2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit

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# Ro winsk i v . S alomon S mith B a r ney

P r e c e de n t i al or N on-P r e c e de n t i al : P r e c e de n t i al
D ocke t N o . 03-4762

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w . v i l l a no va . e du/thir dc ir c uit_2005/1504PRECE DENTI AL

UNITED STATES COURT OF APPEALS FO R T HE TH IRD CIR CU IT

No. 03-4762

RY AN RO WIN SK I, On Behalf of Himself and All Others SimilarlySituated

v.
SALOMON SMITH BARNEY I NC.

Ryan R ow inski,

Appellant

On A ppeal from the Un ited States District Co urt for the M iddle D istrict of P enns ylvania D.C. CivilAction No. 02-cv- 02014 (H on or ab le J am es M . M un ley)

Argued October 28, 20042 Be for e: S CIR ICA , Chief Judge , FIS HE R a nd G RE EN BE RG , Circuit Judges
(Fil ed February16, 2005)

IRA N. RIC HARDS, ESQUI RE ( ARGUED) Truj il lo Ro dri guez & Richards , LLC The Penthouse 226 W est Rittenhou se Squa re Philadelphia, Pennsyl vania 19103

ROBERTA D. LIEB ENBERG, ESQUIRE ARTHUR M. KAPLAN, ESQUIRE Fine Kaplan & Black 1845 Walnut Stre et, 23rd Floor Philadelphia, Pennsyl vania 19103

MICHAEL J . BONI , ES QUIRE Kohn Swif

t & Gr af, P. C. One South Broad Street , Suite 2100 Philadelphia, Pennsyl vania 19107 Attorney s for Appell ant

RIC HARD A. ROSEN, ESQUI RE ( ARGUED) Paul , Wei ss, Rifkind , Wharton & Garri son LLP 1285 Avenue of the Americas New Y ork, New York 10019-60643 JOSEP H G. FE RGUSON, E SQUIRE Rosenn, Jenki ns & Greenwal d, L. L.P. 120 Wyoming Avenue Scranton, Pennsyl vania 18503 Attorney s for Appell ee

OPINI ON OF THE COURT

SC IRI CA , Chief Judge

.
The Securities Lit

igati on Uniform Standards Act of 1998 (“SLUSA”) provides for the removal and federal preempti on of certain state court cl ass actions al leging “ a misrepresentat ion or omissi on of a materi al fact in connection with t

he purchase or sale of a covered security .” 15 U.S.C. § 78bb(f)(1)(A) (West Supp. 2004). At i ssue is whether thi s act ion on beh alf of a putati ve class of Salomon Smith Barney retai l broker age cu st ome rs is pr ee mpt ed bySLUS A. Plaintiff Ryan Row inski filed th is class su it in Pen nsylvan ia state co urt alleg ing S alom on S mit h Barne y’s dissemi nationof “biased investmen t research” bre a ched the parties’ servi ces contr act, unjus tl y enriche d Sa lomo n Sm ith B ar ne y, and viol ated st ate consumer protect ion law. Salomon Sm ith Barn ey remo ved to federalcourt, where the Dist rict Cou rt4 grantedits motion to di sm i ss ba se d o n S LUS A p r ee mp t i on
. We wil l a ffi rm. I. Salomon Sm ith Barney is one of t he world’s l argest

stock brokerage and investment banking firms. Am ong its custom ers are corporate cli ents who recei ve investment bank i ng servi ces such as equ it y and debt un derwriting, and individual inve stors who maintai n Salomon Sm ith Ba rney retail brokerage accounts. In servi cing it s ret ail brokerage customers, Sal omon Smi th Barney produces i nvestment researchcompiled bya team ofinhouse analy sts. This action a llege s that Sa lomo n Sm ith Barne y’s research was unlaw fully biased in favor o f the firm’s investment banking cl ients , to t he detri men t of its reta il brokerage customers. Purporti ng to rep resent a class of “[a]l l pers ons who main tai ned a Salomon Smith Barney retai l broker age account and who paid any charg es[,] commiss ions or f ees to Sal omon Sm ith Barne y, ” plain tiff sue d Sa lomo n Sm ith Ba rney in Pen nsylvan ia s ta te court for breach of contract, unjust enrich men t, and v iolation of state consumer protection statutes

. The gravamen of

the acti on is the all egedly“biased i nvestment
resear ch an d a na lysi s” pr ov id ed by Salom on S mith B arney to the putative c lass. (Compl. ¶ 2. ) Specifi call y, plaint iff al leges Salomon Sm ith Ba rney “artif icially inflate s th e rati ngs and analysis of its investmen t banking c lients” in order to “cu rry favor with invest men t banking c lient s and reap hundr eds of5 millio ns of d ollars i n investment banking fees.” Plainti ff also al leges the Nati onal Associ ation of Securities Dea ler s (“NASD”) fined Sal omon Smith Barney for “is suing mate rially misleadi ng resear ch repor ts,” and that “e xamp les of D efenda nt’s p rovidi ng retail bro kerag e cus tome rs wit h biased and mislea din g analy st re ports abound.” Coun t I seeks damages under st ate l aw for breach o f contra ct. This c ount allege s Salo mo n Sm ith Ba rney “fa iled to provide unbiased ana ly sis and i nstead pr ovided b iased and misleadi ng an alys is that w as inten ded to curry fav or w ith Defe ndant’s existing and potenti al inve stment banki ng clients. Defendant thereb y breach ed its contra cts w ith Plaintiff and the Cla ss.” Count II, for unjus t enri chm ent , seeks recovery of the “fees and c harg es” p aid to S alom on S mith Barn ey in exchange for “objective and unbi ased investment research and ana lysis.” Count III a llege s decepti ve c onsu mer practices i n violat ion of P ennsylvania’s Un fair Tr ade Practices and Consumer Pr otection Law, 73 P.S. § 201- 1 et seq

