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Prager v. Knight/Trimark Group

December 29, 2000


The opinion of the court was delivered by: Debevoise, Senior District Judge



This action arises out of allegations that defendant Knight/Trimark Group, Inc. ("Knight"), a "market maker" engaged in the business of executing the purchase and sale of NASDAQ securities for various brokerage houses, improperly used information about retail customers' intent to trade particular securities in order to execute its own trades for its own profit before executing its customers' trades. Plaintiff Yakov Prager asserts five causes of action against Knight, individually and on behalf of all others similarly situated, alleging breach of contract, violation of the implied covenant of good faith, breach of fiduciary duty, unjust enrichment, and violation of New Jersey's Consumer Fraud Act.

Plaintiff alleges that although the Rules of Conduct of the National Association of Securities Dealers ("NASD") require brokers to execute retail customers' trades at the best available market price, without excessive markups, and that market makers execute their customers' trades before their own, Knight traded "in advance of such retail customers," thus giving Knight "an informational advantage amounting to exclusive intelligence on which it can trade for its own profit." (Compl. ¶¶ 11-20.) Plaintiff alleges that "[s]uch practice violates the NASDAQ rules of conduct, the implied and express agreements between Plaintiff and the Class of customers and the broker/dealers for whom they act, and the fiduciary obligations of defendant." (Compl. ¶ 21.) Plaintiff asserts, inter alia, that Knight

concealed, suppressed and omitted the fact that it was executing for Plaintiff and the other class members orders in a manner which caused Plaintiff and the class customers to pay artificially higher prices than they would have otherwise paid. Defendant failed to disclose[] this information with the intent that Plaintiff and Class members rely upon such concealment, suppression or omission. (Compl. ¶ 44.)

On March 17, 2000, plaintiff filed this action against Knight in the Superior Court of New Jersey, Hudson County, purporting to represent "all retail purchasers and sellers throughout the United States of NASDAQ listed securities whose orders were executed through [Knight], during the period March 3, 1996 through March 3, 2000." (Compl. ¶ 3.) On June 2, 2000, defendant filed a notice of removal of this action to federal court pursuant to 15 U.S.C. § 78bb(f)(2) of the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") because the case "involves a 'covered security'" under the Act. (Def. Notice of Removal, ¶ 7.)

On July 5, 2000, plaintiff filed a motion to remand the case to state court, arguing that the case is not removable under SLUSA because it does not "involve[] a covered security." (Pl. Br. at 3.) Defendant opposes, and simultaneously moves to dismiss the complaint, alleging that the case was properly removed to federal court under SLUSA's removal provision and that the complaint should now be dismissed because plaintiff's claims are preempted by SLUSA.

Standard for Removal

Doubts concerning removability are usually resolved in favor of remanding the case to state court. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 104 (1941); Ortiz v. Sam's Club Membership Warehouse, 41 F. Supp. 2d 545, 546 (D.N.J. 1999). The removing party has the burden of establishing that removal is proper. Steel Valley Auth. v. Union Switch & Signal Div., Am. Standard, Inc., 809 F.2d 1006, 1010 (3d Cir. 1987).


Enacted in 1998, SLUSA amended the Securities Act of 1934 to preclude a private party from bringing a "covered class action" in federal or state court, based on state law, alleging a "misrepresentation or omission of a material fact" or the use of "any manipulative or deceptive device or contrivance" "in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1).

SLUSA, 15 U.S.C. § 78bb(f)(1) provides as follows:

No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging--

(A) a misrepresentation or omission of a material fact in connection with the purchase or sale ...

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