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Dudley v. Putnam Investment Funds

February 1, 2007


The opinion of the court was delivered by: Murphy, Chief District Judge


This matter is before the Court on the motion for remand to state court brought by Plaintiffs Steve Dudley and Beth Dudley (Doc. 9). For the following reasons, the motion is GRANTED.


This case is a putative class action on behalf of shareholders in Defendant Putnam Investment Funds, a mutual fund managed by Defendant Putnam Investment Management, LLC. The complaint alleges that Defendants breached state-law duties to shareholders by permitting traders to engage in so-called "market timing," an arbitrage practice that exploits differences between the value of fund shares as calculated once a day for purposes of share redemption and the actual price at which the shares are trading. See SEC v. Gann, No. Civ.A. 305CV0063L, 2006 WL 616005, at *1 (N.D. Tex. Mar. 13, 2006) (explaining that "market timing refers to the practice of short term buying and selling of mutual fund shares in order to exploit inefficiencies in mutual fund pricing. Market timing, while not illegal per se, can adversely affect mutual fund shareholders because profits that a market timer takes can dilute the value of shares held by long-term shareholders."). See also Boeckman v. A.G. Edwards, Inc., No. CIV. 05-658-GPM, 2006 WL 3359726, at *1 (S.D. Ill. Sept. 26, 2006) (mutual funds are required to be ready at all times to redeem fund shares, which represent an undivided interest in a fund's assets). The case was filed originally in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, in 2003, then removed to this Court pursuant to the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), Pub. L. 105-353, 112 Stat. 3227 (codified at scattered sections of 15 U.S.C.), where it was docketed as Dudley v. Putnam Investment Funds, Civil No. 03-853-GPM (S.D. Ill. filed Dec. 15, 2003). On January 27, 2004, the Court held that the claims asserted in the case do not fall within the scope of SLUSA and remanded the case to state court for lack of subject matter jurisdiction.

Defendants appealed from the Court's order remanding the case to state court, whereupon the United States Court of Appeals for the Seventh Circuit held that it had jurisdiction to review the remand order, see Kircher v. Putnam Funds Trust, 373 F.3d 847, 851 (7th Cir. 2004) ("Kircher I"), and later vacated the remand order. See Kircher v. Putnam Funds Trust, 403 F.3d 478, 484 (7th Cir. 2005) ("Kircher II"). As per the Kircher II court's mandate, this Court then dismissed the case pursuant to SLUSA. Plaintiffs appealed from the dismissal of their claims, and the appeal was stayed pending a decision by the Supreme Court of the United States as to the validity of Kircher I. When that decision issued, vacating Kircher I and Kircher II, see Kircher v. Putnam Funds Trust, 126 S.Ct. 2145, 2157 (2006) ("Kircher III"), the Seventh Circuit Court of Appeals directed this Court to remand the case to state court. See In re Mutual Fund Market-Timing Litig., 468 F.3d 439, 444 (7th Cir. 2006) ("Kircher IV"). The Court executed the Kircher IV court's mandate on December 7, 2006, remanding the case to state court. Defendants now have removed the case a second time, arguing that orders entered in this case and other cases following the first remand of the case in 2004 establish the existence of federal subject matter jurisdiction in this case under SLUSA. Plaintiffs in turn have moved for remand of the case to state court based on procedural defects in removal. Plaintiffs' request for remand has been fully briefed by the parties, and the Court now is prepared to rule.


A. Applicability of 28 U.S.C. § 1446(b) to Removal under SLUSA

SLUSA prohibits the maintenance under state law of actions for damages by more than fifty persons alleging an untrue statement or omission of a material fact in connection with the purchase or sale of a security or that a defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a security. See 15 U.S.C. § 77p(b), (f)(2)(A); 15 U.S.C. § 78bb(f)(1), (f)(5)(B). Securities within the scope of SLUSA include registered mutual fund shares. See 15 U.S.C. § 77p(f)(3); 15 U.S.C. § 78bb(f)(5)(E); 15 U.S.C. § 77r(b)(2). Class actions subject to SLUSA that are brought in state court may be removed to federal court under the statute. See 15 U.S.C. § 77p(c); 15 U.S.C. § 78bb(f)(2).*fn1 Under 28 U.S.C. § 1446, a defendant seeking to remove a case to federal court must file a notice of removal within thirty days after service of the complaint in the case, unless, however, the case is not removable at the outset, in which case the defendant must remove within thirty days after receipt of "a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable." 28 U.S.C. § 1446(b).

