The District Court granted plaintiffs’ motion to remand two class actions which were removed to federal court by defendants, two mutual funds and their manager, pursuant to the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Plaintiffs, long-term mutual fund investors, alleged that the value of their shares in defendants’ funds were diluted as a result of certain objectionable practices in which defendants allegedly engaged. The Court noted that SLUSA was passed by Congress in order to prevent plaintiffs from evading the protections that federal law provides against abusive litigation by filing suit in State courts. While finding that, under SLUSA, federal courts are the “exclusive fora for most class actions involving the purchase and sale of securities,” the Court ruled that plaintiffs’ claims did not fall within SLUSA’s preemptive scope.
The plaintiffs’ claims were not brought “in connection with the purchase or sale of a covered security,” but rather were brought on behalf of “holders of fund shares” (emphasis in original) whose interests were allegedly wrongfully diluted by defendants’ conduct. Accordingly, the claims were not actionable under 10(b)(5) of the 1934 Securities and Exchange Act and, thus, were not removable.