SUSAN NIELEN-THOMAS v. CONCORDE INVESTMENT SERVICES, LLC, et al.
No. 18-2875
United States Court of Appeals For the Seventh Circuit
January 24, 2019
ARGUED JANUARY 15, 2019
Appeal from the United States District Court for the Western District of Wisconsin.
No. 18-cv-00229 — James D. Peterson, Chief District Judge.
Before FLAUM, KANNE, and HAMILTON, Circuit Judges.
We hold that the plain language of SLUSA‘s “covered class action” definition includes any class action brought by a named plaintiff on a representative basis, regardless of the proposed class size. Because this includes Nielen-Thomas‘s class action lawsuit and her complaint meets all other statutory requirements, her lawsuit is precluded by SLUSA. We affirm the judgment of the district court.
I. Background
On February 5, 2018, plaintiff-appellant Nielen-Thomas filed a putative class action in Wisconsin state court against defendants-appellees Concorde Investment Services, LLC, Fortune Financial Services, Inc., TD Ameritrade, Inc., Wisconsin River Bank, Jeffrey
Nielen-Thomas identifies two ways Butler mismanaged accounts. First, Butler promised to create individualized portfolios for each investor; instead, he subjected his clients to block trades that lacked asset allocation and diversification suitable for retail investors. Second, Butler repeatedly purchased and sold on behalf of his clients an exchange-traded note known as VXX. VXX is an unsecured debt instrument designed to track the movement of futures on an index that measures overall market volatility. This note is inherently volatile and risky, and it is designed to be used as a hedge by sophisticated investors only on a short-term basis. However, Butler repeatedly purchased and sold VXX on behalf of his retail clients and let it sit in their accounts for months, even though such a strategy was practically guaranteed to lose money.
The other defendants are entities that Nielen-Thomas claims are also responsible for Butler‘s conduct. Butler was a registered broker with Concorde from March 2012 to May 2015 and with Fortune from
In her class-action complaint, Nielen-Thomas brought nine statе-law claims on behalf of the putative class, alleging breaches of Wisconsin and Nebraska securities laws, breach of Wisconsin‘s “fraudulent representations” statute, and common law violations under both Wisconsin and Nebraska law for breach of contract, fraud, negligence, failure to supervise, and breach of fiduciary duty.2 According to the complaint, “[w]hile the exact number of putative Class members cannot be determined yet, upon information and belief, the putative Class consists of at least 35, but no more than 49 members.”
On March 30, 2018, defendants removed the case to the Wеstern District of Wisconsin pursuant to SLUSA,
On July 26, 2018, the district court denied Nielen-Thomas‘s motion to remand and granted defendants’ motion to dismiss. The court noted that SLUSA‘s language was “confusing,” but concluded its “legislative history clears things up“—the lawsuit was not a covered class action under
II. Discussion
At issue is the district court‘s denial of Nielen-Thomas‘s motion to remand and its grant of defendants’ motions to dismiss based on its interpretation of SLUSA‘s “covered class action” definition. We review the district court‘s interpretation of a statute de novo. United States v. Rosenbohm, 564 F.3d 820, 822 (7th Cir. 2009).
When confronting an issue of statutory interpretation, we must always begin with the text and “give effect to the clear meaning of statutes as written.” Star Athletica, L.L.C. v. Varsity Brands, Inc., 137 S. Ct. 1002, 1010 (2017) (quoting Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 476 (1992)). If the text is clear, we can end our inquiry here as well. Id. We also read a statute “as a whole” rather than “as a series of unrelated and isolated provisions.” Arreola-Castillo v. United States, 889 F.3d 378, 386 (7th Cir. 2018) (first quoting King v. St. Vincent‘s Hosp., 502 U.S. 215, 221 (1991), then quoting Gonzales v. Oregon, 546 U.S. 243, 273 (2006)). Words are given “their ordinary and natural meaning” in the absence of a specific statutory definition. CFTC v. Worth Bullion Grp., Inc., 717 F.3d 545, 550 (7th Cir. 2013) (quoting Scherr v. Marriott Int‘l, Inc., 703 F.3d 1069, 1077 (7th Cir. 2013)). We must also, if possible, give effect to “every clause and word” of a statute, taking care not to read words into the text or to treat any words as surplusage. Duncan v. Walker, 533 U.S. 167, 174 (2001) (quoting United States v. Menasche, 348 U.S. 528, 538–39 (1955)); Water Quality Ass‘n Emps.’ Benefit Corp. v. United States, 795 F.2d 1303, 1309 (7th Cir. 1986).
