David Rainero v. Archon Corporation

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DAVID RAINERO, No. 14-17106
Plaintiff-Appellant,
D.C. No.
v. 2:07-cv-01553-GMN-PAL
ARCHON CORPORATION,
Defendant-Appellee. OPINION
Appeal from the United States District Court
for the District of Nevada
Gloria M. Navarro, Chief Judge, Presiding
Argued and Submitted October 17, 2016
San Francisco, California
Filed December 21, 2016
Before: Sidney R. Thomas, Chief Judge, and
Carlos T. Bea and Sandra S. Ikuta, Circuit Judges.
Opinion by Chief Judge Thomas
2 RAINERO V. ARCHON CORP.
SUMMARY*
Securities Litigation Uniform Standards Act /
Jurisdiction
The panel affirmed the district court’s dismissal of a class
action suit, brought on behalf of a class of preferred stock
shareholders, for lack of subject matter jurisdiction; and held,
inter alia, that the Securities Litigation Uniform Standards
Act did not provide an independent basis for federal question
jurisdiction under 28 U.S.C. § 1331.
The sole claim in plaintiff’s complaint was a breach-of-
contract claim arising under Nevada law.
The panel held that the district court properly concluded
that it lacked federal question jurisdiction under 28 U.S.C.
§ 1331 because the plaintiff did not assert a federal claim and
the Securities Litigation Uniform Standards Act, 15 U.S.C.
§ 77p(d)(1)(A), did not provide an independent basis for
federal question jurisdiction over plaintiff’s state-law claim.
The panel also held that the district court properly
concluded that it lacked diversity jurisdiction over the class
action suit under 28 U.S.C. § 1332(d)(2) because of the
exception in 28 U.S.C. § 1332(d)(9)(C), which provides that
§ 1332(d)(2) shall not apply to any class action that solely
involves a claim relating to a security.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RAINERO V. ARCHON CORP. 3
Finally, the panel held that the district court properly held
that it lacked diversity jurisdiction over plaintiff’s individual
claim under 28 U.S.C. § 1332(a), and therefore could not
exercise § 1367 supplemental jurisdiction over the class
members’ claims. Specifically, the panel held that plaintiff’s
original complaint did not even plead individual diversity
jurisdiction, nor did it contain allegations that would be
sufficient to create such jurisdiction. The panel further held
that granting leave to amend would have been futile because
plaintiff’s proposed amended complaint also failed to allege
a sufficient amount in controversy.
COUNSEL
Joseph N. Mott (argued) and Steven J. Parsons, Law Offices
of Steven J. Parsons, Las Vegas, Nevada; Steven E. Goren,
Goren Goren & Harris P.C., Bingham Farms, Michigan; for
Plaintiff-Appellant.
John Desmond (argued) and Justin J. Bustos, Gordon Silver,
Reno, Nevada, for Defendant-Appellee.
4 RAINERO V. ARCHON CORP.
OPINION
THOMAS, Chief Judge:
This appeal presents the question, inter alia, of whether
the Securities Litigation Uniform Standards Act, 112 Stat.
3227, provides an independent basis for federal question
jurisdiction under 28 U.S.C. § 1331. We conclude that it
does not, and affirm the district court’s dismissal of this class
action suit for lack of subject matter jurisdiction.
I
On August 20, 1993, Archon Corporation (“Archon”), a
Nevada corporation with its principal place of business in Las
Vegas, created a class of equity securities designated as
Exchangeable Redeemable Preferred Stock (“preferred
stock”). After filing a Certificate of Designation
(“Certificate”) with the Nevada Secretary of State, Archon
issued shares of the preferred stock. The Certificate reserved
Archon’s right to redeem the preferred stock, in whole or in
part, at Archon’s election and upon providing notice to the
shareholders. Upon redemption, shareholders would be
entitled to $2.14 per share in addition to accrued, unpaid
dividends. According to the terms of the Certificate,
dividends would “cease to accrue on the shares redeemed . . .
provided that the redemption price . . . has been duly paid or
provided for.”
On July 31, 2007, Archon issued a Notice of Redemption
(“Notice”) to the holders of outstanding shares of preferred
stock, announcing its intent to redeem all outstanding shares
of the preferred stock on August 31, 2007. The Notice also
announced that the preferred stock’s redemption price would
RAINERO V. ARCHON CORP. 5
be $5.241 per share. Rainero, a resident of Pennsylvania,
claims that he held 9,140 shares of preferred stock at the time
of redemption.
