FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CHARLES T. MADDEN; SHASHIDHAR 

ACHARYA, M.D.; ACHAUER FAMILY

LIMITED PARTNERSHIP, a limited

partnership; ANGELA ALLEVATO,

M.D.; ROBERT A. BAIRD, M.D.;

ANNETTE C. BERNHUT-CAPLIN,

D.O.; THOMAS W. BRODERICK,

M.D.; NANCY K. BROWNELL, M.D.;

DAWN LYNN BRUNER, M.D.;

ROBERT BUDMAN, M.D.; ROBERT

WILLIAM BUSTER, M.D.; MICHAEL

W. CATER, M.D.; ANNA LISA No.07-15900

CHAVEZ, M.D.; JANAK R. CHOPRA,

D.C. No. M.D.; RAMAN CHOPRA, M.D.;  CV-06-04886-JSW GASTON CILLIANI, M.D.; CARMELITA

R. CO-CASQUEJO, M.D.; WILLIAM J. OPINION

COLLINS, M.D.; LEO H. CUMMINS,

M.D.; CHRISTINA K. ELLIOTT; MARK

H. ELLIS, M.D.; STANLEY P.

GALANT, M.D.; SHERWIN A.

GILLMAN, M.D. and BONNIE S.

GILLMAN, as Trustees for the

Gillman Community Property

Trust; KEITH L. GLADSTIEN, M.D.;

STUART M. GORDON; KENNETH E.

GRUBBS, D.O.; NORAH GUTRECHT,

M.D.; 

1653
THOMAS A. HRYNIEWICKI, M.D.; R. 

JUDD JESSUP; STANLEY KANOW,

M.D.; LEONARD FRANK KELLOGG

JR., M.D.; MARK E. KRUGMAN,

M.D.; LAWRENCE N. KUGELMAN;

SANDRA BARRY LIEBERMAN, as

successor in interest to Melvyn B.

Lieberman, M.D., Trustee for the

Melvyn B. Lieberman Trust; ALAN

MADERIOUS, M.D.; MARK C.

MARTEN; WILLIAM C. MCMASTER,

M.D.; MARIA E. MIÑON, M.D.;

JUDITH HARRISON-MONGE, M.D., as

Trustee for the Harrison-Monge

1996 Family Trust; RONALD W.

MORELAND; STANLEY K.

NAKAMOTO, M.D.; CHRISTOPHER C. 

OHMAN; KUSUM OHRI, M.D.; JACK

M. OSBORN, M.D.; RICHARD T.

PITTS, D.O.; NORMAN J. ROSEN,

M.D.; ERIC MURROW ROWEN,

M.D.; HELEN ROWEN, as Trustee

for the Rowen Family Trust Dated

May 5, 1982; MARK STEVEN

ROWEN; MARSHALL ROWEN, M.D.,

individually and as Trustee for the

Rowen Family Trust Dated May 5,

1982; SCOTT JEFFREY ROWEN,

M.D.; PRAVIN V. SHARMA, M.D.;

HAL S. SHIMAZU, M.D.; SIERRA

VENTURES V, L.P., a California

limited partnership; AISHA SIMJEE,

M.D.; JAMES B. TANANBAUM; 

1654 MADDEN v. COWEN & CO.
ALLAN G. WEISS; DANIEL L. 

WEISSBERG, M.D.; LINDA F.

WEISSBERG; LAURENCE D.

WELLIKSON, M.D.; ANGELA F.

WINTHEISER; and ALLAN WONG,

M.D.,

Plaintiffs-Appellants,

v. 

COWEN & COMPANY, a New York

limited partnership; SG COWEN

SECURITIES CORPORATION, a New

York corporation; COWEN

COMPANY, LLC, a Delaware

limited liability company,

Defendants-Appellees. 

Appeal from the United States District Court

for the Northern District of California

Jeffrey S. White, District Judge, Presiding

Argued and Submitted

November 21, 2008—San Francisco, California

Filed February 11, 2009

Before: Procter Hug, Jr., John T. Noonan, and

Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Ikuta

MADDEN v. COWEN & CO. 1655
COUNSEL

Phillip Borowski, San Francisco, California, for the plaintiffsappellants.