Although the Court previously was in doubt as to the applicability of the general federal removal statutes, 28 U.S.C. § 1441, 28 U.S.C. § 1446, and 28 U.S.C. § 1447, to removal under SLUSA, see Kwiatkowski v. Templeton Growth Fund, Inc., No. Civ. 05-299-GPM, Civ. 05-300-GPM, Civ. 05-301-GPM, 2005 WL 2085290, at *1 (S.D. Ill. Aug. 25, 2005), Kircher III now has clarified that removal under SLUSA is governed by the ordinary procedural prerequisites for removal. See 126 S.Ct. at 2152-57 (holding that appellate review of orders remanding cases removed under SLUSA based on defects in subject matter jurisdiction is precluded by 28 U.S.C. § 1447(d), and vacating Kircher I and Kircher II). This is consistent, of course, with the presumption that the general removal statutes control all removals of cases to federal court, absent express legislative direction to the contrary, see Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 126-29 (1995); United States v. Rice, 327 U.S. 742, 748-49 (1946), and with the weight of federal authority regarding removal under SLUSA issued before Kircher III. See Williams v. AFC Enters., Inc., 389 F.3d 1185, 1187-88 & n.5 (11th Cir. 2004) (holding that the procedural prerequisites of 28 U.S.C. § 1446(b) apply to removal under SLUSA); Haag v. Webster, 434 F. Supp. 2d 732, 733-34 (W.D. Mo. 2006) (same); McPhatter v. Sweitzer, 401 F. Supp. 2d 468, 472-73 (M.D.N.C. 2005) (same); Gordon v. Buntrock, No. 04 C 5479, 2005 WL 20377, at *3 (N.D. Ill. Jan. 4, 2005) (same); Central Laborers' Pension Fund v. Chellgren, No. Civ.A. 02-220-DLB, 2004 WL 1348880, at **5-7 (E.D. Ky. Mar. 29, 2004) (same); Burns v. Prudential Sec., Inc., 218 F. Supp. 2d 911, 914 (N.D. Ohio 2002) (same); Green v. Ameritrade, Inc., 120 F. Supp. 2d 795, 801-02 & n.20 (D. Neb. 2000) (same); Desmond v. BankAmerica Corp., 120 F. Supp. 2d 1201, 1204 (N.D. Cal. 2000) (same).

Because the Court's decisions are not precedent, see Midlock v. Apple Vacations W., Inc., 406 F.3d 453, 457-58 (7th Cir. 2005); FutureSource LLC v. Reuters Ltd., 312 F.3d 281, 283 (7th Cir. 2002); Howard v. Wal-Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1998); Anderson v. Romero, 72 F.3d 518, 525 (7th Cir. 1995); Colby v. J.C. Penney Co., 811 F.2d 1119, 1123 (7th Cir. 1986), it is unnecessary and, in fact, impossible for the Court to overrule Kwiatkowski, but the Court wishes to make clear that it no longer believes that Kwiatkowski was correctly decided.*fn2 Having determined, then, that removal under SLUSA is governed by 28 U.S.C. § 1446(b), the Court notes that a failure to comply with the requirements for removal under section 1446(b) is a procedural defect in removal that must be raised by a plaintiff within thirty days of the date of removal or it is waived. See Fields v. Jay Henges Enters., Inc., Civil No. 06-323-GPM, 2006 WL 1875457, at *2 (S.D. Ill. June 30, 2006) (citing In re Continental Cas. Co., 29 F.3d 292, 293-95 (7th Cir. 1994)). See also Bova v. U.S. Bank, N.A., 446 F. Supp. 2d 926, 932 (S.D. Ill. 2006) (rejecting a challenge to the timeliness of a removal on the grounds that it was first raised by the plaintiffs by way of a reply brief in support of a motion for remand to state court, over thirty days from the date the case initially was removed). Plaintiffs have raised their challenge to procedural defects in the removal of this case by a motion brought within thirty days from the date the case was removed to this Court, and therefore the issue of remand of this case to state court is properly before the Court and ripe for decision.