On November 20, 2007, Rainero filed a complaint in the
U.S. District Court for the District of Nevada, alleging breach
of contract. He argued that, under the terms of the
Certificate, the redemption price should have been $8.69 per
share; therefore, he and other shareholders were entitled to an
additional $3.45 per share. He brought the suit on behalf of
himself and other holders of outstanding preferred stock at
the time of redemption. According to Rainero’s complaint,
the class members held a total of 1,483,270 outstanding
shares of preferred stock at the time of redemption. The sole
basis for federal subject matter jurisdiction alleged in the
complaint is 28 U.S.C. § 1332(d)(2), which confers federal
subject matter jurisdiction over certain class action lawsuits.
Shortly before Rainero filed his complaint, the investment
group D.E. Shaw Laminar Portfolios, LLC (“D.E. Shaw”)
filed a similar complaint against Archon. D.E. Shaw v.
Laminar Portfolios, LLC v. Archon Corp., 755 F. Supp. 2d
1122 (D. Nev. 2010). After Rainero filed his complaint, the
investment group Leeward Capital filed its own complaint
against Archon. Leeward Capital, L.P. v. Archon Corp.,
759 F. Supp. 2d 1249 (D. Nev. 2010). The three cases were
consolidated only for the purpose of discovery; discovery in
D.E. Shaw was to govern all three cases. On December 22,
2010, the district court held in D.E. Shaw and Leeward that
the properly calculated redemption price was $8.69 and that
Archon owed the shareholders of preferred stock an
additional $3.449 per share. D.E. Shaw, 755 F. Supp. 2d at
1128; Leeward, 759 F. Supp. 2d at 1257. This Court
subsequently affirmed the district court’s decision in a
6 RAINERO V. ARCHON CORP.
consolidated appeal. D.E. Shaw Laminar Portfolios, LLC v.
Archon Corp., 483 Fed. App’x 358 (9th Cir. 2012)
(unpublished).
In light of the decisions in D.E. Shaw and Leeward,
Rainero sought partial summary judgment as to the method
for calculating the redemption price. The district court
granted Rainero’s motion on November 7, 2013. On January
21, 2014, Archon filed a motion to dismiss for lack of subject
matter jurisdiction because the class members’ claims did not
reach the $5 million amount in controversy required by
28 U.S.C. § 1332(d)(2). Archon argued in its motion to
dismiss that the class held only 1,439,270 shares of preferred
stock, and therefore the amount in controversy is only
$4,964,042.23. Without ruling on Archon’s motion, the
district court entered a minute order on September 11, 2014,
requiring Rainero to show cause why the action should not be
dismissed for lack of subject matter jurisdiction pursuant to
28 U.S.C. § 1332(d)(9), which excludes certain class actions
from § 1332(d)(2)’s grant of subject matter jurisdiction. Both
parties submitted briefs addressing the issue of subject matter
jurisdiction. In addition, Rainero filed a motion for leave to
amend his original complaint and submitted a proposed first
amended complaint. Whereas Rainero’s original complaint
relies solely on class action diversity jurisdiction under
28 U.S.C. § 1332(d)(2), his proposed first amended complaint
also asserts federal question jurisdiction under 28 U.S.C.
§ 1331 and 15 U.S.C. § 77p, individual diversity jurisdiction
under 28 U.S.C. § 1332(a), and supplemental jurisdiction
over the class members’ claims under 28 U.S.C. § 1367. The
district court subsequently dismissed the case, without
prejudice, for lack of subject matter jurisdiction. Rainero
timely appealed. We review de novo a district court’s
dismissal of a complaint for lack of subject matter
RAINERO V. ARCHON CORP. 7
jurisdiction. Young v. United States, 769 F.3d 1047, 1052
(9th Cir. 2014).
II
The district court properly held that it lacked federal
question subject matter jurisdiction. Under 28 U.S.C. § 1331,
“[t]he district courts shall have original jurisdiction of all civil
actions arising under the Constitution, laws, or treaties of the
United States.” “The presence or absence of federal question
jurisdiction is governed by the ‘well-pleaded complaint rule,’
which provides that federal jurisdiction exists only when a
federal question is presented on the face of the plaintiff’s
properly pleaded complaint.” California ex rel. Sacramento
Metro. Air Quality Mgmt. Dist. v. United States, 215 F.3d
1005, 1014 (9th Cir. 2000) (citation omitted). The sole claim
in Rainero’s complaint was a breach-of-contract claim arising
under Nevada law. Because Rainero did not assert a federal
claim, the district court lacked subject matter jurisdiction
under § 1331.
