We previously reported that, on October 5, 2015, the U.S. District Court for the Northern District of California, on remand from the U.S. Court of Appeals for the Ninth Circuit, issued an opinion in Northstar Financial Advisors Inc. v. Schwab Investments, granting the defendants’ motion to dismiss some state law claims but denying the defendants’ motion to dismiss certain breach of fiduciary duty claims. The District Court’s October 2015 decision followed the earlier remand decision by the Ninth Circuit Court of Appeals, which held that three novel state law claims were validly pled by a plaintiff seeking to represent a class of mutual fund shareholders.1 In its October 2015 opinion, the District Court refused to dismiss the breach of fiduciary duty claims at the motion to dismiss stage of the case, after determining that the defendants had waived defenses under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) at an earlier stage of the proceedings. After the decision, the plaintiffs filed a motion asking the District Court for permission to file a motion for reconsideration, and the defendants filed a motion for judgment on the pleadings with respect to the remaining breach of fiduciary duty claims.
On February 23, 2016, the District Court issued an order denying the plaintiffs’ motion for leave to file a motion for reconsideration and granting the defendants’ motion for judgment on the pleadings as to all remaining claims. For procedural reasons, the defendants were able to assert a SLUSA defense at this stage, notwithstanding that it had been waived at the motion to dismiss stage. In its opinion, the District Court concluded that the remaining breach of fiduciary duty claims were based on a misrepresentation or omission and, therefore, were precluded by SLUSA. According to media reports, the plaintiff plans to appeal the District Court’s decision.
While the District Court’s opinion is favorable to funds and their advisers and board members, it remains to be seen whether plaintiffs can successfully assert state law claims that are actionable under the Ninth Circuit’s decision – which allowed breach of contract and fiduciary duty claims to be asserted directly against funds, trustees and advisers – that are not precluded by a SLUSA defense.