William Hampton v. Pacific Investment Management
705 F. App'x 558
| 9th Cir. | 2017Background
- Hampton sues under state law against a Massachusetts trust, with SLUSA applying to a covered class action.
- Total Return Fund is an open-end fund engaging in continuous offering, with prospectus statements promising the Emerging Markets Policy throughout the class period.
- During the class period the Fund pursued an aggressive emerging markets strategy, exceeding the 15% cap implied by the policy.
- The prospectus statements were made repeatedly, while the Fund allegedly acted contrary to the policy, creating a false or misleading impression.
- District court held the Delaware carve-out satisfied only first prong, not second, and Hampton does not challenge that ruling on appeal.
- Court analyzes whether Hampton’s claims are barred under SLUSA by focusing on whether deception is at the core of the claim and whether the allegations show likelihood of a false statement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA bars the claims as alleging deception | Hampton argues no explicit false statement is pleaded; claims are contract/fiduciary duties. | Defendants contend the facts show a likelihood of a false statement and SLUSA bars the claim. | SLUSA bars the claims; deceptive statements form the essence of the claim. |
| Whether the alleged falsity can be inferred from the continuing policy despite earlier true statements | Promise kept for a time cannot imply falsity when made earlier. | Open-end fund disclosures are made continuously; later breach supports falsity. | Continuously made statements during class period support likelihood of falsity; SLUSA applies. |
| Whether the district court properly dismissed with prejudice | SLUSA is jurisdictional, not merits-based; dismissal should be with leave to replead. | Repleading would be futile on a classwide basis due to ongoing misrepresentations. | Dismissal should have been without prejudice; however, futility of classwide repleading supports dismissal on the merits-related basis. |
| Whether the Delaware carve-out affects the outcome | Carve-out could exempt analyzed state-law claims if conditions met. | Carve-out not satisfied because communications do not involve only issuer-stockholder transactions. | Carve-out not invoked; court affirms SLUSA applicability on the broader facts. |
Key Cases Cited
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (S. Ct. 2006) (presumption of broad SLUSA construction to prevent end-running state-law claims)
- Freeman Invs., L.P. v. Pacific Life Ins. Co., 704 F.3d 1110 (9th Cir. 2013) (alleging standard focuses on substance, not magic words)
- Segal v. Fifth Third Bank, N.A., 581 F.3d 305 (6th Cir. 2009) (artful pleading cannot circumvent SLUSA)
- Brown v. Calamos, 664 F.3d 123 (7th Cir. 2011) (core allegations must show likely falsity of statements)
- In re Kingate Mgmt. Ltd. Litig., 784 F.3d 128 (2d Cir. 2015) (SLUSA applies to claims involving false statements beyond fraud-specific theories)
- Falkowski v. Imation Corp., 309 F.3d 1123 (9th Cir. 2002) (distinguishes breach-of-contract from SLUSA bar when no falsity alleged)
- Twombly, 550 U.S. 544 (S. Ct. 2007) (pleading plausibility standard for claims)