On August 17, 2022, Judge Steven D. Grimberg of the United States District Court for the Northern District of Georgia granted a motion to dismiss a putative class action alleging an investment bank (the “Company”), certain of its advisors (the “Advisor Defendants”), and certain of its external accountants (the “Accounting Defendants”) aided and abetted one of the Company’s former advisors (the “Individual Defendant”) in facilitating an alleged decade-long Ponzi scheme.  6694 Dawson Blvd, LLC v. Oppenheimer & Co., Inc., et al., 1:21-cv-03625.  (N.D. Geo. Aug. 17, 2022).  Plaintiffs alleged that defendants misrepresented or concealed material facts that, had plaintiffs known, would have caused them not to purchase allegedly “bogus” securities from the Individual Defendant.

On May 31, 2022, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a putative class action asserting claims under Georgia state law for breach of fiduciary duty against a brokerage firm and its parent company.  Cochran v. Penn Mut. Life Ins., No. 20-13477 (11th Cir. May 31, 2022).  Plaintiff alleged that the brokerage firm breached a fiduciary duty when it advised plaintiff to use funds in a retirement account to invest in a variable annuity, a product that allegedly resulted in higher fees for the broker and no benefit to plaintiff because his retirement account was already tax-advantaged.  The district court dismissed the class action allegations and the Eleventh Circuit affirmed, holding that the Securities Litigation Uniform Standards Act (“SLUSA”) precludes bringing such claims as a class action.

On November 15, 2019, Judge Robert F. Rossiter, Jr. of the United States District Court for the District of Nebraska dismissed a putative class action brought by investors who maintained investment accounts at a brokerage company.  Plaintiffs asserted claims for breach of contract and negligence under Nebraska state law against the brokerage company and its affiliates, alleging that they failed to properly manage a tax-loss harvesting feature of certain investment portfolios.  Knowles v. TD Ameritrade Holding Corp., No. 8:19-cv-47, slip op. (D. Neb. Nov. 15, 2019), ECF No. 36.  The Court held that these claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) and dismissed the action with prejudice.
 

On September 12, 2019, the United States Court of Appeals for the Third Circuit reversed the dismissal of state law securities actions by individual investors who elected to opt out of a related class action against a pharmaceutical company (the “Company”).  North Sound Capital LLC v. Merck & Co. Inc., Nos. 18-2317 (3d Cir. Sept. 12, 2019).  Opt-out plaintiffs—individual investors who opted out of the class action and who filed separate state law actions against the Company—brought individual actions asserting claims under New Jersey common law, and included allegations that the District Court noted “track, sometimes verbatim, those filed in the class actions.”  The District Court held that such opt-out actions were precluded by the Securities Litigation Uniform Standards Act (“SLUSA”) and dismissed the individual actions.  The Third Circuit reversed, finding that SLUSA does not prohibit investors who opt out of a class action from bringing individual actions under state law.

On July 11, 2019, Justice Andrew Borrok of the New York State Supreme Court, County of New York, Commercial Division, dismissed a putative securities class action against a Brazilian based online retailer (the “Company”), certain of its executives and directors, and its underwriters in connection with the Company’s initial public offering (“IPO”).  In re Netshoes Sec. Litig., Index No. 157435/2018 (Sup. Ct., N.Y. Cty., July 11, 2019).  Plaintiffs—purchasers of the Company’s stock—brought claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”), claiming that defendants made materially false and misleading statements in a registration statement filed with the SEC in connection with the IPO.  The Court dismissed the Securities Act claims without prejudice, finding that the allegations were inactionable opinions under the Supreme Court’s decision in Omnicare, Inc. v. Laborers Dist. Council Const. Indus., 135 S. Ct. 1318 (2015), or were inactionable because they were about past performance, were forward-looking, or were expressions of puffery.

On May 13, 2019, Judge Charles P. Kocoras of the United States District Court for the Northern District of Illinois dismissed with prejudice a putative class action against TD Ameritrade and an investment advisory company as barred by the Securities Litigation and Uniform Standards Act (“SLUSA”).  Gray v. TD Ameritrade, Inc., No. 18 C 00419, 2019 WL 2085136 (N.D. Ill. May 13, 2019).  Plaintiffs asserted state common law and statutory claims based on allegations that defendants had placed investors into trading strategies that had been misrepresented as conservative.  The Court held that because plaintiffs’ claims coincided with a covered securities transaction, they were prohibited under SLUSA.