. This cou nt seeks recovery of “mill ions of d ollars in unnecessary andunwarranted br okerage fees and c harg es” attrib utable to Sa lomon Smith B arney’s failure “to d isc lose mate rialfacts to its retai l broker age customers” regard ing “th e relation ship b etwe en its analysts and its inv estm ent b ank ers.” Pla intif f’s p rayer f or re lief s eek s, inter alia , dam ages in “an amount equal to the amount of any and a ll fe es and charge s colle cted” from the class and “a ll available com pensatory dam age s.”6 Salomon Smith Barneyremoved the act ion to t he United States Distri ct Court f

or the Middle D istric t of Pennsy lvania

. After plaint

iff fi led a mo tion to remand to st ate court, Sal omon Sm ith Barney fi led a cross- motion t o dismis s based on SLUSA pre emption. The D istrict Court denied the motion to re man d and gran ted S alom on S mit h Barn ey’s motion t o dismiss. Relyi ng in part on the Supreme Court’s d ecisi on in SEC v. Zandf ord , 5 35 U.S. 813 (2002) , the Distri ct Court he ld the
com plaint, though framed i n t erms of state law, nevertheless alle ged a misrepresentat ion or omis sion of a mate rial fact in connecti on wi th the p ur ch as e o r sa le o f a co ve re d s ec ur ity. A cc or di ng ly, th e Di stri ctCourt d is mis se d pl ai nt if f’ s c la ims und er S LU SA

. Rowinski v. Salomon Smith Barney, Inc. , 2003 U.S. D ist. LEXIS 20918 (M.D . Pa. Nov . 20, 2003). II. The Securities Lit

igati on Uniform Standards Act of 1998 prov ides, in p art: (1) Cl ass ac tio n li mitations
No covered cl ass action based upon t he statutory or common law of any St ate or subdivi sion thereof

may be maint ained in any State or Fe deral c ourt b y any private party alle ging

. . . a

misrepr esentat

ion or omissi on of a materi al fact i n conne ctio n with the purchase or sale of a cov ere d secur ity ; or . . . t hat the defendantused oremploye d any mani pulati ve or1 SLUSA am e nds b oth the Sec urities Act of 1933 a nd the Secu riti es E xcha nge A ct of 1 934 . The 193 3 A ct am endm ents
are co difie d a t 15 U.S.C. § 78p. The 193 4 Act amend ments, which are fun ctio nally id entic al, are cod ified at 15 U.S .C. § 78bb(f ). For ease of r eference, we cite onl y the 1934 Ac t cod ifica tion

.

2 We note, b ut nee d no t addre ss, a div ision am ong the co urts of appeals on a n issue of

appell ate j urisdi ction u n de r S LUSA. Com pare Kircher v. Putnam Funds Trust , 373 F.3d 84 7 (7th C ir. 2004), with Spie lman v. Merril l Lynch, Pierce, Fenner & Smith, Inc. , 332 F.3 d 11 6 (2 d C ir. 20 03) , and Un ited Inv estors L ife Ins. Co. v. Wa ddell & Reed, Inc

. , 360 F .3d 96 0 (9th Cir. 2004) . The
7 decepti ve de vi ce or contrivance in connection
w ith th e p ur ch as e o r sa le o f a co ve re d s ec ur ity. (2) Removalof cov ered cl ass ac tio ns Any covered cl ass action brought in any S tate court involving a covered security , as s e t forth in paragr ap h ( 1), s hall be removable t o the Federal di stri ct court

for the di stri ct in whic h the acti on is pendi ng, and shall be subje ct to paragrap h (1). 15 U .S.C. § 78b b(f)(1)-(2). 1
The SL US A re mo val pro vision , § 78b b(f)(2 ), is jurisdictio nal. 2 It create s an e xpre ss exc eptio n to t he w ell-questi on – whether SLUSA rem and ord ers are appe alable – is not implic ate d by thi s case, and we express no opi nion on the
ma tter.

3 See Franchise Tax Bd. v. Const r. Laborer s Vacation Trust , 463 U.S. 1, 9-10 (1983); Louisvi lle & Nashvill e R.R. Co. v. Mottley , 211 U .S. 149, 152 (1908).

