New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

Commercial Litigation and Arbitration

New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
Commercial Litigation and Arbitration
« Back to Complex Lit Blog

Well-Pleaded Complaint Rule vs. Artful Pleading Doctrine: Is the Plaintiff Really the Master of Its Complaint?

Download PDF

From Romano v. Kazacos, 2010 U.S. App. LEXIS 13220 (2d Cir. June 29, 2010), in which the issue was whether the complaint was subject to the Securities Litigation Uniform Standards Act:

A. Master of the Complaint

Appellants initially contend that the District Court impermissibly looked beyond the face of the amended complaints, which make no reference to the federal securities laws, when it found that SLUSA applied. Appellants maintain that, under the "master of the complaint" rule, they are "free to avoid federal jurisdiction by pleading only state claims even where a federal claim is also available." Marcus v. AT&T Corp., 138 F.3d 46, 52 (2d Cir. 1998). Since jurisdiction "may not be sustained on a theory that the plaintiff has not advanced," Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 809 n.6 (1986), appellants contend that they are entitled to avoid SLUSA by not asserting federal claims in state proceedings.

Appellants are incorrect. Whether federal courts have federal question jurisdiction over an action is typically governed by the "well-pleaded complaint" rule, pursuant to which federal question jurisdiction exists only if "plaintiff's statement of his own cause of action shows that it is based" on federal law. Vaden v. Discover Bank, 129 S. Ct. 1262, 1275 (2009); Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Under the well-pleaded complaint rule, then, plaintiff is the master of his complaint and is free to avoid federal jurisdiction by "pleading only state claims even where a federal claim is also available." *** However, there exists a corollary to the well-pleaded complaint rule — the "artful pleading" rule — pursuant to which plaintiff cannot avoid removal by declining to plead "necessary federal questions." Rivet v. Regions Bank, 522 U.S. 470, 475 (1998). If the artful pleading rule applies, courts look beyond the face of an "artfully pled" complaint to determine whether plaintiff has "cloth[ed] a federal law claim in state garb" by pleading state law claims that actually arise under federal law. *** If such is the case, the reviewing court will "uphold removal even though no federal question appears on the face of the complaint." Rivet, 522 U.S. at 475.

The artful pleading rule applies when Congress has either (1) so completely preempted, or entirely substituted, a federal law cause of action for a state one that plaintiff cannot avoid removal by declining to plead "necessary federal questions," id., or (2) expressly provided for the removal of particular actions asserting state law claims in state court, see Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 6 (2003) (explaining the Price-Anderson Act, 42 U.S.C. § 2014(hh), presents an exception to the well-pleaded complaint rule because it "expressly provides for removal of [tort actions arising out of nuclear accidents] brought in state court even when they assert only state-law claims"). Application of the first prong is a bit tricky because SLUSA is a statute of preclusion, rather than preemption. But its effect is the same: where plaintiffs proceed as a class of fifty or more, state law securities claims are no longer available to them and federal law, which compels the dismissal of those claims, controls. Application of the second prong is straightforward. Since SLUSA expressly provides for the removal of covered class actions, it falls under the "removal" exception to the well-pleaded complaint rule. 15 U.S.C. § 78bb(f)(1). Consequently, we are free to look beyond the face of the amended complaints to determine whether they allege securities fraud in connection with the purchase or sale of covered securities. See Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 298 (3d Cir. 2005) ("No matter how an action is pleaded, if it is a covered class action involving a covered security, removal is proper.") (quotations and alterations omitted); see also Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 310 (6th Cir. 2009) ("Courts may look to--they must look to--the substance of a complaint's allegations in applying SLUSA. Otherwise, SLUSA enforcement would reduce to a formalistic search through the pages of the complaint for magic words . . . and nothing more.").

Share this article:

Facebook
Twitter
LinkedIn
Email

Recent Posts

RICO Causation: Parents of Children with Disabilities Deprived In-Person Education and Services during the Pandemic Were Not Causally Injured by Teachers’ False Assurances to Federal Authorities That IDEA-Complaint Policies Were in Place, Which Caused Funds to Issue But Not to the Benefit of the Disabled Children — Damages Too Indirect — Proper Plaintiff Is U.S. Government — Private Injunctive Relief Under RICO Uncertain in Third Circuit

