Court Opinion

ID: 4117683
Source: CourtListenerOpinion
Date Created: 2017-01-23 17:01:09.826791+00
Date Added: 2024-06-11T07:46:18.395968
License: Public Domain

In the

      United States Court of Appeals
                     For the Seventh Circuit
                          ____________________  
No.  13-­‐‑2609  
PATRICIA  HOLTZ,  et  al.,  
                                                          Plaintiffs-­‐‑Appellants,  
                                         v.  

JPMORGAN  CHASE  BANK,  N.A.,  et  al.,  
                                                         Defendants-­‐‑Appellees.  
                          ____________________  

            Appeal  from  the  United  States  District  Court  for  the  
              Northern  District  of  Illinois,  Eastern  Division.  
                No.  12  C  7080  —  John  W.  Darrah,  Judge.  
                          ____________________  

       ARGUED  APRIL  2,  2014  —  DECIDED  JANUARY  23,  2017  
                    ____________________  

    Before  EASTERBROOK,  MANION,  and  SYKES,  Circuit  Judges.  
    EASTERBROOK,  Circuit  Judge.  JPMorgan  Chase  Bank  offers  
to  manage  clients’  portfolios  of  securities.  Its  affiliates  spon-­‐‑
sor   mutual   funds   in   which   these   funds   can   be   placed.   We  
refer  to  JPMorgan  Chase  Bank  and  all  of  its  affiliates  collec-­‐‑
tively  as  “the  Bank.”  According  to  the  complaint  in  this  case,  
customers   invested   in   these   mutual   funds   believing   that,  
when   recommending   them   as   suitable   vehicles,   the   Bank  
acts   in   clients’   best   interests   (as   its   website   proclaims).   But  
2                                                                   No.  13-­‐‑2609  

Patricia  Holtz,  on  behalf  of  a  class  of  other  investors,  alleges  
that  the  Bank  gives  its  employees  incentives  to  place  clients’  
money   in   the   Bank’s   own   mutual   funds,   even   when   those  
funds   have   higher   fees   or   lower   returns   than   competing  
funds   sponsored   by   third   parties.   Holtz   maintains   that   the  
Bank  violated  its  promises  and  its  fiduciary  duties  by  induc-­‐‑
ing  its  investment  advisers  to  make  recommendations  in  the  
Bank’s  interest  rather  than  the  clients’.  
     Holtz  filed  this  suit  in  federal  court  under  the  Class  Ac-­‐‑
tion  Fairness  Act,  28  U.S.C.  §1332(d)(2),  because  the  class  has  
more  than  100  members,  the  stakes  exceed  $5  million,  and  at  
least  one  member  of  the  class  has  citizenship  different  from  
the   Bank’s.   This   suit   is   also   a   “covered   class   action”   for   the  
purpose   of   the   Securities   Litigation   Uniform   Standards   Act  
of  1998  (SLUSA  or  the  Litigation  Act),  15  U.S.C.  §78bb(f),  be-­‐‑
cause   mutual   funds   are   securities.   SLUSA   requires   the   dis-­‐‑
trict  court  to  dismiss  any  “covered  class  action”  in  which  the  
plaintiff  alleges  “a  misrepresentation  or  omission  of  a  mate-­‐‑
rial  fact  in  connection  with  the  purchase  or  sale  of  a  covered  
security”   (§78bb(f)(1)(A)).   Under   SLUSA,   securities   claims  
that  depend  on  the  nondisclosure  of  material  facts  must  pro-­‐‑
ceed   under   the   federal   securities   laws   exclusively.   See,   e.g.,  
Merrill  Lynch,  Pierce,  Fenner  &  Smith  Inc.  v.  Dabit,  547  U.S.  71  
(2006);   In   re   Mutual   Fund   Market-­‐‑Timing   Litigation,   468   F.3d  
439   (7th   Cir.   2006)   (Kircher   IV).   Holtz   does   not   want   to   in-­‐‑
voke  federal  law  and  framed  her  claims  entirely  under  state  
contract   and   fiduciary   principles.   But   the   district   court   con-­‐‑
cluded  that  these  claims  necessarily  rest  on  the  “omission  of  
a   material   fact”   and   dismissed   the   suit   under   SLUSA.   2013  
U.S.  Dist.  LEXIS  90066  (N.D.  Ill.  June  26,  2013).  
No.  13-­‐‑2609                                                                    3  

