In re Lord Abbett Mutual Funds Fee Litigation
| Decision Date | 20 January 2009 |
| Docket Number | No. 07-1112.,07-1112. |
| Parties | In re LORD ABBETT MUTUAL FUNDS FEE LITIGATION, Joseph C. White; Josephine Logan; Richard Curtis; Bo Bortner; James A. Pingitore; Philip B. Katz, Appellants. v. Lord Abbett & Co LLC; Lord Abbett Distributor LLC; Tracie E. Ahern; Joan A. Binstock; Daniel E. Carper; Robert S. Dow; Howard E. Hansen; Paul A. Hilstad; Lawrence H. Kaplan; Robert G. Morris; A. Edward Oberhaus, III; Edward K. Von Der Linde; Michael Brooks; Zane E. Brown; Patrick Browne; John J. Dichiaro; Sholom Dinsky; Leslie J. Dixon; Kevin P. Ferguson; Robert P. Fetch; Daria L. Foster; Daniel H. Frascarelli; Robert I. Gerber; Michael S. Goldstein; Michael A. Grant; Charles Hofer; W. Thomas Hudson; Cinda Hughes; Ellen G. Itskovits; Maren Lindstrom; Robert A. Lee; Gregory M. Macosko; Thomas Malone; Charles Massare, Jr.; Stephen J. McGruder; Paul McNamara; Robert J. Noelke; R. Mark Pennington; Walter Prahl; Michael Rose; Eli M. Salzmann; Douglas B. Sieg; Richard Sieling; Michael T. Smith; Richard Smola; Diane Tornejal; Christopher J. Towle; Marion Zapolin. |
| Court | U.S. Court of Appeals — Third Circuit |
Jerome M. Congress, Esquire (Argued), Milberg Weiss, LLP, Mark Levine Esquire, Stull Stull & Brody, New York, NY, Patrick L. Rocco, Esquire, Shalov, Stone & Bonner, Morristown, NJ, for Appellants.
Jeffrey B. Maletta, Esquire (Argued), Nicholas G. Terris, Esquire, Shanda N. Hastings, Esquire, Kirkpatrick & Lockhart Preston Gates Ellis, LLP, Washington, D.C., Christopher A. Barbarisi, Esquire, Kirkpatrick & Lockhart Preston Gates Ellis, LLP, Newark, NJ, for Appellees.
Before: SLOVITER, BARRY and ROTH, Circuit Judges.
Plaintiffs appeal the December 4, 2006, order of the U.S. District Court for the District of New Jersey, dismissing their action with prejudice pursuant to the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. § 78bb(f). This appeal presents the question whether SLUSA requires the dismissal of the entire action when the action includes some state law class action claims that clearly may not be maintained under SLUSA as well as other claims that are not so prohibited. We hold that SLUSA does not require such a dismissal. Accordingly we will vacate the dismissal and remand this case for further proceedings.
Plaintiffs are a proposed class of shareholders of mutual funds managed by Lord, Abbett & Co. LLC (Lord Abbett). On February 9, 2004, they filed this lawsuit against Lord Abbett and Lord Abbett Distributor LLC, the investment adviser and distributor of the Lord Abbett mutual funds.1 Following the consolidation of multiple related cases, plaintiffs filed a Consolidated Amended Class Action Complaint on August 16, 2004.
In their Consolidated Amended Class Action Complaint, plaintiffs alleged (among other misdeeds) that Lord Abbett charged its existing investors excessive fees that were improperly used to pay brokers to market Lord Abbett funds to other investors. Plaintiffs claimed that Lord Abbett was motivated to charge excessive fees because its management fees were based on the amount of assets being managed — as the number of investors grew so did the assets — and so did the fees. Plaintiffs alleged violations of both federal and state law, including violations of Sections 36(b) and 48(a) of the Investment Company Act of 1940, brought on behalf of the proposed class, and four state law counts, also brought on behalf of the class.
Defendants filed a motion to dismiss, based in part on the ground that plaintiffs' action was pre-empted by SLUSA, 15 U.S.C. § 78bb(f). As we recently explained in LaSala v. Bordier et Cie, 519 F.3d 121, 127-28 (3d Cir.2008), SLUSA was enacted as a supplement to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. §§ 77z-1, 78u-4 (PSLRA or Reform Act). Congress enacted the PSLRA to prevent the filing of "strike suits" — abusive class actions which are brought with the hope that the expense of litigation may force defendants to settle despite the actions' lack of merit. In Congress's view, such actions "unnecessarily increase the cost of raising capital and chill corporate disclosure...." S. Rep. 104-98 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 683. The PSLRA imposed a number of requirements on federal securities litigation plaintiffs, designed to deter such frivolous suits.2
In reaction to the rigors of the PSLRA, plaintiffs began filing cases in state courts under less strict state securities laws. Congress then enacted SLUSA, stating that
[I]n order to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the Private Securities Litigation Reform Act of 1995, it is appropriate to enact national standards for securities class action lawsuits involving nationally traded securities, while preserving the appropriate enforcement powers of State securities regulators and not changing the current treatment of individual lawsuits.
