Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

2-16-2005

Rowinski v. Salomon Smith Barney
Precedential or Non-Precedential: Precedential

Docket No. 03-4762

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                                   PRECEDENTIAL

  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT

                 No. 03-4762

             RYAN ROWINSKI,
          On Behalf of Himself and
         All Others Similarly Situated

                      v.

     SALOMON SMITH BARNEY INC.

                             Ryan Rowinski,
                                       Appellant

On Appeal from the United States District Court
    for the Middle District of Pennsylvania
      D.C. Civil Action No. 02-cv-02014
         (Honorable James M. Munley)

           Argued October 28, 2004
            Before: SCIRICA, Chief Judge,
        FISHER and GREENBERG, Circuit Judges

                 (Filed February 16, 2005)

IRA N. RICHARDS, ESQUIRE (ARGUED)
Trujillo Rodriguez & Richards, LLC
The Penthouse
226 West Rittenhouse Square
Philadelphia, Pennsylvania 19103

ROBERTA D. LIEBENBERG, ESQUIRE
ARTHUR M. KAPLAN, ESQUIRE
Fine Kaplan & Black
1845 Walnut Street, 23rd Floor
Philadelphia, Pennsylvania 19103

MICHAEL J. BONI, ESQUIRE
Kohn Swift & Graf, P.C.
One South Broad Street, Suite 2100
Philadelphia, Pennsylvania 19107
      Attorneys for Appellant

RICHARD A. ROSEN, ESQUIRE (ARGUED)
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064

                             2
JOSEPH G. FERGUSON, ESQUIRE
Rosenn, Jenkins & Greenwald, L.L.P.
120 Wyoming Avenue
Scranton, Pennsylvania 18503
      Attorneys for Appellee

                 OPINION OF THE COURT

SCIRICA, Chief Judge.

       The Securities Litigation Uniform Standards Act of 1998
(“SLUSA”) provides for the removal and federal preemption of
certain state court class actions alleging “a misrepresentation or
omission of a material fact in connection with the purchase or
sale of a covered security.” 15 U.S.C. § 78bb(f)(1)(A) (West
Supp. 2004). At issue is whether this action on behalf of a
putative class of Salomon Smith Barney retail brokerage
customers is preempted by SLUSA.

       Plaintiff Ryan Rowinski filed this class suit in
Pennsylvania state court alleging Salomon Smith Barney’s
dissemination of “biased investment research” breached the
parties’ services contract, unjustly enriched Salomon Smith
Barney, and violated state consumer protection law. Salomon
Smith Barney removed to federal court, where the District Court

                                3
granted its motion to dismiss based on SLUSA preemption. We
will affirm.

                               I.

       Salomon Smith Barney is one of the world’s largest stock
brokerage and investment banking firms. Among its customers
are corporate clients who receive investment banking services
such as equity and debt underwriting, and individual investors
who maintain Salomon Smith Barney retail brokerage accounts.
In servicing its retail brokerage customers, Salomon Smith
Barney produces investment research compiled by a team of in-
house analysts. This action alleges that Salomon Smith
Barney’s research was unlawfully biased in favor of the firm’s
investment banking clients, to the detriment of its retail
brokerage customers.

       Purporting to represent a class of “[a]ll persons who
maintained a Salomon Smith Barney retail brokerage account
and who paid any charges[,] commissions or fees to Salomon
Smith Barney,” plaintiff sued Salomon Smith Barney in
Pennsylvania state court for breach of contract, unjust
enrichment, and violation of state consumer protection statutes.
The gravamen of the action is the allegedly “biased investment
research and analysis” provided by Salomon Smith Barney to
the putative class. (Compl. ¶ 2.) Specifically, plaintiff alleges
Salomon Smith Barney “artificially inflates the ratings and
analysis of its investment banking clients” in order to “curry
favor with investment banking clients and reap hundreds of

                               4
millions of dollars in investment banking fees.” Plaintiff also
alleges the National Association of Securities Dealers
(“NASD”) fined Salomon Smith Barney for “issuing materially
misleading research reports,” and that “examples of Defendant’s
providing retail brokerage customers with biased and misleading
analyst reports abound.”

