Rowinski v. Salomon Smith Barney, Inc., No. 3:02cv2014 (M.D. Pa. 11/20/2003)
| Decision Date | 20 November 2003 |
| Docket Number | No. 3:02cv2014.,3:02cv2014. |
| Parties | RYAN ROWINSKI, on behalf of himself and all others similarly situated, Plaintiff v. SALOMON SMITH BARNEY, INC., Defendant |
| Court | U.S. District Court — Middle District of Pennsylvania |
Before the court for disposition are the plaintiff's motion to remand to the Lacka wanna County Court of Common Pleas and the defendant's cross-motion to dismiss. The plaintiff is Ryan Rowinski, on behalf of himself and all others similarly situated, and the defendant is Salomon Smith Barney ("SSB"). For the following reasons, we will deny the plaintiff's motion to remand and grant the defendant's motion to dismiss.
SSB offers consumers, among other things, access to its research and analysis with regard to potential investments. Compl. ¶¶ 1, 11-19. SSB represents that this research and analysis is objective and designed for the benefit of consumers. Id. In return for providing access to its proprietary research, SSB charges consumers periodic fees, including annual account maintenance fees, and other fees that are captured as premiums in its other sales charges levied on consumers. Id. at 19.
SSB also provides investment banking services to companies. Compl. ¶¶ 20-21. SSB's investment banking business is far more lucrative than its retail brokerage business, which includes the sale of its research and analysis. Id.
Plaintiff alleges that SSB "failed to ensure that the analysis provided to its millions of retail brokerage customers would not be influenced by its investment banking operations." Compl. ¶ 24. Contrary to SSB's marketing and contractual obligations to its consumer clients, plaintiff alleges that SSB's research and analysis was not objective, but rather a tool for the benefit of its investment banking business. Id. As a result, plaintiff contends that SSB charged its consumer clients a premium for providing a valuable product: objective analysis, but it actually provided them with another, valueless product: biased research. Compl. ¶¶ 47-51.
On October, 9, 2002, Rowisnki filed a complaint in the Pennsylvania Court of Common Pleas, on behalf of himself and a class of SSB's retail consumers. Plaintiff claims that he, like other consumer clients, paid SSB for access to objective research and analysis, but did not get the benefit of his bargain. Compl. ¶¶ 1-3. The complaint contains three counts: Count I for Breach of Contract; Count n for Unjust Enrichment and Restitution; and Count III for Deceptive Consumer Practices under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201-1, et seq. On November 6, 2002, SSB removed the action to this Court, asserting that the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. § 78bb, preempts plaintiffs state law claims. On December 12, 2002, plaintiff moved to remand his complaint to the Lackawanna County Court of Common Pleas asserting that SLUSA does not preempt his claims and, as a result, this court lacks subject matter jurisdiction. On December 30, 2002, SSB filed its cross-motion to dismiss, bringing the case to its present posture.
Generally, a defendant can remove a civil action that was filed in state court if the federal court would have had original jurisdiction to address the matter. 28 U.S.C. § 1441. In the petition for removal, the defendant indicates that this court has jurisdiction under 15 U.S.C. § 78bb(f)(2) and 77p(c) and 28 U.S.C. § 1331 ()1
The jurisdiction of this court, therefore, is contingent upon SLUSA's preemption of plaintiff's state law claims. If we conclude that SLUSA preempts plaintiff's state law claims, then we have original jurisdiction to address this matter and will grant defendant's motion to dismiss. If, on the other hand, we conclude that SLUSA does not preempt plaintiffs state law claims, then plaintiffs motion to remand will be granted and SSB's motion to dismiss will be denied for lack of jurisdiction.
SLUSA provides that:
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).
Therefore, SLUSA only preempts a claim where four conditions are met: (1) the underlying suit is a "covered class action"; (2) the claim is based on state law; (3) the claim concerns a "covered security"; and (4) the plaintiff alleges "a misrepresentation or omission of material fact," or "a manipulative or deceptive device or contrivance, in connection with the purchase or sale of a covered security."2 Id.; see also Green v. Ameritrade, 279 F.3d 590, 596 (8th Cir. 2001); Haney v. Pacific Telesis Group, No. 01-C758, 2000 U.S. Dist. LEXIS 16218, at *57-58 (C.D. Cal. Sept. 19, 2000).
The parties do not dispute that the underlying suit is a class action or that the claims are based on state law. The real dispute between the parties is whether there was "a misrepresentation or omission of a material fact in connection with" the purchase or sale of a covered security.3
Plaintiff first contends that "there is no `misrepresentation or omission' that would provide the basis for SLUS A preemption. . . ." Plaintiffs Brief, p. 16. We disagree. Plaintiff accuses SSB of untrue, manipulative and deceptive misrepresentations and omissions in its analyst reports. See Compl. ¶ 2 (); Compl. ¶ 3 (); Compl. ¶ 25 (). See, e.g., Arauio v. John Hancock Life Ins. Co., 206 F. Supp.2d 377, 385 (E.D.N.Y. 2002) (); Korsinsky v. Salomon Smith Barney. Inc., No. 01-C6085, 2002 U.S. Dist. LEXIS 259, at *11 (S.D.N.Y. Jan. 10, 2002) (). Accordingly, we conclude that the plaintiff alleges a "misrepresentation or omission of material fact"
Plaintiff also contends that this alleged misconduct was not "in connection" with the purchase or sale of securities because the plaintiff does not allege that he was induced to purchase or sell securities. Plaintiff's Brief p. 10. We, once again, disagree. In interpreting SLUSA's "in connection with" language, courts look to cases interpreting virtually identical language under § 10(b) of the Securities Exchange Act of 1934 ("Section 10(b)"), 15 U.S.C. § 78(j)(b). See, e.g., Green, 279 F.3d at 597-98. The United States Supreme Court has cautioned that the "in connection with" language in section 10(b) "should be construed, `not technically and restrictively, but flexibly'" in order to include both typical and novel forms of fraud. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972). The "in connection with" requirement is satisfied, if the buyer or seller of a security suffers an injury as a result of "deceptive practices touching" on the purchase or sale of securities. Superintendent of Ins, of N.Y. v. Bankers Life & Casualty Co., 404 U.S. 6. 12-13 (1971). "It is enough that the scheme to defraud and the sale of securities coincide." SEC v. Zandford, 535 U.S. 813, 821 (2002).
Plaintiff asserts in his complaint that the alleged misconduct is not tied to the purchase of securities, only that he did not receive the type of information from SSB that he believed he had contracted for and for which he had paid an administrative fee. See Plaintiff's Reply, pp. 14-15. Plaintiff, however, is unable to escape the obvious connection between the alleged misrepresentations in SSB's analyst reports and the purchase and sale of securities. Although plaintiff is careful to avoid alleging that his stock purchase decisions were affected, plaintiff would not be concerned with the accuracy of SSB's analyst reports unless he intended to, and did, in fact, rely on them in deciding to purchase or sell stock.4
Moreover, the class that plaintiff seeks to represent are those who maintained SSB accounts and paid "commissions or fees" to SSB. Compl. ¶ 39. A commission is earned by SSB only when a customer purchases or sells securities. Defendant's Brief, p. 16. Because plaintiff's class includes those who paid commissions on the sale or purchase of securities, we conclude that his claims are "in connection with" the purchase or sale of securities. See, e.g., Behlen v. Merrill Lynch & Co., 311 F.3d 1087, 1094 (11th Cir. 2002) (); and McCullagh v. Merrill Lynch & Co., No. 01-C7322, 2002 U.S. Dist. LEXIS 3758, at *11 (S.D.N.Y. March 5, 2002) (...
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