JOSEPH P. LASALA and FRED S. ZEIDMAN, as CO-TRUSTEES of the AREMISSOFT LIQUIDATING TRUST, Appellants v. BORDIER ET CIE and DOMINICK COMPANY, A.G.
No. 06-4323
United States Court of Appeals for the Third Circuit
March 11, 2008
POLLAK, District Judge
Precedential. Argued December 13, 2007. Before: SLOVITER and AMBRO, Circuit Judges, and POLLAK, District Judge. On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 05-4520), Honorable Joel A. Pisano, District Judge.
Gary R. Greenberg, Esq. (Argued) Louis J. Scerra, Jr., Esq. Peter M. Casey, Esq. Greenberg Taurig, LLP One Internaional Place Boston, MA 02110
Attorneys for Appellants Joseph P. LaSala and Fred S. Zeidman
Elliot Cohen, Esq. (Argued) Troutman Sanders, LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174
Attorney for Appellee Bordier et Cie
Paul J. Bschorr, Esq. (Argued) Lawrence J. Reina, Esq. Casey D. Laffey, Esq. Reed Smith, LLP 599 Lexington Avenue New York, NY 10022
Anthony J. Laura, Esq. John J. Zefutie, Esq. Reed Smith, LLP 136 Main Street, Suite 250 Princeton, NJ 08540
Charles J. Becker Reed Smith, LLP 2500 One Liberty Place 1650 Market Street Philadelphia, PA 19103
Attorneys for Appellee Dominick Company, A.G.
POLLAK, District Judge
In this appeal, we are called upon to decide whether state-law aiding-and-abetting-breach-of-fiduciary duty claims, which have passed from a corporation to its bankruptcy estate to a trust, may be brought in federal court by the trustees of the trust notwithstanding the Securities Litigation Uniform Standards Act (“SLUSA“),
I. Facts and procedural history
The story begins with AremisSoft, which (prior to its demise) was a software enterprise incorporated under the laws of Delaware. Between 1998 and 2001, two of AremisSoft‘s directors and officers, Lycourgos Kyprianou and Roys Poyiadjis (collectively, the “Directors“), allegedly executed a classic “pump-and-dump” scheme. According to the complaint, they artificially inflated AremisSoft‘s stock price by representing that its financial position was far stronger than it really was. Having “pumped” the stock price, they “dumped” the AremisSoft stock they had accumulated by selling their shares on the open market to unsuspecting investors. To cover their tracks, the Directors allegedly ran these insider-trading transactions through a variety of sham entities and bank accounts, all, so the complaint alleged, with the assistance and knowledge of defendants Bordier et Cie and Dominick Company (collectively, the “Banks“), both banking institutions organized under the laws of Switzerland. A few months and some hundreds of millions of dollars later,
The situation continued to worsen and, in March 2002, AremisSoft petitioned for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of New Jersey. At the time of the bankruptcy petition, a federal class-action securities suit, in which a group of purchasers of AremisSoft stock (the “Purchasers“) requested rescission of their stock-purchase contracts, was pending against AremisSoft. To settle the Purchasers’ suit, the parties to the bankruptcy proceeding agreed that the plan of reorganization would assign to the Purchasers all causes of action owned by AremisSoft. An agreement of this sort would not seem to be either uncommon or problematic. While many corporations become insolvent for reasons that do not render anyone legally at fault, it is also not unusual for a bankrupt corporation to have viable legal claims against parties that wrongfully contributed to its demise. These claims can take myriad forms, from breach-of-contract claims against suppliers or customers, to tort claims against those who injured the corporation‘s property or economic interests, to, as here, claims for disloyalty against corporate fiduciaries and those who, so it is alleged, aided them. In bankruptcy—a process that seeks to gather and preserve all of the debtor‘s assets, and distribute them to creditors and interest holders in an orderly fashion—legal claims that belonged to the debtor are often important assets of the bankruptcy estate, and are fair game for distribution to the debtor‘s creditors and equity holders.