        Count I seeks damages under state law for breach of
contract. This count alleges Salomon Smith Barney “failed to
provide unbiased analysis and instead provided biased and
misleading analysis that was intended to curry favor with
Defendant’s existing and potential investment banking clients.
Defendant thereby breached its contracts with Plaintiff and the
Class.” Count II, for unjust enrichment, seeks recovery of the
“fees and charges” paid to Salomon Smith Barney in exchange
for “objective and unbiased investment research and analysis.”
Count III alleges deceptive consumer practices in violation of
Pennsylvania’s Unfair Trade Practices and Consumer Protection
Law, 73 P.S. § 201-1 et seq. This count seeks recovery of
“millions of dollars in unnecessary and unwarranted brokerage
fees and charges” attributable to Salomon Smith Barney’s
failure “to disclose material facts to its retail brokerage
customers” regarding “the relationship between its analysts and
its investment bankers.”

       Plaintiff’s prayer for relief seeks, inter alia, damages in
“an amount equal to the amount of any and all fees and charges
collected” from the class and “all available compensatory
damages.”

                                5
       Salomon Smith Barney removed the action to the United
States District Court for the Middle District of Pennsylvania.
After plaintiff filed a motion to remand to state court, Salomon
Smith Barney filed a cross-motion to dismiss based on SLUSA
preemption. The District Court denied the motion to remand
and granted Salomon Smith Barney’s motion to dismiss.
Relying in part on the Supreme Court’s decision in SEC v.
Zandford, 535 U.S. 813 (2002), the District Court held the
complaint, though framed in terms of state law, nevertheless
alleged a misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered security.
Accordingly, the District Court dismissed plaintiff’s claims
under SLUSA. Rowinski v. Salomon Smith Barney, Inc., 2003
U.S. Dist. LEXIS 20918 (M.D. Pa. Nov. 20, 2003).

                               II.

      The Securities Litigation Uniform Standards Act of 1998
provides, in part:

       (1) Class action limitations

              No covered class action based upon the
       statutory or common law of any State or
       subdivision thereof may be maintained in any
       State or Federal court by any private party
       alleging . . . a misrepresentation or omission of a
       material fact in connection with the purchase or
       sale of a covered security; or . . . that the
       defendant used or employed any manipulative or

                               6
           deceptive device or contrivance in connection
           with the purchase or sale of a covered security.

           (2) Removal of covered class actions

                   Any covered class action brought in any
           State court involving a covered security, as set
           forth in paragraph (1), shall be removable to the
           Federal district court for the district in which the
           action is pending, and shall be subject to
           paragraph (1).

15 U.S.C. § 78bb(f)(1)-(2). 1

        The SLUSA removal provision, § 78bb(f)(2), is
jurisdictional. 2 It creates an express exception to the well-

       1
     SLUSA amends both the Securities Act of 1933 and the
Securities Exchange Act of 1934. The 1933 Act amendments
are codified at 15 U.S.C. § 78p. The 1934 Act amendments,
which are functionally identical, are codified at 15 U.S.C. §
78bb(f). For ease of reference, we cite only the 1934 Act
codification.
   2
    We note, but need not address, a division among the courts
of appeals on an issue of appellate jurisdiction under SLUSA.
Compare Kircher v. Putnam Funds Trust, 373 F.3d 847 (7th Cir.
2004), with Spielman v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 332 F.3d 116 (2d Cir. 2003), and United Investors Life Ins.
Co. v. Waddell & Reed, Inc., 360 F.3d 960 (9th Cir. 2004). The

                                    7
pleaded complaint rule,3 conferring federal removal jurisdiction
over a unique class of state law claims. See Beneficial Nat’l
Bank v. Anderson, 539 U.S. 1, 8 (2003) (distinguishing between
removal of state law claims “when Congress expressly so
provides” and removal “when a federal statute wholly displaces
the state-law cause of action through complete pre-emption”).
The jurisdictional inquiry under SLUSA tracks the plain
language of the statute. No matter how an action is pleaded, if
it is a “covered class action . . . involving a covered security,”
removal is proper. 4 The removing party bears the burden of

question – whether SLUSA remand orders are appealable – is
not implicated by this case, and we express no opinion on the
matter.
   3
   See Franchise Tax Bd. v. Constr. Laborers Vacation Trust,
463 U.S. 1, 9-10 (1983); Louisville & Nashville R.R. Co. v.
Mottley, 211 U.S. 149, 152 (1908).
       4
    The definition of “covered class action” is set forth at 15
U.S.C. § 78bb(f)(5)(B). In general, a covered action is one for
damages on behalf of more than fifty class members in which
common issues of law or fact are alleged to predominate. The
definition of “covered security” is set forth at 15 U.S.C. §
78bb(f)(5)(E), which references those securities specified in
paragraphs (1) or (2) of § 18(b) of the Securities Act of 1933,
excluding any debt security that is exempt from registration
under that Act.

