Opinion ID: 4414424
Heading Depth: 5
Heading Rank: 1

Heading: e., the trustee. Here, the plaintiff, as a trust

Text: beneficiary, was powerless to buy or sell covered securities . . . . .... The analysis in both [Segal and Siepel] is foreclosed by Troice, because both cases rely on Dabit’s broad holding that for SLUSA to preempt, the fraud may merely “coincide” with the purchase or sale of covered 14 BANKS V. NORTHERN TRUST securities. Siepel, 526 F.3d at 1127; Segal, 581 F.3d at 312. 146 F. Supp. 3d at 443. 3 In Henderson, the plaintiff-beneficiaries brought similar fee and imprudent investment claims against the defendanttrustee. See id. at 440–41. The court held that in light of Troice, SLUSA did not preclude the claims. See id. at 443– 44. Northern argues Henderson directly contradicts Dabit and construes the “in connection with” requirement too narrowly. But Henderson’s understanding of Troice conforms with the Supreme Court’s explanation of the “in connection with” requirement: it must be read broadly, but not so broadly that the connection between a defendant’s conduct and the covered security becomes immaterial. 4 As we already concluded after Dabit, the claims should “have more than some tangential relation to the securities 3 Similarly, Northern’s reliance on Fleming v. Charles Schwab Corp., 878 F.3d 1146, 1155–56 (9th Cir. 2017), and Holtz v. JPMorgan Chase Bank, N.A., 846 F.3d 928, 929, 933–34 (7th Cir. 2017), is misplaced because both cases involved an agent-principal relationship. See also Taksir v. Vanguard Grp., 903 F.3d 95, 98 (3d Cir. 2018) (noting that Fleming and Goldberg v. Bank of America, N.A., 846 F.3d 913 (7th Cir. 2017) (per curiam), were factually distinguishable because those plaintiffs conceded that the alleged misconduct “was plainly material to brokerage customers”). 4 Northern asserts that we have cited Segal with approval multiple times. But those citations were only for the proposition that the substance and gravamen of the complaint govern in a preclusion inquiry. See Freeman, 704 F.3d at 1115; Fleming, 878 F.3d at 1153; Hampton v. Pac. Inv. Mgmt. Co. LLC, 705 F. App’x 558, 560 (9th Cir. 2017). We have not cited Segal for its application of SLUSA to state-law trust claims. BANKS V. NORTHERN TRUST 15 transaction.” Fleming, 878 F.3d at 1155 (quoting Freeman, 704 F.3d at 1116). 5 And as the Third Circuit explained in Taksir, “the Supreme Court in Troice made clear that . . . Troice clarifies – rather than modifies – Dabit.” 903 F.3d at 97. Northern would like us to read Dabit without considering its clarification in Troice. But we will not render Troice meaningless the way that Game of Thrones rendered the entire Night King storyline meaningless in its final season. Troice directly supports our conclusion that a trustee’s misconduct – over which a beneficiary of an irrevocable trust has no control – cannot constitute misconduct “in connection with” the sale of covered securities where “the only party who decides to buy or sell a covered security as a result of a lie is the [trustee].” Troice, 571 U.S. at 388. To use the language in Troice, the trustee is both the buyer and the “fraudster”; because the trustee can deceive only itself with any alleged misconduct, its misconduct does not require SLUSA preclusion. See also Bernard v. BNY Mellon Nat’l Ass’n, No. 2:18-cv-00783-CRE Dkt. 58 (W.D. Pa. June 14, 2019). Troice confirms that SLUSA’s “in connection with” requirement does not preclude claims brought by an 5 Northern also contends that we disavowed this application of Troice in Fleming, where in a footnote we rejected the argument that Troice “amended the Dabit ‘coincide’ standard.” 878 F.3d at 1155 n.5. This argument fails for two reasons. First, we agree that Troice did not amend Dabit, but simply clarified its application. Fleming’s holding – that the “in connection with requirement” should “have more than some tangential relation to the securities transaction” – supports our conclusion. Id. at 1155. Second, Fleming considered SLUSA preclusion in a situation involving brokers as agents, not the trust context. 16 BANKS V. NORTHERN TRUST irrevocable trust beneficiary – who has no control over the trustee – alleging imprudent investments by that trustee. 6 Here, the district court’s dismissal relied entirely on its conclusion that Northern was an agent of the trusts’ beneficiaries, a conclusion unsupported by the moving papers and the FAC. Not only did the district court fail to consider Banks’ allegations that the beneficiaries lacked any control over the trustees – an allegation supported by caselaw and secondary sources – but courts generally determine the existence of an agency relationship at the summary judgment stage, not in determining a motion to dismiss. See Rookard v. Mexicoach, 680 F.2d 1257, 1261 (9th Cir. 1982). Moreover, the district court’s brief discussion of Troice did not acknowledge Troice’s holding that the “in connection with” requirement is not met if the fraudster alone bought or sold the covered securities. The district court erred in concluding SLUSA precluded Banks’ imprudent investment claims. Because we conclude Banks’ imprudent investment claims do not meet the “in connection with” requirement for SLUSA preclusion, we need not decide whether the claims meet SLUSA’s fraudulent conduct requirement, i.e., whether Banks adequately alleged Northern (1) engaged in misrepresentation or omission of a material fact or (2) used or employed any manipulative or deceptive device or contrivance. We reverse and remand all of Banks’ imprudent investment claims. 6 Our opinion is limited to claims involving a trustee-beneficiary irrevocable trust relationship in which the trust instrument does not grant the beneficiary financial management trustee powers. We do not opine on how Troice may affect other state-law claims. BANKS V. NORTHERN TRUST 17