Nielen-Thomas v. Concorde Inv. Servs., LLC

• Decision Date: 24 January 2019
• Docket Number: No. 18-2875,18-2875
• Citation: 914 F.3d 524
• Parties: Susan NIELEN-THOMAS, Plaintiff-Appellant, v. CONCORDE INVESTMENT SERVICES, LLC, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

914 F.3d 524

Susan NIELEN-THOMAS, Plaintiff-Appellant,

v.CONCORDE INVESTMENT SERVICES, LLC, et al., Defendants-Appellees.

No. 18-2875

United States Court of Appeals, Seventh Circuit.

Argued January 15, 2019

Decided January 24, 2019

Ami Annette Regele, Michael H. Schaalman, Attorneys, HALLING & CAYO, S.C., Milwaukee, WI, for Plaintiff-Appellant.

Marc S. Ehrlich, Attorney, REIF LAW GROUP, P.C., Los Angeles, CA, Sarah A. Zylstra, Attorney, BOARDMAN & CLARK LLP, Madison, WI, for Defendant-Appellee CONCORDE INVESTMENT SERVICES, LLC.

Peyton Barkley Engel, Andrew W. Erlandson, Attorneys, HURLEY, BURISH & STANTON, S.C., Madison, WI, for Defendant-Appellee FORTUNE FINANCIAL SERVICES, INCORPORATED.

Donald Albert Daugherty, Jr., Attorney, GODFREY & KAHN S.C., Milwaukee, WI, Dana Gloor, Attorney, MILES & STOCKBRIDGE P.C., Baltimore, MD, for Defendant-Appellee TD AMERITRADE.

Laura E. Callan, Ted Waskowski, Attorneys, STAFFORD ROSENBAUM LLP, Madison, WI, for Defendant-Appellee WISCONSIN RIVER BANK.

Nicholas L. Hahn, Attorney, NICHOLAS HAHN, Oshkosh, WI, for Defendant-Appellee WISCONSIN INVESTMENT SERVICES, LLC.

Before Flaum, Kanne, and Hamilton, Circuit Judges.

Flaum, Circuit Judge.

Susan Nielen-Thomas, on behalf of herself and others similarly situated, filed a complaint in Wisconsin state court alleging she and other class members were defrauded by their investment advisor. Defendants removed the case to federal court. They then argued the action should be dismissed because it was a "covered class action" precluded by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). See 15 U.S.C. § 78bb(f)(1), (f)(5)(B), amending Securities Exchange Act of 1934.¹ According to Nielen-Thomas, her lawsuit did not meet SLUSA’s "covered class action" definition because she alleged a proposed class with fewer than fifty members. See § 78bb(f)(5)(B)(i)(I). The district court agreed with defendants that Nielen-Thomas’s suit was a "covered class action" because she brought her claims in a representative capacity, see § 78bb(f)(5)(B)(i)(II), and it dismissed her claims with prejudice.

We hold that the plain language of SLUSA’s "covered class action" definition includes any class action brought by a named plaintiff on a representative basis, regardless of the proposed class size. Because this includes Nielen-Thomas’s class action lawsuit and her complaint meets all other statutory requirements, her lawsuit is precluded by SLUSA. We affirm the judgment of the district court.

I. Background

On February 5, 2018, plaintiff-appellant Nielen-Thomas filed a putative class action in Wisconsin state court against defendants-appellees Concorde Investment Services, LLC, Fortune Financial Services, Inc., TD Ameritrade, Inc., Wisconsin River Bank, Jeffrey L. Butler, and Wisconsin Investment Services LLC. The class includes retail clients of Butler and his investment advisory firm, Wisconsin Investment Services. According to the complaint, Butler exercised control of his clients’ accounts and owed them a fiduciary duty to act in their best interests. Butler allegedly failed to properly manage these accounts, though, leading to huge losses.

Nielen-Thomas identifies two ways Butler mismanaged accounts. First, Butler promised to create individualized portfolios for each investor; instead, he subjected his clients to block trades that lacked asset allocation and diversification suitable for retail investors. Second, Butler repeatedly purchased and sold on behalf of his clients an exchange-traded note known as VXX. VXX is an unsecured debt instrument designed to track the movement of futures on an index that measures overall market volatility. This note is inherently volatile and risky, and it is designed to be used as a hedge by sophisticated investors only on a short-term basis. However, Butler repeatedly purchased and sold VXX on behalf of his retail clients and let it sit in their accounts for months, even though such a strategy was practically guaranteed to lose money.

The other defendants are entities that Nielen-Thomas claims are also responsible for Butler’s conduct. Butler was a registered broker with Concorde from March 2012 to May 2015 and with Fortune from July 2015 to December 2016. Concorde and Fortune were required to supervise Butler’s investment advisory activities when he was trading in the accounts of their customers but allegedly failed to do so. Additionally, Butler had an agreement with TD Ameritrade through which Butler could use its online trading platform to execute all trades in his clients’ accounts. TD Ameritrade also allegedly failed to properly supervise Butler’s activity. Finally, Wisconsin River Bank referred clients to Butler, who in turn compensated the bank for these referrals. Nielen-Thomas alleges the bank owed its clients a duty of care in recommending investment advisors to them, and it breached that duty by recommending Butler.