4 The definit

ion o f “cov ered cl ass action” is set forth at 15 U.S .C. § 78bb (f)(5)(B). In ge neral, a covered action is one for damages on behal f of m ore than fi ftyclass members in which
common issues of law or fact are al leged to predominate. The defini tion of “covered s ecurity ” is se t for th at 1 5 U .S.C . § 78bb(f )(5)(E), wh ich ref erenc es tho se sec urities sp ecified in paragraphs (1) or

(2) o f § 18(b) of t

he Securit

ies Act of 1933, excludi ng any debt securi ty thatis exempt f rom regis tration und er th at A ct.
8 pleaded complaint

rule, 3 conferri ng federalremoval j urisdi ction
over a uniq ue cla ss of s tate law claim s. See Beneficial N at’l Bank v. Anderson , 539 U.S. 1, 8 (2003) (di sti nguishi ng between removal of s tate law claims “when Cong ress expresslyso provides” and removal “when a federalstat ute wholly

displ aces the state-law caus e of a ction th roug h com plete pre-em ption”). The juri sdictional i nquiryunder SLUSA tracks the plain la ngu ag e o f the st atut e. No matte r how an ac tion is p leade d, if it is a “cove red class action . . . involving a covered securi ty, ” removal is proper. 4 The removing part y bear s the b urden of9 establ ishi ng these elements. DiFelice v . Aetna U.S. Healthcare , 346 F .3d 442, 44 5 (3d C ir. 2003). The Distri ct Court e xercis ed removal juri sdiction under § 78bb(f)( 2) and 28 U.S .C. § 1 331 , and g ranted Salo mo n Sm ith Barn ey’s mo tion to dismis s based on SLUSA preemption. We have juris dicti on u nde r 28 U.S .C. § 1291 . O urre vi ew, accepti ng the fact s all eged in the complaint as true and drawing all reasonabl e infer ences in favorof th e pla intif f, is p lena ry. In
re Adams Golf, Inc. Sec. Li tig. , 381 F .3d 267 , 273 (3d C ir. 2004). III.
In 1995, Congres s enac ted t he Pr iva te Securi ties Liti gation Refo rm Ac t, 15 U. S. C. § 78u-4 et seq. (“PS LR A” ), to curb abuses in private class acti on securi ties litigati on. See H.R. Conf. Rep. No. 104-369, at 32-37 ( 199 5) , reprin ted in 1995 U. S. C. C. A. N. 730 , 730 -32

. The PSL RA im plemented a host of proceduraland su bsta ntive reforms, i ncluding “ more stringent pleadi ng requ ireme nts to curtail the f iling of m eritle ss law suits .” In re Advanta Sec. Litig. , 180 F.3d 525, 532 (3 d C ir . 1999) (quoting H .R. Con f. Rep. N o. 104-36 9, at 37). By 1998, Congress conc lude d that plaintiffs w ere circumventing the requirements of the PSL RA by filing p rivate securi ties class acti ons in st ate rather t han feder al cour t. SLUSA was designed to clos e this percei ved loophole by authori zing the rem oval a nd f edera l preem ption o f certa in state court secu riti es c lass a ction s. See 15 U.S.C. § 78a ( stating10 S LUSA ai ms “to prevent certain State private securities class acti on laws uits alleg ing fra ud f rom being used to frus trate the objectives of the Pri vate Securiti es Liti gation Reform Act of 1995” ). As the Senate Banki ng Committee Report explai ned, Congress envisi oned a broad i nterpretation of SLU SA to ensure the uniform appl ication of feder al frau d sta nda rds. S. Rep. No. 105-182, available at1998 W L 226 714, *8 (L eg. Hist.) (“[I]t
re ma i ns the Committe e’s i ntent t hat the billbe inte rpret ed broa dly to reach mass actions a nd all ot her procedur al devi ces that mi ght be used t o circumvent the cl ass action defi niti on.”) SLUSA pr e em pts, inter alia , covere d class acti ons alle ging “a misreprese n tation o r om ission o f a m aterial fa ct in connecti on with the purcha se or sal e of a coveredsecuri ty .” 15 U.S .C. § 78bb(f)( 1)(A). Thi s language mirrors existing feder al securi ties law under § 10(b) and Rule 1 0b-5 of the 193 4 A ct. See 15 U.S.C. § 78j (b) (prohibiting fraud “ in conn ection with t h e purchase or sale of an y security”); 17 C.F.R. § 240 .10b-5 (2004) (pro hib iting , inter alia , material misrepr esentat ions and omissi ons “in co nnec tion w it h t he purchase or sale of a ny security”). A threshold question, then, i s whether existing case law under § 10(b ) and Ru le 10b-5 informs the interpret ation of SL US A’s “ in con nectio n” req uirem ent. We believ e it does. “Where Congress uses terms t hat have accumulate d settled meaning unde r eit her equit y or the
common law, a co urt must infer, unl ess the statute otherwise dictates, that Congre ss means to i n corporate the est ablis hed
me anin g.” NLRB v. Amax C oal Co. , 453 U.S. 322, 329 (1981)5 Other court s have ado pted this a ppr oac h. See, e. g., Dabit v. M errill Lyn ch, P ier ce, Fenner & Smith, I nc. , 2005 U.S. App. LEX IS 410, *27-28 ( 2d Cir. J an. 11, 20 05) ; Riley v . Me rrill Lynch, Pierce, Fenner & Smith, Inc. , 292 F.3d 133 4, 134 2 (11 th Cir. 200 2); Falkowski v. Imation Corp. , 309 F.3d 1123, 1129 (9th Cir . 200 2). But see Spiel man , 332 F.3d at