On January 24, 2019, the United States Court of Appeals for the Seventh Circuit affirmed the dismissal of a putative securities class action against several investment advisory and financial services firms for allegedly mismanaging the accounts of the putative class plaintiffs and failing to act in their best interests.  Susan Nielen-Thomas v. Concorde Investment Services LLC, et al., No. 18-cv-00229 (7th Cir. Jan. 24, 2019).  Plaintiff brought claims under Wisconsin and Nebraska securities laws, common law claims under Wisconsin and Nebraska law for breach of contract, fraud, fraudulent misrepresentation, negligence, failure to supervise, and breach of fiduciary duty, and a claim for breach of the Securities Act of 1933 that the district court dismissed with prejudice for failure to state a claim that plaintiff did not appeal.  Defendants removed the case to federal court pursuant to the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), and thereafter moved to dismiss the state law claims on the basis that the suit constituted a “covered class action” that was precluded by SLUSA.  Plaintiff, in moving to remand and in opposing the motion to dismiss, argued that the case is not governed by SLUSA because the proposed class action contained fewer than fifty members and therefore could not be a covered class action as defined by SLUSA.  Chief District Judge James D. Peterson of the United States District Court for the Western District of Wisconsin agreed with defendants, finding that the suit was a covered class action, denying plaintiff’s motion to remand, and dismissing plaintiff’s state law claims with prejudice.  Plaintiff appealed and the Seventh Circuit affirmed.

On September 14, 2018, the United States Court of Appeal for the Ninth Circuit affirmed the District Court’s dismissal of class claims brought by a financial advisor on behalf of itself and shareholders of a bond fund (the “Fund”) against defendants an investment company and its board, on the basis that the claims were barred by the Securities Litigation Uniform Standards Act (“SLUSA”).  Northstar Fin. Advisors v. Schwab Invs., No. 16-15303 (9th Cir. Sept. 14, 2018).  Plaintiff alleged that defendants made certain investments in the Fund that deviated from the investment policies and objectives that resulted in negative returns for the Fund.  Based on those deviations, plaintiff asserted claims of breaches of fiduciary duty, contract, and covenant of good faith and fair dealing against defendants.  The Ninth Circuit affirmed the District Court’s dismissal, agreeing with the District Court that the claims were preempted by SLUSA because the essence of plaintiff’s allegations related to misstatements or omissions in connection with a sale of a security, and that plaintiff could not “avoid preclusion through artful pleading that removes the covered words . . . but leaves in the covered concepts.”

On September 4, 2018, the United States Court of Appeals for the Third Circuit affirmed the partial denial of a motion to dismiss a putative class action against investment services provider Vanguard Group (the “Company”).  Alex Taksir, et al. v. The Vanguard Group, No. 17-3585 (3d. Cir. Sept. 4, 2018).  Plaintiffs alleged that the Company violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) and breached its contract with plaintiffs by overcharging on per-trade commissions.  According to the Complaint, the Company’s website represented that commissions were $2 per stock trade for customers who maintained account balances of between $500,000 and $1,000,000, but the Company allegedly charged plaintiffs—who met the prerequisite balance requirements—$7 per trade.  The United States District Court for the Eastern District of Pennsylvania dismissed the UTPCPL claim, but held that the breach of contract claim was not barred by the Securities Litigation Uniform Standards Act (“SLUSA”)—which precludes parties from bringing class actions based on state law claims relating to “a misrepresentation or omission of a material fact in connection with the purchase or sales of a covered security”—because no misrepresentations were made “in connection with” a covered security.  The Company sought leave to file an interlocutory appeal, which the Third Circuit granted.

On August 17, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative class action asserting breach of contract and tort claims against the managers, auditors, consultant, and administrator of two feeder funds for Bernard L. Madoff Investment Securities arising out of defendants’ management and oversight of the funds.  In re Kingate Mgmt. Ltd. Litig., No. 16-3450 (2d. Cir. Aug. 17, 2018) (summary order).  The decision marks a second trip of the case through the Circuit.  The district court had previously dismissed all of plaintiffs’ claims as precluded by the Securities Litigation Uniform Standards Act of 1988 (“SLUSA”), but had its decision vacated by the Second Circuit, which held that SLUSA precluded only state law claims “predicated on conduct of the defendant specified in SLUSA’s operative provisions.”  Slip op. at 5 (citing In re Kingate Mgmt. Ltd. Litig., 784 F.3d 128, 149 (2d Cir. 2015)).  On remand, the district court dismissed certain claims as precluded by SLUSA and dismissed the rest for lack of standing and failure to state a claim under British Virgin Islands/Bermuda law.  The Second Circuit affirmed this second decision, holding in relevant part that certain negligent misrepresentation claims were preempted by SLUSA because they concerned statements that were material to a decision to buy or sell a covered security.

