Trust Updates Archive

Litigation Banks Trusts SLUSA Third Circuit Supreme Court LaSala Segal Fifth Third Beary Nationwide Richtenburg Wells Fargo Game On: The Battle to  Topple SLUSA

"Complaints are often filled with more information than is necessary . . .  extraneous allegations of misrepresentation in a complaint . . . do not [require] that the complaint must be dismissed under SLUSA," Third Circuit ruling, March 11.

(April 16, 2008--Chicago, IL)--Recent federal and state court rulings suggest loopholes exist in the banking industry’s strategy for neutering fiduciary class actions. Plaintiffs are finding chinks in the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which, until March, was used successfully to halt fiduciary class actions.

On March 11, a federal appeals court ruled that SLUSA does not preempt state law claims in LaSala v. Bordier et Cie, a revenue-sharing class action. In overturning a lower court dismissal of the action, the appeals court found that there was clear congressional intent exempting certain SLUSA class actions. The appeals court rejected defendant’s assertion that its ruling would open a loophole for plaintiffs.

On March 25, a federal district court ruled in favor of Fifth Third Bank, dismissing a conversion class action, Segal v. Fifth Third. The bank contended that SLUSA preempted the litigation. The ruling is expected to be appealed. Segal is one of nine similar lawsuits in which plaintiffs are represented by the law firm of Greenfield & Associates.

In a second Ohio federal court, plaintiffs in Beary v. Nationwide were asking the court to allow them to amend their class-action complaint. The court dismissed the case in September 2007, finding that it was preempted by SLUSA.

In California, trust beneficiaries are asking the state’s supreme court to decide if SLUSA preempts fiduciary state law in a proprietary mutual fund conversion lawsuit against Wells Fargo. This is the second go-around before California’s high court, the first time at plaintiffs’ request.

Rulings in these cases suggest SLUSA preemption can turn on the timing of misrepresentation and omissions, whether theft versus bad investment strategy is alleged, and, in a trust context, who the “buyer” or “seller” of the security is.

Legal observers say differing court interpretations mean that the U.S. Supreme Court will have to refine the scope or reach of SLUSA. Until then, federal courts are facing the fiduciary equivalent of addressing what the definition of “is” is.

For more on this topic, see the current issue of Trust Regulatory News.

No statement in this issue is offered as or should be
construed as legal opinion or advice

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