The opinion of the court was delivered by: William J. Martini, U.S.D.J.
THIS DOCUMENT RELATES TO: ALL ACTIONS
This matter comes before the Court on Defendants Lord, Abbett & Co. ("Lord Abbett") and Lord Abbett Distributor LLC's ("Lord Abbett Distributor") (together "Defendants") motion to dismiss this action pursuant to the Securities Litigation Uniform Standards Act of 1988 (hereinafter "SLUSA" or the "Act"), 15 U.S.C. § 78bb(f). For the following reasons, Defendants' motion is GRANTED and this case is DISMISSED WITH PREJUDICE.
On August 16, 2004, six shareholders ("Plaintiffs") of seven mutual funds managed by Lord Abbett filed a complaint, entitled "Consolidated Amended Class Action Complaint" (hereinafter, the "Class Action Complaint" or "C.A.C."), against Lord Abbett, its partners and directors, the trustees of Lord Abbett-sponsored funds, Lord Abbett Distributor, and certain other "John Doe" Defendants. Also named as nominal defendants were more than fifty separate mutual funds managed by Lord Abbett. Plaintiffs' Class Action Complaint alleged claims arising out of Lord Abbett's broker compensation practices between February 1999 and December 2003. In particular, Plaintiffs alleged that, during that time, Lord Abbett compensated brokers excessively as an incentive to steer new investors into Lord Abbett mutual funds.
The Class Action Complaint, as its name suggests, fashioned itself as purporting a federal class action. In fact, the first paragraph of the Class Action Complaint announced that it was setting forth "a federal class action complaint based upon the failure of defendant Lord Abbett ... to disclose excessive fees and commissions they siphoned from Lord Abbett mutual fund investors in order to improperly pay and induce brokers to steer investors into Lord Abbett mutual funds." (C.A.C. ¶ 1.) The Class Action Complaint then alleged ten counts based upon State and Federal law. Specifically, Counts One through Four purported to assert class action claims under §§ 34(b), 36(a), 36(b), and 48(a) of the Investment Company Act of 1940 ("ICA"), 15 U.S.C. § 80a-1 et seq., respectively.(C.A.C. ¶¶ 142-168.)Count Five, which incorporated Counts One through Four, sought to rescind Lord Abbett's advisory contracts under § 215 of the Investment Adviser Act of 1940 ("IAA"), 15 U.S.C. § 80b-1 et seq. (C.A.C. ¶¶ 169-176.) Count Six attempted to allege one claim under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. (C.A.C. ¶¶ 177-178.) Finally, Counts Seven through Ten purported to assert various class action claims under state law.*fn1 (C.A.C. ¶¶ 179-198.)
On August 30, 2005, the Court dismissed Counts One through Five for failure to state a claim. In re Lord Abbett Mut. Funds Fee Litig., 385 F. Supp. 2d 471, 480-82, 485-91 (D.N.J. 2005), amended by 407 F. Supp. 2d 616, 625-26, 629-35 (D.N.J. 2005). In addition, the Court dismissed Plaintiffs' state law claims in Counts Seven through Ten as preempted by SLUSA.*fn2 In re Lord Abbett, 385 F. Supp. 2d at 482-84; In re Lord Abbett, 407 F. Supp. 2d at 626-29. The Court also dismissed Plaintiffs' class action allegations in Counts Three and Four, which attempted to assert claims under §§ 36(b) and 48(a) of the ICA, because no direct cause of action exists under those statutes. In re Lord Abbett, 385 F. Supp. 2d at 488-89; In re Lord Abbett, 407 F. Supp. 2d 632-34. The Court, though, dismissed Counts Three and Four without prejudice and granted Plaintiffs leave to replead them derivatively. In response, Plaintiffs filed an amended complaint, entitled "Second Amended Derivative Complaint," purporting to assert derivative claims under §§ 36(b) and 48(a).
Defendants later moved for reconsideration of the Court's decision. In their motion, Defendants argued, inter alia,that because Plaintiffs employed the class action device to assert their claims, the Court's dismissal of Counts Seven through Ten under SLUSA required the dismissal of the entire class action, including Counts Three and Four. In support of this argument, Defendants cited the Third Circuit's decision in Rowinski v. Solomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005), which indicated in dicta that SLUSA may require dismissal of an entire class action where one or more claims in the class action are preempted under the Act.
The Court, though, denied this motion. In re Lord Abbett Mut. Fund Fee Litig., 417 F. Supp. 2d 624 (D.N.J. 2005). Regarding Defendants' argument under Rowinski, the Court held that, because the Third Circuit's discussion of this issue was contained in dicta, it did not constitute controlling law overlooked by the Court. Id. at 629-30. Accordingly, the Court held that Plaintiffs did not satisfy their burden for reconsideration. Id. at 630. Defendants followed our ruling by filing a "motion for clarification." In this motion, Defendants asked the Court whether, in denying their motion for reconsideration, we implicitly determined that preemption of one claim under SLUSA did not require dismissal of the entire class action. If we did not reach this determination, Defendants asked the Court to grant them leave to brief the issue for our de novo consideration.
In an unpublished Order, the Court informed Defendants that our ruling on their motion for reconsideration did not implicitly determine whether preemption of one count in a class action complaint under SLUSA required the dismissal of the entire class action. Instead, the Court reiterated that our Opinion and Order denying reconsideration merely held that Rowinski did not constitute a controlling decision overlooked by the Court, and therefore did not constitute sufficient grounds for reconsideration. The Court, though, granted Defendants' alternative request to brief the issue for our de novo consideration. The present motion followed, which is presently before the Court.
While the Court is mindful that it previously granted Plaintiffs leave to replead Counts Three and Four as derivative claims, and that Plaintiffs filed their Second Amended Derivative Complaint in response, the Court now must reverse course on its decision. When Plaintiffs originally brought their action, they did so by employing the class action device. Each count was contained in a class action complaint and each count pled claims on behalf of the class, including Counts Three and Four.*fn3 As such, once we found Counts Seven through Ten preempted by SLUSA, we were required to dismiss the entire class action, including Counts Three and Four, and not grant Plaintiffs leave to file a new complaint alleging an entirely new and different action. This is clear not only from the statutory text of SLUSA, but also from the considered dicta by the Third Circuit in Rowinski. Therefore, because the Court erred in allowing Plaintiffs leave to amend Counts Three and Four of their Class Action Complaint and file an entirely new non-class action, the Court will now vacate its prior decision allowing Plaintiffs to replead those Counts. Instead, the Court will dismiss the entire action under SLUSA. The following discussion explains why.
In their brief, Defendants argue that SLUSA's preemption of "actions," rather than "claims," compels dismissal of the entire case. The relevant portion of SLUSA, upon which they rely, states:
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 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 ...