January 22, 2013

SLUSA Accepted

Just because the government says a case is not a good cert candidate, does not mean the U.S. Supreme Court will agree. On Friday, in a somewhat surprising decision, the Court granted cert in three related cases that raise an issue about the scope of the Securities Litigation Uniform Standards Act ("SLUSA").

SLUSA precludes certain class actions based upon state law that allege a misrepresentation in connection with the purchase or sale of nationally traded securities. In the three related cases, the Fifth Circuit held that the "best articulation of the 'coincide' requirement" is that the fraud allegations must be "more than tangentially related to (real or purported) transactions in covered securities." The Fifth Circuit then concluded that the relationship between the alleged fraud, which centered around the sale of certificates of deposit, and any transactions in covered securities was too attenuated to trigger SLUSA preclusion. The defendants moved for certification on the grounds that the Fifth Circuit's "more than tangentially related" standard was in conflict with the standards articulated by other circuits.

The government, at the invitation of the Court, filed an amicus brief arguing that cert should not be granted because (a) the circuit standards are substantially similar and (b) the unusual fact pattern in the cases would render any holding that SLUSA applies (or does not apply) of little assistance to lower courts in future cases. But the Court evidently did not find the government's arguments persuasive.

The official question presented is: Whether SLUSA precludes a state-law class action alleging a scheme of fraud that involves misrepresentations about transactions In SLUSA-covered securities. Bloomberg and the Associated Press have coverage of the Court's decision.

Posted by Lyle Roberts at January 22, 2013 8:25 PM | TrackBack
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