Linda Goldstein, New York, New York, for the defendantsappellees 

OPINION

IKUTA, Circuit Judge: 

Sixty-three shareholders brought a state-law action against

an investment bank for misleading them in connection with

the sale of their closely held corporation to a publicly traded

acquiring corporation. The suit was removed to federal district court under the Securities Litigation Uniform Standards

Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227

(“SLUSA”), which allows for the removal and preclusion1 of

1The Supreme Court recently explained that SLUSA precludes, rather

than preempts, state law claims: “The preclusion provision is often called

a preemption provision; the Act, however, does not itself displace state

law with federal law but makes some state-law claims nonactionable

through the class action device in federal as well as state court.” Kircher

v. Putnam Funds Trust, 547 U.S. 633, 636 n.1 (2006). 

1658 MADDEN v. COWEN & CO.
“private state-law ‘covered’ class actions alleging untruth or

manipulation in connection with the purchase or sale of a

‘covered’ security.” Kircher, 547 U.S. at 636-37 (quoting 15

U.S.C. § 77p(b)).2 We conclude that the suit falls within

SLUSA’s savings clause, known as the “Delaware carve-out,”

which preserves certain state-law actions. 15 U.S.C. § 77p(d).

We therefore vacate and remand to the district court with

instructions to remand the action to state court. 

I

Charles T. Madden, along with sixty-two other individuals

and entities (collectively, “Madden”), brought a state-law

action in state court against Cowen & Company, SG Cowen

Securities Corporation, and Cowen and Company, LLC (collectively, “Cowen”). Madden and his fellow plaintiffs, most

of whom are physicians, owned a majority interest in St.

Joseph Medical Corporation, which in turn owned a controlling share in Orange Coast Managed Care Services. Both St.

Joseph and Orange Coast were closely held corporations. St.

Joseph was incorporated in California, and Orange Coast in

Delaware. The following facts are taken from the allegations

in Madden’s complaint: 

In 1997, the management of St. Joseph and Orange Coast

sought a buyer for the two companies and formed a “Special

Committee” for that purpose. The Special Committee, which

included members of the boards of directors of St. Joseph and

Orange Coast, retained an investment bank, Cowen, whose

duties included looking for prospective buyers, providing

advice regarding the structure of any potential sale, and pro2SLUSA amended section 16 of the Securities Act of 1933 (“1933

Act”), codified at 15 U.S.C. § 77p, and made a substantially identical

amendment to section 28(f) of the 1934 Act, codified at 15 U.S.C.

§ 78bb(f). For simplicity, we follow Kircher and cite to the relevant provision in the 1933 Act, 15 U.S.C. § 77p, except as noted. See 547 U.S. at

637 n.3. 

MADDEN v. COWEN & CO. 1659
viding the shareholders of St. Joseph with a “fairness opinion”

regarding any proposed transaction. Cowen’s contract provided that it would receive a $50,000 retainer fee plus 1% of

any sale price, payable in cash. 

Cowen found four possible buyers, two of which are relevant here: St. Joseph’s Hospital of Orange County, already a

part-owner of Orange Coast, offered $40 million ($30 million

in cash and a $10 million note); and FPA Medical Management, a publicly traded corporation, offered shares of its stock

valued at $66.5 million. After Cowen recommended FPA as

a buyer, St. Joseph and Orange Coast began exclusive negotiations with FPA. In January 1998, these discussions resulted

in an agreement on the terms of a merger. Under the merger

agreement, FPA would acquire all outstanding shares of St.

Joseph and thereby obtain St. Joseph’s controlling share in

Orange Coast as well. In exchange, FPA would issue shares

of its stock worth $60 million to St. Joseph’s shareholders.

Cowen concluded that this transaction would be financially

fair to the shareholders of Orange Coast and St. Joseph. 

On January 13, 1998, the boards of directors of Orange

Coast and St. Joseph approved the merger agreement. A week

later, the agreement was executed by Orange Coast, St.

Joseph, and FPA, although it had not yet been approved by St.

Joseph’s shareholders. On February 5, 1998, Cowen issued a

letter memorializing its fairness opinion. FPA then filed a registration statement for the new stock it would issue to Madden

under the terms of the merger agreement. The registration

statement, which included Cowen’s fairness letter (as well as

Cowen’s written consent to its inclusion), was approved by

the Securities and Exchange Commission (SEC) on February

17, 1998. After receiving a copy of the registration statement

and fairness letter, Madden voted in favor of the merger

agreement. The merger became effective on March 20, 1998.