      Holtz   maintains   that   falsehoods   and   omissions   have  
nothing  to  do  with  her  claims.  She  tells  us  that  they  “are  not  
in  any  way  based  on,  dependent  upon,  or  necessarily  entan-­‐‑
gled  with  proof  that  [the  Bank]  made  any  false  statements  or  
omitted   to   disclose   material   information.   Rather,   [she]   as-­‐‑
sert[s]   simply   that   [the   Bank]   failed   to   provide   the   inde-­‐‑
pendent   research,   financial   advice,   and   due   diligence   re-­‐‑
quired   by   the   parties’   contract   and   their   fiduciary   relation-­‐‑
ship.”  The  district  court’s  problem  with  this  contention—our  
problem   too—is   that   the   suit   depends   on   Holtz’s   assertion  
that  the  Bank  concealed  the  incentives  it  gave  its  employees.  
If   it   had   told   customers   that   its   investment   advisors   were  
compensated  more  for  selling  the  Bank’s  mutual  funds  than  
for  selling  third-­‐‑party  funds,  plaintiffs  would  have  no  claim  
under  either  state  or  federal  law.  This  means  that  nondisclo-­‐‑
sure   is   a   linchpin   of   this   suit   no   matter   how   Holtz   chose   to  
frame  the  pleadings.  
     We  grant  that  the  complaint  omits  any  allegation  of  scien-­‐‑
ter,   which   is   essential   in   private   securities-­‐‑fraud   litigation.  
See   Tellabs,   Inc.   v.   Makor   Issues   &   Rights,   Ltd.,   551   U.S.   308  
(2007);  Ernst  &  Ernst  v.  Hochfelder,  425  U.S.  185  (1976).  Yet  the  
Litigation  Act  does  not  ask  what  state-­‐‑law  theory  a  plaintiff  
invokes.   The   statutory   question   is   whether   plaintiff   alleges  
“a   misrepresentation   or   omission   of   a   material   fact   in   con-­‐‑
nection   with   the   purchase   or   sale   of   a   covered   security”  
(§78bb(f)(1)(A)).   Whether   the   complaint   pleads   a   particular  
state  of  mind  is  neither  here  nor  there—a  point  we  made  in  
Brown  v.  Calamos,  664  F.3d  123,  126–27  (7th  Cir.  2011),  when  
holding   that   an   investor   cannot   avoid   the   Litigation   Act   by  
omitting   an   allegation   of   scienter   and   attempting   to   frame  
common-­‐‑law  claims  under  state  law.  Every  other  circuit  that  
has  addressed  the  question  likewise  has  held  that  a  plaintiff  
4                                                                 No.  13-­‐‑2609  