In the case at bar, rather than trying to assign to each of the Purchasers some portion of the estate‘s claims, the plan of reorganization provided for the creation of a state-law trust (the “Trust“) to take title to and prosecute the assigned claims for the Purchasers’ benefit. The Purchasers also assigned to the Trust any causes of action that they owned individually for activities related to the purchase of the AremisSoft securities. Assigning both sets of claims (the debtor corporation‘s claims and individual Purchasers’ claims) to the Trust made logistical sense, as it rendered one entity responsible for prosecuting and
In bringing this lawsuit in the District Court for the District of New Jersey, plaintiffs Joseph LaSala and Fred Ziedman, trustees of the Trust, asserted four causes of action: two counts of aiding and abetting a breach of fiduciary duty, one against Bordier (Count I), and one against Dominick (Count II); and two counts of violating Swiss money-laundering laws, one against Bordier (Count III), and one againt Dominick (Count IV). All causes of action were allegedly assigned to the Trust by the AremisSoft bankruptcy estate or by the Purchasers in their individual capacities.
II. SLUSA and the District Court‘s decision
The Banks filed a motion to dismiss, arguing, inter alia, that the Trust‘s lawsuit was preempted2 by SLUSA. Congress
SLUSA undertook to close this perceived loophole by preventing securities plaintiffs from using the class-action vehicle to prosecute state-law securities claims. To be preempted by SLUSA an action must (1) make use of a procedural vehicle akin to a class action,3 and (2) allege a
In the case at bar, the District Court ruled that all four claims were preempted by SLUSA, and thus dismissed the action. The court determined that all of the counts involved substantive allegations of misrepresentations in connection with securities trades. It further concluded that the lawsuit operated like a class action, inasmuch as the Trust was asserting claims for the benefit of some 6000 former shareholders of AremisSoft. The Trust now appeals that dismissal.7
III. Counts I & II — Aiding and abetting breaches of fiduciary duty
A. Clarifying the claims pleaded
In their briefs and at oral argument, the parties have largely talked past one another. This is somewhat
Much of the confusion stems from the fact that the nature of a pump-and-dump scheme perpetrated by corporate directors and officers is that it typically gives rise to multiple viable causes of action—causes of action that are owned by different parties and are assertable against different defendants. For example, for the offending directors and officers, carrying out a pump-and-dump scheme almost certainly constitutes a breach of their duty of loyalty to the corporation they serve. Thus, the scheme gives the corporation a colorable claim against the directors and officers (and anyone who knowingly aided them) for breach of fiduciary duty (and aiding and abetting a breach of fiduciary duty).8 The remedy for such a breach, under Delaware law, is that the directors and officers and their abettors become jointly and severally liable to make good on any loss to the corporation attributable to the disloyalty. Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 173 (Del. 2002) (affirming Chancellor‘s decision to hold abettors of
For another relevant example, a pump-and-dump scheme likely gives rise to a colorable suit by the purchasers of the “pumped” securities against the directors and officers under federal securities laws for rescission of their purchases or damages in the amount of the difference between what they paid for the pumped securities and what those securities were really worth.10 A similar suit could also be maintained under federal securities law against the corporation if the corporation had made any material misrepresentations as to its financial condition,11 which is often a part of these schemes. What tends to make the present case appear somewhat confusing is that both of these types of claims—securities claims owned by the
Counts I and II of the complaint plead claims against the Banks for aiding and abetting the Directors’ breaches of their fiduciary duty (presumably, the duty of loyalty) to AremisSoft and its shareholders. While we are not at this time deciding whether these claims are adequately pleaded, one can only understand the allegations in light of the elements of the pleaded cause of action. Under Delaware law, aiding and abetting a breach of fiduciary duty has three elements: (1) a breach of fiduciary duty, (2) knowing participation in that breach by the defendant, and (3) damages. Here, ¶¶ 109 and 114 of the complaint undertake12 to allege breaches by the Directors, ¶¶ 110–11 and 115–116 undertake to allege participation by the Banks, and ¶¶ 112 and 117 undertake to allege damages. The substance of the alleged breach is the pump-and-dump scheme, by which the Directors allegedly (1) inflated AremisSoft‘s stock price by misrepresenting the company‘s finances and then (2) unloaded overpriced shares on the investing public. This scheme is perceived to have been disloyal, in the sense that the Directors allegedly used their positions of trust to pursue personal gain at the expense of the corporation. The substance of the knowing-participation contention is that the Banks allegedly knew of the Directors’ large-scale insider trading activities and provided material assistance despite this knowledge.
