United States: U.S. Supreme Court Grants Certiorari To Address Federal Preemption Of State-Law Securities Claims

Securities litigation continues to be a hot topic at the U.S. Supreme Court. Since 2006, the Roberts Court has issued no fewer than eight opinions on important securities litigation issues. These decisions have altered the landscape of federal securities litigation, and securities class actions in particular. In the last few years, the Court has addressed the territorial reach of the federal securities laws, the statutory limits on claims against secondary actors, the requisite pleading standards for materiality and scienter, class certification standards, loss causation, and the statute of limitations.1

Two additional securities cases are pending in the current term. The first is Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, in which the Supreme Court will consider the proof required at the class certification stage.2 Amgen was argued in November, and an opinion will be forthcoming before the end of the term in June. And last month, the Court added another case to its docket.

On January 18, 2013, the Supreme Court granted a writ of certiorari to address the scope of the Securities Litigation Uniform Standards Act ("SLUSA"), which preempts certain securities class actions arising under state law. The Court will consider three related cases arising from the alleged Ponzi scheme of Allen Stanford. The cases are Chadbourne & Park LLP v. Troice, 12-79; Willis of Colorado Inc. v. Troice, 12-86; and Proskauer Rose LLP v. Troice, 12-88. (Disclosure: Mr. Foster is counsel for one of the petitioners at the Supreme Court.)

SLUSA prohibits state-law class actions alleging fraud "in connection with" the purchase or sale of "covered" securities (i.e., securities that are traded on a national exchange such as the NYSE). SLUSA was enacted in 1997 to prevent plaintiffs from circumventing the restrictions imposed under the federal securities laws by filing alternative claims in state court.

In the Stanford cases, the plaintiffs allege that they were misled into purchasing fraudulent CDs based, at least in part, on the representation that the CDs were backed by a portfolio of securities traded on major exchanges. Stanford is insolvent, and therefore the plaintiffs have targeted various third-party professionals—including Stanford's banks, clearing brokers, law firms, and insurers—accusing them of facilitating the alleged fraud.

Under federal law, private litigants are not permitted to bring "aiding and abetting" claims against third parties. The Stanford plaintiffs have sought to avoid this limitation by asserting claims under state law rather than federal law. The issue on appeal is whether such claims are preempted by SLUSA.

The Supreme Court petitioners are law firms and insurance brokers that performed professional services for Stanford. The petitioners moved to dismiss the plaintiffs' state-law claims at the district court on the grounds that they were preempted by SLUSA. The defendants acknowledged that the Stanford CDs themselves were not "covered securities" within the meaning of SLUSA, but argued that plaintiffs' claims were nevertheless precluded because of Stanford's misrepresentations that the CDs were backed by SLUSA-covered securities.

The district court recognized a split in authority over meaning of SLUSA's "in connection with" requirement, and it chose to follow the Eleventh Circuit test. Under that standard, a state-law class action is precluded if the plaintiffs' allegations "depend upon" the purchase or sale of SLUSA-covered securities, or if the plaintiffs were "induced" to invest through misrepresentations regarding covered securities.The Stanford cases clearly satisfied this test, and the district court granted the defendants' motions to dismiss.

The Fifth Circuit reversed, holding that SLUSA did not apply because the plaintiffs' complaints also contained other alleged misrepresentations that did not relate to Stanford's alleged portfolio of covered securities. The Fifth Circuit acknowledged that "the CDs' promotional material touted that [Stanford's] portfolio of assets was invested in 'highly marketable securities issued by stable governments, strong multinational companies, and major international banks,'" but nonetheless found that this was "but one of a host of (mis)representations" made by Stanford. The court ultimately concluded that Stanford's misrepresentations about its securities portfolio were only "tangentially related" to the heart of its alleged fraud.

The petitioners contend that the Fifth Circuit's decision is contrary to the plain language of SLUSA. The statute provides that a state-law class action is precluded if the complaint alleges "a" misrepresentation in connection with the purchase or sale of a covered security. Therefore, a single misrepresentation is all that is required. The statute does not contemplate a balancing of various allegations to determine whether the SLUSA-implicating misrepresentations are important enough to warrant consideration.

Before the Supreme Court granted the petition for writ of certiorari, it invited the U.S. Solicitor General to submit an amicus brief. The Solicitor General argued that the Court should refuse the case due to the complexity and unusual nature of the Stanford Ponzi scheme, but expressly recognized that "the Fifth Circuit erred in its application of SLUSA's preclusion provision."

The Supreme Court will consider the following question: "whether a covered state law class action complaint that unquestionably alleges 'a' misrepresentation 'in connection with' the purchase or sale of a SLUSA-covered security nonetheless can escape the application of SLUSA by including other allegations that are farther removed from a covered securities transaction."

Oral argument has not yet been scheduled.


1. Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2006) (addressing standards for proof of loss causation); Tellabs Inc. v. Makor Issues & Rights, 551 U.S. 308 (2007) (addressing standards for pleading scienter); Stoneridge Investment Partners v. Scientific-Atlanta, 552 U.S. 148 (2008) (addressing liability of secondary actors); Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010) (addressing extraterritorial jurisdiction); Merck & Co., Inc. v. Reynolds, 130 S. Ct. 1784 (2010) (addressing statute of limitations); Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (2011) (addressing standards of materiality); Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) (addressing limitations on primary liability); Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179 (2011) (addressing loss causation and class certification).

2. http://www.andrewskurth.com/pressroom-publications-908.html

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.