A few months later, on May 15, 1998, FPA issued a calamitous first-quarter report for 1998: earnings per share were 30

1660 MADDEN v. COWEN & CO.
cents below expectation, and FPA’s share price tumbled 75%

in the next two trading days. Two months later FPA declared

bankruptcy, with a share price that was approximately 0.5%

of its value at the time of the merger agreement. Madden

agreed with Cowen to toll the statute of limitations so that

Madden could first sue FPA’s management, auditor, and

financial advisor in California court. Those defendants

removed the action to federal district court, which entered

summary judgment in their favor. We upheld the grant of

summary judgment on appeal. See Madden v. Deloitte & Touche, LLP, 118 F. App’x 150, 153-54 (9th Cir. 2004). Madden

then brought the present action against Cowen in California

court, alleging that Cowen committed negligent representation and professional negligence under California law in connection with its role in the merger. Cowen removed the action

to federal district court. Applying SLUSA, the district court

denied Madden’s motion to remand to state court and granted

Cowen’s motion to dismiss. Madden timely appealed. 

II

SLUSA is part of a recent congressional attempt to rein in

private securities litigation. Section 10(b) of the Securities

and Exchange Act of 1934 (“1934 Act”), 15 U.S.C. § 78j(b),

and Rule 10b-5 of the SEC’s regulations, 17 C.F.R.

§ 240.10b-5, serve as the federal securities laws’ catchall antifraud provisions, see Ernst & Ernst v. Hochfelder, 425 U.S.

185, 203 (1976), broadly prohibiting “deception, misrepresentation, and fraud in connection with the purchase or sale of

any security,” Merrill Lynch, Pierce, Fenner & Smith Inc. v.

Dabit, 547 U.S. 71, 78 (2006) (internal quotation marks omitted). The Supreme Court has long recognized an implied private right of action under these provisions. Id. at 79 (citing

Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 404

U.S. 6 (1971)). 

In 1995, Congress adopted “legislation targeted at perceived abuses of the class-action vehicle in litigation involvMADDEN v. COWEN & CO. 1661
ing nationally traded securities.” Dabit, 547 U.S. at 81. The

Private Securities Litigation Reform Act of 1995 (“Reform

Act”), 109 Stat. 737 (codified at 15 U.S.C. §§ 77z-1 and 78u4), was intended “to deter or at least quickly dispose of” abusive class actions, particularly those alleging violations of

Section 10(b), by limiting the potential liability of defendants

and requiring plaintiffs bringing private securities fraud

actions in federal court to surmount a number of procedural

hurdles. Dabit, 547 U.S. at 81-82. But rather “than face the

obstacles set in their path by the Reform Act, plaintiffs and

their representatives began bringing class actions under state

law, often in state court.” Id. at 82. In response to this unintended consequence of the Reform Act, Congress enacted

SLUSA to “stem this shift from Federal to State courts and

prevent certain State private securities class action lawsuits

alleging fraud from being used to frustrate the objectives of

the Reform Act.” Id. (internal quotation marks and alterations

omitted). 

[1] SLUSA sought to achieve these goals by generally precluding state-law “covered class actions” alleging fraud or

misrepresentation in connection with “covered securities.”

SLUSA’s preclusion provision states: 

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 by any

private party alleging—

(1) an untrue statement or omission of a

material fact in connection with the purchase or sale of a covered security; or 

(2) that the defendant used or employed any

manipulative or deceptive device or contrivance in connection with the purchase or

sale of a covered security. 

1662 MADDEN v. COWEN & CO.
15 U.S.C. § 77p(b). 

[2] The breadth of this preclusion provision is limited in

several respects. It applies only to a “covered class action,”

defined to include an action “to recover damages on a representative basis” or in which “damages are sought on behalf of

more than 50 persons.” 15 U.S.C. § 77p(f)(2)(A)(i). It is also

limited to actions involving a “covered security,” defined as

a security “traded nationally and listed on a regulated national

exchange,” Dabit, 547 U.S. at 83, “at the time during which

it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred.” 15 U.S.C. 77p(f)(3)

(cross-referencing the statutory definition of “covered security” in § 77r). 

Additionally, SLUSA preserves certain types of state-law

claims that fall within the scope of its preclusion provision. 

Most relevant here is the Delaware carve-out, 15 U.S.C.

