2009 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-20-2009

In Re: Lord Abbett

Precedential or Non-Precedential: Precedential

Docket No. 07-1112

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 07-1112

 

IN RE: Lord Abbett Mutual Funds Fee litigation,

JOSEPH C. WHITE; JOSEPHINE LOGAN; 

RICHARD CURTIS; BO BORTNER; JAMES A.

PINGITORE; PHILIP B. KATZ,

 

 Appellants.

 v.

LORD ABBETT & CO LLC; LORD ABBETT

DISTRIBUTOR LLC; TRACIE E. AHERN;

JOAN A. BINSTOCK; DANIEL E. CARPER; 

ROBERT S. DOW; HOWARD E. HANSEN; 

PAUL A. HILSTAD; LAWRENCE H. KAPLAN;

 ROBERT G. MORRIS; A. EDWARD OBERHAUS, III;

EDWARD K. VON DER LINDE; MICHAEL BROOKS;

 ZANE E. BROWN; PATRICK BROWNE; 

JOHN J. DICHIARO; SHOLOM DINSKY;

LESLIE J. DIXON; KEVIN P. FERGUSON;

ROBERT P. FETCH; DARIA L. FOSTER; 

DANIEL H. FRASCARELLI; ROBERT I. GERBER;

MICHAEL S. GOLDSTEIN; MICHAEL A. GRANT;
2

CHARLES HOFER; W. THOMAS HUDSON;

CINDA HUGHES; ELLEN G. ITSKOVITS;

MAREN LINDSTROM; ROBERT A. LEE;

GREGORY M. MACOSKO; THOMAS MALONE;

CHARLES MASSARE, JR.; STEPHEN J. MCGRUDER;

PAUL MCNAMARA; ROBERT J. NOELKE; 

R. MARK PENNINGTON; WALTER PRAHL; 

MICHAEL ROSE; ELI M. SALZMANN; 

DOUGLAS B. SIEG; RICHARD SIELING; 

MICHAEL T. SMITH; RICHARD SMOLA;

 DIANE TORNEJAL; CHRISTOPHER J. TOWLE;

MARION ZAPOLIN

 

On Appeal from the United States District Court

for the District of New Jersey

 (D. C. Nos. 04-cv-00559; 04-cv-00965; 04-cv-01055;

04-cv-01057; 04-cv-01209 and 04-cv-01365)

District Judge: Hon. William J. Martini

 

Argued on June 25, 2008

Before: SLOVITER, BARRY and ROTH, Circuit Judges

(Opinion filed: January 20, 2009 )
3

Jerome M. Congress, Esquire (Argued)

Milberg Weiss, LLP

One Pennsylvania Plaza, 49 Floor th

New York, NY 10119-0165

Patrick L. Rocco, Esquire

Shalov, Stone & Bonner

65 Madison Avenue, Suite 333

Morristown, NJ 07960

Mark Levine, Esquire

Stull Stull & Brody

6 East 45 Street th

New York, NY 10017

Counsel for Appellants

Jeffrey B. Maletta, Esquire (Argued)

Nicholas G. Terris, Esquire

Shanda N. Hastings, Esquire

Kirkpatrick & Lockhart Preston Gates Ellis, LLP

1601 K Street, N. W. 

Washington, D. C. 20006

Christopher A. Barbarisi, Esquire

Kirkpatrick & Lockhart Preston Gates Ellis, LLP

One Newark Center, 10 Floor th

Newark, NJ 07102

Counsel for Appellees
 A number of other defendants are no longer in the case. 1

4

 

 O P I N I O N 

 

ROTH, Circuit Judge:

Plaintiffs appeal the December 4, 2006, order of the U.S.

District Court for the District of New Jersey, dismissing their

action with prejudice pursuant to the Securities Litigation

Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. § 78bb(f).

This appeal presents the question whether SLUSA requires the

dismissal of the entire action when the action includes some

state law class action claims that clearly may not be maintained

under SLUSA as well as other claims that are not so prohibited.

