Saturday, April 24, 2010

FYI: 2nd Cir Denies Appeal of Remand Order in Mortgage Securities Class Action

The U.S. Court of Appeals for the Second Circuit recently held that the Class Action Fairness Act of 2005 (“CAFA”) barred appellate review of an order remanding to state court a securities class action that was brought pursuant to the terms of a pooling and servicing agreement.  A copy of the opinion is attached.


Plaintiffs in this case were holders of certificates issued by securitized trusts which held mortgage loans originated by the lending subsidiary of Countrywide Financial Corporation (“Countrywide”).  Plaintiffs brought this putative class in New York state court against Countrywide and several of its affiliates (“Defendants”), seeking declaratory judgments that Countrywide’s loan servicing subsidiary was required to repurchase loans under that were held by the securitized trust and modified pursuant to a multistate settlement.  Defendants removed the action to federal court, claiming diversity jurisdiction under CAFA’s minimal diversity provision.  The district court granted Plaintiff’s motion to remand. 


The Second Circuit dismissed Defendants' appeal of the order to remand for lack of appellate jurisdiction.  In doing so, the court explained that although CAFA expanded the general rule that an order to remand is not appealable, it also set forth certain circumstances under which appellate review of such orders is barred, including a claim related to rights and duties created to or pursuant to any security (as defined by the Securities Act of 1933).  The court read this together with an identical provision of CAFA which provides that there is no CAFA minimal diversity jurisdiction for claims related to rights and duties created to or pursuant to any security (as defined by the Securities Act of 1933), noting that if the district court lacked CAFA diversity jurisdiction, then the appellate court similarly would lack jurisdiction to review a remand order.  


The court explained that the “key distinction between suits that were immune from removal under CAFA and those that were not is that immune suits sought to enforce the rights of the securities ‘holders as holders,’” and in this case, plaintiffs’ asserted right to force Defendants to repurchase the loan arose from the deal instrument themselves, not from an extrinsic provision of state law, such that plaintiffs sought enforcement of their rights as holders rather than purchasers of securities.  The court also rejected Defendants’ arguments that the legislative history and purpose of CAFA supported removal, ultimately holding that, because plaintiffs’ sole claim “relates to the rights, duties . . . and obligations relating to or created by or pursuant to [a] security,” plaintiffs’ suit fell within the exception to CAFA diversity jurisdiction and accordingly, the court was required to dismiss the appeal because it lacked jurisdiction to hear it.

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

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