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Potter v. Janus Investment Fund

April 5, 2007

ROBERT POTTER, EDNA GRENCH, AND DOROTHY LUETTINGER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
JANUS INVESTMENT FUND, A BUSINESS TRUST, JANUS CAPITAL MANAGEMENT, LLC, SCUDDER INTERNATIONAL FUND, INC., A CORPORATION, AND DEUTSCHE INVESTMENT MANAGEMENT AMERICAS, INC., DEFENDANTS.



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

MEMORANDUM AND ORDER

This matter is before the Court on the motion for remand to state court based on lack of subject matter jurisdiction (Doc. 19) and the motions for remand to state court based on procedural defects in removal (Docs. 9, 13) brought by Plaintiffs Robert Potter, Edna Grench, and Dorothy Luettinger. For the following reasons, the motion for remand to state court based on lack of subject matter jurisdiction is DENIED. The motions for remand to state court based on procedural defects in removal are GRANTED.

Introduction

These consolidated cases, which are successors to a case previously on the Court's docket, Potter v. Janus Investment Fund, No. 03-cv-00692-DRH (S.D. Ill. filed Oct. 23, 2003), are among a number of putative class actions pending before the Court concerning so-called "market-timing," an arbitrage practice that exploits differences between the value of foreign securities held by a mutual fund and the fund's "net asset value" as calculated once a day at the close of the New York Stock Exchange for purposes of redemption of fund shares. See generally DH2, Inc. v. U.S. S.E.C., 422 F.3d 591, 592-94 (7th Cir. 2005). Defendant Janus Investment Fund is the sponsor of the Janus Overseas Fund, a mutual fund managed by Defendant Janus Capital Management, LLC. Defendant Scudder International Fund, Inc., is the sponsor of the Scudder International Fund, a mutual fund managed by Defendant Deutsche Investment Management Americas, Inc. Potter, who holds shares in the Janus Overseas Fund, Grench, and Luettinger, who holds shares in the Scudder International Fund, allege that Defendants breached state-law duties by allowing arbitrageurs to engage in market-timed trades of shares in the funds, resulting allegedly in devaluation of the shares.*fn1 Plaintiffs seek certification of a class of "all persons in the United States who have owned shares in [the] Janus Overseas [Fund] or Scudder International [Fund] for more than fourteen days from the date of purchase to the date of sale . . . or exchange" of the shares during the five years before the filing of the complaint. Doc. 2, Ex. 2 ¶ 42.

Potter and Luettinger filed their claims originally in 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, whereupon those claims were removed to this Court pursuant to the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), Pub. L. 105-353, 112 Stat. 3227 (codified at 15 U.S.C. § 77p(b)-(f) and 15 U.S.C. § 78bb(f)), which, as will be discussed in more detail presently, prohibits the maintenance of certain claims regarding securities as a class action under state law. The Court subsequently remanded the claims of Potter and Luettinger to state court for lack of subject matter jurisdiction, see Potter v. Janus Inv. Fund, No. 03-CV-0692-DRH, 2004 WL 1173201 (S.D. Ill. Feb. 12, 2004), whereupon an amended complaint joining Grench was filed in state court on March 22, 2004. In June 2004 the United States Court of Appeals for the Seventh Circuit held that it had jurisdiction to review the Court's order remanding the claims of Potter and Luettinger to state court. See Kircher v. Putnam Funds Trust, 373 F.3d 847, 851 (7th Cir. 2004) ("Kircher I" ). In April 2005 the Seventh Circuit Court of Appeals reversed the remand order and directed the Court to dismiss the claims of Potter and Luettinger pursuant to SLUSA. See Kircher v. Putnam Funds Trust, 403 F.3d 478, 484 (7th Cir. 2005) ("Kircher II").

Following the issuance of Kircher II, Potter, Grench, and Luettinger attempted to file an amended complaint in this Court. The Court struck the amended complaint and dismissed the case. Potter, Grench, and Luettinger then appealed from the dismissal. In January 2006 the Supreme Court of the United States agreed to hear an appeal from Kircher I, see Kircher v. Putnam Funds Trust, 126 S.Ct. 979 (2006), and in June 2006 the Court held that appellate review of the 2004 order remanding the claims of Potter and Luettinger is precluded by 28 U.S.C. § 1447(d), thus vacating both Kircher I and Kircher II. See Kircher v. Putnam Funds Trust, 126 S.Ct. 2145, 2157 (2006) ("Kircher III"). On October 16, 2006, pursuant to Kircher III, the Seventh Circuit Court of Appeals directed this Court to remand the Potter case to state court. See In re Mutual Fund Market-Timing Litig., 468 F.3d 439, 444 (7th Cir. 2006) ("Kircher IV"). On November 13, 2006, Defendants filed a notice of removal as to the claims of Potter, Grench, and Luettinger, asserting federal subject matter jurisdiction under SLUSA; the matter was docketed as the above-captioned cause. On November 29, 2006, the Court executed the Kircher IV court's mandate. On December 5, 2006, Defendants filed still another notice of removal as to the claims of Potter, Grench, and Luettinger, asserting SLUSA jurisdiction; the matter was docketed as Potter v. Janus Investment Fund, No. 06-cv-00997-DRH (S.D. Ill. filed Dec. 5, 2006). On December 20, 2006, the Court consolidated No. 06-cv-00997-DRH with the above-captioned cause. Plaintiffs now have moved for remand of their claims to state court based on lack of subject matter jurisdiction and procedural defects in removal. The motions have been fully briefed and are ripe for decision. Having reviewed carefully the submissions of the parties concerning remand, the Court now is prepared to rule.