The damages element takes more effort to understand, as the complaint pleads that the scheme damaged “the Plaintiffs,” a term the complaint defines as the Trustees. The Trustees, obviously, are not claiming that they or the Trust were damaged directly; rather, they are claiming damage in their capacity as assignees of the true injured parties. This raises a question: who are the alleged injured parties? The Banks would have us believe that the injured parties are the Purchasers in their individual capacities as purchasers of securities. The Trust, on
To better understand the question, we turn again to Delaware law, the substantive backdrop of these causes of action.13 As explained in note 9, supra, individual shareholders do not have standing to assert directly state-law claims alleging harm to a corporation. See Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d 1031, 1034 (Del. 2004). Instead, those claims must be asserted by the corporation itself or through shareholder derivative litigation. Here, determining whether the Trust complains of harm to the corporation or to the Purchasers individually is not entirely straightforward because a pump-and-dump scheme could be expected to cause two overlapping types of harm that are treated differently by Delaware law. On the one hand, the Purchasers allegedly overpaid for AremisSoft stock, and were thus harmed to the extent of the value discrepancy between what they paid and what they received. Delaware law recognizes this as a direct harm, though the question may be somewhat academic, as Delaware law seems to provide that the harm is irremediable under state law (in deference to the remedies provided by the federal securities laws). See Malone v. Brincat, 722 A.2d 5, 12–13 (Del. 1998) (noting that Delaware does not recognize a state-law cause of action by purchasers against corporate directors for fraud on the market). On the other hand, because of the pump-and-dump scheme, AremisSoft lost its economic viability, as reflected in its declining stock price and eventual bankruptcy. This is, under Delaware law, a purely derivative harm, and one that is remediable if caused by a breach of fiduciary duty. See Metro Commnc‘s Corp. BVI v. Adv. Mobilecomm Techs., Inc., 854 A.2d 121, 168 (Del. Ch. 2004) (explaining that a corporation‘s loss in value or economic viability is, in the first instance, a harm to the corporation and, only derivatively, a
Because a pump-and-dump scheme causes both harms, both harms appear on the face of the complaint. But only the harm to AremisSoft is relevant to a claim for aiding and abetting a breach of fiduciary duty because such individual-purchaser harms are not cognizable under Delaware law. See Malone, 722 A.2d at 12–13. The Banks, however, argue that the complaint does not allege harm to AremisSoft. They are mistaken. The complaint revolves around corporate directors and officers allegedly breaching their duty of loyalty to the corporation by artificially inflating the stock price and, with the alleged assistance of the Banks, exploiting the increase for their personal benefit. See compl. ¶¶ 20–36 (app. 47–54). Given that the scheme is alleged to have pushed AremisSoft into a liquidating bankruptcy,14 we conclude that the complaint alleges harm to the corporation. Moreover, the Purchasers complain that the declining stock price and subsequent bankruptcy, compl. ¶ 27 (app. 49), ultimately harmed them. By pleading this derivative harm, the Trust necessarily pleaded the initial harm to the corporation. The fact that AremisSoft no longer exists does not convert its corporate claims into direct shareholder claims; rather, the corporate nature of the claims endures, and ownership of the claims passes to AremisSoft‘s successor. See Landry v. Fed. Deposit Ins. Corp., 486 F.2d 139, 148 (3d Cir. 1973) (holding that failure of bank did not alter derivative/direct dichotomy, and that shareholders of bank in FDIC receivership may maintain derivative action after making demand on the FDIC).
