Blackrock Financial Management Inc. v. Segregated Account of AMBAC Assurance Corp.

11-5309-cv(L)
BlackRock Financial Management Inc., et al. v. The Segregated Account of Ambac Assurance
Corporation, et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2011
(Argued: February 15, 2012 Decided: February 27, 2012)
Docket Nos. 11-5309-cv(L); 11-5314-cv(CON)
- - - - - - - - - - - - - - - - - - - -x
BLACKROCK FINANCIAL MANAGEMENT INC., MAIDEN LANE, LLC,
MAIDEN LANE II, LLC, KORE ADVISORS, L.P., METROPOLITAN LIFE
INSURANCE COMPANY, TRUST COMPANY OF THE WEST AND AFFILIATED
COMPANIES CONTROLLED BY THE TCW GROUP, INC., MAIDEN LANE
III, LLC, PACIFIC INVESTMENT MANAGEMENT COMPANY LLC, GOLDMAN
SACHS ASSET MANAGEMENT, L.P., NEUBERGER BERMAN EUROPE
LIMITED, INVESCO ADVISERS, INC., THRIVENT FINANCIAL FOR
LUTHERANS, TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF
AMERICA, LBBW ASSET MANAGEMENT (IRELAND) PLC, DUBLIN, ING
BANK N.V., LANDESBANK BADENWUERTTEMBURG, ING INVESTMENT
MANAGEMENT LLC, NEW YORK LIFE INVESTMENT MANAGEMENT LLC,
NATIONWIDE MUTUAL INSURANCE COMPANY AND ITS AFFILIATED
COMPANIES, ING CAPITAL LLC, AEGON FINANCIAL ASSURANCE
IRELAND LIMITED, TRANSAMERICA LIFE INTERNATIONAL (BERMUDA)
LTD., AEGON USA INVESTMENT MANAGEMENT LLC, AUTHORIZED
SIGNATORY FOR TRANSAMERICA LIFE INSURANCE COMPANY,
TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY, AEGON GLOBAL
INSTITUTIONAL MARKETS, PLC, MONUMENTAL LIFE INSURANCE
COMPANY, PINE FALLS RE, INC., TRANSAMERICA FINANCIAL LIFE
INSURANCE COMPANY, LIICA RE II, INC., WESTERN RESERVE LIFE
ASSURANCE CO. OF OHIO, FEDERAL HOME LOAN BANK OF ATLANTA,
STONEBRIDGE LIFE INSURANCE COMPANY, PRUDENTIAL INVESTMENT
MANAGEMENT, INC., WESTERN ASSET MANAGEMENT COMPANY,
BAYERISCHE LANDESBANK, THE BANK OF NEW YORK MELLON, as
Trustee under various Pooling and Servicing Agreements and
Indenture Trustee Under Various Indentures,
Petitioners-Appellants,
- v.-
THE SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION, AMBAC
ASSURANCE CORPORATION, TRIAXX PRIME CDO 2007-1, LTD., TRIAXX
PRIME CDO 2006-2, LTD., TRIAXX PRIME CDO 2006-1, LTD.,
COMMONWEALTH INVESTORS, AMERICAN EQUITY INVESTMENT LIFE
INSURANCE COMPANY, WALNUT PLACE LLC, WALNUT PLACE II LLC,
WALNUT PLACE III LLC, WALNUT PLACE IV LLC, WALNUT PLACE V
LLC, WALNUT PLACE VI LLC, WALNUT PLACE VII LLC, WALNUT PLACE
VIII LLC, WALNUT PLACE IX LLC, WALNUT PLACE X LLC, WALNUT
PLACE XI LLC, FEDERAL HOME LOAN BANK OF SAN FRANCISCO,
FEDERAL HOME LOAN BANK OF SEATTLE, RMBS ACQUISITION, INC.,
CRANBERRY PARK LLC, CRANBERRY PARK II LLC, TM1 INVESTORS,
LLC, V RE-REMIC, LLC, POLICEMENS ANNUITY & BENEFIT FUND OF
CHICAGO, THE WESTMORELAND COUNTY EMPLOYEE RETIREMENT SYSTEM,
CITY OF GRAND RAPIDS GENERAL RETIREMENT SYSTEM, CITY OF
GRAND RAPIDS POLICE AND FIRE RETIREMENT SYSTEM, FEDERAL HOME
LOAN BANK OF BOSTON, FEDERAL HOME LOAN BANK OF CHICAGO,
FEDERAL HOME LOAN BANK OF INDIANAPOLIS, FEDERAL HOME LOAN
BANK OF PITTSBURGH, THE WESTERN AND SOUTHERN LIFE INSURANCE
COMPANY, COLUMBUS LIFE INSURANCE COMPANY, WESTERN-SOUTHERN
LIFE ASSURANCE COMPANY, INTEGRITY LIFE INSURANCE COMPANY,
NATIONAL LIFE INSURANCE COMPANY, FORT WASHINGTON INVESTMENT