Discussion

A. Legal Standard

Under 28 U.S.C. § 1441, "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). See also Buller Trucking Co. v. Owner Operator Indep. Driver Risk Retention Group, Inc., 461 F. Supp. 2d 768, 771 (S.D. Ill. 2006). The party seeking removal has the burden of establishing federal jurisdiction. See Lyerla v. Amco Ins. Co., 461 F. Supp. 2d 834, 835 (S.D. Ill. 2006) (citing Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 540 (7th Cir. 2006)); Brooks v. Merck & Co., 443 F. Supp. 2d 994, 998 (S.D. Ill. 2006); McNichols v. Johnson & Johnson, 461 F. Supp. 2d 736, 738 (S.D. Ill. 2006). "'Courts should interpret the removal statute narrowly and presume that the plaintiff may choose his or her forum.' Put another way, there is a strong presumption in favor of remand." Kuntz v. Illinois Cent. R.R. Co., 469 F. Supp. 2d 586, 589 (S.D. Ill. 2007) (quoting Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993)). See also Alsup v. 3-Day Blinds, Inc., 435 F. Supp. 2d 838, 841 (S.D. Ill. 2006) ("Doubts concerning removal must be resolved in favor of remand to the state court."); Cassens v. Cassens,430 F. Supp. 2d 830, 837 (S.D. Ill. 2006) ("[D]oubts about federal jurisdiction on removal are to be resolved in favor of remand.").

B. Subject Matter Jurisdiction

As discussed, Plaintiffs have moved for remand on the grounds both that the requirements for the exercise of federal subject matter jurisdiction under SLUSA and the procedural requirements for removal under 28 U.S.C. § 1446(b) are not met in this case. Because "issues affecting a federal court's subject matter jurisdiction are 'fundamentally preliminary,'" the Court will address first the question of subject matter jurisdiction before turning to Plaintiffs' arguments concerning procedural defects in removal. In re General Motors Corp. Dex-Cool Prods. Liab. Litig., Civil No. MDL-03-1562-GPM, 2007 WL 522300, at *2 (S.D. Ill. Feb. 16, 2007) (quoting Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979)). See also Rutherford v. Merck & Co., 428 F. Supp. 2d 842, 845 (S.D. Ill. 2006) (quoting Meyers v. Bayer AG, 143 F. Supp. 2d 1044, 1048 (E.D. Wis. 2001)) (noting the "constitutional importance" of the rule that a district court should resolve issues pertaining to federal subject matter jurisdiction "first," before addressing any other aspect of a case).

SLUSA was enacted, of course, against the backdrop of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Pub. L. No. 104-67, 109 Stat. 743 (1995) (codified at 15 U.S.C. §§ 77z-1, 77z-2, 78u-4, 78u-5, 77t, 78o, 78t & 78u), which created procedural devices to enable district courts quickly to identify and dismiss meritless class actions alleging fraud in the purchase and sale of securities. See 15 U.S.C. § 77z-1(b); Id. § 78u-4(b). See also Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 107 (2d Cir. 2001); Zoren v. Genesis Energy, L.P., 195 F. Supp. 2d 598, 602 (D. Del. 2002); In re Waste Mgmt., Inc. Sec. Litig., 194 F. Supp. 2d 590, 592 (S.D. Tex. 2002); Bertram v. Terayon Communications Sys., Inc., No. CV 00-12653 SVW RZX, 2001 WL 514358, at *1 (C.D. Cal. Mar. 27, 2001). An unintended consequence of PSLRA's restrictions on securities litigation in federal court was to prompt "many would-be plaintiffs to file their claims in state court, based on state law, in order to circumvent the strong requirements established by the statute." In re Lutheran Bhd. Variable Ins. Prods. Co. Sales Practices Litig., 105 F. Supp. 2d 1037, 1039 (D. Minn. 2000). Congress responded to the problem by enacting SLUSA to "prevent plaintiffs from seeking to evade the protections that federal law provides against abus[ive] litigation by filing suit in State, rather than federal, courts." Id. See also Alessi v. Beracha, 244 F. Supp. 2d 354, 357 (D. Del. 2003); Wald v. C.M. Life Ins. Co., No. Civ. 3:00-CV-2520-H, 2001 WL 256179, at *4 (N.D. Tex. Mar. 8, 2001); Derdiger v. Tallman, 75 F. Supp. 2d 322, 324 (D. Del. 1999).

SLUSA amended the Securities Act of 1933 and the Securities Exchange Act of 1934 to preclude the maintenance of certain state-law claims regarding securities as class actions, and to provide for the removal to federal court of class actions asserting those claims. Specifically, SLUSA amended the 1933 Act to provide, in pertinent part:

No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal ...


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