We hold that SLUSA does not require such a dismissal.

Accordingly we will vacate the dismissal and remand this case

for further proceedings.

I. Factual and Procedural Background

Plaintiffs are a proposed class of shareholders of mutual

funds managed by Lord, Abbett & Co. LLC (Lord Abbett). On

February 9, 2004, they filed this lawsuit against Lord Abbett and

Lord Abbett Distributor LLC, the investment adviser and

distributor of the Lord Abbett mutual funds. Following the 1

consolidation of multiple related cases, plaintiffs filed a
5

Consolidated Amended Class Action Complaint on August 16,

2004. 

In their Consolidated Amended Class Action Complaint,

plaintiffs alleged (among other misdeeds) that Lord Abbett

charged its existing investors excessive fees that were

improperly used to pay brokers to market Lord Abbett funds to

other investors. Plaintiffs claimed that Lord Abbett was

motivated to charge excessive fees because its management fees

were based on the amount of assets being managed – as the

number of investors grew so did the assets – and so did the fees.

Plaintiffs alleged violations of both federal and state law,

including violations of Sections 36(b) and 48(a) of the

Investment Company Act of 1940, brought on behalf of the

proposed class, and four state law counts, also brought on behalf

of the class.

Defendants filed a motion to dismiss, based in part on the

ground that plaintiffs’ action was pre-empted by SLUSA, 15

U.S.C. § 78bb(f). As we recently explained in LaSala v. Border

et Cie., 519 F.3d 121, 127-28 (3d Cir. 2008), SLUSA was

enacted as a supplement to the Private Securities Litigation

Reform Act of 1995, 15 U.S.C. §§ 77z-1, 78u-4 (PSLRA or

Reform Act). Congress enacted the PSLRA to prevent the filing

of “strike suits” – abusive class actions which are brought with

the hope that the expense of litigation may force defendants to

settle despite the actions’ lack of merit. In Congress’s view,

such actions “unnecessarily increase the cost of raising capital

and chill corporate disclosure . . .. ” S. Rep. 104-98 (1995),

reprinted in 1995 U.S.C.C.A.N. 679, 683. The PSLRA imposed
In particular, the PSLRA imposed heightened pleading 2

requirements in fraud cases brought under Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j, and SEC Rule 10b-5. The

PSLRA requires that plaintiffs plead misleading statements

“with particularity,” 15 U.S.C. § 78u-4(b)(1), plead facts

creating a “strong inference” of scienter, 15 U.S.C. § 78u4(b)(2), and prove loss causation, 15 U.S.C. § 78u-4(b)(4). The

PSLRA also “limit[s] recoverable damages and attorney’s fees,

provide[s] a ‘safe harbor’ for forward-looking statements,

impose[s] new restrictions on the selection of (and

compensation awarded to) lead plaintiffs, mandate[s] imposition

of sanctions for frivolous litigation, and authorize[s] a stay of

discovery pending resolution of any motion to dismiss.” Merrill

Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 81

(2006) (Dabit II) (citing 15 U.S.C. § 78u-4); see also 15 U.S.C.

§ 78u-5. 

6

a number of requirements on federal securities litigation

plaintiffs, designed to deter such frivolous suits. 

2

In reaction to the rigors of the PSLRA, plaintiffs began

filing cases in state courts under less strict state securities laws.

Congress then enacted SLUSA, stating that

[I]n order to prevent certain State private

securities class action lawsuits alleging fraud

from being used to frustrate the objectives of the

Private Securities Litigation Reform Act of 1995,

it is appropriate to enact national standards for

securities class action lawsuits involving
7

nationally traded securities, while preserving the

appropriate enforcement powers of State

securities regulators and not changing the current

treatment of individual lawsuits.

