On February 26, 2014, the Supreme Court issued its decision in three cases that question the preemptive scope of federal securities laws. Under the Securities Litigation Uniform Standards Act of 1998 (or “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, grouped together under the name of the first plaintiff, Chadbourne & Parke LLP, question just how far the the preemptive scope of SLUSA extends. The issue is whether SLUSA preempts a class action in which the plaintiff-victims allege “(1) that they “purchase[d]” uncovered securities (certificates of deposit that [we]re not traded on any national exchange), but (2) that the defendants falsely told the victims that the uncovered securities were backed by covered securities.”
By a vote of 7-2, the Court held in an opinion delivered by Justice Breyer that SLUSA does not preempt the plaintiffs’ state-law class actions, noting that “plaintiffs do not allege that the defendants’ misrepresentations led anyone to buy or to sell (or to maintain positions in)covered securities.” Chief Justice Roberts and Justices Scalia, Thomas, Ginsburg, Sotomayor, and Kagan joined Justice Breyer’s opinion. Justice Thomas also filed a concurring opinion. Justice Kennedy filed a dissenting opinion, in which Justice Alito joined.
To discuss these cases, we have Richard Painter, Professor of Law at the University of Minnesota Law School.