Court Opinion

ID: 9496124
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:18:35.870843+00
Date Added: 2024-06-11T17:57:22.887256
License: Public Domain

JON O. NEWMAN, Circuit Judge,
concurring.
I add these words to the comprehensive discussion in Judge Parker’s opinion, in which I concur, to offer a framework for disentangling the concepts of preemption, complete preemption, jurisdiction, and the “merits” in a case such as this one.
The plaintiff has filed in state court a suit based on state law grounds, including common law fraud. The defendant contends that the state law basis for the plaintiffs suit is preempted by federal law, and has removed the suit to federal court. If we were concerned with the usual form of preemption, the defendant’s assertion of preemption would be a defense. See, e.g., Fleet Bank, National Association v. Burke, 160 F.3d 883, 886 (2d Cir.1998) (observing that preemption is a “federal defense”); Concerned Citizens of Cohocton Valley, Inc. v. New York State Department of Environmental Conservation, 127 F.3d 201, 204 (2d Cir.1997) (same). Because a defense based on federal law does not provide a basis for invoking the jurisdiction of a federal court, see Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 153-54, 29 S.Ct. 42, 53 L.Ed. 126 (1908), defendant’s assertion of the usual form of preemption would not provide a basis for invoking the district court’s federal question jurisdiction under 28 U.S.C. § 1331, and, if only federal question jurisdiction was invoked, the case would therefore not be removable under 28 U.S.C. § 1441. Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) (“Federal pre-emption is ordinarily a federal defense to the plaintiffs suit. As a defense, it does not appear on the face of a well-pleaded complaint, and, *131therefore, does not authorize removal to federal court.”).
In such a case, the district court, without the need to consider the merits of the preemption defense, would be required to remand to the state court for lack of subject matter jurisdiction, see Blab T. V. of Mobile, Inc. v. Comcast Cable Communications, Inc., 182 F.3d 851, 858-59 (11th Cir.1999) (finding that 47 U.S.C. § 582 did not give rise to complete preemption, that subject matter jurisdiction over the removed claim was therefore lacking, and that the Court “necessarily must avoid further consideration” of the merits of the preemption defense), and we would be required to dismiss an appeal by the defendant because, pursuant to 28 U.S.C. § 1447(d) (2000), a remand for lack of jurisdiction is not appealable. See Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 127-28, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995); Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 343, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976). The state court would then have an opportunity to consider the merits of the preemption defense. See Vorhees v. Naper Aero Club, Inc., 272 F.3d 398, 405 (7th Cir.2001) (“[Ujpon remand to state court, that court will be free to consider the question whether the Federal Aviation Act preempts the claim Vorhees is attempting to present here — a claim on which our jurisdictional ruling rejecting ‘complete preemption’ or occupation of the field has no bearing.”); In re Loudermilch, 158 F.3d 1143, 1146 (11th Cir.1998) (finding that a district court’s Employee Retirement Income Security Act preemption ruling on a motion to remand would have “no preclusive effect on the state court’s resolution of respondents’ preemption defense in the same case”); Romney v. Lin, 105 F.3d 806, 813 (2d Cir.1997) (denying rehearing) (“There are thus some cases in which a state law cause of action is preempted, but only a state court has jurisdiction to so rule.”).
However, where, as here, the defendant asserts the special form of preemption known as “complete preemption,” the analysis is altered. In those circumstances where an area of state law is “completely” preempted, Metropolitan Life, 481 U.S. at 63-64, 107 S.Ct. 1542, the plaintiff has no viable state law claim; the only possible claim is one based on federal law. Beneficial National Bank v. Anderson, —U.S.-, -, 123 S.Ct. 2058, 2063, 156 L.Ed.2d 1 (2003) (“When the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law.”); Metropolitan Life, 481 U.S. at 63-64, 107 S.Ct. 1542; Freeman v. Burlington Broadcasters, Inc., 204 F.3d 311, 317 (2d Cir.2000). In such circumstances, a federal court considering a defendant’s removal petition must consider whether the criteria for complete preemption have been met.1 If so, then the plain*132tiff has necessarily invoked federal question jurisdiction, even though he did not wish to. Moreover, in determining whether the criteria for complete preemption have been met, the district court simultaneously determines both the merits2 of the defense of complete preemption and the existence of subject matter jurisdiction. In the context of complete preemption, these issues are the opposite sides of the same coin. Furthermore, if the district court determines that the criteria for complete preemption have been met, the district court, after ruling in favor of its subject matter jurisdiction, is then obliged to dismiss for failure to state a claim, because the state law basis on which the plaintiff has attempted to proceed has been preempted by federal law. See Romney v. Lin, 94 F.3d 74, 84 (2d Cir.1996). In this circumstance, an appeal lies, as it would from any final judgment dismissing a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim. See id. at 77.3
Conversely, if the district court determines that the criteria for complete preemption have not been met, then the plaintiffs state law suit does not arise under federal law, the district court lacks federal question jurisdiction, and the case must be remanded to the state court for lack of jurisdiction. Marcella v. Capital District Physicians’ Health Plan, Inc., 293 F.3d 42, 50-51 (2d Cir.2002). The defendant cannot appeal because of 28 U.S.C. § 1447(d).4
One further point should be added to clarify the unusual context in which the District Court decided the critical legal issue of whether the fraud alleged by the plaintiff was “in connection with” the purchase or sale of a security. This issue typically comes before a federal court because (1) a plaintiff has filed a complaint alleging violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (2000), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (2002), which apply to fraud “in connection with” the purchase or sale of a security, and (2) a defendant has sought dismissal pursuant to Rule 12(b)(6) on the ground that the plaintiffs allegations fail to meet the “in connection with” requirement. In that context, the plaintiffs claim, even if ultimately unsuccessful and subject to dismissal, would normally be sufficiently colorable as to invoke the *133federal court’s subject matter jurisdiction. See Bell v. Hood, 327 U.S. 678, 681-82, 66 S.Ct. 773, 90 L.Ed. 939 (1946). And, of course, an appeal would be available from a dismissal for failure to state a claim.
In this case, the source of the “in connection with” requirement is not section 10(b) or Rule 10b-5, but the preemption provisions of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. §§ 77p(b), 78bb(f)(l) (2000), and the defendant is seeking to avoid remand of a state court action, rather than to obtain dismissal of a federal court action. Perhaps the phrase “in connection with” has the same meaning in SLUSA as it has in section 10(b) and Rule 10b-5. Some courts (including the District Court in this case) have interpreted SLUSA’s “in connection with” phrase in accordance with decisions construing section 10(b) and Rule 10b-5.5 See, e.g., Araujo v. John Hancock Life Insurance Co., 206 F.Supp.2d 377, 382 (E.D.N.Y.2002); Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 01-CV-3013, 2001 WL 1182927, at *2-*3 (S.D.N.Y. Oct.9, 2001). But see Shaw v. Charles Schwab & Co., 128 F.Supp.2d 1270, 1273-74 (C.D.Cal.2001).
However, even if the phrase “in connection with” has the same meaning, in SLU-SA as it has in section 10(b) and Rule lob-5, there are at least three procedural differences between the two contexts when the issue is whether the SLUSA requirement has been met. First, the parties’ roles are reversed; the defendant is urging that the plaintiff has satisfied the “in connection with” requirement, and the plaintiff is usually resisting such a finding. Second, a colorable claim by the defendant that the “in connection with” requirement has been satisfied is not sufficient to establish subject matter jurisdiction; the district court must definitively resolve the issue at the threshold as part of its jurisdictional inquiry. Third, whether appellate review is available depends on the result reached by the District Court; if, as here, the District Court concludes that the plaintiffs allegations do not meet the “in connection with” requirement, then remand is appropriate, and the court’s conclusion is not reviewable because of 28 U.S.C. 1447(d).
In the pending case in which the plaintiff has pled a state law claim of fraudulent non-disclosure, the District Court has ruled that the non-disclosure was not “in connection with” the purchase or sale of a security, that complete preemption does not exist, that the case cannot be removed, and that it must be remanded for lack of jurisdiction; in these circumstances, no appeal is available.
With this understanding of what has occurred in this case, I concur.