ADVISORS, INC. ON BEHALF OF FORT WASHINGTON ACTIVE FIXED
INCOME LLC, AMERICAN INTERNATIONAL GROUP, INC., AMERICAN
GENERAL ASSURANCE COMPANY, AMERICAN GENERAL LIFE AND
ACCIDENT INSURANCE COMPANY, AMERICAN GENERAL LIFE INSURANCE
COMPANY, AMERICAN GENERAL LIFE INSURANCE COMPANY OF
DELAWARE, AMERICAN HOME ASSURANCE COMPANY, AMERICAN
INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK, CHARTIS
SELECT INSURANCE COMPANY, CHARTIS PROPERTY CASUALTY COMPANY,
COMMERCE AND INDUSTRY INSURANCE COMPANY, FIRST SUNAMERICA
LIFE INSURANCE COMPANY, LEXINGTON INSURANCE COMPANY,
2
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, NEW
HAMPSHIRE INSURANCE COMPANY, SUNAMERICA ANNUITY AND LIFE
ASSURANCE COMPANY, SUNAMERICA LIFE INSURANCE COMPANY, THE
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, THE UNITED
STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, THE
VARIABLE ANNUITY LIFE INSURANCE COMPANY, WESTERN NATIONAL
LIFE INSURANCE COMPANY, KNIGHTS OF COLUMBUS,
Respondents-Appellees.*
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Before: JACOBS, Chief Judge, HALL and LOHIER,
Circuit Judges.
On this appeal from an order of the United States
District Court for the Southern District of New York
(Pauley, J.), which denied petitioners’ motion to remand an
Article 77 proceeding to New York Supreme Court, we conclude
that the case falls within the securities exception to both
original and appellate jurisdiction under the Class Action
Fairness Act of 2005. We therefore dismiss the appeal,
reverse the order of the district court, and instruct it to
vacate its decision and order and remand the matter to the
state court.
*
The Clerk of the Court is respectfully directed to amend
the official caption to conform with that listed above.
3
ROBERT MADDEN, Gibbs & Bruns, LLP,
Houston, TX (Kathy Patrick, Gibbs & Bruns,
LLP, Houston, TX, Kenneth E. Warner,
Warner Partners, P.C., New York, NY, on
the brief), for Petitioners-Appellants
BlackRock Financial Management, Inc., et
al.
ANDREW L. FREY, Mayer Brown LLP, New York,
NY (Matthew D. Ingber, Christopher J.
Houpt, Mayer Brown LLP, New York, NY,
Charles A. Rothfeld, Brian J. Wong, Mayer
Brown LLP, Washington, DC, Hector
Gonzalez, James M. McGuire, Dechert LLP,
New York, NY, on the brief), for
Petitioner-Appellant The Bank of New York
Mellon.
OWEN L. CYRULNIK, Grais & Ellsworth LLP,
New York, NY (David J. Grais, Kathryn E.
Matthews, Leanne M. Wilson, on the brief),
for Respondents-Appellees Walnut Place
LLC, et al.
Rachel Allison Gupta, DLA Piper LLP, New
York, NY, for Respondents-Appellees The
Segregated Account of Ambac Asssurance
Coorporation & AMBAC Assurance
Corporation.
John G. Moon, Miller & Wrubel P.C., New
York, NY, for Respondents-Appellees Triaxx
Prime CDO 2007-1, Ltd., et al.
Justin M. Sher, Sher LLP, New York,NY, for
Respondent-Appellee Commonwealth
Investors.
4
Peter N. Tsapatsaris, Peter N.
Tsapatsaris, LLC, New York, NY, for
Respondents-Appellees American Equity
Investment Life Insurance Company &
Knights of Columbus.
David J. Grais, Grais & Ellsworth LLP, New
York, NY , for Respondents-Appellees
Federal Home Loan Bank of San Francisco,
et al.
