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SLUSA Class Action Defense Cases-Disher v. Citigroup: Illinois Federal Court Holds Securities Class Action Must Remanded To State Court But Holds Further That SLUSA Bars Prosecution Of Class Action Claims

While Defense Failed to Timely Remove Class Action to Federal Court Thereby Necessitating Remand of the Class Action Complaint to State Court, the Class Action Claims are Precluded by SLUSA (Securities Litigation Uniform Standards Act) thus Entitling Defense to Judgment in State Court Illinois District Court Holds

Plaintiff filed a putative class action in Illinois state court against securities brokerage firm Citigroup, as successor in interest to Salomon Smith Barney, seeking damages because it allegedly “disseminated misleading research concerning the value of shares in certain Internet and telecommunications companies, thereby inducing Smith Barney customers like [plaintiff] to hold the shares.” Disher v. Citigroup Global Markets, Inc., 487 F.Supp.2d 1009, 1012 (S.D. Ill. 2007). Defense attorneys removed the class action federal court under the Securities Litigation Uniform Standards Act (SLUSA), but the district court remanded the matter to state court, id. On appeal, the Seventh Circuit reversed, holding that SLUSA applied and required dismissal of the class action complaint, id., at 1012-13 (see Disher v. Citigroup Global Markets, Inc., 419 F.3d 649 (7th Cir. 2005)). The Supreme Court granted certiorari and reversed, holding that district court remand orders of class actions removed under SLUSA are not reviewable on appeal, see Disher v. Citigroup Global Markets, Inc., ___ U.S. ___, 126 S.Ct. 2964 (2006), causing the class action to wind its way back to state court, id., at 1013. Once there, defense attorneys again removed the class action to federal court, and the plaintiff again sought remand, id. The district court granted the motion finding “procedural defects in removal,” id., at 1012, but essentially hands defense victory on the merits by holding that the class action claims are barred by SLUSA and declaring that holding to be law of the case.

After discussing the general rules governing removal, including the burden placed on the party seeking removal to establish federal jurisdiction and the general rule that removal must be sought within 30 days of service of the initial pleading, see Disher, at 1014-15, the district court turned to whether an amended pleading created a basis to support defense removal of the class action, id., at 1015. Defense attorneys “point[ed] to numerous purported orders or other papers supposedly authorizing removal of the claims” in the class action complaint, id., but the district court found each pleading insufficient to support the delayed filing of the notice of removal including (1) that the motions and orders filed in state court authorized removal, see id., at 1015-17; (2) that plaintiff’s amended class action complaint did not trigger a right of removal because even though “the claims alleged in both [plaintiff’s] original complaint and his amended complaint are precluded by SLUSA,” id., at 1018, the fact remained that the defense failed to timely file its notice of removal and the amended class action complaint did not revive the right to remove because it did not alter the basic nature of the allegations, id., at 1019-22; and (3) that the appellate proceedings did not authorize removal of the action to federal court, id., at 1022. Accordingly, the federal court remanded the putative class action to state court, id., at 1023-24.

But while the district court denied the defense effort to maintain the class action federal court, it nonetheless handed the defense a victory on the merits. The federal court concluded at pages 1022 and 1023,

In holding that the procedural requirements for removal are not met in this instance, the Court acknowledges that it was an error to deprive Citigroup of a federal forum on the original removal of the claims of [plaintiff] and the proposed class in 2004. In remanding the instant claims in 2004, the Court held incorrectly that SLUSA does not apply to state-law class actions on behalf of holders of securities. As Dabit shows, this construction of the statute is wrong, although it should be noted that this Court’s error is one that many sister courts made before Dabit…. As a rule, of course, to the extent equitable considerations have any bearing on the exercise of federal jurisdiction on removal, those equities are to be weighed against removal and in favor of state court…. In this instance, where Citigroup has failed to point to some event since the original remand of the claims of [plaintiff] and the proposed class that has triggered a right to remove those claims again, the Court must remand those claims. Citigroup is free to press its defense of SLUSA preclusion in state court…. As has been discussed, the claims before the Court are due to be dismissed under SLUSA. This case is on all fours with Dabit, regardless of the labels [plaintiff] attaches to the state-law causes of action in his complaint, and regardless of whether federal law furnishes [plaintiff] and the proposed class any remedy.

The Court’s conclusion that the claims of [plaintiff] and the proposed class are precluded by SLUSA is necessary to the Court’s holding that the procedural requirements for removal are not met in this instance, as, for example, in the Court’s discussion supra about why [plaintiff’s] amended complaint did not revive Citigroup’s right to remove the instant claims. Accordingly, Citigroup will be entitled to assert the Court’s determination that the claims of [plaintiff] and the proposed class are precluded by SLUSA as the law of the case in state court after remand.… Where Citigroup has failed to point to an event authorizing successive removals of the claims of [plaintiff] and the proposed class, however, the Court is constrained to remand those claims to state court. (Citations omitted, italics added.)

NOTE: The district court noted that “it usually is a sign that a removal is on a procedurally shaky footing when a defendant seeking removal cannot point to a single event as the one triggering a right to remove,” and noted further that defense attorneys failed to comply with 28 U.S.C. § 1446(a), which requires that a notice of removal contain “a short and plain statement of the grounds for removal,” together with “a copy of all process, pleadings, and orders served upon such defendant or defendants in such action.” Disher, at 1015 n.4. While this defect is not generally sufficient to defeat removal, the district court stated that it “encourages counsel for defendants seeking removal to comply strictly with Section 1446(a) to ensure that an adequate record of previous proceedings in a removed case is before the Court.” Id.

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