Emiley E. Dillon
Securities litigation and enforcement often increase in times of financial hardship and crisis, and experts believe that the COVID-19 pandemic will be another example of this reality. One critical choice any plaintiff’s attorney in a securities-related class action must make is whether to bring a claim under federal or state law. As securities litigation increases in response to COVID-19, this jurisdictional decision will likely become more relevant. Even before COVID-19, however, this choice has taunted securities lawyers. Congress enacted the Securities Litigation Uniform Standards Act (SLUSA) to give effect to the Private Securities Litigation Reform Act (PSLRA) by preventing claimants from bringing security fraud claims in state court as a method of avoiding the PSLRA’s more stringent federal pleading standards. The SLUSA provides that a claimant may not bring a class action involving more than 50 members in any state court based on state law if the claim involves a nationally listed security and alleges “an untrue statement or omission of a material fact . . . [or] manipulative or deceptive device or contrivance” in connection with buying or selling a covered security.
Federal circuit courts have taken varying approaches to the single question of when a complaint alleges a misstatement or omission sufficient to warrant SLUSA preemption. The question of preemption becomes more difficult to answer when the complaint alleges traditional state-law claims of breach of fiduciary duty or breach of contract with incidental aspects of security fraud. With the increasing willingness of the circuits to interpret the SLUSA broadly and the growing amount of pandemic-related securities litigation, there may be more opportunities for the Supreme Court to finally provide clarity on this issue. Continue reading