Establishing important precedent in securities class action litigation, an Orrick team secured an important ruling preserving the removal of certain Securities Act class actions to federal court under the Class Action Fairness Act (CAFA). The decision was an important result for our client, the Elastos Foundation, siding with their argument that a pending securities class action against the company and its officers should be shifted from state court to the Southern District of New York.
The Feb. 6 decision by U.S. District Judge Gregory Woods involved a still-unsettled area of the law at the intersection between the Securities Act of 1933 and the CAFA in a case filed in the New York Supreme Court alleging Elastos and other defendants sold unregistered securities in the form of cryptocurrency tokens, violating Section 5 of the Act. Our team removed the case to federal court under the CAFA, and the plaintiffs moved to remand to state court.
The plaintiffs relied on two decisions to support their argument that the Securities Act’s removal bar trumps the CAFA’s grant of original federal jurisdiction. This included an important 2018 decision, Cyan Inc. v. Beaver Cty. Emps. Ret. Fund, 138 U.Ct. 1061, which plaintiffs argued found cases filed in state court solely based on Securities Act violations are “not removable.” They also relied on Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031 (9th Cir. 2008), arguing it trumps the more general CAFA.
Led by partner Ken Herzinger, our team opposed remand, noting that Cyan’s holding was limited to whether actions were removable under the Securities Litigation Uniform Standards Act (SLUSA) and that it had no relevance to whether removal was authorized by CAFA. Defendants also argued that Luther’s holding has been called into question, even in the Ninth Circuit, and asked the Court to follow the Second Circuit’s precedent permitting removal under a similar factual scenario.
Judge Woods agreed, holding that CAFA’s removal jurisdiction trumps the Securities Act’s removal bar and empowers a party to remove a Securities Act class action from state to federal court. The Court’s ruling in Elastos is significant because it signals a new consensus within the Second Circuit in favor of removal of Securities Act class actions that qualify under CAFA, clarifying that while the Cyan decision shut the door on removal of Securities Act class actions under SLUSA, CAFA may provide an alternative opportunity for defendants to litigate in federal court.In addition to Ken, the Orrick team included associates William Foley and Matthew Reeder.