OPINION ORDER

MICHAEL MUKASEY, Chief Judge, District

This case was removed by defendants from New York State Supreme Court, New York County, on the ground that it raises a substantial federal question because plaintiffs' complaint, although it purports to raise claims only under state law, necessarily engages the federal securities laws. Plaintiffs have moved to remand, arguing that their complaint raises no issue of federal law. For the reasons set forth below, the motion to remand is granted. Plaintiffs have moved also for attorney's fees; that motion is denied.

I.

The procedural history of this case is as follows. Plaintiffs Finance Trading Limited and Lakonia Management Limited brought suit on June 29, 2004 in New York State Supreme Court, New York County, against Rhodia, S.A.; Rhodia's parent corporation Aventis, S.A.; Jean Tirouflet, Rhodia's Chairman of the Board of Directors and Chief Executive Officer; Pierre Prot, Rhodia's Chief Financial Officer and Chief Accounting Officer; Rhodia's President Martin Pinot; and nine of Rhodia's Directors. In their state court complaint, plaintiffs allege that defendants committed common law fraud and negligent misrepresentation by giving plaintiffs false and misleading information about Rhodia, S.A. Plaintiffs claim that they relied on this information and invested in Rhodia, and suffered more than €60 million in combined losses when Rhodia's stock declined.

Defendant Director Vincent Calarco removed the action to this court on August 5, 2004, claiming that a substantial federal question was involved, because defendants' alleged misrepresentations involved the filing of a fraudulent prospectus with the Securities and Exchange Commission (SEC). All other defendants later consented to removal. (Def. Opp. Mem. at 22) On September 7, 2004, plaintiffs petitioned this court to remand the case to state court, 28 U.S.C. § 1447(a) (2000), and for an award of attorney's fees in connection with the remand motion, Id. § 1447(c).

II.

The underlying facts, as alleged in plaintiffs' state court complaint, are as follows.

In December 1998, the French company Rhône-Poulenc was about to merge with the German company Hoechst. Rhône-Poulenc needed to maintain its value so as to allow the two companies to merge as equals. (Id. ¶¶ 36-37) However, the stock price of Rhodia, a subsidiary of Rhône-Poulenc, had been declining, which threatened Rhône-Poulenc's and Hoechst's value parity plan. (Id. ¶ 39) Plaintiffs allege that in or around March 1999, Rhône-Poulenc devised a fraudulent scheme to boost Rhodia's share value: A shell company controlled by Rhodia would buy one of Rhodia's competitors, Albright Wilson ("Albright"), and then give Rhodia an option to buy Albright. If Rhodia exercised its option and bought Albright, it would gain a controlling share of the world phosphate market. (Id. ¶¶ 50-52)

To carry out this plan, Rhône-Poulenc's representative company in Austria, Donauchem, formed a subsidiary company, Danube, which bought Albright. (Id. ¶ 56) Danube had few assets of its own, and obtained 98 percent of the financing for this transaction from Rhodia, including £575 million in guaranteed bank debts, and another £475 million in loans. (Id. ¶¶ 58-61) Danube's presence permitted Rhodia to distance itself from the transaction, and allowed Rhodia to tell its potential shareholders that it could refrain from purchasing Albright if the deal turned out not to be advantageous.

The agreement between Rhodia and Danube initially specified that the Rhodia call option for Albright was exercisable at "fair market value" (Id. ¶ 77), which ostensibly left Danube bearing the risk of loss stemming from Albright's decline in value. However, a secret amendment to the agreement defined "fair market value" as a fixed sum, which was equal to Donauchem's original £15.9 million contribution to Danube, and any dividends received by Danube during the period between its acquisition of Albright and Rhodia's exercise of its option. (Id. ¶ 86) If Albright's value sank, Rhodia would face the Hobson's choice of either exercising its fixed price call option on Albright, or allowing Danube to default on its enormous debt to Rhodia. (Id. ¶¶ 67, 69) Potential investors, however, were not told about the substantial risks Rhodia was facing. (Id. ¶ 83)

