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Fortunato v. Akebia Therapeutics, Inc.

United States District Court, D. Massachusetts

April 29, 2016

AKEBIA THERAPEUTICS, INC., et al., Defendants.




The plaintiff, Anthony Fortunato, filed this putative securities class action in Suffolk County Superior Court of the Commonwealth of Massachusetts against Akebia Therapeutics, Inc., several of its officers and directors, and the investment banks that served as underwriters for Akebia’s initial public offering. Plaintiff alleges that the defendants violated the Securities Act of 1933 by issuing a registration statement that misleadingly failed to disclose material information about the results of a drug trial for the company’s principal drug. The plaintiff only asserts violations of federal securities law, and the defendants removed the case to this Court pursuant to 28 U.S.C. §§ 1441 and 1446.

Fortunato now moves to remand on the grounds that the Securities Act of 1933, as amended by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), bars removal. The defendants argue that the anti-removal provision in the Securities Act does not apply because SLUSA divested state courts of jurisdiction over certain securities class actions based on federal law, including the present case. There is a split in the United States district courts on this question- whether the anti-removal provision, as amended by SLUSA, allows for removal of covered class actions raising only 1933 Act claims-and there are no circuit court cases directly on point. After hearing, the Court ALLOWS the Motion to Remand for the reasons that follow.


I. Statutory Framework

Originally, the Securities Act of 1933 established concurrent jurisdiction in both federal and state courts over cases brought under the 1933 Act. 15 U.S.C. § 77v(a)(1933). The Act also prohibited a defendant from removing to federal court any case that was deemed to arise under it. Id. (“No case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States.”). “The combination of concurrent jurisdiction and lack of removal allowed plaintiffs in all federal securities cases to choose unilaterally whether the case would be heard in federal or state court.” Nitsoo v. Alpha Nat. Res., Inc., 902 F.Supp.2d 797, 799-800 (S.D. W.Va. 2012) (discussing legislative history).

In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. §§ 77z-1, 78u, to curtail frivolous strike suits against corporations. See Greebel v. FTP Software, Inc., 194 F.3d 185, 191 (1st Cir. 1999) (“The enactment of the PSLRA in 1995 marked a bipartisan effort to curb abuse in private securities lawsuits, particularly the filing of strike suits.”). The PSLRA established barriers to bringing securities class actions under federal law, including a heightened pleading standard and other procedural requirements. Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 107 (2d Cir. 2001) (citing 15 U.S.C. § 78u-4). The PSLRA left open a “loophole, ” however, which parties frequently exploited: plaintiffs could avoid the heightened requirements by alleging securities fraud under state law in state courts. Id. at 107-08 (“According to SLUSA’s Congressional findings, many class action plaintiffs avoided the stringent procedural hurdles erected by PSLRA by bringing suit in state rather than federal court.”).

In 1998, Congress passed SLUSA to prevent plaintiffs from using state law actions to frustrate the PSLRA’s objectives. See Securities Litigation Uniform Standards Act of 1998, Pub. L. No. 105-353, § 2, 112 Stat. 3227, 3227. Congress addressed the problem by adding preclusion and removal provisions to the Securities Act. See In re Tyco Int’l, Ltd., 322 F.Supp.2d 116, 117 (D.N.H. 2004). SLUSA also amended the clause granting concurrent jurisdiction to state and federal courts in the Securities Act, and the removal bar. It is the meaning of these provisions and amendments that has divided federal district courts on the question of whether covered class actions based exclusively on federal law can be removed to federal court.[1]

The SLUSA preclusion provision, titled “Class action limitations, ” states:

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 court by any private party alleging-
(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or
(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the ...

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