Broker-Dealer Litigation - Greenberg Traurig LLP

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Northstar Fin. Advisors, Inc. v. Schwab Invs., 781 F. Supp. 2d 926 (N.D. Cal. 2011).
In a putative state law class action brought on behalf of investors in the Schwab Total
Bond Market Fund (the “Fund”), the district court granted in part and denied in part defendants’
motion to dismiss plaintiffs’ state law claims as precluded by the Securities Litigation Uniform
Standards Act of 1998 (“SLUSA”). Plaintiffs asserted various state law claims alleging that
defendants’ deviated from the Fund’s investment objective to track the Lehman Brothers U.S.
Aggregate Bond Index (the “Index”) by investing in high risk non-U.S. agency collateralized
mortgage obligations (“CMOs”) and over-concentrating the Fund’s assets in mortgage-backed
securities and CMOs. The court rejected plaintiffs’ argument that it did not allege
misrepresentations because all of plaintiffs’ claims were based on alleged reliance on the Fund’s
fundamental investment objectives and harm as a result of defendants’ alleged failure to follow
stated investment objectives. Thus, the gravamen of plaintiffs’ complaint alleged
misrepresentations for purposes of SLUSA preclusion. The court also found that the “in
connection with” requirement was met because plaintiffs’ claims coincided with the purchase or
sale of covered securities on the Index. Finally, the court found that SLUSA’s “Delaware Carve
Out” saved plaintiffs’ breach of fiduciary duty claim to the extent the claim was based on the law
of Massachusetts, where the Fund was organized. Accordingly, the court dismissed all of
plaintiffs’ claims precluded by SLUSA except for its breach of fiduciary duty claim and granted
leave to amend.
Tuttle v. Sky Bell Asset Mgmt., LLC, 2011 WL 208060 (N.D. Cal. Jan. 21, 2011).
The district court held that plaintiffs’ state law claims were not preempted under the
Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), but found jurisdiction under
the Class Action Fairness Act and denied plaintiffs’ motion to remand. Plaintiffs had amended
their original complaint to remove allegations of fraud and defendants argued that plaintiffs had
changed the language, but not the substance of their claims. The court held that plaintiffs’ state
law claims were not “predicated” upon a misrepresentation in connection with a securities
transaction and references to misrepresentations or omissions were simply “extraneous details.”
Accordingly, SLUSA did not apply. However, the court denied plaintiffs’ motion to remand
pursuant to the Class Action Fairness Act, but granted leave to amend.
Smit v. Charles Schwab & Co., 2011 WL 846697 (N.D. Cal. Mar. 8, 2011).
In a putative state law class action brought on behalf of Schwab Total Bond Fund
investors, the district court granted defendants’ motion to dismiss plaintiffs’ claims as precluded
by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). Plaintiffs alleged that
their investments declined in value because the fund deviated from its stated objective of
tracking the Lehman Brothers U.S. Aggregate Bond Index (the “Index”) by investing in high risk
non-U.S. agency Collateralized Mortgage Obligations (“CMOs”) and over-concentrating its
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