Opinion ID: 788924
Heading Depth: 2
Heading Rank: 2

Heading: ijg

Text: 70 IJG defined its putative class to include [a]ll persons or entities who maintained retail brokerage accounts with [Merrill Lynch], and who paid a commission or fees to [Merrill Lynch], and seeks to recover damages caused by the payment of those fees and commissions in contract and under Minnesota consumer protection law. Like Dabit, IJG studiously avoids any specific allegation of a purchase or sale of security in reliance on the biased research that it received. IJG argues that SLUSA's in connection with requirement is not satisfied because its claims relate solely to the contractual obligations and statutory and common-law duties owed by Merrill Lynch to its retail customers and thus do not arise out of the purchase and sale of securities of companies that Merrill [Lynch] researched, but from the purchase and sale of Merrill[ Lynch]'s objectivity. 17 The objectivity that IJG claims it believed it was purchasing, however, was objectivity with respect to investment recommendations. The alleged breach of contract and violation of consumer protection statutes consisted of the provision of biased and misleading advice notwithstanding this alleged promise. We hold that, while the claims for flat annual fees are not preempted by SLUSA, the claims for commissions paid to Merrill Lynch are preempted because they necessarily involve allegations of a purchase or sale of securities in connection with this alleged misconduct. 71 In reaching this conclusion, we are guided generally by the analyses of some of our sister circuits. In Behlen v. Merrill Lynch, 311 F.3d 1087 (11th Cir.2002), the Eleventh Circuit found that a plaintiff's claims were preempted by SLUSA where the object of the alleged fraud was to cause investment in inappropriate securities to which higher fees attached and the complaint requested damages for investments made in reliance on that advice. Id. at 1093-94. Under those circumstances, the fees and commissions paid were held to be an integral part of the [underlying] transactions. Id. at 1094. In Dudek v. Prudential Securities, Inc., 295 F.3d 875 (8th Cir.2002), the Eighth Circuit analogously found the plaintiffs' claims preempted where they alleged that the defendants' misconduct caused plaintiffs to invest in inappropriate securities and therefore to pay higher fees and incidental costs than necessary. Id. at 878. In contrast, in Green, the Eighth Circuit reached the opposite conclusion regarding SLUSA preemption where the plaintiff sought to recover flat fees paid for real-time online stock quotes that were in fact several hours old and nothing in [plaintiff's] ... complaint suggest[ed] that his cause of action ar[ose] from a sale or purchase of a security in reliance on information gained from [defendant's] real-time quote service. Green, 279 F.3d at 598-99. These cases suggest a logical distinction between claims that turn on injuries caused by acting on misleading investment advice, which (except in the case of holding or nonpurchase claims) necessarily allege a purchase or sale, and claims which merely allege that the plaintiff was injured by paying, independent of any given transaction, for a service that the broker failed to provide. 72 Consistent with this analysis, a few lower courts have analyzed claims similar to IJG's and have found that SLUSA preemption turns on whether some or all of the moneys paid for fraudulent or misleading advice were in the form of commissions tied to particular securities transactions. See Rowinski v. Salomon Smith Barney, Inc., 2003 WL 22740976, at  n. 5 (M.D.Pa. Nov.20, 2003) (distinguishing claim for flat monthly fee in Green from case at bar that sought commission fees, which were incurred only upon purchases or sales of securities and which claims the court held were preempted); McCullagh v. Merrill Lynch & Co., 2002 WL 362774, at  (S.D.N.Y. Mar.6, 2002) (finding preemption appropriate because even though [p]laintiffs do not allege the purchase of specific stocks based on the recommendations, their allegations are clearly about the purchase of stocks because they seek disgorgement of commissions paid to [defendant]); see also Shaw v. Charles Schwab & Co. , 2003 WL 1463842, at  (Cal.Sup.Ct. Mar. 7, 2003) (finding SLUSA dismissal appropriate where claim concerning defendant's alleged overcharging of commissions was necessarily dependent on underlying securities transactions because purchases and sales of securities triggered commissions in dispute). We find this logic compelling. The commissions giving rise to the claimed breach of contract and violations of the state consumer fraud laws only accrued when plaintiffs purchased or sold securities through Merrill Lynch. The claims for commissions therefore necessarily allege misstatements or omissions in connection with the purchase and sale of securities, and are preempted. See Zandford, 535 U.S. at 820, 825, 122 S.Ct. 1899 (finding Rule 10b-5's in connection with requirement satisfied when the securities transactions and breaches [complained of] ... coincide[d] and were not independent events.). 18 73 The claims for the return of annual fees for unbiased research do, however, withstand SLUSA. An annual fee for services is paid whether or not the customer transacts on the account, and the misrepresentations inherent in the alleged nonperformance and statutory violations therefore do not necessarily coincide[] with a securities transaction, Zandford, 535 U.S. at 820, 122 S.Ct. 1899; compare Green, 279 F.3d at 598 (finding no SLUSA preemption where plaintiff allege[d] no sale or purchase of a covered security, only that he did not receive the type of information from [defendant] for which he believed he had contracted and paid twenty dollars monthly) with Rowinski, 2003 WL 22740976, at  n. 5 (distinguishing claim for flat monthly fee in Green from case at bar that sought commission fees incurred only upon purchases or sales of securities). 19 Neither the breach of contract claim nor the statutory claims for the return of these fees necessarily rest on any allegation of a purchase or sale of a security. 20 See Minn.Stat. §§ 8.31 subd. 3a, 325D.44, 325F.68-.71; see generally Group Health Plan, Inc. v. Philip Morris Inc., 621 N.W.2d 2, 5-6, 12-15 (Minn.2001) (discussing requirements for maintenance of private action under consumer fraud statutes including Minn.Stat. § 325F.69); Crenlo, Inc. v. Austin-Romtech, 2004 WL 948352, -5 (2004) (discussing elements of breach of contract claim under Minnesota law). 21 The district court therefore erred to the extent that it held that the claims for annual fees wrongfully charged by defendants were preempted by SLUSA. Accordingly, we affirm in part the dismissal of the complaint and the denial of IJG's motion for remand, but reverse the dismissal in part and vacate the judgment in part with instructions to the district court to grant IJG's motion for remand as to so much of the claim as seeks recovery on behalf of a putative class of those who paid annual fees.