Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-06-04323/USCOURTS-ca3-06-04323-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 

---

Honorable Louis H. Pollak, Senior District Judge of the *

United States District Court for the Eastern District of

Pennsylvania, sitting by designation.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_______________

No. 06-4323

_______________

JOSEPH P. LASALA and FRED S. ZEIDMAN, 

as CO-TRUSTEES

of the AREMISSOFT LIQUIDATING TRUST

 Appellants

v.

BORDIER ET CIE and DOMINICK COMPANY, A.G.

_______________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civ. No. 05-4520)

Honorable Joel A. Pisano, District Judge

_______________

Argued December 13, 2007

BEFORE: SLOVITER and AMBRO, Circuit Judges,

and POLLAK, District Judge *

Filed: March 11, 2008

_______________

Hal M. Hirsch, Esq.

Greenberg Taurig, LLP

200 Park Avenue

Case: 06-4323 Document: 0031221081 Page: 1 Date Filed: 03/11/2008
2

Met Life Building

New York, NY 1066

Gary R. Greenberg, Esq. (Argued)

Louis J. Scerra, Jr., Esq.

Peter M. Casey, Esq.

Greenberg Taurig, LLP

One Internaional Place

Boston, MA 02110

Attorneys for Appellants Joseph P. LaSala and Fred S.

Zeidman

Elliot Cohen, Esq. (Argued)

Troutman Sanders, LLP

The Chrysler Building

405 Lexington Avenue

New York, NY 10174

Attorney for Appellee Bordier et Cie

Paul J. Bschorr, Esq. (Argued)

Lawrence J. Reina, Esq.

Casey D. Laffey, Esq.

Reed Smith, LLP

599 Lexington Avenue

New York, NY 10022

Anthony J. Laura, Esq.

John J. Zefutie, Esq.

Reed Smith, LLP

136 Main Street, Suite 250

Princeton, NJ 08540

Charles J. Becker

Reed Smith, LLP

2500 One Liberty Place

1650 Market Street

Philadelphia, PA 19103

Attorneys for Appellee Dominick Company, A.G.

Case: 06-4323 Document: 0031221081 Page: 2 Date Filed: 03/11/2008
3

_______________

OPINION OF THE COURT

_______________

POLLAK, District Judge

In this appeal, we are called upon to decide whether statelaw aiding-and-abetting-breach-of-fiduciary duty claims, which

have passed from a corporation to its bankruptcy estate to a trust,

may be brought in federal court by the trustees of the trust

notwithstanding the Securities Litigation Uniform Standards Act

(“SLUSA”), 15 U.S.C. § 78bb. We must further decide whether,

under SLUSA, the trustees, as assignees of individual investors

in the bankrupt enterprise, may assert, in federal court, against

foreign entities, claims characterized as arising under foreign

law for aiding and abetting money laundering. For the reasons

that follow, we hold that SLUSA is no impediment to federal

adjudication of either the state-law or the foreign-law claims.

I. Facts and procedural history

The story begins with AremisSoft, which (prior to its

demise) was a software enterprise incorporated under the laws of

Delaware. Between 1998 and 2001, two of AremisSoft’s

directors and officers, Lycourgos Kyprianou and Roys Poyiadjis

(collectively, the “Directors”), allegedly executed a classic

“pump-and-dump” scheme. According to the complaint, they

artificially inflated AremisSoft’s stock price by representing that

its financial position was far stronger than it really was. Having

“pumped” the stock price, they “dumped” the AremisSoft stock

they had accumulated by selling their shares on the open market

to unsuspecting investors. To cover their tracks, the Directors

allegedly ran these insider-trading transactions through a variety

of sham entities and bank accounts, all, so the complaint alleged,

with the assistance and knowledge of defendants Bordier et Cie

and Dominick Company (collectively, the “Banks”), both

banking institutions organized under the laws of Switzerland. A

few months and some hundreds of millions of dollars later,

Case: 06-4323 Document: 0031221081 Page: 3 Date Filed: 03/11/2008
4

AremisSoft’s real financial status was discovered, and its stock

price plummeted. AremisSoft’s condition deteriorated to the

point that NASDAQ halted trading of its common stock in July

2001.

The situation continued to worsen and, in March 2002,

AremisSoft petitioned for relief under Chapter 11 of the

Bankruptcy Code in the Bankruptcy Court for the District of

New Jersey. At the time of the bankruptcy petition, a federal

class-action securities suit, in which a group of purchasers of

AremisSoft stock (the “Purchasers”) requested rescission of their

stock-purchase contracts, was pending against AremisSoft. To

settle the Purchasers’ suit, the parties to the bankruptcy

proceeding agreed that the plan of reorganization would assign

to the Purchasers all causes of action owned by AremisSoft. An

agreement of this sort would not seem to be either uncommon or

problematic. While many corporations become insolvent for

reasons that do not render anyone legally at fault, it is also not

unusual for a bankrupt corporation to have viable legal claims

against parties that wrongfully contributed to its demise. These

claims can take myriad forms, from breach-of-contract claims

against suppliers or customers, to tort claims against those who

injured the corporation’s property or economic interests, to, as

here, claims for disloyalty against corporate fiduciaries and those

who, so it is alleged, aided them. In bankruptcy—a process that

seeks to gather and preserve all of the debtor’s assets, and

distribute them to creditors and interest holders in an orderly

fashion—legal claims that belonged to the debtor are often

important assets of the bankruptcy estate, and are fair game for

distribution to the debtor’s creditors and equity holders.

In the case at bar, rather than trying to assign to each of

the Purchasers some portion of the estate’s claims, the plan of

reorganization provided for the creation of a state-law trust (the

“Trust”) to take title to and prosecute the assigned claims for the

Purchasers’ benefit. The Purchasers also assigned to the Trust

any causes of action that they owned individually for activities

related to the purchase of the AremisSoft securities. Assigning

both sets of claims (the debtor corporation’s claims and

individual Purchasers’ claims) to the Trust made logistical sense,

as it rendered one entity responsible for prosecuting and

Case: 06-4323 Document: 0031221081 Page: 4 Date Filed: 03/11/2008
The parties have spent a great deal of (perhaps not 1

altogether productive) energy fighting over whether the Trust is a

“litigation trust” or a “liquidating trust.” Litigation trusts are

common in securities and bankruptcy litigation: they exist as

vehicles for maintaining suits for the benefit of, and distributing

proceeds to, large numbers of people. Liquidating trusts are

common in bankruptcy as successor entities to Chapter 11 debtors,

and are often tasked with the responsibility of liquidating and

distributing the assets that remain after confirmation of the plan of

reorganization. These are not formal terms of art, and they do not

have hard and fast definitions.

Here, the Trust is a hybrid. It is like a litigation trust

inasmuch as it was assigned a variety of individual claims by the

Purchasers and was tasked with litigating them; it is also like a

liquidating trust inasmuch as it took title to many of the remaining

assets of the bankruptcy estate (including the estate’s causes of

action) and was tasked with liquidating and distributing them. The

hybrid nature of the Trust, far from being suspect, may be seen as

a gratifying testament to the flexibility and creative license that

Chapter 11 accords parties in fashioning plans of reorganization.

 For ease and consistency with other cases, we refer

2

throughout this opinion to SLUSA “preemption.” In so doing, we

5

distributing to the Purchasers the proceeds of all of the claims.1

In bringing this lawsuit in the District Court for the

District of New Jersey, plaintiffs Joseph LaSala and Fred

Ziedman, trustees of the Trust, asserted four causes of action:

two counts of aiding and abetting a breach of fiduciary duty, one

against Bordier (Count I), and one against Dominick (Count II);

and two counts of violating Swiss money-laundering laws, one

against Bordier (Count III), and one againt Dominick (Count

IV). All causes of action were allegedly assigned to the Trust by

the AremisSoft bankruptcy estate or by the Purchasers in their

individual capacities.