SLUSA, S. 1260, 105th Cong. § 2(5), 112 Stat. 3227. The

SLUSA Conference Report explains that

[S]ince passage of the Reform Act, plaintiffs’

lawyers have sought to circumvent the Act’s

provisions by exploiting differences between

Federal and State laws by filing frivolous and

speculative lawsuits in State court, where

essentially none of the Reform Act’s procedural

or substantive protections against abusive suits

are available. . . . [A] single state can impose the

risks and costs of its peculiar litigation system on

all national issues. The solution to this problem is

to make Federal court the exclusive venue for

most securities fraud class action litigation

involving nationally traded securities.

H.R. Rep. No. 105-803, at 14-15 (1998) (Conf. Rep.) (internal

quotation omitted).

Accordingly, SLUSA barred certain class actions and

mass actions from state courts, providing in relevant part:

No covered class action based upon the

statutory or common law of any State

or subdivision thereof may be maintained
8

in any State or Federal court by any private 

party alleging – 

(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). Under SLUSA, a “covered class action”

brought in state court may be removed to federal court and is

subject to the above limitations. 15 U.S.C. § 78bb(f)(2). 

SLUSA defines the term “covered class action” as:

(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 common to those

persons or members of the

prospective class, without

reference to issues of

individualized reliance on
9

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 o n behalf of

themselves and other

unnamed parties similarly

situated, and questions of

law or fact common to those

persons or members of the

prospecti ve clas s

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

m ore tha n 50

persons; and
 The District Court issued an amended order and opinion on 3

December 28, 2005. In re Lord Abbett Mut. Funds Fee Litig.,

407 F. Supp. 2d 616 (D.N.J. 2005).

10

(II) the lawsuits are joined,

consolidated, or otherwise

proceed as a single action

for any purpose.

15 U.S.C. § 78bb(f)(5)(B).

SLUSA is frequently described as “pre-empting” statelaw claims. However, as the Supreme Court has explained,

SLUSA does not actually “pre-empt” such claims; it merely

“denies plaintiffs the right to use the class-action device to

vindicate certain claims.” Merrill Lynch, Pierce, Fenner &

Smith, Inc. v. Dabit, 547 U.S. 71, 87 (2006) (Dabit II).

Plaintiffs retain the right to bring such a claim as an individual

state-law claim or federal securities fraud class action claim.

LaSala, 519 F.3d at 129. 

On August 30, 2005, the District Court dismissed the four

state claims pled in plaintiffs’ Consolidated Amended Class

Action Complaint as pre-empted by SLUSA. The District 3

Court also dismissed the remaining federal claims for failure to

state a claim. With respect to plaintiffs’ claims for violations of

Sections 36(b) and 48(a) of the Investment Company Act of

1940, the District Court determined that there is no direct cause

of action under Section 36(b), which was a predicate for the
On February 21, 2006, defendants filed a motion to dismiss 4

on the grounds that (1) plaintiffs’ claims were time barred under

the one-year look back period of Section 36(b)(3), and they

contain no relevant allegations addressing the relevant time

frame; (2) section 17 of the Investment Company Act prohibits

plaintiffs from bringing a common action on behalf of multiple

Lord Abbett funds; (3) plaintiffs failed to state a claim under

Section 36(b) of the Investment Advisers Act; and (4) section

11

Section 48(a) claim, and dismissed those claims without

prejudice. 

Plaintiffs filed a Second Amended Complaint on

September 29, 2005, asserting only two derivative claims

alleging violations of Sections 36(b) and 48(a) of the Investment

Company Act. In general, plaintiffs alleged that Lord Abbett

had received excessive management fees from its investors,

primarily because it had failed to pass along the benefits of the

economies of scale achieved as the funds grew. 

Meanwhile, on September 14, 2005, defendants moved

for reconsideration of the District Court’s decision to dismiss

the claims without prejudice, in part on the grounds that SLUSA

requires dismissal of the entire action not merely dismissal of

the improper state law securities claims. Without reaching the

issue, the District Court denied the motion as lacking sufficient

grounds for reconsideration but subsequently granted the

defendants leave to brief the issue for de novo consideration.

