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The Seventh Circuit Has Its Say on SLUSA: Holtz v. JPMorgan Chase Bank N.A.
Posted on Categories Class Actions, Court DecisionsTags , ,

By James L. Komie

Where facts are alleged that include a misrepresentation or omission of material fact in connection with the purchase or sale of a security, SLUSA bars a class action alleging state law claims for breach of contract or breach of fiduciary duty, even where plaintiff does not rely on the misrepresentation or omission to prove its case.

Holtz vs. JPMorgan Chase Bank N.A., No. 13-2609 (7th Cir., 1/23/17).


Plaintiff purchased mutual funds through defendant JPMorgan Chase Bank (the “Bank”). After learning that the Bank gave its representatives special financial incentives to sell Bank-affiliated mutual funds, plaintiff filed a class action alleging that the Bank’s actions constituted a breach of contract and breach of fiduciary duty. The district court ruled that plaintiff’s suit was a covered class action under SLUSA and therefore subject to dismissal as preempted (SLA 2013-28).

SLUSA and Contracts

The 7th Circuit affirms on appeal. SLUSA bars plaintiffs from proceeding as a class on state law claims where the underlying facts involve “a misrepresentation or omission of material fact in connection with the purchase or sale of a covered security.” This does not bar “genuine contract claims,” such as a claim defendant breached a contractual provision by error or did so intentionally where the decision to breach was made after the contract was entered into. But a situation where “one party to a contract conceals the fact that it planned all along” to breach the contract or that it would favor its own interests over those of plaintiff is “a staple of federal securities law.”

The Facts Rule

Even if plaintiff does not intend to rely on proof the Bank misrepresented or failed to disclose its practice of rewarding employees to sell its own products, the fact that the Bank had that practice all along means that plaintiff’s case is subject to SLUSA preemption. In addition, the alleged wrongdoing is clearly “in connection with” the sale or purchase of a security, even though some of the investment decisions were made by investment advisers as plaintiff’s agents. Plaintiff is free to proceed as an individual on breach of contract and breach of fiduciary duty claims, but she may not maintain a class action for the same.

(J. Komie: This case and the decision in Goldberg v. Bank of America, N.A., issued the same day, represent the 7th Circuit’s attempt to stake out its position in the split among the circuits on SLUSA preemption. The dissent in Goldberg is more interesting than the per curiam majority opinion in that case. The dissent discusses the current circuit split and suggests that the Holtz Court has aligned the 7th Circuit with the 6th Circuit’s literalist approach and away from its own approach established by prior case law. The Goldberg dissent prefers the standard adopted by the 2nd, 3rd and 9th Circuits. Notably, both Holtz and Goldberg sat undecided by the 7th Circuit for more than three years, presumably waiting on the U.S. Supreme Court to take up the case.)

(SLC Ref. No. 2017-19-05)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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