. The Supreme Court's most recent explication of the significance of complete preemption for removal jurisdiction identifies two circumstances in which a putative state law claim may be removed: "when Congress expressly so provides ... or when a federal statute wholly displaces the state-law cause of action through complete preemption.” Beneficial, - U.S. at -, 123 S.Ct. at 2063. Although the Court identifies removal via complete preemption as a category distinct from removal via the terms of a federal statute, it may be that both circumstances are really instances of complete preemption: one instance explicitly required by legislation and the second instance required by what courts have concluded is the implicit intent of Congress. Whether the two categories are wholly distinct or simply sub-categories of a broader category of complete preemption, a district court has subject matter jurisdiction if either prong of the analysis is satisfied.
*132The pending case involves the explicit removal provisions of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. §§ 77p(c), 78bb(f)(2) (2000). Arguably, in a case of this sort a court need not consider whether the criteria for complete preemption are met. See Falkowski v. Imation Corp., 309 F.3d 1123, 1128 (9th Cir.2002) (SLUSA "provides for ... complete preemption”).

.It is important to recognize that when courts speak of a decision on the "merits” in such circumstances, see Romney v. Lin, 94 F.3d 74, 78 (2d Cir.1996) (“In this case, preemption is therefore one requisite of removal jurisdiction, as well as the key to the merits.”), they usually mean the merits of the defense of preemption, not the merits of the plaintiff's cause of action.

. In circumstances where a district judge upholds subject matter jurisdiction and denies a motion to remand, but has doubts about these rulings, the judge may sometimes secure interlocutory review by certifying the rulings under 28 U.S.C. § 1292(b). See Breuer v. Jim’s Concrete of Brevard, Inc., - U.S. -, -, 123 S.Ct. 1882, 1884, 155 L.Ed.2d 923 (2003).

. An attempt to obtain review by certification pursuant to 28 U.S.C. § 1292(b) of a ruling remanding for lack of subject matter jurisdiction has been rejected by this Court on the authority of Thermtron. See Ryan v. Dow Chemical Co., No. 92-8008 (2d Cir. May 8, 1992) (declining section 1292(b) appeal from ruling in Ryan v. Dow Chemical Co., 781 F.Supp. 934, 952-53 (E.D.N.Y.1992)).

. The two statutes are slightly different in that under section 10(b) and Rule 10b-5, a plaintiff must prove that the fraud was actually "in connection with” the purchase or sale of a security, while under SLUSA, a defendant is required to show only that the plaintiff has alleged fraud "in connection with” the purchase or sale of a security. However, perhaps mindful that SLUSA was intended to block artful plaintiffs, courts have gone beyond asking whether the removed complaint contains the talismanic phrase "in connection with,” and have looked also to whether the allegations, if true, would satisfy the "in connection with” requirement. As the opinion of the District Court in the case at hand demonstrates, the legal questions implicated in the latter inquiry may closely resemble those raised by a Rule 12(b)(6) motion to dismiss a claim under section 10(b) and Rule 10b-5.