132-33 (Newman, J., concurri ng) (quest ioning whether “i n connecti on” has the s am e m ean ing und er S LU SA and § 10 (b)).
11 (cit ationom itted); se e al so Molzof v. United Stat es , 502 U. S. 301, 307 (1 992 ). Bec au se SLUS A emp lo ys terms with se ttl ed meaning under existing federal se cur ities law, Congress evide ntly i ntend ed to p reem pt thos e actio ns su fficien tly “connected” to a securiti es tr ansacti on to be a ctiona ble under § 10(b) andRu le 10b-5. I n other words, SLUSA further s the
u niform applic ation o f fed eral fra ud sta ndar ds w ith ou t expanding or constricting the s ubstantive rea ch of federal securi ties reg ulati on. See 15 U.S.C. § 78 a (emph asizi ng consideration s of fede ralism in SL US A’s legis lati ve findings). A cc or di ng ly, we will interpret SLUSA ’s “i n connecti on” requirement in light of existing do ctrine under § 10(b ) and Ru le 10b-5. 5
IV. As noted, the cent

ral i ssue on appealis whethe r plaintiff’s stat e law complaintalle ges a materi a l misrepr esentat

ion or omis sion in connection with the purchase
or sale of acovered security . If so, t he action must be dismis sed12 as preempted. Plaintiff cont end s neither the “misrepresentat ion” nor the “i n connecti on” elements are satisfi ed. A. The mis rep resent ation i ssue is straightforward. Plaintiff’s complaint

is re plete with al legat ions that Salomon Sm ith Barney di sseminated biased and mate rial ly misleadi ng inv estm ent resear ch. Pla inti ff all eges Salomon Smith Barney “provides customers with bias ed investment resear ch and
a naly sis”; “artifi cially

inflates t

he ratings and analys is of it s invest ment banking cl ients ”; was fine d by the NASD “for issuing mate rially misleadi ng resear ch report s”; and “provided biasedand mislea ding analysis tha t was intend ed to curryfavor with Defendant’s exi sti ng and potential i nvestment banking clien ts.” These allegations, which are i ncorporated by referenc e in everycount in t he complaint , re adily sati sfy the mi sr ep re se nt atio n r eq ui re men t u nde r S LUSA. Plaintiff responds t

hat the “breach of contra ct clai m does not involve a

m isre p resentati on or omission.” In other words, plaint iff contends t

hat becaus e “misrepresentat ion” is not an essential legal elementof h is clai m under Pennsy lvania contrac t la w, the fact

ual al legations of mis repres entation included in the
co m pl ain t ar e ir re lev an t to th e S LU SA in qu iry.
We disagr ee. Pl ainti ff’s sugges ted distincti on – between t he legal a nd f actua l allegatio ns in a com plaint – is imm ate ria l under the st atut e . SLUSA preempts any cove red cla ss action “all eging” a materi al misrepr ese ntation or om ission in13 connecti on with the pu rchas e or sa le of s ecu ri ti es . 1 5 U. S. C. § 78bb(f )(1). Under this provisi on, preemption does not turn on whether alle gations are char acterized as f acts or as es s entia l legal elem ents o f a cla im , but rather on whether

the SLUSA prerequi sit es ar e “a ll ege d” i n on e fo rm or another. A contrary approach, under which only essential l egal el eme nts of a state law clai m trigger

preempti on, is inconsi stent wi th the p lain
mean ing of the st atute . Furthermore, it would al low artful pleadi ng to und ermi ne SLUSA ’s goa l of un iform ity – a result
man ifestly con trary to con gre ssio nal in tent. 15 U

. S.C. § 78a (“The Co ngr ess f ind s tha t . .

. . it i s appropri ate t o enact national standar ds for securiti es cl ass acti on laws uits involvi ng nation ally tradedsec uritie s[.]” ); S. R ep. N o. 10 5-1 82, available at 1998 WL 22671 4, *8 (“[I] t remai ns the Committ ee’s i ntent t hat the b ill be inte rpreted broa dly to reac h m ass ac tions an d all o the r proceduraldevices t

hat might

be u se d to circumvent the class action definition.”). Where, as he re, allega tions o f a m ateria l
m isre present ationserve as the fact ual predi cate of a s tate l a w cl ai m, th e mi sr ep re se nt atio n prong is sa ti sf ie d un de r S LUSA. B. The “in connection” is sue is morediffi cult. Plaintiff contends the com plaint states a straightforw ard br each of
co ntra ct claim , i.e

. , Salomon Smith Barney a greed to provide unbiasedinves tmen t researc h and failed to pro vide it. Salomon Sm ith Barney responds that the action , wh ile nom inally resting14 on state law, neverthele ss all eges a material misre present ation in conn ection with the purcha se or sal e of securi ties . The is sue turns on w hethe r plaintif f’s clas s-wid e alle gations , chargi ng Salomon Sm it h B arney w ith systema tically and m aterially misrepr esenti ng its investment ba nking clients’ in vestment rati ngs and analy ses, are “connected” to the p urch ase o r sale of securiti es. As n oted, o ur an alysis is info rmed by “in
co nne ctio n” ca se la w un de r § 10( b) , R ul e 1 0b- 5 a nd S LUSA. The Sup reme Co urt rece ntly addre ssed th e “in
conn ecti on” element i n Zandford , an action under § 10( b) an d Ru le 10b-5. The C ourt unan imously accepted the SEC ’s “broad reading of the phra se ‘i n connecti on with the purchase or s ale of any secu rity,’” 535 U .S. at 81 9, and held th e requ isite connecti on is est ablis hed where a “fra udulent s cheme” and a securi ties trans acti on “coinci de.” Id . at 82 5. Zandford reli ed upon and reaffi rmed Sup erinten dent o f I nsuran ce v. Bankers Life & Ca sualty Co. , 404 U.S . 6, 12 (1 971 ), wh ich like wise held that a fraudul ent scheme “touching” on asecuri ties trans acti on sati sfied the “in connection” el ement of § 10(b) and Rule 10b-5. At the s am e tim e, Zandford ’s “bro ad” in terpreta tion is not bou ndl ess. It “does n ot transform every breach o f fiduciary duty into a f