§ 77p(d), which provides that a private party may bring a covered class action “based upon the statutory or common law of

the State in which the issuer is incorporated (in the case of a

corporation) or organized (in the case of any other entity),”

§ 77p(d)(1)(A), if the action involves: 

(i) the purchase or sale of securities by the issuer or

an affiliate of the issuer exclusively from or to holders of equity securities of the issuer; or

(ii) any recommendation, position, or other communication with respect to the sale of securities of the

issuer that—

(I) is made by or on behalf of the issuer or

an affiliate of the issuer to holders of equity

securities of the issuer; and 

(II) concerns decisions of those equity holders with respect to voting their securities,

MADDEN v. COWEN & CO. 1663
acting in response to a tender or exchange

offer, or exercising dissenters’ or appraisal

rights. 

15 U.S.C. § 77p(d)(1)(B). 

To prevent actions precluded by SLUSA from being litigated in state court, SLUSA authorizes defendants to remove

such actions to federal court, effectively ensuring that federal

courts will have the opportunity to determine whether a state

action is precluded.3 As the Supreme Court has explained, any

suit removable under SLUSA’s removal provision, § 77p(c),

is precluded under SLUSA’s preclusion provision, § 77p(b),

and any suit not precluded is not removable. See Kircher, 547

U.S. at 644; see also Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 332 F.3d 116, 131-32 (2d Cir. 2003) (Newman, J., concurring) (noting that SLUSA’s removal and

preclusion provisions are “opposite sides of the same coin”).

If a federal court determines that an action is not precluded

under § 77p(b), it “has no jurisdiction to touch the case on the

merits, and the proper course is to remand to the state court

that can deal with it.” Kircher, 547 U.S. at 644. Likewise, if

a federal court “determines that the action may be maintained

in State court pursuant to” the Delaware carve-out, “the Federal court shall remand such action to such State court.” 15

U.S.C. § 77p(d)(4). 

3Section 77p(c) provides: 

Any covered class action brought in any State court involving a

covered security, as set forth in subsection (b) [15 U.S.C.

§ 77p(b), the SLUSA preclusion provision], shall be removable

to the Federal district court for the district in which the action is

pending, and shall be subject to subsection (b). 

15 U.S.C. § 77p(c). 

1664 MADDEN v. COWEN & CO.
III

The question before us is whether the district court correctly determined that Madden’s complaint, which alleged

state-law claims and was filed in state court, is the sort of covered class action that is both (1) precluded by § 77p(b) of

SLUSA and (2) not saved from preclusion by the Delaware

carve-out, § 77p(d). A “federal court has leeway ‘to choose

among threshold grounds for denying audience to a case on

the merits.’ ” Sinochem Int’l Co. v. Malay. Int’l Shipping

Corp., 549 U.S. 422, 431 (2007) (quoting Ruhrgas AG v.

Marathon Oil Co., 526 U.S. 574, 585 (1999)). Because we

conclude the Delaware carve-out, § 77p(d), applies to Madden’s suit, we remand this case to the district court with

instructions to remand to state court. Accordingly, we need

not consider whether Madden’s suit falls within SLUSA’s

preclusion provision, § 77p(b), and therefore need not resolve

whether Madden’s suit alleges a misrepresentation or omission “in connection with the purchase or sale of a covered

security,” 15 U.S.C. § 77p(b)(1).4

[3] Madden argues his complaint survives SLUSA’s preclusion provision because it falls within a subsection of the

Delaware carve-out, § 77p(d)(1)(B)(ii). For Madden’s suit to

qualify under this subsection, it must (1) be based on the law

of the state in which “the issuer” is incorporated and (2)

involve a “communication with respect to the sale” of the

issuer’s securities that (3) was made “by or on behalf of” the

issuer or its affiliate (4) to the shareholders of the issuer and

that (5) “concerns” specified shareholder decisions, including

a “response to a tender or exchange offer.” 15 U.S.C.

§ 77p(d)(1)(A), (B)(ii). 

Madden claims that his suit against Cowen qualifies for this

4The parties do not dispute that Madden’s suit, which seeks damages on

behalf of more than fifty plaintiffs, is a “covered class action” as defined

in 15 U.S.C. § 77p(f)(2). 

MADDEN v. COWEN & CO. 1665
subsection of the Delaware carve-out as follows: First, Madden brought his suit under the law of California, the state of

incorporation of St. Joseph, which Madden argues is the relevant “issuer” under the subsection because it was the issuer of

the securities that Madden sold to FPA in response to FPA’s

exchange offer. Second, Madden’s suit involves a communication with respect to the sale of St. Joseph’s securities,

namely, Cowen’s letter opining that the exchange of St.

