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Seventh Circuit Review

Abstract

In 2007, the collapse of the housing market and the developing trend of state court filings of class actions alleging violations of the Securities Act culminated into a new type of securities litigation: state court filings of class actions alleging violations of the Securities Act with respect to non-publicly traded securities in general and mortgage-backed securities in particular. Thus, it became important for defendants to remove these claims to federal court. Permitting removal of such claims appears to conflict with the Securities Act, which broadly prohibits removal of claims arising under the Securities Act. But prohibiting removal is in tension with the Class Action Fairness Act of 2005, which generally permits removal of class actions. This article considers whether the Securities Act bars removal of class actions alleging violations of the Securities Act with respect to non-publicly traded securities. Part I of this article provides a background on the issue and explains the general framework of removal and the conflicting provisions of the Securities Act and the Class Action Fairness Act. Next, Part II discusses the Ninth Circuit's holding in Luther v. Countrywide that the Securities Act bars removal of a class action alleging violations of the Securities Act with respect to mortgage-backed securities. Part III analyzes the Seventh Circuit's decision in Katz v. Gerardi, in which the court disagreed with Luther and held that the Securities Act does not bar removal of class actions that allege violations of the Securities Act with respect to non-publicly traded securities. Finally, Part IV analyzes and expands on the reasoning of the Luther and Katz courts, concluding that the Seventh Circuit decided correctly that the Securities Act does not bar removal of class actions alleging violations of the Securities Act with respect to non-publicly traded securities.

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