Opinion ID: 1755178
Heading Depth: 1
Heading Rank: 4

Heading: Preemption of Huff's Claims

Text: In this case, the circuit court denied BT Securities' motion to dismiss, finding that Huff's claims were not preempted by SLUSA because the alleged wrongful conduct occurred before the enactment of SLUSA in 1998. The circuit court reasoned that SLUSA did not apply retroactively to Huff's claims because the preemptive provisions of SLUSA did not take effect until November 3, 1998, and the conduct which serves as a basis for the action predated the enactment of the said amendments. Thus, the circuit court determined that retroactive application [of SLUSA] in this case not only destroys a remedy but a right. The circuit court's conclusion is consistent with the federal district court's conclusion in this case before its remand of the case to the state court. See Huff II, 190 F.Supp.2d at 1274. However, the circuit court's findings in this case directly conflict with the findings made by the federal district court in Huff I. See Huff I, 234 F.Supp.2d at 1219. In Huff I, the district court concluded that Huff's claims were preempted because SLUSA applied retroactively to its claims and that retroactive application of SLUSA did not impair Huff's substantive rights to pursue its claims: SLUSA merely requires that Huff proceed in federal court under federal law if Huff and its customers elect to pursue their claims in a form that qualifies as a covered class action. Huff I, 234 F.Supp.2d at 1225. The district court reasoned: [W]hen Congress enacted SLUSA on November 3, 1998, it gave notice to Huff that representative state law claims were eliminated. At that time Huff could have filed an action in federal court under federal law, but chose to wait until August 4, 1999, to assert state law fraudulent transfer claims against [Kohlberg]. . . . Huff made a distinct tactical choice in attempting to bring state law claims against [Kohlberg]. Any consequences that follow from such a choice are attributable to Huff's desire to invoke a particular mode of procedure and do not constitute an abrogation of Huff's substantive rights. Huff I, 234 F.Supp.2d at 1225. Since the federal district court's decision to remand the case in Huff II based on the district court's conclusion that Huff's claims were not preempted by SLUSA, a number of courts have held that SLUSA applies to actions filed after the enactment of SLUSA on November 3, 1998, that involved pre-enactment conduct. Those courts reasoned that SLUSA does not involve a substantive right, but a mode of procedure. See, e.g., Huff I, 234 F.Supp.2d at 1226 (SLUSA applies retroactively to actions filed subsequent to enactment based on pre-enactment conduct); Gray v. Seaboard Sec., Inc., 241 F.Supp.2d 213, 218 (N.D.N.Y.2003)(Plaintiffs' lawsuit in this case was filed in August of 2002, well after the enactment of SLUSA. While some of the conduct complained of in the instant action predates SLUSA's enactment, the weight of authority suggests that the relevant conduct is the filing of the lawsuit, not the conduct allegedly giving rise to liability. Accordingly, the Court find[s] that this case does not raise any retroactivity concerns and that SLUSA therefore applies to this present action. (footnote omitted)); In re BankAmerica Corp. Sec. Litig., 95 F.Supp.2d 1044, 1046 n. 2 (E.D.Mo.2000)(stating that SLUSA does not apply to suits filed prior to November 3, 1998, the effective date of [SLUSA]); In re Enron Corp. Sec., Derivative & Erisa Litig., No. MDL-1446 (S.D.Tex., Aug. 16, 2002)(not published in F.Supp.)(SLUSA exemplifies a rule of procedure that regulates secondary rather than primary conduct, the plaintiff's filing and prosecution of the litigation, as opposed to the defendant's allegedly unlawful conduct. Liability under the statute is based on the same kind of activities by a defendant as existed before SLUSA's enactment. What SLUSA eliminates is a state-court forum for class actions arising from securities violations under state law pursuant to Congress' right, under the Supremacy Clause, to impose uniform and stringent pleading standards in such suits in an effort to eliminate abusive litigation and to prevent plaintiffs from evading the protections of federal law.). The United States Court of Appeals for the Eighth Circuit recently addressed the application of SLUSA to conduct occurring before its enactment: The mere fact that the challenged conduct occurred before the statute's enactment does not mean the statute operates retroactively.... Landgraf v. USI Film Prods., 511 U.S. 244, 269, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994). There is generally no retroactivity concern when a new procedural rule goes into effect after a cause of action accrues, but before filing of a lawsuit based on pre-enactment conduct. Id. at 275, 114 S.Ct. 1483. `Because rules of procedure regulate secondary rather than primary conduct, the fact that a new procedural rule [is] instituted after the conduct giving rise to the suit does not make application of the rule [] retroactive.' Id.  See Professional Mgmt. Assocs., Inc. Employees' Profit Sharing Plan v. KPMG, LLP, 335 F.3d 800, 803 (8th Cir.2003). The Eighth Circuit Court of Appeals then held that SLUSA applies to all actions commenced after its enactment, even if the challenged conduct predates SLUSA, id., and cited Huff I. Based on the foregoing decisions, we conclude that Huff's ability to bring a covered class action is a matter of procedure, not a substantive right; therefore, we hold that SLUSA applies to and preempts Huff's claims. [1]