ederal secu riti es v iolat

ion.” 535 U.S. at 825 n. 4. Federal secu rities law is cir cumscr ibed, and strikes a bal ance between uni form regulation of a nationa l market

and prese rvatio n of those areas “tr aditi ona lly left to state reg ulati on,” such as corporate, contrac t and fidu ciary la w. Sant a Fe Indus. Inc. v. Green , 430 U.S . 4 62, 4 78-80 (1977) ( emphasizi ng15 princi ples of federal ism and holdi ng clai ms challe nging “inte rnal corporate m ismanag emen t” are not actionab le under § 10( b)).
We also have a ddressed t he “in connect

ion” requirement in the context

of § 10(b) and Rule 10b-5. I n Semerenko v. CendantCorp. , w e held th e “in c onn ection ” criteria is sat isfi ed whe re materi al misrepresent ations are “di sseminated to the pub lic in a medium up on w h ich a re ason able in vesto r wo uld rely.” 223 F.3 d 16 5, 17 6 (3 d C ir. 2 000); see als o McGann v. Ernst & Young , 102 F.3d 390, 392 -96 (9th C ir. 1996); SEC v. Tex. Gulf Sulphur

Co. , 401 F.2d 833, 862 (2d Cir. 1968) (en banc). Additional ly , we have held th at a bro ker/inv estor d ispute involvi ng the cre dit terms of a margi n a ccou nt arises “ in connecti on” with the purchase or sale of sec urities, in part be cause invest ors maint ain broker age accounts “for the ver y purpose of tradi ng in securiti es.” Angelas tro v. Pru dentia lBache Sec., Inc. , 764 F.2d 939, 944 (3d Cir. 198 5). Co urts ap pl yin g S LU SA ge ne ra lly hav e adhered t o a broad inter

pretat ion of the “i n connecti on” element. In Behlen
v. M errill Lynch , the Court of Ap peals f or the E leven th Circ uit held that de spit e plai ntiff s’ removalof “a ll explicit refere nces to any fraudule nt activit

y” fr om their s tate law co m plaint , breac h of contrac t claims invol ving misr epresent ations by a s ecurit ies brokerwere suff iciently con necte d to a secu rities transa ction to tri gger preempti on. 311 F.3d 1087, 1090 (11th C ir. 2002). Other courts have simil arlyscrutinize d the ple adings to arri ve at the “essence” of a state law clai m, in orde r to pr event artful6 Plaintiff ci tes Green v. Amerit rade, I nc. , 279 F.3d 590, 599 (8th Cir. 2002), and KPMG , 335 F.2d at 804 (8th Cir . 2003), for the proposit

ion that the measure o f d ama ges is n ot relev ant to the SLUSA preemp ti on i nqu iry . Bu t those cases sugge st the
c on tra ry. Neither Green nor KPMG rejec ts the rele vance o f damages und er S LU SA , a nd Green explic itl y cons iders the
16 drafti ng from circ umventing SLUSA pre em ptio n. Dudek v. Prudential

Sec., Inc ., 295 F.3d 875, 880 (8th C ir. 2002 ); see also Prof’l Mgm t. Ass oc., Inc. v. KPMG LLP , 335 F .3d 80 0, 803 (8th Cir. 2003) (pre empting st ate l aw claims whe re the “complaint imp licitly alle ges” that

“misrepresentat

ions and omissions w ere made in connection with t he purchase or

sale of s ecurit

ies”) (emp hasis adde d); Falkowski , 309 F.3d at 1131 (9th Cir . 2002) (preempti ng state law clai ms involvi ng employe e stockoptions because “[r]epresentati ons about the value o f stock . . . are properly subject to unifo rm fed eral standards”). The plaintiff ’s theo ry of dam ages also b ears o n th e SLUSA “in con nec tion ” inq uiry. See, e. g. , Behlen , 311 F.3d at 1094 (11th Cir . 2002) ( considering all egat ion s of “excess fees and commissions” in determining whether claims a r e “connected” to a securities transaction); Da bit , 2005 U.S. App. LEX IS 410, at

*65 (2d Cir. Ja n. 11, 200 5) (h ol di ng that “cl ai ms for com mis sion s pa id . . . ar e pr eem pted ”). In other words, the reli ef sought byplaint

iffs – such as the recovery of i nvestment l osses or tradi ng fees – may be rele vant in “ connecti ng” the allegati ons to the purchase or sale of securities. 6theory of dam ages in its “connecti on” analy sis. The plaintiffs in Green so ug ht re co ve ry only o f an an nual a ccou nt fee – this limi ted theoryof damages was one reason the court concluded the acti on was not preempte d. 279 F.3d at 599 n.7. I n KPMG , the court mere ly stated SLUSA preempti on “ is no t limite d to cases involving damages claimed as a resul t of the purchase or sale of s ecu rities.” 335 F.3 d at 8 03 ( em pha sis ad ded ).
17 C. Under existing “in connection” case law, we find several factors releva nt in d istinguis hing between pr eempted claims and those remaini ng within t he province of

state law: fi rst, whether the c ov ered cl ass action all eges a “fraudulent s cheme” that “coincides” with the pu rchas e or sa le of se curiti es, Zandford , 53 5 U.S. at 825; second, whethe r the compl aint a llege s a materi al misre pres entation or omis sion “di sseminated to the pub lic in a medium upon which a re asonable i nv estorwo uld rely,” Semerenko , 223 F.3d at 176; third, whether

the nature of the parties’ re lati on ship i s such that it necessarily

involves the purchase or sal e of s ecurit ies, see Angelastro , 764 F.2d at 944 (noti ng t hat cust omers maint ain broker age accounts “for the very purpose of trading in se curities”); and fourth, whether the pray er for relief “connects” the st ate law claims to the purchase7 The non-incl usive four factor s identifie d here are not req uir ements, but rat

her guidepos ts i n a flexi ble pree mption in qu iry. Cf. Zandford , 535 U.S. at 819 (st ating t he in connection
r equirement

