On October 7, 2013,
the Supreme Court began its 2013 term by hearing oral argument on three
consolidated cases set to determine the scope of SLUSA’s preclusion
provision. Enacted in 1998 to curb plaintiffs’ efforts to avoid the
Private Securities Litigation Reform Act by filing securities class actions in
state court, SLUSA provides that: “[n]o covered class action based upon the
statutory or common law of any State or subdivision thereof may be maintained
in any State or Federal court by any private party alleging a misrepresentation
or omission of a material fact in connection with the purchase or sale of a
covered security.” 15 U.S.C. §78bb(f)(1)(A). The circuits are divided,
however, over the proper standard for determining whether a misrepresentation
meets the “in connection with” requirement. In March 2012, the Fifth
Circuit adopted the Ninth Circuit’s previously articulated standard and ruled
in Roland v. Green that a misrepresentation or omission is in connection
with a sale or purchase of a security “if there is a relationship in which the
fraud and the stock sale coincide or are more than tangentially related.”
675 F.3d 503, 520 (5th Cir. 2012). This standard is at odds with the
standards the Second, Sixth, Seventh, Eight, and Eleventh Circuits have
articulated. Applying the tangentially related standard, the Fifth
Circuit held that SLUSA did not apply because the sale of certificates of
deposit in question was only tangentially related to the alleged fraud and
reversed the judgment of the district court. The Supreme Court will also
use the consolidated cases to determine if SLUSA precludes class actions
alleging aiding and abetting claims when a non-party made the only alleged
misrepresentations about the covered security. The decision will
certainly have a lasting impact on the future of securities class action
lawsuits. The three consolidated cases are Chadbourne & Parke LLP
v. Troice (12-79), Willis of Colorado Inc. v. Troice (12-86), and Proskauer
Rose LLP v. Troice (12-88).
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