Term: 2013
Docket: 12-79
Chadbourne & Parke Llp v. Troice
- Pro
12-79 CHADBOURNE & PARKE LLP V. TROICE DECISION BELOW: 675 F.3d 503 LIMITED TO QUESTION 1 PRESENTED BY THE PETITION. CONSOLIDATED WITH 12-86 AND 12-88 FOR ONE HOUR ORAL ARGUMENT. CERT. GRANTED 1/18/2013 QUESTION PRESENTED: The Securities Litigation Uniform Standards Act ("SLUSA") precludes most state-law class actions involving "a misrepresentation" made "in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1)(A). The circuits, however, are divided over the standard for determining whether an alleged misrepresentation is sufficiently related to the purchase or sale of a covered security to satisfy the "in connection with" requirement. The Fifth Circuit in this case adopted the Ninth Circuit standard and held that the complaint here was not precluded by SLUSA, expressly rejecting conflicting Second, Sixth, and Eleventh Circuit standards for construing the "in connection with" requirement, all of which would result in SLUSA preclusion here. Additionally, and also in conflict with several other circuits, the Fifth Circuit held that SLUSA does not preclude actions alleging aiding and abetting of fraud in connection with SLUSA-covered security transactions when the aiders and abettors themselves did not make any representations concerning a SLUSA-covered security. The questions presented are: 1. Whether SLUSA precludes a state-law class action alleging a scheme of fraud that involves misrepresentations about transactions In SLUSA-covered securities. 2. Whether SLUSA precludes class actions asserting that defendants aided and abetted SLUSA-covered securities fraud when the defendants themselves did not make misrepresentations about the purchase or sale of SLUSA-covered securities. LOWER COURT CASE NUMBER: 11-11031
In the case of Chadbourne & Parke LLP v. Troice (2013), the U.S. Supreme Court ruled in favor of a group of investors who had been defrauded by Allen Stanford's $7 billion Ponzi scheme, allowing them to proceed with state law class-action lawsuits against several law firms and insurance brokers. The defendants argued that they were shielded from such suits under the Securities Litigation Uniform Standards Act (SLUSA) which precludes state-law class actions alleging fraud "in connection with" transactions in covered securities. However, Justice Stephen Breyer, writing for a 7-2 majority court, held that SLUSA did not apply as Stanford's certificates of deposit - while falsely promoted as backed by covered securities - were not themselves covered securities traded on a national exchange nor issued by an investment company; hence their purchase or sale did not involve any transaction in covered security.
In the dissenting opinion for Chadbourne & Parke LLP v. Troice, Justice Anthony Kennedy, joined by Justice Samuel Alito, argued that the majority's interpretation of the Securities Litigation Uniform Standards Act (SLUSA) was too narrow. They contended that SLUSA should preempt state-law class action claims based on misrepresentations about transactions in covered securities even if plaintiffs did not themselves purchase those securities. The dissenters believed this broader reading would better align with Congress’s intent to prevent state-law class actions from undermining federal law governing securities litigation. They also expressed concern that limiting preemption could allow fraudulent schemes to escape federal oversight and potentially harm investors.