“sho uld b e con strued not tec hnica lly an d
re str ict iv ely, but fle xibly ” to effect uate the go als o f the 1934 Ac t) (citatio ns omitted). I n a SLUSA case invol ving diff erent facts or a llegati ons, o ther co nside rations also m ay be rele vant.
18 or sale of securiti es, se e D abit , 2005 U.S. App. LEXIS 410, at *65. 7 Applyi ng this flexi ble fra mework, Row inski’s state law acti on is pr ee mpt ed bySLUS A. First , under Zandford , the
c omplaint

allege s a fra udu lent sch eme coinc iding w ith th e purcha se or sal e of securi ties . Plai ntiff alle ges that

Salom o n Sm ith Barn ey s ystematical ly misrepresented t he value of securi ties to the in vesting pub lic in ord er to “c urry fav or w ith investment banking cl ients and reap hu ndre ds of mill ions of dollars in inves tmentbank ing fe es.” F or this purporte d sc heme to work, invest ors must purchase the misrepresented securities. Absent purcha ses by “duped” invest ors and a cor respondi ng inflation in the share price, Salomon Smith Barney ’s bia sed analysis wo uld fa il to ben efit its ba nkin g cli ents and, i n turn,
wo uld fail to yield hun dred s of m illions of dollars in investment banking fees. The s cheme, in ot her words , nece ssarily “coincides” with the purchase orsale of s ecu rities. Zandford , 535 U.S . at 825 ; see a lso A lle y v . Miramon , 614 F.2d 1372, 1378 n. 11 ( 5t h Ci r. 198 0) (statin g the “ in con nectio n” test is19 sati sfied where “the pr oscri bed conduct and t he sale are part

of the same fraudulen t scheme ”). Second, plaintiff repea tedly allege s that S alom on S mith Barney dissemi nated material mi srepre sentations “in a medium upon w hi ch a r ea so na bl e in ve sto r w ou ld re ly,” na m ely, investment rese arch rep orts. T he requis ite c onnecti on to a securi ties trans acti on is therefore e stabl ished under Semerenko , 223 F.3d at 176. This fact or is p arti cularl y si gnific ant give n SLU SA ’s goal of faci lit ating t he uniform appl ication of “nati onal standar ds for sec urities cl ass action lawsui ts i nvolving nation ally traded secu ri tie s.” 15 U.S. C. § 78a. Where the defendantin a cov ered cl ass action is alle ged to have misrepr esentedthe va lue of nation all y t raded securiti es to t he investing public, SLUSA requires that federalfraud st andards govern the claims. Third, the action ari ses from the broker/ inve sto r relat ionshi p, the “ve ry purpo se” o f w hich is “ trading in
secu riti es.” Angel astro , 764 F.2d at 944. If t

he purpose of a b roker age account i s to enabl e the purc hase and sal e of securiti es, as Angelastro sensi bly ob served, then a cl ass of brokerage custo mers wh ose a ction a lleges m isle adi ng investment a dv ice i s almost certain to i nclude “pur chasers ” or “sellers” of t

he misrepresented securiti es. Plaintiff contend s, howe ver, that inves tmen t researc h is not necessarily

dissemi nated i n connecti on with the purchase or sale of securi ties , ci ting i nvestor s who “ho ld,” ra ther t han8 See generall y Small v. Fritz Cos. , 65 P.3d 1255 ( Cal. 2003) (reco gn izing securi ties fraud cl aims by “holders ,” as di sti nct from p urchasers an d sellers, under C alifornia law).
20 purchase or sel l, t

he recommended secu riti es. 8 Bu t this argumentfail s in l ight of pl aintiff’s complai nt, whic h defines t he putati ve class a s: “A ll perso ns w ho m aintain ed a S alom on S mith Barney retail bro kerag e acc oun t an d w ho p aid a ny ch arg es[ ,] commissions or fees t o Salomon Smith Barney .” This broad class defini tion i s notlimi ted to non-purchasers and non-sellers, and it neces sari lyencompas ses c lai ms by Salomon S m it h Barn ey retai l broker age customer s who purchased or s old the misrepr esentedse curitie s – c la ims that are squar elypreempted und erSLUS A. Fourth, plaintiff seeks reco very of “any and all f ees and charges collected fro m P la intiff an d the C lass,” as we ll as “all
av a ilable compensatory damages.” Thi s pray er for r elie f encompasses t