After Danube acquired Albright but before Rhodia exercised its call option, during the spring and fall of 1999, Jean-Pierre Tirouflet, Chief Executive Officer and Chairman of the Board of Rhodia, met with various institutional investor representatives in an attempt to encourage them to purchase Rhodia stock. (Id. ¶¶ 128-29) Tirouflet conducted these meetings on behalf of and with the knowledge and consent of both Rhodia and Rhône-Poulenc. (Id. ¶ 141) Several of these meetings were with Edouard Stern, Director of Finance and Trading Limited. (Compl. ¶ 132) At these meetings, Tirouflet encouraged Stern to have Finance and Trading buy Rhodia shares on the public market. (Id. ¶ 135-36) Tirouflet also urged Stern to share this information with other potential investors. (Id. ¶ 137)

Tirouflet made numerous deliberate misrepresentations and omissions to Stern at these meetings, primarily in relation to Rhodia's option to purchase Albright. Specifically, Tirouflet told Stern that the option to buy Albright would not be exercised if "the deal was not good enough" (Compl. ¶ 137.A) He neglected to tell Stern that Rhodia bore almost all the risk in the transaction, and that it would be effectively obligated to call its option at a sharply reduced price if Albright's stock declined, or else absorb Danube's default on its massive debt to Rhodia. (Id. at ¶¶ 137.A-C, E-G.) Tirouflet also failed to inform Stern that Albright was in a deteriorating financial condition, had a £94 million pension fund deficit, and was at risk for environmental damage liability. (Id. ¶ 139.H)

After he met with Tirouflet, Stern met with Kristen Van Riel, a director of Lakonia. Based on the strength of Tirouflet's recommendations, as conveyed by Stern, Van Riel instructed Lakonia to purchase shares of Rhodia (Id. ¶ 140), and between June 2, 1999 and August 24, 1999, Lakonia purchased nearly 1.5 million shares of Rhodia on the Paris Stock Exchange for nearly €29 million (Id. ¶ 146). Between June 16, 1999 and October 29, 1999, Finance and Trading purchased more than 2 million shares of Rhodia for more than €39 million. (Id. ¶ 145)

On September 15, 1999, Rhône-Poulenc filed a prospectus with the SEC relating to the sale of nearly 70 million of its Rhodia shares. (Id. ¶ 151) The prospectus extolled the supposed benefits to Rhodia from its option to purchase Albright. In the prospectus, Rhône-Poulenc stated that Rhodia's call option was at fair market value, and did not disclose the secret fixed-price definition of fair market value actually contained in the agreement. (Id. ¶¶ 156-57) The prospectus also falsely recited that Rhodia was under no pressure to exercise its call option for Albright, and that Danube had the option to purchase Rhodia's phosphate business if Rhodia did not exercise its own option. Neither of these statements was true, because Danube had no significant assets and no ability to purchase Rhodia's phosphate business, and Rhodia bore almost all the risk for the Albright transaction. (Id. ¶¶ 160-162).

Additionally, the prospectus described certain "synergies" that would result from Rhodia's acquisition of Albright, including cost reductions of up to €50 million and additional sales of up to €15 million. (Id. ¶ 163) These representations lacked any documented basis, and were made despite Rhodia's knowledge of Albright's deteriorating financial position, environmental liability, and large pension deficit. (Id. ¶ 164)

On October 13, 1999, Albright's Executive Chairman Daniel Lebard contacted Rhodia to point out several inaccuracies in the prospectus regarding Albright's status, and expressed surprise that he had not been consulted in writing before the prospectus was filed. (Id. ¶¶ 172-77) Lebard's concerns were neither addressed nor shared with potential investors, and he was fired the day after he contacted Rhodia. (Id. ¶¶ 178-79)

The prospectus was signed and approved by Calarco, Philippe Desmarescaux, Pierre De Weck, Jean-René Fourtou, Igor Landau, Patrick Langlois, and René Penisson, all Rhodia directors, as well as by Tirouflet and Pierre Prot. Prot signed an amended prospectus on behalf of those who signed the first prospectus; the amended document was identical in all relevant respects to the first, and was filed with the SEC on October 14, 1999. (Id. ¶¶ 168-69)