Joseph securities for FPA shares of stock would be financially

fair to St. Joseph’s shareholders. Third, this communication

was made by or on behalf of St. Joseph, because Cowen was

retained by St. Joseph’s and Orange Coast’s management to

make such a communication to St. Joseph shareholders.

Fourth, the communication was made to St. Joseph shareholders when they received the fairness opinion. And fifth, the

communication concerned a decision by St. Joseph shareholders regarding their response to FPA’s exchange offer. 

Cowen disputes two of these claims: that St. Joseph is “the

issuer” referred to in the Delaware carve-out, and that Cowen

was acting “on behalf of” St. Joseph when it provided its fairness opinion. We address each in turn.5

A

Cowen first argues that St. Joseph is not “the issuer” for

purposes of the Delaware carve-out. Cowen notes that the

Delaware carve-out, § 77p(d), refers to “the issuer” rather

5Cowen also argues that Madden’s suit cannot qualify under the Delaware carve-out as an action against Cowen for making a communication

on behalf of Orange Coast (as opposed to St. Joseph). Because Orange

Coast was incorporated in Delaware and Madden’s suit was brought in

California, Cowen argues that, if Orange Coast is “the issuer,” the suit

would not be “based upon the statutory or common law of the State in

which the issuer is incorporated.” 15 U.S.C. § 77p(d)(1)(A). We need not

address this argument, however, because we conclude that Cowen made

its communication on behalf of St. Joseph, which was incorporated in California. 

1666 MADDEN v. COWEN & CO.
than “an issuer,” and contends that “the issuer” must refer to

the issuer of the “covered security” referred to in SLUSA’s

preclusion provision, § 77p(b). Otherwise, Cowen argues, the

definite article in “the issuer” would have no antecedent.

Cowen also notes that in Dabit the Supreme Court described

the Delaware carve-out as applying to “class actions based on

the law of the State in which the issuer of the covered security

is incorporated.” 547 U.S. at 87 (emphasis added). Under

Cowen’s interpretation of § 77p(d), the Delaware carve-out

would apply only to FPA and not to St. Joseph (which as a

closely held corporation was not an issuer of covered securities). In this case, Cowen argues, the Delaware carve-out

would preserve only suits based on Delaware law (where FPA

is incorporated) involving communications to FPA shareholders concerning their decisions in voting their FPA securities.

Because Madden’s action is based upon California law (where

St. Joseph is incorporated) and does not involve communications to FPA shareholders, Cowen argues that the Delaware

carve-out is inapplicable to Madden’s suit. 

[4] We disagree. As in all statutory interpretation, we start

with the plain language of the statute. See Ariz. Health Care

Cost Containment Sys. v. McClellan, 508 F.3d 1243, 1249

(9th Cir. 2007). The Delaware carve-out does not use the

phrase “issuer of the covered securities.” Rather, the Delaware carve-out refers only to “securities” or “equity securities.” 15 U.S.C. § 77p(d)(1)(B). SLUSA does not define the

word “issuer” to mean “issuer of the covered securities,” nor

does SLUSA’s preclusion provision, § 77p(b), refer to an “issuer of covered securities.” Thus, contrary to Cowen’s argument, there is no clear antecedent to the phrase “the issuer”

in the Delaware carve-out. Moreover, the significance of the

word “the” before “issuer” in the version of the Delaware

carve-out added to the 1933 Act is questionable, given that

SLUSA’s nearly identical Delaware carve-out in the 1934 Act

refers to both “the issuer” and “an issuer.” See 15 U.S.C.

§ 78bb(f)(3)(A)(ii)(II) (providing that the Delaware carve-out

applies to a covered class action that involves “any recomMADDEN v. COWEN & CO. 1667
mendation, position, or other communication with respect to

the sale of securities of an issuer” that meets certain criteria)

(emphasis added). If the choice of the word “the” instead of

“an” had substantive meaning, we would expect that the word

“the” would have been used consistently in two otherwise

identical amendments. Cf. Kircher, 547 U.S. at 637 n.3 (noting that SLUSA amends the 1933 Act and 1934 Act “in substantially identical ways”). Accordingly, we conclude that the

plain language of § 77p(d) allows a shareholder to bring a

covered class action under state law against any “issuer” that

has made certain communications regarding the sale of its

“securities,” and that these securities need not be the “covered

securit[ies]” referred to in § 77p(b). 

