On Appeal from the United States District Court for the Middle District of Pennsylvania D.C. Civil Action No. 02-cv-02014 (Honorable James M. Munley)
Before: Scirica, Chief Judge,
Fisher and Greenberg, Circuit Judges
The opinion of the court was delivered by: Scirica, Chief Judge
The Securities Litigation Uniform Standards Act of 1998 ("SLUSA") provides for the removal and federal preemption of certain state court class actions alleging "a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1)(A) (West Supp. 2004). At issue is whether this action on behalf of a putative class of Salomon Smith Barney retail brokerage customers is preempted by SLUSA.
Plaintiff Ryan Rowinski filed this class suit in Pennsylvania state court alleging Salomon Smith Barney's dissemination of "biased investment research" breached the parties' services contract, unjustly enriched Salomon Smith Barney, and violated state consumer protection law. Salomon Smith Barney removed to federal court, where the District Court granted its motion to dismiss based on SLUSA preemption. We will affirm.
Salomon Smith Barney is one of the world's largest stock brokerage and investment banking firms. Among its customers are corporate clients who receive investment banking services such as equity and debt underwriting, and individual investors who maintain Salomon Smith Barney retail brokerage accounts. In servicing its retail brokerage customers, Salomon Smith Barney produces investment research compiled by a team of inhouse analysts. This action alleges that Salomon Smith Barney's research was unlawfully biased in favor of the firm's investment banking clients, to the detriment of its retail brokerage customers.
Purporting to represent a class of "[a]ll persons who maintained a Salomon Smith Barney retail brokerage account and who paid any charges[,] commissions or fees to Salomon Smith Barney," plaintiff sued Salomon Smith Barney in Pennsylvania state court for breach of contract, unjust enrichment, and violation of state consumer protection statutes. The gravamen of the action is the allegedly "biased investment research and analysis" provided by Salomon Smith Barney to the putative class. (Compl. ¶ 2.) Specifically, plaintiff alleges Salomon Smith Barney "artificially inflates the ratings and analysis of its investment banking clients" in order to "curry favor with investment banking clients and reap hundreds of millions of dollars in investment banking fees." Plaintiff also alleges the National Association of Securities Dealers ("NASD") fined Salomon Smith Barney for "issuing materially misleading research reports," and that "examples of Defendant's providing retail brokerage customers with biased and misleading analyst reports abound."
Count I seeks damages under state law for breach of contract. This count alleges Salomon Smith Barney "failed to provide unbiased analysis and instead provided biased and misleading analysis that was intended to curry favor with Defendant's existing and potential investment banking clients. Defendant thereby breached its contracts with Plaintiff and the Class." Count II, for unjust enrichment, seeks recovery of the "fees and charges" paid to Salomon Smith Barney in exchange for "objective and unbiased investment research and analysis." Count III alleges deceptive consumer practices in violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq. This count seeks recovery of "millions of dollars in unnecessary and unwarranted brokerage fees and charges" attributable to Salomon Smith Barney's failure "to disclose material facts to its retail brokerage customers" regarding "the relationship between its analysts and its investment bankers."
Plaintiff's prayer for relief seeks, inter alia, damages in "an amount equal to the amount of any and all fees and charges collected" from the class and "all available compensatory damages."
Salomon Smith Barney removed the action to the United States District Court for the Middle District of Pennsylvania. After plaintiff filed a motion to remand to state court, Salomon Smith Barney filed a cross-motion to dismiss based on SLUSA preemption. The District Court denied the motion to remand and granted Salomon Smith Barney's motion to dismiss. Relying in part on the Supreme Court's decision in SEC v. Zandford, 535 U.S. 813 (2002), the District Court held the complaint, though framed in terms of state law, nevertheless alleged a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security. Accordingly, the District Court dismissed plaintiff's claims under SLUSA. Rowinski v. Salomon Smith Barney, Inc., 2003 U.S. Dist. LEXIS 20918 (M.D. Pa. Nov. 20, 2003).
The Securities Litigation Uniform Standards Act of 1998 provides, in part:
(1) Class action limitations
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 misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or... that the defendant used or employed any manipulative or ...