A new chapter is now being written in the ongoing battle between defendants seeking dismissal of securities class actions under the Securities Litigation Uniform Standards Act1 (SLUSA) and plaintiffs attempting to avoid SLUSA and proceed with their claims in state court. Legislative efforts to reign in securities class actions began with the Private Securities Litigation Reform Act of 1995,2 which imposed strict pleading requirements on claims brought under the federal securities laws. When securities plaintiffs sought refuge from the PSLRA’s pleading requirements in state court, Congress enacted SLUSA,3 which requires dismissal of “(1) [] a ‘covered’ class action (2) based on state statutory or common law that (3) alleges that defendants made a ‘misrepresentation or omission of a material fact’ or ‘used or employed any manipulative device or contrivance in connection with the purchase or sale’ (4) of a covered security.”4
Defining SLUSA’s reach has been a continual battleground between plaintiffs and defendants, with past disputes centering on issues such as whether artfully pleaded state common law claims in fact involve misrepresentations relating to securities5 and whether any relationship with a covered security is close enough to be “in connection with the purchase or sale” of such securities.6 The latest front in those battles concerns the question of what constitutes a “covered class action,” under SLUSA, with courts giving that threshold term a surprisingly expansive meaning. We discuss below three recent cases from the U.S. District Court for the Southern District of New York—two brought individually, rather than as class actions,7 and the third brought by a trustee appointed under the Securities Investor Protection Act (SIPA),8 all of which were held to be “covered class actions,” for purposes of SLUSA.
