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Wednesday, May 12, 2004

On May 11, 2004, the Second Circuit decided an issue of first impression in California Public Employees' Retirement System v. Worldcom Inc., whether a federal district court can exercise bankruptcy jurisdiction over generally nonremovable claims brought under the Securities Act of 1993. The issue involved two conflicting statutes, section 22(a) of the Securities Act, which provides that an action under the Act brought in a state court may not be removed, and 28 U.S.C. 1452(a), which permits removal of claims that are related to a bankruptcy case. Because of the importance of the issue, the case was heard on an interlocutory basis. The Court held that the conflict between the statutes must be resolved in favor of bankruptcy removal. The Court noted that under Supreme Court precedent a specific statute takes precedence over a general one. The Court first found that section 22 was not more "specific" than section 1452. But it then noted that even if it were more specific, section 22 unduly interferes with the operation of the Bankruptcy Code, an exception under that same Supreme Court precedent. The Court also refused to find that because the section 22(a) was amended in 1998, it trumps section 1452(a), which was enacted in 1984, absent a showing that Congress intended to give individual plaintiffs an absolute choice of forum for claims brought under the Securities Act. Nothing in the text or legislative history of the section indicated that that was Congress's intent. As the Court noted, there are a number of district court cases taking an opposite view. We might hear more of this issue in the future. The Court's decison can be found here.

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