On July 31, 2018, the United States Court of Appeals for the Second Circuit unanimously affirmed the dismissal of a putative class action asserting state-law claims for breach of fiduciary duty, unjust enrichment, and declaratory relief. As discussed in our prior post, plaintiff’s claims were all based on the allegation that defendant violated its duty of best execution by routing customer trades—specifically, limit orders—to trading venues that were willing to pay the largest rebates to E*TRADE. Rayner v. E*TRADE Fin. Corp., --.3d--, 2018 WL 3625378 (2d Cir. 2018). The Second Circuit held that plaintiff’s claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) because they alleged fraudulent misrepresentations even though framed as claims for breach of fiduciary duty.

On May 10, 2018, the Unites States Court of Appeals for the Eighth Circuit affirmed the dismissal of putative class actions against TD Ameritrade, Inc. and certain related entities and individuals, asserting violations of various state laws including breach of defendant’s uniform client agreement, fraud, negligent misrepresentation, breach of fiduciary duty, and violations of the Nebraska Consumer Protection Act.  Zola v. TD Ameritrade, Inc., No. 16-3016 (8th Cir. May 10, 2018).  Plaintiffs alleged that defendant failed to direct its retail clients’ securities orders to trading venues that offered the best price, speed of execution, and likelihood of execution; instead, it allegedly directed orders to venues that catered to high-frequency traders who also paid defendant rebates for order flow.  Slip op. at 3.  The Court held that the “best execution” allegations were effectively claims of misrepresentations or omissions in connection with the purchase or sale of covered securities and were therefore precluded by the Securities Litigation Uniform Standards Act (“SLUSA”).

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On April 10, 2018, the United States Court of Appeals for the Second Circuit revived and remanded to state court a putative class action brought against AXA Equitable Life Insurance Company.  O’Donnell v. AXA Equitable Life Ins. Co., No. 17-1085, 2018 WL 1720808 (2d Cir. 2018).  Plaintiff, a holder of a variable deferred annuity policy from defendant, brought a putative class action against defendant in Connecticut state court alleging breach of contract based on defendant’s alleged failure to obtain prior written approval before implementing a “volatility management strategy” that affected the performance of the annuity.  Defendant removed the case to the United States District Court of Connecticut, where it successfully moved to transfer the action to the United States District Court for the Southern District of New York (“SDNY”).  The district court denied plaintiff’s motion to remand the action to state court and granted defendant’s cross-motion to dismiss the case as being precluded under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  The Second Circuit reversed, holding that a security holder’s passive retention of a security following an alleged misrepresentation of which the holder is unaware does not meet the requirement that an alleged misstatement be made “in connection with” the purchase or sale of a security under SLUSA, and instructed the district court to remand the action to Connecticut state court.

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On March 20, 2018, the Supreme Court of the United States, in a unanimous decision delivered by Justice Kagan, ruled that state courts have jurisdiction to adjudicate class actions brought under the Securities Act of 1933 (the “Securities Act”) and that such actions cannot be removed from state to federal court.  Cyan, Inc. et al. v. Beaver County Employees Retirement Fund et al., 583 U.S. ___ (2018).  The Securities Act authorized both federal and state courts to exercise jurisdiction over private causes of action relating to securities offerings and barred removal of such suits from state to federal court.  In 1995, in order to stem perceived abuses of the class-action vehicle in securities litigation, Congress enacted the Private Securities Litigation Reform Act (“PSLRA”).  The PSLRA amended the Securities Act by introducing procedural reforms for securities class actions in federal court.  When plaintiffs began filing securities class actions in state courts instead, to avoid the federal procedural standards, Congress passed the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Cyan, Inc. (“Cyan”), a telecommunications company, and its officers and directors, argued that the SLUSA amendments gave federal courts exclusive jurisdiction over class actions brought under the Securities Act.  The Supreme Court disagreed, holding that those amendments did not divest state courts of concurrent jurisdiction over class actions pursuant to the Securities Act.  The Court also rejected the separate argument regarding removal of such actions, advanced by the U.S. Solicitor General, as amicus curiae, and held that SLUSA does not permit defendants to remove class actions alleging only Securities Act claims from state to federal court.

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On December 29, 2017 and January 9, 2018, respectively, the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the Eighth Circuit each affirmed district court dismissals of putative securities class actions asserting violations of various state laws based on securities brokerage firm defendants’ alleged violation of the “duty of best execution” in executing client trades.  Fleming v. Charles Schwab Corp., No. 16-15179 (9th Cir. Dec. 29, 2017); Lewis v. Scottrade, Inc., No. 16-3808 (8th Cir. Jan. 9, 2018).  In affirming the district courts’ dismissals of these clams, both the Ninth Circuit and the Eighth Circuit reasoned that the alleged “best execution” violations were, in substance, allegations of deceptive conduct “in connection with the purchase or sale of” a security and thus barred by the Securities Litigation Uniform Standards Act (“SLUSA”).  