Accordingly, on May 3, 2006, defendants filed a motion to

dismiss the Second Amended Complaint pursuant to SLUSA.4
36(b) does not apply to 12b-1 fees. This motion was briefed by

the parties, but the District Court never ruled on it.

 Citing Rowinski and the District Court’s opinion in this case, 5

the Tenth Circuit recently dismissed an entire complaint as preempted under SLUSA where the plaintiffs had incorporated

their general class allegations into each of their claims, each of

which was based on state law. Anderson v. Merrill Lynch,

12

The District Court granted the motion and dismissed the

Second Amended Complaint with prejudice on December 4,

2006. The District Court referred to our opinion in Rowinski v.

Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005), where,

in response to the plaintiffs’ argument that the court should

examine each countseparately to determine whether it should be

pre-empted, we noted in dictum: 

[W]e question whether preemption of certain

counts and remand of others is consistent with the

plain meaning of SLUSA. The statute does not

preempt particular ‘claims’ or ‘counts’ but rather

preempts ‘actions,’ 15 U.S.C. § 78bb(f)(1),

suggesting that if any claims alleged in a covered

class action are preempted, the entire action must

be dismissed.

Id. at 305. As the District Court acknowledged, we did not

reach this issue in Rowinski because in that case the plaintiff had

incorporated pre-empted state-law allegations into every count

of his complaint. Id. However, the District Court found 5
Pierce, Fenner & Smith, Inc., 521 F.3d 1278, 1287 n.6 (10th

Cir. 2008). As such, the Tenth Circuit did not have to decide

“whether, in another action, SLUSA would permit the

preclusion of certain claims and the remand of others.” Id.

 The District Court similarly cited the U.S. District Court for 6

the District of New Jersey’s holding in LaSala v. Bordier et

Cie., 452 F. Supp. 2d 575 (D.N.J. 2006), in which the district

court dismissed Swiss law claims that incorporated by reference

and were clearly tied to the allegations supporting the state law

securities claims. We reversed, noting that “by its terms

[SLUSA] only affects claims based upon the laws of a state or

territory of the United States.” LaSala v. Bordier et Cie., 519

F.3d 121, 143 (3d Cir. 2008). We did not have to reach the

question presented here, however, namely “[w]hether a single

offending claim requires dismissal of the entire action . . ..” Id.

at 129 n.6.

13

Rowinski “helpful” in that it “provide[d] strong support, albeit

in dicta, for the proposition that SLUSA preempts entire class

actions rather than individual claims.”6

The District Court then turned to the statutory language.

The District Court noted that, by its own terms, SLUSA preemption applies to any “covered class action,” which is in turn

defined as “any single lawsuit” or “group of lawsuits,” and

concluded that this language reflects Congress’s intent to

regulate entire lawsuits. The District Court reasoned further that

Congress has used the word “claim” or “claims” elsewhere in

the securities laws, including in the PSLRA, and that Congress
 The Second Circuit subsequently reiterated its holding that 7

SLUSA does not require dismissal of an entire action that

includes only some pre-empted claims in a non-precedential

opinion. Gray v. Seaboard Secs., Inc., 126 Fed. Appx. 14, 16

(2d Cir. Mar. 9, 2005).

14

presumably would have used a narrower term than “action” if it

intended otherwise. 

The District Court acknowledged that the Court of

Appeals for the Second Circuit had addressed the present issue

in Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395

F.3d 25 (2d Cir. 2005) (Dabit I), holding that SLUSA does not

require the dismissal of an entire case where only some of the

claims are improper state law claims under SLUSA. In Dabit 7

I, the court acknowledged that SLUSA’s provisions might be

read as prohibiting maintenance of an entire action that includes

pre-empted state-law allegations. 395 F.3d at 47. The court,

however, declined to hold that SLUSA operated in this manner,

reasoning that, 

On this reading, SLUSA would effectively

preempt any state law claim conjoined in a given

case with a securities fraud claim, whatever its

nature. We assume, however, that the historic

police powers of the states are not preempted

unless it was Congress’s ‘clear and manifest

purpose’ to do so.
15

Id. (quoting City of Milwaukee v. Illinois, 451 U.S. 304, 316

(1981)).

