Term: 2005
Docket: 04-1371
Merrill Lynch, Pierce, Fenner & Smith Inc. v. Shadi Dabit
- Pro
04-1371 MERRILL LYNCH, PIERCE, FENNER & SMITH V. DABIT DECISION BELOW: 395 F3d 25 CERT. GRANTED 9/27/2005 QUESTION PRESENTED: Through passage of the Securities Litigation Uniform Standards Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227 ("SLUSA "), Congress, inter alia, amended Section 28 of the Securities Exchange Act of 1934 to preempt any private action brought on behalf of 50 or more persons from proceeding under the statutory or common law of any State in any state or federal court if such action alleges "[a] misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1)(A), (5)(B). In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), this Court adopted a "purchaser-seller" standing limitation in private actions brought under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), by requiring the private plaintiff to be an actual purchaser or seller. The decision below implicates whether that judicially crafted "purchaser-seller" standing requirement articulated as a limit on private fraud actions under Section 10(b) applies to limit SLUSA's broad preemptive scope over state law claims. The question presented in this petition is: Whether, as the Seventh Circuit held earlier this month and in direct conflict with the decision below, SLUSA preempts state law class action claims based upon allegedly fraudulent statements or omissions brought solely on behalf of persons who were induced thereby to hold or retain (and not purchase or sell) securities? LOWER COURT CASE NUMBER: 03-7499, 03-7458
In the case of Merrill Lynch, Pierce, Fenner & Smith Inc. v. Shadi Dabit (2005), the U.S Supreme Court ruled in favor of Merrill Lynch and against a class action lawsuit brought by former broker Shadi Dabit. The court held that federal law preempts state-law class-action claims brought by holders of securities alleging fraud or misrepresentation on part of brokers even if they did not sell their shares due to such misleading conduct. This decision was based on the Securities Litigation Uniform Standards Act (SLUSA) which prevents plaintiffs from bringing large-scale securities lawsuits under state law instead of federal law where there are more stringent pleading requirements and limitations on damages.
In the dissenting opinion for Merrill Lynch, Pierce, Fenner & Smith Inc. v. Shadi Dabit, Justice Stevens argued that the majority's interpretation of the Securities Litigation Uniform Standards Act (SLUSA) was overly broad and inconsistent with Congress' intent in passing it. He contended that SLUSA was intended to prevent plaintiffs from evading federal securities laws by filing class action lawsuits under state law; however, he believed it should not bar individual investors who have been defrauded from seeking relief under state law. In his view, this would unfairly limit their legal options and could potentially leave them without any effective remedy if they were unable to meet the stringent requirements for bringing a federal securities fraud claim. Furthermore, he criticized the majority's reliance on legislative history rather than statutory text in interpreting SLUSA’s pre-emptive scope.