After issuing the amended prospectus, Rhône-Poulenc obtained approximately €2 billion from the secondary offering of Rhodia shares (Id. ¶ 180-83), and successfully completed its merger with Hoechst on December 15, 1999 (Id. ¶ 184-87). On March 15, 2000, Rhodia exercised its call option for Albright. (Id. ¶ 190) The price Rhodia paid was not disclosed at the time of the transaction, but Rhodia's annual report stated that it paid €925 million — a price plaintiffs allege to be "exorbitant," far above fair market value, and even above the fixed sum specified in the secret amendment to the option agreement. (Id. ¶¶ 194-200)

Plaintiffs allege that defendants' fraudulent and negligent misrepresentations both in the Tirouflet conversations and in the Rhodia prospectus induced them to buy Rhodia stock, and caused them to suffer combined losses of more than €60 million, due to a "severe decline" in Rhodia's stock price. (Id. ¶¶ 201-03) Plaintiffs assert that their claims are based solely in the common law of fraud and negligent misrepresentation, and thus need not be heard in federal court. Defendants counter that plaintiffs' claims necessitate the interpretation of federal securities laws, and thus belong exclusively in federal court.

III.

By statute, a defendant may remove from state to federal court any civil action over which the federal courts have original jurisdiction. 28 U.S.C. § 1441(a). Absent diversity of citizenship, federal courts have original jurisdiction only over cases that present federal questions, Fax Telecommunicaciones, Inc. v. ATT, 138 F.3d 479, 486 (2d. Cir. 1998), and a federal question exists "only when the plaintiff's well-pleaded complaint raises issues of federal law." Metro. Life Ins. Co. v.Taylor, 481 U.S. 58, 63 (1987).

The plaintiff is the master of the complaint, and is "free to avoid federal jurisdiction by pleading only state claims even where a federal claim is also available." Marcus v. ATT Corp., 138 F.3d 46, 52 (2d Cir. 1998); Travelers Indem. Co. v.Sarkisian, 794 F.2d 754, 758 (2d Cir. 1986) ("[W]here plaintiff's claim involves both a federal ground and a state ground, the plaintiff is free to ignore the federal question and pitch his claim on the state ground to defeat removal.") (internal quotation marks omitted); see also Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 n. 7 (1987).

However, a plaintiff is not completely free to limit the complaint as he wishes. The doctrine of artful pleading, an "independent corollary" of the well-pleaded complaint rule, holds that "a plaintiff may not defeat removal by omitting to plead necessary federal questions in a complaint." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 22 (1983); see also Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 475 (1998); Marcus, 138 F.3d at 55 (plaintiff may not avoid removal "by framing in terms of state law a complaint the real nature of [which] is federal, regardless of plaintiff's characterization, or by omitting to plead necessary federal questions in a complaint") (alteration in original); Bellido-Sullivan v. Am. Int'l Group, Inc., 123 F. Supp. 2d 161, 164 (S.D.N.Y. 2000) ("[I]t is well settled that a federal claim may not be brought in state court, disguised in the clothing of a state claim, merely for purposes of bringing it in that forum."). If a federal claim is artfully pleaded as a state claim, the defendant may remove it to federal court.

There appear to be two principal situations in which removal is justified even absent a federal claim on the face of the well-pleaded complaint: First, where federal law completely preempts state law in the field, and second, where the plaintiff's state law claim necessarily turns on the resolution of a substantial federal question. Marcus, 138 F.3d at 53-56;Lippitt v. Raymond James Fin. Servs., 340 F.3d 1033, 1041-42 (9th Cir. 2003); Bellido-Sullivan, 123 F. Supp. 2d at 164;Donovan v. Rothman, 106 F. Supp. 2d 513, 517-18 (S.D.N.Y. 2000).

IV.

