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Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit

Supreme Court of the United States

January 18, 2006, Argued ; March 21, 2006, Decided

No. 04-1371

Opinion

 [*74]  [**1506]   Justice Stevens delivered the opinion of the Court.

HN1[] LEdHN[1A][] [1A] Title I of the Securities Litigation Uniform Standards Act of 1998 (SLUSA) provides that "[n]o covered class action" based on state law and alleging "a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security" "may be maintained in any State or Federal court by any private party." § 101(b), 112 Stat. 3230 (codified at [**1507]  15 U.S.C. § 78bb(f)(1)(A)).  In this case the Second Circuit held that SLUSA only pre-empts state-law class-action claims brought by plaintiffs who have a private remedy under federal law.  395 F.3d 25 (2005). A few months later, the Seventh Circuit ruled [****7]  to the contrary, holding that the statute also pre-empts state-law class-action claims for which federal law provides no private remedy.   Kircher v. Putnam Funds Trust, 403 F.3d 478 (2005).  The background, the text, and the purpose of SLUSA's pre-emption provision all support the broader interpretation adopted by the Seventh Circuit.

Petitioner Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch) is an investment banking firm that offers research and brokerage services to investors. Suspicious that the firm's loyalties to its investment banking clients had produced biased investment advice, the New York attorney general in 2002 instituted a formal investigation into Merrill  [*75]  Lynch's practices. The investigation sparked a number of private securities fraud actions, this one among them. 1

Respondent, Shadi Dabit, is a former Merrill Lynch broker. He filed this class action in the United States District [****8]  Court for the Western District of Oklahoma on behalf of himself and all other former or current brokers who, while employed by Merrill Lynch, purchased (for themselves and for their clients) certain stocks between December 1, 1999, and December 31, 2000. See App. 27a-46a. Rather than rely on the federal securities laws, Dabit invoked the District Court's diversity jurisdiction and advanced his claims under Oklahoma state law.

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547 U.S. 71 *; 126 S. Ct. 1503 **; 164 L. Ed. 2d 179 ***; 2006 U.S. LEXIS 2497 ****; 74 U.S.L.W. 4167; Fed. Sec. L. Rep. (CCH) P93,723; 19 Fla. L. Weekly Fed. S 131

MERRILL LYNCH, PIERCE, FENNER & SMITH INC., Petitioner v. SHADI DABIT

Prior History:  [****1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.

 Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 2005 U.S. App. LEXIS 410 (2d Cir. N.Y., 2005)

Disposition:  395 F.3d 25, vacated and remanded.

class action, stocks, purchasers, manipulation, state-law, brokers, holder, pre-empt, damages, sale of securities, state law, deceptive, lawsuits, misrepresentation, class-action, federal court, pre-emption, investors, seller, traded, cases, federal securities, private security, cause of action, private remedy, material fact, allege fraud, of the Reform Act, omission, parties

Securities Law, Civil Liability Considerations, Securities Litigation Reform & Standards, Federal Preemption, Express Liabilities, Misleading Statements, Elements of Proof, General Overview, Removal, Governments, Legislation, Interpretation