B. Successive Removals

Before reaching the issue of whether removal of this case is proper under 28 U.S.C. § 1446(b), the Court will address briefly Plaintiffs' objections to a second removal of this case based on 28 U.S.C. § 1447(d) and the doctrine of the law of the case. Turning first to section 1447(d), that statute provides, in pertinent part, "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise," 28 U.S.C. § 1447(d), and has been held, of course, to preclude any appellate review of orders remanding cases to state court on the basis of a procedural defect in removal or lack of federal subject matter jurisdiction. See 28 U.S.C. § 1447(c); Kircher III, 126 S.Ct. at 2152-57; Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723, 723-24 (1977); Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 346-51 (1976). It also has been held to preclude a district court from reconsidering its own order remanding a case to state court on grounds enumerated in section 1447(c). See In re La Providencia Dev. Corp., 406 F.2d 251, 252-53 (1st Cir. 1969). It has not been held, however, to bar a second removal of a case where developments after an initial remand of the case reveal a legal or factual basis for removal. See Benson v. SI Handling Sys., Inc., 188 F.3d 780, 782 (7th Cir. 1999); Doe v. American Red Cross, 14 F.3d 196, 199-200 (3d Cir. 1993).

The Court recognizes the general rule that "[i]f subsequent pleadings or conduct by the parties or various other circumstances brings a case that was not previously removable within the removal jurisdiction of the federal courts, a second notice of removal is permissible." Alsup v. 3-Day Blinds, Inc., 435 F. Supp. 2d 838, 842 (S.D. Ill. 2006)(quoting 14C Charles Alan Wright, Arthur R. Miller, Edward H. Cooper & Joan E. Steinman, Federal Practice & Procedure § 3739 (3d ed. 1998 & Supp. 2005)). In this instance, of course, Defendants assert that orders entered in this case and others since the Court's initial remand of the case in 2004 have disclosed new legal grounds for removal. The Court regards this is a proper basis upon which to attempt a second removal of the case. See Fritzlen v. Boatmen's Bank, 212 U.S. 364, 372 (1909) (permitting a second removal where events after remand of the case showed fraudulent joinder of a party to defeat federal diversity jurisdiction: "[I]t is not open to controversy that if, after an order to remand has been made, it results, from the subsequent pleadings or conduct of the parties to the cause, that the cause is removable, on the development of such situation a second application to remove may be made, and the right to do so because of the changed aspect is not controlled by the previous order remanding the cause."); In re Diet Drugs, 282 F.3d 220, 232 n.8 (3d Cir. 2002) (the removal statute does not categorically prohibit the filing of a second notice of removal following remand, if subsequent pleadings, or conduct by the parties, or various other circumstances bring a case that was not previously removable within the removal jurisdiction of the federal courts); Shields v. Washington Nat'l Ins. Co., 375 F. Supp. 2d 1346, 1349 (M.D. Ala. 2005) (holding that a case was properly removed for the second time where a deposition of the plaintiff, taken after the first removal, disclosed "a new factual basis" for removal); Johnson v. America Online, Inc., 280 F. Supp. 2d 1018, 1022 (N.D. Cal. 2003) (a second notice of removal was proper where events in the litigation occurring after the initial, unsuccessful removal created changed circumstances by illuminating the amount in controversy for purposes of federal diversity jurisdiction).

Turning then to Plaintiffs' objection to removal based upon the law of the case doctrine, that doctrine provides generally, of course, that once having decided an issue in a case, a court will decide the issue the same way at all later stages of the case. See Messinger v. Anderson, 225 U.S. 436, 444 (1912); Avitia v. Metropolitan Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995); Hauck v. ConocoPhillips Co., Civil No. 06-135-GPM, 2006 WL 1596826, at *6 (S.D. Ill. June 6, 2006). As this Court has recognized, "[t]he law of the case doctrine is not an inexorable command; it is a discretionary rule that is ordinarily followed but which leaves all court rulings subject to revision at any time before entry of judgment." Bommersbach v. Ruiz, No. 3:02-CV-01115-DRH, 2006 WL 3360381, at *4 n.2 (S.D. Ill. June 9, 2006) (quoting In re Data Evaluation, Ltd. v. Harris Corp., No. 85-C-10799, 1992 WL 82354, at *1 n.1 (N.D. Ill. Apr. 16, 1992)). See also Walsh v. Mellas, 837 F.2d 789, 796 (7th Cir. 1988) ("The law of the case doctrine . . . is not an immutable concept."). Importantly, there is an exception to the doctrine for instances in which, after a court's decision on an issue, "controlling authority has since made a contrary decision of law applicable to [the] issue[ ]." Evans v. City of Chicago, 873 F.2d ...

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