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On November 28, 2017, the U.S. Supreme Court heard argument in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, a case addressing whether state courts have jurisdiction over class actions asserting exclusively claims under the Securities Act of 1933 (“Securities Act”).  A high-level summary of the argument is below.

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​The U.S. Supreme Court has scheduled oral argument on November 28, 2017 in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, a case that is expected to resolve the issue of whether state courts continue to have jurisdiction over class actions asserting only claims under the federal Securities Act of 1933 (“Securities Act”).  The case began in June 2014, when certain purported purchasers of Cyan’s common stock brought a securities class action in California state court against Cyan, certain officers and directors of Cyan, and the underwriters of its IPO, asserting claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act.  Defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) deprived the California state court of jurisdiction over a putative class action asserting only claims under the Securities Act.  Relying on an earlier decision by the California intermediate appellate court in Luther v. Countrywide Financial Corporation, the trial court rejected defendants’ arguments.  After the California Court of Appeals denied defendants’ appeal without opinion and the California Supreme Court denied discretionary review, in May 2016, defendants filed a petition for writ of certiorari to the U.S. Supreme Court.  In granting certiorari, the U.S. Supreme Court seeks to resolve a split among lower courts as to whether SLUSA divests state courts of jurisdiction over class action cases that allege only claims under the Securities Act, as well as whether SLUSA created a right to remove such cases to federal court, even if concurrent state and federal jurisdiction survived SLUSA.

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On May 26, 2017, Judge Cynthia Rufe of the United States District Court for the Eastern District of Pennsylvania ruled that the plaintiffs’ state law claims against Vanguard Group, Inc. (“Vanguard”) were not preempted by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Taskir v. Vanguard Group, Inc., No. 16-5713 (E.D. Pa. May 26, 2017).  In reaching its decision, the Court ruled that SLUSA did not preempt the plaintiffs’ state law claims because Vanguard’s alleged misrepresentations and omissions did not make a significant difference in the plaintiffs’ decision to purchase or to sell their securities.

On May 23, 2017, the Acting Solicitor General (“ASG”) filed a brief on behalf of the United States as amicus curiae urging the Supreme Court to grant the petition for a writ of certiorari in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, to resolve confusion in lower courts as to whether the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) divests state courts of jurisdiction over cases that allege only claims under the Securities Act of 1933 (“Securities Act”).  The issue has been a significant one.  California state courts in particular have become a forum of choice for plaintiffs asserting claims under the Securities Act, and procedural bars on interlocutory review of decisions denying motions to dismiss or remand have precluded significant appellate review.  The Supreme Court had invited the ASG to share its views on the matter in October 2016.  In responding to that invitation, the ASG urged the Supreme Court to grant certiorari and to hold that SLUSA (i) does not preclude state court jurisdiction over such cases but (ii) renders them removable to federal court.

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On April 1, 2017, District Judge John G. Koeltl of the United States District Court for the Southern District of New York dismissed a putative class action against brokerage firm E*TRADE Financial Corporation and E*TRADE Securities LLC (collectively, “E*Trade”).  Rayner v. E*TRADE Financial Corporation et al, No. 1:16-cv-7129 (S.D.N.Y. Apr. 1, 2017).  Plaintiff brought claims for breach of fiduciary duty, unjust enrichment, and declaratory judgment, alleging that E*Trade selected third-party trading venues for the execution of trading orders based on the amount of rebates those venues paid or “kicked back” to E*Trade rather than selecting the most efficient or cost-effective trading venue for E*Trade’s clients that plaintiff contends is required by the duty of best execution.  The Court dismissed all of the claims, holding that they were precluded by the Securities Litigation Uniform Standards Act (the “SLUSA”), which prohibits class actions based on state law claims that rely on allegations that defendant made a misrepresentation or omission of material fact, or employed any manipulative or deceptive device, in connection with the purchase or sale of a covered security.  