The Supreme Court reversed the Court of Appeal’s

holding on other grounds, ruling that SLUSA pre-empts state

law claims alleging fraud brought by investors who held

securities, as well as by those who purchased or sold securities.

Dabit II, 547 U.S. at 71. The Supreme Court explained,

In concluding that SLUSA pre-empts state-law

holder class-action claims of the kind alleged in

Dabit’s complaint, we do not lose sight of the

general ‘presum[ption] that Congress does not

cavalierly pre-empt state-law causes of action.’

Medtronic, Inc. v. Lohr, 518 U.S. 470, 485

(1996). But that presumption carries less force

here than in other contexts because SLUSA does

not actually pre-empt any state cause of action. It

simply denies plaintiffs the right to use the classaction 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 state-law cause of action that may 

exist.

Moreover, the tailored exceptions to SLUSA’s

preemptive command demonstrate that Congress

did not by any means act ‘cavalierly’ here. The

statute carefully exempts from its operation

certain class actions based on the law of the State
16

in which the issuer of the covered security is

incorporated, actions brought by a state agency or

state pension plan, actions under contracts

between issuers and indenture trustees, and

derivative actions brought by shareholders on

behalf of a corporation. 15 U.S.C. §§

78bb(f)(3)(A)-(C), (f)(5)(C).

Dabit II, 547 U.S. at 87.

In dismissing plaintiffs’ entire action in the present case,

the District Court acknowledged that, in Dabit II, the Supreme

Court had not specifically addressed whether preemption of one

claim under SLUSA requires dismissal of the entire action.

However, because the presumption against pre-emption had

underpinned the Second Circuit’s analysis, the District Court

found that the Supreme Court’s decision in Dabit II had

“weakened, if not undercut entirely,” the Second Circuit’s

reasoning that SLUSA does not require dismissal of the entire

action.

The District Court also concluded that reading SLUSA as

pre-empting entire actions would not produce absurd results,

rejecting plaintiffs’ claim that applying SLUSA to require the

dismissal of an entire action would encourage the filing of

multiple lawsuits based on the same set of facts in order to

segregate state and federal claims. The District Court found that

Congress had addressed this potential problem by treating “any

group of lawsuits” as a “covered class action” for purposes of

SLUSA.
17

Plaintiffs appealed. They contend that the District Court

erred in concluding that SLUSA requires dismissal of an entire

action. Defendants urge us to affirm the District Court’s

holding or, in the alternative, to affirm the motion to dismiss on

the grounds that there is no private right of action under Section

48(a) of the Investment Company Act and that plaintiffs have

failed to state a claim under Section 36(b). Because we agree

that SLUSA does not require dismissal of an entire action that

includes some claims that are not pre-empted by SLUSA in

addition to some that are, we will vacate the District Court’s

dismissal and remand this action to the District Court for further

proceedings. 

II. Discussion

The District Court had jurisdiction pursuant to the

Investment Company Act of 1940, 15 U.S.C. § 80a-43, the

Investment Advisers Act of 1940, 15 U.S.C. § 80b-14, and 28

U.S.C. § 1391(b). We have jurisdiction over this appeal from a

final judgment of the District Court pursuant to 28 U.S.C. §

1291. “SLUSA preemption is jurisdictional, and we review

dismissals for lack of subject-matter jurisdiction de novo.”

LaSala, 519 F.3d at 129 n.7 (3d Cir. 2008).

