Pew v. Cardarelli, 06-5703-mv (2^nd Cir. May 13, 2008)

Poring over the excrutiating minutiae of the statute in a way that would have driven Elaine straight into Bizarro world, the Second Circuit decided that it has jurisdiction to review a remand order in Pew v. Cardarelli. Take it from your friendly CAFA Law Blog editors, a cup of coffee from Reggie’s (the Bizarro coffeeshop) would aid in reading this case. 

But, it does answer the burning res nova question of whether a claim under New York’s consumer fraud statute falls within an exception to CAFA’s grant of original and appellate jurisdiction for class actions that solely involve claims that “relate to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security,” which is found at 28 U.S.C. § 1332(d)(9)(C) and 28 U.S.C. § 1453 (d)(3).

The case involved claims of fraud surrounding the sale of unsecured debt instruments of a particular corporation. The case was removed from federal court under CAFA. The federal district court remanded the case to state court under CAFA’s jurisdictional exception quoted above and found at 28 U.S.C. § 1332(d)(9)(C). The defendants appealed, and the appellate court had to interpret a portion of the statute no other circuit has interpreted.

More than a year after oral argument, the court found:

claims that “relate to the rights…and obligations” “created by or pursuant to” a security must be claims grounded in the terms of the security itself, the kind of claims that might arise where the interest rate was pegged to a rate set by a bank that later merges into another bank, or where a bond series is discontinued, or where a failure to negotiate replacement credit results in a default on principal. 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 is not within the exception to CAFA jurisdiction. To reach this conclusion, the court broke down the relevant statutory language into four phrases, discussed each, then adopted an interpretation of the quoted language that admittedly renders a portion of one of the phrases superfluous (“relating to”) but preserves the meaning of the subsection in light of the whole statutory text. The court examined the legislative history of CAFA, including the much discussed Senate report.

The author of the dissenting opinion disagrees with the majority’s method and result and questions the majority’s assertion that CAFA is cryptic: “I fear that a reader of the majority’s opinion must be forgiven if he or she comes to the conclusion that the generally opaque quality of CAFA has been merely asserted rather than demonstrated…I expect that this reader may conclude that the majority has simply departed from the statutory text in favor of a dubious consideration of the supposed legislative intent….” So, you might say the dissent is calling the majority’s interpretation Bizarro-CAFA. Hello?

 (Stephanie John)