                                8
establishing these elements. DiFelice v. Aetna U.S. Healthcare,
346 F.3d 442, 445 (3d Cir. 2003).

        The District Court exercised removal jurisdiction under
§ 78bb(f)(2) and 28 U.S.C. § 1331, and granted Salomon Smith
Barney’s motion to dismiss based on SLUSA preemption. We
have jurisdiction under 28 U.S.C. § 1291. Our review,
accepting the facts alleged in the complaint as true and drawing
all reasonable inferences in favor of the plaintiff, is plenary. In
re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 273 (3d Cir.
2004).

                               III.

       In 1995, Congress enacted the Private Securities
Litigation Reform Act, 15 U.S.C. § 78u-4 et seq. (“PSLRA”), to
curb abuses in private class action securities litigation. See H.R.
Conf. Rep. No. 104-369, at 32-37 (1995), reprinted in 1995
U.S.C.C.A.N. 730, 730-32. The PSLRA implemented a host of
procedural and substantive reforms, including “more stringent
pleading requirements to curtail the filing of meritless lawsuits.”
In re Advanta Sec. Litig., 180 F.3d 525, 532 (3d Cir. 1999)
(quoting H.R. Conf. Rep. No. 104-369, at 37).

       By 1998, Congress concluded that plaintiffs were
circumventing the requirements of the PSLRA by filing private
securities class actions in state rather than federal court.
SLUSA was designed to close this perceived loophole by
authorizing the removal and federal preemption of certain state
court securities class actions. See 15 U.S.C. § 78a (stating

                                9
SLUSA aims “to prevent certain State private securities class
action lawsuits alleging fraud from being used to frustrate the
objectives of the Private Securities Litigation Reform Act of
1995”). As the Senate Banking Committee Report explained,
Congress envisioned a broad interpretation of SLUSA to ensure
the uniform application of federal fraud standards. S. Rep. No.
105-182, available at 1998 W L 226714, *8 (Leg. Hist.) (“[I]t
remains the Committee’s intent that the bill be interpreted
broadly to reach mass actions and all other procedural devices
that might be used to circumvent the class action definition.”)

       SLUSA preempts, inter alia, covered class actions
alleging “a misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered security.” 15
U.S.C. § 78bb(f)(1)(A). This language mirrors existing federal
securities law under § 10(b) and Rule 10b-5 of the 1934 Act.
See 15 U.S.C. § 78j(b) (prohibiting fraud “in connection with
the purchase or sale of any security”); 17 C.F.R. § 240.10b-5
(2004) (prohibiting, inter alia, material misrepresentations and
omissions “in connection with the purchase or sale of any
security”). A threshold question, then, is whether existing case
law under § 10(b) and Rule 10b-5 informs the interpretation of
SLUSA’s “in connection” requirement.

       We believe it does. “Where Congress uses terms that
have accumulated settled meaning under either equity or the
common law, a court must infer, unless the statute otherwise
dictates, that Congress means to incorporate the established
meaning.” NLRB v. Amax Coal Co., 453 U.S. 322, 329 (1981)

                              10
(citation omitted); see also Molzof v. United States, 502 U.S.
301, 307 (1992). Because SLUSA employs terms with settled
meaning under existing federal securities law, Congress
evidently intended to preempt those actions sufficiently
“connected” to a securities transaction to be actionable under §
10(b) and Rule 10b-5. In other words, SLUSA furthers the
uniform application of federal fraud standards without
expanding or constricting the substantive reach of federal
securities regulation. See 15 U.S.C. § 78a (emphasizing
considerations of federalism in SLUSA’s legislative findings).
Accordingly, we will interpret SLUSA’s “in connection”
requirement in light of existing doctrine under § 10(b) and Rule
10b-5.5

                               IV.

