Miller v. Moore Stephens Wurth Frazer and Torbett, LLP
3:15-cv-00400
D. Nev.Jan 25, 2016Background
- This is a shareholder derivative action originally filed in Nevada state court on behalf of RINO International Corp.; plaintiffs later added direct claims by assignment from RINO.
- The Third Amended Complaint asserts: (1) professional negligence, (2) breach of contract (both direct claims), and (3) a derivative class claim for aiding and abetting breaches of fiduciary duty against former auditors Moore Stephens Wurth Frazer & Torbet, LLP and Frazer Frost, LLP.
- Plaintiffs seek class certification for the third claim on behalf of all RINO shareholders who held stock after delisting, alleging loss in stock value caused by defendants’ audit failures and undisclosed SEC filing deficiencies.
- Defendants removed to federal court invoking SLUSA removal jurisdiction (15 U.S.C. § 78bb(f)(2)), arguing the third claim involves a "covered security." Plaintiffs moved to remand.
- The Court considered whether SLUSA provides direct removal jurisdiction and whether the third claim falls within SLUSA’s preclusion of certain state-law class actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court has removal jurisdiction under SLUSA | Miller: State court action should be remanded; SLUSA does not convert these claims into federal jurisdiction | Defendants: SLUSA directly authorizes removal of covered class actions involving covered securities | Held: Denied remand — SLUSA removal under 15 U.S.C. §78bb(f)(2) applies to the third claim, so federal court removal was proper |
| Whether the third claim involves a "covered security" and is a covered class action | Miller: Claim is derivative seeking corporate relief, not a securities-based class claim | Defendants: Plaintiffs seek class relief for shareholders based on loss of stock value, so claim is covered | Held: The prayer for class relief alleging shareholder stock-value loss shows the third claim is covered by SLUSA and must be treated as such |
| Whether SLUSA precludes the third claim (dismissal) | Miller: State-law aiding-and-abetting claim should proceed | Defendants: SLUSA makes such state-law class actions nonactionable when based on misrepresentation/omission in connection with purchase/sale | Held: Third claim dismissed under SLUSA’s substantive bar to covered state-law class actions |
| Whether remaining direct claims should be remanded | Miller: All claims should be remanded to state court | Defendants: Only the non-SLUSA claims should be remanded after dismissal of the SLUSA-covered count | Held: Remaining direct claims (professional negligence and breach of contract assigned to plaintiffs) remanded to state court because they seek direct corporate damages rather than stock-value damages |
Key Cases Cited
- Proctor v. Vishay Intertechnology, Inc., 584 F.3d 1208 (9th Cir. 2009) (SLUSA permits direct removal of covered class actions and functions as a federal defense precluding certain state-law class claims)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (U.S. 2006) (SLUSA creates a federal preclusion defense rather than a federal rule of decision)
- Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. 71 (U.S. 2006) (SLUSA’s scope covers shareholders who allege they held or delayed selling stock due to deceptive conduct)