Brown v. Calamos
777 F. Supp. 2d 1128
N.D. Ill.2011Background
- Plaintiff sues on behalf of common shareholders of the Calamos Fund alleging fiduciary breaches and unjust enrichment related to redeeming AMPS.
- Fund issued perpetual AMPS and common shares; AMPS provided leveraged financing advantages to common shareholders.
- Defendants redeemed all AMPS between June 2008 and August 2009 and replaced them with less favorable financing.
- Plaintiff contends there was no valid business reason to redeem the AMPS and that redemptions harmed common shareholders to preserve relationships with banks/brokers.
- SLUSA removal was based on the claim being a covered class action with state-law claims involving covered securities and alleged misrepresentations/omissions.
- Court denies remand and grants dismissal, holding SLUSA preempts state-law claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does SLUSA preempt the action as a covered class action involving misrepresentations? | Brown argues SLUSA does not apply because there is no misrepresentation in connection with a security purchase/sale. | Calamos argues the complaint contains covered misrepresentations and omissions in connection with AMPS. | Yes; SLUSA preempts the claim as to misrepresentations/omissions in connection with a covered security. |
| Are plaintiffs claims anchored to misrepresentations or omissions in connection with a sale/purchase of a covered security? | Brown asserts the claims lack misrepresentation elements tied to a sale/purchase. | Defendants contend the misrepresentations and disclosures concern AMPS and their perpetual nature. | Yes; the complaint plainly includes covered misrepresentations and omissions. |
| Do undisclosed conflicts of interest render the state-law claims preempted by SLUSA? | Brown contends conflicts of interest were not material misrepresentations. | Defendants argue undisclosed conflicts are a fraudulent omission under federal securities laws. | Yes; undisclosed conflicts support preemption under SLUSA. |
Key Cases Cited
- Dabit v. Merrill Lynch, Pierce, Fenner & Smith Inc., 547 U.S. 71 (U.S. 2006) (broadly construes 'in connection with' to cover holders, not just buyers/sellers)
- Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005) (SLUSA focus on substance; form does not control dismissal)
- Segal v. Fifth Third Bank, N.A., 581 F.3d 305 (6th Cir. 2009) (expansive interpretation of SLUSA preemption)
- Kutten v. Bank of America, N.A., 530 F.3d 669 (8th Cir. 2008) (dismissals under SLUSA where state-law claims mirror federal 'covered concepts')