A. Complete Preemption

The complete preemption doctrine dictates that "[w]hen federal common or statutory law so utterly dominates a preempted field that all claims brought within that field necessarily arise under federal law, a complaint purporting to raise state law claims in that field actually raises federal claims." Marcus, 138 F.3d at 53. The Supreme Court recently explained:

In the two categories of cases where this Court has found complete preemption — certain causes of action under the LMRA [Labor Relations Management Act] and ERISA — the federal statutes at issue provided the exclusive cause of action for the claim asserted and also set forth procedures and remedies governing that cause of action. Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8 (2003) (footnote omitted). In Beneficial, the Supreme Court upheld the defendant's complete preemption claim because there was "no such thing as a state law claim of usury against a national bank," and therefore applicable federal statutes provided the only legal basis for the claim asserted. Beneficial Nat'l Bank, 539 U.S. at 11.

In this case, although defendants concede that they do not claim that plaintiffs' claims are completely preempted by federal law (Def. Opp. Mem. at 18-19), they do contend that there is exclusive federal jurisdiction over claims implicating the Securities and Exchange Act of 1934 — an argument that, if accepted, would result in plaintiffs' claims essentially being preempted by federal law. (Def. Opp. Mem. at 10) Section 27 of the Exchange Act does indeed provide for exclusive federal jurisdiction for actions "brought to enforce any liability or duty created by [the Act] or the rules and regulations thereunder." 15 U.S.C. § 78aa. In this case, however, plaintiffs are alleging state law claims that can stand on their own regardless of the Exchange Act's provisions. This suit was not brought to enforce liabilities or duties created solely by the Exchange Act, and federal securities statutes do not provide the exclusive remedies for all securities fraud claims. See 15 U.S.C. § 77v; 15 U.S.C. § 78bb; Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 383 (1996) ("Congress plainly contemplated the possibility of dual litigation in state and federal courts relating to securities transactions."); Lippitt, 340 F.3d at 1042 (holding that the Exchange Act did not preempt state law false advertising claims against securities firms, despite the language of § 78aa).

Courts in this district that have allowed common law securities fraud claims to proceed in state court, have held explicitly that the Exchange Act "does not preempt state law." Gold v.Blinder, Robinson Co., 580 F. Supp. 50, 53 (S.D.N.Y. 1984);see also Spielman v. Merrill Lynch, Pierce, Fenner Smith, Inc., 332 F.3d 116, 124 (2d Cir. 2003) (noting that the Securities Litigation Uniform Standards Act, which preempts the field in securities cases involving more than 50 plaintiffs, "does not, however, preclude all state enforcement or private causes of action in securities fraud cases."). Plaintiffs' state law fraud and negligent misrepresentation claims are not created by the Exchange Act, and thus not subject to exclusive federal jurisdiction, nor are plaintiffs' claims in any way preempted by federal securities laws.

B. Substantial Federal Question

The court must also determine whether plaintiffs attempted to avoid removal "by framing in terms of state law a complaint the real nature of [which] is federal, regardless of plaintiff's characterization, or by omitting to plead necessary federal questions in a complaint." Marcus, 138 F.3d at 55 (alteration in original); Fax Telecommunicaciones, 138 F.3d at 486-87; Derrico v. Sheehan Emergency Hosp., 844 F.2d 22, 27 (2d Cir. 1988). A case may be removable if "some substantial, disputed question of federal law is a necessary element of one of the well-pleaded state claims, or that one or the other claim is `really' one of federal law." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 13 (1983); see also W. 14th St. Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 192-93 (2d Cir. 1987) (holding that in assessing removal, the court will ask whether each state law cause of action in a well-pleaded complaint poses "a substantial federal question.").