        As noted, the central issue on appeal is whether
plaintiff’s state law complaint alleges a material
misrepresentation or omission in connection with the purchase
or sale of a covered security. If so, the action must be dismissed

  5
    Other courts have adopted this approach. See, e.g., Dabit v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 2005 U.S. App.
LEXIS 410, *27-28 (2d Cir. Jan. 11, 2005); Riley v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 292 F.3d 1334, 1342 (11th
Cir. 2002); Falkowski v. Imation Corp., 309 F.3d 1123, 1129
(9th Cir. 2002). But see Spielman, 332 F.3d at 132-33
(Newman, J., concurring) (questioning whether “in connection”
has the same meaning under SLUSA and § 10(b)).

                               11
as preempted. Plaintiff contends neither the “misrepresentation”
nor the “in connection” elements are satisfied.

                               A.

        The misrepresentation issue is straightforward.
Plaintiff’s complaint is replete with allegations that Salomon
Smith Barney disseminated biased and materially misleading
investment research. Plaintiff alleges Salomon Smith Barney
“provides customers with biased investment research and
analysis”; “artificially inflates the ratings and analysis of its
investment banking clients”; was fined by the NASD “for
issuing materially misleading research reports”; and “provided
biased and misleading analysis that was intended to curry favor
with Defendant’s existing and potential investment banking
clients.” These allegations, which are incorporated by reference
in every count in the complaint, readily satisfy the
misrepresentation requirement under SLUSA.

        Plaintiff responds that the “breach of contract claim does
not involve a misrepresentation or omission.” In other words,
plaintiff contends that because “misrepresentation” is not an
essential legal element of his claim under Pennsylvania contract
law, the factual allegations of misrepresentation included in the
complaint are irrelevant to the SLUSA inquiry.

       We disagree. Plaintiff’s suggested distinction – between
the legal and factual allegations in a complaint – is immaterial
under the statute. SLUSA preempts any covered class action
“alleging” a material misrepresentation or omission in

                               12
connection with the purchase or sale of securities. 15 U.S.C. §
78bb(f)(1). Under this provision, preemption does not turn on
whether allegations are characterized as facts or as essential
legal elements of a claim, but rather on whether the SLUSA
prerequisites are “alleged” in one form or another. A contrary
approach, under which only essential legal elements of a state
law claim trigger preemption, is inconsistent with the plain
meaning of the statute. Furthermore, it would allow artful
pleading to undermine SLUSA’s goal of uniformity – a result
manifestly contrary to congressional intent. 15 U.S.C. § 78a
(“The Congress finds that . . . . it is appropriate to enact national
standards for securities class action lawsuits involving nationally
traded securities[.]”); S. Rep. No. 105-182, available at 1998
WL 226714, *8 (“[I]t remains the Committee’s intent that the
bill be interpreted broadly to reach mass actions and all other
procedural devices that might be used to circumvent the class
action definition.”).

       Where, as here, allegations of a material
misrepresentation serve as the factual predicate of a state law
claim, the misrepresentation prong is satisfied under SLUSA.

                                 B.

       The “in connection” issue is more difficult. Plaintiff
contends the complaint states a straightforward breach of
contract claim, i.e., Salomon Smith Barney agreed to provide
unbiased investment research and failed to provide it. Salomon
Smith Barney responds that the action, while nominally resting

                                 13
on state law, nevertheless alleges a material misrepresentation
in connection with the purchase or sale of securities. The issue
turns on whether plaintiff’s class-wide allegations, charging
Salomon Smith Barney with systematically and materially
misrepresenting its investment banking clients’ investment
ratings and analyses, are “connected” to the purchase or sale of
securities.   As noted, our analysis is informed by “in
connection” case law under § 10(b), Rule 10b-5 and SLUSA.

        The Supreme Court recently addressed the “in
connection” element in Zandford, an action under § 10(b) and
Rule 10b-5. The Court unanimously accepted the SEC’s “broad
reading of the phrase ‘in connection with the purchase or sale of
any security,’” 535 U.S. at 819, and held the requisite
connection is established where a “fraudulent scheme” and a
securities transaction “coincide.” Id. at 825. Zandford relied
upon and reaffirmed Superintendent of Insurance v. Bankers
Life & Casualty Co., 404 U.S. 6, 12 (1971), which likewise held
that a fraudulent scheme “touching” on a securities transaction
satisfied the “in connection” element of § 10(b) and Rule 10b-5.

