929 F.3d 1046
9th Cir.2019Background
- Plaintiff Lindie Banks (and daughter) is beneficiary of an irrevocable California trust; Northern Trust is the trustee with exclusive discretion over investments.
- Banks alleged Northern self-dealt by investing trust assets in Northern-affiliated funds (inferior returns) and charged improper/excessive tax-preparation and other fees, breaching fiduciary duties.
- Banks filed a putative class action asserting state-law fiduciary duty, elder-abuse, and unfair-competition claims.
- Northern moved to dismiss, arguing SLUSA deprives federal jurisdiction over these state-law class claims; the district court agreed and dismissed without leave to amend.
- The Ninth Circuit reviews de novo and holds SLUSA does not preclude Banks’ claims; it reverses and remands the dismissal of the investment, fee, elder-abuse, and corporate-parent claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA precludes trustee fiduciary-duty class claims alleging imprudent investments | Banks: Beneficiaries of an irrevocable trust cannot buy/sell trust securities, so trustee misconduct is not "in connection with" purchasers/sellers other than the trustee | Northern: Trustee’s purchase of covered securities in affiliated funds is "in connection with" purchases/sales of covered securities and thus SLUSA bars the class claims | Held: SLUSA does not preclude these claims—Troice controls: if only the trustee (the alleged fraudster) buys/sells, there is no actionable "in connection with" by SLUSA |
| Whether SLUSA precludes fee-related claims (tax-prep and overcharge fees) | Banks: Fee claims are not plausibly tied to covered securities transactions and thus not "in connection with" securities purchases/sales | Northern: Fee claims are intertwined with investment claims and thus precluded by SLUSA | Held: Fee claims are not precluded by SLUSA and survive the preclusion challenge |
| Whether fee claims were sufficiently pleaded under Rule 12(b)(6) | Banks: FAC alleges specific fees, practice of converting routine services into separate charges, lack of records, and overcharging—plausible breach of trust | Northern: Allegations are conclusory and fees were reasonable | Held: FAC’s allegations satisfy Twombly plausibility for the fee-related claims |
| Whether elder-abuse and claims against corporate parent survive | Banks: District court dismissed these solely on SLUSA grounds; if SLUSA inapplicable, these should stand | Northern: (Implicit) SLUSA preclusion or other defects justify dismissal | Held: Reversed dismissal; elder-abuse and NT Corp. claims not precluded by SLUSA and dismissal reversed |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006) (broad interpretation of SLUSA’s "in connection with" to prevent end-running of PSLRA)
- Chadbourne & Parke LLP v. Troice, 571 U.S. 377 (2014) (SLUSA requires misrepresentations be material to another party’s decision to buy/sell a covered security; no preclusion if only the fraudster buys/sells)
- S.E.C. v. Zandford, 535 U.S. 813 (2002) (broker exercised discretionary trading powers; relevant to agent-principal control analysis under securities law)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (materiality: reasonable investor standard for omissions/misrepresentations)
- Freeman Invs., L.P. v. Pac. Life Ins. Co., 704 F.3d 1110 (9th Cir. 2013) (substance/gravamen of allegations govern SLUSA analysis; courts must look beyond artful pleading)
- Segal v. Fifth Third Bank, N.A., 581 F.3d 305 (6th Cir. 2009) (pre-Troice holding that trustee investment claims were SLUSA-precluded)
- Siepel v. Bank of Am., N.A., 526 F.3d 1122 (8th Cir. 2008) (pre-Troice decision holding SLUSA precluded trust beneficiaries’ claims)
- Fleming v. Charles Schwab Corp., 878 F.3d 1146 (9th Cir. 2017) (SLUSA requires more than a tangential relation to securities transactions; distinguishes agent contexts)
- Taksir v. Vanguard Grp., 903 F.3d 95 (3d Cir. 2018) (fee/overcharge claims against broker not barred by SLUSA when not materially tied to securities transactions)