Opinion ID: 1755178
Heading Depth: 1
Heading Rank: 3

Heading: Application of SLUSA

Text: The issue presented to this Court is whether the circuit court erred in denying BT Securities' motion to dismiss based on its conclusion that Huff's claims against BT Securities were not preempted by SLUSA. SLUSA mandates that covered class actions brought pursuant to state law must be removed to federal court. See 15 U.S.C. § 77p(c)(requiring that [a]ny covered class action brought in any State court involving a covered security . . . shall be removable to the Federal district court for the district in which the action is pending); see also 15 U.S.C. § 78bb(f)(5)(E)(defining a covered security to mean a security that satisfies the standards for a covered security specified in paragraph (1) or (2) of section 18(b) of the Securities Act of 1933, at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred). Section 78bb(f)(5)(B) defines a covered class action as follows: (i) any single lawsuit in which  (I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any question affecting only individual persons or members; or (II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and the questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members; or (ii) any group of lawsuits filed in or pending in the same court involving common questions of law or fact, in which  (I) damages are sought on behalf of more than 50 persons; and (II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose. Thus, for actions that fall within SLUSA, the federal court is the exclusive venue for securities fraud class-action litigation. See Huff II, 190 F.Supp.2d at 1278 (subsection (b) [of 15 U.S.C. § 77p] compels a dismissal of actions based on state law if they allege fraud, deception, or misrepresentation regarding the purchase or sale of securities traded, or authorized to be traded, nationally). Under SLUSA, a securities action is preempted only if four conditions are satisfied: (1) the action is a `covered class action,' (2) the claims are based on state law, (3) the action involves a `covered security,' and (4) the claims allege a misrepresentation or omission of material fact `in connection with the purchase or sale' of the security. In re WorldCom, Inc. Sec. Litig., 308 F.Supp.2d 236, 243 (S.D.N.Y.2004) (quoting 15 U.S.C. § 77p(b)). Huff concedes that this action is a covered class action pursuant to 15 U.S.C. § 78bb(f)(5)(B); that its claims are based on Alabama state law; and that its claims allege a misrepresentation or omission of material fact in connection with the purchase or sale of the Bruno's notes. Huff argues, however, that the Bruno's notes were not covered securities as that term is defined by 15 U.S.C. § 78bb(f)(5)(E). To determine whether a security is a covered security, we must determine whether the security was traded nationally or was authorized to be traded nationally at the time of the alleged wrongful conduct. See 15 U.S.C. § 78bb(f)(5)(E)(defining a covered security as a security traded nationally or authorized to be traded nationally at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred). Thus, the inquiry is whether at the time of the alleged wrongful conduct the Bruno's notes were covered securities as that term is defined by 15 U.S.C. § 78bb(f)(5)(E). Section 78bb(f)(5)(E) adopts the definition of a covered security in § 18(b) of the Securities Act of 1933, codified at 15 U.S.C. § 77r(b). Section 77r(b)(1) defines a covered security as follows: A security is a covered security if such security is  (A) listed, or authorized for listing, on the New York Stock Exchange or the American Stock Exchange, or listed, or authorized for listing, on the National Market System of the Nasdaq Stock Market (or any successor to such entities); (B) listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) that has listing standards that the Commission determines by rule (on its own initiative or on the basis of a petition) are substantially similar to the listing standards applicable to securities described in subparagraph (A); or (C) is a security of the same issuer that is equal in seniority or that is a senior security to a security described in subparagraph (A) or (B). Huff concedes that because Bruno's common stock was listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) stock exchange and because the Bruno's notes were senior to Bruno's common stock, the Bruno's notes would be a covered security under § 77r(b)(1)(C). However, Huff argues that at the time Huff began to purchase the Bruno's notes it was not a covered security because Bruno's common stock was no longer listed on the NASDAQ stock exchange. Thus, Huff's argument is that while the Bruno's notes could be considered a covered security when the Bruno's common stock was listed on the NASDAQ stock exchange, the Bruno's notes, at the time Huff purchased them, were not a covered security because Huff purchased the Bruno's notes after Bruno's common stock was removed from the list of stocks on the NASDAQ stock exchange on August 18, 1995. However, Huff's argument fails because § 78bb(f)(5)(E) states that the time it is determined whether a security is a covered security is at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred. The majority of the allegedly wrongful conduct by BT Securities occurred before the Bruno's common stock was removed from the NASDAQ stock exchange on August 18, 1995. While Huff did not purchase the Bruno's notes until November 1995, Huff states in its complaint that in reliance on the Prospectus and other disclosures made by the defendants it purchased the Bruno's notes. Because Huff's complaint acknowledges that it purchased the notes in reliance upon the prospectus, which was dated August 10, 1995, and upon other representations, occurring before its decision to purchase the stock in November, the majority of those events occurred while Bruno's common stock was listed on the NASDAQ stock exchange. Thus, because the allegedly wrongful conduct occurred while the Bruno's common stock was listed, Bruno's common stock qualifies as a covered security pursuant to 15 U.S.C. § 77r(b)(1) and the Bruno's notes would also be considered a covered security under 15 U.S.C. § 77r(b)(1)(C). It does not appear from the record that Huff raised this argument previously in this action or in Huff I, because the district courts in both cases decided the question of SLUSA preemption, which would have been unnecessary had either court determined that the Bruno's notes were not covered securities. See Huff I, 234 F.Supp.2d at 1219, and Huff II, 190 F.Supp.2d at 1274.