       At the same time, Zandford’s “broad” interpretation is
not boundless. It “does not transform every breach of fiduciary
duty into a federal securities violation.” 535 U.S. at 825 n.4.
Federal securities law is circumscribed, and strikes a balance
between uniform regulation of a national market and
preservation of those areas “traditionally left to state regulation,”
such as corporate, contract and fiduciary law. Santa Fe Indus.
Inc. v. Green, 430 U.S. 462, 478-80 (1977) (emphasizing

                                 14
principles of federalism and holding claims challenging
“internal corporate mismanagement” are not actionable under §
10(b)).

       We also have addressed the “in connection” requirement
in the context of § 10(b) and Rule 10b-5. In Semerenko v.
Cendant Corp., we held the “in connection” criteria is satisfied
where material misrepresentations are “disseminated to the
public in a medium upon which a reasonable investor would
rely.” 223 F.3d 165, 176 (3d Cir. 2000); see also McGann v.
Ernst & Young, 102 F.3d 390, 392-96 (9th Cir. 1996); SEC v.
Tex. Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir. 1968) (en
banc). Additionally, we have held that a broker/investor dispute
involving the credit terms of a margin account arises “in
connection” with the purchase or sale of securities, in part
because investors maintain brokerage accounts “for the very
purpose of trading in securities.” Angelastro v. Prudential-
Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985).

       Courts applying SLUSA generally have adhered to a
broad interpretation of the “in connection” element. In Behlen
v. Merrill Lynch, the Court of Appeals for the Eleventh Circuit
held that despite plaintiffs’ removal of “all explicit references to
any fraudulent activity” from their state law complaint, breach
of contract claims involving misrepresentations by a securities
broker were sufficiently connected to a securities transaction to
trigger preemption. 311 F.3d 1087, 1090 (11th Cir. 2002).
Other courts have similarly scrutinized the pleadings to arrive at
the “essence” of a state law claim, in order to prevent artful

                                15
drafting from circumventing SLUSA preemption. Dudek v.
Prudential Sec., Inc., 295 F.3d 875, 880 (8th Cir. 2002); see also
Prof’l Mgmt. Assoc., Inc. v. KPMG LLP, 335 F.3d 800, 803 (8th
Cir. 2003) (preempting state law claims where the “complaint
implicitly alleges” that “misrepresentations and omissions were
made in connection with the purchase or sale of securities”)
(emphasis added); Falkowski, 309 F.3d at 1131 (9th Cir. 2002)
(preempting state law claims involving employee stock options
because “[r]epresentations about the value of stock . . . are
properly subject to uniform federal standards”).

        The plaintiff’s theory of damages also bears on the
SLUSA “in connection” inquiry. See, e.g., Behlen, 311 F.3d at
1094 (11th Cir. 2002) (considering allegations of “excess fees
and commissions” in determining whether claims are
“connected” to a securities transaction); Dabit, 2005 U.S. App.
LEXIS 410, at *65 (2d Cir. Jan. 11, 2005) (holding that “claims
for commissions paid . . . are preempted”). In other words, the
relief sought by plaintiffs – such as the recovery of investment
losses or trading fees – may be relevant in “connecting” the
allegations to the purchase or sale of securities.6

   6
    Plaintiff cites Green v. Ameritrade, Inc., 279 F.3d 590, 599
(8th Cir. 2002), and KPMG, 335 F.2d at 804 (8th Cir. 2003), for
the proposition that the measure of damages is not relevant to
the SLUSA preemption inquiry. But those cases suggest the
contrary. Neither Green nor KPMG rejects the relevance of
damages under SLUSA, and Green explicitly considers the

                               16
                               C.

        Under existing “in connection” case law, we find several
factors relevant in distinguishing between preempted claims and
those remaining within the province of state law: first, whether
the covered class action alleges a “fraudulent scheme” that
“coincides” with the purchase or sale of securities, Zandford,
535 U.S. at 825; second, whether the complaint alleges a
material misrepresentation or omission “disseminated to the
public in a medium upon which a reasonable investor would
rely,” Semerenko, 223 F.3d at 176; third, whether the nature of
the parties’ relationship is such that it necessarily involves the
purchase or sale of securities, see Angelastro, 764 F.2d at 944
(noting that customers maintain brokerage accounts “for the
very purpose of trading in securities”); and fourth, whether the
prayer for relief “connects” the state law claims to the purchase

theory of damages in its “connection” analysis. The plaintiffs
in Green sought recovery only of an annual account fee – this
limited theory of damages was one reason the court concluded
the action was not preempted. 279 F.3d at 599 n.7. In KPMG,
the court merely stated SLUSA preemption “is not limited to
cases involving damages claimed as a result of the purchase or
sale of securities.” 335 F.3d at 803 (emphasis added).

