Hampton v. Pacific Investment Management Co.
146 F. Supp. 3d 1207
C.D. Cal.2015Background
- Plaintiff William Hampton (and class) purchased shares of PIMCO Total Return Fund between April 1 and Sept. 12, 2014 and alleges losses from the Fund exceeding a self-imposed limit on investments tied to emerging markets (the 15% "Cap").
- Fund prospectuses (since at least 2012) stated the Fund "may invest up to 15%" of assets in instruments tied to emerging markets; plaintiff alleges exposures reached ~21–23% in 2014.
- In Sept. 2014 the Fund amended its policy to relax the Cap for certain short‑term, local‑currency sovereign debt; the FAC alleges earlier representations that the Cap would not be exceeded were misleading and caused investor losses.
- Original complaint pleaded a federal 10b‑5 claim; the First Amended Complaint dropped 10b‑5 and asserted state‑law claims: breach of contract, breach of trust, breach of the covenant of good faith and fair dealing, and aiding and abetting.
- Defendants moved to dismiss, arguing SLUSA bars these state‑law class claims because they are premised on alleged misrepresentations "in connection with" the purchase or sale of covered securities; court granted dismissal with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FAC alleges a "misrepresentation, omission, or manipulative or deceptive device" under SLUSA | Hampton: claims are state‑law causes of action, not alleging misrepresentation | Defs: claims rest on alleged prospectus representations that the Fund would not exceed the Cap — classic misrepresentation | Held: Claims are premised on misrepresentations; SLUSA misrepresentation criterion met |
| Whether the alleged misconduct occurred "in connection with the purchase or sale" of a covered security | Hampton: claims concern contract/ trust duties, not securities transactions | Defs: prospectus statements relate directly to marketing/sale of Fund shares; plaintiff bought shares and alleges purchase losses | Held: "In connection with" satisfied — prospectus and purchases create the required connection |
| Whether the Delaware carve‑out (state‑law carve‑out) saves the claims | Hampton: suit concerns shareholder voting/decisions about the Cap change and thus fits carve‑out | Defs: no shareholder vote occurred and claims are not about influencing a vote | Held: Carve‑out inapplicable — second prong requires a voting/contextual tie (e.g., communications to influence a vote), which is absent |
| Relief — whether dismissal should be with leave to amend | Hampton: (implicitly) could replead to avoid SLUSA | Defs: fatal pleading defect because claims rest on same misrepresentations | Held: Dismissal with prejudice; amendment would be futile |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (Sup. Ct.) (SLUSA enacted to channel securities class actions into federal court and prevent state‑law end‑runs around PSLRA)
- Freeman Investments, L.P. v. Pacific Life Ins. Co., 704 F.3d 1110 (9th Cir.) (misrepresentation requirement for SLUSA; contract claims not precluded only when resolution depends on contract interpretation rather than proof of deception)
- Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208 (9th Cir.) (state‑law claims precluded where misrepresentation allegations serve as factual predicate)
- Northstar Financial Advisors Inc. v. Schwab Investments, 779 F.3d 1036 (9th Cir.) (similar mutual‑fund investment‑objective allegations held SLUSA‑precluded; discussed Delaware carve‑out and "in connection with" analysis)
- SEC v. Zandford, 535 U.S. 813 (Sup. Ct.) (instructs courts to construe "in connection with" broadly in securities fraud contexts)
- Ashcroft v. Iqbal, 556 U.S. 662 (Sup. Ct.) (pleading standard — courts need not accept legal conclusions)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Sup. Ct.) (plausibility pleading standard)