II. SLUSA and the District Court’s decision

The Banks filed a motion to dismiss, arguing, inter alia,

that the Trust’s lawsuit was preempted by SLUSA. Congress 2

Case: 06-4323 Document: 0031221081 Page: 5 Date Filed: 03/11/2008
caution that SLUSA does not actually “preempt” causes of action,

so much as it prevents causes of action from being asserted through

the vehicle of a class action lawsuit. Merrill Lynch, Pierce, Fenner

& Smith, Inc. v. Dabit, 547 U.S. 71, 87 (2006) (“SLUSA does not

actually pre-empt any state cause of action. It simply denies

plaintiffs the right to use the class action device to vindicate certain

claims. The Act does not deny any individual plaintiff, or indeed

any group of fewer than 50 plaintiffs, the right to enforce any statelaw cause of action that may exist.”).

 SLUSA defines an affected “covered class action” as: 3

(i) any single lawsuit in which--

(I) damages are sought on behalf of more than 50 persons or

prospective class members, and questions of law or fact

6

enacted SLUSA in 1998 as a supplement to the Private

Securities Litigation Reform Act (“PSLRA”) of 1995, 15 U.S.C.

§ 77z-1 & 78u-4, so, to understand SLUSA, one must first

understand the PSLRA. Congress enacted the PSLRA because it

determined that securities plaintiffs and their attorneys were

bringing abusive securities class actions that had no legitimate

chance of success, but, because of the expense of discovery,

were enough of a nuisance to force defendants to settle nonmeritorious claims. S. Rep. No. 104-98, at 9, 1995 U.S.S.C.A.N.

679, 688. Moreover, class members typically recovered very

little from those settlements, while class counsel were paid

exorbitant fees. Id. at 6, 685. The PSLRA imposed on securities

plaintiffs a number of requirements designed to deter the filing

of these “strike suits” and to enable district courts more easily to

dismiss frivolous suits on the pleadings. Id. at 35, 714. In

response, plaintiffs began abandoning the federal courts

altogether and bringing suit under state securities laws that did

not impose these additional requirements. S. Rep. No. 105-182,

at 3–6 (1998).

 SLUSA undertook to close this perceived loophole by

preventing securities plaintiffs from using the class-action

vehicle to prosecute state-law securities claims. To be

preempted by SLUSA an action must (1) make use of a

procedural vehicle akin to a class action, and (2) allege a 3

Case: 06-4323 Document: 0031221081 Page: 6 Date Filed: 03/11/2008
common to those persons or members of the prospective

class, without reference to issues of individualized reliance

on an alleged misstatement or omission, predominate over

any questions affecting only individual persons or members;

or

(II) one or more named parties seek to recover damages on

a representative basis on behalf of themselves and other

unnamed parties similarly situated, and questions of law or

fact common to those persons or members of the

prospective class predominate over any questions affecting

only individual persons or members; or

(ii) any group of lawsuits filed in or pending in the same court and

involving common questions of law or fact, in which--

(I) damages are sought on behalf of more than 50 persons;

and

(II) the lawsuits are joined, consolidated, or otherwise

proceed as a single action for any purpose.

15 U.S.C. § 78bb(f)(5)(B).

 Under SLUSA, a lawsuit contains the securities-trade 4

ingredient if the plaintiff alleges:

(A) a misrepresentation or omission of a material fact in

connection with the purchase or sale of a covered security;

or

(B) that the defendant used or employed any manipulative

or deceptive device or contrivance in connection with the

purchase or sale of a covered security.

15 U.S.C. § 78bb(f)(1).

 By “mass actions” we mean actions that operate like class

5

actions, inasmuch as they seek to impose liability on a defendant

for injuries to many people arising out of a common set of facts,

but are not necessarily brought pursuant to Federal Rule of Civil

Procedure 23 or one of its state-law equivalents.

7

misrepresentation or deceptive device in connection with a

securities trade. 15 U.S.C. § 78bb(f)(1). The class-action 4

ingredient is designed to distinguish between mass actions and 5

Case: 06-4323 Document: 0031221081 Page: 7 Date Filed: 03/11/2008
 SLUSA reaches “covered class actions” brought in state 6

court by making such claims subject to removal to federal court, 15

U.S.C. § 78bb(f)(2), where they are then subject to dismissal, 15

U.S.C. § 78bb(f)(1).

Whether a single offending claim requires dismissal of the

entire action is an open question, and one we need not reach here.

Another open question is whether any dismissal should be without

prejudice to the reassertion of the claims in individual actions.

 We have jurisdiction under 28 U.S.C. § 1291. SLUSA 7

preemption is jurisdictional, and we review dismissals for lack of

subject-matter jurisdiction de novo. Rowinski, 398 F.3d at 298.

8

individual actions. S. Rep. No. 105-182, at 7–8. The securitiestrade ingredient is designed to distinguish between state-lawbased suits that, no matter how pleaded, in essence allege

securities fraud, and those that allege other wrongs. See

Rowinski v. Salomon Smith Barney, Inc., 298 F.3d 294, 299–300

(3d Cir. 2005). When a claim contains both the class-action and

the securities-trade ingredients, it must be dismissed. 15 U.S.C. 6

§ 78bb(f)(1). A plaintiff may pursue such a claim either (1) as a

federal securities fraud class action, or (2) as a state-law

individual action; she may not pursue such a claim as a state-law

class action.

In the case at bar, the District Court ruled that all four

claims were preempted by SLUSA, and thus dismissed the

action. The court determined that all of the counts involved

substantive allegations of misrepresentations in connection with

securities trades. It further concluded that the lawsuit operated

like a class action, inasmuch as the Trust was asserting claims

for the benefit of some 6000 former shareholders of AremisSoft. 

The Trust now appeals that dismissal.7

III. Counts I & II — Aiding and abetting breaches of

fiduciary duty

A. Clarifying the claims pleaded

In their briefs and at oral argument, the parties have

largely talked past one another. This is somewhat

Case: 06-4323 Document: 0031221081 Page: 8 Date Filed: 03/11/2008
 Delaware law has long provided that corporate fiduciaries 8

who engage in insider trading for personal gain breach the duty of

loyalty. Brophy v. Cities Serv. Co., 70 A.2d 5, 8 (Del. Ch. 1949)

(Harrington, C.). There is some dispute over whether Brophy is

still good law to the extent that it imposed the remedy of

disgorgement of the trader’s profits, rather than limiting the

corporation’s recovery to actual damages, but there is no dispute

that insider trading constitutes a breach of duty. See In re Oracle

Corp., 867 A.2d 904, 928 n.111 (Del. Ch. 2004) (Strine, V.C.)

(“Notably, the abolition of Brophy would not preclude a recovery

by the corporation for actual harm to itself caused by illicit insider

trading by a fiduciary, but the existence and extent of such damage

would have to be proven.” (emphasis in original)), aff’d, 872 A.2d

960 (Del. 2005) (table). As the Vice Chancellor noted, Brophy has

not been overruled, and, as the Vice Chancellor also noted, the

American Law Institute maintains that Brophy’s provision of the

disgorgement remedy is the best approach to corporate-governance

law. 867 A.2d at 929 n.112.

9

understandable, as the parties differ in their definition of the

nature of the claims at issue. Therefore, we begin by making

clear what claims are asserted by the Trust, and how the Trust

became the owner of those claims.