Rainero argues that the Securities Litigation Uniform
Standards Act (“SLUSA”), Pub. L. 105-353, 112 Stat. 3227
(codified in relevant part at 15 U.S.C. § 77p), provides a basis
for the district court’s federal question jurisdiction under
§ 1331 because 15 U.S.C. § 77p(d)(1)(A) is a federal statute
that allows certain class actions, including this one, to be
maintained in either state or federal court. Specifically, he
asserts that this case is a “covered class action” under § 77p
that is “based upon the statutory or common law of the state
in which the issuer is incorporated,” 15 U.S.C.
§ 77p(d)(1)(A), and therefore the federal district court has
jurisdiction over this case. Contrary to Rainero’s arguments,
SLUSA does not create an independent basis for federal
8 RAINERO V. ARCHON CORP.
question jurisdiction. Although we have not had the occasion
to review this issue, the D.C. Circuit addressed it in Campbell
v. American International Group, Inc., 760 F.3d 62, 63 (D.C.
Cir. 2014), and held that SLUSA “does not confer federal
jurisdiction over . . . state-law claims.” We agree with and
adopt Campbell’s analysis of this issue.
“As with any question of statutory interpretation, [a
court’s] analysis begins with the plain language of the
statute.” Jimenez v. Quarterman, 555 U.S. 113, 118 (2009).
“[W]hen deciding whether the language is plain, [courts]
must read the words ‘in their context and with a view to their
place in the overall statutory scheme.’” King v. Burwell,
135 S. Ct. 2480, 2489 (2015) (citations omitted). If the
statutory language is plain, we must enforce the statute
according to its terms. Jimenez, 555 U.S. at 118.
As explained by the D.C. Circuit in Campbell, 760 F.3d
at 64, the plain language of the provision shows that § 77p(a)
simply preserves state law claims except as set forth in
§ 77p(b):
(a) Remedies additional
Except as provided in subsection (b), the
rights and remedies provided by this
subchapter shall be in addition to any and all
other rights and remedies that may exist at
law or in equity.
(b) Class action limitations
No covered class action based upon the
statutory or common law of any State or
RAINERO V. ARCHON CORP. 9
subdivision thereof may be maintained in any
State or Federal court by any private party
alleging–
(1) an untrue statement or omission of a
material fact in connection with the
purchase or sale of a covered security; or
(2) that the defendant used or employed
any manipulative or deceptive device or
contrivance in connection with the
purchase or sale of a covered security.
15 U.S.C. § 77p(a)–(b). Subsection 77p(b) is commonly
referred to as the “preclusion provision” because it bars
individuals from bringing certain state-law securities fraud
claims as class actions in either state or federal court. See
Campbell, 760 F.3d at 64. Then, § 77p(c) ensures that federal
courts have jurisdiction for the limited purpose of
determining whether a certain state action is precluded under
§ 77p(b):
(c) Removal of covered class actions
Any covered class action brought in any State
court involving a covered security, as set forth
in subsection (b), shall be removable to the
Federal district court for the district in which
the action is pending, and shall be subject to
subsection (b).
15 U.S.C. § 77p(c); see Campbell, 760 F.3d at 64. In short,
subsection (a) provides the general rule, subsection (b)
creates an exception to the general rule, and subsection (c)
10 RAINERO V. ARCHON CORP.
gives a limited grant of jurisdiction to render subsection (b)
effective. See Campbell, 760 F.3d at 65.
Considering these three preceding subsections, as the
D.C. Circuit noted in Campbell, it is evident that the plain
language of § 77p(d) “‘carefully’ carves out exceptions to the
preclusive reach of subsection (b)”:
(d) Preservation of certain actions
(1) Actions under State law of State of
incorporation
(A) Actions preserved
Notwithstanding subsection (b) or (c),
a covered class action described in
subparagraph (B) of this paragraph
that is based upon the statutory or
common law of the State in which the
issuer is incorporated (in the case of a
corporation) or organized (in the case
of any other entity) may be maintained
in a State or Federal court by a private
party.
(B) Permissible actions
A covered class action is described in
this subparagraph if it involves–
(i) the purchase or sale of
securities by the issuer or an
affiliate of the issuer exclusively
RAINERO V. ARCHON CORP. 11
from or to holders of equity
securities of the issuer; or
(ii) any recommendation, position,
or other communication with
respect to the sale of securities of
the issuer that–
(I) is made by or on behalf of
the issuer or an affiliate of the
issuer to holders of equity
securities of the issuer; and
(II) concerns decisions of
those equity holders with
respect to voting their
securities, acting in response
to a tender or exchange offer,
or exercising dissenters’ or
appraisal rights.
15 U.S.C. § 77p(d); Campbell, 760 F.3d at 65 (citing Merrill
Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 87
(2006)). As the Campbell court stated, “[t]here is no
indication . . . that Congress intended subsection (d)(1)(A) to
go substantially further, so as to create federal jurisdiction
over a category of state-law securities class actions.”