Beth A. Kaswan, Scott+Scott LLP, New York,
NY, for Respondents-Appellees Policemens
Annuity & Benefit Fund of Chicago, et al.
Derek W. Loeser, Amy Christine Williams-
Derry, Keller Rohrback, L.L.P., Seattle,
WA, Gary A. Gotto, Ron Kilgard, Keller
Rohrback, PLC, Phoenix, AZ for
Respondents-Appellees Federal Home Loan
Bank of Boston, et al.
Heather Yue-Ling Fong, Robbins, Kaplan,
Miller & Ciresi, LLP, New York, NY, for
Respondent-Appellee Federal Home Loan Bank
of Pittsburgh.
Daniel M. Reilly, Reilly Pozner, L.L.P.,
Denver, CO, for Respondents-Appellees
Columbus Life Insurance Company, et al.
THEODORE N. MIRVIS, Wachtell, Lipton,
Rosen & Katz, New York, NY (George T.
Conway III, Elaine P. Golin, Won S. Shin,
on the brief), for Amicus Curiae Bank of
America Corporation.
5
DENNIS JACOBS, Chief Judge:
On this appeal from an order of the United States
District Court for the Southern District of New York
(Pauley, J.) denying petitioners’ motion to remand an
Article 77 proceeding to New York Supreme Court, we consider
again the application of 28 U.S.C. §§ 1453(d)(3) and
1332(d)(9)(C), exceptions to the federal jurisdiction
conferred by the Class Action Fairness Act of 2005 (“CAFA”),
Pub.L. No. 109–2, 119 Stat. 4 (codified in scattered
sections of Title 28, United States Code).
The Bank of New York Mellon, acting in its capacity as
trustee of trusts established to hold residential mortgage-
backed securities, settled claims that the originator and
servicer breached obligations owed to the trusts. Then, as
a condition precedent to the settlement, The Bank of New
York Mellon initiated an Article 77 proceeding in New York
Supreme Court to confirm that it had the authority to enter
into the settlement under the governing trust documents and
that entry into the settlement did not violate its duties
under the governing trust agreements and state law. Certain
investors intervened in the special proceeding and removed
6
the proceeding to federal court under CAFA. A motion to
remand--on the ground, among others, that the controversy
fell within CAFA’s securities exception, 28 U.S.C.
§ 1332(d)(9)--was denied. Bank of New York Mellon v. Walnut
Place LLC, No. 11 Civ. 5988 (WHP), 2011 WL 4953907 (S.D.N.Y.
Oct. 19, 2011).
We hold that the case falls within CAFA’s
securities exception as one that solely involves a claim
that “relates to the rights, duties (including fiduciary
duties), and obligations relating to or created by or
pursuant to” a security. Accordingly, we dismiss the
petition for lack of jurisdiction, reverse the order of the
district court, and instruct it to vacate its decision and
order and remand the matter to the state court.
BACKGROUND
The features of residential mortgage-securitization
trusts are well known in the recent annals of litigation.
See, e.g., Greenwich Fin. Svcs. Distressed Mortg. Fund 3 LLC
v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir. 2010); In re
7
IndyMac Mortgage-Backed Sec. Litig.,793 F. Supp. 2d 637(S.D.N.Y. 2011). To raise funds for new mortgages, a
mortgage lender sells pools of mortgages into trusts created
to receive the stream of interest and principal payments
from the mortgage borrowers. The right to receive trust
income is parceled into certificates and sold to investors,
called certificateholders. The trustee hires a mortgage
servicer to administer the mortgages by enforcing the
mortgage terms and administering the payments. The terms of
the securitization trusts as well as the rights, duties, and
obligations of the trustee, seller, and servicer are set
forth in a Pooling and Servicing Agreement (“PSA”).
At issue in this case are 530 such trusts created
between 2004 and 2008, for which The Bank of New York Mellon
is trustee. The home mortgages were sold into the trusts by
Countrywide Home Loans, Inc.--now a subsidiary of Bank of
America--and are serviced by Countrywide’s servicing arm.1
1
Countrywide Home Loans, Inc.’s parent company, Countrywide
Financial Corporation, was acquired by Bank of America
Corporation in July 2008, after the last of the trusts was
created. Countrywide Home Loans Servicing LP, which has
since been renamed BAC Home Loans Servicing, LP after the
Bank of America acquisition, services the mortgages.