Much of the confusion stems from the fact that the nature

of a pump-and-dump scheme perpetrated by corporate directors

and officers is that it typically gives rise to multiple viable

causes of action—causes of action that are owned by different

parties and are assertable against different defendants. For

example, for the offending directors and officers, carrying out a

pump-and-dump scheme almost certainly constitutes a breach of

their duty of loyalty to the corporation they serve. Thus, the

scheme gives the corporation a colorable claim against the

directors and officers (and anyone who knowingly aided them)

for breach of fiduciary duty (and aiding and abetting a breach of

fiduciary duty). The remedy for such a breach, under Delaware 8

law, is that the directors and officers and their abettors become

jointly and severally liable to make good on any loss to the

corporation attributable to the disloyalty. Gotham Partners, L.P.

v. Hallwood Realty Partners, L.P., 817 A.2d 160, 173 (Del.

2002) (affirming Chancellor’s decision to hold abettors of

Case: 06-4323 Document: 0031221081 Page: 9 Date Filed: 03/11/2008
 Delaware law generally does not allow shareholders to 9

assert breach-of-fiduciary-duty claims directly, unless the

shareholders can show damage distinct from the damage to the

corporation. Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d

1031, 1034 (Del. 2004) (Veasey, C.J.). As the Tooley Court noted,

for a direct claim to lie,

[t]he stockholder’s claimed direct injury must be

independent of any alleged injury to the corporation. The

stockholder must demonstrate that the duty breached was

owed to the stockholder and that he or she can prevail

without showing an injury to the corporation.

Id. at 1039 (emphasis added).

 Section 12 of the Securities Act of 1933, 15 U.S.C. § 77l,

10

and section 29 of the Securities Exchange Act of 1934 (the “1934

Act”), 15 U.S.C. § 78cc, provide these remedies.

 This remedy is available under Rule 10b-5, 17 C.F.R. § 11

240.10b-5, promulgated to enforce § 10(b) of the 1934 Act, 15

U.S.C. § 78j.

10

fiduciary breach jointly and severally liable for the damage

caused by the breach). If the corporation wrongfully refuses to

pursue these claims, its shareholders may bring them

derivatively. See In re First Interstate Bancorp Cons. S’holder 9

Litig., 729 A.2d 851, 864 (Del. Ch. 1998) (holding that, where

alleged breach of fiduciary duty harmed the corporation, alleged

aiding-and-abetting claim is derivative in nature). 

For another relevant example, a pump-and-dump scheme

likely gives rise to a colorable suit by the purchasers of the

“pumped” securities against the directors and officers under

federal securities laws for rescission of their purchases or

damages in the amount of the difference between what they paid

for the pumped securities and what those securities were really

worth. A similar suit could also be maintained under federal 10

securities law against the corporation if the corporation had

made any material misrepresentations as to its financial

condition, which is often a part of these schemes. What tends 11

to make the present case appear somewhat confusing is that both

of these types of claims—securities claims owned by the

Case: 06-4323 Document: 0031221081 Page: 10 Date Filed: 03/11/2008
 In using the word “undertake,” we remain agnostic as to 12

whether the pleadings succeed as a matter of law in framing the

intended claims, as that is a Rule 12(b)(6) question that is not

before us.

11

Purchasers and fiduciary-duty claims owned by the

corporation—were assigned to the Trust.

Counts I and II of the complaint plead claims against the

Banks for aiding and abetting the Directors’ breaches of their

fiduciary duty (presumably, the duty of loyalty) to AremisSoft

and its shareholders. While we are not at this time deciding

whether these claims are adequately pleaded, one can only

understand the allegations in light of the elements of the pleaded

cause of action. Under Delaware law, aiding and abetting a

breach of fiduciary duty has three elements: (1) a breach of

fiduciary duty, (2) knowing participation in that breach by the

defendant, and (3) damages. Here, ¶¶ 109 and 114 of the

complaint undertake to allege breaches by the Directors, ¶¶ 12

110–11 and 115–16 undertake to allege participation by the

Banks, and ¶¶ 112 and 117 undertake to allege damages. The

substance of the alleged breach is the pump-and-dump scheme,

by which the Directors allegedly (1) inflated AremisSoft’s stock

price by misrepresenting the company’s finances and then (2)

unloaded overpriced shares on the investing public. This scheme

is perceived to have been disloyal, in the sense that the Directors

allegedly used their positions of trust to pursue personal gain at

the expense of the corporation. The substance of the knowingparticipation contention is that the Banks allegedly knew of the

Directors’ large-scale insider trading activities and provided

material assistance despite this knowledge.

The damages element takes more effort to understand, as

the complaint pleads that the scheme damaged “the Plaintiffs,” a

term the complaint defines as the Trustees. The Trustees,

obviously, are not claiming that they or the Trust were damaged

directly; rather, they are claiming damage in their capacity as

assignees of the true injured parties. This raises a question: who

are the alleged injured parties? The Banks would have us

believe that the injured parties are the Purchasers in their

individual capacities as purchasers of securities. The Trust, on

Case: 06-4323 Document: 0031221081 Page: 11 Date Filed: 03/11/2008
 The parties agree that Delaware law applies to the breach- 13

of-fiduciary-duty counts. This is clearly correct, as the claims

involve the corporation’s internal affairs, and the state of

incorporation is Delaware. See In re Topps Co. S’holders’ Litig.,

924 A.2d 951, 959 (Del. Ch. 2007) (Strine, V.C.) (explaining

internal affairs doctrine).

12

the other hand, would have us believe that the injured party is, at

least in the first instance, AremisSoft.

To better understand the question, we turn again to

Delaware law, the substantive backdrop of these causes of 13

action. As explained in note 9, supra, individual shareholders do

not have standing to assert directly state-law claims alleging

harm to a corporation. See Tooley v. Donaldson, Lufkin &

Jenrette, 845 A.2d 1031, 1034 (Del. 2004) (Veasey, C.J.). 

Instead, those claims must be asserted by the corporation itself

or through shareholder derivative litigation. Here, determining

whether the Trust complains of harm to the corporation or to the

Purchasers individually is not entirely straightforward because a

pump-and-dump scheme could be expected to cause two

overlapping types of harm that are treated differently by

Delaware law. On the one hand, the Purchasers allegedly

overpaid for AremisSoft stock, and were thus harmed to the

extent of the value discrepancy between what they paid and what

they received. Delaware law recognizes this as a direct harm,

though the question may be somewhat academic, as Delaware

law seems to provide that the harm is irremediable under state

law (in deference to the remedies provided by the federal

securities laws). See Malone v. Brincat, 722 A.2d 5, 12–13 (Del.

1998) (noting that Delaware does not recognize a state-law cause

of action by purchasers against corporate directors for fraud on

the market). On the other hand, because of the pump-and-dump

scheme, AremisSoft lost its economic viability, as reflected in its

declining stock price and eventual bankruptcy. This is, under

Delaware law, a purely derivative harm, and one that is

remediable if caused by a breach of fiduciary duty. See Metro

Commnc’s Corp. BVI v. Adv. Mobilecomm Techs., Inc., 854

A.2d 121, 168 (Del. Ch. 2004) (Strine, V.C.) (explaining that a

corporation’s loss in value or economic viability is, in the first

instance, a harm to the corporation and, only derivatively, a

Case: 06-4323 Document: 0031221081 Page: 12 Date Filed: 03/11/2008
 The complaint explains that the stock price was artificially 14

inflated for a time, compl. ¶ 26 (app. 49), that it then declined,

compl. ¶ 27 (app. 49), that trading was halted in July 2001, id., and

that AremisSoft filed for bankruptcy in March 2002, compl. ¶ 14

(app. 46).

13

harm to its shareholders).