[5] “It is well established that when the statute’s language

is plain, the sole function of the courts—at least where the

disposition required by the text is not absurd—is to enforce it

according to its terms.” Lamie v. U.S. Trustee, 540 U.S. 526,

534 (2004). Nonetheless, we note our disagreement with

Cowen’s argument that SLUSA’s legislative history suggests

a congressional intent to limit the Delaware carve-out to suits

against issuers of “covered securities.” The public debate surrounding Congress’s addition of the Delaware carve-out

weighs against Cowen’s interpretation. The testimony before

Congress when it inserted the Delaware carve-out into

SLUSA suggests that the purpose of § 77p(d) was to preserve

state-law actions brought by shareholders against their own

corporations in connection with extraordinary corporate transactions requiring shareholder approval, such as mergers and

tender offers, regardless whether the corporations issued

nationally traded securities.6

6

See, e.g., Securities Litigation Uniform Standards Act of 1997: Hearing on S. 1260 Before the S. Comm. on Banking, Housing, and Urban

Affairs, Subcomm. on Securities, 105th Cong. 48 (Oct. 29, 1997) (statement of SEC Chairman Arthur Levitt and Commissioner Isaac Hunt,

Securities and Exchange Commission) (expressing concern that the version of SLUSA originally introduced in the Senate “could preempt state

1668 MADDEN v. COWEN & CO.
Nor does the Supreme Court’s passing reference in Dabit

to one type of class action covered by the Delaware carve-out

require us to adopt a different reading. See 547 U.S. at 87

(noting that the Delaware carve-out applies to “class actions

based on the law of the State in which the issuer of the covered security is incorporated”). In context, the Court’s reference to the Delaware carve-out in Dabit is simply part of the

Court’s explanation that “the tailored exceptions to SLUSA’s

pre-emptive command demonstrate that Congress did not by

any means act ‘cavalierly’ ” in displacing state law. Id. Dabit

did not purport to limit the scope of the Delaware carve-out

to covered securities; it neither considered nor addressed

whether the Delaware carve-out preserves state-law shareholder class actions against issuers of securities that are not

nationally traded. 

Finally, interpreting the Delaware carve-out as Cowen suggests would have illogical results. Under Cowen’s interpretation of the statute, St. Joseph’s shareholders are deprived of

their state-law remedy against St. Joseph because it agreed to

exchange its securities with a corporation that issued nationally traded securities instead of with a closely held corporation. There is no dispute that Madden could bring state-law

claims against St. Joseph if it had agreed to exchange its stock

with another closely held corporation, because in the absence

of any “covered security” the SLUSA preclusion provision

would not be applicable in the first place. Madden might also

class actions for damages based on material misstatements or omissions in

proxy and tender offer materials in connection with an extraordinary corporate transaction”); Securities Litigation Uniform Standards Act of 1997:

Hearing on H.R. 1689 Before the H. Comm. on Commerce, Subcomm. on

Finance and Hazardous Materials, 105th Cong. 64 (May 19, 1998) (testimony of Jack Coffee) (noting the important role of state class actions in

the area of mergers and corporate reorganization and approving of the

Senate’s addition of the Delaware carve-out as an “attempt[ ]” to “carve

back into the statute a role for the Delaware courts, and the courts of other

States, to deal with fundamental questions of corporate governance”). 

MADDEN v. COWEN & CO. 1669
be able to bring state-law claims against St. Joseph if St.

Joseph were an issuer of nationally traded, covered securities,

because St. Joseph would then be able to meet Cowen’s definition of “the issuer” in the Delaware carve-out. In other

words, under Cowen’s theory, Madden’s remedy against his

own company for misstatements in connection with its efforts

to obtain his approval of a merger is foreclosed because his

company did not issue nationally traded securities and the

acquiring company did. 

[6] This reading of § 77p(d) is unreasonable, and it is

inconsistent with the Delaware carve-out’s purpose. Given

that the plain language of the statute leads to “a rational,

common-sense result,” Ariz. State Bd. for Charter Schools v.

U.S. Dept. of Educ., 464 F.3d 1003, 1008 (9th Cir. 2006), and

one consistent with congressional purpose, we read the term

“the issuer” in the Delaware carve-out to refer to the corporation that is the issuer of the securities described in the Delaware carve-out, rather than being limited to an issuer of a

“covered security” defined in 15 U.S.C. § 77p(f)(3). 