In her class-action complaint, Nielen-Thomas brought nine state-law claims on behalf of the putative class, alleging breaches of Wisconsin and Nebraska securities laws, breach of Wisconsin’s "fraudulent representations" statute, and common law violations under both Wisconsin and Nebraska law for breach of contract, fraud, negligence, failure to supervise, and breach of fiduciary duty.² According to the complaint, "[w]hile the exact number of putative Class members cannot be determined yet, upon information and belief, the putative Class consists of at least 35, but no more than 49 members."

On March 30, 2018, defendants removed the case to the Western District of Wisconsin pursuant to SLUSA, 15 U.S.C. § 78bb(f)(2). After removal, defendants Fortune, TD Ameritrade, and Concorde³ moved to dismiss Nielen-Thomas’s nine state-law claims as barred by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. §§ 77, 78, and SLUSA. Specifically, defendants argued this suit qualified as a "covered class action" that was both removable and precluded by SLUSA. Nielen-Thomas opposed these motions and sought to remand the case because, she argued, her case did not fall within SLUSA’s ambit; she claimed that because her proposed class contained fewer than fifty members, it could not be a "covered class action" as defined by the statute.

On July 26, 2018, the district court denied Nielen-Thomas’s motion to remand and granted defendants’ motion to dismiss. The court noted that SLUSA’s language was "confusing," but concluded its "legislative history clears things up"—the lawsuit was not a covered class action under 15 U.S.C. § 78bb(f)(5)(B)(i)(I) because her proposed class had fewer than fifty members, but her lawsuit met SLUSA’s definition of a "covered class action" in 15 U.S.C. § 78bb(f)(5)(B)(i)(II) because she brought her action on behalf of unnamed parties in a representative capacity. SLUSA thus precluded her state-law claims, and the district court dismissed them with prejudice. Nielen-Thomas appeals.

II. Discussion

At issue is the district court’s denial of Nielen-Thomas’s motion to remand and its grant of defendants’ motions to dismiss based on its interpretation of SLUSA’s "covered class action" definition. We review the district court’s interpretation of a statute de novo.

United States v. Rosenbohm , 564 F.3d 820, 822 (7th Cir. 2009).

When confronting an issue of statutory interpretation, we must always begin with the text and "give effect to the clear meaning of statutes as written." Star Athletica, L.L.C. v. Varsity Brands, Inc. , ––– U.S. ––––, 137 S.Ct. 1002, 1010, 197 L.Ed.2d 354 (2017) (quoting Estate of Cowart v. Nicklos Drilling Co. , 505 U.S. 469, 476, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992) ). If the text is clear, we can end our inquiry here as well. Id. We also read a statute "as a whole" rather than "as a series of unrelated and isolated provisions." Arreola-Castillo v. United States , 889 F.3d 378, 386 (7th Cir. 2018) (first quoting King v. St. Vincent’s Hosp. , 502 U.S. 215, 221, 112 S.Ct. 570, 116 L.Ed.2d 578 (1991), then quoting Gonzales v. Oregon , 546 U.S. 243, 273, 126 S.Ct. 904, 163 L.Ed.2d 748 (2006) ). Words are given "their ordinary and natural meaning" in the absence of a specific statutory definition. CFTC v. Worth Bullion Grp., Inc. , 717 F.3d 545, 550 (7th Cir. 2013) (quoting Scherr v. Marriott Int’l, Inc. , 703 F.3d 1069, 1077 (7th Cir. 2013) ). We must also, if possible, give effect to "every clause and word" of a statute, taking care not to read words into the text or to treat any words as surplusage. Duncan v. Walker , 533 U.S. 167, 174, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001) (quoting United States v. Menasche , 348 U.S. 528, 538–39, 75 S.Ct. 513, 99 L.Ed. 615 (1955) ); Water Quality Ass’n Emps.’ Benefit Corp. v. United States , 795 F.2d 1303, 1309 (7th Cir. 1986).

Regarding SLUSA’s language specifically, "Congress envisioned a broad construction" of the statute, which "follows not only from ordinary principles of statutory construction but also from the particular concerns that culminated in SLUSA’s enactment." Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit , 547 U.S. 71, 86, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006). SLUSA amends the Securities Act of 1933 and the Securities Exchange Act of 1934, both of which regulate federal securities "to promote honest practices in the securities market." Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund , ––– U.S. ––––, 138 S.Ct. 1061, 1066, 200 L.Ed.2d 332 (2018). Congress had previously amended these two laws when it passed the PSLRA in 1995, "principally to stem ‘perceived abuses of the class-action vehicle in litigation involving nationally traded securities.’ " Id. (quoting Dabit , 547 U.S. at 81, 126 S.Ct. 1503 ). Specifically, "nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests, and manipulation by class action lawyers of the clients whom they purportedly represent had become rampant," such that abusive class-action litigation was injuring "the entire U.S. economy." Dabit , 547 U.S. at 81...