Summary
In an opinion by Judge Sonia Sotomayor, the Second Circuit found that the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which was passed by Congress to address class action litigation abuses, only pre-empts state-law claims brought by buyers and sellers of stock, and did not pre-empt such claims if they were brought by “holders” of stock.
Analysis
This case is activist because Judge Sotomayor abuses precedent and contorts the text of SLUSA, siding with trial lawyers in a ruling that would permit claims that Congress legitimately prohibited. In the Supremacy Clause (Art. VI), the Constitution states that “the Laws of the United States . . . shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” Accordingly, when Congress is acting according to its legitimate, enumerated constitutional authority in passing a statute, it may choose to “preempt,” or displace conflicting state laws. Congress did just this in SLUSA, stating: “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.” Writing for a unanimous Supreme Court 547 U.S. 71 (2006), Justice Stevens reversed Judge Sotomayor’s decision, citing clear precedent demonstrating that the “holder” versus “buyer” distinction did not evade preemption: “[t]he requisite showing…is ‘deception in connection with the purchase or sale of any security, not deception of an identifiable purchaser or seller.’” He further remarks that “[a]ny ambiguity on [this] score had long been resolved by the time Congress enacted SLUSA” based upon numerous other cases interpreting that phrase. Accordingly, the unduly narrow interpretation employed by Judge Sotomayor served no purpose but to undermine the very goal of Congress in enacting SLUSA. The Supreme Court noted that “class actions brought by holders pose a special risk of vexatious litigation,” and that “[i]t would be odd, to say the least, if SLUSA exempted that particularly troublesome subset of class actions from its pre-emptive sweep.” This activism—allowing state class action suits expressly prohibited by Congress—was so misguided that it did not gain the sympathy of a single member of the Supreme Court.