938 F.3d 482
3rd Cir.2019Background
- Plaintiffs are sixteen institutional investors who were putative class members in long‑running securities suits against Merck and Schering‑Plough over allegedly concealed Vytorin/Zetia trial data; class actions were litigated and certified in the District of New Jersey.
- The District Court issued Rule 23 notice giving investors an opportunity to opt out; these sixteen investors timely opted out (last day) and did not participate in the class settlements.
- After the district court approved class settlements and entered final judgments dismissing class claims with prejudice, the opt‑out investors filed individual state‑law fraud actions in the same district that largely tracked the class complaints and added New Jersey common‑law fraud counts.
- Defendants invoked SLUSA’s mass‑action provision, arguing the individual suits plus the class cases together met SLUSA’s definition of a “covered class action” because the suits were “joined, consolidated, or otherwise proceed[ing] as a single action for any purpose.”
- The District Court dismissed the opt‑out suits under SLUSA; on appeal the Third Circuit (majority) reversed, holding SLUSA requires some actual coordination (and usually temporal overlap) to satisfy the “single action” prong, while Judge Shwartz dissented arguing functional coordination and the plaintiffs’ reliance on class proceedings satisfied SLUSA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA’s mass‑action "single action" prong bars opt‑out plaintiffs who file individual state claims after class settlement | Opt‑outs argue their suits never proceeded as a single action with the class cases because they were never coordinated and were filed after the class actions resolved | Merck argues the requirement is satisfied by a "functional relationship" — similarity, relatedness filings, and practical overlap in subject matter suffice | Reversed dismissal: majority holds SLUSA requires actual coordination (e.g., combining cases for case management or resolution of a common stage/issue) and generally some temporal overlap; mere similarity/relatedness is insufficient |
| Whether merely meeting the class definition, copying class pleadings, marking cases as related, or benefitting indirectly from class proceedings makes an individual suit a "single action" under SLUSA | Plaintiffs: those facts do not show the cases ever proceeded together or were joined/consolidated; opt‑out right preserved | Defendants: those facts show plaintiffs used the class vehicle and benefited from coordinated activity so SLUSA should apply | Held: such indicia alone are not enough; the statute requires some affirmative coordination or court/party action combining the matters for at least a common stage |
| Whether SLUSA should be construed broadly to capture functional coordination to prevent circumvention of PSLRA | Plaintiffs: statutory text and constitutional opt‑out rights limit SLUSA’s reach; broad readings cannot override clear text | Defendants: SLUSA's purpose supports broad construction to prevent evasion of federal securities rules | Held: purpose does not override statutory text; majority rejects expansive construction because it would undermine opt‑out rights and raise due‑process concerns |
| Whether settled or non‑contemporaneous class litigation can count toward SLUSA’s "single action" requirement (timing/simultaneity) | Plaintiffs: absent simultaneity, cases cannot be combined; being a class member before opting out does not make later individual suit part of a single action | Defendants/dissent: past or functional coordination (and benefits obtained while a class member) suffice; "filed" vs "pending" can include settled cases | Held: majority adopts a requirement that suits be at least partially coordinated and ordinarily coincide for some period; settled class actions that never overlapped in process with the individual suits do not satisfy the single‑action prong absent actual coordination |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006) (SLUSA limits use of state‑law class actions to evade PSLRA)
- Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061 (2018) (caution about overbroad readings; courts must follow statutory text)
- Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc., 137 S. Ct. 2042 (2017) (American Pipe tolling and statute‑of‑repose limits)
- In re Enron Corp. Sec., 535 F.3d 325 (5th Cir. 2008) (mass‑action prong satisfied where plaintiffs coordinated discovery and filings with MDL/class proceedings)
- In re Lord Abbett Mut. Funds Fee Litig., 553 F.3d 248 (3d Cir. 2009) (interpretive guidance on SLUSA jurisdictional questions)
- Instituto De Prevision Militar v. Merrill Lynch, 546 F.3d 1340 (11th Cir. 2008) (discussing consolidation/coordination under SLUSA)
- Smith v. Bayer Corp., 564 U.S. 299 (2011) (absent class members are not parties before class certification; limits on preclusion)
- Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) (constitutional requirement that absent class members be given opportunity to opt out)