On October 7, 2013, the Supreme Court heard oral argument in three cases that question the preemptive scope of federal securities laws. Under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), federal law ordinarily precludes the bringing of state law-based class actions if they allege a misrepresentation or omission of a material fact “in connection with” the purchase or sale of a covered security.  Instead such lawsuits must proceed, if at all, under federal securities laws. Three cases before the Court, however, question just how far the the preemptive scope of SLUSA extends:

In Chadbourne & Parke LLP v. Troice, the question is twofold: (1) does preclusion apply to an alleged scheme of fraud that involves misrepresentations about transactions in SLUSA-covered securities; and (2) does preclusion apply to allegations 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?

Proskauer Rose v. Troice raises two similar questions: (1) does preclusion apply only when the purchase or sale of the security in question is “more than tangentially related” to the core of the alleged fraud; and (2) does preclusion apply when the defendant is sued for aiding and abetting fraud, but a non-party made the only alleged misrepresentation in connection with the securities transaction at issue?

Finally, Willis of Colorado Inc. v. Troice questions whether a state law-based class action that normally would be preempted can nevertheless avoid preclusion if it includes allegations that are somewhat removed from a SLUSA-covered securities transaction.

To discuss these cases, we have Richard Painter, Professor of Law at the University of Minnesota Law School.

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