Because a pump-and-dump scheme causes both harms,

both harms appear on the face of the complaint. But only the

harm to AremisSoft is relevant to a claim for aiding and abetting

a breach of fiduciary duty because such individual-purchaser

harms are not cognizable under Delaware law. See Malone, 722

A.2d at 12–13. The Banks, however, argue that the complaint

does not allege harm to AremisSoft. They are mistaken. The

complaint revolves around corporate directors and officers

allegedly breaching their duty of loyalty to the corporation by

artificially inflating the stock price and, with the alleged

assistance of the Banks, exploiting the increase for their personal

benefit. See compl. ¶¶ 20–36 (app. 47–54). Given that the

scheme is alleged to have pushed AremisSoft into a liquidating

bankruptcy, we conclude that the complaint alleges harm to the 14

corporation. Moreover, the Purchasers complain that the

declining stock price and subsequent bankruptcy, compl. ¶ 27

(app. 49), ultimately harmed them. By pleading this derivative

harm, the Trust necessarily pleaded the initial harm to the

corporation. The fact that AremisSoft no longer exists does not

convert its corporate claims into direct shareholder claims;

rather, the corporate nature of the claims endures, and ownership

of the claims passes to AremisSoft’s successor. See Landry v.

Fed. Deposit Ins. Corp., 486 F.2d 139, 148 (3d Cir. 1973)

(Rosenn, J.) (holding that failure of bank did not alter

derivative/direct dichotomy, and that shareholders of bank in

FDIC receivership may maintain derivative action after making

demand on the FDIC).

Reading the complaint against the background of

Delaware law, we believe that counts I and II allege aiding-andabetting claims that originally belonged to AremisSoft, not to the

purchasers of AremisSoft stock. We also note that, by arguing

only corporate aiding-and-abetting claims before us and before

Case: 06-4323 Document: 0031221081 Page: 13 Date Filed: 03/11/2008
 In its opposition to the Banks’ motion to dismiss, the 15

Trust made essentially the same argument it makes here: that

counts I and II are corporate claims, originally owned by

AremisSoft, and assigned to the Trust by the AremisSoft

bankruptcy estate. App. 482–85.

14

the District Court, the Trust has abandoned any purchaser- 15

assigned aiding and abetting claims. 

To be clear, we have not yet answered the question

whether SLUSA preempts counts I and II. That is a different

question, and one that arises subsequent to clarifying what

claims these counts have alleged. Having determined that the

complaint has pleaded aiding-and-abetting claims originally

owned by AremisSoft, and assigned to the Trust by the

AremisSoft bankruptcy estate, we are ready to turn to what

effect, if any, SLUSA has on them.

B. Whether counts I and II are brought in the

form of a “covered class action”

SLUSA prevents would-be plaintiffs from bringing

certain claims in the form of a “covered class action.” Under

SLUSA, a covered class action is 

any single lawsuit in which damages are sought on behalf

of more than 50 persons or prospective class members,

and questions of law or fact common to those persons or

members of the prospective class, without reference to

issues of individualized reliance on an alleged

misstatement or omission, predominate over any

questions affecting only individual persons or members.

15 U.S.C. § 78bb(f)(5)(B)(i). The statute further provides that,

for purposes of this definition, “a corporation, investment

company, pension plan, partnership, or other entity, shall be

treated as one person or prospective class member, but only if

the entity is not established for the purpose of participating in the

action.” 15 U.S.C. § 78bb(f)(5)(D). This means that the court is

to follow the usual rule of not looking through an entity to its

constituents unless the entity was established for the purpose of

Case: 06-4323 Document: 0031221081 Page: 14 Date Filed: 03/11/2008
Though the parties do not go into detail on this point, one 16

would assume that this deal was struck so that the Purchasers

would vote to approve the plan of reorganization, even though their

interests were impaired. See 11 U.S.C. § 1126 (providing that

impaired claim and interest holders are entitled to vote on plan

approval). For a plan to be approved, either (1) each impaired class

must accept the plan, or (2) the bankruptcy court must approve the

plan as “fair and equitable” despite a class’s disapproval. 11

U.S.C. § 1129(b). To avoid having to obtain the court’s consent to

an unapproved plan (known as a “cramdown”), parties to a

bankruptcy often work hard to negotiate a plan that all impaired

classes will accept.

15

bringing the action, i.e., to circumvent SLUSA.

The District Court concluded that counts I and II were

brought “on behalf of” the 6000 beneficiaries of the Trust, and

thus as “covered class actions.” D. Ct. Op. at 12 (app. 14). In

arriving at this conclusion, the District Court ruled that the Trust

should not be counted as a single entity under § 78bb(f)(5)(D)

because it was established for the primary purpose of litigating

shareholder claims. Accordingly, the District Court dismissed

counts I and II.

To evaluate the District Court’s ruling, it is first necessary

to recall the nature and ownership of these claims. As explained

above, counts I and II plead claims that at one time belonged to

AremisSoft, the entity allegedly injured by its Directors’

breaches of duty and the Banks’ aiding those breaches. In

bankruptcy, the claims passed to AremisSoft’s bankruptcy

estate, 11 U.S.C. § 541(a)(1) & Note (explaining that the

debtor’s interest in legal claims passes to its bankruptcy estate),

but the debtor-in-possession did not assert them during the

pendency of the bankruptcy. Rather, the bankruptcy estate

assigned them to the Trust, a state-law entity created in large part

to pursue these and similar claims for the ultimate benefit of the

Purchasers, the only group whose interests were impaired by the

plan of reorganization. Thus, the Trust can only bring these 16

claims as assignee of the bankruptcy estate.

At first glance, one might think that the claims are

Case: 06-4323 Document: 0031221081 Page: 15 Date Filed: 03/11/2008
 Because common-law trustees carry out all of their duties 17

in the sole interest of the trust’s beneficiaries, see Restatement

(Third) of Trusts § 78 (2007) (describing the sole-interest rule),

they can be said to act on those beneficiaries’ behalf.

AremisSoft’s bankruptcy estate assigned the claims to the 18

Trust. Thus, legal title to the claims rests in the Trust; beneficial

title rests in the Purchasers (as beneficiaries of the Trust).

 Delaware courts view aiding-and-abetting-a-breach-of- 19

fiduciary-duty as a form of civil conspiracy. Allied Capital Corp.

v. GC-Sun Holdings, LP, 910 A.2d 1020, 1038 (Del. Ch. 2006)

(Strine, V.C.). The proper remedy generally is to hold the abettor

jointly and severally liable for whatever remedies are appropriate

to make good on the fiduciary’s breach. See Gotham Partners, 817

A.2d at 173 (affirming Chancellor’s decision to hold abettors

jointly and severally liable for damages caused by breach of

fiduciary duty).

16

brought “on behalf of” the Purchasers, as they, through the

Trust, are the current beneficial owners of the claims. But 17

examining the whole of the covered-class-action definition is

instructive. The definition is two-pronged: to be a covered class

action, (1) the claim must be brought “on behalf of 50 or more

persons,” and (2) questions of law or fact common to “those

persons” must predominate. 15 U.S.C. § 78bb(f)(5)(B)(i)

(emphasis added). If we read “on behalf of 50 or more persons”

as referring to the Purchasers, the second prong of the definition

would lack any pertinence, because the Purchasers, for purposes

of counts I and II, are merely the beneficial owners of the

claims. There are no questions of law or fact that involve 18

them, much less common ones that predominate over individual

ones. Rather, the relevant issues are (1) whether the Directors

were fiduciaries of AremisSoft, (2) whether the Directors made

misrepresentations or traded on inside information in violation of

their fiduciary duties, (3) whether the Banks provided material

assistance with the requisite knowledge to be liable for aiding

and abetting, and (4) whether AremisSoft was damaged by the

concerted actions of the Directors and Banks. Gotham 19

Partners, 817 A.2d at 172 (setting out elements of aiding and

abetting a breach of fiduciary duty). Neither these elements nor

Case: 06-4323 Document: 0031221081 Page: 16 Date Filed: 03/11/2008
 In contrast, were the Purchasers bringing a § 10b-5 20

securities claim, four of the six elements of that claim would

involve them directly. The first two elements—a material

misrepresentation and scienter—would involve only the Directors.

