The court considers two factors in determining whether the Securities Litigation Uniform Standards Act (SLUSA) preempts a state court class action alleging fraud in connection with securities transactions. First, does the complaint describe conduct by the defendant that would be actionable under the 1933 Securities Act or 1934 Securities Exchange Act. Second, if it does, will that conduct be part of the proof of the claims the complaint alleges, even if not forming an essential element of any of the complaint’s causes of action. Here, the complaint alleged misrepresentations and omissions in the sale of securities, thus satisfying the first inquiry, and those misrepresentations and omissions would be necessary parts of the proof of the state law claims. Furthermore, the complaint did not fit within the so-called Delaware exception for claims based on the law of the state in which the issuer is organized arise from communications about equity owners’ decisions to vote their shares in response to a tender or exchange offer. Here, the claims arose from the defendants’ failure to follow the investment plan they set out in their prospectus, not from any recommendation regarding any shareholder vote. Finally, the district court erred in dismissing the action without first allowing the plaintiff leave to amend—as it might do so to eliminate class claims and by that or other means avoid SLUSA preemption. Also, any dismissal under SLUSA should be without prejudice for lack of jurisdiction, rather than with prejudice under Rule 12(b)(6).
Ninth Circuit Court of Appeals (O’Malley, J.; Thomas, C.J., dissenting in part); September 14, 2018; 2018 U.S. App. LEXIS 26095