The Securities Litigation Uniform Standards Act of 1998 (SLUSA) provides a strong but underused defense to securities class actions brought under state laws. Generally speaking, SLUSA bars plaintiffs from bringing state law class claims arising from misrepresentations made in connection with the sale or purchase of securities. Given this standard, defense lawyers understandably may hesitate to raise this defense because prevailing on such a defense would likely invite a federal securities class action. Federal securities law, however, is often more advantageous to defendants than common law claims arising under state law. Thus, as discussed below, in most cases, this reluctance in unwarranted.
Last year, the Supreme Court held, in Chadbourne & Parke, LLC v. Troice, that SLUSA did not preclude plaintiffs' state law class actions claims arising from the Stanford Ponzi scheme because the claims did not involve covered securities. Legal commentators were quick to conclude that SLUSA would be more narrowly constructed by the courts after Chadbourne. To the contrary, however, SLUSA is still a far-reaching statute. Indeed, several recent decisions from the Second Circuit demonstrate this point.
This article discusses what SLUSA does, how the Supreme Court constructed SLUSA in Chadbourne, and why SLUSA continues to provide a powerful defense in a broad spectrum of cases involving investment products. Defense litigators should familiarize themselves with SLUSA and carefully consider its application when initially assessing defenses to a class action. By successfully dismissing class claims under SLUSA at an early dispositive stage, defense lawyers can save their clients the significant expenses associated with defending a class action.
The complete article, "An Underused Defense to State Law Class Actions – SLUSA Remains Viable Even After Chadbourne-Park v. Troice," first appeared in For the Defense in July 2015.