But the Purchasers would also have to prove (1) a connection

between the misrepresentation and their purchase or sale of

securities, (2) that the misrepresentation was a but-for cause of

their purchases (“transaction causation”), (3) their economic loss,

and (4) a connection between the misrepresentation and their loss

(“loss causation”). McCabe v. Ernst & Young, LLP, 494 F.3d 418,

424-25 (3d Cir. 2007) (citing Dura Pharms., Inc. v. Broudo, 544

U.S. 336, 341–42 (2005)); see also Stoneridge Inv. Partners, LLC

v. Scientific-Atlanta, Inc., 552 U.S. ___, 128 S.Ct. 761, 768 (2008).

17

the facts underlying them have anything to do with the

Purchasers. The Purchasers need not prove anything regarding

themselves in order to succeed; indeed, they need not even prove

that they were injured, as they are not proceeding as injured

parties, but as persons to whom beneficial ownership of the

claims was assigned by the true injured party, AremisSoft.20

Prong two of § 78bb(f)(5)(B)(i), then, seems to use the

terms “persons” and “members of the prospective class” to refer

to the original owners of the claim—those injured by the

complained-of conduct, as those are the persons who might have

common questions of law or fact related to the claim that

predominate over individual questions of law or fact. Reading

prong one in light of prong two, the phrase “on behalf of 50 or

more persons” seems to refer to someone bringing a claim on

behalf of 50 or more injured persons. In other words, the phrase

refers to the assignors of a claim, not to the assignee (or, if the

assignee is a trust, to its beneficiaries). Under this reading, the

Trust is not bringing its claims “on behalf of” the Purchasers, as

SLUSA uses the term, because the Purchasers are not the injured

parties; rather, the Trust is bringing the claims “on behalf of”

AremisSoft.

Section 78bb(f)(5)(D) buttresses this interpretation by

clarifying that corporations are not to be counted as more than

one person unless established for the purpose of litigation. In

other words, when a corporation decides to bring a state-law

Case: 06-4323 Document: 0031221081 Page: 17 Date Filed: 03/11/2008
 The derivative-litigation exception to SLUSA preemption 21

is commonly referred to as one of two “Delaware carve-outs.”

Malone, 722 A.2d at 13. According to the Senate committee, the

purpose of this carve-out was to ensure that shareholders would be

able to bring derivative litigation based on corporate fiduciaries’

breaches of duty. S. Rep. No. 105-182, at *6 (1998). It is referred

to as a “Delaware” carve-out because most such litigation occurs

in Delaware before the Chancery Court.

A key point to remember is that it would make little sense

18

claim—even one alleging misrepresentations in connection with

securities trades—SLUSA does not instruct the court to look

through the corporation to its shareholders to determine the

number of “persons;” instead, the corporation, in keeping with

well-entrenched common-law principles, is counted as the one

juridical person that it is. Cf. In re Owens-Corning, 419 F.3d

195, 211 (3d Cir. 2005) (noting that “courts respect entity

separateness absent compelling circumstances”). SLUSA’s

single exception to this rule is that when the corporation is

established for the purpose of litigation, i.e., when plaintiffs try

to avoid SLUSA by running their securities claims through a

corporate entity, the court should look to the corporation’s

constituents. Here, no one argues that AremisSoft, the original

owner of counts I and II, was established for the purpose of this

(or any other) litigation. Moreover, even if the Trust can be

deemed to have been established for the purpose of litigation, a

question we need not address, looking through it would only get

the court to AremisSoft, the injured party, not to the Purchasers.

Section 78bb(f)(5)(C) also supports this reading. It

provides that exclusively derivative actions are not covered class

actions for SLUSA purposes. Although, as the Banks note, the

claims at issue here are not asserted derivatively, § 78bb(f)(5)(C)

operates to preserve causes of action that belong to corporations,

even if 50 or more shareholders bring such actions derivatively. 

What we take from reading § 78bb(f)(5)(C) and (D) together is

that Congress did not intend SLUSA to reach any corporateoriginated claims, whether asserted by the corporation (or its

assignee), as is addressed in § 78bb(f)(5)(D), or asserted

derivatively by shareholders, as is addressed in §

78bb(f)(5)(C).21

Case: 06-4323 Document: 0031221081 Page: 18 Date Filed: 03/11/2008
for Congress to preserve derivative actions but preempt corporate

direct actions, as doing so would turn our conception of derivative

litigation on its head. Shareholder derivative litigation is a failsafe,

a means of allowing corporate claims to go forward when the

corporation’s board wrongfully refuses to prosecute them. See

Grimes v. Donald, 673 A.2d 1207, 1216 (Del. 1996) (explaining

that derivative litigation may only proceed when the board

wrongfully refuses to pursue the action). It is a limited exception

to the rule that corporations, like natural persons, have the

unfettered discretion to decide whether to take legal action when

they are wronged. See Pogostin v. Rice, 480 A.2d 619, 624 (Del.

1984) (“The bedrock of the General Corporation Law of the State

of Delaware is the rule that the business and affairs of a corporation

are managed by and under the direction of its board. . . . [B]ecause

the derivative action impinges on the managerial freedom of

directors, the law imposes certain prerequisites to the exercise of

this remedy.”). Derivative litigation is premised on the notion that

the corporation could bring the proffered action on its own behalf.

See Grimes, 673 A.2d at 1216 (explaining that if the corporation

deems proposed derivative litigation beneficial, it can take over and

control the litigation). If this premise were not true, the moniker

“derivative” would be inappropriate, as the shareholder litigation

would not be derived from any cause of action the corporation

possessed.

19

Further supporting this reading is Congress’s clear intent

not to reach claims asserted by a bankruptcy trustee on behalf of

a bankruptcy estate. That Congress so intended is relevant here

because counts I and II were claims that the debtor-in-possession

once owned and chose to assign to the Trust (under the

assumption that the Trust would be able to bring the claims as

the debtor-in-possession’s assignee). Congress’s intent on this

point is clear from the legislative history, in which the Senate

Banking, Housing, and Urban Affairs Committee reported that,

in the final version of the bill,

[t]he class action definition has been changed from the

original text of S. 1260 to ensure that the legislation does

not cover instances in which a person or entity is duly

authorized by law, other than a provision of state or

federal law governing class action procedures, to seek

Case: 06-4323 Document: 0031221081 Page: 19 Date Filed: 03/11/2008
20

damages on behalf of another person or entity. Thus, a

trustee in bankruptcy, a guardian, a receiver, and other

persons or entities duly authorized by law (other than by a

provision of state or federal law governing class action

procedures) to seek damages on behalf of another person

or entity would not be covered by this provision.

S. Rep. No. 105–182, at 8 (May 4, 1998) (emphasis added). The

original text of the bill would have brought within the definition

of class action any action in which “one or more named parties

seek to recover damages on a representative basis on behalf of

themselves and other unnamed parties similarly situated,” or

“one or more of the parties seeking to recover damages did not

personally authorize the filing of the lawsuit.” S. 1260, 105th

Cong. § 2 (as introduced in the Senate, Oct. 7, 1997). Whether

either of these provisions would have been read to cover a

bankruptcy trustee is unclear; what is clear is that Congress

sought to ensure that no provision of the bill as enacted would do

so. In addition, the caselaw supports the notion that when a

trustee brings a claim belonging to the bankruptcy estate, the

claim is not a covered class action for SLUSA purposes. Smith

v. Arthur Andersen, LLP, 421 F.3d 989, 1007–08 (9th Cir.

2005). Here, as the Trust is merely the assignee of the

AremisSoft bankruptcy estate, it should be treated the same way.

