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Securities Litigation Uniform Standards Act (SLUSA)
Practical Law Glossary Item w-000-3649 (Approx. 3 pages)
Glossary
Securities Litigation Uniform Standards Act (SLUSA)
A federal law that amended portions of the Securities Act of 1933 and the Securities Exchange Act of 1934 to preclude certain class actions that allege fraud under state law. SLUSA was enacted in response to plaintiffs' attempts to circumvent the stringent pleading requirements of the Private Securities Litigation Reform Act (PSLRA) by pleading their securities fraud claims as violations of state, rather than federal, law (15 U.S.C. § 78bb(f)(1)) (see Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 78 (2006)). It provides for removal to federal court of most securities fraud class actions brought in state court.
SLUSA specifically prevents a private plaintiff from bringing a covered class action based on state law alleging a misrepresentation or omission of a material fact or any fraudulent activity in connection with a purchase or sale of a covered security. Covered class actions are generally the class actions that involve common questions or law or fact brought on behalf of more than 50 persons or actions brought on behalf of one or more unnamed parties.
Effectively, SLUSA makes federal court the exclusive venue for most securities fraud class actions.
In determining whether SLUSA applies, courts consider the relationship of:
- The transaction in covered securities to the alleged false conduct.
- The alleged false conduct to the state law theory of liability.
- The defendant to the alleged false conduct.
Plaintiffs may not evade SLUSA by:
- Camouflaging allegations that involve falsity in connection with transactions in covered securities as something else (for example, claims for breach of a contractual obligation for good faith and fair dealing).
- Omitting pertinent facts (for example, that a security was listed on a national exchange).