PRESSBOX

S+S Wins Decision to Remand Class Action to State Court

On July 7, 2008, the United States District Court in the Central District of California handed down a landmark decision in favor of Scott + Scott and the plaintiff class of Countrywide Financial Corporation employees the firm represents. The Court granted Scott + Scott’s motion to remand the litigation from federal court back to California state court over the strong objection of the defendant corporation. In doing so, the Court weighed in on a contentious issue that has divided jurisdictions across the United States. On April 17, 2008, Scott + Scott initially filed a complaint in California state court on behalf of shareholder employees who lost millions of dollars in their Countrywide Financial Corporation’s 401(k) plan because of the company’s fraudulent activities. The complaint charged Countrywide with a violation of the Securities Act of 1933 in connection with a misleading and inaccurate registration statement filed by Countrywide with the Securities and Exchange Commission (“SEC”). As the Plaintiffs allege in the complaint, that registration statement fraudulently painted a rosy picture of Countrywide’s lending practices, financial results and liquidity, artificially inflating the price of Countrywide stock. Defendants removed the case to federal court — their preferred venue. Plaintiffs, however, promptly moved to have the case remanded back to state court.

The July 7 decision to remand the case back to California state court focused on a narrow but important section of the Securities Act of 1933. In 1998, Congress amended part of the 1933 Act by passing the Securities Litigation Uniform Standards Act (SLUSA). SLUSA strictly limited the types of cases that can be brought in state court. All cases that do not fit the narrow definition of permissible state court litigation in SLUSA can be removed by the defending party to federal court. Whether a case is removable depends largely on how a court interprets SLUSA,15 U.S.C.§77p(c),which regulates the removal of covered class actions. The July 7 Countrywide opinion helps clarify exactly what types of class actions fall under this section. This Countrywide class action does not. 

Now that the action is back in its proper forum, the action will proceed on behalf of the Countrywide employee class on whose behalf it was filed.

 

newsletter_aug2008.jpg Source : Scott+Scott August 2008 Newsletter

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