Campbell, 760 F.3d at 65 (emphasis in original). Indeed, “the
introductory clause of subsection (d)(1)(A)—
‘Notwithstanding subsection (b) or (c)’—confirms that the
provision responds to subsections (b) and (c). It does not
embark on a wholly independent mission to confer federal-
court jurisdiction on state-law actions.” Id.
12 RAINERO V. ARCHON CORP.
In summary, the district court here correctly concluded
that it lacked federal question jurisdiction under § 1331
because Rainero did not assert a federal claim, and
§ 77p(d)(1)(A) does not provide an independent basis for
federal question jurisdiction over Rainero’s state-law claim.
III
The district court also properly concluded that it lacked
diversity jurisdiction over the class action suit under
28 U.S.C. § 1332(d)(2) because of the exception provided in
28 U.S.C. § 1332(d)(9)(C). Under § 1332(d)(2), a federal
court may exercise diversity jurisdiction over a class that has
more than 100 members who are minimally diverse and
whose aggregated claims exceed $5 million. 28 U.S.C.
§ 1332(d)(2), (d)(5)(b); see also Standard Fire Ins. Co. v.
Knowles, 133 S. Ct. 1345, 1348 (2013). However,
§ 1332(d)(9)(C) bars the district court from exercising
diversity jurisdiction under § 1332(d)(2) in this case.
Subsection (d)(9)(C) provides that § 1332(d)(2) “shall not
apply to any class action that solely involves a claim” that
“relates to the rights, duties . . . and obligations relating to or
created by or pursuant to any security.”
Rainero does not dispute that the preferred stock was the
type of security covered by § 1332(d)(9)(C). Instead, he
argues that, because the shares of preferred stock were
redeemed, and thereby cancelled, on August 31, 2007, “the
Archon preferred stock was no longer in existence” when
Rainero filed his complaint on November 20, 2007. As a
result, he argues, § 1332(d)(9)(C) does not apply.
However, the plain language of § 1332(d)(9) does not
require that the covered security be “in existence” at the time
RAINERO V. ARCHON CORP. 13
the complaint is filed. Rather, it applies to “any class action”
solely raising claims relating to the rights, duties, and
obligations “relating to or created by or pursuant to . . . any
security.” 28 U.S.C. § 1332(d)(9)(C); see also Greenwich
Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide
Fin. Corp., 603 F.3d 23, 29 (2d Cir. 2010) (holding that
§ 1332(d)(9)(C) “applies to suits that enforce ‘the terms of
instruments that create and define securities’” (citation
omitted)); Estate of Pew v. Cardarelli, 527 F.3d 25, 31–32
(2d Cir. 2008); Appert v. Morgan Stanley Dean Witter, Inc.,
673 F.3d 609, 619–20 (7th Cir. 2012). See also Eminence
Investors, LLLP v. Bank of N.Y. Mellon, 782 F.3d 504, 506,
507 (9th Cir. 2015) (adopting the Second Circuit’s analysis of
28 U.S.C. § 1332(d)(9) in Greenwich Fin. Servs. in
interpreting the “virtually identical language” in 28 U.S.C.
§ 1453(d), which precludes CAFA removal for a claim that
“relates to the rights, duties . . . and obligations relating to or
created by or pursuant to any security.”) Because Rainero’s
claim seeks to enforce the terms of the Certificate, which set
forth the rights, duties, and obligations relating to the
preferred stock, § 1332(d)(9)(C) divests the federal courts of
jurisdiction under § 1332(d)(2).
IV
Finally, the district court properly held that it lacked
diversity jurisdiction over Rainero’s individual claim under
28 U.S.C. § 1332(a) and therefore could not exercise § 1367
supplemental jurisdiction over the class members’ claims.
Rainero did not allege individual diversity jurisdiction in his
original complaint, nor did he allege facts that would, if
proven, establish diversity jurisdiction.
14 RAINERO V. ARCHON CORP.
For a federal court to exercise diversity jurisdiction under
§ 1332(a), the amount in controversy must exceed $75,000,
and the parties must be citizens of different states. See
28 U.S.C. § 1332(a). Rainero did not allege diverse
citizenship; he alleged only that he was a resident of
Pennsylvania, and that Archon had its principal place of
business in Nevada. See Kanter v. Warner-Lambert Co.,
265 F.3d 853, 857 (9th Cir. 2001) (noting that “the diversity
jurisdiction statute, 28 U.S.C. § 1332, speaks of citizenship,
not of residency.”). Nor did he make any allegation as to the
amount in controversy for his individual claim, or that his
individual claim exceeds $75,000 as required by § 1332(a).
