Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031 (9th Cir. 7/16/08)
The regulation or lack thereof in the securities world has helped send our economy into the depths of…I can’t say it… you know the R word. However, don’t dispel the power of securities regulation just quite yet. It still apparently has some punch. Securities law maintains it authority where it counts the most. Yep. You guessed it, removal jurisdiction. Right. What could be more important?
In Luther, the plaintiff brought suit in state court against Countrywide Home Loans Servicing LP, CWALT, INC., several of its subsidiaries, and its affiliates. The plaintiff, being the generous soul he was, brought the suit not only on his own behalf; but also on the behalf of all persons and entities who were given false and misleading registration statements and prospectus supplements for mortgage pass-through certificates. Specifically, the plaintiff alleged that the defendants intentionally downplayed the risk of investments in their financial statements. According to the plaintiff, Countrywide was making risky loans to individuals who were not financially stable enough to pay them back. Consequently, Countrywide’s value declined because it was unable to collect on the risky mortgage loans that were made.
In response, Countrywide removed the case to federal court under the Class Action Fairness Act of 2005. As expected, the plaintiff was not too happy about having his case removed to federal court and attempted to have the case remanded back to state court. He boasted the authority of securities regulation and insisted that §22(a) of the Securities Act of 1933 prohibited the removal of his claim. Luther alleged that §22(a) of the Securities Act of 1933, being the more specific of the two acts, prohibited any claims filed under the act in state court from being removed to federal court once filed.
But really, could the old archaic legislation really outweigh the new budding Class Action Fairness Act of 2005? It seems that instead of overseeing important things like regulating the sub-prime lending market, securities regulators were hell bent on preventing removal.
The court held while CAFA generally allows for removal, in the case at hand CAFA was trumped by §22(a) of the Securities Act of 1933, and it remanded the case back to state court. I guess securities regulation was more than a road bump on the road to removal in this case.
By: Heather Nagel