cannot  sidestep  SLUSA  by  omitting  allegations  of  scienter  or  
reliance.   See   Miller   v.   Nationwide   Life   Insurance   Co.,   391   F.3d  
698,  701–02  (5th  Cir.  2004);  Atkinson  v.  Morgan  Asset  Manage-­‐‑
ment,  Inc.,  658  F.3d  549  (6th  Cir.  2011);  Dudek  v.  Prudential  Se-­‐‑
curities,  Inc.,  295  F.3d  875,  879–80  (8th  Cir.  2002);  Anderson  v.  
Merrill  Lynch,  Pierce,  Fenner  &  Smith,  Inc.,  521  F.3d  1278,  1284  
(10th  Cir.  2008).  
      Dabit   concluded   that   the   Litigation   Act   is   designed   to  
prevent   persons   injured   by   securities   transactions   from   en-­‐‑
gaging   in   artful   pleading   or   forum   shopping   in   order   to  
evade   limits   on   securities   litigation   that   are   designed   to  
block   frivolous   or   abusive   suits.   See   547   U.S.   at   81–84.   See  
also  Appert  v.  Morgan  Stanley  Dean  Witter,  Inc.,  673  F.3d  609,  
615  (7th  Cir.  2012).  Private  class-­‐‑action  litigation  about  secu-­‐‑
rities   transactions   must   be   conducted   under   federal   securi-­‐‑
ties   law,   so   that   limits   adopted   by   Congress,   or   recognized  
by  the  Supreme  Court,  can  be  applied.  Allowing  plaintiffs  to  
avoid  the  Litigation  Act  by  contending  that  they  have  “con-­‐‑
tract”  claims  about  securities,  rather  than  “securities”  claims,  
would   render   the   Litigation   Act   ineffectual,   because   almost  
all   federal   securities   suits   could   be   recharacterized   as   con-­‐‑
tract  suits  about  the  securities  involved.  
    Federal  law  often  permits  genuine  contract  claims  to  sur-­‐‑
vive  preemption.  So,  for  example,  a  contract  requiring  an  in-­‐‑
vestment   manager   to   keep   funds   in   an   interest-­‐‑bearing   ac-­‐‑
count  pending  the  purchase  of  new  securities  could  proceed  
under  state  law—if  the  manager  by  error  failed  to  invest  the  
money   properly,   or   if   a   decision   to   break   the   promise   oc-­‐‑
curred  after  the  promise  had  been  made  and  the  money  in-­‐‑
vested.  (The  significance  of  these  qualifications  will  become  
clear  later  on.)  But  Holtz  has  not  alleged  that  the  Bank  creat-­‐‑
No.  13-­‐‑2609                                                                    5  

ed  the  hidden  conflict  of  interest  only  after  she  had  invested  
her  money.  
    The  possibility  that  plain  vanilla  contract  claims  can  pro-­‐‑
ceed   under   state   law   creates   an   incentive   to   characterize   all  
securities   claims   as   “contract”   suits   and   avoid   federal  
preemption.  Here’s  an  example  drawn  from  the  Airline  De-­‐‑
regulation   Act,   which   preempts   suits   under   state   law   that  
concern   the   price   or   quality   of   air   service,   see   49   U.S.C.  
§41713,  but  permits  suits  that  rest  on  contracts.  That  sets  up  
an  opportunity  for  artful  pleading.  The  plaintiff  in  Northwest,  
Inc.   v.   Ginsberg,   134   S.   Ct.   1422   (2014),   conceded   that   when  
excluding   him   from   its   frequent-­‐‑flyer   program   the   airline  
had   followed   the   letter   of   its   contract   but   contended   that   it  
had  nonetheless  not  engaged  in  good  faith  and  fair  dealing.  
The   Court   recognized   that   good   faith   and   fair   dealing   is   a  
longstanding   doctrine   of   state   contract   law   but   held   that   it  
does  not  constitute  a  “contract”  claim  for  the  purpose  of  the  
Airline   Deregulation   Act.   The   Justices   held   that   a   claim   “is  
pre-­‐‑empted   if   it   seeks   to   enlarge   the   contractual   obligations  
that   the   parties   voluntarily   adopt.”   Id.   at   1426.   If   the   state-­‐‑
law  duty  is  independent  of  the  contract’s  terms,  then  it  does  
not  rest  on  contract.  
      Much   the   same   can   be   said   about   Holtz’s   claims.   She  
does   not   point   to   any   explicit   term   that   the   Bank   violated;  
instead   she   relies   (as   Ginsberg   did)   on   a   state-­‐‑law   duty   to  
treat   the   other   party   fairly.   That’s   what   a   fiduciary   claim   is  
all   about.   Indeed,   Holtz   contends   that   it   is   not   even   possible  
under   state   law   to   contract   out   of   this   duty—that   is   why  
Holtz   submits   that   the   Bank   could   not   have   reserved   the  
right   to   favor   its   own   interests   over   those   of   investors   (at  
least   not   without   explicit   disclosure).   Holtz   uses   this   sup-­‐‑
6                                                                  No.  13-­‐‑2609  