Giving effect to Congress’s desire not to preempt claims

that pass from a debtor corporation to its bankruptcy estate is

important because to do otherwise would work a significant

change in the bankruptcy system that Congress created and,

according to the legislative history cited above, intended to leave

undisturbed. As this case demonstrates, legal claims can be

some of the most important and valuable assets that a bankruptcy

estate has, particularly as respects a debtor’s unsecured creditors

and equity holders, since liquidating such claims may be their

only chance at significant recovery. Chapter 11 is often

described as a process that brings all interested parties to the

bargaining table and encourages them, against the background of

insolvency law, to work out a plan of reorganization with which

Case: 06-4323 Document: 0031221081 Page: 20 Date Filed: 03/11/2008
See, e.g., A. Mechele Dickerson, The Many Faces of 22

Chapter 11: A Reply to Professor Baird, 12 Am. Bankr. Inst. L.

Rev. 109, 113, 125 (2004); Select Advisory Comm. on Bus.

Reorganization, First Report of the Select Advisory Comm. on Bus.

Reorganization, 57 Bus. Law. 163, 197 & n.58 (2001); Richard F.

Broude, Cramdown & Chapter 11 of the Bankruptcy Code: The

Settlement Imperative, 39 Bus. Law. 441, 454 (1984).

21

they all can live. For this process to work, the parties must be 22

able to gather, assess, and freely alienate and distribute the

estate’s assets. Under the Banks’ argument, SLUSA preemption

would prevent the estate from assigning certain legal claims to

any class of creditors or equity holders containing more than 50

persons, but it would allow assignment to classes with fewer

constituents. This result would make little sense, as we see no

indication that Congress’s aim in fashioning the “covered class

action” definition was to control the number of constituents to

whom a bankruptcy estate’s claim is assigned. Rather, the

statutory text and legislative history signal that the definition

was designed to prevent securities-claims owners from bringing

what are, in effect, class actions by assigning claims to a single

entity. See Golub v. Hill, Rogal & Hobbs Co., 379 F. Supp. 2d

639, 643 (D. Del. 2005) (ruling that more than 50 persons could

not circumvent SLUSA by assigning their claims to a trust). Put

simply, Congress’s goal was to prevent a class of securities

plaintiffs from running their claims through a single entity, not

to prevent a single bankruptcy estate from assigning its claims to

an entity capable of acting to protect the common interests of a

class of people.

Moreover, it is difficult to see what purpose would be

served by holding otherwise. If we held that the key issue is to

whom a claim is assigned, then we would likely see two results. 

First, we might see parties to bankruptcies engage in some rather

creative class construction to keep numbers below 51. Parties’

ability to do this would not turn on any factor related to

preventing frivolous securities litigation, but on the creativity of

the parties’ lawyers and the particulars of a debtor’s pre-petition

liabilities. Second, in many bankruptcies, treating unliquidated

legal claims as distributable assets would become infeasible. 

Rather than assigning unliquidated claims to large classes of

Case: 06-4323 Document: 0031221081 Page: 21 Date Filed: 03/11/2008
22

creditors, the debtor-in-possession would have to initiate a

lawsuit, prosecute any claims to their conclusion, and then

distribute the proceeds to the estate’s creditors and interest

holders. We fail to see what salutary effect this would have on

deterring frivolous securities litigation; the only likely result

would appear to be a marked increase in the difficulties attendant

on reorganizing Chapter 11 debtors in a timely fashion, a

consequence we see no indication Congress intended.

The Banks present the curious argument that recognizing

that the claims at issue here are corporate in nature does the

Trust no good, because the claims are still brought on behalf of

the 6000 Purchasers. If the claims are also brought on behalf of

AremisSoft, then, according to the Banks, that brings the grand

total of persons on whose behalf the claims are brought to 6001. 

This argument, which neither brief explains in more than two

sentences, see Bordier Br. at 44, Dominick Br. at 54, seems to

misapprehend that the corporate claims are not asserted on

behalf of the corporation and Purchasers (thus, 6001 persons),

but on behalf of the corporation alone. The Banks further note

that all damages will go to the Purchasers. This, however, is

irrelevant because the Purchasers would not recover in their

capacities as individual purchasers of securities, but in their

capacities as beneficial owners of the claims assigned to the

Trust by the AremisSoft bankruptcy estate.

In sum, we conclude that a corporation’s claims do not

take the form of a “covered class action,” irrespective of whether

the claims are asserted by the corporation directly, its

shareholders derivatively, its bankruptcy estate, its bankruptcy

estate’s assignee, or its successor. This conclusion accords with

the text of § 78(f) and with Congress’s intent, as reflected in the

legislative history, not to preempt corporate claims, and to leave

the bankruptcy process undisturbed.

IV. Counts III and IV — Violation of Swiss moneylaundering laws

In addition to pressing aiding-and-abetting claims in

counts I and II, the Trust has alleged in counts III and IV that the

Banks violated Swiss banking regulations by failing properly to

Case: 06-4323 Document: 0031221081 Page: 22 Date Filed: 03/11/2008
23

investigate and interdict the Directors’ alleged money-laundering

transactions. The Trust has further alleged that it, as assignee of

the Purchasers, is entitled, under Swiss law, to recover damages

for the Banks’ violations.

It is important to recognize that these counts, unlike

counts I and II, are not alleged to have been owned by

AremisSoft or its bankruptcy estate. These Swiss-law claims

are, rather, claims owned by the Purchasers as individual

purchasers of AremisSoft stock. They were assigned by the

Purchasers to the Trust so that they could be prosecuted together

with counts I and II. Thus, in contrast to counts I and II, these

counts likely are brought to recover damages “on behalf of more

than 50 persons,” 15 U.S.C. § 78bb(f)(5)(B)(i)(I), so they would

seem to take the form of a covered class action.

SLUSA, however, only preempts covered class actions

“based upon the statutory or common law of any State,” 15

U.S.C. § 78bb(f)(1) (emphasis added), where “State” is defined

as “any State of the United States, the District of Columbia,

Puerto Rico, the Virgin Islands, or any other possession of the

United States,” id. § 78c(a)(16). Despite this seemingly clear

language, the Banks contend that SLUSA preempts the Trust’s

Swiss-law claims because: (1) Congress intended to preempt

foreign-law claims (though it did not so state in the text of the

statute); (2) the Swiss-law claims are “based upon” state law

because the Banks’ violation of Swiss law is dependent on the

Directors’ breach of their state-law fiduciary duties—that is,

only if the Directors breached their state-law fiduciary duties can

the Banks be liable under Swiss law; (3) the Swiss-law claims

are “based upon” state law because New Jersey’s choice-of-law

rules are “state laws” that trigger application of Swiss law to the

present dispute; (4) the Swiss-law claims incorporate the

allegations of the state-law claims; and (5) the Swiss-law claims

are too closely tied to the state-law claims.

A. Congress’s intent

The Banks argue that the purpose of SLUSA is to create

uniform standards for class-action securities-fraud lawsuits, and

that allowing plaintiffs to avail themselves of different foreignCase: 06-4323 Document: 0031221081 Page: 23 Date Filed: 03/11/2008
24

law standards is inconsistent with that purpose. Thus, they argue

that SLUSA should be read as preempting foreign-law claims

that otherwise contain the class-action and securities-trade

ingredients. Essentially, this is an argument that Congress

implicitly preempted foreign law because allowing more than 50

plaintiffs to initiate a foreign-law-based securities fraud suit in a

state or federal court would impede the federal objective of

providing uniform standards for class-action securities fraud

litigation. Cf. Perez v. Campbell, 402 U.S. 637 (1971) (holding

that federal bankruptcy law preempted a state law that interfered

with federal bankruptcy law’s goal of providing uniform

standards for determining discharge of debt).