Reading the complaint against the background of Delaware law, we believe that counts I and II allege aiding-and-abetting claims that originally belonged to AremisSoft, not to the purchasers of AremisSoft stock. We also note that, by arguing only corporate aiding-and-abetting claims before us and before
To be clear, we have not yet answered the question whether SLUSA preempts counts I and II. That is a different question, and one that arises subsequent to clarifying what claims these counts have alleged. Having determined that the complaint has pleaded aiding-and-abetting claims originally owned by AremisSoft, and assigned to the Trust by the AremisSoft bankruptcy estate, we are ready to turn to what effect, if any, SLUSA has on them.
B. Whether counts I and II are brought in the form of a “covered class action”
SLUSA prevents would-be plaintiffs from bringing certain claims in the form of a “covered class action.” Under SLUSA, a covered class action is
any single lawsuit in which damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual persons or members.
The District Court concluded that counts I and II were brought “on behalf of” the 6000 beneficiaries of the Trust, and thus as “covered class actions.” D. Ct. Op. at 12 (app. 14). In arriving at this conclusion, the District Court ruled that the Trust should not be counted as a single entity under
To evaluate the District Court‘s ruling, it is first necessary to recall the nature and ownership of these claims. As explained above, counts I and II plead claims that at one time belonged to AremisSoft, the entity allegedly injured by its Directors’ breaches of duty and the Banks’ aiding those breaches. In bankruptcy, the claims passed to AremisSoft‘s bankruptcy estate,
At first glance, one might think that the claims are
Prong two of
A key point to remember is that it would make little sense
Further supporting this reading is Congress‘s clear intent not to reach claims asserted by a bankruptcy trustee on behalf of a bankruptcy estate. That Congress so intended is relevant here because counts I and II were claims that the debtor-in-possession once owned and chose to assign to the Trust (under the assumption that the Trust would be able to bring the claims as the debtor-in-possession‘s assignee). Congress‘s intent on this point is clear from the legislative history, in which the Senate Banking, Housing, and Urban Affairs Committee reported that, in the final version of the bill,
[t]he class action definition has been changed from the original text of S. 1260 to ensure that the legislation does not cover instances in which a person or entity is duly authorized by law, other than a provision of state or federal law governing class action procedures, to seek
Giving effect to Congress’s desire not to preempt claims that pass from a debtor corporation to its bankruptcy estate is important because to do otherwise would work a significant change in the bankruptcy system that Congress created and, according to the legislative history cited above, intended to leave undisturbed. As this case demonstrates, legal claims can be some of the most important and valuable assets that a bankruptcy estate has, particularly as respects a debtor’s unsecured creditors and equity holders, since liquidating such claims may be their only chance at significant recovery. Chapter 11 is often described as a process that brings all interested parties to the bargaining table and encourages them, against the background of insolvency law, to work out a plan of reorganization with which
Moreover, it is difficult to see what purpose would be served by holding otherwise. If we held that the key issue is to whom a claim is assigned, then we would likely see two results. First, we might see parties to bankruptcies engage in some rather creative class construction to keep numbers below 51. Parties’ ability to do this would not turn on any factor related to preventing frivolous securities litigation, but on the creativity of the parties’ lawyers and the particulars of a debtor’s pre-petition liabilities. Second, in many bankruptcies, treating unliquidated legal claims as distributable assets would become infeasible. Rather than assigning unliquidated claims to large classes of
The Banks present the curious argument that recognizing that the claims at issue here are corporate in nature does the Trust no good, because the claims are still brought on behalf of the 6000 Purchasers. If the claims are also brought on behalf of AremisSoft, then, according to the Banks, that brings the grand total of persons on whose behalf the claims are brought to 6001. This argument, which neither brief explains in more than two sentences, see Bordier Br. at 44, Dominick Br. at 54, seems to misapprehend that the corporate claims are not asserted on behalf of the corporation and Purchasers (thus, 6001 persons), but on behalf of the corporation alone. The Banks further note that all damages will go to the Purchasers. This, however, is irrelevant because the Purchasers would not recover in their capacities as individual purchasers of securities, but in their capacities as beneficial owners of the claims assigned to the Trust by the AremisSoft bankruptcy estate.
