In this commentary, Mark A. Perry and Indraneel Sur of Gibson, Dunn & Crutcher LLP in Washington, D.C., write about the Third Circuit U.S. Court of Appeal’s decision in In re Lord Abbett Mutual Funds Fee Litigation, a decision they contend the court resolved incorrectly. They write:
“The Securities Litigation Uniform Standards Act of 1998 (SLUSA) provides that ‘[n]o covered class action . . . may be maintained in any State or Federal court.’ The statute further defines covered class actions as certain ‘lawsuits’ brought under state law by private persons alleging specified misconduct in connection with the purchase or sale of nationally traded securities. A recurring question in modern securities litigation is what a district court should do with a complaint that alleges both SLUSA-precluded claims and other claims that are not precluded by SLUSA. For example, the same factual allegations could give rise to a claim for relief under the federal securities laws and also a claim for relief under state common law. If both claims are pleaded in the complaint, and the state-law claim is precluded by SLUSA, should the district court dismiss only that claim or the entire action?
“Confronting this issue head on, the Third Circuit recently resolved it incorrectly.
“The court of appeals in In re Lord Abbett Mutual Funds Fee Litigation summarized its position as follows: ‘This appeal presents the question whether SLUSA requires the dismissal of the entire action when the action includes some state law class action claims that clearly may not be maintained under SLUSA as well as other claims that are not so prohibited. We hold that SLUSA does not require such a dismissal.’
“As we explain below, the text, structure, and purpose of SLUSA all compel a result contrary to that reached by the Third Circuit in Lord Abbett. Congress expressly provided in SLUSA that covered class actions — not ‘claims’ — may not be maintained in any court. The precluded actions are further defined as lawsuits — not ‘claims’ — and the statutory context makes clear that it speaks to entire cases, not individual claims. Giving effect to the plain text and structure of SLUSA would best effectuate its purpose, which was to channel most allegations of misconduct involving nationally traded securities into federal court to be resolved under federal law. Accordingly, if a ‘covered class action’ (as defined by Congress) includes a precluded claim, then the entire case must be dismissed by the district court.” Subscribers can access the complete commentary on lexis.com. Additional fees may be incurred. (approx. 21 pages)