Investors in the trust have alleged that Bank of America
8
Countrywide made representations and warranties that the
mortgages conformed to the trusts’ requirements for credit
quality, property value, title, and lien priority.2 A
breach of any such representation or warranty required the
seller to cure or repurchase at the mortgage purchase price.
The servicing and administration of the mortgage loans was
required to be “in accordance with the terms of [the PSA]
and customary and usual standards of practice of prudent
mortgage loan servicers.” PSA § 3.01. The PSAs granted to
the trustee, “for the benefit of the Certificateholders,”
the “right to require each Seller to cure any breach of a
representation or warranty made herein by Seller, or to
repurchase or substitute for any affected Mortgage Loan in
accordance herewith.” PSA § 2.01(b).
Two organized groups of certificateholders are opposed
in this case. The “Institutional Investors” are aligned
is liable for Countrywide’s obligations under the PSAs.
2
The vast majority of the 530 trusts are governed by PSAs.
The remainder are governed by indentures and Sale and
Servicing Agreements. Appellants have represented, and
Walnut Place does not dispute, that the agreements are
sufficiently similar for the Court to rely on a
representative PSA for purposes of this appeal. Decl. of
Matthew D. Ingber Ex. A (“PSA”) (Dist. Ct. Docket No. 56).
9
with The Bank of New York Mellon and include such large
financial institutions as BlackRock Financial Management
Inc., Goldman Sachs Asset Management L.P., Federal Home Loan
Mortgage Corporation, and Maiden Lane LLC and associated
entities formed by the Federal Reserve Bank of New York.
The “Walnut Place” group is the set of investors that
intervened in the state proceeding and removed it to federal
court. Everyone is a sophisticated investor.
In June 2010, the Institutional Investors complained to
The Bank of New York Mellon that a large number of mortgages
that Countrywide sold into the trusts failed to comply with
the PSAs’ representations and warranties. In October, they
complained that the servicer had also breached its
obligations. Negotiations, aimed at avoiding litigation,
ensued among the Institutional Investors, Countrywide, Bank
of America, and The Bank of New York Mellon.
Walnut Place also complained to The Bank of New York
Mellon that Countrywide was in breach. Countrywide had
refused Walnut Place’s direct demand that Countrywide
repurchase the nonconforming loans, and Walnut Place
10
demanded that The Bank of New York Mellon sue Countrywide to
enforce the terms of the PSA. In February 2011, after The
Bank of New York Mellon did not act, Walnut Place filed a
derivative action in state court on behalf of a trust in
which it held an interest.
Meanwhile, the negotiations provoked by the
Institutional Investors culminated in a “Settlement
Agreement” on June 28, 2011, which provided that Countrywide
and Bank of America will pay $8.5 billion, to be allocated
among all of the trusts in accordance with an agreed-upon
formula. (It also required the mortgage servicer to adopt
reforms.)
The Settlement Agreement is contingent on court
approval: it is not effective until The Bank of New York
Mellon brings an Article 77 proceeding in New York state
court and obtains entry of a judgment sanctioning its
execution of the Settlement Agreement. On June 29, 2011,
The Bank of New York Mellon filed a verified petition in New
York Supreme Court under CPLR § 7701 seeking a judgment,
inter alia,
11
(1) that The Bank of New York Mellon “has the
authority, pursuant to the Governing Agreements and
applicable law” “to assert, abandon, or compromise”
claims belonging to the trusts and enter into the
Settlement Agreement on behalf of the trusts and trust
beneficiaries; and
(2) that it had “acted in good faith, within its
discretion, and within the bounds of reasonableness in
determining that the Settlement Agreement was in the
best interests of the Covered Trusts.”
Joint Appendix 165-70.
Article 77 of the New York Civil Practice Law and Rules
authorizes a special proceeding “to determine a matter
relating to any express trust . . . .” N.Y. C.P.L.R. 7701.
Permissible uses of Article 77 are “broadly construed to
cover any matter of interest to trustees, beneficiaries or
adverse claimants concerning the trust.” Greene v. Greene
(In re Greene), 451 N.Y.S.2d 741, 743 (1st Dep’t 1982).