"[I]n determining federal question jurisdiction, courts must make principled, pragmatic decisions, engaging in a selective process which picks the substantial causes out of the web and lays the other ones aside." Barbara v. New York Stock Exch., Inc., 99 F.3d 49, 54 (internal quotation marks omitted). Several principles guide this analysis. "[T]he mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction," Merrell Dow Pharms., Inc. v. Thompson, 478 U.S. 804, 813, and the court must examine the "nature of the federal interest at stake," id. at 814 n. 12, to determine whether that interest is sufficiently substantial to justify removal. The primary test that this Circuit has used to determine the substantiality of the federal interest is whether "the state action simply provides the vehicle for `the vindication of rights and . . . relationships created by federal law,'" in which case removal is justified. Donovan, 106 F. Supp. 2d at 517 (quoting W. 14th St. Commercial Corp., 815 F.2d at 193) (omission in original); cf. Greenberg v. Bear, Stearns Co., 220 F.3d 22, 25 (2d Cir. 2000) ("[F]ederal jurisdiction may . . . lie if the ultimate disposition of the matter by the federal court `necessarily depends on resolution of a substantial question of federal law.'") (quoting Barbara, 99 F.3d at 54).

There is no substantial federal question necessarily presented in either of plaintiffs' claims in this case. Assessing whether defendants committed fraud and negligent misrepresentation that happened to occur during a sale of securities does not implicate any federal law. The elements of a fraud claim in New York are: Representation of a material fact, falsity, scienter, reliance, and injury. Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 57, 698 N.Y.S.2d 615, 621 (1999); see also Channel Master Corp. v. Alumninum Ltd. Sales, Inc., 4 N.Y.2d 403, 407, 176 N.Y.S.2d 259, 262 (1958) ("One who fraudulently makes a misrepresentation of . . . intention . . . for the purpose of inducing another to act or refrain from action in reliance thereon in a business transaction is liable for the harm caused by the other's justifiable reliance upon the misrepresentation.") (internal quotation marks omitted) (omissions in original). The elements of a negligent misrepresentation claim in New York are similar: A plaintiff must allege a misrepresentation of fact and "(1) an awareness by the maker that the statement is to be used for a particular purpose, (2) reliance by a known party on the statement in furtherance of that purpose, and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance." Ford v. Sivilli, 2 A.D.3d 773, 774, 770 N.Y.S.2d 414, 415 (2d Dep't 2003). The right plaintiffs say they wish to vindicate is the right not to be lied to in a fashion that causes reliance and results in financial injury, a right possessed by all New York residents, not the narrower right not to be lied to in connection with a securities transaction regulated by federal law.

Plaintiffs' claims may be assessed entirely by applying New York's common law standards to the facts in this case. Although certain of defendants' alleged misrepresentations certainly were contained in prospectuses filed with the SEC, plaintiffs' claims do not depend on any rights or causes of action created by federal law. They stand independently on state common law grounds.

Plaintiffs did have the option of bringing an action under Section 10(b) of the Exchange Act, which prohibits a person from using or employing "any manipulative or deceptive device" in connection with the sale of a security, 15 U.S.C. § 78j(b). Plaintiffs also could have filed a claim based upon Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, which establishes a civil cause of action against those who have issued, signed, or underwritten documents that either omit or distort the significance of material facts; also available to plaintiffs was a claim under Section 12(2) of the 1933 Act, providing civil remedies as recourse for misleading prospectuses, 15 U.S.C. § 77 l. That these statutes provide remedies, however, does not mean that plaintiffs were obligated to base their claims upon them. No federal interest is compromised by the availability of a parallel state-law action, as federal securities laws generally do not preempt similar state law causes of action. The plaintiff is the master of the complaint, and may choose to proceed under state law alone unless the complaint alleges charges necessitating the construction of federal law.

Defendants cite D'Alessio v. N.Y. Stock Exch., Inc., 258 F.3d 93 (2d Cir. 2001), as support for their argument that "the federal issues underlying the state law claims, including the interpretation and application of the federal securities laws, are sufficiently substantial to confer federal-question jurisdiction." (Def. Opp. Mem. at 9) In D'Alessio, the Second Circuit affirmed removal of plaintiff's state law claim that defendants had conspired to violate federal securities laws, holding that there was a substantial federal issue because vindication of plaintiff's claim would depend on the court's construction of the federal securities laws. Id. at 102-03. TheD'Alessio Court's conclusion was inescapable, because the claim being alleged in that case involved an act that could be interpreted only in relation to federal securities laws. As the facts were alleged in that complaint, D'Alessio would have had no state law cause of action if no federal law had been violated, thus his case rested substantially upon federal law and was justifiably removed.