                               17
or sale of securities, see Dabit, 2005 U.S. App. LEXIS 410, at
*65.7

        Applying this flexible framework, Rowinski’s state law
action is preempted by SLUSA. First, under Zandford, the
complaint alleges a fraudulent scheme coinciding with the
purchase or sale of securities. Plaintiff alleges that Salomon
Smith Barney systematically misrepresented the value of
securities to the investing public in order to “curry favor with
investment banking clients and reap hundreds of millions of
dollars in investment banking fees.” For this purported scheme
to work, investors must purchase the misrepresented securities.
Absent purchases by “duped” investors and a corresponding
inflation in the share price, Salomon Smith Barney’s biased
analysis would fail to benefit its banking clients and, in turn,
would fail to yield hundreds of millions of dollars in investment
banking fees. The scheme, in other words, necessarily
“coincides” with the purchase or sale of securities. Zandford,
535 U.S. at 825; see also Alley v. Miramon, 614 F.2d 1372,
1378 n.11 (5th Cir. 1980) (stating the “in connection” test is

     7
       The non-inclusive four factors identified here are not
requirements, but rather guideposts in a flexible preemption
inquiry. Cf. Zandford, 535 U.S. at 819 (stating the in connection
requirement “should be construed not technically and
restrictively, but flexibly” to effectuate the goals of the 1934
Act) (citations omitted). In a SLUSA case involving different
facts or allegations, other considerations also may be relevant.

                               18
satisfied where “the proscribed conduct and the sale are part of
the same fraudulent scheme”).

       Second, plaintiff repeatedly alleges that Salomon Smith
Barney disseminated material misrepresentations “in a medium
upon which a reasonable investor would rely,” namely,
investment research reports. The requisite connection to a
securities transaction is therefore established under Semerenko,
223 F.3d at 176. This factor is particularly significant given
SLUSA’s goal of facilitating the uniform application of
“national standards for securities class action lawsuits involving
nationally traded securities.” 15 U.S.C. § 78a. Where the
defendant in a covered class action is alleged to have
misrepresented the value of nationally traded securities to the
investing public, SLUSA requires that federal fraud standards
govern the claims.

       Third, the action arises from the broker/investor
relationship, the “very purpose” of which is “trading in
securities.” Angelastro, 764 F.2d at 944. If the purpose of a
brokerage account is to enable the purchase and sale of
securities, as Angelastro sensibly observed, then a class of
brokerage customers whose action alleges misleading
investment advice is almost certain to include “purchasers” or
“sellers” of the misrepresented securities.

       Plaintiff contends, however, that investment research is
not necessarily disseminated in connection with the purchase or
sale of securities, citing investors who “hold,” rather than

                               19
purchase or sell, the recommended securities.8 But this
argument fails in light of plaintiff’s complaint, which defines the
putative class as: “All persons who maintained a Salomon Smith
Barney retail brokerage account and who paid any charges[,]
commissions or fees to Salomon Smith Barney.” This broad
class definition is not limited to non-purchasers and non-sellers,
and it necessarily encompasses claims by Salomon Smith
Barney retail brokerage customers who purchased or sold the
misrepresented securities – claims that are squarely preempted
under SLUSA.

       Fourth, plaintiff seeks recovery of “any and all fees and
charges collected from Plaintiff and the Class,” as well as “all
available compensatory damages.” This prayer for relief
encompasses trading fees and commissions – charges incurred
only in connection with the purchase or sale of securities.

        Together, these factors connect plaintiff’s state law action
to the purchase or sale of securities, and bring it well within the
bounds of SLUSA. The complaint sets forth a scheme
“coinciding” with the purchase or sale of misrepresented
securities, and the broadly-defined putative class – comprised of
all Salomon Smith Barney retail brokerage customers seeking
recovery of any trading fees and commissions – necessarily
includes “purchasers” and “sellers” of the misrepresented

   8
    See generally Small v. Fritz Cos., 65 P.3d 1255 (Cal. 2003)
(recognizing securities fraud claims by “holders,” as distinct
from purchasers and sellers, under California law).

