of the terms of 28 U.S.C. Section 1332(d)(9)(C). The majority correctly asserts that Section 1332(d)(9)(C) cannot be read to cover any and all claims that relate to any security.... Opinion at 31. For example, as the defendants argue, if Congress had intended for a standard misrepresentation claim to come within § 1332(d)(9)(C), it could have simply provided that the exception applied to any claim relating to `a security' (or relating to `the purchase or sale of a security'). There would have been no need for Congress to add the words that the exception applies only to a claim relating to ` the rights, duties ... and obligations relating to or created by or pursuant to any security.' Defts.' Br. at 12-13 (emphasis in original). If we examine the securities at issue in this case, however, it is readily apparent that the instant suit in fact relates to rights and obligations created by, or at least relating to, those securities. The majority correctly identifies the Certificates as unsecured, fixed-interest debt instruments. Opinion at 27. More specifically, the plaintiffs assert that, by issuing the Certificates, Agway undertook the obligation to repay purchasers' principal at maturity dates between October 31, 1998 and October 31, 2013, and to pay interest until maturity at stated rates between 4.5% and 9.5%. Complaint ¶ 63. [1] The plaintiffs' central allegation is that Agway had degenerated into a classic `Ponzi' scheme which could only meet its ongoing payment obligations to holders of the Certificates through the irresponsible issuance of new Certificates. Complaint ¶¶ 2, 3. The complaint alleges that Agway was insolvent from the beginning of the Class Period, because the value of its assets during that time ... was insufficient by several hundred million dollars to discharge its Money Market-Certificate-related liabilities, and the only substantial liquid source of funds available to discharge the hundreds of millions of dollars of Money Market Certificates sold and maturing during and after the Class Period was other peoples' money  from the sale of hundreds of millions of dollars of new Money Market Certificates to plaintiffs and other unsuspecting investors. Complaint ¶ 3 (emphases in original). Thus, it is alleged that Agway fraudulently concealed the fact that it could not meet its unqualified obligations with respect to the Certificates, i.e., that the plaintiffs were fraudulently deprived of their right to repayment of the principal component of their investment: [T]he new Money Market Certificates purchased by plaintiffs ... had no possibility of ever being fully repaid. To the contrary, aside from the money of plaintiffs and other hapless investors, ... the only possible source for Agway's satisfaction of any portion of the principal amount of the new Money Market Certificates... was the dismantling and sale of Agway's most valuable remaining business segments.... But these valuable assets would never be available in connection with the more distant maturities of the new Money Market Certificates... because the assets would have to be disposed of to meet Agway's presently existing obligations with respect to the hundreds of millions of dollars of previously sold Money Market Certificates maturing during and shortly after the Class Period. Complaint ¶ 5 (emphases in original). In light of these allegations, the applicability of the Section 1332(d)(9)(C) exemption appears to me to be obvious. By issuing the Certificates, Agway took on an obligation to pay interest and principal to the purchasers of the Certificates. These purchasers therefore possessed a corresponding right to receive these payments. The instant suit plainly concerns Agway's failure to fulfill its obligations with respect to the Certificates and the plaintiffs' consequent deprivation of their rights with respect to the same. If this suit therefore does not solely involve a claim that relates to the rights ... and obligations relating to or created by or pursuant to the Certificates, I am at a loss to understand why. [2]