Regarding SLUSA‘s language specifically, “Congress envisioned a broad construction” of the statute, which “follows not only from ordinary principles of statutory construction but also from the particular concerns that culminated in SLUSA‘s enactment.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 86 (2006). SLUSA amends the Securities Act of 1933 and the Securities Exchange Act of 1934, both of which regulate federal securities “to рromote honest practices in the securities market.” Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061, 1066 (2018). Congress had previously amended these two laws when it passed the PSLRA in 1995, “principally to stem ‘perceived abuses of the class-action vehicle in litigation involving nationally traded securities.‘” Id. (quoting Dabit, 547 U.S. at 81). Specifically, “nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests, and manipulation by class action lawyers of the clients whom they purportedly represent had become rampant,” such that abusive class-action litigation was injuring “the entire U.S. economy.” Dabit, 547 U.S. at 81 (citation and internal quotation mаrks omitted). Congress sought to curb these abuses through the PSLRA by imposing burdens on plaintiffs who sought to bring federal securities fraud class actions, including by limiting recoverable damages and attorney‘s fees and by mandating sanctions for frivolous litigation. Id. at 81–82.
The PSLRA made it harder to bring a federal securities class action; an unintended consequence of its enactment, though, was that plaintiffs tried to escape the law‘s constraints by “bringing class actions under state law, often in state court,” rather than under federal law in federal court. Id. at 82. To “prevent plaintiffs from circumventing the [PSLRA]” in this manner, Cyan, 138 S. Ct. at 1067, Congress enacted the SLUSA amendments in 1998.
SLUSA precludes specified sеcurities class actions from proceeding under state law. Specifically, “[n]o covered class action based upon the statutory or common
Nielen-Thomas does not dispute that her class action claims are based on state law, involve a covered security, and allege misrepresentations “in connection with the purchase or sale of” that covered security. Instead, she maintains her lawsuit is not precluded by SLUSA because it is not a “covered class action” as that term is defined.
Under SLUSA, a “single lawsuit” qualifies as a “covеred class action” when (subject to certain exceptions not applicable here):
(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 representativе 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 ... .
Subparagraph (I) provides three criteria for a single lawsuit to qualify as a covered class action: (1) damagеs are sought, (2) on behalf of more than fifty “persons or prospective class members,” and (3) common questions of law or fact predominate “without reference to issues of individualized reliance on an alleged misstatement or omission.” Because this subparagraph includes the “prospective class members” language, some class actions (as that term
Subparagraph (II) also includes three criteria for a single lawsuit to qualify: (1) damages are sought, (2) by “one or more named parties” who seek to recover such damages “on a representative basis on behalf of themselves and other unnamed parties similarly situated,” and (3) common questions of law or fact predominate. This subparagrаph must also reach class actions because its definition includes suits brought by named parties “on a representative basis.”
Although there is overlap between the two, each subparagraph has a separate meaning. Subparagraph (I) includes in its scope all actions brought by groups of more than fifty “prospective class members,” so class actions of the requisite size can be covered under this definition. But this subparagraph also includes single lawsuits brought by groups of more than fifty “persons” without any “prospective” or “representative” caveat on their plаintiff status. In other words, a lawsuit may be treated as a class action even if all plaintiffs are identified in the complaint and no plaintiff is pursuing claims as a representative on behalf of others, if there are more than fifty such plaintiffs and SLUSA‘s other requirements are met.7
Subparagraph (II)‘s language includes all actions in which one named plaintiff seeks to recover damages “on a representative basis on behalf of themselves and other unnamed parties similarly situated.” By its plain and unambiguous terms, it includes any action brought as a putative class action in the traditional Rule 23 meаning of the term. And because this subparagraph contains no fifty-person threshold as (I) does, Subparagraph (II) includes all putative class actions that otherwise meet the relevant requirements in its scope, regardless of this proposed class‘s size.
