Commercial Litigation and Arbitration

Grable — State Law Claims under Trust Indenture Incorporating Federal Statutes Supports Federal Jurisdiction

After being served with notices of default under trust indentures pursuant to which it had issued securities, the issuer filed a state court declaratory judgment action. The Indentures incorporated the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939 (“TIA”). The bank removed, arguing that the resolution of the suit turned on the “purely federal question of whether the TIA requires an issue of public debt securities ... to provide SEC reports to the Trustee” (the issuer was delinquent in filing, working toward a restatement). The Court in Finisar Corp. v. U.S. Bank Trust N.A., 2007 U.S. Dist. LEXIS 93637 (N.D. Cal. Dec. 7, 2007) held that instruments’ incorporation of federal law, and the incorporated dispositive issue of federal law on which the case turned, sustained jurisdiction under Grable: The issuer’s “duty to provide documents to the Trustee arises under federal statutes and [the relevant section] of the Indentures is a mechanism to enforce the provisions of those statutes. Accordingly, determining the scope of [the issuer’s] duty requires the Court to examine and interpret federal law.”

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