As described above, SLUSA was enacted to prevent the

flight of securities cases from federal to state courts, thereby

preventing abusive lawsuits and “mak[ing] Federal court the

exclusive venue for most securities fraud class action litigation

involving nationally traded securities.” H.R. Rep. No. 105-803,

at 15 (1998) (Conf. Rep.); see also Securities Litigation

Uniform Standards Act of 1998, S. 1260, 105th Cong. § 2(5),
18

112 Stat. 3227. Neither the Supreme Court nor this Court has

squarely addressed the issue raised in this appeal: whether the

inclusion of a SLUSA pre-empted state-law claim in a

complaint, also alleging non-SLUSA pre-empted claims,

requires dismissal of the entire action. In considering this issue

as a matter of first impression, and mindful of SLUSA’s

purpose, we conclude that neither the statutory language, the

legislative history, nor the relevant case law supports the

complete dismissal of such an action.

“The role of the courts in interpreting a statute is to give

effect to Congress’s intent.” Rosenberg v. XM Ventures, 274

F.3d 137, 141 (3d Cir. 2001). The first step in statutory

construction is to consider the plain language of the statute.

United States v. Gregg, 226 F.3d 253, 257 (3d Cir. 2000). “If

the language of the statute expresses Congress’s intent with

sufficient precision, the inquiry ends there and the statute is

enforced according to its terms.” Id. “Where the statutory

language does not express Congress’s intent unequivocally, a

court traditionally refers to the legislative history and the

atmosphere in which the statute was enacted in an attempt to

determine the congressional purpose.” Id.

The plain language of SLUSA does not clearly indicate

whether Congress intended SLUSA to pre-empt entire actions

that include an offending state-law claim. SLUSA provides,

“No covered class action based upon the statutory or common

law of any State or subdivision thereof may be maintained in

any State or Federal court . . ..” 15 U.S.C. § 78bb(f)(1)

(emphasis added). The term “covered class action,” in turn, is

defined to include a “single lawsuit” or “group of lawsuits.” Id.
19

at § 78bb(f)(5)(B) (emphasis added). As we suggested in

Rowinski, the terms “no . . . action,” “lawsuit,” and “group of

lawsuits” indeed suggest that SLUSA intends that entire actions,

as opposed to particular claims, should fail. 398 F.3d at 305.

However, the word “action” is modified by the phrase “based

upon the statutory or common law of any State.” 15 U.S.C. §

78bb(f)(1). The plain language of SLUSA does not refer to

actions, such as this one, based in part on state law.

Nor does the legislative history compel us to conclude

that SLUSA requires dismissal of the entire action in such a

case. The legislative history is silent as to whether Congress

intended an action to be dismissed in its entirety when it

includes pre-empted claims or whether only the pre-empted

claims must be dismissed. We struggle to see how permitting

federal claims that do not specifically trigger the SLUSA

preemption to proceed would lead to either abusive litigation or

to the application of different legal standards to national

securities. Failing to dismiss the entire complaint would simply

allow class action federal claims, and state law claims that do

not trigger the SLUSA preemption, to proceed. Nothing in

SLUSA’s language or history indicates any intent to eviscerate

such claims.

 

Of course, requiring the dismissal of an entire action

pursuant to SLUSA might deter class action plaintiffs and their

attorneys from attempting to test the boundaries of which

individual state law claims are pre-empted by SLUSA.

However, nothing in either the plain language of the statute or
 In In re Enron Corporation Securities, 535 F.3d 325 (5th 8

Cir. 2008), the Court of Appeals for the Fifth Circuit recently

suggested that plaintiffs (or, perhaps, their attorneys) faced risk

of dismissal pursuant to SLUSA where they chose to pursue preempted state law claims in multiple lawsuits each involving

fewer than fifty plaintiffs. In In re Enron, the court held that,

where the lawsuits were coordinated and nearly identical, ten

cases consolidated in multi-district litigation were a “covered

class action” for purposes of SLUSA, notwithstanding that prior

to removal and consolidation each case might have escaped

SLUSA pre-emption based on the number of plaintiffs. Id. at

340.

In so doing, the court rejected the plaintiffs’ argument

that preempting their claims would lead to an absurd result in

the context of multi-district litigation, noting, “[T]he . . .

plaintiffs brush aside their own contribution to SLUSA

preemption: choosing to proceed as a single action. . . . [T]hey

must now face the consequences.” Id. at 342. “[T]he issue here

is not whether [plaintiffs] may avoid SLUSA; the question is

whether they did in fact avoid SLUSA.” Id. at 342 n.15. 