In determining legislative purpose, “[i]t is not our job to

speculate upon congressional motives,” Riegel v. Medtronic,

Inc., 552 U.S. ___, 2008 WL 4407744 (Feb. 20, 2008); our job is

to hew as closely as possible to the meaning of the words

Congress enacted. “We have stated time and again that courts

must presume that a legislature says in a statute what it means

and means in a statute what it says there.” Conn. Nat’l Bank v.

Germain, 503 U.S. 249, 253-54 (1992). Here, the difficulty with

divining congressional intent to preempt foreign-law claims is

that Congress specifically described the claims preempted as

those “based upon the law of any State.” SLUSA constitutes an

amendment of the Securities Exchange Act of 1934 (the “1934

Act”), which expressly defines “state” throughout the Act as

“any State of the United States, the District of Columbia, Puerto

Rico, the Virgin Islands, or any other possession of the United

States,” 15 U.S.C. § 78c(a)(16). Though Congress was at pains

to set out separate definitions of various terms used in SLUSA, it

left the 1934 Act definition of “state” intact.

Moreover, Congress has demonstrated its ability to extend

the reach of securities statutes to foreign law when it so desires. 

E.g., 15 U.S.C. § 78o(b)(4)(B) (requiring punishment of a broker

or dealer convicted of any “felony or misdemeanor or of a

substantially equivalent crime by a foreign court,” if (among

other things) the offense arises from the conduct of any entity

required to be registered under the Commodity Exchange Act

“or any substantially equivalent foreign statute or regulation”)

(emphasis added). Moreover, SLUSA’s legislative history refers

Case: 06-4323 Document: 0031221081 Page: 24 Date Filed: 03/11/2008
25

to state, not foreign, law. E.g., S. Rep. No. 105-182, at 1 (1998);

H.R. Rep. No. 105-803, at 1 (1998) (stating that Congress’s

intent is to “limit the conduct of securities class actions under

State law”). Given that Congress made the explicit policy

choice in the 1934 Act of defining “state” so as not to include

foreign countries, and, in SLUSA, chose not to alter that

definition while defining other terms, see 15 U.S.C. § 78bb(f)(5)

(defining terms), we conclude that, when Congress extended

SLUSA preemption to claims “based upon the law of any State,”

it meant just that.

In addition, the notion that allowing the Trust to litigate

counts III and IV would impede a federal objective is

overblown. According to those counts, Switzerland imposes

liability for the complained-of conduct on banking institutions

organized under Swiss law. To state the obvious, Switzerland is

a sovereign nation. It may regulate institutions organized under

its laws in any manner it sees fit. Congress, through 28 U.S.C. §

1332, has instructed United States district courts to entertain “all

civil actions” (provided the matter in controversy is of sufficient

value), as long as there is complete diversity of citizenship. To

be sure, Congress has the authority to counter-instruct district

courts not to entertain particular categories of civil actions

arising under foreign law, but we do not believe that we should

readily imply such a result from statutory text that appears to

direct otherwise.

B. Whether the Swiss-law claims depend on state

law

The Banks argue that the Swiss-law claims are preempted

because they are actually based on Delaware fiduciary-duty law. 

Specifically, they argue that only if the Directors breached their

Delaware-law fiduciary duties can the Banks be liable under

Swiss law. This argument appears to be based upon a

misreading of the complaint. The Swiss laws invoked in the

complaint allegedly require that, inter alia, Swiss banks conduct

due diligence (e.g., verify the customer’s identity), investigate

unusual or suspicious transactions, and freeze assets in accounts

whose owner has been concealed. App. at 54–57, 80–81. We

read the complaint as alleging that a bank can violate these

Case: 06-4323 Document: 0031221081 Page: 25 Date Filed: 03/11/2008
Of course, should further examination of the Swiss-law 23

claims on remand reveal that the Trust’s characterization of Swiss

law is in error, the District Court may reconsider this issue at that

time.

This argument emerges from the Banks’ attempt to 24

characterize the Swiss-law claims as “based upon the statutory or

common law of any State,” see 15 U.S.C. § 78bb(f)(1), here, New

Jersey.

26

Swiss laws regardless whether the account owners in fact

breached a state-law fiduciary duty.23

C. Whether the Swiss-law claims arise under New

Jersey law because of the application of New

Jersey choice-of-law rules

The Banks’ third argument—that New Jersey’s choice-oflaw rules are “state laws” that trigger application of Swiss law to

the present dispute, thus forming the Swiss laws’ basis—is

creative but unpersuasive. The Banks point out that the 24

District Court’s subject matter jurisdiction is based on diversity

of citizenship, which, under Erie R. Co. v. Tompkins, 304 U.S.

64, 78 (1938) and Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.

487, 496 (1941), requires that the forum state’s (here, New

Jersey’s) choice-of-law rules govern the dispute. It is these

choice-of-law rules that, the Trust contends, direct application of

Swiss law. Id. The Banks, invoking Klaxon, argue that, if the

Trust’s characterization of New Jersey’s choice-of-law rules is

correct, those New Jersey choice-of-law rules form the basis of

the Trust’s Swiss-law claims.

The Banks read more into Klaxon than is there. In

Klaxon, a diversity action brought by a New York corporation

against a Delaware corporation in the District Court for the

District of Delaware, plaintiff, having secured a jury verdict in

the amount of $100,000, then moved for an award of prejudgment interest covering the years in which the suit was

pending. The District Court granted the motion. This court

affirmed: without addressing Delaware law with respect to

contract damages, this court ruled, in reliance on two provisions

Case: 06-4323 Document: 0031221081 Page: 26 Date Filed: 03/11/2008
27

of the Restatement of Conflicts, that “[t]he measure of damages

for breach of contract is determined by the law of the place of

performance,” and that interest was an element of damages. 

Stentor Elec. Mfg. Co. v. Klaxon Co.,115 F.2d 268, 275 (3d Cir.

1940). The Supreme Court reversed:

The conflict of laws rules to be applied by the federal

court in Delaware must conform to those prevailing in

Delaware’s state courts. Otherwise the accident of

diversity of citizenship would constantly disturb equal

administration of justice in coordinate state and federal

courts sitting side by side. Any other ruling would do

violence to the principle of uniformity within a state upon

which the Tompkins decision is based. Whatever lack of

uniformity this may produce between federal courts in

different states is attributable to our federal system, which

leaves to a state, within the limits permitted by the

Constitution, the right to pursue local policies diverging

from those of its neighbors. It is not for the federal courts

to thwart such local policies by enforcing an independent

‘general law’ of conflict of laws. Subject only to review

by this Court on any federal question that may arise,

Delaware is free to determine whether a given matter is to

be governed by the law of the forum or some other law.

313 U.S. at 496–97.

In the case at bar, the Trust contends that New Jersey’s

choice-of-law rules require that, in a dispute in a New Jersey

court in which Swiss banks are charged with failing to comport

with proper standards of oversight of entities utilizing the

services of Swiss banks, Swiss law, not New Jersey law, should

govern. If the Trust’s formulation of New Jersey’s choice-oflaw rules, as embodied in counts III and IV of it complaint, is

accurate, this would reflect the unsurprising conclusion by New

Jersey’s lawgivers, whether judicial or legislative, that, whatever

New Jersey’s law with respect to bank misconduct may be, when

the allegedly miscreant bank is a Swiss enterprise executing

Swiss banking transactions, Swiss banking law, not New Jersey

banking law, should control. To conclude that, within the

intendment of SLUSA, those claims are “based upon the . . . law

Case: 06-4323 Document: 0031221081 Page: 27 Date Filed: 03/11/2008
28

of” New Jersey would require attributing to Congress a subtlety

of such exquisite reach as to have no place in the legislative

process.