posed   non-­‐‑negotiable   fiduciary   duty   to   show   why,   in   her  
view,   the   suit   does   not   depend   on   nondisclosure.   But   if   the  
duty   is   non-­‐‑negotiable,   then   under   Northwest   it   is   also   non-­‐‑
contractual.  
     In  Dabit,  as  in  this  case,  the  plaintiff  tried  to  recharacter-­‐‑
ize   as   a   state-­‐‑law   contract   claim   a   situation   that   securities  
law   sees   as   a   nondisclosure   claim.   A   mutual   fund   issued   a  
prospectus   asserting   that   the   fund   was   operated   in   a   way  
that  held  down  transactions  costs.  Plaintiffs  alleged  that  the  
fund  broke  this  promise  by  secretly  allowing  some  investors  
to   make   short-­‐‑swing   trades   in   order   to   take   advantage   of  
price  differences  between  the  closing  price  in  one  nation  and  
the  price  elsewhere,  where  stock  exchanges  closed  at  differ-­‐‑
ent   times.   Allowing   short-­‐‑swing   trades   not   only   increased  
transactions   costs   but   also   diverted   wealth   from   long-­‐‑term  
holders   to   the   arbitrageurs.   Plaintiffs   maintained   that   they  
had   contract   claims,   based   on   promises   in   the   prospectus  
and   other   documents   the   fund   had   issued;   the   Supreme  
Court   held,   however,   that   because   claims   based   on   false  
statements   in   (or   material   omissions   from)   a   prospectus   are  
in  connection  with  securities  covered  by  federal  law,  it  does  
not  matter  what  state-­‐‑law  characterization  might  be  possible.  
(Kircher   v.   Putnam   Funds   Trust,   403   F.3d   478   (7th   Cir.   2005)  
(Kircher  I),  explains  the  nature  of  the  claim  in  Dabit  more  ful-­‐‑
ly  than  the  Justices  did.  In  Dabit  the  Supreme  Court  express-­‐‑
ly  agreed  with  this  circuit,  547  U.S.  at  74,  86,  and  rejected  the  
contrary  view  of  the  Second  Circuit—though  later  it  vacated  
Kircher  I  after  concluding  that  this  court  had  lacked  appellate  
jurisdiction.  547  U.S.  633  (2006)  (Kircher  III).)  
     The   sort   of   situation   we   encounter—in   which   one   party  
to  a  contract  conceals  the  fact  that  it  planned  all  along  to  fa-­‐‑
No.  13-­‐‑2609                                                                    7  

