Broker-Dealer Litigation - Greenberg Traurig LLP

E.
Backus v. Conn. Cmty. Bank, N.A., 2011 WL 2183984 (D. Conn. March 30, 2011).
In a consolidated state law action that was removed to federal court, the district court
denied plaintiffs’ motion for remand and granted defendant’s motion for judgment on the
pleadings because plaintiffs’ claims were precluded by the Securities Litigation Uniform
Standards Act of 1998 (“SLUSA”). Plaintiffs were a group of at least 51 customers of a
nationally chartered bank that had invested plaintiffs’ assets in the Madoff Ponzi scheme.
Plaintiffs brought various state law claims alleging that the bank had breached custodian
agreements and fiduciary duties owed to plaintiffs by misrepresenting that plaintiffs’ assets were
safe and fairly valued. Plaintiffs first argued that the action was not a “covered class action”
because sixteen of the plaintiffs had invested through four profit sharing plans and SLUSA’s
“entity exception” applied. The court rejected this argument because the sixteen members had
sued in their individual capacities and the four profit sharing plans were not plaintiffs in the
action. Relying on the plain language of the statute and Congressional intent that SLUSA should
apply broadly, the court further held that plaintiffs’ consent to consolidation was not required
under SLUSA for their claims to be precluded. Next, the court found that the “in connection
with” requirement was satisfied because plaintiffs’ relationship with the bank clearly
contemplated investments in covered securities and the bank’s alleged facilitation of the Madoff
Ponzi scheme sufficiently coincided with the purchase of covered securities. The court further
rejected plaintiffs’ argument that their claims did not involve “covered securities” because the
purported purchase and sale of covered securities through Madoff’s entities was an integral part
of the alleged misconduct. Finally, the court found that plaintiffs’ breach of contract and
negligence claims were based on the same alleged misconduct as plaintiffs’ fraud-based claims.
Accordingly, the court denied plaintiffs’ motion for remand and dismissed their all of their state
law claims as precluded by SLUSA.
Backus v. Conn. Cmty. Bank, N.A., 2011 WL 2119240 (D. Conn. May 27, 2011).
After the district court had dismissed plaintiffs’ state law class action as precluded by the
Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), the district court denied
defendant’s motion to permanently enjoin plaintiffs from filing individual actions in state court.
The court noted that SLUSA does not preempt any state law cause of action and its prior order
never barred plaintiffs from filing individual actions in state court. The court held that the filing
of individual actions is precisely what Congress intended by enacting SLUSA. Since none of the
pending state court actions sought damages on behalf of more than 50 persons, the court found
its order dismissing plaintiffs’ class action was not implicated. Finally, the court rejected
defendant’s argument that the individual state law actions were vexatious or harassing because
both parties would face the same costs and difficulties and plaintiffs’ counsel had notified
defendant that it intended to file the individual actions shortly after the court’s ruling but
defendant never objected. Accordingly, the court denied defendant’s motion for a permanent
injunction.
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