U.S. Supreme Court Grants Certiorari To Address Federal Preemption Of State-Law Securities Claims

Securities litigation continues to be a hot topic at the U.S. Supreme Court. Since 2006, the Roberts Court has issued no fewer than eight opinions on important securities litigation issues. These decisions have altered the landscape of federal securities litigation, and securities class actions in particular. In the last few years, the Court has addressed the territorial reach of the federal securities laws, the statutory limits on claims against secondary actors, the requisite pleading standards for materiality and scienter, class certification standards, loss causation, and the statute of limitations.1

Two additional securities cases are pending in the current term. The first is Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, in which the Supreme Court will consider the proof required at the class certification stage.2 Amgen was argued in November, and an opinion will be forthcoming before the end of the term in June. And last month, the Court added another case to its docket.

On January 18, 2013, the Supreme Court granted a writ of certiorari to address the scope of the Securities Litigation Uniform Standards Act ("SLUSA"), which preempts certain securities class actions arising under state law. The Court will consider three related cases arising from the alleged Ponzi scheme of Allen Stanford. The cases are Chadbourne & Park LLP v. Troice, 12-79; Willis of Colorado Inc. v. Troice, 12-86; and Proskauer Rose LLP v. Troice, 12-88. (Disclosure: Mr. Foster is counsel for one of the petitioners at the Supreme Court.)

SLUSA prohibits state-law class actions alleging fraud "in connection with" the purchase or sale of "covered" securities (i.e., securities that are traded on a national exchange such as the NYSE). SLUSA was enacted in 1997 to prevent plaintiffs from circumventing the restrictions imposed under the federal securities laws by filing alternative claims in state court.

In the Stanford cases, the plaintiffs allege that they were misled into purchasing fraudulent CDs based, at least in part, on the representation that the CDs were backed by a portfolio of securities traded on major exchanges. Stanford is insolvent, and therefore the plaintiffs have targeted various third-party professionals—including Stanford's banks, clearing brokers, law firms, and insurers—accusing them of facilitating the alleged fraud.

Under federal law, private litigants are not permitted to bring "aiding and abetting" claims against third parties. The...