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Forum selection issues come in all different stripes and flavors. This column will cover two U.S. Supreme Court cases that raise important though divergent issues bearing on the forum selection problem. ‘Dabit’: Making it tougher to stay in state court The Supreme Court ruled in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 126 S. Ct. 1503 (2006), that the Securities Litigation Uniform Standards Act (SLUSA) pre-empts state law class action claims brought by holders of securities who allege fraudulent manipulation of stock prices. Why and how this case applies to the forum selection battle requires a bit of a replay. In 1995, in response to concerns about abusive class actions involving nationally traded securities, Congress enacted the Private Securities Litigation Reform Act (PSLRA). PSLRA attempted to combat the perceived abuses by limiting damages and attorney fees, by providing a safe harbor for forward-looking statements, restricting who could become lead plaintiff, adopting heightened pleading standards, providing for mandatory sanctions under Rule 11 of the Federal Rules of Civil Procedure, and authorizing stays of discovery. Plaintiffs seeking to bring federal securities fraud class actions thus faced a far more onerous burden after PSLRA was enacted. Not very surprisingly, many plaintiffs’ attorneys responded by filing state law, fraud-based class actions in state court. To deal with the shift of class action litigation alleging fraud involving nationally traded securities, Congress responded two years later by enacting SLUSA, which sought to oust plaintiffs’ attorneys from their perceived haven in the state courts by essentially pre-empting class actions alleging state law fraud claims involving the securities. For forum selection purposes, the effect of such pre-emption would be to transform the plaintiffs’ state law claims into removable federal-question claims. Once there, the class action would be subject to dismissal if the standards of PSLRA were not met. The Supreme Court in Dabit took a broad view of the intended pre-emptive reach of PSLRA and SLUSA. In doing so, the court was cognizant that Congress does not take pre-emption of state law claims lightly, and that the presumption is against pre-emption. However, it noted, federal law, and not state law, long had been the primary vehicle for asserting class action claims based on securities. Indeed, before enactment of the PSLRA, a state court case like Dabit, which alleged fraud involving a nationally traded security, was exceedingly rare. Accordingly, Justice John Paul Stevens, writing for the unanimous court, held that the distinction plaintiffs tried to make between holders of securities on the one hand, and purchasers and sellers on the other, was meaningless. Beyond the identity of the plaintiff, the case would look like a typical Rule 10b-5 securities fraud class action: the very type of case Congress intended to deal with in the PSLRA. Dabit itself was brought in federal court based on state law fraud theories. Thus, it did not directly involve the federal/state forum shopping problem that gave rise to SLUSA. But, given the broad pre-emptive approach taken by the court, after Dabit any plaintiff seeking to keep a class action in state court that alleges anything like fraud involving anything like a covered security under SLUSA will have a very tough row to hoe. Last year, the Class Action Fairness Act (CAFA) was enacted to make it easier for defendants to remove state court class actions. 28 U.S.C. 1332(d), 1453. So, what’s the big deal about Dabit in terms of the forum selection battle? Because a Dabit-like case will be removable under SLUSA’s removal provision, 15 U.S.C. 78bb(f)(2), there is no need for defendants to invoke CAFA. Although the case might have been otherwise removable under CAFA’s minimal diversity requirements and $5 million aggregated amount in controversy, (� 1332(d)(2)), the defendant will not have to worry about the case being remanded under the mandatory or discretionary remand provisions of CAFA (see 28 U.S.C. 1332(d)(4)-(5), or any other limiting provisions of CAFA (e.g., 28 U.S.C. 1332(d)(5)). One of CAFA’s somewhat inscrutable provisions, 28 U.S.C. 1715, requires that the defendant provide notice to various federal and state officials of any proposed settlement of a class action. It was unclear what defendants were supposed to do. Now, the Office of the Comptroller of the Currency has come to the rescue, at least in part. It has issued a bulletin that lists the procedures that financial institutions should use when complying with the notice requirements of CAFA. See www.occ.gov/ftp/bulletin/2006-20.doc. ‘Arbaugh’: the importance of being procedural Most of us dreaded learning about the Erie Doctrine as first-year law students. Drawing the line between substance and procedure was, and still is, a mind-boggling endeavor. Do not fear, though: We’re not going there! Instead, we are going to look at a different sort of line drawing: What’s the difference between a procedural issue, on the one hand, and a jurisdictional issue, on the other? The Supreme Court provides an answer, at least