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Denise Mazzeo

Keywords

securities, removal, class actions, federal courts

Abstract

The unfolding of the credit crisis raises novel issues in securities litigation. This Note explores the conflict between the nonremoval provision of the Securities Act of 1933 (’33 Act) and the removal provisions of the Class Action Fairness Act of 2005 (CAFA), and their interplay in the context of class actions involving mortgage-backed securities. Circuits are currently split over whether or not such class actions are removable under CAFA. The Seventh Circuit and the Southern District of New York have held that class actions asserting only ’33 Act claims are removable under CAFA unless they fall within one of CAFA’s exceptions, while the Ninth Circuit has found that the ’33 Act’s nonremoval provision trumps CAFA. This Note unpacks the historical purposes and legislative histories of CAFA and the federal securities laws, and examines them under the lens of the current financial crisis. The Note argues that the Seventh Circuit interpretation is superior because it gives effect to all of CAFA’s provisions, as well as the historical purposes of the ’33 Act. CAFA applies to all class actions, including securities class actions, but not to individual securities actions. Individual securities actions are not removable under the ’33 Act, thus giving effect to the nonremoval provision and its historical purposes of providing investor protection. While looking to the past is instructive, courts should consider the present situation. Though they are not traded on a national exchange, mortgage-backed securities are currently at the heart of the countrywide credit crisis. To that end, this Note proposes that the approach with the most clarity and consistency is to allow for removal to federal courts of securities cases that are of real national importance.

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