U.S. Chamber Urges Supreme Court to Close Door on Preempted Securities Fraud Claims

WASHINGTON, D.C. – In an amicus curiae brief filed today in Merrill Lynch v. Dabit, the United States Chamber of Commerce urged the Supreme Court to close a loophole that allows plaintiffs to bypass federal law in filing class action security fraud claims.

"Congress did not enact the Securities Litigation Uniform Standards Act (SLUSA) to allow plaintiffs to bring more securities fraud claims based on disparate state laws," said Robin S. Conrad, senior vice president of the National Chamber Litigation Center, the Chamber's public policy law firm. "In fact, Congress believed that lax state laws encouraged the filing of merit less suits in order to coerce settlement."

In 1998, concerned that litigation had detoured into state court in order to avoid the stringent pleading requirements of the federal Private Securities Litigation Reform Act of 1995, Congress enacted SLUSA to preempt class actions brought pursuant to state law which alleged a "misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security."

The Second Circuit ruled that SLUSA preempts only state law-based causes of actions which involved the purchase or sale of securities, rather than class actions filed on behalf of securities holders who have not bought or sold a stock during the class period.

"Holder suits are especially susceptible to abuse because the injuries are speculative and proven through oral testimony," Conrad said. "The idea that Congress—faced as it was with a mountain of evidence that the plaintiffs' bar had circumvented its prior enactment—would open the door to even less meritorious suits flies in the face of the plain language of the statute and all of its legislative history."

The U.S. Chamber of Commerce is the world's largest business federation, representing more than three million businesses and organizations of every size, sector, and region. The National Chamber Litigation Center is a membership organization that advocates fair treatment of business in the courts and before regulatory agencies.

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