                                20
securities.9 Under the statutory language, inclusion of these

     9
       Because this putative class includes “purchasers” and
“sellers,” we need not address whether SLUSA preempts actions
comprised solely of non-purchasers and non-sellers. Several
courts have held SLUSA does not preempt class actions on
behalf of non-purchasers or non-sellers. See, e.g., Dabit, 2005
U.S. App. LEXIS 410, *50 (2d Cir. Jan. 11, 2005); Riley, 292
F.3d at 1345 (11th Cir. 2002); Green, 279 F.3d at 598 (8th Cir.
2002). This view finds support in Blue Chip Stamps v. Manor
Drug Stores, 421 U.S. 723, 733 n.5 (1975) (“the wording of §
10(b), making fraud in connection with the purchase or sale of
a security a violation of the Act, is surely badly strained when
construed to” encompass claims by non-purchasers and non-
sellers) (emphasis in original).
        On the other hand, Salomon Smith Barney directs our
attention to an amicus brief filed by the SEC in Dabit, 2005 U.S.
App. LEXIS 410. The SEC contends that Blue Chip Stamps
established a prudential rule of standing for private actions
under § 10(b) and Rule 10b-5, but not a limitation on the scope
of SLUSA preem ption. That is, the SEC views SLUSA as
broadly preempting state law securities fraud class actions,
including those on behalf of non-purchasers and non-sellers,
even if such claims are not actionable in federal court under §
10(b) and Rule 10b-5. This position finds support in, inter alia,
Holmes v. Securities Investor Protection Corporation, 503 U.S.
258, 284 (1992) (“The purchaser/seller standing limitations in
Rule 10b-5 damage actions . . . does not stem from a

                               21
preempted claims within the putative class compels dismissal of
the entire action. 15 U.S.C. § 78bb(f)(1) (requiring dismissal of
any covered “action” alleging “a misrepresentation or omission
of a material fact in connection with the purchase or sale of a
covered security”).

                                D.

        Green v. Ameritrade, Inc., 279 F.3d 590 (8th Cir. 2002),
on which plaintiff principally relies, is distinguishable. Decided
before the Supreme Court’s decision in Zandford, Green
involved breach of contract claims against Ameritrade, an online
broker. The plaintiffs alleged that Ameritrade had agreed to
provide its customers “real time” stock quotes for a flat monthly
fee, when in fact the quotes were not “real time.” The
customers sued for breach of contract, and the Court of Appeals
for the Eighth Circuit held the complaint could not “reasonably
be read as alleging” fraud in connection with the purchase or

construction of the phrase ‘in connection with the purchase or
sale of any security.’”) (O’Connor, J., concurring). But the
Court of Appeals for the Second Circuit rejected the SEC’s
interpretation, holding SLUSA preemption is limited to actions
by purchasers or sellers. Dabit, 2005 U.S. App. LEXIS 410,
*50.
       We need not explore this frontier of SLUSA. For the
reasons stated, we hold this particular class action alleges claims
by purchasers and sellers, and therefore arises “in connection”
with the purchase or sale of covered securities.

                                22
sale of securities. Id. at 598. Notably, the court considered the
plaintiffs’ theory of damages, which was limited to recovery of
the flat monthly account fees, in determining the action was not
sufficiently connected to the purchase or sale of securities to
warrant preemption. Id. at 599 n.7.

       But Green involved neither misleading investment
research nor a prayer for recovery of trading fees and
commissions. The plaintiffs in Green alleged Ameritrade
misrepresented its “real time” services, not the value of its
investment banking clients’ securities. And the Green plaintiffs
sought recovery of a flat monthly account fee, not “all fees and
charges collected from Plaintiff and the Class” (including
trading fees), as plaintiff seeks here. In short, Green does not
address the facts of this case. For the reasons stated, the
connection between the allegations here and the purchase or sale
of securities is substantially more direct.

        Furthermore, the authority of Green is undermined by
Zandford’s “broad” interpretation of the “in connection”
requirement, 535 U.S. at 819, and by subsequent decisions from
the Eighth Circuit. See Dudek, 295 F.3d 875 (8th Cir. 2002);
KPMG, 335 F.3d 800 (8th Cir. 2003). For example, Dudek
holds that SLUSA preemption applies where the “essence” of a
state law complaint is the misleading marketing of securities.
295 F.3d at 880. Similarly, KPMG holds SLUSA preempts
actions “implicitly” alleging a misrepresentation or omission in
connection with the purchase or sale of securities. 335 F.3d
23
803. Both cases were decided after Green and both, like
Zandford, employ a broad and flexible “in connection” analysis.