In sum, we conclude that a corporation’s claims do not take the form of a “covered class action,” irrespective of whether the claims are asserted by the corporation directly, its shareholders derivatively, its bankruptcy estate, its bankruptcy estate’s assignee, or its successor. This conclusion accords with the text of
IV. Counts III and IV — Violation of Swiss money-laundering laws
In addition to pressing aiding-and-abetting claims in counts I and II, the Trust has alleged in counts III and IV that the Banks violated Swiss banking regulations by failing properly to
It is important to recognize that these counts, unlike counts I and II, are not alleged to have been owned by AremisSoft or its bankruptcy estate. These Swiss-law claims are, rather, claims owned by the Purchasers as individual purchasers of AremisSoft stock. They were assigned by the Purchasers to the Trust so that they could be prosecuted together with counts I and II. Thus, in contrast to counts I and II, these counts likely are brought to recover damages “on behalf of more than 50 persons,”
SLUSA, however, only preempts covered class actions “based upon the statutory or common law of any State,”
A. Congress’s intent
The Banks argue that the purpose of SLUSA is to create uniform standards for class-action securities-fraud lawsuits, and that allowing plaintiffs to avail themselves of different foreign-
In determining legislative purpose, “[i]t is not our job to speculate upon congressional motives,” Riegel v. Medtronic, Inc., 552 U.S. 312, 128 S. Ct. 999, 1010 (2008); our job is to hew as closely as possible to the meaning of the words Congress enacted. “We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there.” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992). Here, the difficulty with divining congressional intent to preempt foreign-law claims is that Congress specifically described the claims preempted as those “based upon the law of any State.” SLUSA constitutes an amendment of the Securities Exchange Act of 1934 (the “1934 Act”), which expressly defines “state” throughout the Act as “any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States,”
Moreover, Congress has demonstrated its ability to extend the reach of securities statutes to foreign law when it so desires. E.g.,
In addition, the notion that allowing the Trust to litigate counts III and IV would impede a federal objective is overblown. According to those counts, Switzerland imposes liability for the complained-of conduct on banking institutions organized under Swiss law. To state the obvious, Switzerland is a sovereign nation. It may regulate institutions organized under its laws in any manner it sees fit. Congress, through
B. Whether the Swiss-law claims depend on state law
The Banks argue that the Swiss-law claims are preempted because they are actually based on Delaware fiduciary-duty law. Specifically, they argue that only if the Directors breached their Delaware-law fiduciary duties can the Banks be liable under Swiss law. This argument appears to be based upon a misreading of the complaint. The Swiss laws invoked in the complaint allegedly require that, inter alia, Swiss banks conduct due diligence (e.g., verify the customer’s identity), investigate unusual or suspicious transactions, and freeze assets in accounts whose owner has been concealed. App. at 54–57, 80–81. We read the complaint as alleging that a bank can violate these
C. Whether the Swiss-law claims arise under New Jersey law because of the application of New Jersey choice-of-law rules
The Banks’ third argument—that New Jersey’s choice-of-law rules are “state laws” that trigger application of Swiss law to the present dispute, thus forming the Swiss laws’ basis—is creative but unpersuasive.24 The Banks point out that the District Court’s subject matter jurisdiction is based on diversity of citizenship, which, under Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938) and Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941), requires that the forum state’s (here, New Jersey’s) choice-of-law rules govern the dispute. It is these choice-of-law rules that, the Trust contends, direct application of Swiss law. Id. The Banks, invoking Klaxon, argue that, if the Trust’s characterization of New Jersey’s choice-of-law rules is correct, those New Jersey choice-of-law rules form the basis of the Trust’s Swiss-law claims.