SLUSA, S. 1260, 105th Cong. § 2(5), 112 Stat. 3227. The SLUSA Conference Report explains that
[S]ince passage of the Reform Act, plaintiffs' lawyers have sought to circumvent the Act's provisions by exploiting differences between Federal and State laws by filing frivolous and speculative lawsuits in State court, where essentially none of the Reform Act's procedural or substantive protections against abusive suits are available.... [A] single state can impose the risks and costs of its peculiar litigation system on all national issues. The solution to this problem is to make Federal court the exclusive venue for most securities fraud class action litigation involving nationally traded securities.
H.R.Rep. No. 105-803, at 14-15 (1998) (Conf.Rep.) (internal quotation omitted).
Accordingly, SLUSA barred certain class actions and mass actions from state courts, providing in relevant part:
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 of a covered security; or
(B) that the defendant used or employed 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). Under SLUSA, a "covered class action" brought in state court may be removed to federal court and is subject to the above limitations. 15 U.S.C. § 78bb(f)(2).
SLUSA defines the term "covered class action" as:
(i) any single lawsuit in which —
(I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual persons or members; or
(II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members; or
(ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which —
(I) damages are sought on behalf of more than 50 persons; and
(II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose.
15 U.S.C. § 78bb(f)(5)(B).
SLUSA is frequently described as "pre-empting" state-law claims. However, as the Supreme Court has explained, SLUSA does not actually "pre-empt" such claims; it merely "denies plaintiffs the right to use the class-action device to vindicate certain claims." Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 87, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006) (Dabit II). Plaintiffs retain the right to bring such a claim as an individual state-law claim or federal securities fraud class action claim. LaSala, 519 F.3d at 129.
On August 30, 2005, the District Court dismissed the four state claims pled in plaintiffs' Consolidated Amended Class Action Complaint as pre-empted by SLUSA.3 The District Court also dismissed the remaining federal claims for failure to state a claim. With respect to plaintiffs' claims for violations of Sections 36(b) and 48(a) of the Investment Company Act of 1940, the District Court determined that there is no direct cause of action under Section 36(b), which was a predicate for the Section 48(a) claim, and dismissed those claims without prejudice.
Plaintiffs filed a Second Amended Complaint on September 29, 2005, asserting only two derivative claims alleging violations of Sections 36(b) and 48(a) of the Investment Company Act. In general, plaintiffs alleged that Lord Abbett had received excessive management fees from its investors, primarily because it had failed to pass along the benefits of the economies of scale achieved as the funds grew.
Meanwhile, on September 14, 2005, defendants moved for reconsideration of the District Court's decision to dismiss the claims without prejudice, in part on the grounds that SLUSA requires dismissal of the entire action not merely dismissal of the improper state law securities claims. Without reaching the issue, the District Court denied the motion as lacking sufficient grounds for reconsideration but subsequently granted the defendants leave to brief the issue for de novo consideration. Accordingly, on May 3, 2006, defendants filed a motion to dismiss the Second Amended Complaint pursuant to SLUSA.4
The District Court granted the motion and dismissed the Second Amended Complaint with prejudice on December 4, 2006. The District Court referred to our opinion in Rowinski v. Salomon Smith...
To continue reading
Request your trial
-
Robert D. Mabe, Inc. v. OptumRX
...Douglass v. Convergent Outsourcing , 765 F.3d 299, 302 (3d Cir. 2014) (alteration adopted) (quoting In re Lord Abbett Mut. Funds Fee Litig. , 553 F.3d 248, 254 (3d Cir. 2009) ). But on occasion, plain and unambiguous language ends up stating what was not Congress's intent. In these instance......
-
In re Philadelphia Newspapers, LLC
...that the polestar for interpreting a statute is to ascertain the intent of Congress. See White v. Lord Abbett & Co. LLC (In re Lord Abbett Mutual Funds Fee Litig.), 553 F.3d 248, 255 (3d Cir.2009). "The role of the courts in interpreting a statute is to give effect to Congress's intent." Al......
-
N. Sound Capital LLC v. Merck & Co.
...that SLUSA precluded Plaintiffs’ claims, even though that posed a threshold jurisdictional issue. See In re Lord Abbett Mut. Funds Fee Litig. , 553 F.3d 248, 254 (3d Cir. 2009). Instead, Merck contended that their federal claims were barred by the Securities Exchange Act’s statute of repose......
-
Knopick v. UBS Fin. Servs., Inc.
...Mgmt. Ltd. Litig., 784 F.3d 128, 135 n. 9 (2d Cir.2015). "SLUSA preemption is [thus] jurisdictional." See In re Lord Abbett Mut. Funds Fee Litig., 553 F.3d 248, 254 (3d Cir.2009) ; see also LaSala v. Bordier et CIE, 452 F.Supp.2d 575, 577 n. 1 (D.N.J.2006) (observing that SLUSA preemption i......