While this language may suggest that SLUSA can have

a punitive effect, the Fifth Circuit was not presented with, and

therefore did not consider, the issue presented in this case. The

question presented here, whether SLUSA requires dismissal of

an entire complaint where only some of the claims are preempted state law claims, is very different from the question of

20

the legislative history suggests that Congress intended SLUSA

to have such a punitive effect. Even if SLUSA were interpreted 8
whether plaintiffs may avoid SLUSA pre-emption altogether by

filing multiple lawsuits. 

21

this way, plaintiffs could simply bring two or more actions in

order to avoid having all of their claims dismissed – one action

with the potentially pre-empted state law claims and one or more

with the remaining claims.

It is entirely consistent with the purposes of SLUSA to

require the dismissal of those state law securities claims that are

clearly pre-empted by the statute. To require the dismissal of all

of the other claims in the same action, in contrast, would not

appear to serve those goals and is not supported by the plain

language or legislative history. We hold therefore that SLUSA

does not mandate dismissal of an action in its entirety where the

action includes only some pre-empted claims. 

Our understanding of SLUSA’s requirements with

respect to dismissal is not inconsistent with relevant case law.

We disagree with the District Court’s conclusion that the

Supreme Court’s holding in Dabit II “implicitly rejected the

Second Circuit’s view” of the issue presented in this case. In

Dabit II, the Supreme Court was confronted with the issue of

whether a state law class action claim based on the fact that the

investors held onto overvalued securities as a result of

misrepresentations by the brokers was pre-empted by SLUSA.

Dabit II, 547 U.S. at 76-78. The Second Circuit had held that

SLUSA did not pre-empt such an action because, pursuant to

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975),

the “holder” plaintiffs had no remedy for the alleged fraud under
 Section 1447(d) provides, “An order remanding a case to the 9

State court from which it was removed is not reviewable on

appeal or otherwise, except that an order remanding a case to the

State court from which it was removed pursuant to section 1443

of this title shall be reviewable by appeal or otherwise.”

22

federal securities laws. Dabit I, 395 F.3d at 39-44. In reversing,

the Supreme Court determined that, in light of SLUSA’s stated

purpose to prevent frustration of the PSLRA, “[i]t would be odd,

to say the least, if SLUSA exempted that particularly

troublesome subset of class actions [holder actions] from its preemptive sweep.” Dabit II, 547 U.S. at 86. 

With respect to the Supreme Court’s observation in Dabit

II that the presumption against pre-emption “carries less force

. . . because SLUSA does not actually pre-empt any state cause

of action,” id. at 87, the observation on which the District Court

relied, our holding today does not in any way lessen SLUSA’s

“pre-emptive sweep.” State law securities claims alleging fraud

will continue to be pre-empted under SLUSA. We hold simply

that any valid federal claims pled in the same action – claims

that, if brought independently, would clearly fall outside of

SLUSA’s pre-emptive scope – need not also be dismissed.

Nor does the Supreme Court’s decision in Kircher v.

Putnam Funds Trust, 547 U.S. 633 (2006), compel us to hold

that SLUSA requires dismissal of an action in its entirety. In

Kircher, the Supreme Court held that SLUSA does not exempt

remand orders from the general rule of nonappealability of 28

U.S.C. § 1447(d). 547 U.S. at 648. Our conclusion today does 9
 It is true that the Kircher opinion includes some language to 10

this effect. The Supreme Court stated, for example, “If the

action is precluded, neither the District Court nor the state court

may entertain it, and the proper course is to dismiss.” 547 U.S.

at 644 (emphasis added). The Court also noted, “[SLUSA]

avails a defendant of a federal forum in contemplation not of

further litigation over the merits of a claim brought in state

court, but of termination of the proceedings altogether . . ..” Id.

at 644 n.12. Given that the Supreme Court did not have to

confront the issue at hand, we do not believe that the use of the

words “action” and “proceedings” reflects a holding as to this

issue.

