Tuesday, July 24, 2007

SLUSA Preempts Lenders' State Law Class Action Alleging Misrepresentations About Loans That Aren't ‘Covered Securities'

BNA's U.S. Law Week ( Vol. 76, No. 4) is reporting on U.S. Mortgage Inc. v. Saxton, 04-17494 (9th Cir. Jul. 13, 2007), a SLUSA preemption case. Here is their summary of the case:

The 1998 Securities Litigation Uniform Standards Act preempts lenders' state law class action against a real estate developer whose failed projects lost millions of dollars, the Ninth Circuit rules. The lenders argued that their claims were based on the developer's misrepresentations relating to their loans, not to SLUSA "covered securities," but the court says the state suit is barred under Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit.

Under Dabit, the alleged fraud need not be in connection with the plaintiff's purchase or sale of covered securities, but only "coincide" with anyone's purchase or sale, the court says. The developer's alleged misrepresentations relating to the plaintiffs' loans would have coincided with others' transactions in its publicly traded securities, and that suffices for SLUSA preemption.

Subscribers can read the full BNA report of the case by clicking here.


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