vor   its   own   interests—is   a   staple   of   federal   securities   law.  
When   one   side   in   Wharf   (Holdings)   Ltd.   v.   United   Int’l   Hold-­‐‑
ings,  Inc.,  532  U.S.  588  (2001),  contended  that  a  suit  alleging  a  
broken   promise   was   a   simple   contract   claim,   the   Supreme  
Court  replied  that  making  a  promise  with  intent  not  to  keep  
it  is  fraud,  and  that  when  the  subject  of  the  contract  is  a  se-­‐‑
curity  the  claim  involves  securities  fraud.  The  link  to  securi-­‐‑
ties   law   is   equally   strong   for   Holtz’s   contention   that   the  
Bank  promised  to  recommend  investments  in  her  best  inter-­‐‑
est,   while   intending   all   along   to   make   recommendations   in  
its  own  interest.  We  observed  above  that  Holtz  would  have  a  
contract   claim   free   of   a   securities   component   if   she   alleged  
that   the   Bank   broke   its   promise   by   mistake,   or   if   the   Bank  
created  the  incentive  to  favor  its  own  mutual  funds  only  af-­‐‑
ter  she  had  invested  her  money  (which  would  take  Wharf  out  
of  the  picture).  But  she  does  not  make  either  allegation.  
      A  fiduciary  that  makes  a  securities  trade  without  disclos-­‐‑
ing  a  conflict  of  interest  violates  federal  securities  law.  See  In  
re   E.F.   Hutton   &   Co.,   49   S.E.C.   829   (1988)   (the   several   opin-­‐‑
ions   in   that   decision   collect   many   of   the   important   deci-­‐‑
sions).  Likewise  a  broker-­‐‑dealer  that  fails  to  achieve  best  ex-­‐‑
ecution  for  a  customer  by  arranging  a  trade  whose  terms  fa-­‐‑
vor  the  dealer  rather  than  the  client  has  a  securities  problem,  
not   just   a   state-­‐‑law   contract   or   fiduciary-­‐‑duty   problem.   See  
Newton  v.  Merrill  Lynch,  Pierce,  Fenner  &  Smith,  Inc.,  135  F.3d  
266  (3d  Cir.  1998)  (en  banc).  A  broker-­‐‑dealer  that  churns  se-­‐‑
curities   (makes   trades   to   generate   commissions   rather   than  
extra  value  for  the  customer)  likewise  has  a  securities  prob-­‐‑
lem   in   addition   to   a   state-­‐‑law   contract   and   fiduciary   duty  
problem.  See  Costello  v.  Oppenheimer  &  Co.,  711  F.2d  1361  (7th  
Cir.  1983).  Or  consider  United  States  v.  Naftalin,  441  U.S.  768  
(1979):   a   short   seller   assured   the   broker   that   he   owned  
8                                                                  No.  13-­‐‑2609  

enough  shares  to  deliver,  but  he  did  not  and  the  sale  there-­‐‑
fore  was  a  “naked  short”;  his  lie  was  a  breach  of  contract  as  
well   as   fraud,   and   the   Supreme   Court   held   that   it   violated  
the  Securities  Act  of  1934.  
     E.F.  Hutton  in  particular  shows  that  Holtz  has  a  securities  
claim   based   on   the   Bank’s   (asserted)   failure   to   disclose   the  
conflict  under  which  its  employees  were  operating.  Our  de-­‐‑
cision   in   Brown   v.   Calamos   reiterates   the   point.   Plaintiffs   al-­‐‑
leged  that  managers  of  an  investment  fund  pooled  assets  in  
a  way  that  favored  holders  of  preferred  stock  over  holders  of  
common  stock.  They  presented  this  as  a  contract  and  fiduci-­‐‑
ary  claim—which  it  was—but  we  thought  that  it  was  also  a  
securities  claim  because  it  depended  on  nondisclosure  of  the  
procedures  said  to  create  the  conflict.  A  statement  along  the  
lines  of  “we  will  act  in  your  best  interest”  plus  nondisclosure  
of  a  competing  private  interest  is  the  basis  of  many  securities  
actions.   It   is   hard   to   see   much   difference   between   Holtz’s  
theory  and  Brown’s.  After  the  Litigation  Act,  a  plaintiff  can-­‐‑
not   proceed   by   omitting   the   securities   theory   and   standing  
on   state   law   in   the   sort   of   circumstances   discussed   in   the  
preceding  paragraph.  
     At   oral   argument,   Holtz’s   lawyer   told   us   that   no   sane  
person   would   have   invested   through   the   Bank   had   it   re-­‐‑
vealed  a  bias  for  its  own  mutual  funds—indeed,  that  the  se-­‐‑
cret  information  contradicted  the  promise  to  act  in  investors’  
interest,  and  that  the  Bank  never  intended  to  keep  its  prom-­‐‑
ise.   All   of   this   just   brings   the   suit   squarely   within   Wharf,  
which,  recall,  held  that  a  concealed  plan  not  to  keep  a  prom-­‐‑
ise  about  a  securities  transaction  is  securities  fraud.  Indeed,  
in  Brown  we  rejected  an  argument  that  a  plaintiff  can  avoid  
SLUSA   by   contending   that   no   sane   investor   would   have  
No.  13-­‐‑2609                                                                 9  