B

[7] Cowen alternatively argues that even if St. Joseph qualifies as “the issuer” under the Delaware carve-out, Cowen did

not make any statement “on behalf of” St. Joseph, and so

Madden’s complaint fails to allege a misleading communication made “by or on behalf of” the issuer or its affiliate as

required by 15 U.S.C. § 77p(d)(1)(B)(ii)(I). The district court

agreed, and on this basis held that the Delaware carve-out did

not save Madden’s suit from SLUSA preclusion. 

In support of this argument, Cowen points us to the Reform

Act, which defines the phrase “person acting on behalf of an

issuer” to mean “an officer, director, or employee of the issuer.” 15 U.S.C. § 77z-2(i)(6). Cowen argues that it did not act

on behalf of St. Joseph because it is not an “officer, director

or employee” of St. Joseph. Madden counters that we should

1670 MADDEN v. COWEN & CO.
not rely on the Reform Act, which provided the definition of

“on behalf of” in the context of creating a safe harbor for

those who make forward-looking statements. Rather, Madden

argues, we should rely on the SEC’s regulations implementing the National Securities Market Improvement Act, which

provide that an offering document is “prepared by or on

behalf of the issuer” if the issuer: “(1) Authorizes the document’s production, and (2) Approves the document before its

use.” 17 C.F.R. § 230.146(a). Madden claims that this definition is preferable because it relates to offering documents

such as the registration statement at issue in this case. See 15

U.S.C. § 77r. 

[8] Again, we must start with the plain language of the statute. See Ariz. Health Care Cost Containment Sys., 508 F.3d

at 1249. Because there is no definition of the phrase “on

behalf of” in SLUSA itself, “we consider whether there is an

unambiguous common sense meaning of the word that

resolves the question” before us. Id. The common sense

meaning of “on behalf of,” according to the dictionary, is “in

the interest of,” “as a representative of,” or “for the benefit

of.” Webster’s Third New International Dictionary 198

(2002). Because the language in § 77p(d)(B)(ii)(I) has an

unambiguous, common sense meaning, we see no need to

look to other statutes that Congress chose not to crossreference. Accordingly, we conclude that § 77p(d)(B)(ii)(I)

refers to an individual or entity that makes a communication

to an issuer’s stockholders in the interest of, or as a representative of, the issuer. 

[9] Even if we adopt this common sense definition of “on

behalf of,” Cowen argues that it was acting on behalf of only

Orange Coast, because Cowen addressed its fairness opinion

to that company. We are bound, however, by the allegations

in Madden’s complaint. See U.S. Mortgage, Inc. v. Saxton,

494 F.3d 833, 842 (9th Cir. 2007) (SLUSA “authorizes

removal and dismissal based on the allegations in the complaint and does not require any additional evidentiary showing

MADDEN v. COWEN & CO. 1671
from either party.”). According to Madden’s complaint, the

management of Orange Coast and St. Joseph formed a Special

Committee to “assess the opportunities for a strategic affiliation or sale.” Madden alleges that the Special Committee,

which included members of the boards of directors of St.

Joseph and Orange Coast, retained Cowen for tasks that

included “[r]endering an opinion as to whether or not the

financial terms of an acquisition were fair, from a financial

point of view, to the shareholders of Orange Coast and St.

Joseph.” Further, the complaint alleges that Cowen’s fairness

opinion was provided to the shareholders of St. Joseph with

Cowen’s consent and that the shareholders relied on the opinion when voting in favor of the merger. Madden’s complaint

therefore sufficiently alleges that Cowen’s communication

was “on behalf of” St. Joseph for purposes of the Delaware

carve-out, regardless whether Cowen addressed its letter only

to Orange Coast. 

IV

We conclude that Madden’s complaint meets the requirements of the Delaware carve-out, 15 U.S.C. § 77p(d). The

complaint is based on the law of the state (California) in

which the issuer of the relevant securities (St. Joseph) was

incorporated, and it involves a communication (Cowen’s fairness opinion) with respect to the sale of those securities. The

communication was made by Cowen “on behalf of” St.

Joseph, to the shareholders of St. Joseph, concerning the

shareholders’ response to an exchange offer. 

[10] Because the Delaware carve-out is applicable to Madden’s suit, we VACATE the judgment of the district court

and REMAND the case with instructions to remand to state

court. 

1672 MADDEN v. COWEN & CO.