“The party seeking to invoke the district court’s diversity
jurisdiction always bears the burden of both pleading and
proving diversity jurisdiction.” NewGen, LLC v. Safe Cig,
LLC, 840 F.3d 606, 613–14 (9th Cir. 2016). When a plaintiff
originally files in federal court, as Rainero did here, “‘the
amount in controversy is determined from the face of the
pleadings.’” Geographic Expeditions, Inc. v. Estate of Lhotka
ex rel. Lhotka, 599 F.3d 1102, 1106 (9th Cir. 2010) (citation
omitted). Therefore, “‘[t]he essential elements of diversity
jurisdiction . . . must be affirmatively alleged in the
pleadings.’” Bautista v. Pan Am. World Airlines, Inc.,
828 F.2d 546, 552 (9th Cir. 1987) (citation omitted). Given
the lack of pleading as to diverse citizenship and amount in
controversy, the original complaint plainly failed to allege all
the “essential elements of diversity jurisdiction,” id., required
under § 1332(a). Therefore, the district court correctly
determined that it lacked diversity jurisdiction.
Rainero alleged in his proposed first amended complaint
that the amount in controversy for his individual claim
RAINERO V. ARCHON CORP. 15
exceeded $75,000, without offering further explanation.1
However, in both his original complaint and the proposed
first amended complaint, Rainero sought damages only for a
difference in $3.45 per share. He conceded in discovery, and
in briefing, that he owned 9,140 shares; therefore, his
maximum individual damages would be $31,533. Thus,
granting Rainero leave to file his proposed first amended
complaint would have been futile in establishing individual
diversity jurisdiction because the amount in controversy
pleaded, by his own concession, did not exceed $75,000.
Rainero argues, in briefing, that he may be entitled to
additional damages in excess of $75,000 in the form of post-
August 31, 2007 dividends. However, Rainero did not make
this claim in his original complaint; he alleged damages only
in the amount of $3.45 per share. Rainero’s proposed
amended complaint alleges the same amount of damages, and
again contains no mention of this additional liability and
damage theory. Accordingly, Rainero placed in controversy
only a potential individual claim for $31,533, far below the
requirement for individual diversity jurisdiction. Thus, his
tendered amended complaint was facially deficient to
establish federal jurisdiction, and the district court did not
abuse its discretion in denying leave to file it.
In sum, Rainero’s original complaint did not even plead
individual diversity jurisdiction, nor did it contain allegations
that would be sufficient to create such jurisdiction. As a
result, no diversity jurisdiction existed over his individual
claim, and the district court could not exercise supplemental
1
He also failed to plead diverse citizenship, but all parties concede
that diversity of citizenship existed, so we need not reach that issue,
although the proposed pleading on its face is plainly deficient.
16 RAINERO V. ARCHON CORP.
jurisdiction over the class members’ claims. The district
court did not abuse its discretion in declining to grant
Rainero’s motion for leave to amend his complaint. Metzler
Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1072
(9th Cir. 2008).
Granting leave to amend would have been futile because
Rainero’s proposed amended complaint also failed to allege
a sufficient amount in controversy, and the district court did
not abuse its discretion by failing to afford Rainero yet
another opportunity to cure the jurisdictional defect rather
than dismissing the complaint without prejudice. See Foman
v. Davis, 371 U.S. 178, 182 (1962) (holding that futility and
failure to cure justify denial of leave to amend).
V
We recognize that this litigation proceeded for several
years before the district court dismissed it for lack of subject
matter jurisdiction. If a court lacks subject matter
jurisdiction, it is obligated to dismiss the case, regardless of
how long the litigation has been ongoing. “[S]ubject-matter
jurisdiction, because it involves a court’s power to hear a
case, can never be forfeited or waived.” United States v.
Cotton, 535 U.S. 625, 630 (2002). Therefore, objections to
subject matter jurisdiction may be raised at any time, “even
by a party that once conceded the tribunal’s subject-matter
jurisdiction over the controversy.” Sebelius v. Auburn Reg’l
Med. Ctr., 133 S. Ct. 817, 824 (2013). This is true even
though such an objection “may also result in the waste of
judicial resources and may unfairly prejudice litigants.”
Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434
(2011). If a court determines that it lacks subject matter
RAINERO V. ARCHON CORP. 17
jurisdiction, it is required to “dismiss the complaint in its
entirety.” Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006).
The district court properly dismissed Rainero’s complaint
for lack of jurisdiction. We need not, and we do not, reach
any other issue urged by the parties.
AFFIRMED.