23

no injury to this holding, for the Kircher opinion did not rely on

any requirement that an action, including at least some

impermissible state law claims, must be dismissed in its

entirety. This issue was not even presented to the Court; 10

indeed, the complaint in Kircher included only state-law claims.

Id. at 637. 

Other case law supports our holding. While not directly

on point because it addresses another statute, the Supreme

Court’s recent holding in Jones v. Bock, 549 U.S. 199, 127 S.Ct.

910 (2007), suggests that Congress’s use of the phrase “no

action” in a statute is not necessarily determinative of whether

a preclusion provision requires dismissal of the entire action. In

Jones, the Supreme Court held that the Prison Litigation Reform

Act, which provides, “No action shall be brought with respect to

prison conditions . . . until such administrative remedies as are

available are exhausted,” 42 U.S.C. § 1997e(a), does not require
24

dismissal of an entire action where the plaintiff has failed to

exhaust some, but not all, of his claims. 127 S.Ct. at 923-26. 

Rejecting the argument that Congress could have used

the word “claim” instead of “action” if it intended to prohibit

only the filing of particular claims, the Supreme Court

explained, “This statutory phrasing – ‘no action shall be

brought’ – is boilerplate language.” Id. at 924. The Supreme

Court continued, 

As a general matter, if a complaint contains both

good and bad claims, the court proceeds with the

good and leaves the bad. [O]nly the bad claims

are dismissed; the complaint as a whole is not. If

Congress meant to depart from this norm, we

would expect some indication of that, and we find

none.

Id. (internal quotation omitted). 

Although Jones did not involve SLUSA, its analysis

suggests that the fact that SLUSA provides, “No covered class

action . . . may be maintained,” does not require dismissal of an

entire action that includes only some offending claims. At least

one court, albeit non-binding on this Court, has found Jones

helpful in deciding the present issue and likewise determined

that SLUSA does not require a complete dismissal. See In re

Salomon Smith Barney Mut. Fund Fees Litig., 528 F. Supp. 2d

332, 334 n.3 (S.D.N.Y. 2007) (rejecting the argument that all

claims must be dismissed under SLUSA); LaSala v. Bank of

Cyprus Pub. Co., 510 F. Supp. 2d 246, 274-75 & 274 n.11
At oral argument, counsel for plaintiffs indicated that they 11

are no longer pursuing their claims under Section 48(a).

25

(S.D.N.Y. 2007) (holding that Dabit I remains the law of the

Second Circuit regarding whether the entire action should be

dismissed, and rejecting the District Court’s analysis of Dabit I

in this case).

Because nothing in the language, legislative history, or

relevant case law mandates the dismissal of an entire action that

includes both claims that do not offend SLUSA’s prohibition on

state law securities class actions and claims that do, the District

Court erred in dismissing this action on these grounds.

Allowing those claims that do not fall within SLUSA’s preemptive scope to proceed, while dismissing those that do, is

consistent with the goals of preventing abusive securities

litigation while promoting national legal standards for nationally

traded securities. 

We decline defendants’ request to affirm the dismissal of

this case on alternative grounds, in particular, that plaintiffs’

complaint fails to state a cause of action under Section 48(a)

because no private right of action exists under that provision and

that plaintiffs have failed to state a claim under Section 36(b).11

These alternate grounds, along with a number of other possible

bases for dismissal, were all briefed before the District Court in

a separate motion to dismiss, which was pending when the

District Court dismissed the case on SLUSA grounds. The

alternate grounds for dismissal would be better decided by the

District Court in the first instance. 
26

IV. Conclusion

For the reasons set forth above, we will vacate the

District Court’s order dismissing the entire action on the

grounds that it is pre-empted by SLUSA and remand the case for

further proceedings consistent with this Opinion.