Such proceedings are used by trustees to obtain instruction
as to whether a future course of conduct is proper, and by
trustees (and beneficiaries) to obtain interpretations of
the meaning of trust documents. See Gilbert v. Gilbert (In
re Gilbert), 39 N.Y.2d 663, 666 (1976) (interpreting
addendum to trust); First Nat’l City Bank v. Palmer (In re
Scarborough Props. Corp.), 25 N.Y.2d 553, 559-60 (1969)
12
(approving sale of trust assets to trustee after adversarial
hearing to determine fairness); Andrews v. Trustco Bank,
Nat’l Ass’n (In re Andrews), 735 N.Y.S.2d 640, 643 (3d Dep’t
2001) (interpreting income provision of trust).3 Ultimately,
however, whether a New York court is able and willing to
grant the relief sought in this case is an issue for the New
York courts.
Walnut Place moved to intervene in the Article 77
proceeding, chiefly to exclude the three trusts that it
invested in from the proposed settlement. The motion stated
that The Bank of New York Mellon had negotiated the
Settlement Agreement “in secret,” working only with the
Institutional Investors, that the Article 77 proceeding was
initiated without notice to all certificateholders,4 and
3
The “matter[s] relating to a trust” that can be resolved in
an Article 77 proceeding also include, among other relief,
the judicial settlement of a trustee’s accounts; an
accounting; the modification of a trust; the compelling
of payment to trust beneficiaries; a determination of
trust revocation; and the removal of a trustee. See 14
Jack B. Weinstein, et al., New York Civil Practice: CPLR ¶
7701.05 (2011).
4
Notwithstanding these allegations, The Bank of New York
Mellon’s Article 77 proceeding provided for an expansive
program intended to provide notice to all
certificateholders, and the Settlement Agreement required
13
that the parties had conflicts of interest: The Bank of New
York Mellon obtained for itself an expanded indemnity, and
the Institutional Investors had other business relationships
with Bank of America. On August 19, 2011 the state court
granted the motion to intervene.
On August 26, Walnut Place removed the Article 77
proceeding to the United States District Court for the
Southern District of New York, on the ground that the
Article 77 proceeding was a “mass action” under CAFA, 28
U.S.C. § 1332(d)(11), and therefore removable under 28
U.S.C. §§ 1446 and 1453. The Bank of New York Mellon and
the Institutional Investors moved to remand. The district
court denied the motion.
The Bank of New York Mellon and the Institutional
Investors sought permission to bring an appeal pursuant to
CAFA’s interlocutory appeal provision. See 28 U.S.C.
§ 1453(c). We granted leave to appeal to consider whether
the case falls within CAFA's securities exception, whether
CAFA’s interlocutory appeal provision extends to appeals of
that a preliminary order regarding the notice plan be
sought in the Article 77 proceeding.
14
remand orders relating to “mass actions,” whether the
Article 77 Proceeding was in fact a “mass action,” and
whether the case was properly removed by a “defendant or
defendants” as dictated by 28 U.S.C. § 1446.
We conclude that we lack appellate jurisdiction over
this case as one that solely involves a claim that “relates
to the rights, duties (including fiduciary duties), and
obligations relating to or created by or pursuant to any
security.” 28 U.S.C. § 1453(d)(3). For the same reason,
the case was not removable from state court and must be
remanded. See 28 U.S.C. § 1332(d)(9)(C). We therefore do
not reach any of the other questions raised on appeal.
DISCUSSION
CAFA expanded federal jurisdiction to permit a
defendant to remove to federal court a class actions or
“mass action” notwithstanding the absence of the complete
diversity or federal question otherwise required for
removal. See 28 U.S.C. §§ 1332(d), 1453(b); Greenwich Fin.,
603 F.3d at 26. Such a removal is subject to the general
15
remand statute, 28 U.S.C. § 1447. See 28 U.S.C. §
1453(c)(1). A district court order on a motion to remand is
ordinarily unappealable under the collateral order doctrine.
See In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab.
Litig., 488 F.3d 112, 121 (2d Cir. 2007). However, CAFA
expanded appellate jurisdiction to allow courts of appeals
to accept interlocutory appeals from orders granting or
denying motions to remand cases removed under CAFA. See 28
U.S.C. § 1453(c)(1) (“[A] court of appeals may accept an
appeal from an order of a district court granting or denying
a motion to remand a class action to the State court from
which it was removed.”).
At the same time, Congress carved out exceptions to
CAFA’s expanded jurisdiction. One of them targets claims
that relate to the rights, duties, and obligations relating
to securities:
(d) Exception.—This section shall not apply to any
class action that solely involves
. . .
