The first sentence of subdivision (b) is only rarely pivotal, and it is therefore rarely discussed. If one makes the error of reading the first sentence of 28 USC 1441(b) as literature or an educational lecture, rather than as a statute each provision of which should ordinarily be given some operative meaning, one can readily ignore its plain language and treat it as a mere introduction to the second sentence which adds additional prerequisites to removal in diversity cases. But a complete separate first sentence containing an affirmative statement of removability of federal question cases would hardly have been necessary for that purpose.
The present suit involves common law fraud, securities, and RICO claims. Plaintiffs point out that 15 USC 77v(a) dealing with federal securities claims, provides:
"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."
This provision bars only removal of a securities law "case," not a securities law claim embedded in a broader case, if the "case" is one arising under other federal laws and thus removable. See generally Farmers & Merchants Bank v. Hamilton Hotel Partners, 702 F. Supp. 1417 (W.D. Ark. 1988); U.S. Industries v. Gregg, 348 F. Supp. 1004 (D. Del. 1972), rev'd on other grounds 540 F.2d 142 (3d Cir. 1976).
Plaintiffs ask me to interpret the first words of subsection (a) of 28 USC 1441, "Except as otherwise expressly provided by Act of Congress," as expressing a policy against removal of claims as well as cases where a provision such as 15 USC 77v(a) is involved. They point to decisions which, they suggest, hold that subsection (a) cannot be the basis for removal of securities law claims even where part of a larger case.
Plaintiffs thus treat 28 USC 1441 as though it consisted only of subsections (a) and (c), and fail to mention 28 USC 1441(b). While paragraph (a) applies to all civil actions "of which the district courts of the United States have original jurisdiction," which would include diversity cases and cases arising under Section 1331, the first sentence of paragraph (b) pertains only to Section 1331 cases - "founded on a claim or right arising under the Constitution, treaties or laws of the United States . . .", makes no reference to diversity as a basis of removal, and in tandem also omits the introductory "Except as otherwise" clause of § 1441(a).
The differences in wording of subsections (a) and (b) cannot be ignored or treated as having no meaning.
The logical interpretation is that where jurisdiction is based on a federal question (as in the case of RICO claims here), otherwise nonremovable claims such as the securities claims covered by 15 USC 77v(a) may be included in the case removed, so long as the case as a whole is not a securities "case."
Milton R. Barrie Co. v. Levine, 390 F. Supp. 475 (S.D.N.Y. 1975), quite logically in view of the statutory language quoted above, rejected removal of securities law claims where the underlying ground for removal was diversity of citizenship. 28 USC 1441(a) but not 1441(b), applied in such a situation, and the "Except as otherwise" clause had direct and controlling application.
Kinsey v. Nestor Exploration, Ltd., 604 F. Supp. 1365 (E.D. Wash. 1985) treated RICO claims as a potentially valid basis for removal of a case which also included securities claims. But contrary to the later interpretation of the Supreme Court in Tafflin v. Levitt, 493 U.S. 455, 107 L. Ed. 2d 887, 110 S. Ct. 792 (1990), the district court in Kinsey determined that the federal courts had exclusive jurisdiction over RICO claims and thus that the state court from which the action had been removed had no jurisdiction over the RICO claims; this in turn led somewhat paradoxically to the conclusion that the federal court had no derivative jurisdiction upon removal. This destroyed RICO as a basis of federal jurisdiction, thus requiring remand. The Supreme Court has since established that state courts have concurrent jurisdiction over RICO claims, Tafflin v. Levitt, 493 U.S. 455, 107 L. Ed. 2d 887, 110 S. Ct. 792 (1990), and the derivative jurisdiction doctrine has since been statutorily eliminated. 28 USC 1441(e). Tafflin and § 1411(e) indicate that RICO claims in state court can now support removal under the reasoning of Kinsey.
Cacciope v. Superior Holsteins III, 650 F. Supp. 607 (S.D. Tex. 1986), cited by plaintiffs, recognized that "under 28 U.S.C. § 1441(b), the pendent state law claims would be removed along with the federal question claims," citing Wright & Miller, Federal Practice and Procedure § 3724. The removing defendant in Cacciope, however, never identified "the specific subsection of section 1441 upon which it relied," and the court did not analyze or discuss the role of 28 USC 1441(b) as an independent basis of removal.
In the present case, there are common law fraud and numerous related state law claims as well as RICO and securities law claims. Plaintiffs' RICO claim is based in asserted wire and mail as well as securities frauds (paragraph 47). Both federal and state claims not dependent on whether or not securities are involved are thus asserted, as are claims carrying treble damage liability potentially far more substantial than any allowed under the securities laws as such. This case as a whole cannot properly be characterized as a securities "case" within the meaning of 15 USC 77v(a).
While the Supreme Court has made it clear that state courts have concurrent jurisdiction over RICO claims, since no exclusivity is provided for in the RICO statute, removability of such claims is important to insure the effectiveness of that federal statute as well as to prevent abuses of its provisions.
Defendants have submitted affidavits asserting that no viable securities law claims can be made here, in effect asking the court to grant summary judgment for defendants on those claims as an incident to ruling on the motion to remand. The permissibility of such a procedure based on affidavit evidence need not be considered inasmuch as the case as a whole is removable pursuant to 28 USC 1441(b).
Plaintiffs and defendants have devoted a good deal of attention to the question of whether or not the federal securities claims made in the complaint are "separate and independent" within the meaning of 28 USC 1441(c); they are, argue defendants, concluding that they should be retained in federal court; they are not, according to plaintiffs - state law dominates and they should be remanded. This approach if followed to its logical conclusion would lead to the somewhat paradoxical outcome that an otherwise nonremovable claim would be:
(i) removable as part of a broader case if "separate and independent" - i.e. unrelated to the federal questions on which removal was based; but
(ii) not removable if integrally intertwined with such federal questions as part of a single case.
Indeed in this case the defendants who have invoked removal, have sought to retain in federal court the securities claims (with respect to which the anti-removal provisions of 15 USC 77v(a) would seem to have direct application) by arguing that those securities claims are unrelated to the claims upon which removal was in the first instance based.
Congress cannot be assumed to have intended such a result. Instead, the logical interpretation of 28 USC 1441(c) is to treat it as a traffic rule defining what happens if a separate and independent claim is included in a removed case, and granting the court power to retain or remand the claim according to circumstances set forth in the section; see also 28 USC 1367(c) as added in 1990, dealing with exercise of supplemental jurisdiction.
Dated: White Plains, New York
October 15, 1992
VINCENT L. BRODERICK, U.D.S.D.J.