rading fe es and commissions – charges i ncurred only in connecti on with the purchase or sale of securiti es. Toge ther, these factors connect plaint iff ’s st ate l aw action to the pu rchas e or sa le of securities, and bring i t well wit hin the bounds of S LUSA. The c ompl ai ntse ts forth a s che me “coinci ding” with the p urchase or sale of mi srepre sented securiti es, and the broadly-defined putative class –comprisedof all Salomon Smith Barneyreta il br okerage customers seeki ng recovery of an y trading f ees an d com missio ns – n ecess arily include s “purchaser s” and “sel lers ” of the mis repres ented9 Because thi s putative cl ass inc ludes “purchasers ” and “se llers,” we n ee d no t a ddres s wh ethe r S LUSA p reem pts act ions comprisedsole ly of n on- pur cha sers and non -selle rs. S evera l
cour ts have held SLUSA does not preempt cl ass actions on behalf of non-pu rchasers or n on- selle rs. See , e.g., Da bit , 2005 U.S. App . LEX IS 410, *5 0 (2d C ir. Jan. 11, 2005); Riley , 292 F.3d at 1345 (1 1th Cir. 200 2); Green , 279 F.3d at 598 (8th C ir. 2002). This view fi nds support in Blue Ch ip Stamps v. Manor Drug Stores , 421 U.S. 723, 733 n.5 (1975) (“the wordi ng o f § 10(b), making fraud in connection with the purchase orsale of
a secu rity a v i olati on of the Act, is surelybadlystrained when construed to” encompass c laims by non-purchas er s and nonselle rs) (e mp has is in o rigin al). On the othe r hand, Sal omon Smith Barney direct s our atte ntion to an amicus bri ef fil ed by t he SEC in Da bit , 2005 U.S. App. LE XIS 410 . The SE C co ntend s that Blue Chip Stamps establ ished a prudenti al rul e of standi ng for pri vate actions under § 10(b) and R ule 10b-5, but not a li mitation on the s cope of SLUS A preem pti on. That i s, the SEC views SLUS A as broa dly preemp ting state law secu rities fra ud cl ass actions, inc ludi ng those on behalf of non-purchasers and non-sellers,
even if such claim s are n ot actio nable in fed eral c ourt under§ 10(b) and Rule 10b-5. This posi tion find s su ppo rt in, inter alia , Holmes v. Securi tiesInvestorProtect ion Corporati on , 503 U.S. 258, 284 (199 2) (“T he pu rchas er/seller sta ndin g limitatio ns in Ru le 10b-5 d amag e ac ti ons
. . . d oes not st em from a 21 securiti es. 9 Un der th e statutory language, inclusion of thesecons tr uction of the phrase ‘in connection with the purchase o r sale of a ny sec urity.’” ) (O ’Co nno r, J ., c oncu rri ng). But t he Cou rt of Appeals for t he S econ d Circuit rejected the SEC ’s inter pretat ion, holding SLUSA preemption i s li mited t o acti ons by pur cha sers or se llers. Da bit , 2005 U.S. App. LEXIS 410, *50. We need not expl ore thi s frontier of SLUSA. For t he
reasons stat ed, we hold this particul ar cla ss action alle ges cl ai ms by purchaser s and sel lers , and the refore ar ises “ in connection” with the purchase or sale of covered securiti es. 22 preempted clai ms within t he putativ e class com pels dismis sal of the entire acti on. 15 U.S.C. § 78bb(f) (1) (requiri ng dismis sal of any covered “action” al leging “a misrepr esentat ion or omis sion of a materi al fact

in con ne ct io n wi th the purchase or s ale of a covered security”). D. Green v. Amerit rade, I

nc. , 279 F.3d 590 (8th C ir. 2002),
on wh ich pla intiff p rincipa lly relies, is distinguis hable. Decided before the Supreme Court ’s deci sion i n Zandford , Green i nvolved bre ach of contr act cl aims agai nst Amerit rade, an online broker. The plaintiffs allege d that A meritra de ha d agr eed to provide its customers “real time” stock quotes for a f lat mo nthly fee, when in fact t

he quotes were no t “r eal time.” The custome rs sued forbreach of cont ract, and the Co urt of A ppea ls for the E ighth Circuit

held the complaint

could not

“reaso nably be read as al leging” fraud in c onnecti on with the p u rchase or23 sale of s ecu rities. Id. at 598. Notab ly, t he cou rt considered the plaintiffs’ theoryof damages, which was limi ted to recoveryof the flat monthlyaccountfees, i n determi ning the a ction was not suff iciently conn ected to the p urch ase o r sale o f secu rities to
wa rran t pre em ptio n. Id. at 599 n. 7.
But Green involved ne ither misleadi ng investment
resear ch nor a pray er for r ecoveryof tradi ng fees and commissions. The plaintiff s in Green alle ged Ameritra de misrepr esentedits “real time” se rvi c es, no t the va lue of its investment banking clients’ sec uritie s. And the Green plaint iffs soughtrecov ery of a f lat mo nthly accountfee, not “all fees and charges collec ted fro m P laintiff a nd th e Cla ss” (inc ludin g tradi ng fee s), as plain tiff s eek s he re. In sho rt, Green does not address the facts o f this case. For the rea sons st ated, the connecti on between the al legations here and the purc hase or sale of se curities is s ubsta ntially mor e direc t. Fu rth ermore, the authority of Green is undermined by Zandford ’s “broad” i nterpretation of the “in c onnec tion” requ ireme nt, 535 U.S. at 819, and by subs equentdecisi ons from the Ei ght h C ircu it. See Dudek , 295 F.3d 875 (8th C ir. 2002); KPMG , 3 35 F .3 d 80 0 (8 th C ir. 20 03) . Fo r ex am ple, Dudek holds that SLUSA preemption applie s where the “essence” of a state la w comp la in t i s the mi sle ading marketing of securities. 295 F.3 d at 8 80. S imila rly, KPMG holds S LUSA preem pts acti ons “im pl ici tly” alle ging a misrepresent ation or omissi on in
c onnecti on wit h th e pu rch ase or sa le of sec uritie s. 3 35 F .3 d10 We note that a majorit y of di stri ct courts addressi ng simil ar state law claim s involving “ biased bro kerage rese arc h” have found them pre em pted by SL US A. See, e. g. , Cinico l o v. Morgan StanleyDean Witter & Co. , 2004 U .S. Dist. LEX IS 24896 (S.D .N.Y . Dec . 9, 200 4); Dacey v. Morgan Stanley Dean Witter & Co. , 263 F. Sup p. 2d 7 06 (S .D.N .Y. 20 03); Feitelberg
v. Me rrill Lynch & Co, Inc. , 234 F . Sup p. 2d 1 043 (N.D . Cal. 2002); McCullagh v. Merril l Lynch & Co. , 2002 U.S . Dist. LEX IS 375 8 ( S. D. N. Y. Ma r. 6, 2002); Korsinsky v . Salomon
24 803. Both ca ses we re decided after Gr e en and both, like Zandford , employ a broad and flexible “in connection” analy sis. Plaintiff al so co nt en ds th at