The Banks read more into Klaxon than is there. In Klaxon, a diversity action brought by a New York corporation against a Delaware corporation in the District Court for the District of Delaware, plaintiff, having secured a jury verdict in the amount of $100,000, then moved for an award of pre-judgment interest covering the years in which the suit was pending. The District Court granted the motion. This court affirmed: without addressing Delaware law with respect to contract damages, this court ruled, in reliance on two provisions
The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware’s state courts. Otherwise the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side. Any other ruling would do violence to the principle of uniformity within a state upon which the Tompkins decision is based. Whatever lack of uniformity this may produce between federal courts in different states is attributable to our federal system, which leaves to a state, within the limits permitted by the Constitution, the right to pursue local policies diverging from those of its neighbors. It is not for the federal courts to thwart such local policies by enforcing an independent “general law” of conflict of laws. Subject only to review by this Court on any federal question that may arise, Delaware is free to determine whether a given matter is to be governed by the law of the forum or some other law.
In the case at bar, the Trust contends that New Jersey’s choice-of-law rules require that, in a dispute in a New Jersey court in which Swiss banks are charged with failing to comport with proper standards of oversight of entities utilizing the services of Swiss banks, Swiss law, not New Jersey law, should govern. If the Trust’s formulation of New Jersey’s choice-of-law rules, as embodied in counts III and IV of it complaint, is accurate, this would reflect the unsurprising conclusion by New Jersey’s lawgivers, whether judicial or legislative, that, whatever New Jersey’s law with respect to bank misconduct may be, when the allegedly miscreant bank is a Swiss enterprise executing Swiss banking transactions, Swiss banking law, not New Jersey banking law, should control. To conclude that, within the intendment of SLUSA, those claims are “based upon the . . . law
D. Whether the Swiss-law claims are preempted because they incorporated the allegations of the state-law claims
The District Court held, and the Banks argue, that because counts III and IV “reallege and incorporate by reference herein in their entirety the allegations” supporting the state-law claims, App. at 78, 80, and the state-law claims are, as the Banks contend, preempted, the Swiss-law claims must also be preempted. Aside from the fact that we are not persuaded that the state-law claims are preempted, the view advanced by the District Court and the Banks appears to stem from a misinterpretation of language in this court’s opinion in Rowinski, 398 F.3d at 305.
In Rowinski, we held that a claim alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security,”
It is important to recognize that Rowinski did not hold that any time a misrepresentation is alleged, the misrepresentation-in-connection-with-a-securities-trade ingredient is present. (Nor does it follow that failing to make such an allegation explicit necessarily avoids the ingredient). Rather, the point we made in Rowinski was that when an allegation of misrepresentation in
Here, as to the Swiss-law claims, the allegations of misrepresentation appear to be extraneous. As explained in Part IV.B, supra, the Swiss-law counts allege that the Banks violated their Swiss-law duty properly to investigate and freeze the Directors’ various money-laundering transactions. The Directors’ prior alleged misrepresentations are not factual predicates to these claims because, according to the Trust’s characterization of the Swiss-law claims, they have no bearing on whether the Banks’ conduct is actionable; rather, they are merely background details that need not have been alleged, and need not be proved.25
E. Whether Swiss-law claims are tied so closely to the state-law claims that they are preempted
The District Court also held, and the Banks argue, that the Swiss claims are preempted because they are tied so closely to the state-law claims. This argument is also unpersuasive because it relies on a readily distinguishable case. The District Court and the Banks invoke a decision of the District Court for the District of Delaware, ruling that a particular state-law claim, though it did not specifically allege conduct that would constitute fraud “in connection with” a security, was nonetheless “in connection with” a security (and thus preempted), see
Zoren is distinguishable in two respects. First, unlike the Banks here, the defendants in Zoren were accused of orchestrating a “unitary scheme of fraud.” Here, the Banks are not accused of any misrepresentations or omissions; rather, their alleged participation in the Directors’ scheme is limited to participating in insider-trading transactions and assisting in laundering the proceeds. Second, Zoren involved exclusively state-law claims and applied the “in connection with” language, not the ingredient that any preempted claims be based upon “state” law. It did not address a foreign-law claim or even purport to address how its analysis would affect foreign-law claims.