purchased  the  security  (or  the  investment  advice)  if  the  truth  
had  been  told,  and  that  the  suit  therefore  must  be  about  sub-­‐‑
stance  rather  than  disclosure.  664  F.3d  at  129.  
     Holtz  has  not  pointed  to  any  nondisclosure  or  fiduciary-­‐‑
duty   claim   concerning   investments   in   securities,   traded   in  
interstate   commerce,   that   is   outside   the   scope   of   federal   se-­‐‑
curities  law.  Sometimes  a  plaintiff  will  be  unable  to  show  a  
material  lie  or  omission,  intent  to  deceive,  or  the  existence  of  
a  purchase  or  sale,  and  thus  will  not  have  a  winning  federal  
securities   claim   (even   though   he   might   have   a   good   claim  
under  state  law),  but  Dabit  holds  that  SLUSA  applies  wheth-­‐‑
er   or   not   a   federal   securities   theory   would   succeed.   Holtz’s  
decision   not   to   plead   scienter   means   that   she   could   not   pre-­‐‑
vail   under   federal   securities   law,   but   as   Dabit   observes   the  
Litigation   Act   would   be   ineffectual   if   it   covered   only   win-­‐‑
ning   securities   claims.   To   protect   defendants   from   weak   or  
abusive   claims   of   wrongdoing   in   connection   with   securities  
transactions,  it  is  essential  to  block  those  that  fail  under  fed-­‐‑
eral  law  as  well  as  those  that  could  succeed.  
     Holtz  has  one  more  argument:  that  the  Bank’s  omissions  
did  not  occur  “in  connection  with”  the  purchase  or  sale  of  a  
covered  security.  The  Litigation  Act  deals  only  with  fraud  or  
omissions  in  connection  with  covered  securities.  This  branch  
of   Holtz’s   argument   rests   on   Gavin   v.   AT&T   Corp.,   464   F.3d  
634  (7th  Cir.  2006),  which  holds  that  the  Litigation  Act  does  
not  block  a  suit  concerning  the  terms  on  which  shares  of  one  
company   were   exchanged   for   shares   of   another   following   a  
merger.  AT&T  acquired  MediaOne  in  June  2000  and  needed  
to  issue  new  AT&T  shares  to  persons  who  had  held  stock  in  
MediaOne.   Communications   offered   those   investors   several  
options  for  conducting  the  exchange.  Worried  that  investors  
10                                                                No.  13-­‐‑2609  