as mas te r o f h is own com plaint, he is entitl ed to plea d arou nd SLUSA. But SLUSA stands as an e x press exc eption to the well -pleade d complaint rule, and its preempti ve force cannot be circ umvented by artful drafti ng. In thi s context – where Congress has e xpr es sly preempted a parti cular c las s of state law clai ms – the question is not w hethe r a plain tiff plea ds or o mits certain key words or legal theorie s, but rath er w hethe r a reas onab le read in g of the complaint

evidences allegati ons o f “a misrepresentat

ion or omissi on of a materi al fact in connection with t

he purchase or sale of a covered sec urity. ” 15 U.S.C. § 78bb( f)(1) . Although plaint iff scrupul ouslyavoids pleadi ng the words “pur chase” or “sale” of securi ties , a rea sonable read ing of the com plaint, inform ed by ex isting “in connecti on” doctri ne, est ablis hes that the el ements of SLUSA preemption are s atis fied. 10Sm ith Barney, Inc

. , 2002 U.S. Dist . LEXIS 259 (S.D.N.Y. Jan. 10, 200 2); Hardy v . Merril l Lynch, Pierce, Fenner & Smith, Inc. , 189 F. S upp . 2d 1 4 (S .D.N .Y. 2 001 ). But see Norman v. Salomon Smith Barney, Inc. , 200 4 U .S. D ist. LE XIS 10619 (S .D .N .Y

. June 9, 200 4); Gray v. Seaboard Sec urit ies, Inc. , 241 F. Supp . 2d 213 (N .D.N.Y . 2003).

11 Although plai nt iff ’s the ory of damages is one of several fact ors connecti ng this acti on to the purchase or s ale of securiti es, we do not sugge st that the absence of a pr ayer for tradi ng fees , com missio ns or in vestm ent loss es alon e w ould
neces saril y defeat pr eemption. Plaintiffs cannot circumvent SLUSA simp ly by failing to p lead d ama ges w ith spec ificity in state co urt.
25 On a mot ion to d ismiss, w e w ill draw all reaso nable infere nces in favorof th e pla intif f. In re Adams Golf, I nc. Sec. Lit. , 381 F .3d at 273. Even so, we hold that plaint iff al leges materi al misrepr esentat ions i n connecti on with the purchase or sale of securi ties . The complai nt repeatedly al le ges that Salomon Sm ith Ba rney mis repres ented the va lue of its investment banking clients’ securi ties, it set s forth a broad class defin iti on encompassing purchasers and sell ers, and it s eeks recovery of tradi ng fees and commissions charged i n connecti on with the purcha se or sal e of securiti es. 11 Accepting these factual alle gations as true, and eval uating t hem un d erSLUS A, we conclude the putative cl ass action is preempted.12 We note that th e Di stri ctCourt d is mis se d pl ai nt if f’ s c la ims wit hou t pre jud ice.
26 Fi na lly, plaint

iff cont ends we should examine each count in the complai nt separ atel y t o determi ne w het her it is pre empted. See Falkowski , 309 F.3d 112 3 (9th Cir. 20 02) (p reem pting s tate law fraud counts but

re man di ng b re ac h of

co ntra ct co unt s) . A s an initial ma tter, we ques tion w hethe r preem ption o f certa in
coun ts and rem and of others is consistent with t he plai n meaning of SLUSA . The st atute does not pr eempt particular “claims” or “counts” but rath er p reem pts “ actio ns,” 15 U.S.C . § 78bb(f )(1), suggesti ng that i f any cl aims all eg ed in a covered cl ass action
are preempted, the entire action must be dism iss ed. 12 But we nee d not decide whet her a c oun t-by-cou nt ana lysis is appro priate in this case, be cause plainti ff has incorporated every alle gation into every co unt in h is com pla i nt. Ou r SL US A a nalysis therefore applie s to each of p laintiff’s coun ts, and c om pels the conclusi on that e ach is preempted. V. Conclusion
For the reasons se t forth, we w ill affirm the judgment of the D istrict Co urt.