Summary
The Seventh Circuit held that under SLUSA's "covered class action" definition, 15 U.S.C. § 78bb(f)(5)(B)(i)(II), any putative class action brought by a named plaintiff on a representative basis is a covered class action regardless of the proposed class size, even if fewer than 50 members. The court rejected the argument that the 50-person threshold in subparagraph (I) applies to subparagraph (II), and affirmed dismissal of the plaintiff's state-law securities fraud claims as precluded by SLUSA. Key topics: Securities Litigation Uniform Standards Act (SLUSA), covered class action definition, representative basis, class size threshold, preclusion of state-law securities class actions.
Topics
Practice areas
Questions Presented
- Whether the plaintiff's class action lawsuit, which alleged a proposed class of fewer than 50 members, constitutes a 'covered class action' under SLUSA, 15 U.S.C. § 78bb(f)(5)(B)(i), and thus is precluded from proceeding under state law.
Holdings
- Yes, because Subparagraph (II) of § 78bb(f)(5)(B)(i) includes any action brought by a named plaintiff on a representative basis, regardless of the proposed class size. The plain language of the statute makes Subparagraph (II) applicable to all putative class actions, and the fifty-person threshold in Subparagraph (I) does not apply to Subparagraph (II).
Key quotations
“We hold that the plain language of SLUSA's 'covered class action' definition includes any class action brought by a named plaintiff on a representative basis, regardless of the proposed class size.” (2)
“Subparagraph (II) includes all actions in which one named plaintiff seeks to recover damages 'on a representative basis on behalf of themselves and other unnamed parties similarly situated.'” (11)
“Subparagraph (II) includes all putative class actions with fifty or fewer proposed class members.” (11)
Factual background
Plaintiff Susan Nielen-Thomas filed a putative class action against her investment advisor, Jeffrey L. Butler, and related entities, alleging that Butler mismanaged client accounts by making block trades unsuitable for retail investors and repeatedly trading a volatile exchange-traded note (VXX) designed for sophisticated, short-term hedging. The proposed class consisted of between 35 and 49 members. The complaint alleged state-law claims for securities law violations, fraud, negligence, breach of fiduciary duty, and breach of contract.
Procedural history
Plaintiff filed a putative class action in Wisconsin state court. Defendants removed to federal court under SLUSA. Plaintiff moved to remand, arguing that the proposed class of fewer than 50 members did not constitute a 'covered class action' under SLUSA. Defendants moved to dismiss as precluded by SLUSA. The district court denied remand and granted dismissal with prejudice.