The same holds true for Sparta Surgical, the other case upon which defendants principally rely. Sparta Surgical Corp. v.NASD, 159 F.3d 1209 (9th Cir. 1998). In that case, plaintiffs' common law claims were based on the NASD's alleged violation of de-listing rules created by the Exchange Act; were it not for federal law, plaintiffs' claims would not have existed, and removal was justified in that case. See id. at 1212 ("The viability of any cause of action founded upon NASD's conduct in de-listing a stock or suspending trading depends on whether the association's rules were violated.")

In this case, plaintiffs' claims are not predicated on whether federal law was violated, and therefore the claims are not governed by federal law. This case differs from D'Alessio andSparta Surgical because, although federal securities laws do indeed relate to the subject matter of plaintiffs' case, plaintiffs' claims do not rest upon violation of federal laws. Again, plaintiffs allege that defendants' oral and written misrepresentations induced them to invest in Rhodia stock. No federal statute or rule creates or exclusively governs such a claim. Defendants claim that federal securities laws will necessarily be implicated in plaintiffs' case because, in order to determine whether the prospectuses are misleading, the reviewing court must look to the federal securities laws for the applicable standards. (Def. Opp. Mem. At 12) Not so. There is no reason why the New York state common law standards for determining fraud and negligent misrepresentation cannot form the sole basis for assessing the prospectus. Moreover, our Court of Appeals has held that "the borrowing of . . . federal law as a standard of conduct in a state created action is not sufficiently substantial to confer federal question jurisdiction." West 14th Street Comm. Corp., 815 F.2d at 193 (citing Merrell Dow, 478 U.S. 804, 814 n. 12 (1987)). Even if a court did decide to take use a federal standard as a guide to assess defendants' liability, federal question jurisdiction still would not be mandatory.

Plaintiffs' case poses no "substantial federal question," because it concerns solely the nature and consequences of certain oral and written misrepresentations made by defendants to plaintiffs. New York common law is fully capable of resolving plaintiffs' claims. New York courts have considered common law claims involving fraudulent prospectuses before, see, e.g., Finkel v. D.H. Blair Co., 213 A.D.2d 588, 589, 623 N.Y.S.2d 930, 931 (2d Dep't 1995), and federal courts have exercised supplemental jurisdiction and applied state law in such cases,see, e.g., Kaplan v. Lazard Freres Co., No. 99-3428, 2000 U.S. Dist. LEXIS 1244, at *8 (S.D.N.Y. Feb. 3, 2000). Federal law need not be construed or even consulted in the resolution of plaintiffs' common law claims.

Therefore no substantial question of federal law underlies plaintiffs' complaint. Plaintiffs did not engage in artful pleading, and their action belongs in state court, the forum in which they originally chose to proceed.

V.

Plaintiffs request attorney's fees incurred as a result of defendants' removal, under 28 U.S.C. § 1447(c). The motion is denied. The decision to grant attorney's fees "requires application of a test of overall fairness given the nature of the case, the circumstances of the remand, and the effect on the parties." Morgan Guar. Trust Co. v. Republic of Palau, 971 F.2d 917, 924 (2d Cir. 1992) (internal quotation marks omitted). As one court in this Circuit has held when declining to grant costs in a case involving artful pleading, "[t]his area of the law is extremely complicated and the related jurisdictional issues are difficult to navigate." Foschi v. United States Swimming, Inc., 916 F. Supp. 232, 242 (E.D.N.Y. 1996). Although the law is in plaintiffs' favor, the basis for removal was "at least colorable, and not improper," Haggerty, 79 F. Supp. 2d at 190, therefore a grant of attorney's fees is inappropriate here.

* * *

For the reasons set forth above, plaintiffs' motion to remand this case to Supreme Court, New York County, is granted, and plaintiffs' motion for attorney's fees is denied.

SO ORDERED.