Opinion
CASE NO. 03-80911-CIV-DIMITROULEAS
December 4, 2003
FINAL REMAND ORDER
THIS CAUSE having been heard upon Plaintiff's (Gordon) October 24, 2003 Motion to Remand [DE-7], and Motion for Oral Argument [DE-8], and having considered Defendants' November 21, 2003 Memorandum in Opposition [DE-13], Defendants' November 24, 2003 Joinder in Opposition [DE-14], and Plaintiff's December 1, 2003 Reply [DE-16], the Court finds as follows:
1. On August 22, 2003, Plaintiff filed a class action lawsuit in state court alleging Breach of Fiduciary Duty. [DE-1, pp. 11-23].
2. On September 25, 2003, Defendant Fidelity Management filed its Notice of Removal to federal court alleging complete preemption under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. § 77p(b). [DE-1].
3. SLUSA provides in relevant part:
(b) No 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 —
(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or
(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
(c) Any covered class action brought in any State court involving a covered security . . . shall be removable to the Federal district court for the district in which the action is pending.15 U.S.C. § 77p(b) (emphasis added), (c); See also 15 U.S.C. § 78 bb(f)(2).
The Supreme Court has recently endorsed a broad reading of the phrase "in connection with." SEC v. Zandford, 535 U.S. 813. 819 (2002). However, in Zandford the fraud coincided with the sales. Id. at 820.
4. In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA) which enacted reforms that enabled securities defendants to obtain early dismissals of frivolous suits. By 1998, Congress realized that many of the goals of PSLRA were being frustrated by plaintiffs shifting their class action claims to state courts. To close this loophole in PSLRA, Congress passed SLUSA. Riley v. Merrill Lynch, 292 F.3d 1334, 1341 (11th Cir. 2002). In order to remove a class action case to federal court, the defendant must show:
1) the suit is a covered class action;
2) the plaintiffs' claims are based on state law;
3) one or more covered securities has been purchased or sold; and
4) the defendant misrepresented or omitted a material fact "in connection with the purchase or sale of such security." Riley, 292 F.3d at 1342.
The first three factors are conceded in this case. The fourth factor is in dispute.
5. SLUSA does not apply to claims dealing solely with the retention of securities. Riley, 292 F.3d at 1345. Every breach of fiduciary duty is not transformed into a federal securities violation. Zandford, 535 U.S. at 825 n. 4. In Zandford. the investor was duped into believing that the thief would conservatively invest his monies. However, that representation of a conservative investment policy occurred at the time of the stock purchase, and it was not a misrepresentation. Here, there is no allegation that the conservative philosophy at the time of the sale was a misrepresentation. Here, it is alleged that the philosophy changed after the purchase of securities and that during the retention of those securities, another management team fraudulently led the investors astray. Unlike Professional Management Associates, Inc. v. KPMG, 335 F.3d 800 (8th Cir. 2003), in the instant case, there is no allegation of misrepresentation at the time of purchase, the allegation of misrepresentation is during the retention of the securities. Certainly, SLUSA does apply to cases where the misrepresentation caused a plaintiff to both purchase and hold a particular security. Id. Here, Plaintiff has specifically sought to eliminate class members that purchased securities after the fraud.
6. If allegations are carefully crafted to limit the case to retention of securities, then SLUSA does not apply. Gutierrez v. Deloitte Touche, LLP, 147 F. Supp.2d 584, 594-95 (W.D. Tex. 2001); see also Green v. Ameritrade, 279 F.3d 590, 599 (8th Cir. 2001). However, where the complaint alleges that material misrepresentations caused plaintiffs to purchase and hold securities, SLUSA does apply. Riley, 292 F.3d at 1345. Defendants claim that Plaintiff's Complaint comes under SLUSA because it can be construed to allege fraud prior to some purchases.
7. However, the Complaint expressly excludes any class members who purchased or sold securities. [DE-1, p. 14]. This exclusion has been held by some courts to be sufficient to eliminate a claim by a holder of securities who purchased the securities during the period of the misrepresentations. Chinn v. Belfer, 2002 WL 31474189, at *5 (D. Or. June 19, 2002); Feitelberg v. Credit Suisse First Boston, 2003 WL 22434098, at *5 (N.D. Cal. Oct. 24, 2003).
8. Plaintiff contends that the misrepresentations did not involve the purchase of securities, but the retention of them. Again, SLUSA does not apply to claims dealing solely with the retention of securities. Riley, 292 F.3d at 1345. Although Plaintiff's claims involve statements that were made at or before the purchase of some of the securities (the conservative philosophy), the alleged misrepresentations only occurred during Plaintiff's retention of the securities. There were no allegedly untrue statements or omissions in connection with the Plaintiff's purchase, only in connection with his continued retention. Given Plaintiff's express exclusion of any claims in connection with the purchase of securities, the Court finds that SLUSA did not authorize a removal.
Wherefore, it is hereby ORDERED AND ADJUDGED as follows:
1. Plaintiff's Motion to Remand [DE-7] is GRANTED. The Clerk shall return this case to the Fifteenth Judicial Circuit of Florida.
2. Plaintiff's Motion for Oral Argument [DE-8] is DENIED AS MOOT.
3. The Clerk may close this case.