Kircher Decided

In the Kircher v. Putnam Funds case, the U.S. Supreme Court has held that a district court’s decision to remand a case to state court pursuant to the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) is not subject to appellate review. The 9-0 decision authored by Justice Souter (with a separate concurrence by Justice Scalia) resolves a circuit split between the Second Circuit (not appealable) and the Seventh Circuit (appealable) on the issue.

SLUSA generally prohibits the bringing of a securities class action based on state law in state court. The defendants are permitted to remove the case to federal district court for a determination on whether the case is precluded by the statute. If so, the district court must dismiss the case; if not, the district court must remand the case back to state court.

As a matter of federal procedural law, a remand based on a district court’s decision that it does not have subject-matter jurisdiction over a case cannot be reviewed on appeal. In Kircher, however, the Seventh Circuit found that this general proposition is inapplicable to a case removed and remanded under SLUSA because the district court is making a substantive decision of no preclusion, as opposed to a procedural decision of no subject-matter jurisdiction.

The Supreme Court disagreed. Based on SLUSA’s text, the Court found that “removal and jurisdiction to deal with removed cases is limited to those precluded” by the statute. Under these circumstances, “a motion to remand claiming the action is not precluded must be seen as posing a jurisdictional issue.” The district court’s exercise of its “adjudicatory power” is “jurisdictional, as is the conclusion reached and the order implementing it.” Accordingly, the remand decision is not subject to appellate review.

Interestingly, the Supreme Court also addressed the Seventh Circuit’s assumption that SLUSA gives federal courts exclusive jurisdiction to decide the preclusion issue, so that “a remand order based on a finding that the action is not precluded would arguably be immune from review.” The Court found that nothing in SLUSA creates this exclusive jurisdiction and on remand the state court would be “perfectly free to reject the remanding court’s reasoning” and make its own determination as to preclusion. Moreover, any error in that decision could “be considered on review by this Court.” The issue was of particular importance in the instant case, because the Court had recently held that holder claims, arguably like those brought by Kircher, are precluded under SLUSA.

Holding: Judgment vacated and case remanded with instructions to dismiss the appeal for lack of jurisdiction.