This reading of the “covered class action” definition for single lawsuits still includes some overlap in the scope of each subparagraph; a putative class action in which the proposed class exceeds fifty members could be “covered” under both Subparagraph (I) and Subparagraph (II). But this redundancy is not unusual or problematic. See Conn. Nat‘l Bank v. Germain, 503 U.S. 249, 253 (1992). More importantly, this reading gives separate effect to both subparagraphs so that each covers something the other does not. See Hibbs v. Winn, 542 U.S. 88, 101 (2004) (“A statute should be construed so that effect is given to all its provisions, so that no part will be inoperative
While the plain language of each subparagraph of
The Senate Report also explains the “coverеd class action” definition in SLUSA. Regarding Subparagraph (I), it states that this portion of the definition “provides that any single lawsuit is treated as a class action if it seeks damages on behalf of more than fifty persons and questions of law or fact common to the prospective class predominate, without regard to questions of individualized reliance.” S. Rep. 105-182, at 7 (1998) (emphasis added). It also references Subparagraph (II), noting that it “provides a definition that closely tracks the relevant provisions of Rule 23 of the Federal Rules of Civil Procedure in which a suit is brought by representative plaintiffs on behalf of themselves and other unnamed parties.” Id. Together, these explanations of the “covered class action” definition in SLUSA envision the same distinction between Subparagraphs (I) and (II) that is reflected in the statute‘s text.
Applying this interpretation here demonstrates that Nielen-Thomas cannot proceed with her state-law claims.9 She calls her filing a “Class Action Complaint” and
An obvious implication of our
Congress passed these amendments to combat a specific problem—litigants were attempting to circumvent the PSLRA‘s barriers to federal securities class actions by filing their class actions under state law instead. Cyan, 138 S. Ct. at 1067. To that end, SLUSA sought “to limit the conduct of securities class actions under State law.” SLUSA, 112 Stat 3227.
The Supreme Court has consistently underscored this purpose of the amendments. See, e.g., Cyan, 138 S. Ct. at 1072 (SLUSA “preclude[s] certain vexing state-law class actions” (quoting Kircher v. Putnam Funds Tr., 547 U.S. 633, 645 n.12 (2006))). This purpose could be easily frustrated if plaintiffs bringing a state-law securities class action could simply allege that they represented a class of no more than fifty people. If SLUSA did not bar all putative class actions, such suits could proceed through the courts until discovery identified the entire class of plaintiffs. At that point, the actual class could include more than fifty persons, and by that time the abuses that the PSLRA sought to prevent would have already taken place. Cf. Holtz v. JPMorgan Chase Bank, N.A., 846 F.3d 928, 930 (7th Cir. 2017) (SLUSA was designed to prevent “artful pleading” to “evade limits on securities litigation that are designed to block frivolous or abusive suits.“). The plain language of
Nielen-Thomas also proposes two alternative interpretations of SLUSA‘s “covered class action” definition. Under either one, her case would not be included in SLUSA‘s preclusive scope because her proposеd class is alleged to contain fewer than fifty members. However, both of these proposed interpretations run contrary to the statutory text.
First, Nielen-Thomas says Subparagraphs (I) and (II) are “separate, independent bases for excluding securities class actions from SLUSA‘s proscriptions.” By this reading, if a proposed putative class contains fewer than fifty people, it is ex-empted under Subparagraph (I) without the need to go further and consider whether Subparagraph (II) might also apply. This interpretation completely reads Subparagraph (II) out of the statute, thоugh, and we do not read statutes in ways that make entire provisions superfluous. See Hibbs, 542 U.S. at 101. As previously discussed, the definition of “covered class action” for single lawsuits includes two subparagraphs separated by a disjunctive “or.” A single lawsuit can therefore be a covered class action under either section, and our analysis cannot stop after determining that a lawsuit does not meet the criteria set out in Subparagraph (I).
