When is Appeal Precluded by 28 U.S.C §1447?

Kircher v. Putnam Funds Trust

To curb perceived abuses of the class-action vehicle Congress passed the Securities Litigation Uniform Standards Act which provides that “state-law ‘covered’ class actions alleging untruth or manipulation in connection with the purchase or sale of a ‘covered’ security may not ‘be maintained in any State or Federal court,’” where a “covered” class action is one “in which damages are sought on behalf of more than 50 people” and a “covered security” is one traded nationally on a recognized exchange. Conversely, any “covered class action brought in any State court involving a covered security” may be removed to federal district court. Eight claimants made claims based in state law on behalf of a class of investors which the respective funds moved to remove to federal court. The district court remanded for lack of subject matter jurisdiction since the claimants, as “holders” of the mutual funds did not satisfy the “in connection with the purchase or sale” requirement of the Act. The question here is, given that a decision by a district court remanding for lack of subject matter jurisdiction are not appealable under 28 U.S.C §1447, is the district court’s decision appealable? The Court of Appeals held that the district court did not have the final say as to the disposition of its opinion, and the preclusion under the Act is not a jurisdictional matter, but a substantive matter.

The majority initially notes that it has “relentlessly” held that an order remanded on the ground that it was removed “improvidently and without jurisdiction” is not appealable under §1447. The Court does not dispute that the case law recognizes that some cases are remanded for lack of jurisdiction where the basis for remand is decidedly substantive. The funds argue that federal jurisdiction did exist because of the Act’s introduction describing “Any covered action,” while the Court notes that this phrase is followed by the phrase “as set forth in subsection (b).” This sounds crazy, but the Funds argue that their reading is necessitated by the doctrine of nonsuperfluousness, but the Court suggests that their reading makes other parts of the law superfluous as well. The Funds also argue that their claim need only be colorable, but for policy reasons, textual reasons, and based on the development of the act, the Court rejects the argument (in a footnote). The Court also distinguishes a precedent on which the Funds rely because it involved an independent basis for federal jurisdiction.

The Court then addresses the implicit argument in the Court of Appeals decision. The Court of Appeals argued that the Act “gives federal courts exclusive jurisdiction to decide the preclusion issue,” collaterally estoping the State court on the issue. The Court holds that the federal court does not have the last word on the issue, and that whereas a State court could rule on the issue in the first instance, it could do so on remand. Additionally, “While the state court cannot review the decision to remand in an appellate way, it is perfectly free to reject the remanding court’s reasoning.”

Justice Scalia writes separately to emphasize that wherever a district court even “purports” to base its ruling on an issue of jurisdiction it is unappealable in accordance with the purpose of the law at issue; to “prevent delay in the trial of remanded cases by protracted litigation of jurisdictional issues."