Chadbourne & Parke LLP v. Troice

Summarized by:

  • Court: U.S. Supreme Court Certiorari Granted
  • Area(s) of Law: Preemption
  • Date Filed: January 18, 2013
  • Case #: 12-79
  • Judge(s)/Court Below: Court Below: Court of Appeals for the Fifth Circuit, 675 F.3d 503 (2012)
  • Full Text Opinion

Whether the Securities Litigation Uniform Standards Act (SLUSA) precludes a state-law class action alleging fraud and misrepresentation in a Ponzi scheme.

In 2009, the Securities and Exchange Commission brought a suit against the Stanford Group Company and its various corporate entities (Petitioners) in state court alleging a classic Ponzi scheme after Stanford reported increased certificates of deposit (CDs) sales when it promised investors a high return and claimed the CDs were backed by safe investments.

Petitioners tried to remove the case to federal court, claiming that the Securities Litigation Uniform Standards Act (SLUSA) precluded the state action. SLUSA normally precludes a state-law class action lawsuit if the allegation is “a misrepresentation. . . in connection with the purchase or sale of a covered security.” 15 U.S.C §78bb(f)(1)(A). The Court of Appeals for the Fifth Circuit held that SLUSA did not preclude the state-law class action because the misrepresentation and subsequent sale of securities was only slightly connected to the alleged fraud.

The Supreme Court granted a writ of certiori to decide whether the a state-law class action suit is precluded by the Securities Litigation Uniform Standards Act (SLUSA) when the alleged fraud includes a misrepresentation made during a transaction of SLUSA-covered securities.

On appeal, Petitioners argue that there is a split in the circuits involving the preclusion of state-law class action in these cases. Petitioners ask the Supreme Court to adopt the position taken by the Courts of Appeals for the Eleventh and Second Circuits, which held that a misrepresentation was made “in connection with” a covered securities transaction if the fraud “necessarily involve[d]” or “depended on” an SLUSA covered-security.

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