Sanctions: Rule 37(b)(2) Dismissal — Sixth Circuit Factors

Inherent Power Sanctions — Extrajudicial Misconduct: Sanctions Power Extends to Conduct Intended to Sabotage Court’s Ability to Adjudicate the Case Before It, Here, By Commencing State Court Actions Seeking to Enjoin the Federal Plaintiffs from Proceeding with Their Federal Litigation — Sanctions Fee Awards: The Factors Used For Calculating A Fee Award To A Prevailing Party Do Not Govern — Under Goodyear, the Relevant Inquiry Is Whether There Is A Sufficient Causal Link Between The Sanctioned Misconduct And The Fees Awarded

RICO: Members of Association-in-Fact Enterprise Must Act with a Common Purpose—Mere Allegation That Various Defendants Agreed at Different Times to Engage in Various Fraudulent Schemes Does Not Plausibly Support the Essential Inference, That They Acted with s Sufficiently Common Purpose

RICO Causation: (1) State’s Misrepresentation to Federal Government That It Was Providing Plaintiffs with Mandated Special Education Did Not Cause Plaintiffs’ Injury Because The Failure to Provide The Education Was Not Caused by the Fraud on the Federal Government — (2) The Three Factors for Assessing RICO Causation — (3) Limits of the Second Circuit’s Decision in Alix v. McKinsey That Causation Can Be Established Where A Fraud On The Judiciary “Or Other Governmental Entity” Resulted In A Resource Going To Someone Less Deserving

Rule 41(b): Five Factors to Be Weighed in Deciding Whether Dismissal Is Appropriate (Second Circuit) — Is A Finding of Bad Faith or Fault Required if Dismissal Is Without Prejudice? — Undecided If Truly Without Prejudice But It Is Required If the Without Prejudice Dismissal Will Act as a Dismissal on the Merits (Here, Because of the Statute of Limitations) — Failure To Consider A Lesser Sanction Than Dismissal Is Generally An Abuse Of Discretion

Spoliation Sanctions/Mootness: Stipulation Resolving “All Pending Discovery Disputes,” Which Are Enumerated, Does Not Moot Subsequent Sanctions Motion for ESI Spoliation — Postjudgment Sanctions Order Is Appealable When District Court Has Finally Disposed of Both Liability and Amount

Rule 37 Default Judgment Sanction: (1) Default Judgment Appropriate Only As a Last Resort, When Less Drastic Sanctions Would Not Ensure Compliance with the Court’s Orders — (2) Default Judgment Sanction Requires Willful or Bad Faith Failure to Obey Discovery Order — (3) Fugitive Defendant’s Failure to Appear at Court-Ordered, Remote Deposition Despite Court Warning That Sanctions Could Follow Disobedience Warrants Default Judgment — (4) District Court Afforded Wide Discretion in Interpreting Its Own Orders — (5) Filing a Notice of Appeal from a Non-Appealable Order (Here, a Discovery Order) Does Not Deprive the District Court of Jurisdiction over the Case

RICO and Injunctions: (1) State Court Actions Designed to Perpetuate and Monetize a RICO Violation Are Enjoinable under RICO, Even Though They Are Not Themselves Alleged to Be Predicate Acts [Note: Noerr Pennington Applies in RICO Actions] — (2) Although Civil RICO’s Text and Legislative History Fail to Reveal Any Intent to Override the Provisions of the Federal Arbitration Act, Arbitrations Are Enjoinable Under the “Effective Vindication” Doctrine Where They Operate As a Prospective Waiver of a Party’s Right to Pursue Statutory RICO Remedies — (3) Arbitration Findings May Be Given Collateral Estoppel Effect in a Civil RICO Action — (4) Injunction of Non-Corrupt State Court Litigations That Furthers a RICO Violation Are Enjoinable Under the Anti-Injunction Act’s “Expressly Authorized” Exception — (5) “The Irreparable Harm Requirement Is The Single Most Important Prerequisite For The Issuance Of A Preliminary Injunction” (Good Quote) — (6) When Injunction Is Based on “Serious Questions on the Merits” Rather Than “Likelihood of Success,” Court May Rely on Unverified Pleadings and Attached Exhibits to Assess the Merits, Unless the Opponent Has Raised Substantial Questions (Here, the Opponent Failed to Request an Evidentiary Hearing) — (7) Whether Amended Pleading Moots An Appeal Turns on Whether It Materially Changes the Substantive Basis for the Appeal — (8) Meaning of “In That” (“Used To Introduce A Statement That Explains Or Gives More Specific Information” About A Prior Statement)

RICO: Fraudulent Concealment Must Prevent Discovery of the Injury to Toll Statute of Limitations

Archives
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

New York Office

© 2024 Joseph Hage Aaronson LLC  
Disclaimer | Attorney Advertising Notice | Legal Notice