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On January 23, 2017, a panel of the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s decision to dismiss a proposed shareholder class action against Bank of America, N.A. and LaSalle Bank, N.A. (the “Bank”).   Richek v. Bank of America, N.A. and LaSalle Bank, N.A., 2017 WL 279498 (7th Cir. Jan. 23, 2017).  Plaintiffs alleged that the Bank was collecting a fee on their custodial accounts without informing customers, and, on this basis, brought a putative class action in state court alleging state law claims for breach of contract and breach of fiduciary duty.  The Bank removed the suit to federal court and successfully argued that the Securities Litigation Uniform Standards Act (“SLUSA”) preempted their state law claims.  The Seventh Circuit affirmed and held that SLUSA preempted the state law claims because they necessarily required consideration of whether there had been an omission in connection with the purchase or sale of a security based on plaintiffs’ claim that the Bank had not disclosed its collection of the fee.  A dissenting opinion criticized the majority’s approach, noting that the panel’s reasoning deepened a split among the Circuits over how courts should apply SLUSA to class actions alleging breach of contract or breach of fiduciary duty claims, and that this split requires resolution by the Supreme Court. 

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On December 6, 2016, FireEye, Inc. (“FireEye”), a cybersecurity company, filed a petition for writ of certiorari with the United States Supreme Court concerning the scope of state court jurisdiction over “covered class actions” under the Securities Act of 1933, as amended by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Petition for Writ of Certiorari, FireEye, Inc. v. Sup. Ct. of Cal. (U.S. Dec. 6, 2016).  

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On October 13, 2016, Judge Susan Nelson of the United States District Court for the District of Minnesota dismissed a putative class action against RBC Capital Markets (a broker-dealer subsidiary of non-party Royal Bank of Canada (“RBC”)) which alleged that RBC Capital had violated the Minnesota Securities Act and state common law in connection with its sale of reverse convertible notes (“RCNs”) to plaintiffs.  Luis v. RBC Capital Mkts., LLC, No. 16-CV-00175-SRN-JSM, 2016 WL 6022909 (D. Minn. Oct. 13, 2016).  The Court held that the action was precluded under the Securities Litigation Uniform Standards Act (“SLUSA”), finding that the RCNs were “covered securities” under SLUSA even though they were not traded on an exchange.  The case is significant as apparently the first federal decision to consider whether a security is “covered” under SLUSA on the basis that it is “a security of the same issuer that is equal in seniority” to another security of the issuer that is listed on a national exchange.  15 U.S.C. § 77r(b)(1)(C). 

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​On October 3, 2016, the Supreme Court invited the Acting Solicitor General to file a brief expressing the views of the United States in Cyan, Inc. v. Beaver County Employees Retirement Fund (“Cyan”), a case in which the Supreme Court is considering whether, under Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), a state court lacks subject matter jurisdiction over covered class actions that allege claims only under the Securities Act of 1933 (“Securities Act”).  There is no obligation on the part of the Solicitor General to respond or a formal deadline for it to do so, but the invitation by the Supreme Court could be read to suggest an increased likelihood that the Supreme Court will hear the case.

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On September 2, 2016, Chief Judge Leonard P. Stark of the U.S. District Court for the District of Delaware denied a motion to remand a putative class action brought under the Securities Act of 1933 (the “Securities Act”) to state court.  Iron Workers District Counsel of New England Pension Fund v. MoneyGram Int’l Inc.

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On July 27, 2016, Judge Sarah Illston of the United States District Court for the Northern District of California remanded two putative securities class actions against Fitbit, Inc.—one to the Superior Court of California, San Mateo County and the other to the Superior Court of California, San Francisco County.  See Rivera v. Fitbit, Inc., Case No. 16-cv-2890 (N.D. Cal. July 27, 2016); De Luz v. Fitbit, Inc., Case No. 16-cv-3381 (N.D. Cal. July 27, 2016).  Both matters had been commenced in California Superior Court in April and May of 2016, alleging only claims under the Securities Act of 1933 (the “Securities Act”).  Fitbit removed both actions to federal court, and plaintiffs moved to remand, arguing that the Securities Act prohibits removal of class actions when those actions assert only Securities Act claims.  

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On April 29, 2016, Chief Judge Patti Saris of the United States District Court for the District of Massachusetts granted plaintiff’s motion to remand to state court a putative class action brought under the U.S. Securities Act of 1933 (the “Securities Act”).  Fortunato v. Akebia Therapeutics, Inc., No. 15-13501-PBS, 2016 BL 137403 (D. Mass. Apr. 29, 2016).  This decision joins a number of courts that have remanded Securities Act class actions to state court after concluding that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not negate the removal bar contained in the Securities Act.  This decisional trend has led plaintiffs to increasingly file Securities Act class action lawsuits in state courts, which often are less likely to dismiss complaints and may not apply the procedural protections of the Private Securities Litigation Reform Act (“PSLRA”), such as the pre-motion to dismiss discovery stay.

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