Thus, we conclude that the Banks’ contention that the Swiss claims are preempted as “closely tied” to the state-law claims is without merit.
V. Circumventing SLUSA
Permeating the Banks’ briefs is the general argument that allowing these claims to go forward will re-create a loophole for abusive securities litigation that Congress intended, through SLUSA, to close. We find this argument unpersuasive.
As to the state-law claims—counts I and II—our ruling is that a group of persons may bring a corporation’s claim for breach of fiduciary duty (or aiding and abetting such a breach) in two circumstances: (1) when the group has been assigned the corporation’s claim, or (2) when the group fulfills all applicable requirements for bringing the claim derivatively. That the latter
As to the foreign-law claims, notwithstanding our holding, plaintiffs relying on foreign law must survive two preliminary challenges: (1) they must state validly pleaded claims which, under applicable choice-of-law principles, govern their case, and (2) they must show that a United States court is the most convenient forum, which, particularly for foreign-law claims asserted against foreign entities, is rarely an easy task. In other words, foreign-law claims, though not preempted by SLUSA, are only permissible at the confluence of two rarely aligned factors: (1) a foreign country has the most significant interest in having its law apply (the traditional choice-of-law test), and (2) the United States is the most appropriate forum (the traditional forum-non-conveniens test). Nothing in our experience, the legislative history of SLUSA, or the legislative history of the PSLRA suggests that these are hurdles that plaintiffs can routinely overcome. Thus, as Congress intended, manifest strike suits will, expectably, be dismissed on the pleadings, even if the plaintiffs try to plead foreign claims. Only quite unusual cases will survive.26
VI. Conclusion
We hold that SLUSA does not prevent the Trust from bringing AremisSoft’s Delaware-law aiding-and-abetting-breach-of-fiduciary-duty claims against the Banks. These are direct corporate claims assigned to the Trust from AremisSoft’s bankruptcy estate. SLUSA’s text and legislative history yield the conclusion that Congress did not intend to preempt direct corporate claims such as these.
We further hold that SLUSA does not prevent the Trust
Therefore, we will vacate the District Court’s order dismissing the complaint, and remand for further proceedings consistent with this opinion.
Notes
Here, the Trust is a hybrid. It is like a litigation trust inasmuch as it was assigned a variety of individual claims by the Purchasers and was tasked with litigating them; it is also like a liquidating trust inasmuch as it took title to many of the remaining assets of the bankruptcy estate (including the estate‘s causes of action) and was tasked with liquidating and distributing them. The hybrid nature of the Trust, far from being suspect, may be seen as a gratifying testament to the flexibility and creative license that Chapter 11 accords parties in fashioning plans of reorganization.
(i) any single lawsuit in which--
(I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual persons or members; or
(II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members; or
(ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which--
(I) damages are sought on behalf of more than 50 persons; and
(II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose.
(A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or
(B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
Whether a single offending claim requires dismissal of the entire action is an open question, and one we need not reach here. Another open question is whether any dismissal should be without prejudice to the reassertion of the claims in individual actions.
[t]he stockholder‘s claimed direct injury must be independent of any alleged injury to the corporation. The stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.
Id. at 1039 (emphasis added).