914 F.3d 524
7th Cir.2019Background
- Plaintiff Susan Nielen-Thomas filed a putative class action in Wisconsin state court alleging her investment advisor (Butler) mismanaged retail clients’ accounts (undiversified block trades and repeated long-term investments in the volatile ETN VXX), causing large losses.
- Complaint asserted nine state-law claims (breach of securities statutes, fraud, negligence, breach of fiduciary duty, failure to supervise) on behalf of a proposed class of "at least 35, but no more than 49" members and sought damages.
- Defendants removed to federal court under SLUSA and moved to dismiss, arguing the suit is a "covered class action" precluded by SLUSA.
- Nielen-Thomas argued the action was not a SLUSA-covered class action because the proposed class had fewer than 50 members.
- The district court denied remand, held the suit was a covered class action because she sued in a representative capacity, and dismissed the state-law claims with prejudice.
- The Seventh Circuit affirmed, holding SLUSA’s text covers any suit brought by named plaintiffs on a representative basis (regardless of class size) when the statutory requirements are otherwise met.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the lawsuit is a SLUSA "covered class action" | Nielen-Thomas: Not covered because proposed class <50 members | Defendants: Covered because plaintiff sues on a representative basis under SLUSA §78bb(f)(5)(B)(i)(II) | Held: Covered under §78bb(f)(5)(B)(i)(II); SLUSA precludes the suit |
| Whether SLUSA’s 50-person threshold in subparagraph (I) limits subparagraph (II) | Threshold should exempt actions with <=50 proposed members | Threshold applies only to subparagraph (I); (II) has no 50-person requirement | Held: Congress omitted the threshold from (II) intentionally; cannot import it into (II) |
| Whether prior case language implying a 50-person limit controls | Plaintiff relies on isolated statements in Supreme Court and 7th Cir. opinions | Defendants: those statements are dicta and not controlling on this textual question | Held: Those quotations were dicta; plain statutory text governs |
| Remedy / dismissal with prejudice vs. remand without prejudice to join other plaintiffs | Nielen-Thomas requested remand and dismissal without prejudice (to allow other plaintiffs to join) | Defendants sought dismissal under SLUSA | Held: Request to remand/dismiss without prejudice waived by late raising; district court’s dismissal with prejudice affirmed |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006) (explains PSLRA/SLUSA purpose and broad construction)
- Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) (discusses SLUSA’s purpose to prevent circumvention of PSLRA)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (2006) (addresses SLUSA’s effect on state-court class actions)
- Chadbourne & Parke LLP v. Troice, 571 U.S. 377 (2014) (interprets SLUSA’s scope regarding covered securities)
- Brown v. Calamos, 664 F.3d 123 (7th Cir. 2011) (addresses SLUSA removal and preclusion mechanics)
- Holtz v. JPMorgan Chase Bank, N.A., 846 F.3d 928 (7th Cir. 2017) (discusses SLUSA’s aim to prevent artful pleading to evade securities-litigation limits)
- Woods v. United States, 571 U.S. 31 (2013) (principle that statutory "or" is ordinarily disjunctive)
- Hibbs v. Winn, 542 U.S. 88 (2004) (canon that statutes should be construed to give effect to all provisions)