        Plaintiff also contends that as master of his own
complaint, he is entitled to plead around SLUSA. But SLUSA
stands as an express exception to the well-pleaded complaint
rule, and its preemptive force cannot be circumvented by artful
drafting. In this context – where Congress has expressly
preempted a particular class of state law claims – the question
is not whether a plaintiff pleads or omits certain key words or
legal theories, but rather whether a reasonable reading of the
complaint evidences allegations of “a misrepresentation or
omission of a material fact in connection with the purchase or
sale of a covered security.” 15 U.S.C. § 78bb(f)(1). Although
plaintiff scrupulously avoids pleading the words “purchase” or
“sale” of securities, a reasonable reading of the complaint,
informed by existing “in connection” doctrine, establishes that
the elements of SLUSA preemption are satisfied.10

  10
     We note that a majority of district courts addressing similar
state law claims involving “biased brokerage research” have
found them preempted by SLUSA. See, e.g., Cinicolo v.
Morgan Stanley Dean Witter & Co., 2004 U.S. Dist. LEXIS
24896 (S.D.N.Y. Dec. 9, 2004); Dacey v. Morgan Stanley Dean
Witter & Co., 263 F. Supp. 2d 706 (S.D.N.Y. 2003); Feitelberg
v. Merrill Lynch & Co, Inc., 234 F. Supp. 2d 1043 (N.D. Cal.
2002); McCullagh v. Merrill Lynch & Co., 2002 U.S. Dist.
LEXIS 3758 (S.D.N.Y. Mar. 6, 2002); Korsinsky v. Salomon

                               24
        On a motion to dismiss, we will draw all reasonable
inferences in favor of the plaintiff. In re Adams Golf, Inc. Sec.
Lit., 381 F.3d at 273. Even so, we hold that plaintiff alleges
material misrepresentations in connection with the purchase or
sale of securities. The complaint repeatedly alleges that
Salomon Smith Barney misrepresented the value of its
investment banking clients’ securities, it sets forth a broad class
definition encompassing purchasers and sellers, and it seeks
recovery of trading fees and commissions charged in connection
with the purchase or sale of securities.11 Accepting these factual
allegations as true, and evaluating them under SLUSA, we
conclude the putative class action is preempted.

Smith Barney, Inc., 2002 U.S. Dist. LEXIS 259 (S.D.N.Y. Jan.
10, 2002); Hardy v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 189 F. Supp. 2d 14 (S.D.N.Y. 2001). But see Norman v.
Salomon Smith Barney, Inc., 2004 U.S. Dist. LEXIS 10619
(S.D.N.Y. June 9, 2004); Gray v. Seaboard Securities, Inc., 241
F. Supp. 2d 213 (N.D.N.Y. 2003).
    11
      Although plaintiff’s theory of damages is one of several
factors connecting this action to the purchase or sale of
securities, we do not suggest that the absence of a prayer for
trading fees, commissions or investment losses alone would
necessarily defeat preemption. Plaintiffs cannot circumvent
SLUSA simply by failing to plead damages with specificity in
state court.

                                25
        Finally, plaintiff contends we should examine each count
in the complaint separately to determine whether it is preempted.
See Falkowski, 309 F.3d 1123 (9th Cir. 2002) (preempting state
law fraud counts but remanding breach of contract counts). As
an initial matter, we question whether preemption of certain
counts and remand of others is consistent with the plain meaning
of SLUSA. The statute does not preempt particular “claims” or
“counts” but rather preempts “actions,” 15 U.S.C. § 78bb(f)(1),
suggesting that if any claims alleged in a covered class action
are preempted, the entire action must be dismissed.12 But we
need not decide whether a count-by-count analysis is appropriate
in this case, because plaintiff has incorporated every allegation
into every count in his complaint. Our SLUSA analysis
therefore applies to each of plaintiff’s counts, and compels the
conclusion that each is preempted.

                        V. Conclusion

       For the reasons set forth, we will affirm the judgment of
the District Court.

  12
    We note that the District Court dismissed plaintiff’s claims
without prejudice.

                               26