On May 31, 2022, the United States Court of Appeals for the
Eleventh Circuit affirmed the dismissal of a putative class action
asserting claims under Georgia state law for breach of fiduciary
duty against a brokerage firm and its parent company. Cochran
v. Penn Mut. Life Ins., No. 20-13477 (11th Cir. May 31, 2022).
Plaintiff alleged that the brokerage firm breached a fiduciary duty
when it advised plaintiff to use funds in a retirement account to
invest in a variable annuity, a product that allegedly resulted in
higher fees for the broker and no benefit to plaintiff because his
retirement account was already tax-advantaged. The district court
dismissed the class action allegations and the Eleventh Circuit
affirmed, holding that the Securities Litigation Uniform Standards
Act ("SLUSA") precludes bringing such claims as a class
action.
Because the parties did not dispute that the claims at issue were
brought pursuant to state law and involved the purchase of
"covered securities" under SLUSA, the Court's
analysis was limited to one disputed element of SLUSA—whether
the claims alleged misrepresentations in connection with the
purchase of the securities. Slip op. at 8-9. The Court observed
that, as articulated by other circuit courts, whether a complaint
alleges misrepresentations within the meaning of SLUSA depends on
the substance of the allegations, not on whether the complaint uses
the labels "fraud" or "misrepresentation."
Id. at 9-10.
The Court determined that the essence of plaintiff's complaint
was that the brokerage company, "through its investment advice
and recommendations," allegedly made misrepresentations by
providing false information or failing to disclose material
information about the suitability of variable annuities.
Id. at 11. The Court pointed to numerous such references
in the complaint where it was alleged that the brokerage company
"recommend[ed]," "urged and directed," provided
"advice," and "convinced" plaintiff to invest
in the securities in question. Id. at 10-13.
In addition, the Court rejected plaintiff's argument that the
crux of the alleged breach of fiduciary duty was a conflict of
interest—the brokerage company's purported self-interest
in earning fees by recommending variable annuities—rather
than a misrepresentation. Id. at 14. The Court noted that,
under this theory, no amount of disclosure could cure the alleged
breach, and a breach could be established without any false
statements or omissions. To the contrary, the Court explained,
under Georgia law a broker with a conflict of interest has a
"heightened duty not to misrepresent" material facts, but
a "conflicted broker can nonetheless advise and recommend with
full disclosure and without misrepresentation." Id.
at 15. Indeed, the Court further observed that, "[t]o be
viable under Georgia law," the class action allegations would
be barred by SLUSA, and that persuading a court that plaintiff was
not claiming any misrepresentation or omission "would earn
[plaintiff] only the right to have his entire complaint dismissed
for failure to state a claim." Id. at 15.
Cochran v. Penn Mut. Life Ins.
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