(3) a claim that relates to the rights, duties
(including fiduciary duties), and obligations
relating to or created by or pursuant to any
security (as defined under section 2(a)(1) of the
16
Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and
the regulations issued thereunder).
28 U.S.C. § 1453(d). This wording appears twice in CAFA,
once as an exception to our appellate jurisdiction, id., and
once as an exception to the district courts’ original
jurisdiction, id. § 1332(d)(9)(C). These provisions work in
tandem and are given the same meaning. See Greenwich Fin.,
603 F.3d at 27; S. Rep. No. 109-14, at 49-50 (2005) (“The
parameters of [§ 1453(d)] are intended to be conterminous
with new subsection 1332(d)(9).”). It follows that if we
lack appellate jurisdiction, the district court likewise
lacked original jurisdiction.
I
We have twice before construed the exception to CAFA
for an action that solely involves a claim that “relates to
the rights, duties (including fiduciary duties), and
obligations relating to or created by or pursuant to any
security”. See Greenwich Fin., 603 F.3d 23; Estate of Pew
v. Cardarelli, 527 F.3d 25 (2008). Although the wording of
the exception (like much of CAFA) does not easily give up
17
its meaning, Cardarelli, 527 F.3d at 30, our precedents
explain that § 1453(d)(3) carves out from our jurisdiction
“claims based either on the ‘terms of the instruments that
create and define securities or on the duties imposed on
persons who administer securities,’” while leaving
unaffected federal jurisdiction over “claims based on rights
arising from independent sources of state law.” Greenwich
Fin., 603 F.3d at 28-29 (alterations omitted) (quoting
Cardarelli, 527 F.3d at 33).
By way of example, the plaintiffs in Cardarelli sued
solely under a New York consumer fraud statute, N.Y. Gen.
Bus. Law § 349, alleging that they had been sold a debt
security by officers of the issuer who knew the company was
insolvent. Cardarelli, 527 F.3d at 27. Although the
purchase was of a security, we held that § 1453(d)(3) was
inapplicable because the claim related to plaintiffs’ status
as the “purchaser” rather than the holder of a security:
“The present claim--that a debt security was fraudulently
marketed by an insolvent enterprise--does not enforce the
rights of the Certificate holders as holders, and therefore
18
it does not fall within § 1332(d)(9)(C) and § 1453(d)(3).”
Id. at 32.
The same principle produced the opposite result in
Greenwich Financial, which was brought by certificateholders
of trusts that were similar in all material respects to
those at issue here, down to the originator, trustee, and
servicer. 603 F.3d at 24-25. A class action complaint in
New York state court sought a declaratory judgment that
Countrywide was required by the governing PSAs to buy back
non-conforming mortgages. Id. at 25. We concluded that,
unlike the plaintiffs in Cardarelli, the plaintiffs sought
“enforcement of their rights as holders rather than as
purchasers of securities”: the “right to force Countrywide
Servicing to repurchase the loans arises from the deal
instruments themselves, not from an extrinsic provision of
state law, such as a consumer fraud statute.” Id. at 29.
II
The first step is to determine what claims were
asserted in the state court, an inquiry complicated somewhat
19
by the nature of an Article 77 proceeding. Ultimately, we
conclude that The Bank of New York Mellon is seeking a
judicial determination [i] that it has the authority to
assert and settle claims on behalf of the trusts and [ii]
that it “acted in good faith, within its discretion, and
within the bounds of reasonableness in determining that the
Settlement Agreement was in the best interests of the
Covered Trusts.” Joint Appendix at 165-166, 169; Walnut
Place Br. at 25 (“[The Bank of New York Mellon] is
affirmatively and unambiguously seeking a declaration that
it complied with its duties under New York common law.”).
Thus it asks for a construction of the PSA and an
instruction that its planned course of action complies with
its obligations under that document and the law of trusts--
consistent with other proceedings brought under Article 77.
See Gilbert, 39 N.Y.2d at 666 (providing construction of
trust documents); Scarborough, 25 N.Y.2d at 559-60(approving sale of trust assets to trustee after adversarial
proceeding).