who  ignored  these  communications  might  find  their  invest-­‐‑
ments  subject  to  escheat,  AT&T  hired  Georgeson  Sharehold-­‐‑
er   Communications   six   months   after   the   merger   closed   and  
told   Georgeson   to   do   what   it   could   to   get   investors   to   take  
the  necessary  steps.  Georgeson  sent  letters  that  the  plaintiffs  
later   characterized   as   fraudulent   for   omitting   the   fact   that,  
even   long   after   the   merger,   people   holding   shares   of   Me-­‐‑
diaOne  stock  had  one  option  that  did  not  require  payment  of  
a  fee  for  conducting  the  exchange.  
     As  we  saw  matters  in  Gavin,  the  purchase  or  sale  of  secu-­‐‑
rities  was  the  merger  in  June  2000,  not  the  ensuing  swaps  of  
certificates,   so   Georgeson’s   letter   was   not   “in   connection  
with”   the   sale   of   a   covered   security.   Gavin   does   not   assist  
Holtz,  because  the  Bank’s  omission  was  made  in  connection  
with  an  impending  investment  decision  (into  which  mutual  
fund  would  Holtz  invest)  rather  than  with  a  record-­‐‑keeping  
decision.   The   Supreme   Court   held   in   Dabit   that   a   decision  
not  to  sell  a  security  (when  influenced  by  a  material  misrep-­‐‑
resentation   or   omission)   is   “in   connection   with”   a   purchase  
or  sale  of  that  security;  the  link  between  the  secret  fees  to  the  
Bank’s  employees  and  the  choice  of  mutual  funds  is  tighter  
than   the   link   between   the   nondisclosure   and   non-­‐‑sale   in  
Dabit.  
    That  some  of  the  investment  decisions  were  made  by  in-­‐‑
vestment  advisers  as  Holtz’s  agent  does  not  take  this  out  of  
the  “in  connection  with”  domain—otherwise  suitability  and  
churning   could   not   be   a   securities   theory.   SEC   v.   Zandford,  
535   U.S.   813   (2002),   holds   that   the   “in   connection   with”   re-­‐‑
quirement   is   satisfied   when   a   broker   makes   a   purchase   or  
sale  as  an  investor’s  agent.  That’s  equally  true  of  transactions  
that  the  Bank  made  as  Holtz’s  agent.  
No.  13-­‐‑2609                                                                  11  

     The   Litigation   Act   does   allow   state-­‐‑law   claims   in   which  
the   misrepresentations   or   omissions   are   not   “material,”   see  
Appert,  673  F.3d  at  616–17,  but  Holtz  has  not  argued  that  the  
Bank’s  incentives  to  its  employees  were  too  small  to  be  “ma-­‐‑
terial”   under   the   standard   of   Matrixx   Initiatives,   Inc.   v.   Sira-­‐‑
cusano,  563  U.S.  27  (2011),  and  its  predecessors.  An  omission  
is  “material”  when  a  reasonable  investor  would  deem  it  sig-­‐‑
nificant   to   an   investment   decision.   Holtz   herself   deems   the  
Bank’s  incentives  material  to  investments;  that’s  the  basis  of  
this  suit.  
     If  she  wants  to  pursue  a  contract  or  fiduciary-­‐‑duty  claim  
under   state   law,   she   has   only   to   proceed   in   the   usual   way:  
one  litigant  against  another.  The  Litigation  Act  is  limited  to  
“covered   class   actions,”   which   means   that   Holtz   could   liti-­‐‑
gate  for  herself  and  as  many  as  49  other  customers.  15  U.S.C.  
§78bb(f)(5)(B)(i)(I).   What   she   can’t   do   is   litigate   as   repre-­‐‑
sentative  of  50  or  more  other  persons  when  the  suit  involves  
“a   misrepresentation   or   omission   of   a   material   fact   in   con-­‐‑
nection   with   the   purchase   or   sale   of   a   covered   security”.   If  
the   Bank   did   wrong   by   its   customers,   the   SEC   could   file   its  
own  suit  (or  open  an  administrative  proceeding)  without  re-­‐‑
gard  to  the  Litigation  Act—and  the  Commission  sometimes  
can  obtain  relief  without  showing  scienter.  See  Aaron  v.  SEC,  
446   U.S.   680   (1980).   What’s   more,   states   and   their   subdivi-­‐‑
sions   can   litigate   in   state   court;   the   Litigation   Act   exempts  
them.  15  U.S.C.  §78bb(f)(3)(B).  Thus  there  are  plenty  of  ways  
to   bring   wrongdoers   to   account—but   a   class   action   that  
springs   from   lies   or   material   omissions   in   connection   with  
federally  regulated  securities  is  not  among  them.  
                                                                      AFFIRMED