Alternatively, Nielen-Thomas claims the fifty-person threshold identified in Subparagraph (I) must also apply to Subparagraph (II) to avoid making the former superfluоus. This interpretation is similarly untenable; it attempts to read words from one part of the statute into another part where they do not appear, contravening the plain text. See Water Quality Ass‘n, 795 F.2d at 1309. By including the fifty-person threshold in Subparagraph (I) but omitting it from (II), Congress must have intended that it would only apply to (I). See Dig. Realty Tr., Inc. v. Somers, 138 S. Ct. 767, 777 (2018) (“[W]hen Congress includes particular language in one section of a statute but omits it in another[,]” we presume “that Congress intended a difference in meaning.” (alterations in original) (quoting Loughrin v. United States, 573 U.S. 351, 358 (2014))). Indeed, Congress also included the fifty-person threshold in the group lawsuit “covered class action” definition in
Nielen-Thomas argues these interpretations find support in statements by both the Supreme Court and Seventh Circuit indicating that class actions brought on behalf of fewer than fifty persons are not covered by SLUSA. See, e.g., Cyan, 138 S. Ct. at 1067 (“According to SLUSA‘s definitions, the term ‘covered class action’ means a class action in which ‘damages are sought on behalf of more than 50 persons.‘” (quoting
These statements appear, in isolation, to support Nielen-Thomas; they reference only the fifty-person threshold from Subparagraph (I) and suggest that only “sizable” class actions pursued on a representative basis are within SLUSA‘s scope. But in context, it is clear neither the Supreme Court nor this Circuit is making any interpretive statement regarding the scope of the “covered class action” definition because that was not the issue these cases addressed. See Cyan, 138 S. Ct. at 1066 (issue was whether SLUSA stripped state courts of jurisdiction over class actions involving 1933 Act violations, and investors did not dispute their class action would be “covered“); Chadbourne & Parke, 571 U.S. at 381 (Court considered whether SLUSA encompassed a class actiоn in which plaintiffs alleged they purchased uncovered securities that were falsely presented to them as “covered” securities); Dabit, 547 U.S. at 83–84 (plaintiff did not dispute the class was covered under SLUSA, and the issue before the Court involved the “in connection with” requirement); Holtz, 846 F.3d at 930 (issue was whether plaintiff‘s contract and fiduciary claims necessarily involved an “omission of a material fact” to implicate SLUSA); Brown, 664 F.3d at 125 (court addressed whether the plaintiff‘s complaint alleged a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered sеcurity).
The Supreme Court and the Seventh Circuit in these cases did not have the opportunity or need to opine on the contexts in which Subparagraphs (I) or (II) could apply. Thus, all of these statements defining “covered class action” solely in relation to the fifty-person requirement in Subparagraph (I) are merely dicta rather than an interpretation of SLUSA that we are bound to follow. Cf. In re Air Crash Disaster Near Chi., Ill. on May 25, 1979, 701 F.2d 1189, 1196 (7th Cir. 1983) (casual dicta of a state supreme court, as opposed to considered dicta, “has little precedential weight“). Instead, the plain text of SLUSA‘s “covered class action” definition governs, and pursuant to this unambiguous text, Nielen-Thomas‘s lawsuit is a covered class action.
In sum, SLUSA‘s definition of “covered class action” unambiguously precludes Nielen-Thomas‘s suit. She is a named plaintiff seeking to bring claims on a representative basis and alleges that common questions of law or fact predominate. Thus,
To the extent the identities of any of the other putative class members are known, and these individuals wish to pursue claims on their own behalf in stаte court under state law, nothing in SLUSA prevents them from doing so (provided there are fewer than fifty such plaintiffs for which common questions of law or fact predominate). What SLUSA does preclude these individuals from doing is continuing to pursue their claims in the form of a class action.11
For the foregoing reasons, we AFFIRM the judgment of the district court.
FLAUM
Circuit Judge