We classify the claims by reference to the verified
petition filed by The Bank of New York Mellon and its
20
election to proceed under Article 77. The Bank of New York
Mellon’s verified petition alleges chiefly its good faith in
negotiating, evaluating, and agreeing to the settlement, as
well as the fairness of the settlement itself. It sets out
the potential claims belonging to the trusts, the demands
made by certificateholders, the varying strength of the
claims and the obstacles to prevailing on them, concerns
about successor liability in enforcing a recovery from
Countywide, and the retention of experts to evaluate the
settlement.
The proposed order that The Bank of New York Mellon
submitted in state court is consistent with the petition,
and confirms that the trustee is primarily seeking a
construction of the trust documents and an instruction about
the reasonableness of its planned course of action--the
kinds of relief afforded under Article 77. But it
ostensibly recites other relief--relief that, according to
Walnut Place’s theory, fundamentally alters or expands the
scope of The Bank of New York Mellon’s claim such that it no
longer solely involves a claim relating to a security. Thus
the proposed order [i] directs the “parties” to “consummate
21
the Settlement in accordance with its terms and conditions,”
[ii] enjoins Countrywide and Bank of America from suing The
Bank of New York Mellon in connection with the Settlement
Agreement, and [iii] enjoins the certificateholders,
including Walnut Place, from suing The Bank of New York
Mellon in connection with the Settlement Agreement. This
wish list does not alter the nature of the relief sought by
the trustee, for several reasons. As a structural matter,
relief would be limited by the purposes and procedural
features of Article 77. As a procedural matter, it is
elementary that a court cannot bind a non-party absent
special circumstances, and neither Countrywide nor Bank of
America is a party to the Article 77 proceeding. See
Briscoe v. City of New Haven, 654 F.3d 200, 203 (2d Cir.
2011) (“The general principle in Anglo–American
jurisprudence is ‘that one is not bound by a judgment in
personam in a litigation in which he is not designated as a
party or to which he has not been made a party by service of
process.’” (quoting Hansberry v. Lee, 311 U.S. 32, 40
(1940))). The injunction against certificateholders like
Walnut Place simply gives effect to the primary relief
22
sought in the Article 77 proceeding--the determination that
The Bank of New York Mellon acted reasonably in entering
into the Settlement Agreement and in accordance with its
duties as trustee for all certificateholders. Moreover,
although we leave these matters for New York courts to
decide, there is no basis for an injunction compelling the
parties to execute the Settlement Agreement because they
have no present disagreement and unanimously seek only the
opportunity to consummate it. Likewise, there is no basis
for an injunction preventing suit by Bank of America against
The Bank of New York Mellon because there is no threat of
such litigation.
III
Having characterized the claim as a declaration
authorizing the exercise of a trustee’s powers, we can now
determine whether it solely involves a claim that “relates
to the rights, duties (including fiduciary duties), and
obligations relating to or created by or pursuant to any
security.” 28 U.S.C. § 1453(d)(3). Because The Bank of New
23
York Mellon seeks a construction of its rights under the PSA
and an instruction from the court as to whether it has
complied with its “duties . . . and obligations” arising
from the PSA and its “fiduciary duties” superimposed by
state law, we conclude that it does.
Greenwich Financial already held that a suit by
security holders attempting to enforce the terms of a PSA
fit within § 1453(d)(3). At that time, Countrywide argued
that the plaintiffs’ claims did not relate to a security
because the terms being enforced were contained in the PSA
rather than in the certificate. We rejected that argument:
The fact that a certificate holder’s rights may be
enumerated in an instrument other than the security
itself is not material. Securities are created and
defined not simply by their own text, but also by any
number of deal instruments executed between various
parties. Indeed, we made clear in Cardarelli that the
“instruments that create and define securities” include
documents such as certificates of incorporation and
bond indentures. [Cardarelli, 527 F.3d at 31.] For
this reason, the fact that plaintiffs seek enforcement
of a term of the PSAs--trust agreements similar to bond
indentures in many respects--rather than of the
certificates does not affect our conclusion that this
suit is not removable under CAFA.
Greenwich Fin., 603 F.3d at 29.
24
The sole claim presented in the Article 77 proceeding
fits within § 1453(d)(3) because it concerns the
relationship between the entity which administers the
securities, The Bank of New York Mellon, and the
certificateholders. In Cardarelli, we drew no distinction
between suits that relate to “the terms of instruments that
create and define securities,” and those that relate to the
“duties imposed on persons who administer securities.” 527
F.3d at 33. As Walnut Place points out, our previous cases
interpreting § 1453(d)(3) have dealt with suits enforcing
rights, duties, and obligations that relate to or are
created by or pursuant to a security; however, the statutory
language equally bears upon a declaration as to what those
rights, duties and obligations may be. Cases that declare
them (so that they can be realized) “relate” to them to the
same extent as cases that enforce them.