D. Whether the Swiss-law claims are preempted

because they incorporated the allegations of the

state-law claims 

The District Court held, and the Banks argue, that

because counts III and IV “reallege and incorporate by reference

herein in their entirety the allegations” supporting the state-law

claims, App. at 78, 80, and the state-law claims are, as the Banks

contend, preempted, the Swiss-law claims must also be

preempted. Aside from the fact that we are not persuaded that

the state-law claims are preempted, the view advanced by the

District Court and the Banks appears to stem from a

misinterpretation of language in this court’s opinion in Rowinski,

398 F.3d at 305.

In Rowinski, we held that a claim 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), which subjects it to SLUSA preemption, when an

allegation of a misrepresentation in connection with a securities

trade is a “factual predicate” of the claim, even if

misrepresentation is not a legal element of the claim. Rowinski,

398 F.3d at 300. Thus, when, as in Rowinski, a plaintiff alleges

that a misrepresentation made in connection with a securities

trade breaches a contract, the plaintiff cannot avoid SLUSA

preemption by arguing that misrepresentation is not an element

of a breach-of-contract action. In other words, when one of a

plaintiff’s necessary facts is a misrepresentation, the plaintiff

cannot avoid SLUSA by merely altering the legal theory that

makes that misrepresentation actionable.

It is important to recognize that Rowinski did not hold that

any time a misrepresentation is alleged, the misrepresentation-inconnection-with-a-securities-trade ingredient is present. (Nor

does it follow that failing to make such an allegation explicit

necessarily avoids the ingredient). Rather, the point we made in

Rowinski was that when an allegation of misrepresentation in

Case: 06-4323 Document: 0031221081 Page: 28 Date Filed: 03/11/2008
Again, if, on remand, it is revealed that the Trust’s 25

characterization of Swiss law on this point is inaccurate, the

District Court may reconsider this issue at that time.

29

connection with a securities trade, implicit or explicit, operates

as a factual predicate to a legal claim, that ingredient is met. To

be a factual predicate, the fact of a misrepresentation must be

one that gives rise to liability, not merely an extraneous detail. 

This distinction is important because complaints are often filled

with more information than is necessary. While it may be

unwise (and, in some cases, a violation of Rule 8) to set out

extraneous allegations of misrepresentations in a complaint, the

inclusion of such extraneous allegations does not operate to

require that the complaint must be dismissed under SLUSA.

Here, as to the Swiss-law claims, the allegations of

misrepresentation appear to be extraneous. As explained in Part

IV.B, supra, the Swiss-law counts allege that the Banks violated

their Swiss-law duty properly to investigate and freeze the

Directors’ various money-laundering transactions. The

Directors’ prior alleged misrepresentations are not factual

predicates to these claims because, according to the Trust’s

characterization of the Swiss-law claims, they have no bearing

on whether the Banks’ conduct is actionable; rather, they are

merely background details that need not have been alleged, and

need not be proved.25

E. Whether Swiss-law claims are tied so closely to

the state-law claims that they are preempted

The District Court also held, and the Banks argue, that the

Swiss claims are preempted because they are tied so closely to

the state-law claims. This argument is also unpersuasive

because it relies on a readily distinguishable case. The District

Court and the Banks invoke a decision of the District Court for

the District of Delaware, ruling that a particular state-law claim,

though it did not specifically allege conduct that would

constitute fraud “in connection with” a security, was nonetheless

“in connection with” a security (and thus preempted), see 15

U.S.C. § 78bb(f)(1)(A), because it alleged conduct by the

defendant that was part of a “‘unitary scheme of fraud’ which

Case: 06-4323 Document: 0031221081 Page: 29 Date Filed: 03/11/2008
30

began before the ‘purchase or sale’ of securities and continued

afterward.” Zoren v. Genesis Energy, L.P., 195 F. Supp. 2d 598,

604–06 (D. Del. 2002). Because the claim was in this sense

“tie[d] . . . so closely” to the other claims that clearly alleged

fraud in connection with securities trading, the claim was itself

deemed a claim of fraud in connection with securities trading

and therefore preempted. Id. Zoren simply involved an

application of SLUSA’s “in connection with” language, 15

U.S.C. § 78bb(f)(1)(A), concluding that the claim in question

alleged fraud in connection with securities trading.

Zoren is distinguishable in two respects. First, unlike the

Banks here, the defendants in Zoren were accused of

orchestrating a “unitary scheme of fraud.” Here, the Banks are

not accused of any misrepresentations or omissions; rather, their

alleged participation in the Directors’ scheme is limited to

participating in insider-trading transactions and assisting in

laundering the proceeds. Second, Zoren involved exclusively

state-law claims and applied the “in connection with” language,

not the ingredient that any preempted claims be based upon

“state” law. It did not address a foreign-law claim or even

purport to address how its analysis would affect foreign-law

claims.

Thus, we conclude that the Banks’ contention that the

Swiss claims are preempted as “closely tied” to the state-law

claims is without merit.

V. Circumventing SLUSA

Permeating the Banks’ briefs is the general argument that

allowing these claims to go forward will re-create a loophole for

abusive securities litigation that Congress intended, through

SLUSA, to close. We find this argument unpersuasive. 

As to the state-law claims—counts I and II—our ruling is

that a group of persons may bring a corporation’s claim for

breach of fiduciary duty (or aiding and abetting such a breach) in

two circumstances: (1) when the group has been assigned the

corporation’s claim, or (2) when the group fulfills all applicable

requirements for bringing the claim derivatively. That the latter

Case: 06-4323 Document: 0031221081 Page: 30 Date Filed: 03/11/2008
 The Banks have not yet raised a failure-to-state-a-claim 26

or a forum non conveniens challenge to the District Court’s

continued involvement with this case.

31

is no easy task goes without saying; moreover, Congress

explicitly excepted it from SLUSA’s purview. As to the former,

we have difficulty imagining such assignments occurring outside

very special contexts, such as bankruptcy, a context in which

Congress clearly intended fiduciary-duty actions to go forward. 

As to the foreign-law claims, notwithstanding our

holding, plaintiffs relying on foreign law must survive two

preliminary challenges: (1) ) they must state validly pleaded

claims which, under applicable choice-of-law principles, govern

their case, and (2) they must show that a United States court is

the most convenient forum, which, particularly for foreign-law

claims asserted against foreign entities, is rarely an easy task. In

other words, foreign-law claims, though not preempted by

SLUSA, are only permissible at the confluence of two rarely

aligned factors: (1) a foreign country has the most significant

interest in having its law apply (the traditional choice-of-law

test), and (2) the United States is the most appropriate forum (the

traditional forum-non-conveniens test). Nothing in our

experience, the legislative history of SLUSA, or the legislative

history of the PSLRA suggests that these are hurdles that

plaintiffs can routinely overcome. Thus, as Congress intended,

manifest strike suits will, expectably, be dismissed on the

pleadings, even if the plaintiffs try to plead foreign claims. Only

quite unusual cases will survive.26

VI. Conclusion

 We hold that SLUSA does not prevent the Trust from

bringing AremisSoft’s Delaware-law aiding-and-abettingbreach-of-fiduciary-duty claims against the Banks. These are

direct corporate claims assigned to the Trust from AremisSoft’s

bankruptcy estate. SLUSA’s text and legislative history yield

the conclusion that Congress did not intend to preempt direct

corporate claims such as these.

We further hold that SLUSA does not prevent the Trust

Case: 06-4323 Document: 0031221081 Page: 31 Date Filed: 03/11/2008
32

from asserting Swiss-law claims against the Banks for violating

Swiss money-laundering regulations. This conclusion flows

directly from the text of SLUSA, which by its terms only affects

claims based upon the laws of a state or territory of the United

States.

Therefore, we will vacate the District Court’s order

dismissing the complaint, and remand for further proceedings

consistent with this opinion.

Case: 06-4323 Document: 0031221081 Page: 32 Date Filed: 03/11/2008
33

Case: 06-4323 Document: 0031221081 Page: 33 Date Filed: 03/11/2008