On May 18, 2011, the California Intermediate Court of Appeals held in the Luther v. Countrywide Financial Corporation case that state courts have concurrent jurisdiction with federal courts to hear liability lawsuits under the Securities Act of 1933, and that more recent legislative enactments did not eliminate the concurrent state court jurisdiction for the plaintiffs' '33 Act claims.
I suspect that those of you who, like The D&O Diary, have been following the Luther case are going to say - wait a minute, didn't the Ninth Circuit decide that very issue in that same case several years ago? Alas, it is not so simple, nor so straightforward.
For those of you who have not been following the Luther case, here's the background. The claims are brought on behalf of purchasers of billions of dollars of mortgage pass-through certificates issued between June 2005 and June 2007. The securities were registered but not listed on any national exchange. The complaint alleges that the defendants violated Sections 11, 12 and 15 of the '33 Act, essentially on the grounds that the risk of investing in the mortgage pass-through certificates was much greater than represented by the registration and prospectus supplements, which allegedly omitted and misstated the creditworthiness of the underlying borrowers. The plaintiffs do not assert any state law claims. The Luther complaint names as defendants several Countrywide subsidiaries and affiliated individuals, multiple loan trusts, and Countrywide's offering underwriters.
The plaintiffs originally filed their complaint in California Superior Court for Los Angeles County. The defendants, in reliance on the Class Action Fairness Act of 2005, removed the Luther case to federal court. The plaintiffs filed a motion to remand the case to state court. As discussed here, on February 28, 2008, Central District of California Judge Mariana R. Pfaelzer granted the plaintiffs' motion to remand the case to state court, holding that the removal bar in Section 22(a) of the '33 Act trumps CAFA's general grant of diversity and removal jurisdiction. The defendants appealed.
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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