It follows that the district court erred insofar as it
reasoned that the securities exception does not apply if
“the trustee’s conduct in approving the settlement must also
be evaluated under some” source of law other than the PSA,
“such as New York’s common law of trusts.” Bank of New York
25
Mellon, 2011 WL 4953907, at *8. The district court
specifically cited the duty to avoid conflicts of interest
that (it determined) beset The Bank of New York Mellon. Id.However, duties superimposed by state law as a result of the
relationship created by or underlying the security fall
within the plain meaning of the statute, which expressly
references “duties (including fiduciary duties).” We have
previously explained that “certain duties and obligations of
course ‘relate to’ securities even though they are not
rooted in a corporate document but are instead superimposed
by a state’s corporation law or common law on the
relationships underlying that document.” Cardarelli, 527
F.3d at 31; see also Rubin v. Mercer Ins. Grp., Inc., No.
10-6816 (MLC), 2011 WL 677466, at *4 (D.N.J. Feb. 15, 2011)
(remanding breach of fiduciary duty claim brought by
shareholders against issuer).
Walnut Place argues that applying this analysis in a
suit that is not brought by certificateholders would amount
to a bright-line rule that any suit touching on a PSA falls
within CAFA’s securities exception. Walnut Place would thus
recast the removed proceeding (which concerns a trustee’s
26
rights, duties, and obligations) into the underlying claim
resolved in the Settlement Agreement: a claim by The Bank of
New York Mellon against Countrywide and Bank of America to
enforce the buy-back provisions of the PSA. That is not the
claim that was removed here, and we need not reach the
question of whether such a suit would be removable under
CAFA.5
III
Walnut Place argued in opposition to Appellants’
petitions for permission to appeal that if we should find
that this case fits within § 1453(d)(3)--as we do--we lack
5
Far from requiring a bright-line rule, we recognize that
these questions must be resolved on a case-by-case basis.
The question, for example, of whether and how an
instrument can be disaggregated into a “security” portion
and into a non-security “contract” portion is vexed.
Compare Lincoln Nat. Life Ins. Co. v. Bezich, 610 F.3d
448, 450-51 (7th Cir. 2010) (holding claim brought under
terms of variable life insurance policy, but not
implicating the investment account that was registered
security, falls within CAFA § 1453(d)(3)), with Ring v.
AXA Fin., Inc., 483 F.3d 95, 101 (2d Cir. 2007) (holding
that rider purchased for and incorporated into variable
life insurance policy was not a “covered security” for
purposes of the Securities Litigation Uniform Standards
Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227 (1998)).
27
jurisdiction to direct the district court to remand the
case. There is no doubt, however, that where the federal
courts no longer have jurisdiction over a case, courts of
appeal retain the authority to properly dispose of it. See
U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18,
21 (1994) (“[R]eason and authority refute the . . . notion
that a federal appellate court may not take any action with
regard to a piece of litigation once it has been determined
that the requirements of Article III no longer are (or
indeed never were) met.”); Duke Power Co. v. Greenwood
Cnty., 299 U.S. 259 (1936). There is explicit statutory
authority for such orders:
The Supreme Court or any other court of appellate
jurisdiction may affirm, modify, vacate, set aside or
reverse any judgment, decree, or order of a court
lawfully brought before it for review, and may remand
the cause and direct the entry of such appropriate
judgment, decree, or order, or require such further
proceedings to be had as may be just under the
circumstances.
28 U.S.C. § 2106; see also In re Wallace & Gale Co., 72 F.3d
21, 25 (4th Cir. 1995) (“When we conclude, as we do here,
that we lack jurisdiction to reach the merits of an appeal,
we are not without power to act. We retain the power under
28
28 U.S.C. § 2106 to dismiss the appeal and remand the cause
with instructions.” (citation omitted)). We therefore have
authority to reverse the order of the district court and
instruct it to vacate its decision and order and remand the
case to state court.
CONCLUSION
For the foregoing reasons, we dismiss the appeal for
lack of jurisdiction, reverse the order of the district
court, and instruct it to vacate its decision and order and
remand the matter to New York Supreme Court.
29