Atkinson v. Morgan Asset Management, Inc.
658 F.3d 549
6th Cir.2011Background
- Plaintiffs are mutual-fund shareholders of Morgan Keegan Select Fund, Inc. open-end funds who filed a state-law class action alleging fraud-based claims.
- Defendants include fund advisers, officers, directors, distributor, auditor, and affiliated trust company.
- Plaintiffs allegedDefendants engaged in mismanagement by taking unjustified asset risks and concealed these risks, causing redemptions to occur after losses.
- The state action included thirteen claims: breach of contract, violations of the Maryland Securities Act, breach of fiduciary duty, negligence, and negligent misrepresentation.
- Defendants removed the action to federal court under SLUSA, which bars certain state-law fraud-based securities class actions.
- The district court denied remand and dismissed the claims with prejudice as precluded by SLUSA; plaintiffs challenged this ruling on carve-out, claim-specific fraud, and dismissal-with-prejudice grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the first Delaware carve-out applies | Holders fall within carve-out for purchases/sales via issuer contracts. | Carve-out does not extend to holder claims lacking actual purchase/sale. | Carve-out does not extend to holder claims; SLUSA applies. |
| Whether nine claims lack a fraud-based element | Claims do not require fraud as an element; fraud allegations are background. | Fraud allegations permeate the claims; SLUSA bars them. | All claims include allegations of fraud; SLUSA precludes them. |
| Whether dismissal with prejudice was proper or amendable | Amendment could salvage the case; dismissal should be without prejudice or with opportunity to amend. | Amendment futile; SLUSA requires dismissal where fraud is present and class action is covered. | Dismissal with prejudice affirmed; amendment futile; no abuse of discretion. |
Key Cases Cited
- Segal v. Fifth Third Bank, N.A., 581 F.3d 305 (6th Cir. 2009) (holds that SLUSA precludes actions with covered allegations and governs whether amendment can avoid preclusion)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (Supreme Court 2006) (articulates that preclusion under SLUSA is jurisdictional and that dismissal may follow if action is precluded)
- Dabit v. Merrill Lynch, Pierce, Fenner & Smith Inc., 547 U.S. 71 (Supreme Court 2006) (explains scope of SLUSA’s 'in connection with' language and holder claims)
- CNH Am. LLC v. UAW, 645 F.3d 785 (6th Cir. 2011) (discusses dismissal standards related to SLUSA and futility of amendment)
- Inge v. Rock Fin. Corp., 281 F.3d 613 (6th Cir. 2002) (articulates standard for reviewing futility in leave-to-amend context)