in the context of Title VII, that litigators and courts will need to consider in any case involving the remand of a removed case, as will be explained below. Again, as in Dabit, the Supreme Court did not face a forum selection issue directly. Rather, in Arbaugh v. Y & H Corp., 126 S. Ct. 1235 (2006), as in Dabit, the plaintiff filed suit in federal court. The plaintiff, a former bartender/waitress, brought a Title VII action, alleging sexual harassment, against her former employer. The reach of Title VII is limited to claims against an “employer,” defined as only those having “fifteen or more employees.” A jury returned a verdict of $40,000 in her favor. Two weeks after judgment was entered, her employer moved to dismiss the action for lack of subject-matter jurisdiction, saying for the first time that it had fewer than 15 employees on its payroll. The trial court begrudgingly granted the motion because it viewed the employee numerosity requirement as jurisdictional, and the 5th U.S. Circuit Court of Appeals affirmed. Other courts of appeals had taken the divergent view that the numerical threshold is an element of the plaintiff’s claim for relief under Title VII. In a unanimous opinion, the Supreme Court held that Title VII’s numerical threshold did not restrict the federal court’s subject-matter jurisdiction, but rather related only to the substantive adequacy of the plaintiff’s claim. Writing for the court, Justice Ruth Bader Ginsburg noted that courts are often “less than meticulous” in observing the “subject matter jurisdiction/ingredient-of-claim-for-relief dichotomy,” and that courts often erroneously conflate subject-matter jurisdiction with merits-related determinations. Although the court deals only with one Title VII issue in Arbaugh, the court makes clear that it wants the courts, including itself, and parties to pay more careful attention to the nature of the issue at hand. No more “drive-by jurisdictional rulings” please! Why is this important to the forum selection battle? First, as the court notes, there are important differences between jurisdictional and merits-related issues. Jurisdictional ones involve the court’s power. Courts themselves have the power to and are required to police their jurisdiction. According to the court, there was nothing in Title VII to suggest Congress intended the courts to police the numerical requirement. Rather, it is up to the parties to police. In Arbaugh, after judgment was entered, it was too late for the defendant to raise a merits-related issue. Second, the courts decide contested issues of jurisdiction, while juries generally determine issues of fact (at least where there is a right to jury). Third, and for forum selection purposes perhaps most importantly, if the federal court determines there is no subject-matter jurisdiction, then the whole case must be dismissed. On the other hand, if the issue is merits-related, the federal claim must be dismissed, but any remaining state law claims remain within the court’s jurisdiction under the supplemental jurisdiction statute. For example, Arbaugh had alleged state law claims as well. The district court may have discretion under 28 U.S.C. 1367(c) to decline to exercise its jurisdiction, but it would be improper to dismiss such claims without making the proper findings under � 1367(c). The court did not discuss an additional practical implication of its decision. Had Arbaugh filed her complaint in state court, it would have been removable to federal court under 28 U.S.C. 1441(a). Had the district court granted her motion to remand for lack of subject-matter jurisdiction, appellate review would be precluded by 28 U.S.C. 1447(d). By finding that the issue in Arbaugh is merits-related rather than jurisdictional, the Supreme Court also would open the door to appellate review. In other words, if Arbaugh had persuaded the district court that the numerical-threshold issue was jurisdictional and wins a remand on the issue, the defendant could persuasively argue to the court of appeals that it has jurisdiction because the issue is merits-related, and therefore that review of the remand order is not precluded by � 1447(d). Even if the court described the issue as jurisdictional when it remanded, the court of appeals has jurisdiction to determine whether the issue resolved is jurisdictional or merits-related. Does the court provide any guidance in future cases on how to distinguish between jurisdiction and merits issues? Although Ginsburg doesn’t say so, it appears the message is that when the issue is resolved by the language or interpretation of the statute giving rise to a federal-question claim, such issue will be treated as a substantive part of the case as opposed to jurisdictional in nature, unless the statute itself purports to limit jurisdiction. After Arbaugh, it will be more likely that plaintiffs will be unsuccessful in getting drive-by jurisdictional rulings that result in a remand. Know the difference between a Rule 12(b)(1) and a Rule 12(b)(6)! Georgene M. Vairo is a professor of law and William M. Rains Fellow at Loyola Law School, Los Angeles. She can be reached at [email protected].

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