The UCL and securities class actions

Yesterday, in a widely-publicized decision, the U.S. Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 preempts "state-law class-action claims brought by plaintiffs who have a private remedy under federal law" as well as "state-law class-action claims for which federal law provides no private remedy." Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. ___ (Mar. 21, 2006) (slip op. at 1).

There is a split in California decisional law on whether the UCL may be invoked to rectify securities violations (regardless of whether federal law provides a parallel remedy). Compare Roskind v. Morgan Stanley Dean Witter & Co., 80 Cal.App.4th 345 (2000) (holding that UCL claim may be predicated on securities law violations) with Bowen v. Ziasun Technologies, 116 Cal.App.4th 777 (2004) (holding that UCL does not apply to securities transactions); see also these blog posts from 2004 (discussing Bowen and UCL securities claims). Assuming that Roskind has the better view on this issue, and securities claims can be rectified via the UCL as a matter of California state law, it could be that this new Supreme Court decision has closed that avenue of relief. On the other hand, the federal statute applies only to a "covered class action," which is defined as "any single lawsuit in which ... damages are sought on behalf of more than 50 persons ...." Merrill Lynch, slip op. at 10 n.8 (quoting 15 U.S.C. §78bb(f)(5)(B)). Because "damages" are not recoverable under the UCL, there could be some wiggle room to argue that the federal statute does not apply. Still, given Prop. 64's class action provisions and the Class Action "Fairness" Act's removal provisions, you'll probably wind up making this argument to a federal judge, very few of whom would likely be receptive to it. And since you'll be in federal court anyway, you may as well plead the securities violation under federal law. Comments, anyone?

UPDATE: The Wall Street Journal Law Blog has this post with links to blogosphere commentary on the Merrill Lynch decision, including this thoughtful analysis at the Conglomerate, which observes: "With one fell swoop, the Supreme Court wipes out the practical value of many state blue sky laws and general consumer fraud laws and such. I understand and agree with the 'occupying the field' argument in principle, but, geesh, today is a very different consumer fraud litigation day than was yesterday!"

Comments

[Avi Wagner]

Another significant excpetion is SLUSA's limitation to covered securities, whcich still leaves open securities class action's where the Securities Act of 1933 is not implicated